COMPANY PRESS RELEASE: Corning Incorporated has announced that it will take pre-tax operating charges of approximately $178 million ($109 million after-tax), or $0.12 per share, in the fourth quarter of 2001.
With today’s charges, Corning now expects a pro forma net loss in the range of $0.28 to $0.29 per share for the fourth quarter ended December 31, 2001, compared to its previous guidance of a pro forma net loss of $0.20 to $0.25 per share.
While these charges will result in a slightly higher than expected fourth quarter loss, James B. Flaws, Corning’s chief financial officer said, our businesses performed as expected for the quarter. Revenues and cost controls are in line with our expectations. Flaws added that he expects sales for the fourth quarter to be in the range of $975 million.
Overview of Fourth-quarter Charges
Corning expects to record a fourth-quarter pre-tax charge of $90 million related to the release of restrictions on Corning common stock held by employees, a $60 million pre-tax charge to write off inventory in the telecommunications segment, primarily in the Photonic Technologies business, and a $28 million write-off of an intellectual property investment.
As part of changes to Corning’s compensation program, the company’s Board of Directors recently released restrictions on 4.8 million shares held by employees. The $90 million charge represents the unamortized expense associated with the grants which was measured at the fair market value of the stock on the dates granted to employees. The current fair market value of the shares is approximately $48 million.
The company said its fourth-quarter results will include a charge of $60 million to reserve for excess and obsolete inventory, primarily in the Photonics Technologies business. After this reserve, Corning’s 2001 year-end photonics inventory is expected to be reduced to approximately $70 million. The company previously recorded a charge of $283 million in the second quarter of 2001 for excess and obsolete inventory. The $28 million intellectual property charge is related to the company’s optical networking business.
Flaws said, In addition to the charges we announced today, Corning continues to move forward with its previously announced plan and will record a fourth-quarter pre-tax restructuring charge of approximately $600 million ($360 million after-tax and minority interest), or $0.38 per share. We are making significant progress with our efforts to reduce operating expenses, control costs and restore profitability.
Including the restructuring charge of $0.38 per share and the amortization of goodwill totaling $0.03 per share, Corning expects to report a 2001 fourth-quarter net loss of $0.69 to $0.70 per share.
Corning will release its fourth-quarter results after the close of the New York Stock Exchange on January 23, 2002. The company will hold an investor meeting on February 8, 2002 at the Plaza Hotel in New York City, at which time it expects to provide details on its business outlook.
Corning will adopt Statement of Financial Accounting Standard (SFAS) No. 142 effective January 1, 2002. Corning said it does not anticipate a charge as a result of the adoption of the new accounting standard. Under SFAS 142, the company will no longer amortize goodwill but will continue to amortize purchased intangible assets. As goodwill amortization is the largest recurring difference between pro forma and reported results, Corning will discontinue the use of pro forma earnings as its primary performance measure in 2002, Flaws said.
The company also said that effective with the reporting of fourth quarter 2001 results, it will revise its current pro forma net income definition to include the amortization of intangible assets, which it previously excluded. The revision will decrease Corning’s full year 2001 pro forma net income per share by $0.03 and will make comparisons of 2001 pro forma results consistent with 2002 reported results, Flaws said.
Separately, Corning announced that its Board of Directors had accepted the resignation of John H. Foster, managing partner of Foster Management Company, effective December 31, 2001. Foster, who resigned for personal reasons, had served as a director since 1994. The board has been reduced from 16 to 15 members as a result.