01—Abstract
Summary
Summary of the 10-K filed March 10, 1998. Cited figures are marked; the original filing is the authoritative source.
Corning Incorporated's 1997 Form 10-K shows a strong year driven by the Communications segment, particularly optical fiber and cable.
Consolidated net sales rose about 12% to $4.09 billiona (total revenues $4.13 billion), and income from continuing operations reached $439.8 million, or $1.85 per diluted share, up roughly 28% on a continuing-operations basis from 1996. Communications sales grew to $2.47 billion, with pre-tax income of $684.3 million, while Specialty Materials and Consumer Products made smaller contributions. Management is also investing heavily: 1997 capital spending was $774.8 million and about $750 million is planned for 1998, including new optical fiber capacity in Concord, North Carolina and high-purity fused silica capacity in South Carolina.
The balance sheet is more leveraged after the 1996 spin-off of Quest Diagnostics and Covance. Working capital fell to $406.9 millionb, the current ratio dropped to 1.4 from 1.8, and total loans payable rose to about $1.35 billion. Management guided to a more modest growth rate for 1998, citing volatility in Asian markets, which it expects to pressure pricing in optical fiber and Samsung-Corning earnings.
The most significant risk for investors is the Dow Corning breast implant litigation. Corning owns 50%c of Dow Corning, which has been in Chapter 11 since 1995. Corning fully reserved its investment in 1995 and recognizes no equity earnings from it.
Dow Corning's Second Amended Plan of Reorganization was filed February 17, 1998, but its outcome, and any impact on Corning, remains uncertain. Corning also faces a federal securities class action tied to the implant issue and has accrued about $20 milliond for environmental matters.
02—Key points
Key Highlights
- Net sales rose 12% to $4.09 billion in 1997, driven mainly by the Communications segment, where sales increased 25% to $2.47 billion.
- Net income was $439.8 million, or $1.85 per diluted share, versus $175.6 million in 1996 (which included discontinued-operations losses). Income from continuing operations rose about 28%.
- Capital spending reached $774.8 million in 1997 and is expected to be about $750 million in 1998, mainly for optical fiber, advanced materials, and display capacity.
- Working capital fell to $406.9 million from $611.2 million, the current ratio dropped to 1.4, and long-term debt was 36% of total capital, down from 42%.
- Management expects a more modest growth rate in 1998, with Asian market volatility pressuring Communications pricing and Samsung-Corning earnings.
- Corning owns 50% of Dow Corning, which remains in Chapter 11 over breast implant litigation. Corning fully reserved its investment in 1995 and the outcome of the Second Amended Plan is uncertain.
- The Consumer Products segment is being explored for divestiture, and its 1997 sales declined 12% to $601.1 million, though its pre-tax income rose to $57.0 million.
03—Questions
Frequently Asked Questions
What drove Corning's growth in 1997?
Growth came mainly from the Communications segment, especially opto-electronics. Strong worldwide demand for optical fiber and cable, driven by telecom network builds and upgrades in the U.S., China, and other developing markets, lifted sales and earnings. Photonic technologies and video components also contributed.
How significant is the Dow Corning breast implant exposure?
It is the largest contingent risk. Dow Corning, 50% owned by Corning, has been in Chapter 11 since May 1995, with roughly 19,000 implant lawsuits stayed against it. Corning has already fully reserved its investment, so it recognizes no equity earnings from Dow Corning. Corning has also been named in about 11,470 tort suits since 1991, many dismissed through summary judgments. Future developments in the reorganization plan could still affect Corning, but the filing says it is impossible to predict the outcome.
Is Corning's balance sheet getting weaker?
Liquidity tightened in 1997. Working capital fell to $406.9 million and the current ratio fell to 1.4 from 1.8, mainly because of higher short-term borrowings. Loans payable totaled about $1.35 billion. Corning still cited $799 million in available bank credit lines and up to $375 million of debt capacity under shelf registrations, and said it has sufficient financial flexibility.
What are the main capital investments and their timing?
Corning spent $774.8 million on capital projects in 1997 and plans about $750 million in 1998. Key projects include a roughly $250 million optical fiber expansion in Wilmington, North Carolina (completed in 1997), a new several-hundred-million-dollar optical fiber plant in Concord, North Carolina (due in 1999), and a new high-purity fused silica facility in South Carolina (production expected in the second quarter of 1998).
What is the outlook for 1998?
Management expects a more modest growth rate than 1997. Communications sales and earnings are expected to rise but much more slowly, as volume gains in optical fiber are offset by pricing pressure linked to weak Asian markets. Specialty Materials sales are expected to grow, and Consumer Products sales are expected to be slightly higher. Asian demand is the main risk across segments.
04—Continue