01—Abstract
Summary
Summary of the 10-K/A filed March 8, 2000. Cited figures are marked; the original filing is the authoritative source.
Corning Incorporated's amended FY1999 Form 10-K/A (filed March 8, 2000) presents results restated to include Oak Industries, which was merged in a pooling of interests on January 28, 2000.
On a restated basis, 1999 net sales rose 24% to $4.74 billiona, income from continuing operations increased 44% to $511.0 million, and diluted EPS from continuing operations rose 37% to $1.95. Excluding non-recurring items, diluted EPS was $1.92, up 26%. All three segments grew, led by Telecommunications, where sales increased 38% to roughly $3.0 billion on premium fiber (LEAF) demand, although its segment net income rose only 24% because of heavier R&D and lower-margin volume.
The filing is dominated by a strategic build-out and financing program for 2000. In February 2000 Corning completed the roughly $1.4 billionb Siemens optical fiber and cable acquisition, and it signed a definitive agreement to acquire NetOptix for about $2.0 billion in stock, expected to close in Q2 2000. To fund these, Corning raised about $2.2 billion in an equity offering on January 31, 2000, plus about $485 million in euro-denominated debt.
Management expects 2000 capital expenditures of about $1.2 billionc and anticipates further growth in sales and earnings. Balance sheet leverage rose, with long-term debt at 35% of total capital at year-end 1999, though the equity raise substantially changes the capital structure going forward. The main risk overhang is the Dow Corning breast-implant bankruptcy.
The Joint Plan could require Dow Corning to fund up to about $3.2 billiond over 16 years, and Corning and Dow Chemical each face up to $150 million in credit facilities. The bankruptcy court limited shareholder releases to claimants who voted for the plan, and appeals are set for argument on April 12, 2000.
Corning also carries Superfund and other environmental exposures (about $20 million accrued), a Quest Diagnostics indemnity, and a Shin Etsu patent suit in Japan. Management characterizes most litigation exposure as remote, but the Dow Corning outcome remains uncertain.
02—Key points
Key Highlights
- Restated 1999 net sales of $4.74 billion (+24%); diluted EPS from continuing operations of $1.95 (+37%), or $1.92 excluding non-recurring items (+26%)
- Telecommunications Segment sales rose 38% to about $3.0 billion, driven by premium LEAF fiber demand and acquisitions; segment net income rose 24%
- Advanced Materials sales grew 3% to about $1.1 billion; Information Display sales rose 9% to about $701 million, with segment net income nearly doubling on advanced display (LCD glass) strength
- Capital spending of $757 million in 1999, with about $1.2 billion planned for 2000 across optical fiber and flat-panel display capacity
- Financing and M&A: $2.2 billion equity offering (Jan 2000), roughly $485 million euro bonds, $1.4 billion Siemens acquisition completed, and $2.0 billion NetOptix acquisition pending
- Dow Corning breast-implant exposure: a plan could require up to ~$3.2 billion in funding over 16 years, with shareholder releases on appeal (argument April 12, 2000)
03—Questions
Frequently Asked Questions
Why was this 10-K/A filed, and how do the restated figures differ from the original?
The amendment restates 1997–1999 results to include Oak Industries, merged on January 28, 2000 in a pooling of interests. Pooling accounting requires retroactive restatement, so the financials combine Corning and Oak as if they had always been one company. Oak contributed about $444 million of 1999 revenue and $34 million of net income, so the restated figures are not directly comparable to Corning's standalone results from earlier filings.
How strong is the earnings growth, and what drove it?
1999 income from continuing operations was $511.0 million, up 44%, and it was helped by a few non-recurring items. Excluding those items, income rose 32% to $502.9 million. Growth came mainly from Telecommunications volume gains in premium optical fiber, plus improving Advanced Materials and Information Display results. Telecommunications margins were pressured by lower-margin volume, higher R&D spending, and start-up costs at the Concord, NC plant.
How is Corning funding its large 2000 acquisitions and capital program?
Mainly through equity. The January 2000 offering of 14.95 million shares raised about $2.2 billion, and euro-denominated debt added about $485 million. Proceeds fund the Siemens deal and repay Oak's assumed debt and commercial paper. The NetOptix acquisition is expected to be paid mostly in stock (about 12 million shares). Long-term debt was 35% of total capital at year-end 1999, but the equity raise should lower leverage materially in 2000.
What is the biggest legal risk to investors?
The Dow Corning breast-implant bankruptcy. Corning owns 50% of Dow Corning, which is reorganizing under a Joint Plan that could require up to about $3.2 billion of funding over 16 years, with Corning and Dow Chemical each providing up to $150 million in credit. The court's December 1999 ruling limited shareholder releases, and appeals are pending. Corning's investment in Dow Corning was fully reserved in 1995, and management considers direct implant lawsuit liability remote, but the outcome is uncertain.
Does Corning pay dividends, and what are the other notable risks?
Corning paid $0.72 per share in dividends in 1999 ($175.7 million declared), unchanged from prior years. Other risks include about $20 million accrued for environmental cleanup across 10 Superfund-type sites, a Japanese patent suit from Shin Etsu over fused silica, indemnification obligations to Quest Diagnostics, and dependence on a few key optical component suppliers. Foreign currency exposure is significant, and a 10% adverse currency move could cause an $11.9 million fair-value loss.
04—Continue