FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
[ ] 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
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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
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:
230,742,218 shares of Corning's Common Stock, $0.50 Par Value, were outstanding
as of July 15, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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Index to consolidated financial statements of Corning Incorporated and
Subsidiary Companies filed as part of this report:
Page
-----
Consolidated Statements of Income for the six months and
three months ended June 30, 1997 and 1996 3
Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 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 and should be
read in conjunction with Corning's Annual Report on Form 10-K for the year
ended December 31, 1996.
<PAGE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
6 Months Ended 6/30, 3 Months Ended 6/30,
-------------------- --------------------
1997 1996 1997 1996
--------- -------- ----- -------
Revenues
Net sales $1,976.5 $1,751.3 $1,031.1 $ 913.7
Royalty, interest, and
dividend income 20.0 15.0 9.5 7.0
-------- -------- --------- -------
1,996.5 1,766.3 1,040.6 920.7
Deductions
Cost of sales 1,148.0 1,085.7 593.1 568.7
Selling, general and
administrative expenses 331.1 306.8 171.7 148.4
Research and development
expenses 104.6 90.2 53.5 44.9
Interest expense 48.3 36.0 23.3 18.3
Other, net 15.8 11.2 4.8 4.1
------- ------- ------- -------
Income from continuing
operations before taxes
on income 348.7 236.4 194.2 136.3
Taxes on income from
continuing operations 120.3 79.2 67.0 45.7
------- ------- ------- ------
Income from continuing
operations before minority
interest and equity earnings 228.4 157.2 127.2 90.6
Minority interest in earnings
of subsidiaries (33.5) (28.0) (20.9) (15.8)
Dividends on convertible
preferred securities of
subsidiary (6.9) (6.9) (3.5) (3.5)
Equity in earnings of
associated companies 31.0 34.1 24.2 22.5
-------- ------- ------- -------
Income from continuing
operations 219.0 156.4 127.0 93.8
Loss from discontinued
operations,net of income
taxes (47.6) (56.8)
------ ------- ------ -------
Net Income $ 219.0 $ 108.8 $ 127.0 $ 37.0
======== ======== ======== ========
Earnings Per Common Share:
Continuing operations $ 0.96 $ 0.68 $ 0.56 $ 0.41
Discontinued operations (0.21) (0.25)
------ ------- ------ --------
$ 0.96 $ 0.47 $ 0.56 $ 0.16
======== ======== ======== ========
Assuming Dilution:
Continuing operations $ 0.92 $ 0.67 $ 0.53 $ 0.40
Discontinued operations (0.19) (0.23)
------- -------- ------- --------
$ 0.92 $ 0.48 $ 0.53 $ 0.17
======== ======== ======== ========
Dividends Declared $ 0.36 $ 0.36 $ 0.18 $ 0.18
======== ======== ======= ========
The accompanying notes are an integral part of these statements.
<PAGE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and per-share amounts)
June 30, December 31,
ASSETS 1997 1996
------ -------- -----------
CURRENT ASSETS
Cash $ 60.2 $ 51.9
Short-term investments, at cost, which
approximates market value 80.1 171.3
Accounts receivable, net of doubtful
accounts and allowances - $20.8/1997;
$22.0/year-end 1996 623.3 566.3
Inventories 582.1 498.5
Deferred taxes on income and other
current assets 124.5 130.7
-------- -------
Total current assets 1,470.2 1,418.7
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INVESTMENTS
Associated companies, at equity 304.7 313.8
Others, at cost 17.0 23.4
-------- -------
321.7 337.2
------- -------
PLANT AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION 2,060.2 1,977.7
GOODWILL AND OTHER INTANGIBLE ASSETS,
NET OF ACCUMULATED AMORTIZATION -
$97.5/1997; $86.8/year-end 1996 369.9 330.4
OTHER ASSETS 288.3 257.3
------- --------
$4,510.3 $4,321.3
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Loans payable $ 134.3 $ 53.9
Accounts payable 162.8 268.9
Other accrued liabilities 522.7 484.7
------- --------
Total current liabilities 819.8 807.5
-------- ---------
OTHER LIABILITIES 669.1 646.2
LOANS PAYABLE BEYOND ONE YEAR 1,160.8 1,208.5
MINORITY INTEREST IN SUBSIDIARY COMPANIES 338.5 310.7
CONVERTIBLE PREFERRED SECURITIES OF
SUBSIDIARY 365.1 365.1
CONVERTIBLE PREFERRED STOCK 21.1 22.2
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: 262.8 million/1997
and 261.0 million/year-end 1996 660.1 566.0
Retained earnings 1,159.4 1,024.0
Less cost of 32.2 million/1997 and
32.3 million/year-end 1996 shares
of common stock in treasury (703.5) (672.5)
Cumulative translation adjustment 19.9 43.6
-------- -------
Total common stockholders' equity 1,135.9 961.1
-------- --------
$4,510.3 $4,321.3
========= =========
The accompanying notes are an integral part of these statements.
<PAGE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six Months Ended June 30,
-------------------------
1997 1996
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 219.0 $ 108.8
Adjustments to reconcile net income to
net cash provided by operating
activities from continuing operations:
Loss from discontinued operations 47.6
Depreciation and amortization 169.1 141.8
Equity in earnings of associated companies
in excess of dividends received (2.4) (11.1)
Minority interest in earnings of subsidiaries
in excess of dividends paid 27.7 15.8
Gain on disposition of properties and investments (12.7) (7.4)
Deferred tax benefit (16.8) (22.0)
Other 46.2 (7.7)
Changes in operating assets and liabilities:
Accounts receivable (46.7) (56.1)
Inventory (88.1) (72.1)
Deferred taxes and other current assets (22.4) 2.1
Accounts payable and other current liabilities (59.6) (23.4)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS 213.3 116.3
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (243.5) (224.7)
Acquisitions of businesses, net (32.0) (15.1)
Net proceeds from disposition of properties
and investments 51.8 31.4
Increase in long-term investments (4.3) (2.5)
Other, net (0.5) 7.5
-------- --------
NET CASH USED IN INVESTING ACTIVITIES OF
CONTINUING OPERATIONS (228.5) (203.4)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of loans 54.0 271.6
Repayments of loans (20.3) (58.6)
Proceeds from issuance of common stock 25.5 12.6
Repurchases of common stock (28.0) (12.6)
Dividends paid (83.6) (83.3)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES OF CONTINUING OPERATIONS (52.4) 129.7
------ -------
Effect of exchange rates on cash 3.2 (1.5)
------- --------
Effect of accounting calendar change on cash (17.5)
------- --------
Cash used in discontinued operations (18.5) (89.0)
-------- --------
Net change in cash and cash equivalents (82.9) (65.4)
Cash and cash equivalents at beginning of year 223.2 187.6
-------- --------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 140.3 $ 122.2
========= =========
SUPPLEMENTAL DATA:
Income taxes paid, net $ 43.0 $ 81.7
========= =========
Interest paid $ 50.1 $ 52.6
========= =========
The accompanying notes are an integral part of these statements.
<PAGE>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Earnings per common share are computed by dividing net income less
dividends on Series B convertible preferred stock by the weighted
average number of common shares outstanding during each period. The
weighted average number of common shares outstanding for the second
quarter and first half of 1997 was 227.8 million and 227.2 million,
respectively, and 227.3 million for both periods in 1996. Series B
preferred dividends amounted to $0.4 million and $0.8 million in the
second quarter and first half of 1997, respectively, and $0.5 million
and $1.0 million, respectively, for the same periods in 1996.
Earnings per common share assuming dilution are computed by dividing net
income plus dividends on convertible preferred securities of subsidiary
by the weighted average number of common shares outstanding during the
period after giving effect to dilutive stock options and adjusted for
dilutive common shares assumed to be issued on conversion of Corning's
convertible securities. The shares used in computing earnings per share
assuming dilution for the second quarter and first half of 1997 were
245.6 million and 244.4 million, respectively, and 239.4 million and
239.1 million, respectively, for the same periods in 1996.
Common dividends of $41.5 million and $82.8 million were declared in the
second quarter and first half of 1997, respectively, compared with $41.4
million and $82.4 million for the same periods in 1996.
(2) In April, 1997, Corning acquired 100% of the stock of Optical
Corporation of America (OCA) for a total purchase price of approximately
$70 million. The consideration was comprised of approximately 950,000
shares of Corning restricted stock and options and $32 million of cash.
The acquisition was recorded under the purchase method of accounting.
The results of operations of OCA are included in the consolidated
financial statements from the date of acquisition. The excess cost over
the fair value of net tangible assets acquired is approximately $52
million and is being amortized over periods of up to 20 years.
(3) Inventories shown on the accompanying balance sheets were comprised of the
following (in millions):
June 30, December 31,
1997 1996
-------- ---------
Finished goods $ 263.0 $ 223.0
Work in process 196.9 156.7
Raw materials and accessories 96.1 104.5
Supplies and packing materials 70.9 64.5
-------- --------
Total inventories valued at current cost 626.9 548.7
Reduction to LIFO valuation (44.8) (50.2)
------- -------
$ 582.1 $ 498.5
======== =======
(4) Plant and equipment shown on the accompanying balance sheets were
comprised of the following (in millions):
June 30, December 31,
1997 1996
-------- ----------
Land $ 54.0 $ 54.2
Buildings 822.3 810.4
Equipment 3,091.7 2,906.3
Accumulated depreciation (1,907.8) (1,793.2)
-------- ---------
$2,060.2 $1,977.7
======== =======
<PAGE>
(5) On December 31, 1996, Corning completed a strategic repositioning of the
company by distributing all of the shares of Quest Diagnostics
Incorporated and Covance Inc. (the Distributions) to its shareholders on a
pro rata basis. Corning's results for 1996 report Quest Diagnostics and
Covance as discontinued operations. The loss from discontinued operations
in the second quarter of 1996 was $56.8 million, or $0.25 per share, and
included income taxes of $36.6 million. The loss from discontinued
operations also included a charge for the estimated costs related to the
Distributions and a charge to increase reserves for government claims,
offset by the estimated results of Quest Diagnostics and Covance from
April 1, 1996, through December 31, 1996. The loss from discontinued
operations in the first half of 1996 was $47.6 million, or $0.21 per
share, and included income taxes of $47.9 million.
As described in Note 18 to Corning's 1996 consolidated financial
statements included in its Annual Report on Form 10-K, Corning has agreed
to indemnify Quest Diagnostics on an after-tax basis, for the settlement
of certain governmental claims and certain other claims that were pending
at December 31, 1996. Coincident with the Distributions, Corning recorded
a payable to Quest Diagnostics of approximately $25 million which is equal
to management's best estimate of amounts which are probable of being paid
by Corning to Quest Diagnostics to satisfy the remaining indemnified
claims on an after-tax basis.
Although management believes that established reserves for indemnified
claims are sufficient, it is possible that additional information may
become available to Quest Diagnostics' management which may cause the
final resolution of these matters to exceed established reserves by an
amount which could be material to Corning's results of operations and cash
flow in the period in which such claims are settled. Corning does not
believe that these issues will have a material adverse impact on Corning's
overall financial condition.
<PAGE>
ITEM 2.
- ----------
Management's Discussion and Analysis of
---------------------------------------------------
Financial Condition and Results of Operations
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Results of Operations
--------------------------
Net sales for the second quarter 1997 totaled $1.0 billion, an increase of 13%
compared with second quarter 1996 sales. Net sales for the first half 1997
totaled $2.0 billion, also an increase of 13% compared with the first half 1996
sales. The increase in sales in the second quarter and first half 1997 was due
primarily to continued volume gains in the Communications segment.
Net income increased 35% to $127 million for the second quarter 1997 compared
with $93.8 million from continuing operations for the second quarter 1996. Net
income increased 40% to $219 million for the first half 1997 compared with
$156.4 million from continuing operations for the same period in 1996.
Earnings per share increased 37% to $0.56 per share for the second quarter 1997
compared with $0.41 per share from continuing operations for the second quarter
1996. Earnings per share increased 41% to $0.96 in the first half 1997
compared to $0.68 per share from continuing operations for the same period in
1996. The increase in earnings in the second quarter and first half 1997 was
due primarily to continued strong performance in the Communications segment and
improved results in the Consumer Products segment.
Segment overview
- ----------------------
Sales and earnings in the Communications segment increased significantly in both
the second quarter and first half 1997 due to strong growth in the optical-
fiber, optical-cable and photonic-technologies businesses, and improvement in
the information-display businesses. Sales increased significantly in the second
quarter and first half 1997 reflecting substantial volume gains in both the
optical-fiber business, due to strong demand and increased capacity, and in the
photonic-technologies business. Earnings in the optical-fiber business were up
in the second quarter and first half 1997 due to increased volume and
manufacturing efficiencies. Sales and earnings in the information display
businesses also increased significantly in the second quarter and first half
1997 due to volume gains in all businesses. Earnings in the second quarter and
first half also reflect improved manufacturing efficiencies over the same
periods in 1996 which were adversely impacted by expansion-related
inefficiencies.
Sales in the Specialty Materials segment were down slightly in the second
quarter and first half 1997 as volume gains in the advanced-materials business,
driven by high purity fused silica glass for the semiconductor industry, were
more than offset by declines in environmental-products and optical-products
businesses due to market softness. The environmental-products business was
also impacted by employee strikes at U.S. and Korean automobile manufacturers.
Segment earnings were flat in the second quarter 1997 as the volume gain in the
advance-materials business was offset by the earnings decline in environmental-
products and optical-products businesses from lower sales. Earnings in the
first half of 1997 were up due to manufacturing efficiencies achieved by most
businesses in this segment and improvement at Quanterra.
Sales in the Consumer Products segment decreased in the second quarter and
first half of 1997 due to the sale of the Serengeti eyewear business in the
first quarter 1997. Excluding the impact of the sale of the Serengeti eyewear
business, segment sales in the second quarter and first half of 1997 decreased
slightly due to the planned reduction in the number of stock-keeping units the
consumer housewares business provides. Earnings increased significantly in the
second quarter and first half 1997 reflecting the benefit of manufacturing
efficiencies and cost-reduction programs in the consumer housewares business.
Corning announced on May 5, 1997, that it is exploring the divestiture of its
worldwide consumer housewares business. Management expects to complete a
transaction by year end 1997. Corning intends to use proceeds from the
anticipated divestiture of its consumer housewares business to invest for
future growth in its communications, environmental-products and advanced-
materials businesses, and to improve its balance sheet.
<PAGE>
Equity in Earnings
- ----------------------
Second quarter 1997 equity in earnings of associated companies totaled $24.2
million, a slight increase from $22.5 million in the same period last year.
First half 1997 equity in earnings of associated companies totaled $31 million,
a slight decrease from $34.1 million in the same period last year. Equity in
earnings of associated companies for the second quarter and first half of 1997
reflects increased earnings at Eurokera and costs associated with new equity
ventures, including the start up of American Video Glass Company and Samsung
Corning Precision Glass Co. Ltd.
Taxes on Income
- --------------------
Corning's effective tax rate for continuing operations was 34.5% for the second
quarter and first half of 1997 and 33.5% for the same periods of 1996. The
higher 1997 rate was due to a higher percentage of Corning's earnings resulting
from consolidated entities with higher effective tax rates.
Liquidity and Capital Resources
--------------------------------------
Corning's working capital increased from $611.2 million at the end of 1996 to
$650.4 million at June 30, 1997. The ratio of current assets to current
liabilities was 1.8 at both the end of the second quarter 1997 and year-end
1996. Corning's long-term debt as a percentage of total capital was 38% at the
end of the second quarter 1997 compared to 42% at year-end 1996. The decrease
in this percentage is primarily due to the increase in Corning's stockholders'
equity.
Cash and short-term investments declined from year-end 1996 by $82.9 million
primarily due to investing and financing activities which used cash of $228.5
million and $52.4 million, respectively, offset by operating activities which
provided cash of $213.3 million. Net cash provided by operating activities
increased in the first half 1997 compared to the same period in 1996 due to
increased earnings which more than offset an increase in cash used for working
capital. Net cash used in investing activities increased in the first half
1997 due primarily to an increase in capital spending. In the first half 1997
Corning announced capacity expansions in its Communications segment.
Management expects capital spending to range from $750 million to $800 million
in 1997. Corning used cash in financing activities in the first half 1997 as a
result of dividend payments and repurchases of common stock which more than
offset net borrowings. Financing activities provided cash in the first half
1996 as net borrowings were higher than dividend payments and repurchases of
common stock. Cash used in discontinued operations totaled $18.5 million and
$89.0 million in 1997 and 1996, respectively. Cash used by discontinued
operations in 1997 was primarily due to payments of transaction costs
associated with the December 31, 1996 Distributions of Quest Diagnostics and
Covance.
New Accounting Pronouncement
- ----------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 "Earnings per Share" (FAS 128), which establishes standards for computing
and presenting earnings per share (EPS). FAS 128 requires presentation of both
EPS and diluted EPS. FAS 128 will be effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. The EPS
calculations under FAS 128 will not differ from Corning's current EPS
calculations under the provisions of Accounting Principles Board Opinion No. 15
(APB 15) for the periods presented.
<PAGE>
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
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The statements in this Form 10-Q which are not historical facts or information
are forward-looking statements. These forward-looking statements involve risks
and uncertainties that could cause the outcome to be materially different.
Such risks and uncertainties include, but are not limited to, global economic
conditions, product demand and industry capacity, competitive products and
pricing, manufacturing efficiencies, costs reductions, availability and costs
of critical materials, new product development and commercialization,
manufacturing capacity, facility expansions and new plant start-up costs, the
effect of regulatory and legal developments, capital resource and cash flow
activities, capital spending, equity company activities, interest costs,
acquisition and divestiture activity, the rate of technology change, ability to
enforce patents and other risks detailed in Corning's 1996 Form 10-K.
<PAGE>
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 $21 million for its estimated
liability for environmental cleanup and litigation at June 30, 1997.
Breast-implant Litigation. Dow Corning Bankruptcy: 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. Judge Hood's order
refusing to transfer to the Michigan Federal Court the cases "related to" the
Dow Corning case was reversed by the Sixth Circuit and remanded to Judge Hood to
determine whether the District Court should abstain from hearing the cases.
Judge Hood again refused to transfer the "related to" cases, and her action was
again appealed. On May 8, 1997 the Sixth Circuit reversed Judge Hood again,
resulting in her May 13, 1997 order transferring all pending breast implant
claims against Corning and The Dow Chemical Company to the Michigan Federal
Court.
At the end of June 1997, the Chief Justice of the United States Supreme Court
designated and assigned Judge Sam C. Pointer, Jr. to serve in the U.S. District
Court for the Eastern District of Michigan to preside over all implant personal
injury claims arising out of the reorganization of Dow Corning Corporation and
against Corning and The Dow Chemical Company. The Michigan Federal Court then
determined that, under its local rules, the cases against Corning and The Dow
Chemical Company will be assigned to Judge Hood.
On December 2, 1996, Dow Corning filed its Plan of Reorganization in the
bankruptcy. The Plan contemplates a common issues trial to resolve the question
of whether or not silicones cause disease and whether a significant fund is
needed to resolve disease claims. The Plan also contemplates that the
shareholders will retain their shares in Dow Corning and receive a release from
all breast implant claims. On January 10, 1997, the Tort Claimants Committee
and the Commercial Creditors Committee filed a joint motion to modify Dow
Corning's exclusivity with respect to filing a plan of reorganization,
requesting the right to file their own competing plan. A hearing on the Joint
Committees' Motion to Modify Exclusivity was heard during April 1997. The
motion was denied by the Bankruptcy Court in May 1997 and Dow Corning retained
its exclusivity.
<PAGE>
On April 7, 1997, Dow Corning filed in the Bankruptcy Court an Omnibus Objection
to all claims in the bankruptcy to the extent based on the alleged causation of
disease by silicones, and a Motion for Summary Judgment on its Omnibus
Objection. Hearing dates on these motions have not yet been set. The
Bankruptcy Court is expected to issue its order concerning Estimation, Panel of
Scientific Experts and Common Issues Trial before the end of July 1997.
Implant Tort Lawsuits: Despite the bankruptcy filing of Dow Corning, Corning
continues to be a defendant in two types of cases previously reported involving
the silicone-gel implant products or materials formerly manufactured or supplied
by Dow Corning or a Dow Corning subsidiary. These cases include (1) a purported
federal securities class action lawsuit filed against Corning by shareholders of
Corning alleging, among other things, misrepresentations and omissions of
material facts relative to the silicone-gel breast implant business conducted by
Dow Corning and (2) lawsuits filed in various federal and state courts against
Corning and others (including Dow Corning) by persons claiming injury from the
silicone-gel implant products or materials formerly manufactured by Dow Corning
or a Dow Corning subsidiary. Several of such suits have been styled as class
actions and others involve multiple plaintiffs.
As of June 30, 1997, Corning had been named in approximately 11,460 state and
federal tort lawsuits. More than 5,100 tort lawsuits filed against Corning in
federal courts were consolidated in the United States District Court, Northern
District of Alabama. On April 25, 1995 that District Court issued a final
order dismissing Corning from those federal, consolidated breast-implant cases
and plaintiffs appealed. On March 12, 1996, the U.S. Court of Appeals for the
Eleventh Circuit dismissed the plaintiffs' appeal of that order. In orders
entered in May and June 1997, the District Court clarified that pending breast
implant claims against Corning are dismissed and that Corning is to be stricken
as a party in new cases in that Court. Certain state court tort cases against
Corning were also consolidated in various states for the purposes of discovery
and pretrial matters. During 1994, 1995, 1996 and 1997, Corning made several
motions for summary judgment in state courts and judges have dismissed Corning
from over 6,200 tort cases filed in California, Connecticut, Illinois, Indiana,
Louisiana, Michigan, Mississippi, New Jersey, New York, Pennsylvania, Tennessee
and Dallas, Harris and Travis Counties in Texas, some of which are on appeal.
Corning's motions seeking dismissal remain pending, and continue to be filed, in
various courts. In certain Texas tort cases, Dow Chemical and Corning have each
filed cross claims against each other and against Dow Corning. In late 1996,
Dow Chemical filed cross claims against Corning in the Louisiana state implant
class action. On February 21, 1997, the Louisiana judge dismissed Dow
Chemical's and the plaintiffs' claims against Corning. Dow Chemical and the
plaintiffs have appealed that dismissal.
Quest Diagnostics: Government Investigations and Related Claims. On December
31, 1996, Corning completed the spin-off of its health care services businesses
by the distribution to its shareholders of the Common Stock of Quest Diagnostics
Incorporated ("Quest Diagnostics") and Covance Inc. ("Covance"). In connection
with these distributions, Quest Diagnostics assumed financial responsibility for
the liabilities related to the clinical laboratory business and Covance assumed
financial responsibility for the liabilities related to the contract research
business. Corning agreed to indemnify Quest Diagnostics against all monetary
penalties, fines or settlements for any governmental claims arising out of
alleged violations of applicable federal fraud and health care statutes and
relating to billing practices of Quest Diagnostics and its predecessors that
were pending at December 31, 1996. Corning also agreed to indemnify Quest
Diagnostics for 50% of the aggregate of all judgment or settlement payments made
by Quest Diagnostics that are in excess of $42.0 million in respect of claims by
private parties (i.e., nongovernmental parties such as private insurers) that
relate to indemnified or previously settled governmental claims and that allege
overbillings by Quest Diagnostics, or any existing subsidiaries of Quest
Diagnostics, for services provided prior to December 31, 1996; provided,
however, such indemnification is not to exceed $25.0 million in the aggregate
and that all amounts indemnified against by Corning for the benefit of Quest
Diagnostics are to be calculated on a net after-tax basis. Such indemnification
does not cover (i) any governmental claims that arise after December 31, 1996
pursuant to service of subpoena or other notice of such investigation after
December 31, 1996, (ii) any nongovernmental claims unrelated to the indemnified
governmental claims or investigations, (iii) any nongovernmental claims not
settled prior to December 31, 2001, (iv) any consequential or incidental damages
relating to the billing claims, including losses of revenues and profits as a
consequence of exclusion for participation in federal or state health care
programs or (v) the fees and expenses of litigation.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
- ------- --------------------------------
(a) The annual meeting of stockholders of the registrant was held on
April 24, 1997.
(b) The following nominees for the office of director, provided in
the registrant's proxy statement dated March 5, 1997, which appears
as Exhibit #22 to this report, were elected by the following number
of shareholder votes for and withheld:
For Withheld
---- --------
Robert Barker 189,376,611 10,543,325
Van C. Campbell 189,371,832 10,548,103
Norman E. Garrity 189,353,274 10,566,662
James R. Houghton 189,370,813 10,549,123
James W. Kinnear 189,330,075 10,589,861
John W. Loose 189,334,296 10,585,639
James J. O'Connor 189,385,880 10,534,056
The following persons continue as directors:
Roger G. Ackerman
John Seely Brown
Lawrence S. Eagleburger
John H. Foster
Gordon Gund
John M. Hennessy
Catherine A. Rein
Henry Rosovsky
H. Onno Ruding
William D. Smithburg
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- ---------------------------------
(a) Exhibits
See the Exhibit Index which is located on page 15.
(b) Reports on Form 8-K
A report on Form 8-K dated April 15, 1997, was filed in
connection with the Registrant's medium-term notes facility. The
Registrant's first quarter earnings press release of April 15, 1997
was filed as an exhibit to this Form 8-K.
A report on Form 8-K dated May 5, 1997, was filed which included the
Registrant's press release announcing that it was exploring the
divestiture of its worldwide consumer housewares business.
Other items under Part II are not applicable.
<PAGE>
SIGNATURES
-------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORNING INCORPORATED
----------------------------------------------
(Registrant)
July 29, 1997 /s/ ROGER G. ACKERMAN
- ------------------- ---------------------------------------
Date R. G. Ackerman
Chairman and Chief Executive Officer
July 29, 1997 /s/ JAMES B. FLAWS
---------------- --------------------------------------------
Date J. B. Flaws
Vice President-Finance and Treasurer
July 29, 1997 /s/ KATHERINE A. ASBECK
--------------- ---------------------------------------------
Date K. A. Asbeck
Vice President and Controller
<PAGE>
CORNING INCORPORATED
-------------------------------------
EXHIBIT INDEX
----------------------
This exhibit is numbered in accordance
with Exhibit Table I of Item 601 of Regulation S-K
Page number
in manually
Exhibit # Description signed original
--------- ----------- --------------
12 Computation of ratio of earnings
to combined fixed charges and
preferred dividends 16
22 Registrant's proxy statement dated
March 5, 1997, filed with the
Securities and Exchange Commission
as a definitive proxy statement, is
incorporated herein by reference
<TABLE>
<CAPTION>
CORNING INCORPORATED AND SUBSIDIARY COMPANIES Exhibit #12
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS
(Dollars in millions, except ratios)
Six Months Ended Fiscal Year Ended
----------------- -----------------------------------------
June 30, June 30, Dec. 31, Dec. 31, Jan. 1, Jan. 2, Jan. 3,
1997 1996 1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Income before taxes on income $348.7 $236.4 $487.3 $406.1 $343.8 $74.3 $156.2
Adjustments:
Share of earnings (losses) before
taxes of 50% owned companies 51.5 52.3 130.3 95.2 89.0 (137.0) 103.2
Gain (loss) before taxes of greater
than 50% owned unconsolidated
subsidiary (1.1) 0.7 (3.1) (4.0) (3.1) (2.1)
Distributed income of less than 50%
owned companies and share of loss
if debt is guaranteed 2.1 4.5 (4.3)
Amortization of capitalized interest 7.1 2.9 11.8 9.6 13.3 13.0 11.8
Fixed charges net of capitalized
interest 87.5 60.4 127.0 102.3 148.5 110.1 103.5
----- ---- ----- ----- ----- ----- -----
Earnings before taxes and fixed charges
as adjusted $ 494.8 $350.9 $757.1 $610.1 $592.7 $61.8 $368.3
======== ====== ====== ===== ===== ===== ======
Fixed charges:
Interest incurred $57.5 $ 42.8 $86.7 $79.7 $77.5 $63.3 $53.1
Share of interest incurred of
50% owned companies and interest
on guaranteed debt of less than
50% owned companies 26.3 14.3 38.7 10.2 60.8 40.9 42.0
Interest incurred by greater than
50% owned unconsolidated
subsidiary 0.7 0.8 0.8 0.9
Portion of rent expense which
represents interest factor 10.6 10.2 20.1 19.3 17.5 13.4 15.8
Share of portion of rent expense
which represents interest
factor for 50% owned companies 1.8 0.7 1.4 2.7 9.4 9.1 9.2
Portion of rent expense which
represents interest factor for
greater than 50% owned
unconsolidated subsidiary 0.1 0.1 0.1
Amortization of debt costs 2.0 0.7 3.4 0.9 2.0 1.8 1.5
----- ---- ---- --- ---- ---- ----
Total fixed charges 98.2 68.7 150.3 113.5 168.1 129.4 122.6
Capitalized interest (10.7) (8.3) (23.3) (11.2) (19.6) (19.3) (19.1)
------- ------ ------ ------ ------ ------ -----
Total fixed charges net of
capitalized interest $ 87.5 $60.4 $127.0 $102.3 $148.5 $110.1 $103.5
====== ===== ====== ====== ====== ======= =====
Preferred dividends:
Preferred dividend requirements $ 7.7 $7.9 $15.7 $15.7 $8.2 $ 2.1 $ 2.2
Ratio of pre-tax income to
income before minority
interest and equity earnings 1.5 1.5 1.5 1.4 1.5 0.9 1.2
---- ---- ---- ---- ---- ---- -----
Pre-tax preferred dividend
requirement 11.6 11.9 23.6 22.0 12.3 1.9 2.6
Total fixed charges 98.2 68.7 150.3 113.5 168.1 129.4 122.6
----- ----- ------ ------ ----- ------ ------
Fixed charges and pre-tax preferred
dividend requirement $109.8 $ 80.6 $173.9 $135.5 $180.4 $131.3 $125.2
======= ====== ====== ====== ====== ====== ======
Ratio of earnings to combined
fixed charges and preferred
dividends 4.5x 4.4x 4.3x 4.5x 3.3x - 2.9x
======== ======= ====== ====== ====== ====== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 60,200
<SECURITIES> 80,100
<RECEIVABLES> 623,300
<ALLOWANCES> 20,762
<INVENTORY> 582,100
<CURRENT-ASSETS> 1,470,200
<PP&E> 2,060,200
<DEPRECIATION> 1,907,838
<TOTAL-ASSETS> 4,510,300
<CURRENT-LIABILITIES> 819,800
<BONDS> 1,160,800
365,100
21,100
<COMMON> 660,100
<OTHER-SE> 475,800
<TOTAL-LIABILITY-AND-EQUITY> 4,510,300
<SALES> 1,976,500
<TOTAL-REVENUES> 1,996,500
<CGS> 1,148,000
<TOTAL-COSTS> 1,148,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,700
<INTEREST-EXPENSE> 48,300
<INCOME-PRETAX> 348,700
<INCOME-TAX> 120,300
<INCOME-CONTINUING> 219,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,000
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.92
</TABLE>
