CORNING INC /NY | 2013 | FY |

7. Investments

Investments comprise the following (in millions):

	Ownership interest (1)			December 31,
	Ownership interest (1)			2013		2012
Affiliated companies accounted for by the equity method
Samsung Corning Precision Materials		57%		$	3,709	$	3,346
Dow Corning		50%			1,420		1,191
All other	20%	to	50%		390		375
					5,519		4,912
Other investments					18		3
Total				$	5,537	$	4,915

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

Affiliated Companies at Equity

The results of operations and financial position of the investments accounted for under the equity method follow (in millions):

	Years ended December 31,
	2013		2012		2011

Statement of operations (2):
Net sales	$	8,526	$	9,957	$	11,381
Gross profit	$	2,655	$	3,628	$	5,161
Net income	$	1,135	$	1,541	$	2,925
Corning’s equity in earnings of affiliated companies	$	547	$	810	$	1,471

Related party transactions:
Corning sales to affiliated companies	$	13	$	50	$	30
Corning purchases from affiliated companies	$	189	$	167	$	138
Corning transfers of assets, at cost, to affiliated companies (1)	$	37	$	55	$	113
Dividends received from affiliated companies	$	629	$	1,089	$	820
Royalty income from affiliated companies	$	57	$	84	$	221
Corning services to affiliates	$	2	$	24	$	50

	December 31,
	2013		2012
Balance sheet (2):
Current assets	$	8,416	$	8,458
Noncurrent assets	$	12,220	$	13,457
Short-term borrowings, including current portion of long-term debt	$	79	$	209
Other current liabilities	$	1,886	$	1,985
Long-term debt	$	937	$	847
Other long-term liabilities	$	6,502	$	7,681
Non-controlling interest	$	619	$	708

Related party transactions:
Balances due from affiliated companies	$	45	$	61
Balances due to affiliated companies	$	5	$	37

(1)

Corning purchases machinery and equipment on behalf of Samsung Corning Precision Materials to support its capital expansion initiatives. The machinery and equipment are transferred to Samsung Corning Precision Materials at our cost basis, resulting in no revenue or gain being recognized on the transaction.

(2)

As a result of the series of strategic and financial agreements with Samsung Display entered into on October 22, 2013, certain non-operating assets of Samsung Corning Precision Materials were held for sale as of December 31, 2013 and are reported as discontinued operations in Samsung Corning Precision Materials financial statements, which are attached in Item 15, Exhibits and Financial Statement Schedules. Previous period amounts have been conformed for comparative purposes.

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

At December 31, 2013, approximately $4.7 billion of equity in undistributed earnings of equity companies was included in our retained earnings.

A discussion and summarized results of Corning’s significant affiliates at December 31, 2013 follows:

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

Samsung Corning Precision Materials is a South Korea-based manufacturer of liquid crystal display glass for flat panel displays.

Samsung Corning Precision Materials’ financial position and results of operations follow (in millions):

	Years ended December 31,
	2013		2012		2011

Statement of operations (2):
Net sales	$	2,149	$	2,965	$	3,939
Gross profit	$	1,196	$	2,000	$	2,887
Net income attributable to Samsung Corning Precision Materials	$	649	$	1,390	$	2,061
Corning’s equity in earnings of Samsung Corning Precision Materials	$	320	$	699	$	1,031

Related party transactions:
Corning sales to Samsung Corning Precision Materials	$	7	$	22
Corning purchases from Samsung Corning Precision Materials	$	160	$	126	$	107
Corning transfer of machinery and equipment to Samsung Corning Precision Materials at cost (1)	$	37	$	55	$	113
Dividends received from Samsung Corning Precision Materials	$	518	$	979	$	492
Royalty income from Samsung Corning Precision Materials	$	56	$	83	$	219

	December 31,
	2013		2012
Balance sheet (2):
Current assets	$	3,565	$	3,491
Noncurrent assets	$	3,522	$	3,895
Other current liabilities	$	337	$	405
Other long-term liabilities	$	211	$	253
Non-controlling interest	$	10	$	12

(1)

(2)

In the year ended December 31, 2013, Corning’s equity earnings were negatively impacted by $54 million as a result of higher taxes due to the partial expiration of tax holidays in Korea.

Balances due from Samsung Corning Precision Materials were $8 million at December 31, 2013. Balances due to Samsung Corning Precision Materials were $2 million at December 31, 2013. Balances due from Samsung Corning Precision Materials were $15 million at December 31, 2012. Balances due to Samsung Corning Precision Materials were $34 million at December 31, 2012.

Prior to December 2013, Corning owned 50% of Samsung Corning Precision Materials, Samsung Display Co., Ltd. owned 43% and three shareholders owned the remaining 7%. In the fourth quarter of 2013, in connection with a series of strategic and financial agreements with Samsung Display announced in October 2013, Corning acquired the minority interests of three shareholders in Samsung Corning Precision Materials for $506 million, which included payment for the transfer of non-operating assets and the pro-rata portion of cash on Samsung Corning Precision Materials balance sheet at September 30, 2013. The resulting transfer of shares to Corning increased Corning’s ownership percentage of Samsung Corning Precision Materials from 50% to 57%. Because this transaction did not result in a change in control based on the governing articles of this entity, Corning did not consolidate this entity as of December 31, 2013. On January 15, 2014, Corning completed the series of strategic and financial agreements to acquire the common shares of Samsung Corning Precision Materials previously held by Samsung Display Co., Ltd. As a result of these transactions, Corning is now the owner of 100% of the common shares of Samsung Corning Precision Materials, which we will consolidate into our results beginning in the first quarter of 2014.

In April 2011, South Korean tax authorities completed a tax audit of Samsung Corning Precision Materials. As a result, the tax authorities issued a pre-assessment of approximately $46 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 was paid in full in the fourth quarter of 2011, allowing us to continue the appeal process. Samsung Corning Precision Materials and Corning believe we will maintain our position when all available appeal remedies have been exhausted.

On December 31, 2007, Samsung Corning Precision Materials 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 Materials. Prior to their merger, Samsung Corning Precision Materials and 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 Materials 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.

Dow Corning

Dow Corning is a U.S.-based manufacturer of silicone products. Corning and Dow Chemical each own half of Dow Corning.

Dow Corning’s financial position and results of operations follow (in millions):

	Years ended December 31,
	2013		2012		2011

Statement of operations:
Net sales	$	5,711	$	6,119	$	6,427
Gross profit (1)	$	1,280	$	1,413	$	1,989
Net income attributable to Dow Corning	$	376	$	181	$	806
Corning’s equity in earnings of Dow Corning	$	196	$	90	$	404

Related party transactions:
Corning purchases from Dow Corning	$	22	$	23	$	22
Dividends received from Dow Corning	$	100	$	100	$	310

	December 31,
	2013		2012
Balance sheet:
Current assets	$	3,996	$	4,117
Noncurrent assets	$	8,306	$	9,184
Short-term borrowings, including current portion of long-term debt	$	79	$	209
Other current liabilities	$	1,267	$	1,304
Long-term debt	$	937	$	844
Other long-term liabilities	$	6,240	$	7,371
Non-controlling interest	$	606	$	687

(1)	Gross profit for the year ended December 31, 2013 includes R&D cost of $248 million (2012: $281 million and 2011: $259 million) and selling expenses of $13 million (2012: $15 million and $2011: $25 million).

Beginning in the latter half of 2011, and continuing into 2012, Dow Corning began experiencing unfavorable industry conditions at Hemlock, a producer of high purity polycrystalline silicon for the semiconductor and solar industries, driven by over-capacity at all levels of the solar industry supply chain. This over-capacity led to significant declines in polycrystalline spot prices in the fourth quarter of 2011, and prices remained depressed throughout 2012. In 2013, markets stabilized, but prices remained significantly below historical levels.

Due to the conditions and uncertainties during 2012 described above, sales volume declined and production levels of certain operating assets were reduced. As a result, in the fourth quarter of 2012, Dow Corning determined that a polycrystalline silicon plant expansion previously delayed since the fourth quarter of 2011 would no longer be economically viable and made the decision to abandon this expansion activity. The abandonment resulted in an impairment charge of $57 million, before tax, for Corning’s share of the write down in the value of these construction-in-progress assets. Further, the startup of another polycrystalline silicon plant expansion that was expected to begin production in 2013 was delayed and the assets remain idled. Production will only commence when sales volumes increase to levels necessary to support the plant’s capacity. The timing for startup of this expansion is uncertain and future adverse conditions may cause Dow Corning to re-evaluate the long-term viability of the idled assets.

Additionally, during the fourth quarter of 2012, these negative events and circumstances at Dow Corning indicated that assets of Dow Corning’s polycrystalline silicon business might be impaired. In accordance with accounting guidance for impairment of long-lived assets, Dow Corning compared estimated undiscounted cash flows to the assets’ carrying value and determined that the asset group was recoverable as of December 31, 2012. Upon receiving the preliminary determination notices from MOFCOM in the third quarter of 2013, Dow Corning again evaluated whether the polycrystalline silicon assets might be impaired. The estimate of future undiscounted cash flows continued to indicate the assets were expected to be recovered. However, it is reasonably possible that the estimate of undiscounted cash flows may change in the near term resulting in the need to write down those assets to fair value. Dow Corning’s estimate of cash flows might change as a result of continued pricing deterioration, ongoing oversupply in the market, or other adverse market conditions that result in non-performance by customers under long-term contracts. Corning’s share of the carrying value of this asset group is approximately $1.0 billion.

In July 2012, MOFCOM initiated antidumping and countervailing duty investigations of imports of solar-grade polycrystalline silicon products from the U.S. and Korea based on a petition filed by Chinese solar-grade polycrystalline silicon producers. The petition alleged that producers within these countries exported solar-grade polycrystalline silicon to China at less than fair value and that production of solar-grade polycrystalline silicon in the U.S. has been subsidized by the U.S. government. On July 18, 2013, MOFCOM announced its preliminary determination that China’s solar-grade polycrystalline silicon industry suffered material damage because of dumping by producers in the U.S. and Korea. The Chinese authorities imposed provisional antidumping duties on producers in the U.S. and Korea ranging from 2.4% to 57.0%, including duties of 53.3% on future imports of solar-grade polycrystalline silicon product from the Dow Corning subsidiary into China. On September 16, 2013, the Chinese authorities imposed provisional countervailing duties of 6.5%. On January 20, 2014, MOFCOM issued a final determination. The final determination resulted in no change to the antidumping duties, and the countervailing duties were reduced to 2.1%. The requirement for customers to pay provisional duties on imports from solar-grade polycrystalline silicon producers became effective on July 24, 2013 for the antidumping duties and on September 20, 2013 for the countervailing duties, adjusted for the final determination. Dow Corning will not be subject to duties for previous sales, and is evaluating possible actions in response to the final determination.

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 $171 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 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 $1.8 billion to the Settlement Trust. As of December 31, 2013, 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 December 31, 2013, Dow Corning has estimated the liability to commercial creditors to be within the range of $94 million to $309 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 $94 million, net of applicable tax benefits. 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 Dow Corning are expected to be channeled by the Plan into facilities established by the Plan or otherwise defended by the Litigation Facility.

Pittsburgh Corning Corporation and Asbestos Litigation. 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. On April 16, 2000, PCC filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Western District of Pennsylvania. At the time PCC filed for bankruptcy protection, there were approximately 11,800 claims pending against Corning in state court lawsuits alleging various theories of liability based on exposure to PCC’s asbestos products and typically requesting monetary damages in excess of one million dollars per claim. Corning has defended those claims on the basis of the separate corporate status of PCC and the absence of any facts supporting claims of direct liability arising from PCC’s asbestos products.

PCC Plan of Reorganization

Corning, with other relevant parties, has been involved in ongoing efforts to develop a Plan of Reorganization that would resolve the concerns and objections of the relevant courts and parties. On November 12, 2013, the Bankruptcy Court issued a decision finally confirming an Amended PCC Plan of Reorganization (the “Amended PCC Plan” or the “Plan”).

Under this Plan, Corning is required to contribute its equity interests in PCC and Pittsburgh Corning Europe N.V. (PCE), a Belgian corporation, and to contribute $290 million in a fixed series of payments, recorded at present value. Corning has the option to use its shares rather than cash to make these payments, but the liability is fixed by dollar value and not the number of shares. The Plan requires Corning to make: (1) one payment of $70 million one year from the date the Plan becomes effective and certain conditions are met; and (2) five additional payments of $35 million, $50 million, $35 million, $50 million, and $50 million, respectively, on each of the five subsequent anniversaries of the first payment, the final payment of which is subject to reduction based on the application of credits under certain circumstances.

The Bankruptcy Court’s confirmation of the Plan must be affirmed by the District Court, and two objectors to the Plan have appealed the Bankruptcy Court’s confirmation of the Plan to the District Court. Assuming the District Court affirms the confirmation, that decision may be appealed. If that occurs, it could take many months for the confirmation of the Plan to be finally affirmed.

Non-PCC Asbestos Litigation

In addition to the claims against Corning related to its ownership interest in PCC, Corning is also the defendant in approximately 9,700 other cases (approximately 37,400 claims) alleging injuries from asbestos related to its Corhart business and similar amounts of monetary damages per case. When PCC filed for bankruptcy protection, the Court granted a preliminary injunction to suspend all asbestos cases against PCC, PPG and Corning – including these non-PCC asbestos cases (the “stay”). The stay remains in place as of the date of this filing. Under the Bankruptcy Court’s order confirming the Amended PCC Plan, the stay will remain in place until the Amended PCC Plan is finally affirmed. These non-PCC asbestos cases have been covered by insurance without material impact to Corning to date. As of December 31, 2013, Corning had received for these cases approximately $19 million in insurance payments related to those claims. If and when the Bankruptcy Court’s confirmation of the Amended PCC Plan is affirmed, these non-PCC asbestos claims would be allowed to proceed against Corning. Corning has recorded in its estimated asbestos litigation liability an additional $150 million for these and any future non-PCC asbestos cases.

Total Estimated Liability for the Amended PCC Plan and the Non-PCC Asbestos Claims

The liability for the Amended PCC Plan and the non-PCC asbestos claims was estimated to be $690 million at December 31, 2013, compared with an estimate of liability of $671 million at December 31, 2012. For the years ended December 31, 2013 and 2012, Corning recorded asbestos litigation expense of $19 million and $14 million, respectively. The entire obligation is classified as a non-current liability as installment payments for the cash portion of the obligation are not planned to commence until more than 12 months after the Amended PCC Plan becomes effective and the PCE portion of the obligation will be fulfilled through the direct contribution of Corning’s investment in PCE (currently recorded as a non-current other equity method investment).

Non-PCC Asbestos Cases Insurance Litigation

Several of Corning’s insurers have commenced litigation in state courts for a declaration of the rights and obligations of the parties under insurance policies, including rights that may be affected by the potential resolutions described above. Corning is vigorously contesting these cases, and management is unable to predict the outcome of the litigation.

At December 31, 2013 and 2012, the fair value of PCE significantly exceeded its carrying value of $167 million and $149 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 on April 16, 2000. At that time, Corning determined 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.

CORNING INC /NY | 2013 | FY |

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