q3201410q.htm

10-Q 1 q3201410q.htm Q3, 2014 FORM 10-Q q3201410q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number: 1-3247

CORNING INCORPORATED

(Exact name of registrant as specified in its charter)

New York		16-0393470
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Riverfront Plaza, Corning, New York		14831
(Address of principal executive offices)		(Zip Code)

607-974-9000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer	x		Accelerated filer	¨
	Non-accelerated filer	¨		Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding as of October 15, 2014
Corning’s Common Stock, $0.50 par value per share		1,281,848,134 shares

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INDEX

PART I – FINANCIAL INFORMATION
		Page
Item 1. Financial Statements

Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2014 and 2013		3

Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2014 and 2013		4

Consolidated Balance Sheets (Unaudited) at September 30, 2014 and December 31, 2013		5

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2014 and 2013		6

Notes to Consolidated Financial Statements (Unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35

Item 3. Quantitative and Qualitative Disclosures About Market Risk		72

Item 4. Controls and Procedures		73

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		74

Item 1A. Risk Factors		74

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		75

Item 6. Exhibits		76

Signatures		77

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in millions, except per share amounts)

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013

Net sales	$	2,540	$	2,067	$	7,311	$	5,863
Cost of sales		1,451		1,166		4,255		3,309

Gross margin		1,089		901		3,056		2,554

Operating expenses:
Selling, general and administrative expenses		256		265		969		790
Research, development and engineering expenses		199		184		605		541
Amortization of purchased intangibles		9		8		25		23
Restructuring, impairment and other charges (Note 2)						51
Asbestos litigation charge		5		5		11		13

Operating income		620		439		1,395		1,187

Equity in earnings of affiliated companies (Note 9)		95		138		243		477
Interest income		5		1		21		5
Interest expense		(31)		(28)		(91)		(92)
Transaction-related gain, net (Note 10)						74
Other income (expense), net (Note 1)		720		(1)		589		329

Income before income taxes		1,409		549		2,231		1,906
Provision for income taxes (Note 5)		(395)		(141)		(747)		(366)

Net income attributable to Corning Incorporated	$	1,014	$	408	$	1,484	$	1,540

Earnings per common share attributable to Corning Incorporated:
Basic (Note 6)	$	0.77	$	0.28	$	1.08	$	1.05
Diluted (Note 6)	$	0.72	$	0.28	$	1.03	$	1.04

Dividends declared per common share	$	0.10	$	0.10	$	0.30	$	0.29

The accompanying notes are an integral part of these consolidated financial statements.

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in millions)

	Three months ended September 30,				Nine months ended September 30,
	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013

Net income attributable to Corning Incorporated	$	1,014	$	408	$	1,484	$	1,540

Foreign currency translation (loss) gain		(676)		317		(539)		(484)
Net unrealized (losses) gains on investments		(3)		(1)		1		1
Unamortized gains and prior service costs for postretirement benefit plans				14		3		44
Net unrealized gains (losses) on designated hedges		5		(17)		2		8
Other comprehensive (loss) income, net of tax		(674)		313		(533)		(431)

Comprehensive income attributable to Corning Incorporated	$	340	$	721	$	951	$	1,109

The accompanying notes are an integral part of these consolidated financial statements.

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions, except share and per share amounts)

	September 30, 2014		December 31, 2013
Assets

Current assets:
Cash and cash equivalents	$	5,353	$	4,704
Short-term investments, at fair value (Note 7)		751		531
Total cash, cash equivalents and short-term investments		6,104		5,235
Trade accounts receivable, net of doubtful accounts and allowances - $36 and $28		1,601		1,253
Inventories (Note 8)		1,327		1,270
Deferred income taxes (Note 5)		156		278
Other current assets		825		855
Total current assets		10,013		8,891

Investments (Note 9)		2,002		5,537
Property, net of accumulated depreciation - $8,412 and $7,865 (Note 11)		13,033		9,801
Goodwill and other intangible assets, net (Note 12)		1,653		1,542
Deferred income taxes (Note 5)		1,944		2,234
Other assets		1,170		473

Total Assets	$	29,815	$	28,478

Liabilities and Equity

Current liabilities:
Current portion of long-term debt (Note 4)	$	455	$	21
Accounts payable		716		771
Other accrued liabilities (Note 3)		967		954
Total current liabilities		2,138		1,746

Long-term debt (Note 4)		3,228		3,272
Postretirement benefits other than pensions		757		766
Other liabilities (Note 3)		1,842		1,483
Total liabilities		7,965		7,267

Commitments and contingencies (Note 3)
Shareholders’ equity (Note 16):
Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 3,100; Shares issued: 2,300		2,300
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1,671 million and 1,661 million		836		831
Additional paid-in capital – common stock		13,336		13,066
Retained earnings		12,339		11,320
Treasury stock, at cost; Shares held: 389 million and 262 million		(6,543)		(4,099)
Accumulated other comprehensive (loss) income		(489)		44
Total Corning Incorporated shareholders’ equity		21,779		21,162
Noncontrolling interests		71		49
Total equity		21,850		21,211

Total Liabilities and Equity	$	29,815	$	28,478

The accompanying notes are an integral part of these consolidated financial statements.

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

	Nine months ended September 30,
	2014		2013
Cash Flows from Operating Activities:
Net income	$	1,484	$	1,540
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		877		730
Amortization of purchased intangibles		25		23
Restructuring, impairment and other charges		51
Stock compensation charges		47		40
Equity in earnings of affiliated companies		(243)		(477)
Dividends received from affiliated companies		1,673		221
Deferred tax provision		414		141
Restructuring payments		(30)		(30)
Employee benefit payments (in excess of) less than expense		(5)		34
Gains on translated earnings contracts		(600)		(205)
Contingent consideration fair value adjustment		(77)
Changes in certain working capital items:
Trade accounts receivable		(63)		(139)
Inventories		27		(238)
Other current assets		17		14
Accounts payable and other current liabilities		(339)		(278)
Other, net		339		127
Net cash provided by operating activities		3,597		1,503

Cash Flows from Investing Activities:
Capital expenditures		(740)		(682)
Acquisitions of business, net of cash received		66		(66)
Investment in unconsolidated entities		(109)		(19)
Proceeds from loan repayments from unconsolidated entities		15
Short-term investments – acquisitions		(1,170)		(1,183)
Short-term investments – liquidations		954		1,449
Premium on purchased collars				(107)
Realized gains on translated earnings contracts		226		33
Other, net		5
Net cash used in investing activities		(753)		(575)

Cash Flows from Financing Activities:
Retirement of long-term debt				(498)
Net repayments of short-term borrowings and current portion of long-term debt		(50)		(69)
Principal payments under capital lease obligations		(1)		(2)
Proceeds from issuance of short-term debt		22
Proceeds from issuance of commercial paper, net		424
Proceeds from issuance of preferred stock (1)		400
Proceeds received for incentives				82
Payments to acquire noncontrolling interest				(47)
Proceeds from the exercise of stock options		98		54
Repurchases of common stock for treasury		(2,300)		(441)
Dividends paid		(439)		(426)
Net cash used in by financing activities		(1,846)		(1,347)
Effect of exchange rates on cash		(349)		(9)
Net increase (decrease) in cash and cash equivalents		649		(428)
Cash and cash equivalents at beginning of period		4,704		4,988

Cash and cash equivalents at end of period	$	5,353	$	4,560

(1)

In the first quarter of 2014, Corning issued 1,900 shares of Preferred Stock to Samsung Display Co., Ltd. in connection with the acquisition of their equity interests in Samsung Corning Precision Materials Co., Ltd. (Note 10). Corning also issued to Samsung Display an additional amount of Preferred Stock at closing, for an issue price of $400 million in cash (Note 16).

The accompanying notes are an integral part of these consolidated financial statements.

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2013 (“2013 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.

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

As further discussed in Note 10 (Acquisition), on January 15, 2014, Corning completed a series of strategic and financial agreements to acquire the common shares of Samsung Corning Precision Materials (“Acquisition”) previously held by Samsung Display Co., Ltd. (“Samsung Display”). As a result of these transactions, Corning is now the owner of 100% of the common shares of Samsung Corning Precision Materials, which we have consolidated into our results beginning in the first quarter of 2014. Operating under the name of Corning Precision Materials Co., Ltd. (“Corning Precision Materials”), the former Samsung Corning Precision Materials organization and operations were integrated into the Display Technologies segment in the first quarter of 2014.

Other Income (Expense), Net

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

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Royalty income from Samsung Corning Precision Materials			$	14			$	43
Foreign currency exchange and hedge gain (loss), net	$	744		(33)	$	596		248
Net (gain) loss attributable to noncontrolling interests		(2)						1
Other, net		(22)		18		(7)		37
Total	$	720	$	(1)	$	589	$	329

Beginning in the first quarter of 2014, due to the Acquisition and consolidation of Samsung Corning Precision Materials (now Corning Precision Materials), royalty income from Corning Precision Materials is no longer recognized in Corning’s consolidated statements of income.

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Included in the line item Foreign currency exchange and hedge gain (loss), net, for the three and nine months ended September 30, 2014 and 2013 is the impact of purchased collars and average forward contracts which hedge our exposure to movements in the Japanese yen and its impact on our net earnings. In the three and nine months ended September 30, 2014, we recorded net pre-tax gains on our yen-denominated hedging programs in the amounts of $764 million and $621 million, respectively. These gains were driven by the mark-to-market of the purchased collars and average forward contracts, and occurred due to the significant weakening of the Japanese yen in the third quarter of 2014. We recorded a net loss in the amount of $46 million in the third quarter of 2013 and a net gain in the amount of $206 million for the nine months ended September 30, 2013. The gross notional value outstanding for purchase collars and average rate forwards which hedge our exposure to the Japanese yen at September 30, 2014 and December 31, 2013 was $11 billion and $6.8 billion, respectively.

In the second quarter of 2014, following the Acquisition, we entered into a portfolio of zero cost collars to hedge our exposure to movements in the Korean won and its impact on our net earnings. These zero cost collars have a gross notional value outstanding at September 30, 2014 of $3 billion, and began settling quarterly in the third quarter of 2014 and will conclude at the end of 2015. The loss on the mark-to-market of these zero cost collars, which is also included in the line item Foreign currency exchange and hedge (loss) gain, net, was $25 million and $21 million, respectively, for the three and nine months ended September 30, 2014.

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. (ASU) 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. We are currently assessing the potential impact of adopting this ASU on our financial statements and related disclosures.

2. Restructuring, Impairment and Other Charges

2014 Activity

For the nine months ended September 30, 2014, we recorded charges of $51 million for workforce reductions, asset disposals and write-offs, and exit costs for restructuring activities in the Display Technologies, Optical Communications and Specialty Materials segments, with total cash expenditures estimated to be $11 million.

In the fourth quarter of 2013, Corning implemented a global restructuring plan within several of our segments to better align our cost position. These actions consisted of workforce reductions, asset disposals and write-offs, and exit costs. We recorded charges of $67 million associated with these actions, with total cash expenditures expected to be approximately $40 million.

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The following table summarizes the restructuring, impairment and other charges for the nine months ended September 30, 2014 (in millions):

	Reserve at January 1, 2014		Net charges/ (reversals)		Non cash adjustments			Cash payments	Reserve at September 30, 2014
Restructuring:
Employee related costs	$	36	$	32	$	(2)	$	(27)	$	39
Other charges		8		5		(1)		(3)		9
Total restructuring activity	$	44	$	37	$	(3)	$	(30)	$	48

Impairment charges and disposal of long-lived assets			$	14

Total restructuring, impairment and other charges			$	51

Cash payments for employee-related costs related to the 2014 and 2013 restructuring actions are expected to be substantially completed in 2015.

2013 Activity

The following table summarizes the restructuring reserve activity for the nine months ended September 30, 2013 (in millions):

	Reserve at January 1, 2013		Net charges/ (reversals)		Cash payments		Reserve at September 30, 2013
Restructuring:
Employee-related costs	$	38	$	(1)	$	(27)	$	10
Other charges (credits)		4				(3)		1
Total restructuring activity	$	42	$	(1)	$	(30)	$	11

Cash payments for the above restructuring activities were substantially completed in 2013.

3. Commitments, Contingencies and Guarantees

Dow Corning Corporation

Corning and The Dow Chemical Company (“Dow”) each own 50% of the common stock of Dow Corning Corporation (“Dow Corning”). In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from 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 included releases for Corning and Dow as shareholders in exchange for contributions to the Plan.

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Under 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 September 30, 2014, Dow Corning had recorded a liability of $1.7 billion for future funding of the Settlement Trust. This amount reflects Dow Corning’s estimate of the remaining obligation to fund the resolution of breast implant claims pursuant to the Plan. Future filing behaviors and the remaining level of funding that will be required are uncertain. Actual funding amounts may be materially different than the recorded liability. Dow Corning, with the assistance of a third party advisor, is in the process of assessing the impact of recent information about potential future claims experience, and, as a result, it is reasonably possible Dow Corning’s estimate of the remaining obligation could materially change in the near term. Although Dow Corning is not yet able to estimate the impact of these matters, the implant liability currently reflects the maximum capped amount under the Plan; therefore, any future revision to the estimate is expected to result in a lower recorded liability. Any adjustment to Dow Corning’s breast implant liability would impact the Company’s earnings in proportion to the Company’s 50 percent ownership interest in Dow Corning.

As a separate matter arising from its 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 September 30, 2014, Dow Corning has estimated the potential liability to these creditors to be within the range of $98 million to $320 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 $98 million, net of applicable tax benefits.

Pittsburgh Corning Corporation and Other 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 were 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 confirming an Amended PCC Plan of Reorganization (the “Amended PCC Plan”). On September 30, 2014, the United States District Court for the Western District of Pennsylvania (the “District Court”) affirmed the Bankruptcy Court’s decision confirming the Amended PCC Plan. The lone objector may appeal that decision to the United States Court of Appeals for the Third Circuit. If that occurs, it would likely take many months for the confirmation of the Amended PCC Plan to be finally affirmed.

Under the Amended PCC 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 Amended PCC Plan requires Corning to make: 1) one payment of $70 million one year from the date the Amended PCC 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.

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Other 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 Bankruptcy 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 September 30, 2014, 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 finally 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 Other Asbestos Litigation

The liability for the Amended PCC Plan and the other asbestos litigation was estimated to be $701 million at September 30, 2014, compared with an estimate of liability of $690 million at December 31, 2013. This $701 million liability is comprised of $261 million of the fair value of PCE, $290 million for the fixed series of payments, and $150 million for the non-PCC asbestos litigation, all referenced in the preceding paragraphs. With respect to the PCE liability, at September 30, 2014 and December 31, 2013, the fair value of $261 million of our interest in PCE significantly exceeded its carrying value of $164 million and $167 million, respectively. There have been no impairment indicators for our investment in PCE and we continue to recognize equity earnings of this affiliate. At the time Corning recorded this liability, it 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. As the fair value in PCE is significantly higher than book value, management believes that the risk of an additional loss in an amount materially higher than the fair value of the liability is remote. With respect to the liability for other asbestos litigation, the liability for non-PCC claims was estimated based upon industry data for asbestos claims since Corning does not have recent claim history due to the injunction issued by the Bankruptcy Court. The estimated liability represents the undiscounted projection of claims and related legal fees over the next 20 years. The amount may need to be adjusted in future periods as more data becomes available; however, we cannot estimate any additional losses at this time. The entire obligation is classified as a non-current liability as installment payments for the cash portion of the obligation under the Amended PCC Plan are not scheduled to commence until more than 12 months after the 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 affecting the non-PCC asbestos cases, 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.

Other Commitments and Contingencies

We are required, at the time a guarantee is issued, to recognize a liability for the fair value or market value of the obligation it assumes. In the normal course of our business, we do not routinely provide significant third-party guarantees. Generally, any third-party guarantees provided by Corning are limited to certain financial guarantees including stand-by letters of credit and performance bonds, and the incurrence of contingent liabilities in the form of purchase price adjustments related to attainment of milestones. When provided, these guarantees have various terms, and none of these guarantees are individually significant.

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As of September 30, 2014 and December 31, 2013, contingent guarantees totaled a notional value of $153 million and $151 million, respectively. We believe a significant majority of these contingent guarantees will expire without being funded. We also were contingently liable for purchase obligations of $300 million and $126 million, at September 30, 2014 and December 31, 2013, respectively. The increase in purchase obligations from December 31, 2013 to September 30, 2014, was attributable to the acquisition of the remaining interests of Samsung Corning Precision Materials, which increased the amount of obligations at September 30, 2014 by $166 million.

Product warranty liability accruals were considered insignificant at September 30, 2014 and December 31, 2013.

Corning is a defendant in various lawsuits, including environmental litigation, product-related suits, the Dow Corning and PCC matters, and is subject to various claims which arise in the normal course of business. In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse effect on Corning’s consolidated financial position, liquidity, or results of operations, is remote. Other than certain asbestos related claims, there are no other material loss contingencies related to litigation.

Corning has been named by the Environmental Protection Agency (“the Agency”) under the Superfund Act or by state governments under similar state laws, as a potentially responsible party for 15 hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At September 30, 2014 and December 31, 2013, Corning had accrued approximately $28 million (undiscounted) and $15 million (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

4. Debt

Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $3.6 billion at September 30, 2014 and $3.5 billion at December 31, 2013, compared to recorded book values of $3.2 billion at September 30, 2014 and $3.3 billion at December 31, 2013. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.

2014

In the third quarter of 2014, we amended and restated our existing revolving credit facility. The amended facility provides a $2 billion unsecured multi-currency line of credit and expires on September 30, 2019. At September 30, 2014, there were no outstanding amounts on this credit facility. The facility includes affirmative and negative covenants that Corning must comply with, including a leverage (debt to capital ratio) financial covenant. As of September 30, 2014, we were in compliance with all of the covenants.

At September 30, 2014, Corning had $424 million in outstanding commercial paper as part of the Company’s commercial paper program established in the second quarter of 2013. The estimated fair value of this commercial paper approximates its carrying value due to the short-term maturities.

-12-

2013

In the second quarter of 2013, the Company established a commercial paper program on a private placement basis, pursuant to which we may issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding at any time of $1 billion. Under this program, the Company may issue the notes from time to time and will use the proceeds for general corporate purposes. The maturities of the notes will vary, but may not exceed 390 days from the date of issue. The interest rates will vary based on market conditions and the ratings assigned to the notes by credit rating agencies at the time of issuance. The Company’s revolving credit facility is available to support obligations under the commercial paper program, if needed.

In the first quarter of 2013, we amended and restated our then-existing revolving credit facility. The 2013 amended facility provided a $1 billion unsecured multi-currency line of credit that would have expired in March 2018. This facility was amended and restated by the $2 billion facility entered into in the third quarter of 2014.

In the first quarter of 2013, Corning repaid the aggregate principal amount and accrued interest outstanding on the credit facility entered into in the second quarter of 2011 that allowed Corning to borrow up to Chinese Renminbi (RMB) 4 billion. The total amount repaid was approximately $500 million. Upon repayment, the facility was terminated.

5. Income Taxes

Our provision for income taxes and the related effective income tax rates were as follows (in millions):

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013

Provision for income taxes	$	(395)	$	(141)	$	(747)	$	(366)
Effective tax rate		28.0%		25.7%		33.5%		19.2%

For the three and nine months ended September 30, 2014, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following benefits:

·	Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits attributable to a deemed distribution to the U.S. of a portion of foreign current year earnings;

·	Equity in earnings of nonconsolidated affiliates reported in the financials, net of tax; and

·	Tax incentives in foreign jurisdictions, primarily Taiwan.

These benefits were offset by discrete tax charges of $102 million related to South Korean withholding tax on a dividend paid by Samsung Corning Precision Materials to Corning wholly owned foreign subsidiaries, and $146 million attributable to a change in judgment on the realizability of certain foreign deferred taxes assets for the nine months ended September 30, 2014.

For the three and nine months ended September 30, 2013, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following benefits:

·	Rate differences on income (loss) of consolidated foreign companies;

·	Equity in earnings of nonconsolidated affiliates reported in the financials, net of tax; and

·	Tax incentives in foreign jurisdictions, primarily Taiwan.

In addition to the items noted above, the tax provision for the nine months ended September 30, 2013 reflects a $54 million tax benefit to record the impact of the American Taxpayer Relief Act enacted on January 3, 2013 and made retroactive to 2012.

-13-

Corning’s subsidiary in Taiwan is operating under tax holiday arrangements. The benefit of the arrangement phases out through 2018. The impact of the tax holiday on our effective tax rate is a reduction in the rate of 0.3 and 1.7 percentage points for the three months ended September 30, 2014 and 2013, respectively. The impact of the tax holiday on our effective tax rate is a reduction in the rate of 0.6 and 1.3 percentage points for the nine months ended September 30, 2014 and 2013, respectively.

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. On May 30, 2014, the Korean Tax Tribunal issued a ruling partially in favor of Samsung Corning Precision Materials, resulting in an $18 million refund to Corning. Samsung Corning Precision Materials and Corning continue to appeal the remainder of the assessment and believe we will prevail when all available appeal remedies have been exhausted.

Corning continues to indefinitely reinvest substantially all of its foreign earnings, with the exception of approximately $9 million of current earnings in 2014 that have very low or no tax cost associated with their repatriation. Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash. One time or unusual items that may impact our ability or intent to keep our foreign earnings and cash indefinitely reinvested include significant U.S. acquisitions, stock repurchases, shareholder dividends, changes in tax laws, derivative contract settlements or the development of tax planning ideas that allow us to repatriate earnings at little or no tax cost, and/or a change in our circumstances or economic conditions that negatively impact our ability to borrow or otherwise fund U.S. needs from existing U.S. sources. While it remains impracticable to calculate the tax cost of repatriating our total unremitted foreign earnings, such cost could be material to the results of operations of Corning in a particular period.

While we expect the amount of unrecognized tax benefits to change in the next 12 months, we do not expect the change to have a significant impact on the results of operations or our financial position.

-14-

6. Earnings per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (in millions, except per share amounts):

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Net income attributable to Corning Incorporated	$	1,014	$	408	$	1,484	$	1,540
Less: Series A convertible preferred stock dividend		24				70
Net income available to common stockholders - basic		990		408		1,414		1,540
Plus: Series A convertible preferred stock dividend		24				70
Net income available to common stockholders - diluted	$	1,014	$	408	$	1,484	$	1,540

Weighted-average common shares outstanding - basic		1,284		1,454		1,315		1,465
Effect of dilutive securities:
Stock options and other dilutive securities		12		9		12		9
Series A convertible preferred stock dividend		115				109
Weighted-average common shares outstanding - diluted		1,411		1,463		1,436		1,474
Basic earnings per common share	$	0.77	$	0.28	$	1.08	$	1.05
Diluted earnings per common share	$	0.72	$	0.28	$	1.03	$	1.04

Anti-dilutive potential shares excluded from diluted earnings per common share:
Employee stock options and awards		23		36		24		40
Accelerated share repurchase forward contract						4
Total		23		36		28		40

7. Available-for-Sale Investments

The following is a summary of the fair value of available-for-sale investments (in millions):

	Amortized cost				Fair value
	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Bonds, notes and other securities:
U.S. government and agencies	$	743	$	530	$	744	$	531
Equity securities	$	6			$	7
Total short-term investments	$	749	$	530	$	751	$	531
Asset-backed securities	$	43	$	46	$	38	$	38
Total long-term investments	$	43	$	46	$	38	$	38

We do not intend to sell, nor do we believe it is more likely than not that we would be required to sell, the long-term investment asset-backed securities (which are collateralized by mortgages) before recovery of their amortized cost basis. It is possible that a significant degradation in the delinquency or foreclosure rates in the underlying assets could cause further temporary or other-than-temporary impairments in the future.

-15-

The following table summarizes the contractual maturities of available-for-sale securities at September 30, 2014 (in millions):

Less than one year	$451
Due in 1-5 years	293
Due in 5-10 years
Due after 10 years (1)	38
Total	$782

(1)	Includes $38 million of asset-based securities that mature over time and are being reported at their final maturity dates.

Unrealized gains and losses, net of tax, are computed on a specific identification basis and are reported as a separate component of accumulated other comprehensive income in shareholders’ equity until realized.

The following tables provide the fair value and gross unrealized losses of the Company’s investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2014 and December 31, 2013 (dollars in millions):

		September 30, 2014
		12 months or greater				Total
	Number of securities in a loss position	Fair value		Unrealized losses (1)		Fair value		Unrealized losses
Asset-backed securities	21	$	38	$	(4)	$	38	$	(4)
Total long-term investments	21	$	38	$	(4)	$	38	$	(4)

(1)	Unrealized losses in securities less than 12 months were not significant.

		December 31, 2013
		12 months or greater				Total
	Number of securities in a loss position	Fair value		Unrealized losses (1)		Fair value		Unrealized losses
Asset-backed securities	20	$	38	$	(8)	$	38	$	(8)
Total long-term investments	20	$	38	$	(8)	$	38	$	(8)

(1)	Unrealized losses in securities less than 12 months were not significant.

As of September 30, 2014 and December 31, 2013, for securities that have credit losses, an unrealized loss on other than temporary impaired securities of $4 million and $6 million, respectively, is recognized in accumulated other comprehensive income.

Proceeds from sales and maturities of short-term investments totaled approximately $954 million and $1,449 million for the nine months ended September 30, 2014 and 2013, respectively.

-16-

8. Inventories

Inventories comprise the following (in millions):

	September 30, 2014		December 31, 2013
Finished goods	$	457	$	486
Work in process		245		234
Raw materials and accessories		323		311
Supplies and packing materials		302		239
Total inventories	$	1,327	$	1,270

9. Investments

Samsung Corning Precision Materials

Prior to December 2013, Corning owned 50% of its equity affiliate, Samsung Corning Precision Materials, Samsung Display owned 42.5% and three shareholders owned the remaining 7%. In the fourth quarter of 2013, in connection with a series of 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 the 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 57.5%. Because this transaction did not result in a change in control based on the governing documents of this entity, Corning did not consolidate this entity as of December 31, 2013.

As further discussed in Note 10 (Acquisition), on January 15, 2014, Corning completed the acquisition of the common shares of Samsung Corning Precision Materials previously held by Samsung Display. As a result of these transactions, Corning became the owner of 100% of the common shares of Samsung Corning Precision Materials, which were consolidated into our results beginning in the first quarter of 2014. Operating under the name of Corning Precision Materials, the former Samsung Corning Precision Materials organization and operations were integrated into the Display Technologies segment in the first quarter of 2014.

Dow Corning Corporation (“Dow Corning”)

Summarized income statement information for Dow Corning is as follows for the three and nine months ended September 30, 2014 and prior year comparative periods: net sales $1,520 million and $4,545 million (2013: $1,427 million and $4,120 million), gross profit(1) $351 million and $1,071 million (2013: $265 million and $868 million) and net income attributable to Dow Corning $176 million and $476 million (2013: $117 million and $267 million). Dow Corning’s net income in the three and nine months ended September 30, 2014 includes an after-tax (loss) gain on a derivative instrument of $(20) million and $63 million, respectively (2013: $32 million and $32 million). Additionally, for the three months ended September 30, 2014, Dow Corning’s net income includes an energy tax credit of $17 million and foreign tax credit of $82 million.

(1)Gross profit for the three months ended September 30, 2014 includes R&D costs of $70 million (2013: $59 million) and selling expense of $3 million (2013: $4 million). Gross profit for the nine months ended September 30, 2014 includes R&D cost of $207 million (2013: $186 million) and selling expenses of $9 million (2013: $10 million).

10. Acquisition

On January 15, 2014, Corning consummated a series of strategic and financial agreements pursuant to the Framework Agreement with Samsung Display, previously announced on October 22, 2013, to acquire the remaining common shares of Samsung Corning Precision Materials. The transaction is expected to strengthen product and technology collaborations between the two companies and allow Corning to extend its leadership in specialty glass and drive earnings growth.

-17-

The Acquisition was accounted for under the purchase method of accounting in accordance with business combination accounting guidance. Accordingly, the preliminary purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value on the date of Acquisition. The fair value was determined based on the fair value of consideration transferred for the remaining equity interest of Samsung Display’s shares.

In connection with the purchase of Samsung Display’s equity interest in Samsung Corning Precision Materials pursuant to the Framework Agreement, the Company designated a new series of its preferred stock as Fixed Rate Cumulative Convertible Preferred Stock, Series A, par value $100 per share (“Preferred Stock”). As contemplated by the Framework Agreement, Samsung Display became the owner of 2,300 shares of Preferred Stock (with an issue price of $1 million per share), of which 1,900 shares were issued in connection with the Acquisition and 400 shares were issued for cash.

Corning issued 1,900 shares of Preferred Stock as consideration in the Acquisition of Samsung Corning Precision Materials which had a fair value of $1.9 billion on the acquisition date. The fair value was determined using an option pricing model based on the features of the Preferred Stock. That measure is based on Level 2 inputs observable in the market such as Corning’s common stock price and dividend yield.

The Acquisition also includes a contingent consideration arrangement that potentially requires additional consideration to be paid between the parties in 2018: one based on projections of future revenues generated by the business of Samsung Corning Precision Materials for the period between the acquisition date and December 31, 2017, which is subject to a cap of $665 million; and another based on the volumes of certain sales during the same period, which is subject to a separate cap of $100 million. The fair value of the potential receipt of the contingent consideration in 2018 in the amount of $196 million was estimated by applying an option pricing model using the Company’s projections of Corning Precision Materials’ future revenues. Changes in the fair value of the contingent consideration in future periods are valued using an option pricing model and are recorded in Corning’s results in the period of the change. In the third quarter of 2014, we recorded a pre-tax adjustment in Selling, general and administrative expenses in the amount of $77 million to reflect the increase in the fair value of the potential receipt of the contingent consideration.

The following table summarizes the total fair value of Samsung Corning Precision Materials at the acquisition date including the net consideration transferred to acquire the remaining 42.5% of Samsung Corning Precision Materials, the fair value of Corning’s non-controlling interest in Samsung Corning Precision Materials pre- and post-acquisition and the amount of the implied fair value of the total entity for the purpose of allocating the purchase price to the acquired net assets.

Net consideration applied to acquired assets	Samsung Display		Corning Incorporated		Samsung Corning Precision Materials
Ownership percentage		42.5%		57.5%		100%
Fair value based on $1.9 billion consideration transferred	$	1,911	$	2,588	$	4,499
Less contingent consideration - receivable		(196)		(265)		(461)
Net fair value of consideration @ 100%		1,715		2,323		4,038

Corning’s loss on royalty contract		(136)		(184)		(320)
Fair value post-acquisition	$	1,579	$	2,139	$	3,718

Corning’s fair value 57.5% post-acquisition		2,139
Total fair value at January 15, 2014	$	3,718

-18-

The $1.9 billion fair value of consideration transferred for the remaining 42.5% interest in Samsung Corning Precision Materials plus the fair value of Corning’s pre-acquisition fair value less the contingent consideration due Corning as of the acquisition date results in a net fair value for the total entity of $4 billion.

As a result of the acquisition of Samsung Corning Precision Materials, Corning reacquired its technology license rights and effectively settled its pre-existing royalty contract with the acquired entity, Samsung Corning Precision Materials. With regard to the reacquired right, Corning engaged a third-party specialist to assist in assessing the fair value of this right and determined that the reacquired right had a value of zero. In addition, the Company assessed whether this royalty contract was favorable or unfavorable to Corning. It was determined that the contractual royalty rate of 3% as compared to the then current market rate of 12% was unfavorable to Corning. The effective settlement of the contract was valued using the Income Approach; specifically, a relief from royalty method. The amount by which the contract was unfavorable to Corning when compared to current market transactions for similar items resulted in a loss of $320 million which was recorded on the acquisition date, representing 100% of the loss on the effective settlement of the contract. There were no stated contractual settlement provisions or previously recorded assets or liabilities to consider when determining the value associated with the settlement.

Because the pre-existing contract was unfavorable to Corning, a portion of the consideration transferred was deemed to be applicable to the effective settlement of the royalty contract between Corning and the acquiree, Samsung Corning Precision Materials. The $320 million loss attributable to the settlement of the pre-existing arrangement was accounted for as a separate transaction from the business combination as follows:

At acquisition, since the contract with Samsung Corning Precision Materials was effectively settled, Corning recognized a loss of $320 million. Of the $320 million, $184 million effectively offset the portion of the gain on previously held equity investment attributable to Corning’s interest in the royalty contract. As a result, the pre-acquisition fair value of Corning’s 57.5% share of $2.3 billion decreased to the fair value of $2.1 billion post-acquisition; and

At acquisition, since the seller, Samsung Display, was a 42.5% shareholder of Samsung Corning Precision Materials, 42.5%, or $136 million, of the $320 million loss to effectively settle the contract reduced the consideration transferred to acquire Samsung Display’s interest in Samsung Corning Precision Materials. Accordingly, $136 million of the consideration transferred was treated separately from the purchase price, resulting in the implied consideration transferred of approximately $1.6 billion.

The net economic effect to Corning following the transaction was a net loss of $136 million, constituting a $320 million loss due to Corning’s unfavorable contract and its share of the favorable contract in Samsung Corning Precision Materials of $184 million.

The gain on the previously held equity investment was calculated based on the fair value of the entity immediately preceding the Acquisition. As the pre-existing contract was treated as a separate transaction, the pre-existing contract was not taken into consideration when calculating the gain on the previously held equity interest.

-19-

The net gain on previously owned equity was calculated as follows:

December 2013 Investment Balance	$	3,709
Dividend (1)		(1,574)
Other		(18)
Net investment book balance at 1/15/2014	$	2,117

Fair value Samsung Corning Precision Materials	$	4,038
57.5% of Samsung Corning Precision Materials (2)		2,323
Working capital adjustment and other		52
57.5% of the pre-acquisition fair value of assets	$	2,375

Gain on previously held equity investment (2)	$	258
Translation gain		136
Net gain	$	394

(1)

In conjunction with the Framework Agreement, the parties agreed to have Samsung Corning Precision Materials distribute all cash and cash equivalents as a dividend to the shareholders of record as of December 31, 2013. The dividend was not part of the purchase price as the agreement was to distribute cash and cash equivalents as a dividend to the shareholders as soon as practicable. As such, at acquisition Corning did not have legal title to the cash to be distributed, although the dividend was distributed subsequent to the acquisition date. Therefore, the portion of Corning’s share of the $1.6 billion dividend received was accounted for in Corning’s consolidated financial statements as if the dividend occurred at or immediately prior to the date of acquisition at which time Samsung Corning Precision Materials was still an equity method investment in Corning’s consolidated financial statements.

(2)

As Corning was a 57.5% shareholder at the date of acquisition, immediately preceding the acquisition of Samsung Corning Precision Materials, Corning recognized an asset and respective gain as part of the calculation of its previously held equity investment which included approximately $184 million attributed to its economic interest in the royalty contract.

The following table summarizes the amounts of identified assets acquired and liabilities assumed at acquisition date. Corning has not completed its accounting for the Acquisition and its review of deferred taxes; therefore, amounts are subject to change.

Recognized amounts of identified assets acquired and liabilities assumed (in millions):

Cash and cash equivalents (1)	$	133
Trade receivables		353
Inventory (3)		116
Property, plant and equipment (3)		3,615
Other current and non-current assets (3)		74
Debt – current		(32)
Accounts payable and accrued expenses (3)		(356)
Other current and non-current liabilities (3)		(307)
Total identified net assets (3)		3,596
Non-controlling interests		15
Fair value of Samsung Corning Precision Materials on acquisition date		(3,718)
Goodwill (2)(3)	$	107

(1)	Cash and cash equivalents are presented net of the 2014 dividend distributed subsequent to the Acquisition, in the amount of $2.8 billion.

(2)	The goodwill recognized is not deductible for U.S. income tax purposes. The goodwill was allocated to the Display Technologies segment.

(3)	In the second and third quarters of 2014, the company recorded total measurement period adjustments of $39 million for the Acquisition of Corning Precision Materials primarily related to accrual of contingent liabilities and employee benefit obligations.

-20-

The goodwill is primarily attributable to the workforce of the acquired business and the synergies expected to result from the integration of Corning Precision Materials. Acquisition-related costs of $92 million in the nine months ended September 30, 2014 included costs for post-Acquisition compensation expense, legal, accounting, valuation and other professional services and were included in selling, general and administrative expenses in the Consolidated Statements of Income. Since the date of acquisition, the consolidation of Corning Precision Materials added $1,331 million to Net sales. The impact to Net income of the consolidation of Corning Precision Materials is impracticable to calculate due to the level of integration within the Display Technologies segment and the significant amount of estimates that would be required.

Unaudited Pro Forma Financial Information

The unaudited pro forma combined consolidated statement of income for the three and nine months ended September 30, 2013, was derived from the unaudited financial statements of Corning and Samsung Corning Precision Materials for the three and nine months ended September 30, 2013, and is presented to show how Corning might have appeared had the Acquisition occurred as of January 1, 2013.

The unaudited pro forma combined consolidated financial information was prepared pursuant to the rules and regulations of the SEC. The unaudited pro forma adjustments reflecting the Acquisition have been prepared in accordance with the business combination accounting guidance and reflect the preliminary allocation of the purchase price to the acquired assets and liabilities based upon the preliminary estimate of fair values, using the assumptions set forth above.

Unaudited Pro Forma Financial Information (in millions, except per share data):

	Three months ended September 30, 2013		Nine months ended September 30, 2013
Net sales	$	2,554	$	7,431
Net income from continuing operations – basic	$	480	$	1,837
Net income from continuing operations – diluted	$	505	$	1,910
Earnings per common share attributable to common shareholders
Basic	$	0.33	$	1.25
Diluted	$	0.32	$	1.20
Shares used in computing per share amounts
Basic	$	1,454	$	1,465
Diluted	$	1,578	$	1,589

There were no other significant acquisitions for the nine months ended September 30, 2014, and for the year ended December 31, 2013.

-21-

11. Property, Net of Accumulated Depreciation

Property, net of accumulated depreciation follows (in millions):

	September 30, 2014		December 31, 2013
Land	$	474	$	121
Buildings		5,607		4,175
Equipment		14,089		12,286
Construction in progress		1,275		1,084
		21,445		17,666
Accumulated depreciation		(8,412)		(7,865)
Total	$	13,033	$	9,801

The increase in Property, net of accumulated depreciation in 2014 is primarily driven by the Acquisition of Samsung Corning Precision Materials, which added $3.6 billion to this balance at acquisition.

In the three months ended September 30, 2014 and 2013, interest costs capitalized as part of Property, net of accumulated depreciation were $9 million and $8 million, respectively. In the nine months ended September 30, 2014 and 2013, interest costs capitalized as part of Property, net of accumulated depreciation, were $31 million and $25 million, respectively.

Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. At September 30, 2014 and December 31, 2013, the recorded value of precious metals totaled $3.2 billion and $2.2 billion, respectively. Depletion expense for precious metals in the three months ended September 30, 2014 and 2013 was $3 million and $4 million, respectively. Depletion expense for precious metals in the nine months ended September 30, 2014 and 2013 totaled $16 million and $15 million, respectively. The consolidation of Corning Precision Materials added approximately $1.1 billion in precious metals and approximately $3 million of depletion expense for the nine months ended September 30, 2014.

12. Goodwill and Other Intangible Assets

The carrying amount of goodwill by segment for the periods ended September 30, 2014 and December 31, 2013 is as follows (in millions):

	Display Technologies		Optical Communications		Specialty Materials		Life Sciences		Total

Balance at December 31, 2013	$	9	$	240	$	150	$	603	$	1,002
Goodwill (1)		68				54				122
Measurement period adjustments (2)		39								39
Foreign currency translation adjustment		(1)		(1)		(4)		(15)		(21)
Balance at September 30, 2014	$	115		239		200		588		1,142

(1)

The Company recorded the Acquisition of Samsung Corning Precision Materials and a small acquisition in the Specialty Materials segment in the first quarter of 2014. Refer to Note 10 (Acquisition) to the Consolidated Financial Statements for additional information on the Acquisition of Samsung Corning Precision Materials.

(2)	In the second and third quarters of 2014, the company recorded measurement period adjustments of $39 million for the Acquisition of Samsung Corning Precision Materials primarily related to the accrual of contingent liabilities and employee benefit obligations.

-22-

Corning’s gross goodwill balances for the periods ended September 30, 2014 and December 31, 2013 were $7.6 billion and $7.5 billion, respectively. Accumulated impairment losses were $6.5 billion for the periods ended September 30, 2014 and December 31, 2013, and were generated entirely through goodwill impairments related to the Optical Communications segment recorded primarily in 2001.

Other intangible assets are as follows (in millions):

	September 30, 2014						December 31, 2013
	Gross		Accumulated amortization		Net		Gross		Accumulated amortization		Net
Amortized intangible assets:
Patents, trademarks, and trade names	$	304	$	147	$	157	$	290	$	138	$	152
Customer lists and other		416		62		354		436		48		388

Total	$	720	$	209	$	511	$	726	$	186	$	540

Corning’s amortized intangible assets are primarily related to the Optical Communications and Life Sciences segments. The net carrying amount of intangible assets decreased during the first nine months of 2014, primarily due to amortization of $25 million and foreign currency translation adjustments, offset by a small acquisition.

Amortization expense related to these intangible assets is estimated to be $34 million for 2014, $33 million for 2015 and $32 million annually from 2016 to 2019.

13. Employee Retirement Plans

The following table summarizes the components of net periodic benefit cost for Corning’s defined benefit pension and postretirement health care and life insurance plans (in millions):

	Pension benefits								Postretirement benefits
	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013		2014		2013		2014		2013

Service cost	$	30	$	16	$	62	$	53	$	4	$	3	$	9	$	10
Interest cost		42		33		118		99		10		10		28		29
Expected return on plan assets		(45)		(42)		(131)		(126)
Amortization of net loss												3				11
Amortization of prior service cost (credit)		1		1		4		3		(3)		(1)		(5)		(4)
Recognition of actuarial gain								(41)
Total pension and postretirement benefit expense (credit)	$	28	$	8	$	53	$	(12)	$	11	$	15	$	32	$	46

-23-

14. Hedging Activities

Undesignated Hedges

The table below includes a total gross notional value for the translated earnings contracts of $13.9 billion at September 30, 2014 (at December 31, 2013: $6.8 billion), including purchased and zero cost collars of $4.4 billion (at December 31, 2013: $5.9 billion) and average rate forwards of $9.5 billion (at December 31, 2013: $0.9 billion). With respect to the purchased collars and zero cost collars, the gross notional amount includes the value of both the put and call options. However, due to the nature of the purchased and zero cost collars, either the put or the call option can be exercised at maturity. As of September 30, 2014, the total net notional value of the purchased collars and zero cost collars was $2.3 billion (at December 31, 2013: $3 billion).

The following tables summarize the gross notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for September 30, 2014 and December 31, 2013 (in millions):

	U.S. Dollar				Asset derivatives					Liability derivatives
	Gross notional amount				Balance sheet location	Fair value				Balance sheet location	Fair value
	2014		2013		Balance sheet location	2014		2013		Balance sheet location	2014		2013

Derivatives designated as hedging instruments

Foreign exchange contracts	$	150	$	433	Other current assets	$	8	$	8	Other accrued liabilities			$	(3)
					Other assets		1
Interest rate contracts		550		550						Other liabilities	$	(18)		(28)

Derivatives not designated as hedging instruments

Foreign exchange contracts		1,118		804	Other current assets		17		20	Other accrued liabilities		(11)		(3)
Translated earnings contracts		13,899		6,826	Other current assets		378		344	Other accrued liabilities		(18)		(3)
					Other assets		477		90	Other liabilities		(8)

Total derivatives	$	15,717	$	8,613		$	881	$	462		$	(55)	$	(37)

-24-

The following table summarizes the effect of derivative financial instruments on Corning’s consolidated financial statements for the three months ended September 30, 2014 and 2013 (in millions):

	Effect of derivative instruments on the consolidated financial statements for the three months ended September 30
Derivatives in hedging relationships	Gain recognized in other comprehensive income (OCI)				Location of gain reclassified from accumulated OCI into income (effective)	Gain reclassified from accumulated OCI into income (effective) (1)
Derivatives in hedging relationships	2014		2013			2014		2013

-					Sales	$	1
Interest rate contracts			$	3	Cost of sales		2	$	9
Foreign exchange contracts	$	11		(3)	Other (expense) income, net				17

Total cash flow hedges	$	11	$	0		$	3	$	26

(1)	The amount of hedge ineffectiveness for the three months ended September 30, 2014 and 2013 was insignificant.

The following table summarizes the effect of derivative financial instruments on Corning’s consolidated financial statements for the nine months ended September 30, 2014 and 2013 (in millions):

	Effect of derivative instruments on the consolidated financial statements for the nine months ended September 30
Derivatives in hedging relationships	Gain/(loss) recognized in other comprehensive income (OCI)				Location of gain reclassified from accumulated OCI into income (effective)	Gain reclassified from accumulated OCI into income (effective) (1)
Derivatives in hedging relationships	2014		2013			2014		2013

-					Sales	$	1
Interest rate contracts			$	40	Cost of sales		2	$	28
Foreign exchange contracts	$	6		48	Other (expense) income, net				48

Total cash flow hedges	$	6	$	88		$	3	$	76

(1)	The amount of hedge ineffectiveness for the nine months ended September 30, 2014 and 2013 was insignificant.

The following table summarizes the effect on the consolidated financial statements relating to Corning’s derivative financial instruments (in millions):

Undesignated derivatives	Location of gain/(loss) recognized in income	Gain/(loss) recognized in income (1)
		Three months ended September 30,				Nine months ended September 30,
		2014		2013		2014		2013

Foreign exchange contracts – balance sheet	Other income (expense), net	$	21	$	(6)	$	16	$	82
Foreign exchange contracts – loans	Other income (expense), net		5		(2)		6		83
Translated earnings contracts	Other income (expense), net		739		(46)		600		205

Total undesignated		$	765	$	(54)	$	622	$	370

(1)	Certain amounts for prior periods were reclassified to conform to the current year presentation.

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15. Fair Value Measurements

Fair value standards under U.S. GAAP define fair value, establish a framework for measuring fair value in applying generally accepted accounting principles, and require disclosures about fair value measurements. The standards also identify two kinds of inputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources while unobservable inputs are based on the Company’s own market assumptions. Once inputs have been characterized, the inputs are prioritized into one of three broad levels (provided in the table below) used to measure fair value. Fair value standards apply whenever an entity is measuring fair value under other accounting pronouncements that require or permit fair value measurement and require the use of observable market data when available.

The following tables provide fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis (in millions):

			Fair value measurements at reporting date using
	September 30, 2014		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Current assets:
Short-term investments	$	762	$	762
Other current assets (1)	$	404			$	404
Non-current assets:
Other assets (1)(2)	$	789			$	516	$	273

Current liabilities:
Other accrued liabilities (1)	$	29			$	29
Non-current liabilities:
Other liabilities (1)	$	26			$	26

(1)	Derivative assets and liabilities include foreign exchange contracts, including forwards, zero-cost and purchased collars, together with interest rate swaps which are measured using observable quoted prices for similar assets and liabilities.

(2)	Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and a contingent consideration asset which was measured by applying an option pricing model using projected future Corning Precision Materials’ revenue.

			Fair value measurements at reporting date using
	December 31, 2013		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Current assets:
Short-term investments	$	531	$	531
Other current assets (1)	$	372			$	372
Non-current assets:
Other assets (1)(2)	$	128			$	128

Current liabilities:
Other accrued liabilities (1)	$	9			$	9
Non-current liabilities:
Other liabilities (1)	$	28			$	28

(1)	Derivative assets and liabilities include foreign exchange contracts, including forwards and purchased collars, together with interest rate swaps which are measured using observable quoted prices for similar assets and liabilities.

(2)	Other assets include asset-backed securities which are measured using observable quoted prices for similar assets.

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As a result of the Acquisition of Samsung Corning Precision Materials, the Company has contingent consideration that was measured using unobservable (Level 3) inputs. This contingent consideration arrangement potentially requires additional consideration to be paid between the parties in 2018: one based on projections of future revenues generated by the business of Corning Precision Materials for the period between the acquisition date and December 31, 2017, which is subject to a cap of $665 million; and another based on the volumes of certain sales during the same period, which is subject to a separate cap of $100 million. The fair value of the potential receipt of the contingent consideration in 2018 in the amount of $196 million recognized on the acquisition date was estimated by applying an option pricing model using the Company’s projection of future revenues generated by Corning Precision Materials. Changes in the fair value of the contingent consideration in future periods are valued using an option pricing model and are recorded in Corning’s results in the period of the change. In the third quarter of 2014, the fair value of the potential receipt of the contingent consideration in 2018 is estimated to be $273 million. Corning recorded a pre-tax adjustment in the amount of $77 million to reflect the increase in the fair value which is mainly due to the movement in foreign exchange rate.

As of December 31, 2013, the Company did not have any financial assets or liabilities that were measured on a recurring basis using unobservable (or Level 3) inputs.

16. Shareholders’ Equity

Fixed Rate Cumulative Convertible Preferred Stock, Series A

On January 15, 2014, Corning designated a new series of its preferred stock as Fixed Rate Cumulative Convertible Preferred Stock, Series A, par value $100 per share, and issued 1,900 shares of Preferred Stock at an issue price of $1 million per share, for an aggregate issue price of $1.9 billion, to Samsung Display in connection with the Acquisition of its equity interests in Samsung Corning Precision Materials. Corning also issued to Samsung Display an additional amount of Preferred Stock at closing, for an aggregate issue price of $400 million in cash.

Dividends on the Preferred Stock are cumulative and accrue at the annual rate of 4.25% on the per share issue price of $1 million. The dividends are payable quarterly as and when declared by the Company’s board of directors. The Preferred Stock ranks senior to our common stock with respect to payment of dividends and rights upon liquidation. The Preferred Stock is not redeemable except in the case of a certain deemed liquidation event, the occurrence of which is under the control of the Company. The Preferred Stock is convertible at the option of the holder and the Company upon certain events, at a conversion rate of 50,000 shares of Corning’s common stock per one share of Preferred Stock, subject to certain anti-dilution provisions. As of September 30, 2014, the Preferred Stock has not been converted, and none of the anti-dilution provisions have been triggered. Following the seventh anniversary of the closing of the Acquisition, the Preferred Stock will be convertible, in whole or in part, at the option of the holder. The Company has the right, at its option, to cause some or all of the shares of Preferred Stock to be converted into Common Stock, if, for 25 trading days (whether or not consecutive) within any period of 40 consecutive trading days, the closing price of Common Stock exceeds $35 per share. If the aforementioned right becomes exercisable before the seventh anniversary of the closing, the Company must first obtain the written approval of the holders of a majority of the Preferred Stock before exercising its conversion right. The Preferred Stock does not have any voting rights except as may be required by law.

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Share Repurchases

On October 31, 2013, as part of the share repurchase program announced on April 24, 2013 (the “2013 Repurchase Program”), Corning entered into an accelerated share repurchase (“ASR”) agreement with JP Morgan Chase Bank, National Association, London Branch (“JPMC”). Under the ASR agreement with JPMC, Corning agreed to purchase $1 billion of its common stock, in total, with an initial delivery by JPMC of 47.1 million shares based on the current market price, and payment of $1 billion made by Corning to JPMC. The payment to JPMC was recorded as a reduction to shareholders’ equity, consisting of an $800 million increase in treasury stock, which reflects the value of the initial 47.1 million shares received upon execution, and a $200 million decrease in other-paid-in capital, which reflects the value of the stock held back by JPMC pending final settlement. On January 28, 2014, the ASR agreement with JPMC was completed. Corning received an additional 10.5 million shares on January 31, 2014 to settle the ASR agreement. In total, Corning purchased 57.6 million shares based on the average daily volume weighted-average price of Corning’s common stock during the term of the ASR agreement with JPMC, less a discount. Additionally, in the first quarter of 2014, we repurchased 26.7 million shares of common stock on the open market for approximately $484 million as part of the 2013 Repurchase Program. The 2013 Repurchase Program was completed in the first quarter of 2014.

On March 3, 2014, as part of the $2.0 billion share repurchase program announced on October 22, 2013 and made effective concurrent with the closing of Corning’s Acquisition of Samsung Corning Precision Materials on January 15, 2014, Corning entered into an ASR agreement with Citibank N.A. (“Citi”). Under the ASR agreement with Citi, Corning agreed to purchase $1.25 billion of its common stock, with an initial delivery by Citi of 52.5 million shares based on the current market price, and payment of $1.25 billion made by Corning to Citi. On May 28, 2014, the ASR agreement with Citi was completed, and Corning received an additional 8.7 million shares to settle the ASR agreement. In total, Corning purchased 61.2 million shares based on the average daily volume weighted-average price of Corning’s common stock during the term of the ASR agreement with Citi, less a discount.

In addition to the shares repurchased through the ASR agreement, in the three and nine months ended September 30, 2014, we repurchased 9.6 million and 27.6 million shares of common stock on the open market for approximately $200 million and $567 million, respectively, as part of the share repurchase program made effective on January 15, 2014.

Accumulated Other Comprehensive Income

In the nine months ended September 30, 2014 and 2013, the primary changes in accumulated other comprehensive income (“AOCI”) were related to the foreign currency translation component. A summary of changes in the foreign currency translation adjustment component of AOCI is as follows (in millions):

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013

Beginning balance	$	629	$	373	$	492	$	1,174
Other comprehensive (loss) income		(600)		76		(313)		(477)
Equity method affiliates		(76)		241		(226)		(7)
Net current-period other comprehensive (loss) income		(676)		317		(539)		(484)
Ending balance	$	(47)	$	690	$	(47)	$	690

In the first quarter of 2014, a $136 million cumulative foreign currency translation gain was released to income as a result of the step acquisition of Corning Precision Materials and included in the gain on previously held equity investment.

There were no material tax effects related to foreign currency translation gains and losses.

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17. Share-based Compensation

Stock Compensation Plans

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values. Fair values for stock options were estimated using a multiple-point Black-Scholes valuation model. Share-based compensation cost was approximately $19 million and $15 million for the three months ended September 30, 2014 and 2013, respectively, and approximately $47 million and $40 million for the nine months ended September 30, 2014 and 2013, respectively. Amounts for all periods presented included compensation expense for employee stock options and time-based restricted stock and restricted stock units.

Stock Options

Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from one to five years from the grant date. The maximum term of a stock option is 10 years from the grant date.

The following table summarizes information concerning stock options outstanding including the related transactions under the stock option plans for the nine months ended September 30, 2014:

	Number of Shares (in thousands)	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (in thousands)
Options Outstanding as of December 31, 2013	57,139	$17.83
Granted	1,591	21.01
Exercised	(8,000)	12.33
Forfeited and Expired	(606)	17.30
Options Outstanding as of September 30, 2014	50,124	18.81	4.67	$156,052
Options Expected to Vest as of September 30, 2014	49,998	18.82	4.67	155,206
Options Exercisable as of September 30, 2014	36,845	20.39	3.47	78,022

The aggregate intrinsic value (market value of stock less option exercise price) in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price on September 30, 2014, which would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date.

As of September 30, 2014, there was approximately $15 million of unrecognized compensation cost related to stock options granted under the plans. The cost is expected to be recognized over a weighted-average period of 1.4 years. Compensation cost related to stock options was approximately $9 million and $7 million for the three months ended September 30, 2014 and 2013, respectively, and approximately $20 million and $18 million for the nine months ended September 30, 2014 and 2013, respectively.

Proceeds received from the exercise of stock options were $98 million and $54 million for the nine months ended September 30, 2014 and 2013, respectively. Proceeds received from the exercise of stock options were included in financing activities on the Company’s Consolidated Statements of Cash Flows. The total intrinsic value of options exercised for the nine months ended September 30, 2014 and 2013 was approximately $60 million and $38 million, respectively, which is currently deductible for tax purposes. However, these tax benefits were not fully recognized due to net operating loss and credit carryforwards available to the Company. Refer to Note 5 (Income Taxes) to the consolidated financial statements.

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The following range of inputs were used for the valuation of option grants under our Stock Option Plans:

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
Expected volatility	45.7	-	45.7%	46.6	-	47.0%	45.7	-	46.2%	46.6	-	47.4%
Weighted-average volatility	45.7	-	45.7%	46.7	-	46.7%	45.7	-	46.2%	46.7	-	47.3%
Expected dividends	1.98	-	1.98%	2.68	-	2.68%	1.90	-	2.09%	2.68	-	3.02%
Risk-free rate	2.0	-	2.0%	1.8	-	2.2%	2.0	-	2.2%	0.8	-	2.2%
Average risk-free rate	2.0	-	2.0%	2.2	-	2.2%	2.0	-	2.2%	1.1	-	2.2%
Expected term (in years)	7.2	-	7.2	5.8	-	7.2	7.2	-	7.2	5.8	-	7.1
Pre-vesting departure rate	0.5	-	0.5%	0.4	-	4.1%	0.5	-	0.5%	0.4	-	4.1%

Expected volatility is based on a blended approach defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term assumption is the period of time the options are expected to be outstanding, and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rate assumption is the implied rate for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. The ranges in the table above reflect results from separate groups of employees exhibiting different exercise behavior.

Incentive Stock Plans

The Corning Incentive Stock Plan permits restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly and, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plan are granted at the closing market price on the grant date, contingently vest over a period of generally one to ten years, and generally have contractual lives of one to ten years. The fair value of each restricted stock grant or restricted stock unit awarded under the Incentive Stock Plan was estimated on the date of grant.

Time-Based Restricted Stock and Restricted Stock Units:

Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company’s common stock upon vesting. The fair value is based on the closing market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.

The following table represents a summary of the status of the Company’s non-vested time-based restricted stock and restricted stock units as of December 31, 2013, and changes which occurred during the nine months ended September 30, 2014:

	Shares (000’s)	Weighted Average Grant-Date Fair Value
Non-vested shares and share units at December 31, 2013	6,108	$	14.58
Granted	1,476		20.44
Vested	(1,587)		17.34
Forfeited	(119)		14.73
Non-vested shares and share units at September 30, 2014	5,878	$	15.30

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As of September 30, 2014, there was approximately $31 million of unrecognized compensation cost related to non-vested time-based restricted stock and restricted stock units compensation arrangements granted under the Incentive Stock Plan. The cost is expected to be recognized over a weighted-average period of 1.7 years. Compensation cost related to time-based restricted stock and restricted stock units was approximately $10 million and $8 million for the three months ended September 30, 2014 and 2013, respectively, and approximately $27 million and $22 million for the nine months ended September 30, 2014 and 2013, respectively.

18. Significant Customers

For the three and nine months ended September 30, 2014, Corning had one customer that individually accounted for 10% or more of the Company’s consolidated net sales. For the three months ended September 30, 2013, Corning had one customer that individually accounted for 10% or more of the Company’s consolidated net sales. For the nine months ended September 30, 2013, Corning did not have a customer that individually accounted for 10% or more of the Company’s consolidated net sales.

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.

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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)	$