Note 1 - Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

1. Significant Accounting Policies

Basis of Presentation

In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and subsidiary companies.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in accordance with U.S. GAAP for interim financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with Corning’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Form 10-K).

The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on our results of operations, financial position, or changes in shareholders’ equity.

Employee Retirement Plans

In the first quarter of 2013, we elected to change our method of recognizing actuarial gains and losses for our defined benefit pension plans. Previously, we recognized the actuarial gains and losses as a component of Stockholders’ Equity on our consolidated balance sheets on an annual basis. These amounts were amortized into our operating results over the average remaining service period of employees expected to receive benefits under the plan, to the extent such gains and losses were outside of the corridor, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year. In addition, we used a calculated market-related value of plan assets for purposes of calculating the expected return on plan assets that spread asset gains and losses over a 3-year period. We have elected to recognize the change in the fair value of plan assets in full and net actuarial gains and losses outside of the corridor annually in the fourth quarter of each year and whenever the plan is remeasured or valuation estimates are finalized. The remaining components of pension expense will be recorded on a quarterly basis. While the historical policy of recognizing pension expense was considered acceptable, we believe that the new policy is preferable as it recognizes the change in the fair value of plan assets in full and eliminates the delay in recognition of net actuarial gains and losses outside of the corridor. We have applied these changes retrospectively, adjusting all prior periods, as if the new accounting methodology was in effect during those periods.

Following are the changes to financial statement line items as a result of the accounting methodology change for the periods presented in the accompanying unaudited consolidated financial statements:

Consolidated Statements of Income

	Three months ended June 30, 2013
	Previous accounting method		Reported		Effect of accounting change
Cost of sales	$	1,112	$	1,099	$	(13)
Gross margin		870		883		13
Selling, general and administrative expenses		273		266		(7)
Research, development and engineering expenses		183		179		(4)
Operating income		400		424		24
Income before income taxes		805		829		24
Provision for income taxes		(182)		(191)		(9)
Net income attributable to Corning Incorporated	$	623	$	638	$	15
Earnings per common share attributable to Corning Incorporated – Basic	$	0.42	$	0.43	$	0.01
Earnings per common share attributable to Corning Incorporated – Diluted	$	0.42	$	0.43	$	0.01

	Three months ended June 30, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Cost of sales	$	1,111	$	1,100	$	(11)
Gross margin		797		808		11
Selling, general and administrative expenses		291		286		(5)
Research, development and engineering expenses		188		185		(3)
Operating income		309		328		19
Income before income taxes		555		574		19
Provision for income taxes		(93)		(100)		(7)
Net income attributable to Corning Incorporated	$	462	$	474	$	12
Earnings per common share attributable to Corning Incorporated – Basic	$	0.31	$	0.31
Earnings per common share attributable to Corning Incorporated – Diluted	$	0.30	$	0.31	$	0.01

	Six months ended June 30, 2013
	Previous accounting method		Reported		Effect of accounting change
Cost of sales	$	2,169	$	2,143	$	(26)
Gross margin		1,627		1,653		26
Selling, general and administrative expenses		539		525		(14)
Research, development and engineering expenses		365		357		(8)
Operating income		700		748		48
Income before income taxes		1,309		1,357		48
Provision for income taxes		(208)		(225)		(17)
Net income attributable to Corning Incorporated	$	1,101	$	1,132	$	31
Earnings per common share attributable to Corning Incorporated – Basic	$	0.75	$	0.77	$	0.02
Earnings per common share attributable to Corning Incorporated – Diluted	$	0.74	$	0.76	$	0.02

	Six months ended June 30, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Cost of sales	$	2,217	$	2,196	$	(21)
Gross margin		1,611		1,632		21
Selling, general and administrative expenses		570		559		(11)
Research, development and engineering expenses		375		369		(6)
Operating income		651		689		38
Income before income taxes		1,128		1,166		38
Provision for income taxes		(204)		(218)		(14)
Net income attributable to Corning Incorporated	$	924	$	948	$	24
Earnings per common share attributable to Corning Incorporated – Basic	$	0.61	$	0.63	$	0.02
Earnings per common share attributable to Corning Incorporated – Diluted	$	0.61	$	0.62	$	0.01

Consolidated Statements of Comprehensive Income

	Three months ended June 30, 2013
	Previous accounting method		Reported		Effect of accounting change
Net income attributable to Corning Incorporated	$	623	$	638	$	15
Other comprehensive loss, net of tax		(241)		(256)		(15)
Comprehensive income attributable to Corning Incorporated	$	382	$	382	$	0

	Three months ended June 30, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Net income attributable to Corning Incorporated	$	462	$	474	$	12
Other comprehensive income, net of tax		4		13		9
Comprehensive income attributable to Corning Incorporated	$	466	$	487	$	21

	Six months ended June 30, 2013
	Previous accounting method		Reported		Effect of accounting change
Net income attributable to Corning Incorporated	$	1,101	$	1,132	$	31
Other comprehensive loss, net of tax		(716)		(744)		(28)
Comprehensive income attributable to Corning Incorporated	$	385	$	388	$	3

	Six months ended June 30, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Net income attributable to Corning Incorporated	$	924	$	948	$	24
Other comprehensive loss, net of tax		(47)		(48)		(1)
Comprehensive income attributable to Corning Incorporated	$	877	$	900	$	23

Consolidated Balance Sheets

	June 30, 2013
	Previous accounting method		Reported		Effect of accounting change
Retained earnings	$	11,382	$	10,754	$	(628)
Accumulated other comprehensive (loss) income	$	(1,016)	$	(388)	$	628

	December 31, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Retained earnings	$	10,588	$	9,932	$	(656)
Accumulated other comprehensive (loss) income	$	(300)	$	356	$	656

Consolidated Statements of Cash Flows

	Six months ended June 30, 2013
	Previous accounting method		Reported		Effect of accounting change
Cash flows from operating activities:
Net income	$	1,101	$	1,132	$	31
Deferred tax provision	$	102	$	119	$	17
Employee benefit payments less than expense	$	74	$	26	$	(48)

	Six months ended June 30, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Cash flows from operating activities:
Net income	$	924	$	948	$	24
Deferred tax provision	$	21	$	35	$	14
Employee benefit payments in excess of expense	$	(33)	$	(71)	$	(38)

Other Income, Net

“Other income, net” in Corning’s consolidated statements of income includes the following (in millions):

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Royalty income from Samsung Corning Precision	$	14	$	21	$	29	$	43
Foreign currency exchange and hedge gains (losses), net		251		(1)		282		5
Net loss attributable to noncontrolling interests		1		1		2		3
Other, net		(1)		(13)		17		(14)
Total	$	265	$	8	$	330	$	37

New Accounting Standards

In March 2013, the FASB issued Accounting Standards Update No. 2013-05 Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU 2013-05 requires a parent company that ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. The amendments are required to be applied prospectively for annual periods for fiscal years beginning on or after December 15, 2013, and interim periods within those annual fiscal years. Corning does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.