CORNING INC /NY | 2013 | FY | 3

20.      Reportable Segments

Our reportable segments are as follows:

·  
Display Technologies – manufactures glass substrates for flat panel liquid crystal 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 have been 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 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.

The following provides historical segment information as described above:

Segment Information (in millions)

 
Display
Technologies
 
Optical
Communications
 
Environmental
Technologies
 
Specialty
Materials
 
Life
Sciences
 
All
Other
 
Total
For the year ended
  December 31, 2013
                                       
Net sales
$
2,545 
 
$
2,326 
 
$
919 
 
$
1,170 
 
$
851 
 
$
8 
 
$
7,819 
Depreciation (1)
$
481 
 
$
147 
 
$
120 
 
$
137 
 
$
57 
 
$
18 
 
$
960 
Amortization of purchased intangibles
     
$
10 
             
$
21 
       
$
31 
Research, development and engineering expenses (2)
$
84 
 
$
140 
 
$
89 
 
$
144 
 
$
20 
 
$
116 
 
$
593 
Restructuring, impairment and other charges (3)
$
7 
 
$
12 
 
$
1 
 
$
19 
 
$
4 
 
$
8 
 
$
51 
Equity in earnings of affiliated companies (4)
$
357 
 
$
2 
 
$
1 
 
$
4 
       
$
(24)
 
$
340 
Income tax (provision) benefit
$
(327)
 
$
(101)
 
$
(65)
 
$
(91)
 
$
(36)
 
$
61 
 
$
(559)
Net income (loss) (5)
$
1,267 
 
$
199 
 
$
132 
 
$
187 
 
$
71 
 
$
(163)
 
$
1,693 
Investment in affiliated companies, at equity
$
3,666 
 
$
3 
 
$
31 
 
$
10 
       
$
232 
 
$
3,942 
Segment assets (6)
$
9,501 
 
$
1,654 
 
$
1,230 
 
$
1,333 
 
$
551 
 
$
422 
 
$
14,691 
Capital expenditures
$
350 
 
$
105 
 
$
196 
 
$
62 
 
$
51 
 
$
55 
 
$
819 
                                         
For the year ended
  December 31, 2012*
                                       
Net sales
$
2,909 
 
$
2,130 
 
$
964 
 
$
1,346 
 
$
657 
 
$
6 
 
$
8,012 
Depreciation (1)
$
514 
 
$
130 
 
$
117 
 
$
153 
 
$
44 
 
$
14 
 
$
972 
Amortization of purchased intangibles
     
$
9 
             
$
10 
       
$
19 
Research, development and engineering expenses (2)
$
103 
 
$
137 
 
$
100 
 
$
143 
 
$
22 
 
$
123 
 
$
628 
Restructuring, impairment and other charges (3)
$
21 
 
$
39 
 
$
3 
 
$
54 
 
$
2 
       
$
119 
Equity in earnings of affiliated companies 
$
692 
       
$
1 
             
$
17 
 
$
710 
Income tax (provision) benefit
$
(367)
 
$
(58)
 
$
(58)
 
$
(69)
 
$
(14)
 
$
53 
 
$
(513)
Net income (loss) (5)
$
1,589 
 
$
146 
 
$
112 
 
$
137 
 
$
28 
 
$
(98)
 
$
1,914 
Investment in affiliated companies, at equity
$
3,262 
 
$
17 
 
$
30 
 
$
4 
       
$
262 
 
$
3,575 
Segment assets (6)
$
9,953 
 
$
1,435 
 
$
1,103 
 
$
1,707 
 
$
552 
 
$
351 
 
$
15,101 
Capital expenditures
$
845 
 
$
311 
 
$
154 
 
$
93 
 
$
47 
 
$
52 
 
$
1,502 
                                         
For the year ended
  December 31, 2011*
                                       
Net sales
$
3,145 
 
$
2,072 
 
$
998 
 
$
1,074 
 
$
595 
 
$
6 
 
$
7,890 
Depreciation (1)
$
511 
 
$
123 
 
$
107 
 
$
156 
 
$
34 
 
$
12 
 
$
943 
Amortization of purchased intangibles
     
$
7 
       
$
1 
 
$
7 
       
$
15 
Research, development and engineering expenses (2)
$
91 
 
$
125 
 
$
94 
 
$
136 
 
$
18 
 
$
97 
 
$
561 
Restructuring, impairment and other charges (3)
     
$
(1)
       
$
130 
             
$
129 
Equity in earnings (loss) of affiliated companies (4)
$
1,027 
 
$
3 
 
$
1 
 
$
4 
       
$
15 
 
$
1,050 
Income tax (provision) benefit
$
(502)
 
$
(82)
 
$
(59)
 
$
23 
 
$
(29)
 
$
39 
 
$
(610)
Net income (loss) (5)
$
2,346 
 
$
194 
 
$
119 
 
$
(36)
 
$
60 
 
$
(78)
 
$
2,605 
Investment in affiliated companies, at equity
$
3,132 
 
$
19 
 
$
31 
 
$
4 
       
$
243 
 
$
3,429 
Segment assets (6)
$
10,387 
 
$
1,201 
 
$
1,089 
 
$
1,455 
 
$
363 
 
$
396 
 
$
14,891 
Capital expenditures
$
1,304 
 
$
195 
 
$
174 
 
$
348 
 
$
57 
 
$
116 
 
$
2,194 

*Includes impact of defined benefit pension plan methodology change implemented in the first quarter of 2013 and retrospectively applied to prior periods.

(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)
In 2012, Corning recorded a $44 million impairment charge in the Specialty Materials segment related to certain assets located in Japan used for the production of large cover glass.  In 2011, Corning recorded a $130 million impairment charge in the Specialty Materials segment related to certain assets located in Japan used for the production of large cover glass.

(4)
In 2013, equity in earnings of affiliated companies in the Display Technologies segment included a $28 million restructuring charge for our share of costs for headcount reductions and asset write-offs.  In 2012, equity in earnings of affiliated companies in the Display Technologies segment included a $18 million restructuring charge for our share of costs for headcount reductions and asset write-offs.

(5)
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.

(6)
Segment assets include inventory, accounts receivable, property and associated equity companies and cost investments.

For the year ended December 31, 2013, 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, four customers accounted for 94% 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 87% of total segment sales.

·  
In the Specialty Materials segment, three customers accounted for 47% of total segment sales.

·  
In the Life Sciences segment, two customers accounted for 44% 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 use of a facility located outside of an entity’s home country 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 to our display business and the Company as a whole.

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

 
Years ended December 31,
 
2013
 
2012
 
2011
Net income of reportable segments
$
1,856 
 
$
2,012 
 
$
2,683 
Net loss of All Other
 
(163)
   
(98)
   
(78)
Unallocated amounts:
               
Net financing costs (1)
 
(66)
   
(196)
   
(190)
Stock-based compensation expense
 
(54)
   
(70)
   
(86)
Exploratory research
 
(112)
   
(89)
   
(79)
Corporate contributions
 
(42)
   
(44)
   
(48)
Equity in earnings of affiliated companies, net of impairments (2)
 
207 
   
82 
   
421 
Asbestos litigation (3)
 
(19)
   
(14)
   
(24)
Purchased collars (4)
 
435 
           
Other corporate items (5) (6)
 
(81)
   
53 
   
218 
Net income
$
1,961 
 
$
1,636 
 
$
2,817 

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

(2)
Equity in earnings of affiliated companies, net of impairments, is primarily equity in earnings of Dow Corning, which includes the following items:

·  
In 2013, gains in the amount 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 are restructuring charges in the amount of $11 million.

·  
In 2012, restructuring and impairment charges in the amount of $87 million for our share of a charge related to workforce reductions and asset write-offs at Dow Corning, and a $10 million credit for Corning’s share of Dow Corning’s settlement of a dispute related to long term supply agreements.

·  
In 2011, a $89 million credit for our share of Dow Corning’s settlement of a dispute related to long term supply agreements.

(3)
In 2013, 2012 and 2011, Corning recorded charges of $19 million, $14 million and $24 million to adjust the asbestos liability for the change in value of the components of the Amended PCC Plan.

(4)
In 2013, Corning recorded a net gain of $435 million, related to its purchased collars and average rate forward contracts.

(5)
Other corporate items include the tax impact of the unallocated amounts and the following significant items:

·  
In 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.

·  
In 2012, Corning recorded a $52 million translation gain on the liquidation of a foreign subsidiary; a loss of $26 million ($17 million after tax) from the repurchase of $13 million principal amount of our 8.875% senior unsecured notes due 2021, $11 million of our 8.875% senior unsecured notes due 2016, and $51 million principal amount of our 6.75% senior unsecured notes due 2013; and a $37 million tax expense resulting from the delay of the passage of the American Taxpayer Relief Act of 2012 until January 2013, that was reversed in the first quarter of 2013.

·  
In 2011, Corning recorded a $41 million tax benefit from the filing of an amended 2006 U.S. Federal Tax return to claim foreign tax credits.

(6)
As revised for the change in our method of recognizing pension expense.  See Note 1, Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements for a discussion of the change and the impacts of the change.

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

 
December 31,
 
2013
 
2012
 
2011
Total assets of reportable segments
$
14,269
 
$
14,750
 
$
14,495
Non-reportable segments
 
422
   
351
   
396
Unallocated amounts:
               
Current assets (1)
 
6,349
   
7,300
   
6,602
Investments (2)
 
1,595
   
1,340
   
1,298
Property, net (3)
 
1,594
   
1,494
   
1,283
Other non-current assets (4)
 
4,249
   
4,140
   
3,774
Total assets
$
28,478
 
$
29,375
 
$
27,848

(1)
Includes current corporate assets, primarily cash, short-term investments and deferred taxes.

(2)
Represents corporate investments in affiliated companies, at both cost and equity (primarily Dow Corning).

(3)
Represents corporate property not specifically identifiable to an operating segment.

(4)
Includes non-current corporate assets, pension assets and deferred taxes.

Selected financial information concerning the Company’s product lines and reportable segments follow (in millions):

 
Fiscal Years Ended December 31,
Revenues from External Customers
2013
 
2012
 
2011
Display Technologies
$
2,545
 
$
2,909
 
$
3,145
                 
Optical Communications
               
Carrier network
 
1,782
   
1,619
   
1,556
Enterprise network
 
544
   
511
   
516
                 
Total Optical Communications
 
2,326
   
2,130
   
2,072
                 
Environmental Technologies
               
Automotive and other
 
485
   
486
   
476
Diesel
 
434
   
478
   
522
                 
Total Environmental Technologies
 
919
   
964
   
998
                 
Specialty Materials
               
Corning Gorilla Glass
 
848
   
1,027
   
712
Advanced optics and other specialty glass
 
322
   
319
   
362
                 
Total Specialty Materials
 
1,170
   
1,346
   
1,074
                 
Life Sciences
               
Labware
 
529
   
430
   
419
Cell culture products
 
322
   
227
   
176
                 
Total Life Science
 
851
   
657
   
595
                 
All Other
 
8
   
6
   
6
 
$
7,819
 
$
8,012
 
$
7,890

Information concerning principal geographic areas was as follows (in millions):

 
2013
 
2012
 
2011
 
Net
sales (2)
 
Long-
lived
assets (1)
 
Net
sales (2)
 
Long-
lived
assets (1)
 
Net
sales (2)
 
Long-
lived
assets (1)
                                   
North America
                                 
United States
$
2,061
 
$
7,170
 
$
1,859
 
$
6,771
 
$
1,676
 
$
6,087
Canada
 
308
         
246
         
229
     
Mexico
 
23
   
36
   
24
   
87
   
26
   
78
Total North America
 
2,392
   
7,206
   
2,129
   
6,858
   
1,931
   
6,165
                                   
Asia Pacific
                                 
Japan
 
621
   
1,548
   
751
   
1,949
   
1,252
   
2,210
Taiwan
 
1,376
   
2,277
   
1,708
   
2,836
   
1,850
   
3,341
China
 
1,916
   
1,218
   
2,103
   
1,215
   
1,550
   
764
Korea
 
96
   
3,234
   
94
   
3,342
   
101
   
3,357
Other
 
278
   
127
   
243
   
84
   
145
   
11
Total Asia Pacific
4,287
   
8,404
   
4,899
   
9,426
   
4,898
   
9,683
                                   
Europe
                                 
Germany
 
337
   
171
   
264
   
139
   
318
   
134
France
 
79
   
287
   
57
   
267
   
65
   
197
United Kingdom
 
165
   
6
   
134
   
14
   
124
     
Other
 
280
   
1,147
   
274
   
550
   
263
   
273
Total Europe
 
861
   
1,611
   
729
   
970
   
770
   
604
                                   
Latin America
                                 
Brazil
 
77
   
66
   
29
   
1
   
29
   
1
Other
 
37
   
6
   
33
   
6
   
25
   
6
Total Latin America
 
114
   
72
   
62
   
7
   
54
   
7
                                   
All Other
 
165
   
25
   
193
   
35
   
237
   
25
Total
$
7,819
 
$
17,318
 
$
8,012
 
$
17,296
 
$
7,890
 
$
16,484

(1)
Long-lived assets primarily include investments, plant and equipment, goodwill and other intangible assets.  Assets in the U.S. and Korea include investments in Dow Corning and Samsung Corning Precision Materials.

(2)
Net sales are attributed to countries based on location of customer.

us-gaap:SegmentReportingDisclosureTextBlock