01—Abstract
Summary
Summary of the 10-K filed February 13, 2012. Cited figures are marked; the original filing is the authoritative source.
Corning Incorporated's 2011 10-K shows a company whose top-line growth was strong but whose earnings fell sharply, driven by its Display Technologies segment.
Net sales rose 19% to $7.89 billiona, led by Specialty Materials (up 86% on Corning Gorilla Glass demand) and strong Telecommunications and Environmental Technologies results. However, net income attributable to Corning fell 21% to $2.8 billion ($1.77 diluted EPS, versus $2.25 in 2010), because equity earnings from Samsung Corning Precision dropped about 30% on LCD glass price declines and excess industry capacity, and because 2010 included a non-recurring $324 million insurance settlement. Equity affiliates contributed $1.5 billion of earnings, with 98% coming from Dow Corning and Samsung Corning Precision, so a large share of profit depends on investments Corning does not control.
The balance sheet and cash position remain strong. Corning ended 2011 with $5.8 billionb in cash and short-term investments, a debt-to-capital ratio of 10%, and $3.2 billion of operating cash flow. Management repurchased 55 million shares for $780 million under a $1.5 billion authorization and raised the quarterly dividend 50% to $0.075 per share.
Capital expenditures more than doubled to $2.4 billionc, mainly for LCD glass capacity in China and Gorilla Glass capacity in Japan, and 2012 capex is planned at about $1.8 billion. The main forward-looking risks are the LCD glass oversupply, which led management to cut worldwide glass capacity by roughly 25%, a $130 million impairment on large cover glass assets, and lower expected equity earnings from Dow Corning in 2012 as polysilicon prices fall at Hemlock Semiconductor.
Asbestos exposure through Pittsburgh Corning is still unresolved: the company carries a $657 milliond liability, and the Amended PCC Plan faces a February 2012 court hearing with contingencies. Management guides to moderate sales growth in 2012, led by Telecommunications and Environmental Technologies, with continued double-digit price declines in Display.
02—Key points
Key Highlights
- Net sales rose 19% to $7.89 billion in 2011, led by Specialty Materials (+86%, Gorilla Glass), Telecommunications (+21%), and Environmental Technologies (+22%); Display Technologies rose only 4%.
- Net income attributable to Corning fell 21% to $2.81 billion ($1.77 diluted EPS vs. $2.25), mainly from lower Samsung Corning Precision equity earnings (down about 30%) and the absence of a $324M 2010 insurance settlement.
- Equity in earnings of affiliates was $1.47 billion (down 25%), with 98% from Dow Corning and Samsung Corning Precision, which makes Corning's earnings highly dependent on non-controlled JVs.
- Strong liquidity: $5.8 billion in cash and short-term investments, debt-to-capital of 10%, and $3.2 billion of operating cash flow.
- Shareholder returns increased: $780M in share repurchases (55M shares) under a $1.5B program, and a 50% quarterly dividend increase to $0.075.
- Capital spending jumped to $2.4 billion (from $1.0 billion), with 2012 guidance of about $1.8 billion; the company is also cutting about 25% of glass capacity amid LCD oversupply.
- Ongoing asbestos exposure: $657M liability tied to the Pittsburgh Corning Amended Plan, which still faces court contingencies and a February 17, 2012 hearing; a $130M impairment was also taken on large cover glass assets.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Corning kept $0.36.
- Revenue$7.89B100.0%
- Cost of revenue−$4.31B54.7%
- Gross profit$3.58B45.3%
- Operating costs−$1.86B23.6%
- Operating income$1.71B21.7%
- Interest, other & tax$1.10B14.0%
- Net income$2.82B35.7%
Where FY2011 revenue went
$7.89B- Cost of revenue: $4.31B, 55% of revenue
- Operating income: $1.71B, 22% of revenue
- SG&A: $1.03B, 13% of revenue
- R&D: $561.0M, 7.1% of revenue
- Other operating costs: $275.0M, 3.5% of revenue
Kept 22% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 13, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $7.89B$6.63B | +19.0% |
| Cost of Revenue | $4.31B$3.58B | +20.4% |
| Gross Profit | $3.58B$3.05B | +17.3% |
| R&D Expenses | $561.00M$491.00M | +14.3% |
| SG&A Expenses | $1.03B$1.01B | +1.3% |
| Operating Income | $1.71B$1.80B | −4.9% |
| Net Income | $2.82B$3.56B | −20.8% |
| EPS (Basic) | $1.80$2.28 | −21.1% |
| EPS (Diluted) | $1.78$2.25 | −20.9% |
| Shares Outstanding (Basic) | 1.56B1.56B | +0.3% |
| Shares Outstanding (Diluted) | 1.58B1.58B | +0.1% |
05—Questions
Frequently Asked Questions
Why did Corning's net income decline in 2011 even though sales grew 19%?
Net income fell from $3.56 billion to $2.81 billion for three main reasons. First, equity earnings from Samsung Corning Precision dropped from $1.47 billion to $1.03 billion, reflecting volume declines and substantial LCD glass price cuts amid excess supply. Second, 2010 included a $324 million pre-tax insurance settlement that did not recur. Third, the effective tax rate rose from 7.5% to 12.7%, partly because a $265 million 2010 repatriation benefit did not recur. A $130 million impairment on large cover glass assets also weighed on results.
How concentrated is Corning's customer base and revenue?
Concentration is high. Corning's ten largest customers accounted for 51% of 2011 sales. In Display Technologies, four customers made up 77% of segment sales, and two LCD panel makers in Korea accounted for about 93% of Samsung Corning Precision's sales. Sharp was 10% of consolidated sales in 2011. Losing one of these customers, or a slowdown in LCD panel orders, could materially affect results.
What is the status of the asbestos liability tied to Pittsburgh Corning?
Corning carries a $657 million asbestos litigation liability, which covers the proposed Amended PCC Plan plus about $150 million for non-PCC claims. On June 16, 2011, the bankruptcy court denied confirmation of the Amended PCC Plan but suggested modifications. Parties have since filed revised plans, with a hearing scheduled for February 17, 2012. Approval is uncertain and subject to appeal, and insurance coverage litigation is ongoing. Management considers the likelihood of a material adverse impact remote, but the liability could change in future quarters.
What does Corning expect for 2012?
Management expects moderate sales growth in 2012, led by Telecommunications and Environmental Technologies, and expects strong growth in Specialty Materials (Gorilla Glass) and Life Sciences. Display Technologies faces cumulative double-digit price declines over the two quarters beginning in Q4 2011, and lower equity earnings from Dow Corning as polysilicon prices fall at Hemlock Semiconductor. Capital spending is planned at about $1.8 billion, of which about $800 million goes to Display. Corning may also pursue acquisitions consistent with its long-term strategy.
06—Continue