01—Abstract
Summary
Summary of the 10-K filed March 20, 1995. Cited figures are marked; the original filing is the authoritative source.
Corning Incorporated's 1994 fiscal year was a strong rebound year on the top line and in core earnings, though reported results remain distorted by special charges and the Dow Corning breast-implant overhang.
Consolidated sales rose 19% to $4.8 billiona, with roughly half the increase coming from acquisitions. Reported net income was $281.3 million, or $1.32 per share, versus net losses in 1993 and 1992. Management says earnings excluding special charges rose 31% in net income and 19% in EPS, and that the 1994 results include an $82.3 million restructuring and special charge tied to the Nichols, Maryland Medical and Bioran acquisitions.
The Communications segment (optical fiber and cable, video components) and Specialty Materials drove most of the operating improvement, while Laboratory Services grew sales sharply but faced pricing pressure from managed care and Medicare reimbursement cuts. The main investor risk is the breast-implant litigation at Dow Corning, a 50%-owned equity affiliate. Dow Corning took after-tax charges of $75.9 millionb in 1994 and $203.1 million in 1993 that reduced Corning's equity earnings, and it recorded a further $151.8 million after-tax charge in Q4 1994.
Corning says it is not a party to the $4.2 billionc settlement and does not expect a material effect on overall financial condition, but it acknowledges that a future charge could materially hurt quarterly earnings. Corning also faces environmental liabilities (about $30 million accrued across 22 Superfund-related sites), Justice Department and Inspector General probes into MetPath and Damon laboratory billing, and shareholder suits. Balance sheet and liquidity improved.
The ratio of long-term debt to total capital fell to 33% from 45%, working capital rose to $652.1 milliond, and $1.2 billion in bank credit lines were available. Financing came from a February 1994 common stock offering and a $364.4 million 6% convertible monthly income preferred securities offering that retired the Damon acquisition debt.
Management expects 1995 capital spending of about $575 million and continued growth in most segments, with the Laboratory Services and Communications outlooks both positive. The dividend was raised to $0.18 per quarter.
02—Key points
Key Highlights
- Consolidated net sales rose 19% to $4.8 billion in 1994, with about half the growth from acquisitions; Communications and Specialty Materials led organic growth.
- Reported net income was $281.3 million ($1.32 per share), up from losses in 1993 and 1992; excluding special charges, net income rose 31% and EPS rose 19%.
- Communications segment pre-tax income rose to $345.8 million on sales of $1.46 billion, driven by optical fiber and cable demand, while Specialty Materials pre-tax income more than doubled to $164.3 million.
- Dow Corning breast-implant litigation remains the key overhang: Corning's equity earnings were cut by $75.9 million in 1994 and $203.1 million in 1993, and its $341.8 million Dow Corning investment could be written down further.
- Balance sheet strengthened: long-term debt to total capital fell to 33% from 45%, working capital reached $652.1 million, and $1.2 billion of bank credit lines are available.
- Laboratory Services sales rose 28% to $1.69 billion through acquisitions, but earnings face pricing pressure from managed care and Medicare reimbursement cuts, and investigations into lab billing continue.
- Management expects 1995 capital spending of about $575 million and continued sales and earnings growth in most segments, and the quarterly dividend was raised to $0.18.
03—Questions
Frequently Asked Questions
How much of Corning's 1994 growth came from acquisitions versus the underlying business?
About half of the 19% sales increase to $4.8 billion came from acquisitions, including Nichols Institute, Maryland Medical, Bioran, Siecor's purchase of Northern Telecom's optical-fiber assets, and Costar. The remaining growth was led by the Communications segment and environmental products. Earnings excluding special charges rose 29% in consolidated operations, principally from volume gains in Communications and Specialty Materials.
What is the financial exposure from the Dow Corning breast-implant litigation?
Corning owns 50% of Dow Corning and records its share of Dow Corning's results under the equity method. Dow Corning's charges reduced Corning's equity earnings by $75.9 million in 1994 and $203.1 million in 1993. Corning says it is not a party to the $4.2 billion settlement and makes no contributions to it. Management does not believe any additional Dow Corning charge would be materially adverse to overall financial condition, but a charge could materially reduce earnings in the quarter it is recognized. Any such charge would be written off against Corning's $341.8 million investment.
Did Corning's 1994 reported earnings include unusual items?
Yes. Corning recorded an $82.3 million pre-tax ($55.4 million after-tax) restructuring and special charge in Q3 1994, mainly for integrating the Nichols, Maryland Medical and Bioran laboratories and for transaction fees. The Dow Corning breast-implant charge of $75.9 million also reduced equity earnings. Management says the lab integration should significantly reduce operating costs and be substantially complete within a year.
How strong is Corning's balance sheet and financing position?
The balance sheet improved considerably. Long-term debt to total capital fell to 33% from 45%, after the company repaid $400 million of Damon acquisition debt. Financing came from a February 1994 common stock sale ($233 million net) and a July 1994 6% convertible preferred securities offering ($364.4 million net). Working capital rose to $652.1 million, and the current ratio improved to 1.6 from 1.4. The company also has $1.2 billion of unused bank credit lines and can issue up to $500 million of debt under its shelf registration.
What are the main environmental and legal risks beyond breast-implant litigation?
Corning has been named a potentially responsible party at 22 hazardous waste sites under Superfund and state laws and has accrued about $30 million for environmental liabilities, without reduction for insurance recoveries. Corning's MetPath and Damon laboratory units are under Justice Department and Inspector General investigations of billing practices, and a New Jersey grand jury is investigating MetPath. Shareholder class actions and derivative suits related to the MetPath settlement and the Damon acquisition are also pending. Management does not believe these will have a material adverse effect.
04—Continue