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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 27, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to____________
Commission file number 1-3247
CORNING INCORPORATED
(Registrant)
New York 16-0393470
(State of incorporation) (I.R.S. Employer Identification No.)
One Riverfront Plaza, Corning, New York 14831
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 607-974-9000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to the
filing requirements for at least the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
208,963,513 shares of Corning's Common Stock, $0.50 Par Value, were
outstanding as of April 18, 1994.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to consolidated financial statements of Corning Incorporated and
Subsidiary Companies filed as part of this report:
Page
Consolidated Statements of Income for the twelve
weeks ended March 27, 1994 and March 28, 1993 3
Consolidated Balance Sheets at March 27, 1994
and January 2, 1994 4
Consolidated Statements of Cash Flows for the
twelve weeks ended March 27, 1994 and
March 28, 1993 5
Notes to Consolidated Financial Statements 6
The consolidated financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results of
operations for the interim periods presented. All such adjustments are of
a normal recurring nature. The consolidated financial statements have been
compiled without audit and are subject to such year-end adjustments as may
be considered appropriate by the registrant or its independent accountants
and should be read in conjunction with Corning's Annual Report on Form 10-K
for the year ended January 2, 1994.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
Twelve Weeks Ended
March 27, March 28,
1994 1993
REVENUES
Net sales $ 948.9 $ 817.0
Royalty, interest, and dividend income 7.7 6.4
Non-operating gains 4.2
956.6 827.6
DEDUCTIONS
Cost of sales 622.1 532.1
Selling, general, and administrative expenses 185.7 168.6
Research and development expenses 38.2 37.7
Interest expense 25.8 16.5
Other, net 5.8 3.1
Income before taxes on income 79.0 69.6
Taxes on income 29.6 23.9
Income before minority interest and
equity earnings 49.4 45.7
Minority interest in earnings of subsidiaries (7.9) (3.1)
Equity in earnings of associated companies 16.5 7.2
NET INCOME $ 58.0 $ 49.8
PER COMMON SHARE:
NET INCOME $ 0.28 $ 0.26
DIVIDENDS DECLARED $ 0.17 $ 0.17
The accompanying notes are an integral part of these statements.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and per-share amounts)
March 27, January 2,
ASSETS 1994 1994
CURRENT ASSETS
Cash $ 60.0 $ 80.7
Short-term investments, at cost which
approximates market value 38.2 80.1
Accounts receivable, net of doubtful
accounts and allowances - $73.7/1994;
$70.5/year-end 1993 752.2 691.1
Inventories 378.1 353.9
Deferred taxes on income and other
current assets 264.2 265.9
Total current assets 1,492.7 1,471.7
INVESTMENTS
Associated companies, at equity 606.1 586.5
Others, at cost 44.0 44.2
650.1 630.7
PLANT AND EQUIPMENT, NET 1,776.2 1,759.8
GOODWILL AND OTHER INTANGIBLE ASSETS,
Net of accumulated amortization -
$116.5/1994; $106.8/year-end 1993 1,193.1 1,009.1
OTHER ASSETS 318.1 360.4
$5,430.2 $ 5,231.7
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable $ 232.5 $ 141.7
Accounts payable 170.6 245.1
Other accrued liabilities 637.1 633.5
Total current liabilities 1,040.2 1,020.3
OTHER LIABILITIES 652.6 668.6
LOANS PAYABLE BEYOND ONE YEAR 1,573.6 1,585.6
MINORITY INTEREST IN SUBSIDIARY COMPANIES 182.2 245.7
CONVERTIBLE PREFERRED STOCK 25.5 25.7
COMMON STOCKHOLDERS' EQUITY
Common stock, including excess over par value
and other capital-Par value $0.50 per share;
authorized 500,000,000 shares 872.9 626.8
Retained earnings 1,603.9 1,581.9
Less cost of 27,368,018/1994 and
27,401,318/year-end 1993 shares of
common stock in treasury (515.8) (516.5)
Cumulative translation adjustment (4.9) (6.4)
$5,430.2 $ 5,231.7
The accompanying notes are an integral part of these statements.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Twelve Weeks Ended
March 27, March 28,
1994 1993*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58.0 $ 49.8
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 76.9 63.0
Equity in earnings of associated companies
in excess of dividends received (12.7) (1.6)
(Gains) losses on disposition of properties
and investments .8 (1.8)
Deferred tax provision (benefit) 4.2 (18.5)
Other 11.3 12.6
Changes in operating assets and liabilities:
Accounts receivable (49.3) 19.8
Inventory (15.3) (31.2)
Deferred taxes and
other current assets (15.3) (19.8)
Current liabilities (122.4) (92.7)
NET CASH USED IN OPERATING ACTIVITIES (63.8) (20.4)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (60.6) (50.9)
Acquisitions of businesses (261.0) (2.4)
Net proceeds from disposition
of properties and investments .8 15.3
Increase in long-term investments (7.1)
Other, net (6.8) (2.1)
NET CASH USED IN INVESTING ACTIVITIES (334.7) (40.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of loans 90.8 103.0
Repayments of loans (11.4) (25.2)
Proceeds from issuance of common stock 234.8 2.8
Increase in minority interest due to
capital contribution 21.5
Repurchases of common stock (49.0)
NET CASH PROVIDED BY FINANCING ACTIVITIES 335.7 31.6
Effect of exchange rates on cash .2 .9
Net change in cash and cash equivalents (62.6) (28.0)
Cash and cash equivalents at beginning of year 160.8 133.1
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 98.2 $ 105.1
SUPPLEMENTAL DATA:
Income taxes paid $ 10.7 $ 23.0
Interest paid $ 28.7 $ 22.2
* Reclassified to conform to 1994 presentation.
The accompanying notes are an integral part of these statements.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Earnings per common share are computed by dividing net income less
preferred dividends by the weighted average of common shares
outstanding during each period. Preferred dividends amounted to $0.5
million in the first quarters of 1994 and 1993. Weighted average
common shares outstanding (in thousands) for the first quarter were
202,325 and 189,632 for 1994 and 1993, respectively. The weighted
average of common shares outstanding for earnings per share
calculations does not include shares held by the Corning Stock
Ownership Trust which totaled approximately 3.1 million and 3.4
million shares in the first quarter 1994 and 1993, respectively.
Common stock equivalents are not included in the earnings per share
computation because they do not result in material dilution.
Common dividends of $35.5 million were declared in the first quarter
1994, compared with $32.3 million for the same period in 1993.
(2) The equity in earnings of associated companies is generally recorded
on a one-month lag. Corning's first quarter includes its equity in
earnings of Dow Corning Corporation (Dow Corning) for two months,
compared with three months in the second and fourth quarters and four
months in the third quarter.
(3) In February 1994, under terms of the December 1993 agreement with
Vitro S.A. de C.V. (Vitro), Corning purchased the shares of capital
stock of Corning Vitro Corporation held by Vitro. This transaction
completed the second and final phase of the agreement between Corning
and Vitro to end their cross ownership in two consumer products
companies. The net cost to Corning was $131 million. Goodwill of
approximately $70 million resulted from this transaction and is being
amortized over 40 years.
(4) In February 1994, Corning and Siecor Corporation, a consolidated
company owned 50 percent each by Corning and Siemens AG, acquired the
assets relating to the optical-fiber and optical-cable businesses of
Northern Telecom Limited for $130 million in a transaction accounted
for as a purchase. Goodwill of approximately $110 million resulted
from this transaction and is being amortized over 25 years.
(5) In February 1994, Corning signed a definitive agreement to sell its
Parkersburg, W. Va., glass-tubing products plant to Schott
Corporation, a subsidiary of the Schott Group, for $57 million. The
proposed transaction is expected to close in the second or third
quarter of 1994. At present, the transaction is expected to result in
a modest after-tax gain.
(6) In February 1994, Corning issued 8 million shares of common stock in a
single-block transaction. The net proceeds from this offering totaled
approximately $233 million and were used to finance the acquisition of
the shares of capital stock of Corning Vitro Corporation held by Vitro
(see Note 3) and the acquisition of Northern Telecom Limited's optical-
fiber and optical-cable businesses (see Note 4).
(7) Effective January 4, 1993, Corning and its subsidiaries prospectively
adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS 109) and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," (SFAS 112). The impact of adopting SFAS 109
and SFAS 112 was not material in the first quarter of 1993.
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(8) Inventories shown on the accompanying balance sheets were comprised of
the following (in millions):
March 27, January 2,
1994 1994
Finished goods $ 232.8 $ 216.1
Work in process 98.2 93.6
Raw materials and accessories 70.3 68.0
Supplies and packing materials 77.5 75.6
Total inventories valued
at current cost 478.8 453.3
Reduction to LIFO valuation (100.7) (99.4)
$ 378.1 $ 353.9
(9) Plant and equipment shown on the accompanying balance sheets were
comprised of the following (in millions):
March 27, January 2,
1994 1994
Land $ 54.2 $ 51.6
Buildings 758.3 742.5
Equipment 2,616.7 2,567.7
Accumulated depreciation (1,653.0) (1,602.0)
$1,776.2 $ 1,759.8
(10) Consolidated summarized income statement information of Dow Corning
and its subsidiary companies is presented below (in millions):
Three Months Ended
March 31,
1994 1993
Net sales $ 509.1 $ 490.8
Operating costs and expenses 424.6 428.6
Operating income 84.5 62.2
Other expense 18.1 11.3
Income before income taxes 66.4 50.9
Income taxes 25.9 16.8
Minority interest's share in income 3.3 3.4
Net income $ 37.2 $ 30.7
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(11) As described in the company's 1993 Annual Report on Form 10-K, Corning
completed five acquisitions in 1993, the most significant of which was
the acquisition of Damon Corporation (Damon) for approximately $405
million in August 1993. The following table presents unaudited pro
forma operating results for the quarter ended March 28, 1993, as if the
acquisitions completed in 1993 had been completed on January 4, 1993
(in millions, except per share amounts):
Twelve Weeks Ended
March 28, 1993
Revenues $ 956.5
Net income 47.6
Net income per common share 0.25
These pro forma results do not reflect the recent divestitures of
Corning's process systems business or the California operations of
Damon (see Note 13).
Non-Operating Gains and Losses
(12) During the first quarter 1993, Corning recognized a non-operating gain
totaling $4.2 million ($2.6 million after tax).
Subsequent Events
(13) On April 4, 1994, MetPath Inc., a wholly-owned subsidiary of Corning,
sold the clinical laboratory testing operations of Damon in California
to Physicians Clinical Laboratory, Inc. for approximately $51 million.
No gain or loss will be recognized as a result of this transaction.
The proceeds from the transaction will be used to retire a portion of
the debt incurred in connection with the acquisition of Damon in
August 1993.
(14) On May 2, 1994, Corning and International Technology Corporation
signed a definitive agreement to create a jointly-owned company to
provide environmental testing and related services. Under terms of
the agreement, Corning will transfer the net assets of its
environmental testing laboratory business to the new company and
International Technology will transfer the assets of its IT Analytical
Services business. Corning and International Technology each will own
50 percent of the company. The transaction, which is subject to
regulatory approval, is expected to close in the second or third
quarter 1994. Corning will account for its investment in the newly
created company using the equity method of accounting for investments.
The impact of the transaction is not expected to be material to
Corning's financial statements.
(15) On May 4, 1994, Corning signed a definitive agreement to acquire all
of the outstanding shares of Maryland Medical Laboratory Inc. and
several affiliates for approximately 4.5 million shares of Corning
common stock in a pooling of interests transaction. The transaction,
which is subject to regulatory approval, is expected to close in the
second or third quarter 1994.
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net sales for the first quarter 1994 totaled $948.9 million, up 16 percent
from the same period last year. Approximately half of the sales increase
was due to the 1993 acquisition of Damon. The other 1993 acquisitions also
contributed positively to sales growth. Net income was $58 million ($0.28
per share) for the first quarter of 1994 compared to $49.8
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million ($0.26 per share) for the first quarter 1993. Excluding the impact
of a non-operating gain in 1993, net income and earnings per share for the
first quarter 1994 were up 23 percent and 15 percent, respectively, when
compared to the same period last year.
Segment Overview
Earnings from consolidated operations for the first quarter 1994, excluding
the non-operating gain in 1993, increased 4 percent over the same period
last year. Sales and earnings increased in all segments except laboratory
services which was negatively impacted by severe winter weather in the
eastern half of the United States.
Sales and earnings growth in the specialty materials segment was led by the
environmental products business which experienced increased demand for
ceramic substrates in its North American market. The science products
business, including the results of Corning Costar Corporation (Costar)
which was acquired in 1993, and the optical products business also
contributed to the earnings growth in this segment.
Increased sales and earnings in the communications segment were primarily
due to strong volume gains in the optical-fiber and optical-cable
businesses. Sales and earnings in the conventional video components and
projection video businesses also contributed to the growth in this segment.
Earnings improvements were offset somewhat by continued development
spending in the advanced display products and ceramic memory disk
businesses.
First quarter sales of the laboratory services segment improved
significantly over the prior year primarily as a result of the 1993
acquisition of Damon. First quarter segment earnings were level with 1993.
Sales and earnings of this segment were negatively impacted by the severe
winter weather in the eastern half of the United States. The Damon
acquisition contributed positively to the operating results of this
segment; however, the gain was offset by increased goodwill amortization
resulting from the acquisition.
Sales and earnings gains in the consumer products segment were driven by
improved domestic volume. Strong manufacturing performance and a continued
focus on cost controls also contributed to the earnings growth in this
segment.
At year end 1993, Corning had restructuring and acquisition integration
reserves totaling $232.5 million, of which $155 million were short-term and
$77.5 million were long-term. The company's restructuring and integration
programs are proceeding as planned. Currently, the activities associated
with the corporate-wide restructuring program are more than half complete
and MetPath and Damon laboratories have been fully integrated in five of
ten primary locations. Of the $199.1 million in restructuring and
acquisition integration reserves at the end of the first quarter, $128.4
million were classified as short-term and $70.7 million were classified as
long-term. The majority of these reserves are expected to be paid in cash
for severance-related items and facility exit expenses. The restructuring
program and the integration of Damon are expected to be substantially
complete by the end of the third quarter.
Taxes on Income
Corning's effective tax rate was 37% in the first quarter 1994 and 34% in
the first quarter 1993. The change in the effective tax rate was primarily
due to the increase in the U.S. corporate statutory tax rate (which was
effective in the third quarter 1993) and an increase in non-deductible
amortization of intangibles and other expenses.
Equity in Earnings
First quarter 1994 equity in earnings of associated companies was $16.5
million compared with $7.2 million in the same period last year. Increased
earnings were due to strong operating performance at Dow Corning and the
elimination of losses from Vitro Corning, S.A., which was divested in late
1993.
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Liquidity and Capital Resources
Corning's working capital of $452.5 million at March 27, 1994, was
relatively unchanged from $451.4 million at the end of 1993. The ratio of
current assets to current liabilities of 1.4 was also unchanged from year-
end 1993. Corning's long-term debt as a percentage of total capital was
42% at the end of the first quarter compared to 45% at year-end 1993. The
improvement in this ratio is due primarily to the issuance of common stock
in February 1994. Corning intends to repay the remaining $400 million of
Damon acquisition debt with the proceeds from the April 1994 sale of the
Damon laboratories in California and an offering of equity securities in
1994.
Cash and short-term investments declined from year-end 1993 by $62.6
million due to operating and investing activities which used cash of $63.8
million and $334.7 million, respectively, offset by financing activities
which provided cash of $335.7 million. Net cash used in operating
activities increased in the first quarter 1994 compared to the same period
in 1993 due primarily to an increase in accounts receivable. Net cash used
in investing activities increased during the same period due to the
acquisition of assets from Northern Telecom Limited and the purchase of
Corning Vitro Corporation stock from Vitro. Net cash provided by financing
activities increased in the first quarter 1994 over 1993 primarily as a
result of the issuance of common stock in February 1994 to finance the
Northern Telecom and Vitro transactions.
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Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings to which Corning or any of its
consolidated subsidiaries is a party or of which any of their property is
the subject which are material in relation to the consolidated financial
statements.
Environmental Litigation. Corning has been named by the Environmental
Protection Agency under the Superfund Act, or by state governments under
similar laws, as a potentially responsible party for 22 hazardous waste
sites. Under the Superfund Act, all parties who have contributed any waste
to a hazardous waste site, identified by such Agency, are jointly and
severally liable for the cost of cleanup unless the Agency agrees otherwise.
It is Corning's policy to accrue for its estimated liability based on expert
analysis and continual monitoring by both internal and external consultants.
Corning has accrued for its estimated liability with respect to each of
these sites and has not reduced the liability for any potential insurance
recoveries. The aggregate liability is not material to the Company's
operations or financial position.
Breast Implant Litigation. Corning continues to be a defendant in two types
of cases previously reported involving the silicone-gel breast implant
products or materials formerly manufactured or supplied by Dow Corning or a
Dow Corning subsidiary. These cases include (1) several purported federal
securities class action lawsuits and shareholder derivative lawsuits filed
against Corning by shareholders of Corning alleging, among other things,
misrepresentations and omissions of material facts, breach of duty to
shareholders and waste of corporate assets relative to the silicone-gel
breast implant business conducted by Dow Corning and (2) as of April 18,
1994 over 6,000 lawsuits filed in various state courts against Corning and
others (including Dow Corning) by persons claiming injury from the silicone-
gel breast implant products or materials formerly manufactured by Dow
Corning or a Dow Corning subsidiary. Several of such suits have been styled
as class actions and others involve multiple plaintiffs.
All of the more than 3,000 tort lawsuits filed against Corning in federal
courts were consolidated in the United States District Court, Northern
District of Alabama, and in early December 1993, Corning was dismissed from
these cases. This decision by the District Court is non-appealable and,
although the District Court noted that it was "highly unlikely" that
additional discovery would produce new evidence, the decision is subject to
reconsideration if additional information is discovered or if there is a
change in state law. Certain state court tort cases against Corning have
also been consolidated for the purposes of discovery and pretrial matters.
During 1994, Corning has made several motions for summary judgment in state
courts and judges have dismissed Corning from all of the over 2,000 tort
cases filed in California, Michigan and Pennsylvania. Corning's motions
seeking dismissal remain pending in various other states. The federal
securities suits are all pending in the United States District Court for the
Southern District of New York.
Corning's management does not believe that the purported securities class
action lawsuits or the purported shareholder derivative lawsuits or the tort
actions filed against Corning described above will have a material adverse
effect on Corning's financial condition or the results of its operations.
Dow Corning has informed Corning that as of April 15, 1994, Dow Corning has
been named in 45 purported breast implant product liability class action
lawsuits and approximately 14,500 individual breast implant product
liability lawsuits (which number includes all or substantially all of the
6,000 lawsuits referred to above) and that Dow Corning anticipates that it
will be named as a defendant in additional breast implant lawsuits in the
future. Dow Corning has also stated that it is vigorously defending this
litigation.
Verdicts in breast implant litigation against Dow Corning and other
defendants which have gone to judgment have varied widely, ranging from
dismissal to the award of significant compensatory and punitive damages.
Dow Corning has also informed Corning that Dow Corning believes that a
substantial portion of the indemnity and defense costs related to the breast
implant litigation brought and to be brought against it is and will be
covered by product liability insurance available to it but that the
insurance companies issuing the policies in question have reserved the right
to deny coverage under various theories and in many cases have refused to
pay defense and indemnity costs which have been incurred by Dow Corning. In
this regard, on June 30, 1993, Dow Corning instituted litigation in
California against certain insurance
<PAGE>12
companies which had issued product liability insurance policies to it from
1962 through 1985 seeking declaratory judgments that the insurance company
defendants are liable to indemnify Dow Corning for such liabilities and
costs and, in the case of certain insurance company defendants, damages
including punitive damages. In September 1993, several of Dow Corning's
insurers filed a complaint against Dow Corning and other insurers for
declaratory relief in Michigan and moved for the action brought by Dow
Corning in California to be dismissed in favor of the Michigan litigation.
In October 1993, this motion was granted. In March 1994, the Michigan court
ruled that certain of Dow Corning's primary insurers had a duty to defend Dow
Corning with respect to certain breast implant product liability lawsuits.
These insurers were directed to reimburse Dow Corning for certain defense
costs previously incurred. Dow Corning has informed Corning that it is
continuing negotiations with such insurance companies to obtain an agreement
on a formula for the allocation among these insurers of payments of defense
and indemnity expenses related to breast implant products liability lawsuits
and claims.
In March 1994, Dow Corning, along with other defendants and representatives
of breast implant litigation plaintiffs, signed a Breast Implant Litigation
Settlement Agreement (the "Settlement Agreement"). Under the Settlement
Agreement and related agreements, industry participants (the "Funding
Participants") would contribute approximately $4.2 billion over a period of
more than thirty years to establish several special purpose funds. The
Settlement Agreement, if implemented, would provide for a claims based
structured resolution of claims arising out of silicone breast implants,
define the circumstances under which payments from the funds would be made
and include a number of other provisions related to claims and
administration. The Settlement Agreement defines periods during which
breast implant plaintiffs may elect not to settle their claims by way of the
Settlement Agreement and to continue their individual breast implant
litigation against manufacturers and other defendants (the "Opt Out
Plaintiffs"). In certain circumstances, if Dow Corning considers the number
of Opt Out Plaintiffs to be excessive, Dow Corning is entitled to withdraw
from participation in the Settlement Agreement. Corning would not be
required to make any contribution to the funds established under the
Settlement Agreement.
In April 1994, the U.S. District Court for the Northern District of Alabama
preliminarily approved the Settlement Agreement and temporarily stayed and
suspended federal and state class action certification or notice proceedings
relative to federal or state class action lawsuits filed by plaintiffs
included in the settlement class.
In April 1994, the Court also notified the breast implant plaintiffs
eligible to participate in the settlement of a 60-day period during which
they have the ability to become initial Opt Out Plaintiffs. A Court
supervised fairness review process of the Settlement Agreement must be
completed before the Settlement Agreement can be implemented. Once the
Settlement Agreement is approved by the Court, claims can then be validated.
The Court's approval of the Settlement Agreement would be subject to appeal.
Dow Corning recorded a pre-tax charge of $640 million ($415 million after
tax) against its earnings for the fourth quarter of 1993 to reflect its best
estimate as of January 1994 of the net present value of its net liabilities
and costs as a result of its involvement in breast implant litigation. As a
result of Dow Corning's decision to take this charge, Corning recorded a
charge of $203 million after tax against its equity in earnings of
associated companies for the fourth quarter of 1993 and against the carrying
value of its investment in Dow Corning at the end of fiscal 1993.
If the tort actions filed against Dow Corning or any settlement of the
breast implant controversy should require Dow Corning to record any
additional charges against income, the effect on Corning of any such
additional charges would be limited to their consequent impact (in the
amount of approximately 50% of the amount thereof) on Corning's reported
equity in earnings of associated companies for the period such charges were
recognized, on the book value of Corning's equity investment in Dow Corning
and on Corning's retained earnings. Corning does not believe that its share
of any additional charges taken by Dow Corning resulting from the breast
implant controversy will have a material adverse effect upon Corning's
financial condition. However, it is possible that Corning's share of any
such additional charges taken by Dow Corning could have a material adverse
effect upon Corning's earnings in the quarters in which any such charges
were recognized by Dow Corning.
Other Dow Corning Matters. Dow Corning received a request dated July 9,
1993 from the Boston Regional Office of the Securities and Exchange
Commission for certain documents and information related to silicone breast
implants. The request stated that the Boston Regional Office was conducting
an informal investigation which "concerns Dow Corning, its subsidiary Dow
Corning Wright and parent corporations, Dow Chemical Co. and Corning Inc."
Dow Corning has informed Corning that Dow Corning has responded to this
request enclosing the documents and information requested along with related
information and continues to cooperate with the Boston Regional Office.
<PAGE>13
During the first quarter of 1993, Dow Corning received two federal grand
jury subpoenas initiated by the United States Department of Justice ("DOJ")
seeking documents and information related to silicone breast implants. Dow
Corning has informed Corning that it has delivered the documents and
information requested and continues to cooperate with the DOJ as this grand
jury investigation proceeds.
Department of Justice Investigation. In September 1993, MetPath Inc. and
MetWest Inc., a wholly-owned subsidiary of Unilab Corporation, in which
Corning had at the time an interest of approximately 43%, entered into a
Settlement Agreement (the "Settlement Agreement") with the DOJ and the
Inspector General of the Department of Health and Human Services (the
"Inspector General"). Pursuant to the Settlement Agreement, MetPath and
MetWest paid to the United States a total of $39.8 million in settlement of
civil claims by the DOJ and the Inspector General that MetPath and MetWest
had wrongfully induced physicians to order certain laboratory tests without
realizing that such tests would be billed to Medicare at rates higher than
those the physicians believed were applicable.
Several state and private insurers have made claims based on the practices
covered by the Settlement Agreement. Several have settled but it is not
clear at this time what, if any, additional exposure Corning may have to
these entities and to other persons who may assert claims on the basis of
these or other practices.
During August 1993, MetPath, MetWest and Damon Corporation ("Damon"), which
was acquired by Corning in that month, together with other participants in
the industry received subpoenas from the Inspector General seeking
information regarding their practices with respect to 14 enumerated tests
offered in conjunction with automated chemical test panels. Of these 14
tests, 5 were covered by the Settlement Agreement and consequently MetPath
and MetWest are not being required to provide further information with
regard to them. MetPath, MetWest and Damon have completed the process of
complying with these subpoenas. The results of these investigations cannot
currently be predicted but the possibility that they may result in
additional claims by the DOJ or the Inspector General or additional claims
or settlements with parties other than the DOJ and the Inspector General
cannot be excluded.
Other Legal Proceedings. During September 1993, two individuals filed in
the Supreme Court of the State of New York (one in New York County and one
in Suffolk County) separate purported derivative actions against Corning, as
nominal defendant, and Corning's Directors and certain of its officers
seeking on behalf of Corning compensatory and punitive damages in
unspecified amounts (and plaintiffs' costs and disbursements including
attorneys' and experts' fees) by reason of the alleged responsibility of the
actual defendants for the conduct which gave rise to the settlement in the
MetPath litigation described above and their alleged failure to cause
Corning to make timely disclosure thereof. The parties have agreed to
consolidate such actions in a single action before the Supreme Court of the
State of New York in New York County.
During October 1993, two individuals instituted in the United States
District Court for the Southern District of New York separate purported
class actions on behalf of purchasers of Corning securities in the open
market during the period from September 17 to October 6, 1993 against
Corning, certain of its Directors and officers and the underwriters of
Corning's offering, on September 17, 1993, of $100 million of 6.75%
Debentures due on September 15, 2013. The complaints generally allege that
the defendants failed to make timely disclosures of adverse developments in
Corning's business and seek compensatory and punitive damages in unspecified
amounts (and plaintiffs' costs and expenses including attorneys' fees and
disbursements). These two actions have been consolidated.
Two class actions have been filed in the Court of Chancery for the State of
Delaware against Damon and certain of its officers and directors. These
suits allege damages arising from Damon's failure to mention in the press
release that announced the initial merger agreement it had reached with a
company other than Corning, that an unnamed bidder (Corning) had also
expressed interest in acquiring Damon. The class of plaintiffs are those
who sold their stock at the price offered by the other company, rather than
the higher amount later offered and paid by Corning.
Corning's management does not believe that the purported class action
lawsuits or the purported shareholder derivative lawsuits described above
will have a material adverse effect on Corning's financial condition or the
results of its operations.
<PAGE>14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index which is located on page 12.
(b) Reports on Form 8-K
A report on Form 8-K dated January 24, 1994 was filed in
connection with the Registrant's medium-term notes facility. The
Registrant's fourth quarter earnings press release of January 24,
1994 was filed as an exhibit to this Form 8-K.
Other items under Part II are not applicable.
<PAGE>15
SIGNATURES
Pursuant to the requirements of the Securities and 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)
April 26, 1994 JAMES R. HOUGHTON
Date J. R. Houghton
Chairman and Chief Executive Officer
April 26, 1994 VAN C. CAMPBELL
Date V. C. Campbell
Vice Chairman and Principal Financial Officer
April 26, 1994 LARRY AIELLO, JR.
Date L. Aiello, Jr.
Vice President and Controller
<PAGE>16
CORNING INCORPORATED
EXHIBIT INDEX
This exhibit is numbered in accordance
with Exhibit Table I of item 601 of Regulation S-K
Page number
in manually
Exhibit # Description signed original
12 Computation of ratio of
earnings to fixed charges 17
<PAGE>1
<TABLE> Exhibit #12
Corning Incorporated and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges:
(Dollars in millions, except ratios)
<CAPTION>
12 Weeks Ended Fiscal Year Ended
Mar. 27, Mar. 28, Jan. 2, Jan. 3, Dec. 29, Dec. 30, Dec. 31,
1994 1993 1994 1993 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Income before taxes on income $ 79.0 $ 69.6 $156.7 $336.6 $327.4 $328.1 $253.8
Adjustments:
Share of earnings (losses) before
taxes of 50% owned companies 26.9 23.1 (137.0) 103.2 165.4 175.9 206.9
Loss before taxes of greater than
50% owned unconsolidated
subsidiaries (1.7) (1.4) (3.1) (2.1) (2.2) (2.0) (1.3)
Distributed income of less than 50%
owned companies and share of loss
if debt is guaranteed 1.5 4.5 (4.3) 6.6 0.9 3.3
Amortization of capitalized interest 2.9 2.7 13.0 11.8 10.2 8.8 7.2
Fixed charges net of capitalized
interest 42.2 29.3 155.8 130.3 126.4 112.5 91.2
Earnings before taxes and fixed
charges as adjusted $149.3 $124.8 $189.9 $575.5 $633.8 $624.2 $561.1
Fixed charges $45.6 $33.7 $176.6 $150.2 $141.3 $132.7 $111.2
Ratio of earnings to fixed charges 3.3x 3.7x 1.1x 3.8x 4.5x 4.7x 5.0x
Fixed charges:
Interest incurred $ 26.4 $ 18.1 $ 94.0 $68.9 $ 60.4 $58.6 $ 53.0
Share of interest incurred of 50%
owned companies and interest on
guaranteed debt of less than 50%
owned companies 9.0 6.8 40.9 42.0 47.5 45.3 33.9
Interest incurred by greater than
50% owned unconsolidated
subsidiaries 0.2 0.2 0.8 0.9 0.9 1.0 1.2
Portion of rent expense which
represents interest factor 8.2 6.8 29.9 27.6 23.0 19.7 15.8
Share of portion of rent expense
which represents interest factor
for 50% owned companies 1.3 1.5 9.1 9.2 9.0 7.6 6.9
Portion of rent expense which
represents interest factor for
greater than 50% owned
unconsolidated subsidiaries 0.3 0.1 0.1 0.1 0.1 0.1
Amortization of debt costs 0.5 1.8 1.5 0.4 0.4 0.3
Total fixed charges 45.6 33.7 176.6 150.2 141.3 132.7 111.2
Capitalized interest (3.4) (4.4) (20.8) (19.9) (14.9) (20.2) (20.0)
Total fixed charges net of
capitalized interest $42.2 $29.3 $155.8 $130.3 $126.4 $112.5 $91.2
</TABLE>
