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Securities and
Exchange Commission
Washington, D.C. 20549
Form 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 2001
Commission file number 1-3247
Corning Incorporated
One Riverfront Plaza, Corning, NY 14831
607-974-9000
New York
(State of incorporation)
16-0393470
(I.R.S. employer identification no.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.50 par value, New York Stock Exchange
with attached Preferred Share
Purchase Right
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
----- ------
Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 7, 2002, shares held by non-affiliates of Corning Incorporated
had an aggregate market value of $6,004,618,403. As of February 7, 2002,
944,919,754 shares of Corning's common stock were outstanding.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement dated March 4, 2002, and
filed for the Registrant's 2002 Annual Meeting of Shareholders are incorporated
into Part III, as specifically set forth in Part III.
PART I
Item 1. Business
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General
Corning traces its origins to a glass business established in 1851. The present
corporation was incorporated in the State of New York in December 1936, and its
name was changed from Corning Glass Works to Corning Incorporated on April 28,
1989.
Corning is a global, technology-based corporation, which operates in three
reportable business segments: Telecommunications, Advanced Materials and
Information Display.
The Telecommunications Segment produces optical fiber and cable, optical
hardware and equipment, photonic modules and components and optical networking
devices for the worldwide telecommunications industry.
The Advanced Materials Segment manufactures specialized products with unique
properties for customer applications utilizing glass, glass ceramic and polymer
technologies. Businesses within this segment include environmental products,
life science products, semiconductor materials and optical and lighting
products.
The Information Display Segment manufactures glass panels and funnels for
televisions and cathode ray tubes, liquid crystal display glass for flat panel
displays and precision lens assemblies for projection video systems.
Corning and its subsidiaries manufacture and process products at more than 90
plants in 19 countries.
Except as otherwise indicated by the context, the terms "Corning" or "Company"
as used herein, mean Corning Incorporated and its consolidated subsidiaries.
Additional discussion of Corning and each of its segments is discussed in Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing on pages 12 through 31, and Note 3 (Information by
Operating Segment) to the Consolidated Financial Statements appearing on pages
49 through 53.
Competition
Corning competes across all of its product lines with many large and varied
manufacturers, both domestic and foreign. Some of these competitors are larger
than Corning, and some have broader product lines.
Competition within the telecommunications industry is intense among several
significant companies. Corning represents an important market presence in the
segment's principal product lines. Price and new product innovations are
significant competitive factors. The current downturn in the telecommunications
industry may change the competitive landscape in the future.
Within the Advanced Materials Segment, Corning's principal products face
competition from a variety of materials manufacturers, some of which manufacture
similar products made from materials other than glass and ceramics. Among other
things, innovation, product quality, performance and service are key competitive
elements. Competition is also intense for certain businesses within the
Information Display Segment as new entrants may be able to offer lower prices.
Corning strives to maintain its market position through technology and product
innovation. For the future, Corning's competitive advantage lies in its
commitment to research and development, its financial resources and its
commitment to quality. There is no assurance that Corning will be able to
maintain its market position or competitive advantage.
Raw Materials
Corning's production of specialty glasses and related materials requires
significant quantities of energy and batch materials.
Although energy shortages have not been a problem recently, Corning has achieved
flexibility through important engineering changes to take advantage of the
lowest-cost energy source in most significant processes. Specifically, Corning's
principal manufacturing processes can now be operated with natural gas, propane,
oil or electricity, or a combination of these energy sources.
1
As to resources (ores, minerals, and processed chemicals) required in
manufacturing operations, availability appears to be adequate. Corning's
suppliers from time to time may experience capacity limitations in their own
operations, or may eliminate certain product lines; nevertheless, Corning
believes it has adequate programs to ensure a reliable supply of batch chemicals
and raw materials. For many products, Corning has alternative glass compositions
that would allow operations to continue without interruption in the event of
specific materials shortages.
Certain key optical components used in the manufacturing of products within
Corning's Telecommunications Segment are currently available only from a limited
number of sources. Any future difficulty in obtaining sufficient and timely
delivery of components could result in delays or reductions in product
shipments, or reduce Corning's gross margins.
Patents and Trademarks
Inventions by members of Corning's research and engineering staff have been, and
continue to be, important to the Company's growth. Patents have been granted on
many of these inventions in the United States and other countries. Some of these
patents have been licensed to other manufacturers, including Corning's
associated companies. Many of the earlier patents have now expired.
Most of Corning's products are marketed under the following trademarks: Corning,
Celcor, Costar, FiberGain, HPFS, LEAF, MetroCor, PurePath, Pyrex, Steuben and
Vycor. Subsidiaries and divisions of Corning frequently use their own
trademarks.
Protection of the Environment
Corning has a program to ensure that its facilities are in compliance with
state, federal and foreign pollution-control regulations. This program resulted
in capital and operating expenditures during the past several years. In order to
maintain compliance with such regulations, capital expenditures for pollution
control in continuing operations were approximately $64 million in 2001 and are
estimated to be $12 million in 2002.
Corning's 2001 operating results from continuing operations were charged with
approximately $59 million for depreciation, maintenance, waste disposal and
other operating expenses associated with pollution control. Corning believes
that its compliance program will not place it at a competitive disadvantage.
Risk Factors
The following cautionary statements are not exclusive and are in addition to
other factors discussed elsewhere in this annual report, in Corning's filings
with the Securities and Exchange Commission or in materials incorporated therein
by reference.
OUR SALES COULD BE NEGATIVELY IMPACTED IF ONE OR MORE OF OUR KEY CUSTOMERS
SUBSTANTIALLY REDUCED ORDERS FOR OUR PRODUCTS
Our customer base is relatively concentrated, and a modest number of customers
account for a high percentage of net sales in our telecommunications,
environmental products and information display product businesses. If we are
unable to establish or maintain good relationships with key customers, it could
negatively affect our results of operations and financial performance.
Some of our major customers have reduced, modified, cancelled or rescheduled
orders for our products and have expressed uncertainty as to their future
requirements. As a result, our sales have declined and it is difficult to
predict future sales accurately. The conditions contributing to this difficulty
include:
- - uncertainty regarding the capital spending plans of the major
telecommunications carriers, upon whom our customers and, ultimately we,
depend for sales;
- - the telecommunications carriers' current limited access to the capital
required for expansion; and
- - general market and economic uncertainty.
The current economic downturn may be more severe and prolonged than expected. If
our net sales continue to decline, our ability to return to profitability and
improve free cash flow for future periods may be impeded.
2
IF WE DO NOT SUCCESSFULLY ADJUST OUR MANUFACTURING VOLUMES, OR ACHIEVE
MANUFACTURING YIELDS, OR SUFFICIENT PRODUCT RELIABILITY, OUR OPERATING RESULTS
COULD SUFFER
In the current economic downturn, we have responded to the softer market by
cutting costs, including the reduction of our manufacturing volumes. In the
third and fourth quarters of 2001, we approved and began executing formal plans
to close seven major manufacturing facilities and downsize our workforce by
approximately 12,000 positions. We cannot assure you that we have mitigated the
adverse effects of a softer market, nor can we assure you that additional
adjustments will not be necessary to respond to further market changes.
The manufacture of our products involves highly complex and precise processes,
requiring production in highly controlled and clean environments. Changes in our
manufacturing processes, or those of our suppliers could significantly reduce
our manufacturing yields and product reliability. In some cases, existing
manufacturing techniques, which involve substantial manual labor, may be
insufficient to achieve the volume, or cost targets of our customers. We will
need to develop new manufacturing processes and techniques to achieve targeted
volume and cost levels. While we continue to devote substantial efforts to the
improvement of our manufacturing techniques and processes, we may not achieve
cost levels in our manufacturing activities that will fully satisfy our
customers.
WE HAVE INCURRED, AND MAY IN THE FUTURE INCUR, RESTRUCTURING, INVENTORY-RELATED
AND OTHER CHARGES, THE AMOUNTS OF WHICH ARE DIFFICULT TO PREDICT ACCURATELY
As a result of the business downturn, we approved and began executing formal
plans to close seven major manufacturing facilities and downsize our workforce
by approximately 12,000 positions. As a result of these actions, we recorded a
total charge of $961 million ($590 million after-tax) which included a
restructuring charge of $419 million and a charge to impair plant and equipment
of $542 million. We also recorded pre-tax charges totaling $333 million for the
write-down of excess and obsolete inventory in the second and fourth quarters of
2001. Our ability to forecast our customers' needs for our products in the
current economic environment is very limited. Accordingly, additional charges
for restructuring, inventory adjustments, or write-downs and other charges may
be required if the business downturn is more severe than we currently
anticipate.
IF THE MARKETS FOR OUR PRODUCTS DO NOT DEVELOP AND EXPAND AS WE ANTICIPATE,
DEMAND FOR OUR PRODUCTS MAY DECLINE, WHICH WOULD NEGATIVELY IMPACT OUR RESULTS
OF OPERATIONS AND FINANCIAL PERFORMANCE
The markets for our products are characterized by rapidly changing technologies,
evolving industry standards and frequent new product introductions. Our success
is expected to depend, in substantial part, on the timely and successful
introduction of new products, upgrades of current products to comply with
emerging industry standards, our ability to acquire technologies needed to
remain competitive and our ability to address competing technologies and
products. In addition, the following factors related to our products and the
markets for them could have an adverse impact on our results of operations and
financial performance:
- - if we are unable to introduce optical fiber, or any other leading products
such as our glass for flat panel displays that can command competitive
prices in the marketplace;
- - if we are unable to achieve, or maintain a favorable mix of products,
including a mix of sales between premium and non-premium products;
- - a decline in demand, or an unanticipated change in market demand for
specific products;
- - if we are unable to continue to develop new product lines to address our
customers' diverse needs within the several market segments in which we
participate. This requires a high level of innovation, as well as the
accurate anticipation of technological and market trends; or
- - if we are not successful in creating the infrastructure required to support
anticipated growth in product demand.
3
WE FACE PRICING PRESSURES IN EACH OF OUR LEADING BUSINESSES THAT COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL PERFORMANCE
We are currently facing pricing pressures in several of our leading businesses
as a result of intense competition, emerging new technologies and excess
manufacturing capacity in both the domestic and the international marketplaces.
While we will work toward reducing our costs to respond to pricing pressures, we
may not be able to achieve proportionate reductions in costs. As a result of
potential overcapacity and the current economic downturn, pricing pressures may
increase in the foreseeable future.
WE HAVE INCURRED AND MAY IN THE FUTURE INCUR, GOODWILL AND OTHER INTANGIBLE
ASSET IMPAIRMENT CHARGES
Acquisitions recorded as purchases for accounting purposes have resulted, and in
the future may result, in the recognition of significant amounts of goodwill and
other purchased intangibles. The amortization and impairment of these assets
through 2001 and potential impairment of these assets thereafter has
significantly reduced and could further reduce our net income.
During the first half of 2001, we experienced a significant decrease in the rate
of growth of our Telecommunications Segment, primarily in the photonic
technologies business, due to a dramatic decline in infrastructure spending in
the telecommunications industry. During the second quarter, major customers in
the photonic technologies business reduced their order forecasts and cancelled
orders already placed. Management determined that the growth prospects of this
business were significantly less than previously expected and those of
historical periods. As a result, we determined that the long-lived assets,
including goodwill and other intangibles acquired in connection with our
acquisition of Optical Technologies USA from Pirelli and Cisco Systems and our
acquisition of NetOptix Corporation, were not recoverable. In the second quarter
of 2001, we recorded a pre-tax charge of approximately $4.76 billion to impair a
significant portion of the goodwill and other intangible assets in connection
with these acquisitions.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142 pursuant to which goodwill will no
longer be amortized, but will be subject to impairment tests at least annually.
SFAS No. 142 was effective for us on January 1, 2002. An assessment of the
recoverability of goodwill recorded on the date of adoption must be performed
within one year. We do not anticipate a transitional impairment charge from the
adoption of the standard; however, future changes in the expected performance of
our businesses could cause us to take further impairment charges. At December
31, 2001, Corning had $1.9 billion in goodwill.
WE MAY BE LIMITED IN OUR ABILITY TO OBTAIN ADDITIONAL CAPITAL ON COMMERCIALLY
REASONABLE TERMS
Although we believe existing cash, short-term investments, operating cash flows,
access to capital markets and borrowing capacity, collectively, provide adequate
resources to fund ongoing operating requirements and future capital expenditures
relating to the expansion of existing businesses and acquisitions, we may be
required to seek additional financing to compete effectively in these markets.
Our public debt ratings affect our ability to raise debt and the cost of such
debt. In February 2002, Fitch downgraded our long-term rating from BBB to BBB-
with a negative outlook. In November 2001, Standard & Poor's downgraded our
corporate rating from A to BBB and maintained a negative outlook, while removing
us from CreditWatch with negative implications, and Moody's reduced our senior
debt rating from A3 to Baa1 with a negative outlook. These and any further
downgrades could increase borrowing costs and affect our ability to access the
debt capital markets, including the commercial paper market, on a consistent
basis. The pricing of our common stock may limit our ability to access the
equity capital markets on terms and in amounts that would be satisfactory to us.
DIFFICULTIES WE MAY ENCOUNTER IN MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS
We have historically achieved growth through a combination of internally
developed new products and acquisitions. Our growth strategy depends on our
ability to continue developing or acquiring new products for our customer base.
We expect to continue to pursue acquisitions of other companies as well as
equity ventures to develop new technologies and product lines, although we
cannot guarantee that we will be successful, or that we will have cash or equity
sufficient to complete strategic acquisitions. The success of each acquisition
will depend, in part, upon our ability:
- - to efficiently integrate acquired businesses into our organization;
4
- - to manufacture and sell the products of the businesses acquired at
satisfactory prices and gross margins;
- - to retain key personnel of the acquired businesses;
- - to apply our financial and management controls and reporting systems and
procedures to the acquired businesses; and
- - to successfully complete technology initiatives.
IF OUR PRODUCTS OR COMPONENTS PURCHASED FROM OUR SUPPLIERS EXPERIENCE
PERFORMANCE ISSUES, OUR BUSINESS WILL SUFFER
Our business depends on our producing excellent products of consistently high
quality. To this end, our products, including components purchased from our
suppliers, are rigorously tested for quality both by us and our customers.
Nevertheless, our products are highly complex and our customers' testing
procedures are limited to evaluating our products under likely and foreseeable
failure scenarios. For various reasons (including, among others, the occurrence
of performance problems unforeseeable in testing), our products and components
purchased from our suppliers may fail to perform as expected. Performance issues
could result from faulty design or problems in manufacturing. We have
experienced such performance issues in the past and remain exposed to such
performance issues. In some cases, product redesigns or additional capital
equipment may be required to correct a defect. In addition, any significant or
systemic product failure could result in lost future sales of the affected
product and other products, as well as result in customer relations problems.
INTERRUPTIONS OF SUPPLIES FROM OUR KEY SUPPLIERS MAY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL PERFORMANCE
Interruptions of supplies from our key suppliers could disrupt production, or
impact our ability to increase production and sales. We obtain several critical
components used in the production of telecommunications products from a limited
number of suppliers, some of which are also our competitors. We do not have
long-term or volume purchase agreements with every supplier, and may have
limited options for alternative supply if these suppliers fail to continue the
supply of components.
WE FACE INTENSE COMPETITION IN SEVERAL OF OUR BUSINESSES
We face intense competition in several of our businesses. We expect that we will
face additional competition from existing competitors and from a number of
companies that may enter our markets. Since some of the markets in which we
compete are characterized by rapid growth and rapid technology changes, smaller
niche and start-up companies may become our principal competitors in the future.
We must invest in research and development, expand our engineering,
manufacturing and marketing capabilities, and continue to improve customer
service and support in order to remain competitive. While we expect to undertake
the investment and effort in each of these areas, we cannot assure you that we
will be able to maintain or improve our competitive position. Our competitors
may have greater financial, engineering, manufacturing, marketing or other
support resources. Market consolidation may also create additional or stronger
competitors and may intensify competition.
WE MAY EXPERIENCE DIFFICULTIES IN OBTAINING OR PROTECTING INTELLECTUAL PROPERTY
RIGHTS
We may encounter difficulties, costs or risks in protecting our intellectual
property rights or obtaining rights to additional intellectual property to
permit us to continue or expand our businesses. Other companies, including some
of our large competitors, hold patents in our industries and are aggressively
seeking to expand their patent portfolios. The intellectual property rights of
others could inhibit our ability to introduce new products in our field of
operations unless we secure licenses on commercially reasonable terms. We are,
and may in the future be, subject to claims of intellectual property
infringement from time to time and we cannot assure you as to the outcome of
such claims.
WE FACE RISKS RELATED TO OUR INTERNATIONAL OPERATIONS AND SALES
We have customers located outside the United States, as well as significant
foreign operations, including manufacturing and sales. As a result of these
international operations, we face a number of risks, including:
- - the difficulty of effectively managing our diverse global operations;
5
- - change in regulatory requirements;
- - tariffs and other trade barriers;
- - political and economic instability in foreign markets; and
- - fluctuations in foreign currencies which may make our products less
competitive in countries in which local currencies decline in value
relative to the dollar.
IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL, OUR RESULTS OF OPERATIONS AND
FINANCIAL PERFORMANCE MAY SUFFER
Our future success will be determined in part by our ability to attract and
retain, in the current business environment, key scientific and technical
personnel for our research, development and engineering efforts. Our business
also depends on the continued contributions of our executive officers and other
key management and technical personnel. A key to attracting and retaining
qualified employees is our ability to provide employees with the opportunity to
participate in the potential growth of our business through such programs as
stock option plans and employee investment plans, the value of which may be
adversely affected by the discontinuation of the payment of dividends on our
common stock, negative stock price performance or stock price volatility. We may
also find it more difficult to attract or retain qualified employees due to our
recent reductions in the workforce. While we believe that we have been
successful in attracting and retaining key personnel, we cannot assure you that
we will continue to be successful in the future.
IF WE PROVIDE CUSTOMER FINANCING IN THE FUTURE, IT COULD EXPOSE US TO THE TERM
CREDIT QUALITY OF OUR CUSTOMERS
We currently do not provide customer financing. However, the competitive
environment in which we operate may require us to provide medium-term and
long-term customer financing in the future. If we do so, we will be exposed to
the term credit quality of our customers. In the event of economic uncertainty,
or reduced demand for customer financings in the capital and bank markets, we
may be required to continue to hold some customer financing obligations for
longer periods prior to placement with third-party lenders.
ACTS OF TERRORISM OR WAR AND ANY MILITARY OR ECONOMIC RESPONSE BY THE UNITED
STATES MAY HARM OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS
Our financial condition or results of operations may be adversely affected by
acts of terrorism, military or economic actions taken in response or to prevent
similar acts of terrorism, or any negative impacts on the economy of terrorists
acts or military responses.
CURRENT OR FUTURE LITIGATION MAY HARM OUR FINANCIAL CONDITION OR RESULTS OF
OPERATIONS
Pending, threatened or future litigation is subject to inherent uncertainties.
Our financial condition or results of operations may be adversely affected by
unfavorable outcomes, expenses and costs exceeding amounts estimated or insured.
OUR QUARTERLY RESULTS MAY FLUCTUATE
We expect to continue to experience fluctuations in our quarterly results. All
of the concerns we have discussed under "Risk Factors" in this Form 10-K could
affect our operating results. In addition, our operating results may be affected
by:
- - seasonality;
- - the timing of the receipt of product orders from a limited number of major
customers;
- - the announcement and introduction of new products by us;
- - expenses associated with litigation; and
- - the costs associated with the acquisition or disposition of a business.
6
OUR COMMON STOCK PRICE HAS EXPERIENCED AND MAY CONTINUE TO EXPERIENCE
SUBSTANTIAL VOLATILITY
The market price of our common stock has been, and is likely to continue to be,
highly volatile because of the following factors:
- - fluctuations in our quarterly results;
- - announcements by our competitors and customers of technological innovations
or new products;
- - developments with respect to patents or proprietary rights; and
- - general market conditions.
In addition, changes in the market's valuation of telecommunications equipment
stocks, and in particular those that participate in supplying optical fiber and
photonic products, could cause our common stock to be volatile or decline from
current levels. The stock market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies, which fluctuation may also cause the price of our common
stock to decline.
Our results of operations and financial performance in future quarters may not
meet the expectations of public market securities analysts and investors, and
that could cause significant volatility in the price of our common stock.
Other
Additional information in response to Item I is found in Note 3 (Information by
Operating Segment) to the Consolidated Financial Statements appearing on pages
49 through 53 and Five Years in Review - Historical Comparison appearing on
pages 76 through 77.
Item 2. Properties
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Corning operates more than 90 manufacturing plants and processing facilities, of
which approximately half are located in the United States. Corning owns
substantially all of its executive and corporate buildings, which are located in
Corning, New York. Corning also owns substantially all of its manufacturing and
research and development facilities and more than half of its sales and
administrative facilities.
During the last five years, Corning has invested $5.6 billion in property,
construction, expansion, and modernization for continuing operations. Of the
$1.8 billion spent in 2001, $464 million was spent on facilities outside the
United States.
Manufacturing, sales and administrative, and research and development facilities
at consolidated locations have an aggregate floor space of approximately 24
million square feet. Distribution of this total area is:
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(million square feet) Total Domestic Foreign
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Manufacturing 18 12 6
Sales and administrative 4 2 2
Research and development 2 2
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24 16 8
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Some facilities manufacture products included in more than one operating
segment. Total assets and capital expenditures by operating segment are included
in Note 3 (Information by Operating Segment) to the Consolidated Financial
Statements. Information concerning lease commitments is included in Note 16
(Commitments, Contingencies, Guarantees and Hedging Activities) to the
Consolidated Financial Statements appearing on pages 68 through 70.
7
During 2001, Corning undertook a restructuring program that closed seven major
manufacturing facilities and consolidated certain smaller facilities. In the
opinion of management, Corning's facilities are now suitable and adequate for
production and distribution of the Company's products based upon the level of
demand we anticipate in 2002. At December 31, 2001, Corning was not productively
utilizing a significant portion of space in the facilities. Due to the slowdown
in the telecommunications industry which lowered the demand for premium fiber
products, the Company temporarily idled most of its fiber manufacturing
facilities and slowed cable manufacturing in the fourth quarter.
Item 3. Legal Proceedings
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Environmental Litigation. Corning has been named by the Environmental Protection
Agency under the Superfund Act, or by state governments under similar state
laws, as a potentially responsible party at 12 active hazardous waste sites.
Under the Superfund Act, all parties who may have contributed any waste to a
hazardous waste site, identified by such Agency, are jointly and severally
liable for the cost of cleanup unless the Agency agrees otherwise. It is
Corning's policy to accrue for its estimated liability related to Superfund
sites and other environmental liabilities related to property owned by Corning
based on expert analysis and continual monitoring by both internal and external
consultants. Corning has accrued approximately $24 million for its estimated
liability for environmental cleanup and litigation at December 31, 2001. Based
upon the information developed to date, management believes that the accrued
reserve is a reasonable estimate of the Company's estimated liability and that
the risk of an additional loss in an amount materially higher than that accrued
is remote.
Dow Corning Bankruptcy. Corning and The Dow Chemical Company each own 50% of the
common stock of Dow Corning Corporation. On May 15, 1995, Dow Corning sought
protection under the reorganization provisions of Chapter 11 of the United
States Bankruptcy Code and thereby obtained a stay of approximately 19,000
breast-implant product liability lawsuits. On November 8, 1998, Dow Corning and
the Tort Claimants Committee jointly filed a revised Plan of Reorganization
(Joint Plan) which was confirmed by the Bankruptcy Court on November 30, 1999.
On December 21, 1999, the Bankruptcy Court issued an opinion that approved the
principal elements of the Joint Plan with respect to tort claimants, but
construed the Joint Plan as providing releases for third parties (including
Corning and Dow Chemical as shareholders) only with respect to tort claimants
who voted in favor of the Joint Plan. On November 13, 2000, the District Court
entered an Order reversing the Bankruptcy Court's December 21, 1999, Opinion on
the release and injunction provisions and confirmed the Joint Plan. On October
23, 2001, the U.S. Court of Appeals for the Sixth Circuit heard oral arguments
on appeals taken by foreign claimants, the U.S. government and certain tort
claimants from various portions of the District Court's order. On January 29,
2002, the Sixth Circuit affirmed the determinations made in the District Court
with respect to the foreign claimants, but remanded to the District Court for
further proceedings with respect to the claims of the U.S. government for
recovery of medical expenses paid on behalf of tort claimants and with respect
to the findings supporting the non-debtor releases in favor of Dow Corning's
shareholders and insurers. As a result of the remand, there may be additional
hearings in the District Court. The timing and scope of the proceedings on
remand are not known at this point, and the Sixth Circuit's ruling adds some
uncertainty with respect to the ultimate confirmation of the Joint Plan. If the
Joint Plan is upheld but the shareholder releases are not given their full
effect, Corning would expect to defend any remaining claims against it (and any
new claims) on the same grounds that led to a series of orders and judgments
dismissing all claims against Corning in the federal courts and in many state
courts as described under the heading Implant Tort Lawsuits immediately
hereafter. Management believes that the claims against Corning lack merit and
that the breast implant litigation against Corning will be resolved without
material impact on Corning's financial statements.
Under the terms of the Joint Plan, Dow Corning would be required to establish a
Settlement Trust and a Litigation Facility to provide a means for tort claimants
to settle or litigate their claims. Dow Corning would have the obligation to
fund the Trust and the Facility, over a period of up to 16 years, in an amount
up to approximately $3.3 billion, subject to the limitations, terms and
conditions stated in the Joint Plan. Corning and Dow Chemical have each agreed
to provide a credit facility to Dow Corning of up to $150 million ($300 million
in the aggregate), subject to the terms and conditions stated in the Joint Plan.
The Joint Plan also provides for Dow Corning to make full payment, through cash
and the issuance of senior notes, to its commercial creditors. The commercial
creditors have contested the Bankruptcy Court's disallowance of their claims for
post-petition interest at default rates of interest, and have appealed to the
District Court. While the amounts at issue on this appeal are subject to a
variety of contingencies, it is possible that the aggregate claim exceeds $100
million. Dow Corning is vigorously contesting the appeal. If and when Dow
Corning emerges from bankruptcy, Corning expects to resume the recognition of
equity earnings from Dow Corning. Corning does not expect to receive dividends
from Dow Corning in the foreseeable future.
8
Implant Tort Lawsuits. Corning and Dow Chemical, the shareholders of Dow Corning
Corporation, were named in a number of state and federal tort lawsuits alleging
injuries arising from Dow Corning's implant products. The claims against the
shareholders alleged a variety of direct or indirect theories of liability. In
1992, the federal breast implants cases were coordinated for pretrial purposes
in the United States District Court, Northern District of Alabama (Judge Sam C.
Pointer, Jr.). In April 1995, Corning obtained a summary judgment dismissing it
from over 4,000 federal court cases. On March 12, 1996, the U.S. Court of
Appeals for the Eleventh Circuit dismissed the plaintiffs' appeal from that
judgment. In state court legislation, Corning was awarded summary judgment in
California, Connecticut, Illinois, Indiana, Michigan, Mississippi, New Jersey,
New York, Pennsylvania, Tennessee, and Dallas, Harris and Travis Counties in
Texas, thereby dismissing approximately 7,000 state cases. In Louisiana, Corning
was awarded summary judgment dismissing all claims by plaintiffs and a
cross-claim by Dow Chemical on February 21, 1997. On February 11, 1998, the
intermediate appeals court in Louisiana vacated this judgment as premature. The
Louisiana cases were transferred to the United States District Court for the
Eastern District of Michigan, Southern Division (Michigan Federal Court) to
which substantially all breast implant cases were transferred in 1997. In the
Michigan Federal Court, Corning is named as a defendant in approximately 70
pending cases (including some cases with multiple claimants), in addition to the
transferred Louisiana cases. The Michigan Federal Court heard Corning's motion
for summary judgment on February 27, 1998, but has not ruled. Based upon the
information developed to date and recognizing that the outcome of complex
litigation is uncertain, management believes that the risk of a materially
adverse result in the implant litigation against Corning is remote and believes
the implant litigation against Corning will be resolved without material impact
on Corning's financial statements.
Federal Securities Cases. A federal securities class action lawsuit was filed in
1992 against Corning and certain individual defendants by a class of purchasers
of Corning stock who allege misrepresentations and omissions of material facts
relative to the silicone gel breast implant business conducted by Dow Corning.
This action is pending in the United States District Court for the Southern
District of New York. The class consists of those purchasers of Corning stock in
the period from June 14, 1989, to January 13, 1992, who allegedly purchased at
inflated prices due to the non-disclosure or concealment of material information
and were damaged when Corning's stock price declined in January 1992 after the
Food and Drug Administration (FDA) requested a moratorium on Dow Corning's sale
of silicone gel implants. No amount of damages is specified in the complaint. In
1997, the Court dismissed the individual defendants from the case. In December
1998, Corning filed a motion for summary judgment requesting that all claims
against it be dismissed. Plaintiffs requested the opportunity to take
depositions before responding to the motion for summary judgment. The discovery
process is continuing and the Court has set no schedule to address the still
pending summary judgment motion. Corning intends to continue to defend this
action vigorously. Based upon the information developed to date and recognizing
that the outcome of litigation is uncertain, management believes that the
likelihood of a materially adverse verdict is remote.
In December 2001 and January 2002, Corning and three of its officers and
directors were named defendants and served in four different lawsuits alleging
violations of the U.S. securities laws in connection with Corning's November
2000 offering of $2.7 billion zero coupon convertible debentures, due November
2015 and 30 million shares of common stock. These four lawsuits, as well as
others filed with the court and not yet served, are pending in the United States
District Court for the Western District of New York and seek class action
status. Corning has not yet answered these lawsuits and there has been no
determination if they will proceed as a class action or who will be lead counsel
for plaintiffs. Management is prepared to defend these lawsuits vigorously and,
recognizing that the outcome of litigation is uncertain, believes it has strong
defenses to the claims alleged in the complaints.
Shin Etsu Quartz Products Company. In July 1999 and February 2000, Shin Etsu
Quartz Products Company filed two patent suits in Japan against Corning for
alleged patent infringement of two patents relating to the properties of fused
silica materials used in the optical components of stepper machines. The suits
request damages and an injunction preventing sales of infringing products in
Japan. Corning has denied infringement, has argued that the patents are invalid
or unenforceable, and has filed a separate action to invalidate the second of
the two patents. In June 2001, the Japanese court ordered settlement discussions
involving both patents in suit. In late September 2001, Shin Etsu withdrew from
these discussions and has requested that the Court rule on the matters before
it. Corning intends to defend these suits vigorously. While recognizing that
litigation is inherently uncertain, based upon the information developed to
date, management believes that Corning has strong defenses to Shin Etsu's
claims.
Hereaus Quarzglass GmbH. In July 2001, Hereaus Quarzglass GmbH filed a patent
infringement suit in Germany against Corning for alleged patent infringement of
a European patent relating to certain properties of fused silica glass used in
the optical components of stepper machines. The suit requests damages and for
Corning to refrain from importing or selling infringing products in Germany.
Management believes that the Hereaus patent is either not infringed, or is
invalid. Management is prepared to defend this action vigorously and,
recognizing that the outcome of litigation is uncertain, believes it has strong
defenses to the Hereaus claims. Corning also filed an action in December 2001 in
U.S. federal court seeking a ruling that the U.S. counterpart to the Hereaus
patent (jointly owned with Shin Etsu in the U.S.) be declared invalid and not
infringed. Hereaus and Corning have had settlement discussions and Corning
management is optimistic that the matter can be resolved amicably. Management,
however, is prepared to defend this action vigorously and, recognizing that the
outcome of litigation is uncertain, believes it has strong defenses to the
Hereaus claims.
9
Pittsburgh Corning Corporation. Corning and PPG Industries, Inc. each own 50% of
the capital stock of Pittsburgh Corning Corporation (PCC). PCC and several other
defendants have been named in numerous lawsuits involving claims alleging
personal injury from exposure to asbestos. On April 16, 2000, PCC filed for
Chapter 11 reorganization in the United States Bankruptcy Court for the Western
District of Pennsylvania. As of the bankruptcy filing, PCC had in excess of
140,000 open claims and now has in excess of 240,000 open claims. In the
bankruptcy court, PCC obtained a preliminary injunction against the prosecution
of asbestos actions against its two shareholders to afford the parties a period
of time (the Injunction Period) in which to negotiate a plan of reorganization
for PCC. The Injunction Period has been extended until April 15, 2002. Under the
terms of the Bankruptcy Court's Order, PCC, PPG Industries and Corning will have
90 days following expiration of the Injunction Period to seek removal and
transfer of stayed cases that have not been resolved through a plan of
reorganization. As a result of PCC's bankruptcy filing, Corning recorded an
after-tax charge of $36 million in the first quarter of 2000 to impair its
entire investment in PCC and discontinued recognition of equity earnings. At the
time PCC filed for bankruptcy protection, there were approximately 12,400 claims
pending against Corning alleging various theories of liability based on exposure
to PCC's asbestos products. Although the outcome of litigation and the
bankruptcy case is uncertain, management believes that the separate corporate
status of PCC will continue to be upheld. Management is continuing to
investigate Corning's options for defending claims against it, which might
include vigorously defending itself on all fronts, or exploring a global
settlement through the bankruptcy process. It is probable that there will be
intensive negotiations throughout the first half of 2002 concerning terms of
PCC's plan of reorganization, including whether or not Corning and its insurers
may participate by making a contribution in exchange for a release. Management
cannot estimate the probability that Corning will be able to secure such a
release upon terms and conditions satisfactory to Corning and its insurers. The
range of cost for these options (net of insurance) cannot be estimated at this
time. Corning is named in approximately 14,000 other cases alleging injuries
from asbestos and those cases have been covered by insurance without material
impact to Corning to date. Although asbestos litigation is inherently difficult,
and the outcome of litigation is uncertain, management believes these matters
will be resolved without a materially adverse impact on Corning's financial
position. If Corning and its insurers agree to a global settlement through the
bankruptcy process, such outcome may be material to the results of operations of
the period in which such costs, if any, are recognized.
Astrium. In December of 2000, Astrium, SAS and Astrium, Ltd. filed a complaint
for negligence in the United States District Court for the Central District of
California against TRW, Inc., Pilkington Optronics Inc., Corning NetOptix, Inc.,
OFC Corporation and Optical Filter Corporation claiming damages in excess of
$150 million. The complaint alleges that certain cover glasses for solar arrays
used to generate electricity from solar energy on satellites sold by Astrium's
corporate successor were negligently coated by NetOptix or its subsidiaries
(prior to Corning's acquisition of NetOptix) in such a way that the amount of
electricity the satellite can produce and their effective life were materially
reduced. Corning has denied that the coatings produced by NetOptix or its
subsidiaries caused the damage alleged in the complaint, or that it is legally
liable for any damages which Astrium may have experienced. Formal discovery has
just begun, few depositions have been taken, and it is too early to form a
definitive opinion about the outcome of the litigation. Based upon the
information developed to date and recognizing that the outcome of litigation is
uncertain, management believes that there are strong defenses to these claims
and believes they will be resolved without material impact on Corning's
financial statements.
10
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
This information is included in Note 15 (Common Shareholders' Equity) to the
Consolidated Financial Statements, Quarterly Operating Results and Related
Market Data, Five Years in Review - Historical Comparison, and Investor
Information, appearing on pages 67 and 75 through 78.
Item 6. Selected Financial Data
- --------------------------------
This information is included in Five Years in Review - Historical Comparison
appearing on pages 76 and 77.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Corning's financial results in 2001 deteriorated significantly from 2000 as
capital spending in the telecommunications industry diminished, the demand for
premium fiber declined considerably in the second quarter and the downturn in
the U.S. economy in the latter half of the year negatively impacted all of
Corning's businesses. As a result, sales and earnings fell in all three of
Corning's operating segments. Corning impaired goodwill and other intangible
assets in its photonic technologies business totaling approximately $4.8 billion
and recorded $333 million to write-down excess and obsolete inventory. As a
result of the declining performance and expectations, management took several
steps throughout the year to reduce its cost structure. Those actions included
the following:
- - incurred pre-tax charges of $961 million related to actions to reduce
overall headcount by approximately 12,000 employees and impair long-lived
assets including the closing of seven major plants, primarily in the
Telecommunications and Advanced Materials Segments,
- - idled fiber manufacturing facilities for most of the fourth quarter, and
- - reduced capital expenditures in 2001 from the originally planned investment
of $2.5 billion to $1.8 billion and lowered the capital budget for 2002 to
under $500 million.
RESULTS OF OPERATIONS
Consolidated net sales for 2001 were $6.3 billion, a 12% decrease from 2000.
Excluding the impact of acquisitions, Corning's consolidated sales in 2001
decreased 16% compared to 2000. Sales declines for 2001 occurred in all
operating segments, but were most pronounced in the Telecommunications Segment
where sales fell 14%. Consolidated sales for 2000 were $7.1 billion, a 50%
increase over 1999 sales of $4.7 billion. Excluding acquisitions, sales in 2000
increased 36% over 1999.
In 2001, Corning incurred a loss from continuing operations of $5.5 billion, or
$5.89 per share, compared with income from continuing operations of $409
million, or $0.46 per share, in 2000 and income from continuing operations of
$511 million, or $0.65 per share, in 1999.
The 2001 loss is largely attributable to a charge of approximately $4.8 billion
($4.7 billion after-tax) in the second quarter to impair goodwill and certain
other intangible assets of the photonic technologies business. Corning's results
for the year were also impacted by charges for restructuring actions of $961
million ($590 million after-tax and minority interest) which included charges
for headcount reductions, exit costs and impairment of plant and equipment.
Further discussion of these charges begins under Impairment of Goodwill and
Other Intangible Assets, Restructuring Actions and Notes 4 and 5 to the
Consolidated Financial Statements. Corning recorded an operating charge of $273
million ($184 million after-tax) in the second quarter to write-down excess and
obsolete inventory, primarily in the photonic technologies business. Corning
recorded operating charges totaling $178 million ($109 million after-tax) in the
fourth quarter for the following:
- - $90 million related to the release of restrictions on shares of Corning
common stock held by employees,
- - $60 million to write-down excess and obsolete inventory in the photonic
technologies business, and
- - $28 million to write-down an investment in intellectual property.
12
Income and earnings per share from continuing operations declined 20% and 29%,
respectively, between 2000 and 1999 primarily due to substantial non-cash
acquisition-related charges incurred in 2000. The charges included gains and
losses on the disposition and restructuring of businesses, purchased in-process
research and development (IPRD) charges, other acquisition-related charges and
impairment losses. In addition, as a result of its acquisition strategy, Corning
began to record significant amounts of amortization of purchased intangibles and
goodwill in 2000. These amounts increased in 2001 despite the impairment
charges. See Non-Segment Results for a discussion of these items.
Corning believes a better understanding of the changes in its operating results
is provided by comparing its operating results on a pro forma basis. Corning
retroactively changed its definition of pro forma net income in the fourth
quarter of 2001 to include the amortization of purchased intangibles in the
calculation of pro forma net income and pro forma diluted earnings per share.
Pro forma results for 2000 and 1999 have been restated for the change and are
presented below. Pro forma net income excludes impairment and amortization of
goodwill, impairment of other intangible assets, restructuring actions,
purchased IPRD charges, one-time acquisition-related charges and other
nonrecurring items. This measure is not in accordance with, or an alternative
for, accounting principles generally accepted in the United States of America
(GAAP) and may not be consistent with measures used by other companies. It
should be considered supplemental data.
Pro forma net income in 2001 totaled $157 million, or $0.17 per share, a
decrease of 85% and 86%, respectively, from 2000. Pro forma net income in 2000
was $1.1 billion, or $1.22 per share, an increase of 106% and 83%, respectively,
over 1999. Corning calculates pro forma net income from (loss) income from
continuing operations as follows (after-tax and minority interest; in millions):
Years ended December 31,
--------------------------------------------
2001 2000 1999
---- ---- ----
(Loss) income from continuing operations $ (5,498) $ 409 $ 511
Nonoperating gains (4) (9)
Amortization of goodwill 344 202 18
In-process research and development charges 400
Other acquisition-related charges 43
Impairment and restructuring charges 5,311 1
Gain in equity in earnings of associated companies (11)
Impairment of equity investment 36
--------- ------- --------
Pro forma net income $ 157 $ 1,075 $ 521
========= ======= ========
Pro forma diluted earnings per share $ 0.17 $ 1.22 $ 0.66
========= ======= ========
The decrease in pro forma net income in 2001 was primarily due to lower sales
volumes, charges for inventory write-downs and stock compensation charges.
Corning's results for 2001 weakened significantly over the course of the year.
Quarterly revenues and pro forma net income (loss) were as follows (in
millions):
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4
------ ------ ------ ------
Revenue $1,921 $1,868 $1,509 $ 974
Pro forma net income (loss) $ 268 $ 74 $ 76 $(261)
The first half of the year was impacted as capital spending in the North
American long-haul sector declined, thus lowering demand for premium fiber and
photonic products used in new networks. The situation intensified in the third
quarter as carriers in North America and other regions began to delay purchases
of single-mode fiber, particularly in September. Finally, Corning's businesses
in Advanced Materials and Information Display also began experiencing the
effects of a slowing U.S. economy as the events of September 11th disrupted the
markets and the economy even further.
13
OUTLOOK
Corning believes that 2002 will be a very challenging year as industry
conditions experienced in the second half of 2001 extend into 2002. Management
expects first quarter revenues to approximate the fourth quarter of 2001.
Management does not expect recovery to begin until late 2002, or early 2003. As
a result, management expects sales for 2002 to be significantly below 2001
levels and anticipates Corning will continue to incur losses in the short-term.
Corning expects to realize cost savings from restructuring actions taken in
2001; however, these improvements may be offset by pricing pressures in several
key businesses.
Management believes Corning has ample liquidity to meet its funding needs for
2002. Corning finished the year with $2.2 billion in cash and short-term
investments and an unused revolving credit facility of $2.0 billion.
Management's focus in 2002 will be to reduce Corning's cash requirements to
manageable levels and restore its operations to profitability.
Corning's long-term strategy remains unchanged. Corning will continue to make
significant investments in research and development for all segments and will
invest in the expansion of the liquid crystal display business and the
development of diesel substrates during this industry downturn.
IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS
During the first half of 2001, Corning experienced a significant decrease in the
rate of growth of its Telecommunications Segment, primarily in the photonic
technologies business, due to a dramatic decline in infrastructure spending in
the telecommunications industry. During the second quarter, major customers in
the photonic technologies business reduced their order forecasts and canceled
orders already placed. As a result, management determined that the growth
prospects of this business were significantly less than previously expected and
those of historical periods.
Corning reviews the recoverability of its long-lived assets, including goodwill
and other intangible assets, when events or changes in circumstances occur that
indicate the carrying value of the asset may not be recoverable. As a result of
the business conditions noted above, Corning concluded such an assessment was
required for its photonic technologies business in the second quarter. Corning
assesses recoverability of the carrying value based upon cumulative expected
future pre-tax cash flows (undiscounted and without interest charges) of the
related operations.
As a result of this test, Corning determined that the long-lived assets,
including goodwill and other intangibles acquired from Pirelli in December 2000,
as well as those of the unit into which NetOptix Corporation (acquired in May
2000) had been integrated, were not recoverable. Corning's policy is to
write-down long-lived assets to fair value in such circumstances.
Management estimated fair value using several techniques. While each method
generated comparable fair values, management adjusted the assets to estimates
based on average multiples of forecasted revenues and earnings of comparable
publicly traded companies with operations in the optical component market
segment.
In the second quarter, Corning recorded pre-tax charges of $4,648 million to
impair a significant portion of goodwill and $116 million to impair other
intangible assets. Of the total charge of $4,764 million, $3,154 million related
to the acquisition of the Pirelli optical components and devices business (the
Pirelli transaction) and $1,610 million related to goodwill resulting from the
acquisition of NetOptix Corporation.
RESTRUCTURING ACTIONS
Corning has approved and executed several restructuring actions throughout the
year. These actions and the charges relating to them are described below.
In the first quarter of 2001, Corning reduced its workforce by approximately
3,300 positions, primarily in the photonic technologies and hardware and
equipment businesses. These workforce reductions included mostly hourly
production workers and resulted in minimal severance charges. In April 2001,
Corning completed an additional workforce reduction of approximately 1,000
positions in photonic technologies, including both hourly and salaried
employees. The second quarter reductions resulted in a restructuring charge of
$8 million ($5 million after-tax).
14
In the third quarter of 2001, additional actions were approved and undertaken,
primarily in the Telecommunications Segment, which included the following:
- - closure of three manufacturing facilities in the photonic technologies
business, resulting in the elimination of approximately 800 positions, and
- - elimination of approximately 2,900 positions worldwide in the optical fiber
and cable business. This action included a voluntary early retirement
program for certain employees along with involuntary separations.
As a result of these actions, Corning recorded a total charge of $339 million
($222 million after-tax) which included a restructuring charge of $103 million
and a charge to impair plant and equipment of $236 million in the third quarter.
The restructuring charge included $6 million for net pension and postretirement
benefit curtailment charges.
In response to the continued deteriorating business condition, management
approved and recorded the following restructuring actions in the fourth quarter:
- - closure or consolidation of several manufacturing locations as well as
smaller businesses across all operating segments,
- - discontinuation of its initiative in Corning Microarray Technology
products, part of Corning's life sciences business, and
- - further headcount reduction of approximately 4,000 positions across all
businesses, research and staff organizations. This action also included a
selective voluntary early retirement program for certain employees along
with involuntary separations.
As a result of actions taken in the fourth quarter, Corning recorded a charge in
the quarter of $614 million ($363 million after-tax and minority interest) which
included a restructuring charge of $308 million and a charge to impair plant and
equipment of $306 million. The restructuring charge included $35 million for
pension and postretirement termination benefits and $25 million for net pension
and postretirement benefit curtailment charges.
The carrying value of a long-lived asset is considered impaired when the
expected separately identifiable undiscounted cash flows from that asset are
less than the carrying value of the asset. The impairment charges were
determined based on the amount by which the carrying value exceeded the fair
market value of the asset.
A significant portion of the assets impaired was recently acquired, or built in
connection with capacity expansions in anticipation of future demand. Most of
the impaired facilities are currently available for sale, others will be
demolished. The impaired equipment will be auctioned, sold, or disposed during
2002.
The facilities closed in the year primarily relate to the photonics and optical
fiber and cable businesses that Corning is not exiting. The operations being
exited comprise the majority of the lighting business of the Advanced Materials
Segment. This business is not material to Corning's revenues or financial
results.
In summary, Corning's restructuring actions totaled $961 million in pre-tax
charges for the year ended December 31, 2001, of which $95 million related to
exit costs primarily for lease termination and contract cancellation charges.
Approximately one third of this total charge is expected to be paid in cash. The
total number of positions eliminated was approximately 12,000. As of December
31, 2001, approximately 10,100 of the 12,000 employees had been separated under
the plans. Corning expects to realize savings of approximately $400 million
annually beginning in 2002 as a result of these restructuring actions. The
savings are expected to be realized primarily in cost of sales and also in
selling, general and administrative expenses and research, development and
engineering expenses.
15
Non-cash charges for employee related costs were $66 million with $35 million
for pension and postretirement termination benefits and $31 million for net
pension and postretirement benefit curtailment charges. Curtailment charges were
recorded primarily due to the decrease in expected future years of service. The
following table illustrates the charges, activity and balances of the
restructuring reserve as of December 31, 2001:
(In millions, except headcounts)
- ----------------------------------------------------------------------------------------------------------------
Non- Net Cash Remaining
Total Cash Payments Reserve at
Charges Charges in 2001 December 31, 2001
- ----------------------------------------------------------------------------------------------------------------
Restructuring charges:
Employee related costs $ 324 $ 66 $ 60 $ 198
Other charges 95 17 78
-----------------------------------------------------------
Total restructuring charges $ 419 $ 66 $ 77 $ 276
-----------------------------------------------------------
Impairment of long-lived assets:
Assets held for use $ 46 $ 46
Assets held for disposal 496 496
------------------------
Total impairment charges $ 542 $ 542
------------------------
Total restructuring actions $ 961 $ 608 $ 77 $ 276
===========================================================
After-tax and minority interest $ 590
========
The following table illustrates the charge for restructuring actions as it
relates to Corning's operating segments:
- ---------------------------------------------------------------------------------------------------------------------------
Charges for restructuring actions
- ---------------------------------------------------------------------------------------------------------------------------
Corporate
Functions
Telecom- Advanced Information Including Total
munications Materials Display Research Charges
- ---------------------------------------------------------------------------------------------------------------------------
Charges for restructuring actions $ 640 $ 94 $ 36 $ 191 $ 961
=========================================================================
The following table illustrates the headcount reduction amongst U.S. Hourly,
U.S. Salaried and Non-U.S. positions:
- ---------------------------------------------------------------------------------------------------------------------------
Headcount reduction
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Hourly U.S. Salaried Non-U.S. Total
- ---------------------------------------------------------------------------------------------------------------------------
Headcount reduction 6,000 3,100 2,900 12,000
===========================================================
OPERATING SEGMENTS
Corning groups its products into three operating segments: Telecommunications,
Advanced Materials and Information Display. Corning also includes the earnings
of equity affiliates that are closely associated with Corning's operating
segments in segment net income. Corning retroactively changed its definition of
segment net income in the fourth quarter of 2001 to include the amortization of
purchased intangibles. In addition during the quarter ended March 31, 2001,
Corning realigned one product line from the Advanced Materials Segment into the
Telecommunications Segment. Segment results for 2000 and 1999 have been restated
for the changes and are presented below. Segment amounts exclude revenues,
expenses and equity earnings not specifically identifiable to segments. Segment
net income excludes impairment and amortization of goodwill, impairment of other
intangible assets, restructuring actions, purchased IPRD charges, other one-time
acquisition-related charges and other nonrecurring items. This measure is not in
accordance with GAAP and may not be consistent with measures used by other
companies.
16
Corning prepared the financial results for its three operating segments on a
basis that is consistent with the manner in which Corning management internally
disaggregates financial information to assist in making internal operating
decisions. Corning has allocated certain common expenses among segments
differently than it would for stand alone financial information prepared in
accordance with GAAP. The nonrecurring items noted above are excluded from
segment net income, but are described more fully in Non-Segment Results.
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications
(In millions) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 4,458 $ 5,186 $ 2,987
Research, development and engineering expenses $ 474 $ 395 $ 262
Interest expense $ 104 $ 70 $ 59
Segment (loss) earnings before minority interest
and equity earnings $ (93) $ 692 $ 341
Minority interest in losses (earnings) of subsidiaries 3 (34)
Equity in earnings of associated companies 12 1 15
------- -------- --------
Segment net (loss) income $ (81) $ 696 $ 322
======= ======== ========
Segment (loss) earnings before minority interest and
equity earnings as a percentage of segment sales (2.1)% 13.3% 11.4%
Segment net (loss) income as a percentage of segment sales (1.8)% 13.4% 10.8%
- --------------------------------------------------------------------------------------------------------------------------------
The Telecommunications Segment produces optical fiber and cable, optical
hardware and equipment, photonic modules and components and optical networking
devices for the worldwide telecommunications industry.
2001 vs. 2000
Sales in the Telecommunications Segment decreased 14% from 2000 to $4.5 billion.
Excluding the impact of acquisitions, the sales decline was 19%. The decrease in
sales was primarily due to sales volume decreases in most businesses throughout
the segment as capital spending in the telecommunications industry decreased
significantly. Segment net income fell precipitously compared to 2000's strong
results as net income in the optical fiber and cable business was more than
offset by losses in all other businesses. The loss of sales volume in premium
fiber and photonic products reduced gross margins and the segment incurred
operating charges totaling $333 million ($221 million after-tax) to write-down
excess and obsolete inventory, including estimated purchase commitments, further
lowering gross margin percentages.
Sales in the optical fiber and cable business in 2001 remained flat at $2.9
billion compared with 2000, although sales declined significantly in the fourth
quarter of 2001. Excluding the impact of acquisitions, sales declined 4%
compared to 2000. The lack of growth reflects the loss of volume in premium
products beginning in the second quarter due to the decline in long-haul demand
as capital spending for network buildouts diminished and the business began to
experience volume decreases in sales of single-mode fiber in the third quarter.
As a result, most fiber manufacturing facilities were idled in the fourth
quarter. Overall, fiber and cable volume decreased approximately 15% for the
year as a result of an increase of approximately 30% in the first half of the
year offset by a decrease of approximately 50% in the second half. The
weighted-average price for Corning's optical fiber and cable products remained
relatively stable compared to 2000 as higher prices were offset by significantly
decreased volumes for premium products. Premium fiber as a percentage of total
fiber demand was approximately 20% in 2001.
Net income for the optical fiber and cable business decreased over 5% compared
to 2000 as the loss of sales volume in premium products was partially offset by
increased sales of lower margin single-mode products. In response to reduced
demand for fiber products, Corning announced it will permanently close its
optical fiber operations in Deeside, North Wales and its cabling operations in
Saskatoon, Canada in addition to temporarily ceasing production at smaller
cabling facilities.
Sales in the hardware and equipment business declined 20% in 2001 to $817
million compared to $1.02 billion in 2000. Excluding the impact of acquisitions,
sales declined 28% compared to 2000. The decrease was due to lower sales volumes
as capital spending in the cable television industry fell significantly from
prior year levels. Business performance decreased significantly to a small loss
in 2001 due to considerably lower sales volumes. This business reduced its
headcount during the year and closed a small manufacturing facility.
17
The photonic technologies business manufactures photonic modules and components
primarily for the optical amplification market. Sales in the photonic
technologies business declined over 50% to $462 million compared with $1.04
billion in 2000. The sales decrease reflects significant declines in orders from
major customers caused by the decrease in capital spending in the
telecommunications industry. The business incurred a significant operating loss
for the year as a result of lower sales volumes, excess capacity, a higher fixed
cost structure and charges for excess and obsolete inventory in the second and
fourth quarters.
During the second quarter, major customers in the photonic technologies business
reduced their order forecasts and cancelled orders already placed. As a result,
management determined that certain products were not likely to be sold in their
product life cycle. Corning recorded a charge to write-down excess and obsolete
inventory, including estimated purchase commitments, of $273 million ($184
million after-tax) in cost of sales in the second quarter of 2001. The business
recorded an additional charge of $60 million ($37 million after-tax) in the
fourth quarter as a result of lower revenue forecasts for 2002.
Corning has, or is in the process of disposing all such inventory except
approximately $100 million. Corning has retained and isolated this inventory,
and in the unlikely event that product is sold, Corning will fully disclose the
impact on its margins.
Corning announced a downsizing of the photonic technologies business and closed
the following three manufacturing facilities in 2001:
- - Benton Park facility in Benton Township, PA,
- - Corning Lasertron's facility in Nashua, NH, and
- - Monroe Park manufacturing and development operations in Henrietta, NY.
In addition, Corning scaled back its photonic technologies operations in Erwin
Park, NY and the remainder of its photonic facilities to adjust its
manufacturing capacity levels and headcount to lower revenue expectations. The
business reduced its headcount approximately 75% from peak employment levels in
2001.
The controls and connectors business manufactures control systems, switches and
encoders. Sales in this business decreased 15% to $205 million in 2001 compared
to $241 million in 2000. Lower sales volume was the primary reason for the
decline due to the weak U.S. economy. The business incurred an insignificant
loss for the year compared to an insignificant profit in 2000 due to the
depressed volume.
The optical networking business manufactures wavelength management products and
optical switch modules. The business began shipping products to customers in the
third quarter of 2000. Sales for 2001 were $38 million and comprised mostly of
dynamic spectral equalizers, compared to partial year sales of $11 million in
2000. The loss in 2001 was greater than 2000 primarily due to the $28 million
pre-tax write-down of an investment in intellectual property. In addition,
volumes were lower than expected and development spending increased.
Sales to Corning's largest customer in 2001 were under 10% of consolidated and
Telecommunications Segment sales.
2000 vs. 1999
Sales in the Telecommunications Segment increased 74% over 1999 to $5.2 billion.
Excluding the impact of acquisitions, sales growth was 50%. The sales growth in
the segment was led primarily by volume gains in the optical fiber and cable
business, hardware and equipment and photonic technologies businesses. Segment
net income more than doubled in 2000 compared to 1999. The percentage increase
in segment net income exceeded the increase in sales, reflecting an overall
increase in segment gross margin percentage and a decrease in research,
development and engineering as a percentage of sales.
Sales in the optical fiber and cable business in 2000 increased approximately
70% over 1999 to approximately $2.9 billion. The increase in sales resulted
chiefly from the impact of acquisitions and strong volume gains for LEAF(R)
optical fiber. Volume growth continued to be driven by regional, local and
long-haul telephone companies and cable television operators, including
significant European carriers benefiting from continued deregulation of the
telecommunications industry throughout Europe. Approximately $460 million of the
increase in optical fiber and cable sales primarily resulted from the following
acquisitions:
- - the acquisition of the remaining 50% interest in Siecor GmbH and the
cabling business previously owned by Siemens in the first quarter of 2000,
and
- - the acquisition of the optical cable business from BICC, plc and the
remaining 50% interest in Optical Waveguides Australia, Pty. Ltd. in the
second quarter of 1999.
18
Excluding the impact of these acquisitions, sales in the optical fiber and cable
business increased 42% for the year principally due to sales volume gains of
almost 50%, reflecting continued strong demand for Corning's premium fiber
products. Volume of premium fiber and cable products, including Corning's LEAF
optical fiber, more than doubled over the same period in 1999. Price declines
ranged between 5% and 10% for Corning's optical fiber and cable products in
comparison with last year. The weighted-average optical fiber and cable price in
2000 remained relatively stable compared to 1999. The rate of price declines for
cabled products slowed throughout 2000 commensurate with the worldwide
tightening of optical fiber supply.
Net income from the optical fiber and cable business increased approximately 84%
in 2000 compared to 1999. The strong earnings performance is due to volume
growth in high-data rate products, relatively stable pricing and a shift to a
higher premium product mix.
Sales in the telecommunications hardware and equipment business increased over
82% in 2000 to approximately $1.02 billion. This increase resulted from a higher
sales volume of existing products, the Siemens transaction and particularly
strong demand from cable television customers, offset in part by price declines.
Excluding the impact of acquisitions, sales increased 57% over 1999. Overall net
income almost doubled over 1999 largely due to sales volume increases.
Sales in the photonic technologies business more than doubled over 1999 to
approximately $1.0 billion. The business realized strong sales volume gains in
2000 led by new product sales, growth in amplifier sales and acquisitions. The
operating performance in this business improved in 2000 as the business became
solidly profitable due to strong volume, productivity gains and more cost
efficient access to pump lasers achieved through the acquisition of Lasertron.
Corning continued to invest heavily in research and development in this
business.
Sales in the controls and connectors business increased 14% in 2000 to $241
million. Net income from this business improved slightly, moving from breakeven
in 1999 to modest profitability in 2000, primarily due to sales volume
increases.
During the third quarter of 2000, the optical networking business began
shipments of its wavelength management products to customers. Sales for 2000
were $11 million. This business operated at a loss due to significant research
and development investments.
Sales to Corning's largest customer accounted for approximately 12% of the
Telecommunications Segment sales in 2000, including a significant portion of
total sales in the photonic technologies business, but under 10% of consolidated
sales.
Outlook: Management believes the weak conditions in the telecommunications
industry experienced in the second part of 2001 will continue into 2002. First
quarter sales are expected to approximate fourth quarter 2001 levels; however,
losses are expected to decrease somewhat due to restructuring actions taken and
the absence of nonrecurring charges.
Management does not expect a recovery in this industry until late 2002, or early
2003. Corning anticipates that recovery in this segment is dependent on capital
spending by network operators and cable television entities as they add fiber to
metro access networks in the U.S., and on the level of demand in international
markets. As the industry currently has significant excess capacity, price
pressure is expected to continue throughout 2002.
- --------------------------------------------------------------------------------------------------------------------------------
Advanced Materials
(In millions) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 993 $ 1,021 $ 1,025
Research, development and engineering expenses $ 120 $ 116 $ 93
Interest expense $ 25 $ 18 $ 23
Segment earnings before equity earnings $ 19 $ 58 $ 76
Equity in earnings of associated companies 27 22 21
-------- ------- --------
Segment net income $ 46 $ 80 $ 97
======== ======= ========
Segment earnings before equity earnings as a
percentage of segment sales 1.9% 5.7% 7.4%
Segment net income as a percentage of segment sales 4.6% 7.8% 9.5%
- --------------------------------------------------------------------------------------------------------------------------------
The Advanced Materials Segment manufactures specialized products with unique
properties for customer applications utilizing glass, glass ceramic and polymer
technologies.
19
2001 vs. 2000
Sales in 2001 for the Advanced Materials Segment decreased 3% to $993 million
compared to sales of $1.02 billion in 2000. Excluding the impact of
acquisitions, sales declined 5%. Sales increases in the life sciences business
were more than offset by declines in the environmental technologies and
semiconductor materials businesses. Segment net income also declined in 2001 as
the segment recorded net income of $46 million compared to $80 million in 2000
for a 43% decrease. The decline in profitability was primarily due to weaker
performance by the environmental technologies and semiconductor materials
businesses partially offset by improved performance by the life sciences
business.
Sales in the environmental technologies business, the largest business in the
segment and a manufacturer of catalytic converter substrates, decreased 8% in
2001 to $379 million. The business experienced lower sales volumes compared to
2000 due to decreased vehicle production. Volume growth in Asia was more than
offset by declining volumes in North America and Europe. Earnings for the year
were down almost 50% primarily due to lower sales volumes, manufacturing
inefficiencies related to the introduction of new ultra thin wall products,
excess capacity and start-up costs in South Africa and China.
In October 2001, Corning announced the approval of a new diesel emission control
product manufacturing facility. The new plant will be located in Erwin, NY with
construction to begin in 2002. Initial production of substrate and filter
products is expected in early 2004.
Sales in the life sciences business, a supplier of advanced microplates and
other laboratory products, increased 8% over 2000 to $267 million. The
improvement was primarily due to an increase in sales volume. Earnings in the
base business almost doubled over 2000 primarily due to a shift to higher margin
products in sales mix along with improvements in manufacturing costs and
selling, general and administrative expenses. Overall earnings in the business
were diluted due to the investment in microarray technology which Corning
discontinued at the end of 2001.
Sales in Corning's other Advanced Materials businesses, including semiconductor
materials and ophthalmic products, decreased 4% in 2001 to $347 million.
Excluding the acquisition of Tropel in March 2001, sales decreased 11%. The
decrease was due to softness in the market for ophthalmic products and high
purity fused silica. Earnings for the year were approximately breakeven and down
slightly compared to 2000. Lower sales volumes and production slowdowns were
partially offset by a marginal increase in equity earnings from Eurokera, a
French based manufacturer of glass ceramic cooktops, resulting in comparable
earnings between years. Corning plans to exit the lighting and tubing businesses
in 2002, and has announced the shutdown of manufacturing facilities in
Greenville, OH and Corning, NY.
2000 vs. 1999
Sales in the Advanced Materials Segment were relatively flat compared to 1999 at
approximately $1.0 billion, chiefly due to growth in the environmental
technologies business, which was offset by a sales decline due to the
divestiture of the Quanterra business in January 2000 and flat performance in
other Advanced Materials businesses. Excluding the impact of the divestiture,
sales improved 6%. Segment net income declined 17% in 2000 as earnings
improvements in other Advanced Materials businesses were more than offset by
decreased performance in environmental technologies and life sciences while
equity earnings remained flat.
Sales in the environmental technologies business increased almost 3% over 1999
to $411 million. The growth in sales resulted from a strong global auto market
in 2000 and increased market penetration of Corning's thin-wall products coupled
with increases in the base substrate business that was partially offset by the
weak Euro. Earnings in this business decreased approximately 12%, principally
due to start-up costs of new plants in South Africa and China and elevated
research and development spending on diesel substrate programs.
Sales in the life sciences business of $248 million were down over 6% in
comparison to 1999 as the business continued to see a shift in spending in the
pharmaceutical industry from traditional products to genomics. The business
reported a small loss in 2000 compared to a modest profit in 1999. The loss was
primarily due to an increased commitment to research and development and
marketing costs associated with the launch of Corning's microarray technology
products in the third quarter of 2000. Excluding start-up costs related to
microarrays, earnings were flat compared to 1999.
20
Sales in Corning's other Advanced Materials businesses were relatively flat,
compared to 1999, at approximately $362 million. The flat performance was due to
elevated sales of high purity fused silica products in the semiconductor
materials business, which was offset by the impact of the divestiture of
Quanterra in January. Excluding the divestiture of Quanterra, sales improved
over 23%. Earnings from these businesses more than doubled over 1999 due largely
to increased volume and despite flat performances from Eurokera and Keraglass, a
French based manufacturer of glass ceramic cooktops.
Outlook: The environmental technologies businesses experienced slow sales at the
end of 2001 and that trend is expected to continue into 2002. Sales growth in
environmental technologies will be dependent upon an overall economic recovery
in the U.S., as well as Europe, evidenced by increased vehicle production. The
life sciences business is expected to continue its 2001 growth trends in 2002.
The other businesses in this segment experienced sales declines over the latter
half of the year and that trend is expected to continue into 2002. Growth in
other advanced materials businesses will depend on recovery in the semiconductor
materials business and the general economy.
- --------------------------------------------------------------------------------------------------------------------------------
Information Display
(In millions) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 800 $ 894 $ 701
Research, development and engineering expenses $ 40 $ 29 $ 23
Interest expense $ 23 $ 19 $ 11
Segment earnings before minority interest and equity earnings $ 44 $ 114 $ 58
Minority interest in earnings of subsidiaries (27) (23)
Equity in earnings of associated companies 105 145 68
------- ----- ------
Segment net income $ 149 $ 232 $ 103
======= ===== ======
Segment earnings before minority interest and
equity earnings as a percentage of segment sales 5.5% 12.8% 8.3%
Segment net income as a percentage of segment sales 18.6% 26.0% 14.7%
- --------------------------------------------------------------------------------------------------------------------------------
The Information Display Segment manufactures liquid crystal display glass for
flat panel displays (display technologies), glass panels and funnels for
televisions and cathode ray tubes (conventional video components), and precision
lens assemblies for projection video systems.
2001 vs. 2000
Sales in the Information Display Segment decreased 11% in 2001 to $800 million
as sales decreases in the conventional video components and display technologies
businesses more than offset an increase in the precision lens business. Segment
net income declined 36% with each business deteriorating compared to 2000.
Sales in the display technology business, a leading supplier of ultra-thin glass
substrates used to produce flat panel display, decreased 3% to $323 million in
2001. A significant shift in customer demand from Japan to Korea caused volume
to increase approximately 35% at Samsung Corning Precision Glass Company Ltd.
(Samsung Corning Precision), an equity affiliate and Korean manufacturer of
liquid crystal display glass, and 17% in the consolidated business. This volume
growth, when offset by the impact of price declines and the deterioration of the
yen resulted in the sales decline of 3%. Earnings for 2001 decreased
approximately 25%, primarily due to lower operating margins driven by pricing
pressures, start-up costs incurred for the May opening of a new manufacturing
facility in Taiwan and additional development and engineering expenses for
Eagle2000(TM), a new glass substrate used in active matrix liquid crystal
displays. Additionally, equity earnings from Samsung Corning Precision were down
over 15% compared to 2000 primarily due to Corning having a smaller ownership
interest in the company in 2001 vs. 2000.
Sales in the conventional video components business, a manufacturer of optically
pure, mechanically precise face plates and funnels for larger-screen television
tubes, were $252 million, down 29% compared to 2000. The decrease was primarily
due to a weak U.S. economy and increased competitive pricing pressure. Earnings
were down almost 50% due to lower sales volumes, decreased margins, a production
slowdown in the fourth quarter and lower equity earnings. Samsung Corning
Company Ltd. (Samsung Corning), a manufacturer based in South Korea that
produces glass panels and funnels for television and display monitors, also
experienced lower sales volumes and increased competitive pricing pressure, and
thus lower earnings. Corning owns 50% of Samsung Corning and accounts for this
investment under the equity method.
21
Sales in the precision lens business, a manufacturer of lens systems for
projection video and a specialist at making lenses from optical plastics,
increased 9% to $225 million in 2001. The increase was due to the growth of
digital projection television in the U.S. and China where the demand for high
definition television was growing. Despite the increase in sales, earnings for
2001 decreased approximately 30% primarily due to increased research and
development spending and manufacturing costs related to capacity expansion of
projection television assemblies.
2000 vs. 1999
Sales in the Information Display Segment increased 28% in 2000 to $894 million,
primarily due to strong growth in the display technologies and precision lens
businesses. Segment net income more than doubled, as did equity earnings,
reflecting increased earnings in each business over 1999.
Sales in the conventional video components business remained relatively flat at
$354 million for 2000, compared to 1999, due to slightly lower volumes offset in
part by price increases as the supply of television glass began to tighten.
Earnings in this business increased 83% compared to 1999, primarily due to
higher equity earnings, in addition to cost reductions and the impact of volume
and mix as a shift to higher premium products occurred in 2000. The increase in
equity earnings reflected improved volume and stable pricing at Samsung Corning.
Sales in the display technologies business in 2000 increased 76% over 1999 to
$333 million. This significant increase was the result of continued strong
demand for the business' liquid crystal glass for flat panel displays, led by
increased penetration into the desktop display market. Earnings in this business
more than doubled compared to 1999, reflecting strong volume gains and stable
pricing. Also equity earnings from Samsung Corning Precision more than doubled
largely due to strong volume gains in the Korean marketplace.
Sales in the precision lens business increased 32% in 2000 to $207 million as a
result of strong volume growth for projection televisions driven by demand for
larger size digital television sets in the entertainment market sector. Earnings
in this business increased 59% over 1999 primarily due to volume gains,
manufacturing efficiencies and the refocusing of product lines.
During the fourth quarter of 2000, Samsung Corning recognized a nonoperating
gain of $23 million from the divestment of its 40% interest in Samsung Corning
Precision. Corning's $11 million share of this gain is excluded from segment
equity earnings.
Outlook: Management expects the display technologies business to see growth in
sales volume in 2002, primarily due to increased penetration of flat panel
monitors. This business will continue to be impacted by its exposure to the
exchange rate of the yen. Management expects the soft economy to continue to
impact the conventional video components business in 2002 as low demand and
overcapacity of glass exert downward pressure on prices. In addition, changes in
the competitive environment in the conventional television glass market may
present significant challenges to this business. The projection lens business
anticipates modest growth that will be dependent on global economic recovery.
NON-SEGMENT RESULTS
Corning's non-segment results include the operations of Steuben, a crystal glass
manufacturer, and equity earnings from small nonstrategic investments that are
not aligned with Corning's three operating segments. In addition, the results of
operating segments does not include impairment and amortization of goodwill,
impairment of purchased intangibles, restructuring actions, purchased IPRD
charges, other one-time acquisition-related charges and other nonrecurring
charges.
Amortization of goodwill
Amortization of goodwill totaled $363 million ($344 million after-tax) in 2001
compared to $216 million ($202 million after-tax) in 2000 and $24 million ($18
million after-tax) in 1999. Amortization of goodwill increased in 2001 as it
included charges for the entire year related to transactions completed late in
2000. The amortization of goodwill was reduced by the impairment of goodwill
charge taken in the second quarter of 2001. Effective January 1, 2002, Corning
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Business
Combinations, which eliminates the amortization of goodwill. The new standard is
discussed further under New Accounting Standards and Note 1 to the Consolidated
Financial Statements.
22
Nonrecurring non-segment results for 2001 are discussed earlier in Impairment of
Goodwill and Other Intangible Assets and Restructuring Actions. Nonrecurring
items in 2000 and 1999 are described below.
Other restructuring and impairment charges
In the first quarter of 2000, Corning discontinued recognition of equity
earnings from Pittsburgh Corning Corporation (PCC) and recorded a charge to
impair its investment for $36 million due to PCC's decision to file for
bankruptcy protection and reorganization under Chapter 11 for asbestos
litigation. See Legal Proceedings and Note 9 to the Consolidated Financial
Statements for further detail.
In the third quarter of 1999, Corning recognized an impairment charge of $15
million ($10 million after-tax) in connection with management's decision to sell
Quanterra Incorporated.
In the fourth quarter of 1999, Corning released restructuring reserves totaling
$14 million ($9 million after-tax) related to early retirement incentives
offered in 1998 after determining the total cost of the incentive package would
be less than anticipated.
Nonoperating gains
In 2000, Samsung Corning recorded a fourth quarter nonoperating gain of $23
million from the divestment of its 40% interest in Samsung Corning Precision.
Corning's $11 million share of this gain is included in equity in earnings of
associated companies.
In 2000, Corning recorded a first quarter nonoperating gain of $7 million ($4
million after-tax) on the sale of Quanterra Incorporated to Severn Trent
Laboratories for approximately $35 million.
In 1999, Corning recorded a third quarter nonoperating gain of $30 million ($9
million after-tax and minority interest) as a result of the sale by Siecor
Corporation of Republic Wire and Cable for approximately $52 million in cash and
short-term notes.
Acquisition-related expenses
In the fourth quarter of 2000, Corning recorded a non-tax deductible IPRD charge
of $323 million related to the Pirelli transaction.
In the second quarter of 2000, Corning recorded a non-tax deductible IPRD charge
of $51 million related to the acquisitions of IntelliSense Corporation ($7
million) and NZ Applied Technologies (NZAT) ($44 million).
In the first quarter of 2000, Corning recorded an IPRD charge of $42 million
($25 million after-tax) related to the acquisition of British
Telecommunication's Photonics Technology Research Center (PTRC).
In the first quarter of 2000, Corning recorded a charge for acquisition costs
related to the merger of Oak Industries, Inc. of $47 million ($43 million
after-tax) primarily comprised of legal and investment banking fees.
Charges for purchased IPRD are described in more detail under In-Process
Research and Development.
INCOME TAXES
Corning's effective (benefit) tax rate for continuing operations was (7.4%),
58.9% and 30.7% in 2001, 2000 and 1999, respectively. The effective tax rates
for the three years are not comparable, primarily due to the significant amounts
of amortization of goodwill and other intangible assets in 2001 and 2000, along
with significant charges for impairment of goodwill in 2001 and IPRD in 2000, as
these charges are not tax deductible. These items reduce the benefit in 2001 and
increase the expense in 2000. Note 8 to the Consolidated Financial Statements
reconciles the statutory tax rate to the effective tax rate.
23
LIQUIDITY AND CAPITAL RESOURCES
Corning is meeting its funding needs through operating cash flows, outside
borrowings and equity issuances. At December 31, 2001, Corning had $2.2 billion
in cash and short-term investments and an unused revolving credit facility of
$2.0 billion.
Cash Flows and Working Capital
Sources of cash flow in 2001 were primarily operations, generating cash of $1.4
billion and financing transactions (primarily issuances of public debt and
equity securities) providing cash of $0.9 billion. Corning used cash of $2.4
billion in investing activities, primarily for capital expenditures and the
purchase of short-term investments.
Cash provided by operations in 2001 was comparable with 2000 results, despite
the decrease in net income due to the magnitude of non-cash charges, increased
depreciation and second half reduction in working capital as sales declined.
Corning expects cash from operations in 2002 to be significantly less than 2001,
primarily due to lower operating earnings and restructuring payments. If sales
improve from fourth quarter 2001 levels, Corning expects to use cash as working
capital increases commensurate with higher demand. Cash and short-term
investments on hand at December 31, 2001, access to commercial paper markets and
the revolving credit facility are alternative sources of liquidity. These
vehicles are discussed separately below.
Corning has invested significant cash in capital expansions in the last three
years. During 2001, Corning reduced its capital spending program from its
original plan of $2.5 billion to conserve cash. Capital spending totaled $1.8
billion, $1.7 billion, including $0.2 billion in accrued capital expenditures,
and $757 million in 2001, 2000 and 1999, respectively. The high level of capital
spending since 1999 relates primarily to capacity expansions in Corning's
Telecommunications Segment and expanded research and development facilities.
Corning's 2002 capital spending program is expected to be less than $500 million
as all expansion-related programs in the Telecommunications Segment are being
delayed indefinitely. Expansions in 2002 are expected to be primarily in the
liquid crystal display and environmental businesses.
Corning's net investment in short-term instruments during 2001 was $467 million,
compared to its initial net investment of $715 million in 2000. In 2000, Corning
began investing its excess cash in highly liquid debt securities such as
asset-backed securities, municipal and corporate bonds and U.S. treasury notes.
These investments are on deposit with a major financial institution.
Corning raised approximately $225 million in August 2001 through the issuance of
14.2 million shares of common stock. The proceeds are expected to finance the
acquisition of Lucent Technologies' controlling equity interests in Shanghai
Fiber Optic Co., Ltd. and Beijing Fiber Optic Cable Co., Ltd. This transaction
is expected to close in the first half of 2002.
In addition, in November 2001 Corning completed a convertible debt offering of
$665 million, due November 1, 2008. See Note 12 to the Consolidated Financial
Statements for more detail. Corning intends to use the net proceeds of this
offering for general corporate purposes.
Dividends paid to common shareholders in 2001 totaled $112 million compared with
$210 million in 2000 and $176 million in 1999. On July 9, 2001, Corning
announced the discontinuation of the payment of dividends on its common stock.
Corning's working capital decreased from $2.7 billion at the end of 2000 to $2.1
billion at the end of 2001. The ratio of current assets to current liabilities
was 2.1 at the end of 2001, compared to 2.4 at the end of 2000. Corning's
working capital in 2001 and 2000 included large cash and short-term investment
balances. Excluding cash and short-term investments, Corning's working capital
for 2001 was $(106) million, or a decrease of $997 million, compared to $891
million in 2000. The decrease in non-cash components of working capital was
primarily due to lower inventories and a significant decrease in accounts
receivable. Days sales outstanding in trade receivables decreased to 54 days for
the fourth quarter of 2001, from 56 days for the fourth quarter of 2000. As of
December 31, 2001, Corning had not provided vendor financing to any of its
customers. Corning's long-term debt as a percentage of total capital increased
from 27% at year-end 2000 to 45% at the end of 2001. The increase is primarily
due to the reduction in shareholders' equity arising from losses recorded in
2001 and the issuance of convertible debt in November 2001.
Financing Matters and Credit Ratings
Commercial paper borrowings outstanding at December 31, 2001, totaled $233
million with a weighted-average maturity of 23 days. Corning's commercial paper
program is supported by the $2.0 billion revolving credit facility with 18
banks, expiring on August 17, 2005. As of December 31, 2001, there were no
borrowings under the facility. The facility includes a covenant requiring
Corning to maintain a total debt to capital ratio, as defined, not greater than
60%. At December 31, 2001, this ratio was 47%.
24
Corning's credit ratings as of March 1, 2002 were as follows:
RATING AGENCY Rating Rating
Last Update Long-Term Debt Commercial Paper
- ----------- -------------- ----------------
Standard & Poor's (a) BBB A-2
November 6, 2001
Moody's (a) Baa1 P-2
November 7, 2001
Fitch (a) BBB- F-3
February 4, 2002
(a) All three credit rating agencies have maintained a negative outlook which
means a rating may be lowered.
Should business performance decline from the levels experienced in the fourth
quarter of 2001, these ratings could receive further review for possible
downgrade. A downgrade in short-term ratings could result in a significantly
reduced ability to access the commercial paper market and higher borrowing
costs. Corning's debt agreements do not include covenants that accelerate the
maturity of borrowings as a result of changes in credit ratings.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
organization. Each rating should be evaluated independently of any other rating.
In March 2001, Corning filed a universal shelf registration statement with the
U.S. Securities and Exchange Commission (SEC) that became effective in the first
quarter. The shelf permits the issuance of up to $5.0 billion of various debt
and equity securities. As of December 31, 2001, Corning's remaining capacity
under its shelf registration was approximately $4.1 billion.
Corning's 2001 earnings were not adequate to cover its fixed charges
(principally interest and related charges on debt), primarily as a result of
losses incurred in Corning's Telecommunication's Segment and the impairment of
goodwill. Corning's earnings may not be sufficient to cover its fixed charges in
2002.
Management believes that Corning has ample liquidity, retains satisfactory
access to the capital markets and maintains unused, revolving credit facilities.
Obligations, Commitments and Contingencies
At December 31, 2001, the contractual cash obligations and other commercial
commitments and contingencies of Corning were as follows:
Contractual Cash Obligations
- --------------------------------------------------------------------------------------------------------------------------------
2006 and
2002 2003 2004 2005 thereafter Total
- --------------------------------------------------------------------------------------------------------------------------------
(In millions)
- --------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 244 $ 173 $ 38 $ 2,411 $ 2,003 $ 4,869
Minimum rental commitments 67 61 57 51 331 567
Business combinations 225 225
- --------------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 536 $ 234 $ 95 $ 2,462 $ 2,334 $ 5,661
- --------------------------------------------------------------------------------------------------------------------------------
At December 31, 2001, future minimum lease payments to be received under a
noncancelable sublease to Quest Diagnostics totaled $47 million. Quest
Diagnostics, in turn, has a noncancelable sublease covering approximately $31
million of the minimum lease payments due to Corning. Corning has agreed to
indemnify Quest Diagnostics should Quest Diagnostics' sublessee default on the
minimum lease payments. Additionally, Corning continues to guarantee certain
obligations of Quest Diagnostics totaling $14 million.
25
Other Commercial Commitments and Contingencies
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of commitment and contingency expiration per period
----------------------------------------------------------
Less than 1 to 2 2 to 3 3 to 4 5 years and
Total 1 year years years years thereafter
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Performance bonds and guarantees $ 241 $ 241
Contingent purchase price for acquisitions 238 $ 25 $ 25 188
Dow Corning credit facility 150 150
Stand-by letters of credit 33 33
Loan guarantees 16 12 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total other commercial commitments
and contingencies $ 678 $ 70 $ 29 $ 579
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2001, Corning had guaranteed debt of equity affiliates totaling
$16 million. In addition, Corning and certain of its subsidiaries have provided
other financial guarantees and contingent liabilities in the form of purchase
price adjustments related to attainment of milestones, stand-by letters of
credit and performance bonds, some of which do not have fixed or scheduled
expiration dates. Corning has agreed to provide a credit facility related to Dow
Corning as discussed in Note 9 to the Consolidated Financial Statements. The
funding of the Dow Corning credit facility is subject to events connected to the
Bankruptcy Plan as described in Note 9. Management believes the significant
majority of the other guarantees and contingent liabilities will expire without
being funded.
IN-PROCESS RESEARCH AND DEVELOPMENT
Corning completed a number of purchase acquisitions in 2000. As part of
analyzing each of these acquisitions, Corning made a decision to buy technology
that had not yet been commercialized rather than develop the technology
internally. Corning based this decision on a number of factors, including the
amount of time it would take to bring the technology to market. Corning also
considered its internal research resource allocation and its progress on
comparable technology, if any. Corning expects to use the same decision process
in the future.
In connection with the acquisitions accounted for under the purchase method,
management is responsible for estimating the fair value of the assets and
liabilities acquired. Management has made estimates and assumptions that affect
the reported amounts of assets, liabilities and expenses resulting from such
acquisitions.
Amounts allocated to purchased IPRD were established through recognized
valuation techniques in the high technology communications industry. Certain
projects were acquired for which technological feasibility had not been
established at the date of acquisition and for which no alternative future uses
existed. In accordance with SFAS No. 2, "Accounting for Research and Development
Costs," as interpreted by Financial Accounting Standards Board (FASB)
Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method," amounts assigned to IPRD
meeting the above criteria must be charged to expense at the date of
consummation of the purchase.
The value allocated to projects for which a charge was recorded was determined
by the traditional income approach, which discounts expected future debt-free
income to present value. The discount rates used were specific to each project
and were derived from a cost of capital for each specific acquisition target,
adjusted upward for the stage of completion of each project.
Expected future debt-free income was derived with the following considerations:
- - revenues were estimated based on relevant market size, growth trends in the
industry and individual product sales cycles,
- - estimated operating expenses included cost of goods sold, selling, general
and administrative expenses, and research and development expenses to
maintain the products once they have been introduced,
- - estimated tax expenses were specific to each acquired entity and its tax
profile, and
- - for certain projects, as appropriate, a return on core technology was
deducted based upon market standards for licensed existing technology and a
return on assets was deducted based upon industry comparisons.
26
The nature of the efforts to develop the acquired technology into commercially
viable products consists principally of planning, designing and testing
activities necessary to determine that the product can meet market expectations.
Corning expects that products incorporating the acquired technology from these
projects will be completed and will begin to generate cash flows over the five
years following integration.
Management expects to continue supporting the majority of these research and
development efforts. Projects abandoned are noted below. This support is not
expected to change Corning's research and development expense trends. However,
the timing and success of development of these technologies remains a risk due
to the remaining effort to achieve technical viability, rapidly changing
customer markets, uncertain standards for new products and significant
competition in the marketplace.
The following is a more detailed discussion of the valuations associated with
acquisitions for which such charges have been recorded:
Acquisition of Pirelli's Optical Components and Devices Business
- ----------------------------------------------------------------
On December 12, 2000, Corning completed the Pirelli transaction. This business
had a significant number of research and development projects ongoing at the
time of acquisition of which 12 were valued as IPRD projects. Projected
debt-free income was initially discounted using a rate of 17% to reflect the
weighted-average cost of capital (entity risk) for this entity. Each product was
also discounted to account for the research project's stage of development.
Corning recorded a non-tax deductible IPRD charge of $323 million in the fourth
quarter of 2000.
Costs to complete the in-process research programs are expected to approximate
$25 million to $30 million. These projects have been categorized into four
product technologies as follows:
Lithium Niobate Modulators
The business is developing a number of different lithium niobate modulators.
Lithium niobate modulators are ideally suited for use in high-speed, long-haul
optical communications networks. The technology has been chosen by a majority of
long-haul equipment suppliers because it has the best combination of optical,
electronic and reliability performance. Five of the research projects qualified
as IPRD projects, and the completion percentages of these five projects ranged
from 10%-90%. A non-tax deductible charge of $235 million was recognized and the
value of individual modulator projects in-process ranged from $19 million to $83
million.
Submarine Products
The business had planned to develop high reliability 980 nanometer (nm) pump
laser chips and modules for submarine use. These devices are components within
an optical amplifier. At the acquisition date, two IPRD projects with completion
percentages of 10% and 50% were valued. A non-tax deductible charge of $26
million resulted from 980 nm pump laser submarine projects in process.
Individual research values were $3 million and $23 million.
As part of the downsizing of the photonic technologies business announced on
July 9, 2001, Corning abandoned this project. This action did not have a
material impact on cash flow, or the results of operations.
Gratings
At the date of acquisition, three qualifying gratings programs with completion
percentages ranging from 20%-85% were valued. A non-tax deductible IPRD charge
of $16 million resulted from gratings programs. Individual in-process projects
were valued between $2 million and $11 million.
As part of the downsizing of the photonic technologies business announced on
July 9, 2001, Corning abandoned this project. This action did not have a
material impact on cash flow, or the results of operations.
Specialty Fiber
Two specialty fiber programs at the business met the definition of IPRD.
Specialty fibers are used in conjunction with several other components to make
an erbium doped fiber amplifier, which boosts the strength of the optical
signal. At the acquisition date, these projects were 40% and 60% complete. A
non-tax deductible IPRD charge of $46 million resulted from specialty fiber
programs, with the largest program being valued at $42 million.
27
IntelliSense
- ------------
On June 12, 2000, Corning completed the acquisition of the remaining shares of
IntelliSense, a manufacturer and developer of micro-electro-mechanical systems
(MEMs), or small electro-mechanical, micro-fabricated devices. MEMs technology,
when integrated with optics and packaging expertise, enables the development of
optical add-drop switches and optical cross connects, that are expected to play
a key role in the development and build out of the optical networking layer. As
of the acquisition date, IntelliSense had three qualifying research projects
underway. These research and development projects are anticipated to result
primarily in the development of new telecommunications products. Projected
debt-free income was initially discounted using a rate of 20% to reflect the
weighted-average cost of capital (entity risk) for IntelliSense. Each product
was also discounted to account for the research project's stage of development.
The completion percentages ranged from 10%-90%. At the acquisition date, the
projected costs to complete the IPRD programs approximated $20 million. Corning
recorded a $7 million IPRD charge in the second quarter of 2000. No project
valued exceeded $5 million.
If none of the projects are successfully completed, Corning may lose an
opportunity to capitalize on emerging markets. Failure of any single project
would not materially impact Corning's financial condition, results of operations
or liquidity.
In all material respects, the research projects have progressed as planned at
acquisition.
NZ Applied Technologies
- -----------------------
On May 5, 2000, Corning completed the acquisition of NZAT. NZAT was developing a
line of high speed, solid-state components for dense wavelength division
multiplexing systems, such as variable optical attenuators, that will meet
industry demands for speed and quality. Of these projects, four were determined
to meet the criteria for purchased IPRD as of the acquisition date. Projected
debt-free income was initially discounted using a rate of 21% to reflect the
weighted-average cost of capital (entity risk) for NZAT. Each product was also
discounted to account for the research project's stage of development. The
completion percentages ranged from 10%-80%. At the acquisition date, the
projected costs to complete the IPRD programs approximated $10 million. A $44
million non-tax deductible IPRD charge was recognized and the value of
individual projects ranged from $1 million to $29 million.
If none of the projects are successfully completed, Corning may lose an
opportunity to capitalize on emerging markets. Failure of any single project
would not materially impact Corning's financial condition, results of operations
or liquidity.
In the fourth quarter of 2000, NZAT completed certain product development
milestones for its variable optical attenuator products.
Photonics Technology Research Center
- ------------------------------------
On February 14, 2000, Corning acquired PTRC. Located in Suffolk, UK, the PTRC
had extensive research and development efforts underway at the acquisition date
including work on planar integrated optics, semiconductor optical amplifiers,
electro-absorption modulators and optical networking devices. Seven projects
were determined to meet the criteria for purchased IPRD. Projected debt-free
income was determined for each of the projects and initially discounted using a
rate of 35% to reflect the weighted-average cost of capital (entity risk) for
PTRC. Each product was also discounted to account for the research project's
stage of development. The completion percentages ranged from 50%-80%. At the
acquisition date, the projected costs to complete the IPRD programs approximated
$40 million. A $42 million ($25 million after-tax) IPRD charge was recognized
and the value of individual projects ranged from less than $1 million to $16
million.
If none of the projects are successfully completed, Corning may lose an
opportunity to capitalize on emerging markets. Failure of any single project
would not materially impact Corning's financial condition, results of operations
or liquidity.
ENVIRONMENT
Corning has been named by the Environmental Protection Agency under the
Superfund Act, or by state governments under similar state laws, as a
potentially responsible party for 12 active hazardous waste sites. Under the
Superfund Act, all parties who may have contributed any waste to a hazardous
waste site, identified by such Agency, are jointly and severally liable for the
cost of cleanup unless the Agency agrees otherwise. It is Corning's policy to
accrue for its estimated liability related to Superfund sites and other
environmental liabilities related to property owned and operated by Corning
based on expert analysis and continual monitoring by both internal and external
consultants. Corning has accrued approximately $24 million for its estimated
liability for environmental cleanup and related litigation at December 31, 2001.
Based upon the information developed to date, management believes that the
accrued amount is a reasonable estimate of Corning's estimated liability and
that the risk of an additional loss in an amount materially higher than that
accrued is remote.
28
MARKET RISK DISCLOSURES
Corning operates and conducts business in many foreign countries and as a result
is exposed to movements in foreign currency exchange rates. Corning's exposure
to exchange rate effects includes:
- - exchange rate movements on financial instruments and transactions
denominated in foreign currencies which impact earnings, and
- - exchange rate movements upon conversion of net assets in foreign
subsidiaries for which the functional currency is not the U.S. dollar,
which impact Corning's net equity.
Corning's most significant foreign currency exposures relate to Japan, Korea,
Taiwan and Western European countries. Corning selectively enters into foreign
exchange forward and option contracts with durations generally 12 months or less
to hedge its exposure to exchange rate risk on foreign source income and
purchases. The hedges are scheduled to mature coincident with the timing of the
underlying foreign currency commitments and transactions. The objective of these
contracts is to neutralize the impact of exchange rate movements on Corning's
operating results. Corning also enters into foreign exchange forward contracts
when situations arise where its foreign subsidiaries or Corning Incorporated
enter into lending situations, generally on an intercompany basis, denominated
in currencies other than their local currency. Corning does not hold or issue
any derivative contracts that hedge its foreign currency denominated net asset
exposures. Corning does not hold or issue derivative financial instruments for
trading purposes.
Equity in earnings of associated companies has historically represented a
significant amount of Corning's income from continuing operations. Equity in
earnings of associated companies was $148 million in 2001 with foreign-based
affiliates comprising 93% of this amount. Exchange rate fluctuations and actions
taken by management of these entities to reduce this risk can affect the
earnings of these companies.
Corning uses a sensitivity analysis to assess the market risk associated with
its foreign currency exchange risk. Market risk is defined as the potential
change in fair value of assets and liabilities resulting from an adverse
movement in foreign currency exchange rates. At December 31, 2001, Corning and
its consolidated subsidiaries had open forward contracts, open option contracts,
foreign denominated debt and foreign cash and cash equivalent holdings with
values exposed to exchange rate movements, all of which were designated as
hedges at December 31, 2001. A 10% adverse movement in quoted foreign currency
exchange rates could result in a loss in fair value of these instruments of $83
million.
The nature of Corning's foreign exchange rate risk exposures have not changed
materially from December 31, 2000, however Corning's acquisition activity in
2000 has expanded its presence in international markets and thus increased the
degree of its exposures overall.
In 2000, Corning began investing in start-up companies with emerging
technologies in the telecommunications industry. These investments are recorded
at cost and contain a high degree of risk as the technologies under development
may never yield marketable products. Investments of this nature totaled $133
million and $52 million at December 31, 2001 and 2000, respectively. Corning
routinely assesses the recoverability of the carrying value of these investments
and will impair these assets when a decline in value is other than temporary.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported therein. The estimates that require
management's most difficult, subjective or complex judgments are described
below. The critical judgments impacting the financial statements include:
- - the impairment of goodwill and other intangible assets,
- - inventory write-down and realizability determinations,
- - salvage values of assets impaired in connection with restructuring actions,
- - valuation allowances for deferred income taxes, and
- - purchased IPRD.
29
In each situation, management is required to make estimates about the effects of
matters, or future events that are inherently uncertain. Specifically, in its
assessment of impairment of goodwill and other intangible assets, management
made estimates of the fair values based upon forecasted revenues and operations.
(Refer to Impairment of Goodwill and Other Intangible Assets for further
discussion of management's determination of its impairment charge.) An
assessment of inventory realizability requires management to forecast sales and
future technological developments. An estimation of salvage values associated
with assets to be disposed of requires judgments concerning such factors as
fluctuating real estate markets and timing of disposal. Corning has reduced its
deferred tax assets to an amount that it believes is more likely than not to be
realized. In so doing, Corning has estimated future taxable income in
determining the valuation allowance. Valuing purchased IPRD requires management
to estimate the amount and timing of future cash flows resulting from new
product introductions.
Corning used what it believes are reasonable assumptions and where applicable,
established valuation techniques in making its estimates.
NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." Among other provisions, all
future business combinations will be accounted for using the purchase method of
accounting and the use of the pooling-of-interests method is prohibited for
transactions initiated after June 30, 2001. In addition, goodwill will no longer
be amortized but will be subject to impairment tests at least annually. SFAS No.
142 was effective for Corning on January 1, 2002. An assessment of the
recoverability of goodwill recorded on the date of adoption must be performed
within one year. At December 31, 2001, goodwill approximated $1.9 billion.
Corning does not anticipate a transitional impairment charge from the adoption
of the standard.
The following table presents a reconciliation of reported net (loss) income and
(loss) earnings per share to adjusted net (loss) income and (loss) earnings per
share, as if SFAS No. 142 had been in effect as follows:
Years ended December 31,
-----------------------------------------
(In millions) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Reported net (loss) income $ (5,498) $ 422 $ 516
Goodwill amortization, net of income taxes 345 203 18
----------------------------------------
Adjusted net (loss) income $ (5,153) $ 625 $ 534
========================================
Reported net (loss) income per share - basic $ (5.89) $ 0.49 $ 0.67
Goodwill amortization, net of income taxes 0.37 0.24 0.03
----------------------------------------
Adjusted net (loss) income per share - basic $ (5.52) $ 0.73 $ 0.70
========================================
Reported net (loss) income per share - diluted $ (5.89) $ 0.48 $ 0.66
Goodwill amortization, net of income taxes 0.37 0.23 0.02
----------------------------------------
Adjusted net (loss) income per share - diluted $ (5.52) $ 0.71 $ 0.68
========================================
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. Corning is required to implement SFAS No. 143
on January 1, 2003. Corning does not expect this standard to have a material
impact on its consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This standard supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The standard retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands on the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. Corning is
required to implement SFAS No. 144 on January 1, 2002. Corning does not expect
this standard to have a material impact on its consolidated financial position
or results of operations.
30
FORWARD-LOOKING STATEMENTS
The statements in this Annual Report, in reports subsequently filed by Corning
with the SEC on Forms 10-Q and 8-K and related comments by management which are
not historical facts or information and contain words such as "believes,"
"expects," "anticipates," "estimates," "forecasts," and similar expressions are
forward-looking statements. These forward-looking statements involve risks and
uncertainties that may cause the actual outcome to be materially different. Such
risks and uncertainties include, but are not limited to:
- - global economic conditions,
- - currency fluctuations,
- - product demand and industry capacity,
- - competitive products and pricing,
- - sufficiency of manufacturing capacity and efficiencies,
- - cost reductions,
- - availability and costs of critical materials,
- - new product development and commercialization,
- - attracting and retaining key personnel,
- - order activity and demand from major customers,
- - fluctuations in capital spending by customers in the telecommunications
industry and other business segments,
- - changes in the mix of sales between premium and non-premium products,
- - facility expansions and new plant start-up costs,
- - adverse litigation or regulatory developments,
- - capital resource and cash flow activities,
- - capital spending,
- - equity company activities,
- - interest costs,
- - acquisition and divestiture activity,
- - the rate of technology change,
- - the ability to enforce patents,
- - product performance issues,
- - stock price fluctuations, and
- - other risks detailed in Corning's SEC filings.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
- ---------------------------------------------------------------------
See Item 7, Market Risk Disclosures, appearing on page 29.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
See Item 14 (a) 1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
31
PART III
Item 10. Directors and Executive Officers
- ------------------------------------------
A list of Directors of the Company, appearing under the captions "Nominees for
Election" and "Directors Continuing in Office" in the Proxy Statement relating
to the annual meeting of shareholders to be held on April 25, 2002, is
incorporated by reference in this Annual Report on Form 10-K.
32
Executive Officers of the Registrant
John W. Loose President and Chief Executive Officer
Mr. Loose joined Corning in 1964 and subsequently held a variety of sales and
marketing positions in the Consumer Products Division. In 1986 he was appointed
vice president and general manager for the Asia-Pacific area. In 1988 he was
appointed vice president for Corning International Corporation and president and
chief executive officer of Corning Asahi Video Products Company and subsequently
senior vice president, International. In April 1990 he was elected executive
vice president responsible for the Information Display Group. In 1993, Mr. Loose
became responsible for the consumer business and was elected president and chief
executive officer of Corning Consumer Products Company. In 1996 he was elected
president, Corning Communications. He was elected president and chief operating
officer in 1999. In 2000, Mr. Loose was elected chief executive officer
effective January 1, 2001. Mr. Loose is a director of Dow Corning Corporation
and Polaroid Corporation, a trustee of Corning Incorporated Foundation and the
Corning Museum of Glass and a member of The Business Council, the Business
Roundtable and the Business Council of New York State and has been a member of
Corning's Board of Directors since 1996. Age 60.
James B. Flaws Executive Vice President and Chief Financial Officer
Mr. Flaws joined Corning in 1973 and has held a variety of positions within
Corning's Consumer Products group and in 1991 was appointed vice president and
chief financial officer. Mr. Flaws was elected assistant treasurer of Corning
Incorporated in 1993, vice president and controller effective as of February 1,
1997 and vice president-finance and treasurer effective as of May 16, 1997. He
was elected senior vice president and chief financial officer in December, 1997.
Mr. Flaws is a director of Dow Corning Corporation. He was elected to his
present position in 1999. Mr. Flaws has been a member of Corning's Board of
Directors since December 2000. Age 53.
Peter F. Volanakis President, Corning Technologies
Mr. Volanakis joined Corning in 1982 and subsequently held various marketing,
development and commercial positions in several divisions. In 1991, he was
appointed director of corporate marketing. In 1995, he was named executive vice
president of Siecor Corporation. He was named senior vice president of Advanced
Display Products in October 1997. Effective January 1, 1999, he was appointed
executive vice president of the Advanced Display and Science Products Divisions.
In December 2000, he was elected president, Corning Technologies effective
January 1, 2001. Mr. Volanakis is a director of Dow Corning Corporation. Mr.
Volanakis has been a member of Corning's Board of Directors since December 2000.
Age 46.
Wendell P. Weeks President, Corning Optical Communications
Mr. Weeks joined Corning in 1983 and has served in various accounting, business
development, and business manager positions. In 1992, he was named general
manager and director of external development, Opto-Electronics Components
Business, division vice president in July 1994, and deputy general manager in
June 1995. He was appointed vice president and general manager of the
Telecommunications Products Division in March 1996 and senior vice president
effective November 1, 1997. Effective January 1, 1999, he was appointed
executive vice president of Opto-Electronics. In December 2000, he was elected
president of Corning Optical Communications effective January 1, 2001. Mr. Weeks
has been a member of Corning's Board of Directors since December 2000. Age 42.
Katherine A. Asbeck Senior Vice President and Controller
Ms. Asbeck joined Corning in 1991 as director of accounting. She was appointed
assistant controller in 1993, designated chief accounting officer in 1994 and
elected vice president and controller effective as of May 1997. In December
2000, she was elected senior vice president effective January 1, 2001. Age 45.
Robert L. Ecklin Executive Vice President, Environmental Technologies and
Strategic Growth
Mr. Ecklin joined Corning in 1961 and served in a variety of U.S. and
international manufacturing and engineering managerial positions. For Corning
Engineering he served as its vice president in 1982 and was appointed its
president in 1983. In 1986 he became vice president of Business Development. Mr.
Ecklin was appointed general manager of the Industrial Products Division in 1989
and senior vice president in 1990. Effective January 1999, he was appointed
executive vice president of the Environmental Products Division and effective
January 2001, he was named executive vice president, Optical Communications. He
was named executive vice president - Environmental Technologies and Strategic
Growth effective January 1, 2002. Age 63.
William D. Eggers Senior Vice President and General Counsel
Mr. Eggers joined Corning in 1997 as vice president and deputy general counsel.
He was elected senior vice president and general counsel in February 1998. Mr.
Eggers was a Partner with the Rochester firm of Nixon, Hargrave, Devans & Doyle,
LLP, before joining Corning, and was outside litigation counsel for Corning in a
number of commercial matters. Age 57.
33
Alan T. Eusden Senior Vice President and General Manager, Optical Fiber
Mr. Eusden joined Corning in 1983 and has held a variety of manufacturing and
financial management positions within the Telecommunications Products and
Specialty Materials Divisions. In 1994, he was appointed general manager of
Corning GmbH. He was appointed division vice president and deputy general
manager of the Telecommunications Products Division in April 1998 and was
appointed division vice president and general manager-TPD in September 1998. He
was elected vice president and general manager-Optical Fiber in January 1999,
and appointed to his current position in December 2000 effective January 1,
2001. Age 46.
Gerald J. Fine Executive Vice President, Photonic Technologies
Dr. Fine joined Corning in 1985 as a research scientist in the Research and
Development Division and served as manager, Consumer Products Development for
the division from 1990-1992. He held management positions for Corning Asahi
Video Products and was named deputy general manager-Advanced Display Products in
1995. He was named vice president and general manager-Photonic Technologies
Division in October 1997. In December 2000, Dr. Fine was appointed executive
vice president-Photonic Technologies effective January 1, 2001. Age 44.
Kirk P. Gregg Senior Vice President, Administration
Mr. Gregg joined Corning in 1993 as director of Executive Compensation, was
named vice president of Executive Resources and Employee Benefits in December
1994. He was named to his current position in December 1997. Prior to joining
Corning, Mr. Gregg was with General Dynamics Corporation as corporate director,
Key Management Programs, and was responsible for executive compensation and
benefits, executive development and recruiting. Age 42.
Joseph A. Miller Senior Vice President and Chief Technology Officer
Dr. Miller joined Corning in 2001 and was appointed to his current position
effective July 1, 2001. Prior to joining Corning, Dr. Miller was with E.I.
DuPont de Nemours, Inc., where he served as chief technology officer and senior
vice president for research and development since 1994. He began his career with
DuPont in 1966 as a research chemist in Polymer Science. He also held a variety
of positions in research and development, manufacturing, business and marketing.
Age 60.
Donald H. McConnell Senior Vice President, Director-Science and Technology
Mr. McConnell joined Corning in 1966 and has held a variety of manufacturing and
engineering management positions. He became division vice president-Corning
Asahi Video Products in 1989 and was appointed division vice president-Product
and Process Development, Science and Technology, in January 1995. Mr. McConnell
was appointed vice president-Science & Technology in April 1997 and was named
vice president-Science & Technology and technology delivery officer-Corning
Optical Communications in March 1999. Effective January 2001, Mr. McConnell was
elected senior vice president, director-Science and Technology. Age 58.
Pamela C. Schneider Senior Vice President-Human Resources and Diversity Officer
Ms. Schneider joined Corning in 1986 and has held a variety of financial and
human resource management positions. In 1991 she was named chief financial
officer of Corning Asahi Video Products. In January 1993, she was appointed vice
president and chief financial officer for Corning Consumer Products Company and
named vice president for Finance & Administration in 1995. She was named vice
president-Human Resources and diversity officer in December 1997 and was
appointed to her present position in December 1999. Age 48.
34
Item 11. Executive Compensation
- --------------------------------
Information covering Executive Compensation, appearing under the captions
"Report of the Compensation Committee of the Board of Directors on Executive
Compensation" and "Other Matters" in the Proxy Statement relating to the annual
meeting of shareholders to be held on April 25, 2002, is incorporated by
reference in this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information with respect to Security Ownership of Certain Beneficial Owners,
appearing under the caption "Security Ownership of Certain Beneficial Owners" in
the Proxy Statement relating to the annual meeting of shareholders to be held on
April 25, 2002, is incorporated by reference in this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
A description of transactions with management and others and certain business
relationships, appearing under the captions "Matters Relating to Directors" and
"Other Matters" in the Proxy Statement relating to the annual meeting of
shareholders to be held on April 25, 2002, is incorporated by reference in this
Annual Report on Form 10-K.
35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) Documents filed as part of this report:
1. Index to financial statements and financial statement schedules, filed
as part of this report:
Page
Report of Independent Accountants 39
Consolidated Statements of Income 40
Consolidated Balance Sheets 41
Consolidated Statements of Cash Flows 42
Consolidated Statements of Changes in Shareholders' Equity 43
Notes to Consolidated Financial Statements 44-73
Financial Statement Schedule:
II Valuation Accounts and Reserves 74
2. Supplementary Data:
Quarterly Operating Results and Related Market Data 75
Five Years in Review - Historical Comparison 76-77
Investor Information 78
3. Exhibits filed as part of this report: see (c) below.
(b) Reports on Form 8-K filed during the last quarter of fiscal 2001:
A report on Form 8-K dated October 3, 2001, filed in connection with the
registrant's restructuring program.
A report on Form 8-K dated October 18, 2001, filed in connection with the
registrant's third quarter results.
A report on Form 8-K dated November 9, 2001, filed in connection with the
registrant's plan for a convertible debenture offering.
A report on Form 8-K dated November 13, 2001, filed in connection with the
registrant's issuance of 3.5% convertible debentures.
A report on Form 8-K dated November 15, 2001, filed in connection with the
registrant's convertible debenture offering whereby the underwriters
exercised their option to purchase additional debentures.
(c) Exhibits filed as part of this report:
#4 Rights Agreement dated June 5, 1996, that defines the preferred share
purchase rights which trade with the Registrant's common stock, which
appears as Exhibit 1 to Form 8-K, dated July 10, 1996, is incorporated
herein by reference in this Annual Report on Form 10-K.
#12 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends
#21 Subsidiaries of the Registrant at December 31, 2001
#23 Consent of Independent Accountants
#24 Powers of Attorney
36
Signatures
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Corning Incorporated
Principal Executive Officer
By /s/ John W. Loose President and March 4, 2002
---------------------------------------- Chief Executive Officer
(John W. Loose)
Principal Financial Officer
By /s/ James B. Flaws Executive Vice President and March 4, 2002
---------------------------------------- Chief Financial Officer
(James B. Flaws)
Principal Accounting Officer
By /s/ Katherine A. Asbeck Senior Vice President and Controller March 4, 2002
----------------------------------------
(Katherine A. Asbeck)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
on the date indicated.
Capacity Date
*
Chairman of the Board of Directors March 4, 2002
- -----------------------------------------------
(James R. Houghton)
*
Director March 4, 2002
- -----------------------------------------------
(Roger G. Ackerman)
*
Director March 4, 2002
- -----------------------------------------------
(John Seely Brown)
*
Director March 4, 2002
- -----------------------------------------------
(James B. Flaws)
*
Director March 4, 2002
- -----------------------------------------------
(Gordon Gund)
*
Director March 4, 2002
- -----------------------------------------------
(John M. Hennessy)
37
*
Director March 4, 2002
- -----------------------------------------------
(John W. Loose)
*
Director March 4, 2002
- -----------------------------------------------
(James J. O'Connor)
*
Director March 4, 2002
- -----------------------------------------------
(Catherine A. Rein)
*
Director March 4, 2002
- -----------------------------------------------
(Deborah D. Rieman)
*
Director March 4, 2002
- -----------------------------------------------
(H. Onno Ruding)
*
Director March 4, 2002
- -----------------------------------------------
(William D. Smithburg)
*
Director March 4, 2002
- -----------------------------------------------
(Hansel E. Tookes II)
*
Director March 4, 2002
- -----------------------------------------------
(Peter F. Volanakis)
*
Director March 4, 2002
- -----------------------------------------------
(Wendell P. Weeks)
*By /s/ William D. Eggers
----------------------------------------
(William D. Eggers, Attorney-in-fact)
38
Report of Independent Accountants
PricewaterhouseCoopers LLP
To the Board of Directors and Shareholders of Corning Incorporated
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 36 present fairly, in all material
respects, the financial position of Corning Incorporated and its subsidiaries at
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14 (a)(1) on page 36 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, New York 10019
January 23, 2002
39
Consolidated Statements of Income Corning Incorporated and Subsidiary Companies
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 6,272 $ 7,127 $ 4,741
Cost of sales 4,380 4,131 2,930
---------------------------------------------
Gross margin 1,892 2,996 1,811
Operating expenses:
Selling, general and administrative expenses 1,097 1,047 667
Research, development and engineering expenses 631 540 378
Amortization of purchased intangibles, including goodwill 439 245 28
Acquisition-related charges 463
Impairment and restructuring charges 5,725 1
---------------------------------------------
Operating (loss) income (6,000) 701 737
Interest income 68 105 12
Interest expense (153) (107) (93)
Other expense, net (26) (15) (11)
Nonoperating gain 7 30
---------------------------------------------
(Loss) income from continuing operations before income taxes (6,111) 691 675
(Benefit) provision for income taxes (452) 407 207
---------------------------------------------
(Loss) income from continuing operations before minority interest
and equity earnings (5,659) 284 468
Minority interest in losses (earnings) of subsidiaries 13 (24) (67)
Dividends on convertible preferred securities of subsidiary (2)
Equity in earnings of associated companies 148 185 112
Impairment of equity investment (36)
---------------------------------------------
(Loss) income from continuing operations (5,498) 409 511
Income from discontinued operations, net of income taxes 13 5
---------------------------------------------
NET (LOSS) INCOME $ (5,498) $ 422 $ 516
=============================================
BASIC (LOSS) EARNINGS PER SHARE
Continuing operations $ (5.89) $ 0.48 $ 0.67
Discontinued operations 0.01
---------------------------------------------
NET (LOSS) INCOME PER SHARE $ (5.89) $ 0.49 $ 0.67
=============================================
DILUTED (LOSS) EARNINGS PER SHARE
Continuing operations $ (5.89) $ 0.46 $ 0.65
Discontinued operations 0.02 0.01
---------------------------------------------
NET (LOSS) INCOME PER SHARE $ (5.89) $ 0.48 $ 0.66
=============================================
The accompanying notes are an integral part of these statements.
40
Consolidated Balance Sheets Corning Incorporated and Subsidiary Companies
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(In millions) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,037 $ 1,079
Short-term investments, at fair value 1,182 715
--------------------------------
Total cash and short-term investments 2,219 1,794
Trade accounts receivable, net of doubtful accounts and
allowances - $60/2001; $47/2000 593 1,302
Inventories 725 1,040
Deferred income taxes 347 172
Other current assets 223 326
--------------------------------
Total current assets 4,107 4,634
--------------------------------
Investments:
Associated companies, at equity 636 494
Others, at cost or fair value 142 156
--------------------------------
Total investments 778 650
--------------------------------
Plant and equipment, at cost, net of accumulated depreciation 5,097 4,679
Goodwill, net of accumulated amortization - $661/2001; $303/2000 1,937 6,779
Other intangible assets, net of accumulated amortization
- $90/2001; $52/2000 352 561
Other assets 522 223
--------------------------------
TOTAL ASSETS $ 12,793 $ 17,526
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 477 $ 128
Accounts payable 441 855
Other accrued liabilities 1,076 966
--------------------------------
Total current liabilities 1,994 1,949
--------------------------------
Long-term debt 4,461 3,966
Postretirement benefits other than pensions 608 588
Deferred income taxes 61
Other liabilities 190 181
Minority interest in subsidiary companies 119 139
Convertible preferred stock 7 9
Common shareholders' equity:
Common stock, including excess over par value
and other capital - par value $0.50 per share;
Shares authorized: 3.8 billion;
Shares issued: 1.0 billion/2001 and 2000 10,044 9,512
(Accumulated deficit) retained earnings (3,610) 2,001
Less cost of 79 million/2001 and 76 million/2000
shares of common stock in treasury (827) (753)
Accumulated other comprehensive loss (193) (127)
--------------------------------
Total common shareholders' equity 5,414 10,633
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,793 $ 17,526
================================
The accompanying notes are an integral part of these statements.
41
Consolidated Statements of Cash Flows Corning Incorporated and Subsidiary Companies
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(In millions) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income from continuing operations $ (5,498) $ 409 $ 511
Adjustments to reconcile (loss) income from continuing operations
to net cash provided by operating activities:
Amortization of purchased intangibles, including goodwill 439 245 28
Depreciation 641 516 376
Impairment of goodwill and other intangible assets 4,764
Nonoperating gains (7) (30)
Acquisition-related charges 463
Impairment of assets and restructuring charges, net of cash spent 884 1
Inventory write-down 333
Stock compensation charges 130 31 7
Equity in earnings of associated companies in excess of dividends received (94) (140) (61)
Impairment of equity investment 36
Minority interest, net of dividends paid (22) (83) 50
Deferred tax (benefit) expense (511) (48) 43
Interest expense on convertible debentures 41 7
Tax benefit on stock options 27 321 60
Changes in certain working capital items 241 (402) (144)
Other, net 70 73 26
------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,445 1,421 867
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,800) (1,525) (757)
Acquisitions of businesses, net of cash acquired (66) (5,053) (188)
Net proceeds from sale or disposal of assets 67 80 68
Net increase in long-term investments and other long-term assets (113) (56) (38)
Short-term investments - acquisitions (1,320) (1,482)
Short-term investments - liquidations 853 767
Other, net 4 5 (18)
------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,375) (7,264) (933)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term debt 181 (386) 215
Proceeds from issuance of long-term debt 735 2,728 347
Repayments of long-term debt (104) (169) (80)
Proceeds from issuance of common stock 247 4,744 113
Repurchases of common stock (96)
Redemption of common stock for income tax withholding (42) (57) (18)
Dividends paid (113) (211) (177)
------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 904 6,649 304
------------------------------------
Effect of exchange rates on cash (7) (5) (4)
------------------------------------
Cash (used in) provided by continuing operations (33) 801 234
Cash used in discontinued operations (9) (2) (13)
------------------------------------
Net (decrease) increase in cash and cash equivalents (42) 799 221
Cash and cash equivalents at beginning of year 1,079 280 59
------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,037 $1,079 $ 280
====================================
The accompanying notes are an integral part of these statements.
42
Consolidated Statements of Changes in Shareholders' Equity Corning Incorporated and Subsidiary Companies
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions)
Retained Accumulated
Capital in earnings other Total
Common excess of Unearned (accumulated Treasury comprehensive shareholders'
stock par value compensation deficit) stock income (loss) equity
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 133 $ 1,042 $ (132) $ 1,451 $ (790) $ 3 $ 1,707
Net income 516 516
Foreign currency translation adjustment (54) (54)
Net unrealized gain on investments,
net of tax 20 20
-----------
Total comprehensive income 482
Conversion of monthly income
preferred securities 102 263 365
Shares issued 3 160 163
Corning Stock Ownership Trust 145 (128) 17
Repurchases of shares (96) (96)
Retirement of treasury shares (30) 30
Tax benefit from exercise of options 60 60
Dividends on stock ($0.24 per share) (177) (177)
Other, net 5 (63) (58)
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 136 1,479 (255) 1,790 (656) (31) 2,463
Net income 422 422
Foreign currency translation adjustment (118) (118)
Net unrealized gain on investments,
net of tax 22 22
-----------
Total comprehensive income 326
Shares issued in acquisitions 10 2,980 2,990
Shares issued in equity offerings 32 4,560 4,592
Other shares issued 3 261 264
Stock split 320 (320)
Corning Stock Ownership Trust 45 (26) 19
Tax benefit from exercise of options 321 321
Dividends on stock ($0.24 per share) (211) (211)
Other, net (11) (23) (97) (131)
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 501 9,315 (304) 2,001 (753) (127) 10,633
Net loss (5,498) (5,498)
Foreign currency translation adjustment (31) (31)
Net unrealized gain on investments,
net of tax (45) (45)
Other comprehensive income 10 10
-----------
Total comprehensive loss (5,564)
Shares issued in acquisitions 2 163 165
Shares issued in equity offerings 7 218 225
Other shares issued 1 78 79
Corning Stock Ownership Trust (166) 239 (33) 40
Tax benefit from exercise of options 27 27
Dividends on stock ($0.12 per share) (113) (113)
Other, net (97) 60 (41) (78)
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 511 $ 9,538 $ (5) $(3,610) $ (827) $ (193) $ 5,414
======================================================================================
The accompanying notes are an integral part of these statements.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Corning Incorporated and Subsidiary Companies
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all entities
controlled by Corning and its majority-owned domestic and foreign subsidiaries,
after elimination of all material intercompany accounts, transactions and
profits.
The equity method of accounting is used for investments in associated companies
which are not controlled by Corning and in which Corning's interest is generally
between 20% and 50%. Corning's share of earnings or losses of associated
companies, in which at least 20% of the voting securities is owned, is included
in the consolidated operating results except for investments where Corning is
not able to exercise considerable influence over the operating and financial
decisions of the investee, in which case, the cost method is used.
Certain amounts for 2000 and 1999 have been reclassified to conform with 2001
classifications.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to
make estimates and assumptions that affect amounts reported therein. Due to the
inherent uncertainty involved in making estimates, actual results reported in
future periods may be based upon amounts that could differ from those estimates.
Revenue Recognition
Corning recognizes revenue when it is realized or realizable and has been
earned. Product revenue is recognized when persuasive evidence of an arrangement
exists, the product has been delivered and legal title and all risks of
ownership have been transferred, written contract and sales terms are complete,
customer acceptance has occurred and payment is reasonably assured. Corning
reduces revenue for estimated product returns, allowances and price discounts
based on past experience.
Foreign Currencies
Balance sheet accounts of foreign subsidiaries are translated at current
exchange rates and income statement accounts are translated at average exchange
rates for the year. Translation gains and losses are reported as a separate
component of accumulated other comprehensive income (loss). Foreign currency
transaction gains and losses affecting cash flows are included in current
earnings.
Corning enters into foreign exchange contracts primarily as hedges against
identifiable foreign currency commitments. Gains and losses on contracts
identified as hedges are deferred and included in the measurement of the related
foreign currency transactions. Gains and losses on foreign currency contracts,
which are not designated as hedges of foreign currency commitments, are included
in current earnings.
Stock-Based Compensation
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, Corning applies the recognition and
measurement principles of Accounting Principles Board Opinion (APB) No. 25 to
its stock options and other stock-based compensation plans.
Cash and Cash Equivalents
All highly liquid investments with original maturities of 90 days or less, are
considered cash equivalents.
44
1. Summary of Significant Accounting Policies (continued)
Supplemental disclosure of cash flow information is as follows:
Years ended December 31,
----------------------------------------
(In millions) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Changes in certain working capital items:
Accounts receivable $ 677 $ (249) $ (150)
Inventories (51) (280) (81)
Other current assets 92 (192) (9)
Accounts payable and other current liabilities (477) 319 96
---------------------------------------
Total $ 241 $ (402) $ (144)
=======================================
Cash paid for interest and income taxes:
Interest $ 111 $ 132 $ 131
Income taxes, net of refunds $ 99 $ 127 $ 172
Short-Term Investments
Corning's short-term investments consist of debt securities classified as
available-for-sale which are stated at estimated fair value. These debt
securities include U.S. treasury notes, state and municipal bonds, asset-backed
securities, corporate bonds, commercial paper and certificates of deposit. These
investments are on deposit with a major financial institution. Unrealized gains
and losses, net of tax, are computed on the basis of specific identification and
are reported as a separate component of accumulated other comprehensive income
(loss) in shareholders' equity until realized.
Other Investments
Corning has other cost-based investments primarily in nonpublicly traded
companies. These investments are included in Other Investments on Corning's
balance sheet and are generally carried at cost. A decline in the value of these
cost-based investments below cost that is deemed other than temporary is charged
to earnings, resulting in a new cost basis for that investment.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
Property and Depreciation
Land, buildings and equipment are recorded at cost. Depreciation is based on
estimated useful lives of properties using the straight-line method. The
estimated useful lives range from 20-40 years for buildings and 3-20 years for
the majority of Corning's equipment.
Goodwill and Other Intangible Assets
Investment costs in excess of the fair value of net assets acquired are
amortized over appropriate periods not exceeding 40 years, but principally
ranging from 5 to 25 years for acquisitions over the past three years. Other
intangible assets are recorded at cost and amortized over periods generally
ranging from 5 to 20 years.
Impairment of Long-Lived Assets
Corning reviews the recoverability of its long-lived assets, including goodwill
and other intangible assets, when events or changes in circumstances occur that
indicate that the carrying value of the asset may not be recoverable. The
assessment of possible impairment is based on Corning's ability to recover the
carrying value of the asset from the expected future pre-tax cash flows
(undiscounted and without interest charges) of the related operations. If these
cash flows are less than the carrying value of such asset, an impairment loss is
recognized for the difference between estimated fair value and carrying value.
The measurement of impairment requires management to estimate the fair value of
long-lived assets.
45
1. Summary of Significant Accounting Policies (continued)
Income Taxes
Corning uses the asset and liability approach to account for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the expected
future tax consequences of differences between the carrying amounts of assets
and liabilities and their respective tax basis using enacted tax rates in effect
for the year in which the differences are expected to reverse. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the change is enacted.
Accounting Changes
Effective January 1, 2001, Corning adopted Financial Accounting Standards Board
(FASB) SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 requires
that all derivative financial instruments be recognized in the financial
statements and measured at fair value regardless of the purpose or intent for
holding them. Changes in the fair value of derivative financial instruments are
either recognized periodically in net earnings or shareholders' equity, as a
component of other comprehensive income, depending on whether the derivative is
being used to hedge changes in fair value or cash flows. Changes in fair value
of derivatives not designated as hedging instruments and the ineffective
portions of hedges are recognized in earnings in the current period. The
adoption of SFAS No. 133 as of January 1, 2001, resulted in a cumulative
after-tax credit to comprehensive income of $3 million. For the year ended
December 31, 2001, an after-tax loss of $4 million was recorded in other
expense, net for the ineffective portion of cash flow hedges. The amount
expected to be reclassified from other comprehensive income (loss) to earnings
over the next 12 months is approximately $15 million after-tax.
Corning has issued foreign currency denominated debt that has been designated as
a hedge of the net investment in a foreign operation. The effective portion of
the changes in fair value of the debt is reflected as a component of other
comprehensive income (loss) as part of the foreign currency translation
adjustment. During 2001, the after-tax amounts included in other comprehensive
income (loss) as a result of the net investment hedge was $6 million.
New Accounting Standards
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." Among other provisions, all
future business combinations will be accounted for using the purchase method of
accounting and the use of the pooling-of-interests method is prohibited for
transactions initiated after June 30, 2001. In addition, goodwill will no longer
be amortized but will be subject to impairment tests at least annually. SFAS No.
142 was effective for Corning on January 1, 2002. An assessment of the
recoverability of goodwill recorded on the date of adoption must be performed
within one year. At December 31, 2001, goodwill approximated $1.9 billion.
Corning does not anticipate a transitional impairment charge from the adoption
of the standard.
The following table presents a reconciliation of reported net (loss) income and
(loss) earnings per share to adjusted net (loss) income and (loss) earnings per
share, as if SFAS No. 142 had been in effect as follows:
Years ended December 31,
-----------------------------------------
(In millions) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Reported net (loss) income $ (5,498) $ 422 $ 516
Goodwill amortization, net of income taxes 345 203 18
-----------------------------------------
Adjusted net (loss) income $ (5,153) $ 625 $ 534
=========================================
Reported net (loss) income per share - basic $ (5.89) $ 0.49 $ 0.67
Goodwill amortization, net of income taxes 0.37 0.24 0.03
-----------------------------------------
Adjusted net (loss) income per share - basic $ (5.52) $ 0.73 $ 0.70
=========================================
Reported net (loss) income per share - diluted $ (5.89) $ 0.48 $ 0.66
Goodwill amortization, net of income taxes 0.37 0.23 0.02
-----------------------------------------
Adjusted net (loss) income per share - diluted $ (5.52) $ 0.71 $ 0.68
=========================================
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. Corning is required to implement SFAS No. 143
on January 1, 2003. Corning does not expect this standard to have a material
impact on its consolidated financial position or results of operations.
46
1. Summary of Significant Accounting Policies (concluded)
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This standard supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The standard retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used, while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands on the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. Corning is
required to implement SFAS No. 144 on January 1, 2002. Corning does not expect
this standard to have a material impact on its consolidated financial position
or results of operations.
Discontinued Operations
Distribution of Shares of Quest Diagnostics and Covance Inc.
On December 31, 1996, Corning distributed shares of Quest Diagnostics
Incorporated and Covance Inc., which collectively comprised Corning's Health
Care Services Segment, to its shareholders on a pro rata basis (the
Distributions). Corning agreed to indemnify Quest Diagnostics on an after-tax
basis for the settlement of certain government claims and against certain other
claims that were pending at December 31, 1996. Coincident with the
Distributions, Corning recorded a payable to Quest Diagnostics of approximately
$25 million, which was management's best estimate of amounts which were probable
of being paid by Corning to Quest Diagnostics to satisfy the remaining
indemnified claims on an after-tax basis. Quest Diagnostics settled a
significant matter with the Department of Justice late in 2000 requiring Corning
to reimburse Quest Diagnostics $9 million. As a result, in the fourth quarter of
2000 Corning released reserves totaling $13 million after-tax in excess of the
indemnified settlement between Quest Diagnostics and the Department of Justice.
Recapitalization and Sale of the Consumer Housewares Business
On April 1, 1998, Corning completed the recapitalization and sale of a
controlling interest in its consumer housewares business to an affiliate of
Borden, Inc. Corning received cash proceeds of $593 million and continues to
retain a 3% interest in World Kitchen Inc., formerly Corning Consumer Products
Company. During the fourth quarter of 1999 certain indemnification agreements
related to this transaction expired. As a result, Corning recorded income from
discontinued operations of $8 million ($5 million after-tax), from the release
of reserves provided at the date of the transaction.
2. Business Combinations and Divestitures
Pooling-of-Interests
On January 28, 2000, Corning merged with Oak Industries, Inc. (Oak) in a
pooling-of-interests transaction. Corning issued 44.3 million shares of Corning
common stock and 8.1 million options to purchase Oak common shares to complete
the transaction. The consolidated financial statements for 1999 have been
restated to include the financial position and results of operations of Oak.
During the first quarter of 2000, Corning recognized a charge of $47 million
($43 million after-tax) for one-time acquisition costs related to Oak. The
acquisition costs are primarily related to investment banking, legal and other
fees of approximately $30 million. The charge also included approximately $17
million of severance and other termination benefits for Oak corporate officers
and headquarters employees. Revenues and net income of Oak for the year ended
December 31, 1999, were $444 million and $34 million, respectively.
Purchases
The transactions listed on the following table were all accounted for under the
purchase method of accounting. Management is responsible for estimating the fair
value of the assets and liabilities acquired. Management has made estimates and
assumptions that affect the reported amounts of assets, liabilities and expenses
resulting from such acquisitions. From time to time Corning uses its common
stock as consideration for business combinations. The value of the common stock
is based upon the average closing price of Corning common stock for a range of
days surrounding the agreement or announcement and adjusted for a discount
commensurate with restrictions on the shares, if applicable.
47
2. Business Combinations and Divestitures (continued)
Amounts allocated to purchased in-process research and development (IPRD) were
established through recognized valuation techniques in the high technology
communications industry. Certain projects were acquired for which technological
feasibility had not been established at the date of acquisition and for which no
alternative future uses existed. In accordance with SFAS No. 2, "Accounting for
Research and Development Costs" as interpreted by FASB Interpretation No. 4,
"Applicability of FASB Statement No. 2 to Business Combinations Accounted for by
the Purchase Method," amounts assigned to IPRD meeting the above criteria must
be charged to expense at the date of consummation of the purchase.
The value allocated to projects for which a charge was recorded was determined
by the traditional income approach which discounts expected future debt-free
income to present value. The discount rates used were specific to each project
and were derived from a cost of capital for each specific acquisition target,
adjusted upward for the stage of completion of each project. The acquired entity
discount rates ranged from 17% to 35%, and the stage of completion assigned to
IPRD projects varied from 10% to 90%.
Corning expects that products incorporating the acquired technology from these
projects will be completed and will begin to generate cash flows over the first
five years following integration.
Effective January 1, 2002, Corning adopted SFAS No. 142 and ceased the
amortization of goodwill as described in Note 1.
The following table presents information related to Corning's acquisitions for
the years ended December 31, 2001, 2000 and 1999 (in millions):
Initial Goodwill & Amortization
Acquisition Date Price Form IPRD Intangibles Life
- --------------------------------------------------------------------------------------------------------------------------------
2001
Tropel Corporation (a) 3/01 $ 160 Cash/Stock $ 155 15
- --------------------------------------------------------------------------------------------------------------------------------
2000
Pirelli's optical components business (b) 12/00 4,000 Cash/Stock $323 3,624 13
Champion Products Inc. (c) 10/00 85 Cash 69 20
IntelliSense Corporation (d) 6/00 410 Stock/Options 7 483 13
NetOptix Corporation (e) 5/00 2,000 Stock/Options 2,066 10
NZ Applied Technologies (NZAT) (f) 5/00 75 Stock/Options 44 73 10
Photonics Technology Research Center (g) 2/00 66 Cash 42 24 9
Siemens Transaction (h) 2/00 1,400 Cash/Debt 650 5-20
Other 2000 Various 67 Cash 64 up to 20
- --------------------------------------------------------------------------------------------------------------------------------
1999
Corning Japan K.K. (i) 9/99 32 Cash 18 20
BICC and Optical Waveguides Australia (j) 4/99 135 Cash 37 5-25
Other 1999 Various 18 Cash 9 up to 10
- --------------------------------------------------------------------------------------------------------------------------------
(a) Manufacturer of precision optics and metrology instruments for the
semiconductor and other industries. Purchase price included 1.95 million
shares valued at $94 million.
(b) Manufacturer of lithium niobate modulators, pump lasers, certain specialty
fibers and fiber gratings used in optical networks. Purchased from Pirelli
S.p.A., based in Milan, Italy (90%) and Cisco Systems Inc. (10%), the
"Pirelli transaction", for $3.6 billion in cash to Pirelli S.p.A. and 5.5
million shares of Corning common stock valued at approximately $400 million
to Cisco Systems. Corning impaired $3,154 million of goodwill and other
intangible assets in 2001. See Note 5.
(c) Manufacturer of enclosures, power pedestals, shelters and a unique patented
design for temperature controlled enclosures for telecommunications.
(d) Manufacturer of micro-electro-mechanical devices. Purchase of the remaining
67% interest for 6.1 million shares of Corning common stock and assumption
of stock options convertible into 2 million shares of Corning common stock.
An additional 1 million shares valued at $77 million were issued in 2000
when certain product milestones were achieved.
(e) Manufacturer of thin film filters for use in dense wavelength division
multiplexing components. Purchase price included 33.7 million shares of
Corning common stock and assumption of stock options convertible into 2.5
million Corning shares. Corning impaired $1,610 million of goodwill in
2001. See Note 5.
(f) Manufacturer of photonic components for telecommunication applications.
Purchase of the remaining 84% interest for 1.3 million shares of Corning
common stock valued at $75 million. NZAT earned an additional 0.5 million
shares of Corning common stock valued at $42 million in 2000. An additional
0.6 million shares valued at $14 million were issued in 2001 for achieving
certain product milestones. NZAT may earn an additional 0.2 million shares
in 2002 if certain milestones are achieved.
(g) Acquired from British Telecommunications.
(h) Purchase of the worldwide optical cable and hardware business of Siemens AG
and the remaining 50% in Siecor Corporation and Siecor GmbH. Purchase price
includes $120 million of assumed debt and $145 million of contingent
performance payments to be paid, if earned, over a four-year-period. Total
cash paid to Siemens as of December 31, 2001 was $1.1 billion.
(i) Manufacturer of flat panel display glass within Corning's Information
Display Segment. Purchase of the remaining 21% interest.
(j) Purchase of BICC, plc's telecommunications cable business and the remaining
50% equity interest in Optical Waveguides Australia.
48
2. Business Combinations and Divestitures (concluded)
Pending Acquisitions
On July 24, 2001, Corning entered into an agreement to purchase two Chinese
joint ventures - Lucent Technologies Shanghai Fiber Optic Co., Ltd. and Lucent
Technologies Beijing Fiber Optic Cable Co., Ltd. - from Lucent Technologies for
$225 million. Corning's interest in each company will be 56% and 68%,
respectively. This transaction, which is subject to U.S. and foreign government
approval and other customary closing conditions, is expected to close in the
first half of 2002. Corning expects to include the results of each company in
its consolidated financial statements beginning at the acquisition date.
Divestitures
On January 31, 2000, Corning sold Quanterra Incorporated to Severn Trent
Laboratories for $35 million. In the first quarter of 2000, Corning recorded a
nonoperating gain of $7 million, ($4 million after-tax), as a result of this
transaction. Concurrent with management's decision to dispose of this business,
Corning recognized an impairment loss of $15 million ($10 million after-tax), in
the third quarter of 1999. The impairment loss reduced Corning's investment in
these assets to an amount equal to management's current estimate of fair value.
The results of operations of this business were not material to Corning.
During the third quarter of 1999, Corning sold Republic Wire and Cable, a
manufacturer of elevator cables and a subsidiary of Siecor Corporation, for
approximately $52 million in cash and short-term notes. Corning recorded a
nonoperating gain of $30 million ($9 million after-tax and minority interest),
as a result of this transaction.
3. Information by Operating Segment
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," set standards for reporting information regarding operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance.
Corning's chief operating decision-making group is comprised of the Chief
Executive Officer and the officers who report to him directly.
Corning's reportable segments include Telecommunications, Advanced Materials and
Information Display. The Telecommunications Segment produces optical fiber and
cable, optical hardware and equipment, photonic modules and components and
optical networking devices for the worldwide telecommunications industry. The
Advanced Materials Segment manufactures specialized products with unique
properties for customer applications utilizing glass, glass ceramic and polymer
technologies. Businesses within this segment include environmental technologies,
life sciences, semiconductor materials and optical and lighting products. The
Information Display Segment manufactures liquid crystal display glass for flat
panel displays, glass panels and funnels for televisions and cathode ray tubes
and precision lens assemblies for projection video systems.
Corning evaluates performance based on an after-tax profit measure, which is
identified as segment net income. During the quarter ended March 31, 2001,
Corning realigned one product line from the Advanced Materials Segment into the
Telecommunications Segment. Effective in the fourth quarter of 2001, Corning
retroactively revised its segment net income definition to include the
amortization of other intangible assets. Segment net income excludes impairment
and amortization of goodwill, impairment of other intangible assets,
restructuring actions, purchased IPRD charges, other one-time
acquisition-related charges and other nonrecurring items. The segment results
for 2000 and 1999 have been restated to conform to the current presentation. The
accounting policies of the operating segments are the same as those described in
the summary of significant accounting policies. The financial results for
Corning's three operating segments have been prepared on a basis which is
consistent with the manner in which Corning management internally disaggregates
financial information for the purposes of assisting in making internal operating
decisions. In this regard, certain common expenses have been allocated among
segments differently than would be required for stand alone financial
information prepared in accordance with GAAP. Revenue attributed to geographic
areas is based on the location of the customer.
49
3. Information by Operating Segment (continued)
Operating Segments Telecom- Advanced Information Total
(In millions) munications Materials Display Segments
- ----------------------------------------------------------------------------------------------------------------------------------
2001
Net Sales $ 4,458 $ 993 $ 800 $ 6,251
Depreciation (1) 401 113 122 636
Amortization of purchased intangibles 76 76
Research, development and engineering expenses (2) 474 120 40 634
Interest expense (3) 104 25 23 152
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense (54) 7 19 (28)
Segment (Loss) Earnings Before Equity Earnings (4) (93) 19 44 (30)
Equity in earnings of associated companies 12 27 105 144
Segment Net (Loss) Income (81) 46 149 114
Investment in associated companies, at equity 101 61 450 612
Segment assets (5) 3,972 938 1,633 6,543
Capital expenditures 941 131 331 1,403
- ----------------------------------------------------------------------------------------------------------------------------------
2000
Net Sales $ 5,186 $ 1,021 $ 894 $ 7,101
Depreciation (1) 342 87 90 519
Amortization of purchased intangibles 29 29
Research, development and engineering expenses (2) 395 116 29 540
Interest income 1 1
Interest expense (3) 70 18 19 107
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax expense 329 28 47 404
Segment Earnings Before Minority Interest and Equity Earnings (4) 692 58 114 864
Minority interest in losses (earnings) of subsidiaries 3 (27) (24)
Equity in earnings of associated companies 1 22 145 168
Segment Net Income 696 80 232 1,008
Investment in associated companies, at equity 34 60 387 481
Segment assets (5) 4,089 900 1,439 6,428
Capital expenditures 944 121 366 1,431
- ----------------------------------------------------------------------------------------------------------------------------------
1999
Net Sales $ 2,987 $ 1,025 $ 701 $ 4,713
Depreciation (1) 215 81 78 374
Amortization of purchased intangibles 4 4
Research, development and engineering expenses (2) 262 93 23 378
Interest income 9 2 1 12
Interest expense (3) 59 23 11 93
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax expense 146 35 19 200
Segment Earnings Before Minority Interest and Equity Earnings (4) 341 76 58 475
Minority interest in earnings of subsidiaries (34) (23) (57)
Equity in earnings of associated companies 15 21 68 104
Segment Net Income 322 97 103 522
Investment in associated companies, at equity 59 50 261 370
Segment assets (5) 2,310 872 990 4,172
Capital expenditures 329 113 60 502
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes an allocation of depreciation of corporate property, plant and
equipment not specifically identifiable to a segment. Related depreciable
assets are not allocated to segment assets.
(2) Non-direct research, development and engineering expenses are allocated
based upon direct project spending for each segment.
(3) Interest expense is allocated to segments based on a percentage of segment
net operating assets. Consolidated subsidiaries with independent capital
structures do not receive additional allocations of interest expense.
(4) Many of Corning's administrative and staff functions are performed on a
centralized basis. Where practicable, Corning charges these expenses to
segments based upon the extent to which each business uses a centralized
function. Other staff functions, such as corporate finance, human resources
and legal are allocated to segments, primarily as a percentage of sales.
(5) Includes inventory, accounts receivable, plant, property and equipment and
investments in associated equity companies.
50
3. Information by Operating Segment (continued)
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as follows:
Years ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
NET SALES
Total segment net sales $ 6,251 $ 7,101 $ 4,713
Non-segment net sales (1) 21 26 28
-----------------------------------------
Total net sales $ 6,272 $ 7,127 $ 4,741
=========================================
NET INCOME
Total segment net income (2) $ 114 $ 1,008 $ 522
Unallocated items:
Non-segment (loss) income (1) (5) 12 20
Amortization of goodwill (3) (363) (216) (24)
Acquisition-related charges (4) (463)
Impairment and restructuring charges (5) (5,725) (1)
Interest income (6) 68 104
Income tax (7) 409 (5) (2)
Equity in earnings of associated companies 4 5 8
Impairment of equity investment (36)
Minority interest (10)
Dividends on convertible preferred securities of subsidiary (2)
-----------------------------------------
(Loss) income from continuing operations $ (5,498) $ 409 $ 511
=========================================
ASSETS
Total segment assets $ 6,543 $ 6,428 $ 4,172
Non-segment assets:
Property, plant and equipment (8) 636 1,100 829
Investments (9) 80 140 139
Other assets (10) 2,811 7,577 800
Remaining corporate assets (11) 2,723 2,281 586
-----------------------------------------
Total consolidated assets $ 12,793 $ 17,526 $ 6,526
=========================================
(1) Includes amounts derived from corporate investments. Non-segment (loss)
income also includes nonoperating gains and losses. Includes one-time gain
of $11 million included in equity earnings from Samsung Corning related to
divestment of its interest in Samsung Corning Precision in 2000.
(2) Includes royalty, interest and dividend income.
(3) Amortization of goodwill relates primarily to the Telecommunications
Segment.
(4) Includes purchased IPRD which relates primarily to the Telecommunications
Segment.
(5) The 1999 amount is the net impact of a $15 million impairment charge
related to the Advanced Materials Segment and the release of restructuring
reserves totaling $14 million. See Note 6 for further discussion of the
restructuring actions and Note 5 for the impairment of goodwill and other
intangible assets in 2001. The 2001 charge for the impairment of goodwill
and other intangible assets relates to the Telecommunications Segment. The
2001 charge for restructuring actions relates to the operating segments as
follows: Telecommunications - $640 million, Advanced Materials - $94
million, Information Display - $36 million and corporate functions
including research - $191 million.
(6) Corporate interest income is not allocated to reportable segments.
(7) Includes tax associated with the impairment and restructuring charges,
amortization of purchased intangibles and goodwill, acquisition-related
charges and nonoperating gains.
(8) Represents corporate property, plant and equipment not specifically
identifiable to a segment.
(9) Represents corporate investments in associated companies, both at cost and
at equity.
(10) Includes long-term corporate assets, primarily goodwill and other
intangible assets, pension assets and deferred taxes.
(11) Includes current corporate assets, primarily cash, short-term investments
and deferred taxes.
51
3. Information by Operating Segment (continued)
Segment Reconciling Consolidated
Other Significant Items Total Adjustments Total
- ----------------------------------------------------------------------------------------------------------------------------------
2001
Depreciation $ 636 $ 5 $ 641
Interest expense 152 1 153
Income taxes (28) (424) (452)
Equity in earnings of associated companies 144 4 148
Minority interest 13 13
Investment in associated companies, at equity 612 24 636
Capital expenditures 1,403 273 (2) 1,676 (3)
- ----------------------------------------------------------------------------------------------------------------------------------
2000
Depreciation $ 519 $ (3) $ 516
Income taxes 404 3 407
Equity in earnings of associated companies (1) 168 17 185
Minority interest (24) (24)
Investment in associated companies, at equity 481 13 494
Capital expenditures 1,431 290 (2) 1,721 (3)
- ----------------------------------------------------------------------------------------------------------------------------------
1999
Depreciation $ 374 $ 2 $ 376
Income taxes 200 7 207
Equity in earnings of associated companies 104 8 112
Minority interest (57) (10) (67)
Investment in associated companies, at equity 370 57 427
Capital expenditures 502 255 (2) 757
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes a nonoperating gain of $11 million (Corning's share) recorded by
Samsung Corning upon divestment of its interest in Samsung Corning
Precision in 2000.
(2) Includes capital spending on shared research facilities of $147 million,
$116 million and $135 million in 2001, 2000 and 1999, respectively.
(3) Represents committed capital expenditures in the period including amounts
accrued at December 31, 2001 and 2000.
52
3. Information by Operating Segment (concluded)
Information concerning principal geographic areas was as follows (in millions):
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net Long-lived Net Long-lived Net Long-lived
Sales Assets (1) Sales Assets (1) Sales Assets (1)
- -----------------------------------------------------------------------------------------------------------------------------
North America
United States $ 2,859 $ 6,249 $ 3,581 $ 7,516 $ 2,793 $ 3,428
Canada 239 54 848 95 473 93
Mexico 85 3 98 83 67 58
----------------------------------------------------------------------------------------
Total North America 3,183 6,306 4,527 7,694 3,333 3,579
Asia Pacific
Japan 518 264 575 257 392 148
China 520 170 143 121 79 38
Korea 50 454 67 385 51 265
Other 373 79 127 52 80 46
----------------------------------------------------------------------------------------
Total Asia Pacific 1,461 967 912 815 602 497
Europe
Germany 447 484 465 505 189 91
France 146 123 257 115 108 92
United Kingdom 224 97 243 173 133 150
Italy 114 319 69 3,489 53 3
Other 490 37 419 47 208 57
----------------------------------------------------------------------------------------
Total Europe 1,421 1,060 1,453 4,329 691 393
Latin America
Brazil 59 7 59 20 44 21
Other 39 3 22 7 13
----------------------------------------------------------------------------------------
Total Latin America 98 10 81 27 57 21
All Other 109 32 154 27 58 8
----------------------------------------------------------------------------------------
Total $ 6,272 $ 8,375 $ 7,127 $ 12,892 $ 4,741 $ 4,498
========================================================================================
(1) Long-lived assets primarily include investments, plant and equipment,
goodwill and other intangible assets.
4. Inventory Write-down
During the second quarter, major customers in the photonic technologies business
reduced their order forecasts and canceled orders already placed. As a result,
management determined that certain products were not likely to be sold in their
product life cycle. Corning recorded a charge to write-down excess and obsolete
inventory, including estimated purchase commitments, of $273 million ($184
million after-tax) in cost of sales in the second quarter of 2001. In the fourth
quarter, Corning recorded an additional charge of $60 million ($37 million
after-tax) in cost of sales for excess and obsolete inventory primarily in the
photonic technologies business in response to continued weak demand.
5. Impairment of Goodwill and Other Intangible Assets
During the first half of 2001, Corning experienced a significant decrease in the
rate of growth of its Telecommunications Segment, primarily in the photonic
technologies business, due to a dramatic decline in infrastructure spending in
the telecommunications industry. During the second quarter, major customers in
the photonic technologies business reduced their order forecasts and canceled
orders already placed. As a result, management determined that the growth
prospects of this business were significantly less than previously expected and
those of historical periods.
53
5. Impairment of Goodwill and Other Intangible Assets (concluded)
Corning reviews the recoverability of its long-lived assets, including goodwill
and other intangible assets, when events or changes in circumstances occur that
indicate the carrying value of the asset may not be recoverable. As a result of
the business conditions noted above, Corning concluded such an assessment was
required for its photonic technologies business in the second quarter. Corning
assesses recoverability of the carrying value based upon cumulative expected
future pre-tax cash flows (undiscounted and without interest charges) of the
related operations.
As a result of this test, Corning determined that the long-lived assets,
including goodwill and other intangibles acquired from the Pirelli transaction
in December 2000, as well as those of the unit into which NetOptix Corporation
(acquired in May 2000) had been integrated were not recoverable. Corning's
policy is to write-down long-lived assets to fair value in such circumstances.
Management estimated fair value using several techniques. While each method
generated comparable fair values, management adjusted the assets to estimates
based on average multiples of forecasted revenues and earnings of comparable
publicly traded companies with operations in the optical component market
segment.
In the second quarter, Corning recorded pre-tax charges of $4,648 million to
impair a significant portion of goodwill and $116 million to impair other
intangible assets. Of the total charge of $4,764 million, $3,154 million related
to the Pirelli transaction and $1,610 million related to goodwill resulting from
the acquisition of NetOptix Corporation.
6. Restructuring Actions
Corning has approved and executed several restructuring actions throughout the
year. These actions and the charges relating to them are described below.
In the first quarter of 2001, Corning reduced its workforce by approximately
3,300 positions, primarily in the photonic technologies and hardware and
equipment businesses. These workforce reductions included mostly hourly
production workers and resulted in minimal severance charges. In April 2001,
Corning completed an additional workforce reduction of approximately 1,000
positions in photonic technologies, including both hourly and salaried
employees. The second quarter reductions resulted in a restructuring charge of
$8 million ($5 million after-tax).
In the third quarter of 2001, additional actions were approved and undertaken,
primarily in the Telecommunications Segment, which included the following:
- - closure of three manufacturing facilities in the photonic technologies
business, resulting in the elimination of approximately 800 positions, and
- - elimination of approximately 2,900 positions worldwide in the optical fiber
and cable business. This action included a voluntary early retirement
program for certain employees along with involuntary separations.
As a result of these actions, Corning recorded a total charge of $339 million
($222 million after-tax) which included a restructuring charge of $103 million
and a charge to impair plant and equipment of $236 million in the third quarter.
The restructuring charge included $6 million for net pension and postretirement
benefit curtailment charges.
In response to the continued deteriorating business condition, management
approved and recorded the following restructuring actions in the fourth quarter:
- - closure or consolidation of several manufacturing locations as well as
smaller businesses across all operating segments,
- - discontinuation of its initiative in Corning Microarray Technology
products, part of Corning's life sciences business, and
- - further headcount reduction of approximately 4,000 positions across all
businesses, research and staff organizations. This action also included a
selective voluntary early retirement program for certain employees along
with involuntary separations.
As a result of actions taken in the fourth quarter, Corning recorded a charge in
the quarter of $614 million ($363 million after-tax and minority interest) which
included a restructuring charge of $308 million and a charge to impair plant and
equipment of $306 million. The restructuring charge included $35 million for
pension and postretirement termination benefits and $25 million for net pension
and postretirement benefit curtailment charges.
54
6. Restructuring Actions (concluded)
The carrying value of a long-lived asset is considered impaired when the
expected separately identifiable undiscounted cash flows from that asset are
less than the carrying value of the asset. The impairment charges were
determined based on the amount by which the carrying value exceeded the fair
market value of the asset.
A significant portion of the assets impaired was recently acquired, or built in
connection with capacity expansions in anticipation of future demand. Most of
the impaired facilities are currently available for sale, others will be
demolished. The impaired equipment will be auctioned, sold, or disposed during
2002.
The facilities closed in the year primarily relate to the photonics and optical
fiber and cable businesses that Corning is not exiting. The operations being
exited comprise the majority of the lighting business of the Advanced Materials
Segment. This business is not material to Corning's revenues or financial
results.
In summary, Corning's restructuring actions totaled $961 million in pre-tax
charges for the year ended December 31, 2001, of which $95 million related to
exit costs primarily for lease termination and contract cancellation charges.
Approximately one third of this total charge is expected to be paid in cash. The
total number of positions eliminated was approximately 12,000. As of December
31, 2001, approximately 10,100 of the 12,000 employees had been separated under
the plans.
Non-cash charges for employee related costs were $66 million with $35 million
for pension and postretirement termination benefits and $31 million for net
pension and postretirement benefit curtailment charges. Curtailment charges were
recorded primarily due to the decrease in expected future years of service. The
following table illustrates the charges, activity and balances of the
restructuring reserve as of December 31, 2001:
(In millions, except headcounts)
- --------------------------------------------------------------------------------------------------------------------------------
Non- Net Cash Remaining
Total Cash Payments Reserve at
Charges Charges in 2001 December 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
Restructuring charges:
Employee related costs $ 324 $ 66 $ 60 $ 198
Other charges 95 17 78
-----------------------------------------------------------
Total restructuring charges $ 419 $ 66 $ 77 $ 276
-----------------------------------------------------------
Impairment of long-lived assets:
Assets held for use $ 46 $ 46
Assets held for disposal 496 496
------------------------
Total impairment charges $ 542 $ 542
------------------------
Total restructuring actions $ 961 $ 608 $ 77 $ 276
===========================================================
After-tax and minority interest $ 590
========
The following table illustrates the headcount reduction amongst U.S. Hourly,
U.S. Salaried and Non-U.S. positions:
- --------------------------------------------------------------------------------------------------------------------------------
Headcount reduction
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Hourly U.S. Salaried Non-U.S. Total
-----------------------------------------------------------
Headcount reduction 6,000 3,100 2,900 12,000
===========================================================
55
7. Inventories
Inventories consisted of the following (in millions):
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Finished goods $ 251 $ 300
Work in process 153 263
Raw materials and accessories 210 377
Supplies and packing materials 111 100
---------------------------------------
Total inventories $ 725 $ 1,040
=======================================
8. Income Taxes
- ---------------------------------------------------------------------------------------------------------------------------------
(In millions) Years ended December 31, 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations before income taxes:
U.S. companies $ (2,945) $ 762 $ 527
Non-U.S. companies (3,166) (71) 148
----------------------------------------
(Loss) income from continuing operations before income taxes $ (6,111) $ 691 $ 675
----------------------------------------
(Benefit) provision for income taxes $ (452) $ 407 $ 207
----------------------------------------
Effective tax rate reconciliation:
Statutory U.S. income (benefit) tax rate (35.0)% 35.0% 35.0%
State income (benefit) tax, net of federal benefit (0.8) 3.9 0.8
Nondeductible goodwill and other expenses 28.6 28.9 0.8
Foreign and other tax credits (0.3) (0.4)
Lower taxes on subsidiary earnings (0.3) (7.4) (2.4)
Valuation allowance 0.5 (0.8) 2.4
Other items, net (0.1) (0.7) (5.5)
----------------------------------------
Effective income tax (benefit) rate (7.4)% 58.9% 30.7%
========================================
Current and deferred (benefit) provision for income taxes:
Current:
Federal $ (23) $ 306 $ 93
State and municipal 9 66 3
Foreign 73 83 68
Deferred:
Federal (404) (37) 40
State and municipal (71) (17) 6
Foreign (36) 6 (3)
----------------------------------------
(Benefit) provision for income taxes $ (452) $ 407 $ 207
========================================
56
8. Income Taxes (concluded)
The tax effects of temporary differences and carryforwards that gave rise to
significant portions of the deferred tax assets and liabilities included the
following (in millions):
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Loss and tax credit carryforwards $ 264 $ 114
Restructuring reserves 254 3
Postretirement medical and life benefits 243 235
Inventory 131 53
Intangible and other assets 100 15
Other accrued liabilities 74 49
Other employee benefits 19 33
Other 14 5
-------------------------------------
Gross deferred tax assets 1,099 507
Deferred tax assets valuation allowance (135) (45)
-------------------------------------
Deferred tax assets 964 462
-------------------------------------
Fixed assets (261) (256)
Pensions (37) (42)
Other (6) (52)
-------------------------------------
Deferred tax liabilities (304) (350)
-------------------------------------
Net deferred tax assets $ 660 $ 112
=====================================
The change in the total valuation allowance for the years ended December 31,
2001 and 2000, was an increase of $90 million and a decrease of $6 million,
respectively.
Corning currently provides income taxes on the earnings of foreign subsidiaries
and associated companies to the extent they are currently taxable or expected to
be remitted. Taxes have not been provided on $1 billion of accumulated foreign
unremitted earnings which are expected to remain invested indefinitely.
Corning, as required, provided for tax on undistributed earnings of its domestic
subsidiaries and affiliated companies beginning in 1993 even though these
earnings have been and will continue to be reinvested indefinitely. Corning
estimates that $32 million of tax would be payable on pre-1993 undistributed
earnings of its domestic subsidiaries and affiliated companies should the
unremitted earnings reverse and become taxable to Corning. Corning expects these
earnings to be reinvested indefinitely.
At December 31, 2001, Corning had tax benefits attributable to loss
carryforwards and credits aggregating $264 million that expire at various dates
beginning in 2002 through 2021, if not utilized. A significant portion of the
tax benefits for which no valuation allowance has been provided relate to United
States loss carryforwards. Although realization is not assured, Corning has
concluded that it is more likely than not that the United States loss
carryforwards will be realized prior to their expiration date.
9. Investments
Short-Term Investments
Short-term investments held by Corning are debt securities classified as
available-for-sale. Corning invests in publicly traded, highly liquid securities
of entities with credit ratings of A, or better. Unrealized gains and losses,
net of related income taxes, for available-for-sale securities are included as a
separate component of shareholders' equity. Corning determines cost on the
specific identification basis.
57
9. Investments (continued)
Investments in short-term securities were as follows (dollars in millions):
- ------------------------------------------------------------------------------------------------------------
Amortized Fair Unrealized
December 31, 2001 Cost Value Gains
- ------------------------------------------------------------------------------------------------------------
Bonds, notes, and other securities
United States government and agencies $ 262 $ 262
States and municipalities 206 206
Asset-backed securities 365 369 $ 4
Corporate bonds 206 206
Commercial paper 20 20
Certificates of deposit 16 16
Other debt securities 103 103
- ------------------------------------------------------------------------------------------------------------
Total short-term investments $ 1,178 $ 1,182 $ 4
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Amortized Fair Unrealized
December 31, 2000 Cost Value Gains
- ------------------------------------------------------------------------------------------------------------
Bonds, notes, and other securities
States and municipalities $ 303 $ 303
Asset-backed securities 175 176 $ 1
Corporate bonds 147 147
Commercial paper 32 32
Certificates of deposit 36 36
Other debt securities 21 21
- ------------------------------------------------------------------------------------------------------------
Total short-term investments $ 714 $ 715 $ 1
- ------------------------------------------------------------------------------------------------------------
Unrealized losses were under $1 million in 2001 and 2000.
All of these securities are available for immediate sale. The following table
summarizes the contractual maturities of debt securities at December 31, 2001:
Amortized Fair
Cost Value
- -------------------------------------------------------------------------
Less than one year $ 138 $ 138
Due in 1-2 years 379 379
Due in 2-5 years 434 438
Due after 5 years 227 227
- -------------------------------------------------------------------------
Total $ 1,178 $ 1,182
- -------------------------------------------------------------------------
Proceeds from sales of short-term investments totaled $660 million and $710
million in 2001 and 2000. Proceeds from maturities of short-term investments
totaled $193 million and $57 million in 2001 and 2000. The gross realized gains
related to sales of short-term investments were $2 million in 2001 and under $1
million in 2000. The gross realized losses related to sales of short-term
investments were $2 million in 2001 and under $1 million in 2000.
58
9. Investments (continued)
Associated Companies at Equity
Samsung Corning Company Ltd. (Samsung Corning), a 50%-owned South Korea-based
manufacturer of glass panels and funnels for television and display monitors,
represented $315 million and $285 million of Corning's investments accounted for
by the equity method at year-end 2001 and 2000, respectively.
The financial position and results of operations of Samsung Corning and
Corning's other equity companies are summarized as follows (in millions):
Years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Samsung Total Samsung Total Samsung Total
Corning Equity Corning Equity Corning Equity
Co. Ltd. Companies Co. Ltd. Companies Co. Ltd. Companies
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 886 $ 1,892 $ 1,011 $ 1,739 $ 965 $ 1,831
Gross profit 244 648 346 650 276 583
Net income 107 340 211 366 97 244
-----------------------------------------------------------------------------
Corning's equity in net income (1) $ 51 $ 148 $ 104 $ 185 $ 48 $ 112
-----------------------------------------------------------------------------
Current assets $ 332 $ 821 $ 410 $ 1,091 $ 275 $ 608
Long-lived assets 872 1,398 866 1,311 1,007 1,335
-----------------------------------------------------------------------------
Current liabilities $ 174 $ 557 $ 293 $ 823 $ 282 $ 466
Long-term debt 164 220 152 275 299 376
Long-term liabilities 173 198 178 217 214 256
-----------------------------------------------------------------------------
(1) Equity in earnings shown above and in the Consolidated Statements of Income
is net of amounts recorded for income tax.
Dividends received from Samsung Corning and Corning's other equity companies
totaled $73 million, $45 million and $51 million in 2001, 2000 and 1999,
respectively. At December 31, 2001, approximately $536 million of equity in
undistributed earnings of equity companies was included in Corning's accumulated
deficit.
Samsung Corning's 2000 results include a nonoperating gain of $23 million from
the sale of its interest in Samsung Corning Precision Glass Company Ltd.
(Samsung Corning Precision). Corning's 50% share of this gain is included in its
equity earnings. Corning continues to maintain a 50% interest in Samsung Corning
Precision.
59
9. Investments (continued)
Dow Corning Corporation
Corning is a 50% owner of Dow Corning Corporation (Dow Corning), a manufacturer
of silicones. The other 50% of Dow Corning is owned by The Dow Chemical Company
(Dow Chemical).
On May 15, 1995, Dow Corning sought protection under the reorganization
provisions of Chapter 11 of the United States Bankruptcy Code and thereby
obtained a stay of approximately 19,000 breast-implant product liability
lawsuits. On November 8, 1998, Dow Corning and the Tort Claimants Committee
jointly filed a revised Plan of Reorganization (Joint Plan) which was confirmed
by the Bankruptcy Court on November 30, 1999. On December 21, 1999, the
Bankruptcy Court issued an opinion that approved the principal elements of the
Joint Plan with respect to tort claimants, but construed the Joint Plan as
providing releases for third parties (including Corning and Dow Chemical as
shareholders) only with respect to tort claimants who voted in favor of the
Joint Plan. On November 13, 2000, the District Court entered an Order reversing
the Bankruptcy Court's December 21, 1999 Opinion on the release and injunction
provisions and confirmed the Joint Plan. On October 23, 2001, the U.S. Court of
Appeals for the Sixth Circuit heard oral arguments on appeals taken by foreign
claimants, the U.S. government and certain tort claimants from various portions
of the District Court's order. On January 29, 2002, the Sixth Circuit affirmed
the determinations made in the District Court with respect to the foreign
claimants, but remanded to the District Court for further proceedings with
respect to the claims of the U.S. government for recovery of medical expenses
paid on behalf of tort claimants and with respect to the findings supporting the
non-debtor releases in favor of Dow Corning's shareholders and insurers. As a
result of the remand, there may be additional hearings in the District Court.
The timing and scope of the proceedings on remand are not known at this point,
and the Sixth Circuit's ruling adds some uncertainty with respect to the
ultimate confirmation of the Joint Plan. If the Joint Plan is upheld but the
shareholder releases are not given their full effect, Corning would expect to
defend any remaining claims against it (and any new claims) on the same grounds
that led to a series of orders and judgments dismissing all claims against
Corning in the federal courts and in many state courts as described under the
heading Implant Tort Lawsuits in Legal Proceedings (Item 3). Management believes
that the claims against Corning lack merit and that the breast implant
litigation against Corning will be resolved without material impact on Corning's
financial statements.
Under the terms of the Joint Plan, Dow Corning would be required to establish a
Settlement Trust and a Litigation Facility to provide a means for tort claimants
to settle or litigate their claims. Dow Corning would have the obligation to
fund the Trust and the Facility, over a period of up to 16 years, in an amount
up to approximately $3.3 billion, subject to the limitations, terms and
conditions stated in the Joint Plan. Corning and Dow Chemical have each agreed
to provide a credit facility to Dow Corning of up to $150 million ($300 million
in the aggregate), subject to the terms and conditions stated in the Joint Plan.
The Joint Plan also provides for Dow Corning to make full payment, through cash
and the issuance of senior notes, to its commercial creditors. The commercial
creditors have contested the Bankruptcy Court's disallowance of their claims for
post-petition interest at default rates of interest, and have appealed to the
District Court. While the amounts at issue on this appeal are subject to a
variety of contingencies, it is possible that the aggregate claim exceeds $100
million. Dow Corning is vigorously contesting the appeal. If and when Dow
Corning emerges from bankruptcy, Corning expects to resume the recognition of
equity earnings from Dow Corning. Corning does not expect to receive dividends
from Dow Corning in the foreseeable future.
60
9. Investments (continued)
The financial position and results of operations of Dow Corning are summarized
in the table below as follows (in millions):
Years ended December 31,
- --------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 2,438 $ 2,751 $ 2,603
Gross profit 622 814 772
Net income (loss) (23) 105 110
- --------------------------------------------------------------------------------------------------------------------------------
Current assets $ 2,027 $ 1,794 $ 1,602
Long-lived assets 3,114 4,677 4,625
- --------------------------------------------------------------------------------------------------------------------------------
Current liabilities $ 882 $ 947 $ 770
Long-term debt 39 92 117
Long-term liabilities 219 257 250
Liabilities subject to compromise (1) 3,524 4,618 4,592
Shareholders' equity 477 556 498
- --------------------------------------------------------------------------------------------------------------------------------
(1) Dow Corning's financial statements for 2001, 2000 and 1999 have been
prepared in conformity with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code," (SOP 90-7). SOP 90-7 requires
a segregation of liabilities subject to compromise by the Bankruptcy Court
as of the filing date (May 15, 1995) and identification of all transactions
and events that are directly associated with the reorganization.
Pittsburgh Corning Corporation
Corning and PPG Industries, Inc. each own 50% of the capital stock of Pittsburgh
Corning Corporation (PCC). PCC and several other defendants have been named in
numerous lawsuits involving claims alleging personal injury from exposure to
asbestos. On April 16, 2000, PCC filed for Chapter 11 reorganization in the
United States Bankruptcy Court for the Western District of Pennsylvania. As of
the bankruptcy filing, PCC had in excess of 140,000 open claims and now has in
excess of 240,000 open claims. In the bankruptcy court, PCC obtained a
preliminary injunction against the prosecution of asbestos actions against its
two shareholders to afford the parties a period of time (the Injunction Period)
in which to negotiate a plan of reorganization for PCC. The Injunction Period
has been extended until April 15, 2002. Under the terms of the Bankruptcy
Court's Order, PCC, PPG Industries and Corning will have 90 days following
expiration of the Injunction Period to seek removal and transfer of stayed cases
that have not been resolved through a plan of reorganization. As a result of
PCC's bankruptcy filing, Corning recorded an after-tax charge of $36 million in
the first quarter of 2000 to impair its entire investment in PCC and
discontinued recognition of equity earnings. At the time PCC filed for
bankruptcy protection, there were approximately 12,400 claims pending against
Corning alleging various theories of liability based on exposure to PCC's
asbestos products. Although the outcome of litigation and the bankruptcy case is
uncertain, management believes that the separate corporate status of PCC will
continue to be upheld. Management is continuing to investigate Corning's options
for defending claims against it, which might include vigorously defending itself
on all fronts, or exploring a global settlement through the bankruptcy process.
It is probable that there will be intensive negotiations throughout the first
half of 2002 concerning terms of PCC's plan of reorganization, including whether
or not Corning and its insurers may participate by making a contribution in
exchange for a release. Management cannot estimate the probability that Corning
will be able to secure such a release upon terms and conditions satisfactory to
Corning and its insurers. The range of cost for these options (net of insurance)
cannot be estimated at this time. Although asbestos litigation is inherently
difficult, and the outcome of litigation is uncertain, management believes these
matters will be resolved without a materially adverse impact on Corning's
financial position. If Corning and its insurers agree to a global settlement
through the bankruptcy process, such outcome may be material to the results of
operations of the period in which such costs, if any, are recognized.
61
9. Investments (concluded)
Other Investments
Corning's other investments include equity securities, which are classified as
available-for-sale. At December 31, 2001, the fair value and cost of Corning's
equity securities was $142 million and $148 million, respectively. The
difference includes gross unrealized losses of $6 million. At December 31, 2000,
the fair value and cost of Corning's equity securities was $156 million and $89
million, respectively. The difference includes gross unrealized gains of $67
million. The net change in the unrealized gain (loss) on other investments
classified as available-for-sale included as a component of accumulated other
comprehensive income (loss) was $74 million and $36 million for the years ended
December 31, 2001 and 2000, respectively.
Proceeds from sales of other investments were $38 million and $16 million in
2001 and 2000, respectively, and related net realized gains included in income
were $22 million and $27 million in 2001 and 2000, respectively.
10. Plant and Equipment
Plant and equipment included the following (in millions):
December 31,
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Land $ 97 $ 84
Buildings 1,808 1,627
Equipment 4,977 4,455
Construction in progress 1,282 1,175
------------------------------------
8,164 7,341
Accumulated depreciation (3,067) (2,662)
------------------------------------
Plant and equipment, net $ 5,097 $ 4,679
====================================
Approximately $49 million, $57 million and $41 million of interest costs were
capitalized as part of plant and equipment in 2001, 2000 and 1999, respectively.
11. Other Accrued Liabilities
Other accrued liabilities included the following (in millions):
December 31,
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Income taxes $ 139 $ 186
Restructuring reserves 276
Wages and employee benefits 230 301
Other liabilities 431 479
------------------------------------
Other accrued liabilities $ 1,076 $ 966
====================================
62
12. Long-Term Debt and Loans Payable
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(In millions) 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Loans Payable
Current portion of long-term debt $ 244 $ 128
Other short-term borrowings 233
------------------------------------
$ 477 $ 128
====================================
Long-Term Debt
Series B senior notes, 8.25%, due 2002 $ 14
Debentures, 8.25%, due 2002 $ 75 75
Debentures, 6%, due 2003 100 100
Euro notes, 5.625%, due 2005 178 180
Debentures, 7%, due 2007, net of unamortized discount of
$28 million in 2001 and $32 million in 2000 72 68
Convertible notes, 4.875%, due 2008 96 99
Convertible debentures, 3.5%, due 2008 665
Notes, 6.3%, due 2009 150 150
Euro notes, 6.25%, due 2010 267 270
Debentures, 6.75%, due 2013 100 100
Zero coupon convertible debentures, 2%, due 2015, redeemable
and callable in 2005 2,059 2,018
Debentures, 8.875%, due 2016 74 74
Debentures, 8.875%, due 2021 75 75
Debentures, 7.625%, putable in 2004, due 2024 100 100
Medium-term notes, average rate 7.9%, due through 2025 231 254
Debentures, 6.85%, due 2029 150 150
Other, average rate 4.4%, due through 2015 313 367
-------------------------------------
Total long-term debt 4,705 4,094
Less current maturities 244 128
-------------------------------------
Long-term debt $ 4,461 $ 3,966
=====================================
At December 31, 2001 and 2000, the weighted-average interest rate on short-term
borrowings was 4.6% and 6.1%, respectively.
The following table shows the maturities by year of the total long-term debt
obligations at December 31:
- --------------------------------------------------------------------------------
2002 2003 2004 2005 2006-2029
- --------------------------------------------------------------------------------
$244 $173 $38 $2,411 $2,003
- --------------------------------------------------------------------------------
The zero coupon convertible debentures are presented in the above table as due
in 2005 representing the earliest possible redemption date.
Based on borrowing rates currently available to Corning for loans with similar
terms and maturities, the fair value of long-term debt was $4.0 billion at
year-end 2001.
In February 1998, Oak issued $100 million of convertible subordinated notes
bearing interest at 4.875%, due in 2008. The notes are convertible into 6
million shares of Corning common stock at a conversion price of approximately
$16 per share.
63
12. Long-Term Debt and Loans Payable (concluded)
In February 2000, Corning issued EUR 500 million of Euro-denominated notes in
two tranches: EUR 200 million at 5.625%, due February 18, 2005 and EUR 300
million at 6.25%, due February 18, 2010. Interest is payable on February 1 of
each year beginning in 2001. The notes are not redeemable before they mature,
unless Corning becomes obligated to pay additional amounts because of changes in
U.S. withholding tax requirements.
In November 2000, Corning completed an offering of $2.7 billion (amount due at
maturity) of zero coupon convertible debentures which generated net proceeds of
approximately $2.0 billion. The initial price of the debentures was $741.92 with
a 2% annual yield. Interest is compounded semi-annually with a 25% conversion
factor. The debentures mature on November 8, 2015, and are convertible into
approximately 23 million shares of Corning common stock at the rate of 8.3304
per $1,000 debenture. Corning may call the debentures at any time on or after
November 8, 2005. The debentures may be redeemed for $819.54 on November 8, 2005
and $905.29 on November 8, 2010. The holder can convert the debenture into
Corning common stock at any time prior to maturity or redemption.
In November 2001, Corning completed a convertible debt offering of $665 million
due November 1, 2008 and convertible into approximately 69 million shares of
common stock. Each $1,000 debenture was issued at par and pays interest of 3.5%
semi-annually on May 1 and November 1 of each year. The debentures are available
for conversion into 103.3592 shares of Corning common stock if certain
conditions are met. Corning may repurchase securities at certain redemption
prices beginning on November 8, 2004.
Corning has available a revolving line of credit with a syndicate of banks for
$2.0 billion. The line of credit expires in August 2005. There were no
borrowings under the agreement at December 31, 2001. The revolving credit
agreements provide for borrowing of U.S. dollars and Eurocurrency at various
rates and support Corning's commercial paper program. The facility includes a
covenant requiring Corning to maintain a total debt to capital ratio, as
defined, not greater than 60%. At December 31, 2001, this ratio was 47%.
13. Employee Retirement Plans
Corning has defined benefit pension plans covering certain domestic and
international employees. Corning's funding policy has been to contribute, as
necessary, an amount determined jointly by Corning and its consulting actuaries,
which provides for the current cost and amortization of prior service cost. In
2000, Corning amended its U.S. pension plan to include a cash balance pension
feature. All salaried and non-union hourly employees hired before July 1, 2000,
were given the choice of staying in the existing plan or participating in the
cash balance plan beginning January 1, 2001. Salaried employees hired after July
1, 2000, automatically became participants in the new cash balance plan. Under
the cash balance plan, employee accounts are credited monthly with a percentage
of eligible pay based on age and years of service. Benefits remain 100% vested
after five years of service.
Corning and certain of its domestic subsidiaries also offer defined benefit
postretirement plans that provide health care and life insurance benefits for
retirees and eligible dependents. Certain employees may become eligible for such
postretirement benefits upon reaching retirement age. Corning's principal
retiree medical plans require retiree contributions each year equal to the
excess of medical cost increases over general inflation rates.
64
13. Employee Retirement Plans (continued)
The change in benefit obligation and funded status of Corning's employee
retirement plans was as follows (in millions):
- ------------------------------------------------------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
------------------------- ------------------------
December 31, 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation at beginning of year $ 1,610 $ 1,431 $ 556 $ 592
Benefit obligation of acquired businesses 58
Service cost 40 32 15 10
Interest cost 118 117 43 41
Plan participants' contributions 4 4 3 2
Amendments (3) (8) (3) (1)
Settlements 7
Curtailment loss (gain) 14 (13)
Special termination benefits 18 17
Actuarial losses (gains) 85 96 56 (53)
Benefits paid (144) (127) (43) (35)
--------------------------- -------------------------
Benefit obligation at end of year $ 1,742 $ 1,610 $ 631 $ 556
=========================== =========================
Change in Plan Assets
Fair value of plan assets at beginning of year $ 1,872 $ 1,718
Fair value of plan assets from acquired businesses 16
Actual (loss) return on plan assets (155) 226
Employer contributions 51 35
Plan participants' contributions 4 4
Benefits paid (144) (127)
---------------------------
Fair value of plan assets at end of year $ 1,628 $ 1,872
===========================
(Unfunded) funded status $ (114) $ 262 $ (631) $ (556)
Unrecognized transition asset (1) (2)
Unrecognized prior service cost (credit) 79 126 (3) (3)
Unrecognized actuarial loss (gain) 111 (311) (15) (67)
--------------------------- -------------------------
Recognized asset (liability) $ 75 $ 75 $ (649) $ (626)
=========================== -------------------------
Less current portion 41 38
-------------------------
Accrued postretirement benefit liability $ (608) $ (588)
=========================
Defined benefit pension plan assets are comprised principally of publicly traded
debt and equity securities. Corning common stock represented 0.3% and 1.7% of
plan assets at year-end 2001 and 2000, respectively. Corning has not funded its
postretirement benefit obligations.
At December 31, 2001, the defined benefit plans in which the fair value of plan
assets exceeded the benefit obligation had obligations of $1,522 million and
assets of $1,535 million. The defined benefit plans in which the benefit
obligation exceeded the fair value of plan assets had obligations of $220
million and assets of $93 million.
At December 31, 2000, the defined benefit plan in which the fair value of plan
assets exceeded the benefit obligation had obligations of $1,467 million and
assets of $1,859 million. The defined benefit plans in which the benefit
obligation exceeded the fair value of plan assets had obligations of $143
million and assets of $13 million.
65
13. Employee Retirement Plans (concluded)
The weighted-average assumptions for Corning's employee retirement plans were as
follows:
- -------------------------------------------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
--------------------------- ---------------------------
Years ended December 31, 2001 2000 1999 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Discount rate 7.25% 7.75% 7.75% 7.25% 7.75% 7.75%
Expected return on plan assets 9.0% 9.0% 9.0%
Rate of compensation increase 4.5% 4.5% 4.5%
- -------------------------------------------------------------------------------------------------------------------------
Corning's consolidated postretirement benefit obligation is determined by
application of the terms of health care and life insurance plans, together with
relevant actuarial assumptions and health care cost trend rates. The health care
cost trend rate for Corning's principal plan is assumed to be 6.7% in 2002,
decreasing gradually to 5.0% in 2008 and thereafter.
Assumed health care trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in 2001
assumed health care trend rates would have the following effects:
- -----------------------------------------------------------------------------------------------------------
One-Percentage-Point
Increase Decrease
- -----------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components $ 4.9 $ (4.3)
Effect on postretirement benefit obligation 41.6 (36.1)
- -----------------------------------------------------------------------------------------------------------
The components of net periodic benefit cost for Corning's employee retirement
plans were as follows:
- --------------------------------------------------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
--------------------------------- ---------------------------------
(In millions) Years ended December 31, 2001 2000 1999 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Service cost $ 40 $ 32 $ 27 $ 15 $ 10 $ 12
Interest cost 118 117 96 43 41 40
Expected return on plan assets (161) (148) (133)
Amortization of transition asset (1) (1) (1)
Amortization of net loss (gain) (6) (1) 14 (2)
Amortization of prior service cost (credit) 14 16 2 (1) (1) (1)
--------------------------------- ----------------------------------
Net periodic benefit cost 4 15 5 57 48 51
Recognition of curtailment and settlement 44 (1) 11 5 (13) (1)
Recognition of special termination benefits 18 (1) 17 (1)
--------------------------------- ----------------------------------
Total cost $ 66 $ 26 $ 10 $ 61 $ 48 $ 51
================================= ==================================
(1) Included in restructuring charges. See Note 6.
Measurement of postretirement benefit expense is based on assumptions used to
value the postretirement benefit obligation at the beginning of the year. In
addition to defined benefit retirement plans, Corning offers defined
contribution plans covering employees meeting certain eligibility requirements.
Total consolidated defined contribution expense was $56 million, $81 million and
$50 million for the years ended December 31, 2001, 2000 and 1999, respectively.
66
14. Convertible Preferred Stock
Corning has 10 million authorized shares of Series Preferred Stock, par value
$100 per share. Of the authorized shares, Corning has designated 2.4 million
shares as Series A Junior Participating Preferred Stock for which no shares have
been issued.
At December 31, 2001, 2000 and 1999, 72,400, 86,800 and 134,700 shares of Series
B Convertible Preferred Stock were outstanding, respectively. Each Series B
share is convertible into 14.37 shares of Corning common stock and has voting
rights equivalent to 14 common shares. The Series B shares were sold exclusively
to the trustee of Corning's existing employee investment plans, based upon
directions from plan participants. Participants may cause Corning to redeem the
shares at 100% of par upon reaching age 55 or later, retirement, termination of
employment or in certain cases of financial hardship. The Series B shares are
redeemable by Corning at $100 per share.
15. Common Shareholders' Equity
On August 16, 2001, Corning completed an equity offering of 14.2 million shares
of common stock generating net proceeds to Corning of approximately $225
million.
Dividends paid to common shareholders in 2001 totaled $112 million compared with
$210 million in 2000 and $176 million in 1999. On July 9, 2001, Corning
announced the discontinuation of the payment of dividends on its common stock.
On January 31, 2000, Corning completed an equity offering of approximately 44.85
million shares of common stock generating net proceeds to Corning of
approximately $2.2 billion. On November 6, 2000, Corning completed an equity
offering of approximately 34.5 million shares of common stock generating net
proceeds to Corning of approximately $2.4 billion.
Corning had established the Corning Stock Ownership Trust (CSOT) to fund a
portion of future employee purchases and company contributions of common stock
to Corning's Investment and Employee Stock Purchase Plans (the Plans). Corning
sold 12 million treasury shares to the CSOT. The shares were fully distributed
to the Plans and the trust terminated in 2001. Prior to termination, shares held
by the CSOT were not considered outstanding for earnings per common share
calculations until released to the Plans.
Corning repurchased approximately 4.2 million shares of its common stock in
1999. No shares of common stock were repurchased in 2001 and 2000.
In June 1996, the Board of Directors approved the renewal of the Preferred Share
Purchase Right Plan which entitles shareholders to purchase 0.01 of a share of
Series A Junior Participating Preferred Stock upon the occurrence of certain
events. In addition, the rights entitle shareholders to purchase shares of
common stock at a 50% discount in the event a person or group acquires 20% or
more of Corning's outstanding common stock. The preferred share purchase rights
became effective July 15, 1996 and expire July 15, 2006.
67
15. Common Shareholders' Equity (concluded)
Components of other comprehensive income (loss) accumulated in shareholders'
equity are reported net of income taxes, as follows (in millions):
- ---------------------------------------------------------------------------------------------------------------------------
Foreign Net unrealized Accumulated
currency Net unrealized gains (losses) other
translation (losses) gains on cash flow comprehensive
adjustment on investments hedges income (loss)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 $ 4 $ (1) $ 3
Foreign currency translation adjustment (54) (54)
Unrealized gain on investments (net of tax of $15 million) 23 23
Realized gains on securities (net of tax of $2 million) (3) (3)
---------------------------------------------------------------------
December 31, 1999 (50) 19 (31)
Foreign currency translation adjustment (118) (118)
Unrealized gain on investments (net of tax of $21 million) 33 33
Realized gains on securities (net of tax of $7 million) (11) (11)
---------------------------------------------------------------------
December 31, 2000 (168) 41 (127)
Foreign currency translation adjustment (31) (31)
Unrealized loss on investments (net of tax of $17 million) (27) (27)
Realized gains on securities (net of tax of $12 million) (18) (18)
Cumulative effect of adoption of SFAS No. 133 $ 3 3
Unrealized derivative gain on cash flow hedges
(net of tax of $7 million) 11 11
Reclassification adjustments on cash flow hedges
(net of tax of $2 million) (4) (4)
---------------------------------------------------------------------
December 31, 2001 $ (199) $ (4) $ 10 $ (193)
=====================================================================
16. Commitments, Contingencies, Guarantees and Hedging Activities
Commitments, Contingencies and Guarantees
Minimum rental commitments under leases outstanding at December 31, 2001 are (in
millions):
- --------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 and thereafter
- --------------------------------------------------------------------------------
$67 $61 $57 $51 $46 $285
- --------------------------------------------------------------------------------
Total rental expense amounted to approximately $90 million for 2001, $76 million
for 2000 and $59 million for 1999.
At December 31, 2001, future minimum lease payments to be received under a
noncancelable sublease to Quest Diagnostics totaled $47 million. Quest
Diagnostics, in turn, has a noncancelable sublease covering approximately $31
million of the minimum lease payments due to Corning. Corning has agreed to
indemnify Quest Diagnostics should Quest Diagnostics' sublessee default on the
minimum lease payments. Additionally, Corning continues to guarantee certain
obligations of Quest Diagnostics totaling $14 million.
68
16. Commitments, Contingencies, Guarantees and Hedging Activities (continued)
Corning and PPG Industries, Inc. each own 50% of the capital stock of PCC. PCC
and several other defendants have been named in numerous lawsuits involving
claims alleging personal injury from exposure to asbestos. It is probable that
there will be intensive negotiations throughout the first half of 2002
concerning terms of PCC's plan of reorganization, including whether or not
Corning and its insurers may participate by making a contribution in exchange
for a release. Management cannot estimate the probability that Corning will be
able to secure such a release upon terms and conditions satisfactory to Corning
and its insurers. The range of cost for these options (net of insurance) cannot
be estimated at this time. Although asbestos litigation is inherently difficult,
and the outcome of litigation is uncertain, management believes these matters
will be resolved without a materially adverse impact on Corning's financial
position. For a broader discussion see Note 9.
The ability of certain subsidiaries and associated companies to transfer funds
is limited by provisions of certain loan agreements and foreign government
regulations. At December 31, 2001, the amount of equity subject to such
restrictions for consolidated subsidiaries totaled $84 million. While this
amount is legally restricted, it does not result in operational difficulties
since Corning has generally permitted subsidiaries to retain a majority of
equity to support their growth programs. At December 31, 2001, loans of equity
affiliates guaranteed by Corning totaled $16 million. In addition, Corning and
certain of its subsidiaries have provided other financial guarantees and
contingent liabilities in the form of purchase price adjustments related to
attainment of milestones, stand-by letters of credit and performance bonds. As
described in Note 9, Corning has agreed to provide a credit facility to Dow
Corning up to $150 million. The amounts of these obligations are represented in
the following table (in millions):
Performance bonds and guarantees $ 241
Contingent purchase price for acquisitions 238
Dow Corning credit facility 150
Stand-by letters of credit 33
Loan guarantees 16
------
Total $ 678
======
The funding of the Dow Corning credit facility is subject to events connected to
the Bankruptcy Plan as described in Note 9. Management believes the significant
majority of the other guarantees and contingent liabilities will expire without
being funded.
Hedging Activities
Corning operates and conducts business in many foreign countries. As a result,
there is exposure to potentially adverse movement in foreign currency rate
changes. Corning enters into foreign exchange forward and option contracts with
durations generally 12 months or less to reduce its exposure to exchange rate
risk on foreign source income and purchases. The objective of these contracts is
to neutralize the impact of foreign currency exchange rate movements on
Corning's operating results.
Corning engages in foreign currency hedging activities to reduce the risk that
changes in exchange rates will adversely affect the eventual net cash flows
resulting from the sale of products to foreign customers and purchases from
foreign suppliers. The hedge contracts reduce the exposure to fluctuations in
exchange rate movements because the gains and losses associated with foreign
currency balances and transactions are generally offset with gains and losses of
the hedge contracts. Because the impact of movements in foreign exchange rates
on hedge contracts offsets the related impact on the underlying items being
hedged, these financial instruments help alleviate the risk that might otherwise
result from currency exchange rate fluctuations.
The following table (in millions) summarizes the notional amounts and respective
fair values of the derivative financial instruments at December 31, 2001. These
contracts are held by Corning and its subsidiaries and mature at varying dates:
Notional Amount Fair Value
--------------- ----------
Foreign exchange forward contracts $ 379 $ 20
Foreign exchange option contracts $ 140 $ 4
The forward and option contracts used by Corning in managing its foreign
currency exposures contain an element of risk in that the counterparties may be
unable to meet the terms of the agreements. However, Corning minimizes this risk
by limiting the counterparties to a diverse group of highly-rated major domestic
and international financial institutions with which Corning has other financial
relationships. Corning is exposed to potential losses in the event of
non-performance by these counterparties; however, Corning does not expect to
record any losses as a result of counterparty default. Corning does not require
and is not required to place collateral for these financial instruments.
69
16. Commitments, Contingencies, Guarantees and Hedging Activities (concluded)
In December 1998, one of Corning's subsidiaries entered into financing
agreements which provide for the sale of certain future yen based revenues,
beginning February 1999 and expiring in December 2001. These contracts were
terminated in July 2000. These contracts required the counterparty to advance
U.S. dollars in amounts up to $10 million each month and Corning to repay the
notes only to the extent of future yen denominated revenues. The obligations
under these contracts were not cancelable by either party. Borrowings under the
agreements bore interest at a premium to the Eurodollar rate. Transaction gains
or losses related to these contracts were deferred and recognized as an
adjustment to the revenue securing the note repayments. Borrowings were recorded
on the balance sheet only to the extent they were outstanding. The cumulative
borrowings between January 2000 and July 2000 were $60 million. Cumulative
repayments approximated 6.6 billion yen for the same period.
17. (Loss) Earnings Per Common Share
Basic earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. Diluted earnings per share assumes
that any dilutive convertible preferred shares, subordinated notes, convertible
zero coupon debentures and convertible debentures outstanding were converted,
with related preferred stock dividend requirements and outstanding common shares
adjusted accordingly. It also assumes that outstanding common shares were
increased by shares issuable upon exercise of those stock options for which
market price exceeds the exercise price, less shares which could have been
purchased by Corning with the related proceeds. Diluted loss per share is
computed using the weighted-average number of common shares and excludes
potential common shares outstanding, as their effect is anti-dilutive.
A reconciliation of the basic and diluted (loss) earnings per share from
continuing operations computations for 2001, 2000 and 1999 are as follows (in
millions, except per share amounts):
For the years ended December 31,
------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------------ ----------------------------- -----------------------------
Weighted- Weighted- Weighted-
Average Per Share Average Per Share Average Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------
(Loss) income from continuing
operations $(5,498) $ 409 $ 511
Less: Preferred stock
dividends (1) (1) (1)
----------------------------- ---------------------------- ----------------------------
Basic (Loss) Earnings
Per Share (5,499) 933 $(5.89) 408 858 $0.48 510 765 $0.67
======= ===== =====
Effect of Dilutive
Securities
Options 21 16
Convertible preferred
securities of subsidiary 2 6
Convertible subordinated notes 3 6
Convertible preferred stock 1 2
----------------------------- ---------------------------- ----------------------------
Diluted (Loss) Earnings
Per Share $(5,499) 933 $(5.89) $ 408 879 $0.46 $ 516 795 $0.65
============================= ============================ ============================
At December 31, 2001, potential convertible shares of 45 million related to
preferred stock, subordinated notes, 2% zero coupon convertible debentures and
3.5% convertible debentures were not included in the calculation of diluted loss
per share due to the anti-dilutive effect they would have had on loss per share
if converted. Also, the 2001 computation of diluted loss per share excluded 68
million options since their effect would have been anti-dilutive and the option
exercise price was greater than the average market price of the common shares
for the period.
At December 31, 2000, potential convertible shares of 12 million related to
preferred stock, subordinated notes and zero coupon convertible debentures were
not included in the calculation of diluted earnings per share due to the
anti-dilutive effect they would have had on earnings per share if converted.
Also, the 2000 computation of diluted earnings per share excluded 24 million
options since the option exercise price was greater than the average market
price of the common shares for the period.
70
17. (Loss) Earnings Per Common Share (concluded)
During the first quarter of 1999, the Convertible Monthly Income Preferred
Securities (MIPS) were redeemed and converted into 35 million shares of Corning
common stock. The MIPS dividends paid prior to the date of the conversion are
reflected within the dilutive earnings per share calculation for 1999.
18. Stock Compensation Plans
At December 31, 2001, Corning's stock compensation programs are in accordance
with the 2000 Employee Equity Participation Program and 2000 Equity Plan for
Non-Employee Directors Program (Programs). For calendar years beginning January
1, 2001, 3.5% of Corning's common stock outstanding at the beginning of the year
and any ungranted shares from prior years will be available for grant in the
current year. At December 31, 2001, 49.9 million shares will be available under
the Programs for 2002. Any remaining shares available for grant but not yet
granted will be carried over and used in the following year.
Stock Option Plan
Corning stock option plans provide non-qualified and incentive stock options to
purchase unissued or treasury shares at the market price on the grant date and
generally become exercisable in installments from one to five years from the
grant date. The maximum term of non-qualified and incentive stock options is 10
years from the grant date.
Changes in the status of outstanding options were as follows:
- --------------------------------------------------------------------------------
Number Weighted-
of Shares Average
(in thousands) Exercise Price
- --------------------------------------------------------------------------------
Options outstanding January 1, 1999 43,818 $ 9.70
Options granted under plans 7,623 $ 21.66
Options exercised (15,234) $ 8.77
Options terminated (918) $ 12.00
----------------------------
Options outstanding January 1, 2000 35,289 $ 12.63
Options granted under plans 23,549 $ 66.27
Options issued in acquisitions 4,456 $ 26.55
Options exercised (17,297) $ 10.62
Options terminated (994) $ 42.78
----------------------------
Options outstanding January 1, 2001 45,003 $ 42.27
Options granted under plans 29,784 $ 21.02
Options exercised (1,258) $ 9.40
Options terminated (1,138) $ 37.53
----------------------------
Options outstanding December 31, 2001 72,391 $ 34.21
============================
The number of options exercisable and the corresponding weighted-average
exercise price was 20.9 million and $26.33 at December 31, 2001, 12 million and
$11.32 at December 31, 2000 and 14.1 million and $10.36 at December 31, 1999.
The weighted-average fair value of options granted was $13.83 in 2001, $38.46 in
2000 and $8.29 in 1999.
71
18. Stock Compensation Plans (continued)
The following table summarizes information about Corning's stock option plans at
December 31, 2001:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------------------
Number Weighted-Average Number
Outstanding at Remaining Weighted- Exercisable at Weighted-
Range of December 31, 2001 Contractual Life Average December 31, 2001 Average
Exercise Prices (in thousands) in Years Exercise Price (in thousands) Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
$ 0.31 to 8.74 3,958 4.2 $ 7.88 3,597 $ 8.01
$ 8.84 to 8.98 620 6.4 $ 8.91 322 $ 8.85
$ 9.38 to 9.84 5,569 6.4 $ 9.41 5,396 $ 9.41
$ 9.95 to 13.50 8,120 5.4 $10.61 2,292 $12.21
$ 13.52 to 15.28 7,491 9.5 $15.19 448 $13.78
$ 15.36 to 19.83 7,047 8.4 $17.14 1,518 $15.94
$ 19.94 to 31.78 7,910 9.3 $21.47 261 $24.00
$ 31.83 to 47.37 7,284 8.6 $40.77 1,560 $33.06
$ 48.33 to 55.08 6,383 8.8 $53.65 1,873 $53.84
$ 55.48 to 69.56 4,630 8.3 $61.75 1,384 $61.96
$ 70.08 to 70.75 5,640 8.9 $70.75 1,883 $70.75
$ 71.04 to 72.38 6,987 8.4 $72.11 13 $71.97
$72.99 to 111.00 752 8.7 $91.34 335 $90.57
- ----------------------------------------------------------------------------------------------------------------------------------
72,391 8.0 $34.21 20,882 $26.33
- ----------------------------------------------------------------------------------------------------------------------------------
Incentive Stock Plans
The Corning Incentive Stock Plan permits stock grants, either determined by
specific performance goals or issued directly, in most instances, subject to the
possibility of forfeiture and without cash consideration.
In 2001, 2000 and 1999, grants of 1,028,000 shares, 1,429,000 shares and
1,236,000 shares, respectively, were made under this plan. The weighted-average
price of the grants was $36.89 in 2001, $61.07 in 2000 and $21.87 in 1999,
respectively. A total of 1.1 million shares issued remain subject to forfeiture
at December 31, 2001.
Corning applies APB No. 25 accounting for its stock-based compensation plans.
Compensation expense is recorded for awards of shares or share rights over the
period earned. Compensation expense of $130 million, $31 million and $7 million
was recorded in 2001, 2000 and 1999, respectively. If Corning had elected to
recognize compensation expense under SFAS No. 123, Corning's net (loss) income,
basic and diluted (loss) earnings per share in 2001, 2000 and 1999 would have
been as follows:
- -------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net (loss) income - as reported $ (5,498) $ 422 $ 516
Net (loss) income - pro forma $ (5,868) $ 308 $ 487
Basic (losses) earnings per common share - as reported $ (5.89) $ 0.49 $ 0.67
Basic (losses) earnings per common share - pro forma $ (6.29) $ 0.36 $ 0.64
Diluted (losses) earnings per common share - as reported $ (5.89) $ 0.48 $ 0.66
Diluted (losses) earnings per common share - pro forma $ (6.29) $ 0.35 $ 0.62
- -------------------------------------------------------------------------------------------------------------------
SFAS No. 123 requires that reload options be treated as separate grants from the
related original option grants. Under Corning's reload program, upon exercise of
an option, employees may tender unrestricted shares owned at the time of
exercise to pay the exercise price and related tax withholding, and receive a
reload option covering the same number of shares tendered for such purposes at
the market price on the date of exercise. The reload options vest in one year
and are only granted in certain circumstances according to the original terms of
the option being exercised. The existence of the reload feature results in a
greater number of options being measured.
72
18. Stock Compensation Plans (concluded)
For purposes of SFAS No. 123 the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model. The following
are weighted-average assumptions used for grants under Corning stock plans and
predecessor Oak plans in 2001, 2000 and 1999, respectively:
- ---------------------------------------------------------------------------------------------------------------------------------
For Options Corning Option Plan Corning Option Plan Corning Incorporated Oak
Granted During 2001 2000 1999 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Expected life in years 6 5 6 4
Risk free interest rate 4.8% 5.8% 5.7% 5.7%
Dividend yield 0.46% 0.36% 0.40%
Expected volatility 75% 65% 33% 49%
- ---------------------------------------------------------------------------------------------------------------------------------
Corning discontinued payment of dividends on its common stock in July 2001. The
dividend yield assumption applies to grants prior to July 2001.
Worldwide Employee Share Purchase Plan
In addition to the Stock Option Plan and Incentive Stock Plans, Corning has a
Worldwide Employee Share Purchase Plan (WESPP). Under the WESPP, substantially
all employees can elect to have up to 10% of their annual wages withheld to
purchase Corning common stock. The purchase price of the stock is 85% of the
lower of the beginning-of-quarter or end-of-quarter market price. The CSOT was
utilized to fund a portion of employee purchases of common stock under the
WESPP.
73
Corning Incorporated and Subsidiary Companies
Schedule II - Valuation Accounts and Reserves
(In millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at Net Deductions Balance at
Year ended December 31, 2001 Beginning of Period Additions and Other End of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Doubtful accounts and allowances $ 47 $ 32 $ 19 $ 60
Deferred tax assets valuation allowance $ 45 $ 90 $ 135
Accumulated amortization of goodwill
and other intangible assets $ 355 $ 419 $ 23 $ 751
Reserves for accrued costs of
business restructuring $ 961 $ 685 $ 276
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at Net Deductions Balance at
Year ended December 31, 2000 Beginning of Period Additions and Other End of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Doubtful accounts and allowances $ 20 $ 30 $ 3 $ 47
Deferred tax assets valuation allowance $ 50 $ 5 $ 45
Accumulated amortization of goodwill
and other intangible assets $ 112 $ 249 $ 6 $ 355
Reserves for accrued costs of
business restructuring $ 8 $ 8
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at Net Deductions Balance at
Year ended December 31, 1999 Beginning of Period Additions and Other End of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Doubtful accounts and allowances $ 18 $ 23 $ 21 $ 20
LIFO valuation $ 19 $ 19
Deferred tax assets valuation allowance $ 34 $ 16 $ 50
Accumulated amortization of goodwill
and other intangible assets $ 90 $ 31 $ 9 $ 112
Reserves for accrued costs of
business restructuring $ 61 $ 53 $ 8
- ----------------------------------------------------------------------------------------------------------------------------------
74
QUARTERLY OPERATING RESULTS AND RELATED MARKET DATA
(unaudited)
(In millions, except per share amounts) Corning Incorporated and Subsidiary Companies
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Total
2001 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 1,921 $ 1,868 $ 1,509 $ 974 $ 6,272
Gross margin 809 536 515 32 1,892
Income (loss) before income taxes,
minority interest and equity earnings 211 (4,871) (320) (1,131) (6,111)
Provision (benefit) for income taxes 108 (77) (60) (423) (452)
Minority interest in (earnings) losses of subsidiaries (5) (7) 1 24 13
Equity in earnings of associated companies 34 46 39 29 148
Net income (loss) $ 132 $ (4,755) $ (220) $ (655) $ (5,498)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share $ 0.14 $ (5.13) $ (0.24) $ (0.69) $ (5.89)
Diluted Earnings (Loss) Per Share $ 0.14 $ (5.13) $ (0.24) $ (0.69) $ (5.89)
Dividend declared $ 0.06 $ 0.06 $ 0.12
Price range
High $ 70.25 $ 26.70 $ 16.82 $ 10.30
Low $ 19.98 $ 13.00 $ 8.35 $ 7.01
- ------------------------------------------------------------------------------------------------------------------------------------
2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 1,351 $ 1,776 $ 1,916 $ 2,084 $ 7,127
Gross margin 563 746 804 883 2,996
Income (loss) from continuing operations before income
taxes, minority interest and equity earnings 137 254 320 (20) 691
Provision for income taxes 55 137 111 104 407
Minority interest in earnings of subsidiaries (3) (7) (7) (7) (24)
Equity in earnings of associated companies 34 39 52 60 185
Impairment of equity investment (36) (36)
Income (loss) from continuing operations $ 77 $ 149 $ 254 $ (71) $ 409
Income from discontinued operations, net of income tax (1) 13 13
Net income (loss) $ 77 $ 149 $ 254 $ (58) $ 422
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share
Continuing operations $ 0.09 $ 0.18 $ 0.29 $ (0.08) $ 0.48
Discontinued operations (1) 0.02 0.01
Net income (loss) per share $ 0.09 $ 0.18 $ 0.29 $ (0.06) $ 0.49
Diluted Earnings (Loss) Per Share
Continuing operations $ 0.09 $ 0.17 $ 0.28 $ (0.08) $ 0.46
Discontinued operations (1) 0.02 0.02
Net income (loss) per share $ 0.09 $ 0.17 $ 0.28 $ (0.06) $ 0.48
Dividend declared $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.24
Price range
High $ 73.33 $ 89.96 $ 113.11 $ 105.94
Low $ 34.58 $ 48.33 $ 77.58 $ 52.81
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Discontinued operations are described in Note 1 to the Consolidated
Financial Statements.
75
FIVE YEARS IN REVIEW - HISTORICAL COMPARISON
(unaudited)
(In millions, except per share amounts) Corning Incorporated and Subsidiary Companies
- -----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Results of Operations
Net sales $ 6,272 $ 7,127 $ 4,741 $ 3,832 $ 3,831
Nonoperating gains 7 30 40
Research, development and engineering expenses 631 540 378 307 263
Amortization of purchased intangibles,
including goodwill 439 245 28 22 22
Acquisition-related charges 463
Impairment and restructuring charges 5,725 1 85
Equity in earnings of associated companies 148 185 112 97 79
Impairment of equity investment (36)
(Loss) income from continuing operations $ (5,498) $ 409 $ 511 $ 355 $ 431
Income from discontinued operations,
net of income taxes 13 5 66 31
Net (loss) income $ (5,498) $ 422 $ 516 $ 421 $ 462
- ------------------------------------------------------------------------------------------------------------------------------------
Basic (loss) earnings per share
Continuing operations $ (5.89) $ 0.48 $ 0.67 $ 0.48 $ 0.59
Discontinued operations 0.01 0.09 0.04
Net (loss) income per share $ (5.89) $ 0.49 $ 0.67 $ 0.57 $ 0.63
Diluted (loss) earnings per share
Continuing operations $ (5.89) $ 0.46 $ 0.65 $ 0.47 $ 0.57
Discontinued operations 0.02 0.01 0.09 0.04
Net (loss) income per share $ (5.89) $ 0.48 $ 0.66 $ 0.56 $ 0.61
Dividends declared $ 0.12 $ 0.24 $ 0.24 $ 0.24 $ 0.24
Shares used in computing per share amounts:
Basic earnings per share 933 858 765 733 729
Diluted earnings per share 933 879 795 778 781
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Position
Working capital $ 2,113 $ 2,685 $ 430 $ 348 $ 326
Plant and equipment, net 5,097 4,679 3,202 2,784 2,337
Total assets 12,793 17,526 6,526 5,464 5,080
Long-term debt 4,461 3,966 1,490 1,218 1,277
Common shareholders' equity 5,414 10,633 2,463 1,707 1,429
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Data (1)
Adjusted net (loss) income excluding
amortization of goodwill $ (5,153) $ 625 $ 534 $ 434 $ 475
Basic (loss) earnings per share
Continuing operations $ (5.52) $ 0.71 $ 0.69 $ 0.50 $ 0.61
Discontinued operations 0.02 0.01 0.09 0.04
Net (loss) income per share $ (5.52) $ 0.73 $ 0.70 $ 0.59 $ 0.65
Diluted (loss) earnings per share
Continuing operations $ (5.52) $ 0.69 $ 0.67 $ 0.49 $ 0.59
Discontinued operations 0.02 0.01 0.08 0.04
Net (loss) income per share $ (5.52) $ 0.71 $ 0.68 $ 0.57 $ 0.63
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Reference should be made to Note 1 to the Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results
of Operations.
76
FIVE YEARS IN REVIEW - HISTORICAL COMPARISON (continued)
(unaudited)
(In millions, except number of employees and common shareholders)
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA
Common dividends declared $ 112 $ 210 $ 176 $ 167 $ 166
Preferred dividends declared $ 1 $ 1 $ 1 $ 2 $ 2
Capital expenditures $ 1,800 $ 1,525 $ 757 $ 730 $ 760
Depreciation and amortization $ 1,068 $ 765 $ 408 $ 320 $ 305
Number of employees (1) 31,700 41,800 21,500 19,300 19,500
Number of common shareholders 26,030 20,140 20,200 22,100 23,600
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Amounts do not include employees of discontinued operations.
77
INVESTOR INFORMATION
Annual Meeting The annual meeting of shareholders will be held on Thursday,
April 25, 2002, in Corning, NY. A formal notice of the meeting together with a
proxy statement will be mailed to shareholders on or about March 14, 2002. The
proxy statement can also be accessed electronically through the investor
relations category of the Corning home page on the Internet at
http://www.corning.com. A summary report of the proceedings at the annual
meeting will be available without charge upon written request to Ms. Denise A.
Hauselt, assistant general counsel and secretary, Corning Incorporated,
HQ-E2-10, Corning, NY 14831.
Additional Information
A copy of Corning's 2001 Annual Report on Form 10-K filed with the Securities
and Exchange Commission is available upon written request to Ms. Denise Hauselt,
assistant general counsel and secretary, Corning Incorporated, HQ-E2-10,
Corning, NY 14831. The Annual Report on Form 10-K can also be accessed
electronically through the investor relations category of the Corning home page
on the Internet at http://www.corning.com.
Investor Information
Investment analysts who need additional information may contact Ms. Katherine M.
Dietz, vice president of investor relations, Corning Incorporated, HQ-E2-25,
Corning, NY 14831; Telephone (607) 974-9000.
Common Stock
Corning Incorporated common stock is listed on the New York Stock Exchange and
the Zurich Stock Exchange. In addition, it is traded on the Boston, Midwest,
Pacific and Philadelphia stock exchanges. Common stock options are traded on the
Chicago Board Options Exchange. The abbreviated ticker symbol for Corning
Incorporated is "GLW."
Transfer Agent and Registrar
Computershare Investor Services LLC
P.O. Box A-3504
Chicago, IL 60690-3504
Telephone: (800) 255-0461
www.computershare.com
Change of Address
Report change of address to Computershare at the above address.
Independent Accountants
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, NY 10019
78
The following exhibits are included only in copies of the 2001 Annual Report on
Form 10-K filed with Securities and Exchange Commission.
Exhibit #24 Powers of Attorney
Copies of these exhibits may be obtained by writing to Ms. Denise Hauselt,
assistant general counsel and secretary, Corning Incorporated, MP-HQ-E2-10,
Corning, New York 14831.
79