<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 MARCH 26, 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:
229,054,827 shares of Corning's Common Stock, $0.50 Par Value, were
outstanding as of April 13, 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 twelve
weeks ended March 26, 1995 and March 27, 1994 3
Consolidated Balance Sheets at March 26, 1995
and January 1, 1995 4
Consolidated Statements of Cash Flows for the
twelve weeks ended March 26, 1995 and
March 27, 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 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
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
Twelve Weeks Ended
March 26, March 27,
1995 1994
REVENUES
Net sales $1,116.1 $ 948.9
Royalty, interest, and dividend income 6.9 7.7
-------- ---------
1,123.0 956.6
DEDUCTIONS
Cost of sales 713.6 622.1
Selling, general, and administrative expenses 221.5 185.7
Research and development expenses 38.6 38.2
Interest expense 26.0 25.8
Other, net 15.4 5.8
-------- --------
Income before taxes on income 107.9 79.0
Taxes on income 39.9 29.6
-------- --------
Income before minority interest and
equity earnings 68.0 49.4
Minority interest in earnings of subsidiaries (11.3) (7.9)
Dividends on convertible preferred securities
of subsidiary (3.2)
Equity in earnings of associated companies 25.9 16.5
-------- ---------
NET INCOME $ 79.4 $ 58.0
======== =========
PER COMMON SHARE:
NET INCOME $ 0.35 $ 0.28
======== =========
DIVIDENDS DECLARED $ 0.18 $ 0.17
======== =========
The accompanying notes are an integral part of these statements.
<PAGE>4
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and per-share amounts)
March 26, January 1,
ASSETS 1995 1995
CURRENT ASSETS
Cash $ 30.9 $ 72.0
Short-term investments, at cost which
approximates market value 63.9 89.3
Accounts receivable, net of doubtful
accounts and allowances - $95/1995;
$89.4/year-end 1994 963.8 947.1
Inventories 465.9 416.7
Deferred taxes on income and other
current assets 211.5 201.2
-------- --------
Total current assets 1,736.0 1,726.3
-------- --------
INVESTMENTS
Associated companies, at equity 704.2 660.4
Others, at cost 32.7 33.4
-------- --------
736.9 693.8
-------- --------
PLANT AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION 1,890.2 1,890.6
GOODWILL AND OTHER INTANGIBLE ASSETS,
Net of accumulated amortization -
$185.4/1995; $170.8/year-end 1994 1,440.9 1,408.0
OTHER ASSETS 307.1 304.0
-------- --------
$6,111.1 $6,022.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable $ 134.0 $ 67.6
Accounts payable 181.4 258.3
Other accrued liabilities 747.2 748.3
-------- --------
Total current liabilities 1,062.6 1,074.2
-------- --------
OTHER LIABILITIES 648.4 643.6
LOANS PAYABLE BEYOND ONE YEAR 1,410.0 1,405.6
MINORITY INTEREST IN SUBSIDIARY COMPANIES 257.7 247.0
CONVERTIBLE PREFERRED SECURITIES OF
SUBSIDIARY 364.5 364.4
CONVERTIBLE PREFERRED STOCK 24.9 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 256.7
million shares/1995 and 255.8 million
shares/year-end 1994 1,064.3 1,031.4
Retained earnings 1,752.3 1,714.5
Less cost of 27.9 million/1995 and
27.6 million/year-end 1994 shares of
common stock in treasury (534.3) (523.7)
Cumulative translation adjustment 60.7 40.8
-------- --------
$6,111.1 $6,022.7
======== ========
The accompanying notes are an integral part of these statements.
<PAGE>5
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Twelve Weeks Ended
March 26, March 27,
1995 1994*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 79.4 $ 58.0
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 88.1 76.9
Equity in earnings of associated companies
in excess of dividends received (24.7) (12.7)
Minority interest in earnings of subsidiaries
in excess of dividends paid 11.3 7.9
Losses on disposition of properties
and investments 2.1 0.8
Deferred tax provision 4.2 4.2
Other 4.2 3.4
Changes in operating assets and liabilities:
Accounts receivable (10.8) (49.3)
Inventory (44.7) (15.3)
Deferred taxes and other current assets (14.5) (15.3)
Accounts payable and other current liabilities (122.3) (122.4)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (27.7) (63.8)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (65.5) (60.6)
Acquisitions of businesses, net (25.5) (261.0)
Net proceeds from disposition of properties
and investments 2.4 0.8
Increase in long-term investments (6.6) (7.1)
Other, net (7.9) (6.8)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (103.1) (334.7)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of loans 79.0 90.8
Repayments of loans (13.3) (11.4)
Increase in minority interest due to
capital contribution 21.5
Proceeds from issuance of common stock 5.1 234.8
Repurchases of common stock (2.3)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68.5 335.7
-------- --------
Effect of exchange rates on cash (4.2) 0.2
-------- --------
Net change in cash and cash equivalents (66.5) (62.6)
Cash and cash equivalents at beginning of year 161.3 160.8
-------- --------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 94.8 $ 98.2
======== ========
SUPPLEMENTAL DATA:
Income taxes paid $ 8.8 $ 10.7
======== ========
Interest paid $ 31.5 $ 28.7
======== ========
* Reclassified to conform to 1995 presentation.
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 in the first quarters of 1995 and
1994. Weighted average of common shares outstanding for the first
quarter were 225.4 million and 202.3 million for 1995 and 1994,
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 2.7 million and 3.1
million shares in the first quarter of 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 $41.1 million were declared in the first quarter
1995, compared with $35.5 million for the same period in 1994.
(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. Corning and Dow Chemical Company each
own 50 percent of Dow Corning.
(3) During the first quarter 1995, Corning acquired several businesses in
the Laboratory Services segment for $25.5 million in cash and
approximately 500,000 shares of Corning common stock. These
transactions have been accounted for as purchases. Goodwill of
approximately $40 million resulted from these transactions and is
being amortized over periods of 20 to 40 years.
(4) 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 quarter ended March 27, 1994, as if the
acquisitions completed in 1994 had been completed on January 3, 1994
(in millions, except per share amounts):
Twelve Weeks Ended
March 27, 1994
Revenues $1,057.2
Net income 57.2
Net income per common share 0.25
These pro forma results do not reflect the impact of 1994 divestitures
which were individually and in the aggregate immaterial, or the impact
of the formation of the jointly owned environmental testing company
also described in Note 2 to the company's 1994 consolidated financial
statements.
(5) Inventories shown on the accompanying balance sheets were comprised of
the following (in millions):
March 26, January 1,
1995 1995
Finished goods $ 217.6 $ 210.1
Work in process 130.7 115.7
Raw materials and accessories 85.6 66.1
Supplies and packing materials 87.6 83.7
-------- --------
Total inventories valued
at current cost 521.5 475.6
Reduction to LIFO valuation (55.6) (58.9)
-------- --------
$ 465.9 $ 416.7
======== ========
<PAGE>7
(6) Plant and equipment shown on the accompanying balance sheets were
comprised of the following (in millions):
March 26, January 1,
1995 1995
Land $ 61.2 $ 60.7
Buildings 899.7 892.7
Equipment 2,724.4 2,664.9
Accumulated depreciation (1,795.1) (1,727.7)
--------- ---------
$ 1,890.2 $ 1,890.6
========= =========
(7) Corning's investment in Dow Corning totaled $364.2 million at March
26, 1995. Consolidated summarized income statement information of Dow
Corning is presented below (in millions):
Three Months Ended
March 31,
1995 1994
Net sales $ 611.8 $ 509.1
Operating costs and expenses 496.8 424.6
------- -------
Operating income 115.0 84.5
Other expense 25.6 18.1
------- -------
Income before income taxes 89.4 66.4
Income taxes 36.2 25.9
Minority interest's share in income 3.7 3.3
------- -------
Net income $ 49.5 $ 37.2
======= =======
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 would contribute $4.2 billion over a period of
more than 30 years to establish several special purpose funds. In
September 1994, the U.S. District Court granted final approval to the
settlement, assessing it as fair, reasonable, and adequate (a ruling
which has subsequently been appealed by various parties) and afforded
plaintiffs who originally opted out of the settlement the opportunity
to rejoin the settlement in specified periods of time. The number of
plaintiffs who rejoined the settlement is not yet known. Corning is
not a party to the Settlement Agreement and will not make any
contributions to the settlement contemplated thereby.
Dow Corning recorded an accounting charge of $415 million after tax
in the fourth quarter of 1993. As disclosed in Dow Corning's
financial statements, this charge included the net present value of
Dow Corning's best estimate of its potential liability for breast-
implant litigation based on the status of settlement negotiations at
that time, and also included provisions for legal, administrative, and
research costs related to breast implants, for a total of $1.24
billion, less expected insurance recoveries of $600 million and taxes
of $225 million.
Dow Corning also recorded an accounting charge of $151.8 million after
tax in the fourth quarter of 1994. As disclosed in Dow Corning's
financial statements, this charge included Dow Corning's best estimate
of additional costs to resolve breast-implant litigation and claims
outside of the Settlement Agreement, and also included provisions for
legal, administrative, and research costs related to breast implants,
for a total of $647 million, less expected insurance recoveries of
$406 million and taxes of $89.2 million.
<PAGE>8
As disclosed in Dow Corning's financial statements, future
developments, including, among other things, the ultimate number and
extent of claims not covered by the Settlement Agreement, the ultimate
cost of resolving those claims, the amount and timing of insurance
recoveries and the allocation of insurance payments among Dow
Corning's insurance carriers, may require Dow Corning to adjust its
estimates of costs to resolve this issue. In addition, Dow Corning
has indicated that it is actively considering as one alternative an
action to seek protection under the reorganization provisions of
Chapter 11 of the United States Bankruptcy Code in order to maintain
normal business operations while seeking to resolve breast-implant
litigation and other liabilities through the Chapter 11 reorganization
process.
Corning does not believe that its share of any additional accounting
charge taken by Dow Corning or a material adverse change in Dow
Corning's liquidity resulting from breast-implant litigation will have
a material adverse effect on Corning's overall financial condition or
liquidity. However, it is possible that Corning's share of any such
accounting charge taken by Dow Corning or a material adverse change in
Dow Corning's liquidity will materially impact the amount of equity in
earnings of Dow Corning recognized by Corning in future periods. If
Dow Corning enters Chapter 11 bankruptcy proceedings, Corning would
evaluate the impact of that event on its financial statements based on
the facts and circumstances causing the event. As a result of such
evaluation, Corning could be required to write-off its investment in,
and discontinue recognition of equity earnings from, Dow Corning.
(8) In the third quarter 1994, Corning recorded a charge of $82.3 million
($55.4 million after tax) which included $50.7 million of integration
costs. The integration costs related to the Nichols, Maryland
Medical, and Bioran acquisitions and included the costs of shutting
down clinical laboratories in certain markets where duplicate Corning
and Nichols, Maryland Medical, and Bioran facilities existed at the
time of the acquisitions. The charge included severance related to
approximately 2,000 employees of which 600 have been terminated or
notified of their termination at March 26, 1995. The integration is
proceeding as planned and will be substantially complete by the end of
1995. A summary of the integration reserves established in 1994 is as
follows (in millions):
Charges
Original through Balance at
Reserve March 26, 1995 March 26, 1995
Employee termination
costs $ 23.8 $ 7.6 $ 16.2
Write-off of fixed
assets 15.9 2.2 13.7
Costs of exiting leased
facilities 4.9 0.3 4.6
Contractual obligations 5.1 0.6 4.5
Other 1.0 1.0
------ ------ ------
Total $ 50.7 10.7 $ 40.0
====== ====== ======
Current $ 38.2
Non-current 1.8
------
Total $ 40.0
======
In the third quarter 1993, Corning recorded a charge of $207 million
($120.5 million after tax of $79.1 million and minority interest of
$7.4 million) which included $156 million of restructuring charges.
The restructuring charges included costs to integrate the Damon
acquisition and costs of a planned company-wide restructuring program
to reduce assets and overhead costs. The restructuring charge
included severance and termination benefits related to approximately
1,600 employees of which substantially all have been terminated or
notified of their termination at March 26, 1995. Management expects
the remaining activities relating to both the integration plan and
company-wide restructuring program to be substantially complete in the
first half of 1995. A summary of the integration and restructuring
reserves established in 1993 is as follows (in millions):
<PAGE>9
Charges
Original through Balance at
Reserve March 26, 1995 March 26, 1995
Employee termination
costs $ 74.2 $ 47.3 $ 26.9
Write-off of fixed assets 29.3 24.9 4.4
Costs of exiting leased
space 15.1 10.6 4.5
Contractual obligations 11.0 8.1 2.9
Consulting fees 11.8 11.5 0.3
Continuing employee costs 6.7 5.5 1.2
Other 7.9 7.9
------ ------ ------
Total $156.0 $115.8 $ 40.2
====== ====== ======
Current $ 30.9
Non-current 9.3
------
Total $ 40.2
======
The company continues to be engaged in re-engineering studies which
are expected to be complete in the first half of 1995. It is likely
that a charge for costs of additional employee terminations and other
cost-reduction activities will be recorded in the second quarter of
1995. Corning management believes the costs of both historical and
future actions will be financed with cash from operations and does not
anticipate any significant impact on its liquidity as a result of
restructuring plans.
Subsequent Event
(9) 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.
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net sales for the first quarter 1995 totaled $1.1 billion, an increase of
18 percent from the same period last year. Approximately one-third of the
sales increase was due to 1994 acquisitions in the Communications and
Laboratory Services segments, net of divestitures of certain businesses in
1994. Net income increased 37 percent to $79.4 million for the first
quarter 1995 compared to $58 million for the first quarter 1994. Earnings
per share increased 25 percent to $0.35 per share compared to $0.28 for the
same period last year.
Segment Overview
Consolidated sales, excluding the impact of acquisitions, increased during
the first quarter 1995 primarily due to strong performance in the
Communications and Specialty Materials segments. Earnings from
consolidated operations for the first quarter 1995 increased 29 percent
over the same period last year primarily due to strong performance from the
same two segments.
Sales and earnings growth in the Specialty Materials segment was led by the
environmental products business which experienced continued strength in the
North American market as well as improvement in European markets. All
businesses in this segment positively impacted first quarter sales and
earnings growth.
<PAGE>10
Sales in the Communications segment increased significantly. Approximately
half of the increase was due to 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
offset somewhat by continued development spending in the ceramic memory
disk and advanced display products businesses.
First quarter sales of the Laboratory Services segment increased
significantly over the prior year primarily as a result of 1994
acquisitions in the clinical-testing business and improved performance in
the pharmaceutical-testing business. Segment earnings increased modestly
over 1994 primarily due to improved earnings in the pharmaceutical-testing
business. Earnings of the clinical-testing business were up only slightly
due to delays in successfully integrating the 1994 acquisitions in certain
markets and an increase in reserves for government claims.
Sales in the Consumer Products segment were down as a result of the sale of
the European consumer products business in the fourth quarter 1994 and
lower volume in Latin America and mass market channels. Lower sales volume
and an increase in operating expenses, due primarily to expenses of new
outlet stores and increased receivable reserves, resulted in essentially
break-even performance for this segment in the 1995 quarter compared to
modest earnings in 1994's first quarter.
Equity in Earnings
First quarter 1995 equity in earnings of associated companies totaled $25.9
million compared with $16.5 million in the same period last year.
Increased earnings were due to strong operating performance at all major
equity companies, including Samsung-Corning Company Ltd., Dow Corning, and
the optical-fiber companies in Europe and Australia.
Liquidity and Capital Resources
Corning's working capital of $673.4 million at March 26, 1995, increased
from $652.1 million at the end of 1994. The ratio of current assets to
current liabilities of 1.6 was unchanged from year-end 1994. Corning's
long-term debt as a percentage of total capital decreased slightly to 32%
at March 26, 1995 from 33% at year-end 1994.
Cash and short-term investments declined from year-end 1994 by $66.5
million due to operating and investing activities which used cash of $27.7
million and $103.1 million, respectively, offset by financing activities
which provided cash of $68.5 million. Net cash used in operating
activities decreased in the first quarter 1995 compared to the same period
in 1994 due primarily to increased income before depreciation and
amortization. Net cash used in investing activities decreased in the first
quarter 1995 due to a lower level of acquisitions in 1995 compared to 1994
which included the acquisition of assets from Northern Telecom Limited and
the purchase of Corning Vitro Corporation stock from Vitro, S.A. Net cash
provided by financing activities also decreased in the first quarter 1995
as a result of a lower level of financing activities in 1995 compared to
1994 which included the issuance of common stock in February 1994 to
finance the Northern Telecom and Vitro transactions.
<PAGE>11
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 22 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 $30 million for its estimated liability for environmental
cleanup and litigation at March 26, 1995. This liability has not been
reduced by any potential insurance recoveries.
BREAST-IMPLANT LITGATION 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.
As of April 12, 1995, Corning had been named in approximately 11,300 state
and federal tort lawsuits. More than 4,200 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. 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.
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 March 31, 1995, Dow Corning has
been named in 45 purported breast-implant product liability class action
lawsuits and approximately 19,000 breast-implant product liability lawsuits
(which number includes all or substantially all of the 11,300 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 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
<PAGE>12
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. In November 1994, the Court ruled in favor of Dow Corning on
allocation of defense costs. Dow Corning has informed Corning that, not
withstanding this litigation, 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. Dow Corning has
also informed Corning that it is not satisfied with the progress toward
achieving commitment from certain of its insurers relative to insurance
recovery.
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. Dow Corning did not
exercise its right to "opt out" of the Settlement Agreement as a result of
initial "opt outs" by plaintiffs during the period ended July 1, 1994. The
Court has offered initial Opt Out Plaintiffs an opportunity to rejoin the
settlement during specified periods of time. The number of Opt Out
Plaintiffs who have rejoined the settlement is not yet known.
The Court is currently in the process of evaluating claims for compensation
submitted by plaintiffs and determining whether the disease compensation
settlement fund to be established under the Settlement Agreement will be
sufficient to pay validated claims. If any insufficiency cannot be
resolved, claimants may have an additional opportunity to "opt out" of the
Settlement Agreement. In this event, if Dow Corning considered that the
number of such "opt out" plaintiffs with claims against it was excessive,
Dow Corning would have the right to withdraw from participation in the
settlement. The Court has concluded that the total amount of current claims
likely to be approved for payment would substantially exceed the amounts
presently committed under the Settlement Agreement. It indicated that
the parties to the Settlement Agreement should undertake further
negotiations now rather than wait until claims submitted have been
processed completely. Corning is not a party to the Settlement
Agreement and will not make any contribution to the settlement
contemplated thereby.
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.
On September 1, 1994, the Court granted final approval to the Settlement
Agreement, determining that it was fair, reasonable and adequate. In large
part, the settlement covers claims of breast implant recipients which could
be litigated in the courts of U.S. federal and state jurisdictions. The
settlement does not cover claims of breast-implant recipients who the Court
has specifically excluded from the settlement (unless these potential
claimants affirmatively join the settlement) or who have chosen not to
participate in the settlement. The settlement also does not cover the
claims of breast-implant recipients which could be litigated in
jurisdictions outside the U.S. (unless payments received by those potential
claimants from the settlement fund, and related releases, serve to preclude
them from bringing legal actions in these other jurisdictions). The Court's
final approval of the Settlement Agreement has been appealed to the U.S.
Court of Appeals for the Eleventh Circuit primarily by certain providers of
health care indemnity payments or services and by certain foreign claimants.
Dow Corning has previously recorded charges against earnings to reflect its
best estimates of costs as a result of its involvement in the breast-implant
litigation and Corning has recorded its share of such charges based upon its
ownership interest in Dow Corning. As the Settlement Agreement process
continues, additional developments, including the disposition of appeals
from the District Court for the Northern District of Alabama's approval of
the Settlement Agreement, additional "opt outs" from the Settlement
<PAGE>13
Agreement if the current disease compensation fund contemplated thereby is
determined to be insufficient to pay validated claims and any such
insufficiency cannot be resolved, changes in estimates of the ultimate cost
of resolving claims not covered by the Settlement Agreement and changes in
estimates of the amount and timing of insurance recoveries, may occur which
could cause Dow Corning to adjust its estimate of costs of resolving its
exposure to breast-implant litigation. Dow Corning has announced that it
has retained financial and legal advisors to assist in analysis of
alternatives and is actively considering as one alternative an action to
seek protection under the reorganization provisions of Chapter 11 of the
United States Bankruptcy Code in order to maintain normal business
operations while seeking to resolve breast-implant litigation and other
liabilities through the Chapter 11 reorganization process.
Corning does not believe that its share of any additional accounting charge
taken by Dow Corning or a material adverse change in Dow Corning's liquidity
resulting from the breast-implant litigation will have a material adverse
impact upon Corning's financial condition or liquidity. However, it is
possible that Corning's share of any such accounting charge taken by Dow
Corning or a material adverse change in Dow Corning's liquidity will
materially impact the amount of equity in earnings of Dow Corning recognized
by Corning in future accounting periods. If Dow Corning enters Chapter 11
bankruptcy proceedings, Corning would evaluate the impact of that event on
its financial statements based on the facts and circumstances causing the
event. As a result of such evaluation, Corning could be required to
write-off its investment in, and discontinue recognition of equity earnings
from, Dow Corning.
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"). Pursuant to the MetPath 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 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. Of these 14 tests, 5 were covered by
the MetPath Settlement Agreement and consequently MetPath and MetWest are
not being required to provide further information with regard to them.
MetPath, MetWest and Damon have submitted information pursuant to these
subpoenas. Corning understands that the DOJ is now examining the
methodology employed by Damon Corporation and by Nichols Institute (which
Corning acquired in August 1994) to comply with the subpoenas. Damon has
been advised by the U.S. Attorney's office in Boston, to which its
investigation has been referred, that Damon will be required to submit
additional information in response to the August 1993 subpoena served on it.
Damon was also served with two additional subpoenas in November 1994 and
January 1995. The November subpoena supplements the August 1993 subpoena
and requires submission of supplemental information. The January subpoena
inquires as to the addition of the 14 enumerated tests to organ function
<PAGE>14
profiles rather than automated multichannel chemistry profiles as in the
earlier subpoenas. Damon is responding to each of the foregoing subpoenas.
On March 24, 1995, Damon received a subpoena from the Department of Defense
Counsel Investigative Service on behalf of CHAMPUS apparently covering the
same practices as the earlier subpoenas. On April 24, 1995, MetPath learned
that a grand jury proceeding had been commenced in Boston against Damon and
23 of its former directors and officers in connection with criminal
violations of the antifraud and abuse provisions of the Social Security Act
and against Damon and Corning Life Sciences Inc. for alleged obstruction in
connection with Damon's response to the August 1993 subpoena.
MetPath also received in May 1994 two subpoenas from the Inspector General
concerning, in one case, an investigation into billings for tests not
performed or reported for which MetPath had voluntarily made corrective
payments in 1993 and, in the other, an investigation into whether separate
billings for tests which should have been grouped together had occurred. In
addition a federal grand jury in New Jersey is investigating MetPath's
billings for tests not performed or reported. The results of these
investigations cannot currently be predicted but the U.S. Attorney's office
in Baltimore which is conducting the civil investigation has made a
settlement proposal which is presently being evaluated by Corning.
Additional administrative action by the Inspector General and 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. Such actions have been
consolidated into 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, with respect to which the underwriters
have been dismissed, have been consolidated.
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>15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index which is located on page 17.
(b) Reports on Form 8-K
A report on Form 8-K dated January 23, 1995, was filed in
connection with the Registrant's medium-term notes facility. The
Registrant's fourth quarter earnings press release of January 23,
1995 was filed as an exhibit to this Form 8-K.
A report on Form 8-K dated January 24, 1995, was filed which
included the By-Laws of Corning Incorporated as amended to and
effective as of December 31, 1994 as an exhibit.
A report on Form 8-K dated March 23, 1995, was filed in
connection with the recommencement of the Registrant's medium-
term notes program.
Other items under Part II are not applicable.
<PAGE>16
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)
May 1, 1995 /s/ JAMES R. HOUGHTON
Date James. R. Houghton
Chairman and Chief Executive Officer
May 1, 1995 /s/ VAN C. CAMPBELL
Date Van. C. Campbell
Vice Chairman and Chief Financial Officer
May 1, 1995 /s/ KATHERINE A. ASBECK
Date Katherine A. Asbeck
Chief Accounting Officer
<PAGE>17
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 18
<PAGE>18
Corning Incorporated and Subsidiary Companies Exhibit #12
<TABLE>
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends:
(Dollars in millions, except ratios)
<CAPTION>
12 Weeks Ended Fiscal Year Ended
Mar. 26, Mar. 27, 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 $107.9 $ 79.0 $459.5 $156.7 $336.6 $327.4 $328.1
Adjustments:
Share of earnings (losses)
before taxes of 50% owned
companies 39.0 26.9 89.0 (137.0) 103.2 165.4 175.9
Loss before taxes of greater
than 50% owned unconsolidated
subsidiary (1.6) (1.7) (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 2.1 4.5 (4.3) 6.6 0.9
Amortization of capitalized
interest 3.3 2.9 13.3 13.0 11.8 10.2 8.8
Fixed charges net of capitalized
interest 45.0 42.2 212.0 155.8 130.3 126.4 112.5
------ ------ ------ ------ ------ ------ ------
Earnings before taxes and fixed
charges as adjusted $193.6 $149.3 $771.9 $189.9 $575.5 $633.8 $624.2
====== ====== ====== ====== ====== ====== ======
Fixed charges:
Interest incurred $ 27.8 $ 26.4 $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 11.2 9.0 60.8 40.9 42.0 47.5 45.3
Interest incurred by greater
than 50% owned unconsolidated
subsidiary 0.2 0.2 0.8 0.8 0.9 0.9 1.0
Portion of rent expense which
represents interest factor 6.4 8.2 36.2 29.9 27.6 23.0 19.7
Share of portion of rent expense
which represents interest
factor for 50% owned companies 1.8 1.3 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 0.5 0.5 2.0 1.8 1.5 0.4 0.4
------ ------ ------ ------ ------ ------ ------
Total fixed charges 47.9 45.6 231.6 176.6 150.2 141.3 132.7
Capitalized interest (2.9) (3.4) (19.6) (20.8) (19.9) (14.9) (20.2)
------ ------ ------ ------ ------ ------ ------
Total fixed charges net of
capitalized interest $ 45.0 $ 42.2 $212.0 $155.8 $130.3 $126.4 $112.5
====== ====== ====== ====== ====== ====== ======
Preferred dividends:
Preferred dividend
requirement $ 3.7 $ 0.5 $ 8.2 $ 2.1 $ 2.2 $ 2.4 $ 2.5
Ratio of pre-tax income to
income before minority
interest and equity earnings 1.6 1.6 1.6 1.3 1.4 1.5 1.7
------ ------ ------ ------ ------ ------ ------
Pre-tax preferred dividend
requirement 5.9 0.8 13.1 2.7 3.1 3.6 4.3
Total fixed charges 47.9 45.6 231.6 176.6 150.2 141.3 132.7
------ ------ ------ ------ ------ ------ ------
Fixed charges and pre-tax
preferred dividend requirement $ 53.8 $ 46.4 $244.7 $179.3 $153.3 $144.9 $137.0
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to combined
fixed charges and preferred
dividend 3.6x 3.2x 3.2x 1.1x 3.8x 4.4x 4.6x
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-26-1995
<CASH> 30,900
<SECURITIES> 63,900
<RECEIVABLES> 963,800
<ALLOWANCES> 95,000
<INVENTORY> 465,900
<CURRENT-ASSETS> 1,736,000
<PP&E> 3,685,300
<DEPRECIATION> 1,795,100
<TOTAL-ASSETS> 6,111,100
<CURRENT-LIABILITIES> 1,062,600
<BONDS> 1,410,000
<COMMON> 1,064,300
364,500
24,900
<OTHER-SE> 1,278,700
<TOTAL-LIABILITY-AND-EQUITY> 6,111,100
<SALES> 1,116,100
<TOTAL-REVENUES> 1,123,000
<CGS> 713,600
<TOTAL-COSTS> 713,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,100
<INTEREST-EXPENSE> 26,000
<INCOME-PRETAX> 107,900
<INCOME-TAX> 39,900
<INCOME-CONTINUING> 79,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,400
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
