Reportable Segments

6 Months Ended

Jun. 30, 2012

Reportable Segments [Abstract]

Reportable Segments

16.      Reportable Segments

Our reportable segments are as follows:

·   Display Technologies – manufactures liquid crystal display (LCD) glass for flat panel displays.

·   Telecommunications – manufactures optical fiber and cable, and hardware and equipment components for the telecommunications industry.

·   Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.  This reportable segment is an aggregation of our Automotive and Diesel operating segments as these two segments share similar economic characteristics, products, customer types, production processes and distribution methods.

·   Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.

·   Life Sciences – manufactures glass and plastic consumables for scientific applications.

All other segments that do not meet the quantitative threshold for separate reporting are grouped as "All Other."  This group is primarily comprised of development projects and results for new product lines.

We prepared the financial results for our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions.  We included the earnings of equity affiliates that are closely associated with our reportable segments in the respective segment's net income.  We have allocated certain common expenses among segments differently than we would for stand-alone financial information prepared in accordance with U.S. GAAP.  Segment net income may not be consistent with measures used by other companies.  The accounting policies of our reportable segments are the same as those applied in the consolidated financial statements.

Reportable Segments (in millions)

	Display Technologies		Telecom- munications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Three months ended June 30, 2012
Net sales	$	641	$	559	$	249	$	296	$	162	$	1	$	1,908
Depreciation (1)	$	125	$	34	$	29	$	36	$	10	$	3	$	237
Amortization of purchased intangibles			$	2					$	2			$	4
Research, development and engineering expenses (2)	$	26	$	35	$	26	$	37	$	5	$	29	$	158
Equity in earnings of affiliated companies	$	184	$	2							$	9	$	195
Income tax (provision) benefit	$	(78)	$	(17)	$	(17)	$	(17)	$	(5)	$	12	$	(122)
Net income (loss) (3)	$	371	$	36	$	34	$	34	$	11	$	(16)	$	470
Three months ended June 30, 2011
Net sales	$	760	$	548	$	258	$	283	$	155	$	1	$	2,005
Depreciation (1)	$	123	$	32	$	27	$	42	$	9	$	3	$	236
Amortization of purchased intangibles			$	2					$	2			$	4
Research, development and engineering expenses (2)	$	27	$	32	$	23	$	36	$	5	$	24	$	147
Equity in earnings of affiliated companies	$	319	$	1	$	1	$	5			$	2	$	328
Income tax (provision) benefit	$	(118)	$	(22)	$	(15)	$	(9)	$	(7)	$	10	$	(161)
Net income (loss) (3)	$	626	$	46	$	32	$	23	$	15	$	(20)	$	722
Six months ended June 30, 2012
Net sales	$	1,346	$	1,067	$	512	$	584	$	317	$	2	$	3,828
Depreciation (1)	$	254	$	64	$	57	$	70	$	20	$	6	$	471
Amortization of purchased intangibles			$	5					$	4			$	9
Research, development and engineering expenses (2)	$	53	$	70	$	52	$	74	$	11	$	56	$	316
Equity in earnings (loss) of affiliated companies	$	366	$	(2)	$	1					$	13	$	378
Income tax (provision) benefit	$	(174)	$	(29)	$	(37)	$	(28)	$	(11)	$	22	$	(257)
Net income (loss) (3)	$	792	$	57	$	74	$	55	$	23	$	(36)	$	965
Six months ended June 30, 2011
Net sales	$	1,550	$	1,022	$	517	$	537	$	299	$	3	$	3,928
Depreciation (1)	$	247	$	60	$	52	$	79	$	17	$	5	$	460
Amortization of purchased intangibles			$	3					$	4			$	7
Research, development and engineering expenses (2)	$	52	$	61	$	46	$	65	$	9	$	46	$	279
Equity in earnings of affiliated companies	$	613	$	4	$	1	$	8			$	9	$	635
Income tax (provision) benefit	$	(257)	$	(41)	$	(29)	$	(12)	$	(14)	$	19	$	(334)
Net income (loss) (3)	$	1,264	$	87	$	61	$	31	$	30	$	(35)	$	1,438

(1) Depreciation expense for Corning's reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.

(2) Research, development, and engineering expenses include direct project spending that is identifiable to a segment.

(3) Many of Corning's administrative and staff functions are performed on a centralized basis.  Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function.  Other staff functions, such as corporate finance, human resources and legal, are allocated to segments, primarily as a percentage of sales.

A reconciliation of reportable segment net income to consolidated net income follows (in millions):

	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Net income of reportable segments	$	486	$	742	$	1,001	$	1,473
Non-reportable segments		(16)		(20)		(36)		(35)
Unallocated amounts:
Net financing costs (1)		(44)		(47)		(84)		(99)
Stock-based compensation expense		(16)		(22)		(40)		(45)
Exploratory research		(24)		(19)		(47)		(36)
Corporate contributions		(10)		(11)		(23)		(32)
Equity in earnings of affiliated companies, net of impairments (2)		64		100		99		191
Asbestos settlement (3)		(5)		(5)		(6)		(10)
Other corporate items		27		37		60		96
Net income	$	462	$	755	$	924	$	1,503

(1) Net financing costs include interest income, interest expense, and interest costs and investment gains associated with benefit plans.

(2) Primarily represents the equity earnings of Dow Corning Corporation.

(3) In the three and six months ended June 30, 2012, Corning recorded a charge of $5 million and $6 million, respectively, to adjust the asbestos liability for the change in value of the components of the Amended PCC Plan.In the three and six months ended June 30, 2011, Corning recorded a charge of $5 million and $10 million, respectively, to adjust the asbestos liability for the change in value of the components of the Amended PCC Plan.

In the Telecommunications operating segment, assets increased from $1.2 billion at December 31, 2011 to $1.4 billion at June 30, 2012.  The increase is due primarily to increase of capital expenditures of approximately $170 million.

The sales of each of our reportable segments are concentrated across a relatively small number of customers.  In the second quarter of 2012, the following number of customers, which individually accounted for 10% or more of each segment's sales, represented the following concentration of segment sales:

·   In the Display Technologies segment, 4 customers accounted for 78% of total segment sales.

·   In the Telecommunications segment, 1 customer accounted for 12% of total segment sales.

·   In the Environmental Technologies segment, 3 customers accounted for 87% of total segment sales.

·   In the Specialty Materials segment, 2 customers accounted for 48% of total segment sales.

·   In the Life Sciences segment, 2 customers accounted for 45% of total segment sales.

In the first half of 2012, the following number of customers, which individually accounted for 10% or more of each segment's sales, represented the following concentration of segment sales:

·   In the Display Technologies segment, 4 customers accounted for 79% of total segment sales.

·   In the Telecommunications segment, 1 customer accounted for 12% of total segment sales.

·   In the Environmental Technologies segment, 3 customers accounted for 87% of total segment sales.

·   In the Specialty Materials segment, 2 customers accounted for 49% of total segment sales.

·   In the Life Sciences segment, 2 customers accounted for 42% of total segment sales.

A significant amount of specialized manufacturing capacity for our Display Technologies segment is concentrated in Asia.  It is at least reasonably possible that the operation of a facility could be disrupted.  Due to the specialized nature of the assets, it would not be possible to find replacement capacity quickly.  Accordingly, loss of these facilities could produce a near-term severe impact on our display business and the Company as a whole.