SecProbe.io

CORRESP
1
filename1.htm

    commentletterjune13.htm

June 13, 2014

Securities and Exchange Commission

100 F Street, N.E., Stop 4631

Washington, D.C.  20549

Re:

Corning Incorporated

Form 10-K for the Year Ended December 31, 2013

Filed February 10, 2014

Form 10-Q for the Period Ended March 31, 2014

Filed April 28, 2014

File No. 1-3247

Ladies and Gentlemen:

We are responding to the comments in the Securities and Exchange Commission (the “Staff”) letter dated May 22, 2014 to Mr. James B. Flaws of Corning Incorporated (“Corning”).  For your convenience, we have included the Staff’s comments below (italicized and in bold) followed by our related response.  Additional disclosure or other revisions are bolded for your ease of review.

Form 10-K for the Year Ended December 31, 2013

General

1.

Where a comment below requests additional disclosures or other revisions to be made, please show us in your supplemental response what the revisions will look like.  These revisions should be included in your future filings, including your interim filings.

Corning will comply with this comment, and will include revisions made pursuant to this letter in future filings, as indicated in our responses below.

Management’s Discussion and Analysis

General

2.

As presented in your Consolidated Statements of Comprehensive Income on page 79, we note that the components of other comprehensive income have materially impacted total comprehensive income for each period presented, mainly due to foreign currency translations and unamortized gains (losses) and prior service costs for postretirement benefits.  Please expand your discussion and analysis to provide a comprehensive discussion and analysis of the foreign currencies and transactions generating the foreign currency adjustments as well as the underlying causes for the changes in the amounts recognized for postretirement benefits.

1

In future filings, in periods in which the components of other comprehensive income are material, we will include expanded disclosure in Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations to discuss the underlying factors causing the significant changes in comprehensive income.  With respect to the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K), we provide the following additional disclosure, and will provide comparable disclosure in our Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Form 10-K), as follows:

Comprehensive Income

2013 vs. 2012

For the year ended December 31, 2013, comprehensive income increased by $133 million, when compared to the same period in 2012, driven by an increase in net income attributable to Corning Incorporated and an increase in unamortized gains for postretirement benefit plans, offset partially by the increase in the loss on foreign currency translation adjustments.

The increase in the amount of unamortized gains for postretirement benefit plans is due to an increase of between 75 and 100 basis points in the discount rates used to value Corning’s U.S. pension and postretirement medical and life benefit plan (OPEB) obligations and the benefit plan obligations of our equity affiliate Dow Corning.  At December 31, 2013, the increase in discount rates led to an actuarial after-tax gain of approximately $400 million.  Because this gain did not fall outside of the corridor, which is defined as equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, the gain was recorded in AOCI and did not impact net income for the year ended December 31, 2013.

The increase in the loss on foreign currency translation adjustments for the year ended December 31, 2013 in the amount of $503 million was driven by the following items:  1) the increase in the loss in the translation of Corning’s consolidated subsidiaries in the amount of $317 million, which resulted primarily from the depreciation of the Japanese yen to U.S. dollar translation rate during 2013; 2) the increase in the loss in the translation of Corning’s equity method investments in the amount of $238 million, which is attributed to the change in the Korean won to U.S. dollar translation rate during 2013, which impacted our equity affiliate Samsung Corning Precision Materials; and 3) the absence of the 2012 reclassification of a gain to net income in the amount of $52 million related to the gain on the liquidation of a foreign subsidiary.

2012 vs. 2011

For the year ended December 31, 2012, comprehensive income decreased by $1,157 million when compared to the same period in 2011, driven by the decrease in net income attributable to Corning Incorporated, an increase in the loss on foreign currency translation adjustments, offset somewhat by a decrease in the amount of unamortized losses on postretirement benefit plans.

The increase in the loss on foreign currency translation adjustments for the year ended December 31, 2012 in the amount of $158 million was driven by the following items:  1) the increase in the loss in the translation of Corning’s consolidated subsidiaries in the amount of $583 million, which resulted primarily from the depreciation of the Japanese yen to U.S. dollar translation rate in 2012; 2) the increase in the gain in the translation of our equity method investments in the amount of $480 million, which is attributed to the change in the Korean won to U.S. dollar translation rate, which impacted our equity affiliate Samsung Corning Precision Materials; and 3) a $55 million change in the amount reclassified from AOCI to net income, which represents a gain in the amount of $52 million related to a translation capital gain on the liquidation of a foreign subsidiary recorded in 2012, offset by the non-repeat of a small loss reclassified in 2011.

2

The decrease in the amount of unamortized losses on postretirement benefit plans resulted from the decrease of between 75 and 100 basis points in the discount rates used to value Corning’s U.S. pension and OPEB plan obligations and the benefit plan obligations of our equity affiliate Dow Corning.  At December 31, 2012, the decrease in discount rates led to an actuarial after-tax loss of $150 million, which was offset by reclassifications out of AOCI of $149 million.  Because the loss fell outside of the corridor, which is defined as equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, the gain was reclassified into net income from AOCI at December 31, 2012.

See Note 13 (Employee Retirement Plans) and Note 17 (Shareholders’ Equity) for additional details.

Overview, page 26

3.

As indicated in Note 13 on page 114, we note that pension expense decreased from $280 million for the year ended December 31, 2012 to $7 million for the year ended December 31, 2013.  Please address the need to discuss this significant decrease in your overview section of MD&A and to the extent material, the impact this decrease had on the individual expense line items in which pension expense is reflected.

We acknowledge the Staff’s comments and will revise the disclosure to discuss the significant decrease in pension expense in the overview section of MD&A, and in the discussion of the individual lines items of the income statement, and will provide the following additional disclosures in our 2014 Form 10-K:

OVERVIEW

For the year ended December 31, 2013, we generated net income of $2.0 billion or $1.34 per share compared to net income of $1.6 billion or $1.09 per share for 2012.  When compared to last year, the increase in net income was due largely to the following items (all amounts presented after tax):

·

Net gain recorded on our purchase collars and average rate forwards related to translated earnings contracts in the amount of $287 million;

·

A decrease in pension expense of approximately $175 million, driven by a 100 basis point increase in the discount rate used to value our U.S. pension liability;

·

An increase of $99 million in equity earnings from Dow Corning;

·

A decrease of $45 million in restructuring, impairment and other charges;

·

An increase in net income in our Optical Communications, Specialty Materials, Environmental Technologies and Life Sciences segments in the amounts of $53 million, $50 million, $20 million and $43 million, respectively; and

·

A tax benefit in the amount of $91 million related to two components of the American Taxpayer Relief Act enacted on January 3, 2013 and made retroactive to 2012, consisting of a $17 million research and development tax credit and the reversal of a $37 million charge taken in 2012 related to U.S. tax on foreign earnings.

Partially offsetting the increase in net income in the year ended December 31, 2013 were the negative impacts of the depreciation of the Japanese yen versus the U.S. dollar, price declines in the mid-teens in the Display Technologies segment and an increase in the effective tax rate, largely driven by higher income in the U.S., tax law changes and the recording of valuation allowances due to changes in the realization of certain foreign and state deferred tax assets.

3

Gross Margin

For 2013, gross margin dollars and as a percentage of sales increased when compared to 2012, led by a decrease in pension expense in the amount of $150 million driven by a 100 basis point increase in the discount rate used to value our U.S. pension liability and an increase of 6% in the Specialty Materials segment, resulting from improvements in manufacturing efficiency and cost reduction programs.  The depreciation of the Japanese yen versus the U.S. dollar and price declines in the Display Technologies segment partially offset the increase.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses for 2013 decreased by $79 million when compared to 2012.  This decrease was largely driven by a decrease in pension expense in the amount of $76 million driven by a 100 basis point increase in the discount rate used to value our U.S. pension liability, cost control measures implemented in our segments and a decline in variable compensation in the amount of $27 million, offset somewhat by an increase in costs in the Optical Communications, Specialty Materials and Life Sciences segments.  As a percentage of net sales, these expenses decreased when compared to the same period last year.

Research, Development and Engineering Expenses

For the year ended December 31, 2013, research, development, and engineering expenses decreased by $59 million when compared to the same period last year, driven by a decrease in pension expense in the amount of $47 million driven by a 100 basis point increase in the discount rate used to value our U.S. pension liability and declines in our Display Technologies and Environmental Technologies segments of $19 million and $11 million, respectively, offset slightly by higher costs in the Optical Communications, Specialty Materials and Life Sciences segments.  We continue to focus on new product development in areas such as wireless solutions and fiber to the cell site in our Optical Communications segment, glass substrates for high performance displays in our Display Technologies segment and diesel filters and substrates in the Environmental Technologies segment.  As a percentage of net sales, research, development and engineering expenses declined slightly in the year ended December 31, 2013, when compared to the same period in 2012.

Net Sales, page 28

4.

Please separately quantify the dollar impact to sales that resulted from (i) volume discounts, (ii) price declines, and (iii) the depreciation of the Japanese yen in your Display Technologies segment.  Please address this comment as it relates to your Display Technologies segment discussion of results of operations.

We acknowledge the Staff’s comments and will revise our future disclosure to ensure the dollar impact of the depreciation of the Japanese yen is disclosed in our Display Technologies segment discussion of results of operations.  However, with respect to the request to quantify the dollar impact of volume and price declines in the Display Technologies segment, we respectfully reference our response to a similar comment contained in the Securities and Exchange Commission (the “Staff”) letter dated May 7, 2013 to Mr. James B. Flaws of Corning Incorporated (“Corning”).  Based on the fact that we received no further comments from the Staff on our May 7, 2013 response, we believe the Staff did not object to the disclosure methodology outlined in such response.   For the convenience of the Staff, the Staff comment and our response are repeated below:

4

Results of Operations, page 19

·

Please provide a more detailed analysis of the factors that impact your operations, including a complete discussion of known or anticipated trends that may continue to have an impact on sales, profit margins, selling, general and administrative expenses, etc.  Your discussion and analysis should provide investors with sufficient information to understand the historical trends and the expectations for the future as seen through the eyes of management.

We note for the Staff that we will provide additional quantitative information for our segment disclosure, as proposed below, except for certain specific information related to Display Technologies.  We suggest this disclosure methodology for the following reasons:

o

Because the Display Technologies segment consists of one product line, giving precise information on volume and price movements allows customers and competitors to derive conclusions on our pricing, capacity, and cost structure, which puts us in a competitively disadvantageous position.

o

The Display Technologies segment has a limited number of competitors, all of which are located in Asia.  Because these competitors are not subject to the same level of public disclosure as Corning, we feel disclosing precise amounts or percentages harms us competitively.

o

We believe providing a narrow range in percentage terms on volume and price movements gives our investors the information necessary to understand the drivers of our Display segment operating results, while protecting our position in the market place.

We continue to believe that providing precise information on volume and price movements in our Display Technologies segment puts us in a competitively disadvantageous position, and propose the disclosure methodology described above.

Provision for Income Taxes, page 33

5.

In a manner similar to the information provided in your Form 10-K for the year ended December 31, 2012, please expand your disclosures to address the character and amount of income/profit required to fully realize your deferred tax assets related to your federal net operating loss and credit carryforwards as of December 31,2013.

We acknowledge the Staff’s comment and in annual periods in which the U.S. deferred tax assets are material, we will provide the following additional disclosure beginning with the 2014 Form 10-K:

U.S. profits of approximately $6.2 billion will be required to fully realize the U.S. deferred tax assets as of December 31, 2013, of which $426 million will be required over the next 5-20 years to realize the deferred tax assets related to research and development credits and $3.1 billion of foreign sourced income will be required over the next 10 years to fully realize the deferred tax assets associated with foreign tax credits.

5

Other Income, Net, page 33

6.

You recorded a net gain related to the changes in the fair value of your purchased collars and average rate forward contracts of $435 million during the year ended December 31, 2013, which represented approximately 18% of your income before income taxes.  Please expand your disclosures to better discuss the facto