Note 20 - Reportable Segments

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

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, 2014
Net sales	$	3,851	$	2,652	$	1,092	$	1,205	$	862	$	53	$	9,715
Depreciation (1)	$	676	$	154	$	119	$	113	$	60	$	31	$	1,153
Amortization of purchased intangibles			$	10					$	22			$	32
Research, development and engineering expenses (2)	$	138	$	141	$	91	$	140	$	22	$	177	$	709
Restructuring, impairment and other charges	$	54	$	17			$	(1)	$	1	$	(3)	$	68
Equity in earnings of affiliated companies	$	(20)			$	2					$	18
Income tax (provision) benefit	$	(599)	$	(116)	$	(91)	$	(78)	$	(34)	$	85	$	(833)
Net income (loss) (5)	$	1,369	$	205	$	182	$	144	$	71	$	(196)	$	1,775
Investment in affiliated companies, at equity	$	63	$	2	$	32					$	214	$	311
Segment assets (6)	$	8,863	$	1,737	$	1,297	$	1,288	$	553	$	518	$	14,256
Capital expenditures	$	492	$	145	$	173	$	104	$	30	$	101	$	1,045
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	$	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 (4)	$	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

(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.

(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, plant and equipment, net, and associated equity companies and cost investments.

For the year ended December 31, 2014, the following number of customers, which individually accounted for 10% or more of each segment’s sales, represented the following concentration of segment sales:

·   In the Display Technologies segment, three customers accounted for 61% of total segment sales.

·   In the Optical Communications segment, one customer accounted for 11% of total segment sales.

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

·   In the Specialty Materials segment, three customers accounted for 51% of total segment sales.

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

A significant amount of specialized manufacturing capacity for our Display Technologies segment is concentrated in Asia.  It is at least reasonably possible that the 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,
	2014		2013		2012
Net income of reportable segments	$	1,971	$	1,856	$	2,012
Net loss of All Other		(196)		(163)		(98)
Unallocated amounts:
Net financing costs (1)		(113)		(66)		(196)
Stock-based compensation expense		(58)		(54)		(70)
Exploratory research		(102)		(112)		(89)
Corporate contributions		(43)		(42)		(44)
Equity in earnings of affiliated companies, net of impairments (2)		269		207		82
Asbestos settlement		(13)		(19)		(14)
Purchased collars and average rate forward contracts		639		197
Other corporate items (3)		118		157		53
Net income	$	2,472	$	1,961	$	1,636

(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 is primarily equity in earnings of Dow Corning, which includes the following items:

·   In 2014, Dow Corning’s net income includes an after-tax gain of $365 million from the reduction of the Implant Liability, an after-tax gain on a derivative instrument of $29 million, foreign tax credits of approximately $99 million, and an energy tax credit of approximately $13 million, offset partially by the after-tax charge of $432 million for the abandonment of a polycrystalline silicon plant expansion.

·   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.

(3) Other corporate items include the tax impact of the unallocated amounts, excluding purchased collars and average rate forward contracts, and the following significant items:

·   In 2014, Corning recorded $150 million from changes in deferred tax valuation allowances and $46 million of tax expense related to out-of-period transfer pricing adjustments.

·   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.

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

	December 31,
	2014		2013		2012
Total assets of reportable segments	$	13,738	$	14,269	$	14,750
Non-reportable segments		518		422		351
Unallocated amounts:
Current assets (1)		7,402		6,349		7,300
Investments (2)		1,490		1,595		1,340
Property, plant and equipment, net (3)		1,657		1,594		1,494
Other non-current assets (4)		5,258		4,249		4,140
Total assets	$	30,063	$	28,478	$	29,375

(1) Includes current corporate assets, primarily cash, short-term investments, current portion of long-term derivative assets 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, long-term derivative 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	2014		2013		2012
Display Technologies	$	3,851	$	2,545	$	2,909
Optical Communications
Carrier network		2,036		1,782		1,619
Enterprise network		616		544		511
Total Optical Communications		2,652		2,326		2,130
Environmental Technologies
Automotive and other		528		485		486
Diesel		564		434		478
Total Environmental Technologies		1,092		919		964
Specialty Materials
Corning Gorilla Glass		846		848		1,027
Advanced optics and other specialty glass		359		322		319
Total Specialty Materials		1,205		1,170		1,346
Life Sciences
Labware		536		529		430
Cell culture products		326		322		227
Total Life Science		862		851		657
All Other		53		8		6
	$	9,715	$	7,819	$	8,012

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

	2014				2013					2012
	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	$	2,275	$	7,998	$	2,061	$		7,170	$	1,859	$	6,771
Canada		311				308					246
Mexico		35		50		23			36		24		87
Total North America		2,621		8,048		2,392			7,206		2,129		6,858
Asia Pacific
Japan		608		1,311		621			1,548		751		1,949
Taiwan		1,092		2,005		1,376			2,277		1,708		2,836
China		1,893		1,115		1,916			1,218		2,103		1,215
Korea		1,882		3,595		96			3,234		94		3,342
Other		308		109		278			127		243		84
Total Asia Pacific	5,783			8,135		4,287			8,404		4,899		9,426
Europe
Germany		397		217		337			171		264		139
France		81		277		79			287		57		267
United Kingdom		187		176		165			6		134		14
Other		369		980		280			1,147		274		550
Total Europe		1,034		1,650		861			1,611		729		970
Latin America
Brazil		67		36		77			66		29		1
Other		35				37			6		33		6
Total Latin America		102		36		114			72		62		7
All Other		175		19		165			25		193		35
Total	$	9,715	$	17,888	$	7,819	$	17,318		$	8,012	$	17,296

(1) Long-lived assets primarily include investments, plant and equipment, goodwill and other intangible assets.  In 2014, assets in the U.S. include the investment in Dow Corning.  In 2013 and 2012, assets in the U.S. and South Korea include investments in Dow Corning and Samsung Corning Precision Materials.

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