Investments

9 Months Ended

Sep. 30, 2011

Investments

Investments

9.      Investments

Investments comprise the following (in millions):

	Ownership interest (1)	September 30, 2011		December 31, 2010
Affiliated companies accounted for by the equity method
Samsung Corning Precision Materials Co., Ltd.	50%	$	3,392	$	2,943
Dow Corning Corporation	50%		1,250		1,186
All other	20-50%		245		240
			4,887		4,369
Other investments			3		3
Total		$	4,890	$	4,372

(1) Amounts reflect Corning's direct ownership interests in the respective affiliated companies.  Corning does not control any of these entities.

Related party information for these investments in affiliates follows (in millions):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Related Party Transactions:
Corning sales to affiliated companies	$	11	$	5	$	23	$	16
Corning purchases from affiliated companies	$	8	$	18	$	64	$	52
Corning transfers of assets, at cost, to affiliated companies	$	34	$	26	$	95	$	87
Dividends received from affiliated companies	$	75	$	66	$	464	$	351
Royalty income from affiliated companies	$	51	$	73	$	178	$	205
Corning services to affiliates	$	15	$	10	$	36	$	25

As of September 30, 2011, balances due to and due from affiliates were $15 million and $91 million, respectively.  As of December 31, 2010, balances due to and due from affiliates were $7 million and $101 million, respectively.

We have contractual agreements with several of our equity affiliates, including sales, purchasing, licensing and technology agreements.

Summarized results of operations for our two significant investments accounted for by the equity method follow:

Samsung Corning Precision Materials Co., Ltd. (Samsung Corning Precision)

Samsung Corning Precision is a South Korea-based manufacturer primarily of liquid crystal display (LCD) glass for flat panel displays.  In the second quarter of 2010, Samsung Corning Precision changed its name from Samsung Corning Precision Glass Co., Ltd. to Samsung Corning Precision Materials, Co., Ltd.

Samsung Corning Precision's results of operations follow (in millions):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Statement of Operations:
Net sales	$	954	$	1,324	$	3,304	$	3,730
Gross profit	$	644	$	1,039	$	2,391	$	2,891
Net income attributable to Samsung Corning Precision	$	457	$	791	$	1,705	$	2,207
Corning's equity in earnings of Samsung Corning Precision	$	229	$	394	$	853	$	1,102
Related Party Transactions:
Corning purchases from Samsung Corning Precision			$	12	$	41	$	33
Dividends received from Samsung Corning Precision					$	205	$	173
Royalty income from Samsung Corning Precision	$	51	$	73	$	176	$	204
Corning transfers of machinery and equipment to Samsung Corning Precision at cost (1)	$	34	$	25	$	95	$	86

(1) Corning purchases machinery and equipment on behalf of Samsung Corning Precision to support its capital expansion initiatives.  The machinery and equipment are transferred to Samsung Corning Precision at our cost basis.

Corning owns 50% of Samsung Corning Precision.  Samsung Electronics Co., Ltd. owns 43% and other shareholders own the remaining 7%.

As of September 30, 2011, balances due from Samsung Corning Precision were $35 million and balances due to Samsung Corning Precision were $11 million.  As of December 31, 2010, balances due from Samsung Corning Precision were $29 million and balances due to Samsung Corning Precision were $5 million.

In April 2011, Korean tax authorities completed a tax audit of Samsung Corning Precision.  As a result, the tax authorities issued a pre-assessment of approximately $45 million for an asserted underpayment of withholding tax on dividends paid from September 2006 through March 2009.  Our first level of appeal was denied on October 5, 2011 and a formal assessment was issued.  The assessment will be paid in full by the end of 2011, which will allow us to continue the appeal process.  Samsung Corning Precision and Corning believe we will maintain our position when all available appeal remedies have been exhausted.

Additionally, the Korean Board of Audit and Inspection (the "BOAI") has recently initiated a review of tax exemptions previously granted to Samsung Corning Precision by the National Tax Service.  The BOAI has the authority to reverse part or all of the tax exemption granted, at which time the decision may be appealed.  We believe that SCP should sustain its entire tax exemption.  SCP is unable to make a reasonable estimate of additional tax that could potentially result from the BOAI review.

On December 31, 2007, Samsung Corning Precision acquired all of the outstanding shares of Samsung Corning Co., Ltd. (Samsung Corning).  After the transaction, Corning retained its 50% interest in Samsung Corning Precision.  Prior to their merger, Samsung Corning Precision Materials Co., Ltd. (Samsung Corning Precision) and Samsung Corning Co. Ltd. (Samsung Corning) were two of approximately thirty co-defendants in a lawsuit filed by Seoul Guarantee Insurance Co. and thirteen other creditors (SGI and Creditors) for alleged breach of an agreement that approximately twenty-eight affiliates of the Samsung group (Samsung Affiliates) entered into with SGI and Creditors on August 24, 1999 (the Agreement).  The lawsuit is pending in the courts of South Korea.  Under the Agreement, it is alleged that the Samsung Affiliates agreed to sell certain shares of Samsung Life Insurance Co., Ltd. (SLI), which had been transferred to SGI and Creditors in connection with the petition for court receivership of Samsung Motors Inc.  In the lawsuit, SGI and Creditors allege a breach of the Agreement by the Samsung Affiliates and are seeking the loss of principal (approximately $1.95 billion) for loans extended to Samsung Motors Inc., default interest and a separate amount for breach.  On January 31, 2008, the Seoul District Court ordered the Samsung Affiliates: to pay approximately $1.3 billion by disposing of 2,334,045 shares of SLI less 1,165,955 shares of SLI previously sold by SGI and Creditors and paying the proceeds to SGI and Creditors; to satisfy any shortfall by participating in the purchase of equity or subordinate debentures issued by them; and pay default interest of 6% per annum.  The ruling was appealed.  On November 10, 2009, the Appellate Court directed the parties to attempt to resolve this matter through mediation.  On January 11, 2011, the Appellate Court ordered the Samsung Affiliates to pay 600 billion won in principal and 20 billion won in delayed interest to SGI and Creditors.  Samsung promptly paid those amounts, which approximated $550 million when translated to United States Dollars, from a portion of an escrow account established upon completion of SLI's initial public offering ("IPO") on May 7, 2010.  On February 7, 2011, the Samsung Affiliates appealed the Appellate Court's ruling to the Supreme Court of Korea and the appeal is currently in progress.  Samsung Corning Precision has not contributed to any payment related to these disputes, and has concluded that no provision for loss should be reflected in its financial statements.  Other than as described above, no claim in these matters has been asserted against Corning or any of its affiliates.

In connection with an investigation by the Commission of the European Communities, Competition DG, of alleged anticompetitive behavior relating to the worldwide production of LCD glass, Corning and Samsung Corning Precision received requests for information from the Competition DG on March 30, 2009 and October 9, 2009.  Each party has responded to these requests.  Samsung Corning Precision has also responded to the Competition DG and authorities in other jurisdictions, including the United States, in connection with similar investigations of alleged anticompetitive behavior relating to worldwide production of cathode ray tube glass.  On October 7, 2011, Samsung Corning Precision was informed by the Antitrust Division of the U.S. Department of Justice ("DOJ") that the DOJ had closed its investigation of cathode ray tube glass.  On October 19, 2011, the European Commission announced that it had settled its cartel investigation of cathode ray tube glass.  Samsung Corning Precision received full immunity, and no fines were imposed on it, because of its early cooperation in the Commission's investigation.  The Commission fined three other makers of cathode ray tube glass.

In September 2009, Corning and Samsung Corning Precision formed Corsam Technologies LLC (Corsam), a new equity affiliate established to provide glass technology research for future product applications.  Samsung Corning Precision invested $124 million in cash and Corning contributed intellectual property with a corresponding value.  Corning and Samsung Corning Precision each own 50% of the common stock of Corsam and Corning has agreed to provide research and development services at arms length to Corsam.  Corning does not control Corsam because Samsung Corning Precision's other investors maintain significant participating voting rights.  In addition, Corsam has sufficient equity to finance its activities, the voting rights of investors in Corsam are considered substantive, and the risks and rewards of Corsam's research are shared only by those investors noted.  As a result, Corsam is accounted for under the equity method of accounting for investments.

Dow Corning Corporation (Dow Corning)

Dow Corning is a U.S.-based manufacturer of silicone products.  Dow Corning's results of operations follow (in millions):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Statement of Operations:
Net sales	$	1,661	$	1,515	$	4,908	$	4,413
Gross profit	$	527	$	540	$	1,599	$	1,600
Net income attributable to Dow Corning	$	177	$	176	$	547	$	615
Corning's equity in earnings of Dow Corning	$	89	$	97	$	275	$	320
Related Party Transactions:
Corning purchases from Dow Corning	$	5	$	5	$	17	$	15
Dividends received from Dow Corning	$	65	$	56	$	245	$	167

Amounts owed to Dow Corning totaled $2 million as of September 30, 2011.  At December 31, 2010, amounts owed to Dow Corning were not significant.

At September 30, 2011, Dow Corning's marketable securities included approximately $255 million of auction rate securities, net of a temporary impairment of $36 million.  As a result of the temporary impairment, unrealized losses of $30 million, net of $6 million for a minority interest's share, were included in accumulated other comprehensive income in Dow Corning's consolidated balance sheet.  Corning's share of this unrealized loss was $15 million and is included in Corning's accumulated other comprehensive income.

In February 2011, Dow Corning amended and restated its revolving credit agreement to provide $1 billion senior, unsecured revolving line of credit through February 2016.  Dow Corning believes it has adequate liquidity to fund operations, its capital expenditure plans, breast implant settlement liabilities, and shareholder dividends.

In 1995, Corning fully impaired its investment in Dow Corning after it filed for bankruptcy protection.  Corning did not recognize net equity earnings from the second quarter of 1995 through the end of 2002.  Corning began recognizing equity earnings in the first quarter of 2003 when management concluded that Dow Corning's emergence from bankruptcy was probable.  Corning considers the $249 million difference between the carrying value of its investment in Dow Corning and its 50% share of Dow Corning's equity to be permanent.

Corning and The Dow Chemical Company (Dow Chemical) each own 50% of the common stock of Dow Corning.  In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from many thousands of breast implant product lawsuits.  On June 1, 2004, Dow Corning emerged from Chapter 11 with a Plan of Reorganization (the Plan) which provided for the settlement or other resolution of implant claims.  The Plan also includes releases for Corning and Dow Chemical as shareholders in exchange for contributions to the Plan.

Under the terms of the Plan, Dow Corning has established and is funding a Settlement Trust and a Litigation Facility to provide a means for tort claimants to settle or litigate their claims.  Inclusive of insurance, Dow Corning has paid approximately $1.7 billion to the Settlement Trust.  As of September 30, 2011, Dow Corning had recorded a reserve for breast implant litigation of $1.6 billion.  As a separate matter arising from the bankruptcy proceedings, Dow Corning is defending claims asserted by a number of commercial creditors who claim additional interest at default rates and enforcement costs, during the period from May 1995 through June 2004.  As of September 30, 2011, Dow Corning has estimated the liability to commercial creditors to be within the range of $84 million to $277 million.  As Dow Corning management believes no single amount within the range appears to be a better estimate than any other amount within the range, Dow Corning has recorded the minimum liability within the range.  Should Dow Corning not prevail in this matter, Corning's equity earnings would be reduced by its 50% share of the amount in excess of $84 million, net of applicable tax benefits.  In addition, the London Market Insurers (the LMI Claimants) claimed a reimbursement right with respect to a portion of insurance proceeds previously paid by the LMI Claimants to Dow Corning.  This claim was based on a theory that the LMI Claimants overestimated Dow Corning's liability for the resolution of implant claims pursuant to the Plan.  Based on settlement negotiations, Dow Corning had estimated that the most likely outcome would result in payment to the LMI Claimants in a range of $10 million to $20 million.  As of September 30, 2011, Dow Corning and the LMI Claimants have settled the claim for an amount within that range.  There are a number of other claims in the bankruptcy proceedings against Dow Corning awaiting resolution by the U.S. District Court, and it is reasonably possible that Dow Corning may record bankruptcy-related charges in the future.  The remaining tort claims against Corning are expected to be channeled by the Plan into facilities established by the Plan or otherwise defended by the Litigation Facility.

Hemlock Semiconductor Corporation, of which Dow Corning owns 63%, brought an action against one of its customers to enforce supply agreements requiring the customer to purchase or pay for large quantities of polycrystalline silicon used in the solar power industry.  The customer had previously announced its decision to exit the solar power business and denied its liability to purchase further products under existing supply agreements.

Pittsburgh Corning Corporation (PCC)

Corning and PPG Industries, Inc. (PPG) each own 50% of the capital stock of Pittsburgh Corning Corporation (PCC).  Over a period of more than two decades, PCC and several other defendants have been named in numerous lawsuits involving claims alleging personal injury from exposure to asbestos.  Corning also has an equity interest in Pittsburgh Corning Europe N.V. (PCE), a Belgian Corporation that is a component of the Company's proposed settlement for asbestos litigation.  At September 30, 2011 and December 31, 2010, the fair value of PCE significantly exceeded its carrying value of $137 million and $129 million, respectively.  There have been no impairment indicators for our investment in PCE and we continue to recognize equity earnings of this affiliate.  PCC filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Western District of Pennsylvania on April 16, 2000.  At that time, Corning determined that it lacked the ability to recover the carrying amount of its investment in PCC and its investment was other-than-temporarily impaired.  As a result, we reduced our investment in PCC to zero.  Refer to Note 3 (Commitments and Contingencies) for additional information about PCC and PCE.

Variable Interest Entities

For variable interest entities, we routinely assess the terms of our interest in each entity to determine if we are the primary beneficiary as prescribed by U.S. GAAP.  We currently have four variable interest entities that are not considered significant to Corning's consolidated financial statements.  Corning does not have retained interests in assets transferred to an unconsolidated entity that serve as credit, liquidity or market risk support to that entity.