01—Abstract
Summary
Summary of the 10-K filed February 10, 2011. Cited figures are marked; the original filing is the authoritative source.
Corning's 2010 Form 10-K (filed February 10, 2011) shows a company that rebounded strongly from the 2009 downturn.
Net sales rose 23% to $6.63 billiona, and net income attributable to Corning more than doubled-plus-to $3.56 billion, or $2.25 per diluted share, versus $2.0 billion ($1.28) in 2009. Results were lifted by volume growth in LCD glass, a $324 million pre-tax insurance settlement tied to 2009 earthquake and power-disruption losses in Display Technologies, a $265 million tax benefit from repatriation, and strong equity earnings of $1.96 billion. Equity affiliates, primarily Samsung Corning Precision and Dow Corning, supplied 98% of equity earnings from the two largest investments, so investors should recognize that a large share of profit comes from companies Corning does not control.
Balance sheet and cash generation strengthened materially. Operating cash flow was $3.8 billionb, cash and short-term investments reached $6.35 billion, and the debt-to-capital ratio held at 11%. Management guided to significant 2011 sales growth, led by Corning Gorilla glass, and expects 2011 capital spending of $2.4 to $2.7 billion, with roughly half directed to LCD glass capacity expansion, including an $800 million new facility in China.
Management also flagged headwinds: higher 2011 taxes after the absence of 2010 repatriation benefits, expected pricing pressure, and lower dividends from equity affiliates that may reduce operating cash flow. Key risks remain concentrated.
The ten largest customers accounted for 55% of sales, three Display customers accounted for 72% of segment sales, and about 74% of sales came from outside the U.S. Legal exposures include the Pittsburgh Corning asbestos plan, with a $633 millionc liability, and the Dow Corning breast implant matters, which carry contingent equity-earnings risk. Investors should weigh the strong 2010 earnings and cash position against the cyclicality of LCD glass demand, customer concentration, and unresolved asbestos-related uncertainty.
02—Key points
Key Highlights
- Net sales grew 23% to $6.63 billion in 2010, with all five reportable segments posting higher sales; Specialty Materials rose 75% on Corning Gorilla glass demand.
- Net income attributable to Corning reached $3.56 billion, or $2.25 per diluted share, versus $2.0 billion ($1.28) in 2009, aided by a $324 million pre-tax insurance settlement and a $265 million repatriation tax benefit.
- Equity in earnings of affiliated companies rose 36% to $1.96 billion, with Samsung Corning Precision contributing $1.47 billion and Dow Corning $444 million.
- Operating cash flow was $3.8 billion, and cash plus short-term investments ended the year at $6.35 billion, about $2.8 billion higher than 2009.
- Debt-to-capital held at 11%, and the company amended its $1.0 billion revolving credit facility to run through December 2015.
- 2011 outlook calls for significant sales growth led by Gorilla glass, with capital spending of $2.4 to $2.7 billion, of which $1.2 to $1.5 billion targets Display Technologies.
- Concentration risk is high: the ten largest customers represent 55% of sales, and about 74% of 2010 net sales came from outside the U.S.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Corning kept $0.54.
- Revenue$6.63B100.0%
- Cost of revenue−$3.58B54.0%
- Gross profit$3.05B46.0%
- Operating costs−$1.25B18.8%
- Operating income$1.80B27.2%
- Interest, other & tax$1.76B26.5%
- Net income$3.56B53.6%
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 10, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $6.63B$5.39B | +22.9% |
| Cost of Revenue | $3.58B$3.30B | +8.5% |
| Gross Profit | $3.05B$2.09B | +45.7% |
| R&D Expenses | $491.00M$465.00M | +5.6% |
| SG&A Expenses | $1.01B$881.00M | +15.2% |
| Operating Income | $1.80B$391.00M | +360.6% |
| Net Income | $3.56B$2.01B | +77.2% |
| EPS (Basic) | $2.28$1.30 | +75.4% |
| EPS (Diluted) | $2.25$1.28 | +75.8% |
| Shares Outstanding (Basic) | 1.56B1.55B | +0.5% |
| Shares Outstanding (Diluted) | 1.58B1.57B | +0.8% |
05—Questions
Frequently Asked Questions
What drove Corning's earnings increase in 2010?
Earnings rose mainly on higher LCD glass volumes at Corning and Samsung Corning Precision, a $324 million pre-tax insurance settlement for 2009 production disruptions, a $265 million tax benefit from repatriating foreign earnings, and higher Environmental Technologies and Specialty Materials sales. Lower prices partly offset these gains.
How much of Corning's profit depends on equity affiliates?
A large share. Equity earnings were $1.96 billion in 2010, against net income of $3.56 billion. Of these equity earnings, 98% came from Samsung Corning Precision and Dow Corning, which Corning does not control. Their future results, dividends, and tax positions could change Corning's earnings and cash flow.
What are the main risks from asbestos and breast implant litigation?
Corning carries a $633 million asbestos litigation liability tied to the Amended PCC Plan, which is still subject to Bankruptcy Court approval and possible appeal. Separately, Dow Corning, a 50% equity affiliate, faces breast implant and commercial creditor claims, and Corning could see equity earnings reduced if adverse outcomes exceed recorded amounts.
What does the 2011 outlook imply for cash flow and spending?
Management expects significant 2011 sales growth but higher taxes, increased income in higher-tax jurisdictions, and lower dividends from equity affiliates. Operating cash flow may decline, while investing cash use will rise with capital spending of $2.4 to $2.7 billion. Management says it can fund this from existing cash and operations, with no mandatory pension contributions in the U.S. in 2011.
How concentrated are Corning's customers?
Highly concentrated. The ten largest customers accounted for 55% of 2010 sales. Three Display Technologies customers made up 72% of segment sales, and Samsung Corning Precision's sales were about 93% to two Korean panel makers. Losing or reducing orders from a major customer could materially affect results.
06—Continue