On October 18, Corning Inc. reported third-quarter pro forma earnings per share of $0.09, a decrease of 74% compared with $0.35 per share for the third quarter of 2000. Pro forma net income in the third quarter of 2001 totaled $85 million, down from $317 million in the third quarter of 2000. These results are consistent with company expectations as announced on Oct. 3. Pro forma results exclude the previously disclosed charge for restructuring actions of $339 million ($222 million after-tax). Including the charge for restructuring actions and amortization of purchased intangibles and goodwill, Corning's net loss for the third quarter of 2001 totaled $220 million, or $0.24 per share. This compares with third-quarter-2000 net income of $254 million, or $0.28 per share.
The company's steep profitability drop in the quarter was primarily caused by significant losses in photonic technologies compared to modest profitability in the third-quarter of 2000. In addition, its optical fiber and cable, hardware and equipment, environmental, semiconductor, and information display businesses reported weak profits. Corning's lower earnings also reflect a higher level of manufacturing capacity and operating expenses that were added in 2000 and early 2001 to meet the anticipated growth of the company, growth that so far has not materialized.
“As we announced two weeks ago, deteriorating global economic conditions have affected all of our businesses. The downturn has been most pronounced within the telecommunications market, where conditions changed so abruptly and with such severity that the impact on our business is unprecedented,” says John W. Loose, president and CEO. “However, we have taken, and will continue to take, decisive steps to restructure the company's businesses and reduce our cost structure.”
Corning's third-quarter pre-tax charge of $339 million is related to actions undertaken in the quarter that are part of the broader restructuring program expected to total up to $1 billion by the end of the year. The company expects one-third of the $1 billion restructuring charge to be paid in cash. Third-quarter charges include costs related to headcount reductions, primarily in the telecommunications segment, and costs related to the closure of several manufacturing facilities in photonic technologies.
Corning has announced the following restructuring actions for the fourth quarter:
- The closing of its photonic products manufacturing and development operations in Henrietta, NY
- The proposed closing of its optical fiber manufacturing facility in Deeside, North Wales, United Kingdom
- The shutdown of manufacturing operations of glass tubing for lighting and television applications by the third quarter of next year
- The discontinuation of its initiative in Corning Microarray Technology (CMT) products, part of Corning's Life Sciences business.
In addition, the company said it has begun other workforce reductions across many of its businesses and staff functions, has implemented an early retirement program and continues to look for ways to reduce operating expenses and control costs. Workforce reductions related to all of these actions are part of the company's previously announced plans to eliminate a total of 12,000 positions by the end of the year.
The firm expects fourth-quarter earnings to be negatively impacted by the previously announced idling of its optical fiber manufacturing operations, that will begin next week and will continue through the remainder of the year. The company expects fourth-quarter sales in the range of $1 billion and a fourth-quarter pro forma loss in the range of $0.20 to $0.25 per share.
Corning also said it expects its fourth-quarter fiber volume to be less than half of last year's comparable period. Premium fiber will represent about 10% of the company's total fiber volume. Corning expects to experience pricing pressure in its fiber and cable businesses in the fourth quarter.
Corning expects the cost savings resulting from the third-quarter charge and the anticipated fourth-quarter actions to be approximately $400 million pre-tax on an annualized basis. Approximately 50% of these savings will improve the firm''s gross margin and the remainder will reduce operating expense.
The company anticipates capital spending for 2001 to be $1.7 billion to $1.8 billion, and it has reduced its 2002 capital spending plan to be in the range of $700 million. The 2002 plan anticipates that all expansion projects in the telecommunications segment are on hold indefinitely and that expansion of the liquid crystal display glass business has slowed to keep pace with market growth. The 2002 plan includes spending for the previously announced diesel substrate plant and cost reduction capital projects across the company.
James B. Flaws, Corning chief financial officer, adds, “Over the short term, we are focused on improving cash flow and restoring profitability. The company has a healthy balance sheet with ample liquidity in the form of over $1 billion in cash and committed credit lines of $2 billion.”