Copyright

Corning: Convertible Preferred Stock

Harvard Business School Case 9-206-018

Courseware 9-208-706

This courseware was prepared solely as the basis for class discussion. Cases are not intended to

serve as endorsements, sources of primary data, or illustrations of effective or ineffective

management. Copyright © 2007 President and Fellows of Harvard College. No part of this product

may be reproduced, stored in a retrieval system, used in a spreadsheet or transmitted in any form or

by any means—electronic, mechanical, photocopying, recording or otherwise—without the permission

of Harvard Business School.

1

Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96

Cash and Equivalents 208 133 161 161 215 223

Net Receivables 583 662 691 947 932 566

Inventories 316 346 354 417 468 499

Prepaid Expenses 0 0 0 0 0 0

Other Current Assets 123 148 266 201 219 131

Total Current Assets 1,229 1,289 1,472 1,726 1,834 1,419

Gross Property, Plant and Equipment 2,810 3,108 3,362 3,618 3,948 3,771

Accumulated Depreciation 1,380 1,503 1,602 1,728 1,916 1,793

Net Property, Plant, and Equipment 1,430 1,605 1,760 1,891 2,032 1,978

Investments at Equity 920 926 587 660 344 314

Other Investments 12 18 44 33 32 23

Intangibles 199 221 1,009 1,408 1,416 330

Other Assets 64 227 360 304 329 257

Total Assets 3,853 4,286 5,232 6,023 5,987 4,321

Long Term Debt Due in One Year 17 49 36 44 141 52

Notes Payable 68 54 106 24 5 2

Accounts Payable 203 215 245 258 255 269

Taxes Payable 61 40 18 40 109 99

Accrued Expenses 301 402 461 606 592 386

Other Current Liabilities 360 465 616 708 655 386

Total Current Liabilities 708 824 1,020 1,074 1,165 808

Long-Term Debt 700 816 1,586 1,406 1,393 1,209

Minority Interest 115 241 246 611 637 676

Other Liabilities 282 575 669 644 665 646

Preferred Stock 28 27 26 25 24 22

Common Equity 2,019 1,804 1,686 2,263 2,103 961

Total Equity 2,047 1,831 1,712 2,288 2,127 983

Total Liabilities And Equity 3,853 4,286 5,232 6,023 5,987 4,321

Exhibit 5 Balance Sheet ($M)

Source: Securities Data Corp.

Dec-97 Dec-98 Dec-99 Dec-00 1-Dec Jun02 E

97 45 280 1,794 2,219 1,323

560 636 872 1,490 593 605

428 459 602 1,040 725 671

0 0 0 0 0 0

114 170 229 311 570 733

1,199 1,310 1,984 4,634 4,107 3,332

4,001 4,679 5,559 7,341 8,164 8,059

1,733 1,994 2,357 2,662 3,067 3,302

2,268 2,685 3,202 4,679 5,097 4,757

293 313 422 479 636 666

17 53 83 156 142 74

294 310 507 7,340 2,289 390

621 311 329 238 522 2,667

4,692 4,982 6,526 17,526 12,793 11,886

46 135 46 128 244 53

167 70 375 0 233 4

300 292 418 855 441 310

113 160 115 186 139 -

332 357 498 780 937 1,052

332 419 600 780 937 1,052

958 1,075 1,554 1,949 1,994 1,419

1,126 998 1,490 3,966 4,461 4,285

715 711 285 139 119 107

628 674 721 830 798 993

20 18 14 9 7 7

1,247 1,506 2,463 10,633 5,414 5,075

1,266 1,524 2,476 10,642 5,421 5,082

4,692 4,982 6,526 17,526 12,793 11,886

Exhibit 5 Balance Sheet ($M)

Source: Securities Data Corp.

Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96

Sales 3,287 3,744 4,035 4,799 5,346 3,685

Cost of Goods Sold 1,880 2,161 2,321 2,723 3,009 1,971

Selling, General & Administrative Expense 753 843 947 1,049 1,273 831

Operating Income Before Depreciation 654 740 767 1,028 1,064 883

Depreciation, Depletion & Amortization 248 258 285 338 377 288

Operating Profit 406 482 482 690 687 595

Interest Expense 60 69 94 122 128 87

Non-Operating Income/Expense 86 24 -149 23 -307 65

Special Items 8 -56 -203 -82 -67 0

Pretax Income 439 380 37 508 184 572

Total Income Taxes 111 93 35 170 155 163

Minority Interest 17 22 17 57 81 66

After-Tax Income 311 266 -15 281 -51 343

Extraordinary Items 6 -279 0 0 0 0

Discontinued Operations 0 0 0 0 0 -167

Net Income 317 -13 -15 281 -51 176

Preferred Dividends 2 2 2 2 2 2

Available for Common 309 264 -17 279 -53 341

Exhibit 6 Income Statement ($M)

Source: Securities Data Corp.

Dec-97 Dec-98 Dec-99 Dec-00 1-Dec Jun02 E

3,554 3,532 4,783 7,162 6,272 1,666

1,756 1,856 2,550 3,611 3,739 957

792 782 1,046 1,587 1,728 633

1,006 895 1,187 1,963 805 76

286 298 408 765 1,080 363

720 597 779 1,198 -275 -287

97 104 135 163 202 92

85 86 114 297 239 70

0 -45 29 -492 -5,725 -426

708 535 787 840 -5,963 -735

210 133 207 407 -452 -234

90 75 69 24 -13 -12

409 328 511 410 -5,498 -981

0 0 0 0 0 0

31 67 5 13 0 29

440 394 516 422 -5,498 -952

2 2 1 1 1 0

407 326 510 409 -5,499 -489

Exhibit 6 Income Statement ($M)

Source: Securities Data Corp.

Dec-91 Dec-92 Dec-93 Dec-94

Income Before Extraordinary Items 311 266 -15 281

Depreciation and Amortization 231 248 280 338

Extraordinary Items and Discontinued Operations 0 0 0 0

Deferred Taxes 0 0 -84 17

Equity in Net Loss -34 37 167 -1

Sale of Property, Plant, Equipment and Investments-

Loss (Gain) -5 6 6 -12

Funds from Operations 28 47 173 99

Receivables-Decrease (Increase) -60 -50 35 -218

Inventory-Decrease (Increase) -4 -29 6 -38

Other Assets and Liabilities-Net Change 3 -30 22 -65

Cash Flow from Operating Activities 471 495 590 402

Increase in Investments 77 53 18 14

Increase in Short-Term Investments 0 0 0 0

Capital Expenditures 313 377 443 387

Acquisitions 4 124 450 387

Other Investing Activities -34 -136 -7 -228

Cash Flow from Investing Activities -360 -419 -904 -560

Sale of Common and Preferred Stock 22 16 14 248

Purchase of Common and Preferred Stock -68 -101 -59 0

Cash Dividends -95 -179 -136 -152

Long-Term Debt-Issuance 133 140 1,021 237

Long-Term Debt-Reduction -27 -22 -501 -609

Other Financing Activities 0 0 0 431

Cash Flow from Financing Activities -34 -146 339 155

Exchange Rate Effect -3 -5 3 3

Cash and Equivalents-Change 75 -75 28 1

Exhibit 7 Cash Flow Statement ($M)

Source: Securities Data Corp.

Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 1-Dec Jun02 E

-51 343 409 328 511 410 -5,498 -460

377 288 286 298 408 765 1,080 351

0 -188 22 -172 -13 -2 -9 0

-42 19 -10 -4 36 -48 -511 -107

356 3 -14 -32 -61 -141 -94 28

13 7 -6 9 -21 10 0 0

75 40 80 105 60 828 6,227 241

16 -75 -70 -56 -152 0 677 10

-48 -71 -70 -7 -81 0 -51 27

2 50 49 -3 149 -402 -385 -238

699 415 676 466 836 1,420 1,436 -148

28 13 9 102 38 0 0 9

0 0 0 0 0 0 467 -801

495 598 746 714 757 1,525 1,800 213

41 15 32 44 188 5,009 66 -36

-21 -706 -73 -734 -50 15 42 2

-543 80 -713 -126 -933 -6,549 -2,375 613

24 43 37 22 113 4,744 247 33

-33 -84 -50 -60 -96 -57 -42 0

-167 -167 -168 -168 -177 -212 -113 0

170 415 130 300 681 2,808 735 11

-97 -656 -33 -491 -199 -635 -104 -155

0 -9 0 0 0 0 181 -474

-103 -457 -84 -397 322 6,648 904 -585

1 -2 3 5 -4 -5 -7 23

54 36 -118 -52 221 1,513 -42 -97

Exhibit 7 Cash Flow Statement ($M)

Source: Securities Data Corp.

2002 2001

Loans Payable

Current portion of long-term debt 191 244

Other short-term borrowings 13 233

Total loans payable 204 477

Long-Term Debt

Debentures, 8.25%, due 2002 75

Debentures, 6%, due 2003 100 100

Euro notes, 5.625%, due 2005 206 178

Debentures, 7%, due 2007, net of unamortized discount of

$25 million in 2002 and $28 million in 2001 75 72

Convertible notes, 4.875%, due 2008 96 96

Convertible debentures, 3.5%, due 2008 665 665

Notes, 6.3%, due 2009 150 150

Euro notes, 6.25%, due 2010 310 267

Debentures, 6.75%, due 2013 100 100

Zero coupon convertible debentures, 2%, due 2015,

redeemable and callable in 2005 1,606 2,059

Debentures, 8.875%, due 2016 86 74

Debentures, 8.875%, due 2021 88 75

Debentures, 7.625%, putable in 2004, due 2024 100 100

Medium-term notes, average rate 7.9%, due through 2025 242 231

Debentures, 6.85%, due 2029 150 150

Other, average rate 1.9%, due through 2015 180 315

Total long-term debt 4,154 4,707

Less current portion of long-term debt 191 244

Long-term debt 3,963 4,463

December 31,

Exhibit 8 Long-Term Debt and Loans Payable ($M)

Source: Adapted from Option Metrics.

Type Exercise Date Exercise Price Best Bid Best Offer Open Interest

CALL 17-Aug-02 2.5 0.7 0.8 1,658

CALL 17-Aug-02 5 0 0.05 3,542

CALL 17-Aug-02 7.5 0 0.05 9,017

CALL 16-Nov-02 5 0.15 0.2 6,256

CALL 18-Jan-03 2.5 1.05 1.1 553

CALL 18-Jan-03 5 0.3 0.4 5,966

CALL 18-Jan-03 7.5 0.1 0.2 8,425

CALL 17-Jan-04 2.5 1.55 1.65 1,174

CALL 22-Jan-05 5 1.2 1.35 836

CALL 22-Jan-05 7.5 0.85 0.95 416

CALL 22-Jan-05 10 0.6 0.6 484

PUT 17-Aug-02 5 1.8 1.9 4,768

PUT 17-Aug-02 7.5 4.3 4.5 5,829

PUT 21-Sep-02 2.5 0.2 0.3 70

PUT 16-Nov-02 5 2 2.1 1,603

PUT 16-Nov-02 7.5 4.3 4.4 2,439

PUT 18-Jan-03 10 6.9 7 9,055

PUT 17-Jan-04 2.5 0.85 0.95 19,549

Exhibit 11 Option Prices on Corning Stock, July 29, 2002

Source: Adapted from Option Metrics.

Volume

22

50

20

20

78

58

111

25

84

62

196

23

92

150

109

20

22

39

Exhibit 11 Option Prices on Corning Stock, July 29, 2002

Source: Adapted from Option Metrics.