-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NvmZVV1potwJ0q9h3lgrWReDSAbVi9nKAAODwElCcSnJd5P63rofM6tHmS0dgD1c Chu4wBPfDKv32t1H5DjWhQ== 0000024741-00-000027.txt : 20000418 0000024741-00-000027.hdr.sgml : 20000418 ACCESSION NUMBER: 0000024741-00-000027 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990930 ITEM INFORMATION: FILED AS OF DATE: 20000417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING INC /NY CENTRAL INDEX KEY: 0000024741 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 160393470 STATE OF INCORPORATION: NY FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-03247 FILM NUMBER: 603190 BUSINESS ADDRESS: STREET 1: ONE RIVERFRONT PLAZA CITY: CORNING STATE: NY ZIP: 14831 BUSINESS PHONE: 6079749000 FORMER COMPANY: FORMER CONFORMED NAME: CORNING INC /NY / CORNING LAB SERVICES INC DATE OF NAME CHANGE: 19930713 FORMER COMPANY: FORMER CONFORMED NAME: CORNING GLASS WORKS DATE OF NAME CHANGE: 19890512 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: (Date of earliest event reported) April 17, 2000 CORNING INCORPORATED (Exact name of registrant as specified in its charter) New York 1-3247 16-0393470 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) One Riverfront Plaza, Corning, New York 14831 (Address of principal executive offices) (Zip Code) (607) 974-9000 (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) This Form 8-K/A amends Item 2 and Item 7 of the Form 8-K previously filed with the Securities and Exchange Commission on February 2, 2000 by including a description of the transaction and the financial statements and pro forma financial information referred to below. Item 2. Acquisition or Disposition of Assets On February 2, 2000, pursuant to the terms of the Master Sale and Purchase Agreement dated December 8, 1999 between Corning Incorporated, a New York corporation ("Corning"), and Siemens A.G., Corning acquired the worldwide optical cable and hardware businesses of Siemens A.G. which included Siemens' optical cable and equipment businesses and the remaining 50% of Siecor Corporation and Siecor GmbH for $1.4 billion (the Siemens transaction). This purchase price includes $120 million of assumed debt and $145 million of contingent performance payments payable, if earned, over a four-year period. Corning financed the transaction through the issuance of euro-denominated debt and common equity. Assets in use by the businesses acquired consist of, and are not limited to, accounts receivable, inventory, fixed and tangible property (including, without limitation, all machinery, equipment, supplies, tools, furniture, fixtures, hardware and spare parts), intangible assets and contracts. Corning currently anticipates that substantially all of the assets acquired in the transaction will continue to be used in Corning's ongoing operations. Item 7. Financial Statements, Pro Forma Information and Exhibits (a) Financial Statements of Businesses Acquired Prior to the Siemens transaction, Corning consolidated Siecor Corporation in its financial statements and recorded its investment in Siecor GmbH on the equity method. The historical financial statements included in this filing represent the combined operations of Siecor GmbH and the worldwide cable and equipment business owned by Siemens A.G. as of and for its most recent fiscal year ended September 30, 1999. The legal entity structure of these operations is described in footnote 1 to the audited combined financial statements. These financial statements have been prepared in accordance with German Generally Accepted Accounting Principles and have been derived from the accounting records of Siemens A.G. (1) Report of Independent Auditors (2) Combined balance sheet as of September 30, 1999 and statement of income for the year ended September 30, 1999 (3) Notes to the combined financial statements (b) Pro Forma Financial Information (1) Unaudited pro forma combined statement of income for the year ended December 31, 1999 (2) Unaudited pro forma combined balance sheet as of December 31, 1999 (3) Notes to unaudited pro forma combined financial statements SIGNATURES Pursuant to the requirements 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 Registrant Date: April 17, 2000 By /s/ KATHERINE A. ASBECK Katherine A. Asbeck Vice President and Controller Item 7(a) Lichtwellenleiter Group of Siemens AG Combined Financial Statements as of and for the year ended 30 September 1999 Contents Independent Auditors' Report Combined Balance Sheet and Statement of Income Notes to the Combined Financial Statements Independent Auditors' Report The Management Lichtwellenleiter Group of Siemens AG We have audited the accompanying combined balance sheet of the Lichtwellenleiter Group of Siemens AG ("LWL Group") as of September 30, 1999, and the related combined statement of income for the year ended September 30, 1999. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Germany, LWL Group's local standards, that are substantially equivalent to auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the LWL Group as of September 30, 1999, and the results of its operations for the year ended September 30, 1999 in conformity with generally accepted accounting principles in Germany. As discussed in note 1, the combined financial statements represent the LWL Group businesses of Siemens AG which were acquired by Corning Incorporated with effect from February 2, 2000. The combined financial statements referred to above have been prepared as if the LWL Group was a separate legal entity for the period presented. As discussed in note 21, accounting principles generally accepted in Germany vary in certain significant respects from accounting principles generally accepted in the United States. Munich, Germany March 31, 2000 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft Dr. Schramm Bauer Wirtschaftsprufer Wirtschaftspruferin Lichwellenleiter Group of Siemens AG Combined Balance Sheet as of 30 September 1999 in thousands of Deutsche Mark
NOTES Combined Balance Sheet Assets Current assets Cash and cash equivalents 18.913 Marketable securities 1.259 Accounts receivable, trade (5) 359.136 Accounts receivable, other affiliates (5) 29.600 Inventories, net (6) 146.350 Other current assets and prepaid expenses (5) 20.849 Total current assets 576.107 Deferred taxes 821 Fixed assets (7) Intangible assets 538 Tangible assets 275.091 Financial assets 28.174 Total non-current assets 304.624 Total assets 880.731 Liabilities and stockholders' equity Current liabilities Notes payable to banks 928 Trade accounts payable 81.328 Income tax payable 21.595 Accounts payable other affiliates 492 Accounts payable to Siemens AG (8) 22.931 Accrued expenses (9) 87.290 Other current liabilities (8) 60.932 Total current liabilities 275.496 Long-term debt (8) 11.627 Pensions plan accrual 92.486 Total long-term liabilities 104.113 Total liabilities 379.609 Special reserves, to be taxed in later years (10) 25.008 Stockholders' equity Common stock 87.378 Additional paid-in capital 59.823 Revenue reserves 15.512 Minority interests (11) 54.032 216.745 ZF Konto (12) 219.775 Retained earnings brought forward 4.079 Net income 35.349 Translation losses and gains 166 Retained earnings 39.594 Total stockholders' equity 476.114 Total liabilities and stockholders' equity 880.731
See accompanying notes to the combined financial statements. Lichwellenleiter Group of Siemens AG Combined Statement of Income for the year ended 30 September 1999 in thousands of Deutsche Mark
NOTES Combined Statement of Income Net sales (16) 1.383.297 Cost of goods sold 1.094.897 Gross profit 288.400 Research and development expenses 51.435 Selling and marketing expenses 166.799 General and administration expenses 39.230 Amortization of goodwill 30 Other income (14) 88.549 Other expenses (15) 13.061 Earnings before interests and taxes 106.394 Interest income 3.730 Interest expense 6.596 Profit before tax 103.528 Income taxes 32.867 Net income before minority interests 70.661 Minority interests -35.312 Net income 35.349
See accompanying notes to the combined financial statements. Lichtwellenleiter Group of Siemens AG Notes to Combined Financial Statements as of 30 September 1999 and for the year then ended (1) Description of the Lichtwellenleiter Group On 7/8 December 1999, Siemens AG, Berlin and Munich, as the seller and Corning Incorporated, New York, USA, as the purchaser signed a Master Sale and Purchase Agreement for the sale of the Lichtwellenleiter Group. The transaction was completed on February 2, 2000. The Lichtwellenleiter Group (herein after referred to as LWL Group) consists of the following operations: . optical fiber communications cable and related operations; . copper cable communications cable and related operations; . cable related hardware and equipment operations; and . optical fiber operations. The LWL Group is a business of Siemens AG and does not have a legal group structure and no entity within the group controls the LWL Group. The combined financial statements of LWL Group includes the following entities directly or indirectly wholly owned by Siemens AG: . the German LWL line of business and copper communication cable business of Siemens AG, Germany (which has been transferred to SCC Special Communications Cables GmbH & Co. KG as of 1 January 2000); . RXS Kabelgarnituren GmbH, Hagen, Germany (which has been transferred to RXS Kabelgarnituren GmbH & Co. KG); . Norddeutsche Seekabelwerke GmbH, Nordenham, Germany (which has been transferred to Norddeutsche Seekabelwerke GmbH & Co. KG); . Teleco Cavi S.p.A., Italy; . RXS Morel Accessoires de Cables S.A., France; . LWL line of business of Siemens S.A. PCFO, Argentina; . LWL line of business of Siemens Ltd., Australia and . LWL line of business of NSW Corporation, USA. Also included are . Siecor Fertigungsgesellschaft fur Lichtwellenleiter mbH & Co. KG, Neustadt bei Coburg, Germany and . Siecor Gesellschaft fur Lichtwellenleiter mbH, Neustadt bei Coburg, Germany. Shareholders of these companies are Siemens AG and Corning Inc., New York, each with 50% of equity, but Siemens AG holds the majority of the voting rights. The following companies are owned by Siemens AG or a subsidiary of Siemens AG and are allocated to the LWL Group as investments only: Shares % ------ . Fibre Optic Cables and Accessories Ltd., Vietnam 51,0 . PT Siemens Kabel Optik, Indonesia 51,0 . Egyptech Telecom Cables & Networks Company S.A.E., Egypt 33,3 . Tele-Cables A.E. Hellenic Communication, Greece 49,0 . Siemens Fibre Optik Kabolari Ltd. Sirketi, Turkey 100,0 Although the investments in Vietnam, Indonesia and Turkey are investments over 50% shareholding, these companies are not combined according to section 296 Abs. 1 Nr. 2 respectively section 296 Abs. 2 of the German Commercial Code. (2) Basis of Presentation The accompanying combined financial statements have been prepared in accordance with generally accepted accounting principles in Germany ("German GAAP") on a basis which reflects the combined results of operations and financial position of the LWL Group as if it was a separate entity for the period presented. German GAAP does not provide specific guidance on the preparation of combined financial statements. For the preparation of the combined financial information the underlying financial statements of the LWL entities have been combined using the historical costs of the combined entities. The combined statement of income include charges from Siemens AG to the LWL Group. These expenses include, but are not limited to, executive functions, central EDP services, personnel administration, finance services, treasury management services, litigation support services. Management believes that the charges received from Siemens AG are reasonable and that the terms of these services would not materially differ from those among unrelated parties. For certain businesses which are not legal entities, certain of the assets, liabilities, income and expenses included in the combined financial statements cannot be derived in all cases directly from the accounting records and can only be attributed to the LWL Group by means of allocation and other assumptions by management. Allocations and other charges are based on either a direct identification or an allocation of assets, liabilities or expenses based on factors (i.e. sales, headcount). Management believes that the basis used for the allocations is appropriate. The actual expenses that would have been incurred may be different from those allocated amounts. The accompanying combined financial statements may not necessarily reflect the financial position and results of operations that would have occurred had the LWL Group operated as a stand-alone entity on the date and for the period, indicated. The combined balance sheet and the combined income statement are presented in a format similar to US GAAP. The combined financial statements are presented in TDM, the German abbreviation of thousand of Deutsche Mark. (3) Principles of Combination The financial statements of the entities included in the combined financial statements are prepared according to uniform principles of accounting and valuation. For this purpose, the separate financial statements prepared in accordance with local or international regulations have been restated on a consistent basis to conform in all material respects to the uniform principles of accounting and valuation of the Siemens organization, which are in accordance with German Commercial Code. Foreign Currency translation The financial statements of entities within the LWL Group originally prepared in currencies other than DM are translated using the year-end exchange rate for the balance sheet and the average rates of exchange for the year for the income statement. Elimination of intercompany transactions All significant intercompany balances and transactions have been eliminated in combination. Profits arising on assets purchased from other entities in the LWL Group and held in inventories have been eliminated. Sales between entities in the LWL Group and other income items have been eliminated in full from the combined income statement by set-off with the corresponding expenses of the related entity. (4) Accounting and Valuation Policies Non-current assets Acquired intangible assets are recorded at acquisition cost and amortized on a straight-line basis over periods not exceeding five years, or over the contractual useful lives of the assets, if longer. Goodwill is amortized over its estimated useful life or over periods up to 15 years. Goodwill is written down whenever recovery of the recorded costs is permanently impaired. Property, plant and equipment is stated at acquisition or production cost less scheduled depreciation. A definition of production cost is provided under inventories. Acquisition or production cost is recorded net of applicable grants from third parties. Maintenance and repairs as well as interest cost are not capitalized but charged to expense as incurred. Domestic companies predominantly use the declining balance method of depreciation, switching to the straight-line method as soon as the latter results in higher depreciation charges. Depreciation of foreign companies' property, plant and equipment is generally provided on a straight-line basis. Low value assets are fully expensed in the year of acquisition. Estimated useful lives of depreciable assets - --------------------------------------------------------------------- Factory and office buildings 20 to 50 years Other buildings 5 to 10 years Technical equipment and machinery generally 10 years Other equipment, plant and office equipment generally 5 years Equipment leased to customers generally 3 to 5 years Exceptional depreciation is charged where a decline in value is other than temporary. Investments are stated at cost. The carrying amount is reduced to recognize a decline other than temporary in the value of the investments at the balance sheet date. Long-term interest-free loans or loans at interest rates which are below market rates are stated at their discounted cash value. Current assets Inventories are carried at the lower of average acquisition or production cost or current value. In addition to direct materials and direct labour, production cost includes an appropriate proportion of material and production overheads as well as production related depreciation charges. Interest on borrowings is not capitalized within production cost. Inventories include reasonable and sufficient allowance for risks relating to slow-moving items and technical obsolescence and for the net realizable values associated with long-term contracts. Accounts receivable and miscellaneous assets are stated at their nominal amounts or cost, or at their market values, if lower. Write-downs on accounts receivable are provided according to the probability of counter party default and for discernible country risks. Accounts receivable due after one year which bear no interest or have interest rates which are below market rates have been discounted. Marketable securities included in liquid assets are reported at the lower of cost or quoted market prices at the balance sheet date. Accruals and other liabilities The accruals for pension plans and transition payments of domestic companies that provide for the contractual retirement benefits of employees and retirees, are set up according to actuarial principles under a projected benefit valuation method pursuant to the German Income Tax Act. This method assumes that employees earn entitlement to pension benefits from their entry into employment until retirement, but not before attaining age thirty, based on equal annual amounts distributed over the employees' present and future service periods. As a result the accruals for pension plans are derived using the present value of future pension benefits for which a firm commitment exists at the balance sheet date, less the present value of outstanding annual amounts until retirement. The present value is based on discounted amounts using an assumed rate of interest of 6%. Increases in pension commitments are reflected in pension accruals at the present value of benefits earned. The Company used the updated 1998 mortality tables as a basis for determining pension accruals. The effects of adopting the new mortality assumptions have been fully provided for in fiscal year 1999. Foreign subsidiaries establish accruals for retirement benefits of employees and retirees according to comparable actuarial principles using applicable local interest rates, unless the obligations are covered by pension funds. Other accrued liabilities include reasonable and sufficient allowance for all perceived risks resulting from uncertain liabilities and for anticipated losses on uncompleted transactions. Debt and other liabilities are reported at their repayment amounts. Taxes All liabilities or claims relating to current taxes on earnings, capital and property are reflected in the combined financial statements pursuant to the relevant tax laws applicable to the individual companies. To present the LWL Group on a stand alone basis, income taxes were considered on the basis of a notional tax charge of the respective country. Deferred taxes for legal entities are provided for the tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the combined financial statements, where appropriate. No deferred taxes are considered for combined operations which are not legal entities as these cannot be recovered in the case of a transfer of the business into a new separate legal company. Deferred taxes have not been calculated on combination adjustments. Exchange rate risks In order to protect itself from exchange rate fluctuation risks, the Siemens Group enters into forward currency agreements (for hedging purposes only) via the Corporate Financial Service department of Siemens AG. All balance sheet items denominated in foreign currency are hedged in full on a Siemens Group basis, and contracted and planned transactions are hedged up to pre-defined limits. Monetary balance sheet items in a foreign currency are stated at the closing (middle) rate, and the related hedging transactions are valued at their fair market value. Forward currency agreements entered into for planned sales in the following year and for other contractual commitments are calculated at their fair market value. Where forward currency agreements are in an unrealised loss position, a provision for loss is made. No adjustment is recognized when the forward currency agreements are in an unrealised profit position. Recognition of revenues and expenses Revenue is recognized when goods are shipped or services are provided and title passes to the customer. Revenue relating to long-term contracts are recorded when the contract has been completed (completed contract method) or the customer has taken delivery of defined part or service (performance milestones). All research and development costs are expensed as incurred. Notes to the balance sheet (5) Accounts receivable and other assets Accounts receivable and other assets include an amount of TDM 33.254 which is due in more than one year. Other assets and prepaid expenses includes primarily tax refund claims, receivables due from suppliers, and prepaid expenses. Prepaid expenses include TDM 344 which was paid by Teleco Cavi S.p.A. as a debt discount on a long term loan. (6) Inventories 30.09.1999 TDM ---------- Finished goods and merchandise 66.106 Work in process 45.540 Cost of unbilled contracts 77.380 Raw material and supplies 39.970 Advances to suppliers 14.999 Advances received from customers 97.645 ------- 146.350 (7) Fixed assets
At At Net Net cost cost Accumu- book book Depre- value Reclassi- value lated value value cia- 01.10. Addi- fica- Dis- 30.09. depreci- 30.09. 30.09. tion in TDM 1998 tions tions posals 1999 ation 1999 1998 98/99 ----------------------------------------------------------------- Intangible Assets 1.Licences, trade marks and patents, etc. as well as licences to such rights and assets 2.282 1.405 0 16 3.671 3.133 538 969 1.836 2.Goodwill 66.737 0 0 0 66.737 66.737 0 30 30 3.Advances paid on intangible assets 574 0 0 574 0 0 0 0 0 -------------------------------------------------------------------- 69.593 1.405 0 590 70.408 69.870 538 999 1.866 -------------------------------------------------------------------- Tangible Assets 1.Land, rights similar to land, and buildings, including buildings on property owned by others 148.334 7.318 6.708 1.091 161.269 75.198 86.071 75.307 5.513 2.Technical equipment and machinery 467.601 18.224 15.729 43.508 458.046 347.665 110.381 119.434 38.459 3.Other equipment, office furniture and equipment 174.330 22.057 7.890 20.665 183.612 142.655 40.957 37.544 21.882 4.Advances paid on fixed assets, and assets under construc- tion 49.854 21.748 -30.327 3.593 37.682 0 37.682 48.260 0 -------------------------------------------------------------------- 840.119 69.347 0 68.857 840.609 565.518 275.091 280.545 65.854 -------------------------------------------------------------------- III. Financial Assets 1.Shares in group companies 21.931 526 0 0 22.457 50 22.407 21.881 0 2.Loans in group companies 0 0 0 0 0 0 0 0 0 3.Investments (shares) 4.991 1 0 0 4.992 465 4.527 4.525 0 4.Other investments - long term 0 0 0 0 0 0 0 0 0 5.Other loans 1.189 366 0 249 1.306 66 1.240 1.161 40 ------------------------------------------------------------------- 28.111 893 0 249 28.755 581 28.174 27.567 40 ------------------------------------------------------------------- Total 937.823 71.645 0 69.696 939.772 635.969 303.803 309.111 67.760 -------------------------------------------------------------------
(8) Liabilities Long term debt of TDM 11.627 includes an amount of TDM 7.874, which is due after more than one year. All trade accounts payable and other liabilities are due within one year. Accounts payable due to Siemens AG primarily represents financing of the legal entities of the Siemens LWL Group resulting from cash pooling. Other current liabilities include primarily wages and salaries of TDM 22.290, taxes of TDM 14.864 and amounts in respect of social security of TDM 6.245. (9) Accrued expenses Accrued expenses include the following: 30.09.1999 TDM ---------- Personnel costs 30.935 Commitments from warranty contracts 4.245 Commitments from completion guarantees 1.167 Delayed performance and contractual penalties 11.137 Warranties 18.248 Losses from contracts 4.096 Licences 1.500 Outstanding invoices 3.160 Severance payments 3.167 Other accruals 9.635 ------ 87.290 (10) Special reserves, to be taxed in later years The special reserves represent an adjustment to the fixed assets balance according to German tax law due to higher depreciation rates for tax purposes than in the statutory accounts. As the higher depreciation expenses for tax purposes only result in a reduction of taxable income, if a corresponding depreciation is also considered in the statutory accounts, it is allowed under German Commercial Code to show the difference between the depreciation expenses according to German tax law and statutory accounts as a special reserve, to be taxed in later years. This reserve is reversed against income over the useful life of the fixed assets. The special reserves are set up according to Zonenrandfordergesetz and Fordergebietsgesetz. The current year income from reversal of special reserves amounts to TDM 2.902. (11) Minority interests Minority interests represent the minority shareholder's proportional share of equity of the combined subsidiaries SIECOR Gesellschaft fur Lichtwellenleiter mbH, Neustadt bei Coburg, and SIECOR Fertigungsgesellschaft fur Lichtwellenleiter mbH & Co. KG, Neustadt bei Coburg. (12) Equity For the LWL lines of business of Siemens AG, Germany, Siemens Ltd., Australia, Siemens S.A., Argentina, and NSW Corp., USA, which are not separate legal entities and are considered on the basis of carve out financial statements, no equity portion was allocated to the LWL business units. Instead a suspense account (ZF Konto) is maintained which contains both payment and financing transactions as well as changes in equity. Retained earnings from prior years are recorded against the ZF Konto. In the combined financial statements ZF Konto is included as part of equity. (13) Commitments and Contingencies 30.09.1999 TDM ---------- Guarantees 50.909 Obligations from leasing contracts (over 1 year) 8.918 rent contracts (over 1 year) 6.097 long term purchase contracts 46.500 purchase commitment for fixed assets 15.000 Various legal actions, proceedings and claims are pending or may be instituted or asserted in the future, including those arising out of alleged defects in the LWL Group's products and product warranties. Litigation is subject to many uncertainties; the outcome of individual litigated matters is not predictable with assurance; and it is reasonably possible that individual claims may be decided unfavourably for the LWL group. Identifiable risks are covered by corresponding provisions. The pension fund NSW-Hilfe GmbH (investment of NSW GmbH) is funded according to German Tax Law (section 4 d EStG). Under consideration of the valuation method used for pension accruals, the pension fund is underfunded by DM 4,2 Mio. Notes to the income statement (14) Other income The major components of other income are income from the change in provisions and the reversal of accruals. (15) Other expenses This position primarily includes the increase of pension accruals due to the calculation of the pension liability by applying new mortality tables of TDM 4.442 and the elimination of differences between statutory accounts and the conversion to German Commercial Code at Teleco Cavi S.p.A. of TDM 3.737 resulting from prior years. Additional information (16) Net Sales by destination 1998/99 TDM ---------- Germany 552.528 Other European countries 419.465 United States of America 118.702 Asia/ Pacific countries 160.006 Other countries 132.596 --------- Total 1.383.297 --------- (17) Personnel costs 1998/99 TDM --------- Wages and salaries 261.502 Social security and pension costs 57.181 thereof pensions 10.966 (18) Average number of employees The annual average number of employees was as follows: 1998/99 TDM ------- Production 1.969 Selling 468 Research and development 203 General and administration 339 ------ 2.979 (19) Listing of investments held
Total Result of the Share in Equity last fiscal year Name of company and location % TDM TDM - -------------------------------------------------------------------------------- Teleco Cables - Tunis 50,0% 8.980 835 NSW-Hilfe GmbH Unterstutzungseinrich-tung der NSW AG, Nordenham, Germany 100,0% 16.110 986 NSW Technology Ltd., Aberdeen, Great Britain 99,99% 1.055 266 XL Telecom Limited, Chandralok, India 29,7% 3.958 59 Egyptech Telecom Cables Co. SAE, Egypt 33,3% 35.639 9.806 TELE-CABLES A.E. Hellenic Telecommunication, Greece 49,0% 18.125 3.764 PT Siemens Kabel Optic, Indonesia 51,0% 1.684 315 Fibre Optic Cable and Accessories Ltd., Vietnam 51,0% 7.168 6 Siemens Fiber Optic Kablolar Sirketi, Turkey* 100,0% 2.689 -
* established in 1999 (20) Supervisory board and Managing Board remuneration and loans granted Due to the nature of combined operations no specific supervisory board and managing board exists. (21) Significant differences between German and United States Generally Accepted Accounting Principles The LWL Group combined financial statements comply with German GAAP, which differ in certain significant respects from US GAAP. The significant differences that affect the combined net income and shareholders' equity of the LWL Group are set out below: a) General recording of provisions, reserves and valuation adjustments Under German tax law a company's financial statements prepared under German Commercial Code are also the basis of its tax balance sheet and therefore, tax considerations influence their preparation. Companies therefore may tend to apply more conservative valuation methods in their financial statements than they might otherwise. German GAAP permits the recognition of accruals or provisions for uncertain liabilities and loss contingencies. The amount of such accruals or provisions represents the anticipated expense of the company. Under US GAAP, an accrual for a loss contingency is recorded by a charge to income if it is both probable that an asset has been impaired or a liability has been incurred and at the same time the minimum amount of the loss can be reasonably estimated. Less precisely determinable reserves for future losses, cost or risks do not meet the condition for accrual under US GAAP, but may be required according to German GAAP based on the application of the prudence principle. b) Trade accounts receivable and other receivables Under German GAAP, accounts receivable are reported net of the allowance for bad debts. Allowances for bad debts are set up in order to reserve specific receivable balances determined to be uncollectible. Provisions for rebates and discounts are also established in those entities where these expenses are actually incurred. Additionally, the LWL Group has set up general provisions as well as provisions for bad debts on basis of specific rates for each country (country risk provision). Under US GAAP the individual, general and country risk provisions have to be restated to reflect the actual expected losses from the non-recovery of receivables. c) Inventories For German GAAP purposes, finished and unfinished goods are valued at production cost, as defined by the applicable tax regulations. To comply with US GAAP, the cost of finished and unfinished goods have to be restated to the fully absorbed production cost. Under German GAAP, work in process (projects) are recorded at cost. Income is not realized before completion of the project. For US GAAP purposes, work in process for projects over one year, under certain circumstances, should be accounted for by using the percentage of completion method. d) Intangible assets German GAAP does not allow capitalization of self-developed software. Under US GAAP, software development costs (net of amortization) have to be capitalized in accordance with SOP 98-1. e) Property, Plant and Equipment Under German GAAP, depreciation is calculated using the declining balance method switching to the straight line method when the resulting depreciation expense for the individual asset is higher as allowed by German tax legislation. Under US GAAP, either the straight line method or an accelerated method should be used. For German GAAP purposes, the office buildings of RXS GmbH are depreciated in line with the rules of the German Tax Code (section 7 EStG). For US GAAP purposes, straight line depreciation should be calculated over the estimated useful lives of the buildings. Additionally, special tools used by RXS GmbH are depreciated for German GAAP purposes with changing percentages from year to year. To comply with US GAAP, this depreciation has to be replaced by straight line or accelerated depreciation calculated over the estimated useful life. In addition, US GAAP requires the capitalization of interest costs as part of the historical cost of assets requiring a period of time to construct. German GAAP has no such requirement. For the year ended 30 September 1999 interest capitalization for self constructed assets is not applicable. The entities in the LWL Group do not have material lease or rental contracts which would require capitalization under US GAAP. f) Exchange rate risk Under German GAAP, a provision for losses is recorded, if unrealised losses from forward currency agreements exist. Unrealized gains on forward currency agreements are not taken to income. For US GAAP purposes, unrealised losses and gains are generally reflected in income (except in certain circumstances that the forward currency agreement qualifies as a hedge). g) Deferred Taxes Under German GAAP, deferred tax assets and liabilities are not generally recognized for all differences between the book carrying values and tax bases of the assets and liabilities. Under US GAAP, with some exceptions deferred tax assets and liabilities are recognized for all differences between the book carrying values and tax bases of the assets and liabilities and net operating loss carry forwards using future statutory tax rates. In addition, a valuation allowance is established when it is more likely than not that deferred tax assets will not be realized. h) Accrued Expenses Other accruals, especially accruals for losses from warranty obligations and for potential claims arising from patent/license infringements have to be adjusted to comply to the criteria for accruals under US GAAP as mentioned above. Accrued losses on sales contracts have to be calculated on a variable cost basis for US GAAP, which would result in lower accruals. i) Pensions Pension accruals and similar obligations are based upon the actuarial calculations using the entry age method as defined in the German tax code. US GAAP is more prescriptive particularly as to the use of actuarial assumptions and requires a different actuarial method (the projected unit credit method) to be used. Under US GAAP, pension costs and similar obligations have to be accounted for in accordance with SFAS No. 87 "Employers' Accounting for Pensions". Furthermore, the pension liability of NSW Hilfe GmbH, the pension fund of Norddeutsche Seekabelwerke GmbH, is not reflected in the balance sheet according to German GAAP. Under US GAAP, the pension fund has to be considered in the combined financial statements of the LWL Group and the corresponding pension liability has to be calculated in accordance with SFAS No.87. j) Special reserves, to be taxed in later years German GAAP allows for special tax depreciation. Special reserves booked in accordance with the German Tax Code have to be reversed for US GAAP purposes against retained earnings and the current year income effect of the reversal of the special reserves has to be eliminated from the income statement. Munich, 31 March 2000 Lichtwellenleiter Group of Siemens AG Joachim Beninde Manfred Heier Item 7. Financial Statements, Pro Forma Information and Exhibits (Continued) (b) Pro Forma Financial Information The following unaudited pro forma combined supplemental financial information and accompanying notes should be read in conjunction with the historical financial statements and related notes of Corning. The unaudited pro forma combined supplemental financial information is provided for informational purposes only and does not purport to represent what the combined financial position and results of operations would actually have been had the Siemens transaction in fact occurred at the dates indicated. The following unaudited pro forma supplemental combined statement of income and unaudited pro forma combined supplemental balance sheet illustrate the estimated effects of the merger as if that transaction had occurred at the beginning of the period presented for the statement of income and at the end of the period for the balance sheet. The following unaudited pro forma combined supplemental information was derived using the following: . Corning's consolidated year end financial statements as filed in Amendment 2 to Form 10-K as of and for the year ended December 31, 1999 . Siecor GmbH's financial information as of and for the year ended September 30, 1999 . Siemens A.G.'s worldwide optical fiber, cable and equipment businesses' financial information as of and for the year ended September 30, 1999 Adjustments have been made to reclassify the presentation of the historical financial statements of the businesses obtained in the Siemens transaction to be consistent with Corning's presentation. The financial position and results of Siecor GmbH and Siemens A.G.'s worldwide cable and equipment businesses are presented in the column labeled "Siemens Transaction" in the pro forma combined supplemental financial information. The amounts presented have been adjusted for differences between German generally accepted accounting principles and those of the United States. Unaudited Pro Forma Combined Supplemental Balance Sheet December 31, 1999 (In millions)
Siemens Pro Forma Combined Corning Transaction Adjustments Pro Forma ------- ----------- ----------- --------- Assets Current assets Cash $ 121.8 $ 9.8 $1,135.0(B) $ 131.6 (1,135.0)(B) Short-term investments, at cost which approximates market value 158.6 5.9 265.0(D) 429.5 Accounts receivable, net of doubtful accounts and allowances 872.4 236.3 1,108.7 Inventories 602.2 106.4 708.6 Deferred taxes on income and other current assets 229.2 6.3 235.5 -------- ------- -------- -------- Total current assets 1,984.2 364.7 265.0 2,613.9 -------- ------- -------- -------- Investments Associated companies, at equity 421.9 30.3 (20.3)(C) 431.9 Others, at cost 82.5 82.5 -------- ------- -------- -------- 504.4 30.3 (20.3) 514.4 -------- ------- -------- -------- Plant and equipment net of accumulated depreciation 3,201.7 151.5 107.3(A) 3,460.5 Goodwill and intangible assets net of accumulated amortization 506.7 1.1 723.9(A) 1,231.7 Other assets 329.0 19.6 348.6 -------- ------- -------- -------- $6,526.0 $ 567.2 $1,075.9 $8,169.1 ======== ======= ======== ======== Liabilities and Shareholders' Equity Current liabilities Loans payable $ 420.7 $ 2.3 $ 423.0 Accounts payable 418.0 39.7 457.7 Other accrued liabilities 715.3 124.9 145.0(E) 985.2 -------- ------- -------- -------- Total current liabilities 1,554.0 166.9 145.0 1,865.9 -------- ------- -------- -------- Other liabilities 720.6 88.2 808.8 Loans payable beyond one year 1,490.4 3.9 488.7(B) 1,983.0 Minority interest in subsidiary companies 284.8 (160.9)(F) 123.9 Convertible preferred stock 13.5 13.5 Common shareholders' equity Common stock, including excess over par value and other capital 1,359.3 121.0 911.3(B) 2,270.6 (121.0) Retained earnings 1,790.0 187.2 (187.2) 1,790.0 Less cost of common stock in treasury (656.0) (656.0) Accumulated other comprehensive income (30.6) (30.6) -------- ------- -------- -------- Common shareholders' equity 2,462.7 308.2 603.1 3,374.0 -------- ------- -------- -------- $6,526.0 $ 567.2 $1,075.9 $8,169.1 ======== ======= ======== ========
Unaudited Pro Forma Combined Supplemental Statement of Income For the year ended December 31, 1999 (In millions, except per share amounts)
Siemens Pro Forma Combined Corning Transaction Adjustments Pro Forma ------- ----------- ----------- --------- Revenues Net Sales $4,741.1 $ 758.6 $ $5,499.7 Royalty, interest and dividend income 41.4 1.2 42.6 Non-operating gain 30.0 30.0 -------- ------- ------- -------- 4,812.5 759.8 5,572.3 Deductions Cost of sales 2,930.3 586.9 8.8(A) 3,526.0 Selling, general and administrative expenses 667.4 115.0 782.4 Research, development and engineering expenses 378.2 29.8 408.0 Provision for restructuring and impairment 1.4 1.4 Amortization of purchased intangibles including goodwill 27.8 56.2(A) 84.0 Interest expense 93.2 1.8 30.2(B) 125.2 Other, net 39.3 0.4 39.7 -------- ------- ------- -------- Income from continuing operations before taxes on income 674.9 25.9 (95.2) 605.6 Taxes on income from continuing operations 207.1 3.9 (26.8) 184.2 -------- ------- ------- -------- Income before minority interest and equity earnings 467.8 22.0 (68.4) 421.4 Minority interest in earnings of subsidiaries (66.8) 45.0(F) (21.8) Dividends on convertible preferred securities of subsidiary (2.3) (2.3) Equity in earnings of associated companies 112.3 (14.6)(C) 97.7 -------- ------- ------- -------- Income from continuing operations $ 511.0 $ 22.0 $ (38.0) $ 495.0 ======== ======= ======= ======== Basic earnings per share from continuing operations $ 2.00 $ 1.89 Diluted earnings per share from continuing operations $ 1.95 $ 1.85 Weighted average shares outstanding-basic 255.1 6.0(B) 261.1 Weighted average shares outstanding-diluted 265.1 6.0(B) 271.1
Notes to Unaudited Pro Forma Combined Supplemental Financial Statements (A) The total purchase price of the Siemens transaction approximates $1.4 billion, which includes $120 million of assumed debt and $145 million in contingent performance payments. Portions of the Siemens transaction are expected to close at future dates into 2001. The pro forma presentation assumes all portions of the transaction have been closed. The excess of the purchase price over the fair value of net assets acquired was allocated as follows (amounts in millions): Annual Depreciation or Useful Amount Amortization Lives ------ --------------- ---------- Property, plant and equipment $107.3 $ 8.8 5-20 years Goodwill and other intangibles $723.9 $56.2 5-20 years (B) Corning financed the Siemens transaction with a combination of euro-denominated debt and common equity. In the first quarter of 2000, Corning completed a debt offering generating net proceeds of $488.7 million and consisting of 200 million EURO bonds with an interest rate of 4.25% maturing in 5 years and 300 million EURO bonds with an interest rate of 5.375% maturing in 10 years. In addition, Corning completed an equity offering of approximately 14.9 million shares of common stock which generated net proceeds of approximately $2.2 billion. This pro forma presentation reflects a portion of this offering (6 million shares with proceeds of $911.3 million) being used to fund the remaining portion of the $1.4 billion acquisition. (C) Reflects the elimination of Corning's 50% investment in and equity earnings from Siecor GmbH which was previously accounted for under the equity method. (D) The increase to marketable securities reflects liquid assets from financing transactions that will be used to repay assumed debt and fund contingent performance payments. (E) Includes the assumption that contingent purchase price of approximately $145 million will be earned. (F) Reflects the elimination of minority interest related to Siemens' 50% ownership of Siecor Corporation, which is consolidated in Corning's historical financial statements. -----END PRIVACY-ENHANCED MESSAGE-----