Note 19 - Reportable Segments

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

19.      Reportable Segments

Our reportable segments are as follows:

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

·   Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry.

·   Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.

·   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 labware, equipment, media and reagents to provide workflow solutions for scientific applications.

All other reportable 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		Optical Communications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Three months ended   September 30, 2014
Net sales	$	1,009	$	698	$	282	$	327	$	214	$	10	$	2,540
Depreciation (1)	$	166	$	38	$	29	$	30	$	15	$	9	$	287
Amortization of purchased intangibles			$	3					$	6			$	9
Research, development and engineering expenses (2)	$	31	$	35	$	23	$	35	$	6	$	43	$	173
Restructuring, impairment & other charges	$	3									$	(3)
Equity in earnings of affiliated companies	$	(3)									$	4	$	1
Income tax (provision) benefit	$	(136)	$	(35)	$	(28)	$	(25)	$	(9)	$	21	$	(212)
Net income (loss) (3)	$	387	$	68	$	57	$	43	$	19	$	(41)	$	533

	Display Technologies		Optical Communications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Three months ended   September 30, 2013
Net sales	$	648	$	650	$	225	$	326	$	215	$	3	$	2,067
Depreciation (1)	$	121	$	38	$	30	$	30	$	14	$	4	$	237
Amortization of purchased intangibles			$	3					$	5			$	8
Research, development and engineering expenses (2)	$	23	$	37	$	23	$	33	$	5	$	33	$	154
Equity in earnings of affiliated companies	$	73					$	1			$	4	$	78
Income tax (provision) benefit	$	(86)	$	(32)	$	(16)	$	(32)	$	(10)	$	16	$	(160)
Net income (loss) (3)	$	318	$	62	$	32	$	65	$	20	$	(32)	$	465

	Display Technologies		Optical Communications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Nine months ended   September 30, 2014
Net sales	$	2,925	$	1,977	$	842	$	886	$	647	$	34	$	7,311
Depreciation (1)	$	510	$	111	$	89	$	86	$	46	$	21	$	863
Amortization of purchased intangibles			$	7					$	18			$	25
Research, development and engineering expenses (2)	$	117	$	106	$	65	$	102	$	16	$	119	$	525
Restructuring, impairment & other charges	$	42	$	12							$	(3)	$	51
Equity in earnings of affiliated companies	$	(16)			$	2					$	13	$	(1)
Income tax (provision) benefit	$	(453)	$	(85)	$	(72)	$	(62)	$	(26)	$	59	$	(639)
Net income (loss) (3)	$	878	$	156	$	147	$	113	$	54	$	(140)	$	1,208

	Display Technologies		Optical Communications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Nine months ended   September 30, 2013
Net sales	$	1,929	$	1,721	$	681	$	885	$	641	$	6	$	5,863
Depreciation (1)	$	362	$	110	$	91	$	104	$	42	$	13	$	722
Amortization of purchased intangibles			$	7					$	16			$	23
Research, development and engineering expenses (2)	$	60	$	103	$	68	$	108	$	15	$	104	$	458
Equity in earnings of affiliated companies	$	314	$	2	$	1	$	4			$	13	$	334
Income tax (provision) benefit	$	(250)	$	(87)	$	(47)	$	(79)	$	(28)	$	46	$	(445)
Net income (loss) (3)	$	1,004	$	173	$	95	$	162	$	57	$	(91)	$	1,400

(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 September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Net income of reportable segments	$	574	$	497	$	1,348	$	1,491
Non-reportable segments		(41)		(32)		(140)		(91)
Unallocated amounts:
Net financing costs (1)		(27)		(3)		(86)		(65)
Stock-based compensation expense		(19)		(15)		(47)		(40)
Exploratory research		(24)		(29)		(75)		(80)
Corporate contributions		(19)		(7)		(35)		(32)
Equity in earnings of affiliated companies, net of impairments (2)		94		59		245		142
Asbestos settlement		(5)		(5)		(11)		(13)
Purchased collars and average rate forward contracts, net of tax		478		(46)		405		206
Other corporate items (3)		3		(11)		(120)		22
Net income	$	1,014	$	408	$	1,484	$	1,540

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

(2) Primarily represents the equity earnings of Dow Corning, which, for the three months ended September 30, 2014, includes our portion of a mark-to-market loss on a derivative instrument of $(8) million (after-tax), an energy tax credit of $8 million (after-tax), and a foreign tax credit of $38 million (after-tax).  For the nine months ended September 30, 2014, the equity earnings of Dow Corning included our portion of a mark-to-market gain on a derivative instrument of $29 million (after-tax).  For the three and nine months ended September 30, 2013, the equity earnings of Dow Corning includes our portion of gains in the amounts of approximately $30 million for the resolution of contract disputes against customers relating to enforcement of long-term supply agreements and $16 million for the positive impact of the settlement of a derivative, along with a charge of $4 million related to the impact of a tax valuation allowance.  Also included in the nine months ended September 30, 2013, an $11 million restructuring charge for our share of costs for headcount reductions and asset write-offs.

(3) For the nine months ended September 30, 2013, Corning recorded a $54 million tax benefit for the impact of the American Taxpayer Relief Act enacted on January 3, 2013 and made retroactive to 2012.

The sales of each of our reportable segments are concentrated across a relatively small number of customers.  In the three months ended September 30, 2014, 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, three customers accounted for 60% of total segment sales.

·   In the Optical Communications segment, one customer accounted for 13% of total segment sales.

·   In the Environmental Technologies segment, three customers accounted for 89% of total segment sales.

·   In the Specialty Materials segment, three customers accounted for 50% of total segment sales.

·   In the Life Sciences segment, two customers accounted for 47% of total segment sales.

In the nine months ended September 30, 2014, 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, three customers accounted for 61% of total segment sales.

·   In the Optical Communications segment, one customer accounted for 10% of total segment sales.

·   In the Environmental Technologies segment, three customers accounted for 88% of total segment sales.

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

·   In the Life Sciences segment, two customers accounted for 45% 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.