2012 Corning Annual Report
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2012 Corning Annual Report Corning is the world leader in specialty glass and ceramics, creating keystone components that enable high-technology systems for consumer electronics, mobile emissions control, telecommunications, and life sciences. Corning has been making possibilities real for more than 160 years. To our shareholders: It’s my pleasure to report that Corning Incorporated is strong, stable, and growing, despite a very challenging environment. We entered 2012 knowing that it was going to be a difficult year. In 2011, the company experienced a significant drop in net income, driven by price declines for liquid crystal display glass, price declines on solar products at Dow Corning’s Hemlock Semiconductor Group, and a higher corporate tax rate. We informed shareholders at our annual investor meet- ing in February that we expected these trends to continue in 2012. By the second half of the year, the weak global economy began taking a toll on the company’s performance as well. But in 161 years, Corning has been through recessions, depressions, world wars, industry meltdowns, and numerous evolutions driven by changing markets. Corning is no stranger to tough times, and the leadership team has worked hard to ensure that the company is stronger than any challenge we face. Thanks to careful preparation and relentless execution, Corning improved its performance each quarter and ended 2012 with record sales. More importantly, we have laid the foundation for even stronger results in 2013. The Macro Environment Wendell P. Weeks Before I drill down into our 2012 performance, here’s a brief review of the business environment. Chairman of the Board, Chief Executive Officer In the second half of 2011, we began seeing evidence that & President the liquid crystal display market was maturing. A supply- chain correction resulted in lower demand for Corning’s LCD glass, and the industry had two quarters of significant price declines. We also experienced a significant share loss at a large LCD glass customer in Korea, which caused us to lower our financial guidance. At the same time, an upheaval in the solar market for polysilicon and raw-material pricing pressure began negatively impacting our equity venture Dow Corning Corporation. We knew from the start of 2012 that we could not expect any help from the global economy. We began feeling headwinds in the second quarter, and they intensified as the year pro- gressed. In particular, slowdowns in the European automotive market and global truck industry led to lower sales of Corning’s emissions-control products, while our Telecommunications segment experienced lower sales in Europe and project delays in North America and Australia as customers grew cautious. No question, it was another tough test for Corning. But we were well prepared, thanks to the Strategy Framework we developed in the wake of the 2002 telecommunications downturn. A Strong Foundation and a Clear Mandate Marching up means increasing Corning’s profitability. That will come from a combination of growth in existing businesses, Our Strategy Framework has three elements: Corning has new innovations, and strategic acquisitions. to grow, we must proactively strive to provide balance and stability to the company, and we must preserve the trust Key trends are fueling growth across Corning’s diverse business of our stakeholders. segments. The proliferation of mobile devices and touch tech- nology creates the need for highly engineered specialty glass; We grow primarily through global innovation. We consistently the surge in Internet traffic requires massive bandwidth that invest in research and development because we understand only fiber-optic networks can provide; the push for a greener that Corning’s future growth will come from the technologies environment drives demand for emissions-control products; in our labs today. We know that not every idea will succeed, so and the aging global population requires better healthcare we pursue a diverse set of opportunities focused on different and more effective drug-discovery tools. applications and markets. And we conduct both product and process innovation to create long-term competitive advantage. Corning is also creating entirely new businesses. We have a rich innovation portfolio and continue to make significant Balance comes from business and market diversity, which enhancements to our materials and processes that unleash reduces Corning’s overall volatility. Our ongoing investments new possibilities for customers. We’re particularly excited in Specialty Materials, Telecommunications, Environmental about the potential to generate near-term returns on invest- Technologies, and Life Sciences have helped mitigate the ment by extending Corning’s core capabilities into new declines in Display Technologies. Our geographic diversity markets. We built a $1 billion business within six years by provides balance as well. Approximately 77 percent of Corning’s leveraging our fusion process to make Corning® Gorilla® sales now come from outside the United States, which helps Glass, and believe we can adapt existing technologies and reduce our vulnerability to regional economic fluctuations. infrastructure to create similarly successful products. We create stability by vigorously protecting Corning’s balance sheet. We maintain cash in excess of debt and focus on gen- 2012 Performance erating strong cash flow. Our strong cash position ensures we So let’s look at our 2012 financial results. Sales were $8 billion, have the liquidity to weather tough economic times and the a new record for Corning. Net income and earnings per share resources to invest in Corning’s future. were both down from 2011, as expected. However, fourth- Finally, we are guided in everything we do by an unwavering quarter EPS was up year-over-year, excluding special items. This set of Corporate Values. Our Values help us make tough deci- was the first increase in two years and a strong indication that sions and ensure that we are always taking the long view of we are successfully forming bottom. what’s best for the company and our employees, customers, We also continued to strengthen Corning’s cash position. investors, and the communities where we operate. We revitalize We ended the year with $2.7 billion more cash on hand than our Values each year, and have systems in place to hold us debt, and we have been a consistent generator of free cash accountable. flow for the past nine years. This Strategy Framework serves as our general compass Although the economy negatively impacted all our business during growth surges as well as business setbacks. However, segments to some degree, we achieved significant milestones we also define focused priorities each year based on the in each. existing business environment. In January 2012, we established a clear mandate: Form Bottom and March Up! n Display Technologies exceeded our expectations and sold record volume of LCD glass. Forming bottom refers to stopping the decline in net income, primarily by stabilizing the performance in our Display Tech- n Sales in Specialty Materials were up 25 percent from 2011, nologies segment. We took action in Q4 2011 to bring LCD driven by record demand for Corning® Gorilla® Glass, which glass supply in line with demand. This strategy was effective, is now featured on more than one billion devices worldwide. and price declines moderated as the year progressed. We also n signed supply agreements with several industry-leading Telecommunications had strong growth in China; we display manufacturers, which we believe will stabilize our opened a new fiber factory in India; and we began shipping share at each. products for NBN's fiber-to-the-home deployment in Australia. Of course, the responsibility for forming bottom did not rest n solely with Display Technologies. The entire company aggres- Our Environmental Technologies segment improved gross sively controlled costs and made disciplined program choices. margins and secured new business with key customers. And when the weak global economy began significantly n In Life Sciences, we completed a strategic acquisition that impacting our businesses, we announced restructuring actions expands our product portfolio and market reach, while in the fourth quarter. We adjusted manufacturing operations positioning the segment to become a $1 billion business. to market demand, froze most external hiring, lowered capital spending, and made modest reductions to our global sala- ried workforce. These were very difficult decisions, but they underscored our commitment to protecting Corning’s financial health and restoring growth. As always, we also continued to innovate. Closing Thoughts n We formed a new venture with Samsung to develop glass The assessment of our performance is ultimately up to you. for organic-light-emitting-diode devices and other high- But here is why we believe your investment in Corning is well performance displays. placed. n We launched Corning® Willow™ Glass. This ultra-slim n We are financially strong and have tremendous stability, flexible glass is eight percent thinner than a dollar bill, which allows us to weather the toughest business and has the potential for a broad range of applications conditions. from conformable displays to solar-energy devices. n All of our business segments are tied to significant growth n We continued to demonstrate the vital role that optical trends, and our innovation portfolio creates the opportunity fiber plays in enabling wireless communications. Our for growth beyond our existing businesses. Corning MobileAccess distributed antenna system (DAS) n helped ensure “always on” high-bandwidth coverage at We have strong cash flow, a sustainable dividend, and the Lucas Oil Stadium for Super Bowl XLVI and at key locations earnings power to make strategic investments for Corning’s for the Democratic and Republican national conventions. future. And we expect to launch a next-generation all-optical DAS On a more personal note, I joined Corning 30 years ago solution this year. and have spent most of my career here because I know how However, we were certainly not happy with everything about remarkable this place is.