Why did Corning report a net loss in 1993 despite sales growth?

The loss came from $202.8 million of non-recurring charges, including a $170.5 million restructuring charge tied to the Damon and Costar integration, a $36.5 million MetPath settlement with the Department of Justice, and a $203.1 million reduction in equity earnings from Dow Corning's breast-implant charge. Before these items, consolidated earnings declined about 4%.

How significant is the breast-implant litigation to Corning investors?

It is a material risk to earnings volatility rather than a direct liability. Corning owns 50% of Dow Corning and records its share of charges through equity earnings, so additional Dow Corning charges could materially affect the quarter in which they are recognized. Corning says it does not expect a material adverse effect on overall financial condition, and it is not directly named in most implant suits.

What drove the increase in debt, and how will it be addressed?

Corning borrowed $600 million to finance the roughly $405 million Damon acquisition and the refinancing of about $167 million of Damon debt, and it issued $200 million of longer-term debt in September 1993. Management intends to retire a significant portion of the remaining $400 million of acquisition credit lines with equity proceeds, and it completed an 8 million share offering in February 1994.

Which business segments performed best and worst in 1993?

Communications was the strongest, with pre-tax income of $243.3 million on sales of $1,192.0 million, driven by optical fiber and cable demand. Laboratory Services had the largest sales ($1,319.5 million) but pre-tax income fell to $125.3 million from $203.1 million because of charges. Consumer Products was the weakest, posting a $35.4 million pre-tax loss amid poor retail conditions and the exit from Brazil.

What is the outlook for 1994?

Management expects modest earnings growth in Specialty Materials, improved performance in Communications despite pricing pressure in optical fiber, and improvement in Consumer Products from restructuring. Laboratory Services is expected to benefit from Damon synergies and cost reductions, offset by health-care pricing pressure. Dow Corning's sales and operating earnings are expected to improve in 1994.

GLW 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 18, 1994. Cited figures are marked; the original filing is the authoritative source.

Corning Inc.'s 10-K for fiscal 1993 (year ended January 2, 1994) shows a company in transition: sales rose 8% to $4,004.8 million^a, but the company posted a net loss of $15.2 million ($0.09 per share) because of $202.8 million in pre-tax non-recurring charges, a $203.1 million equity charge tied to Dow Corning's breast-implant liability, and a $9.5 million Vitro Corning restructuring charge.

Excluding special items, earnings from consolidated operations declined about 4%, pressured by weak Consumer Products results, cyclical Specialty Materials businesses in Europe, and higher interest expense from the Damon acquisition. The balance sheet grew substantially through acquisitions. Total assets rose to $5,231.7 million^b from $4,286.3 million, driven by roughly $405 million for Damon Corporation, $552 million of goodwill from that deal, and Costar via pooling.

Long-term debt rose to $1,585.6 million^c, and the ratio of long-term debt to total capital climbed to 45% from 28%. Management plans to retire a significant portion of the remaining acquisition debt with a 1994 equity offering, and it completed an 8 million share offering in February 1994 for about $233 million. The dominant investor risk is the breast-implant litigation involving Dow Corning, a 50%-owned equity affiliate.

Dow Corning took a $640 million^d pre-tax charge, and Corning's share flows through equity earnings, with potential further charges that could materially affect quarterly earnings. Corning also faces securities class actions, derivative suits, and a MetPath Medicare billing settlement of $39.8 million. Corning management says none of these is expected to have a material adverse effect on financial condition, though some outcomes could hit earnings in a specific quarter.

02—Key points

Key Highlights

Net sales rose 8% to $4,004.8 million, with about half of the growth from acquisitions; the Laboratory Services and Communications segments led growth.
Net loss of $15.2 million ($0.09 per share) versus a 1992 net loss of $12.6 million, reflecting $202.8 million of non-recurring charges.
Dow Corning breast-implant charge reduced Corning's equity earnings by $203.1 million; Dow Corning has also been named in about 11,800 lawsuits and faces a proposed $4.75 billion global settlement.
Total assets increased to $5,231.7 million, and long-term debt rose to $1,585.6 million; the long-term debt-to-total-capital ratio increased to 45% from 28%.
Communications segment income before taxes rose to $243.3 million on $1,192.0 million in sales, driven by optical fiber/cable and display growth.
Consumer Products posted a pre-tax loss of $35.4 million on $734.6 million in sales after $46.5 million of restructuring charges.
Dividends of $0.68 per share were declared in 1993, and the company completed an 8 million share offering in February 1994 (about $233 million) to help retire acquisition debt.

03—Questions

Frequently Asked Questions

Why did Corning report a net loss in 1993 despite sales growth?
The loss came from $202.8 million of non-recurring charges, including a $170.5 million restructuring charge tied to the Damon and Costar integration, a $36.5 million MetPath settlement with the Department of Justice, and a $203.1 million reduction in equity earnings from Dow Corning's breast-implant charge. Before these items, consolidated earnings declined about 4%.
How significant is the breast-implant litigation to Corning investors?
It is a material risk to earnings volatility rather than a direct liability. Corning owns 50% of Dow Corning and records its share of charges through equity earnings, so additional Dow Corning charges could materially affect the quarter in which they are recognized. Corning says it does not expect a material adverse effect on overall financial condition, and it is not directly named in most implant suits.
What drove the increase in debt, and how will it be addressed?
Corning borrowed $600 million to finance the roughly $405 million Damon acquisition and the refinancing of about $167 million of Damon debt, and it issued $200 million of longer-term debt in September 1993. Management intends to retire a significant portion of the remaining $400 million of acquisition credit lines with equity proceeds, and it completed an 8 million share offering in February 1994.
Which business segments performed best and worst in 1993?
Communications was the strongest, with pre-tax income of $243.3 million on sales of $1,192.0 million, driven by optical fiber and cable demand. Laboratory Services had the largest sales ($1,319.5 million) but pre-tax income fell to $125.3 million from $203.1 million because of charges. Consumer Products was the weakest, posting a $35.4 million pre-tax loss amid poor retail conditions and the exit from Brazil.
What is the outlook for 1994?
Management expects modest earnings growth in Specialty Materials, improved performance in Communications despite pricing pressure in optical fiber, and improvement in Consumer Products from restructuring. Laboratory Services is expected to benefit from Damon synergies and cost reductions, offset by health-care pricing pressure. Dow Corning's sales and operating earnings are expected to improve in 1994.

04—Continue

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