01—Abstract
Summary
Summary of the 10-K/A filed March 7, 2002. Cited figures are marked; the original filing is the authoritative source.
Corning's 10-K/A for fiscal 2001 shows a company in severe downturn.
Net sales fell 12% to $6.27 billiona, and the company posted a net loss of $5.50 billion ($5.89 per share), driven mainly by a $4.76 billion second-quarter impairment of goodwill and intangibles tied to the Pirelli and NetOptix acquisitions, plus $961 million in restructuring and impairment charges and $333 million in inventory write-downs. Pro forma net income, a non-GAAP measure Corning defines, fell 85% to $157 million, or $0.17 per share. Management expects 2002 sales to be significantly below 2001 and continued losses in the short term, with no recovery until late 2002 or early 2003.
The balance sheet and liquidity picture is mixed. Corning ended 2001 with $2.2 billionb in cash and short-term investments and an unused $2.0 billion revolving credit facility, and management says it has ample liquidity for 2002. Shareholders' equity dropped from $10.6 billion to $5.4 billion, and long-term debt rose to 45% of total capital.
Dividends were discontinued in July 2001. Credit ratings were cut during the year (S&P BBB, Moody's Baa1, Fitch BBB- after a February 2002 downgrade), all with negative outlooks, which could raise borrowing costs and restrict commercial paper access. Capital spending was cut from a planned $2.5 billion to $1.8 billionc, with 2002 capex budgeted under $500 million.
The amendment itself is narrow. It corrects the reported 2001 sales of the photonic technologies business to $509 milliond from the $462 million stated in the original 10-K filed March 4, 2002, and makes no change to the financial statements. Investors should also weigh material contingent liabilities: the Dow Corning bankruptcy, the Pittsburgh Corning asbestos bankruptcy (about 14,000 other asbestos cases), several patent suits, and securities class actions filed in late 2001 and early 2002.
02—Key points
Key Highlights
- 2001 net loss of $5.5 billion ($5.89/share) versus net income of $422 million in 2000, driven by a $4.76 billion goodwill and intangible impairment in photonic technologies
- Net sales fell 12% to $6.27 billion; Telecommunications sales fell 14%, while the optical fiber and cable business stayed flat in dollar terms and fell in volume
- Restructuring and impairment charges of $961 million, with about 12,000 positions eliminated and seven major plants closed; Corning expects roughly $400 million in annual savings starting in 2002
- Liquidity remains solid at $2.2 billion in cash and short-term investments plus a $2.0 billion undrawn revolver, but dividends were discontinued in July 2001 and capex was cut to $1.8 billion
- Credit ratings were downgraded during 2001 and early 2002 (Fitch to BBB- in February 2002), all with negative outlooks, raising financing cost and commercial paper access risk
- Management guides 2002 sales significantly below 2001 with continued losses, and expects no recovery before late 2002 or early 2003
- This 10-K/A corrects 2001 photonic technologies sales to $509 million from $462 million; the financial statements are unchanged
03—Questions
Frequently Asked Questions
Why did Corning report such a large loss in 2001?
The loss was mainly a non-cash $4.76 billion charge in the second quarter to impair goodwill and other intangibles from the Pirelli optical components and NetOptix acquisitions, after demand for photonic products collapsed. Corning also took $961 million in restructuring and asset impairment charges and $333 million in inventory write-downs.
Is Corning still financially stable enough to weather the downturn?
Management says yes. Corning ended 2001 with $2.2 billion in cash and short-term investments and a $2.0 billion revolving credit facility with no borrowings, and it has a $4.1 billion remaining shelf registration. Risks include a shrinking equity base ($5.4 billion, down from $10.6 billion), long-term debt at 45% of total capital, 2001 earnings not covering fixed charges, and possible further ratings downgrades.
What changed in this amended filing?
The amendment corrects the reported 2001 sales of the photonic technologies business in the Item 7 operating segments discussion to $509 million, from $462 million in the original 10-K filed March 4, 2002. The rest of the filing, including the financial statements, is unchanged.
Why did Corning stop paying dividends?
Corning announced on July 9, 2001 that it was discontinuing its common stock dividend. Dividends paid in 2001 totaled $112 million, compared with $210 million in 2000. The filing does not give a detailed rationale beyond the need to conserve cash during the downturn.
What is the outlook for 2002?
Management expects first-quarter 2002 revenue to be about the level of Q4 2001 ($974 million), 2002 sales to be significantly below 2001, and continued losses in the short term. Recovery is not expected until late 2002 or early 2003. Cost savings from restructuring are expected to be partly offset by pricing pressure.
04—Continue