-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CiytyZvJEEHSQ0O+ERTKOpRdSUrEoVu8mhXDnqBDFTeMJuspBtZ13raG6LnCQVIN gNvzUV9QkGIoM//Eoe1UFg== 0000024741-95-000080.txt : 19951119 0000024741-95-000080.hdr.sgml : 19951119 ACCESSION NUMBER: 0000024741-95-000080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951008 FILED AS OF DATE: 19951114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING INC /NY CENTRAL INDEX KEY: 0000024741 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 160393470 STATE OF INCORPORATION: NY FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03247 FILM NUMBER: 95591449 BUSINESS ADDRESS: STREET 1: ONE RIVERFRONT PLAZA CITY: CORNING STATE: NY ZIP: 14831 BUSINESS PHONE: 6079749000 FORMER COMPANY: FORMER CONFORMED NAME: CORNING INC /NY / CORNING LAB SERVICES INC DATE OF NAME CHANGE: 19930713 FORMER COMPANY: FORMER CONFORMED NAME: CORNING GLASS WORKS DATE OF NAME CHANGE: 19890512 10-Q 1 CORNING INC. THIRD QTR '95 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 8, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________to____________ Commission file number 1-3247 CORNING INCORPORATED (Registrant) New York 16-0393470 (State of incorporation) (I.R.S. Employer Identification No.) One Riverfront Plaza, Corning, New York 14831 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 607-974-9000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 229,254,961 shares of Corning's Common Stock, $0.50 Par Value, were outstanding as of October 27, 1995. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Index to consolidated financial statements of Corning Incorporated and Subsidiary Companies filed as part of this report: Page Consolidated Statements of Income for the forty and sixteen weeks ended October 8, 1995 and October 9, 1994 3 Consolidated Balance Sheets at October 8, 1995 and January 1, 1995 4 Consolidated Statements of Cash Flows for the forty weeks ended October 8, 1995 and October 9, 1994 5 Notes to Consolidated Financial Statements 6 The consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. The consolidated financial statements have been compiled without audit and are subject to such year-end adjustments as may be considered appropriate by the registrant or its independent accountants and should be read in conjunction with Corning's Annual Report on Form 10-K for the year ended January 1, 1995. 3 Corning Incorporated and Subsidiary Companies Consolidated Statements of Income (In millions, except per-share amounts)
Forty Weeks Ended Sixteen Weeks Ended October 8, October 9, October 8, October 9, 1995 1994* 1995 1994* Revenues Net sales $3,982.7 $3,497.0 $1,568.8 $1,442.4 Royalty, interest and dividend income 24.7 21.5 9.1 10.3 ________ _________ ________ _________ 4,007.4 3,518.5 1,577.9 1,452.7 Deductions Cost of sales 2,518.6 2,236.1 988.5 917.9 Selling, general and administrative expenses 822.0 633.2 357.2 245.2 Research and development expenses 133.5 132.8 53.7 53.5 Provision for restructuring and other special charges 67.0 82.3 82.3 Interest expense 90.4 85.6 35.8 33.9 Other, net 31.6 36.3 8.3 27.5 _______ _______ _______ ________ Income before taxes on income 344.3 312.2 134.4 92.4 Taxes on income 115.4 117.1 42.2 34.1 ------- ------- -------- -------- Income before minority interest and equity earnings 228.9 195.1 92.2 58.3 Minority interest in earnings of subsidiaries (53.4) (39.0) (23.8) (21.1) Dividends on convertible preferred securities of subsidiary (10.5) (2.7) (4.2) (2.7) Equity in earnings (losses) of associated companies: Excluding Dow Corning Corporation 48.7 34.6 19.3 19.0 Dow Corning Corporation (348.0) 58.3 23.4 -------- ------- ----- ------ Net Income (Loss) $ (134.3) $ 246.3 $ 83.5 $ 76.9 --------- --------- -------- -------- Per Common Share: Net Income (Loss) $ (0.60) $ 1.18 $ 0.37 $ 0.36 ---------- --------- --------- -------- Dividends Declared $ 0.54 $ 0.51 $ 0.18 $ 0.17 --------- --------- ---------- --------- Weighted Average Shares Outstanding 226.5 207.9 227.2 213.4 --------- -------- --------- -------- * Reclassified to conform to 1995 presentation.
The accompanying notes are an integral part of these statements. 4 CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (In millions, except shares and per-share amounts)
October 8, January 1, 1995 1995* ASSETS CURRENT ASSETS Cash $ 16.7 $ 72.0 Short-term investments, at cost, which approximates market value 92.3 89.3 Accounts receivable, net of doubtful accounts and allowances - $163.0/1995; $89.4/year-end 1994 968.3 947.1 Inventories 501.4 416.7 Deferred taxes on income and other current assets 238.9 201.2 ------- ------- Total current assets 1,817.6 1,726.3 INVESTMENTS Associated companies, at equity 374.2 318.6 Dow Corning Corporation, at equity 341.8 Others, at cost 33.8 33.4 ------ -------- 408.0 693.8 PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 1,964.4 1,890.6 GOODWILL AND OTHER INTANGIBLE ASSETS, Net of accumulated amortization - $279.7/1995; $170.8/year-end 1994 1,428.2 1,408.0 OTHER ASSETS 301.3 304.0 -------- -------- $5,919.5 $6,022.7 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Loans payable $ 122.6 $ 67.6 Accounts payable 160.9 258.3 Other accrued liabilities 751.6 748.3 -------- ------- Total current liabilities 1,035.1 1,074.2 -------- -------- OTHER LIABILITIES 666.6 643.6 LOANS PAYABLE BEYOND ONE YEAR 1,472.6 1,405.6 MINORITY INTEREST IN SUBSIDIARY COMPANIES 275.4 247.0 CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY 364.7 364.4 CONVERTIBLE PREFERRED STOCK 23.8 24.9 COMMON STOCKHOLDERS' EQUITY Common stock, including excess over par value and other capital - Par value $0.50 per share; authorized 500 million shares; issued 258.0 million shares/1995 and 255.8 shares/year-end 1994 1,102.2 1,031.4 Retained earnings 1,454.8 1,714.5 Less: cost of 28 million/1995 and 27.6 million/year-end 1994 shares of common stock in treasury (548.1) (523.7) Cumulative translation adjustment 72.4 40.8 --------- -------- $5,919.5 $6,022.7 ======== ======== * Reclassified to conform to 1995 presentation.
The accompanying notes are an integral part of these statements. 5 CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
Forty Weeks Ended October 8, October 9, 1995 1994* CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(134.3) $ 246.3 Adjustments to reconcile net income to net cash used in operations: Depreciation and amortization 279.7 252.1 Provision for restructuring and other special charges (net of cash paid) 56.9 76.9 Equity in losses (earnings) of Dow Corning Corporation 348.0 (58.2) Equity in earnings of associated companies, other than Dow Corning Corporation, in excess of dividends received (14.7) (10.4) Minority interest in earnings of subsidiaries in excess of dividends paid 28.3 24.1 Losses (gains) on disposition of properties and investments 11.5 (8.7) Deferred tax benefit (26.3) (11.1) Other 14.1 (0.6) Changes in operating assets and liabilities: Accounts receivable (13.2) (232.7) Inventory (76.5) (58.1) Deferred taxes and other current assets (4.7) (25.3) Accounts payable and other current liabilities (120.1) (95.1) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 348.7 99.2 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (316.4) (243.6) Acquisitions of businesses, net (41.0) (241.0) Net proceeds from disposition of properties and investments 13.8 144.5 Increase in long-term investments (27.5) (9.6) Other, net (24.6) (23.9) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (395.7) (373.6) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of loans 170.0 291.3 Repayments of loans (50.5) (452.0) Increase in minority interest due to capital contribution 21.5 Proceeds from issuance of convertible preferred securities of subsidiary 364.4 Proceeds from issuance of common stock 19.8 247.2 Repurchases of common stock (15.8) Payment of dividends (125.4) (105.6) ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1.9) 366.8 Effect of exchange rates on cash (3.4) 1.5 ------- ------ Net change in cash and cash equivalents (52.3) 93.9 Cash and cash equivalents at beginning of year 161.3 160.8 ------- ------ CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 109.0 $ 254.7 ========= ========= SUPPLEMENTAL DATA: Income taxes paid $ 97.9 $ 116.0 ========= ========= Interest paid $ 93.3 $ 94.2 ========= ========= * Reclassified to conform to 1995 presentation.
The accompanying notes are an integral part of these statements. 6 CORNING INCORPORATED AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Earnings per common share are computed by dividing net income less dividends on Series B preferred stock by the weighted average of common shares outstanding during each period. Series B preferred dividends amounted to $0.5 million and $1.5 million in the third quarter and third quarter year-to-date, respectively, in both 1995 and 1994. The weighted average of common shares outstanding for the third quarter and third quarter year-to-date 1995 were 227.2 million and 226.5 million, respectively, and 213.4 million and 207.9 million for the same periods in 1994. The weighted average of common shares outstanding for earnings per share calculations does not include shares held by the Corning Stock Ownership Trust which totaled approximately 2.6 million and 3.0 million shares during 1995 and 1994, respectively. Common stock equivalents are not included in the earnings per share computation because they do not result in material dilution. Common dividends of $41.5 million and $123.9 million were declared in the third quarter and third quarter year-to-date of 1995, respectively, compared with $37.0 million and $108.7 million for the same periods in 1994. (2) On May 15, 1995, Dow Corning Corporation (a fifty-percent owned equity affiliate) voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code as a result of several negative developments related to the breast-implant litigation. Corning management believes that it is impossible to predict if and when Dow Corning will successfully emerge from the Chapter 11 proceedings. As a result, Corning recorded an after-tax charge of $365.5 million in the second quarter 1995 to fully reserve its investment in Dow Corning. Corning also discontinued recognition of equity earnings from Dow Corning beginning in the second quarter of 1995. Corning recognized equity earnings from Dow Corning of $17.5 million in the first quarter of 1995, and $23.4 million and $58.3 million in the third quarter and third quarter year-to-date of 1994, respectively. Summarized income statement information for Dow Corning is not presented because Corning has discontinued recognition of equity in earnings. (3) In the second quarter of 1995, Corning recorded a restructuring charge of $67 million ($40.5 million after-tax). Approximately $40 million of the charge related to Corning's Laboratory Services segment and included severance for workforce reduction programs in both the clinical-laboratory and pharmaceutical-testing businesses and the costs of exiting a number of leased facilities in the clinical- laboratory testing business. The remaining charge included severance for additional workforce reductions, primarily in corporate staff groups, a curtailment loss in Corning's primary pension plan attributable to workforce reductions over the last eighteen months, and the write-off of production equipment caused by the decision to exit the manufacturing facility for glass-ceramic memory-disks. A summary of the reserves established in the second quarter 1995 are as follows:
Charges through Balance at Original Reserve October 8, 1995 October 8, 1995 Employee termination costs $ 46.5 $ 16.4(1) $30.1 Write-off of fixed assets 14.1 3.8 10.3 Costs of exiting leased facilities 6.4 0.7 5.7 ------- --------- -------- Total $67.0 $20.9 $46.1 ===== ===== ====== Current $37.1 Non-current 9.0 ------ Total $46.1 (1) Includes $7 million of pension curtailment loss which has reduced Corning's pension asset related to its primary pension plan.
7 Severance costs relate to approximately 1,000 employees, of which approximately 450 have been terminated or notified of their termination at October 8, 1995. Management believes that the workforce reductions and facility closures will significantly reduce operating costs and will be substantially completed within one year. As described in Note 7 to the company's 1994 consolidated financial statements included in its Annual Report on Form 10-K, Corning recorded charges for restructuring and acquisition integration plans in previous years. Reserves relating to these programs totaled approximately $99.4 million and $37.1 million at January 1, 1995, and October 8, 1995, respectively. Management believes that the costs of both 1995 and previous restructuring and integration plans will be financed through cash from operations and does not anticipate any significant impact on its liquidity as a result of the restructuring plans. (4) On March 28, 1995, Corning issued $125 million of 30-year debentures with an interest rate of 8.3 percent due April 4, 2025. The proceeds from these borrowings were used for general corporate purposes, including capital spending. (5) During the first three quarters of 1995, Corning acquired several businesses in the Laboratory Services segment for $41 million in cash and approximately 500,000 shares of Corning common stock. These transactions have been accounted for as purchases. Goodwill of approximately $54 million resulted from these transactions and is being amortized over periods of 20 to 40 years. (6) As described in Note 2 to the company's 1994 consolidated financial statements included in its Annual Report on Form 10-K, Corning completed several acquisitions in 1994, the total of which was significant. The following table presents unaudited pro forma operating results for the sixteen and forty weeks ended October 9, 1994, as if the acquisitions completed in 1994 had been completed on January 3, 1994 (in millions, except per share amounts): Forty Sixteen weeks ended weeks ended October 9, October 9, 1994 1994 Revenues $3,855.7 $1,555.2 Net income 303.2 133.6 Net income per common share 1.34 0.59 These pro forma results do not reflect the impact of 1994 divestitures and the formation of the jointly owned environmental testing company, also described in Note 2 to the company's 1994 consolidated financial statements included in its Annual Report on Form 10-K, which were individually and in the aggregate immaterial. (7) Inventories shown on the accompanying balance sheets were comprised of the following (in millions): October 8, January 1, 1995 1995 Finished goods $ 234.4 $ 210.1 Work in process 145.5 115.7 Raw materials and accessories 90.2 66.1 Supplies and packing materials 86.9 83.7 Total inventories valued at current cost 557.0 475.6 Reduction to LIFO valuation (55.6) (58.9) --------- ---------- $ 501.4 $ 416.7 ========= ========== 8 (8) Plant and equipment shown on the accompanying balance sheets were comprised of the following (in millions): October 8, January 1, 1995 1995 Land $ 65.8 $ 60.7 Buildings 944.3 892.7 Equipment 2,840.7 2,664.9 Accumulated depreciation (1,886.4) (1,727.7) --------- ---------- $1,964.4 $ 1,890.6 ========= ========= 9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Consolidated sales for the third quarter and third quarter year-to-date 1995 totaled $1.6 billion and $4.0 billion, respectively, up 9 percent and 14 percent, respectively, from the same periods last year. Approximately one-third of the sales increase resulted from acquisitions completed in 1994 in both the opto-electronics business and Laboratory Services segment, net of divestitures of certain businesses in 1994. Net income for the third quarter 1995 totaled $83.5 million, or $0.37 per share, compared to $76.9 million, or $0.36 per share, in the same period in 1994. Corning incurred a net loss of $134.3 million, or $0.60 per share, for the third quarter year-to-date 1995 compared to net income of $246.3 million, or $1.18 per share, for the same period in 1994. Corning's results have been significantly impacted by the decision to fully reserve its investment in and discontinue recognition of equity earnings from Dow Corning Corporation in the second quarter of 1995 and restructuring charges in both the second quarter of 1995 and the third quarter of 1994. The following table summarizes the impact of these events on Corning's third quarter and the third quarter year-to-date net income and earnings per share: Forty Weeks Ended Sixteen Weeks Ended October 8,October 9, October 8,October 9, 1995 1994 1995 1994 Net income (loss) Before Dow Corning Corporation and restructuring $254.2 $243.4 $ 83.5 $108.9 Equity in earnings (losses) of Dow Corning Corporation (348.0) 58.3 23.4 Provision for restructuring (40.5) (55.4) (55.4) -------- ------- ------- ------ Net income (loss) $(134.3) $246.3 $ 83.5 $ 76.9 ======== ====== ====== ======= Net income (loss) per common share Before Dow Corning Corporation and restructuring $ 1.12 $ 1.16 $ 0.37 $ 0.51 Equity in earnings (losses) of Dow Corning Corporation (1.54) 0.28 0.11 Provision for restructuring (0.18) (0.26) (0.26) ------ ------ ------- ------ Net income (loss) per common share $ (0.60) $ 1.18 $ 0.37 $ 0.36 ======== ===== ======= ====== As shown, excluding the impact of special charges and adjusted for the elimination of equity earnings from Dow Corning, Corning's net income and earnings per share for the third quarter decreased 23 percent and 27 percent , respectively, from the same period last year, causing only a 4 percent increase in net income and a 3 percent decline in earnings per share on a year-to-date basis. The significant decline in the third quarter results is due in large part to a $62 million pretax charge recorded in the third quarter of 1995 as a result of management's decision to increase accounts receivable reserves in the clinical-laboratory testing business. 10 Segment overview Consolidated sales, excluding the impact of acquisitions, increased during the third quarter and third quarter year-to-date 1995 primarily due to strong performance in the Communications segment and in the pharmaceutical testing-business of the Laboratory Services segment. Excluding the impact of the restructuring charges in the second quarter of 1995 and the third quarter of 1994, earnings from consolidated operations for the third quarter and third quarter year-to-date 1995 declined over the comparable periods in 1994 primarily due to poor performance in the Laboratory Services and Consumer Products segments which offset strong performance from the Communications and Specialty Materials segments. In the second quarter of 1995, Corning recorded a restructuring charge of $67 million ($40.5 million after tax). Approximately $40 million of the charge related to Corning's Laboratory Services segment and included severance for workforce reduction programs primarily in the clinical- laboratory testing business and the costs of exiting a number of leased facilities. The remaining charge included severance for additional workforce reductions, primarily in corporate staff groups, a curtailment loss in Corning's primary pension plan attributable to workforce reductions over the last eighteen months and the write-off of equipment caused by the decision to exit the manufacturing facility for glass-ceramic memory-disks. In the third quarter of 1994, Corning recorded a charge of $82.3 million ($55.4 million after tax), which included $50.7 million of integration costs, $21.6 million of transaction expenses and $10 million of other reserves, primarily related to the acquisitions of Nichols Institute, Maryland Medical Laboratory and Bioran Medical laboratory. Additional information on the restructuring charges is included in Note 3 to the consolidated financial statements. The following segment analysis excludes the impact of the restructuring charges. Sales of the Specialty Materials segment increased modestly and earnings increased significantly in the third quarter and third quarter year-to-date 1995. Sales and earnings growth continue to be led by the environmental- products business; however, this business experienced some softness in demand in the third quarter, particularly in the North American automotive market. The science-products business performance remained level with last year's results. Earnings growth in this segment has outpaced the sales growth rate during 1995 due to improved manufacturing performance achieved through cost reductions from ongoing re-engineering efforts. Sales in the Communications segment increased significantly in both the third quarter and third quarter year-to-date 1995. Approximately one-third of the sales increase was due to the 1994 acquisitions of opto-electronic businesses from Northern Telecom Limited. The remaining increase was due to strong performance in all major businesses in this segment. Segment earnings increased significantly as a result of the increased sales volume in all major businesses. As a result of the growth in demand, Corning announced in the third quarter of 1995 that it will increase its capacity through major expansions at its optical fiber and television glass manufacturing facilities. Third quarter and third quarter year-to-date sales of the Laboratory Services segment increased over the prior year primarily as a result of 1994 acquisitions in the clinical-laboratory testing business and strong growth in the pharmaceutical-testing business. The segment experienced a loss for the third quarter due primarily to costs associated with uncollectible receivables and weak performance in the clinical-laboratory business. As a result, third quarter year-to-date earnings were significantly below prior year levels. Earnings of the pharmaceutical- testing business increased significantly in both the third quarter and the third quarter year-to-date. Earnings of the clinical-laboratory business include a $62 million pretax charge in the third quarter 1995 to increase accounts receivable reserves. The increased accounts receivable reserves reflect the impact of billing systems implementation and integration problems at certain laboratories and increased regulatory complexity which caused a rapid deterioration in the collection of receivables. In addition to the $62 million charge, the ongoing expense associated with uncollectible receivables increased each quarter of 1995 and is expected to continue at the third quarter level until the billing systems problems are resolved. Results in the clinical-laboratory testing business were also impacted by lower prices, flat volume (excluding the impact of acquisitions), increased reserves for government claims in the first half of 1995 and higher expenses in certain areas related to the 11 integration of the 1994 acquisitions. Management expects these items to continue to impact the profitability of this business through at least the first half of 1996. Excluding the impact of the sale of the European consumer business in the fourth quarter of 1994, sales in the Consumer Products segment were relatively flat in both the third quarter and the third quarter year-to- date 1995 primarily due to the weak North American retail market. The reduced sales volume, coupled with several scheduled glass furnace repairs and incremental cost related to new product promotions and factory stores, resulted in lower earnings in the third quarter 1995 and a loss in the third quarter year-to-date 1995. Management expects the segment to generate earnings in the fourth quarter; however, full year 1995 earnings will be significantly lower than 1994 levels. Taxes on Income Corning's effective tax rate for 1995 and 1994 was impacted by restructuring and other special charges. Excluding these items, the tax rate was 31.4 percent and 34.5 percent in the third quarter and third quarter year-to-date 1995, respectively, compared to 35 percent and 36.5 percent for the same periods in 1994. The decrease in the effective tax rate is due to an increase in the percentage of Corning's earnings from consolidated entities with lower effective tax rates. Equity in Earnings In the second quarter of 1995, Corning recorded a charge of $365.5 million to fully reserve its investment in Dow Corning, as a result of Dow Corning's voluntary filing for protection under Chapter 11 of the United States Bankruptcy Code. In addition, Corning discontinued recognition of equity earnings from Dow Corning beginning in the second quarter of 1995. Corning recognized equity earnings from Dow Corning of $17.5 million in the first quarter of 1995, and $23.4 million and $58.3 million in the third quarter and third quarter year-to-date of 1994, respectively. Excluding Dow Corning, equity earnings in the third quarter 1995 were flat due to gains in the optical-fiber equity companies being offset by weak performance by a few of the smaller equity companies. Third quarter year- to-date 1995 equity earnings increased significantly due primarily to strong performance in the optical-fiber equity companies. Liquidity and Capital Resources Corning's working capital increased from $652.1 million at the end of 1994 to $782.5 million at October 8, 1995. The ratio of current assets to current liabilities was 1.8 at the end of the third quarter 1995 compared to 1.6 at year-end 1994. Corning's long-term debt as a percentage of total capital was 35 percent at the end of the third quarter, compared to 33 percent at year-end 1994. The increase in this ratio was due to the issuance of $125 million of 30-year debentures in March 1995 and the significant reduction in equity caused by the second quarter charge to fully reserve Corning's investment in Dow Corning. Cash and short-term investments decreased from year-end 1994 by $52.3 million due to operating activities which provided cash of $348.7 million, offset by investing and financing activities which used cash of $395.7 million and $1.9 million, respectively. In the third quarter year-to-date 1995 , operating activities generated more cash than in the third quarter year-to-date 1994 primarily due to a smaller increase in working capital in 1995 than in 1994. Net cash used in investing activities increased in the third quarter year-to-date 1995 as a result of increased capital spending offset by a lower level of both acquisitions and divestitures in 1995 compared to 1994. Financing activities were essentially break-even in 1995 as net borrowings offset dividends paid. Net cash provided by financing in 1994 included the issuance of common stock in February 1994 to finance certain 1994 acquisitions and the convertible monthly income preferred securities offering in July 1994. Part II - Other Information ITEM 1. LEGAL PROCEEDINGS There are no pending legal proceedings to which Corning or any of its subsidiaries is a party or of which any of their property is the subject which are material in relation to the consolidated financial statements. 12 Environmental Litigation. Corning has been named by the Environmental Protection Agency under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 20 hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by such Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning's policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. Corning has accrued approximately $25 million for its estimated liability for environmental cleanup and litigation at October 8, 1995. This liability has not been reduced by any potential insurance recoveries. Breast Implant Litigation. On May 15, 1995, Dow Corning Corporation sought protection under the reorganization provisions of Chapter 11 of the United States Bankruptcy Code. The effect of the bankruptcy, which is pending in the United States Bankruptcy Court for the Eastern District of Michigan, Northern Division (Bay City, Michigan), is to stay the prosecution against Dow Corning of the 45 purported breast-implant product liability class action lawsuits and its approximately 19,000 breast-implant product liability lawsuits. In June 1995 Dow Corning and its shareholders (Corning and The Dow Chemical Company) attempted to remove various state court implant lawsuits against itself and its shareholders to federal court, and to transfer these cases to the United States District Court for the Eastern District of Michigan, Southern District (the "Michigan Federal Court"). The transfer motion also contemplated a trial of the consolidated, transferred cases on the "common issue" of whether silicones cause diseases as alleged by plaintiffs. On September 12, 1995 Judge Hood of the Michigan Federal Court issued an order granting the motion to transfer the Dow Corning cases to federal court, but denying the motion to the extent it requested the transfer of cases against Dow Corning's shareholders to her court. Judge Hood also denied the motion for the purpose of holding one causation trial prior to the estimation process by the Bankruptcy Court, but without prejudice to subsequent motions for one or more such trials to assist in the bankruptcy estimation process. Dow Corning, Corning and Dow Chemical have filed in the United States Court of Appeals for the Sixth Circuit an appeal from Judge Hood's order. Oral argument of the appeal is expected in December 1995. In March 1994, Dow Corning along with other defendants and representatives of breast implant litigation plantiffs signed a breast implant litigation settlement agreement (the "Global Settlement") under which industry participants would contribute $4.2 billion over a period of more than thirty years to establish several special purpose funds. Corning was not a signatory or contributor to the Global Settlement. The Global Settlement, if implemented, would have provided for a claims- based structured resolution of claims arising out of silicone breast implants and defined periods during which breast implant plaintiffs could "opt out" of the settlement and instead continue their individual breast implant litigation against manufacturers and other defendants. On October 10, 1995, the United States District Court for the Northern District of Alabama entered an order declaring that claimants participating in the Global Settlement would have an additional right to opt-out of that settlement after November 30th. Those who do opt-out will have the right to pursue individual lawsuits. The Global Settlement has been effectively terminated. Despite the bankruptcy filing of Dow Corning, Corning continues to be a defendant in two types of cases previously reported involving the silicone-gel breast implant products or materials formerly manufactured or supplied by Dow Corning or a Dow Corning subsidiary. These cases include (1) several purported federal securities class action lawsuits and shareholder derivative lawsuits filed against Corning by shareholders of Corning alleging, among other things, misrepresentations and omissions of material facts, breach of duty to shareholders and waste of corporate assets relative to the silicone-gel breast implant business conducted by Dow Corning and (2) multiple lawsuits filed in various federal and state courts against Corning and others (including Dow Corning) by persons claiming injury from the silicone-gel breast implant products or materials formerly manufactured by Dow Corning or a Dow Corning subsidiary. Several of such suits have been styled as class actions and others involve multiple plaintiffs. The federal securities suits are all pending in the United States District Court for the Southern District of New York. As of October 30, 1995, Corning had been named in approximately 11,400 state and federal tort lawsuits. More than 4,300 tort lawsuits filed against Corning in federal courts were consolidated in the United States District Court, Northern District of Alabama. On April 25, 1995 that District Court issued a final order dismissing Corning from those federal, consolidated breast-implant cases and plaintiffs have appealed. Certain state court tort cases against Corning were also consolidated in various states for the purposes of discovery and pretrial matters. During 1994 and 1995, Corning made several motions for summary judgment in state courts and judges have dismissed Corning from over 6,400 tort cases filed in California, Connecticut, Indiana, Michigan, Mississippi, New Jersey, New York, Pennsylvania, Tennessee and Dallas, Harris and Travis Counties in Texas, some of which are on appeal. Corning's motions seeking dismissal remain pending in various other states. In certain Texas tort cases, Dow Chemical and Corning have each filed cross claims against each other and against Dow Corning. Some of these cases are scheduled for trial during 1996. 13 Department of Justice Investigations. In September 1993, MetPath and MetWest Inc. ("MetWest"), a wholly owned subsidiary of Unilab, in which Corning had at the time an interest of approximately 43%, entered into a Settlement Agreement (the "MetPath Settlement Agreement") with the Department of Justice ("DOJ") and the Inspector General of the Department of Health and Human Services (the "Inspector General") in settlement of civil claims by the DOJ and the Inspector General that MetPath and MetWest had wrongfully induced physicians to order certain laboratory tests without realizing that such tests would be billed to Medicare at rates higher than those the physicians believed were applicable. Several state and private insurers have made claims based on the practices covered by the MetPath Settlement Agreement. Several have settled but it is not clear at this time what, if any, additional exposure Corning may have to these entities and to other persons who may assert claims on the basis of these or other practices. During August 1993, MetPath, MetWest and Damon (which was acquired by Corning earlier that month) together with other participants in the industry received subpoenas from the Inspector General seeking information regarding their practices with respect to 14 enumerated tests offered in conjunction with automatic chemical test panels. MetPath, MetWest and Damon submitted information pursuant to these subpoenas and the investigation into MetPath and MetWest has been closed. Damon was also served with two additional subpoenas in November 1994 and January 1995 from the Inspector General and was directed by the U.S. Attorney's office in Boston, to which its investigation has been referred, to submit additional information in response to the August 1993 subpoena. The November subpoena supplements the August 1993 subpoena and requires the submission of supplemental information. The January subpoena seeks information regarding the addition of the 14 enumerated tests to organ function profiles rather than the automated multichannel chemistry profiles as in earlier subpoenas. Damon has substantially completed its production to each of the foregoing subpoenas. In March 1995, Damon received a subpoena from the Department of Defense Criminal Investigative Service on behalf of CHAMPUS, apparently covering the same practices as the earlier subpoenas. Compliance with that subpoena has been completed. In April 1995, Corning learned that a grand jury in Boston is investigating Damon for possible criminal violations of the anti-fraud and abuse provisions of the Social Security Act and Damon and Corning Life Sciences Inc. ("CLSI") for possible obstruction in connection with Damon's response to the August 1993 subpoena. In August 1995, Corning Clinical Laboratories Inc. ("CCL", previously MetPath) and Damon received subpoenas from the Inspector General seeking documents with regard to 14 common procedure terminology, or CPT, codes used to bill Medicare, Medicaid and other payers for certain hematology tests. CCL and Damon are complying with these subpoenas. In August 1993, Nichols Institute (which Corning acquired in August 1994) received a subpoena from the Inspector General comparable to those received by MetPath, MetWest and Damon. Compliance with that subpoena has been completed. In May 1994, MetPath received a subpoena from the Inspector General and a subpoena from a federal grand jury, both investigating billing for tests not performed or reported for which MetPath had voluntarily made corrective payments in 1993. The civil matter was concluded by a payment by CLSI of $8.6 million, and the criminal investigation was closed. The possibility of additional action by the Inspector General or other federal agencies and claims or settlements with parties other than DOJ and the Inspector General cannot be excluded. In September 1995, CCL began voluntarily providing documents and information to the DOJ concerning CCL's efforts to detect and correct billings for tests not reported or performed. As part of these activities, which are ongoing, CCL made certain payments to the United States in August 1995. In April 1995, CLSI received a subpoena from the Inspector General concerning possible additions of the 14 enumerated tests to automated multichannel chemistry profiles by Bioran Medical Laboratory (acquired by Corning in September 1994). CLSI also received a comparable subpoena from the Department of Defense Criminal Investigative Service on behalf of CHAMPUS. Production of documents responsive to these subpoenas has been completed. Other Legal Proceedings. During September 1993, two individuals filed in the Supreme Court of the State of New York (one in New York County and one in Suffolk County) separate purported derivative actions against Corning, as nominal defendant, and Corning's Directors and certain of its officers seeking on behalf of Corning compensatory and punitive damages in unspecified amounts (and plaintiffs' costs and disbursements including attorneys' and experts' fees) by reason of the alleged responsibility of the actual defendants for the conduct which gave rise to the settlement in the MetPath litigation described above and their alleged failure to cause Corning to make timely disclosure thereof. Such actions have been consolidated into a single action before the Supreme Court of the State of New York in New York County. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Exhibit Index which is located on page 16. (b) Reports on Form 8-K A report on Form 8-K dated June 27, 1995 was filed in connection with the Registrant's medium-term notes facility. The Registrant's second quarter press release of June 27, 1995 was filed as an exhibit to this Form 8-K. A report on Form 8-K dated October 5, 1995 was filed which announced a third quarter pre-tax charge to operating earnings and lower earnings expectations. Other items under Part II are not applicable. 15 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORNING INCORPORATED (Registrant) November 13, 1995 /s/ JAMES R. HOUGHTON Date J. R. Houghton Chairman and Chief Executive Officer November 13, 1995 /s/ VAN C. CAMPBELL Date V. C. Campbell Vice Chairman and Chief Financial Officer November 13, 1995 /s/ KATHERINE A. ASBECK Date K. A. Asbeck Chief Accounting Officer 16 CORNING INCORPORATED EXHIBIT INDEX This exhibit is numbered in accordance with Exhibit Table I of Item 601 of Regulation S-K Page number in manually Exhibit # Description signed original 12 Computation of ratio of earnings to combined fixed charges and preferred dividends 17 EX-12 2 CORNING INC. THIRD QTR '95 EXHIBIT 12 17 Exhibit #12 Corning Incorporated and Subsidiary Companies Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends: (Dollars in millions, except ratios)
40 Weeks Ended Fiscal Year Ended October 8, October 9, Jan. 1, Jan. 2, Jan. 3, Dec. 29, Dec.30, 1995* 1994 1995 1994 1993 1991 1990 Income before taxes on income $344.3 $312.2 $459.5 $156.7 $336.6 $327.4 $328.1 Adjustments: Share of earnings (losses) before taxes of 50% owned companies 73.7 147.7 89.0 (137.0) 103.2 165.4 175.9 Loss before taxes of greater than 50% owned unconsolidated subsidiary (1.8) (2.3) (4.0) (3.1) (2.1) (2.2) (2.0) Distributed income of less than 50% owned companies and share of loss if debt is guaranteed 1.2 2.1 4.5 (4.3) 6.6 0.9 Amortization of capitalized interest 7.4 10.4 13.3 13.0 11.8 10.2 8.8 Fixed charges net of capitalized interest 141.1 149.1 212.0 155.8 130.3 126.4 112.5 ----- ----- ------ ----- ----- ------ ----- Earnings before taxes and fixed charges as adjusted $564.7 $618.3 $771.9 $189.9 $575.5 $633.8 $624.2 ====== ====== ====== ======= ====== ====== ====== Fixed charges: Interest incurred $97.9 $88.4 $122.3 $94.0 $68.9 $60.4 $58.6 Share of interest incurred of 50% owned companies and interest on guaranteed debt of less than 50% owned companies 18.1 43.6 60.8 40.9 42.0 47.5 45.3 Interest incurred by greater than 50% owned unconsolidated subsidiary 0.6 0.6 0.8 0.8 0.9 0.9 1.0 Portion of rent expense which represents interest factor 29.7 21.7 36.2 29.9 27.6 23.0 19.7 Share of portion of rent expense which represents interest factor for 50% owned companies 2.0 6.4 9.4 9.1 9.2 9.0 7.6 Portion of rent expense which represents interest factor for greater than 50% owned unconsolidated subsidiary 0.1 0.1 0.1 0.1 0.1 Amortization of debt costs 0.7 1.6 2.0 1.8 1.5 0.4 0.4 ----- ----- ----- ----- ----- ---- ----- Total fixed charges 149.0 162.3 231.6 176.6 150.2 141.3 132.7 Capitalized interest (7.9) (13.2) (19.6) (20.8) (19.9) (14.9) (20.2) ------ ------ ------ ------ ------ ------ ------ Total fixed charges net of capitalized interest $141.1 $149.1 $212.0 $155.8 $130.3 $126.4 $112.5 ======= ====== ====== ====== ======= ====== ======= Preferred dividends: Preferred dividend requirements $12.0 $ 4.2 $ 8.2 $ 2.1 $ 2.2 $ 2.4 $ 2.5 Ratio of pre-tax income to income before minority interest and equity earnings 1.5 1.6 1.6 1.3 1.4 1.5 1.7 ----- ----- ----- ---- ------ ----- ----- Pre-tax preferred dividend requirement 18.0 6.7 13.1 2.7 3.1 3.6 4.3 Total fixed charges 149.0 162.3 231.6 176.6 150.2 141.3 132.7 ----- ----- ----- ----- ----- ----- ------ Fixed charges and pre-tax preferred dividend requirement $167.0 $169.0 $244.7 $179.3 $153.3 $144.9 $137.0 ======= ======= ====== ======= ======= ====== ======= Ratio of earnings to combined fixed charges and preferred dividends 3.4x 3.7x 3.2x 1.1x 3.8x 4.4x 4.6x ====== ===== ====== ===== ===== ===== ===== *Beginning in the second quarter of 1995, the Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends excludes Dow Corning Corporation as a result of the Registrant's decision to fully reserve its investment in and discontinue recognition of equity earnings from Dow Corning.
EX-27 3 CORNING INC. THIRD QTR '95 EXHIBIT 27
5 9-MOS DEC-31-1995 OCT-08-1995 16,700 92,300 968,300 163,000 501,400 1,817,600 3,850,800 1,886,400 5,919,500 1,035,100 1,472,600 1,102,200 364,700 23,800 979,100 5,919,500 3,982,700 4,007,400 2,518,600 2,518,600 0 123,900 90,400 344,300 115,400 (134,300) 0 0 0 (134,300) (0.60) (0.60)
-----END PRIVACY-ENHANCED MESSAGE-----