<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 June 18, 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:
229,801,459 shares of Corning's Common Stock, $0.50 Par Value, were
outstanding as of July 17, 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 twenty-four
and twelve weeks ended June 18, 1995 and June 19, 1994 3
Consolidated Balance Sheets at June 18, 1995
and January 1, 1995 4
Consolidated Statements of Cash Flows for the
twenty-four weeks ended June 18, 1995 and
June 19, 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>
Twenty-Four Weeks Ended Twelve Weeks Ended
June 18, June 19, June 18, June 19,
1995 1994 * 1995 1994 *
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 2,413.9 $ 2,054.6 $ 1,297.8 $ 1,105.7
Royalty, interest, and
dividend income 15.6 11.2 8.7 3.5
--------- --------- --------- ---------
2,429.5 2,065.8 1,306.5 1,109.2
DEDUCTIONS
Cost of sales 1,530.1 1,318.2 816.5 696.1
Selling, general and
administrative expenses 464.7 388.0 243.2 202.3
Research and development expenses 79.8 79.3 41.2 41.1
Provision for restructuring and
other special charges 67.0 67.0
Interest expense 54.5 51.7 28.5 25.9
Other, net 23.5 8.8 8.1 3.0
------- ------- ------- -------
Income before taxes on income 209.9 219.8 102.0 140.8
Taxes on income 73.2 83.0 33.3 53.4
------- ------ ------- -------
Income before minority interest
and equity earnings 136.7 136.8 68.7 87.4
Minority interest in earnings
of subsidiaries (29.5) (17.9) (18.2) (10.0)
Dividends on convertible preferred
securities of subsidiary (6.3) (3.1)
Equity in earnings (losses) of
associated companies:
Other than Dow Corning
Corporation 29.3 15.6 20.9 11.4
Dow Corning Corporation (348.0) 34.9 (365.5) 22.6
--------- -------- ---------- --------
NET INCOME (LOSS) $ (217.8) $ 169.4 $ (297.2) $ 111.4
--------- -------- ---------- --------
PER COMMON SHARE:
NET INCOME (LOSS) $ (0.97) $ 0.82 $ (1.32) $ 0.54
---------- -------- --------- --------
DIVIDENDS DECLARED $ 0.36 $ 0.34 $ 0.18 $ 0.17
---------- -------- --------- ---------
WEIGHTED AVERAGE SHARES
OUTSTANDING 225.9 204.3 226.3 206.3
---------- -------- --------- ---------
* 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>
June 18, January 1,
ASSETS 1995 1995 *
<S> <C> <C>
CURRENT ASSETS
Cash $ 75.0 $ 72.0
Short-term investments, at cost which
approximates market value 119.5 89.3
Accounts receivable, net of doubtful
accounts and allowances-$100.1/1995;
$89.4/year-end 1994 999.2 947.1
Inventories 503.6 416.7
Deferred taxes on income and other
current assets 230.7 201.2
--------- ---------
Total current assets 1,928.0 1,726.3
--------- ---------
INVESTMENTS
Associated companies, other than Dow
Corning Corporation, at equity 343.9 318.6
Dow Corning Corporation, at equity 341.8
Others, at cost 33.3 33.4
--------- ---------
377.2 693.8
--------- ---------
PLANT AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION 1,931.3 1,890.6
GOODWILL AND OTHER INTANGIBLE ASSETS,
Net of accumulated amortization -
$201.3/1995; $170.8/year-end 1994 1,435.6 1,408.0
OTHER ASSETS 318.1 304.0
-------- ---------
$ 5,990.2 $ 6,022.7
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable $ 134.5 $ 67.6
Accounts payable 174.5 258.3
Other accrued liabilities 802.2 748.3
-------- ---------
Total current liabilities 1,111.2 1,074.2
-------- ---------
OTHER LIABILITIES 663.1 643.6
LOANS PAYABLE BEYOND ONE YEAR 1,520.3 1,405.6
MINORITY INTEREST IN SUBSIDIARY COMPANIES 275.1 247.0
CONVERTIBLE PREFERRED SECURITIES OF
SUBSIDIARY 364.6 364.4
CONVERTIBLE PREFERRED STOCK 24.3 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 257.7 million shares/1995
and 255.8 million shares/year-end 1994 1,088.6 1,031.4
Retained earnings 1,413.3 1,714.5
Less cost of 28 million/1995 and
27.6 million/year-end 1994
shares of common stock in treasury (540.0) (523.7)
Cumulative translation adjustment 69.7 40.8
--------- ----------
$ 5,990.2 $ 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>
Twenty-Four Weeks Ended
June 18, June 19,
1995 1994 *
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (217.8) $ 169.4
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 181.1 154.9
Provision for restructuring and
other special charges (net of cash paid) 64.8
Equity in (earnings) losses of
Dow Corning Corporation 348.0 (34.9)
Equity in earnings of associated
companies, other than Dow Corning
Corporation, (in excess of)
less than dividends received (4.1) 3.5
Minority interest in earnings of
subsidiaries in excess of dividends paid 27.8 12.5
Losses on disposition of properties and
investments 10.0 2.1
Deferred tax provision (benefit) (22.3) 2.3
Other 9.7 (23.5)
Changes in operating assets and liabilities:
Accounts receivable (49.4) (122.9)
Inventory (86.5) (44.2)
Deferred taxes and other current assets (15.0) (7.6)
Accounts payable and other
current liabilities (119.9) (164.1)
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 131.3 (52.5)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (177.3) (147.2)
Acquisitions of businesses, net (38.0) (260.1)
Net proceeds from disposition of
properties and investments 8.3 108.4
Increase in long-term investments (10.2) (7.2)
Other, net ( 0.9) 2.9
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES (218.1) (303.2)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of loans 183.7 160.4
Repayments of loans (11.7) (67.8)
Increase in minority interest due
to capital contribution 21.5
Proceeds from issuance of common stock 14.1 237.8
Repurchases of common stock (9.1)
Payment of dividends (41.7) (36.4)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 135.3 315.5
--------- ----------
Effect of exchange rates on cash (3.9) 0.4
--------- ----------
Net change in cash and cash equivalents 33.2 (39.8)
Cash and cash equivalents at beginning of year 161.3 160.8
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 194.5 $ 121.0
========== ==========
SUPPLEMENTAL DATA:
Income taxes paid $ 61.8 $ 63.8
=========== ==========
Interest paid $ 56.4 $ 50.7
=========== ==========
* 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 $1.0 million in the second
quarter and first half, respectively, in both 1995 and 1994. The
weighted average of common shares outstanding for the second quarter
and first half of 1995 were 226.3 million and 225.9 million,
respectively, and 206.3 million and 204.3 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 2.7 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 $41.3 million and $82.4 million were declared in
the second quarter and first half of 1995, respectively, compared with
$36.2 million and $71.7 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 $12.3 million and $34.9 million in the first quarter and
first of half 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 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 June 18, 1995 June 18, 1995
<S> <C> <C> <C>
Employee termination costs $ 46.5 $ 8.8 (1) $ 37.7
Write-off of fixed assets 14.1 0.5 13.6
Costs of exiting leased
facilities 6.4 0.5 5.9
------- ------ ------
Total $ 67.0 $ 9.8 $ 57.2
======= ====== ======
Current $ 48.2
Non-current 9.0
------
Total $ 57.2
======
(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 180 have been terminated or notified of
their termination at June 18, 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 $43.9 million at January 1, 1995 and
June 18, 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 will be used for general corporate purposes,
including capital spending.
(5) During the first half of 1995, Corning acquired several businesses
in the Laboratory Services segment for $38 million in cash and
approximately 500,000 shares of Corning common stock. These
transactions have been accounted for as purchases. Goodwill of
approximately $53 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 twelve and twenty-four weeks ended
June 19, 1994, as if the acquisitions completed in 1994 had been
completed on January 3, 1994 (in millions, except per share amounts):
<TABLE>
<CAPTION>
Twenty-four Twelve
weeks ended weeks ended
June 19, June 19,
1994 1994
<S> <C> <C>
Revenues $2,300.5 $ 1,243.3
Net income 169.6 112.4
Net income per common share 0.75 0.50
</TABLE>
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):
<TABLE>
<CAPTION>
June 18, January 1,
1995 1995
<S> <C> <C>
Finished goods $ 240.5 $ 210.1
Work in process 145.6 115.7
Raw materials and accessories 84.3 66.1
Supplies and packing materials 88.8 83.7
-------- --------
Total inventories valued at current cost 559.2 475.6
Reduction to LIFO valuation (55.6) (58.9)
--------- ---------
$ 503.6 $ 416.7
========= =========
</TABLE>
<PAGE>8
(8) Plant and equipment shown on the accompanying balance sheets were
comprised of the following (in millions):
<TABLE>
<CAPTION>
June 18, January 1,
1995 1995
<S> <C> <C>
Land $ 63.8 $ 60.7
Buildings 919.5 892.7
Equipment 2,793.6 2,664.9
Accumulated depreciation (1,845.6) (1,727.7)
-------- ---------
$1,931.3 $ 1,890.6
======== =========
</TABLE>
<PAGE>9
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Consolidated sales for the second quarter and first half of 1995 totaled
$1.3 billion and $2.4 billion, respectively, up 18 percent 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.
Corning incurred a net loss of $297.2 million, or $1.32 per share, in the
second quarter 1995 compared to net income of $111.4 million, or $0.54 per
share, during the same period in 1994. Corning incurred a net loss for the
first half of 1995 totaling $217.8 million, or $0.97 per share, compared to
net income totaling $169.4 million, or $0.82 per share, for the first half
of 1994. Second quarter and first half 1995 results were significantly
impacted by Corning's decision to fully reserve its investment in Dow
Corning , the discontinued recognition of equity earnings from Dow Corning
and a second quarter restructuring charge. The following table summarizes
the impact of these events on Corning's second quarter and first half net
income and earnings per share:
<TABLE>
<CAPTION>
Twenty-four Weeks Ended Twelve Weeks Ended
June 18, June 19, June 18, June 19,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income (loss)
Before Dow Corning
Corporation and
restructuring $ 170.7 $ 134.5 $ 108.8 $ 88.8
Equity in earnings
(losses) of Dow
Corning Corporation (348.0) 34.9 (365.5) 22.6
Provision for restructuring (40.5) (40.5)
--------- -------- --------- -------
Net income (loss) $ (217.8) $ 169.4 $ (297.2) $ 111.4
========== ======== ======== ========
Net income (loss) per
common share
Before Dow Corning
Corporation and
restructuring $ 0.75 $ 0.65 $ 0.48 $ 0.43
Equity in earnings
(losses) of Dow
Corning Corporation (1.54) 0.17 (1.62) 0.11
Provision for Restructuring (0.18) (0.18)
-------- ------- ---------- --------
Net income (loss) per
common share $ (0.97) $ 0.82 $ (1.32) $ 0.54
========= ======= ========= =========
</TABLE>
As shown, excluding the impact of special charges and adjusted for the
elimination of equity earnings from Dow Corning, Corning's net income
increased 23% and 27% and earnings per share increased 12% and 15% in the
second quarter and first half 1995, respectively.
Segment overview
Consolidated sales, excluding the impact of acquisitions, increased during
the second quarter and first half 1995 primarily due to strong performance
in the Communications and Specialty Materials segments. Excluding the
impact of the 1995 restructuring charge, earnings from consolidated
operations for the second quarter and first half of 1995 increased 14
percent and 19 percent, respectively, over the comparable periods in 1994
primarily due to strong performance from the same two segments.
<PAGE>10
In the second quarter 1995, Corning recorded a restructuring charge of $67
million before 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.
Corning decided to exit the manufacturing facility for memory disks because,
although Corning developed a product which met the market's technical
requirements, the projected profitability of the product in the marketplace
did not warrant scaling up production for commercial quantities. As such,
the production assets were written off and the amount of development
spending on this project was significantly reduced in the second quarter.
Additional information on this restructuring charge is included in Note 3 to
the consolidated financial statements. The following segment analysis
excludes the impact of the restructuring charge.
Sales and earnings of the Specialty Materials segment increased in the
second quarter and first half 1995 over the same periods in 1994. Sales and
earnings growth was led by the environmental-products business; however, all
businesses in the segment performed well. The environmental-products
business continued to experience strong demand for ceramic substrates in
both the North American and international markets.
Sales in the Communications segment increased significantly in both the
second quarter and first half 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
improved significantly as a result of the increased sales volume in all
major businesses in this segment.
Second quarter and first half sales of the Laboratory Services segment
increased significantly over the prior year primarily as a result of the
1994 acquisitions in the clinical-laboratory testing business and improved
performance in the pharmaceutical-testing business. Segment earnings in
both the second quarter and first half were below last year due to lower
profitability in the clinical-laboratory testing business offset by strength
in the pharmaceutical-testing business. The clinical-laboratory testing
business comparisons were impacted by lower prices than the previous year
coupled with higher expenses in certain areas as a result of issues arising
in the integration of the 1994 acquisitions. In addition, in the second
quarter, Corning settled certain government claims for amounts in excess of
previously established reserves. Management expects improvement in the
earnings of this segment in the second half of the year as integration
issues are resolved and anticipated cost reductions are achieved.
Excluding the impact of the sale of the European consumer business in the
fourth quarter of 1994, sales in the Consumer Products segment were flat in
both the second quarter and the first half of 1995 primarily due to the weak
North American retail market. Lower sales volume, coupled with several
scheduled glass furnace repairs resulted in an operating loss in this
segment in both the second quarter and first half of 1995. Management
expects the Consumer Products segment will improve significantly in the
second half of 1995; however, full year 1995 earnings will likely be lower
than 1994 levels.
Taxes on Income
Corning's effective tax rate for 1995 was impacted by restructuring and
other special charges. Excluding these items, the tax rate was 35 percent
and 36 percent in the second quarter and first half of 1995, respectively,
compared to 38 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.
<PAGE>11
Excluding the impact of Dow Corning in both years, 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 $816.8 million at June 18, 1995. The ratio of current assets to current
liabilities was 1.7 at the end of the first half 1995 compared to 1.6 at
year-end 1994. Corning's long-term debt as a percentage of total capital
was 36 percent at the end of the second 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 increased from year-end 1994 by $33.2
million due to operating and financing activities which provided cash of
$119.9 million and $135.3 million, respectively, offset by investing
activities which used cash of $218.1 million. In the first half of 1995,
operating activities generated cash compared to using cash in the first
half of 1994. This change was primarily caused by improved operations
(before special charges) and a smaller increase in working capital than in
the first half of 1994. Net cash used in investing activities decreased in
the first half of 1995 due to a lower level of both acquisitions and
divestitures in 1995 compared to 1994. Net cash provided by financing
activities was also lower compared to the same period in 1994 which
included the issuance of common stock in February 1994 to finance certain
1994 acquisitions.
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.
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 21 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 June 18, 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 approximately 19,000 breast-implant product liability
lawsuits. Dow Corning is also seeking to remove various state court tort
lawsuits to federal court, and to transfer certain federal implant cases to
the United States Court for the Eastern District of Michigan, Southern
Division (Detroit, Michigan). On July 5, 1995 Judge Denise Page Hood issued
an Order Provisionally Transferring Certain Breast Implant Claims and
scheduled a July 31, 1995 hearing on Dow Corning's Motion to Transfer. Dow
Corning is seeking a consolidated "common issue" trial to determine its
liability for the breast-implant products.
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
<PAGE>12
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 July 10, 1995, Corning had been named in approximately 11,380 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 the District Court
issued a final order dismissing Corning from all federal breast-implant
cases and plaintiffs have appealed. Certain state court tort cases against
Corning have also been consolidated 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
6,300 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 1995. Corning, like certain other defendants, is
seeking to remove the pending state tort cases to federal courts.
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 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
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 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 April 1995, CLSI receive 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).
<PAGE>13
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 4. SUBMISSION OF MATTERS TO A VOTE
(a) The annual meeting of stockholders of the registrant was
held on April 27, 1995.
(b) The following nominees for the office of director, provided
in the registrant's proxy statement dated March 8, 1995,
which appears as Exhibit #22 to this report, were elected
by the following number of shareholder votes for and
withheld:
For Withheld
Roger G. Ackerman 202,267,939 970,454
David A. Duke 202,256,482 981,911
John H. Foster 202,246,534 991,859
Catherine A. Rein 202,240,481 997,912
William D. Smithburg 202,269,100 969,293
The following persons continue as directors:
Robert Barker
Mary L. Bundy
Van C. Campbell
Gordon Gund
John M. Hennessy
James R. Houghton
Vernon E. Jordan, Jr.
James W. Kinnear
James J. O'Connor
Henry Rosovsky
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index which is located on page 15.
(b) Reports on Form 8-K
A report on Form 8-K dated April 4, 1995 was filed in connection
with the Registrant's medium-term notes facility. The Registrant's
first quarter press release of April 4, 1995 was filed as an
exhibit to this Form 8-K.
A report on Form 8-K dated May 15, 1995 was filed which included
the Registrant's press release issued in connection with Dow
Corning Corporation's announcement of its voluntary filing for
protection under Chapter 11 of the United States Bankruptcy Code.
A report on Form 8-K dated June 7, 1995 was filed which included
the Registrant's press release announcing the special charges to
be recorded by the registrant in the second quarter.
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)
July 24, 1995 /S/ JAMES R. HOUGHTON
Date J. R. Houghton
Chairman and Chief Executive Officer
July 24, 1995 /S/ VAN C. CAMPBELL
Date V. C. Campbell
Vice Chairman and Chief Financial Officer
July 24, 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
22 Registrant's proxy statement dated
March 8, 1995, filed with the
Securities and Exchange Commission
as a definitive proxy statement on
March 9, 1995, is incorporated herein
by reference
<PAGE>17
<TABLE>
Corning Incorporated and Subsidiary Companies Exhibit #12
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends:
(Dollars in millions, except ratios)
<CAPTION>
24 Weeks Ended Fiscal Year Ended
June 18, June 19, 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 $ 209.9 $ 219.8 $ 459.5 $ 156.7 $ 336.6 $ 327.4 $ 328.1
Adjustments:
Share of earnings (losses) before
taxes of 50% owned companies 41.6 86.8 89.0 (137.0) 103.2 165.4 175.9
Loss before taxes of greater than
50% owned unconsolidated subsidiary (2.6) (2.7) (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 4.6 6.2 13.3 13.0 11.8 10.2 8.8
Fixed charges net of capitalized interest 84.6 89.1 212.0 155.8 130.3 126.4 112.5
----- ----- ------ ----- ----- ------ -----
Earnings before taxes and fixed charges
as adjusted $ 338.1 $ 400.4 $ 771.9 $ 189.9 $ 575.5 $ 633.8 $ 624.2
======= ======= ======= ======= ======= ======= =======
Fixed charges:
Interest incurred $ 58.4 $ 53.1 $ 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 9.3 22.7 60.8 40.9 42.0 47.5 45.3
Interest incurred by greater than 50%
owned unconsolidated subsidiary 0.3 0.3 0.8 0.8 0.9 0.9 1.0
Portion of rent expense which
represents interest factor 19.0 16.1 36.2 29.9 27.6 23.0 19.7
Share of portion of rent expense which
represents interest factor for 50%
owned companies 1.2 3.6 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 0.4 0.9 2.0 1.8 1.5 0.4 0.4
------ ------ ------ ------ ------ ------ ------
Total fixed charges 88.6 96.7 231.6 176.6 150.2 141.3 132.7
Capitalized interest (4.0) (7.6) (19.6) (20.8) (19.9) (14.9) (20.2)
----- ----- ------ ------ ------ ------ ------
Total fixed charges net of capitalized
interest $ 84.6 $ 89.1 $ 212.0 $ 155.8 $ 130.3 $ 126.4 $ 112.5
====== ====== ======= ======= ======= ======= =======
Preferred dividends:
Preferred dividend requirement $ 7.3 $ 1.0 $ 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 10.9 1.6 13.1 2.7 3.1 3.6 4.3
Total fixed charges 88.6 96.7 231.6 176.6 150.2 141.3 132.7
----- ------ ------- -------- ----- ----- ------
Fixed charges and pre-tax preferred
dividend requirement $ 99.5 $ 98.3 $ 244.7 $ 179.3 $ 153.3 $ 144.9 $ 137.0
====== ====== ======= ======= ======= ======= =======
Ratio of earnings to combined fixed
charges and preferred dividend 3.4x 4.1x 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-18-1995
<CASH> 75,000
<SECURITIES> 119,500
<RECEIVABLES> 999,200
<ALLOWANCES> 100,100
<INVENTORY> 503,600
<CURRENT-ASSETS> 1,928,000
<PP&E> 3,776,900
<DEPRECIATION> 1,845,600
<TOTAL-ASSETS> 5,990,200
<CURRENT-LIABILITIES> 1,111,200
<BONDS> 1,520,300
<COMMON> 1,088,600
364,600
24,300
<OTHER-SE> 943,000
<TOTAL-LIABILITY-AND-EQUITY> 5,990,200
<SALES> 2,413,900
<TOTAL-REVENUES> 2,413,900
<CGS> 1,530,100
<TOTAL-COSTS> 1,530,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 37,700
<INTEREST-EXPENSE> 54,500
<INCOME-PRETAX> 209,900
<INCOME-TAX> 73,200
<INCOME-CONTINUING> (217,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217,800)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> (0.97)
</TABLE>
