July 14, 1994
VIA EDGAR
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Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Corning Incorporated and Corning Delaware -
Registration Statement on Form S-3
(Registration No. 33-53821)
Ladies and Gentlemen:
Pursuant to Rule 424(b)(4) of the Securities Act of 1933, as amended,
and Item 309(b) of Regulation S-T, we hereby file, on behalf of Corning
Incorporated and Corning Delaware, the form of the prospectus used after the
effective date (July 14, 1994) of the Registration Statement of Form S-3
(Registration No. 33-53821). As required by Rule 424(e), the form of prospectus
contains in the upper right hand corner of the cover page citations to
paragraph (b)(4) of Rule 424 and the file number of the Registration
Statement.
Please feel free to contact me at (212) 848-8983 or Cornelius J. Dwyer,
Jr. at (212) 848-7019 if you have any questions.
Very truly yours,
Virginia A. Melvin
<PAGE>
Filed pursuant to Rule 424(b)(4)
Registration Statement No. 33-53821
6,500,000
Corning Delaware
6% Convertible Monthly Income Preferred Securities
("Convertible MIPS"*)
(liquidation preference $50 per security)
guaranteed to the extent set forth herein by, and convertible into Common
Stock of, Corning Incorporated
The 6,500,000 6% Convertible Monthly Income Preferred Securities (the
"Preferred Securities") are being issued by Corning Delaware, L.P. ("Corning
Delaware"), a Delaware limited partnership. All of the partnership interests
in Corning Delaware, other than the limited partnership interests represented
by the Preferred Securities, are owned by Corning Incorporated, a New York
corporation ("Corning" or the "Company"), which is the general partner in
Corning Delaware. The Preferred Securities will have a preference over all
other partnership interests of Corning Delaware with respect to cash
distributions and amounts payable on liquidation.
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions from Corning Delaware, at an annual rate of 6% of the
liquidation preference of $50 per Preferred Security, accruing from July 21,
1994 and payable monthly in arrears on the last day of each calendar month of
each year, commencing July 31, 1994 ("dividends"). See "Description of
Securities Offered--Preferred Securities--Dividends."
In the event of the liquidation of Corning Delaware, holders of Preferred
Securities will be entitled to receive for each Preferred Security a
liquidation preference of $50 plus accumulated and unpaid dividends to the
date of payment, subject to certain limitations. See "Description of
Securities Offered--Preferred Securities--Liquidation Rights."
(continued on next page)
See "Investment Considerations" for a discussion of certain factors to be
considered in connection with an investment in the Preferred Securities,
including circumstances under which interest payments on the Subordinated
Debentures (as defined) in which Corning Delaware will invest the proceeds
from the sale of the Preferred Securities may be deferred for up to 60
months.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price Commission (1) Corning Delaware (2) (3)
<S> <C> <C> <C>
Per Corning Delaware Preferred Security $ 50.00 $ 1.125(2) $ 48.875
Total (4) $325,000,000 $7,312,500(2) $317,687,500
</TABLE>
(1) Corning Delaware and Corning have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will ultimately be used by Corning Delaware to purchase
convertible subordinated debentures of Corning, the Underwriting Agreement
provides that Corning will pay to the Underwriters, as compensation
("Underwriters' Compensation"), $1.125 per Preferred Security (or $7,312,500
in the aggregate). See "Underwriting."
(3) Expenses of the offering which are payable by Corning are estimated to be
$710,000.
(4) Corning Delaware and Corning have granted the Underwriters an option for
30 days to purchase up to an additional 975,000 Preferred Securities at the
initial public offering price per share, solely to cover over-allotments.
Corning will pay to the Underwriters, as Underwriters' Compensation, $1.125
per Preferred Security purchased pursuant to this option. If such option is
exercised in full, the total initial public offering price, underwriting
commission and proceeds to Corning Delaware will be $373,750,000, $8,409,375
and $365,340,625, respectively.
See "Underwriting."
<PAGE>
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company on or
about July 21, 1994.
Goldman, Sachs & Co. Lazard Freres & Co.
The date of this Prospectus is July 14, 1994.
<PAGE>
(continued from previous page)
Each Preferred Security is convertible through Corning Delaware at the option
of the holder, at any time, unless previously redeemed or exchanged, into
shares of Corning Common Stock, par value $.50 per share ("Corning Common
Stock"), at the rate of 1.2821 shares of Corning Common Stock for each Preferred
Security (equivalent to a conversion price of $39.00 per share of Corning Common
Stock), subject to adjustment in certain circumstances. See "Description of
Securities Offered--Preferred Securities--Conversion Rights." The last
reported sale price of Corning Common Stock, which is listed under the symbol
"GLW" on the New York Stock Exchange, on July 13, 1994 was $32.125 per share.
The Preferred Securities are also subject to exchange through Corning
Delaware, in whole but not in part, into shares of Series C Cumulative
Convertible Preferred Stock, par value $100 per share ("Corning Series C
Preferred Stock"), upon a vote of the holders of a majority of the aggregate
liquidation preference of all outstanding Preferred Securities upon the
failure of holders of Preferred Securities to receive dividends in full for
15 consecutive months and/or upon the occurrence of a Tax Event (as defined
herein). The Corning Series C Preferred Stock will have dividend, conversion
and optional redemption features substantially similar to those of the
Preferred Securities but will not be subject to mandatory redemption. See
"Description of Securities Offered--Preferred Securities--Optional Exchange
for Corning Series C Preferred Stock" and "--Description of Corning Series C
Preferred Stock."
The Preferred Securities are redeemable, at the option of Corning Delaware,
in whole or in part, on or after August 5, 1998, at the redemption prices set
forth herein, together with accumulated and unpaid dividends to the date
fixed for redemption. The Preferred Securities are subject to mandatory
redemption on the 30th anniversary of the date of original issuance. See
"Description of Securities Offered--Preferred Securities--Optional
Redemption" and "--Mandatory Redemption."
Corning will irrevocably and unconditionally guarantee, on a subordinated
basis and to the extent set forth herein, to pay in full the dividends by
Corning Delaware on the Preferred Securities (if and to the extent
declared from funds legally available therefor), the redemption price
(including all accumulated and unpaid dividends) payable with respect
to the Preferred Securities to the extent of funds legally available
therefor and payments on liquidation with respect to the Preferred
Securities (to the extent of the assets of Corning Delaware available
for distribution to holders of the Preferred Securities). The guarantee
will be unsecured and will be subordinate to all liabilities of Corning.
The proceeds from the offering of the Preferred Securities will be
invested by Corning Delaware in convertible subordinated debentures of
Corning (the "Subordinated Debentures") having the terms described herein.
If Corning fails to make interest payments on the Subordinated
Debentures, Corning Delaware will have insufficient funds to pay
dividends on the Preferred Securities. The guarantee does not
cover payment of dividends when Corning Delaware does not have
sufficient funds to pay such dividends. In such event (other than as a
result of an extended interest period discussed below), holders of the
Preferred Securities will be entitled to elect a Special General
Partner to enforce Corning Delaware's rights under the Subordinated
Debentures. See "Description of Securities Offered--Preferred
Securities--Voting Rights." Interest payment periods on the Subordinated
Debentures are monthly but may be extended by Corning for up to 60 months,
in which event Corning Delaware would be unable to make monthly dividend
payments on the Preferred Securities. If Corning selects an interest
period longer than one month, it will be prohibited from paying any
dividends on Junior Stock (as defined under "Description of Securities
Offered--Description of the Guarantee--Subordination"). The failure
of holders to receive dividends in full for 15 consecutive months
would trigger the right of the holders of the Preferred Securities to
cause Corning Delaware to exchange the Subordinated Debentures
for shares of Corning Series C Preferred Stock and distribute such shares to
the holders of the Preferred Securities in exchange for the Preferred
Securities. For a discussion of the United States federal income tax
consequences of such an extended interest payment period, including the fact
that holders will be required to include interest accruing on the
Subordinated Debentures in their gross income for United States federal
income tax purposes in advance of the receipt of cash dividend payments from
Corning Delaware, see "Certain Federal Income Tax Considerations--
Original Issue Discount."
The Subordinated Debentures are subordinated in right of payment to all
Senior Indebtedness (as defined under "Description of Securities
Offered--Description of the Subordinated Debentures--Subordination") of
Corning. As of June 19, 1994, Corning had approximately $1.9 billion of
Senior Indebtedness outstanding.
Application will be made to list the Preferred Securities on the New York
Stock Exchange under the symbol "GLW pfM."
The Preferred Securities will be represented by a global certificate or
certificates registered in the name of The Depository Trust Company ("DTC")
or its nominee. Beneficial interests in the Preferred Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by the participants in DTC. Except as described herein, Preferred
Securities in certificated form will not be issued in exchange for the global
certificates. See "Description of Securities Offered--Preferred
Securities--Book-Entry-Only Issuance--The Depository Trust Company."
<PAGE>
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*An application has been filed by Goldman, Sachs & Co. with the United States
Patent and Trademark Office for the registration of the MIPS servicemark.
<PAGE>
AVAILABLE INFORMATION
Corning is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by Corning may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of such materials may be obtained upon written request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, such materials may also be
inspected and copied at the offices of the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York 10005.
Corning and Corning Delaware have filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of
1933, as amended. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
No separate financial statements of Corning Delaware have been included
herein. Corning and Corning Delaware do not consider that such financial
statements would be material to holders of Preferred Securities because
Corning Delaware is a newly organized special purpose entity, has no
operating history and no independent operations and is not engaged in, and
does not propose to engage in, any activity other than as described under
"Corning Delaware." Further, Corning believes that financial statements
of Corning Delaware are not material to the holders of the Preferred
Securities since the Preferred Securities have been structured to provide a
guarantee by Corning of the Preferred Securities such that the holders of the
Preferred Securities with respect to the payment of dividends and amounts
upon liquidation, dissolution and winding up are at least in the same
position vis-a-vis the assets of Corning as a preferred stockholder of Corning.
See "Corning Delaware" and "Description of Securities Offered-- Preferred
Securities," "-Description of the Guarantee" and "-Description of the
Subordinated Debentures." Corning beneficially owns directly or indirectly
all of Corning Delaware's partnership interests (other than the Preferred
Securities).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-3247) pursuant
to the Exchange Act are incorporated herein by reference:
1. Corning's Annual Report on Form 10-K for the fiscal year ended January
2, 1994, filed pursuant to Section 13(a) of the Exchange Act.
2. All other reports filed by Corning pursuant to Section 13(a) or 15(d) of
the Exchange Act since January 2, 1994, consisting of Corning's Quarterly
Report on Form 10-Q for the twelve weeks ended March 27, 1994; and Corning's
Current Reports on Form 8-K dated January 24, 1994, April 6, 1994 and June
28, 1994, respectively. Certain historical financial statements of Damon
Corporation ("Damon") which was acquired in 1993 are included in Corning's
Current Reports on Form 8-K dated August 4, 1993 and August 13, 1993.
3. The description of Corning's Preferred Share Purchase Rights Plan
contained in the registration statement on Form 8-A filed by Corning on July
8, 1986, including the amendment thereto on Form 8 filed by Corning on
October 9, 1989.
4. All other documents filed by Corning pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the Offering.
Corning will provide without charge to each person, including any beneficial
owner of Preferred Securities, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any
or all of the documents incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests should be directed to Corning
Incorporated, One Riverfront Plaza, Corning, New York 14831, Attention:
Secretary, telephone (607) 974-9000.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY AND CORNING COMMON STOCK AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes
thereto) appearing elsewhere or incorporated by reference in this Prospectus.
Unless otherwise specified, references herein to the "Company" or "Corning"
refer to Corning Incorporated and its consolidated subsidiaries. Prospective
investors should carefully read the entire Prospectus.
CORNING DELAWARE
Corning Delaware is a special purpose limited partnership formed under the
laws of the State of Delaware. All of its partnership interests (other than
the Preferred Securities) are currently and will be beneficially owned
directly or indirectly by Corning. Corning is the sole general partner (the
"General Partner") in Corning Delaware.
THE COMPANY
Corning traces its origins to a glass business established by the Houghton
family in 1851. The present corporation was incorporated in the State of New
York in December 1936, and its name was changed from Corning Glass Works to
Corning Incorporated on April 28, 1989.
Corning is an international corporation competing in four broadly-based
business segments: Specialty Materials, Communications, Laboratory Services
and Consumer Products. Corning is engaged principally in the manufacture and
sale of products made from specialty glasses and related inorganic materials
having special properties of chemical stability, electrical resistance, heat
resistance, light transmission and mechanical strength. Corning and its
subsidiaries annually produce some 60,000 different products at 44 plants in
eight countries. In addition, Corning, through subsidiaries and affiliates,
engages in laboratory services businesses, including life and environmental
sciences and clinical-laboratory testing, at more than 50 facilities in ten
countries.
Corning has followed and will continue to follow a consistent strategy for
its businesses:
--to provide quality products and services to the four broad market
segments in which it chooses to compete,
--to be a market leader in each of its businesses, and
--to fully utilize the talents and capabilities of all its employees.
Corning utilizes various strategies and tactics appropriate to each business
and its specific markets. However, all strategies incorporate certain key
elements.
In addition to the restructuring programs already under way, Corning is
currently engaged in a comprehensive review of its business and cost
structure. Corning expects this review to be substantially completed by the
end of 1994.
Technology has been at the core of Corning's historical success. Corning's
investment in research and development has been significant at $131 million
in 1991; $151 million in 1992; and $173 million in 1993. Research and
development spending has enabled Corning to remain at the forefront of
technological advances for decades with new and improved products. Included
among Corning's important technological discoveries over the years are
optical fiber for telecommunications, ceramic substrates for automotive and
stationary emission control devices, photosensitive glasses for various
markets and mass produced television bulbs and incandescent light bulbs.
Recent developments include an electrically heated automotive pollution
control substrate, an expanded line of optical communications amplifiers,
dispersion shifted optical fiber, a glass ceramic magnetic memory disk and
active matrix liquid-crystal display glasses.
Alliances and acquisitions are utilized to leverage Corning's technologies
and market position. Corning's extensive experience with alliances spans more
than fifty years and includes jointly owned companies with The Dow Chemical
Company ("Dow Chemical") in silicones, PPG Industries Inc. in glass block and
foam glass, the Samsung Group and Asahi Glass in television bulbs, Siemens AG
in opto-electronics, and Mitsubishi Heavy Industries Ltd. in stationary
emission control devices.
Corning has recently completed several major strategic acquisitions, the most
significant of which was the acquisition of Damon Corporation ("Damon") in
August 1993. The acquisition of Damon has provided significant operating
synergies with MetPath Inc. ("MetPath") and is expected to provide additional
operating synergies upon full integration of Damon. Corning has also
completed acquisitions in the optical-fiber and optical-cable businesses and
the science products business and on June 7, 1994, merged Maryland Medical
Laboratory Inc., a privately owned Baltimore, Maryland firm specializing in
clinical laboratory testing for hospitals and physicians, with its MetPath
clinical laboratory testing operations.
Quality is an important element of all of Corning's business strategies. This
embodies an unwavering focus on satisfying the customer, continuous
improvement of the processes which deliver products and services to the
customer and creating an empowered workforce dedicated to serving the
customer.
<PAGE>
RECENT DEVELOPMENTS
Second Quarter 1994 Results
On June 28, 1994, Corning released its results for the quarter ended June 19,
1994. Corning's second quarter net income totaled $111.4 million, or $0.54
per share, compared to 1993's second quarter net income of $89.8 million, or
$0.47 per share. Corning's first half net income totaled $169.4 million, or
$0.82 per share, compared to 1993's first half net income of $139.6 million,
or $0.73 per share.
Second quarter and first half sales increased approximately 20% to $1.1
billion and $2.1 billion, respectively. Approximately half of the increase in
both periods was due to recent acquisitions, including the 1993 acquisition
of Damon.
Earnings from consolidated operations increased 24% and 16% in the second
quarter and first half, respectively. Sales and consolidated earnings growth
in both the second quarter and first half resulted from strength across all
business segments.
Equity company results for the second quarter and first half increased 24%
and 46%, respectively, over the prior year period primarily due to continued
improvement from operations at Dow Corning Corporation ("Dow Corning") and
the elimination of losses from Vitro Corning, S.A. de C.V. ("Vitro Corning")
which was divested in 1993.
Creation of Environmental Testing Services Company
On June 28, 1994, Corning and International Technology Corporation
("International Technology") created a jointly owned company to which Corning
transferred the net assets of its environmental testing laboratory business
and International Technology transferred the assets of its IT Analytical
Services business. Corning and International Technology each own 50 percent
of the company. Corning will account for its investment in the newly created
company using the equity method of accounting for investments. The impact of
the transaction is not expected to be material to Corning's financial
statements.
Acquisition of Clinical Laboratory Testing Businesses
On June 7, 1994, Corning acquired all of the outstanding shares of Maryland
Medical Laboratory Inc. and several affiliates (collectively, "Maryland
Medical") for approximately 4.5 million shares of Corning Common Stock in a
pooling of interests transaction. In connection with this transaction,
Corning has granted to the stockholders of Maryland Medical registration
rights with respect to the shares of Corning Common Stock they received.
Pursuant to such rights, Corning is required to file a registration statement
covering all 4.5 million shares of Corning Common Stock no later than 90 days
after the written request of the designated representative of such
stockholders. As of July 13, 1994, no such request had been received by
Corning.
On June 1, 1994, Corning signed a definitive agreement to acquire all of the
outstanding shares of the capital stock of Nichols Institute ("Nichols") in a
transaction to be accounted for as a pooling of interests. Under the terms of
the agreement, Corning will exchange newly issued and registered shares of
Corning Common Stock with a value equal to up to $13 for each share of the
capital stock of Nichols. Using an assumed price of $33 per share of Corning
Common Stock and the number of shares of, and options to purchase, the
capital stock of Nichols presently outstanding, approximately 6.7 million
shares of Corning Common Stock and
options to purchase approximately 1 million shares of Corning Common Stock
will be issued in the transaction. Substantially all of the options to
purchase shares of Corning Common Stock will be exercisable immediately
following the closing of the transaction. In no event will more than 9.6
million shares of Corning Common Stock be issued and reserved for the
exercise of options granted in connection with such transaction. The final
exchange ratio of shares of Corning Common Stock for shares of Nichols
capital stock will be determined by the price of Corning Common Stock during
the 10-day trading period ending on the fifth trading day prior to the date
of the Nichols stockholders meeting held to approve the transaction. The
transaction is subject to regulatory approval and is expected to close in the
second half of 1994.
Corning's consolidated financial statements for periods prior to these
transactions will not be restated since the acquisitions are not material to
Corning's financial position or results of operations. Corning will likely
record a one-time charge of up to $10 million after-tax in the third quarter
for transaction costs associated with these acquisitions and may possibly
record an additional one-time charge of up to $25 million after-tax in the
second half of 1994 for the integration of the Nichols and Maryland Medical
operations into MetPath.
For a discussion of the registration rights granted to the stockholders of
Maryland Medical and the registration of the shares of Corning Common Stock
to be issued in the Nichols transaction, see "Description of Corning Capital
Stock--Common Stock Eligible for Future Sale."
Sale of Parkersburg Plant
In May 1994, Corning sold its Parkersburg, W.Va., glass-tubing products plant
to Schott Corporation, a subsidiary of the Schott Group, for $57 million and
decided to exit several minor product lines in the specialty materials
segment. The net gain from these transactions is not material.
Disposition of Clinical Laboratory Testing Operations
On April 4, 1994, MetPath sold the clinical laboratory testing operations of
Damon in California for approximately $51 million in cash. No gain or loss
will be recognized as a result of this transaction. The proceeds from the
transaction were used to retire a portion of the debt incurred in connection
with the acquisition of Damon in August 1993.
See "Investment Considerations" for a discussion of certain factors to be
considered in connection with an investment in the Preferred Securities,
including circumstances under which interest payments on the Subordinated
Debentures (in which Corning Delaware will invest the proceeds from the sale
of the Preferred Securities), may be deferred for up to 60 months.
THE OFFERING
<TABLE>
<CAPTION>
<S> <S>
Securities Offered 6,500,000 of Corning Delaware's 6% Convertible Monthly Income Preferred
Securities, liquidation preference of $50 per security. Additionally, Corning
Delaware and Corning have granted the Underwriters an option for 30 days to
purchase up to an additional 975,000 Preferred Securities at the initial public
offering price solely to cover over-allotments, if any.
Dividends Dividends on the Preferred Securities will be cumulative from July 21, 1994
and will be payable at the annual rate of 6% of the liquidation preference
of $50 per Preferred Security. Dividends will be paid monthly in arrears on
the last day of each calendar month, commencing July 31, 1994. The proceeds from
the offering of the Preferred Securities will be invested in the Subordinated
Debentures. Interest payment periods on the Subordinated Debentures are monthly
but may be extended from time to time by Corning for up to 60 months, in which
event Corning Delaware would be unable to make monthly dividend payments on
the Preferred Securities during the period of any such extension. During such
period, interest on the Subordinated Debentures and dividends on the Preferred
Securities will compound monthly. The failure of holders of the Preferred Securities
to receive dividends in full for 15 consecutive months or the occurrence of
a Tax Event would trigger the right of such holders to cause Corning Delaware
to exchange all of the Subordinated Debentures for shares of Corning Series
C Convertible Preferred Stock, par value $100 per share ("Corning Series C Preferred
Stock"), and to distribute such shares to the holders of Preferred Securities
in exchange for the Preferred Securities. If the Preferred Securities remain
outstanding for three months after the date of notice
of a Tax Event or, if occurring earlier than the end of such three-month period,
the date on which a vote is taken at any special partnership meeting (or, in
lieu of such a meeting, the date of a written consent) by the holders of the
Preferred Securities on the matter of whether to cause the exchange of all of
the Subordinated Debentures for shares of Corning Series C Preferred Stock,
then amounts available for distribution to holders may be reduced by Additional
Taxes (as defined under "Description of Securities Offered--Preferred
Securities--Dividends"). See "Description of Securities Offered--Description
of the Subordinated Debentures--Option to Extend Payment Period" and "Description
of Securities Offered--Preferred Securities--Optional Exchange for Corning
Series C Preferred Stock."
Liquidation Preference $50 per Preferred Security, plus an amount equal to any accumulated and unpaid
dividends (whether or not earned or declared).
Conversion into Corning
Common Stock Each Preferred Security is convertible through Corning Delaware at the option
of the holder, at any time, unless previously redeemed or exchanged, into shares
of Corning Common Stock, par value $.50 per share (the "Corning Common Stock"),
at the rate of 1.2821 shares of Corning Common Stock for each Preferred Security
(equivalent to a conversion price of $39.00 per share of Corning Common Stock),
subject to adjustment in certain circumstances. Upon receiving an irrevocable
notice by a holder of a Preferred Security to exercise its conversion right,
Corning Delaware, on behalf of such holder, will exercise its option to convert
a portion of the Subordinated Debentures into Corning Common Stock and will
distribute such shares of Corning Common Stock to such holder in exchange for
the Preferred Securities of such holder that have been so converted. See "Description
of Securities Offered--Preferred Securities--Conversion Rights."
Redemption From time to time on and after August 5, 1998, the Preferred Securities will be
redeemable, at the option of Corning Delaware, in whole or in part, for cash
at the redemption prices set forth herein, together with accumulated and unpaid
dividends (whether or not earned or declared) to the date fixed for redemption.
The Preferred Securities are subject to mandatory redemption on the 30th anniversary
of the date of original issuance at a redemption price of $50 per Preferred
Security together with accumulated and unpaid dividends (whether or not earned
or declared). If Preferred Securities are called for redemption, the conversion
right will terminate two calendar days prior to the redemption date.
Optional Exchange for
Corning Series C Upon the failure of holders of the Preferred Securities to receive, for 15 consecutive
Preferred Stock months, the full amount of dividend payments or the occurrence of a Tax Event,
the holders of a majority of the aggregate liquidation preference of Preferred
Securities then outstanding may, at their option, cause Corning Delaware to
exchange all (but not less than all) of the Subordinated Debentures for shares
of Corning Series C Preferred Stock at the Exchange Price (as defined under
"Description of Securities Offered--Preferred Securities--Dividends") and
distribute such shares to the holders of Preferred Securities in exchange for
such Preferred Securities.
The Corning Series C Preferred Stock will have dividend, conversion, optional
redemption, and other terms substantially similar to the terms of the Preferred
Securities, except that, among other things, the holders of Corning Series C
Preferred Stock will have the right to elect two additional directors of Corning
whenever dividends on the Corning Series C Preferred Stock are in arrears for
18 months (including for this purpose any arrearage with respect to the Preferred
Securities) and the Corning Series C Preferred Stock will not be subject to
mandatory redemption.
Guarantee Pursuant to a Guarantee Agreement (the "Guarantee"), Corning will irrevocably and
unconditionally agree, on a subordinated basis and to the extent set forth therein,
to pay in full (a) the dividends (including any Additional Dividends thereon, as
defined under "Description of Securities Offered--Preferred Securities--Additional
Dividends") by Corning Delaware on the Preferred Securities, if, and
to the extent declared from funds legally available therefor, (b) the redemption
price (including all accumulated and unpaid dividends) of the Preferred Securities,
to the extent of funds legally available therefor, and (c) payments on
liquidation with respect to the Preferred Securities, to the extent
of the assets of Corning Delaware available for distribution to holders
of the Preferred Securities. The Guarantee will be unsecured and will be subordinated
to all liabilities of Corning and will rank pari passu with the Series B Preferred
Stock (as defined under "Description of Corning Capital Stock--Series Preferred
Stock"). A holder of Preferred Securities may enforce Corning's obligations
under the Guarantee directly against Corning, and Corning waives any right
or remedy to require that an action be brought against Corning Delaware or any
other person or entity before proceeding against Corning. See "Description
of Securities Offered--Description of the Guarantee."
Voting Rights Generally, holders of the Preferred Securities will not have any voting rights.
However, upon an Event of Default under the Subordinated Debentures (as described
under "Description of Securities Offered--Subordinated Debentures--Events of
Default"), a failure by Corning Delaware to pay dividends in full for 15 consecutive
months (other than as a result of an election by Corning to defer interest payments)
or a default by Corning under the Guarantee, the holders of the Preferred Securities
will be entitled to appoint and authorize a Special General Partner to enforce
Corning Delaware's rights under the Subordinated Debentures, enforce Corning's
obligations under the Guarantee and declare and pay dividends on the Preferred
Securities to the extent funds are legally available therefor. In addition,
upon the occurrence of a Tax Event, holders of the Preferred Securities will
be entitled to call a special partnership meeting for the purpose of deciding
whether to cause Corning Delaware to exchange all of the outstanding Subordinated
Debentures for shares of Corning Series C Preferred Stock at the Exchange Price
and distribute such shares to the holders of Preferred Securities in exchange
for the Preferred Securities. See "Description of Securities Offered--Preferred
Securities--Dividends."
Use of Proceeds The proceeds to be received by Corning Delaware from the sale of the Preferred
Securities will be invested in the Subordinated Debentures of Corning, which,
after paying the expenses associated with this Offering, will use such funds
to retire a significant portion of the Damon acquisition debt. See "Use of Proceeds."
Subordinated The Subordinated Debentures will have a maturity of 30 years and will bear interest
Debentures at the rate of 6% per annum, payable monthly in arrears. Corning has the right
to select an interest payment period or periods longer than one month (during
which period or periods interest will compound monthly), provided that any extended
interest payment period does not exceed 60 months. If Corning selects an interest
payment period longer than one month, it will be prohibited from paying dividends
on any Junior Stock (as defined under "Description of Securities
Offered--Description of the Guarantee--Subordination") and making certain other
restricted payments until monthly interest payments are resumed and all accumulated
and unpaid interest (including any Additional Interest) on the Subordinated
Debentures is brought current. Corning will have the right to make partial payments
of such interest during the extended interest payment period. The Subordinated
Debentures are convertible into shares of Corning Common Stock at the option
of Corning Delaware and exchangeable for shares of Corning Series C Preferred
Stock as described above under "Optional Exchange for Corning Series C Preferred
Stock." On and after August 5, 1998, Corning may prepay the Subordinated Debentures,
in whole or in part. The payment of the principal and interest on the Subordinated
Debentures will be subordinated in right of payment to all Senior Indebtedness
(as defined under "Description of Securities Offered--Description of the
Subordinated Debentures--Subordination") of Corning. As of June 19, 1994, Corning
had approximately $1.9 billion of Senior Indebtedness outstanding.
</TABLE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following is a summary of certain consolidated financial information that
has been derived from the consolidated financial statements of Corning. The
summary financial data set forth below for Corning for the 1989 through 1993
fiscal years are derived from its audited financial statements. The summary
financial data set forth below for the first twelve weeks of 1994 and 1993
are derived from Corning's unaudited financial statements, which in the
opinion of management contain all adjustments (consisting only of normal
recurring items) necessary for the fair presentation of this information. The
financial data should be read in conjunction with the information set forth
in "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the
historical financial information and related notes incorporated by reference
in this Prospectus.
The unaudited pro forma combined financial information set forth below
reflects the estimated impact on Corning's financial statements of the
acquisition of Damon, the merger with Costar Corporation ("Costar"), the
transaction with Unilab Corporation ("Unilab") and several other completed
1993 transactions, the Vitro transaction completed in January 1994, the
acquisition of the optical-fiber and optical-cable businesses of Northern
Telecom Limited ("NTL") by Corning and Siecor Corporation ("Siecor") in
February 1994, the merger with Maryland Medical completed in June 1994, the
pending acquisition of Nichols and the Offering (collectively, the
"Transactions"). Such pro forma data assume the Transactions had been
completed on January 4, 1993, for income statement data and by March 27,
1994, for balance sheet data. The unaudited pro forma combined financial
information set forth below is derived from, and should be read in
conjunction with, the unaudited pro forma combined financial information
included elsewhere in this Prospectus and the historical financial statements
of Corning and Damon incorporated by reference into this Prospectus. The
unaudited pro forma combined financial information is presented for
informational purposes only, and is not necessarily indicative of the results
of operations or financial position which would have been achieved had the
Transactions been completed on the dates indicated or the results that may be
attained in the future.
See "Selected Consolidated Financial Data", "Corning Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
Twelve
Weeks Ended Fiscal Year Ended
Mar. Mar. Dec. Dec.
27, 28, Jan. 2, Jan. 3, 29, 30, Dec. 31,
1994 1993 1994 1993 1991 1990 1989
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL:
Income Statement Data:
Net sales $ 948.9 $ 817.0 $4,004.8 $3,708.7 $3,259.2 $2,940.5 $2,439.2
Income before
extraordinary credit
and cumulative
effect of changes in
accounting
methods(a) 58.0 49.8 (15.2 ) 266.3 311.2 289.1 259.4
Net income (loss)(a) 58.0 49.8 (15.2 ) (12.6 ) 316.8 292.0 261.0
Balance Sheet Data:
Total assets $5,430.2 $4,282.6 $5,231.7 $4,286.3 $3,852.6 $3,512.0 $3,360.7
Working capital 452.5 596.6 451.4 465.2 521.0 458.4 487.3
Loans payable beyond
one year 1,573.6 916.7 1,585.6 815.7 700.0 611.2 624.5
Common stockholders'
equity 1,956.1 1,808.5 1,685.8 1,803.8 2,018.8 1,850.3 1,711.2
Per Common Share Data:
Income before
extraordinary credit
and cumulative
effect of changes in
accounting
methods(a) $ 0.28 $ 0.26 $ (0.09) $ 1.40 $ 1.66 $ 1.53 $ 1.39
Net income (loss)(a) 0.28 0.26 (0.09) (0.08) 1.69 1.55 1.40
Common dividends
declared(b) 0.17 0.17 0.68 0.62 0.68 0.46 0.53
PRO FORMA: (c)
Income Statement Data:
Net sales $1,050.2 $4,798.9
Net income 53.4 4.4
Net income per share 0.24 0.01
Balance Sheet Data:
Total assets $5,721.3
Working capital 434.9
Loans payable beyond
one year 1,308.3
Common stockholders' 2,052.5
equity
</TABLE>
(a) Amounts for all periods other than the first quarter 1994 are
significantly impacted by certain non-recurring gains and losses and the
cumulative effect of changes in accounting methods. See the Notes to Selected
Consolidated Financial Data contained elsewhere in this Prospectus.
(b) Includes special dividends of $0.15 and $0.1125 per common share in 1991
and 1989, respectively.
(c) See the Notes to Corning Unaudited Pro Forma Combined Financial
Information contained elsewhere in this Prospectus.
<PAGE>
USE OF PROCEEDS
Corning Delaware will invest the proceeds from the Offering in the
Subordinated Debentures. Corning, after payment of the Underwriters'
Compensation (as defined under "Underwriting") and other expenses of the
Offering, will use the net proceeds from the sale of the Subordinated
Debentures to Corning Delaware of approximately $317,000,000 (approximately
$364,000,000 if the Underwriters' over-allotment option is exercised in
full) to retire all or a significant portion of the debt incurred in the
1993 acquisition of Damon. The Damon debt bears a variable interest rate
based on the London Interbank Offered Rate and matures on December 31,
1995. For information concerning the Damon transaction, see "Business of
Corning--Laboratory Services."
INVESTMENT CONSIDERATIONS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters:
Subordinate Obligations Under Guarantee and Subordinated Debentures
Corning's obligations under the Guarantee are subordinate and junior in right
of payment to all liabilities of Corning and the obligations of Corning under
the Subordinated Debentures are subordinate and junior in right of payment to
all Senior Indebtedness of Corning. See "Description of Securities
Offered--Description of the Guarantee" and "Description of Securities
Offered--Description of the Subordinated Debentures--Subordination."
Option to Extend Payment Periods
Corning has the right to extend interest payment periods on the Subordinated
Debentures for up to 60 months, and, as a consequence, monthly dividends on
the Preferred Securities would be deferred (but will continue to compound
monthly) during any such extended interest payment period. In the event that
Corning exercises this right, Corning may not declare dividends on any shares
of Junior Stock (as defined under "Description of Securities Offered--
Description of the Guarantee--Subordination") during any such extended period
and until all dividend arrearages have been paid in full. However, in the
event such a deferral continues for more than 15 months, the holders of a
majority of the aggregate liquidation preference of the Preferred Securities
then outstanding may cause the exchange of all of the Preferred Securities
for Corning Series C Preferred Stock at the Exchange Price. See "Description
of Securities Offered--Description of the Subordinated Debentures--Option to
Extend Interest Payment Period."
For a discussion of the taxation of such an exchange to holders, including
the possibility that holders who exchange their Preferred Securities for
Corning Series C Preferred Stock may be subject to additional income tax to
the extent accrued but unpaid interest on the Subordinated Debentures is
converted into accumulated and unpaid dividends on the Corning Series C
Preferred Stock received in exchange for the Preferred Securities, see
"Certain Federal Income Tax Considerations--Exchange of Preferred Securities
for Corning Series C Preferred Stock."
Should an extended interest payment period occur, Corning Delaware, except in
very limited circumstances, will continue to accrue income for United States
federal income tax purposes which will be allocated, but not distributed, to
holders of record of Preferred Securities. As a result, such holders
would be required to include such interest in gross income for United States
federal income tax purposes in advance of the receipt of cash dividend
payments from Corning Delaware and would not receive the cash related to such
income if such a holder disposes of its Preferred Securities prior to the
record date for payment of dividends. See "Certain Federal Income Tax
Considerations--Original Issue Discount."
Tax Event
In the case of a Tax Event, the holders of a majority of the aggregate
liquidation preference of Preferred Securities then outstanding will have the
right to cause all of the Preferred Securities to be exchanged for Corning
Series C Preferred Stock at the Exchange Price. However, in the event that
the Preferred Securities are not exchanged, the amounts available for
distribution to holders may be reduced by Additional Taxes. Under certain
circumstances giving rise to a Tax Event, the exchange of Preferred
Securities for Corning Series C Preferred Stock would be a taxable
transaction in which exchanging holders recognize gain. For a discussion of
the taxation of such an exchange to holders, including the possibility that
holders who exchange their Preferred Securities for Corning Series C
Preferred Stock may be subject to additional income tax to the extent accrued
but unpaid interest on the Subordinated Debentures is converted into
accumulated and unpaid divi
dends on the Corning Series C Preferred Stock received in exchange for the
Preferred Securities, see "Certain Federal Income Tax
Considerations--Exchange of Preferred Securities for Corning Series C
Preferred Stock."
CAPITALIZATION
The following table sets forth (i) the actual capitalization of Corning at
March 27, 1994, (ii) the pro forma capitalization of Corning as of such date
after giving effect to the completed or pending transactions and (iii) the
pro forma capitalization of the Company as of such date as further adjusted
to reflect the Offering, assuming no exercise of the Underwriters'
over-allotment option. The table should be read in conjunction with the
financial statements of Corning incorporated by reference in this Prospectus.
See "Use of Proceeds," "Selected Consolidated Financial Data," "Unaudited Pro
Forma Combined Financial Information," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Description of
Securities Offered--Preferred Securities."
<TABLE>
<CAPTION>
March 27, 1994
Pro
Actual Forma As Adjusted
(dollars in millions, except per
share data)
<S> <C> <C> <C>
Short-Term Debt:
Total short-term debt $ 232.5 $ 308.5 $ 308.5
Long-Term Debt:
Total long-term debt 1,573.6 1,625.3 1,308.3
Convertible Preferred Securities of
Subsidiary: 317.0
Convertible Preferred Stock:
Par value $100 per share: 10,000,000 shares
authorized; 255,036 shares of 8% Series B
Preferred Stock outstanding 25.5 25.5 25.5
Common Stockholders' Equity:
Common Stock, including excess over par value
and other capital: par value $0.50 per
share;
authorized 500,000,000 shares; 235,988,668
issued 872.9 965.5 965.5
Retained earnings 1,603.9 1,607.7 1,607.7
Less cost of 27,368,018 shares of common
stock in treasury (515.8) (515.8) (515.8)
Cumulative translation adjustment (4.9) (4.9) (4.9)
Total common stockholders' equity 1,956.1 2,052.5 2,052.5
Total capitalization $3,787.7 $4,011.8 $4,011.8
</TABLE>
<PAGE>
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratio of earnings to combined
fixed charges and preferred stock dividends of Corning for the periods
indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended
Twelve Weeks
Ended Jan. Jan. Dec. Dec.
March 27, 2, 3, 29, 30, Dec. 31,
1994 1994 1993 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends 3.2x 1.1x 3.8x 4.4x 4.6x 5.0x
</TABLE>
For the purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, earnings consist of (1) income before taxes on
income, before equity in earnings and minority interest and before fixed
charges (excluding interest capitalized during the period), (2) Corning's
share of pre-tax earnings of fifty-percent owned companies, (3) Corning's
share of pre-tax earnings of greater than fifty-percent owned unconsolidated
subsidiaries, (4) dividends received from less than fifty-percent owned
companies and Corning's share of losses of such companies, if any, if any
debt of such companies is guaranteed by Corning and (5) previously
capitalized interest amortized during the period; fixed charges consist of
(1) interest on indebtedness, (2) amortization of debt issuance costs, (3) a
portion of rental expenses which represent an appropriate interest factor,
(4) Corning's share of the fixed charges of fifty-percent owned companies and
(5) fixed charges of greater than fifty-percent owned unconsolidated
subsidiaries; and preferred dividends include the amount of pre-tax income
required to pay preferred dividends on an after-tax basis. <PAGE>
MARKET PRICES OF CORNING COMMON STOCK AND DIVIDENDS
Corning Common Stock is traded on the NYSE under the symbol "GLW." At June
23, 1994, there were 20,298 holders of record of Corning Common Stock and
213,575,956 shares outstanding. The following table sets forth the high and
low sale prices for Corning Common Stock, as reported by the NYSE, and the
cash dividends declared per share on Corning Common Stock, for the periods
indicated.
<TABLE>
<CAPTION>
Price Range(a)
Cash Dividends
Declared Per
High Low Share(a)
<S> <C> <C> <C>
1991
First Quarter $31.000 $21.063 $.125
Second Quarter 31.750 28.375 .125
Third Quarter 35.750 31.250 .125
Fourth Quarter 43.125 33.563 .300(b)
1992
First Quarter 40.313 28.750 .15
Second Quarter 38.625 31.500 .15
Third Quarter 38.625 34.375 .15
Fourth Quarter 39.750 34.750 .17
1993
First Quarter 39.000 29.000 .17
Second Quarter 35.875 31.500 .17
Third Quarter 35.125 26.875 .17
Fourth Quarter 28.250 24.000 .17
1994
First Quarter 33.125 27.625 .17
Second Quarter 34.125 30.250 .17
Third Quarter (through July 13,
1994) 34.625 31.250
</TABLE>
(a) Per share amounts have been adjusted for the 2-for-1 stock split
effective January 13, 1992.
(b) Includes a special dividend of $.15 per common share in the fourth
quarter of 1991.
Corning has regularly paid cash dividends since 1881 and expects to continue
to pay cash dividends. Corning's quarterly cash dividend is currently $.17
per share of Corning Common Stock. The payment of dividends is subject to the
preferential dividend rights of any outstanding Series Preferred Stock of
Corning (as defined under "Description of Corning Capital Stock--Series
Preferred Stock"). Corning and its majority-owned subsidiaries would also be
prohibited from paying dividends on Corning Common Stock at any time during
an extended interest payment period with respect to the Subordinated
Debentures, when there is an Event of Default (as defined under "Description
of Securities Offered--Description of the Subordinated Debentures--Events of
Default") under the Subordinated Debentures or when Corning has failed to
make a payment required under the Guarantee. See "Description of Securities
Offered--Description of the Guarantee--Certain Covenants of Corning." Since
the declaration and payment of future dividends on Corning's capital stock
will be based on a number of factors considered by Corning's Board of
Directors, including current and prospective earnings, financial condition
and capital requirements, and such other factors as the Board of Directors
may deem relevant, there can be no assurance that dividends on Corning Common
Stock will be paid in the future. See "Description of Corning Capital
Stock--General--Dividend Rights and Restrictions."
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain consolidated financial information that
has been derived from the consolidated financial statements of Corning. The
summary financial data set forth below for Corning for the fiscal years 1989
through 1993 are derived from its audited financial statements. The selected
consolidated financial data set forth below for the first twelve weeks of
1994 and 1993 are derived from Corning's unaudited financial statements,
which in the opinion of management contain all adjustments (consisting only
of normal recurring items) necessary for the fair presentation of this
information. The financial data should be read in conjunction with the
information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial
information and related notes incorporated by reference in this Prospectus.
See "Incorporation of Certain Documents by Reference."
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Twelve
Weeks Ended Fiscal Year Ended
Mar. Mar. Dec. Dec.
27, 28, Jan. 2, Jan. 3, 29, 30, Dec. 31,
1994 1993 1994 1993 1991 1990 1989
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues
Net sales $ 948.9 $ 817.0 $4,004.8 $3,708.7 $3,259.2 $2,940.5 $2,439.2
Royalty, interest and
dividend income 7.7 6.4 29.9 35.3 27.6 39.9 29.6
Non-operating gains 4.2 4.2 7.0 8.1 69.2 107.1
956.6 827.6 4,038.9 3,751.0 3,294.9 3,049.6 2,575.9
Deductions
Cost of sales 622.1 532.1 2,597.0 2,411.3 2,121.6 1,925.7 1,600.9
Selling, general and
administrative expenses 185.7 168.6 774.0 692.2 622.5 581.8 491.8
Research and development
expenses 38.2 37.7 173.1 151.1 130.7 124.5 109.6
Provision for
restructuring costs and
other special charges 207.0 63.3 54.4
Interest expense 25.8 16.5 88.2 62.6 58.1 54.0 44.5
Other, net 5.8 3.1 42.9 33.9 34.6 35.5 20.9
Income before taxes on
income 79.0 69.6 156.7 336.6 327.4 328.1 253.8
Taxes on income 29.6 23.9 35.3 92.5 110.6 136.1 116.9
Income before minority
interest and equity
earnings 49.4 45.7 121.4 244.1 216.8 192.0 136.9
Minority interest in
earnings of subsidiaries (7.9) (3.1) (16.6) (21.6) (17.3) (10.4) (4.2)
Equity in earnings
(losses) of associated
companies before
cumulative effect of
changes in accounting
methods 16.5 7.2 (120.0) 43.8 111.7 107.5 126.7
Income (Loss) before
Extraordinary Credit and
Cumulative Effect of
Changes in Accounting
Methods 58.0 49.8(a) (15.2)(c) 266.3(d) 311.2(f) 289.1(g) 259.4(h)
Tax benefit of loss
carryforwards 7.7 5.6 2.9 1.6
Cumulative effect of
changes in accounting
methods (286.6)
Net Income (Loss) $ 58.0 $ 49.8(b) $ (15.2)(b) $ (12.6)(e) $316.8 $ 292.0 $ 261.0
Balance Sheet Data:
Total assets $5,430.2 $4,282.6 $5,231.7 $4,286.3 $3,852.6 $3,512.0 $3,360.7
Working capital 452.5 596.6 451.4 465.2 521.0 458.4 487.3
Loans payable beyond one
year 1,573.6 916.7 1,585.6 815.7 700.0 611.2 624.5
Common stockholders'
equity 1,956.1 1,808.5 1,685.8 1,803.8 2,018.8 1,850.3 1,711.2
Per Common Share Data:(i)
Income (loss) before
extraordinary credit
and cumulative effect of
changes in accounting
methods $ 0.28 $ 0.26 $ (0.09) $ 1.40 $ 1.66 $ 1.53 $ 1.39
Net income (loss) 0.28 0.26 (0.09) (0.08) 1.69 1.55 1.40
Common dividends
declared(j) 0.17 0.17 0.68 0.62 0.68 0.46 0.53
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
(a) During the first quarter 1993, Corning recognized a non-operating gain
totaling $4.2 million ($2.6 million after-tax).
(b) Effective January 4, 1993, Corning and its subsidiaries adopted Financial
Accounting Standard No. 109, " Accounting for Income Taxes" ("FAS 109") and
Financial Accounting Standard No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS 112"). The impact of adopting FAS 109 and FAS
112 was not material to the financial statements.
(c) In 1993, Corning recognized net non-recurring losses from consolidated
operations totaling $202.8 million ($117.9 million after-tax and minority
interest), including a non-operating gain of $4.2 million ($2.6 million
after-tax), a restructuring charge of $156.0 million ($88.1 million
after-tax and minority interest) as a result of costs to integrate
the Damon acquisition and a planned company-wide program to reduce assets
and overhead costs during the next year and other special charges
of $51.0 million ($32.4 million after-tax). The other special charges
primarily included $36.5 million for the settlement and related legal
expenses incurred in the compromise agreement between MetPath and
the Civil Division of the Department of Justice and $8.0 million
of transaction expenses related to the Costar acquisition.
Corning also recorded a $203.1 million reduction in equity earnings as a
result of a charge taken by Dow Corning related to breast-implant litigation
and a $9.5 million reduction in equity earnings as a result of a
restructuring charge taken by Vitro Corning.
(d) In 1992, Corning recognized net non-operating gains from consolidated
operations totaling $7.0 million ($21.7 million after- tax), including a gain
of $10.1 million (before- and after-tax) from the sale of an additional
equity interest in Corning Japan K.K. and a pre-tax loss of $7.3 million
($9.0 million after-tax gain) from the formation of the consumer housewares
venture with Vitro S.A. ("Vitro"). Corning also recorded a provision of $63.3
million ($32.1 million after-tax of $22.9 million and minority interest of
$8.3 million) as a result of Corning Vitro Corporation's ("Corning Vitro")
decision to restructure its Brazilian operations.
Corning also recognized a $37.7 million reduction in equity earnings which
included $24.5 million of costs associated with Dow Corning's terminated
breast implant business and $13.2 million of restructuring charges associated
with Dow Corning's exit from its Brazilian operations and other
cost-reduction programs.
(e) Effective December 30, 1991, Corning and its subsidiaries adopted
Financial Accounting Standard No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" ("FAS 106"). The cumulative
effect of adopting FAS 106 resulted in a charge of $294.8 million (after-tax
and minority interest), or $1.56 per share, in 1992. In addition, an $8.2
million gain, or $0.04 per share, from an equity company's adoption of FAS
109 was recognized in 1992.
(f) In 1991, the Company recognized net non-operating gains from consolidated
operations totaling $8.1 million ($14.6 million after-tax) which included a
gain of $5.3 million (before- and after-tax) on the sale of a less than 10%
equity interest in Corning Japan. The Company also recognized an $8.2 million
reduction in equity earnings to reflect a charge recorded by Dow Corning for
costs associated with its breast implant business.
(g) In 1990, the Company recognized non-operating gains totaling $69.2
million ($29.2 million after-tax) on the sales of certain investments,
including a gain on the sale of substantially all the Company's investment in
Iwaki Glass Company Ltd. totaling $51.1 million ($19.4 million after-tax).
(h) In 1989, the Company recognized non-operating gains totaling $107.1
million ($61.9 million after-tax), including a gain on the sale of its 50%
interest in Ciba Corning Diagnostics Corp. of $75.7 million ($41.0 million
after-tax) and a gain of $21.7 million ($13.7 million after-tax) related to
patent infringement matters in the optical-fiber business.
Also in 1989, the Company provided $54.4 million ($45.0 million after-tax)
for the repositioning of certain businesses and facilities. The provision
related primarily to consumer product operations worldwide, and to certain
other operations in Europe.
(i) Per share amounts have been adjusted for the 2-for-1 stock split
effective January 13, 1992.
(j) Includes special dividends of $0.15 and $0.1125 per common share in 1991
and 1989, respectively.
<PAGE>
CORNING UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Financial Information (the "Unaudited Pro
Forma Information") is presented to reflect the estimated impact on Corning's
Financial Statements of the following proposed or completed transactions
(collectively, the "Transactions"):
* The acquisition of Damon in August 1993, at a total purchase price of
approximately $405 million, including acquisition expenses. The transaction
has been accounted for as a purchase.
* The acquisition of Costar in September 1993, the transaction with Unilab in
November 1993, and other acquisitions completed in 1993 (collectively, the
"Other 1993 Transactions") which individually and in the aggregate are not
significant. The Costar merger and the Unilab transaction are described in
Notes 4 and 5, respectively.
* The acquisition of the optical-fiber and optical-cable businesses of
Northern Telecom Limited ("NTL") by Corning and Siecor for $131 million in
February 1994, the Vitro transaction completed in January 1994 and the merger
with Maryland Medical for 4.5 million shares of Corning Common Stock in June
1994 (collectively, the "Completed 1994 Transactions"). The NTL transaction
has been accounted for as a purchase and the Maryland Medical transaction
will be accounted for as a pooling of interests. The Vitro transaction is
described in Note 6.
The NTL and Vitro transactions were financed by the issuance of 8.0 million
shares of Corning Common Stock in February 1994.
* The proposed acquisition of Nichols for an estimated 6.7 million shares of
Corning Common Stock and options to purchase approximately 1 million shares
of Corning Common Stock (the "Pending 1994 Transaction"). This transaction
will be accounted for as a pooling of interests.
* The issuance by Corning Delaware of $325 million of Preferred Securities in
the Offering and the use of the net proceeds thereof by Corning to retire a
significant portion of the indebtedness incurred in connection with the Damon
transaction.
The Unaudited Pro Forma Combined Statements of Income for the year ended
January 2, 1994, and the twelve weeks ended March 27, 1994, assume that the
Transactions had been completed on January 4, 1993. The Unaudited Pro Forma
Combined Balance Sheet at March 27, 1994, assumes that the Transactions had
been completed by that date. Corning's consolidated financial statements for
periods prior to the two pooling of interests transactions will not be
restated since the acquisitions are not material to Corning's financial
position or results of operations.
The Unaudited Pro Forma Information gives effect only to the adjustments set
forth in the accompanying notes and does not reflect any synergies
anticipated by Corning's management as a result of these acquisitions. The
Unaudited Pro Forma Information is not necessarily indicative of the results
of operations or financial position which would have been achieved had the
Transactions been completed as of the beginning of the earliest period
presented, nor is it necessarily indicative of Corning's future results of
operations or financial position.
Corning has completed or has pending several business dispositions in 1994
which individually and in the aggregate are not significant to Corning's
consolidated financial statements. As such, pro forma data on these
transactions are not presented.
The Unaudited Pro Forma Information should be read in conjunction with the
historical financial statements of Corning and Damon incorporated by
reference into this Prospectus.
<PAGE>
CORNING
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED JANUARY 2, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
---------------Pro Forma-------------
Adjustments
Other Completed Pending to
1993 1994 1994 Reflect
Trans- Trans- Trans- Adjust- the As
actions actions action ments Combined Offering Adjusted
Corning (1) Damon (2) (3) (4) (5) (6) (7) (8) (9)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Net sales $4,004.8 $199.9 $146.1 $168.5 $279.6 $4,798.9 $4,798.9
Royalty,
interest
and
dividend
income 29.9 29.9 29.9
Non-operating
gains 4.2 4.2 4.2
4,038.9 199.9 146.1 168.5 279.6 4,833.0 4.833.0
Deductions
Cost of
sales 2,597.0 129.4 105.4 128.2 175.3 $ 13.5(a)3,148.8 3,148.8
Selling,
general and
administrative
expenses 774.0 58.1 23.1 32.0 75.2 962.4 962.4
Research and
development
expenses 173.1 2.2 1.8 4.2 181.3 181.3
Provision
for
restructuring
and other
special
charges 207.0 16.0 (48.5)(b) 174.5 174.5
Interest
expense 88.2 5.6 3.6 1.5 11.7 14.2(c) 124.8 $(15.5)(h) 109.3
Other, net 42.9 1.0 0.6 (0.2) 2.6 (1.0)(d) 45.9 45.9
Income (loss)
before
taxes on
income 156.7 5.8 11.2 5.2 (5.4) 21.8 195.3 15.5 210.8
Tax provision
(benefit) 35.3 2.1 3.9 1.0 (1.0) 11.9(e) 53.2 5.4(i) 58.6
Income (loss)
before
minority
interest
and equity
earnings 121.4 3.7 7.3 4.2 (4.4) 9.9 142.1 10.1 152.2
Minority
interest in
earnings of
subsidiaries (16.6) (2.2) (15.1) 0.8(f) (33.1) (33.1)
Dividends on
convertible
preferred
securities
of
subsidiary (13.7)(j) (13.7)
Equity in
earnings
(loss) of
associated
companies (120.0) 19.0 (101.0) (101.0)
NET INCOME
(LOSS) $ (15.2) $ 1.5 $ 7.3 $ 8.1 $ (4.4) $ 10.7 $ 8.0 $ (3.6) $4.4
Weighted
Average
Shares
Outstanding 191.963 23.325(g) 215.288 215.288
Earnings Per
Common
Share:
NET INCOME
(LOSS) $ (0.09) $ 0.03 $0.01
</TABLE>
<PAGE>
(1) Represents the historical results of operations of Corning for the year
ended January 2, 1994.
(2) Represents the historical results of operations of Damon for the seven
months ended July 31, 1993.
(3) Represents the historical results of operations of the businesses
involved in the Other 1993 Transactions through the respective acquisition
dates.
(4) Represents the historical results of operations of the businesses
involved in the Completed 1994 Transactions for the year ended January 2,
1994.
(5) Represents the historical results of operations of the business to be
acquired in the Pending 1994 Transaction for the year ended December 31,
1993.
(6) See Note 2 to the Unaudited Pro Forma Information--Statement of Income.
(7) Reflects the results of operations of Corning on a pro forma basis
assuming the Transactions had been completed on January 4, 1993.
(8) See Note 2 to the Unaudited Pro Forma Information--Adjustments to Reflect
the Offering.
(9) Reflects the results of operations of Corning on a pro forma basis
assuming the Transactions and the Offering had been completed on January 4,
1993.
<PAGE>
CORNING
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE WEEKS ENDED MARCH 27, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
-------------------------Pro Forma----------------------
Adjustments
Completed Pending to
1994 1994 Reflect
Corning Trans- Trans- the As
(1) actions(2) action(3)Adjustments(4) Combined(5) Offering(6) Adjusted(7)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Net sales $ 948.9 $31.7 $69.6 $1,050.2 $1,050.2
Royalty,
interest
and
dividend
income 7.7 7.7 7.7
956.6 31.7 69.6 1,057.9 1,057.9
Deductions
Cost of
sales 622.1 21.8 46.5 $ 1.3(a) 691.7 691.7
Selling,
general and
administrative
expenses 185.7 9.4 18.5 213.6 213.6
Research and
development
expenses 38.2 0.3 0.9 39.4 39.4
Provision
for
restructuring
and other
special
charges 1.8 1.8 1.8
Interest
expense 25.8 0.4 2.6 28.8 $(2.5)(h) 26.3
Other, net 5.8 (0.1) 0.6 6.3 6.3
Income before
taxes on
income 79.0 (0.1) (1.3) (1.3) 76.3 2.5 78.8
Tax provision
(benefit) 29.6 0.2 (0.3)(e) 29.5 0.9(i) 30.4
Income (loss)
before
minority
interest
and equity
earnings 49.4 (0.1) (1.5) (1.0) 46.8 1.6 48.4
Minority
interest in
earnings of
subsidiaries (7.9) (0.3) (0.1)(f) (8.3) (8.3)
Dividends on
convertible
preferred
securities
of
subsidiary (3.2)(j) (3.2)
Equity in
earnings of
associated
companies 16.5 16.5 16.5
NET INCOME
(LOSS) $ 58.0 $(0.4) $(1.5) $ (1.1) $ 55.0 $(1.6) $ 53.4
Weighted
Average
Shares
Outstanding 202.325 13.867(g) 216.192 216.192
Earnings Per
Common
Share:
NET INCOME $ 0.28 $ 0.25 $ 0.24
</TABLE>
(1) Represents the historical results of operations of Corning for the twelve
weeks ended March 27, 1994.
(2) Represents the historical results of operations of the businesses
involved in the Completed 1994 Transactions through the earlier of March 27,
1994 or the respective acquisition dates.
(3) Represents the historical results of operations of the business to be
acquired in the Pending 1994 Transaction for the quarter ended March 31,
1994.
(4) See Note 2 to the Unaudited Pro Forma Information--Statement of Income.
(5) Reflects the results of operations of Corning on a pro forma basis
assuming the Transactions had been completed on January 4, 1993.
(6) See Note 2 to the Unaudited Pro Forma Information--Adjustments to Reflect
the Offering.
(7) Reflects the results of operations of Corning on a pro forma basis
assuming the Transactions and the Offering had been completed on January 4,
1993.
<PAGE>
CORNING
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 27, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------Pro Forma--------------------
Adjustments
to
Completed Pending Reflect
1994 1994 the As
Corning Transactions Transaction Combined Offering Adjusted
(1) (2) (3) Adjustments (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and
short-term
investments $ 98.2 $ 0.7 $ 13.5 $ 112.4 $ 112.4
Receivables,
net 752.2 19.0 55.6 826.8 826.8
Inventories 378.1 2.3 11.2 391.6 391.6
Deferred taxes
on income and
other
current assets 264.2 1.6 9.8 275.6 275.6
Total Current
Assets 1,492.7 23.6 90.1 1,606.4 1,606.4
Investments 650.1 650.1 650.1
Plant and
Equipment, net 1,776.2 19.3 88.6 1,884.1 1,884.1
Goodwill and
Intangibles,
net 1,193.1 65.1 1,258.2 1,258.2
Other Assets 318.1 0.8 3.6 322.5 322.5
$5,430.2 $43.7 $247.4 $5,721.3 $5,721.3
Liabilities and
Stockholders'
Equity
Current
Liabilities
Loans payable $ 232.5 $11.1 $ 64.9 $ 308.5 $ 308.5
Accounts
payable 170.6 8.3 20.1 199.0 199.0
Other accrued
liabilities 637.1 4.1 22.8 664.0 664.0
Total Current
Liabilities 1,040.2 23.5 107.8 1,171.5 1,171.5
Other
Liabilities 652.6 0.8 10.9 664.3 664.3
Loans Payable
Beyond One Year 1,573.6 13.7 38.0 1,625.3 $(317.0)(k) 1,308.3
Minority
Interest in
Subsidiary
Companies 182.2 182.2 182.2
Convertible
Preferred Stock
of Subsidiary 317.0(k) 317.0
Convertible
Preferred Stock 25.5 25.5 25.5
Common
Stockholders'
Equity 1,956.1 5.7 90.7 2,052.5 2,052.5
$5,430.2 $43.7 $247.4 $5,721.3 $ $5,721.3
</TABLE>
(1) Represents the historical financial position of Corning at March 27,
1994.
(2) Represents the historical financial position of the business involved in
the Completed 1994 Transaction at March 31, 1994.
(3) Represents the historical financial position of the business to be
acquired in the Pending 1994 Transaction at March 31, 1994.
(4) Reflects the financial position of Corning on a pro forma basis assuming
the Transactions had been completed by March 27, 1994.
(5) See Note 2 to Unaudited Pro Forma Information--Adjustments to Reflect the
Offering.
(6) Reflects the financial position of Corning on a pro forma basis assuming
the Transactions and the Offering had been completed by March 27, 1994.
<PAGE>
CORNING
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1--Basis of Presentation:
The Unaudited Pro Forma Combined Statements of Income reflect Corning's
results of operations for the year ended January 2, 1994, and the twelve
weeks ended March 27, 1994, on a pro forma basis assuming the Transactions
had been completed as of January 4, 1993. The Unaudited Pro Forma Combined
Balance Sheet at March 27, 1994, assumes that the Transactions had been
completed by that date.
Corning's management believes that the assumptions used in preparing the
Unaudited Pro Forma Information provide a reasonable basis for presenting all
of the significant effects of the Transactions, that the pro forma
adjustments give appropriate effect to those assumptions and that the pro
forma adjustments are properly applied in the Unaudited Pro Forma
Information.
Note 2--Pro Forma Adjustments:
Statement of Income
(a) The pro forma adjustment to cost of sales represents the increase in
amortization of the excess of cost over fair value of tangible net assets
acquired in the Damon transaction, the Other 1993 Transactions and the
Completed 1994 Transactions of $5.7 million, $1.8 million, and $6.0 million,
respectively, for the year ended January 2, 1994, and $1.3 million for the
Completed 1994 Transactions, for the twelve weeks ended March 27, 1994.
Including $40 million of anticipated costs to restructure Damon's facilities
as a result of the integration of Corning's and Damon's operations, the
excess of cost over fair value of tangible net assets acquired in the Damon
transaction is $552 million. The excess of cost over fair value of tangible
net assets acquired has been allocated to goodwill with a life of forty
years. Management believes that fair value approximates book value for all
tangible assets acquired in the Damon transaction.
Goodwill totaling $258 million and $190 million resulted from the Other 1993
Transactions and the Completed 1994 Transactions, respectively, and is being
amortized over 25 to 40 years.
(b) The pro forma adjustment represents the elimination of one-time
restructuring costs of $40.6 million related to closing MetPath facilities as
a result of the integration of Damon and MetPath and $7.9 million of Costar
transaction costs recorded in Corning's results for the year ended January 2,
1994.
(c) The pro forma adjustment to interest expense represents the interest on
the debt incurred in connection with the Damon transaction and the Other 1993
Transactions of $11.9 million and $2.3 million, respectively, for the year
ended January 2, 1994. The weighted average interest rate on the debt
incurred in connection with the Damon transaction is 4.9% and on the Other
1993 Transactions ranges from 3.5% to 6.7%.
Corning financed the Damon acquisition and the refinancing of approximately
$167 million of indebtedness of Damon under short-term financing agreements
entered into with certain banks to effect this transaction. During the third
quarter of 1993, Corning refinanced a portion of this short-term financing by
issuing approximately $200 million of longer-term debt. During the fourth
quarter of 1993, Corning extended the terms of the financing agreements to
December 31, 1995. The pro forma adjustment to interest expense related to
the Damon transaction is calculated as the weighted average of short-term and
longer-term interest rates.
(d) The pro forma adjustment represents the elimination of approximately $1
million of one-time costs incurred by Damon in connection with a terminated
merger agreement with National Health Laboratories Incorporated which were
charged to results of operations for the seven months ended July 31, 1993.
(e) The pro forma adjustment to tax expense represents the tax effect of the
adjustments detailed in notes (a), (b), (c) and (d) above. In addition, tax
expense has been adjusted to provide taxes on the income of one of the
Completed 1994 Transactions which was previously a Subchapter S corporation.
These adjustments are calculated at Corning's historical effective tax rate.
(f) The pro forma adjustment to minority interest represents the applicable
minority interest on the historical earnings and pro forma adjustments of the
Other 1993 Transactions and the Completed 1994 Transactions.
(g) The pro forma adjustment to weighted average shares outstanding
represents the issuance of 5.5 million shares to complete the Costar
acquisition in September 1993, 12.5 million shares in conjunction with the
Completed 1994 Transactions and an estimated 6.7 million shares to be issued
in conjunction with the Pending 1994 Transaction.
The number of shares to be issued in the Pending 1994 Transaction is
dependent on the price of Corning Common Stock during the 10-day trading
period ending on the fifth trading day prior to the date of the Nichols
stockholders meeting held to approve the transaction. For purposes of this
pro forma presentation, it is assumed that 6.7 million shares will be issued
(based on a price of $33 per share of Corning Common Stock and the current
number of Nichols common shares and options to purchase Nichols common shares
outstanding). Pursuant to the agreement with Nichols, the maximum number of
shares of Corning Common Stock which could be issued is 9.6 million shares
(assuming the "floor" price of $26.50 per share of Corning Common Stock and
exercise of all outstanding options). An increase in the number of shares to
9.6 million shares would not materially impact the pro forma earnings per
share presented in the Unaudited Pro Forma Combined Statements of Income.
Adjustments to Reflect the Offering
(h) The pro forma adjustment to interest expense reflects the decrease in
interest expense assuming the issuance by Corning Delaware on January 4,
1993, of $325 million of Preferred Securities (net of an estimated $8.0
million of underwriting commissions and expenses), and the use of the net
proceeds thereof by Corning to retire a significant portion of the
indebtedness incurred in connection with the Damon Transaction.
</r.
(i) The pro forma adjustment to tax expense reflects the tax effects of the
adjustment detailed in note (h) above.
(j) The pro forma adjustment to dividends on preferred securities of
subsidiaries represents the after-tax dividends payable on the $325 million
of Preferred Securities.
(k) The pro forma adjustment to loans payable beyond one year and preferred
securities of subsidiaries assumes the issuance on March 27, 1994, of $325
million of Preferred Securities (net of an estimated $8.0 million of
underwriting commissions and expenses).
Note 3--Earnings Per Share:
Earnings per common share are computed by dividing net income less preferred
dividends on Corning's Series B Preferred Stock by the weighted average of
common shares outstanding during each period. Preferred dividends amounted to
$2.2 million and $.5 million during the year ended January 2, 1994, and the
twelve weeks ended March 27, 1994, respectively.
Note 4--Costar Merger:
In September 1993, Corning acquired all of the outstanding shares of common
stock and options to purchase common stock of Costar for approximately 5.5
million shares of Corning Common Stock and options to purchase approximately
300,000 shares of Corning Common Stock. This acquisition has been accounted
for as a pooling of interests. Corning's consolidated financial statements
for periods prior to the acquisition have not been restated since the
acquisition is not material to Corning's financial position or results of
operations.
Note 5--Unilab Transaction:
Corning, through a wholly owned subsidiary, owned 43% of Unilab. In November
1993, Corning acquired 100 percent of certain Unilab facilities in exchange
for a majority of the Unilab shares owned by Corning, the assumption of
approximately $70 million of Unilab debt and Corning's investment in J.S.
Pathology PLC ("J.S. Pathology"). Corning retained a 12% equity investment in
Unilab.
Note 6--Vitro Transaction:
On January 2, 1992, Corning entered into an alliance with Vitro, by
transferring 49% of its consumer-housewares businesses to Vitro, in exchange
for 49% of Vitro's consumer-products businesses and approximately $137
million in cash. The alliance consisted of two jointly owned companies.
Corning owned 51% of Corning Vitro and consolidated its financial statements
and 49% of Vitro Corning and accounted for its investment under the equity
method.
In December 1993, Vitro and Corning reached an agreement whereby, in two
separate transactions, Vitro purchased in December 1993, the shares of
capital stock of Vitro Corning owned by Corning and Corning purchased in
February 1994 the shares of capital stock of Corning Vitro held by Vitro. The
net cost to Corning of the two transactions was $131 million. Corning and
Vitro are continuing their consumer products alliance through cross
distribution and supply agreements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 1994 Performance
Net sales for the first quarter 1994 totaled $948.9 million, up 16 percent
from the same period last year. Approximately half of the sales increase was
due to the 1993 acquisition of Damon. The other 1993 acquisitions also
contributed positively to sales growth. Net income was $58.0 million ($0.28
per share) for the first quarter of 1994 compared to $49.8 million ($0.26 per
share) for the first quarter 1993. Excluding the impact of a non-operating
gain in 1993, net income and earnings per share for the first quarter 1994
were up 23 percent and 15 percent, respectively, when compared to the same
period last year.
Earnings from consolidated operations for the first quarter 1994, excluding
the non-operating gain in 1993, increased 4 percent over the same period last
year.
First quarter 1994 equity in earnings of associated companies was $16.5
million compared with $7.2 million in the same period last year. Increased
earnings were due to strong operating performance at Dow Corning and the
elimination of losses from Vitro Corning, which was divested in late 1993.
Segment Overview
Corning's products and services are grouped into four industry segments:
Specialty Materials, Communications, Laboratory Services and Consumer
Products. Sales and earnings for the first quarter 1994 increased in all
segments except laboratory services which was negatively impacted by severe
winter weather in the eastern half of the United States.
Sales and earnings growth in the specialty materials segment was led by the
environmental products business which experienced increased demand for
ceramic substrates in its North American market. The science products
business, which included results of Corning Costar Corporation which was
acquired in 1993, and the optical products business also contributed to the
earnings growth in this segment.
Increased sales and earnings in the communications segment were primarily due
to strong volume gains in the optical-fiber and optical-cable businesses.
Sales and earnings in the conventional video components and projection video
businesses also contributed to the growth in this segment. Earnings
improvements were offset somewhat by continued development spending in the
advanced display products and ceramic memory disk businesses.
First quarter sales of the laboratory services segment improved significantly
over the prior year primarily as a result of the 1993 acquisition of Damon.
First quarter segment earnings were level with 1993. Sales and earnings of
this segment were negatively impacted by the severe winter weather in the
eastern half of the United States. The Damon acquisition contributed
positively to the operating results of this segment; however, the gain was
offset by increased goodwill amoritization resulting from the acquisition.
Sales and earnings gains in the consumer products segment were driven by
improved domestic volume. Strong manufacturing performance and a continued
focus on cost controls also contributed to the earnings growth in this
segment.
Taxes on Income
Corning's effective tax rate was 37% in the first quarter 1994 and 34% in the
first quarter 1993. The change in the effective tax rate was primarily due to
the increase in the U.S. corporate statutory tax rate (which was effective in
the third quarter 1993) and an increase in non-deductible amortization of
intangibles and other expenses.
Liquidity and Capital Resources
Corning's working capital of $452.5 million at March 27, 1994 was relatively
unchanged from $451.4 million at the end of 1993. The ratio of current assets
to current liabilities of 1.4 was also unchanged from
year-end 1993. Corning's long-term debt as a percentage of total capital was
42% at the end of the first quarter compared to 45% at year-end 1993. The
improvement in this ratio is due primarily to the issuance of common stock in
February 1994. Corning intends to repay all or a significant portion of the
remaining $400 million Damon acquisition debt with the proceeds from the sale
of the Damon laboratories in California and the net proceeds from this
Offering.
Cash Flows
Cash and short-term investments declined from year-end 1993 by $62.6 million
due to operating and investing activities which used cash of $63.8 million
and $334.7 million, respectively, offset by financing activities which
provided cash of $335.7 million. Net cash used in operating activities
increased in the first quarter 1994 compared to the same period in 1993 due
primarily to an increase in accounts receivable. Net cash used in investing
activities increased during the same period due to the acquisition of assets
from Northern Telecom Limited and the purchase of Corning Vitro stock from
Vitro. Net cash provided by financing activities increased in the first
quarter 1994 over 1993 primarily as a result of the issuance of common stock
in February 1994 to finance the Northern Telecom and Vitro transactions.
1993 Performance
Corning's consolidated sales of $4,004.8 million in 1993 were up 8% from
1992. Approximately half of this growth was attributable to recent
acquisitions, with the remaining growth led by the Laboratory Services and
Communications segments. Consolidated sales in 1992 increased 14% from 1991
also as a result of strong performance by the Laboratory Services segment,
due in part to acquisitions, and the Communications segment.
As a result of non-recurring charges, Corning incurred a net loss in both
1993 and 1992.
Net losses totaled $15.2 million ($0.09 per common share) in 1993 and
included net non-recurring charges against consolidated operations totaling
$202.8 million ($117.9 million after tax and minority interest).
These charges included a restructuring charge of $156.0 million as
a result of costs to integrate the Damon acquisition and a planned
company-wide program to reduce assets and overhead costs during
the next year, other special charges totaling $51.0 million and a
non-operating gain of $4.2 million. The other special charges
primarily included $36.5 million for the settlement and related
legal expenses incurred in the compromise agreement between
MetPath, Corning's clinical-testing business, and the Civil
Division of the Department of Justice and $8.0 million of
transaction expenses related to the Costar acquisition. Corning also
recorded a $203.1 million reduction in equity earnings as a result of a
charge taken by Dow Corning related to breast-implant litigation and a $9.5
million reduction in equity earnings as a result of a restructuring charge
taken by Vitro Corning.
As a result of non-recurring charges in 1992, Corning recorded a net loss of
$12.6 million ($0.08 per common share) compared with net income of $316.8
million ($1.69 per common share) in 1991. Non-recurring charges in 1992
included an after-tax charge of $294.8 million ($1.56 per common share) to
reflect the cumulative effect of adoption of Financial Accounting Standard
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," (FAS 106) for all consolidated and equity companies and a gain of
$8.2 million ($0.04 per common share) to reflect Corning's equity in the
cumulative effect of adoption of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," by an equity company.
Earnings from consolidated operations, excluding non-recurring gains and
losses, declined 4% in 1993 when compared with 1992. This decline was
principally due to weak performance in the Consumer Products segment and the
cyclical businesses of the Specialty Materials segment, especially those in
Europe. In addition, lower prices reduced the rate of growth in both the
MetPath clinical-testing business and the optical-fiber and optical-cable
businesses. Earnings were also impacted by increased interest expense on debt
incurred to finance the acquisition of Damon and capital expansion programs.
Equity earnings in 1993, excluding non-recurring charges, were up 14% over
1992 primarily as a result of improved performance at Samsung-Corning
Company, Ltd. ("Samsung-Corning") and Dow Corning. These gains were offset
somewhat by a decline in earnings from the optical-fiber equity companies and
continued poor operating performance at Vitro Corning.
In 1992, earnings from consolidated operations increased 12% over 1991 with
the growth led by the Communications and Laboratory Services segments. Equity
earnings in 1992 declined substantially from 1991 levels due to non-recurring
charges and reduced operating earnings at Dow Corning and losses at both
Vitro Corning and Unilab.
Segment Overview
In the following discussion, the sales and earnings of Corning's equity
affiliates are discussed in terms of the Company's four industry segments.
Specialty Materials
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Consolidated sales $758.7 $750.1 (1) $704.4
Income before taxes (2) 73.6(3) 93.8 (1) 92.2
</TABLE>
(1) The 1992 results of certain businesses which have been transferred from
the Consumer Products segment to the Specialty Materials segment have been
reclassified to conform to the current year's presentation.(2) Both 1992 and
1993 include the incremental expense due to the adoption of FAS 106 which
totaled $8.5 million in 1992.(3) Includes $26.5 million of restructuring
charges.
Consolidated operations:
Consolidated sales of this segment have increased modestly in each of the
last three years. The increase in 1993 segment sales resulted primarily from
the acquisition of Costar. Excluding the impact of restructuring charges,
earnings have also increased over the past three years. Restructuring charges
in 1993 included $8 million of transaction costs related to the Costar
acquisition and $18.5 million of severance and other costs to restructure
operations both in the United States and in Europe.
Segment performance in 1993 was led by the science-products businesses. Sales
and earnings of the science-products businesses were up significantly over
1992 reflecting improved manufacturing efficiencies in both the plastic and
glass product lines, continued strength in the market for plastic science
products, and the acquisition of Costar. In the third quarter, Corning
acquired Costar, a manufacturer of disposable plastic products, membrane
filters, cartridge and filtration equipment used in life-science laboratories
and industrial plants throughout the world. With this acquisition, Corning
more than doubled the size of its existing plastics business. The modest
sales growth of the science-products businesses in 1992 over 1991 was
attributable to the growth in the market for plastic products. Earnings gains
in 1992 were primarily due to manufacturing efficiencies in the plastics
line.
Sales of the environmental-products business in 1993 were up slightly over
1992 due primarily to strong sales in North America offset by declines in the
European markets. Legislation mandating the use of pollution-control devices
continues to drive the increase in demand for automotive and diesel
substrates. Earnings in 1993 were down when compared with 1992 due to the
weak European economies. Sales and earnings of this business increased in
1992 over 1991 due to volume and manufacturing efficiency gains.
Sales of Corning's other Specialty Materials businesses, consisting of
optical products, lighting, and other advanced materials, declined in 1993
and 1992. Sales of these businesses in 1993 increased in the United States
but were down significantly in Europe due to weak economic conditions. Growth
in the optical products business continues to be negatively impacted by
plastic optical products. Earnings of these businesses in total declined in
1993 and 1992.
In December 1993, Corning sold its process systems business which had annual
sales of approximately $40 million. Both the operating results of this
business and impact of this transaction were not material.
Equity companies:
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Net sales $2,322.4 $2,230.6 $2,090.5
Corning's share of net income (loss) (139.2) 20.3(1) 83.5
</TABLE>
(1) Before equity in changes in accounting methods.
Corning is an investor in and receives income from a number of equity
companies in the Specialty Materials segment, including Dow Corning,
Pittsburgh Corning Corporation and Pittsburgh Corning Europe, N.V. Dow
Corning's sales increased in each of the last three years. Corning's equity
in earnings of Dow Corning was reduced by $203.1 million, $24.5 million and
$8.2 million in 1993, 1992 and 1991, respectively, as a result of charges
taken by Dow Corning related to its terminated breast implant business and by
restructuring charges totaling $13.2 million in 1992. Excluding special
charges, earnings were up
in 1993 following a decline in 1992 due to improved operating performance at
Dow Corning. The 1992 decline was caused by weak worldwide economies and the
increase in postretirement benefit expense caused by the adoption of FAS 106
at Dow Corning.
In September 1993, Dow Corning announced that a proposal had been developed
to settle, on a global basis, matters involved in litigation over silicone
breast implant products. In March 1994, Dow Corning, along with other
defendants and representatives of breast implant litigation plaintiffs,
signed a Breast Implant Litigation Settlement Agreement (the "Settlement
Agreement"). Under the Settlement Agreement and related agreements, industry
participants would contribute approximately $4.2 billion over a period of
more than thirty years to establish several special purpose funds. The
Settlement Agreement is subject to court approval and to withdrawal by Dow
Corning and other defendants and plaintiffs in certain events. Corning is not
a party to the Settlement Agreement and will not make any contributions to
the settlement contemplated thereby. See "Business of Corning--Recent
Developments--Breast Implant Litigation."
Dow Corning recorded an accounting charge of $415 million after tax in the
fourth quarter of 1993. As disclosed in Dow Corning's financial statements,
this charge included the net present value of Dow Corning's best estimate of
its potential liability for breast implant litigation based on current
settlement negotiations, and also included provisions for legal,
administrative, and research costs related to breast implants, for a total of
$1.24 billion, less expected insurance recoveries of $600 million. Future
developments, including any failure of the Settlement Agreement to receive
court approval and any withdrawal by Dow Corning and other defendants and
plaintiffs from the Settlement Agreement, may require Dow Corning to revise
its current estimates or record additional provisions.
Corning does not believe that its share of any additional accounting charge
taken by Dow Corning resulting from the breast implant litigation will have a
material adverse effect upon Corning's overall financial condition. However,
it is possible that Corning's share of any such charge taken by Dow Corning
will have a material adverse effect upon Corning's earnings in the quarter in
which any such charge is recognized by Dow Corning. The amount of any such
charge would be written off against Corning's investment in Dow Corning which
totalled $370 million at June 19, 1994.
In early 1993, Dow Corning suspended its dividend payments to Corning and Dow
Chemical. In 1992, Corning received from Dow Corning $43 million in
dividends. Corning does not expect to receive dividends from Dow Corning for
the next several years. Corning believes that it has sufficient liquidity and
access to capital and does not believe that the suspension of these dividends
will have a material impact on its liquidity or financial position.
Outlook:
The modest positive sales trend experienced in this segment over the last
three years is expected to continue in 1994. Sales growth is expected to come
primarily from the continued strength of the plastics science-products
business and from the ceramic substrates business as new and pending
environmental regulations become effective in the United States and foreign
countries. Although performance of this segment will continue to be affected
by the European and Japanese economies, consolidated earnings are expected to
grow modestly due primarily to continued cost control and restructuring
measures and manufacturing efficiencies. Dow Corning's sales and operating
earnings are expected to improve in 1994.
Communications
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Consolidated sales $1,192.0 $1,036.6 $901.8
Income before taxes (1) 243.3 (2) 230.1 189.1
</TABLE>
(1) Both 1992 and 1993 include the incremental expense due to the adoption of
FAS 106 which totaled $9.1 million in 1992.
(2) Includes $10.7 million of restructuring charges.
Consolidated operations:
Consolidated sales in this segment have grown during the past three years
driven by continued strong growth in worldwide demand for optical fiber and
optical cable. The conventional-video components and advanced display
products businesses also experienced strong sales increases in 1993.
Excluding restructuring charges, earnings were up in 1993 due to volume
growth and improved manufacturing performance in the advanced display
products and conventional-video components businesses and a modest increase
in earnings of the optical-fiber and optical-cable businesses. Sales and
earnings in the projection-video business reached record levels in 1993.
Restructuring charges of $10.7 million in 1993 included severance and other
costs associated with an overhead reduction program. Segment earnings in 1992
increased over 1991.
Sales of Corning's optical-fiber and optical-cable businesses increased
significantly in both 1993 and 1992. Market growth has been led by the
increased use of fiber-optic cable in the feeder portions of telephone
networks and the rapidly growing use of fiber in cable-television systems.
Despite record volume growth, earnings of the optical-fiber and optical-cable
businesses increased only slightly due to aggressive pricing to secure
long-term optical-cable supply contracts. Earnings in 1992 increased over
1991. Corning continues to invest in the development of several businesses in
this segment which provide a variety of optical components to bring optical
fiber to the home.
In 1993, Corning increased its acquisition activity in this segment to expand
its market for optical-fiber products and related optical components. In the
third quarter of 1993, Siecor acquired the telecommunications business of GTE
Control Devices Incorporated which manufactures single- and multi-line
network interface devices, solid state protection devices for central office
and building entrance terminals, and optical hardware products. In February
1994, Corning and Siecor acquired the assets relating to the optical-fiber
and optical-cable businesses of NTL for $130 million in a transaction
accounted for as a purchase. NTL is a major supplier of optical fiber and
optical cable to Canadian and international markets.
Sales in the conventional-video components and projection-video businesses
increased significantly in 1993. The recovering U.S. television market and a
shift in product mix from medium to larger size video components contributed
to the strong sales increase. Sales in 1992 increased over 1991. Earnings
were up in 1993 and 1992 as a result of higher volume and continuing
manufacturing efficiency improvements.
Sales in the advanced display products business, which produces
liquid-crystal display glass, increased significantly in both 1993 and 1992.
As a result of the growth in sales and solid manufacturing gains, this
business experienced profitability for the first time in 1993 despite
continued significant investment in research and development. In 1993,
Corning began construction of melting units in Japan and in the United States
which will significantly increase production capacity to meet the demands of
this growing market.
In 1993, Corning and Seagate Technology, Inc. ("Seagate") entered into the
first major sales contract for Corning's new MemCor(tm) glass-ceramic memory
disk which is used for high-performance disk drives in computers. This
product significantly increases storage capacity and, because of its
strength, improves reliability. Although the Seagate contract represents an
important milestone in the development of this product, the profitability of
this business will continue to be impacted by significant development
spending.
Sales of Biosym Technologies Inc. ("Biosym"), which was acquired in the third
quarter of 1992, contributed to the sales growth of this segment. Biosym
specializes in the development, marketing, and support of computer-aided
molecular design software. Biosym's profitability was impacted by the weak
economies in Japan and Europe and a slowdown in sales to pharmaceutical
companies caused by uncertainty surrounding the impact of health-care reform.
Equity companies:
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Net sales $680.2 $685.8 $609.1
Corning's share of net income 35.4 37.4 25.8
</TABLE>
Samsung-Corning, a South Korean manufacturer, produces glass panels and
funnels for entertainment television and display monitors. Samsung-Corning's
sales and earnings increased in 1993 and 1992. The 1993 increase in sales and
earnings reflected higher volumes and share gains due to the strengthening
yen along with reduced financing costs. The 1992 increase was primarily a
result of increased sales and improved manufacturing performance. In 1993,
Samsung-Corning completed a transaction which will expand its manufacturing
capacity into Eastern Europe.
Sales and earnings of Corning's optical-fiber equity companies declined in
1993 due primarily to a decrease in volume and pricing pressures felt most
heavily in Europe. Earnings were flat in 1992 compared with 1991 primarily as
a result of adverse market conditions in the United Kingdom.
Outlook:
Segment performance is expected to improve in 1994. Sales volumes in the
optical-fiber and optical-cable businesses are expected to continue to grow,
although the rate of growth in earnings will continue to be impacted by
worldwide pricing pressures. Sales and earnings of the advanced display
products business are expected to continue their rapid growth trend. Sales
and earnings in the conventional-video components and projection-video
businesses are expected to continue their upward trend. Equity earnings
in this segment are expected to decline due to the impact of two major glass
furnace repairs on Samsung-Corning sales offset by a slight improvement in
the optical-fiber equity companies.
Laboratory Services
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Consolidated sales $1,319.5 $1,149.8 $884.3
Income before taxes 125.3 (1) 203.1 155.5
</TABLE>
(1) Includes $52.0 million of restructuring charges and $43.0 million
of other special charges.
Consolidated operations:
Consolidated sales in this segment achieved record levels in each of the last
three years, reflecting the strong performance trend in existing businesses
and the impact of strategic acquisitions. Earnings were significantly
impacted by non-recurring charges in 1993. Excluding these charges, earnings
increased, but at a slower pace in 1993 than in prior years as a result of
pricing pressures and significant uncertainty in the health care industry.
In August 1993, MetPath completed the acquisition of Damon, a
clinical-testing business. In addition, in November 1993, MetPath completed a
transaction with Unilab which resulted in the acquisition of Unilab's
laboratories in Denver, Dallas, and Phoenix. With the completion of these
transactions, MetPath is strategically positioned with efficient low-cost
operations throughout the United States.
MetPath's sales increased in both 1993 and 1992. Approximately 75% of the
1993 sales growth resulted from Damon and other acquisitions. Excluding the
impact of non-recurring charges, MetPath's 1993 earnings were up slightly due
to the acquisition of Damon. Earnings growth in 1993 was hindered by
competitive pricing pressures and an increasingly higher mix of business from
lower-priced managed-care clients. MetPath recorded a $52.0 million
restructuring charge in 1993 primarily for costs of closing MetPath
facilities as a result of the integration of Damon and MetPath operations.
This integration should provide MetPath with significant synergies and
additional opportunities to reduce unit costs in 1994 and 1995.
In September 1993, Metpath recorded other special charges of $43.0 million,
primarily including a charge of $36.5 million to reflect the
settlement and related legal expenses associated with its compromise
agreement with the Civil Division of the Department of Justice to settle
claims brought on behalf of the Inspector General, U.S. Department of Health
and Human Services. The claims related to the marketing, sale, pricing and
billing of certain blood-test series provided to Medicare patients. The
settlement does not constitute an admission by MetPath with respect to any
issue arising from the civil action. In the third quarter 1993, MetPath,
along with other major clinical laboratories, received subpoenas for
additional information relating to certain other tests. In addition, certain
payors are reviewing their reimbursement practices for laboratory tests in
response to announcements by certain competitors and continued pressure by
government agencies. The outcome of these events is uncertain but could
increase the current downward price trend in the clinical-testing industry.
See "Business of Corning--Recent Developments--Department of Justice
Investigation."
Sales of the pharmaceutical services businesses have increased during the
last three years. Earnings improved significantly in 1993 and 1992 primarily
as a result of strong volume growth and cost-reduction actions. SciCor, Inc.
("SciCor"), which was acquired in 1991, reported increased revenues and
operating profits in both 1993 and 1992 as the market for clinical drug
trials continues to grow.
Sales at Enseco, the environmental-laboratory testing company, declined
slightly in 1993 due to weak market conditions and a scale-back in
operations. Sales in 1992 increased over 1991 levels primarily due to a late
1991 acquisition. Earnings increased slightly in both 1993 and 1992 resulting
from improved operating efficiencies and cost-reduction programs.
Equity companies:
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Net sales $18.0 $228.4 $198.7
Corning's share of net income (loss) (0.5) (8.5) 0.7
</TABLE>
In November 1993, MetPath acquired 100% of certain Unilab facilities in
exchange for a majority of the Unilab shares owned by MetPath, the assumption
of approximately $70 million of Unilab debt, and MetPath's investment in J.S.
Pathology PLC. MetPath retained a 12% equity investment in Unilab. At year
end 1992, MetPath owned 43% of Unilab and, in contemplation of this
transaction, accounted for it using the cost method of accounting for
investments in 1993.
Outlook:
Sales of the Laboratory Services segment are expected to increase as a result
of the Damon acquisition and volume gains in all businesses. MetPath's
earnings are expected to increase as a result of significant cost reductions
over the next year and synergies from the Damon acquisition offset somewhat
by the continuing price pressures in the health care industry. Solid growth
is expected to continue in the pharmaceutical services businesses. The
environmental-laboratory testing business will continue to emphasize cost
efficiencies and quality.
Consumer Products
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Consolidated sales $734.6 $772.2 (1) $768.7
Income before taxes (2) (3) (35.4) (20.3)(1) 57.7
</TABLE>
(1) The 1992 results of certain businesses which have been transferred from
the Consumer Products segment to the Specialty Materials segment have been
reclassified to conform to the current year's presentation.
(2) Both 1992 and 1993 include the incremental expense due to the adoption of
FAS 106 which totaled $6.3 million in 1992.
(3) Includes $46.5 million and $63.3 million of restructuring charges in 1993
and 1992, respectively.
Consolidated operations:
Consolidated sales in the Consumer Products segment declined in 1993 in
comparison with 1992 due to the impact of a poor worldwide retail sales
environment and the recent exit from the Brazilian market. Profitability has
been affected by increased promotion costs, reduced manufacturing to realign
inventory levels with lower sales volumes and reserves for certain inventory
and product claims. Segment profits were also adversely impacted in 1993 by
restructuring charges. Sales in 1992 were up in comparison with 1991;
however, earnings in 1992 were down primarily due to a restructuring
provision for the shutdown of operations in Brazil.
In December 1993, Corning and Vitro of Mexico agreed to end their cross
ownership of Corning Vitro in the United States and Vitro Corning in Mexico.
As a result of the agreement, in December 1993, Vitro purchased the shares of
capital stock of Vitro Corning owned by Corning and, in February 1994,
Corning purchased the shares of capital stock of Corning Vitro held by Vitro.
The net cost to Corning was $131 million. As a result of the transactions,
Corning Vitro has changed its name to Corning Consumer Products Company.
Corning and Vitro will continue their consumer products alliance through
cross distribution and supply agreements.
Corning Consumer Products' sales decreased in the North American and European
markets in 1993. The decline in the U.S. market was attributable primarily to
trade inventory corrections and reduced promotional activity. European sales
continue to be impacted by the weak economy. In 1992, sales increased in
North America but declined in Europe. Sales improved in Asia-Pacific in both
1993 and 1992.
Sales of Corning Ware(R) cookware and Pyrex(R) ware improved in 1993 compared
with 1992. These increases were offset, however, by declines in sales of
Visions(R) ware, due partially to Corning Consumer Products' exit from
Brazil. Sales of Corelle(R) dinnerware and Revere Ware(R) cookware declined
slightly. Corelle(R) dinnerware volume was affected by trade inventory
corrections and reduced trade promotional activity.
Restructuring charges totaling $46.5 million in this segment included costs
of a reduction in the salaried work force, the consolidation of Corning
Ware(R) cookware and Visions(R) ware manufacturing, and the consolidation of
North American packaging operations.
Sales of Steuben(R) crystal increased over 1992 due to a general increase in
volume as well as the opening of several new retail stores and wholesale
galleries and new product introductions. Earnings of this business improved
slightly in 1993 due to improved glass melting performance and quality
initiatives.
Equity companies:
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Net sales $285.2 $273.4 $87.7
Corning's share of net income (loss) (15.7) (5.4) 1.7
</TABLE>
Equity in earnings in 1993 continued to be negatively impacted by the poor
operating results of Vitro Corning due to the combined impact of the weak
Mexican economy, domestic Mexican inflation, increasing foreign competition
in Mexico and the strength of the Mexican peso. Vitro Corning's 1993
operating losses were offset somewhat by a favorable non-recurring tax
adjustment. Corning also recorded a $9.5 million reduction in equity earnings
resulting from a restructuring charge taken by Vitro Corning in 1993. The
decline in 1992 was the result of equity losses recorded by Vitro Corning,
due primarily to adverse retail market conditions in Mexico.
Outlook:
Sales and earnings are expected to improve in 1994 as the benefits of
restructuring programs implemented in 1993 and a focused marketing strategy
positively impact performance. The change from cross ownership to
distribution and supply agreements with Vitro is expected to have a modest
positive impact on earnings. Economic uncertainties, especially in Europe,
will continue to impact this segment.
Other Revenues and Deductions
Non-operating gains and losses:
In 1993, Corning recognized a non-operating gain of $4.2 million ($2.6
million after tax).
In 1992, Corning recognized net non-operating gains from consolidated
operations totaling $7.0 million ($21.7 million after tax), including a gain
of $10.1 million (before and after tax) from the sale of an additional equity
interest in Corning Japan K.K. and a pre-tax loss of $7.3 million ($9.0
million after-tax gain) from the formation of the consumer housewares venture
with Vitro.
In 1991, Corning recognized net non-operating gains from consolidated
operations totaling $8.1 million ($14.6 million after tax) which included a
gain of $5.3 million (before and after tax) on the sale of an equity interest
in Corning Japan.
Provision for restructuring and other special charges:
In the third quarter 1993, Corning recorded a charge of $207.0 million ($120.5
million after tax of $79.1 million and minority interest of $7.4 million) which
included $156.0 million of restructuring charges and $51.0 million of other
special charges. The restructuring charges included costs to integrate the
Damon acquisition and costs of a planned company-wide restructuring program to
reduce assets and overhead costs during 1994. The other special charges
primarily included a charge by MetPath of $36.5 million to reflect the
settlement and related legal expenses associated with its compromise agreement
with the Civil Division of the Department of Justice to settle claims brought
on behalf of the Inspector General, U.S. Department of Health and Human
Services, and $8 million of investment banking, legal and accounting fees and
other transaction expenses related to the Costar acquisition.
The costs to integrate the Damon acquisition include the costs of shutting down
MetPath facilities in certain markets where duplicate MetPath and Damon
facilities existed at the time of the transaction. These costs totaled $40.6
million and primarily included employee severance and other employee termination
benefits ($6 million), costs of exiting leased laboratory space and the
write-off of duplicate laboratory equipment ($24 million) and certain costs for
continuing employees directly related to the integration of Damon and MetPath
($3.3 million). Management believes that the integration of Damon and MetPath
facilities should significantly reduce operating costs of the combined
companies and will be substantially complete by the end of 1994.
The costs to be incurred in the company-wide restructuring program totaled
$115.4 million and included, among other items, severance and other employee
termination benefits ($68.2 million) related to a company-wide program to
reduce employment levels (and thus operating costs), facility and other costs to
consolidate the North American packaging and worldwide Pyroceram manufacturing
operations in the Consumer Products segment ($23.6 million), facility and other
costs to restructure or close several environmental and pharmaceutical testing
facilities ($9.1 million), consulting fees associated with company-wide in-depth
studies aimed at re-engineering the organization and operating practices of the
Company ($11.8 million) and certain costs for continuing employees directly
related to the restructuring plans ($3.4 million). Management believes that the
company-wide restructuring program will significantly reduce operating costs and
will be substantially complete by the end of 1994. The Company's re-engineering
studies are expected to be complete in the first half of 1995. It is possible
that these studies will result in additional employee terminations, asset
write-offs and other cost reduction activities beginning in late 1994 or in
1995. It is currently not possible to estimate the costs or benefits of these
terminations, write-offs or other activities.
The 1993 restructuring and integration charges included severance and other
termination benefits related to approximately 1,600 employees. Employee
reductions primarily include employees at various MetPath laboratory locations,
salaried employees at Corning Consumer Products Company (formerly known as
Corning Vitro Corporation) and salaried employees in various line, research and
staff organizations throughout the Company where business conditions require
reduced staff levels. At the end of the second quarter 1994, approximately
1,100 employees across the Company had been terminated or notified of their
termination and approximately $19.6 million of the $74.2 million severance and
other termination benefits had been paid.
The 1993 restructuring and integration charges included $29.3 million of asset
write-offs and $126.7 million of future cash expenditures of which
approximately $5.1 million was spent in 1993 and $86.4 million, $31.2 million
and $4.0 million is expected to be spent in 1994, 1995 and future years,
respectively. Corning management believes these costs will be financed with
cash from operations and does not anticipate any significant impact on its
liquidity as a result of the restructuring plan.
In 1992, Corning recorded a charge of $63.3 million ($32.1 million after tax
of $22.9 million and minority interest of $8.3 million) as a result of
Corning Vitro's decision to restructure its Brazilian operations.
Equity earnings:
In 1993, Corning recognized a $203.1 million reduction in equity earnings as
a result of an accounting charge taken by Dow Corning related to
breast-implant litigation and a $9.5 million reduction in equity earnings as
a result of a restructuring charge taken by Vitro Corning.
In 1992, Corning recognized a $37.7 million reduction in equity earnings
which included $24.5 million of accounting charges associated with Dow
Corning's terminated breast-implant business and $13.2 million of
restructuring charges associated with Dow Corning's exit from its Brazilian
operations and other cost-reduction programs.
In 1991, Corning recognized an $8.2 million reduction in equity earnings to
reflect an accounting charge recorded by Dow Corning for costs associated
with its terminated breast-implant business.
Taxes
Corning's effective tax rate varies between years due primarily to the impact
of certain non-operating gains and losses and restructuring charges. The
effective tax rates, excluding these items, were 31% in 1993, 33% in 1992,
and 37% in 1991. The reduced 1993 rate is primarily due to tax benefits
associated with the sale of the process systems business and the revaluation
of deferred tax assets discussed below. The reduced 1992 rate resulted from
the implementation of repatriation programs and increased utilization of tax
credits.
Corning adopted FAS 109 at the beginning of 1993. The impact of adoption of
FAS 109 was not material. On August 10, 1993, the Revenue Reconciliation Act
of 1993 (the "Act") was signed into law. The Act increased the U.S. corporate
statutory tax rate from 34% to 35% for years beginning after December 31,
1992, changed the deductibility of certain expenses and extended certain tax
credits. The increase in the statutory tax rate resulted in a gain from the
revaluation of Corning's net deferred tax assets in the third
quarter 1993 which lowered the 1993 effective tax rate. Excluding this gain,
the impact of the Act did not have a material impact on Corning's effective
tax rate.
Liquidity and Capital Resources
Corning's working capital of $451.4 million at the end of 1993 declined
slightly from $465.2 million at the end of 1992. The ratio of current assets
to current liabilities was 1.4 at the end of 1993 compared with 1.6 at the
end of 1992. Corning's ratio of long-term debt to total capital increased to
45% at the end of 1993 from 28% at the end of 1992. The change in the ratio
of long-term debt to total capital is primarily due to the financing of the
Damon acquisition.
In 1993, Corning increased its available bank credit lines by $155 million.
In addition, Corning borrowed $600 million under agreements with two banks to
finance the acquisition of Damon for approximately $405 million in cash and
the refinancing of approximately $167 million of Damon's debt. In September
1993, Corning issued $200 million of long-term debt securities in public
offerings and used the proceeds of such offerings to repay an equivalent
amount of the acquisition debt. Corning intends to refinance all or a
significant portion of the remaining acquisition debt with the net proceeds
from this Offering.
Cash Flows
Cash flows from operating activities increased in 1993 compared with 1992
primarily due to a significant reduction in net current operating assets and
liabilities (excluding the impact of acquisitions) offset by the payment by
MetPath to the Department of Justice and the suspension of dividends from Dow
Corning. Cash flows from operating activities increased in 1992 over 1991
primarily due to improved operations.
Cash used in investing activities increased significantly in 1993 over 1992
primarily due to the acquisition of Damon for approximately $405 million.
Cash used in investing activities also increased in 1992 over 1991 primarily
due to increased investments in plant and equipment and acquisitions in the
Laboratory Services segment, partially offset by the receipt of $137 million
of net proceeds from the formation of Corning Vitro and Vitro Corning.
Capital spending increased in 1993 when compared with 1992 primarily due to
the expansion of the liquid-crystal display facility in Japan and the
completion of Corning's corporate headquarters building. Capital spending
increased in 1992 over 1991 primarily due to the continued expansion of the
Wilmington, North Carolina, optical-fiber manufacturing facility, the
construction of additional facilities to support growth in the Laboratory
Services segment and the construction of the corporate headquarters building.
At year end 1993, Corning's capital commitments totaled approximately $199.2
million.
In 1993, cash provided by financing activities increased significantly over
1992 primarily as a result of increased borrowings to finance the acquisition
of Damon and the telecommunications business of GTE Control Devices
Incorporated and to finance continued capital expansion programs. In 1992,
cash used in financing activities increased significantly over 1991 due to
higher levels of common stock repurchases and the timing of dividend
payments.
Corning repurchased 1,323,700; 2,910,500; and 1,989,000 shares of its common
stock in 1993, 1992, and 1991, respectively, pursuant to a systematic plan
authorized by the Board of Directors. This activity is designed to provide
shares for Corning's various employee-benefit programs. Corning suspended its
share repurchase program in May 1993 to conserve cash for acquisition
purposes.
Dividends paid to common shareholders in 1993 totaled $134.1 million compared
with $176.7 million in 1992 and $92.6 million in 1991. The higher 1992
payment resulted from a $0.15 per-share special dividend declared in 1991 and
paid in 1992 and the payment of the fourth quarter 1992 dividend prior to the
end of fiscal 1992. Excluding these items, the increase in dividends paid was
caused by an increase in the dividend rate of 10% and 17% in 1993 and 1992,
respectively, and the increase in common shares outstanding.
Environment
Corning has been named by the Environmental Protection Agency under the
Superfund Act, or by state governments under similar state laws, as a
potentially responsible party for 22 hazardous waste sites. Under the
Superfund Act, all parties who may have contributed any waste to a hazardous
waste site, identified by such Agency, are jointly and severally liable for
the cost of cleanup unless the Agency agrees otherwise. It is Corning's
policy to accrue for its estimated liability based on expert analysis and
continual monitoring by both internal and external consultants. Corning has
accrued for its estimated liability with respect to each of these sites and
has not reduced the liability for any potential insurance recoveries. The
aggregate liability is not material to the Company's operations or financial
position.
Effects of Inflation
Amounts reflected in the financial statements do not provide for the effect
of inflation on operations or financial position. The expenses and asset
values, specifically those related to long-lived assets, reflect historical
cost and do not necessarily represent replacement cost or charges to
operations based on replacement cost. Corning's operations are geared to
provide funds from operations which would be sufficient along with other
sources to replace fixed assets as necessary. Net income would be lower than
reported if the effects of inflation were reflected by charging operations
for replacement costs.
BUSINESS OF CORNING
General
Corning traces its origin to a glass business established by the Houghton
family in 1851. The present corporation was incorporated in the State of New
York in December 1936, and its name was changed from Corning Glass Works to
Corning Incorporated on April 28, 1989.
Corning is an international corporation competing in four broadly-based
business segments: Specialty Materials, Communications, Laboratory Services
and Consumer Products. Corning is engaged principally in the manufacture and
sale of products made from specialty glasses and related inorganic materials
having special properties of chemical stability, electrical resistance, heat
resistance, light transmission and mechanical strength. Corning and its
subsidiaries annually produce some 60,000 different products at 44 plants in
eight countries. In addition, Corning, through subsidiaries and affiliates,
engages in laboratory services businesses, including life and environmental
sciences and clinical-laboratory testing at more than 50 facilities in ten
countries.
Corning's strategy includes growth from new products developed from Corning's
long-standing commitment to research and development and from mergers and
acquisitions. Accordingly, Corning continuously reviews potential acquisition
opportunities, primarily in the laboratory services and communications areas.
However, there can be no assurance that Corning will pursue any such
acquisition opportunity.
In addition to the restructuring programs already under way, Corning is
currently engaged in a comprehensive review of its business and cost
structure. Corning expects this review to be substantially completed by the
end of 1994.
Specialty Materials
Corning's Specialty Materials segment sells more than 40,000 products and has
evolved from Corning's historical business base in materials development. The
major business units within the Specialty Materials segment are: automotive
substrates, ophthalmic and optical products, automotive lighting, science
products, and other advanced materials. Products manufactured by these
businesses include cellular ceramics for automotive and stationary
emission-control devices, plastic and glass ware for laboratory applications
and glass optical lenses.
Corning's long standing commitment to research, development and engineering
has driven the introduction of new products and technologies. In the 1970's
Corning developed the technology and created products for the substrates used
in emission control systems. Today the environmental products business
continues to be a driving force within the Specialty Materials segment.
Corning continues to develop new products and technologies to meet increasing
demand as a result of tightened regulations in the United States and Europe
and new regulations in other parts of the world. For example, to meet
tightening clean air standards, Corning has developed as a prototype an
electrically heated automotive catalytic converter substrate that begins
working within seconds of ignition, which is when most of the pollutants are
generated. Corning has developed a new family of materials, glass-polymers,
the properties of which make them well suited for components in automobiles,
aircraft, lighting systems and electronic devices.
Corning's equity company investments in this segment include Dow Corning,
Pittsburgh Corning and Cormetech, Inc., an equity company which manufactures
and sells stationary emission control devices for power plants.
Communications
Corning's Communications segment consists of the following major product
lines: optical fiber, optical cable, optical components, liquid-crystal
display glass, television bulbs, lenses for projection television, and
magnetic memory disks.
Corning's Communications segment also originates from Corning's commitment to
research and development in new materials. Corning led the development of the
modern opto-electronics market with its invention of optical fiber in the
late 1960's and is the leading supplier of optical fiber and such supporting
components as couplers and signal splitters. Corning is also a leading
supplier of optical cable through its 50% ownership of Siecor. In addition,
Corning has several equity investments in companies that produce optical
fiber internationally.
Approximately two-thirds of the revenues in the Communications segment are
generated by sales of opto-electronic products. Today, optical fiber is
penetrating the communications market as optical fiber is rapidly becoming
the preferred way to transmit telephone, cable-TV and computer data
worldwide. Optical fiber permits the transmission of substantially more data
over greater distances with less distortion than does copper, the product it
is principally replacing. As users of optical fiber increase applications and
expand services, Corning continues to provide new and improved optical-fiber
products and corollary components to an expanding market. During the next few
years, management believes that more fiber will be deployed in distribution
cables and that utilization of fiber to the home will increase.
Corning continues to be a leading producer of glass panels and funnels for
television picture tubes through Corning Asahi Video Products Company, and is
also a world leader in the production of projection television lenses through
its wholly owned subsidiary, U.S. Precision Lens Inc.
The market for liquid-crystal display glass continues to grow, currently
driven by notebook computer and portable-TV sales. Future applications are
expected to include desktop-computer displays, projection-TV systems, video
phones and automotive applications. Corning is the world's leading supplier
in this market.
Another Corning invention, the MemCor(tm) glass-ceramic memory disk for
high-performance hard-disk drives in computers, significantly increases
storage capacity and improves reliability.
Also included in this segment is Biosym, which develops and markets
computer-aided molecular design software.
Laboratory Services
Corning entered the laboratory services market in the early 1970's with its
initial investment in MetPath, a regional U.S. clinical laboratory which
Corning acquired in 1982. Since 1982, Corning has made several other
acquisitions in the clinical, biological, pharmaceutical and
environmental-services industries. In 1991 Corning combined its
laboratory-service business units into a wholly owned subsidiary, Corning
Life Sciences Inc. ("CLSI"), to better manage the development of its business
in this rapidly growing area. Today CLSI, through subsidiaries and
affiliates, operates more than 50 facilities in ten countries that provide
clinical, pharmaceutical and environmental testing services.
CLSI's clinical testing subsidiary, MetPath, performs more than 1,400
different clinical tests for physicians, hospitals, laboratories, industries,
health-maintenance organizations and other managed-care providers through a
quick-response network of regional U.S. laboratories. MetPath is a leader in
providing cost-effective and reliable clinical diagnostic testing services.
See "--Recent Developments--Department of Justice Investigation."
In August 1993 Corning acquired all of the outstanding shares of common stock
of Damon in a transaction accounted for as a purchase. The total purchase
price of this transaction was approximately $405 million, including
acquisition expenses. In addition, approximately $167 million of indebtedness
of Damon has been refinanced. Corning has financed the acquisition of Damon
and the refinancing of Damon's debt with financing agreements entered into
with certain commercial banks. Approximately $200 million of such financing
has been retired with the proceeds from the issuance of long-term debt of
Corning. Corning intends to retire a significant portion of the remaining
acquisition debt with the net proceeds of the Offering.
Damon's principal line of business is clinical-laboratory testing, providing
to the medical profession a full range of routine and esoteric testing
services that are used in the diagnosis, monitoring and treatment of disease.
Damon provides its services to physicians, hospitals, nursing homes, managed
care institutions, corporations and governmental agencies, including agencies
of the United States of America.
On June 7, 1994, Corning acquired all of the outstanding shares of Maryland
Medical and several affiliates for approximately 4.5 million shares of
Corning Common Stock in a pooling of interests transaction.
On June 1, 1994, Corning signed a definitive agreement to acquire all of the
outstanding shares of the capital stock of Nichols in a transaction to be
accounted for as a pooling of interests. Under the terms
of the agreement, Corning will exchange newly issued and registered shares of
Corning Common Stock with a value equal to up to $13 for each share of the
capital stock of Nichols. Using an assumed price of $33 per share of Corning
Common Stock and the number of shares of, and options to purchase, the
capital stock of Nichols presently outstanding, approximately 6.7 million
shares of Corning Common Stock and options to purchase approximately 1
million shares of Corning Common Stock will be issued in the transaction.
Substantially all of the options to purchase shares of Corning Common Stock
will be exercisable immediately following the closing of the transaction. In
no event will more than 9.6 million shares of Corning Common Stock be issued
and reserved for the exercise of options granted in connection with such
transaction.
For a discussion of the registration rights granted to the stockholders of
Maryland Medical and the registration of the shares of Corning Common Stock
to be issued in the Nichols transaction, see "Description of Corning Capital
Stock--Common Stock Eligible for Future Sale."
CLSI's pharmaceutical-testing businesses are conducted by MetPath's wholly
owned subsidiaries, G.H. Besselaar Associates, Hazelton Corporation and
SciCor. These businesses perform chemical and biological testing, clinical
research and data management services primarily for the pharmaceutical
industry. On June 28, 1994, Corning and International Technology created a
jointly owned company to which Corning transferred the net assets of
MetPath's environmental testing laboratory business and International
Technology transferred the assets of its IT Analytical Services business.
Corning and International Technology each own 50 percent of the company. See
"--Recent Developments--Creation of Environmental Testing Services Company."
Corning's Laboratory Services segment is being affected by new federal
legislation implemented in January 1994. The new legislation reduces Medicare
reimbursement rates and will limit future laboratory fee increases. In
addition, the Clinton Administration's health-care plan calls for managed
competition with limitations on total national health-care expenditures and
on the annual growth of such expenditures. A health-care reform model based
on managed competition will likely reduce reimbursements for clinical
laboratory services as managed care networks continue to proliferate. As the
plan also calls for insurance coverage for some 37 million people who
currently have no such coverage, it is expected that demand for such services
will increase. Demand should also increase as a result of a stronger emphasis
on testing as a preventative measure. It is not clear how quickly or to what
extent Medicare and Medicaid programs will be incorporated into the health
reform system. Management believes that while the entire health-care industry
faces dramatic challenges to build a more effective means of delivery of
services, MetPath's leading market position in major geographic areas will
allow Corning to continue to benefit from the ongoing and increasing
consolidation in the industry.
Consumer Products
Corning is well known for its line of consumer housewares with strong brand
names and consumer franchise. Key product lines are Pyrex(R) glassware,
Corelle(R) tableware, Corning Ware(R), Visions(R) cookware, and Revere
Ware(R) cookware. Other Corning consumer products include the prestigious
Steuben(R) crystal and Serengeti(R) sunglasses.
Corning's executive offices are located at One Riverfront Plaza, Corning, New
York 14831, and its telephone number at such offices is (607) 974-9000.
Recent Developments
Creation of Environmental Testing Services Company. On June 28, 1994, Corning
and International Technology created a jointly owned company to which Corning
transferred the net assets of its environmental testing laboratory business
and International Technology transferred the assets of its IT Analytical
Services business. Corning and International Technology each will own 50
percent of the company. Corning will account for its investment in the newly
created company using the equity method of accounting for investments. The
impact of the transaction is not expected to be material to Corning's
financial statements.
Acquisition of Clinical Laboratory Testing Businesses. On June 7, 1994,
Corning acquired all of the outstanding shares of Maryland Medical for
approximately 4.5 million shares of Corning Common Stock in a pooling of
interests transaction.
On June 1, 1994, Corning signed a definitive agreement to acquire all of the
outstanding shares of the capital stock of Nichols in a transaction to be
accounted for as a pooling of interests. Under the terms of the agreement,
Corning will exchange newly issued and registered shares of Corning Common
Stock with a value equal to up to $13 for each share of the capital stock of
Nichols. Using an assumed price of $33 per share of Corning Common Stock and
the number of shares of, and options to purchase, the capital stock of
Nichols presently outstanding, approximately 6.7 million shares of Corning
Common Stock and options to purchase approximately 1 million shares of
Corning Common Stock will be issued in the transaction. Substantially all of
the options to purchase shares of Corning Common Stock will be exercisable
immediately following the closing of the transaction. In no event will more
than 9.6 million shares of Corning Common Stock be issued and reserved for
the exercise of options granted in connection with such transaction. The
final exchange ratio of shares of Corning Common Stock for shares of Nichols
capital stock will be determined by the price of Corning Common Stock during
a 10-day trading period prior to the date of the Nichols stockholders meeting
held to approve the transaction. The transaction is subject to regulatory
approval and is expected to close in the second half of 1994.
Corning's consolidated financial statements for periods prior to these
transactions will not be restated since the acquisitions are not material to
Corning's financial position or results of operations. Corning will likely
record a one-time charge of up to $10 million after-tax in the third quarter
for transaction costs associated with these acquisitions and may possibly
record an additional one-time charge of up to $25 million after-tax in the
second half of 1994 for the integration of the Nichols and Maryland Medical
operations into MetPath.
For a discussion of the registration rights granted to the stockholders of
Maryland Medical and the registration of the shares of Corning Common Stock
to be issued in the Nichols transaction, see "Description of Corning Capital
Stock--Common Stock Eligible for Future Sale."
Sale of Parkersburg Plant. In May 1994, Corning sold its Parkersburg, W.Va.,
glass-tubing products plant to Schott Corporation, a subsidiary of the Schott
Group, for $57 million and decided to exit several minor product lines in the
specialty materials segment. The net gain from these transactions is not
material.
Disposition of Clinical Laboratory Testing Operations. On April 4, 1994,
MetPath sold the clinical laboratory testing operations of Damon in
California for approximately $51 million in cash. No gain or loss will be
recognized as a result of this transaction. The proceeds from the transaction
were used to retire a portion of the debt incurred in connection with the
acquisition of Damon in August 1993.
Breast Implant Litigation. Corning continues to be a defendant in two types
of cases previously reported involving the silicone-gel breast implant
products or materials formerly manufactured or supplied by Dow Corning or a
Dow Corning subsidiary. These cases include (1) several purported federal
securities class action lawsuits and shareholder derivative lawsuits filed
against Corning by shareholders of Corning alleging, among other things,
misrepresentations and omissions of material facts, breach of duty to
shareholders and waste of corporate assets relative to the silicone-gel
breast implant business conducted by Dow Corning and (2) as of May 23, 1994
over 3,490 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 such suits have been styled as class
actions and others involve multiple plaintiffs.
All of the more than 3,000 tort lawsuits filed against Corning in federal
courts were consolidated in the United States District Court, Northern
District of Alabama, and in early December 1993, Corning was dismissed from
these cases. This decision by the District Court is non-appealable and,
although the District Court noted that it was "highly unlikely" that
additional discovery would produce new evidence, the decision is subject to
reconsideration if additional information is discovered or if there is a
change in state law. Certain state court tort cases against Corning have also
been consolidated for the purposes of discovery and pretrial matters. During
1994, Corning has made several motions for summary judgment in state courts
and judges have dismissed Corning from all of the over 2,500 tort cases filed
in California, Michigan, New York and Pennsylvania, some of which are on
appeal. Corning's motions seeking dismissal remain pending in various other
states. The federal securities suits are all pending in the United States
District Court for the Southern District of New York.
Corning's management does not believe that the purported securities class
action lawsuits or the purported shareholder derivative lawsuits or the tort
actions filed against Corning described above will have a material adverse
effect on Corning's financial condition or the results of its operations.
Dow Corning has informed Corning that as of July 8, 1994, Dow Corning has
been named in 45 purported breast implant product liability class action
lawsuits and approximately 15,900 individual breast implant product liability
lawsuits (which number includes all or substantially all of the 3,490
lawsuits referred to above)
and that Dow Corning anticipates that it will be named as a defendant in
additional breast implant lawsuits in the future. Dow Corning has also stated
that it is vigorously defending this litigation.
Verdicts in breast implant litigation against Dow Corning and other
defendants which have gone to judgment have varied widely, ranging from
dismissal to the award of significant compensatory and punitive damages.
Dow Corning has also informed Corning that Dow Corning believes that a
substantial portion of the indemnity and defense costs related to the breast
implant litigation brought and to be brought against it is and will be
covered by product liability insurance available to it but that the insurance
companies issuing the policies in question have reserved the right to deny
coverage under various theories and in many cases have refused to pay defense
and indemnity costs which have been incurred by Dow Corning. In this regard,
on June 30, 1993, Dow Corning instituted litigation in California against
certain insurance companies which had issued product liability insurance
policies to it from 1962 through 1985 seeking declaratory judgments that the
insurance company defendants are liable to indemnify Dow Corning for such
liabilities and costs and, in the case of certain insurance company
defendants, damages including punitive damages. In September 1993, several of
Dow Corning's insurers filed a complaint against Dow Corning and other
insurers for declaratory relief in Michigan and moved for the action brought
by Dow Corning in California to be dismissed in favor of the Michigan
litigation. In October 1993, this motion was granted. In March 1994, the
Michigan court ruled that certain of Dow Corning's primary insurers had a
duty to defend Dow Corning with respect to certain breast implant product
liability lawsuits. These insurers were directed to reimburse Dow Corning for
certain defense costs previously incurred. Dow Corning has informed Corning
that it is continuing negotiations with such insurance companies to obtain an
agreement on a formula for the allocation among these insurers of payments of
defense and indemnity expenses related to breast implant products liability
lawsuits and claims.
In March 1994, Dow Corning, along with other defendants and representatives
of breast implant litigation plaintiffs, signed the Settlement Agreement. The
Settlement Agreement is subject to court approval and to withdrawal by Dow
Corning and other defendants and plaintiffs. Under the Settlement Agreement
and related agreements, industry participants (the "Funding Participants")
would contribute approximately $4.2 billion over a period of more than thirty
years to establish several special purpose funds. The Settlement Agreement,
if implemented, would provide for a claims based structured resolution of
claims arising out of silicone breast implants, define the circumstances
under which payments from the funds would be made and include a number of
other provisions related to claims and administration. The Settlement
Agreement defines periods during which breast implant plaintiffs may elect
not to settle their claims by way of the Settlement Agreement and to continue
their individual breast implant litigation against manufacturers and other
defendants (the "Opt Out Plaintiffs"). In certain circumstances, if Dow
Corning considers the number of Opt Out Plaintiffs to be excessive, Dow
Corning is entitled to withdraw from participation in the Settlement
Agreement. Corning is not a party to the Settlement Agreement and will not
make any contribution to the settlement contemplated thereby.
In April 1994, the U.S. District Court for the Northern District of Alabama
preliminarily approved the Settlement Agreement and temporarily stayed and
suspended federal and state class action certification or notice proceedings
relative to federal or state class action lawsuits filed by plaintiffs
included in the settlement class.
In April 1994, the Court also notified the breast implant plaintiffs eligible
to participate in the settlement of a 60-day period during which they have
the ability to become initial Opt Out Plaintiffs. Unless the current schedule
is extended by the Court, Dow Corning would expect to decide whether or not to
exercise its option to withdraw from the Settlement Agreement by mid-August
1994. A Court-supervised fairness review process of the Settlement Agreement
must be completed before the Settlement Agreement can be implemented. Once the
Settlement Agreement is approved by the Court, claims can then be validated.
The Court's approval of the Settlement Agreement would be subject to appeal.
Dow Corning recorded a pre-tax charge of $640 million ($415 million after
tax) against its earnings for the fourth quarter of 1993 to reflect its best
estimate as of January 1994 of the net present value of its net liabilities
and costs as a result of its involvement in breast implant litigation and, as
a result of Dow Corning's decision to take this charge, Corning recorded a
charge of $203 million after tax against its equity in earnings of associated
companies for the fourth quarter of 1993 and against the carrying value of
its investment in Dow Corning at the end of fiscal 1993.
On July 12, 1994, Reuters Information Services, Inc. published a report
indicating that results of preliminary experiments by researchers at the U.S.
National Cancer Institute showed that silicon gel from Dow Corning breast
implants injected into genetically susceptible mice causes a form of cancer.
The Reuters report indicates that this study is to be published in the July
20, 1994 edition of the Journal of the National Cancer Institute. Dow Corning
has not yet had an opportunity to review this study or assess the study's
potential impact on its financial condition or results of operations.
If the tort actions filed against Dow Corning or any settlement of the breast
implant controversy should require Dow Corning to record any additional
charges against income, the effect on Corning of any such
additional charges would be limited to their consequent impact (in the amount
of approximately 50% of the amount thereof) on Corning's reported equity in
earnings of associated companies for the period such charges were recognized,
on the book value of Corning's equity investment in Dow Corning and on
Corning's retained earnings. Corning does not believe that its share of any
additional charges taken by Dow Corning resulting from the breast implant
controversy will have a material adverse effect upon Corning's financial
condition. However, it is possible that Corning's shares of any such
additional charges taken by Dow Corning could have a material adverse effect
upon Corning's earnings in the quarters in which any such charges were
recognized by Dow Corning.
Other Dow Corning Matters. Dow Corning received a request dated July 9, 1993
from the Boston Regional Office of the Commission for certain documents and
information related to silicone breast implants. The request stated that the
Boston Regional Office was conducting an informal investigation which
"concerns Dow Corning, its subsidiary Dow Corning Wright and parent
corporations, Dow Chemical Co. and Corning Inc." Dow Corning has informed
Corning that Dow Corning has responded to this request enclosing the
documents and information requested along with related information and
continues to cooperate with the Boston Regional Office.
During the first quarter of 1993, Dow Corning received two federal grand jury
subpoenas initiated by the United States Department of Justice ("DOJ")
seeking documents and information related to silicone breast implants. Dow
Corning has informed Corning that it has delivered the documents and
information requested and continues to cooperate with the DOJ as this grand
jury investigation proceeds.
Department of Justice Investigations. In September 1993, MetPath and MetWest
Inc. ("MetWest"), a wholly owned subsidiary of Unilab, in which Corning had
at the time an interest of approximately 43%, entered into a Settlement
Agreement (the "MetPath Settlement Agreement") with the DOJ and the Inspector
General of the Department of Health and Human Services (the "Inspector
General"). Pursuant to the MetPath Settlement Agreement, MetPath and MetWest
paid to the United States a total of $39.8 million in settlement of civil
claims by the DOJ and the Inspector General that MetPath and MetWest had
wrongfully induced physicians to order certain laboratory tests without
realizing that such tests would be billed to Medicare at rates higher than
those the physicians believed were applicable.
Several state and private insurers have made claims based on the practices
covered by the MetPath Settlement Agreement. Several have settled but it is
not clear at this time what, if any, additional exposure Corning may have to
these entities and to other persons who may assert claims on the basis of
these or other practices.
During August 1993, MetPath, MetWest and Damon (which was acquired by Corning
in that month) together with other participants in the industry received
subpoenas from the Inspector General seeking information regarding their
practices with respect to 14 enumerated tests offered in conjunction with
automatic chemical test panels. Of these 14 tests, 5 were covered by the
MetPath Settlement Agreement and consequently MetPath and MetWest are not
being required to provide further information with regard to them. MetPath,
MetWest and Damon have completed this process of complying with these
subpoenas. MetPath also received in May 1994 two subpoenas from the Inspector
General concerning, in one case, an investigation into billings for tests not
performed or reported for which MetPath had voluntarily made corrective
payments in 1993 and, in the other, an investigation into whether separate
billings for tests which should have been grouped together had occurred. In
addition, a federal grand jury in New Jersey is investigating the billings
for tests not performed or reported. The results of these investigations
cannot currently be predicted but the possibility that they may result in
additional claims by the DOJ or the Inspector General or additional claims or
settlements with parties other than the DOJ and the Inspector General cannot
be excluded.
Other Legal Proceedings. During September 1993, two individuals filed in the
Supreme Court of the State of New York (one in New York County and one in
Suffolk County) separate purported derivative actions against Corning, as
nominal defendant, and Corning's Directors and certain of its officers
seeking on behalf of Corning compensatory and punitive damages in unspecified
amounts (and plaintiffs' costs and disbursements including attorneys' and
experts' fees) by reason of the alleged responsibility of the actual
defendants for the conduct which gave rise to the settlement in the MetPath
litigation described above and their alleged failure to cause Corning to make
timely disclosure thereof. The parties have agreed to consolidate such
actions in a single action before the Supreme Court of the State of New York
in New York County.
During October 1993, two individuals instituted in the United States District
Court for the Southern District of New York separate purported class actions
on behalf of purchasers of Corning securities in the
open market during the period from September 17 to October 6, 1993 against
Corning, certain of its Directors and officers and the underwriters of
Corning's offering, on September 17, 1993, of $100 million of 6.75%
Debentures due on September 15, 2013. The complaints generally allege that
the defendants failed to make timely disclosures of adverse developments in
Corning's business and seek compensatory and punitive damages in unspecified
amounts (and plaintiffs' costs and expenses including attorneys' fees and
disbursements). These two actions, with respect to which the underwriters
have been dismissed, have been consolidated.
Two class actions have been filed in the Court of Chancery for the State of
Delaware against Damon and certain of its officers and directors. These suits
allege damages arising from Damon's failure to mention in the press release
that announced the initial merger agreement it had reached with a company
other than Corning that an unnamed bidder (Corning) had also expressed
interest in acquiring Damon. The class of plaintiffs are those who sold their
stock at the price offered by the other company, rather than the higher
amount later offered and paid by Corning.
Corning's management does not believe that the purported class action
lawsuits or the purported shareholder derivative lawsuits described above
will have a material adverse effect on Corning's financial condition or the
results of its operations.
CORNING DELAWARE
Corning Delaware is a special purpose limited partnership formed under the
laws of the State of Delaware. All of its partnership interests (other than
the Preferred Securities and any interests of any Special General Partner)
are and will be beneficially owned directly or indirectly by Corning. Corning
is the sole general partner in Corning Delaware. Corning Finance Corporation,
a Delaware corporation and a wholly-owned subsidiary of Corning ("Corning
Finance"), initially will be the sole limited partner in Corning Delaware.
Upon issuance of the Preferred Securities, which securities represent limited
partnership interests in Corning Delaware, the holders of such Preferred
Securities will become limited partners in Corning Delaware and Corning
Finance will withdraw as a limited partner. The General Partner will agree to
contribute capital to the extent required so its initial capital contributions
are equal to at least 21% of all the capital contributed to Corning Delaware.
The General Partner will invest 99% of the total contributions in Corning
Delaware in the Subordinated Debentures and the remaining 1% in Eligible
Investments as provided in the Amended and Restated Limited Partnership
Agreement (the "Limited Partnership Agreement"). Corning Delaware will
exist for a maximum term of 45 years, unless earlier dissolved. The
Limited Partnership Agreement of Corning Delaware provides that the
General Partner will have liability for the debts and obligations of
Corning Delaware (including certain tax obligations as provided herein, but
excluding obligations to holders of Preferred Securities in their capacities
as holders, such obligations being separately guaranteed pursuant to the
Guarantee). Under Delaware law, limited partners in a Delaware limited
partnership (i.e., holders of the Preferred Securities) will not be
personally liable for the debts, obligations and liabilities of such limited
partnership, whether arising in contract, tort or otherwise, solely by reason
of being a limited partner of Corning Delaware (subject to any obligation
such holders have to repay any funds that may have been wrongfully
distributed to them). All of Corning Delaware's business and affairs will be
conducted by the General Partner. The location of the principal executive
offices of the General Partner is One Riverfront Plaza, Corning, New York
14831, telephone number (607) 974-9000. Corning Delaware exists for the
purpose of issuing the Preferred Securities and investing the proceeds
thereof in the Subordinated Debentures and Eligible Investments, as described
above.
DESCRIPTION OF SECURITIES OFFERED
The securities offered hereby are 6% Convertible Monthly Income Preferred
Securities of Corning Delaware with a liquidation preference of $50 per
security. The Preferred Securities are convertible at the option of the
holder through Corning Delaware into shares of Corning Common Stock at an
initial conversion rate of 1.2821 shares of Corning Common Stock for
each $50 principal amount of Subordinated Debentures (equivalent to a
conversion rate of 1.2821 shares of Corning Common Stock for each Preferred
Security), subject to adjustment in certain circumstances. The Preferred
Securities are guaranteed, to the extent described herein, by Corning as to
dividends, the Redemption Price and cash and other distributions payable on
liquidation. In certain circumstances the holders can cause Corning Delaware
to exchange all of the Subordinated Debentures for shares of Corning Series C
Preferred Stock and distribute such shares in exchange for the Preferred
Securities.
The following is a description of the principal terms of the Preferred
Securities; the Corning Common Stock and the Corning Series C Preferred Stock
into or for which the Preferred Securities may be converted or exchanged;
the Guarantee pursuant to which Corning will guarantee, to the extent
described therein, certain payments with respect to the Preferred Securities;
and the Subordinated Debentures and the fiscal agency agreement pursuant to
which the Subordinated Debentures will be issued (the "Fiscal Agency
Agreement").
Preferred Securities
The following summary of the principal terms and provisions of the Preferred
Securities does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the Limited Partnership Agreement, a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
General
All of the partnership interests in Corning Delaware other than the Preferred
Securities (and any interests of any Special General Partner) will be owned
directly by Corning at all times while the Preferred Securities are
outstanding. The Limited Partnership Agreement authorizes and creates the
Preferred Securities, which represent limited partnership interests in
Corning Delaware. The limited partnership interests represented by the
Preferred Securities will have a preference with respect to cash
distributions and amounts payable on liquidation and redemption over the
other partnership interests in Corning Delaware. The Limited Partnership
Agreement does not permit the issuance of other partnership interests without
the prior approval of holders of not less than 66-2/3% of the aggregate
liquidation preference of the Preferred Securities then outstanding.
Holders of Preferred Securities will have no preemptive rights.
Holders of the Preferred Securities will not have the right to remove or
replace the General Partner.
Dividends
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions from Corning Delaware, accruing from July 21, 1994 and
payable monthly in arrears on the last day of each calendar month of each
year, commencing July 31, 1994 ("dividends"). The dividends payable on
each Preferred Security will be fixed at a rate per annum of $3.00 or
6% of the liquidation preference of $50. The amount of dividends payable
for any period will be computed on the basis of twelve 30-day months and a
360-day year and, for any period shorter than a full month, will be computed
on the basis of the actual number of days elapsed in such period.
Dividends on the Preferred Securities must be declared monthly and paid on
the last day of each calendar month to the extent that Corning Delaware has
funds legally available for the payment of such dividends and cash on hand
sufficient to make such payments. It is anticipated that Corning Delaware's
funds will be limited principally to payments received under the Subordinated
Debentures in which Corning Delaware will invest the proceeds from this
Offering. See "--Description of the Subordinated Debentures."
Corning has the right under the Subordinated Debentures to extend, from time
to time, the interest payment periods on the Subordinated Debentures for up
to 60 months. Monthly dividends on the Preferred Securities would be deferred
(but would continue to compound interest monthly) by Corning Delaware during
any such extended interest payment period. See "Investment
Considerations--Option to Extend Payment Periods", "--Additional Dividends"
and "--Option to Extend Interest Payment Period." The failure of holders of
Preferred Securities to receive dividends in full for 15 consecutive months
would trigger the right of holders of a majority of the aggregate liquidation
preference of the Preferred Securities then outstanding to cause Corning
Delaware to exchange all of the Subordinated Debentures for shares of Corning
Series C Preferred Stock at the Exchange Price and to distribute such shares
to the holders of Preferred Securities in exchange for all of the Preferred
Securities then outstanding. "Exchange Price" means one share of Corning
Series C Preferred Stock for each $100 principal amount of Subordinated
Debentures (which rate of exchange is equivalent to one share of Corning
Series C Preferred Stock for two Preferred Securities). See "--Optional
Exchange for Corning Series C Preferred Stock."
If a Tax Event occurs, then all dividends and distributions (including
distributions to the General Partner) shall be reduced by Additional Taxes,
commencing on the date that is the earlier of (i) three months after the date
of notice of such Tax Event and (ii) the date of a vote taken at a special
partnership meeting (or, in lieu of such a meeting, the date of written
consent) by the holders of the Preferred Securities on the matter of whether
to cause the exchange of all Preferred Securities for shares of Corning
Series C Preferred Stock (such earlier date being referred to herein as the
"Tax Event Date"). Prior to the Tax Event
Date, no reduction will be made on account of Additional Taxes and any
Additional Taxes will be paid by Corning. See "--Optional Exchange for
Corning Series C Preferred Stock."
"Tax Event" means that Corning shall have obtained an opinion of nationally
recognized independent tax counsel experienced in such matters to the effect
that on or after the date of this Prospectus, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, (b) any amendment to, or
change in, an interpretation or application of any such laws or regulations
by any legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the generally accepted position or (d) any
action taken by any governmental agency or regulatory authority, which
amendment or change is enacted, promulgated, issued or effective or which
interpretation or pronouncement is issued or announced or which action is
taken, in each case on or after the date of this Prospectus, there is more
than an insubstantial risk that (i) Corning Delaware is subject to federal
income tax with respect to interest accrued or received on the Subordinated
Debentures, or (ii) Corning Delaware is subject to more than a de minimis
amount of taxes, duties or other governmental charges.
"Additional Taxes" means the sum of any additional income taxes, duties and
other governmental charges to which Corning Delaware has become subject from
time to time as a result of a Tax Event, except for United States withholding
taxes.
Corning will agree as General Partner in the Limited Partnership Agreement to
pay any and all Additional Taxes, liabilities, costs and expenses with
respect to such Additional Taxes of Corning Delaware for the period from the
formation of Corning Delaware through the Tax Event Date.
Dividends declared on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of Corning Delaware on the
relevant record dates, which will be one Business Day (as defined below)
prior to the relevant payment dates. Subject to any applicable laws and
regulations and the Limited Partnership Agreement, each such payment will be
made as described under "--Book-Entry-Only Issuance--The Depository Trust
Company" below. In the event that any date on which dividends are payable on
the Preferred Securities is not a Business Day, then payment of the dividend
payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date. A "Business Day" means any day other than a day on which banking
institutions in The City of New York or Chicago are authorized or obligated
by law or executive order to close.
Additional Dividends
Corning Delaware shall be required to declare and pay additional dividends at
a rate of 6% per annum on the Preferred Securities upon any dividend
arrearages in respect of the Preferred Securities in order to provide, in
effect, monthly compounding on such dividend arrearages. (The amounts payable
to effect such monthly compounding on dividend arrearages in respect of the
Preferred Securities being referred to herein as "Additional Dividends").
Certain Restrictions on Corning Delaware
If accumulated and unpaid dividends have not been paid in full on the
Preferred Securities, Corning Delaware may not:
(i) pay, or declare and set aside for payment, any dividends on any other
partnership interests; or
(ii) redeem, purchase, or otherwise acquire any other partnership
interests;
until, in each case, such time as all accumulated and unpaid dividends on all
of the Preferred Securities, including any Additional Dividends thereon,
shall have been paid in full for all dividend periods terminating on or prior
to the date of such payment or the date of such redemption, purchase, or
acquisition, as the case may be.
If accumulated and unpaid dividends have been paid in full on the Preferred
Securities for all prior whole dividend periods, then holders of Preferred
Securities will not be entitled to receive or share in any dividends paid,
declared or set aside for payment on any other partnership interest in
Corning Delaware.
Optional Redemption
Corning Delaware may not redeem the Preferred Securities prior to August 5,
1998. On and after such date, Corning Delaware at its option may redeem the
Preferred Securities, in whole or in part, on not fewer than 35 nor more than
60 days' prior notice, at any time or from time to time, during the
twelve-month periods beginning on August 5 in each of the following
years at the redemption price (expressed as a percentage of the liquidation
preference) indicated below, plus accumulated and unpaid dividends (the
"Redemption Price"):
<TABLE>
<CAPTION>
Date Redemption Price
<S> <C>
August 5, 1998 103.6%
August 5, 1999 103.0
August 5, 2000 102.4
August 5, 2001 101.8
August 5, 2002 101.2
August 5, 2003 100.6
August 5, 2004 and thereafter 100.0
</TABLE>
Corning Delaware may not redeem the Preferred Securities in part unless all
accumulated and unpaid dividends have been paid in full on all Preferred
Securities for all monthly dividend periods terminating on or prior to the date
of redemption. In the event there is a redemption (optional or mandatory) of
Preferred Securities after the Tax Event Date, then the Redemption Price for
such Preferred Securities will be reduced by the amount of Additional Taxes, if
any, that are attributable to such redemption of such Preferred Securities.
Mandatory Redemption
Upon repayment or prepayment by Corning of the Subordinated Debentures,
including as a result of the acceleration of the Subordinated Debentures upon
the occurrence of an "Event of Default" described under "Description of
Securities Offered--Description of the Subordinated Debentures--Events of
Default", the proceeds from such repayment or prepayment will be applied to
redeem the allocable portion of the Preferred Securities at the applicable
Redemption Price.
Redemption Procedures
Notice of any redemption (optional or mandatory) of Preferred Securities
(which notice will be irrevocable) will be given by Corning Delaware to
Corning and each record holder of Preferred Securities that are being
redeemed not fewer than 35 nor more than 60 days prior to the date fixed for
redemption thereof. If Corning Delaware gives a notice of redemption, then on
the redemption date, Corning will repay an aggregate principal amount of the
Subordinated Debentures plus accrued and unpaid interest in an amount equal
to the applicable Redemption Price for the Preferred Securities to be
redeemed. Corning Delaware will irrevocably deposit such funds with The
Depository Trust Company ("DTC") or the Paying and Conversion Agent, as the
case may be, and give DTC or the Paying and Conversion Agent, as the case may
be, irrevocable instructions and authority to pay the applicable Redemption
Price to the holders of the Preferred Securities to be redeemed. See
"--Book-Entry-Only Issuance--The Depository Trust Company." If notice of
redemption has been given and funds deposited with DTC or the Paying and
Conversion Agent, as the case may be, as required, then immediately prior to
the close of business on the date of such deposit, all rights of holders of
such Preferred Securities so called for redemption will cease, except the
right of the holders to receive the Redemption Price, but without additional
interest. In the event that any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the Redemption Price is improperly withheld or
refused and not paid by either Corning Delaware or Corning pursuant to the
Guarantee described under "--Description of the Guarantee" below, dividends
on the Preferred Securities called for redemption will continue to accumulate
at the then applicable rate, from the original redemption date to the date
that the Redemption Price is actually paid and the holders of such Preferred
Securities may exercise all of their rights as holders of the Preferred
Securities.
In the event that fewer than all of the outstanding Preferred Securities are
to be redeemed, the Preferred Securities to be redeemed will be selected by
lot as described under "--Book-Entry-Only Issuance--The Depository Trust
Company" below.
Conversion Rights
General. The Preferred Securities will be convertible at any time, at the
option of the holder thereof, through Corning Delaware into shares of Corning
Common Stock at an initial conversion rate of 1.2821 shares of Corning
Common Stock for each Preferred Security (equivalent to a conversion price of
$39.00 per share of Corning Common Stock), subject to adjustment as
described under "--Conversion Price Adjustments" below. Upon receiving an
irrevocable notice by a holder of a Preferred Security to exercise its
conversion right, Corning Delaware, on behalf of such holder, will exercise
its option to convert an equivalent portion of the Subordinated Debentures
into Corning Common Stock and will distribute such shares of Corning Common
Stock to such holder in exchange for a corresponding portion of such holder's
Preferred Securities. Preferred Securities that have been called for
redemption will not be convertible after the close of business two calendar
days preceding the date fixed for redemption, unless Corning Delaware
defaults in making payment of the amount payable upon such redemption date.
Conversion rights will terminate upon the making of an Exchange Election
referred to below under "--Optional Exchange for Corning Series C Preferred
Stock" and upon the issuance of Corning Series C Preferred Stock pursuant to
such Exchange Election.
Holders of Preferred Securities at the close of business on a dividend
payment record date will be entitled to receive the dividend payable on such
securities on the corresponding dividend payment date notwithstanding the
conversion of such Preferred Securities following such dividend payment
record date. Except as provided in the immediately preceding sentence,
Corning Delaware will make no payment or allowance for accumulated and unpaid
dividends, whether or not in arrears, on converted Preferred Securities.
Corning will make no payment or allowance for dividends on the shares of
Corning Common Stock issued upon such conversion except with respect to
dividends or distributions as of record dates subsequent to such conversion.
Each conversion will be deemed to have been effected immediately prior to the
close of business on the day on which notice was received by Corning
Delaware.
No fractional shares of Corning Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid in
cash.
Conversion Price Adjustments--General. The conversion price will be subject
to adjustment in certain events including, without duplication: (i) the
payment of dividends (and other distributions) payable in Corning Common
Stock on any class of capital stock of Corning; (ii) the issuance to all
holders of Corning Common Stock of rights or warrants entitling holders of
such rights or warrants to subscribe for or purchase Corning Common Stock at
less than the current market price; (iii) subdivisions and combinations of
Corning Common Stock; (iv) the payment of dividends (and other distributions)
to all holders of Corning Common Stock in the form of evidences of
indebtedness of Corning, securities or capital stock, cash, or assets
(including securities, but excluding those rights, warrants, dividends, and
distributions referred to in clause (ii) and dividends and distributions paid
exclusively in cash); (v) the payment of dividends (and other distributions)
on Corning Common Stock paid exclusively in cash, excluding (A) cash
dividends that do not exceed the per share amount of the immediately
preceding regular cash dividend (as adjusted to reflect any of the events
referred to in clauses (i) through (vi) of this sentence), or (B) cash
dividends if the annualized per share amount thereof does not exceed 15% of
the current market price of Corning Common Stock on the trading day
immediately preceding the date of declaration of such dividend; and (vi)
payment in respect of a tender or exchange offer (other than an odd-lot
offer) by Corning or any subsidiary of Corning for Corning Common Stock in
excess of 10% of the current market price of Corning Common Stock on the
trading day next succeeding the last date tenders or exchanges may be made
pursuant to such tender or exchange offer.
If after the Distribution Date for the preferred share purchase rights (the
"Rights") of Corning, as presently constituted or under any similar plan (see
"Description of Corning Capital Stock--Preferred Share Purchase Rights"),
converting holders of the Preferred Securities are not entitled to receive
the Rights that would otherwise be attributable (but for the date of
conversion) to the shares of Corning Common Stock received upon such
conversion, then adjustment of the conversion price shall be made under
clause (iv) of the preceding paragraph as if the Rights were then being
distributed to the common stockholders. If such an adjustment is made and the
Rights are later redeemed, invalidated, or terminated, then a corresponding
reversing adjustment shall be made to the conversion price, on an equitable
basis, to take account of such event.
Corning from time to time may reduce the conversion price by any amount
selected by Corning for any period of at least 20 days, in which case Corning
shall give at least 15 days' notice of such reduction.
Corning may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable
to avoid or diminish any income tax to holders of Corning Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.
No adjustment of the conversion price will be made upon the issuance of any
shares of Corning Common Stock pursuant to any present or future plan
providing for the reinvestment of dividends or interest payable on securities
of Corning and the investment of additional optional amounts in shares of
Corning Common Stock under any such plan, or the issuance of any shares of
Corning Common Stock or options or rights to purchase such shares pursuant to
any present or future employee benefit plan or program of Corning or pursuant
to any option, warrant, right, or exercisable, exchangeable, or convertible
security outstanding as of the date the Preferred Securities were first
designated. There shall also be no adjustment of the conversion price in case
of the issuance of any Corning Common Stock (or securities convertible into
or exchangeable for Corning Common Stock) of Corning, except as specifically
described above. If any action would require adjustment of the conversion
price pursuant to more than one of the anti-dilution provisions, only one
adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to holders of the Preferred
Securities. No adjustment in the conversion price will be required unless
such adjustment would require an increase or decrease of at least 1% of the
conversion price, but any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
Conversion Price Adjustments--Merger, Consolidation or Sale of Assets of
Corning. In the event that Corning is a party to any transaction (including,
without limitation, a merger, consolidation, sale of all or substantially all
of Corning's assets, recapitalization or reclassification of Corning Common
Stock or any compulsory share exchange (each of the foregoing being referred
to as a "Transaction")), in each case, as a result of which shares of Corning
Common Stock shall be converted into the right (i) in the case of any
Transaction other than a Transaction involving a Common Stock Fundamental
Change (as defined below) to receive securities, cash, or other property,
each Preferred Security shall thereafter be convertible into the kind and
amount of securities, cash, and other property receivable upon the
consummation of such Transaction by a holder of that number of shares of
Corning Common Stock into which a Preferred Security was convertible
immediately prior to such Transaction, or (ii) in the case of a Transaction
involving a Common Stock Fundamental Change to receive common stock of the
kind received by holders of Corning Common Stock (but in each case after
giving effect to any adjustment discussed below relating to a Fundamental
Change if such Transaction constitutes a Fundamental Change).
If any Fundamental Change occurs, then the conversion price in effect will be
adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change, each Preferred
Security shall be convertible solely into common stock of the kind received
by holders of Corning Common Stock as a result of such Common Stock
Fundamental Change.
The conversion price in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below), the
conversion price of the Preferred Security will thereupon become the lower of
(A) the conversion price in effect immediately prior to such Non-Stock
Fundamental Change, but after giving effect to any other prior adjustments,
and (B) the result obtained by multiplying the greater of the Applicable
Price (as defined below) or the then applicable Reference Market Price (as
defined below) by a fraction of which the numerator will be $50 and the
denominator will be the then current redemption price per Preferred Security
(or, for periods prior to August 5, 1998, an amount per Preferred Security
of $53.00 (for the twelve month period ended August 5, 1995), $52.70 (for
the twelve month period ended August 5, 1996), $52.40 (for the twelve
month period ended August 5, 1997) and $52.10 (for the twelve month period
ended August 5, 1998)); and
(ii) in the case of a Common Stock Fundamental Change, the conversion price
of the Preferred Securities in effect immediately prior to such Common Stock
Fundamental Change, but after giving effect to any other prior adjustments,
will thereupon be adjusted by multiplying such conversion price by a fraction
of which the numerator will be the Purchaser Stock Price (as defined below)
and the denominator will be the Applicable Price; provided, however, that in
the event of a Common Stock Fundamental Change in which (A) 100% of the value
of the consideration received by a holder of Corning Common Stock is common
stock of the successor, acquiror, or other third party (and cash,
if any, is paid only with respect to any fractional interests in such common
stock resulting from such Common Stock Fundamental Change) and (B) all of the
Corning Common Stock will have been exchanged for, converted into, or
acquired for common stock (and cash with respect to fractional interests) of
the successor, acquiror, or other third party, the conversion price of the
Preferred Securities in effect immediately prior to such Common Stock
Fundamental Change will thereupon be adjusted by multiplying such conversion
price by a fraction of which the numerator will be one and the denominator
will be the number of securities of common stock of the successor, acquiror,
or other third party received by a holder of one share of Corning Common
Stock as a result of such Common Stock Fundamental Change.
In the absence of the Fundamental Change provisions, in the case of a
Transaction each Preferred Security would become convertible into the
securities, cash, or property receivable by a holder of the number of shares
of Corning Common Stock into which such Preferred Security was convertible
immediately prior to such Transaction. This change could substantially lessen
or eliminate the value of the conversion privilege associated with the
Preferred Securities. For example, if Corning were acquired in a cash merger,
each Preferred Security would become convertible solely into cash and would
no longer be convertible into securities whose value would vary depending on
the future prospects of Corning and other factors.
The foregoing conversion price adjustments are designed, in "Fundamental
Change" transactions where all or substantially all the Corning Common Stock
is converted into securities, cash, or property and not more than 50% of the
value received by the holders of Corning Common Stock consists of stock
listed or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the National Market System of the National
Association of Securities Dealers, Inc. (a "Non-Stock Fundamental Change," as
defined below), to increase the securities, cash, or property into which each
Preferred Security is convertible.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of Corning Common Stock (measured as described in the
definition of Applicable Price below) is lower than the then applicable
conversion price of a Preferred Security but greater than or equal to the
"Reference Market Price" (initially $21.42 but subject to adjustment in
certain events as described below), the conversion price will be adjusted as
described above with the effect that each Preferred Security will be
convertible into securities, cash, or property of the same type received by
the holders of Corning Common Stock in the transaction but in an amount that
would at the time of the transaction have had a value equal to the then
current Redemption Price per Preferred Security (or, for periods prior to
August 5, 1998, the amounts per Preferred Security for such periods set
forth in clause (i) above with respect to conversion prices for Non-Stock
Fundamental Changes).
In a Non-Stock Fundamental Change transaction where the initial value
received per share of Corning Common Stock (measured as described in the
definition of Applicable Price) is lower than both the Applicable Conversion
Price of a Preferred Security and the Reference Market Price, the conversion
price will be adjusted as described above but calculated as though such
initial value had been the Reference Market Price.
In a Fundamental Change transaction where all or substantially all the
Corning Common Stock is converted into securities, cash, or property and more
than 50% of the value received by the holders of Corning Common Stock
consists of listed or National Market System traded common stock (a "Common
Stock Fundamental Change," as defined below), the foregoing adjustments are
designed to provide in effect that (a) where Corning Common Stock is
converted partly into such common stock and partly into other securities,
cash, or property, each Preferred Security will be convertible solely into a
number of shares of such common stock determined so that the initial value of
such shares (measured as described in the definition of "Purchaser Stock
Price" below) equals the value of the shares of Corning Common Stock into
which such Preferred Security was convertible immediately before the
transaction (measured as aforesaid) and (b) where Corning Common Stock is
converted solely into such common stock, each Preferred Security will be
convertible into the same number of shares of such common stock receivable by
a holder of the number of shares of Corning Common Stock into which such
Preferred Security was convertible immediately before such transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of the Corning Common Stock receive only cash,
the amount of cash received by the holder of one share of Corning Common
Stock and (ii) in the event of any other Non-Stock Fundamental Change or any
Common Stock Fundamental Change, the average of the Closing Prices for the
Corning Common
Stock during the ten trading days prior to and including the record date for
the determination of the holders of Corning Common Stock entitled to receive
such securities, cash, or other property in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change or, if there is no such
record date, the date upon which the holders of the Corning Common Stock
shall have the right to receive such securities, cash, or other property
(such record date or distribution date being hereinafter referred to the
"Entitlement Date"), in each case as adjusted in good faith by the General
Partner to appropriately reflect any of the events referred to in clauses (i)
through (vi) of the first paragraph under "--Conversion Price
Adjustments--General."
The term "Closing Price" means on any day the reported last sales price on
such day or in case no sale takes place on such day, the average of the
reported closing bid and asked prices in each case on the New York Stock
Exchange Composite Tape or, if the stock is not listed or admitted to trading
on such Exchange, on the principal national securities exchange on which such
stock is listed or admitted to trading or if not listed or admitted to
trading on any national securities exchange, the average of the closing bid
and asked prices as furnished by any New York Stock Exchange member firm,
selected by the General Partner for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of Corning) of the consideration received by holders of Corning
Common Stock consists of common stock that for each of the ten consecutive
trading days prior to the Entitlement Date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the National Market System of the National Association
of Securities Dealers, Inc.; provided, however, that a Fundamental Change
shall not be a Common Stock Fundamental Change unless either (i) Corning
continues to exist after the occurrence of such Fundamental Change and the
outstanding Preferred Securities continue to exist as outstanding Preferred
Securities or (ii) not later than the occurrence of such Fundamental Change,
the outstanding Preferred Securities are converted into or exchanged for
shares of convertible preferred stock of an entity succeeding to the business
of Corning, which convertible preferred stock has powers, preferences, and
relative, participating, optional, or other rights, and qualifications,
limitations, and restrictions, substantially similar to those of the
Preferred Securities.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with a plan pursuant to which all or substantially all of
the Corning Common Stock shall be exchanged for, converted into, acquired
for, or constitute solely the right to receive securities, cash, or other
property (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, that, in the case of a plan involving more than one
such transaction or event, for purposes of adjustment of the conversion
price, such Fundamental Change shall be deemed to have occurred when
substantially all of the Corning Common Stock shall be exchanged for,
converted into, or acquired for or constitute solely the right to receive
securities, cash, or other property, but the adjustment shall be based upon
the highest weighted average per share consideration that a holder of Corning
Common Stock could have received in such transaction or event as a result of
which more than 50% of the Corning Common Stock shall have been exchanged
for, converted into, or acquired for or constitute solely the right to
receive securities, cash, or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive
trading days prior to and including the Entitlement Date, as adjusted in good
faith by the General Partner to appropriately reflect any of the events
referred to in clauses (i) through (vi) of the first paragraph under
"--Conversion Price Adjustments--General."
The term "Reference Market Price" shall initially mean $21.42 (which is an
amount equal to 66-2/3% of the reported last sale price for the Corning
Common Stock on the NYSE on July 13, 1994), and in the event of any
adjustment to the conversion price other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any such adjustment shall always be the same as the ratio of $21.42
to the initial conversion price of the Preferred Securities.
Optional Exchange for Corning Series C Preferred Stock
Upon the occurrence of an Exchange Event (as defined below), the holders of
not less than a majority of the aggregate liquidation preference of Preferred
Securities then outstanding, voting as a class or by written consent, may, at
their option, cause Corning Delaware to exchange all of the Subordinated
Debentures for shares of Corning Series C Preferred Stock at the Exchange
Price and distribute such shares to the holders of Preferred Securities in
exchange for the Preferred Securities.
The Corning Series C Preferred Stock issued upon any such exchange will have
terms substantially similar to the terms of the Preferred Securities, except
that, among other things, the Corning Series C Preferred Stock will have the
right to elect two additional directors of Corning whenever dividends on the
Corning Series C Preferred Stock are in arrears for 18 months (including for
this purpose any arrearage with respect to the Preferred Securities) and will
not be subject to mandatory redemption. See "--Description of Corning Series
C Preferred Stock." The terms of the Corning Series C Preferred Stock provide
that all accumulated and unpaid dividends (including any Additional
Dividends) on the Preferred Securities that are not paid at the time of
making an Exchange Election shall be treated as accrued and unpaid dividends
on the Corning Series C Preferred Stock. For a discussion of the taxation of
such an exchange to holders, including the possibility that holders who
exchange their Preferred Securities for Corning Series C Preferred Stock may
be subject to additional income tax to the extent accrued but unpaid interest
on the Subordinated Debentures is converted into accumulated and unpaid
dividends on the Corning Series C Preferred Stock received in exchange for
the Preferred Securities, see "Certain Federal Income Tax
Considerations--Exchange of Preferred Securities for Corning Series C
Preferred Stock."
The following events are "Exchange Events":
(a) The failure of holders of Preferred Securities to receive, for 15
consecutive months, the full amount of dividend payments on the Preferred
Securities; or
(b) The occurrence of a Tax Event.
As soon as practicable, but in no event later than 30 days after the
occurrence of an Exchange Event, the General Partner will convene a meeting
of the holders of Preferred Securities (an "Exchange Election Meeting") for
the purpose of acting on the matter of whether to cause Corning Delaware to
exchange the Subordinated Debentures for shares of Corning Series C Preferred
Stock. If the General Partner fails to convene such Exchange Election Meeting
within such 30-day period, the holders of not less than 10% of the aggregate
liquidation preference of the outstanding Preferred Securities will be
entitled to convene such Exchange Election Meeting. Upon the affirmative vote
of the holders of Preferred Securities representing not less than a majority
of the aggregate liquidation preference of the Preferred Securities then
outstanding at an Exchange Election Meeting or, in the absence of such
meeting, upon receipt by Corning Delaware of written consents signed by the
holders of a majority of the aggregate liquidation preference of the
outstanding Preferred Securities, an election to exchange all outstanding
Preferred Securities on the basis described above (an "Exchange Election")
will be deemed to have been made. In the case of a Tax Event, Corning
Delaware will continue to pay dividends on the Preferred Securities without
adjustment for Additional Taxes until the Tax Event Date. During such time,
Corning will pay any and all Additional Taxes of Corning Delaware.
Holders of Preferred Securities, by purchasing such Preferred Securities,
will be deemed to have agreed to be bound by these optional exchange
provisions in regard to the exchange of such Preferred Securities for Corning
Series C Preferred Stock on the terms described above.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution, or
winding-up of Corning Delaware, the holders of Preferred Securities at the
time outstanding will be entitled to receive a liquidation preference of $50
per Preferred Security plus all accumulated and unpaid dividends (whether or
not earned or declared), including any Additional Dividends thereon, to the
date of payment (the "Liquidation Distribution") out of the assets of Corning
Delaware legally available for distribution to partners prior to any
distribution by Corning Delaware on its other partnership interests.
If, upon any liquidation of Corning Delaware, the holders of Preferred
Securities are paid in full the aggregate Liquidation Distribution to which
they are entitled, then such holders will not be entitled to receive or share
in any other assets of Corning Delaware thereafter available for distribution
to any other holders of partnership interests in Corning Delaware.
Pursuant to the Limited Partnership Agreement, Corning Delaware shall be
dissolved and its affairs shall be wound up upon the earliest to occur of:
(i) the expiration of the term of Corning Delaware; (ii) any bankruptcy,
dissolution or insolvency of the General Partner; (iii) upon the entry of a
decree of a judicial dissolution; or (iv) upon the written consent of all
partners of Corning Delaware.
Merger, Consolidation or Sale of Assets of Corning Delaware
The General Partner is authorized and directed to conduct its affairs and to
operate Corning Delaware in such a way that Corning Delaware will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act of 1940 (the "1940 Act") or taxed as a corporation for
federal income tax purposes and so that the Subordinated Debentures will be
treated as indebtedness of Corning for federal income tax purposes. In this
connection, the General Partner is authorized to take any action not
inconsistent with applicable law, the Certificate of Limited Partnership of
Corning Delaware or the Limited Partnership Agreement that does not adversely
affect the interests of the holders of the Preferred Securities and that the
General Partner determines in its discretion to be necessary or desirable for
such purposes.
Corning Delaware may not consolidate or merge with or into, or convey,
transfer or lease its properties and assets substantially as an entirety to
any entity, except as described below. Corning Delaware may, for purposes of
changing its state of domicile in order to avoid federal income tax or 1940
Act consequences adverse to Corning or Corning Delaware or to the holders of
the Preferred Securities, without the consent of the holders of the Preferred
Securities, consolidate or merge with or into a limited partnership or trust
organized as such under the laws of any state of the United States of
America; provided, that (i) such successor entity either (x) expressly
assumes all of the obligations of Corning Delaware under the Preferred
Securities or (y) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank, with
respect to participation in the profits or assets of the successor entity, at
least as high as the Preferred Securities rank with respect to participation
in the profits or assets of Corning Delaware, (ii) Corning expressly
acknowledges such successor entity as the holder of the Subordinated
Debentures, (iii) such merger or consolidation does not cause the Preferred
Securities (or any Successor Securities) to be delisted by any national
securities exchange or other organization on which the Preferred Securities
are then listed, (iv) such merger or consolidation does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger or
consolidation does not adversely affect the powers, preferences and other
special rights of the holders of the Preferred Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (vi) prior to such
merger or consolidation Corning has received an opinion of nationally
recognized independent counsel to Corning Delaware experienced in such
matters to the effect that (x) such successor entity will be treated as a
partnership for federal income tax purposes, (y) following such merger or
consolidation, Corning and such successor entity will be in compliance with
the 1940 Act without registering thereunder as an investment company and (z)
such merger or consolidation will not adversely affect the limited liability
of the holders of the Preferred Securities.
Voting Rights
Except as provided below and under "--Description of the
Guarantee--Amendments and Assignment" and as otherwise required by law and
the Limited Partnership Agreement, the holders of the Preferred Securities
will have no voting rights.
If (i) Corning Delaware fails to pay dividends in full on the Preferred
Securities for 15 consecutive months (other than as a result of a
determination by Corning to defer interest payments on the Subordinated
Debentures as described under "Description of Securities Offered--Description
of the Subordinated Debentures--Option to Extend Interest Payment Period");
(ii) an Event of Default (as defined under "Description of Securities
Offered--Description of the Subordinated Debentures--Events of Default")
occurs and is continuing with respect to the Subordinated Debentures; or
(iii) Corning is in default under any of its payment obligations under the
Guarantee (as described under "--Description of the Guarantee"), then the
holders of the Preferred Securities, upon the affirmative vote of not less
than a majority in aggregate liquidation preference of the Preferred
Securities then outstanding, will be entitled to appoint and authorize a
special general partner (a "Special General Partner") to enforce Corning
Delaware's rights under the Subordinated Debentures, enforce the rights of
the holders of Preferred Securities under the Guarantee and enforce the
rights of the holders to receive dividends on the Preferred Securities. For
pur-
poses of determining whether Corning Delaware has failed to pay dividends in
full for 15 consecutive months, dividends shall be deemed to remain in
arrears, notwithstanding any partial payments in respect thereof, until all
accumulated and unpaid dividends have been or contemporaneously are paid. Not
later than 30 days after such right to appoint a Special General Partner
arises, the General Partner will convene a meeting to elect a Special General
Partner. If the General Partner fails to convene such meeting within such
30-day period, the holders of not less than 10% of the aggregate liquidation
preference of the Preferred Securities then outstanding will be entitled to
convene such meeting. Any Special General Partner so appointed shall vacate
office immediately if Corning Delaware (or Corning pursuant to the Guarantee)
shall have paid in full all accumulated and unpaid dividends on the Preferred
Securities or such Event of Default or default, as the case may be, shall
have been cured. Notwithstanding the appointment of any such Special General
Partner, Corning will retain all rights as obligor under the Subordinated
Debentures, including the right to extend the interest payment period as
provided under "--Description of the Subordinated Debentures--Option to
Extend Interest Payment Period."
If any proposed amendment to the Limited Partnership Agreement provides for,
or the General Partner otherwise proposes to effect, (x) any action that
would materially adversely affect the powers, preferences or special rights
of the Preferred Securities, whether by way of amendment to the Limited
Partnership Agreement or otherwise (including, without limitation, the
authorization or issuance of any additional limited partnership interests in
Corning Delaware), or (y) the dissolution, winding-up or termination of
Corning Delaware (other than in connection with the exchange of Corning
Series C Preferred Stock for Preferred Securities upon the occurrence of an
Exchange Event or as described under "--Merger, Consolidation or Sale of
Assets of Corning Delaware"), then the holders of outstanding Preferred
Securities will be entitled to vote on such amendment or action of the
General Partner (but not on any other amendment or action), and such
amendment or action shall not be effective except with the approval of the
holders of not less than 66-2/3% or more of the aggregate liquidation
preference of the Preferred Securities then outstanding; provided, however,
that no such approval shall be required if the dissolution, winding-up or
termination of Corning Delaware is proposed or initiated pursuant to the
Limited Partnership Agreement.
The rights attached to the Preferred Securities will be deemed to be
materially adversely affected by the creation or issue of, and a vote of the
holders of Preferred Securities will be required for the creation or issue
of, any partnership interests in Corning Delaware other than the interests
represented by the Preferred Securities, the interests of the General Partner
and the interests of any Special General Partner.
So long as any Subordinated Debentures are held by Corning Delaware, the
General Partner shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Special General Partner (as
defined under "Description of Securities Offered--Description of the
Subordinated Debentures"), or exercising any trust or power conferred on the
Special General Partner with respect to the Subordinated Debentures, (ii)
waive any past default, which is waivable under the Fiscal Agency Agreement,
(iii) exercise any right to rescind or annul a declaration that the principal
of all the Subordinated Debentures shall be due and payable, (iv) consent to
any amendment, modification or termination of the Subordinated Debentures or
of the Fiscal Agency Agreement without, in each case, obtaining the prior
approval of the holders of at least 66-2/3% or more of the aggregate
liquidation preference of the Preferred Securities then outstanding,
provided, however, that where a consent under the Subordinated Debentures
would require the consent of each holder affected thereby, no such consent
shall be given by the General Partner without the prior consent of each
holder of the Preferred Securities. The General Partner shall not revoke any
action previously authorized or approved by the Special General Partner or by
a vote of Preferred Securities, without the approval of the holders of
Preferred Securities representing not less than 66-2/3% of the aggregate
liquidation preference of the Preferred Securities then outstanding. The
General Partner shall notify all holders of Preferred Securities of any
notice of default received from the Fiscal Agent with respect to the
Subordinated Debentures.
Any required approval of holders of Preferred Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. Corning Delaware will cause a notice of any meeting at which holders
of Preferred Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be mailed to
each holder of record of Preferred Securities. Each such notice will include
a statement setting forth (i) the date of such meeting or the date by which
such action is to be taken, (ii) a description of any matter on which such
holders are entitled to vote or of such matter upon which written consent is
sought and (iii) instructions for the delivery of proxies or consents.
Book-Entry-Only Issuance--The Depository Trust Company
DTC will act as securities depository for the Preferred Securities. The
Preferred Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. (as nominee for DTC). One or more
fully-registered global Preferred Security certificates will be issued,
representing in the aggregate the total number of Preferred Securities, and
will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a global Preferred Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations ("Direct
Participants"). Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants").
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser
of a Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct or Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
Preferred Securities. Transfers of ownership interests in Preferred
Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Preferred
Securities, except upon a resignation of DTC, upon the occurrence of an Event
of Default under the Subordinated Debentures or upon a decision by Corning
Delaware to discontinue the book-entry system for the Preferred Securities.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Preferred Securities are credited, which
may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such securities
to be redeemed.
Although voting with respect to the Preferred Securities is limited, in those
cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to Corning Delaware as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts
the Preferred Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Dividend payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment
date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed
by standing instructions and cus
tomary practices and will be the responsibility of such Participant and not
of DTC, Corning Delaware or Corning, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of dividends to
DTC is the responsibility of Corning Delaware, disbursement of such payments
to Direct Participants is the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
will not be entitled to receive physical delivery of Preferred Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice
to Corning Delaware. Under such circumstances, in the event that a successor
securities depository is not obtained, certificates representing the
Preferred Securities will be printed and delivered. If an Event of Default
occurs under the Subordinated Debentures or if Corning Delaware decides to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository), certificates representing the Preferred Securities
will be printed and delivered.
Transfer Agent, Registrar, Paying and Conversion Agent
Harris Trust and Savings Bank will act as Transfer Agent, Registrar and
Paying and Conversion Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of Corning Delaware, but upon payment (with the giving
of such indemnity as Corning Delaware may require) in respect of any tax or
other government charges which may be imposed in relation to it.
Description of Corning Series C Preferred Stock
As described under "--Preferred Securities--Optional Exchange for Corning
Series C Preferred Stock" above, the Preferred Securities may be exchanged in
certain circumstances through Corning Delaware for Corning Series C Preferred
Stock. The following description of the principal terms of the Corning Series
C Preferred Stock does not purport to be complete or to give full effect to
the provisions of statutory or other law and is qualified in its entirety by
reference to the Corning Restated Certificate of Incorporation as amended
(the "Restated Certificate") and the Certificate of Amendment, Preferences
and Rights of the Corning Series C Preferred Stock (the "Certificate of
Amendment"), which are filed as exhibits to the Registration Statement of
which this Prospectus is a part.
The Board of Directors of Corning has designated, and Corning will keep
available, 3,250,000 shares (3,737,500 shares if the Underwriters'
over-allotment option is exercised in full) of Corning Series C Preferred
Stock for issuance upon exchange of the Preferred Securities (as described
under " --Preferred Securities--Optional Exchange for Corning Series C
Preferred Stock" above). At the time the Preferred Securities are issued, all
corporate action required in connection with the issuance of the Corning
Series C Preferred Stock upon the making of an Exchange Election will have
been taken. The terms of the Corning Series C Preferred Stock are
substantially similar to those of the Preferred Securities with the following
principal exceptions:
(a) Accumulated and unpaid dividends (including any Additional Dividends
thereon) on the Preferred Securities, if any, at the time of the making of an
Exchange Election will become accumulated and unpaid dividends on the Corning
Series C Preferred Stock;
(b) If dividends are not paid on the Corning Series C Preferred Stock for
18 monthly dividend periods (including for this purpose any arrearage with
respect to the Preferred Securities), the number of directors of Corning
shall be increased by two persons and the holders of the Corning Series C
Preferred Stock will be entitled to elect the persons to fill such positions;
(c) Dividends on the Corning Series C Preferred Stock need not be declared
even if Corning has funds legally available therefor and cash on hand
sufficient to pay dividends. However, if Corning fails to declare such
dividends, no dividends would be payable on any Junior Stock (as defined
under "--Description of the Guarantee--Subordination") of Corning ranking
junior to the Corning Series C Preferred Stock; and
(d) The Corning Series C Preferred Stock will not be subject to mandatory
redemption.
The Corning Series C Preferred Stock will rank senior to the Corning Common
Stock and the Corning Series A Preferred Stock (as defined below under
"Description of Corning Capital Stock--Series Preferred
Stock") with respect to the payment of dividends and amounts on liquidation,
dissolution and winding-up. The Corning Series C Preferred Stock will rank on
a parity with the Series B Preferred Stock with respect to the payment of
dividends and amounts upon liquidation, dissolution or winding-up. In the
event dividends are not paid in full on either the Corning Series B or Series
C Preferred Stock, the holders of the Corning Series B and Series C Preferred
Stock will share ratably with respect to any dividend payment in proportion
to the respective amounts of the accumulated and unpaid dividends due on such
preferred stock .
In the event of a voluntary or involuntary bankruptcy, liquidation,
dissolution or winding-up of Corning, the holders of Corning Series C
Preferred Stock are entitled to receive out of the net assets of Corning, but
before any distribution is made on any class of securities ranking junior to
the Corning Series C Preferred Stock, $100 per share in cash plus accumulated
and unpaid dividends (whether or not earned or declared) to the date of final
distribution to such holders. After payment of the full amount of the
liquidation distribution to which they are entitled, the holders of shares of
Corning Series C Preferred Stock will not be entitled to any further
participation in any distribution of assets of Corning. In the event that the
assets available for distribution are insufficient to pay in full the
liquidation preference to the holders of the Corning Series B and Series C
Preferred Stock and any other pari passu preferred stock, the holders of such
preferred stock will share in the remaining assets, based on the proportion
of their liquidation preference to the entire amount of unpaid liquidation
preference.
So long as the Subordinated Debentures are exchangeable for the Corning
Series C Preferred Stock, Corning may not authorize or issue any other
preferred stock ranking senior to the Corning Series C Preferred Stock
without the approval of the holders of not less than 66-2/3% of the aggregate
liquidation preference of the Preferred Securities then outstanding. However,
no such vote shall be required for the issuance by Corning of additional
preferred stock ranking pari passu to the Corning Series C Preferred Stock as
to the payment of dividends and amounts upon liquidation, dissolution and
winding-up.
Description of the Guarantee
The following is a description of the principal terms and provisions of the
Guarantee Agreement (the "Guarantee"), which will be executed and delivered
by Corning for the benefit of the holders from time to time of the Preferred
Securities. The following description is qualified in its entirety by
reference to such agreement, a copy of the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
General
Pursuant to the Guarantee, Corning will irrevocably and unconditionally
agree, on a subordinated basis and to the extent set forth therein, to pay in
full to the holders of the Preferred Securities, the Guarantee Payments (as
defined below) (except to the extent previously paid by Corning Delaware), as
and when due, regardless of any defense, right of set-off or counterclaim
that Corning Delaware may have or assert. The following payments, to the
extent not paid by Corning Delaware, are the "Guarantee Payments": (a) any
accumulated and unpaid dividends (including any Additional Dividends thereon)
that have been theretofore declared on the Preferred Securities from monies
legally available therefor; (b) the Redemption Price payable with respect to
Preferred Securities called for redemption by Corning Delaware out of funds
legally available therefor; and (c) upon a liquidation of Corning Delaware,
the lesser of (i) the Liquidation Distribution and (ii) the amount of assets
of Corning Delaware available for distribution to holders of Preferred
Securities in liquidation of Corning Delaware. Corning's obligation to make a
Guarantee Payment may be satisfied by Corning's direct payment of the
required amounts to the holders of Preferred Securities or by Corning's
causing Corning Delaware to pay such amounts to such holders.
If Corning fails to make interest payments on the Subordinated Debentures
purchased by Corning Delaware, Corning Delaware will have insufficient funds
to pay dividends on the Preferred Securities. The Guarantee does not cover
payment of dividends when Corning Delaware does not have sufficient funds to
pay such dividends.
Corning's obligations under the Guarantee will constitute a guarantee of
payment and not of collection. A holder of Preferred Securities may enforce
such obligations directly against Corning, and Corning waives any right or
remedy to require that any action be brought against Corning Delaware or any
other person or entity before proceeding against Corning. Such obligations
will not be discharged except by payment of the Guarantee Payments in full.
Certain Covenants of Corning
In the Guarantee, Corning will covenant and agree that, so long as any
Preferred Securities are outstanding, neither Corning nor any majority owned
subsidiary of Corning shall declare or pay any dividend or distribution on,
or redeem, purchase or otherwise acquire or make a liquidation payment with
respect to, any Junior Stock (as defined below under "--Subordination")
(other than as a result of a reclassification of Junior Stock or the exchange
or conversion of one class or series of Junior Stock for another class or
series of Junior Stock) or make any guarantee payments with respect to the
foregoing (other than payments under the Guarantee or dividends or guarantee
payments to Corning), if at such time Corning has exercised its option to
extend the interest payment period on the Subordinated Debentures and such
extension is continuing, Corning is in default with respect to its payment or
other obligations under the Guarantee or there shall have occurred any event
that, with the giving of notice or the lapse of time or both, would
constitute an Event of Default under the Subordinated Debentures. When
dividends are not paid in full, all dividends declared upon the Preferred
Securities and all dividends declared upon any Pari Passu Stock shall be
declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Preferred Securities and accumulated and unpaid
on such Pari Passu Stock. "Pari Passu Stock" means Corning's Series B
Preferred Stock, and any guarantee now or hereafter entered into by Corning
in respect of any preferred or preference stock of any affiliate of Corning,
and any other class or series of preferred stock of Corning, ranking as to
the payment of dividends and amounts upon liquidation, dissolution and
winding-up on a parity with the Series B Preferred Stock. Corning will
covenant to take all actions necessary to ensure the compliance of its
subsidiaries with the above covenant.
Corning will also covenant that, so long as any Preferred Securities are
outstanding, it will (a) maintain direct 100% ownership of the partnership
interests and any other interests in Corning Delaware other than the
Preferred Securities, except as permitted in the Limited Partnership
Agreement, (b) cause at least 21% of the total value of Corning Delaware and
at least 21% of all interest in the capital, income, gain, loss, deduction
and credit of Corning Delaware to be held by Corning, as General Partner,
except as permitted in the Limited Partnership Agreement, (c) not voluntarily
dissolve, wind-up or liquidate itself or Corning Delaware, (d) remain the
General Partner and timely perform all of its duties as General Partner of
Corning Delaware (including the duty to cause Corning Delaware to declare and
pay dividends on the Preferred Securities), unless a permitted successor
General Partner is appointed, and (e) subject to the terms of the Preferred
Securities, use reasonable efforts to cause Corning Delaware to remain a
Delaware limited partnership and otherwise continue to be treated as a
partnership for United States federal income tax purposes.
Subordination
Corning's obligations under the Guarantee to make Guarantee Payments will
constitute an unsecured obligation of Corning that will rank (i) subordinate
and junior in right of payment to all liabilities of Corning, (ii) pari passu
with the Series B Preferred Stock, with any guarantee now or hereafter
entered into by Corning in respect of any preferred or preference stock of
any affiliate of Corning and any other class or series of Corning preferred
stock ranking as to the payment of dividends and amounts upon liquidation,
dissolution and winding up on a parity with the Series B Preferred Stock and
(iii) senior to Corning Common Stock, the Series A Preferred Stock and any
other class or series of capital stock issued by Corning or any of its
affiliates which by its express terms ranks junior in the payment of
dividends and amounts on liquidation, dissolution, and winding-up to the
Preferred Securities ("Junior Stock").
Amendments and Assignment
The terms of the Guarantee may be amended only with the prior approval of the
holders of not less than 66-2/3% of the aggregate liquidation preference of
the Preferred Securities then outstanding. The manner of obtaining any such
approval of holders of the Preferred Securities will be as set forth in
"--Preferred Securities--Voting Rights." All provisions contained in the
Guarantee will bind the successors, assigns, receivers, trustees and
representatives of Corning and will inure to the benefit of the holders of
the Preferred Securities. Except in connection with any merger or
consolidation of Corning with or into another entity or any sale, transfer or
lease of Corning's assets to another entity complying with the provisions
under "--Consolidation, Merger or Sale of Assets" below. Corning may not
assign its rights or delegate its obligations under the Guarantee without the
prior approval of the holders of not less than 66-2/3% of the aggregate
liquidation preference of the Preferred Securities then outstanding.
Termination
Corning's obligation to make Guarantee Payments under the Guarantee will
terminate as to each holder of Preferred Securities and be of no further
force and effect upon (a) full payment of the Redemption Price of such
holder's Preferred Securities, (b) full payment of the amounts payable to
such holder upon liquidation of Corning Delaware, (c) the distribution of
Corning Common Stock to such holder in respect of the conversion of all of
such holder's Preferred Securities into Corning Common Stock or (d) the
distribution of Corning Series C Preferred Stock to such holder in respect of
the exchange of the Subordinated Debentures for Corning Series C Preferred
Stock. Notwithstanding the foregoing, Corning's obligation to make Guarantee
Payments will continue to be effective or will be reinstated, as the case may
be, as to a holder if at any time such holder must restore payment of any
sums paid under the Preferred Securities or under the Guarantee for any
reason whatsoever.
Consolidation, Merger or Sale of Assets
The Guarantee provides that Corning may merge or consolidate with or into
another entity, may permit another entity to merge or consolidate with or
into Corning and may sell, transfer or lease all or substantially all of its
assets to another entity if (i) at such time no Event of Default (as defined
in the Fiscal Agency Agreement) shall have occurred and be continuing, or
would occur as a result of such merger, consolidation, sale, transfer or
lease and (ii) the survivor of such merger or consolidation or entity to
which Corning's assets are sold, transferred or leased is an entity organized
under the laws of the United States or any state thereof, becomes the General
Partner, assumes all of Corning's obligations under the Guarantee and has a
net worth equal to at least 10% of the total contributions to Corning
Delaware.
Governing Law
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
Description of the Subordinated Debentures
The following summary of the principal terms and provisions of the
Subordinated Debentures in which Corning Delaware will invest the proceeds of
the issuance and sale of the Preferred Securities and substantially all of
the capital contributed to Corning Delaware by the General Partner (the
"General Partner Payment") does not purport to be complete and is qualified
in its entirety by reference to the Fiscal Agency Agreement among Corning,
Corning Delaware and Harris Trust and Savings Bank, as fiscal agent (the
"Fiscal Agent"), a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. All of the
Subordinated Debentures will be issued under the Fiscal Agency Agreement.
General
The Subordinated Debentures will be limited in aggregate principal amount to
the sum of the aggregate amount of the proceeds received by Corning Delaware
from the Offering and the General Partner Payment less 1% of such sum.
The entire principal amount of the Subordinated Debentures will become due
and payable, together with any accrued and unpaid interest thereon, including
Additional Interest (as defined below), on the earliest of July 21, 2024
or the date upon which Corning Delaware is dissolved, wound-up, liquidated or
terminated.
Prepayment
Corning will have the right to prepay the Subordinated Debentures, in whole
or in part (together with any accrued but unpaid interest on the portion
being prepaid), at any time on or after August 5, 1998, during the twelve-month
periods beginning on August 5 in each of the following years at the
following prepayment prices (expressed as a percentage of the principal
amount of the Subordinated Debentures being prepaid):
<TABLE>
<CAPTION>
Prepayment Price
Year (% of principal amount)
<S> <C>
August 5, 1998 103.6%
August 5, 1999 103.0
August 5, 2000 102.4
August 5, 2001 101.8
August 5, 2002 101.2
August 5, 2003 100.6
August 5, 2004 and thereafter 100.0
</TABLE>
Interest
The Subordinated Debentures will bear interest at the rate of 6% per annum
from the original date of issuance, payable monthly in arrears on the last
day of each calendar month of each year (each an "Interest Payment Date"),
commencing July 31, 1994. Interest will compound monthly and will accrue
at the annual rate of 6% on any interest installment not paid monthly or
when otherwise due.
The amount of interest payable for any period will be computed on the basis
of twelve 30-day months and a 360-day year and, for any period shorter than a
full monthly interest period, will be computed on the basis of the actual
number of days elapsed in such period. In the event that any date on which
interest is payable on the Subordinated Debentures is not a Business Day,
then a payment of the interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date. A "Business Day" shall mean any day other
than a day on which banking institutions in The City of New York are
authorized or required by law to close.
Option to Extend Interest Payment Period
Corning shall have the right at any time and from time to time during the
term of the Subordinated Debentures to extend interest payment periods for up
to 60 months, during which periods interest will compound monthly and during
which Corning shall have the right to make partial payments of interest and
at the end of which period Corning shall pay all interest then accrued and
unpaid (together with Additional Interest); provided that, during any such
extended interest payment period neither Corning nor any majority owned
subsidiary of Corning shall declare or pay any dividend on, or redeem,
purchase, acquire for value or make a liquidation payment with respect to,
any Junior Stock (other than as a result of a reclassification of Junior
Stock or the exchange or conversion of one class or series of Junior Stock
for another class or series of Junior Stock) or make any guarantee payments
with respect to the foregoing (other than payments under the Guarantee or
dividends or guarantee payments to Corning). Prior to the termination of any
such extended interest payment period, Corning may further extend the
interest payment period, provided that such extended interest payment period
together with all such further extensions thereof may not exceed 60 months.
Corning shall give Corning Delaware notice of its selection of an extended
interest payment period one Business Day prior to the earlier of (i) the date
the related dividends are payable or (ii) the date Corning Delaware is
required to give notice of the record or payment date of such related
dividend to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Preferred Securities, but in any event not
less than two Business Days prior to such record date. The General Partner
shall give notice of Corning's selection of an extended interest payment
period to the holders of the Preferred Securities.
Additional Interest
Corning shall be required to pay any interest upon interest that has not been
paid on the Subordinated Debentures monthly. Accordingly, in such
circumstance, Corning will pay interest upon interest in order to provide for
monthly compounding on the Subordinated Debentures (the amounts of interest
payable to effect monthly compounding on the Subordinated Debentures being
referred to herein as "Additional Interest").
Subordination
The Fiscal Agency Agreement provides that the Subordinated Debentures are
subordinate and junior in right of payment to all Senior Indebtedness (as
defined below) of Corning and will rank pari passu with the claims of
Corning's trade creditors.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of Corning, the holders of all Senior Indebtedness will first be
entitled to receive payment in full of all amounts due thereon before any
payment will be made in respect of the principal of or premium, if any, or
interest on the Subordinated Debentures. In the event of the acceleration of
the maturity of the Subordinated Debentures, the holders of all Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due thereon before any payment will be made upon the principal of or premium,
if any, or interest on the Subordinated Debentures. No payments on account of
principal, premium, if any, or interest in respect of the Subordinated
Debentures may be made if there shall have occurred and be continuing a
default in any payment with respect to Senior Indebtedness, or an event of
default with respect to any Senior Indebtedness permitting the holders
thereof to accelerate the maturity thereof.
By reason of such subordination, in the event of any proceeding of the type
described in the preceding paragraph involving Corning, creditors of Corning
who are holders of Senior Indebtedness and general unsecured creditors of
Corning may recover more, ratably, than Corning Delaware.
The term "Senior Indebtedness" is defined to mean the principal of, premium,
if any, interest on, and any other payment due pursuant to any of the
following, whether outstanding at the date of execution of the Fiscal Agency
Agreement or thereafter incurred, created or assumed:
(a) all indebtedness of Corning for money borrowed (including any
indebtedness secured by a mortgage or other lien which is (i) given to secure
all or part of the purchase price of property subject thereto, whether given
to the vendor of such property or to another or (ii) existing on property at
the time of acquisition thereof) but, in either case, excluding trade
accounts payable or similar accrued liabilities arising in the ordinary
course of business;
(b) all indebtedness of Corning for money borrowed evidenced by notes,
debentures, bonds or other securities;
(c) all lease obligations of Corning which are capitalized on the books of
Corning in accordance with generally accepted accounting principles;
(d) all indebtedness of others of the kinds described in either of the
preceding clauses (a) or (b) and all lease obligations of others of the kind
described in the preceding clause (c) assumed by or guaranteed in any manner
by Corning or in effect guaranteed by Corning through an agreement to
purchase, contingent or otherwise;
(e) all obligations of Corning with respect to letters of credit issued in
connection with indebtedness of others of the kind described in the preceding
clauses (a) or (b) or lease obligations of the kind described in the
preceding clause (c); and
(f) all renewals, extensions or refundings of indebtedness of the kinds
described in any of the preceding clauses (a), (b) or (d), all renewals or
extensions of lease obligations of the kinds described in either the
preceding clauses (c) and (d) and all renewals or extensions of obligations
with respect to letters of credit of the kind described in the preceding
clause (e);
unless, in the case of any particular indebtedness, lease obligation,
renewal, extension, refunding or obligations with respect to letters of
credit, the instrument or lease creating or evidencing the same or the
assumption or guarantee of the same expressly provides that such
indebtedness, lease, obligation, renewal, extension or refunding is not
superior in right of payment to or is pari passu with the Subordinated
Debentures. Such Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of
any amendment, modification or waiver of any term of such Senior
Indebtedness.
As of June 19, 1994, Senior Indebtedness of Corning aggregated approximately
$1.9 billion. The Fiscal Agency Agreement does not limit Corning's ability to
incur Senior Indebtedness.
Certain Covenants of Corning
Corning will covenant that neither it nor any majority owned subsidiary of
Corning will declare or pay any dividend on, or redeem, purchase, acquire for
value or make a liquidation payment with respect to, any Junior Stock, or
make any guarantee payments with respect to the foregoing if at such time (i)
there shall have occurred any event that, with the giving of notice or the
lapse of time or both would constitute an Event of Default
(as defined below) under the Subordinated Debentures, (ii) Corning shall be
in default with respect to its payment or other obligations under the
Guarantee or (iii) Corning shall have given notice of its selection of an
extended interest payment period as provided in the Subordinated Debentures
and such period or any extension thereof shall be continuing. Corning will
also covenant (i) to remain the General Partner of Corning Delaware, provided
that any permitted successor of Corning under the Limited Partnership
Agreement may succeed to Corning's duties as General Partner, (ii) to cause
at least 21% of the total value of Corning Delaware and at least 21% of all
interests in the capital, income, gain, loss, deduction and credit of Corning
Delaware to be held by Corning as General Parter, (iii) not to voluntarily
dissolve, wind-up or liquidate Corning Delaware, (iv) to perform timely all
of its duties as General Partner (including the duty to pay dividends on the
Preferred Securities as described under "--Description of the
Guarantee--General"), (v) to maintain direct ownership of all partnership
interests of Corning Delaware other than the Preferred Securities and any
Special General Partnership Interest, (vi) to use its reasonable efforts to
cause Corning Delaware to remain a limited partnership and otherwise to
continue to be treated as a partnership for United States federal income tax
purposes and (vii) to deliver shares of Corning Series C Preferred Stock or
Corning Common Stock upon an election by Corning Delaware to exchange or
convert the Subordinated Debentures.
Events of Default
If one or more of the following events (each an "Event of Default") shall
occur and be continuing :
(a) failure to pay any principal of the Subordinated Debentures when due;
(b) failure to pay any interest on the Subordinated Debentures, including
any Additional Interest, when due and such failure continues for a period of
10 days; provided that a valid extension of the interest payment period by
Corning shall not constitute a default in the payment of interest for this
purpose;
(c) failure by Corning to deliver shares of Corning Series C Preferred
Stock or Corning Common Stock upon an election by Corning Delaware to
exchange or convert the Subordinated Debentures;
(d) failure by Corning to perform in any material respect any other
covenant in the Fiscal Agency Agreement for the benefit of the holders of
Subordinated Debentures continued for a period of 60 days after written
notice to Corning from Corning Delaware or any holder of Preferred
Securities;
(e) the dissolution, winding-up, liquidation or termination of Corning
Delaware; or
(f) certain events of bankruptcy, insolvency or liquidation of Corning;
then Corning Delaware, or any subsequent holder of the Subordinated
Debentures, will have the right to declare the principal of and the interest
on the Subordinated Debentures (including any Additional Interest) and any
other amounts payable under the Subordinated Debentures to be forthwith due
and payable and to enforce its other rights as a creditor with respect to the
Subordinated Debentures. Additionally, under the terms of the Preferred
Securities, the holders of outstanding Preferred Securities will have the
rights described above under "--Preferred Securities--Voting Rights,"
including the right to appoint a Special General Partner, which Special
General Partner shall be authorized to exercise Corning Delaware's right to
accelerate the principal amount of the Subordinated Debentures and accrued
interest (including any Additional Interest) thereon and to enforce Corning
Delaware's other rights as a creditor under the Subordinated Debentures.
Conversion of the Subordinated Debentures
The Subordinated Debentures will be convertible into Corning Common Stock at
the option of Corning Delaware at any time on or before the close of business
on the maturity date thereof at the initial conversion price set forth on the
cover page of this Prospectus subject to the adjustments described under
"--Preferred Securities--Conversion Rights." Upon conversion of the Preferred
Securities, Corning Delaware will convert $50 principal amount of the
Subordinated Debentures for every Preferred Security so converted. Corning's
delivery to Corning Delaware of the fixed number of shares of Corning Common
Stock into which the Subordinated Debentures are convertible (together with
the cash payment, if any, in lieu of fractional shares) will be deemed to
satisfy Corning's obligation to pay the principal amount of the Subordinated
Debentures, including any applicable redemption premium, and the accrued and
unpaid interest attributable to the period from the last date to which
interest has been paid or duly provided for.
Exchange of the Subordinated Debentures
The Subordinated Debentures will be exchangeable for shares of Corning Series
C Preferred Stock upon an Exchange Event on or before the close of business
on the maturity date thereof at the rate of
one share of Corning Series C Preferred Stock for each $100 principal amount
of the Subordinated Debentures. Accrued and unpaid interest (including
Additional Interest) on the Subordinated Debentures will be treated as
accrued and unpaid dividends on the Corning Series C Preferred Stock.
Modification of the Fiscal Agency Agreement
The Fiscal Agency Agreement may be amended by mutual consent of the parties
in any manner the parties shall agree; provided that, so long as any of the
Preferred Securities remain outstanding, no such amendment may be made that
adversely affects the holders of Preferred Securities, and no termination of
the Fiscal Agency Agreement may occur, and no Event of Default or compliance
with any covenant under the Fiscal Agency Agreement may be waived by Corning
Delaware, without the prior consent of the holders of at least 66-2/3% of the
aggregate liquidation preference of the Preferred Securities then outstanding
unless and until the Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full.
Governing Law
The Fiscal Agency Agreement and the Subordinated Debentures will be governed
by, and construed in accordance with, the laws of the State of New York.
Information Concerning the Fiscal Agent
The Fiscal Agent is an agent of Corning and owes no duty to the holders of
Subordinated Debentures or holders of the Preferred Securities. Corning and
Corning Delaware have agreed in the Fiscal Agency Agreement to indemnify and
hold harmless the Fiscal Agent against any losses or damages it may suffer as
Fiscal Agent.
Harris Trust and Savings Bank, the Fiscal Agent under the Fiscal Agency
Agreement, has from time to time engaged in transactions with, or performed
services for, Corning in the ordinary course of business.
DESCRIPTION OF CORNING CAPITAL STOCK
General
The following is a brief summary of certain provisions of the Restated
Certificate and does not relate to or give effect to provisions of statutory
or other law except as specifically stated. The Restated Certificate
authorizes the issuance of 500,000,000 shares of Common Stock. As of June 23,
1994, 213,575,956 shares of Common Stock were outstanding. The rights of
holders of Corning Common Stock are governed by the Restated Certificate, the
Company's By-Laws and by the New York Business Corporation Law (the "NYBCL").
Voting Rights
Subject to the voting of any shares of Series Preferred Stock that may be
outstanding, voting power is vested in the Common Stock, each share having
one vote.
Preemptive Rights
The Restated Certificate provides that no holder of Common Stock or Series
Preferred Stock (as defined below) of the Company shall have any preemptive
rights except as the Board of Directors of the Company may determine from
time to time. No such rights have been granted by the Board of Directors of
the Company.
Liquidation Rights
Subject to the preferential rights of any outstanding Series Preferred Stock,
in the event of any liquidation of the Company, holders of Common Stock then
outstanding are entitled to share ratably in the assets of the Company
available for distribution to such holders.
Dividend Rights and Restrictions
Subject to any preferential rights of any outstanding Series Preferred Stock
and any outstanding Preferred Securities, such dividends as may be determined
by the Board of Directors may be declared and paid on the Common Stock from
time to time out of any funds legally available therefor. The Company has
regularly paid cash dividends since 1881 and currently expects to continue to
pay cash dividends. The Company's current quarterly cash dividend is $.17 per
share of Common Stock. The continued declaration of dividends by the Board of
Directors of the Company is subject to, among other things, the Company's
current and prospective earnings, financial condition and capital
requirements and such other factors as the Board of Directors may deem
relevant.
Other Provisions
The Common Stock has no redemption, sinking fund or conversion privileges
applicable thereto and holders of Common Stock are not liable to assessments
or to further call.
Common Stock Eligible for Future Sale
In connection with the acquisition by Corning on June 7, 1994 of all of the
outstanding shares of Maryland Medical for approximately 4.5 million shares
of Corning Common Stock, Corning granted to the stockholders of Maryland
Medical registration rights for such shares of Corning Common Stock. Pursuant
to such rights, Corning is required to file a registration statement covering
all 4.5 million shares of Corning Common Stock no later than 90 days after
the written request of the designated representative of such stockholders. As
of July 13, 1994, no such request had been received by Corning.
On June 1, 1994 Corning signed a definitive agreement to acquire all of the
outstanding shares of the capital stock of Nichols in a transaction to be
accounted for as a pooling of interests. Under the terms of the agreement,
Corning will exchange newly issued and registered shares of Corning Common
Stock with a value equal to up to $13 for each share of the capital stock of
Nichols outstanding. Using an assumed price of $33 per share of Corning
Common Stock and the number of shares of the capital stock of Nichols
presently outstanding, approximately 6.7 million shares of Corning Common
Stock will be issued in such exchange. The final exchange ratio of shares of
Corning Common Stock for shares of Nichols capital stock will be determined
by the price of Corning Common Stock during the 10-day trading period ending
on the fifth trading day prior to the date of the Nichols stockholders
meeting held to approve the transaction. In no event will more than 8.4
million shares of Corning Common Stock be issued in exchange for the
outstanding shares of the capital stock of Nichols.
At the closing of the Nichols transaction, outstanding options to purchase
the capital stock of Nichols will be converted to options to purchase Corning
Common Stock in accordance with the final exchange ratio. At a value of $13
per share of capital stock of Nichols, substantially all of the options to
purchase the capital stock of Nichols are "in the money." Using an assumed
price of $33 per share of Corning Common Stock and the number of options to
purchase the capital stock of Nichols presently outstanding, approximately
1.0 million shares of Corning Common Stock will be reserved for issuance upon
the exercise of such options. Substantially all of such options to purchase
Corning Common Stock will be exercisable immediately following the closing of
the transaction. In no event will more than 1.2 million shares of Corning
Common Stock be issued upon the exercise of outstanding options. Corning
believes that approximately 85% of the shares of Corning Common Stock to be
issued in the Nichols transaction will be freely transferable upon
consummation of the acquisition.
The Nichols transaction is subject to regulatory approval and is expected to
close in the second half of 1994.
Series Preferred Stock
The Restated Certificate authorizes the issuance of up to 10,000,000 shares
of Series Preferred Stock, par value $100 per share (the "Series Preferred
Stock"). The Company's Board of Directors has the authority to issue such
shares from time to time, without stockholder approval, and the authority to
determine the designations, preferences, rights, including voting rights, and
restrictions of such shares, subject to the NYBCL. Pursuant to this
authority, the Board of Directors has designated 600,000 shares of Series
Preferred Stock as Series A Preferred Stock (the "Series A Preferred Stock"),
500,000 shares of Series Preferred Stock as Series B Preferred Stock (the
"Series B Preferred Stock"), and 3,737,500 shares of Series Preferred Stock as
Series C Preferred Stock. No other class of Series Preferred Stock has been
designated by the Board of Directors. For a description of the Corning Series
C Preferred Stock, see "Description of Securities Offered--Corning Series C
Preferred Stock."
Series B Preferred Stock
Cumulative cash dividends at the rate of 8% per annum are payable on shares
of the Series B Preferred Stock that have been issued. The Company has
regularly paid dividends on the Series B Preferred Stock. No dividends may be
paid or declared on the Series A Preferred Stock or the Common Stock unless
all dividends for all prior dividend periods have been paid or declared on
the Series B Preferred Stock, the Series C Preferred Stock and the Preferred
Securities.
Holders of Series B Preferred Stock are entitled to vote, voting together
with the Common Stock and not as a separate class, on all matters submitted
to holders of the Common Stock, each share of Series B Preferred Stock having
four votes, subject to adjustment.
Holders of Series B Preferred Stock have no preemptive rights. In the event
of a liquidation, dissolution or winding-up of the Company, holders of Series
B Preferred Stock shall be entitled to receive a distribution in the amount
of $100 per share, plus accrued and unpaid dividends, before any distribution
on the Common Stock or Series A Preferred Stock. The Series B Preferred Stock
ranks pari passu with the Corning Series C Preferred Stock with respect to
the payment of dividends and amounts on liquidation, dissolution and
winding-up. See "Description of Securities Offered--Series C Preferred
Stock."
The Series B Preferred Stock is redeemable, in whole or in part, at the
election of the Company, at any time, at the following redemption prices per
share:
<TABLE>
<CAPTION>
During the Twelve-
Month Period Price Per
Beginning October 1, Share
<S> <C>
1993 $104.00
1994 $103.00
1995 $102.00
1996 $101.00
</TABLE>
and thereafter at $100.00 per share plus, in each case, accrued and unpaid
dividends.
The Series B Preferred Stock is subject to redemption, at the option of the
holder, at any time upon five Business Days' notice, at a redemption price
equal to $100 plus accrued and unpaid dividends, if the proceeds are
necessary (i) to make a distribution pursuant to an investment election made
under the employee benefit plan or (ii) to satisfy any indebtedness to which
the employee benefit plan is subject, provided that such payment is necessary
to remedy or prevent a default under such indebtedness.
The Company, at its option, may make payment of the redemption price required
upon redemption of shares of Series B Preferred Stock in cash or in shares of
Common Stock, or in any combination of such shares and cash.
The Series B Preferred Stock is convertible at the option of the holder, at
any time, into Common Stock at a conversion price of $25 per share of Common
Stock, each share of Series B Preferred Stock being valued at $100 for the
purpose of such conversion, producing a conversion ratio equal to four shares
of Common Stock for each share of Series B Preferred Stock so converted,
subject to certain adjustments to prevent dilution.
Preferred Share Purchase Rights
Attached to each share of Common Stock is one preferred share purchase right
("Right"). Each Right entitles the registered holder to purchase from the
Company one four-hundredth of a share of Series A Preferred Stock at a price
of $62.50 per one four-hundredth of a share of Series A Preferred Stock (the
"Exercise Price"), subject to adjustment. The Rights expire on July 15, 1996
(the "Final Expiration Date"), unless the Final Expiration Date is extended
or unless the Rights are earlier redeemed by the Company.
The Rights represented by the certificates for Common Stock, are not
exercisable, and are not transferable apart from the Common Stock, until the
earlier of (i) ten days following the public announcement by the Company or
an Acquiring Person (as defined below) that a person or group has acquired
beneficial ownership of 20% or more of the Company's Common Stock (an
"Acquiring Person") or (ii) ten business days (or such later date as the
Board of Directors may determine) after the commencement or first public
announcement of a tender or exchange offer that would result in a person or
group beneficially owning 20% or more of the Company's outstanding Common
Stock (the earlier of such dates being called the "Distribution Date").
Separate certificates for the Rights will be mailed to holders of record of
the Common Stock as of such date. The Rights could then begin trading
separately from the Common Stock.
Generally, in the event that a person or group becomes an Acquiring Person,
each Right, other than the Rights owned by the Acquiring Person, will
thereafter entitle the holder to receive, upon exercise of the Right, Common
Stock having a value equal to two times the Exercise Price of the Right. In
the event that the Company is acquired in a merger, consolidation, or other
business combination transaction or more than 50% of the Company's assets,
cash flow or earning power is sold or transferred, each Right, other than the
Rights owned by an Acquiring Person, will thereafter entitle the holder
thereof to receive, upon the exercise of the Right, common stock of the
surviving corporation having a value equal to two times the Exercise Price of
the Right.
The Rights are redeemable in whole, but not in part, at $.0125 per Right at
any time on or prior to any person or group becoming an Acquiring Person,
provided that the Rights may no longer be redeemed
if such person or group shall have acquired beneficial ownership of 90% or
more of the Common Stock. The right to exercise the Rights terminates at the
time that the Board of Directors elects to redeem the Rights. Notice of
redemption shall be given by mailing such notice to the registered holders of
the Rights. At no time will the Rights have any voting rights. The Rights
Agent is Harris Trust and Savings Bank (the "Rights Agent").
The exercise price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of Series A Preferred Stock, (ii) upon the
grant to holders of the shares of Series A Preferred Stock of certain rights
or warrants to subscribe for or purchase shares of Series A Preferred Stock
at a price, or securities convertible into shares of Series A Preferred Stock
with a conversion price, less than the then current market price of the
shares of Series A Preferred Stock or (iii) upon the distribution to holders
of the shares of Series A Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in shares of Series A Preferred Stock)
or of subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one four-hundredths of a
share of Series A Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of, or stock
dividend on, or subdivision, consolidation or combination of, the Common
Stock prior to the Distribution Date. With certain exceptions, no adjustment
in the exercise price will be required until cumulative adjustments require
an adjustment of at least 1% in such exercise price.
Upon exercise of the Rights, no fractional shares of Series A Preferred Stock
will be issued (other than fractions which are integral multiples of one
four-hundredth of a share, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof an adjustment in cash
will be made.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors of the Company,
except pursuant to an offer conditioned on a substantial number of Rights
being acquired. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors since the Rights may
be redeemed by the Company at $.0125 per Right prior to the fifteenth day
after the acquisition by a person or group of beneficial ownership of 20% or
more of the Common Stock (subject to certain exceptions).
The shares of Series A Preferred Stock purchasable upon exercise of the
Rights will rank junior to all other series of the Company's Preferred Stock
(including the Series B and Series C Preferred Stock) or any similar stock
that specifically provides that they shall rank prior to the shares of Series
A Preferred Stock. The shares of Series A Preferred Stock will be
nonredeemable. Each share of Series A Preferred Stock will be entitled to a
minimum preferential quarterly dividend of $10 per share, but will be
entitled to an aggregate dividend of 100 times the dividend declared per
share of Common Stock. In the event of liquidation, the holders of the shares
of Series A Preferred Stock will be entitled to a minimum preferential
liquidation payment of $100 per share, but will be entitled to an aggregate
payment of 100 times the payment made per share of Common Stock. Each share
of Series A Preferred Stock will have 100 votes, voting together with the
Common Stock. In the event of any merger, consolidation or other transaction
in which Common Stock is exchanged, each share of Series A Preferred Stock
will be entitled to receive 100 times the amount and type of consideration
received per share of Common Stock. These rights are protected by customary
antidilution provisions. Because of the nature of the Series A Preferred
Stock's dividend, liquidation and voting rights, the value of the interest in
a share of Series A Preferred Stock purchasable upon the exercise of each
Right should approximate the value of one share of Common Stock.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the description of the Rights
contained in the Rights Agreement, dated as of July 2, 1986 between the
Company and the Rights Agent, as amended by the Amended Rights Agreement,
dated as of October 4, 1989, included as an exhibit to this Registration
Statement.
Corning's Fair Price Amendment
In 1985, the Company's stockholders adopted an amendment (the "Fair Price
Amendment") to the Restated Certificate that, in general, requires the
approval by the holders of at least 80% of the voting power of the
outstanding capital stock of the Company (other than the Series C Preferred
Stock) entitled
to vote generally in the election of directors (the "Voting Stock") as a
condition for mergers and certain other business combinations with any
beneficial owner of more than 10% of such voting power unless (1) the
transaction is approved by at least a majority of the Continuing Directors
(as defined in the Restated Certificate) or (2) certain minimum price, form
of consideration and procedural requirements are met. Certain terms used
herein are defined in the Restated Certificate.
Amendment or repeal of this provision or the adoption of any provision
inconsistent therewith would require the affirmative vote of at least 80% of
the Voting Stock unless the proposed amendment or repeal or the adoption of
the inconsistent provisions were approved by two-thirds of the entire Board
of Directors and a majority of the Continuing Directors.
Certain Other Provisions of the Restated Certificate and By-Laws
In addition to the Preferred Share Purchase Rights and the Fair Price
Amendment, the Restated Certificate and By-Laws contain other provisions that
may discourage a third party from seeking to acquire the Company or to
commence a proxy contest or other takeover-related action. The Company has
classified its Board of Directors such that one-third of the Board is elected
each year to three-year terms of office. In addition, holders of Common Stock
may remove a Director from office at any time prior to the expiration of his
or her term only with cause and by vote of a majority of holders of Common
Stock outstanding. These provisions, together with provisions concerning the
size of the Board and requiring that premature vacancies on the Board be
filled only by a majority of the entire Board, may not be amended, altered or
repealed, nor may the Company adopt any provisions inconsistent therewith,
without the affirmative vote of at least 80% of the Voting Stock of the
Company or the approval of two-thirds of the entire Board of Directors.
The Company's By-Laws contain certain procedural requirements with respect to
the nomination of directors by stockholders that require, among other things,
delivery of notice by such stockholders to the Secretary of the Company not
later than 60 days nor more than 90 days prior to the date of the
stockholders meeting at which such nomination is to be considered. The
By-Laws do not provide that a meeting of the Board of Directors may be called
by stockholders.
The Restated Certificate provides that no director will be liable to the
Company or its stockholders for a breach of duty as a director except as
provided by the NYBCL.
The effect of these provisions may be to deter attempts either to obtain
control of the Company or to acquire a substantial amount of its stock, even
if such a proposed transaction were at a significant premium over the
then-prevailing market value of the Common Stock, or to deter attempts to
remove the Board of Directors and management of the Company, even though some
or a majority of the holders of Common Stock may believe such actions to be
beneficial.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
In the opinion of Shearman & Sterling, special federal income tax counsel to
Corning and Corning Delaware, the following discussion accurately describes,
subject to the limitations stated herein, the material federal income tax
considerations relevant to the purchase, ownership and disposition of the
Preferred Securities. This discussion is a summary that does not purport to
deal with all aspects of federal income taxation that may be relevant to
holders of the Preferred Securities, nor to certain types of holders subject
to special treatment under the federal income tax laws (for example, banks,
life insurance companies, dealers, tax-exempt organizations, persons whose
functional currency is not the U.S. dollar or foreign persons and foreign
entities). This discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
(proposed, temporary and final) promulgated thereunder, judicial decisions
and Internal Revenue Service ("IRS") rulings, all of which are subject to
change, which change may be retroactively applied in a manner that could
adversely affect a holder of the Preferred Securities. Unless otherwise
indicated, the information below is directed at initial purchasers that
acquire Preferred Securities at original issue for their initial offering
price, and that hold Preferred Securities as capital assets (generally
property held for investment.)
Prospective investors are advised to consult their own tax advisors with
regard to the federal income, estate and gift tax consequences of purchasing,
holding and disposing of Preferred Securities, as well as the tax
consequences arising under the laws of any state, foreign country or other
jurisdiction. Further, while the following summary reflects the opinion of
Shearman & Sterling, an opinion of counsel is not binding on the IRS or the
courts, and neither Corning nor Corning Delaware have sought, nor do they
intend to seek, a ruling from the IRS that the position as reflected in the
discussion below will be accepted by the IRS. Moreover, there are no cases or
rulings on similar transactions and, as a result, there can be no assurance
that the IRS will agree with the conclusions and discussions below.
Tax Classification
While the following matters are not free from doubt, Shearman & Sterling is
of the opinion that (i) Corning Delaware will be classified as a partnership
for federal income tax purposes and not as an association (or as a publicly
traded partnership) taxable as a corporation, and (ii) the Subordinated
Debentures will be classified as indebtedness of Corning for such purposes.
This advice is based upon the terms of the Subordinated Debentures, the
Limited Partnership Agreement, the Fiscal Agency Agreement and related
documents and transactions as described in this Prospectus (and assumes
ongoing compliance with such agreement and documents) and upon the conclusion
by Shearman & Sterling that the nature of the income of Corning Delaware will
exempt it from the rule that certain publicly traded partnerships are taxable
as corporations (assuming Corning Delaware will not register under the 1940
Act).
Prospective investors and their advisors should be aware, however, that the
proper characterization of the arrangement involving Corning Delaware, the
Preferred Securities and the Subordinated Debentures is not entirely clear
and the IRS has recently announced that it will scrutinize and may challenge
certain aspects of transactions with some features that are similar to this
arrangement. If, contrary to the opinion of tax counsel, the IRS successfully
argued that Corning Delaware should be taxable as a corporation, Corning
Delaware (including the income from the Subordinated Debentures) would be
subject to federal income tax at corporate rates and distributions to holders
of Preferred Securities likely would be taxable as dividend income to the
extent of the earnings and profits of Corning Delaware. Similarly, if,
contrary to the opinion of tax counsel, the IRS successfully asserted that
the Subordinated Debentures were properly classified as stock or other equity
in Corning, then payments on the Subordinated Debentures would not be
deductible by Corning as interest, but instead likely would be treated as
distributions to holders taxable as dividends to the extent of the earnings
and profits of Corning and perhaps without a dividends-received deduction
with respect to such dividends. Either event could have adverse tax
consequences for certain holders and could result in substantially reduced
amounts payable to holders, as well as resulting in holders receiving Corning
Series C Preferred Stock in a taxable transaction that has other possible
adverse tax consequences. See "--Exchange of Preferred Securities for Corning
Series C Preferred Stock."
Prospective investors should also be aware that the IRS recently issued a
proposed Treasury regulation under which the IRS can disregard or recast the
form of a transaction if a partnership is formed or availed of in connection
with a transaction (or series of related transactions) "with a principal
purpose of substantially reducing the present value of the partners'
aggregate federal tax liability" in a manner inconsistent with the intent of
the partnership provisions of the Code. In the view of Shearman & Sterling,
based in part upon certain representations of Corning, Corning Delaware
should not be considered to be formed or availed of with such a purpose
because the transactions involving Corning Delaware are not of the type
intended to fall within the scope of such proposed regulation. There can be
no assurance, however, that the IRS will agree with this view. Unless
otherwise noted, the remainder of this summary assumes, in accordance with
the opinion of Shearman & Sterling, that Corning Delaware is properly
classified as a partnership and the Subordinated Debentures are properly
classified as indebtedness of Corning for income tax purposes.
Income from Preferred Securities
As partners in a partnership, each holder of Preferred Securities will be
required to include in gross income its distributive share of the net income
of Corning Delaware, which net income generally will be equal to the amount
of interest received or accrued on the Subordinated Debentures. See
"--Original Issue Discount" below. Any amount so included in a holder's gross
income will increase its tax basis in the Preferred Securities, and the
amount of distributions of cash or other property by Corning Delaware to the
holder will reduce such holder's tax basis in the Preferred Securities. No
portion of the amounts received on the Preferred Securities will be eligible
for the dividends received deduction.
Corning Delaware does not presently intend to make an election under Section
754 of the Code. As a result, a subsequent purchaser of Preferred Securities
will not be permitted to adjust the tax basis in its allocable share of
Corning Delaware's assets so as to reflect any difference between its
purchase price for the Preferred Securities and the underlying tax basis of
Corning Delaware in its assets. As a result, a holder of a Preferred Security
may be allocated a larger or smaller amount of Corning Delaware's income than
would otherwise be appropriate based upon such holder's purchase price for the
Preferred Security.
Under Section 708 of the Code, Corning Delaware will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in Corning Delaware are sold or exchanged within a 12-month period.
If such a termination occurs, there will be a closing of the partnership's
taxable year for all partners and Corning Delaware will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to Corning Delaware, as a new partnership.
Corning Delaware will not comply with certain technical requirements that
might apply when such a constructive termination occurs. As a result, Corning
Delaware may be subject to certain tax penalties and may incur additional
expenses if it is required to comply with those requirements. (Furthermore,
Corning Delaware might not be able to comply due to lack of data.)
Original Issue Discount
Under Treasury Regulations, the stated interest payments on the Subordinated
Debentures will be treated as "original issue discount" because Corning has
an option, under the terms of the Subordinated Debentures, to extend interest
payment periods for up to 60 months. Under the Code, holders of debt with
original issue discount must include that discount in income on an economic
accrual basis and before the receipt of cash attributable to the interest
regardless of their method of tax accounting. In the event that the interest
payment period is extended, Corning Delaware will continue to accrue income
equal to the amount of the interest payment due at the end of the extended
interest payment period on an economic accrual basis over the length of the
extended interest payment period.
Accrued income will be allocated, but not distributed, to holders of record
on the Business Day preceding the last day of each calendar month. As a
result, holders of record during an extended interest payment period will
include interest in gross income in advance of the receipt of cash, and any
such holders who dispose of Preferred Securities prior to the record date for
the payment of dividends following such extended interest payment period will
include such holder's allocable share of such interest in gross income but
will not receive any cash related thereto. The tax basis of a Preferred
Security will be increased by the amount of any interest that is included in
income without a corresponding receipt of cash and will be decreased when and
if such cash is subsequently received from Corning Delaware.
Under Treasury Regulations, no portion of the price paid for a debt
instrument is to be allocated to the right to convert into, or the right to
exchange for, stock of the corporation issuing the debt instrument. As such,
neither Corning Delaware nor the holders of Preferred Securities should be
required to allocate a portion of their purchase price to the right of
Corning Delaware to convert the Subordinated Debentures into Corning Common
Stock or to exchange the Subordinated Debentures for Corning Series C
Preferred Stock. Nevertheless, the IRS may take a contrary view, or may
require an allocation of purchase price to the Guarantee. If the IRS were
successful in requiring such an allocation, a holder could be required to
include an incremental amount of original issue discount (in addition to
stated interest) in income over the life of the Preferred Securities. Corning
intends to take the position that no allocation that would result in
additional original issue discount (in excess of stated interest) is
required.
Disposition of Preferred Securities
Generally, capital gain or loss will be recognized on a sale of Preferred
Securities, including a complete redemption for cash, equal to the difference
between the amount realized and the holder's tax basis in the Preferred
Securities sold. Gain or loss recognized by a holder on the sale or exchange
of a Preferred Security held for more than one year generally will be taxable
as long-term capital gain or loss. The adjusted tax basis of the Preferred
Securities sold by a holder will equal the amount paid by such holder
for the Preferred Securities, plus the share of partnership income allocated
to such holder and reduced by any cash or other property distributed
to such holder by Corning Delaware. A holder acquiring Preferred
Securities at different prices may be required to maintain a single aggregate
adjusted tax basis in such Preferred Securities, and, upon sale or other
disposition of some of the Preferred Securities,
allocate a pro rata portion of such aggregate tax basis to the Preferred
Securities sold (rather than maintaining a separate tax basis in each
Preferred Security for purposes of computing gain or loss on a sale of that
Preferred Security).
If a holder of Preferred Securities is required to recognize an aggregate
amount of income over the life of the Preferred Security that exceeds the
aggregate cash distribution with respect thereto, such excess generally will
result in a capital loss upon the retirement of the Preferred Securities.
Corning Delaware is obligated to redeem the Preferred Securities for cash on
repayment or on any prepayment of the Subordinated Debentures. Corning will
pay a prepayment premium to Corning Delaware if Corning prepays any portion
of the Subordinated Debentures before August 5, 2004 and Corning Delaware will
pay a corresponding redemption premium to holders of Preferred Securities
whose Preferred Securities are redeemed before August 5, 2004. Corning
Delaware will recognize capital gain on a prepayment of the Subordinated
Debentures to the extent of the prepayment premium. Corning Delaware's gain
will be allocated to the holder whose Preferred Securities are subsequently
redeemed by Corning Delaware, and the allocated gain should increase the
holder's adjusted tax basis in these Preferred Securities. A holder who has a
basis increase due to such allocation to the holder of Corning Delaware's
gain on Corning's prepayment of the Subordinated Debentures will not have
additional taxable gain attributable to the redemption premium upon Corning
Delaware's subsequent redemption of the holder's Preferred Securities.
Corning Delaware will allocate income to holders of record of Preferred
Securities on the Business Day preceding the last day of each calendar month.
As a result of such monthly allocation, a holder purchasing Preferred
Securities may be allocated tax items attributable to periods before the
transfer. The use of such monthly allocation may not be permitted under
applicable Treasury Regulations, and, if not allowed, taxable income of Corning
Delaware may be reallocated among holders of Preferred Securities. The General
Partner is authorized to adjust allocations if necessary to reflect the
economic income of holders or as otherwise required by the Code.
Exchange of Preferred Securities for Corning Common Stock
The Subordinated Debentures may be converted at the option of Corning
Delaware into Corning Common Stock and the Limited Partnership Agreement
allows a holder to direct Corning Delaware to make such a conversion for the
holder to the extent of such holder's allocable share of the Subordinated
Debentures and distribute Corning Common Stock to such holder in exchange for
such holder's Preferred Securities. A holder's exchange of Preferred
Securities through Corning Delaware for shares of Corning Common Stock should
be treated as a distribution of Corning Common Stock by Corning Delaware in
redemption of all or part of the holder's interest in a partnership. Neither
a holder nor Corning Delaware should recognize gain or loss on the conversion
or the exchange. However, when Corning Delaware exchanges Subordinated
Debentures with Corning to obtain shares of Corning Common Stock for delivery
to a holder in exchange for the holder's Preferred Securities, interest
income which has accrued on that portion of the Subordinated Debentures since
the last interest payment date will be allocated to the holder exchanging
Preferred Securities, but no cash will be distributed in connection with this
income. As a result, holders of Preferred Securities who exchange these
securities, through Corning Delaware, for Corning Common Stock effective on a
date other than an interest payment date (generally the last day of a calendar
month) will include some interest in gross income but will not receive any cash
related to that interest. This income will increase the holder's basis in its
Preferred Securities. In addition, under the current advance ruling policy of
the IRS, cash received by Corning Delaware in lieu of a fractional share of
Corning Common Stock upon conversion of all or part of the Subordinated
Debentures should be treated as a payment in exchange for the fractional share
of Corning Common Stock. This treatment generally will result in Corning
Delaware recognizing gain or loss, if any, measured by the difference between
the cash received for the fractional share interest and Corning Delaware's
tax basis in such fractional share interest. This gain will be allocated to
the holder of Preferred Securities who converts those shares through Corning
Delaware into shares of Corning Common Stock, and the cash which Corning
Delaware receives in lieu of a fractional share interest will be distributed
to that holder.
In the case of an exchange upon conversion for all of the holder's Preferred
Securities, the holder's tax basis in the shares of Corning Common Stock
received will equal the holder's tax basis in the Preferred Securities
immediately before such exchange increased by the gain allocated to the
holder on any fractional share interest redeemed by Corning and reduced by
any cash distributed to the holder with respect to a fractional share
interest. In the case of an exchange for less than all of a holder's
Preferred Securities, the holder's tax basis in the shares of Corning Common
Stock received will be the lesser of the holder's tax basis in such holder's
Preferred Securities immediately before such exchange or Corning
Delaware's tax basis in the portion of the Subordinated Debentures
converted for those shares of Corning Common Stock increased by
any gain recognized by Corning Delaware on conversion in respect of any
fractional share interest redeemed by Corning and decreased by any cash
received by Corning Delaware in connection therewith. In such case, the
holder's aggregate tax basis in its remaining Preferred Securities will be
its aggregate tax basis in such holder's Preferred Securities immediately
before such redemption, reduced (but not below zero) by the sum of Corning
Delaware's tax basis in the shares of Corning Common Stock delivered in such
redemption as described above, and the amount of cash paid by Corning
Delaware to a holder in lieu of a fractional share interest, if any.
The holding period for Corning Common Stock received in exchange for a
holder's Preferred Securities will begin on the date Corning Delaware
acquired the Subordinated Debentures, except that the holding period of
Corning Common Stock received by Corning Delaware in satisfaction of accrued
but unpaid interest, if any, may commence on the date of conversion, although
there is no authority precisely on point. Gain or loss upon a sale or other
taxable disposition of the Corning Common Stock will be capital gain or loss
if the Corning Common Stock is a capital asset in the hands of the holder.
Holders should be aware that the tax treatment of the conversion feature is
not entirely clear and the IRS might argue that, for tax purposes, the
conversion of a Subordinated Debenture into Corning Common Stock (and Corning
Delaware's subsequent distribution of such stock to a holder) should be
treated as an exchange by the holder of its Preferred Securities against
Corning for Corning Common Stock. While unlikely, if this argument were
asserted and sustained, the conversion of the Preferred Securities by a
holder for Corning Common Stock would be a taxable transaction in which a
holder recognizes capital gain or loss.
Adjustment of Conversion Price
Treasury Regulations promulgated under Section 305 of the Code would treat
Corning Delaware (and, thus, holders of Preferred Securities) as having
received a constructive distribution from Corning in the event the conversion
ratio of the Subordinated Debentures were adjusted if (i) as a result of such
adjustment, the proportionate interest of Corning Delaware in the assets or
earnings and profits of Corning were increased and (ii) the adjustment was
not made pursuant to a bona fide, reasonable antidilution formula. An
adjustment in the conversion ratio would not be considered made pursuant to
such a formula if the adjustment was made to compensate for certain taxable
distributions with respect to the stock into which the Subordinated
Debentures are convertible. Thus, under certain circumstances, a reduction in
the conversion price for the Subordinated Debentures is likely to be taxable
to Corning Delaware as a dividend to the extent of the current or accumulated
earnings and profits of Corning. The holders of the Preferred Securities
would be required to include their allocable share of such constructive
dividend in gross income but will not receive any cash related thereto. In
addition, the failure to fully adjust the conversion price of the
Subordinated Debentures to reflect distributions of stock dividends with
respect to the Corning Common Stock may result in a taxable dividend to the
holders of the Corning Common Stock.
Similarly, under Section 305 of the Code, adjustments to the conversion price
of the Corning Series C Preferred Stock, which may occur under certain
circumstances, may result in deemed dividend income to holders of the Corning
Series C Preferred Stock if such adjustments are not made pursuant to a bona
fide, reasonable antidilution formula, and failure to make such adjustments
to the conversion price of the Corning Series C Preferred Stock may result in
deemed dividend income to holders of the Corning Common Stock.
Exchange of Preferred Securities for Corning Series C Preferred Stock
Under certain circumstances, as described under the caption "Description of
Securities Offered--Preferred Securities--Optional Exchange for Corning
Series C Preferred Stock," Subordinated Debentures will be exchanged by
Corning Delaware for Corning Series C Preferred Stock which would then be
distributed to the holders of the Preferred Securities in a complete
liquidation of Corning Delaware. If Corning Delaware is taxed as a
partnership, Corning Delaware's subsequent distribution of the Corning Series
C Preferred Stock to the holders in exchange for the holders' Preferred
Securities should be treated as a non-taxable exchange to Corning Delaware
and to each holder of Preferred Securities and should result in the holder of
such Preferred Securities receiving an aggregate tax basis in the Corning
Series C Preferred Stock equal to such holder's aggregate tax basis in its
Preferred Securities. A holder's holding period for the Corning Series C
Preferred Stock so received in liquidation of Corning Delaware as a
partnership would include the period for which the Preferred Securities were
held by such holder. Under a change in law, a change in legal interpretation
or the other circumstances giving rise to a Tax Event, however, the
liquidation of Corning Delaware could be a taxable event to both
Corning Delaware and the holders of the Preferred Securities.
Notwithstanding partnership treatment, however, holders should be aware that
the taxation of the exchange feature is not entirely clear and the IRS might
argue that, for tax purposes, the exchange of Subordinated Debentures for
Corning Series C Preferred Stock (and Corning Delaware's subsequent
distribution of such stock to a holder) should be treated as an exchange by
the holder of its Preferred Securities against Corning for Corning Series C
Preferred Stock. If this argument were asserted and sustained, the exchange
of the Preferred Securities by a holder for Corning Series C Preferred Stock
would be a taxable transaction in which a holder recognizes capital gain or
loss.
In addition, if Corning exercises its option to extend interest payment
periods under the Subordinated Debentures for more than fifteen months or if
a Tax Event occurs, holders will have the option of causing Corning Delaware
to exchange the Subordinated Debentures for Corning Series C Preferred Stock
and to distribute such stock to such holders in exchange for their Preferred
Securities. Holders who exchange their Preferred Securities for Corning
Series C Preferred Stock, however, may be subject to additional income tax to
the extent accrued but unpaid interest (taxed as original issue discount) on
the Subordinated Debentures is converted into accumulated and unpaid
dividends on the Corning Series C Preferred Stock received in exchange for
the Preferred Securities. This is because holders first would be subject to
tax on their distributive share of Corning Delaware's unpaid interest income
on the Subordinated Debentures as such interest accrues during the extended
period (with a corresponding increase in the tax basis of the holders'
Preferred Securities). If the holders exchange their Preferred Securities for
Corning Series C Preferred Stock when there is accrued but unpaid interest
due on the Subordinated Debentures and such unpaid interest is converted into
accumulated and unpaid dividends on the Corning Series C Preferred Stock
received in the exchange, the holders would be subject to tax again on the
previously taxed accrued interest to the extent Corning subsequently paid
such amount as dividends to the holders. Moreover, if such accumulated,
unpaid dividends on the Corning Series C Preferred Stock were considered to
cause the dividend rate on the Corning Series C Preferred Stock to decline in
the future, then, under Section 1059(f) of the Code, such dividends may be
treated as "extraordinary dividends" for tax purposes (regardless of the
period over which a holder has or is deemed to have held the Corning Series C
Preferred Stock) and corporate holders generally would be required to reduce
their tax basis in their Corning Series C Preferred Stock by the "non-taxed"
portion of such dividends (which portion generally reflects the dividends
received deduction claimed by the corporate holder with respect to such
extraordinary dividend).
Holders are urged to consult their own tax advisors as to the tax
consequences to them of an exchange of their Preferred Securities for Corning
Series C Preferred Stock.
Corning Delaware Information Returns and Audit Procedures
The General Partner in Corning Delaware will furnish each holder with a
Schedule K-1 each year setting forth such holder's allocable share of income
for the prior calendar year. The General Partner is required, under the
Limited Partnership Agreement, to furnish such Schedule K-1 as soon as
practicable following the end of the taxable year, but in any event prior to
March 31st of each succeeding year (assuming, as anticipated, that Corning
Delaware's taxable year is a calendar year).
Any person who holds Preferred Securities as nominee for another person is
required to furnish to Corning Delaware (a) the name, address and taxpayer
identification number of the beneficial owner and the nominee; (b)
information as to whether the beneficial owner is (i) a person that is not a
United States person, (ii) a foreign government, an international
organization or any wholly owned agency or instrumentality of either of the
foregoing, or (iii) a tax-exempt entity; (c) the amount and description of
Preferred Securities held, acquired or transferred for the beneficial owner;
and (d) certain information including the dates of acquisitions and
transfers, means of such acquisitions and transfers, and acquisition cost for
purchases, as well as the amount of net proceeds from sales. Brokers and
financial institutions are required to furnish additional information,
including whether they are United States persons and certain information on
Preferred Securities they acquire, hold or transfer for their own accounts. A
penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is
imposed by the Code for failure to report such information to Corning
Delaware. The nominee is required to supply the beneficial owners of the
Preferred Securities with the information furnished to Corning Delaware.
The General Partner, as the tax matters partner, will be responsible for
representing the holders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years since
the later of the filing or the last date for filing of the partnership
information return. Any adverse determination following an audit of the
return of Corning Delaware by the appropriate taxing authorities could result
in an adjustment of the tax returns of the holders, and, under certain
circumstances, a holder may be precluded from separately litigating a
proposed adjustment to the items of the partnership. An adjustment could also
result in an audit of a holder's tax return and adjustments of items not
related to the income and losses of Corning Delaware.
Foreign Holders
Ownership of Preferred Securities by nonresident aliens, foreign corporations
and other foreign persons raises tax considerations unique to such persons
and may have substantially adverse tax consequences to them. Therefore,
prospective investors who are foreign persons or which are foreign entities
are urged to consult with their United States tax advisors as to whether an
investment in a Preferred Security represents an appropriate investment in
light of those unique tax considerations and possible adverse tax
consequences.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to payments to
noncorporate holders of the proceeds of the sale of Preferred Securities,
Corning Series C Preferred Stock or Corning Common Stock within the United
States and "backup withholding" at a rate of 31% will apply to such payments
if the holder fails to provide an accurate taxpayer identification number.
Proposed Tax Legislation
Legislation pending before Congress would apply special rules to "large
partnerships," generally defined as partnerships with at least 250 partners
during a taxable year (counting towards such total each owner during the year
of a partnership interest that is transferred during the year). Under the
legislation, certain computations are made at the partnership level rather
than the partner level. In particular, taxable income is calculated at the
partnership level, and is calculated generally in the same manner as for an
individual, except that 70% of miscellaneous itemized deductions (such as
expenses for the production of non-business income) are disallowed. As a
result, all partners (including corporations) might have a portion of their
share of partnership deductions (other than interest expense) disallowed. In
addition, large partnerships would become subject to new audit procedures;
among other things, an adjustment to taxable income of the partnership for a
prior year would flow through to current partners in the year the audit was
settled, and the partnership itself (rather than the partners) would be
subject to any applicable interest or penalties. Moreover, under this
legislation, a large partnership would not be deemed to terminate under
Section 708 of the Code solely because 50% or more of its interests are sold
or exchanged within a 12-month period. As proposed, these rules would apply
to partnership taxable years ending on or after December 31, 1994.
This legislation is currently pending before Congress; however, no prediction
can be made whether this proposal or similar legislation might be enacted in
the future, or the ultimate effective date of such legislation or whether the
number of holders would cause Corning Delaware to be considered a "large
partnership."
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Corning
Delaware has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom Goldman, Sachs & Co. and Lazard Freres & Co.
are acting as representatives, has severally agreed to purchase from Corning
Delaware, the respective number of Preferred Securities set forth opposite
its name below:
<TABLE>
<CAPTION>
Number of
Underwriter Preferred Securities
<S> <C>
Goldman, Sachs & Co. 1,995,000
Lazard Freres & Co. 1,995,000
Advest, Inc. 95,000
Bear, Stearns & Co. Inc. 185,000
Credit Lyonnais Securities (USA) Inc. 185,000
Dain Bosworth Incorporated 95,000
Donaldson, Lufkin & Jenrette Securities Corporation 185,000
A.G. Edwards & Sons, Inc. 185,000
First Albany Corporation 95,000
Kemper Securities, Inc. 185,000
Lehman Brothers Inc. 185,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 185,000
J.P. Morgan Securities Inc. 185,000
Prudential Securities Incorporated 185,000
Salomon Brothers Inc. 185,000
Scott & Stringfellow, Inc. 95,000
Sutro & Co. Incorporated 95,000
Wertheim Schroder & Co. Incorporated 185,000
Total 6,500,000
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are committed to take and pay for all such Preferred Securities
offered hereby, if any are taken.
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $.675 per Preferred Security. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $.225
per Preferred Security to certain brokers and dealers. After the Preferred
Securities are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used by Corning Delaware to purchase the Subordinated
Debentures of Corning, the Underwriting Agreement provides that Corning will
pay as compensation to the Underwriters ("Underwriters' Compensation"), a
commission of $ 1.125 per Preferred Security.
Corning and Corning Delaware have granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to
an aggregate of 975,000 additional Preferred Securities solely to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of Preferred Securities to be purchased by each of them, as shown in
the foregoing table, bears to the 6,500,000 Preferred Securities offered.
Corning and Corning Delaware have agreed not to offer, sell, contract to
sell, or otherwise dispose of any shares of Corning Common Stock, any other
capital stock of Corning, any other security convertible into or exercisable
or exchangeable for Corning Common Stock or any such other capital stock or
debt securities substantially similar to the Subordinated Debentures for a
period of 90 days after the date of this Prospectus without the prior written
consent of the representatives, except for (a) the Preferred Securities
offered hereby, (b) Corning Common Stock or Corning Series C Preferred Stock
issued or delivered upon conversion or exchange of the Subordinated
Debentures, (c) securities issued or delivered upon conversion, exchange or
exercise of any other securities of Corning outstanding on the date of this
Prospectus, (d) securities issued pursuant to Corning's stock option or other
benefit or incentive plans maintained for its officers, directors or
employees, (e) securities issued in connection with mergers, acquisitions or
similar transactions (so long as the holders agree to this restriction),
(f) partnership interests of Corning Delaware issued to
Corning in connection with the sale of the over-allotment shares in order to
maintain Corning's 21% interest in the total capital of Corning Delaware or
(g) Corning Common Stock issued pursuant to the Nichols transaction.
Certain of the Underwriters are customers of, or engage in transactions with,
and from time to time have performed services for, Corning and its
subsidiaries and associated companies in the ordinary course of business.
Prior to this Offering, there has been no public market for the Preferred
Securities. Application will be made to list the Preferred Securities on the
New York Stock Exchange under the symbol "GLW pfM." In order to meet one of
the requirements for listing the Preferred Securities on the New York Stock
Exchange, the Underwriters will undertake to sell lots of 100 or more
Preferred Securities to a minimum of 2,000 beneficial holders.
Corning and Corning Delaware have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
VALIDITY OF THE SECURITIES
The validity of the Preferred Securities, the Guarantee, the Corning Common
Stock and the Corning Series C Preferred Stock issuable upon conversion or
exchange of the Subordinated Debentures will be passed upon for Corning by
William C. Ughetta, Esq., Senior Vice President and General Counsel of
Corning, and for the Underwriters by Sullivan & Cromwell, New York, New York.
Additionally, certain matters as to (i) the formation of Corning Delaware and
the authority of Corning and Corning Delaware to enter into certain
agreements relating to the transaction and (ii) United States taxation will
be passed upon by Shearman & Sterling, New York, New York. Mr. Ughetta owns
substantially less than 1% of the outstanding shares of Corning Common Stock.
EXPERTS
The consolidated financial statements of Corning and of Dow Corning
incorporated in this Prospectus by reference to Corning's 1993 Annual Report
on Form 10-K for the year ended January 2, 1994, have been so incorporated in
reliance on the reports of Price Waterhouse, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Damon, as of December 31, 1992 and
1991, and for each of the three years ended December 31, 1992, incorporated
by reference in this Prospectus by reference to Corning's Current Report on
Form 8-K dated August 4, 1993 have been so incorporated in reliance on the
report of Arthur Andersen & Co., independent public accountants, given on the
authority of said firm as experts in accounting and auditing.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities other than the
securities to which it relates or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of Corning and Corning Delaware
since the date hereof or that the information contained herein is correct as
of any time subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information 3
Incorporation of Certain Documents by
Reference 3
Prospectus Summary 4
Use of Proceeds 11
Investment Considerations 11
Capitalization 12
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends 13
Market Prices of Corning Common Stock
and Dividends 14
Selected Consolidated Financial Data 14
Corning Unaudited Pro Forma Combined
Financial Information 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 23
Business of Corning 33
Corning Delaware 39
Description of Securities Offered 39
Description of Corning Capital Stock 57
Certain Federal Income Tax
Considerations 62
Underwriting 69
Validity of the Securities 70
Experts 70
</TABLE>
6,500,000
CORNING DELAWARE
GUARANTEED BY
Corning Incorporated
6% Convertible Monthly Income
Preferred Securities
Goldman, Sachs & Co.
Lazard Freres & Co.
Representatives of the Underwriters
