SEC Company Response from CORNING (GLW) — Jul 19, 2013
CORNING INC /NY (GLW) (CIK 0000024741)
Date: July 19, 2013 · CIK: 0000024741 · Accession: 0000024741-13-000039
AI Filing Summary & Sentiment
Referenced dates: June 21, 2013, May 7, 2013
Letter
Re:
commentltr.htm
July 19, 2013
Securities and Exchange Commission
100 F Street, N.E., Stop 4631
Washington, D.C. 20549
Form 10-K for the Year ended December 31, 2012
Filed February 13, 2013
File No. 1-3247
Ladies and Gentlemen:
We are responding to the comments in the Securities and Exchange Commission (the “Staff”) letter dated June 21, 2013 to Mr. James B. Flaws of Corning Incorporated (“Corning”). For your convenience, we have included the Staff’s comments below (in bold) followed by our related response.
Form 10-K for the Year Ended December 31, 2012
Corning Incorporated Consolidated Financial Statements, page 45
Note 20 Reportable Segments, page 83
·
We have read your response to comment 4 from our letter dated May 7, 2013. You indicate that your reportable segments are organized according to product categories sold to external customers and that each of your reportable segments manufacture and sell products separate and distinct from other segments. However, based on your website and disclosures in your filing we note that your segments contain products that serve different markets or have different applications or functions. For example, your website identifies products such as ceramic substrates, diesel particulate filters and Corning celcor substrates for stationary applications within your Environmental Technology segment and identifies Corning Gorilla Glass and optical systems and components within your Specialty Materials segment. We also note that your Life Sciences segment identifies a family of brands and products. Please note this is not meant to be an all-inclusive list of products identified on your website and in your filing that suggest additional disaggregated product line information should be presented in accordance with ASC 280-10-50-40. Please advise or revise future filings to report revenues from external customers for each product and service or each group of similar products.
Each of our reportable segments manufactures and sells products separate and distinct from other segments, and there are no intersegment sales. Our reportable segments are organized according to product categories sold to external customers, but do contain products within the segment classifications that serve different markets or have different applications or functions, as evidenced by our website and disclosures in our filings.
In future filings, we will expand our disclosures within Note 20 Reportable Segments to report revenues from external customers for each product or group of similar products for which our financial reporting system generates separate and distinct sales information. The following is an example of a table showing revenue for each product or group of similar products, by segment, for the years ended December 31, 2012, 2011 and 2010, which is representative of disclosure we intend to include in future filings.
Fiscal Year Ended December 31,
Revenues from External Customers
Display Technologies
$
2,909
$
3,145
$
3,011
Telecommunications
Fibered cable
1,102
1,051
Hardware and equipment
1,028
1,021
Total Telecommunications
2,130
2,072
1,712
Environmental Technologies
Automotive and other
Diesel
Total Environmental Technologies
Specialty Materials
Corning Gorilla Glass
1,027
Advanced optics and other specialty glass
Total Specialty Materials
1,346
1,074
Life Sciences
Labware
Cell culture products
Total Life Science
All Other
$
8,012
$
7,890
$
6,632
·
We have read your response to comment 5 from our letter dated May 7, 2013. You state that financial information presented to your CODM for your Specialty Materials segment is at the glass substrate level and you do not provide detailed financial information by business or product line for allocating resources. However, in reviewing the Specialty Materials Q4 2012 Performance Review dated January 22, 2013, (pages 5, 7, 11 and elsewhere within the Specialty Materials report) we noted various levels of discrete financial information such as sales, variable gross margin, fixed costs and gross margin information that was provided at a level below the Specialty Materials segment. We also noted discussion of “key takeaways” and fiscal year versus budget information at a level below the Specialty Materials segment level.
·
Please identify for us what this discrete financial information represents. In doing so, you should address the business nature of this discrete financial information, why it is provided to your CODM and how your CODM uses this information.
We have included in our CODM package supplementary, discrete financial information at the glass substrate level. Our glass substrates are grouped into three glass substrate classifications: 1) GG (Gorilla Glass); 2) GG Parts (Gorilla Glass Parts); and 3) Base CSM (base Corning Specialty Materials). GG and GG Parts consist primarily of the same product with different customer sourcing. Base CSM represents advanced optics and other specialty glass which consists of a multitude of specialty glass substrate inventory items.
We have provided information included in the said slides to the CODM largely as a means to explain volume, price and mix impacts to the Specialty Materials segment NPAT. Glass substrates inventory items, which are not necessarily product lines, are grouped by category at the substrate level to explain the variances in the Specialty Materials segment NPAT due to the production and sales of different mixes of glass substrates. Significant variances in volume, price, and other changes are separately disclosed in our MD&A in our quarterly and annual filings.
We do not present this information to the CODM as a measure in which they use to allocate resources, as we believe that the CODM cannot effectively allocate resources using discrete financial information at this level. The CODM’s main focus is sales and net profit after tax (NPAT) in assessing the Specialty Materials segment performance. The Specialty Materials segment performance is managed at the segment level. In addition, annual incentive compensation for the Specialty Materials segment management is determined, in part, by segment NPAT performance. As demonstrated in our CODM package for total Company, the financial analysis and explanation presented to management is sales and NPAT at the Specialty Materials segment level.
Because this information is supplementary and not necessary, we will no longer regularly provide this discrete financial information below the segment level in our CODM packages.
·
It may also be useful if you clarify what the many acronyms presented within the Specialty Materials report represent.
Our Specialty Materials business utilizes numerous acronyms to simplify our messaging for reporting purposes. We supply the SEC staff with the following definitions of the acronyms used in our presentations to the CODM:
·
GG – Gorilla glass
·
GG Parts – Gorilla Glass Parts
·
GC – Glass Ceramics
·
LCG – Large Cover Glass
·
FIT – Fully Integrated Touch
·
TI – Texas Instruments
·
SEC – Samsung Electronics Corporation
·
DLP – Digital light processing
·
HH – Handheld
·
IT – Integrated touch
·
A&D – Aerospace and Defense
·
AO – Advanced Optics
·
Finally, with reference to ASC 280-50-1 and in light of this additional discrete financial information, please reassess whether there are additional operating segments within your Specialty Materials reportable segment.
Management believes there are no additional operating segments within the Specialty Materials operating segment. Because we feel we comply with the requirements of ASC 280-10-50-1, and the fact that we will no longer provide additional discrete financial information to the CODM on a regular basis, we believe our Specialty Materials business represents a single operating segment
Dow Corning Corporation and Subsidiaries Consolidated Financial Statements, page 91
Note 14 Deferred Revenue, page 112
·
We have read your response to comment 6 from our letter dated May 7, 2013 and have the following comments.
·
With regard to the deferred revenues related to average pricing, we note that you recognized $24.2 million of deferred revenues in 2012. Please tell us the amount of deferred revenue recognized in 2012 related to the advanced payments.
During 2012, Hemlock Semiconductor Group (Hemlock) applied $88.7 million of deferred revenue related to advance payments to customer purchases, excluding amounts recognized under mutually agreed upon contract settlements.
·
Please clarify whether the volume or timing of such volume changed as a result of the amended agreements. If so, please explain.
Although the details varied by customer, the amended agreements did not impact the overall contracted quantity of product to be purchased. While volume requirements by year may have been adjusted, no relief to overall volume required under the original contract was provided. The amendments granted the customers lower pricing than the original contract pricing for the latter part of 2011 and 2012. In exchange for discretionarily offering the customer lower pricing, the amendments suspended application of the customers’ advanced payments while the reduced pricing was in effect, deferring the application until later contract years or increasing future advanced payments applied per KG over the remaining years of the contract.
·
We note that of the $3,572 million of total deferred revenue as of December 31, 2012, $225 million relates to average price and $3,347 million relates to advanced payments received. Furthermore, as disclosed in Note 14, as of December 31, 2012, the current portion of deferred revenue related to advanced payments was determined based on your estimate of advanced payments to be applied to customer purchases in the next 12 months. The current portion as of December 31, 2011, was determined based upon application of advanced payments to customer purchases as stipulated by the underlying agreements. Due to changes in customer agreements resulting from the uncertainty surrounding the polycrystalline silicon market, this method was discontinued. In light of the fact that Hemlock’s customers are obligated to purchase minimum quantities of product each year, tell us why there was a change in the method of determining the current portion.
The recent and ongoing uncertainties and oversupply conditions in the polycrystalline silicon market have created an environment where customers may not completely fulfill their contractual obligations in future periods, including 2013. Therefore, in order to avoid potentially overstating the current portion of deferred revenue by basing it upon contractual requirements that may not be fulfilled within the next 12 month period, Hemlock management performed an evaluation on a customer-by-customer basis of expectations regarding customer performance and corresponding application of advanced payments. The evaluation considered factors such as customer financial condition, recent customer performance (or lack thereof) under the contractual requirements, any relevant discussions with customers and expectations regarding market and industry conditions over the next 12 months. Based on the evaluation, management estimated the portion of deferred revenue considered to be current. Management believes this method for estimating the current portion for both advanced payment deferred revenue and average price deferred revenue will provide a more accurate representation of the current portion than reliance solely upon the contractual purchase commitment amounts, which may not be honored over the next 12 months. The application of the new method reduced the portion of deferred revenue considered to be current.
·
With reference to the average remaining terms of the sales agreements, please address the appropriateness of (i) the deferred revenue recognized in 2012 related to both average pricing and advanced payments and (ii) your determination of the current and long-term portion of the deferred revenue related to both the average pricing and the advanced payments received. Provide a detailed explanation of your method for amortizing the advanced payments, with quantified information as necessary to illustrate. Clarify whether the advance payments are being recognized based on quantities as well as your basis for estimating the total expected quantities to be delivered under the contracts.
Because both recognition and application of deferred revenue is calculated on a per unit basis as described in the example below, the average remaining terms of the sales agreements are not relevant to its recognition or application. In 2012, the deferred revenue recognized related to average pricing or applied related to advanced payments was based on the volume of product shipped to the customer in the period. The average remaining terms of the sales agreements did not impact management’s determination of the current and long-term portion of the deferred revenue related to both the average pricing and the advanced payments. Factors impacting the classification of deferred revenue are described in the previous bullet point.
Advanced payment deferred revenue is applied to customer purchases on a per unit basis for actual quantities sold and is specified in each contract. The amount per unit is determined as the advanced payment received divided by the specified contractual volume over which the advanced payments will be credited. As such, the application of deferred revenue to customer purchases is not necessarily on a straight-line basis.
The following page provides a detailed example of the accounting for an illustrative agreement. Example A is based on the original contract during which the average price methodology was in place. Revenue recognition each year is based on the quantity sold to the customer at the average price over the term of the contract. The average price deferred revenue balance builds in the early years when the contract price exceeds the average price and is amortized over the latter years when the average price exceeds the contract price. The advanced payment deferred revenue is applied on a per unit basis over the term of the contract. By the end of the contract, both average price deferred revenue and advanced payment deferred revenue have a zero balance and the full value of the contract has been recognized in net sales.
Example B provides for an amendment to the contract reducing the price for 2012 only. At the same time, the contract amendment suspended the application of the advanced payments as a credit against 2012 purchases. The average price methodology was deemed no longer appropriate in 2012 as indicated in the response to the Securities and Exchange Commission letter dated May 7, 2013. Years 2005 through 2011 mirror Example A. Beginning in 2012, the 2011 ending balance of average price deferred revenue is recognized into revenue on a per unit basis over the remaining volume of the contract for years 2012 through 2017. As specified in the contract amendment, the customer received no credit for its advanced payments in 2012. The basis for applying the remaining balance of advanced payment deferred revenue is recalculated based on the remaining contract volumes for 2013 through 2017. By the end of the contract, both average price deferred revenue and advanced payment deferred revenue have a zero balance and the adjusted value of the contract has been recognized in net sales.
EXAMPLE A Pre-Amendment - Average price methodology in effect.
Customer enters into agreement with Hemlock in 2005 with shipments commencing in 2008.
Customer agrees to pur
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CORRESP
1
filename1.htm
commentltr.htm
July 19, 2013
Securities and Exchange Commission
100 F Street, N.E., Stop 4631
Washington, D.C. 20549
Re:
Form 10-K for the Year ended December 31, 2012
Filed February 13, 2013
File No. 1-3247
Ladies and Gentlemen:
We are responding to the comments in the Securities and Exchange Commission (the “Staff”) letter dated June 21, 2013 to Mr. James B. Flaws of Corning Incorporated (“Corning”). For your convenience, we have included the Staff’s comments below (in bold) followed by our related response.
Form 10-K for the Year Ended December 31, 2012
Corning Incorporated Consolidated Financial Statements, page 45
Note 20 Reportable Segments, page 83
·
We have read your response to comment 4 from our letter dated May 7, 2013. You indicate that your reportable segments are organized according to product categories sold to external customers and that each of your reportable segments manufacture and sell products separate and distinct from other segments. However, based on your website and disclosures in your filing we note that your segments contain products that serve different markets or have different applications or functions. For example, your website identifies products such as ceramic substrates, diesel particulate filters and Corning celcor substrates for stationary applications within your Environmental Technology segment and identifies Corning Gorilla Glass and optical systems and components within your Specialty Materials segment. We also note that your Life Sciences segment identifies a family of brands and products. Please note this is not meant to be an all-inclusive list of products identified on your website and in your filing that suggest additional disaggregated product line information should be presented in accordance with ASC 280-10-50-40. Please advise or revise future filings to report revenues from external customers for each product and service or each group of similar products.
Each of our reportable segments manufactures and sells products separate and distinct from other segments, and there are no intersegment sales. Our reportable segments are organized according to product categories sold to external customers, but do contain products within the segment classifications that serve different markets or have different applications or functions, as evidenced by our website and disclosures in our filings.
1
In future filings, we will expand our disclosures within Note 20 Reportable Segments to report revenues from external customers for each product or group of similar products for which our financial reporting system generates separate and distinct sales information. The following is an example of a table showing revenue for each product or group of similar products, by segment, for the years ended December 31, 2012, 2011 and 2010, which is representative of disclosure we intend to include in future filings.
Fiscal Year Ended December 31,
Revenues from External Customers
2012
2011
2010
Display Technologies
$
2,909
$
3,145
$
3,011
Telecommunications
Fibered cable
1,102
1,051
878
Hardware and equipment
1,028
1,021
834
Total Telecommunications
2,130
2,072
1,712
Environmental Technologies
Automotive and other
486
476
462
Diesel
478
522
354
Total Environmental Technologies
964
998
816
Specialty Materials
Corning Gorilla Glass
1,027
712
243
Advanced optics and other specialty glass
319
362
335
Total Specialty Materials
1,346
1,074
578
Life Sciences
Labware
430
419
350
Cell culture products
227
176
158
Total Life Science
657
595
508
All Other
6
6
7
$
8,012
$
7,890
$
6,632
·
We have read your response to comment 5 from our letter dated May 7, 2013. You state that financial information presented to your CODM for your Specialty Materials segment is at the glass substrate level and you do not provide detailed financial information by business or product line for allocating resources. However, in reviewing the Specialty Materials Q4 2012 Performance Review dated January 22, 2013, (pages 5, 7, 11 and elsewhere within the Specialty Materials report) we noted various levels of discrete financial information such as sales, variable gross margin, fixed costs and gross margin information that was provided at a level below the Specialty Materials segment. We also noted discussion of “key takeaways” and fiscal year versus budget information at a level below the Specialty Materials segment level.
2
·
Please identify for us what this discrete financial information represents. In doing so, you should address the business nature of this discrete financial information, why it is provided to your CODM and how your CODM uses this information.
We have included in our CODM package supplementary, discrete financial information at the glass substrate level. Our glass substrates are grouped into three glass substrate classifications: 1) GG (Gorilla Glass); 2) GG Parts (Gorilla Glass Parts); and 3) Base CSM (base Corning Specialty Materials). GG and GG Parts consist primarily of the same product with different customer sourcing. Base CSM represents advanced optics and other specialty glass which consists of a multitude of specialty glass substrate inventory items.
We have provided information included in the said slides to the CODM largely as a means to explain volume, price and mix impacts to the Specialty Materials segment NPAT. Glass substrates inventory items, which are not necessarily product lines, are grouped by category at the substrate level to explain the variances in the Specialty Materials segment NPAT due to the production and sales of different mixes of glass substrates. Significant variances in volume, price, and other changes are separately disclosed in our MD&A in our quarterly and annual filings.
We do not present this information to the CODM as a measure in which they use to allocate resources, as we believe that the CODM cannot effectively allocate resources using discrete financial information at this level. The CODM’s main focus is sales and net profit after tax (NPAT) in assessing the Specialty Materials segment performance. The Specialty Materials segment performance is managed at the segment level. In addition, annual incentive compensation for the Specialty Materials segment management is determined, in part, by segment NPAT performance. As demonstrated in our CODM package for total Company, the financial analysis and explanation presented to management is sales and NPAT at the Specialty Materials segment level.
Because this information is supplementary and not necessary, we will no longer regularly provide this discrete financial information below the segment level in our CODM packages.
·
It may also be useful if you clarify what the many acronyms presented within the Specialty Materials report represent.
Our Specialty Materials business utilizes numerous acronyms to simplify our messaging for reporting purposes. We supply the SEC staff with the following definitions of the acronyms used in our presentations to the CODM:
·
GG – Gorilla glass
·
GG Parts – Gorilla Glass Parts
·
GC – Glass Ceramics
·
LCG – Large Cover Glass
·
FIT – Fully Integrated Touch
·
TI – Texas Instruments
·
SEC – Samsung Electronics Corporation
·
DLP – Digital light processing
·
HH – Handheld
·
IT – Integrated touch
·
A&D – Aerospace and Defense
·
AO – Advanced Optics
3
·
Finally, with reference to ASC 280-50-1 and in light of this additional discrete financial information, please reassess whether there are additional operating segments within your Specialty Materials reportable segment.
Management believes there are no additional operating segments within the Specialty Materials operating segment. Because we feel we comply with the requirements of ASC 280-10-50-1, and the fact that we will no longer provide additional discrete financial information to the CODM on a regular basis, we believe our Specialty Materials business represents a single operating segment
Dow Corning Corporation and Subsidiaries Consolidated Financial Statements, page 91
Note 14 Deferred Revenue, page 112
·
We have read your response to comment 6 from our letter dated May 7, 2013 and have the following comments.
·
With regard to the deferred revenues related to average pricing, we note that you recognized $24.2 million of deferred revenues in 2012. Please tell us the amount of deferred revenue recognized in 2012 related to the advanced payments.
During 2012, Hemlock Semiconductor Group (Hemlock) applied $88.7 million of deferred revenue related to advance payments to customer purchases, excluding amounts recognized under mutually agreed upon contract settlements.
·
Please clarify whether the volume or timing of such volume changed as a result of the amended agreements. If so, please explain.
Although the details varied by customer, the amended agreements did not impact the overall contracted quantity of product to be purchased. While volume requirements by year may have been adjusted, no relief to overall volume required under the original contract was provided. The amendments granted the customers lower pricing than the original contract pricing for the latter part of 2011 and 2012. In exchange for discretionarily offering the customer lower pricing, the amendments suspended application of the customers’ advanced payments while the reduced pricing was in effect, deferring the application until later contract years or increasing future advanced payments applied per KG over the remaining years of the contract.
·
We note that of the $3,572 million of total deferred revenue as of December 31, 2012, $225 million relates to average price and $3,347 million relates to advanced payments received. Furthermore, as disclosed in Note 14, as of December 31, 2012, the current portion of deferred revenue related to advanced payments was determined based on your estimate of advanced payments to be applied to customer purchases in the next 12 months. The current portion as of December 31, 2011, was determined based upon application of advanced payments to customer purchases as stipulated by the underlying agreements. Due to changes in customer agreements resulting from the uncertainty surrounding the polycrystalline silicon market, this method was discontinued. In light of the fact that Hemlock’s customers are obligated to purchase minimum quantities of product each year, tell us why there was a change in the method of determining the current portion.
4
The recent and ongoing uncertainties and oversupply conditions in the polycrystalline silicon market have created an environment where customers may not completely fulfill their contractual obligations in future periods, including 2013. Therefore, in order to avoid potentially overstating the current portion of deferred revenue by basing it upon contractual requirements that may not be fulfilled within the next 12 month period, Hemlock management performed an evaluation on a customer-by-customer basis of expectations regarding customer performance and corresponding application of advanced payments. The evaluation considered factors such as customer financial condition, recent customer performance (or lack thereof) under the contractual requirements, any relevant discussions with customers and expectations regarding market and industry conditions over the next 12 months. Based on the evaluation, management estimated the portion of deferred revenue considered to be current. Management believes this method for estimating the current portion for both advanced payment deferred revenue and average price deferred revenue will provide a more accurate representation of the current portion than reliance solely upon the contractual purchase commitment amounts, which may not be honored over the next 12 months. The application of the new method reduced the portion of deferred revenue considered to be current.
·
With reference to the average remaining terms of the sales agreements, please address the appropriateness of (i) the deferred revenue recognized in 2012 related to both average pricing and advanced payments and (ii) your determination of the current and long-term portion of the deferred revenue related to both the average pricing and the advanced payments received. Provide a detailed explanation of your method for amortizing the advanced payments, with quantified information as necessary to illustrate. Clarify whether the advance payments are being recognized based on quantities as well as your basis for estimating the total expected quantities to be delivered under the contracts.
Because both recognition and application of deferred revenue is calculated on a per unit basis as described in the example below, the average remaining terms of the sales agreements are not relevant to its recognition or application. In 2012, the deferred revenue recognized related to average pricing or applied related to advanced payments was based on the volume of product shipped to the customer in the period. The average remaining terms of the sales agreements did not impact management’s determination of the current and long-term portion of the deferred revenue related to both the average pricing and the advanced payments. Factors impacting the classification of deferred revenue are described in the previous bullet point.
Advanced payment deferred revenue is applied to customer purchases on a per unit basis for actual quantities sold and is specified in each contract. The amount per unit is determined as the advanced payment received divided by the specified contractual volume over which the advanced payments will be credited. As such, the application of deferred revenue to customer purchases is not necessarily on a straight-line basis.
The following page provides a detailed example of the accounting for an illustrative agreement. Example A is based on the original contract during which the average price methodology was in place. Revenue recognition each year is based on the quantity sold to the customer at the average price over the term of the contract. The average price deferred revenue balance builds in the early years when the contract price exceeds the average price and is amortized over the latter years when the average price exceeds the contract price. The advanced payment deferred revenue is applied on a per unit basis over the term of the contract. By the end of the contract, both average price deferred revenue and advanced payment deferred revenue have a zero balance and the full value of the contract has been recognized in net sales.
5
Example B provides for an amendment to the contract reducing the price for 2012 only. At the same time, the contract amendment suspended the application of the advanced payments as a credit against 2012 purchases. The average price methodology was deemed no longer appropriate in 2012 as indicated in the response to the Securities and Exchange Commission letter dated May 7, 2013. Years 2005 through 2011 mirror Example A. Beginning in 2012, the 2011 ending balance of average price deferred revenue is recognized into revenue on a per unit basis over the remaining volume of the contract for years 2012 through 2017. As specified in the contract amendment, the customer received no credit for its advanced payments in 2012. The basis for applying the remaining balance of advanced payment deferred revenue is recalculated based on the remaining contract volumes for 2013 through 2017. By the end of the contract, both average price deferred revenue and advanced payment deferred revenue have a zero balance and the adjusted value of the contract has been recognized in net sales.
6
EXAMPLE A Pre-Amendment - Average price methodology in effect.
Customer enters into agreement with Hemlock in 2005 with shipments commencing in 2008.
Customer agrees to pur