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 SEPTEMBER 30, 1996
-----------------------------
[ ] 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:
228,609,000 shares of Corning's Common Stock, $0.50 Par Value, were outstanding
as of November 13, 1996.
<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 nine months and
three months ended September 30, 1996 and for the forty
and sixteen weeks ended October 8, 1995 3
Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1996 and for the forty weeks
ended October 8, 1995 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 December 31, 1995.
<PAGE>3
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
Nine Months Forty Three Months Sixteen
Ended Weeks Ended Ended Weeks Ended
September October September October
30, 8, 30, 8,
1996 1995 1996 1995
------ ------- -------- -------
REVENUES
Net sales $2,661.5 $2,442.6 $ 910.2$ 1,045.6
Royalty, interest, and
dividend income 24.0 22.9 9.0 8.3
------- ------- ------- -------
2,685.5 2,465.5 919.2 1,053.9
DEDUCTIONS
Cost of sales 1,636.9 1,512.2 551.2 645.0
Selling, general and
administrative expenses 470.1 413.8 163.3 172.8
Research and development
expenses 137.5 130.4 47.3 53.0
Provision for restructuring and
other special charges 26.5
Interest expense 53.8 52.8 17.8 21.2
Other, net 19.7 17.7 8.5 8.0
------- ------- ------- -------
Income from continuing operations
before taxes on income 367.5 312.1 131.1 153.9
Taxes on income from
continuing operations 123.1 92.9 43.9 45.0
------- ------- ------- -------
Income from continuing operations
before minority
interest and equity earnings 244.4 219.2 87.2 108.9
Minority interest in earnings
of subsidiaries (41.0) (51.4) (13.0) (23.1)
Dividends on convertible preferred
securities of subsidiary (10.3) (10.5) (3.4) (4.2)
Equity in earnings (losses) of
associated companies:
Other than Dow Corning Corporation 58.5 48.9 24.4 19.5
Dow Corning Corporation (348.0)
------ ------- ------ -------
Income (loss) from
continuing operations 251.6 (141.8) 95.2 101.1
Income (loss) from discontinued
operations, net of
income taxes (162.6) 7.5 (115.0) (17.6)
------- ------- ------- -------
NET INCOME (LOSS) $ 89.0 $(134.3) $ (19.8) $ 83.5
======= ======= ======= =======
PER COMMON SHARE:
Continuing operations $ 1.10 $ (0.63) $ 0.42 $ 0.45
Discontinued operations (0.72) 0.03 (0.51) (0.08)
------- -------- ------- --------
NET INCOME (LOSS) $ 0.38 $ (0.60) $ (0.09) $ 0.37
======= ======== ======= ========
DIVIDENDS DECLARED $ 0.54 $ 0.54 $ 0.18 $ 0.18
======= ======== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING 227.4 226.5 227.4 227.2
======= ======= ======= =======
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)
September December 31,
ASSETS 1996 1995
------ -------- --------
CURRENT ASSETS
Cash $ 43.2 $ 72.4
Short-term investments, at cost which
approximates market value 84.3 115.2
Accounts receivable, net of doubtful
accounts and allowances - $22.1/1996;
$24.3/year-end 1995 545.8 479.5
Inventories 504.0 426.5
Deferred taxes on income and other
current assets 122.9 102.8
-------- --------
Total current assets 1,300.2 1,196.4
-------- --------
INVESTMENTS
Associated companies, at equity 325.8 341.0
Others, at cost 23.6 23.9
-------- --------
349.4 364.9
-------- --------
PLANT AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION 1,848.7 1,599.6
GOODWILL AND OTHER INTANGIBLE ASSETS,
NET OF ACCUMULATED AMORTIZATION -
$82.0/1996; $68.3/year-end 1995 342.2 330.8
OTHER ASSETS 271.9 305.3
NET ASSETS OF DISCONTINUED OPERATIONS 1,616.3 1,664.7
-------- --------
$5,728.7 $5,461.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Loans payable $ 427.8 $ 143.1
Accounts payable 159.2 202.6
Other accrued liabilities 452.7 396.3
-------- --------
Total current liabilities 1,039.7 742.0
-------- --------
OTHER LIABILITIES 637.2 618.3
LOANS PAYABLE BEYOND ONE YEAR 1,278.3 1,340.0
MINORITY INTEREST IN SUBSIDIARY COMPANIES 311.5 269.8
CONVERTIBLE PREFERRED SECURITIES OF
SUBSIDIARY 365.0 364.7
CONVERTIBLE PREFERRED STOCK 22.7 23.9
COMMON STOCKHOLDERS' EQUITY
Common stock, including excess over
par value and other capital -
Par value $0.50 per share;
Shares authorized: 500 million;
Shares issued: 259.6 million/1996 and
258.6 million/year-end 1995 1,174.4 1,113.0
Retained earnings 1,452.3 1,496.5
Less cost of 29.9 million/1996 and 28.8
million/year-end 1995 shares
of common stock in treasury (603.1) (563.0)
Cumulative translation adjustment 50.7 56.5
-------- --------
Total common stockholders' equity 2,074.3 2,103.0
-------- --------
$5,728.7 $5,461.7
======== ========
The accompanying notes are an integral part of these statements.
<PAGE>5
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) Nine Months Forty
Ended Weeks Ended
September 30, October 8,
1996 1995
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 89.0 $ (134.3)
Adjustments to reconcile net income to net
cash provided by operating
activities from continuing operations:
(Income) loss from discontinued operations 162.6 (7.5)
Depreciation and amortization 212.1 185.2
Provision for restructuring and other
special charges, net of cash paid 26.0
Equity in earnings of associated companies,
other than Dow Corning Corporation,
in excess of dividends received (9.0) (14.7)
Equity in losses of Dow Corning Corporation 348.0
Minority interest in earnings of subsidiaries
in excess of dividends paid 20.2 27.4
Loss (gain) on disposition of properties
and investments (5.4) 11.5
Deferred tax provision 1.0 4.3
Other 15.8 26.1
Changes in operating assets and liabilities:
Accounts receivable (50.7) (11.0)
Inventory (74.8) (76.5)
Deferred taxes and other current assets (1.5) (6.2)
Accounts payable and other current liabilities (25.3) (104.0)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS 334.0 274.3
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (376.6) (231.9)
Acquisitions of businesses, net (15.1) (3.0)
Net proceeds from disposition of properties
and investments 31.6 10.2
Increase in long-term investments (12.1) (27.5)
Other, net 8.0 (22.6)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES OF
CONTINUING OPERATIONS (364.2) (274.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of loans 272.7 167.8
Repayments of loans (72.2) (40.5)
Increase in minority interest due to
capital contribution 7.6
Proceeds from issuance of common stock 18.0 19.8
Repurchases of common stock (26.1) (15.8)
Dividends paid (125.7) (125.4)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES OF
CONTINUING OPERATIONS 74.3 5.9
-------- --------
Effect of exchange rates on cash (1.5) (3.4)
-------- --------
Effect of accounting calendar change on cash (17.5)
-------- -------
Cash used in discontinued operations (85.2) (66.3)
-------- --------
Net change in cash and cash equivalents (60.1) (64.3)
Cash and cash equivalents at beginning of year 187.6 141.1
-------- --------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 127.5 $ 76.8
======== ========
SUPPLEMENTAL DATA:
Income taxes paid $ 100.5 $ 90.0
======== ========
Interest paid $ 90.7 $ 88.9
======== ========
The accompanying notes are an integral part of these statements.
<PAGE>6
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Effective January 1, 1996, Corning made several changes to its
accounting calendar to make Corning's results more comparable with other
companies and to enable Corning to report results of certain
subsidiaries on a more current basis.
First, Corning adopted an annual reporting calendar. Previously
Corning operated on a fiscal year ending on the Sunday nearest December
31. As a result, Corning's 1996 quarters will include
results for three calendar months while Corning's quarters previously
included results for 12 weeks (16 weeks in the third quarter).
Second, Corning's 1996 quarters will include three months of
operations for all significant subsidiaries and affiliates.
Previously, certain subsidiaries reported two months of results in the
first quarter and four months of results in the third quarter.
Third, Corning Life Sciences Inc. and certain other consolidated
subsidiaries that previously reported on a fiscal year ending November
30 adopted a calendar year end. The December 1995 net loss of these
subsidiaries totaled $7.7 million and was recorded in retained
earnings in the first quarter of 1996.
This change will not affect the comparability of Corning's 1995 and 1996
annual results. It will, however, cause a shift in results between the
quarters, primarily increasing the first quarter and decreasing the
third quarter reported results. Corning did not restate its quarterly
historical financial statements for the calendar change because
financial information as of calendar quarter ends was not readily
available. Management's analysis of the impact of this change on
quarterly results is included in Management's Discussion and Analysis
beginning on page 10.
(2) Earnings per common share are computed by dividing net income less
dividends on Series B convertible 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 1996 and 1995. The
weighted average of common shares outstanding was 227.4 million for the
third quarter and third quarter year-to-date 1996 and 227.2 million an
226.5 million, respectively, for the same periods in 1995. 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 2.3 million and 2.6 million shares during 1996 and
1995, respectively. Common stock equivalents are not included in the
earnings per share computation because they do not result in material
dilution.
Common dividends of $41.8 million and $124.2 million were declared in the
third quarter and third quarter year-to-date of 1996, respectively,
compared with $41.5 million and $123.9 million for the same periods in
1995.
(3) In May 1996, Corning's Board of Directors approved a plan to distribute to
its shareholders on a pro rata basis all of the shares of Quest Diagnostics
Incorporated (formerly Corning Clinical Laboratories Inc.) and Covance Inc.
(formerly Corning Pharmaceutical Services Inc.) (the "Distributions").
Upon completion of the Distributions, Quest Diagnostics and Covance will
become independent, publicly traded companies. Corning has received from
the Internal Revenue Service a ruling that the Distributions will qualify
as tax-free distributions under the Internal Revenue Code of 1986. The
final terms of the Distributions, which are subject to approval by
Corning's Board of Directors, will be set forth in registration statements
to be filed with the Securities and Exchange Commission and in an
Information Statement to be distributed to Corning's shareholders. The
Distributions are expected to occur by the end of 1996.
<PAGE>7
Corning's investment in equity and intercompany debt of the companies to be
distributed totaled $1.6 billion at September 30, 1996 and is expected to
increase to approximately $1.8 billion at the date of Distribution.
Corning currently estimates that, prior to the Distributions, the companies
to be distributed will borrow approximately $600 million from third-party
lenders and repay intercompany debt to Corning, reducing Corning's
investment to approximately $1.2 billion. Corning's stockholders' equity
will be reduced by Corning's investment in these companies at the date of
the Distribution. Corning intends to use the proceeds from the repayment
of intercompany debt to primarily repay third-party debt and invest for
future strategic uses.
As a result of the plan to distribute the clinical-laboratory and
pharmaceutical-services businesses, Corning's consolidated financial
statements and notes thereto report these businesses, which comprised
Corning's Health Care Services segment, as discontinued operations. Prior
period consolidated financial statements and notes have been restated
accordingly.
Summarized results of Corning's discontinued operations for the third
quarter year-to-date and third quarter 1996 and 1995 are as follows:
Nine Months Forty Three Months Sixteen
Ended Weeks Ended Ended Weeks Ended
September 30, October 8,September 30,October 8,
1996 1995 1996 1995
---- ---- ---- ----
Sales $ 515.0 $1,540.1 $ 523.2
======= ======== =======
Income (loss) before
income taxes $ 20.5 $ 30.0 $ (20.4)
Income tax (provision)
benefit (11.3) (22.5) 2.8
------- ------- -------
Income (loss) from operations,
net of income taxes 9.2 7.5 (17.6)
Provision for loss on
Distributions,
including income tax
benefit of $4.6 million
and $41.2 million for
nine months and
three months ended
September 30, 1996,
respectively (171.8) $(115.0)
------- ------- ------- ------
Discontinued operations,
net of income taxes $(162.6) $ 7.5 $(115.0) $ (17.6)
======= ======= ======= =======
The 1996 sales of $515 million and income from operations of $9.2 million
of the discontinued businesses only includes results through March 31,
1996. Income from operations of the discontinued businesses includes an
allocation of Corning's interest expense based on the ratio of net assets
of discontinued operations to consolidated net assets. Income from
discontinued operations for the third quarter year-to-date 1995 includes an
after-tax restructuring charge of $24.4 million recorded in the second
quarter 1995.
The provision for loss on Distributions includes a second quarter after-tax
charge of $56.8 million and a third quarter after-tax charge of $115
million. The second quarter charge includes the estimated costs related to
the Distributions and a charge to increase reserves for government claims,
offset by the estimated results of operations of the businesses to be
distributed from April 1, 1996, through December 31, 1996, the anticipated
date of the Distributions. The third quarter charge related primarily to a
charge taken by Quest to increase reserves related to certain government
investigations of billing practices of certain clinical laboratories
acquired by Quest in 1993 and 1994.
<PAGE>8
The provision for loss on Distributions includes management's best estimate
of the transaction costs and the estimated future results of operations of
the discontinued businesses. The actual loss could differ from these
estimates. Net assets of discontinued operations consist primarily of
receivables, plant and equipment, goodwill and other intangible assets, and
accrued liabilities.
As disclosed in Corning's 1995 Annual Report on Form 10-K, federal
government investigations of certain practices by clinical laboratories
acquired in recent years are ongoing. In the second quarter 1996, the U.S.
Department of Justice (DOJ) notified Quest that it had taken issue with
certain payments received by Damon Corporation (Damon) from federally
funded healthcare programs prior to its acquisition by Corning. As a
result, in the second quarter 1996, Quest increased its reserves by $46
million ($37 million after-tax) to equal management's estimate, at that
time, of the low end of the range of potential amounts which could be
required to satisfy claims related to the Damon and other related and
similar investigations.
During the third quarter 1996, Quest management met with the government
several times to evaluate the substance of the government's allegations.
As a result of these discussions, in October 1996, Quest management, on
behalf of its Damon subsidiary, reached a settlement agreement with the DOJ
which caused Quest to pay $119 million to the government. This settlement
concludes all federal and Medicaid claims relating to the billing by Damon
of certain blood tests to Medicare and Medicaid patients and other matters
relating to Damon being investigated by the DOJ.
As a result of this settlement agreement, Quest management has reassessed
the level of reserves recorded for other asserted and unasserted claims
related to the Damon and other similar government investigations, including
the investigation of billing practices by Nichols Institute (Nichols) prior
to its acquisition by Corning in 1994. Quest recorded a charge totaling
$142 million ($105 million after-tax) in the third quarter 1996 to
establish additional reserves equal to the Damon settlement agreement and
Quest management's best estimate of potential amounts which could be
required to satisfy the remaining claims. Based on information currently
available to Quest, management does not believe that the exposure to claims
in excess of recorded reserves is material.
In October 1996, Corning contributed $119 million to Quest's capital to
fund the Damon settlement. Additionally, Corning has agreed to fund any
additional settlements with the government prior to the Distributions and
to indemnify Quest, on an after-tax basis, for the settlement of the
Nichols' and certain other claims pending at the Distribution date.
Although management believes that established reserves should be sufficient
to pay other asserted and unasserted claims, it is possible that additional
information may become available which may cause the final resolution of
these matters to be in excess of established reserves by an amount which
could be material to Corning's results of operations and cash flows in the
quarter in which any such claim is settled. Corning does not believe that
these issues will have a material adverse impact on Corning's overall
financial condition.(4) 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 1995. Corning recognized equity
earnings from Dow Corning of $17.5 million in the first quarter 1995.
Summarized income statement information for Dow Corning is not presented
because Corning has discontinued recognition of equity in earnings.
<PAGE>9
(5) In the second quarter 1995, Corning recorded a restructuring charge of
$26.5 million ($16.1 million after tax). The charge included severance
for workforce reductions, primarily in corporate staff groups, a
curtailment loss in Corning's primary pension plan attributable to
workforce reductions and the write-off of production equipment caused by
the decision to exit the manufacturing facility for glass-ceramic
memory-disks. As described in Note 8 to Corning's 1995 consolidated
financial statements included in its Annual Report on Form 10-K, Corning
also recorded charges for restructuring plans in previous years.
Reserves related to the 1995 and previous years restructuring programs
totaled approximately $32 million and $15 million at December 31, 1995
and September 30, 1996, respectively. Management believes that the
costs of the restructuring 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.
(6) Inventories shown on the accompanying balance sheets were comprised of the
following (in millions):
September 30, December 31,
1996 1995
-------- -------
Finished goods $ 257.4 $ 229.2
Work in process 177.5 138.4
Raw materials and accessories 99.5 86.9
Supplies and packing materials 67.5 57.6
-------- -------
Total inventories valued at current cost 601.9 512.1
Reduction to LIFO valuation (97.9) (85.6)
-------- -------
$ 504.0 $ 426.5
======== =======
(7) Plant and equipment shown on the accompanying balance sheets were
comprised of the following (in millions):
September 30, December 31,
1996 1995
-------- -------
Land $ 51.9 $ 42.3
Buildings 740.0 674.1
Equipment 2,871.2 2,437.9
Accumulated depreciation (1,814.4) (1,554.7)
-------- --------
$1,848.7 $1,599.6
======== ========
<PAGE>10
ITEM 2.
- ------
Management's Discussion and Analysis of
----------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations
---------------------
The comparability of Corning's third quarter and third quarter year-to-date
1996 sales and earnings to the prior year has been significantly impacted by
the changes to Corning's accounting calendar as discussed in Note (1) of the
Notes to Consolidated Financial Statements, Corning's decision to fully reserve
its investment in and discontinue recognition of equity earnings from Dow
Corning Corporation in the second quarter of 1995 as discussed in Note (4) of
the Notes to Consolidated Financial Statements, a restructuring charge recorded
in the second quarter of 1995 as discussed in Note (5) of the Notes to
Consolidated Financial Statements, and losses recorded in the third quarter and
third quarter year-to-date 1996 related to the planned Distribution of the
Health Care Services segment as discussed in Note (3) of the Notes to
Consolidated Financial Statements.To provide a basis against which to evaluate
1996 quarterly results, pro forma
estimates of 1995 quarterly results as if the calendar change had occurred at
the beginning of 1995 were prepared. The pro forma estimates were prepared by
prorating 1995 results for twelve or sixteen week periods into calendar month
quarters and by shifting monthly results of subsidiaries and affiliates between
quarters to reflect the new accounting calendar. Management believes that the
impact of the change on Corning's balance sheet and cash flow is not material.
The table on the following page presents unaudited pro forma estimates of
results for the third quarter 1995 as if the accounting calendar changes had
occurred at the beginning of 1995 and summarizes the impact of the unusual items
noted above. Third quarter 1995 (sixteen weeks) and third quarter 1996 (three
months) results are presented in the table for comparative purposes (in
millions, except per-share amounts).
<PAGE>11
Sixteen Three Three
Weeks Ended Months Ended Months Ended
October 8,September 30, September 30,
1995 1995 1996
(as reported)(pro forma) (as reported)
------------- ---------- ------------
Sales $1,045.6 $834.5 $910.2
======== ====== ======
Net income (loss)
Before Dow Corning Corporation
and restructuring $ 101.1 $ 84.3 $ 95.2
Equity in losses of Dow
Corning Corporation
Provision for restructuring
------ ------ -----
Continuing operations 101.1 84.3 95.2
Discontinued operations (17.6) (21.3) (115.0)
------- ------ ------
Net income (loss) $ 83.5 $ 63.0 $(19.8)
======= ====== ======
Net income (loss) per common share
Before Dow Corning Corporation
and restructuring $ 0.45 $ 0.38 $ 0.42
Equity in losses of Dow Corning
Corporation
Provision for restructuring
------ ------ -----
Continuing operations 0.45 0.38 0.42
Discontinued operations (0.08) (0.10) (0.51)
------- ------- ------
Net income (loss) per common share $ 0.37 $ 0.28 $(0.09)
======= ======= ======
The following table presents unaudited pro forma estimates of results for the
third quarter year-to-date 1995 as if the accounting calendar changes had
occurred at the beginning of 1995 and summarizes the impact of the unusual items
noted above. Third quarter year-to-date 1995 (forty weeks) and the third
quarter year-to-date 1996 (nine months) results are presented in the table for
comparative purposes (in millions, except per-share amounts):
Forty Nine Nine
Weeks Ended Months Ended Months Ended
October 8,September 30, September 30,
1995 1995 1996
(as reported)(pro forma) (as reported)
------------- ---------- ------------
Sales $2,442.6 $2,403.3 $2,661.5
======== ======== ========
Net income (loss)
Before Dow Corning Corporation
and restructuring $ 222.3 $221.1 $251.6
Equity in losses of Dow
Corning Corporation (348.0) (348.0)
Provision for restructuring (16.1) (16.1)
------- ------ -----
Continuing operations (141.8) (143.0) 251.6
Discontinued operations 7.5 8.2 (162.6)
------- ------ ------
Net income (loss) $(134.3) $(134.8) $ 89.0
======= ======= ======
Net income (loss) per common share
Before Dow Corning Corporation
and restructuring $ 0.98 $ 0.98 $ 1.10
Equity in losses of Dow
Corning Corporation (1.54) (1.54)
Provision for restructuring (0.07) (0.07)
------- ------- -----
Continuing operations (0.63) (0.63) 1.10
Discontinued operations 0.03 0.03 (0.72)
------- ------- ------
Net income (loss) per common share $ (0.60) $ (0.60) $ 0.38
======= ======= ======
<PAGE>12
The following discussion and analysis of the consolidated and segment results
and equity earnings are based on comparisons between the 1996 reported and the
1995 pro forma results shown in the above tables.
Continuing operations
- ---------------------
Third quarter and third quarter year-to-date 1996 sales increased 9 percent and
11 percent, respectively, due primarily to volume gains in the opto-electronics
businesses as a result of continued strong worldwide market demand.
Excluding the impact of Dow Corning Corporation and restructuring, Corning's net
income from continuing operations increased 13 percent and 14 percent in the
third quarter and third quarter year-to-date 1996, respectively, and earnings
per share from continuing operations increased 11 percent and 12 percent in the
third quarter and third quarter year-to-date 1996, respectively, due primarily
to strong performance in opto-electronics and environmental products businesses.
Segment overview
- ----------------
In the second quarter 1995, Corning recorded a restructuring charge of $26.5
million before tax. The following segment analysis excludes the impact of the
restructuring charge.
Sales of the Specialty Materials segment increased in the third quarter and
third quarter year-to-date 1996 over the same periods in 1995 due primarily to
the consolidation of Quanterra beginning in the first quarter of 1996 and
increased demand for environmental products, particularly in Europe. The
science-products and advanced materials businesses also experienced sales volume
increases in the third quarter and third quarter year-to-date. Segment earnings
in the third quarter and third quarter year-to-date 1996 increased as a result
of the volume increases and significant manufacturing efficiency gains in the
environmental- and science-products businesses. These gains were reduced by
losses at Quanterra, primarily in the first quarter.
Sales and earnings in the Communications segment increased significantly in both
the third quarter and third quarter year-to-date 1996 due primarily to continued
volume gains and, in the first half, to a favorable mix in optical fiber and
optical cable. In addition, strong growth in the fiber-optic components
business and improved performance in the optical hardware and equipment business
contributed to segment performance. The strong results in the opto-electronics
businesses were offset somewhat by weak performance in the information-display
businesses. Sales in the information-display businesses decreased in the third
quarter and third quarter year-to-date 1996 as a result of market softness. The
decreased sales volume, coupled with expansion-related manufacturing
inefficiencies, resulted in significantly lower earnings in the third quarter
and third quarter year-to-date 1996, and are expected to result in full year
1996 earnings being significantly lower than 1995 earnings. Management expects
the results of the information-display businesses to improve in the first half
of 1997.
Sales in the Consumer Products segment in the third quarter 1996 were consistent
with the same period in 1995. Earnings increased in the third quarter 1996.
Third quarter year-to-date 1996 sales increased slightly and the segment
operated at a profit in 1996 compared to a loss in the third quarter
year-to-date 1995. The third quarter year-to-date 1995 loss was due to lower
sales volume and several scheduled glass furnace repairs.
Taxes on Income
- ---------------
Corning's effective tax rate for continuing operations was 33.5 percent for
both the third quarter and third quarter year-to-date 1996. Excluding the
impact of the restructuring charge, the effective tax rate was 29 percent and
30.5 percent for the third quarter and third quarter year-to-date 1995,
respectively. The lower 1995 rate was due to a higher percentage of Corning's
earnings from consolidated entities with lower effective tax rates.
<PAGE>13
Equity in Earnings
- ------------------
Excluding Dow Corning Corporation, third quarter and third quarter year-to-date
1996 equity in earnings of associated companies totaled $24.4 million and $58.5
million, respectively. Equity in earnings of associated companies increased
significantly in the third quarter 1996 due primarily to solid results from the
optical fiber equity companies and Samsung-Corning Company Ltd. Third quarter
year-to-date equity in earnings of associated companies increased as strong
performance by the optical fiber equity companies was somewhat offset by lower
results at Samsung-Corning Company Ltd. in the first quarter of 1996 primarily
due to scheduled glass furnace repairs and continued spending on the global
expansion program.
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 StatesBankruptcy
Code. In addition, Corning discontinued recognition of equity
earnings from Dow Corning beginning in the second quarter of 1995.
Discontinued operations
- -----------------------
Corning incurred an after-tax loss of $115 million, or $0.51 per share, from
discontinued operations in the third quarter of 1996. The loss related
primarily to a charge taken by Quest Diagnostics to increase reserves related to
certain government investigations of billing practices of certain clinical
laboratories acquired by Quest in 1993 and 1994.
The loss from discontinued operations in the third quarter year-to-date 1996
totaled to $162.6 million, or $0.72 per share. It includes the $115 million
provision for loss on Distributions recorded in the third quarter and the $56.8
million provision for loss on Distributions recorded in the second quarter,
offset by $9.2 million of income recognized in the first quarter. The second
quarter provision for loss on Distributions includes the estimated costs related
to the Distributions and a charge to increase reserves for government claims,
offset by the estimated results of operations of the businesses to be
distributed from April 1, 1996 through December 31, 1996, the anticipated date
of the Distributions.
The provision for loss on Distributions includes management's best estimate of
the transaction costs and the estimated future results of operations of the
discontinued businesses. The actual loss could differ from these estimates.
As disclosed in Corning's 1995 Annual Report on Form 10-K, government
investigations of certain practices by clinical laboratories acquired in recent
years are ongoing. In the second quarter 1996, the U.S. Department of Justice
(DOJ) notified Quest that it had taken issue with certain payments received by
Damon Corporation (Damon) from federally funded healthcare programs prior to its
acquisition by Corning. As a result, in the second quarter 1996, Quest
increased its reserves by $46 million ($37 million after-tax) to equal
management's estimate, at that time, of the low end of the range of potential
amounts which could be required to satisfy claims related to the Damon and other
related and similar investigations.
During the third quarter 1996, Quest management met with the government several
times to evaluate the substance of the government's allegations. As a result of
these discussions, in October 1996, Quest management, on behalf of its Damon
subsidiary, reached a settlement agreement with the DOJ which caused Quest to
pay $119 million to the government. This settlement concludes all federal and
Medicaid claims relating to the billing by Damon of certain blood tests to
Medicare and Medicaid patients and other matters relating to Damon being
investigated by the DOJ.
As a result of this settlement agreement, Quest management has reassessed the
level of reserves recorded for other asserted and unasserted claims related to
the Damon and other similar government investigations, including the
investigation of billing practices by Nichols Institute (Nichols) prior to its
acquisition by Corning in 1994. Quest recorded a charge totaling $142 million
($105 million after-tax) in the third quarter 1996 to establish additional
reserves equal to the Damon settlement agreement and Quest management's best
estimate of potential amounts which could be required to satisfy the remaining
claims. Based on information currently available to Quest, management does not
believe that the exposure to claims in excess of recorded reserves is material.
<PAGE>14
In October 1996, Corning contributed $119 million to Quest's capital to fund the
Damon settlement. Additionally, Corning has agreed to fund any additional
settlements with the government prior to the Distributions and to indemnify
Quest, on an after-tax basis, for the settlement of the Nichols' and certain
other claims pending at the Distribution date. Although management believes
that established reserves should be sufficient to pay other asserted and
unasserted claims, it is possible that additional information may become
available which may cause the final resolution of these matters to be in excess
of established reserves by an amount which could be material to Corning's
results of operations and cash flows in the quarter in which any such claim is
settled. Corning does not believe that these issues will have a material
adverse impact on Corning's overall financial condition.
Loss from discontinued operations in the third quarter 1995 totaled $17.6
million or $0.08 per share and included a $62 million operating charge to
increase accounts receivable reserves in the clinical-laboratory testing
business. Income from discontinued operations for the third quarter year-to-
date 1995 totaled $7.5 million or $0.03 per share and also includes a
restructuring charge of $40.5 million ($24.4 million after tax) recorded in the
second quarter.
Liquidity and Capital Resources
-------------------------------
Corning's working capital decreased from $454.4 million at the end of 1995 to
$260.5 million at September 30, 1996. The ratio of current assets to current
liabilities was 1.3 at the end of the third quarter 1996 compared to 1.6 at
year-end 1995. The decrease in working capital and the ratio of current assets
to current liabilities was due to an increase in short-term borrowings during
the third quarter year-to-date 1996 to fund capital expansion programs.
Corning's long-term debt as a percentage of total capital was 32 percent at the
end of the third quarter, compared to 33 percent at year-end 1995.
Corning's investment in equity and intercompany debt of the companies to be
distributed totaled $1.6 billion at September 30, 1996 and is expected to
increase to approximately $1.8 billion at the date of Distribution. Prior to
the Distributions, the companies to be distributed will borrow approximately
$600 million from third-party lenders and repay intercompany debt to Corning,
reducing Corning's investment to approximately $1.2 billion. Corning's
stockholders' equity will be reduced by Corning's investment in these companies
at the date of the Distributions. Corning intends to use the proceeds from the
repayment of intercompany debt to primarily repay third-party debt and invest
for future strategic uses.
Corning's long-term debt as a percentage of total capital is expected to
increase from the current 32 percent to between 40 percent and 44 percent at
the end of 1996 when the Distributions are completed.
Cash and short-term investments decreased from year-end 1995 by $60.1 million
primarily due to operating and financing activities which provided cash of
$334.0 million and $74.3 million, respectively, offset by investing activities
and discontinued operations which used cash of $364.2 million and $85.2
million, respectively. Net cash provided by operating activities increased in
the third quarter year-to-date 1996 compared to the same period in 1995
primarily due to higher earnings and a lower use of cash for working capital
changes. Net cash used in investing activities increased in the third quarter
year-to-date 1996 due to a higher level of capital spending for expansions of
manufacturing facilities. Net cash provided by financing activities increased
in the third quarter year-to-date 1996 due to an increase in net borrowings
during 1996. Net cash used by discontinued operations in the third quarter
year-to-date 1996 increased over 1995 primarily due to the repayment of a
capital lease obligation.
<PAGE>15
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 18 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 $22 million for its estimated
liability for environmental cleanup and litigation at September 30, 1996.
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. Subsequently Dow Corning, Corning and Dow Chemical filed an
appeal from Judge Hood's order in the United States Court of Appeals for the
Sixth Circuit. On April 9, 1996, the Sixth Circuit ruled that the Michigan
Federal Court had "related to" jurisdiction over the cases against Dow Corning's
shareholders and remanded the cases to Judge Hood for further proceedings. On
July 30, 1996, Judge Hood refused to exercise "related to" jurisdiction over
those cases Dow Corning, Dow Chemical and Corning (as well as other defendants)
have appealed that order to the Sixth Circuit. The Sixth Circuit ordered an
expedited appeal and oral argument is set for November 12, 1996.
In March 1994, Dow Corning along with other defendants and representatives of
breast-implant litigation plaintiffs 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 30, 1995. Those who do opt-out will have the right to pursue
individual lawsuits. The Global Settlement has been effectively terminated.
Another, more limited settlement involving other defendant manufacturers is
being considered by the plaintiffs.
<PAGE>16
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 in the United States District Court for the Southern District of New York
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 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 the state court suits have been styled as class actions and others
involve multiple plaintiffs.
As of September 30, 1996, 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. The plaintiffs appealed the dismissal order but on January 17, 1996
voluntarily withdrew their appeal. On August 13, 1996, that District Court
issued Order No. 34 directing parties to show cause why various cases should not
be remanded to state courts with other defendants, but stating that any claims
by plaintiffs against Corning would be dismissed in view of the previous final
summary judgment order. Certain state court tort cases against Corning were
also consolidated in various states for the purposes of discovery and pretrial
matters. Corning has made several motions for summary judgment in state courts
and judges have dismissed Corning from over 6,500 tort cases filed in
California, Connecticut, Illinois, Indiana, Michigan, Mississippi, New Jersey,
New Mexico, 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, and continue to be filed, 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. On October 21, 1996, Dow Chemical
filed cross claims against Corning in certain Louisiana cases, including a class
action scheduled for trial against Dow Chemical beginning in March 1997.
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. Substantially all the state and
private insurers have settled their claims.
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 supplemented the August 1993 subpoena and
required the submission of supplemental information. The January subpoena
sought information regarding the addition of the 14 enumerated tests to organ
function profiles rather than the automated multichannel chemistry profiles as
in earlier 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. In August
1995, Corning Clinical Laboratories Inc. ("CCL" now known as Quest Diagnostics
Incorporated, and previously known as MetPath) and Damon received subpoenas from
the Inspector General seeking documents with regard to 14 current procedural
terminology, or CPT, codes used to bill Medicare, Medicaid and other payers for
certain hematology tests. In September 1996, CCL settled the civil
investigation into its billings for certain hematology indices pursuant to the
August 1995 subpoena identified above for an amount of $6.9 million.
<PAGE>17
By a plea agreement and civil settlement agreement and release,
both of which were executed October 9, 1996 between DOJ and Damon, and which
were entered in Federal District Court in Massachusetts on October 10, 1996, all
federal criminal matters within the scope of the federal investigation,
including the matters in the August 1996 subpoena, were resolved, and the civil
qui tam cases underlying the civil investigation were settled for an aggregate
- -------
of $119 million. This sum includes a $35.3 million criminal fine and an $83.7
million civil settlement, which compensates both federal and state Medicaid
health care programs. No exclusion of CCL from future participation in any
federal health care programs will result from the settlement. In addition, as a
part of the settlement, CCL and the Inspector General executed a Corporate
Integrity Agreement pursuant to which CCL will maintain its corporate compliance
program, make periodic reports to the Inspector General, and take certain other
steps intended to demonstrate CCL's integrity as a provider of services to
federally sponsored health care programs.
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.
However, the Inspector General has requested additional documents pursuant to
that subpoena, and identification and production of these additional documents
is ongoing. In January 1996, Nichols received a subpoena from the Inspector
General relating to specific individuals who had tests performed at the Nichols
laboratory in Portland, Oregon. Compliance with that subpoena is ongoing.
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 in May 1995 by a payment by Corning
Life Sciences Inc. of $8.6 million, and the criminal investigation was closed.
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 and in March 1996. In
December 1995, CCL received a subpoena from the Inspector General seeking
information as to CCL policies in instances in which specimens were received by
the laboratory without specific test requisitions. Compliance with the subpoena
is ongoing. In June 1996, Corning Life Sciences Inc. received a federal grand
jury subpoena from Boston seeking documents from CCL's Florida facilities
concerning new and terminated clients of that facility and sales of testing
services to such clients. CCL has been advised that this investigation has been
closed. During the past quarter, CCL voluntarily self-reported to the
government a few isolated events that may have resulted in overpayments by
Medicare and Medicaid to CCL facilities. It is too early to predict the outcome
of these disclosures.
<PAGE>18
- --------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits
See the Exhibit Index which is located on page 20.
(b) Reports on Form 8-K
A report on Form 8-K dated July 3, 1996 was filed which presented
restated income statements for 1995 quarterly results and other
analysis reflecting the Health Care Services segment as discontinued
operations. A report on Form 8-K dated July 15, 1996, was
filed in connection
with the Registrant's medium-term notes facility. The Registrant's
second quarter earnings press release of July 15, 1996 was filed as
an exhibit to this Form 8-K.
A report on Form 8-K dated July 22, 1996 was filed which presented
restated income statements for fiscal years 1991 through 1995 and
other analysis reflecting the Health Care Services segment as
discontinued operations.
Other items under Part II are not applicable.
<PAGE>19
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, 1996 /s/ ROGER G. ACKERMAN
- ------------------ ---------------------------------------------
Date R. G. Ackerman
Chairman and Chief Executive Officer
November 13, 1996 /s/ VAN C. CAMPBELL
- ------------------ ---------------------------------------------
Date V. C. Campbell
Vice Chairman and Chief Financial Officer
November 13, 1996 /s/ KATHERINE A. ASBECK
- ------------------ ---------------------------------------------
Date K. A. Asbeck
Chief Accounting Officer
<PAGE>20
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
<TABLE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIESEXHIBIT #12
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS
(Dollars in millions, except ratios)
<CAPTION>
Nine Forty
Months Weeks Fiscal Year Ended
Ended Ended ----------------------------------------
September October Dec. Jan. Jan. Jan. Dec.
30, 8, 31, 1, 2, 3, 29,
1996 1995 1995 1995 1994 1993 1991
------- --------- --------- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
- ----
Income from continuing operations
before taxes on income $367.5 $312.1 $406.1 $343.8 $74.3 $156.2 $182.5
Adjustments:
Share of earnings (losses) before
taxes of 50% owned companies 89.6 73.7 95.2 89.0 (137.0) 103.2 165.4
Earnings (losses) before taxes of
greater than 50% owned
unconsolidated subsidiary (1.1) (1.8) (3.1) (4.0) (3.1) (2.1) (2.2)
Distributed income of less than
50% owned companies
and share of loss if debt
is guaranteed 2.1 4.5 (4.3) 6.6
Amortization of capitalized interest 8.7 7.4 9.6 13.3 13.0 11.8 10.2
Fixed charges net of
capitalized interest 93.5 88.6 102.3 148.5 110.1 103.5 104.8
----- ------ ----- ----- ----- ----- ------
Earnings before taxes and
fixed charges as adjusted $558.2 $480.0 $610.1 $592.7 $61.8 $368.3 $467.3
====== ====== ====== ====== ===== ====== ======
Fixed charges:
Interest incurred $65.5 $ 60.3 $79.7 $77.5 $63.3 $53.1 $49.2
Share of interest incurred
of 50% owned companies and interest
on guaranteed debt of less than
50% owned companies 26.5 18.1 10.2 60.8 40.9 42.0 47.5
Interest incurred by greater than
50% owned unconsolidated subsidiary 0.6 0.7 0.8 0.8 0.9 0.9
Portion of rent expense which
represents interest factor 15.1 14.8 19.3 17.5 13.4 15.8 12.6
Share of portion of rent expense
which represents interest
factor for 50% owned companies 1.1 2.0 2.7 9.4 9.1 9.2 9.0
Portion of rent expense which
represents interest factor for
greater than 50% owned
unconsolidated subsidiary 0.1 0.1 0.1 0.1
Amortization of debt costs 1.1 0.7 0.9 2.0 1.8 1.5 0.4
----- ------ ----- ----- ----- ----- ----
Total fixed charges 109.3 96.5 113.5 168.1 129.4 122.6 119.7
Capitalized interest (15.8) (7.9) (11.2) (19.6) (19.3) (19.1) (14.9)
----- ------ ----- ----- ----- ----- -----
Total fixed charges net of
capitalized interest $93.5 $ 88.6 $102.3 $148.5 $110.1 $103.5 $104.8
===== ====== ====== ====== ====== ====== ======
Preferred dividends:
Preferred dividend requirements $11.8 $ 12.0 $15.7 $ 8.2 $ 2.1 $ 2.2 $ 2.4
Ratio of pre-tax income to income
before minority interest
and equity earnings 1.5 1.4 1.4 1.5 0.9 1.2 1.4
----- ------ ----- ----- ----- ----- -----
Pre-tax preferred dividend
requirement 17.7 16.8 22.0 12.3 1.9 2.6 3.4
Total fixed charges 109.3 96.5 113.5 168.1 129.4 122.6 119.7
----- ------ ----- ----- ----- ------ ------
Fixed charges and pre-tax preferred
dividend requirement $127.0 $113.3 $135.5 $180.4 $131.3 $125.2 $123.1
====== ====== ====== ====== ====== ===== ======
Ratio of earnings to combined fixed
charges and preferred dividends 4.4x 4.2x 4.5x 3.3x - 2.9x 3.8x
===== ====== ===== ===== ==== ====== =====
Earnings did not cover combined fixed charges and preferred dividends by $69.5 in the fiscal year
ended January 2, 1994.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 43,200
<SECURITIES> 84,300
<RECEIVABLES> 545,800
<ALLOWANCES> 22,100
<INVENTORY> 504,000
<CURRENT-ASSETS> 1,300,200
<PP&E> 4,213,200
<DEPRECIATION> 2,097,500
<TOTAL-ASSETS> 5,728,700
<CURRENT-LIABILITIES> 1,039,700
<BONDS> 1,278,300
365,000
22,700
<COMMON> 1,174,400
<OTHER-SE> 899,900
<TOTAL-LIABILITY-AND-EQUITY> 5,728,700
<SALES> 2,661,500
<TOTAL-REVENUES> 2,685,500
<CGS> 1,636,900
<TOTAL-COSTS> 1,636,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,100
<INTEREST-EXPENSE> 53,800
<INCOME-PRETAX> 367,500
<INCOME-TAX> 123,100
<INCOME-CONTINUING> 251,600
<DISCONTINUED> (162,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,000
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
