<PAGE>1
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 October 8, 1995
[ ] 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:
229,254,961 shares of Corning's Common Stock, $0.50 Par Value, were
outstanding as of October 27, 1995.
<PAGE>2
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 forty
and sixteen weeks ended October 8, 1995 and
October 9, 1994 3
Consolidated Balance Sheets at October 8, 1995
and January 1, 1995 4
Consolidated Statements of Cash Flows for the
forty weeks ended October 8, 1995 and
October 9, 1994 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 and financial position 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 1,
1995.
<PAGE>3
<TABLE>
Corning Incorporated and Subsidiary Companies
Consolidated Statements of Income
(In millions, except per-share amounts)
<CAPTION>
Forty Weeks Ended Sixteen Weeks Ended
October 8, October 9, October 8, October 9,
1995 1994* 1995 1994*
<S> <C> <C> <C> <C>
Revenues
Net sales $3,982.7 $3,497.0 $1,568.8 $1,442.4
Royalty, interest and
dividend income 24.7 21.5 9.1 10.3
________ _________ ________ _________
4,007.4 3,518.5 1,577.9 1,452.7
Deductions
Cost of sales 2,518.6 2,236.1 988.5 917.9
Selling, general and
administrative expenses 822.0 633.2 357.2 245.2
Research and development
expenses 133.5 132.8 53.7 53.5
Provision for restructuring
and other special charges 67.0 82.3 82.3
Interest expense 90.4 85.6 35.8 33.9
Other, net 31.6 36.3 8.3 27.5
_______ _______ _______ ________
Income before taxes on income 344.3 312.2 134.4 92.4
Taxes on income 115.4 117.1 42.2 34.1
------- ------- -------- --------
Income before minority interest
and equity earnings 228.9 195.1 92.2 58.3
Minority interest in earnings
of subsidiaries (53.4) (39.0) (23.8) (21.1)
Dividends on convertible preferred
securities of subsidiary (10.5) (2.7) (4.2) (2.7)
Equity in earnings (losses) of
associated companies:
Excluding Dow Corning
Corporation 48.7 34.6 19.3 19.0
Dow Corning Corporation (348.0) 58.3 23.4
-------- ------- ----- ------
Net Income (Loss) $ (134.3) $ 246.3 $ 83.5 $ 76.9
--------- --------- -------- --------
Per Common Share:
Net Income (Loss) $ (0.60) $ 1.18 $ 0.37 $ 0.36
---------- --------- --------- --------
Dividends Declared $ 0.54 $ 0.51 $ 0.18 $ 0.17
--------- --------- ---------- ---------
Weighted Average Shares
Outstanding 226.5 207.9 227.2 213.4
--------- -------- --------- --------
* Reclassified to conform to 1995 presentation.
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>4
<TABLE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and per-share amounts)
<CAPTION>
October 8, January 1,
1995 1995*
ASSETS
<C> <C>
<S>
CURRENT ASSETS
Cash $ 16.7 $ 72.0
Short-term investments, at cost, which
approximates market value 92.3 89.3
Accounts receivable, net of doubtful
accounts and allowances - $163.0/1995;
$89.4/year-end 1994 968.3 947.1
Inventories 501.4 416.7
Deferred taxes on income and other
current assets 238.9 201.2
------- -------
Total current assets 1,817.6 1,726.3
INVESTMENTS
Associated companies, at equity 374.2 318.6
Dow Corning Corporation, at equity 341.8
Others, at cost 33.8 33.4
------ --------
408.0 693.8
PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 1,964.4 1,890.6
GOODWILL AND OTHER INTANGIBLE ASSETS,
Net of accumulated amortization -
$279.7/1995; $170.8/year-end 1994
1,428.2 1,408.0
OTHER ASSETS 301.3 304.0
-------- --------
$5,919.5 $6,022.7
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable $ 122.6 $ 67.6
Accounts payable 160.9 258.3
Other accrued liabilities 751.6 748.3
-------- -------
Total current liabilities 1,035.1 1,074.2
-------- --------
OTHER LIABILITIES 666.6 643.6
LOANS PAYABLE BEYOND ONE YEAR 1,472.6 1,405.6
MINORITY INTEREST IN SUBSIDIARY COMPANIES 275.4 247.0
CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY 364.7 364.4
CONVERTIBLE PREFERRED STOCK 23.8 24.9
COMMON STOCKHOLDERS' EQUITY
Common stock, including excess over
par value and other capital -
Par value $0.50 per share;
authorized 500 million shares;
issued 258.0 million shares/1995
and 255.8 shares/year-end 1994 1,102.2 1,031.4
Retained earnings 1,454.8 1,714.5
Less: cost of 28 million/1995 and
27.6 million/year-end 1994
shares of common stock in treasury (548.1) (523.7)
Cumulative translation adjustment 72.4 40.8
--------- --------
$5,919.5 $6,022.7
======== ========
* Reclassified to conform to 1995 presentation.
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>5
<TABLE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Forty Weeks Ended
October 8, October 9,
1995 1994*
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(134.3) $ 246.3
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 279.7 252.1
Provision for restructuring and
other special charges (net of cash paid)
56.9 76.9
Equity in losses (earnings) of
Dow Corning Corporation 348.0 (58.2)
Equity in earnings of associated
companies, other than Dow Corning
Corporation, in excess of dividends received (14.7) (10.4)
Minority interest in earnings of
subsidiaries in excess of dividends paid
28.3 24.1
Losses (gains) on disposition of properties
and investments 11.5 (8.7)
Deferred tax benefit (26.3) (11.1)
Other 14.1 (0.6)
Changes in operating assets and liabilities:
Accounts receivable (13.2) (232.7)
Inventory (76.5) (58.1)
Deferred taxes and other current assets (4.7) (25.3)
Accounts payable and other current liabilities (120.1) (95.1)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 348.7 99.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (316.4) (243.6)
Acquisitions of businesses, net (41.0) (241.0)
Net proceeds from disposition of
properties and investments 13.8 144.5
Increase in long-term investments (27.5) (9.6)
Other, net (24.6) (23.9)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (395.7) (373.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of loans 170.0 291.3
Repayments of loans (50.5) (452.0)
Increase in minority interest
due to capital contribution 21.5
Proceeds from issuance of convertible
preferred securities of subsidiary 364.4
Proceeds from issuance of common stock 19.8 247.2
Repurchases of common stock (15.8)
Payment of dividends (125.4) (105.6)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1.9) 366.8
Effect of exchange rates on cash (3.4) 1.5
------- ------
Net change in cash and cash equivalents (52.3) 93.9
Cash and cash equivalents at beginning of year 161.3 160.8
------- ------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 109.0 $ 254.7
========= =========
SUPPLEMENTAL DATA:
Income taxes paid $ 97.9 $ 116.0
========= =========
Interest paid $ 93.3 $ 94.2
========= =========
* Reclassified to conform to 1995 presentation.
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>6
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Earnings per common share are computed by dividing net income less
dividends on Series B preferred stock by the weighted average of
common shares outstanding during each period. Series B preferred
dividends amounted to $0.5 million and $1.5 million in the third
quarter and third quarter year-to-date, respectively, in both 1995 and
1994. The weighted average of common shares outstanding for the third
quarter and third quarter year-to-date 1995 were 227.2 million and
226.5 million, respectively, and 213.4 million and 207.9 million for
the same periods in 1994. 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 2.6 million and 3.0 million shares during 1995 and 1994,
respectively. Common stock equivalents are not included in the
earnings per share computation because they do not result in material
dilution.
Common dividends of $41.5 million and $123.9 million were declared in
the third quarter and third quarter year-to-date of 1995,
respectively, compared with $37.0 million and $108.7 million for the
same periods in 1994.
(2) On May 15, 1995, Dow Corning Corporation (a fifty-percent owned equity
affiliate) voluntarily filed for protection under Chapter 11 of the
United States Bankruptcy Code as a result of several negative
developments related to the breast-implant litigation. Corning
management believes that it is impossible to predict if and when Dow
Corning will successfully emerge from the Chapter 11 proceedings. As
a result, Corning recorded an after-tax charge of $365.5 million in
the second quarter 1995 to fully reserve its investment in Dow
Corning.
Corning also discontinued recognition of equity earnings from Dow
Corning beginning in the second quarter of 1995. Corning recognized
equity earnings from Dow Corning of $17.5 million in the first quarter
of 1995, and $23.4 million and $58.3 million in the third quarter and
third quarter year-to-date of 1994, respectively. Summarized income
statement information for Dow Corning is not presented because Corning
has discontinued recognition of equity in earnings.
(3) In the second quarter of 1995, Corning recorded a restructuring charge
of $67 million ($40.5 million after-tax). Approximately $40 million
of the charge related to Corning's Laboratory Services segment and
included severance for workforce reduction programs in both the
clinical-laboratory and pharmaceutical-testing businesses and the
costs of exiting a number of leased facilities in the clinical-
laboratory testing business. The remaining charge included severance
for additional workforce reductions, primarily in corporate staff
groups, a curtailment loss in Corning's primary pension plan
attributable to workforce reductions over the last eighteen months,
and the write-off of production equipment caused by the decision to
exit the manufacturing facility for glass-ceramic memory-disks.
A summary of the reserves established in the second quarter 1995 are
as follows:
<TABLE>
<CAPTION>
Charges through Balance at
Original Reserve October 8, 1995 October 8, 1995
<S> <C> <C> <C>
Employee termination costs $ 46.5 $ 16.4(1) $30.1
Write-off of fixed assets 14.1 3.8 10.3
Costs of exiting leased facilities 6.4 0.7 5.7
------- --------- --------
Total $67.0 $20.9 $46.1
===== ===== ======
Current $37.1
Non-current 9.0
------
Total $46.1
(1) Includes $7 million of pension curtailment loss which has
reduced Corning's pension asset related to its primary
pension plan.
</TABLE>
<PAGE>7
Severance costs relate to approximately 1,000 employees, of which
approximately 450 have been terminated or notified of their
termination at October 8, 1995. Management believes that the
workforce reductions and facility closures will significantly reduce
operating costs and will be substantially completed within one year.
As described in Note 7 to the company's 1994 consolidated financial
statements included in its Annual Report on Form 10-K, Corning
recorded charges for restructuring and acquisition integration plans
in previous years. Reserves relating to these programs totaled
approximately $99.4 million and $37.1 million at January 1, 1995, and
October 8, 1995, respectively. Management believes that the costs
of both 1995 and previous restructuring and integration plans will be
financed through cash from operations and does not anticipate any
significant impact on its liquidity as a result of the restructuring
plans.
(4) On March 28, 1995, Corning issued $125 million of 30-year debentures
with an interest rate of 8.3 percent due April 4, 2025. The proceeds
from these borrowings were used for general corporate purposes,
including capital spending.
(5) During the first three quarters of 1995, Corning acquired several
businesses in the Laboratory Services segment for $41 million in cash
and approximately 500,000 shares of Corning common stock. These
transactions have been accounted for as purchases. Goodwill of
approximately $54 million resulted from these transactions and is
being amortized over periods of 20 to 40 years.
(6) As described in Note 2 to the company's 1994 consolidated financial
statements included in its Annual Report on Form 10-K, Corning
completed several acquisitions in 1994, the total of which was
significant. The following table presents unaudited pro forma
operating results for the sixteen and forty weeks ended October 9,
1994, as if the acquisitions completed in 1994 had been completed on
January 3, 1994 (in millions, except per share amounts):
Forty Sixteen
weeks ended weeks ended
October 9, October 9,
1994 1994
Revenues $3,855.7 $1,555.2
Net income 303.2 133.6
Net income per common share 1.34 0.59
These pro forma results do not reflect the impact of 1994 divestitures
and the formation of the jointly owned environmental testing company,
also described in Note 2 to the company's 1994 consolidated financial
statements included in its Annual Report on Form 10-K, which were
individually and in the aggregate immaterial.
(7) Inventories shown on the accompanying balance sheets were comprised of
the following (in millions):
October 8, January 1,
1995 1995
Finished goods $ 234.4 $ 210.1
Work in process 145.5 115.7
Raw materials and accessories 90.2 66.1
Supplies and packing materials 86.9 83.7
Total inventories valued at current cost 557.0 475.6
Reduction to LIFO valuation (55.6) (58.9)
--------- ----------
$ 501.4 $ 416.7
========= ==========
<PAGE>8
(8) Plant and equipment shown on the accompanying balance sheets were
comprised of the following (in millions):
October 8, January 1,
1995 1995
Land $ 65.8 $ 60.7
Buildings 944.3 892.7
Equipment 2,840.7 2,664.9
Accumulated depreciation (1,886.4) (1,727.7)
--------- ----------
$1,964.4 $ 1,890.6
========= =========
<PAGE>9
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Consolidated sales for the third quarter and third quarter year-to-date
1995 totaled $1.6 billion and $4.0 billion, respectively,
up 9 percent and 14 percent, respectively, from the same periods last year.
Approximately one-third of the sales increase resulted from acquisitions
completed in 1994 in both the opto-electronics business and Laboratory
Services segment, net of divestitures of certain businesses in 1994.
Net income for the third quarter 1995 totaled $83.5 million, or $0.37 per
share, compared to $76.9 million, or $0.36 per share, in the same period in
1994. Corning incurred a net loss of $134.3 million, or $0.60 per share,
for the third quarter year-to-date 1995 compared to net income of $246.3
million, or $1.18 per share, for the same period in 1994. Corning's
results have been significantly impacted by the decision to fully reserve
its investment in and discontinue recognition of equity earnings from Dow
Corning Corporation in the second quarter of 1995 and restructuring charges
in both the second quarter of 1995 and the third quarter of 1994. The
following table summarizes the impact of these events on Corning's third
quarter and the third quarter year-to-date net income and earnings per
share:
Forty Weeks Ended Sixteen Weeks Ended
October 8,October 9, October 8,October 9,
1995 1994 1995 1994
Net income (loss)
Before Dow Corning Corporation
and restructuring $254.2 $243.4 $ 83.5 $108.9
Equity in earnings
(losses) of Dow
Corning Corporation (348.0) 58.3 23.4
Provision for restructuring (40.5) (55.4) (55.4)
-------- ------- ------- ------
Net income (loss) $(134.3) $246.3 $ 83.5 $ 76.9
======== ====== ====== =======
Net income (loss) per common share
Before Dow Corning Corporation
and restructuring $ 1.12 $ 1.16 $ 0.37 $ 0.51
Equity in earnings (losses) of
Dow Corning Corporation (1.54) 0.28 0.11
Provision for restructuring (0.18) (0.26) (0.26)
------ ------ ------- ------
Net income (loss) per
common share $ (0.60) $ 1.18 $ 0.37 $ 0.36
======== ===== ======= ======
As shown, excluding the impact of special charges and adjusted for the
elimination of equity earnings from Dow Corning, Corning's net income and
earnings per share for the third quarter decreased 23 percent and 27
percent , respectively, from the same period last year, causing only a 4
percent increase in net income and a 3 percent decline in earnings per
share on a year-to-date basis. The significant decline in the third
quarter results is due in large part to a $62 million pretax charge
recorded in the third quarter of 1995 as a result of management's decision
to increase accounts receivable reserves in the clinical-laboratory testing
business.
<PAGE>10
Segment overview
Consolidated sales, excluding the impact of acquisitions, increased during
the third quarter and third quarter year-to-date 1995 primarily due to
strong performance in the Communications segment and in the pharmaceutical
testing-business of the Laboratory Services segment. Excluding the impact
of the restructuring charges in the second quarter of 1995 and the third
quarter of 1994, earnings from consolidated operations for the third
quarter and third quarter year-to-date 1995 declined over the comparable
periods in 1994 primarily due to poor performance in the Laboratory
Services and Consumer Products segments which offset strong performance
from the Communications and Specialty Materials segments.
In the second quarter of 1995, Corning recorded a restructuring charge of
$67 million ($40.5 million after tax). Approximately $40 million of the
charge related to Corning's Laboratory Services segment and included
severance for workforce reduction programs primarily in the clinical-
laboratory testing business and the costs of exiting a number of leased
facilities. The remaining charge included severance for additional
workforce reductions, primarily in corporate staff groups, a curtailment
loss in Corning's primary pension plan attributable to workforce reductions
over the last eighteen months and the write-off of equipment caused by the
decision to exit the manufacturing facility for glass-ceramic memory-disks.
In the third quarter of 1994, Corning recorded a charge of $82.3 million
($55.4 million after tax), which included $50.7 million of integration
costs, $21.6 million of transaction expenses and $10 million of other
reserves, primarily related to the acquisitions of Nichols Institute,
Maryland Medical Laboratory and Bioran Medical laboratory.
Additional information on the restructuring charges is included in Note 3
to the consolidated financial statements. The following segment analysis
excludes the impact of the restructuring charges.
Sales of the Specialty Materials segment increased modestly and earnings
increased significantly in the third quarter and third quarter year-to-date
1995. Sales and earnings growth continue to be led by the environmental-
products business; however, this business experienced some softness in
demand in the third quarter, particularly in the North American automotive
market. The science-products business performance remained level with last
year's results. Earnings growth in this segment has outpaced the sales
growth rate during 1995 due to improved manufacturing performance achieved
through cost reductions from ongoing re-engineering efforts.
Sales in the Communications segment increased significantly in both the
third quarter and third quarter year-to-date 1995. Approximately one-third
of the sales increase was due to the 1994 acquisitions of opto-electronic
businesses from Northern Telecom Limited. The remaining increase was due
to strong performance in all major businesses in this segment. Segment
earnings increased significantly as a result of the increased sales volume
in all major businesses. As a result of the growth in demand, Corning
announced in the third quarter of 1995 that it will increase its capacity
through major expansions at its optical fiber and television glass
manufacturing facilities.
Third quarter and third quarter year-to-date sales of the Laboratory
Services segment increased over the prior year primarily as a result of
1994 acquisitions in the clinical-laboratory testing business and strong
growth in the pharmaceutical-testing business. The segment experienced a
loss for the third quarter due primarily to costs associated with
uncollectible receivables and weak performance in the clinical-laboratory
business. As a result, third quarter year-to-date earnings were
significantly below prior year levels. Earnings of the pharmaceutical-
testing business increased significantly in both the third quarter and the
third quarter year-to-date.
Earnings of the clinical-laboratory business include a $62 million pretax
charge in the third quarter 1995 to increase accounts receivable reserves.
The increased accounts receivable reserves reflect the impact of billing
systems implementation and integration problems at certain laboratories and
increased regulatory complexity which caused a rapid deterioration in the
collection of receivables. In addition to the $62 million charge, the
ongoing expense associated with uncollectible receivables increased each
quarter of 1995 and is expected to continue at the third quarter level
until the billing systems problems are resolved.
Results in the clinical-laboratory testing business were also impacted by
lower prices, flat volume (excluding the impact of acquisitions), increased
reserves for government claims in the first half of 1995 and higher
expenses in certain areas related to the
<PAGE>11
integration of the 1994 acquisitions. Management expects these items to
continue to impact the profitability of this business through at least
the first half of 1996.
Excluding the impact of the sale of the European consumer business in the
fourth quarter of 1994, sales in the Consumer Products segment were
relatively flat in both the third quarter and the third quarter year-to-
date 1995 primarily due to the weak North American retail market. The
reduced sales volume, coupled with several scheduled glass furnace repairs
and incremental cost related to new product promotions and factory stores,
resulted in lower earnings in the third quarter 1995 and a loss in the
third quarter year-to-date 1995. Management expects the segment to
generate earnings in the fourth quarter; however, full year 1995 earnings
will be significantly lower than 1994 levels.
Taxes on Income
Corning's effective tax rate for 1995 and 1994 was impacted by
restructuring and other special charges. Excluding these items, the tax
rate was 31.4 percent and 34.5 percent in the third quarter and third
quarter year-to-date 1995, respectively, compared to 35 percent and 36.5
percent for the same periods in 1994. The decrease in the effective tax
rate is due to an increase in the percentage of Corning's earnings from
consolidated entities with lower effective tax rates.
Equity in Earnings
In the second quarter of 1995, Corning recorded a charge of $365.5 million
to fully reserve its investment in Dow Corning, as a result of Dow
Corning's voluntary filing for protection under Chapter 11 of the United
States Bankruptcy Code. In addition, Corning discontinued recognition of
equity earnings from Dow Corning beginning in the second quarter of 1995.
Corning recognized equity earnings from Dow Corning of $17.5 million in the
first quarter of 1995, and $23.4 million and $58.3 million in the third
quarter and third quarter year-to-date of 1994, respectively.
Excluding Dow Corning, equity earnings in the third quarter 1995 were flat
due to gains in the optical-fiber equity companies being offset by weak
performance by a few of the smaller equity companies. Third quarter year-
to-date 1995 equity earnings increased significantly due primarily to
strong performance in the optical-fiber equity companies.
Liquidity and Capital Resources
Corning's working capital increased from $652.1 million at the end of 1994
to $782.5 million at October 8, 1995. The ratio of current assets to
current liabilities was 1.8 at the end of the third quarter 1995 compared
to 1.6 at year-end 1994. Corning's long-term debt as a percentage of total
capital was 35 percent at the end of the third quarter, compared to 33
percent at year-end 1994. The increase in this ratio was due to the
issuance of $125 million of 30-year debentures in March 1995 and the
significant reduction in equity caused by the second quarter charge to
fully reserve Corning's investment in Dow Corning.
Cash and short-term investments decreased from year-end 1994 by $52.3
million due to operating activities which provided cash of $348.7 million,
offset by investing and financing activities which used cash of $395.7
million and $1.9 million, respectively. In the third quarter year-to-date
1995 , operating activities generated more cash than in the third quarter
year-to-date 1994 primarily due to a smaller increase in working capital in
1995 than in 1994. Net cash used in investing activities increased in the
third quarter year-to-date 1995 as a result of increased capital spending
offset by a lower level of both acquisitions and divestitures in 1995
compared to 1994. Financing activities were essentially break-even in 1995
as net borrowings offset dividends paid. Net cash provided by financing in
1994 included the issuance of common stock in February 1994 to finance
certain 1994 acquisitions and the convertible monthly income preferred
securities offering in July 1994.
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings to which Corning or any of its
subsidiaries is a party or of which any of their property is the subject
which are material in relation to the consolidated financial statements.
<PAGE>12
Environmental Litigation. Corning has been named by the Environmental
Protection Agency under the Superfund Act, or by state governments under
similar state laws, as a potentially responsible party for 20 hazardous
waste sites. Under the Superfund Act, all parties who may 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 related to Superfund sites and other environmental
liabilities related to property owned by Corning based on expert
analysis and continual monitoring by both internal and external
consultants. Corning has accrued approximately $25 million for its
estimated liability for environmental cleanup and litigation at October
8, 1995. This liability has not been reduced by any potential insurance
recoveries.
Breast Implant Litigation. On May 15, 1995, Dow Corning Corporation
sought protection under the reorganization provisions of Chapter 11 of
the United States Bankruptcy Code. The effect of the bankruptcy, which
is pending in the United States Bankruptcy Court for the Eastern
District of Michigan, Northern Division (Bay City, Michigan), is to stay
the prosecution against Dow Corning of the 45 purported breast-implant
product liability class action lawsuits and its approximately 19,000
breast-implant product liability lawsuits. In June 1995 Dow Corning and
its shareholders (Corning and The Dow Chemical Company) attempted to
remove various state court implant lawsuits against itself and its
shareholders to federal court, and to transfer these cases to the United
States District Court for the Eastern District of Michigan, Southern
District (the "Michigan Federal Court"). The transfer motion also
contemplated a trial of the consolidated, transferred cases on the
"common issue" of whether silicones cause diseases as alleged by
plaintiffs. On September 12, 1995 Judge Hood of the Michigan Federal
Court issued an order granting the motion to transfer the Dow Corning
cases to federal court, but denying the motion to the extent it
requested the transfer of cases against Dow Corning's shareholders to
her court. Judge Hood also denied the motion for the purpose of holding
one causation trial prior to the estimation process by the Bankruptcy
Court, but without prejudice to subsequent motions for one or more such
trials to assist in the bankruptcy estimation process. Dow Corning,
Corning and Dow Chemical have filed in the United States Court of
Appeals for the Sixth Circuit an appeal from Judge Hood's order. Oral
argument of the appeal is expected in December 1995.
In March 1994, Dow Corning along with other defendants and
representatives of breast implant litigation plantiffs signed a breast
implant litigation settlement agreement (the "Global Settlement") under
which industry participants would contribute $4.2 billion over a period
of more than thirty years to establish several special purpose funds.
Corning was not a signatory or contributor to the Global Settlement.
The Global Settlement, if implemented, would have provided for a claims-
based structured resolution of claims arising out of silicone breast
implants and defined periods during which breast implant plaintiffs
could "opt out" of the settlement and instead continue their individual
breast implant litigation against manufacturers and other defendants.
On October 10, 1995, the United States District Court for the Northern
District of Alabama entered an order declaring that claimants
participating in the Global Settlement would have an additional right to
opt-out of that settlement after November 30th. Those who do opt-out
will have the right to pursue individual lawsuits. The Global Settlement
has been effectively terminated.
Despite the bankruptcy filing of Dow Corning, 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) multiple lawsuits filed in
various federal and 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. The federal securities
suits are all pending in the United States District Court for the
Southern District of New York.
As of October 30, 1995, Corning had been named in approximately 11,400
state and federal tort lawsuits. More than 4,300 tort lawsuits filed
against Corning in federal courts were consolidated in the United States
District Court, Northern District of Alabama. On April 25, 1995 that
District Court issued a final order dismissing Corning from those
federal, consolidated breast-implant cases and plaintiffs have appealed.
Certain state court tort cases against Corning were also consolidated in
various states for the purposes of discovery and pretrial matters.
During 1994 and 1995, Corning made several motions for summary judgment
in state courts and judges have dismissed Corning from over 6,400 tort
cases filed in California, Connecticut, Indiana, Michigan, Mississippi,
New Jersey, New York, Pennsylvania, Tennessee and Dallas, Harris and
Travis Counties in Texas, some of which are on appeal. Corning's
motions seeking dismissal remain pending in various other states. In
certain Texas tort cases, Dow Chemical and Corning have each filed cross
claims against each other and against Dow Corning. Some of these cases
are scheduled for trial during 1996.
<PAGE>13
Department of Justice Investigations. In September 1993, MetPath and
MetWest Inc. ("MetWest"), a wholly owned subsidiary of Unilab, in which
Corning had at the time an interest of approximately 43%, entered into a
Settlement Agreement (the "MetPath Settlement Agreement") with the
Department of Justice ("DOJ") and the Inspector General of the
Department of Health and Human Services (the "Inspector General") 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 MetPath 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 (which was acquired by
Corning earlier 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 automatic chemical test panels.
MetPath, MetWest and Damon submitted information pursuant to these
subpoenas and the investigation into MetPath and MetWest has been
closed. Damon was also served with two additional subpoenas in November
1994 and January 1995 from the Inspector General and was directed by the
U.S. Attorney's office in Boston, to which its investigation has been
referred, to submit additional information in response to the August
1993 subpoena. The November subpoena supplements the August 1993
subpoena and requires the submission of supplemental information. The
January subpoena seeks information regarding the addition of the 14
enumerated tests to organ function profiles rather than the automated
multichannel chemistry profiles as in earlier subpoenas. Damon has
substantially completed its production to each of the foregoing
subpoenas. In March 1995, Damon received a subpoena from the Department
of Defense Criminal Investigative Service on behalf of CHAMPUS,
apparently covering the same practices as the earlier subpoenas.
Compliance with that subpoena has been completed. In April 1995,
Corning learned that a grand jury in Boston is investigating Damon for
possible criminal violations of the anti-fraud and abuse provisions of
the Social Security Act and Damon and Corning Life Sciences Inc.
("CLSI") for possible obstruction in connection with Damon's response to
the August 1993 subpoena. In August 1995, Corning Clinical Laboratories
Inc. ("CCL", previously MetPath) and Damon received subpoenas from the
Inspector General seeking documents with regard to 14 common procedure
terminology, or CPT, codes used to bill Medicare, Medicaid and other
payers for certain hematology tests. CCL and Damon are complying with
these subpoenas.
In August 1993, Nichols Institute (which Corning acquired in August
1994) received a subpoena from the Inspector General comparable to those
received by MetPath, MetWest and Damon. Compliance with that subpoena
has been completed.
In May 1994, MetPath received a subpoena from the Inspector General and
a subpoena from a federal grand jury, both investigating billing for
tests not performed or reported for which MetPath had voluntarily made
corrective payments in 1993. The civil matter was concluded by a
payment by CLSI of $8.6 million, and the criminal investigation was
closed. The possibility of additional action by the Inspector General
or other federal agencies and claims or settlements with parties other
than DOJ and the Inspector General cannot be excluded. In September
1995, CCL began voluntarily providing documents and information to the
DOJ concerning CCL's efforts to detect and correct billings for tests
not reported or performed. As part of these activities, which are
ongoing, CCL made certain payments to the United States in August 1995.
In April 1995, CLSI received a subpoena from the Inspector General
concerning possible additions of the 14 enumerated tests to automated
multichannel chemistry profiles by Bioran Medical Laboratory (acquired
by Corning in September 1994). CLSI also received a comparable subpoena
from the Department of Defense Criminal Investigative Service on behalf
of CHAMPUS. Production of documents responsive to these subpoenas has
been completed.
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.
Such actions have been consolidated into a single action before the
Supreme Court of the State of New York in New York County.
<PAGE>14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index which is located on page 16.
(b) Reports on Form 8-K
A report on Form 8-K dated June 27, 1995 was filed in connection
with the Registrant's medium-term
notes facility. The Registrant's second quarter press release of
June 27, 1995 was filed as an exhibit to this
Form 8-K.
A report on Form 8-K dated October 5, 1995 was filed which
announced a third quarter pre-tax charge to operating earnings
and lower earnings expectations.
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)
November 13, 1995 /s/ JAMES R. HOUGHTON
Date J. R. Houghton
Chairman and Chief Executive Officer
November 13, 1995 /s/ VAN C. CAMPBELL
Date V. C. Campbell
Vice Chairman and Chief Financial Officer
November 13, 1995 /s/ KATHERINE A. ASBECK
Date K. A. Asbeck
Chief Accounting Officer
<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 combined
fixed charges and preferred dividends 17
<PAGE>17
<TABLE>
Exhibit #12
Corning Incorporated and Subsidiary Companies
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends:
(Dollars in millions, except ratios)
<CAPTION>
40 Weeks Ended Fiscal Year Ended
October 8, October 9, Jan. 1, Jan. 2, Jan. 3, Dec. 29, Dec.30,
1995* 1994 1995 1994 1993 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Income before taxes on income $344.3 $312.2 $459.5 $156.7 $336.6 $327.4 $328.1
Adjustments:
Share of earnings (losses) before
taxes of 50% owned companies 73.7 147.7 89.0 (137.0) 103.2 165.4 175.9
Loss before taxes of greater than
50% owned unconsolidated subsidiary (1.8) (2.3) (4.0) (3.1) (2.1) (2.2) (2.0)
Distributed income of less than 50%
owned companies and share of
loss if debt is guaranteed 1.2 2.1 4.5 (4.3) 6.6 0.9
Amortization of capitalized interest 7.4 10.4 13.3 13.0 11.8 10.2 8.8
Fixed charges net of capitalized interest 141.1 149.1 212.0 155.8 130.3 126.4 112.5
----- ----- ------ ----- ----- ------ -----
Earnings before taxes and fixed charges
as adjusted $564.7 $618.3 $771.9 $189.9 $575.5 $633.8 $624.2
====== ====== ====== ======= ====== ====== ======
Fixed charges:
Interest incurred $97.9 $88.4 $122.3 $94.0 $68.9 $60.4 $58.6
Share of interest incurred of 50% owned
companies and interest on guaranteed
debt of less than 50% owned companies 18.1 43.6 60.8 40.9 42.0 47.5 45.3
Interest incurred by greater than 50%
owned unconsolidated subsidiary 0.6 0.6 0.8 0.8 0.9 0.9 1.0
Portion of rent expense which
represents interest factor 29.7 21.7 36.2 29.9 27.6 23.0 19.7
Share of portion of rent expense which
represents interest factor for
50% owned companies 2.0 6.4 9.4 9.1 9.2 9.0 7.6
Portion of rent expense which represents
interest factor for greater than
50% owned unconsolidated subsidiary 0.1 0.1 0.1 0.1 0.1
Amortization of debt costs 0.7 1.6 2.0 1.8 1.5 0.4 0.4
----- ----- ----- ----- ----- ---- -----
Total fixed charges 149.0 162.3 231.6 176.6 150.2 141.3 132.7
Capitalized interest (7.9) (13.2) (19.6) (20.8) (19.9) (14.9) (20.2)
------ ------ ------ ------ ------ ------ ------
Total fixed charges net of capitalized
interest $141.1 $149.1 $212.0 $155.8 $130.3 $126.4 $112.5
======= ====== ====== ====== ======= ====== =======
Preferred dividends:
Preferred dividend requirements $12.0 $ 4.2 $ 8.2 $ 2.1 $ 2.2 $ 2.4 $ 2.5
Ratio of pre-tax income to income
before minority interest and equity
earnings 1.5 1.6 1.6 1.3 1.4 1.5 1.7
----- ----- ----- ---- ------ ----- -----
Pre-tax preferred dividend requirement 18.0 6.7 13.1 2.7 3.1 3.6 4.3
Total fixed charges 149.0 162.3 231.6 176.6 150.2 141.3 132.7
----- ----- ----- ----- ----- ----- ------
Fixed charges and pre-tax preferred
dividend requirement $167.0 $169.0 $244.7 $179.3 $153.3 $144.9 $137.0
======= ======= ====== ======= ======= ====== =======
Ratio of earnings to combined fixed
charges and preferred dividends 3.4x 3.7x 3.2x 1.1x 3.8x 4.4x 4.6x
====== ===== ====== ===== ===== ===== =====
*Beginning in the second quarter of 1995, the Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred Dividends excludes Dow Corning
Corporation as a result of the Registrant's decision to fully reserve its
investment in and discontinue recognition of equity earnings from Dow Corning.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-08-1995
<CASH> 16,700
<SECURITIES> 92,300
<RECEIVABLES> 968,300
<ALLOWANCES> 163,000
<INVENTORY> 501,400
<CURRENT-ASSETS> 1,817,600
<PP&E> 3,850,800
<DEPRECIATION> 1,886,400
<TOTAL-ASSETS> 5,919,500
<CURRENT-LIABILITIES> 1,035,100
<BONDS> 1,472,600
<COMMON> 1,102,200
364,700
23,800
<OTHER-SE> 979,100
<TOTAL-LIABILITY-AND-EQUITY> 5,919,500
<SALES> 3,982,700
<TOTAL-REVENUES> 4,007,400
<CGS> 2,518,600
<TOTAL-COSTS> 2,518,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 123,900
<INTEREST-EXPENSE> 90,400
<INCOME-PRETAX> 344,300
<INCOME-TAX> 115,400
<INCOME-CONTINUING> (134,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (134,300)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
