x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended June 30, 2013
|
|
OR
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
|
to
|
|
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)
|
Yes
|
x
|
No
|
¨
|
Yes
|
x
|
No
|
¨
|
Large accelerated filer
|
x
|
Accelerated filer
|
¨
|
|||
Non-accelerated filer
|
¨
|
Smaller reporting company
|
¨
|
Yes
|
¨
|
No
|
x
|
Class
|
Outstanding as of July 15, 2013
|
|
Corning’s Common Stock, $0.50 par value per share
|
1,460,403,521 shares
|
PART I – FINANCIAL INFORMATION
|
||
Page
|
||
Item 1. Financial Statements
|
||
Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2013 and 2012
|
3
|
|
Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2013 and 2012
|
4
|
|
Consolidated Balance Sheets (Unaudited) at June 30, 2013 and December 31, 2012
|
5
|
|
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012
|
6
|
|
Notes to Consolidated Financial Statements (Unaudited)
|
7
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
38
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
64
|
|
Item 4. Controls and Procedures
|
64
|
|
PART II – OTHER INFORMATION
|
||
Item 1. Legal Proceedings
|
65
|
|
Item 1A. Risk Factors
|
65
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
66
|
|
Item 6. Exhibits
|
67
|
|
Signatures
|
68
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||
2013
|
2012
|
2013
|
2012
|
||||||||
Net sales
|
$
|
1,982
|
$
|
1,908
|
$
|
3,796
|
$
|
3,828
|
|||
Cost of sales
|
1,099
|
1,100
|
2,143
|
2,196
|
|||||||
Gross margin
|
883
|
808
|
1,653
|
1,632
|
|||||||
Operating expenses:
|
|||||||||||
Selling, general and administrative expenses
|
266
|
286
|
525
|
559
|
|||||||
Research, development and engineering expenses
|
179
|
185
|
357
|
369
|
|||||||
Amortization of purchased intangibles
|
8
|
4
|
15
|
9
|
|||||||
Asbestos litigation charge
|
6
|
5
|
8
|
6
|
|||||||
Operating income
|
424
|
328
|
748
|
689
|
|||||||
Equity in earnings of affiliated companies (Note 9)
|
166
|
259
|
339
|
477
|
|||||||
Interest income
|
2
|
3
|
4
|
7
|
|||||||
Interest expense
|
(28)
|
(24)
|
(64)
|
(44)
|
|||||||
Other income, net (Note 1)
|
265
|
8
|
330
|
37
|
|||||||
Income before income taxes
|
829
|
574
|
1,357
|
1,166
|
|||||||
Provision for income taxes (Note 5)
|
(191)
|
(100)
|
(225)
|
(218)
|
|||||||
Net income attributable to Corning Incorporated
|
$
|
638
|
$
|
474
|
$
|
1,132
|
$
|
948
|
|||
Earnings per common share attributable to Corning Incorporated:
|
|||||||||||
Basic (Note 6)
|
$
|
0.43
|
$
|
0.31
|
$
|
0.77
|
$
|
0.63
|
|||
Diluted (Note 6)
|
$
|
0.43
|
$
|
0.31
|
$
|
0.76
|
$
|
0.62
|
|||
Dividends declared per common share
|
$
|
0.10
|
$
|
0.075
|
$
|
0.19
|
$
|
0.15
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||
2013
|
2012
|
2013
|
2012
|
||||||||
Net income attributable to Corning Incorporated
|
$
|
638
|
$
|
474
|
$
|
1,132
|
$
|
948
|
|||
Other comprehensive (loss) income, net of tax (Note 16)
|
(256)
|
13
|
(744)
|
(48)
|
|||||||
Comprehensive income attributable to Corning Incorporated
|
$
|
382
|
$
|
487
|
$
|
388
|
$
|
900
|
June 30,
2013
|
December 31,
2012
|
||||
Assets
|
|||||
Current assets:
|
|||||
Cash and cash equivalents
|
$
|
4,601
|
$
|
4,988
|
|
Short-term investments, at fair value (Note 7)
|
870
|
1,156
|
|||
Total cash, cash equivalents and short-term investments
|
5,471
|
6,144
|
|||
Trade accounts receivable, net of doubtful accounts and allowances - $31 and $26
|
1,296
|
1,302
|
|||
Inventories (Note 8)
|
1,240
|
1,051
|
|||
Deferred income taxes (Note 5)
|
282
|
579
|
|||
Other current assets
|
764
|
619
|
|||
Total current assets
|
9,053
|
9,695
|
|||
Investments (Note 9)
|
4,809
|
4,915
|
|||
Property, net of accumulated depreciation - $7,683 and $7,652 (Note 11)
|
9,954
|
10,625
|
|||
Goodwill and other intangible assets, net (Note 12)
|
1,559
|
1,496
|
|||
Deferred income taxes (Note 5)
|
2,453
|
2,343
|
|||
Other assets
|
561
|
301
|
|||
Total Assets
|
$
|
28,389
|
$
|
29,375
|
|
Liabilities and Equity
|
|||||
Current liabilities:
|
|||||
Current portion of long-term debt (Note 4)
|
$
|
72
|
$
|
76
|
|
Accounts payable
|
721
|
779
|
|||
Other accrued liabilities (Note 3)
|
804
|
1,101
|
|||
Total current liabilities
|
1,597
|
1,956
|
|||
Long-term debt (Note 4)
|
2,822
|
3,382
|
|||
Postretirement benefits other than pensions
|
916
|
930
|
|||
Other liabilities (Note 3)
|
1,600
|
1,574
|
|||
Total liabilities
|
6,935
|
7,842
|
|||
Commitments and contingencies (Note 3)
|
|||||
Shareholders’ equity:
|
|||||
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1,656 million and 1,649 million
|
828
|
825
|
|||
Additional paid-in capital
|
13,206
|
13,146
|
|||
Retained earnings
|
10,754
|
9,932
|
|||
Treasury stock, at cost; Shares held: 196 million and 179 million
|
(3,022)
|
(2,773)
|
|||
Accumulated other comprehensive (loss) income
|
(388)
|
356
|
|||
Total Corning Incorporated shareholders’ equity
|
21,378
|
21,486
|
|||
Noncontrolling interests
|
76
|
47
|
|||
Total equity
|
21,454
|
21,533
|
|||
Total Liabilities and Equity
|
$
|
28,389
|
$
|
29,375
|
Six months ended
June 30,
|
|||||
2013
|
2012
|
||||
Cash Flows from Operating Activities:
|
|||||
Net income
|
$
|
1,132
|
$
|
948
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||
Depreciation
|
490
|
473
|
|||
Amortization of purchased intangibles
|
15
|
9
|
|||
Stock compensation charges
|
25
|
40
|
|||
Undistributed earnings of affiliated companies (in excess of) less than dividends received
|
(157)
|
44
|
|||
Deferred tax provision
|
119
|
35
|
|||
Restructuring payments
|
(24)
|
(1)
|
|||
Employee benefit payments less than (in excess of) expense
|
26
|
(71)
|
|||
Unrealized gains on translated earnings contracts
|
(232)
|
||||
Changes in certain working capital items:
|
|||||
Trade accounts receivable
|
(56)
|
(68)
|
|||
Inventories
|
(211)
|
(35)
|
|||
Other current assets
|
3
|
(54)
|
|||
Accounts payable and other current liabilities
|
(241)
|
(45)
|
|||
Other, net
|
129
|
57
|
|||
Net cash provided by operating activities
|
1,018
|
1,332
|
|||
Cash Flows from Investing Activities:
|
|||||
Capital expenditures
|
(438)
|
(853)
|
|||
Acquisitions of business, net of cash received
|
(106)
|
||||
Investment in affiliates
|
(111)
|
||||
Short-term investments – acquisitions
|
(737)
|
(1,168)
|
|||
Short-term investments – liquidations
|
1,020
|
989
|
|||
Premium on purchased collars
|
(107)
|
||||
Other, net
|
18
|
4
|
|||
Net cash used in investing activities
|
(350)
|
(1,139)
|
|||
Cash Flows from Financing Activities:
|
|||||
Retirement of long-term debt
|
(498)
|
||||
Net repayments of short-term borrowings and current portion of long-term debt
|
(11)
|
(13)
|
|||
Principal payments under capital lease obligations
|
(2)
|
(1)
|
|||
Proceeds from issuance of long-term debt, net
|
886
|
||||
Payments to settle interest rate hedges
|
(18)
|
||||
Proceeds from the exercise of stock options
|
39
|
19
|
|||
Repurchases of common stock for treasury
|
(232)
|
(386)
|
|||
Dividends paid
|
(280)
|
(227)
|
|||
Net cash (used in) provided by financing activities
|
(984)
|
260
|
|||
Effect of exchange rates on cash
|
(71)
|
(106)
|
|||
Net (decrease) increase in cash and cash equivalents
|
(387)
|
347
|
|||
Cash and cash equivalents at beginning of period
|
4,988
|
4,661
|
|||
Cash and cash equivalents at end of period
|
$
|
4,601
|
$
|
5,008
|
Three months ended June 30, 2013
|
||||||||
Previous
accounting
method
|
Reported
|
Effect of
accounting
change
|
||||||
Cost of sales
|
$
|
1,112
|
$
|
1,099
|
$
|
(13)
|
||
Gross margin
|
870
|
883
|
13
|
|||||
Selling, general and administrative expenses
|
273
|
266
|
(7)
|
|||||
Research, development and engineering expenses
|
183
|
179
|
(4)
|
|||||
Operating income
|
400
|
424
|
24
|
|||||
Income before income taxes
|
805
|
829
|
24
|
|||||
Provision for income taxes
|
(182)
|
(191)
|
(9)
|
|||||
Net income attributable to Corning Incorporated
|
$
|
623
|
$
|
638
|
$
|
15
|
||
Earnings per common share attributable to Corning Incorporated – Basic
|
$
|
0.42
|
$
|
0.43
|
$
|
0.01
|
||
Earnings per common share attributable to Corning Incorporated – Diluted
|
$
|
0.42
|
$
|
0.43
|
$
|
0.01
|
Three months ended June 30, 2012
|
||||||||
Previously
reported
(before
accounting
change)
|
Revised
(after
accounting
change)
|
Effect of
accounting
change
|
||||||
Cost of sales
|
$
|
1,111
|
$
|
1,100
|
$
|
(11)
|
||
Gross margin
|
797
|
808
|
11
|
|||||
Selling, general and administrative expenses
|
291
|
286
|
(5)
|
|||||
Research, development and engineering expenses
|
188
|
185
|
(3)
|
|||||
Operating income
|
309
|
328
|
19
|
|||||
Income before income taxes
|
555
|
574
|
19
|
|||||
Provision for income taxes
|
(93)
|
(100)
|
(7)
|
|||||
Net income attributable to Corning Incorporated
|
$
|
462
|
$
|
474
|
$
|
12
|
||
Earnings per common share attributable to Corning Incorporated – Basic
|
$
|
0.31
|
$
|
0.31
|
||||
Earnings per common share attributable to Corning Incorporated – Diluted
|
$
|
0.30
|
$
|
0.31
|
$
|
0.01
|
Six months ended June 30, 2013
|
||||||||
Previous
accounting
method
|
Reported
|
Effect of
accounting
change
|
||||||
Cost of sales
|
$
|
2,169
|
$
|
2,143
|
$
|
(26)
|
||
Gross margin
|
1,627
|
1,653
|
26
|
|||||
Selling, general and administrative expenses
|
539
|
525
|
(14)
|
|||||
Research, development and engineering expenses
|
365
|
357
|
(8)
|
|||||
Operating income
|
700
|
748
|
48
|
|||||
Income before income taxes
|
1,309
|
1,357
|
48
|
|||||
Provision for income taxes
|
(208)
|
(225)
|
(17)
|
|||||
Net income attributable to Corning Incorporated
|
$
|
1,101
|
$
|
1,132
|
$
|
31
|
||
Earnings per common share attributable to Corning Incorporated – Basic
|
$
|
0.75
|
$
|
0.77
|
$
|
0.02
|
||
Earnings per common share attributable to Corning Incorporated – Diluted
|
$
|
0.74
|
$
|
0.76
|
$
|
0.02
|
Six months ended June 30, 2012
|
||||||||
Previously
reported
(before
accounting
change)
|
Revised
(after
accounting
change)
|
Effect of
accounting
change
|
||||||
Cost of sales
|
$
|
2,217
|
$
|
2,196
|
$
|
(21)
|
||
Gross margin
|
1,611
|
1,632
|
21
|
|||||
Selling, general and administrative expenses
|
570
|
559
|
(11)
|
|||||
Research, development and engineering expenses
|
375
|
369
|
(6)
|
|||||
Operating income
|
651
|
689
|
38
|
|||||
Income before income taxes
|
1,128
|
1,166
|
38
|
|||||
Provision for income taxes
|
(204)
|
(218)
|
(14)
|
|||||
Net income attributable to Corning Incorporated
|
$
|
924
|
$
|
948
|
$
|
24
|
||
Earnings per common share attributable to Corning Incorporated – Basic
|
$
|
0.61
|
$
|
0.63
|
$
|
0.02
|
||
Earnings per common share attributable to Corning Incorporated – Diluted
|
$
|
0.61
|
$
|
0.62
|
$
|
0.01
|
Three months ended June 30, 2013
|
||||||||
Previous
accounting
method
|
Reported
|
Effect of
accounting
change
|
||||||
Net income attributable to Corning Incorporated
|
$
|
623
|
$
|
638
|
$
|
15
|
||
Other comprehensive loss, net of tax
|
(241)
|
(256)
|
(15)
|
|||||
Comprehensive income attributable to Corning Incorporated
|
$
|
382
|
$
|
382
|
$
|
0
|
Three months ended June 30, 2012
|
||||||||
Previously
reported
(before
accounting
change)
|
Revised
(after
accounting
change)
|
Effect of
accounting
change
|
||||||
Net income attributable to Corning Incorporated
|
$
|
462
|
$
|
474
|
$
|
12
|
||
Other comprehensive income, net of tax
|
4
|
13
|
9
|
|||||
Comprehensive income attributable to Corning Incorporated
|
$
|
466
|
$
|
487
|
$
|
21
|
Six months ended June 30, 2013
|
||||||||
Previous
accounting
method
|
Reported
|
Effect of
accounting
change
|
||||||
Net income attributable to Corning Incorporated
|
$
|
1,101
|
$
|
1,132
|
$
|
31
|
||
Other comprehensive loss, net of tax
|
(716)
|
(744)
|
(28)
|
|||||
Comprehensive income attributable to Corning Incorporated
|
$
|
385
|
$
|
388
|
$
|
3
|
Six months ended June 30, 2012
|
||||||||
Previously
reported
(before
accounting
change)
|
Revised
(after
accounting
change)
|
Effect of
accounting
change
|
||||||
Net income attributable to Corning Incorporated
|
$
|
924
|
$
|
948
|
$
|
24
|
||
Other comprehensive loss, net of tax
|
(47)
|
(48)
|
(1)
|
|||||
Comprehensive income attributable to Corning Incorporated
|
$
|
877
|
$
|
900
|
$
|
23
|
June 30, 2013
|
||||||||
Previous
accounting
method
|
Reported
|
Effect of
accounting
change
|
||||||
Retained earnings
|
$
|
11,382
|
$
|
10,754
|
$
|
(628)
|
||
Accumulated other comprehensive (loss) income
|
$
|
(1,016)
|
$
|
(388)
|
$
|
628
|
December 31, 2012
|
||||||||
Previously
reported
(before
accounting
change)
|
Revised
(after
accounting
change)
|
Effect of
accounting
change
|
||||||
Retained earnings
|
$
|
10,588
|
$
|
9,932
|
$
|
(656)
|
||
Accumulated other comprehensive (loss) income
|
$
|
(300)
|
$
|
356
|
$
|
656
|
Six months ended June 30, 2013
|
||||||||
Previous
accounting
method
|
Reported
|
Effect of
accounting
change
|
||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
1,101
|
$
|
1,132
|
$
|
31
|
||
Deferred tax provision
|
$
|
102
|
$
|
119
|
$
|
17
|
||
Employee benefit payments less than expense
|
$
|
74
|
$
|
26
|
$
|
(48)
|
Six months ended June 30, 2012
|
||||||||
Previously
reported
(before
accounting
change)
|
Revised
(after
accounting
change)
|
Effect of
accounting
change
|
||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
924
|
$
|
948
|
$
|
24
|
||
Deferred tax provision
|
$
|
21
|
$
|
35
|
$
|
14
|
||
Employee benefit payments in excess of expense
|
$
|
(33)
|
$
|
(71)
|
$
|
(38)
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||
2013
|
2012
|
2013
|
2012
|
||||||||
Royalty income from Samsung Corning Precision
|
$
|
14
|
$
|
21
|
$
|
29
|
$
|
43
|
|||
Foreign currency exchange and hedge gains (losses), net
|
251
|
(1)
|
282
|
5
|
|||||||
Net loss attributable to noncontrolling interests
|
1
|
1
|
2
|
3
|
|||||||
Other, net
|
(1)
|
(13)
|
17
|
(14)
|
|||||||
Total
|
$
|
265
|
$
|
8
|
$
|
330
|
$
|
37
|
Reserve at
January 1,
2013
|
Net
charges/
reversals
|
Cash
payments
|
Reserve at
June 30,
2013
|
||||||||
Restructuring:
|
|||||||||||
Employee-related costs
|
$
|
38
|
$
|
(1)
|
$
|
(22)
|
$
|
15
|
|||
Other charges (credits)
|
4
|
(2)
|
2
|
||||||||
Total restructuring activity
|
$
|
42
|
$
|
(1)
|
$
|
(24)
|
$
|
17
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||
2013
|
2012
|
2013
|
2012
|
||||||||
Provision for income taxes
|
$
|
(191)
|
$
|
(100)
|
$
|
(225)
|
$
|
(218)
|
|||
Effective tax rate (1)
|
23.0%
|
17.4%
|
16.6%
|
18.7%
|
(1)
|
As revised for the change in our method of recognizing pension expense. See Note 1 of Notes to Consolidated Financial Statements for a discussion of the change and the impacts of the change for the three and six months ended June 30, 2012.
|
·
|
Rate differences on income (loss) of consolidated foreign companies;
|
·
|
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax; and
|
·
|
The benefit of tax incentives in foreign jurisdictions, primarily Taiwan.
|
·
|
Rate differences on income (loss) of consolidated foreign companies;
|
·
|
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax;
|
·
|
The expiration of favorable U.S. tax provisions; and
|
·
|
The benefit of tax incentives in foreign jurisdictions, primarily Taiwan.
|
Three months ended June 30,
|
|||||||||||
2013
|
2012
|
||||||||||
Net
income
attributable
to Corning
Incorporated
|
Weighted-
average
shares
|
Per
share
amount
|
Net
income
attributable
to Corning
Incorporated
|
Weighted-
average
shares
|
Per
share
amount
|
||||||
Basic earnings per common share
|
$638
|
1,469
|
$0.43
|
$474
|
1,506
|
$0.31
|
|||||
Effect of dilutive securities:
|
|||||||||||
Stock options and other dilutive securities
|
9
|
12
|
|||||||||
Diluted earnings per common share
|
$638
|
1,478
|
$0.43
|
$474
|
1,518
|
$0.31
|
Six months ended June 30,
|
|||||||||||
2013
|
2012
|
||||||||||
Net
income
attributable
to Corning
Incorporated
|
Weighted-
average
shares
|
Per
share
amount
|
Net
income
attributable
to Corning
Incorporated
|
Weighted-
average
shares
|
Per
share
amount
|
||||||
Basic earnings per common share
|
$1,132
|
1,471
|
$0.77
|
$948
|
1,511
|
$0.63
|
|||||
Effect of dilutive securities:
|
|||||||||||
Stock options and other dilutive securities
|
9
|
13
|
|||||||||
Diluted earnings per common share
|
$1,132
|
1,480
|
$0.76
|
$948
|
1,524
|
$0.62
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||
2013
|
2012
|
2013
|
2012
|
||||
Stock options and other dilutive securities excluded from the calculation of diluted earnings per common share
|
38
|
42
|
43
|
42
|
Amortized cost
|
Fair value
|
||||||||||
June 30,
2013
|
December 31,
2012
|
June 30,
2013
|
December 31,
2012
|
||||||||
Bonds, notes and other securities:
|
|||||||||||
U.S. government and agencies
|
$
|
868
|
$
|
1,153
|
$
|
870
|
$
|
1,156
|
|||
Total short-term investments
|
$
|
868
|
$
|
1,153
|
$
|
870
|
$
|
1,156
|
|||
Asset-backed securities
|
$
|
48
|
$
|
51
|
$
|
41
|
$
|
40
|
|||
Total long-term investments
|
$
|
48
|
$
|
51
|
$
|
41
|
$
|
40
|
Less than one year
|
$626
|
Due in 1-5 years
|
244
|
Due in 5-10 years
|
|
Due after 10 years (1)
|
41
|
Total
|
$911
|
(1)
|
Includes $41 million of asset-backed securities that mature over time and are being reported at their final maturity dates.
|
June 30, 2013
|
|||||||||||||
12 months or greater
|
Total
|
||||||||||||
Number of
securities
in a loss
position
|
Fair
value
|
Unrealized
losses
|
Fair
value
|
Unrealized
losses (1)
|
|||||||||
Asset-backed securities
|
20
|
$
|
40
|
$
|
(8)
|
$
|
40
|
$
|
(8)
|
||||
Total long-term investments
|
20
|
$
|
40
|
$
|
(8)
|
$
|
40
|
$
|
(8)
|
(1)
|
Unrealized losses in securities less than 12 months were not significant.
|
December 31, 2012
|
|||||||||||||
12 months or greater
|
Total
|
||||||||||||
Number of
securities
in a loss
position
|
Fair
value
|
Unrealized
losses (1)
|
Fair
value
|
Unrealized
losses
|
|||||||||
Asset-backed securities
|
22
|
$
|
40
|
$
|
(11)
|
$
|
40
|
$
|
(11)
|
||||
Total long-term investments
|
22
|
$
|
40
|
$
|
(11)
|
$
|
40
|
$
|
(11)
|
(1)
|
Unrealized losses in securities less than 12 months were not significant.
|
June 30,
2013
|
December 31,
2012
|
||||
Finished goods
|
$
|
364
|
$
|
392
|
|
Work in process
|
222
|
168
|
|||
Raw materials and accessories
|
423
|
271
|
|||
Supplies and packing materials
|
231
|
220
|
|||
Total inventories
|
$
|
1,240
|
$
|
1,051
|
Ownership
interest (1)
|
June 30,
2013
|
December 31,
2012
|
|||||||
Affiliated companies accounted for by the equity method
|
|||||||||
Samsung Corning Precision Materials Co., Ltd.
|
50%
|
$
|
3,224
|
$
|
3,346
|
||||
Dow Corning Corporation
|
50%
|
1,204
|
1,191
|
||||||
All other
|
20%
|
to
|
50%
|
363
|
375
|
||||
4,791
|
4,912
|
||||||||
Other investments
|
18
|
3
|
|||||||
Total
|
$
|
4,809
|
$
|
4,915
|
(1)
|
Amounts reflect Corning’s direct ownership interests in the respective affiliated companies. Corning does not exercise voting control nor control the operations of any of these entities.
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||
2013
|
2012
|
2013
|
2012
|
||||||||
Related Party Transactions:
|
|||||||||||
Corning sales to affiliated companies
|
$
|
3
|
$
|
15
|
$
|
6
|
$
|
28
|
|||
Corning purchases from affiliated companies
|
$
|
68
|
$
|
50
|
$
|
137
|
$
|
68
|
|||
Corning transfers of assets, at cost, to affiliated companies
|
$
|
7
|
$
|
16
|
$
|
13
|
$
|
25
|
|||
Dividends received from affiliated companies
|
$
|
21
|
$
|
3
|
$
|
182
|
$
|
521
|
|||
Royalty income from affiliated companies
|
$
|
14
|
$
|
22
|
$
|
30
|
$
|
44
|
|||
Corning services to affiliates
|
$
|
6
|
$
|
2
|
$
|
16
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||
2013
|
2012
|
2013
|
2012
|
||||||||
Statement of Operations:
|
|||||||||||
Net sales
|
$
|
592
|
$
|
785
|
$
|
1,250
|
$
|
1,569
|
|||
Gross profit
|
$
|
350
|
$
|
540
|
$
|
748
|
$
|
1,064
|
|||
Net income attributable to Samsung Corning Precision
|
$
|
224
|
$
|
402
|
$
|
496
|
$
|
773
|
|||
Corning’s equity in earnings of Samsung Corning Precision
|
$
|
111
|
$
|
193
|
$
|
244
|
$
|
376
|
|||
Related Party Transactions:
|
|||||||||||
Corning purchases from Samsung Corning Precision
|
$
|
63
|
$
|
42
|
$
|
123
|
$
|
52
|
|||
Dividends received from Samsung Corning Precision
|
$
|
143
|
$
|
518
|
|||||||
Royalty income from Samsung Corning Precision
|
$
|
14
|
$
|
21
|
$
|
29
|
$
|
43
|
|||
Corning transfers of machinery and equipment to Samsung Corning Precision at cost (1)
|
$
|
7
|
$
|
16
|
$
|
13
|
$
|
25
|
(1)
|
Corning purchases machinery and equipment on behalf of Samsung Corning Precision to support its capital expansion initiatives. The machinery and equipment are transferred to Samsung Corning Precision at our cost basis.
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||
2013
|
2012
|
2013
|
2012
|
||||||||
Statement of Operations:
|
|||||||||||
Net sales
|
$
|
1,430
|
$
|
1,571
|
$
|
2,694
|
$
|
3,093
|
|||
Gross profit (1)
|
$
|
385
|
$
|
395
|
$
|
602
|
$
|
732
|
|||
Net income attributable to Dow Corning
|
$
|
87
|
$
|
121
|
$
|
149
|
$
|
192
|
|||
Corning’s equity in earnings of Dow Corning
|
$
|
45
|
$
|
61
|
$
|
80
|
$
|
96
|
|||
Related Party Transactions:
|
|||||||||||
Corning purchases from Dow Corning
|
$
|
5
|
$
|
6
|
$
|
11
|
$
|
12
|
(1)
|
Gross profit for the three months ended June 30, 2013 includes R&D cost of $62 million (2012: $69 million) and selling expenses of $2 million (2012: $3 million). Gross profit for the six months ended June 30, 2013 includes R&D cost of $127 million (2012: $138 million) and selling expenses of $6 million (2012: $7 million).
|
Inventory and other current assets
|
$
|
74
|
Fixed Assets
|
81
|
|
Other intangible assets
|
279
|
|
Net tangible and intangible assets
|
$
|
434
|
Purchase price
|
739
|
|
Goodwill (1)
|
$
|
305
|
(1)
|
The goodwill recognized is partly deductible for U.S. income tax purposes. The goodwill was allocated to the Life Sciences segment.
|
June 30,
2013
|
December 31,
2012
|
||||
Land
|
$
|
114
|
$
|
112
|
|
Buildings
|
4,180
|
4,324
|
|||
Equipment
|
12,261
|
12,571
|
|||
Construction in progress
|
1,082
|
1,270
|
|||
17,637
|
18,277
|
||||
Accumulated depreciation
|
(7,683)
|
(7,652)
|
|||
Total
|
$
|
9,954
|
$
|
10,625
|
Telecom-
munications
|
Display
Technologies
|
Specialty
Materials
|
Life
Sciences
|
Total
|
||||||||||
Balance at December 31, 2012
|
$
|
209
|
$
|
9
|
$
|
150
|
$
|
606
|
$
|
974
|
||||
Acquired goodwill (1)
|
32
|
32
|
||||||||||||
Measurement period adjustment (2)
|
(4)
|
(4)
|
||||||||||||
Foreign currency translation adjustment
|
(1)
|
(1)
|
||||||||||||
Balance at June 30, 2013
|
$
|
241
|
$
|
9
|
$
|
150
|
$
|
601
|
$
|
1,001
|
(1)
|
The company recorded a small acquisition and consolidated an equity company due to a change in control in the second quarter of 2013.
|
(2)
|
The Company recorded the acquisition of the Discovery Labware business of Becton Dickinson and Company in the fourth quarter of 2012. In the second quarter of 2013, Corning recorded measurement period adjustments of $4 million.
|
June 30, 2013
|
December 31, 2012
|
||||||||||||||||
Gross
|
Accumulated
amortization
|
Net
|
Gross
|
Accumulated
amortization
|
Net
|
||||||||||||
Amortized intangible assets:
|
|||||||||||||||||
Patents, trademarks, and trade names
|
$
|
290
|
$
|
(133)
|
$
|
157
|
$
|
282
|
$
|
(128)
|
$
|
154
|
|||||
Customer lists and other
|
437
|
(36)
|
401
|
394
|
(26)
|
368
|
|||||||||||
Total
|
$
|
727
|
$
|
(169)
|
$
|
558
|
$
|
676
|
$
|
(154)
|
$
|
522
|
Pension benefits
|
Postretirement benefits
|
||||||||||||||||||||||
Three months ended
June 30,
|
Six months ended
June 30,
|
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||||||||||||||
2013
|
2012
|
2013
|
2012
|
2013
|
2012
|
2013
|
2012
|
||||||||||||||||
Service cost
|
$
|
18
|
$
|
15
|
$
|
37
|
$
|
30
|
$
|
3
|
$
|
3
|
$
|
7
|
$
|
6
|
|||||||
Interest cost
|
32
|
38
|
66
|
76
|
9
|
11
|
19
|
22
|
|||||||||||||||
Expected return on plan assets (1)
|
(42)
|
(41)
|
(84)
|
(82)
|
|||||||||||||||||||
Amortization of net loss (1)
|
4
|
4
|
8
|
8
|
|||||||||||||||||||
Amortization of prior service cost
|
1
|
1
|
2
|
2
|
(1)
|
(1)
|
(3)
|
(2)
|
|||||||||||||||
Recognition of actuarial gain (1)
|
(41)
|
(41)
|
|||||||||||||||||||||
Total pension and postretirement benefit expense (1)
|
$
|
(32)
|
$
|
13
|
$
|
(20)
|
$
|
26
|
$
|
15
|
$
|
17
|
$
|
31
|
$
|
34
|
(1)
|
As revised for the change in our method of recognizing pension expense. See Note 1 of Notes to Consolidated Financial Statements for a discussion of the change and the impacts of the change for the three and six months ended June 30, 2012.
|
·
|
Financial instruments and transactions denominated in foreign currencies, which impact earnings; and
|
·
|
The translation of net assets in foreign subsidiaries for which the functional currency is not the U.S. dollar, which impacts our net equity.
|
U.S. Dollar
|
Asset derivatives
|
Liability derivatives
|
|||||||||||||
Gross notional amount
|
Balance
sheet location
|
Fair value
|
Balance
sheet location
|
Fair value
|
|||||||||||
2013
|
2012
|
2013
|
2012
|
2013
|
2012
|
||||||||||
Derivatives designated as hedging instruments
|
|||||||||||||||
Foreign exchange contracts
|
$ 377
|
$ 719
|
Other current assets
|
$ 56
|
$ 57
|
Other accrued liabilities
|
$ (1)
|
$ (3)
|
|||||||
Interest rate contracts
|
$ 1,300
|
$ 550
|
Other assets
|
$ 37
|
Other liabilities
|
$(24)
|
|||||||||
Derivatives not designated as hedging instruments
|
|||||||||||||||
Foreign exchange contracts
|
$ 559
|
$1,939
|
Other current assets
|
$ 15
|
$109
|
Other accrued liabilities
|
$ (4)
|
$(10)
|
|||||||
Translated earnings contracts
|
$ 9,479
|
Other current assets
|
$198
|
Other accrued liabilities
|
$(20)
|
||||||||||
Other assets
|
$176
|
Other liabilities
|
$(30)
|
||||||||||||
Total derivatives
|
$11,715
|
$3,208
|
$482
|
$166
|
$(79)
|
$(13)
|
Effect of derivative instruments on the consolidated financial statements
for the three months ended June 30 (2)
|
|||||||||
Derivatives in hedging relationships
|
Gain/(loss)
recognized in other
comprehensive income
(OCI)
|
Location of gain/(loss)
reclassified from
accumulated OCI into
income (effective)
|
Gain reclassified from
accumulated OCI into
income (effective) (1)
|
||||||
2013
|
2012
|
2013
|
2012
|
||||||
Interest rate contracts
|
$37
|
Cost of sales
|
$11
|
$3
|
|||||
Foreign exchange contracts
|
15
|
$(8)
|
Royalties
|
18
|
3
|
||||
Total cash flow hedges
|
$52
|
$(8)
|
$29
|
$6
|
(1)
|
The amount of hedge ineffectiveness for the three months ended June 30, 2013 and 2012 was insignificant.
|
(2)
|
Certain amounts for prior periods were reclassified to conform to the current year presentation.
|
Effect of derivative instruments on the consolidated financial statements
for the six months ended June 30 (2)
|
|||||||||
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)
|
||||||
2013
|
2012
|
2013
|
2012
|
||||||
Interest rate contracts
|
$37
|
$15
|
Cost of sales
|
$19
|
$ 6
|
||||
Foreign exchange contracts
|
52
|
32
|
Royalties
|
31
|
6
|
||||
Total cash flow hedges
|
$89
|
$47
|
$50
|
$12
|
(1)
|
The amount of hedge ineffectiveness for the six months ended June 30, 2013 and 2012 was insignificant.
|
(2)
|
Certain amounts for prior periods were reclassified to conform to the current year presentation.
|
Undesignated derivatives
|
Location of gain/(loss)
recognized in income
|
Gain/(loss) recognized in income
|
|||||||
Three months ended
June 30,
|
Six months ended
June 30,
|
||||||||
2013
|
2012
|
2013
|
2012
|
||||||
Foreign exchange contracts
|
Other income, net
|
$ 52
|
$(41)
|
$205
|
$97
|
||||
Translated earnings contracts
|
Other income, net
|
227
|
251
|
||||||
Total undesignated
|
$279
|
$(41)
|
$456
|
$97
|
Fair value measurements at reporting date using
|
|||||||||||
June 30,
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
|
$
|
870
|
$
|
870
|
|||||||
Other current assets (1)
|
$
|
269
|
$
|
269
|
|||||||
Non-current assets:
|
|||||||||||
Other assets (1)(2)
|
$
|
254
|
$
|
254
|
|||||||
Current liabilities:
|
|||||||||||
Other accrued liabilities (1)
|
$
|
25
|
$
|
25
|
|||||||
Non-current liabilities:
|
|||||||||||
Other liabilities (1)
|
$
|
54
|
$
|
54
|
(1)
|
Derivative assets and liabilities include foreign exchange contracts, interest rate contracts, and translated earnings contracts 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.
|
Fair value measurements at reporting date using
|
||||||||||
December 31,
2012
|
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
|
$
|
1,156
|
$
|
1,156
|
||||||
Other current assets (1)
|
$
|
166
|
$
|
166
|
||||||
Non-current assets:
|
||||||||||
Other assets (2)
|
$
|
40
|
$
|
40
|
||||||
Current liabilities:
|
||||||||||
Other accrued liabilities (1)
|
$
|
13
|
$
|
13
|
(1)
|
Derivative assets and liabilities include foreign exchange contracts 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.
|
Changes in Accumulated Other Comprehensive Income by Component (1)
for the three months ended June 30, 2013
|
||||||||||||||
Foreign
currency
translation
adjustment
and other
|
Unamortized
actuarial
losses and
prior service
costs
|
Net
unrealized
gains
(losses) on
investments
|
Net
unrealized
gains
(losses) on
designated
hedges
|
Accumulated
other
comprehensive
income (loss)
|
||||||||||
Beginning balance
|
$
|
669
|
$
|
(813)
|
$
|
(17)
|
$
|
29
|
$
|
(132)
|
||||
Other comprehensive (loss) income before reclassifications (2)
|
(224)
|
14
|
2
|
32
|
(176)
|
|||||||||
Amounts reclassified from accumulated other comprehensive loss (3)
|
4
|
(18)
|
(14)
|
|||||||||||
Equity method affiliates (4)
|
(72)
|
5
|
1
|
(66)
|
||||||||||
Net current-period other comprehensive income
|
(296)
|
23
|
3
|
14
|
(256)
|
|||||||||
Ending balance
|
$
|
373
|
$
|
(790)
|
$
|
(14)
|
$
|
43
|
$
|
(388)
|
(1)
|
All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.
|
(2)
|
Amounts are net of total tax expense of $(27) million, including $(20) million related to the hedges component, $(8) million related to the retirement plans component and $1 million related to the investments component.
|
(3)
|
Amounts are net of total tax benefit of $11 million related to the hedges component.
|
(4)
|
Tax effects related to equity method affiliates are not significant.
|
Changes in Accumulated Other Comprehensive Income by Component (1)
for the six months ended June 30, 2013
|
||||||||||||||
Foreign
currency
translation
adjustment
and other
|
Unamortized
actuarial
losses and
prior service
costs
|
Net
unrealized
gains
(losses) on
investments
|
Net
unrealized
gains
(losses) on
designated
hedges
|
Accumulated
other
comprehensive
income (loss)
|
||||||||||
Beginning balance
|
$
|
1,174
|
$
|
(820)
|
$
|
(16)
|
$
|
18
|
$
|
356
|
||||
Other comprehensive (loss) income before reclassifications (2)
|
(553)
|
14
|
56
|
(483)
|
||||||||||
Amounts reclassified from accumulated other comprehensive loss (3)
|
5
|
(32)
|
(27)
|
|||||||||||
Equity method affiliates (4)
|
(248)
|
11
|
2
|
1
|
(234)
|
|||||||||
Net current-period other comprehensive income
|
(801)
|
30
|
2
|
25
|
(744)
|
|||||||||
Ending balance
|
$
|
373
|
$
|
(790)
|
$
|
(14)
|
$
|
43
|
$
|
(388)
|
(1)
|
All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.
|
(2)
|
Amounts are net of total tax expense of $(42) million, including $(33) million related to the hedges component, $(8) million related to the retirement plans component and $(1) million related to the investments component.
|
(3)
|
Amounts are net of total tax benefit of $16 million, including $18 million related to the hedges component and $(2) million related to the retirement plans component.
|
(4)
|
Tax effects related to equity method affiliates are not significant.
|
Changes in Accumulated Other Comprehensive Income by Component (1)
for the three months ended June 30, 2012
|
||||||||||||||
Foreign
currency
translation
adjustment
and other
|
Unamortized
actuarial
losses and
prior service
costs
|
Net
unrealized
gains
(losses) on
investments
|
Net
unrealized
gains
(losses) on
designated
hedges
|
Accumulated
other
comprehensive
income (loss)
|
||||||||||
Beginning balance
|
$
|
1,254
|
$
|
(817)
|