01—Abstract
Summary
Summary of the 10-K filed February 15, 2018. Cited figures are marked; the original filing is the authoritative source.
Corning's 2017 10-K shows a year of divergent segment performance.
Net sales rose 8% to $10.1 billiona, driven by Optical Communications (up 18% to $3.5 billion) and Specialty Materials (up 25% to $1.4 billion, on Gorilla Glass growth), while Display Technologies declined 7% to $3.0 billion on LCD glass price declines of roughly 10%. Corning reported a GAAP net loss of $497 million, or $(0.66) per share, versus net income of $3.7 billion in 2016, which included a $2.7 billion non-taxable gain on the Dow Corning realignment. The swing was driven mainly by a $1.1 billion provisional toll charge and a $347 million remeasurement of deferred tax assets under the 2017 Tax Act.
On a non-GAAP basis, which excludes those tax items, currency effects, and other one-time items, core earnings were $1,756 millionb, or $1.72 per diluted share, versus $1.55 in 2016, with core EPS helped by lower share count from buybacks. Capital allocation remained shareholder-focused. Corning repurchased about $2.4 billion of stock in 2017, paid $651 million in dividends, and raised the quarterly dividend 14.8% to $0.155 for 2017 and, in February 2018, another 16.1% to $0.18.
Capital spending rose to $1.8 billionc, mainly for the Gen 10.5 LCD facility in China, gas particulate filter capacity, and optical fiber and cable expansion. The company also agreed to acquire 3M's Communication Markets Division for about $900 million, expected to close in 2018. Management guides 2018 core sales to about $11 billion, with Optical Communications up about 10% and Display pricing declines narrowing to mid-single digits.
Key risks include concentrated customer bases (three Display customers account for 62% of segment sales), heavy dependence on Japanese yen and Korean won exchange rates (about 69% of sales are outside the U.S.), the pending 2017 Tax Act accounting that remains provisional, and the Display segment's exposure to LCD price pressure, which funds a large share of cash flow. Total debt rose to $4.7 billiond of long-term debt, pushing debt-to-capital to 25% from 18%.
02—Key points
Key Highlights
- Net sales grew 8% to $10.1 billion, led by Optical Communications (+18%) and Specialty Materials (+25%), partly offset by a 7% decline in Display Technologies from roughly 10% LCD glass price declines.
- GAAP net loss of $497 million ($(0.66) per share) versus 2016 net income of $3.7 billion, which included a $2.7 billion non-taxable Dow Corning realignment gain; 2017 results absorbed a $1.1 billion toll charge and $347 million deferred tax remeasurement under the 2017 Tax Act.
- Core earnings of $1,756 million, or $1.72 per diluted share, up from $1.55, aided by share repurchases that reduced the diluted share count.
- Gross margin held at 40% of sales, with gross margin dollars up 8% to $4.0 billion.
- Dividend increased 14.8% for 2017 and another 16.1% in February 2018 to $0.18 per quarter, the seventh increase since October 2011.
- Agreed to acquire 3M's Communication Markets Division for about $900 million in cash, expected to close in 2018, to expand Optical Communications connectivity offerings.
- Total debt-to-capital rose to 25% from 18%, with long-term debt up to $4.7 billion after new yen-denominated and $750 million 4.375% notes; cash fell to $4.3 billion.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, Corning lost $0.05.
- Revenue$10.12B100.0%
- Cost of revenue−$6.10B60.3%
- Gross profit$4.02B39.7%
- Operating costs−$2.41B23.8%
- Operating income$1.61B15.9%
- Interest, other & tax−$2.10B20.8%
- Net income−$497.0M4.9%
Where FY2017 revenue went
$10.12B- Cost of revenue: $6.10B, 60% of revenue
- Operating income: $1.61B, 16% of revenue
- SG&A: $1.47B, 15% of revenue
- R&D: $689.0M, 6.8% of revenue
- Other operating costs: $250.0M, 2.5% of revenue
Kept 16% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 15, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $10.12B$9.39B | +7.7% |
| Cost of Revenue | $6.10B$5.63B | +8.3% |
| Gross Profit | $4.02B$3.76B | +6.8% |
| R&D Expenses | $689.00M$637.00M | +8.2% |
| SG&A Expenses | $1.47B$1.46B | +0.8% |
| Operating Income | $1.61B$1.42B | +12.9% |
| Net Income | -$497.00M$3.69B | −113.5% |
| EPS (Basic) | $-0.66$3.53 | −118.7% |
| EPS (Diluted) | $-0.66$3.23 | −120.4% |
| Shares Outstanding (Basic) | 895.00M1.02B | −12.3% |
| Shares Outstanding (Diluted) | 895.00M1.14B | −21.8% |
05—Questions
Frequently Asked Questions
Why did Corning report a net loss in 2017 despite growing sales and core earnings?
The GAAP loss was driven by one-time 2017 Tax Act charges: a $1.1 billion provisional toll charge on previously deferred foreign earnings and a $347 million remeasurement of U.S. deferred tax assets. Corning excludes these items from its core earnings, which were $1.72 per diluted share. The company notes these amounts are provisional and may change as the accounting is finalized.
How is the Display Technologies segment performing, and why does it matter?
Display Technologies, the largest contributor to historical profit, saw net sales fall 7% to $3.0 billion because LCD glass prices declined about 10%, partly offset by mid-single-digit volume growth. Segment net income fell 11% to $831 million. Management expects 2018 pricing declines to narrow to mid-single digits, and it is ramping the Gen 10.5 facility in China. Its results are a key sensitivity for overall earnings.
What is the outlook for 2018?
Management expects core sales of about $11 billion. Optical Communications sales are expected to rise about 10% excluding the 3M acquisition, Environmental Technologies to grow at a high-single-digit rate, Specialty Materials to grow, and Life Sciences to grow at a mid-single-digit rate. Capital spending is expected to be slightly above $2 billion, and voluntary pension contributions are planned at about $105 million for the U.S. plan.
What are the main risks to investors highlighted in the filing?
Key risks include customer concentration (three Display customers were 62% of segment sales and two South Korean customers drive significant sales), exposure to yen, won, and other currencies with about 69% of sales outside the U.S., reliance on single-site specialized manufacturing, geopolitical disruption in South Korea, intellectual property challenges, and continuing uncertainty over the 2017 Tax Act's effect on the effective tax rate and indefinitely reinvested foreign earnings.
How much did Corning return to shareholders, and how is it funding growth?
In 2017 Corning repurchased about $2.4 billion of common stock and paid $651 million in dividends. It funded capital spending of $1.8 billion and acquisitions with operating cash flow of $2.0 billion, cash on hand, and new debt, including about $1.4 billion of long-term debt issued in 2017. Corning still had about $4.3 billion of cash at year-end, about 79% of it held outside the U.S., and a $2 billion undrawn revolving credit facility.
06—Continue