-----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, S96m4pLusWROCboPGQxcyPUBPySy5E71h/R2OSPo4VnlSk8QzZHJSZ97Oe1GppfC I62/HrwuhBtMqlV9L08JGA== 0000024741-98-000011.txt : 19980511 0000024741-98-000011.hdr.sgml : 19980511 ACCESSION NUMBER: 0000024741-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980508 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: SEC FILE NUMBER: 001-03247 FILM NUMBER: 98613786 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.'S FIRST QUARTER 1998 10-Q - 14 - FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1998 [ ] 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: 232,082,535 shares of Corning's Common Stock, $0.50 Par Value, were outstanding as of April 14, 1998. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Index to consolidated financial statements of Corning Incorporated and Subsidiary Companies filed as part of this report: Page Consolidated Statements of Income for the three months ended March 31, 1998 and 1997 3 Consolidated Balance Sheets at March 31, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 The consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The consolidated financial statements have been compiled without audit and are subject to such year-end adjustments as may be considered appropriate by the registrant or its independent accountants and should be read in conjunction with Corning's Annual Report on Form 10-K for the year ended December 31, 1997. CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) Three Months Ended --------------------- March 31, March 31, 1998 1997 --------- --------- REVENUES Net sales $794.8 $817.1 Royalty, interest and dividend income 9.1 9.9 ------ ------ 803.9 827.0 DEDUCTIONS Cost of sales 514.7 475.7 Selling, general and administrative expenses 112.9 128.8 Research and development expenses 67.1 51.0 Interest expense 17.6 21.2 Other, net 27.1 6.8 ------ ------- Income from continuing operations before taxes on income 64.5 143.5 Taxes on income from continuing operations 21.0 49.0 ------- ------- Income from continuing operations before minority interest and equity earnings 43.5 94.5 Minority interest in earnings of subsidiaries (5.5) (12.5) Dividends on convertible preferred securities of subsidiary (3.4) (3.4) Equity in earnings of associated companies 27.5 6.8 ------- ------- Income from continuing operations 62.1 85.4 Income (loss) from discontinued operations, net of taxes (0.6) 6.6 ------ ------- NET INCOME $ 61.5 $ 92.0 ====== ======= BASIC EARNINGS PER SHARE Continuing operations $ 0.27 $ 0.37 Discontinued operations 0.03 ------ ------ NET INCOME $ 0.27 $ 0.40 ====== ====== DILUTED EARNINGS PER SHARE Continuing operations $ 0.27 $ 0.36 Discontinued operations (0.01) 0.03 ------- ------ NET INCOME $ 0.26 $ 0.39 ======= ====== DIVIDENDS DECLARED $ 0.18 $ 0.18 ======= ====== The accompanying notes are an integral part of these statements. CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (In millions, except per share amounts) March 31, December 31, ASSETS 1998 1997 ------ --------- ------------ CURRENT ASSETS Cash $ 21.5 $ 61.0 Short-term investments, at cost, which approximates market value 58.0 36.0 Accounts receivable, net of doubtful accounts and allowances - $10.0/1998; $10.7/year-end 1997 514.1 559.7 Inventories 443.4 428.3 Deferred taxes on income and other current assets 122.6 114.1 ------- -------- Total current assets 1,159.6 1,199.1 --------- -------- INVESTMENTS Associated companies, at equity 335.6 292.9 Others, at cost 16.7 17.1 ------- --------- 352.3 310.0 ------- --------- PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION 2,225.5 2,267.9 GOODWILL AND OTHER INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION - $20.9/1998; $19.2/year-end 1997 290.1 294.2 OTHER ASSETS 342.3 263.1 NET ASSETS OF DISCONTINUED OPERATIONS 369.1 357.6 ------- ------- $4,738.9 $4,691.9 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Loans payable $ 383.8 $ 213.0 Accounts payable 172.4 300.0 Other accrued liabilities 398.2 444.7 ----- ----- Total current liabilities 954.4 957.7 ----- ----- OTHER LIABILITIES 645.8 627.5 LOANS PAYABLE BEYOND ONE YEAR 1,120.1 1,125.8 MINORITY INTEREST IN SUBSIDIARY COMPANIES 344.2 349.3 CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY 365.4 365.3 CONVERTIBLE PREFERRED STOCK 19.1 19.8 COMMON STOCKHOLDERS' EQUITY Common stock, including excess over par value and other capital - Par value $0.50 per share; Shares authorized: 500 million; Shares issued: 264.9 million/1998 and 264.3 million/year-end 1997 726.2 707.2 Retained earnings 1,315.4 1,296.0 Less cost of 32.9 million/1998 and 32.7 million/year-end 1997 shares of common stock in treasury (735.8) (724.5) Cumulative translation adjustment (15.9) (32.2) -------- -------- Total common stockholders' equity 1,289.9 1,246.5 --------- -------- $4,738.9 $4,691.9 ========= ======== The accompanying notes are an integral part of these statements. CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Three Months Ended --------------------- March 31, March 31, 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 61.5 $ 92.0 Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: (Income) loss from discontinued operations 0.6 (6.6) Depreciation and amortization 78.9 77.1 Equity in earnings of associated companies less than (in excess of) dividends received (28.5) 0.6 Minority interest in earnings of subsidiaries in excess (less than) dividends paid (5.2) 6.8 (Gains) losses on disposition of properties and investments 5.7 (2.3) Deferred tax benefit (2.3) (12.5) Other 33.1 22.6 Changes in operating assets and liabilities: Accounts receivable 45.2 (89.6) Inventory (15.2) (38.8) Other current assets (10.7) (5.7) Accounts payable and other current liabilities (171.4) (33.2) ------- ------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF CONTINUING OPERATIONS (8.3) 10.4 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (132.9) (82.9) Net proceeds from disposition of properties and investments 97.8 32.9 Increase in long-term investments and other non current assets (79.1) (0.1) Other, net (1.5) 0.1 NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS (115.7) (50.0) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of loans 170.8 0.1 Repayments of loans (6.2) (14.8) Proceeds from issuance of common stock 6.3 8.1 Repurchases of common stock (9.5) (10.5) Dividends paid (42.1) (41.7) ------- ------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS 119.3 (58.8) ------- ------ Effect of exchange rates on cash (0.6) 3.5 -------- ------- Cash used in discontinued operations (12.2) (20.9) -------- ------- Net change in cash and cash equivalents (17.5) (115.8) Cash and cash equivalents at beginning of year 97.0 215.1 -------- ------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 79.5 $ 99.3 ======== ======= SUPPLEMENTAL DATA: Income taxes paid (refunded), net $ 8.3 $(43.9) ======== ======= Interest paid $ 31.6 $ 33.5 ======== ======= The accompanying notes are an integral part of these statements. CORNING INCORPORATED AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) On April 1, 1998, Corning completed the recapitalization and sale of a controlling interest in its consumer housewares business to an affiliate of Borden, Inc. (the Consumer transaction). Corning received proceeds of $583 million in cash and will continue to retain an 8 percent interest in the Corning Consumer Products Company. In addition, Corning could receive an additional payment of up to $15 million if certain financial targets are met by Corning Consumer Products Company for the three year period 1998 - 2000. Corning expects to record an after-tax gain in the range of $25-$50 million in the second quarter. The proceeds from the transaction will be used to improve Corning's balance sheet and invest for future growth in Corning's communications, environmental, and advanced materials businesses. Corning's consolidated financial statements and notes thereto report the consumer housewares business as a discontinued operation. Prior period consolidated financial statements and notes have been restated accordingly. Summarized results of Corning's discontinued operations for the first quarter of 1998 and 1997 are as follows: Three Months Ended March 31, 1998 1997 ---- ---- Sales $116.8 $128.9 ------ ------ Income (loss) before taxes (0.9) 11.0 Tax (benefit) on income (0.3) 4.4 ------ ------ Discontinued operations, net of income taxes $ (0.6) $ 6.6 ========= ======= Basic earnings per share $ 0.00 $ 0.03 ========= ======= Diluted earnings per share $(0.01) $ 0.03 ========= ======= Income (loss) from discontinued operations includes an allocation of Corning's interest expense totaling $2.7 million and $3.8 million in the first quarter of 1998 and 1997, respectively. The allocations were based on the ratio of net assets of discontinued operations to consolidated net assets. Net assets of discontinued operations consist primarily of receivables, inventory, plant and equipment, goodwill and other intangible assets, and other accrued liabilities. Pro forma financial statements are not presented as the effect of pro forma adjustments is immaterial. (2) On April 8, 1998, Corning announced that it will reduce its headcount by offering a selective early retirement program and enhanced separation benefits to its employees in the second quarter. Charges associated with this program will be recorded in the second quarter. A portion of these charges will be related to the divestiture of the consumer housewares business and will be classified as discontinued operations. (3) Basic earnings per share is computed by dividing net income less dividends on Series B convertible preferred stock by the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed by dividing net income plus dividends on convertible preferred stock by the weighted average number of common shares outstanding during the period after giving effect to dilutive stock options and adjusted for dilutive common shares assumed to be issued on conversion of Corning's convertible securities. Common dividends of $41.7 million were declared in the first quarter 1998, compared with $41.3 million for the same period in 1997. A reconciliation of the basic and diluted earnings per share computations for the first quarters of 1998 and 1997 are as follows (in millions, except per share amounts): For the three months ended March 31, 1998 1997 ---- ---- Wgtd. Per share Wgtd. Per share Income Avg Shares Amt Income Avg Shares Amt ------ ---------- -------- ------ ---------- --------- Net income from continuing operations $62.1 $85.4 Less: Preferred stock dividends (0.4) (0.4) ----- ----- Basic earnings per share 61.7 229.6 $0.27 85.0 226.5 $0.37 Effect of Dilutive Securities Option 3.0 4.3 Convertible monthly income preferred securities 3.4 11.5 Convertible preferred stock 0.4 1.0 ----- ----- ----- ----- ----- ----- Diluted earnings per share $61.7 232.6 $0.27 $88.8 243.3 $0.36 ===== ===== ===== ===== ===== ===== At March 31, 1998, Corning had convertible monthly income preferred securities which paid dividends of $3.4 million and were convertible into 11.5 million shares of common stock. In addition, Corning had convertible preferred stock which paid dividends of $0.4 million at March 31, 1998 and were convertible into 1.0 million shares of common stock. These shares were not included in the calculation of diluted earnings per share due to the anti-dilutive effect they would have had on earnings per share if converted. (4) Inventories shown on the accompanying balance sheets were comprised of the following (in millions): March 31, December 31, 1998 1997 --------- ------------ Finished goods $ 240.5 $ 231.0 Work in process 115.9 110.4 Raw materials and accessories 89.6 87.4 Supplies and packing materials 67.8 65.3 -------- --------- Total inventories valued at current cost 513.8 494.1 Reduction to LIFO valuation (70.4) (65.8) -------- --------- $ 443.4 $ 428.3 ======== ========= (5) Plant and equipment shown on the accompanying balance sheets were comprised of the following (in millions): March 31, December 31, 1998 1997 --------- ------------ Land $ 51.8 $ 51.5 Buildings 840.7 842.6 Equipment 3,105.6 3,107.1 Accumulated depreciation (1,772.6) (1,733.3) --------- ---------- $ 2,225.5 $ 2,267.9 ========= ========== (6) In January, 1998, Corning completed a financing transaction related to certain production equipment which resulted in net cash proceeds of approximately $15 million. There was no gain or loss recorded or material change to the balance sheet as a result of this transaction. (7) Corning's change in stockholders' equity from non-stockholder transactions for the periods ended March 31, 1998 and 1997 was $77.8 million and $65.1 million, and includes net income of $61.5 million and $92.0 million and foreign currency translation adjustments of $16.3 million and ($26.9) million in 1998 and 1997, respectively. (8) On December 31, 1996, Corning distributed all of the shares of Quest Diagnostics Incorporated and Covance, Inc. to its shareholders on a pro rata basis. As described in Note 19 to Corning's 1997 consolidated financial statements included in its Annual Report of Form 10-K, Corning has agreed to indemnify Quest Diagnostics on an after-tax basis, for the settlement of certain governmental claims and certain other claims that were pending at December 31, 1996. Corning recorded a reserve of approximately $25 million which is equal to management's best estimate of amounts which are probable of being paid by Corning to Quest Diagnostics to satisfy the indemnified claims on an after-tax basis. Although management believes that established reserves for indemnified claims are sufficient, it is possible that additional information may become available to Quest Diagnostics' management which may cause the final resolution of these matters to exceed established reserves by an amount which could be material to Corning's results of operations and cash flow in the period in which such claims are settled. Corning does not believe that these issues will have a material adverse impact on Corning's overall financial condition. (9) Corning adopted American Institute of Certified Public Accountants' Statement of Opinion (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" effective January 1, 1998. This SOP requires capitalization of certain costs in the development of internal-use software. The provisions of the SOP are not significantly different from prior Corning practice and have no effect on income from continuing operations. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ---------------------------------------------- Results of Operations --------------------- Continuing operations - --------------------- Net sales from continuing operations for the first quarter decreased from $817.1 million in 1997 to $794.8 million in 1998. Net income from continuing operations totaled $62.1 million for the first quarter 1998, compared with first quarter net income from the same operations of $85.4 million in 1997. Diluted earnings per share from continuing operations decreased from $0.36 per share in first quarter 1997 to $0.27 per share for the first quarter 1998. The decrease in earnings reflects the effect of Asia's instability on several of Corning's consolidated businesses and increased research and development spending offset somewhat by a significant increase in equity earnings. Segment overview - ---------------- Sales in the Communications segment decreased slightly due primarily to lower volume and prices in the optical fiber business. Volume growth in the domestic optical fiber and cable markets was more than offset by a decrease in international markets compared to record international volume in the first quarter of 1997. Prices declined significantly in both domestic and international fiber markets. Sales were also impacted by significant volume increases in the photonic technologies business and volume decreases in the information display business. Earnings decreased primarily due to reduced margins in the optical fiber business and lower earnings in the information display business, reflecting the impact of a scheduled glass furnace repair and the effect of weak Asian markets on several businesses. Sales in the Specialty Materials segment increased slightly and earnings were flat in comparison to the same period last year as volume gains in the advanced material and science products businesses were offset by declines in the environmental products and other businesses. Taxes on Income - --------------- Corning's effective tax rate for continuing operations was 32.5% for the first quarter of 1998 and 34.1% for the first quarter of 1997. The lower 1998 rate was due to a higher percentage of Corning's earnings resulting from consolidated entities with lower effective tax rates. Equity in Earnings - ------------------ Equity in earnings of associated companies increased significantly from $6.8 million in first quarter 1997 to $27.5 million in the first quarter 1998. The growth in equity earnings is primarily the result of strong performance and foreign currency exchange gains at Samsung Corning Company, Ltd. Decreased earnings from the optical fiber equity companies compared to the same period in 1997 were offset by the absence of costs incurred in 1997 associated with new equity ventures in the information display business. Discontinued Operations - ----------------------- Corning incurred an after-tax loss of $0.6 million, or $0.01 per share, from discontinued operations in the first quarter 1998. Income from discontinued operations totaled $6.6 million, or $0.03 per share, in the first quarter 1997. The decrease in operating performance in 1998 compared to 1997 is due primarily to weakness in historically higher margin Asian markets. Liquidity and Capital Resources - ------------------------------- Corning's working capital decreased from $241.4 million at the end of 1997 to $205.2 million at March 31, 1998. The ratio of current assets to current liabilities was 1.2 at the end of the first quarter 1998 compared to 1.3 at year-end 1997. Corning's long term debt as a percentage of total capital was 36% at the end of the first quarter 1998 and year-end 1997. Cash and short-term investments declined from year-end 1997 by $17.5 million, due to operating and investing activities which used cash of $8.3 million and $115.7 million, respectively, offset by financing activities which provided cash of $119.3 million. Net cash used in operating activities in the first quarter 1998 increased compared to the same period in 1997 primarily due to decreased earnings. Net cash used in investing activities increased in the first quarter 1998 over the same period in 1997 due to increased capital spending. Financing activities provided cash in the first quarter 1998 as net proceeds from the issuance of loans were higher than dividends paid and repayment of loans. Corning used cash in financing activities in the first quarter of 1997 as a result of dividend payments, repurchases of common stock and net repayment of loans. Net cash used in discontinued operations in the first quarter 1998 decreased over 1997. As a result of changing market dynamics, primarily related to the weak Asian markets, Corning has reduced its capital spending plan from $750 million to $650-$700 million and is evaluating the timing of bringing additional capacity on line in certain businesses. Corning announced on April 8, 1998 that it will reduce its headcount by offering a selective early retirement program and enhanced separation benefits to its employees in the second quarter. Spending related to this program will be primarily incurred in 1999. Corning intends to use a portion of the proceeds received from the Consumer transaction in the second quarter to reduce short term borrowings. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------- The statements in this Form 10-Q which are not historical facts or information are forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause the outcome to be materially different. Such risks and uncertainties include, but are not limited to, global economic conditions, product demand and industry capacity, competitive products and pricing, manufacturing efficiencies, costs reductions, availability and costs of critical materials, new product development and commercialization, manufacturing capacity, facility expansions and new plant start-up costs, the effect of regulatory and legal developments, capital resource and cash flow activities, capital spending, equity company activities, interest costs, divestiture activity, the rate of technology change, ability to enforce patents and other risks detailed in Corning's 1997 Form 10-K. Part II - Other Information --------------------------- ITEM 1. LEGAL PROCEEDINGS - -------------------------- There are no pending legal proceedings to which Corning or any of its subsidiaries is a party or of which any of their property is the subject which are material in relation to the consolidated financial statements. Environmental Litigation. Corning has been named by the Environmental Protection Agency under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party at 15 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 $23 million for its estimated liability for environmental cleanup and litigation at March 31, 1998. Breast-implant Litigation. Dow Corning Bankruptcy: Dow Corning Bankruptcy: On May 15, 1995, Dow Corning Corporation sought protection under the reorganization provisions of Chapter 11 of the United States Bankruptcy Code. The bankruptcy proceeding is pending in the United States Bankruptcy Court for the Eastern District of Michigan, Northern Division (Bay City, Michigan). The effect of the bankruptcy is to stay the prosecution against Dow Corning of approximately 19,000 breast-implant product liability lawsuits, including 45 class actions. On December 2, 1996, Dow Corning filed its first Plan of Reorganization in the bankruptcy case. On January 10, 1997, the Tort Claimants Committee and the Commercial Creditors Committee filed a joint motion to modify Dow Corning's exclusivity with respect to filing a plan of reorganization, requesting the right to file their own competing plan. The motion was denied by the Bankruptcy Court in May 1997. On August 25, 1997, Dow Corning filed its First Amended Plan of Reorganization in the bankruptcy case. After several days of hearings in November 1997 to consider the disclosure statement pertaining to the Plan, the Bankruptcy Court identified several potential issues with the Amended Plan and set February 17, 1998 as the date for Dow Corning to file further amendments. On February 17, 1998, Dow Corning filed its Second Amended Plan of Reorganization. The Tort Claimants have objected to certain portions of the disclosure statement, have opposed Dow Corning's Plan on a number of grounds, and have again requested the opportunity to push forward with an alternative reorganization plan. The Bankruptcy Court held hearings on several days between April 6 and May 1, 1998 to consider the opposing arguments on these matters. The Bankruptcy Court announced that rulings will be withheld for approximately thirty days to determine whether the parties are able to develop a consensual plan. The breast implant claims against Dow Corning's shareholders (Corning and The Dow Chemical Company), which allege a variety of direct or indirect theories why they should have liability for Dow Corning's implant products, were in 1997 (with a few exceptions) transferred to the United States District Court for the Eastern District of Michigan, Southern District (the "Michigan Federal Court") for coordinated proceedings with the similar cases against Dow Corning. These transfers resulted from motions made to the Michigan Federal Court in mid-1995. The Michigan Federal Court granted transfer as to claims against Dow Corning only, and declined to order transfer of the claims against the shareholders. The transfer motion as to the shareholders was later granted as a result of appellate rulings by the United States Court of Appeals for the Sixth Circuit entered in June 1996 and May 1997. As mandated by the Sixth Circuit, the Michigan Federal Court entered the transfer order on May 13, 1997 to transfer to it those breast implant cases against the shareholders pending in state courts around the country or in federal court. As the single exception to date, the Michigan Federal Court declined to order transfer of a case against Dow Chemical which was already in the midst of a lengthy trial. At the end of June 1997, the Chief Justice of the United States Supreme Court designated and assigned Judge Sam C. Pointer, Jr., a District Judge in the Northern District of Alabama who has since 1992 been serving as the coordinating federal judge for all breast implant matters, to serve in the Michigan Federal Court. In that capacity, Judge Pointer is available to preside over, or coordinate, the implant personal injury claims arising out of the reorganization of Dow Corning or against Dow Chemical and/or Corning. While the cases in the Michigan Federal Court have not been re-assigned to Judge Pointer, he has participated with Judge Denise Hood of the Michigan Federal Court in certain status hearings. In related developments, a Panel of Scientific Experts appointed by Judge Pointer in the coordinated federal implant cases in the Northern District of Alabama will also be asked to address certain questions pertinent to the disease causation issues in the cases against Dow Corning or its shareholders. The Panel has held hearings in 1997 and is expected to issue its report in Summer 1998. In April 1997, Dow Corning filed in the Bankruptcy Court an omnibus objection to all claims in the bankruptcy to the extent based on the alleged causation of disease by silicones. Dow Corning also filed a motion for summary judgment that asserts that the disease claims are not supported by any admissible scientific evidence of disease causation. The Michigan Federal Court has set a schedule for considering the objection and the related motion after the Panel of Scientific Experts issues its report. The Bankruptcy Court and the Michigan Federal Court have appointed a special master, Francis McGovern, to facilitate discussions between Dow Corning and interested creditor groups. These discussions are continuing. If these discussions do not produce a consensual plan of reorganization, the Bankruptcy Court will decide whether Dow Corning may proceed to obtain a vote of creditors on its Second Amended Plan of Reorganization, whether Dow Corning may retain the exclusive right to advance its Plan, whether further revisions are required to the Plan or the disclosure statement, and whether the Tort Claimants or other parties may submit an alternative plan of reorganization. These rulings may be issued in June, 1998, depending upon the progress of the discussions with Special Master McGovern. It is not possible to predict the precise timing or outcome of these pending rulings. Implant Tort Lawsuits: As a result of its success in obtaining summary judgment in the federal coordinating court, and through similar motions in state courts, and through the transfer orders mentioned above, Corning has substantially limited the number of breast implant cases pending against it. From 1991 through February 1, 1998, Corning had been named in approximately 11,470 state and federal tort lawsuits, some of which were filed as class actions or on behalf of multiple claimants. In 1992, the federal breast implant cases were coordinated for pretrial purposes in the United States District Court, Northern District of Alabama (Judge Sam C. Pointer, Jr.). In 1993, Corning obtained an interlocutory order of summary judgment, which was made final in April 1995, thereby dismissing Corning from over 4,000 federal court cases. On March 12, 1996, the U.S. Court of Appeals for the Eleventh Circuit dismissed the plaintiffs' appeal from that judgment. The District Court thereafter entered orders in May and June 1997 directing that Corning be dismissed from each case pending in or later transferred to that Court. That order dismissing Corning encompassed hundreds of state court cases that were removed to federal court and transferred to the Northern District of Alabama after Dow Corning filed for bankruptcy protection. In state court litigation, Corning was awarded summary judgment in California, Connecticut, Illinois, Indiana, Michigan, Mississippi, New Jersey, New York, Pennsylvania, Tennessee, and Dallas, Harris and Travis Counties in Texas, thereby dismissing approximately 7,000 state cases. On July 30, 1997, the judgment in California became final when the Supreme Court of California dismissed further review as improvidently granted as to Corning. In Louisiana, Corning was awarded summary judgment dismissing all claims by plaintiffs and a cross-claim by Dow Chemical on February 21, 1997. On February 11, 1998, this judgment was vacated as premature by the intermediate appeals court in Louisiana. Corning is seeking further appellate review of that ruling. In the Michigan Federal Court, Corning is named as a defendant in approximately 60 pending cases (including some cases with multiple claimants), but Corning is not named as a defendant in the Master Complaint, which contains claims against Dow Chemical only. Corning has moved for summary judgment in the Michigan Federal Court to dismiss these remaining cases by plaintiffs as well as the third party complaint and all cross-claims by Dow Chemical. Plaintiffs have taken no position on that Corning motion. The Michigan Federal Court heard Corning's motion for summary judgment on February 27, 1998 but has not yet ruled. In March 1998, Dow Chemical served a third party complaint against Corning in a class action previously filed in the Michigan Federal Court. Corning has answered the complaint and denied the allegations. Federal securities case: A federal securities class action lawsuit was filed in 1992 against Corning and certain individual defendants by a class of purchasers of Corning stock who allege misrepresentations and omissions of material facts relative to the silicone gel breast implant business conducted by Dow Corning. This action is pending in the United States District Court for the Southern District of New York. The court in 1997 dismissed the individual defendants from the case, but has permitted the case to proceed into discovery. Quest Diagnostics: Government Investigations and Related Claims. On December 31, 1996, Corning completed the spin-off of its health care services businesses by the distribution to its shareholders of the Common Stock of Quest Diagnostics Incorporated ("Quest Diagnostics") and Covance Inc. ("Covance"). In connection with these distributions, Quest Diagnostics assumed financial responsibility for the liabilities related to the clinical laboratory business and Covance assumed financial responsibility for the liabilities related to the contract research business. Corning agreed to indemnify Quest Diagnostics against all monetary penalties, fines or settlements for any governmental claims arising out of alleged violations of applicable federal fraud and health care statutes and relating to billing practices of Quest Diagnostics and its predecessors that were pending at December 31, 1996. Corning also agreed to indemnify Quest Diagnostics for 50% of the aggregate of all judgment or settlement payments made by Quest Diagnostics that are in excess of $42.0 million in respect of claims by private parties (i.e., nongovernmental parties such as private insurers) that relate to indemnified or previously settled governmental claims and that allege overbillings by Quest Diagnostics, or any existing subsidiaries of Quest Diagnostics, for services provided prior to December 31, 1996; provided, however, such indemnification is not to exceed $25.0 million in the aggregate and that all amounts indemnified against by Corning for the benefit of Quest Diagnostics are to be calculated on a net after-tax basis. Such indemnification does not cover (i) any governmental claims that arise after December 31, 1996 pursuant to service of subpoena or other notice of such investigation after December 31, 1996, (ii) any nongovernmental claims unrelated to the indemnified governmental claims or investigations, (iii) any nongovernmental claims not settled prior to December 31, 2001, (iv) any consequential or incidental damages relating to the billing claims, including losses of revenues and profits as a consequence of exclusion for participation in federal or state health care programs or (v) the fees and expenses of litigation. 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 April 13, 1998 in connection with the sale of the consumer housewares business. Other items under Part II are not applicable. 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) May 8, 1998 /s/ ROGER G. ACKERMAN ---------------- ----------------------- Date Roger G. Ackerman Chairman and Chief Executive Officer May 8, 1998 /s/ JAMES B. FLAWS - ----------------- -------------------- Date James B. Flaws Senior Vice President, Treasurer and Chief Financial Officer May 8, 1998 /s/ KATHERINE A. ASBECK - ----------------- ------------------------- Date Katherine A. Asbeck Vice President and Controller 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. FIRST QUARTER 1998 EXHIBIT 12 CORNING INCORPORATED AND SUBSIDIARY COMPANIES Exhibit #12 COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS (Dollars in millions, except ratios)
Three Months Ended Fiscal Year Ended ------------------ ------------------------------------------ March 31, March 31, Dec. 31, Dec. 31, Dec. 31, Jan. 1, Jan. 2, 1998 1997 1997 1996 1995 1995 1994 --------- --------- -------- -------- -------- ------- ------- Income before taxes on income $64.5 $143.5 $629.2 $455.9 $389.4 $286.3 $93.7 Adjustments: Share of earnings (losses) before taxes of 50% owned companies 27.1 18.5 111.5 130.3 95.2 89.0 (137.0) Gain (loss) before taxes of greater than 50% owned unconsolidated subsidiary 0.7 (3.1) (4.0) (3.1) Distributed income of less than 50% owned companies and share of loss if debt is guaranteed 0.1 2.1 4.5 Amortization of capitalized interest 3.6 3.5 16.6 11.8 9.6 13.3 13.0 Fixed charges net of capitalized interest 34.5 35.2 149.9 105.9 82.7 128.7 91.4 ----- ------ ------ ------ ------ ------ ----- Earnings before taxes and fixed charges as adjusted $129.8 $200.7 $907.2 $704.6 $610.1 $515.4 $62.5 ====== ====== ====== ====== ====== ====== ===== Fixed charges: Interest incurred $ 27.3 $ 25.0 $104.7 $ 73.6 $ 65.4 $ 64.9 $51.1 Share of interest incurred of 50% owned companies and interest on guaranteed debt of less than 50% owned companies 10.2 10.0 51.0 38.7 10.2 60.8 40.9 Interest incurred by greater than 50% owned unconsolidated subsidiary 0.7 0.8 0.8 Portion of rent expense which represents interest factor 5.3 3.3 15.9 12.1 13.3 10.8 7.3 Share of portion of rent expense which represents interest factor for 50% owned companies 1.6 0.7 3.8 1.4 2.7 9.4 9.1 Portion of rent expense which represents interest factor for greater than 50% owned unconsolidated subsidiary 0.1 0.1 Amortization of debt costs 0.7 0.4 1.6 2.2 (0.1) 0.6 0.4 ------ ------ ----- ----- ----- ----- ----- Total fixed charges 45.1 39.4 177.0 128.0 92.3 147.3 109.7 Capitalized interest (10.6) (4.2) (27.1) (22.1) (9.6) (18.6) (18.3) ------ ------ ----- ----- ----- ----- ----- Total fixed charges net of capitalized interest $ 34.5 $ 35.2 $149.9 $105.9 $ 82.7 $128.7 $91.4 ====== ====== ====== ====== ====== ====== ===== Preferred dividends: Preferred dividend requirements $ 3.8 $ 3.8 $ 15.3 $ 15.7 $ 15.7 $ 8.2 $ 2.1 Ratio of pre-tax income to income before minority interest and equity earnings 1.5 1.5 1.5 1.5 1.4 1.4 1.0 ------ ------ ------ ------ ------ ------ ------ Pre-tax preferred dividend requirement 5.7 5.7 23.0 23.6 21.7 11.8 2.2 Total fixed charges 45.1 39.4 177.0 128.0 92.3 147.3 109.7 ------ ------ ------ ------ ------ ------ ------ Fixed charges and pre-tax preferred dividend requirement $ 50.8 $ 45.1 $200.0 $151.6 $114.0 $159.1 $111.9 ====== ====== ====== ====== ====== ====== ====== Ratio of earnings to combined fixed charges and preferred dividends 2.6x 4.5x 4.5x 4.7x 5.4x 3.2x - ====== ====== ====== ====== ====== ====== ====== Earnings did not cover combined fixed charges and preferred dividends by $49.4 in the fiscal year ended January 2, 1994. - 17 -
EX-27 3 CORNING INC. FIRST QUARTER 1998 FDS
5 3-MOS DEC-31-1998 MAR-31-1998 21,500 58,000 514,100 10,000 443,400 1,159,600 2,225,514 1,772,576 4,738,900 954,400 1,120,100 365,400 19,100 726,200 563,700 4,738,900 794,800 803,900 514,700 514,700 0 61,164 17,600 64,500 21,000 62,100 (600) 0 0 61,500 0.27 0.27
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