Note 17 - Reportable Segments

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

17.      Reportable Segments

Our reportable segments are as follows:

·   Display Technologies – manufactures glass substrates primarily for flat panel liquid crystal displays.

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

·   Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel emission control 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 enabling workflow solutions for scientific applications.

All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.”  This group is primarily comprised of the results of Corning’s Pharmaceutical Technologies business, which consists of a pharmaceutical glass business and a glass tubing business used in the pharmaceutical packaging industry.  This segment also includes Corning Precision Materials’ non-LCD business and new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates.

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 reportable segments differently than we would for stand-alone financial information.  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, 2016
	Net sales	$	902	$	795	$	264	$	295	$	214	$	37	$	2,507
	Depreciation  (1)	$	152	$	41	$	32	$	26	$	14	$	12	$	277
	Amortization of purchased intangibles			$	10					$	5	$	2	$	17
	Research, development and engineering expenses  (2)	$	14	$	37	$	24	$	31	$	6	$	47	$	159
	Equity in earnings of affiliated companies											$	(3)	$	(3)
	Income tax (provision) benefit	$	(98)	$	(49)	$	(17)	$	(21)	$	(8)	$	21	$	(172)
	Net income (loss)  (3)	$	279	$	78	$	35	$	42	$	16	$	(47)	$	403

		Display Technologies		Optical Communications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Three months ended   September 30, 2015
	Net sales	$	757	$	747	$	257	$	288	$	211	$	12	$	2,272
	Depreciation  (1)	$	147	$	41	$	32	$	29	$	15	$	9	$	273
	Amortization of purchased intangibles			$	7					$	5			$	12
	Research, development and engineering expenses  (2)	$	28	$	33	$	21	$	27	$	6	$	34	$	149
	Equity in earnings of affiliated companies	$	(3)									$	4	$	1
	Income tax (provision) benefit	$	(119)	$	(34)	$	(19)	$	(23)	$	(9)	$	19	$	(185)
	Net income (loss)  (3)	$	255	$	70	$	38	$	46	$	18	$	(38)	$	389

		Display Technologies		Optical Communications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Nine months ended   September 30, 2016
	Net sales	$	2,408	$	2,186	$	787	$	788	$	633	$	112	$	6,914
	Depreciation  (1)	$	452	$	125	$	97	$	81	$	42	$	34	$	831
	Amortization of purchased intangibles			$	25					$	15	$	6	$	46
	Research, development and engineering expenses  (2)	$	49	$	110	$	75	$	96	$	18	$	139	$	487
	Restructuring, impairment and other charges	$	4	$	6	$	5	$	12	$	3	$	40	$	70
	Equity in earnings of affiliated companies											$	(8)	$	(8)
	Income tax (provision) benefit	$	(277)	$	(99)	$	(52)	$	(52)	$	(22)	$	87	$	(415)
	Net income (loss)  (3)	$	692	$	172	$	106	$	106	$	45	$	(187)	$	934

		Display Technologies		Optical Communications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Nine months ended   September 30, 2015
	Net sales	$	2,354	$	2,244	$	799	$	832	$	619	$	32	$	6,880
	Depreciation  (1)	$	455	$	122	$	93	$	82	$	45	$	29	$	826
	Amortization of purchased intangibles			$	24					$	15			$	39
	Research, development and engineering expenses  (2)	$	78	$	101	$	67	$	87	$	17	$	123	$	473
	Equity in earnings of affiliated companies	$	(8)									$	12	$	4
	Income tax (provision) benefit	$	(387)	$	(100)	$	(64)	$	(66)	$	(26)	$	63	$	(580)
	Net income (loss)  (3)	$	852	$	204	$	132	$	128	$	52	$	(131)	$	1,237

(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.  Expenses that are not allocated to the segments are included in the reconciliation of reportable net segment net income to consolidated net income below.

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

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Net income of reportable segments	$	450	$	427	$	1,121	$	1,368
Net loss of All Other		(47)		(38)		(187)		(131)
Unallocated amounts:
Net financing costs  (1)		(26)		(31)		(84)		(80)
Stock-based compensation expense		(10)		(11)		(33)		(36)
Exploratory research		(27)		(32)		(82)		(86)
Corporate contributions		(15)		(13)		(38)		(37)
Gain on realignment of equity investment						2,676
Equity in earnings of affiliated companies, net of impairments  (2)		22		38		126		191
Unrealized loss on foreign currency hedges related to translated earnings		(239)		(317)		(2,441)		(447)
Resolution of Department of Justice investigation						(98)
Income tax benefit		199		178		1,253		375
Other corporate items		(23)		11		(90)		(2)
Net income	$	284	$	212	$	2,123	$	1,115

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

(2) Through May 31, 2016, the date of the strategic realignment of our equity interest in Dow Corning, this amount primarily represents the equity earnings of Dow Corning.