See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/228195036

Corning, Inc.: Zero Coupon Convertible Debentures Due November 8, 2015 (B)

Article  in  SSRN Electronic Journal · June 2009

DOI: 10.2139/ssrn.1418873

CITATION READS
1 837

2 authors, including:

Robert F. Bruner
University of Virginia
489 PUBLICATIONS   3,545 CITATIONS   

SEE PROFILE

All content following this page was uploaded by Robert F. Bruner on 07 January 2014.

The user has requested enhancement of the downloaded file.

 SSRN Inspection

UVA-F-1367
Corning, Inc.: Zero Coupon Convertible Debentures Due November 8, 2015 (B)

Username:
TO ACCESS THIS DOCUMENT
This is a protected document. The first two pages are available for everyone to see, but only faculty
members who have verified faculty status with Darden Business Publishing are able to view this
entire inspection copy. Submit
VERIFIED FACULTY
If you have verified faculty status with Darden Business Publishing, simply enter the same
username that you use on the Darden Business Publishing Web site, and then click “Submit.”
Please note that this is an inspection copy and is not for classroom use. Faculty Register
UNVERIFIED FACULTY
If you are teaching faculty and do not yet have verified faculty access with Darden Business
Publishing, please click on the “Faculty Register” link and submit your information requesting
verified faculty access. Buy Case Now
OTHER USERS
If you would like to read the full document, click on “Buy Case Now” to be redirected to the Darden
Business Publishing Web site where you can purchase this and other Darden cases.

If you have any questions or need technical help, please contact Darden Business
Document Id 0000-1402-9002-00009137
Publishing at 1-800-246-3367 or email sales@dardenbusinesspublishing.com

The protectedpdf technology is © Copyright 2006 Vitrium Systems Inc. All Rights Reserved. Patents Pending.
 UVA-F-1367
Version 2.6

CORNING, INC.: ZERO COUPON CONVERTIBLE DEBENTURES

DUE NOVEMBER 8, 2015 (B)

On March 20, 2001, an article in the Wall Street Journal caught Julianna Coopers’s
attention. It was entitled “Corning again Lowers Forecast for Year.” She sighed. This was the
second time in one month that Corning had cut estimates. In February 2001, the company had
slashed its revenue growth forecast for its Photonics business to 50% from its 75% to 90%
growth forecast in January. At the time, however, the company had maintained its earnings
projection, saying that it would meet its earnings target through layoffs and other cost-cutting
measures. Corning attributed the rapid slowdown in telecom equipment orders to a capital crunch
in the telecom sector. The lack of capital had prevented telecommunications carriers from
building out new networks.1

At that time, Coopers had pondered whether she should dispose of the Corning
convertible bonds that her fund had purchased in November 2000. After making some
calculations, she decided that the bonds were worth more than what the market was willing to
pay at the time, so she opted to keep them.

With this new announcement, Coopers wondered whether she should dispose of the
bonds once and for all. Corning now expected revenue from its Photonics unit to grow only 20%
to 25%. The company also said it was contemplating further layoffs in addition to the 825 jobs it
had already cut during the past month.2

Corning’s stock had held steady for a little while since the convertible bond offering in
November. However, since February of this year, the stock price had come down dramatically
(Exhibit 1). Today the stock was worth only $25 and, the convertible bond value had declined
along with it. The latest quote for the converts was $605. Corning’s debt ratings had remained
unchanged, however. In fact, the S&P had even lifted the negative outlook on Corning (for
estimates of historical volatilities, see Exhibit 2). As Coopers reviewed the updated valuation
she had done on the converts (Exhibit 3), she wondered if it was finally time to sell, or if she
should continue to hold the convertible bonds.

1
Dennis Berman and Mark Heinzi, “Corning Trims Revenue Outlook, Spurs Share Price Decline of 21%,” Wall
Street Journal, 20 February 2001.
2
Dennis Berman, “Corning again Lowers Forecast for Year,” Wall Street Journal, 20 March 2001.

This case was prepared by Jessica Chan under the supervision of Robert F. Bruner. It was written as a basis for class
discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2001
by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies,
send an e-mail to sales@dardenpublishing.com. No part of this publication 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 the Darden School Foundation. ◊
 -2- UVA-F-1367

Exhibit 1
CORNING, INC.: ZERO COUPON CONVERTIBLE DEBENTURES
DUE NOVEMBER 8, 2015 (B)
Corning’s Share Price’s Relative Performance:
November 2000 to March 2001

1.20
S&P 500
1.00

0.80

0.60

0.40

Corning
0.20

0.00

Mar-01
Nov-00

Nov-00

Nov-00

Dec-00

Dec-00

Jan-01

Jan-01

Feb-01

Feb-01

Source: Datastream; Yahoo Finance

View publication stats