<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 31, 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
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CORNING INCORPORATED
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(Registrant)
New York 16-0393470
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(State of incorporation) (I.R.S. Employer Identification No.)
One Riverfront Plaza, Corning, New York 14831
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 607-974-9000
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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:
229,938,648 shares of Corning's Common Stock, $0.50 Par Value, were outstanding
as of April 15, 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 three months
ended March 31, 1996 and for the twelve weeks
ended March 26, 1995 3
Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and for the
twelve weeks ended March 26, 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 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)
Three MonthsTwelve Weeks
Ended Ended
March 31, March 26,
1996 1995*
-------- --------
REVENUES
Net sales $1,352.6 $1,116.1
Royalty, interest, and dividend income 8.8 6.9
------- -------
1,361.4 1,123.0
DEDUCTIONS
Cost of sales 873.2 713.6
Selling, general, and administrative expenses 283.3 221.5
Research and development expenses 46.1 38.6
Interest expense 29.8 26.0
Other, net 8.1 15.4
------- -------
Income before taxes on income 120.9 107.9
Taxes on income 44.8 39.9
------- -------
Income before minority interest and
equity earnings 76.1 68.0
Minority interest in earnings of subsidiaries (12.5) (11.3)
Dividends on convertible preferred securities
of subsidiary (3.4) (3.2)
Equity in earnings of associated companies:
Other than Dow Corning Corporation 11.6 8.4
Dow Corning Corporation 17.5
------ -------
NET INCOME $ 71.8 $ 79.4
======= =======
PER COMMON SHARE:
NET INCOME $ 0.31 $ 0.35
======= =======
DIVIDENDS DECLARED $ 0.18 $ 0.18
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 227.2 225.4
======= =======
The accompanying notes are an integral part of these statements.
* Reclassified to conform to 1996 presentation.
<PAGE>4
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and per-share amounts)
March 31, December 31,
ASSETS 1996 1995
------ -------- --------
CURRENT ASSETS
Cash $ 106.8 $ 84.6
Short-term investments, at cost which
approximates market value 57.5 130.3
Accounts receivable, net of doubtful
accounts and allowances - $161.9/1996;
$181.3/year-end 1995 971.4 932.4
Inventories 515.0 467.8
Deferred taxes on income and other
current assets 216.1 219.2
------- -------
Total current assets 1,866.8 1,834.3
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INVESTMENTS
Associated companies, at equity 320.2 344.2
Others, at cost 29.0 31.9
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349.2 376.1
------- -------
PLANT AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION 2,115.7 2,031.6
GOODWILL AND OTHER INTANGIBLE ASSETS,
NET OF ACCUMULATED AMORTIZATION -
$251.0/1996; $232.2/year-end 1995 1,420.9 1,416.1
OTHER ASSETS 304.5 329.0
------- -------
$6,057.1 $5,987.1
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
CURRENT LIABILITIES
Loans payable $ 271.3 $ 146.0
Accounts payable 189.4 255.2
Other accrued liabilities 725.2 763.9
------- -------
Total current liabilities 1,185.9 1,165.1
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OTHER LIABILITIES 671.7 664.9
LOANS PAYABLE BEYOND ONE YEAR 1,385.8 1,393.0
MINORITY INTEREST IN SUBSIDIARY COMPANIES 290.9 272.5
CONVERTIBLE PREFERRED SECURITIES OF
SUBSIDIARY 364.8 364.7
CONVERTIBLE PREFERRED STOCK 23.6 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: 258.9 million/1996 and
258.6 million/year-end 1995 1,135.4 1,113.0
Retained earnings 1,519.2 1,496.5
Less cost of 29.2 million/1996 and 28.8
million/year-end 1995 shares
of common stock in treasury (576.4) (563.0)
Cumulative translation adjustment 56.2 56.5
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Total common stockholders' equity 2,134.4 2,103.0
------- -------
$6,057.1 $5,987.1
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>5
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Three MonthsTwelve Weeks
Ended Ended
March 31, March 26,
1996 1995*
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 71.8 $ 79.4
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 109.1 88.1
Equity in earnings of associated companies,
other than Dow Corning
Corporation, in excess of dividends received (10.7) (7.2)
Equity in earnings of Dow Corning Corporation (17.5)
Minority interest in earnings of subsidiaries
in excess of dividends paid 4.7 11.3
Loss (gain) on disposition of
properties and investments (3.0) 2.1
Deferred tax (benefit) provision (12.1) 4.2
Other 10.0 4.2
Changes in operating assets and liabilities:
Accounts receivable 10.8 (10.8)
Inventory (44.1) (44.7)
Deferred taxes and other current assets 12.5 (14.5)
Accounts payable and other current liabilities (99.9) (122.3)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 49.1 (27.7)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (111.5) (65.5)
Acquisitions of businesses, net (30.0) (25.5)
Net proceeds from disposition of
properties and investments 7.2 2.4
(Increase) decrease in long-term investments 1.9 (6.6)
Other, net .5 (7.9)
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NET CASH USED IN INVESTING ACTIVITIES (131.9) (103.1)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of loans 114.0 79.0
Repayments of loans (20.4) (13.3)
Proceeds from issuance of common stock 5.6 5.1
Repurchases of common stock (6.7) (2.3)
Dividends paid (41.5)
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51.0 68.5
------- -------
Effect of exchange rates on cash (1.3) (4.2)
------- -------
Effect of accounting calendar change on cash (17.5)
------- ------
Net change in cash and cash equivalents (50.6) (66.5)
Cash and cash equivalents at beginning of year 214.9 161.3
------- -------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 164.3 $ 94.8
======= =======
SUPPLEMENTAL DATA:
Income taxes paid $ 15.5 $ 8.8
======= =======
Interest paid $ 36.4 $ 31.5
======= =======
The accompanying notes are an integral part of these statements.
*Reclassified to conform to 1996 presentation.
<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 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 8.
(2) 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 1996 and 1995. The
weighted average of common shares outstanding for the first quarter were
227.2 million and 225.4 million for 1996 and 1995, 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 2.4 million and 2.7 million shares in the first
quarter of 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 $41.0 million were declared in the first quarter
1996, compared with $41.1 million for the same period in 1995.
(3) In January 1996, Corning and International Technology Corporation signed
an agreement whereby Corning increased its ownership in Quanterra
Incorporated from 50% to 81% in exchange for an investment of
approximately $20 million. As a result of this transaction, Corning
began consolidating Quanterra's results beginning in the first quarter
of 1996. Quanterra provides environmental testing and related services.
(4) In March 1996, Corning sold substantially all of its equity investment
in CALP S.p.A. for approximately $28 million. The gain recognized on
this transaction was not material.
(5) 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 fully reserved its investment in Dow Corning in the
second quarter of 1995.
<PAGE>7
Corning also discontinued recognition of equity earnings from Dow
Corning beginning in the second quarter of 1995. Corning recognized
equity earnings from Dow Corning of $17.5 million in the first quarter
of 1995. Summarized income statement information for Dow Corning is not
presented because Corning has discontinued recognition of equity in
earnings.
(6) As described in Note 8 to Corning's 1995 consolidated financial
statements included in its Annual Report on Form 10-K, Corning recorded
charges for restructuring and acquisition integration plans in previous
years. Reserves relating to these programs totaled approximately $70.2
million and $59.6 million at December 31, 1995 and March 31, 1996,
respectively. Management believes that the costs of the restructuring
and integration plans will be financed through cash from operations and
does not anticipate any significant impact on its liquidity as a result
of the restructuring plans.
(7) Inventories shown on the accompanying balance sheets were comprised of the
following (in millions):
March 31, December 31,
1996 1995
-------- --------
Finished goods $ 214.2 $ 208.8
Work in process 171.1 135.7
Raw materials and accessories 90.9 88.2
Supplies and packing materials 91.8 87.7
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Total inventories valued at current cost 568.0 520.4
Reduction to LIFO valuation (53.0) (52.6)
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$ 515.0 $ 467.8
======= =======
(8) Plant and equipment shown on the accompanying balance sheets were
comprised of the following (in millions):
March 31, December 31,
1996 1995
-------- --------
Land $ 65.8 $ 64.8
Buildings 1,006.4 960.9
Equipment 3,140.9 2,922.2
Accumulated depreciation (2,097.4) (1,916.3)
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$2,115.7 $ 2,031.6
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<PAGE>8
ITEM 2.
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Management's Discussion and Analysis of
--------------------------------------
Financial Condition and Results of Operations
--------------------------------------------
Results of Operations
--------------------
Net sales for the first quarter 1996 and 1995 totaled $1.35 billion and $1.12
billion, respectively. Net income for the first quarter 1996 totaled $71.8
million, or $0.31 per share, compared with the net income of $79.4 million, or
$0.35 per share, in the first quarter of 1995. The comparability of Corning's
first quarter 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 and 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
(5) 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
pro-rating 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 following table presents unaudited pro forma estimates of results for the
first quarter 1995 as if the accounting calendar changes had occurred at the
beginning of 1995. First quarter 1995 (twelve weeks) and first quarter 1996
(three months) results are presented in the table for comparative purposes (in
millions except per-share amounts):
Twelve Three Three
Weeks Ended Months Ended Months Ended
March 26, 1995March 31, 1995March 31, 1996
(as reported) (pro forma)(as reported)
------------ ---------- ------------
Sales $1,116.1 $1,279.0 $1,352.6
======= ======= =======
Net income
Before Dow Corning Corporation $ 61.9 $ 82.9 $71.8
Equity in earnings of Dow
Corning Corporation 17.5 17.5
----- ----- -----
Net income $ 79.4 $100.4 $71.8
===== ===== =====
Net income per common share
Before Dow Corning Corporation $ 0.27 $ 0.36 $0.31
Equity in earnings of Dow Corning
Corporation 0.08 0.08
----- ----- -----
Net income per common share $ 0.35 $ 0.44 $0.31
===== ===== =====
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 table.
First quarter sales increased 6 percent to $1.35 billion due primarily to
strong performance in the worldwide optical fiber, cable and components
businesses.
Excluding the impact of Dow Corning Corporation, Corning's 1996 first quarter
earnings per share were $0.31 compared with an adjusted $0.36 per share in
1995. Significant earning gains in the opto-electronics and pharmaceutical
services businesses were offset by lower earnings in the clinical-laboratory
testing business.<PAGE>9
Segment Overview
---------------
Sales in the Specialty Materials segment increased when compared with the same
period last year due solely to the consolidation of Quanterra beginning in the
first quarter of 1996. Segment earnings were essentially flat as significant
earning increases due to manufacturing efficiency gains in most of the
segment's businesses were offset by losses at Quanterra.
Sales and earnings in the Communications segment increased significantly due
primarily to volume gains and favorable mix in optical fiber and optical cable.
The strong results in the opto-electronics businesses were offset somewhat by
weak performance in the information-display businesses resulting from market
softness and manufacturing inefficiencies.
First quarter sales in the Health Care Services segment were flat. Segment
earnings decreased significantly as strong performance in the pharmaceutical-
services business was offset by weak performance in the clinical-laboratory
testing business. Despite improvement in certain operating trends in the first
quarter, the earnings comparisons of the clinical-laboratory testing business
will continue to be impacted by adverse market conditions, including pricing
pressures and a higher level of bad debt expense, at least through the first
half of 1996.
Sales in the Consumer Products segment were up slightly in the first quarter.
First quarter earnings were essentially break-even in both 1996 and 1995.
Equity in Earnings
-----------------
First quarter 1996 equity in earnings of associated companies totaled $11.6
million. Excluding Dow Corning Corporation, first quarter 1996 equity earnings
declined from the same period last year. Strong performance from optical fiber
equity companies was offset by lower results at Samsung-Corning Company Ltd.,
primarily due to scheduled glass furnace repairs and continued spending on the
global expansion program.
Liquidity and Capital Resources
------------------------------
Corning's working capital of $680.9 million at March 31, 1996, increased from
$669.2 million at the end of 1995. The ratio of current assets to current
liabilities of 1.6 was unchanged from year-end 1995. Corning's long-term debt
as a percentage of total capital decreased slightly to 33% at March 31, 1996
from 34% at year-end 1995.
Cash and short-term investments declined from year-end 1995 by $50.6 million
primarily due to investing activities which used cash of $131.9 million offset
by operating and financing activities which provided cash of $49.1 and 51.0
million, respectively. Net cash provided by operating activities increased in
the first quarter 1996 compared to the same period in 1995 primarily due to a
lower use of cash for working capital changes. Net cash used in investing
activities increased in the first quarter 1996 due to a higher level of
additions to plant and equipment. Net cash provided by financing activities
decreased in the first quarter 1996 as net borrowings were more than offset by
the payment of dividends in the first quarter of 1996.
<PAGE>10
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 19 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 $21 million for its estimated
liability for environmental cleanup and litigation at March 31, 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 to 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 case to Judge Hood for further proceedings on the
issue of abstention.
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.
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.
<PAGE>11
As of March 31, 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. Certain state court tort cases against Corning were also
consolidated in various states for the purposes of discovery and pretrial
matters. During 1994 and 1995, Corning made several motions for summary
judgment in state courts and judges have dismissed Corning from over 6,400 tort
cases filed in California, Connecticut, Indiana, Michigan, Mississippi, New
Jersey, New 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.
Department of Justice Investigations. In September 1993, MetPath and MetWest
Inc. ("MetWest"), a wholly owned subsidiary of Unilab, in which Corning had at
the time an interest of approximately 43%, entered into a Settlement Agreement
(the "MetPath Settlement Agreement") with the Department of Justice ("DOJ") and
the Inspector General of the Department of Health and Human Services (the
"Inspector General") in settlement of civil claims by the DOJ and the Inspector
General that MetPath and MetWest had wrongfully induced physicians to order
certain laboratory tests without realizing that such tests would be billed to
Medicare at rates higher than those the physicians believed were applicable.
Several state and private insurers have made claims based on the practices
covered by the MetPath Settlement Agreement. Several have settled but it is not
clear at this time what, if any, additional exposure Corning may have to these
entities and to other persons who may assert claims on the basis of these or
other practices.
During August 1993, MetPath, MetWest and Damon (which was acquired by Corning
earlier that month) together with other participants in the industry received
subpoenas from the Inspector General seeking information regarding their
practices with respect to 14 enumerated tests offered in conjunction with
automatic chemical test panels. MetPath, MetWest and Damon submitted
information pursuant to these subpoenas and the investigation into MetPath and
MetWest has been closed. Damon was also served with two additional subpoenas in
November 1994 and January 1995 from the Inspector General and was directed by
the U.S. Attorney's office in Boston, to which its investigation has been
referred, to submit additional information in response to the August 1993
subpoena. The November subpoena supplements the August 1993 subpoena and
requires the submission of supplemental information. The January subpoena seeks
information regarding the addition of the 14 enumerated tests to organ function
profiles rather than the automated multichannel chemistry profiles as in earlier
subpoenas. Damon has completed its production to each of the foregoing
subpoenas. In March 1995, Damon received a subpoena from the Department of
Defense Criminal Investigative Service on behalf of CHAMPUS, apparently covering
the same practices as the earlier subpoenas. Compliance with that subpoena has
been completed. In August 1995, Corning Clinical Laboratories Inc. ("CCL",
previously 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. CCL and Damon are complying with these subpoenas.
In August 1993, Nichols Institute (which Corning acquired in August 1994)
received a subpoena from the Inspector General comparable to those received by
MetPath, MetWest and Damon. Compliance with that subpoena has been completed.
In 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 by a payment by Corning Life
Sciences Inc. of $8.6 million, and the criminal investigation was closed. The
possibility of additional action by the Inspector General or other federal
agencies and claims or settlements with parties other than DOJ and the
Inspector General cannot be excluded. In September 1995, CCL began voluntarily
providing documents and information to the DOJ concerning CCL's efforts to
detect and correct billings for tests not reported or performed. As part of
these activities, which are ongoing, CCL made certain payments to the United
States in August 1995 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.
<PAGE>12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------ --------------------------------
(a) Exhibits
See the Exhibit Index which is located on page 14.
(b) Reports on Form 8-K
A report on Form 8-K dated January 22, 1996, was filed in connection
with the Registrant's medium-term notes facility. The Registrant's
fourth quarter earnings press release of January 22, 1996 was filed
as an exhibit to this Form 8-K.
A report on Form 8-K dated February 15, 1996 which detailed the
impact of Corning's accounting calendar change effective January 1,
1996.
Other items under Part II are not applicable.
<PAGE>13
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORNING INCORPORATED
---------------------------------------------
(Registrant)
April 17, 1996 /s/JAMES R. HOUGHTON
-------------------------- ------------------------------
Date James R. Houghton
Chairman and Chief Executive Officer
April 17, 1996 /s/VAN C. CAMPBELL
-------------------------- ----------------------------
Date Van. C. Campbell
Vice Chairman and Chief Financial Officer
April 17, 1996 /s/KATHERINE A. ASBECK
-------------------------- ---------------------------------
Date Katherine A. Asbeck
Chief Accounting Officer
<PAGE>14
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 15
earnings to combined fixed
<PAGE>15
<TABLE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES Exhibit #12
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS
(Dollars in millions, except ratios)
<CAPTION> Three MonthsTwelve Weeks
Ended Ended Fiscal Year Ended
-----------------------------------------------
March 31, March 26, Dec. 31, Jan. 1, Jan. 2, Jan. 3, Dec. 29,
1996 1995 1995 1995 1994 1993 1991
------- ---------- -------- -------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Income before taxes on income $120.9 $ 107.9 $465.9 $459.5 $156.7 $336.6 $327.4
Adjustments:
Share of earnings (losses) before taxes
of 50% owned companies 20.9 39.0 95.2 89.0 (137.0) 103.2 165.4
Earnings (losses) before taxes of
greater than 50% owned unconsolidated
subsidiary 0.7 (1.6) (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 2.9 3.3 9.6 13.3 13.0 11.8 10.2
Fixed charges net of capitalized interest 49.5 45.0 171.6 212.0 155.8 130.3 126.4
----- ------ ----- ----- ----- ----- -----
Earnings before taxes and fixed
charges as adjusted $194.9 $ 193.6 $739.2 $771.9 $189.9 $575.5 $633.8
===== ====== ===== ===== ===== ===== =====
Fixed charges:
Interest incurred $32.9 $ 27.8 $128.2 $122.3 $ 94.0 $ 68.9 $ 60.4
Share of interest incurred of 50% owned
companies and interest
on guaranteed debt of less than 50%
owned companies 7.6 11.2 10.2 60.8 40.9 42.0 47.5
Interest incurred by greater than 50%
owned unconsolidatedsubsidiary 0.2 0.7 0.8 0.8 0.9 0.9
Portion of rent expense which represents
interest factor 11.7 6.4 40.1 36.2 29.9 27.6 23.0
Share of portion of rent expense
which represents interest
factor for 50% owned companies 0.7 1.8 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 0.4 0.5 0.9 2.0 1.8 1.5 0.4
----- ------ ----- ----- ----- ----- -----
Total fixed charges 53.3 47.9 182.8 231.6 176.6 150.2 141.3
Capitalized interest (3.8) (2.9) (11.2) (19.6) (20.8) (19.9) (14.9)
----- ------ ----- ----- ----- ----- -----
Total fixed charges net of
capitalized interest $49.5 $ 45.0 $171.6 $212.0 $155.8 $130.3 $126.4
===== ====== ===== ===== ===== ===== =====
Preferred dividends:
Preferred dividend requirements $ 3.9 $ 3.7 $15.7 $ 8.2 $ 2.1 $ 2.2 $ 2.4
Ratio of pre-tax income to income
before minority interest
and equity earnings 1.6 1.6 1.5 1.6 1.3 1.4 1.5
----- ------ ----- ----- ----- ----- -----
Pre-tax preferred dividend requirement 6.2 5.9 23.5 13.1 2.7 3.1 3.6
Total fixed charges 53.3 47.9 182.8 231.6 176.6 150.2 141.3
----- ------ ----- ----- ----- ----- -----
Fixed charges and pre-tax preferred
dividend requirement $59.5 $ 53.8 $206.3 $244.7 $179.3 $153.3 $144.9
===== ====== ===== ===== ===== ===== =====
Ratio of earnings to combined fixed
charges and preferred dividends 3.3x 3.6x 3.6x 3.2x 1.1x 3.8x 4.4x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 106,800
<SECURITIES> 57,500
<RECEIVABLES> 971,400
<ALLOWANCES> 161,900
<INVENTORY> 515,000
<CURRENT-ASSETS> 1,866,800
<PP&E> 4,213,200
<DEPRECIATION> 2,097,500
<TOTAL-ASSETS> 6,057,100
<CURRENT-LIABILITIES> 1,185,900
<BONDS> 1,385,800
364,800
23,600
<COMMON> 1,135,400
<OTHER-SE> 999,000
<TOTAL-LIABILITY-AND-EQUITY> 6,057,100
<SALES> 1,352,600
<TOTAL-REVENUES> 1,361,400
<CGS> 873,200
<TOTAL-COSTS> 873,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,315
<INTEREST-EXPENSE> 29,800
<INCOME-PRETAX> 120,900
<INCOME-TAX> 44,800
<INCOME-CONTINUING> 71,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,800
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
