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) January 23, 2003
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.
Corning completed the divestiture of its precision lens business on December 13,
2002. This document includes schedules restating results for each quarter of
2002 with the precision lens business presented as a discontinued operation.
Concurrent with this press release, Corning introduced its Technologies
Operating Segment. Also included in this release is restated segment information
for prior quarters of 2002.
Item 7. Financial Statements and Exhibits.
Exhibits:
The Registrant's press release of January 23, 2003.
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: January 23, 2003 By /s/ KATHERINE A. ASBECK
------------------------------------
Katherine A. Asbeck
Senior Vice President and Controller
FOR RELEASE -- JANUARY 23, 2003
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 Fourth Quarter Results
$1.46 billion of charges in line with previous announcements
LCD glass shipments remain strong
CORNING, N.Y. -- Corning Incorporated (NYSE:GLW) today announced that its
fourth-quarter 2002 sales from continuing operations were $736 million and sales
from discontinued operations were $65 million. The company reported a loss from
continuing operations of $1.14 billion, or $0.96 per share, for the quarter.
This loss includes restructuring, impairment and other charges of $1.46 billion
($1.07 billion after-tax), or $0.90 per share, for the fourth quarter. In
addition, Corning recognized a pretax gain of $86 million ($53 million
after-tax), or $0.04 per share, on the repurchase of debt during the quarter.
Corning's fourth-quarter income from discontinued operations of $430 million, or
$0.36 per share, included the after-tax gain on the sale of its precision lens
business of $415 million, or $0.35 per share. In total, Corning's net loss for
the quarter was $709 million, or $0.60 per share.
James R. Houghton, chairman and chief executive officer, said, "We achieved our
goals for the fourth quarter. Our sales were in the range of our guidance for
the quarter. We completed a significant portion of our previously announced
restructuring actions and we bolstered our liquidity position with the sale of
our precision lens business. We believe that these actions are important
building blocks as we drive toward our goal of profitability in 2003."
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Corning Announces Fourth Quarter Results
Page Two
Previously Announced Charges
In the fourth quarter, Corning recorded restructuring and impairment charges
totaling $1.46 billion ($1.07 billion after-tax). This included:
.. Charges of $652 million ($536 million after-tax) related to restructuring
actions for: the permanent closure of Corning's optical fiber factories in
Australia and Germany; the mothballing of its optical fiber factory in
Concord, N.C.; the reductions in capacity and employment in the company's
cable, hardware and equipment and photonic technologies businesses; and the
impairment of Corning's portfolio of cost investments in the
telecommunications segment. The after-tax amount also included a $20
million reduction in equity earnings primarily related to restructuring and
impairment charges at Samsung Corning Micro-Optics Company Limited.
.. A charge of $409 million ($239 million after-tax and minority interest) to
impair plant and equipment in the company's conventional television tube
glass and photonic technologies businesses.
.. A goodwill impairment charge of $400 million ($294 million after-tax)
related to the telecommunications segment.
Fourth-quarter Operating Results
Sales from continuing operations were $736 million compared to the previous
quarter's sales of $762 million. Telecommunications segment sales were even with
the third quarter due to stronger-than-expected optical fiber shipments to
Japan. Optical fiber volume increased sequentially by approximately 6%. In the
Technologies segment, which combines the remainder of the Information Display
businesses and the Advanced Materials businesses, sales declined from the third
quarter primarily due to expected seasonal slowdowns in the environmental and
life sciences businesses and lower sales in the conventional television
business.
Corning's Display Technologies business achieved record shipments of liquid
crystal display glass with sequential volume gains of 6%. These volume increases
were offset by the impact of 4% price declines and foreign exchange rates
related to the Japanese yen. The company said that the dramatic increase in LCD
monitor sales, steady growth in notebook computer purchases and emerging
popularity of LCD-TV resulted in a 45% year-to-year increase in flat panel glass
volume shipments. Corning said it would continue to bring on additional LCD
manufacturing capacity in 2003 to meet anticipated market demand.
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Corning Announces Fourth Quarter Results
Page Three
Full-Year Results
Corning's 2002 sales from continuing operations were $3.16 billion. The year's
losses from continuing operations were $1.78 billion, or $1.85 per share. This
includes restructuring and impairment charges of $1.50 billion after-tax and
minority interest, or $1.45 per share, and a $0.12 per share reduction for
preferred dividends declared, offset by after-tax gains of $108 million from the
repurchase of debt. Income from discontinued operations was $478 million, or
$0.46 per share, and included the gain on sale of the precision lens business of
$415 million after-tax. In total, Corning's net loss attributable to common
shareholders for the year was $1.43 billion, or $1.39 per share.
2002 Liquidity
Corning ended the fourth quarter with $2.09 billion in cash and short-term
investments, up from $1.60 billion at the end of the third quarter. The increase
in cash balances quarter-to-quarter is primarily due to the net proceeds of
approximately $800 million from the sale of the precision lens business. Corning
used $125 million in cash during the fourth quarter to retire debt through open
market purchases.
Corning retired $788 million in short, and long-term debt in the past year and
raised net proceeds of $442 million in connection with the issuance of a 7.00%
mandatory convertible preferred stock offering. Corning ended the year with a
debt-to-capital ratio of 46.7%. Corning continues to have complete access to its
unused $2 billion revolving line of credit.
In January 2003, Corning used $158 million of cash to repurchase debt through
open-market purchase transactions.
Outlook
James B. Flaws, vice chairman and chief financial officer, said, "We are pleased
that 2002 is behind us. It was a difficult and disappointing year for Corning's
shareholders, our employees and the communities in which we operate. The
restructuring actions we took throughout the past year have brought our cost
structure in line with business expectations. These actions will help us achieve
our goal of being profitable in 2003. We will continue to strengthen our balance
sheet by reducing debt. We intend to invest in research and development in
support of existing growth businesses such as LCD, as well as emerging
opportunities including chemical processing and diesel emissions control."
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Corning Announces Fourth Quarter Results
Page Four
Flaws said the company will provide first-quarter 2003 financial guidance at its
annual investor conference at the Pierre Hotel in New York City on Friday,
February 7, 2003 and simultaneously via audio webcast. Investors will hear from
Houghton, Flaws, Corning's President and Chief Operating Officer Wendell P.
Weeks and Corning Technologies President Peter F. Volanakis. Additional
information on the conference can be found at the company's investor relations
site at www.corning.com.
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 in its
Telecommunications segment. Corning's Technologies segment manufactures
high-performance display glass, and products for the environmental, life
sciences, and semiconductor markets.
Conference Call Information
The company will host a conference call at 8:30 a.m. EST on Friday, January 24,
2003. To access the call, dial (630) 395-0023. The password is Earnings. 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 Thursday, February 6, 2003. To access the
replay, dial (402) 220-4612; a password is not required. A live audio webcast
will be available at www.corning.com/investor_relations/ 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 year ended
December 31, December 31,
-------------------------- -------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $ 736 $ 917 $ 3,164 $ 6,047
Cost of sales 631 896 2,562 4,227
--------- --------- --------- ---------
Gross margin 105 21 602 1,820
Operating expenses:
Selling, general and administrative expenses 183 296 716 1,090
Research, development and engineering expenses 113 145 483 622
Amortization of purchased intangibles 10 40 43 76
Amortization of goodwill 35 363
Restructuring, impairment and other charges 1,461 606 2,080 5,717
--------- --------- --------- ---------
Operating loss (1,662) (1,101) (2,720) (6,048)
Interest income 7 18 41 68
Interest expense (43) (48) (179) (153)
Gain on repurchases of debt 86 176
Other (expense) income, net (28) 1 (38) (28)
--------- --------- --------- ---------
Loss from continuing operations before income taxes (1,640) (1,130) (2,720) (6,161)
Benefit for income taxes (401) (411) (726) (468)
--------- --------- --------- ---------
Loss from continuing operations before
minority interests and equity earnings (1,239) (719) (1,994) (5,693)
Minority interests 81 24 98 13
Equity in earnings of associated companies,
net of impairments 19 29 116 148
--------- --------- --------- ---------
Loss from continuing operations (1,139) (666) (1,780) (5,532)
Income from discontinued operations,
net of income taxes 430 11 478 34
--------- --------- --------- ---------
Net loss (709) (655) (1,302) (5,498)
Dividend requirements of preferred stock (1) (128) (1)
--------- --------- --------- ---------
Loss attributable to common shareholders $ (709) $ (656) $ (1,430) $ (5,499)
========= ========= ========= =========
Basic and diluted (loss) earnings per
common share from:
Continuing operations $ (0.96) $ (0.71) $ (1.85) $ (5.93)
Discontinued operations 0.36 0.02 0.46 0.04
--------- --------- --------- ---------
Net loss per common share $ (0.60) $ (0.69) $ (1.39) $ (5.89)
========= ========= ========= =========
Shares used in computing per share amounts for
basic and diluted loss per common share 1,188 944 1,030 933
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions)
December 31, 2002 December 31, 2001
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 1,471 $ 1,037
Short-term investments, at fair value 619 1,182
----------- -----------
Total cash and short-term investments 2,090 2,219
Trade accounts receivable, net of doubtful accounts
and allowances - $59 and $60 470 593
Inventories 559 725
Deferred income taxes 296 347
Other current assets 410 223
----------- -----------
Total current assets 3,825 4,107
----------- -----------
Restricted cash and investments 82
Investments:
Associated companies, at equity 746 636
Others, at cost or fair value 23 142
----------- -----------
Total investments 769 778
----------- -----------
Property, net of accumulated depreciation - $3,375 and $3,101 3,705 5,097
Goodwill, net of accumulated amortization - $661 1,715 1,937
Other intangible assets, net of accumulated
amortization - $104 and $90 261 352
Deferred income taxes 887 313
Other assets 304 209
----------- -----------
Total Assets $ 11,548 $ 12,793
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Loans payable $ 204 $ 477
Accounts payable 339 441
Other accrued liabilities 1,137 1,076
----------- -----------
Total current liabilities 1,680 1,994
----------- -----------
Long-term debt 3,963 4,463
Postretirement benefits other than pensions 617 608
Pensions 455 92
Other liabilities 83 96
Commitments and contingencies
Minority interests 59 119
Series B Convertible preferred stock 7
Shareholders' equity:
Preferred stock - Par value $100.00 per share;
Shares authorized: 10 million
Series C mandatory convertible preferred stock -
Shares issued: 5.75 million; Shares outstanding: 1.55 million 155
Common stock - Par value $0.50 per share; Shares authorized:
3.8 billion; Shares issued: 1,267 million and 1,023 million 634 512
Additional paid-in capital 9,695 9,532
Accumulated deficit (4,921) (3,610)
Treasury stock, at cost: 70 million and 79 million (702) (827)
Accumulated other comprehensive loss (170) (193)
----------- -----------
Total shareholders' equity 4,691 5,414
----------- -----------
Total Liabilities and Shareholders' Equity $ 11,548 $ 12,793
=========== ===========
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 year ended
December 31,
-----------------------
2002 2001
---------- ---------
Cash Flows from Operating Activities:
Loss from continuing operations $ (1,780) $ (5,532)
Adjustments to reconcile loss from continuing operations
to net cash (used in) provided by operating activities:
Amortization of purchased intangibles 43 76
Amortization of goodwill 363
Depreciation 618 621
Restructuring, impairment and other charges 2,080 5,717
Inventory write-down 333
Gain on repurchases of debt (176)
Stock compensation charges 130
Equity in earnings of associated companies in excess of dividends received (25) (94)
Minority interests, net of dividends paid (98) (22)
Deferred tax benefit (624) (511)
Interest expense on convertible debentures 38 41
Tax benefit on stock options 27
Restructuring payments (276) (77)
Increases in restricted cash (53)
Changes in certain working capital items (43) 240
Other, net (28) 70
-------- -------
Net cash (used in) provided by operating activities (324) 1,382
-------- -------
Cash Flows from Investing Activities:
Capital expenditures (357) (1,741)
Acquisitions of businesses, net of cash acquired (56) (66)
Proceeds from sale or disposal of assets, net 92 67
Net increase in long-term investments and other long-term assets (31) (113)
Proceeds from sale of precision lens business, net 787
Short-term investments - acquisitions (2,177) (1,320)
Short-term investments - liquidations 2,742 853
Restricted investments - acquisitions (117)
Restricted investments - liquidations 88
Other, net (2) 4
-------- -------
Net cash provided by (used in) investing activities 969 (2,316)
-------- -------
Cash Flows from Financing Activities:
Net (decrease) increase in loans payable (490) 181
Proceeds from issuance of long-term debt 11 735
Repayments of long-term debt (325) (104)
Redemption of Series B preferred stock (7)
Proceeds from issuance of Series C preferred stock, net 557
Proceeds from issuance of common stock, net 52 247
Repurchases of common stock (23)
Redemption of common stock for income tax withholding (1) (42)
Cash dividends paid to preferred and common shareholders (88) (113)
-------- -------
Net cash (used in) provided by financing activities (314) 904
-------- -------
Effect of exchange rates on cash 43 (7)
-------- -------
Cash provided by (used in) continuing operations 374 (37)
Cash provided by (used in) discontinued operations 60 (5)
-------- -------
Net increase (decrease) in cash and cash equivalents 434 (42)
Cash and cash equivalents at beginning of year 1,037 1,079
-------- -------
Cash and cash equivalents at end of year $ 1,471 $ 1,037
======== =======
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter 4, 2002
(Unaudited)
1. Discontinued Operations
On December 13, 2002, Corning completed the sale of its precision lens business
based in Cincinnati, OH to 3M Company. The cash proceeds from the sale
approximated $800 million and the gain on the sale is approximately $415
million, net of tax. Also, in 2003 Corning could receive approximately $50
million of additional proceeds related to this transaction.
The precision lens business is accounted for as a discontinued operation and
therefore, its results of operations and cash flows have been removed from
Corning's results of continuing operations for all periods presented.
Summarized selected financial information related to the precision lens business
is as follows:
(Dollars in millions)
For the For the
three months ended year ended
December 31, December 31,
---------------------- --------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 65 $ 57 $ 268 $ 225
========= ========= ======== =========
Income (loss) before taxes $ 26 $ (1) $ 100 $ 50
Gain on sale before taxes 652 652
Income tax expense (benefit) 248 (12) 274 16
--------- --------- -------- ---------
Net income $ 430 $ 11 $ 478 $ 34
========= ========= ======== =========
2. Restructuring Actions
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 required further restructuring to bring capacity in
line with current revenues. The fourth quarter actions included:
.. closings of two fiber manufacturing facilities and the mothballing of
another,
.. reductions in capacity and employment in Corning's cabling and hardware and
equipment locations worldwide, and
.. permanent closure of the photonic technologies thin film filter
manufacturing facility in Marlborough, MA.
In addition, Corning decided to divest its portfolio of cost investments in
private telecommunications related businesses.
As a result of these actions, Corning recorded a charge of $652 million ($516
million after-tax) impacting approximately 2,500 employees which included a
restructuring charge of $190 million, a charge to impair plant and equipment of
$415 million and a $47 million write-down of cost investments. Approximately one
quarter of this charge is expected to be paid in cash. Corning recorded $1,271
million ($929 million after-tax and minority interest) for restructuring actions
for the full year.
Restructuring Charges
---------------------
During the fourth quarter, Corning recorded restructuring charges of $190
million. The charge included employee separation costs of $137 million
(including curtailment losses related to pension and health care plans) and exit
costs of $62 million offset by a $9 million reduction in the 2001 restructuring
reserves. During the fourth quarter Corning paid employee related separation
costs of $78 million and other exit costs of $5 million. For the full year
Corning recorded charges of $376 million for employee separation costs and $85
million of exit costs offset by a $14 million reduction in reserves from the
2001 Restructuring Actions. As of December 31, 2002, approximately 5,100 of the
7,100 employees had been separated under the plans.
Impairment of Plant and Equipment
---------------------------------
Corning recorded $421 million in the fourth quarter to impair plant and
equipment relating to facilities to be shutdown or disposed, offset by a $6
million reduction in the impairments resulting from the 2001 Restructuring
Actions. For the full year, Corning recorded $712 million for impairment charges
related to plant and equipment, offset by an $11 million reduction in
impairments related to 2001 Restructuring Actions.
3. Impairment of Long-Lived Assets Other Than Goodwill
Photonic Technologies Business
The photonic technologies business is a manufacturer of photonic modules and
components for the worldwide telecommunications industry and is reported in the
Telecommunications Segment. The telecommunications market is undergoing a
dramatic decline in demand for telecommunication products as major buyers of
network equipment in this industry have reduced their capital spending plans
over the past two years and are expected to continue in the near future. This
negative trend is expected to continue into the foreseeable future. Corning
continues to evaluate strategic alternatives for this business.
In the fourth quarter, Corning determined that a test for impairment of
long-lived assets in this business was appropriate and that the carrying value
of the long-lived assets of this business are not recoverable. As a result,
Corning recorded a $269 million ($195 million after-tax) write-down of the
assets, which was reflected in the line item "Restructuring, impairment and
other charges" in the income statement.
Conventional Video Components Business
Corning Asahi Video Products Company, a 51% owned consolidated subsidiary,
(conventional video components business) is a manufacturer of glass panels and
funnels for use in conventional tube televisions and is reported in the
Technologies Segment. The conventional tube television segment of the market in
North America is very mature and the conventional tube market is undergoing
intense competition and price pressure at this time.
This market trend combined with cash losses in this business in the short-term
indicated an evaluation for the recoverability of the long-lived assets of the
business was required and management determined that the long-lived assets of
the business have been impaired. This evaluation resulted in a $140 million ($44
million after-tax and minority interest) write-down of the assets, which was
reflected in the line item "Restructuring, impairment and other charges" in the
income statement.
4. Impairment of Goodwill
Corning adopted Statement of Financial Accounting Standards (SFAS) No. 142,
which requires that goodwill be reviewed for impairment upon adoption of SFAS
No. 142 (January 1, 2002) and annually thereafter. Corning performed an initial
benchmark assessment upon adoption at January 1, 2002, and determined that a
transition charge was not required. Corning chose the fourth quarter to conduct
its annual test for impairment.
Upon completion of the annual assessment, Corning recorded an impairment charge
of $400 million ($294 million after-tax) to reduce the carrying value of
goodwill in the telecommunications reporting unit to its estimated fair value of
$1.6 billion. The impairment charge is non-cash in nature.
5. Gain on Repurchases of Debt
During the fourth quarter of 2002, Corning repurchased and retired a portion of
its zero coupon convertible debentures with an accreted value of $215 million in
exchange for cash of $125 million in a series of open-market repurchases.
Corning recorded a gain of $86 million ($53 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 $493 million in exchange for cash of $308 million for the year
ended December 31, 2002. Corning has recorded gains of $176 million ($108
million after-tax) on these transactions for the year ended December 31, 2002.
Through January 23, 2003, Corning spent $158 million of cash to repurchase and
retire additional zero-coupon convertible debentures.
6. Income Taxes
Corning's effective income tax benefit rate for the three and twelve month
periods ended December 31, 2002, was 24.4% and 26.7%, respectively. The income
tax benefit rate in the fourth quarter and the year end 2002 was impacted by
restructuring, impairment and other charges and the gain on repurchases of debt.
The effective income tax benefit rate without consideration of these items for
the fourth quarter and the year end 2002 was 33.9% and 30.0%. The effective
income tax benefit rate in the fourth quarter and the year ended is lower than
the U.S. federal statutory income tax rate of 35% due to the impact of
nondeductible expenses and losses.
The effective income tax benefit rate for the three and twelve months ended
December 31, 2001, was 36.4% and 7.6%. The effective income tax benefit rate for
the full year is much lower than the U.S. federal statutory income tax rate
primarily due to non-tax deductible impairment and amortization of acquired
intangibles and goodwill.
7. Equity in Earnings of Associated Companies
Equity earnings in the fourth quarter included charges of $20 million primarily
due to an equity investee incurring restructuring and impairment charges. Equity
earnings for the full year included $34 million of impairments as Corning
impaired an international cabling venture for $14 million in the second quarter.
These charges are included in the results of the Telecommunications Segment.
8. Supplementary Statement of Cash Flows Data
Supplemental disclosure of cash flow information is as follows (in millions):
For the year ended
December 31,
--------------------
2002 2001
-------- --------
Changes in certain working capital items:
Trade accounts receivable $ 153 $ 666
Inventories 135 (47)
Other current assets (171) 92
Accounts payable and other current liabilities,
net of restructuring payments (160) (471)
-------- --------
Total $ (43) $ 240
======== ========
9. Operating Segments
Corning previously grouped its products into three operating segments:
Telecommunications, Advanced Materials and Information Display. Beginning in the
fourth quarter of 2002, Corning's reportable segments consist of the following:
Telecommunications and Technologies. As a result of the fourth quarter sale of
the precision lens business and the reduced significance of the conventional
video components business, management realigned the remainder of the Information
Display Segment with the businesses previously reported in the Advanced
Materials Segment to create the Technologies Segment. The precision lens
business is reported as a discontinued operation and therefore its results have
been excluded from segment reporting. Also, 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 and
acquisition-related charges by segment but excluded this from quantitative
segment results. These charges have now been included in the segment net income
and historical periods have been conformed to this presentation. Corning also
includes the earnings of equity affiliates that are closely associated with
Corning's operating segments in segment net income. Segment amounts exclude
revenues, expenses and equity earnings not specifically identifiable to
segments.
Corning prepared the financial results for its 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 certain common expenses among segments
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.
($ in millions)
For the For the
three months ended year ended
December 31, December 31,
---------------------- ----------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Telecommunications
Net sales $ 363 $ 543 $ 1,631 $ 4,458
Research, development and engineering expenses $ 65 $ 108 $ 308 $ 474
Restructuring, impairment and other charges (related
tax benefit, $299, $119, $452, $282, respectively) $ 1,263 $ 293 $ 1,722 $ 5,404
Interest expense $ 15 $ 32 $ 99 $ 104
Income tax benefit $ (376) $ (249) $ (722) $ (336)
Segment loss before minority interests and equity earnings $ (1,123) $ (451) $ (1,838) $ (5,215)
Minority interests 1 1
Equity in (losses) earnings of associated companies,
net of impairments (a) (34) (3) (60) 12
--------- -------- --------- ---------
Segment net loss $ (1,156) $ (454) $ (1,897) $ (5,203)
========= ======== ========= =========
Technologies
Net sales $ 367 $ 367 $ 1,513 $ 1,568
Research, development and engineering expenses $ 50 $ 40 $ 177 $ 151
Restructuring, impairment and other charges (related
tax benefit, $27, $48, $30, $48, respectively) $ 141 $ 122 $ 150 $ 122
Interest expense $ 19 $ 15 $ 71 $ 48
Income tax benefit $ (33) $ (53) $ (28) $ (38)
Segment loss before minority interests and equity earnings $ (132) $ (126) $ (145) $ (53)
Minority interests (includes $68, $0, $70, $0, respectively,
related to impairment and restructuring charges) 80 24 96 13
Equity in earnings of associated companies 51 32 168 132
--------- -------- --------- ---------
Segment net (loss) income $ (1) $ (70) $ 119 $ 92
========= ======== ========= =========
Total Segments
Net sales $ 730 $ 910 $ 3,144 $ 6,026
Research, development and engineering expenses $ 115 $ 148 $ 485 $ 625
Restructuring, impairment and other charges (related
tax benefit, $326, $167, $482, $330, respectively) $ 1,404 $ 415 $ 1,872 $ 5,526
Interest expense $ 34 $ 47 $ 170 $ 152
Income tax benefit $ (409) $ (302) $ (750) $ (374)
Segment loss before minority interests and equity earnings $ (1,255) $ (577) $ (1,983) $ (5,268)
Minority interests 81 24 97 13
Equity in earnings of associated companies, net of
impairments (a) 17 29 108 144
--------- -------- --------- ---------
Segment net loss $ (1,157) $ (524) $ (1,778) $ (5,111)
========= ======== ========= =========
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):
For the For the
three months ended year ended
December 31, December 31,
---------------------- ----------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Net Sales
Total segment net sales $ 730 $ 910 $ 3,144 $ 6,026
Non-segment net sales (b) 6 7 20 21
--------- -------- --------- ---------
Total net sales $ 736 $ 917 $ 3,164 $ 6,047
========= ======== ========= =========
Loss from Continuing Operations
Total segment net loss (c) $ (1,157) $ (524) $ (1,778) $ (5,111)
Unallocated items:
Non-segment income (loss) and other (b) (12) (43) 4 (33)
Amortization of goodwill (d) (35) (363)
Non-segment restructuring, impairment and
other charges (e) (57) (191) (208) (191)
Interest income (f) 7 18 41 68
Gain on repurchases of debt (f) 86 176
Income tax (expense) benefit (g) (8) 109 (24) 94
Minority interests 1
Equity in earnings of associated companies (b) 2 8 4
--------- -------- --------- ---------
Loss from continuing operations $ (1,139) $ (666) $ (1,780) $ (5,532)
========= ======== ========= =========
(a) Equity losses in 2002 include $20 million of charges primarily related to
restructuring and impairments recorded in the fourth quarter. See Note 7.
(b) Includes amounts derived from corporate investments and activities.
(c) Includes royalty, interest and dividend income.
(d) Amortization of goodwill relates primarily to the Telecommunications
Segment.
(e) Amount includes special termination benefits and pension and postretirement
benefit curtailment charges of $5 million and $40 million recorded in the
fourth quarter and full year of 2002, respectively. The balance of the
charge relates to restructuring and impairment charges in the corporate
research and administrative staff organizations.
(f) Corporate interest income and gain on repurchases of debt is not allocated
to reportable segments.
(g) Includes tax associated with unallocated items.
10. Accounting Change
In June 2001, the Financial Accounting Standards Board issued 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. See
Note 4 for the results of the impairment test. The goodwill related to the
Telecommunications Segment is $1.6 billion at December 31, 2002.
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
months ended year ended
(In millions, except per share amounts) December 31, 2001 December 31, 2001
--------------------------------------------------------------------------------------------------------------------
Reported net loss $ (655) $ (5,498)
Addback: Amortization of goodwill, net of income taxes 31 345
--------- ---------
Adjusted net loss $ (624) $ (5,153)
========= =========
Reported loss per share - basic and diluted $ (0.69) $ (5.89)
Addback: Amortization of goodwill, net of income taxes 0.03 0.37
--------- ---------
Adjusted loss per share - basic $ (0.66) $ (5.52)
========= =========
11. Reclassifications
Certain amounts in 2001 have been reclassified to conform with 2002
classifications.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
RESTATED FOR PRESENTATION OF PRECISION LENS AS A DISCONTINUED OPERATION
(Unaudited; in millions, except per share amounts)
For the three For the three For the three For the nine
months ended months ended months ended months ended
March 31, June 30, Sept. 30, Sept. 30,
2002 2002 2002 2002
------------- ------------- ------------- ------------
Net sales $ 839 $ 827 $ 762 $ 2,428
Cost of sales 655 643 633 1,931
--------- --------- --------- ---------
Gross margin 184 184 129 497
Operating expenses:
Selling, general and administrative expenses 188 188 157 533
Research, development and engineering expenses 126 131 113 370
Amortization of purchased intangibles 11 11 11 33
Restructuring, impairment and other charges 494 125 619
--------- --------- --------- ---------
Operating loss (141) (640) (277) (1,058)
Interest income 14 10 10 34
Interest expense (48) (44) (44) (136)
Gain on repurchases of debt 68 22 90
Other expense, net (9) (1) (10)
--------- --------- --------- ---------
Loss from continuing operations before income taxes (184) (606) (290) (1,080)
Income tax benefit (50) (184) (91) (325)
--------- --------- --------- ---------
Loss from continuing operations before minority (134) (422) (199) (755)
interests and equity earnings
Minority interests 6 6 5 17
Equity in earnings of associated companies, net of
impairments 30 25 42 97
--------- --------- --------- ---------
Loss from continuing operations (98) (391) (152) (641)
Income from discontinued operations, net of
income taxes 8 21 19 48
--------- --------- --------- ---------
Net loss (90) (370) (133) (593)
Dividend requirements of preferred stock (128) (128)
--------- --------- --------- ---------
Loss attributable to common shareholders $ (90) $ (370) $ (261) $ (721)
========= ========= ========= =========
Basic and diluted (loss) earnings per common share
Continuing operations $ (0.10) $ (0.41) $ (0.27) $ (0.79)
Discontinued operations 0.02 0.02 0.05
--------- --------- --------- ---------
Net loss per common share $ (0.10) $ (0.39) $ (0.25) $ (0.74)
========= ========= ========= =========
Shares used in computing per share amounts for
basic and diluted loss per common share 945 948 1,036 977
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
OPERATING SEGMENTS
RESTATED FOR NEW SEGMENT AND DISCONTINUED OPERATIONS PRESENTATION
(Unaudited, in millions)
For the three For the three For the three For the nine
months ended months ended months ended months ended
March 31, June 30, Sept. 30, Sept. 30,
2002 2002 2002 2002
------------- ------------- ------------- ------------
Telecommunications
Net sales $ 465 $ 437 $ 366 $ 1,268
Research, development and engineering expenses $ 86 $ 86 $ 71 $ 243
Restructuring, impairment and other charges
(related tax benefit, $0, $125, $28 and $153,
respectively) $ 369 $ 90 $ 459
Interest expense $ 32 $ 25 $ 27 $ 84
Income tax benefit $ (64) $ (191) $ (91) $ (346)
Segment loss before equity earnings $ (138) $ (384) $ (193) $ (715)
Equity in losses of associated companies (4) (17) (5) (26)
--------- --------- --------- ---------
Segment net loss $ (142) $ (401) $ (198) $ (741)
========= ========= ========= =========
Technologies
Net sales $ 369 $ 385 $ 392 $ 1,146
Research, development and engineering expenses $ 40 $ 45 $ 42 $ 127
Restructuring, impairment and other charges
(related tax benefit, $0, $1, $2 and $3,
respectively) $ 3 $ 6 $ 9
Interest expense $ 16 $ 17 $ 19 $ 52
Income tax (benefit) expense $ (1) $ 5 $ 1 $ 5
Segment loss before minority interests and
equity earnings $ (4) $ (4) $ (5) $ (13)
Minority interests 6 5 5 16
Equity in earnings of associated companies 33 41 43 117
--------- --------- --------- ---------
Segment net income $ 35 $ 42 $ 43 $ 120
========= ========= ========= =========
Total Segments
Net sales $ 834 $ 822 $ 758 $ 2,414
Research, development and engineering expenses $ 126 $ 131 $ 113 $ 370
Restructuring, impairment and other charges
(related tax benefit, $0, $126, $30 and $156,
respectively) $ 372 $ 96 $ 468
Interest expense $ 48 $ 42 $ 46 $ 136
Income tax benefit $ (65) $ (186) $ (90) $ (341)
Segment loss before minority interests and
equity earnings $ (142) $ (388) $ (198) $ (728)
Minority interests 6 5 5 16
Equity in earnings of associated companies 29 24 38 91
--------- --------- --------- ---------
Segment net loss $ (107) $ (359) $ (155) $ (621)
========= ========= ========= =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
OPERATING SEGMENTS
RESTATED FOR NEW SEGMENT AND DISCONTINUED OPERATIONS PRESENTATION
(Unaudited, in millions)
For the three For the three For the three For the nine
months ended months ended months ended months ended
March 31, June 30, Sept. 30, Sept. 30,
2002 2002 2002 2002
------------- ------------- ------------- ------------
Reconciliation:
Net sales
Total segment net sales $ 834 $ 822 $ 758 $ 2,414
Non-segment net sales 5 5 4 14
--------- --------- --------- ---------
Total net sales $ 839 $ 827 $ 762 $ 2,428
========= ========= ========= =========
Loss from Continuing Operations
Total segment loss $ (107) $ (359) $ (155) $ (621)
Unallocated items:
Non-segment income (loss) and other 9 12 (5) 16
Non-segment restructuring, impairment
and other charges (122) (29) (151)
Interest income 14 10 10 34
Gain on repurchases of debt 68 22 90
Income tax (expense) benefit (15) (2) 1 (16)
Minority interests 1 1
Equity in earnings of associated companies 1 1 4 6
--------- --------- --------- ---------
Loss from continuing operations $ (98) $ (391) $ (152) $ (641)
========= ========= ========= =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SEGMENT SALES INFORMATION
(Unaudited; in millions)
2002
-------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
-------- -------- ------- ------- --------
Telecommunications
Fiber and cable $ 255 $ 212 $ 195 $ 197 $ 859
Hardware and equipment 135 153 136 128 552
Photonic technologies (a) 36 39 17 19 111
Controls and connectors 39 33 18 19 109
-------- -------- ------- ------- --------
Segment net sales $ 465 $ 437 $ 366 $ 363 $ 1,631
======== ======== ======= ======= ========
Technologies
Display technologies $ 93 $ 102 $ 106 $ 104 $ 405
Environmental 94 102 102 96 394
Life sciences 70 74 71 65 280
Conventional video components 43 41 47 35 166
Other technologies businesses 69 66 66 67 268
-------- -------- ------- ------- --------
Segment net sales $ 369 $ 385 $ 392 $ 367 $ 1,513
======== ======== ======= ======= ========
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
======== ======== ======= ======= ========
Technologies
Display technologies $ 62 $ 87 $ 79 $ 95 $ 323
Environmental 108 96 90 85 379
Life sciences 70 69 65 63 267
Conventional video components 86 73 47 46 252
Other technologies businesses 104 86 79 78 347
-------- -------- ------- ------- --------
Segment net sales $ 430 $ 411 $ 360 $ 367 $ 1,568
======== ======== ======= ======= ========
(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)
Q4 '02 vs. Q3 `02
For the three months ended
December 31, September 30,
2002 2002
------------ -------------
Net sales $ 736 $ 762
Cost of sales 631 633
--------- ---------
Gross margin 105 129
Operating expenses:
Selling, general and administrative expenses 183 157
Research, development and engineering expenses 113 113
Amortization of purchased intangibles 10 11
Restructuring, impairment and other charges 1,461 125
--------- ---------
Operating loss (1,662) (277)
Interest income 7 10
Interest expense (43) (44)
Gain on repurchases of debt 86 22
Other expense, net (28) (1)
--------- ---------
Loss from continuing operations before income taxes (1,640) (290)
Benefit for income taxes (401) (91)
--------- ---------
Loss from continuing operations before minority interests
and equity earnings (1,239) (199)
Minority interests 81 5
Equity in earnings of associated companies, net of impairments 19 42
--------- ---------
Loss from continuing operations (1,139) (152)
Income from discontinued operations, net of income taxes 430 19
--------- ---------
Net loss (709) (133)
Dividend requirements of preferred stock (128)
--------- ---------
Net loss attributable to common shareholders $ (709) $ (261)
========= =========
Basic and diluted loss per common share
Continuing operations (0.96) (0.27)
Discontinued operations 0.36 0.02
--------- ---------
Net loss per common share $ (0.60) $ (0.25)
========= =========
Shares used in computing per share amounts for
basic and diluted loss per common share 1,188 1,036
========= =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions)
Q4 '02 vs. Q3 `02
December 31, September 30,
2002 2002
------------ -------------
Assets
Current assets:
Cash and cash equivalents $ 1,471 $ 983
Short-term investments, at fair value 619 618
--------- ---------
Total cash and short-term investments 2,090 1,601
Trade accounts receivable, net of doubtful accounts and allowances - $59 and $48 470 541
Inventories 559 619
Deferred income taxes 296 380
Other current assets 410 374
--------- ---------
Total current assets 3,825 3,515
--------- ---------
Restricted cash and investments 82 70
Investments:
Associated companies, at equity 746 696
Others, at cost or fair value 23 74
--------- ---------
Total investments 769 770
--------- ---------
Property, net of accumulated depreciation - $3,375 and $3,405 3,705 4,592
Goodwill, net of accumulated amortization - $661 1,715 2,113
Other intangible assets, net of accumulated amortization - $104 and $120 261 378
Deferred income taxes 887 478
Other assets 304 266
--------- ---------
Total Assets $ 11,548 $ 12,182
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Loans payable $ 204 $ 213
Accounts payable 339 286
Other accrued liabilities 1,137 976
--------- ---------
Total current liabilities 1,680 1,475
Long-term debt 3,963 4,173
Postretirement benefits other than pensions 617 618
Pensions 455 287
Other liabilities 83 94
Commitments and contingencies
Minority interests 59 138
Series B convertible preferred stock
Shareholders' equity:
Preferred stock - Par value $100.00 per share; Shares authorized: 10 million
Series C mandatory convertible preferred stock - Shares issued: 5.75 million;
Shares outstanding: 1.55 million and 2.45 million 155 245
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,267 million and 1,222 million 634 611
Additional paid in capital 9,695 9,620
Accumulated deficit (4,921) (4,212)
Cost of 70 million and 74 million shares of common stock in treasury (702) (736)
Accumulated other comprehensive loss (170) (131)
--------- ---------
Total shareholders' equity 4,691 5,397
--------- ---------
Total Liabilities and Shareholders' Equity $ 11,548 $ 12,182
========= =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Q4 '02 vs. Q3 `02
For the three months ended
December 31, September 30,
2002 2002
---------------- ---------------
Cash Flows from Operating Activities:
Loss from continuing operations $(1,139) $ (153)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Amortization of purchased intangibles 10 11
Depreciation 147 154
Restructuring, impairment and other charges 1,461 125
Gain on repurchases of debt (86) (22)
Equity in earnings of associated companies
in excess of dividends received (21) (32)
Minority interests, net of dividends paid (81) (5)
Deferred tax benefit (479) (20)
Interest expense on convertible debentures 8 9
Restructuring payments (83) (77)
Increases in restricted cash (33) (20)
Changes in certain working capital items 148 (4)
Other, net 45 5
------- --------
Net cash used in operating activities (103) (29)
------- --------
Cash Flows from Investing Activities:
Capital expenditures (78) (69)
Acquisitions of businesses, net of cash acquired (27) (29)
Proceeds from sale or disposal of assets, net 30 26
Net increase in long-term investments and other
long-term assets (13) (9)
Proceeds from sale of precision lens business, net 787
Short-term investments - acquisitions (620) (710)
Short-term investments - liquidations 619 475
Restricted investments - acquisitions (117)
Restricted investments - liquidations 21 67
------- --------
Net cash provided by (used in) investing activities 719 (366)
------- --------
Cash Flows from Financing Activities:
Net increase (decrease) in loans payable 12 (28)
Repayments of long-term debt (135) (35)
Redemption of Series B preferred stock (7)
Proceeds from issuance of Series C preferred stock, net (1) 558
Proceeds from issuance of common stock, net 5 14
Redemption of common stock for income tax withholding (1)
Repurchases of common stock (23)
Cash dividends paid to preferred shareholders (21) (67)
------- --------
Net cash (used in) provided by financing activities (140) 411
------- --------
Effect of exchange rate changes on cash and cash equivalents 20
------- --------
Cash provided by continuing operations 496 16
Cash (used in) provided by discontinued operations (8) 27
------- --------
Net increase in cash and cash equivalents 488 43
Cash and cash equivalents at beginning of period 983 940
------- --------
Cash and cash equivalents at end of period $ 1,471 $ 983
======= ========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
OPERATING SEGMENTS
(Unaudited; in millions)
Q4 '02 vs. Q3 `02
For the For the
three months ended three months ended
December 31, 2002 September 30, 2002
---------------------- ----------------------
Telecommunications
Net sales $ 363 $ 366
Research, development and engineering expenses $ 65 $ 71
Restructuring, impairment and other charges (related tax
benefit, $299, $28, respectively) $ 1,263 $ 90
Interest expense $ 15 $ 27
Income tax benefit $ (376) $ (91)
Segment loss before minority interests and equity losses $ (1,123) $ (193)
Minority interests 1
Equity in losses of associated companies, net of impairments (34) (5)
--------- --------
Segment net loss $ (1,156) $ (198)
========= ========
Technologies
Net sales $ 367 $ 392
Research, development and engineering expenses $ 50 $ 42
Restructuring, impairment and other charges (related tax
benefit, $27, $2, respectively) $ 141 $ 6
Interest expense $ 19 $ 19
Income tax (benefit) expense $ (33) $ 1
Segment loss before minority interests and equity earnings $ (132) $ (5)
Minority interests (includes $68, $2 related to impairment
and restructuring charges) 80 5
Equity in earnings of associated companies 51 43
--------- --------
Segment net (loss) income $ (1) $ 43
========= ========
Total Segments
Net sales $ 730 $ 758
Research, development and engineering expenses $ 115 $ 113
Restructuring, impairment and other charges (related tax
benefit, $326, $30, respectively) $ 1,404 $ 96
Interest expense $ 34 $ 46
Income tax benefit $ (409) $ (90)
Segment loss before minority interests and equity earnings $ (1,255) $ (198)
Minority interests 81 5
Equity in earnings of associated companies, net of impairments 17 38
--------- --------
Segment net loss $ (1,157) $ (155)
========= ========