UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

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

For the quarterly period ended March 31, 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)

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

Yes x No ¨

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

Yes x No ¨

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

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

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

Yes ¨ No x

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

Class	Outstanding as of April 15, 2013
Corning’s Common Stock, $0.50 par value per share	1,475,088,853 shares

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INDEX

PART I – FINANCIAL INFORMATION
	Page
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2013 and 2012	3
Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2013 and 2012	4
Consolidated Balance Sheets (Unaudited) at March 31, 2013 and December 31, 2012	5
Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 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	32
Item 3. Quantitative and Qualitative Disclosures About Market Risk	52
Item 4. Controls and Procedures	52
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	53
Item 1A.  Risk Factors	53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6. Exhibits	55
Signatures	56

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in millions, except per share amounts)

	Three months ended March 31,
	2013		2012
Net sales	$	1,814	$	1,920
Cost of sales		1,044		1,096
Gross margin		770		824
Operating expenses:
Selling, general and administrative expenses		259		273
Research, development and engineering expenses		178		184
Amortization of purchased intangibles		7		5
Asbestos litigation charge		2		1
Operating income		324		361
Equity in earnings of affiliated companies (Note 9)		173		218
Interest income		2		4
Interest expense		(36)		(20)
Other income, net (Note 1)		65		29
Income before income taxes		528		592
Provision for income taxes (Note 5)		(34)		(118)
Net income attributable to Corning Incorporated	$	494	$	474
Earnings per common share attributable to Corning Incorporated:
Basic (Note 6)	$	0.33	$	0.31
Diluted (Note 6)	$	0.33	$	0.31
Dividends declared per common share	$	0.09	$	0.075

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

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in millions)

	Three months ended March 31,
	2013		2012
Net income attributable to Corning Incorporated	$	494	$	474
Other comprehensive loss, net of tax		(488)		(61)
Comprehensive income attributable to Corning Incorporated	$	6	$	413

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

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions, except per share amounts)

	March 31, 2013		December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	4,797	$	4,988
Short-term investments, at fair value (Note 7)		978		1,156
Total cash, cash equivalents and short-term investments		5,775		6,144
Trade accounts receivable, net of doubtful accounts and allowances - $25 and $26		1,243		1,302
Inventories (Note 8)		1,171		1,051
Deferred income taxes (Note 5)		399		579
Other current assets		681		619
Total current assets		9,269		9,695
Investments (Note 9)		4,726		4,915
Property, net of accumulated depreciation - $7,606 and $7,652 (Note 11)		10,171		10,625
Goodwill and other intangible assets, net (Note 12)		1,485		1,496
Deferred income taxes (Note 5)		2,507		2,343
Other assets		437		301
Total Assets	$	28,595	$	29,375
Liabilities and Equity
Current liabilities:
Current portion of long-term debt (Note 4)	$	74	$	76
Accounts payable		762		779
Other accrued liabilities (Note 3)		959		1,101
Total current liabilities		1,795		1,956
Long-term debt (Note 4)		2,855		3,382
Postretirement benefits other than pensions		933		930
Other liabilities (Note 3)		1,622		1,574
Total liabilities		7,205		7,842
Commitments and contingencies (Note 3)
Shareholders’ equity:
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1,653 million and 1,649 million		826		825
Additional paid-in capital		13,167		13,146
Retained earnings		10,262		9,932
Treasury stock, at cost; Shares held: 180 million and 179 million		(2,779)		(2,773)
Accumulated other comprehensive (loss) income		(132)		356
Total Corning Incorporated shareholders’ equity		21,344		21,486
Noncontrolling interests		46		47
Total equity		21,390		21,533
Total Liabilities and Equity	$	28,595	$	29,375

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

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

	Three months ended March 31,
	2013		2012
Cash Flows from Operating Activities:
Net income	$	494	$	474
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		248		235
Amortization of purchased intangibles		7		5
Stock compensation charges		11		24
Undistributed earnings of affiliated companies (in excess of) less than dividends received		(12)		300
Deferred tax (benefit) provision		(30)		47
Restructuring payments		(16)		(1)
Employee benefit payments less than (in excess of) expense		15		(78)
Changes in certain working capital items:
Trade accounts receivable		17		(49)
Inventories		(138)		12
Other current assets		(2)		(47)
Accounts payable and other current liabilities		(112)		(51)
Other, net		141		(109)
Net cash provided by operating activities		623		762
Cash Flows from Investing Activities:
Capital expenditures		(194)		(412)
Short-term investments – acquisitions		(291)		(528)
Short-term investments – liquidations		469		341
Premium on purchased collars		(107)
Other, net		1		(5)
Net cash used in investing activities		(122)		(604)
Cash Flows from Financing Activities:
Retirement of long-term debt		(498)
Net repayments of short-term borrowings and current portion of long-term debt		(9)		(10)
Principal payments under capital lease obligations		(1)		(1)
Proceeds from issuance of long-term debt, net				791
Payments to settle interest rate hedges				(18)
Proceeds from the exercise of stock options		12		16
Repurchases of common stock for treasury				(72)
Dividends paid		(133)		(114)
Net cash (used in) provided by financing activities		(629)		592
Effect of exchange rates on cash		(63)		79
Net (decrease) increase in cash and cash equivalents		(191)		829
Cash and cash equivalents at beginning of period		4,988		4,661
Cash and cash equivalents at end of period	$	4,797	$	5,490

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

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.      Significant Accounting Policies

Basis of Presentation

In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and subsidiary companies.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in accordance with U.S. GAAP for interim financial information.  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted or condensed.  These interim consolidated financial statements should be read in conjunction with Corning’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Form 10-K).

The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods presented.  All such adjustments are of a normal recurring nature.  The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.

Employee Retirement Plans

In the first quarter of 2013, we elected to change our method of recognizing actuarial gains and losses for our defined benefit pension plans. Previously, we recognized the actuarial gains and losses as a component of Stockholders’ Equity on our consolidated balance sheets on an annual basis.  These amounts were amortized into our operating results over the average remaining service period of employees expected to receive benefits under the plan, to the extent such gains and losses were outside of the corridor, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year.  In addition, we used a calculated market-related value of plan assets for purposes of calculating the expected return on plan assets that spread asset gains and losses over a 3-year period.  We have elected to recognize the change in the fair value of plan assets in full and net actuarial gains and losses outside of the corridor annually in the fourth quarter of each year and whenever the plan is remeasured.  The remaining components of pension expense will be recorded on a quarterly basis.  While the historical policy of recognizing pension expense was considered acceptable, we believe that the new policy is preferable as it recognizes the change in the fair value of plan assets in full and eliminates the delay in recognition of net actuarial gains and losses outside of the corridor.  We have applied these changes retrospectively, adjusting all prior periods, as if the new accounting methodology was in effect during those periods.

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Following are the changes to financial statement line items as a result of the accounting methodology change for the periods presented in the accompanying unaudited consolidated financial statements:

Consolidated Statements of Income

	Three months ended March 31, 2013
	Previous accounting method		Reported		Effect of accounting change
Cost of sales	$	1,057	$	1,044	$	(13)
Gross margin		757		770		13
Selling, general and administrative expenses		266		259		(7)
Research, development and engineering expenses		182		178		(4)
Operating income		300		324		24
Income before income taxes		504		528		24
Provision for income taxes		(25)		(34)		(9)
Net income attributable to Corning Incorporated	$	479	$	494	$	15
Earnings per common share attributable to Corning Incorporated – Basic	$	0.33	$	0.33
Earnings per common share attributable to Corning Incorporated – Diluted	$	0.32	$	0.33	$	0.01

	Three months ended March 31, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Cost of sales	$	1,106	$	1,096	$	(10)
Gross margin		814		824		10
Selling, general and administrative expenses		279		273		(6)
Research, development and engineering expenses		187		184		(3)
Operating income		342		361		19
Income before income taxes		573		592		19
Provision for income taxes		(111)		(118)		(7)
Net income attributable to Corning Incorporated	$	462	$	474	$	12
Earnings per common share attributable to Corning Incorporated – Basic	$	0.30	$	0.31	$	0.01
Earnings per common share attributable to Corning Incorporated – Diluted	$	0.30	$	0.31	$	0.01

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Consolidated Statements of Comprehensive Income

	Three months ended March 31, 2013
	Previous accounting method		Reported		Effect of accounting change
Net income attributable to Corning Incorporated	$	479	$	494	$	15
Other comprehensive loss, net of tax		(475)		(488)	$	(13)
Comprehensive income attributable to Corning Incorporated	$	4	$	6	$	2

	Three months ended March 31, 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 loss, net of tax		(51)		(61)		(10)
Comprehensive income attributable to Corning Incorporated	$	411	$	413	$	2

Consolidated Balance Sheets

	March 31, 2013
	Previous accounting method		Reported		Effect of accounting change
Retained earnings	$	10,905	$	10,262	$	(643)
Accumulated other comprehensive (loss) income	$	(775)	$	(132)	$	643

	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

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Consolidated Statements of Cash Flows

	Three months ended March 31, 2013
	Previous accounting method		Reported		Effect of accounting change
Cash flows from operating activities:
Net income	$	479	$	494	$	15
Employee benefit payments less than expense	$	30	$	15	$	(15)

	Three months ended March 31, 2012
	Previously reported (before accounting change)		Revised (after accounting change)		Effect of accounting change
Cash flows from operating activities:
Net income	$	462	$	474	$	12
Employee benefit payments in excess of expense	$	(66)	$	(78)	$	(12)

Other Income, Net

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

	Three months ended March 31,
	2013		2012
Royalty income from Samsung Corning Precision	$	15	$	22
Foreign currency exchange and hedge gains, net		31		5
Net loss attributable to noncontrolling interests		1		1
Other, net		18		1
Total	$	65	$	29

New Accounting Standards

In March 2013, the FASB issued Accounting Standards Update No. 2013-05 Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.  ASU 2013-05 requires a parent company that ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income.  The amendments are required to be applied prospectively for annual periods for fiscal years beginning on or after December 15, 2013, and interim periods within those annual fiscal years.  Corning does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.

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2.      Restructuring, Impairment and Other Charges (Credits)

2013 Activity

The following table summarizes the restructuring reserve activity for the three months ended March 31, 2013 (in millions):

	Reserve at January 1, 2013		Cash payments		Reserve at March 31, 2013
Restructuring:
Employee-related costs	$	38	$	(15)	$	23
Other charges (credits)		4		(1)		3
Total restructuring activity	$	42	$	(16)	$	26

Cash payments for employee-related costs related to the 2012 corporate-wide restructuring plan are expected to be substantially completed in 2013.  Cash payments for exit activities were substantially completed in 2012.  There have been no impairment charges or disposal of long-lived assets in 2013.

2012 Activity

For the first quarter of 2012, there was no significant restructuring activity.

3.      Commitments, Contingencies, and Guarantees

Asbestos Litigation

Pittsburgh Corning Corporation.  Corning and PPG Industries, Inc. (PPG) each own 50% of the capital stock of Pittsburgh Corning Corporation (PCC).  Over a period of more than two decades, PCC and several other defendants have been named in numerous lawsuits involving claims alleging personal injury from exposure to asbestos.  On April 16, 2000, PCC filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Western District of Pennsylvania.  Corning, with other relevant parties, has been involved in ongoing efforts to develop a Plan of Reorganization that would resolve the concerns and objections of the relevant parties.  A proposed PCC plan of reorganization (Amended PCC Plan) filed in the U.S. Bankruptcy Court for the Western District of Pennsylvania was not confirmed by the Court.  Further changes to the Amended PCC Plan were filed in August of 2012.  Corning also has an equity interest in Pittsburgh Corning Europe N.V. (PCE), a Belgian Corporation that is a component of the Company’s proposed resolution of the PCC asbestos litigation.  At March 31, 2013 and December 31, 2012, the fair value of PCE exceeded its carrying value of $145 million and $149 million, respectively.

The Amended PCC Plan does not include certain non-PCC asbestos claims that may be or have been raised against Corning.  Corning has recorded in its estimated asbestos litigation liability an additional $150 million for the approximately 9,800 current non-PCC cases alleging injuries from asbestos, and for any future non-PCC cases.  The liability for the Amended PCC Plan and the non-PCC asbestos claims was estimated to be $673 million at March 31, 2013, compared with an estimate of the liability of $671 million at December 31, 2012.  In the three months ended March 31, 2013 and 2012, Corning recorded asbestos litigation expense of $2 million and $1 million, respectively.  The entire obligation is classified as a non-current liability as installment payments for the cash portion of the obligation are not planned to commence until more than 12 months after the Amended PCC Plan becomes effective and the PCE portion of the obligation will be fulfilled through the direct contribution of Corning’s investment in PCE (currently recorded as a non-current other equity method investment).

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Other Commitments and Contingencies

In the normal course of our business, we do not routinely provide significant third-party guarantees.  Generally, any third party guarantees provided by Corning are limited to certain financial guarantees including stand-by letters of credit and performance bonds, and the incurrence of contingent liabilities in the form of purchase price adjustments related to attainment of milestones.  When provided, these guarantees have various terms, and none of these guarantees are individually significant.

We have agreed to provide a credit facility to Dow Corning Corporation (Dow Corning).  The funding of the Dow Corning credit facility will be required only if Dow Corning is not otherwise able to meet its scheduled funding obligations in its confirmed Bankruptcy Plan.  We believe a significant majority of these guarantees and contingent liabilities will expire without being funded.

As of March 31, 2013 and December 31, 2012, contingent guarantees totaled a notional value of $153 million and $142 million, respectively.  We believe a significant majority of these contingent guarantees will expire without being funded.  We also were contingently liable for purchase obligations of $109 million and $89 million, at March 31, 2013 and December 31, 2012, respectively.

Product warranty liability accruals were considered insignificant at March 31, 2013 and December 31, 2012.

Corning is a defendant in various lawsuits, including environmental litigation, product-related suits, the Dow Corning and PCC matters, and is subject to various claims which arise in the normal course of business.  In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse effect on Corning’s consolidated financial position, liquidity, or results of operations, is remote.

In March of 2012, Corning received a grand jury subpoena issued in the United States District Court for the Eastern District of Michigan from the U.S. Department of Justice in connection with an investigation into conduct relating to possible antitrust law violations involving certain automotive products, including catalytic converters, diesel particulate filters, substrates and monoliths.  Antitrust investigations can result in significant penalties being imposed by the antitrust authorities.  Currently Corning cannot estimate the ultimate financial impact, if any, resulting from the investigation.  Such potential impact, if an antitrust violation by Corning is found, could however, be material to the results of operations of Corning in a particular period.

Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act or by state governments under similar state laws, as a potentially responsible party for 17 hazardous waste sites.  Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise.  It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants.  At March 31, 2013, and December 31, 2012, Corning had accrued approximately $18 million (undiscounted) and $21 million (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation.  Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

4.      Debt

Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $3.2 billion at March 31, 2013 and $3.7 billion at December 31, 2012.  The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.

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2013

In the first quarter of 2013, we amended and restated our existing revolving credit facility.  The amended facility provides a $1.0 billion unsecured multi-currency line of credit that expires in March 2018.  The facility includes a leverage test (debt to capital ratio) financial covenant.  As of March 31, 2013, we were in compliance with this covenant.

In the first quarter of 2013, Corning repaid the aggregate principal amount and accrued interest outstanding on the credit facility entered into in the second quarter of 2011 that allowed Corning to borrow up to Chinese Renminbi (RMB) 4.0 billion.  The total amount repaid was approximately $500 million.  Upon repayment, this facility was terminated.

2012

In the first quarter of 2012, we issued $250 million of 4.70% senior unsecured notes and $500 million of 4.75% senior unsecured notes for net proceeds of approximately $247 million and $495 million, respectively.  The 4.70% notes mature on March 15, 2037 and the 4.75% notes mature on March 15, 2042.

5.      Income Taxes

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

	Three months ended March 31,
	2013		2012
Provision for income taxes	$	(34)	$	(118)
Effective tax rate (1)		6.4%		19.9%

(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 months ended March 31, 2012.

For the three months ended March 31, 2013, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following items:

·   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;

·   $54 million tax benefit to record the impact of the American Taxpayer Relief Act enacted on January 3, 2013 retroactive to 2012; and

·   The benefit of tax incentives in foreign jurisdictions, primarily Taiwan.

For the three months ended March 31, 2012, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following items:

·   Rate differences on income/(losses) 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.

Corning’s subsidiary in Taiwan is operating under tax holiday arrangements.  The benefit of the arrangement phases out through 2018.  The impact of the tax holiday on our effective tax rate is a reduction in the rate of 1.5 and 1.4 percentage points for the three months ended March 31, 2013 and 2012, respectively.

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Corning continues to indefinitely reinvest substantially all of its foreign earnings.  Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash.  One time or unusual items that may impact our ability or intent to keep our foreign earnings and cash indefinitely reinvested include significant U.S. acquisitions, stock repurchases, shareholder dividends, changes in tax laws and/or a change in our circumstances or economic conditions that negatively impact our ability to borrow or otherwise fund U.S. needs from existing U.S. sources.  While it remains impracticable to calculate the tax cost of repatriating our total unremitted foreign earnings, such cost could be material to the results of operations of Corning in a particular period.

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

6.      Earnings per Common Share

The reconciliation of the amounts used in the basic and diluted earnings per common share computations follows (in millions, except per share amounts):

	Three months ended March 31,
	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	$494	1,472	$0.33	$474	1,516	$0.31
Effect of dilutive securities:
Stock options and other dilutive securities		9			14
Diluted earnings per common share	$494	1,481	$0.33	$474	1,530	$0.31

The following potential common shares were excluded from the calculation of diluted earnings per common share because their inclusion would have been anti-dilutive (in millions):

	Three months ended March 31,
	2013	2012
Stock options and other dilutive securities excluded from the calculation of diluted earnings per common share	47	42

7.      Available-for-Sale Investments

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

	Amortized cost				Fair value
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Bonds, notes and other securities:
U.S. government and agencies	$	974	$	1,153	$	978	$	1,156
Total short-term investments	$	974	$	1,153	$	978	$	1,156
Asset-backed securities	$	50	$	51	$	39	$	40
Total long-term investments	$	50	$	51	$	39	$	40

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

The following table summarizes the maturities at market value of available-for-sale securities at March 31, 2013 (in millions):

Less than one year	$  719
Due in 1-5 years	259
Due in 5-10 years	0
Due after 10 years (1)	39
Total	$1,017

(1) Includes $39 million of asset-based securities that mature over time and are being reported at their final maturity dates.

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

The following tables provide the fair value and gross unrealized losses of the Company’s investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012 (in millions):

		March 31, 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	21	$	39	$	(10)	$	39	$	(10)
Total long-term investments	21	$	39	$	(10)	$	39	$	(10)

(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.

As of March 31, 2013 and December 31, 2012, for securities that have credit losses, an other than temporary impairment loss of $8 and $9 million, respectively, is recognized in accumulated other comprehensive (loss) income.

Proceeds from sales and maturities of short-term investments totaled approximately $0.5 billion and $0.4 billion for the three months ended March 31, 2013 and 2012, respectively.

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8.      Inventories

Inventories comprise the following (in millions):

	March 31, 2013		December 31, 2012
Finished goods	$	399	$	392
Work in process		186		168
Raw materials and accessories		361		271
Supplies and packing materials		225		220
Total inventories	$	1,171	$	1,051

9.      Investments

Investments comprise the following (in millions):

	Ownership interest (1)	March 31, 2013		December 31, 2012
Affiliated companies accounted for by the equity method
Samsung Corning Precision Materials Co., Ltd.	50%	$	3,191	$	3,346
Dow Corning Corporation	50%		1,162		1,191
All other	20-50%		370		375
			4,723		4,912
Other investments			3		3
Total		$	4,726	$	4,915

(1) Amounts reflect Corning’s direct ownership interests in the respective affiliated companies.  Corning does not control any of these entities.

In the first three months of 2012, Corning’s equity earnings were increased by $13 million as a result of income tax benefits from temporary tax exemptions.

Related party information for these investments in affiliates follows (in millions):

	Three months ended March 31,
	2013		2012
Related Party Transactions:
Corning sales to affiliated companies	$	3	$	13
Corning purchases from affiliated companies	$	69	$	18
Corning transfers of assets, at cost, to affiliated companies	$	6	$	9
Dividends received from affiliated companies	$	161	$	518
Royalty income from affiliated companies	$	16	$	22
Corning services to affiliates	$	1	$	10

As of March 31, 2013, balances due to and due from affiliates were $50 million and $18 million, respectively.  As of December 31, 2012, balances due to and due from affiliates were $37 million and $61 million, respectively.

We have contractual agreements with several of our equity affiliates, including sales, purchasing, and licensing and technology agreements.

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Summarized results of operations for our two significant investments accounted for by the equity method follow:

Samsung Corning Precision Materials Co. Ltd. (Samsung Corning Precision)

Samsung Corning Precision is a South Korea-based manufacturer primarily of liquid crystal display (LCD) glass for flat panel displays.  Samsung Corning Precision’s results of operations follow (in millions):

	Three months ended March 31,
	2013		2012
Statement of Operations:
Net sales	$	658	$	784
Gross profit	$	397	$	524
Net income attributable to Samsung Corning Precision	$	272	$	371
Corning’s equity in earnings of Samsung Corning Precision	$	133	$	183
Related Party Transactions:
Corning purchases from Samsung Corning Precision	$	60	$	10
Dividends received from Samsung Corning Precision	$	143	$	518
Royalty income from Samsung Corning Precision	$	15	$	22
Corning transfers of machinery and equipment to Samsung Corning Precision at cost (1)	$	6	$	9

(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.

As of March 31, 2013, balances due from Samsung Corning Precision were $11 million and balances due to Samsung Corning Precision were $46 million.  As of December 31, 2012, balances due from Samsung Corning Precision were $15 million and balances due to Samsung Corning Precision were $34 million.

Corning owns 50% of Samsung Corning Precision.  Samsung Display Co., Ltd. owns 43% and other shareholders own the remaining 7%.

In April 2011, Korean tax authorities completed a tax audit of Samsung Corning Precision Materials.  As a result, the tax authorities issued a pre-assessment of approximately $46 million for an asserted underpayment of withholding tax on dividends paid from September 2006 through March 2009.  Our first level of appeal was denied on October 5, 2011 and a formal assessment was issued.  The assessment was paid in full in the fourth quarter of 2011, which will allow us to continue the appeal process.  Samsung Corning Precision Materials and Corning believe we will maintain our position when all available appeal remedies have been exhausted.

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Dow Corning Corporation (Dow Corning)

Dow Corning is a U.S.-based manufacturer of silicone products.  Dow Corning’s results of operations follow (in millions):

	Three months ended March 31,
	2013		2012
Statement of Operations:
Net sales	$	1,264	$	1,522
Gross profit (1)	$	217	$	337
Net income attributable to Dow Corning	$	62	$	71
Corning’s equity in earnings of Dow Corning	$	35	$	35
Related Party Transactions:
Corning purchases from Dow Corning	$	6	$	6

(1) Gross profit for the three months ended March 31, 2013 includes R&D cost of $65 million (2012: $69 million) and selling expenses of $4 million (2012: $4 million).

At March 31, 2013 and December 31, 2012, amounts owed to Dow Corning were not significant.

At March 31, 2013, Dow Corning’s marketable securities included approximately $76 million of auction rate securities, net of a temporary impairment of an insignificant amount.

Corning and The Dow Chemical Company (Dow Chemical) each own 50% of the common stock of Dow Corning.  In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from many thousands of breast implant product lawsuits.  On June 1, 2004, Dow Corning emerged from Chapter 11 with a Plan of Reorganization (the Plan) which provided for the settlement or other resolution of implant claims.  Under the terms of the Plan, Dow Corning has established and is funding a Settlement Trust and a Litigation Facility to provide a means for tort claimants to settle or litigate their claims.  Inclusive of insurance, Dow Corning has paid approximately $1.7 billion to the Settlement Trust.  As of March 31, 2013, Dow Corning had recorded a reserve for breast implant litigation of $1.6 billion.

As a separate matter arising from the bankruptcy proceedings, Dow Corning is defending claims asserted by a number of commercial creditors who claim additional interest at default rates and enforcement costs, during the period from May 1995 through June 2004.  As of March 31, 2013, Dow Corning has estimated the liability to commercial creditors to be within the range of $91 million to $298 million.  As Dow Corning management believes no single amount within the range appears to be a better estimate than any other amount within the range, Dow Corning has recorded the minimum liability within the range.  Should Dow Corning not prevail in this matter, Corning’s equity earnings would be reduced by its 50% share of the amount in excess of $91 million, net of applicable tax benefits.

On July 20, 2012, the Chinese Ministry of Commerce (“MOFCOM”) initiated anti-dumping and countervailing duty investigations of imports of solar-grade polycrystalline silicon products from the U.S. and Korea, based on a petition filed by Chinese solar-grade polycrystalline silicon producers.  The petition alleges that producers within these countries, including a consolidated subsidiary of Dow Corning, exported solar-grade polycrystalline silicon to China at less than normal value, and that production of solar-grade polycrystalline silicon in the U.S. has been subsidized by the U.S. government.  If the Chinese authorities rule that dumping or subsidization took place, they may impose additional duties on future imports of solar-grade polycrystalline silicon to China from the U.S.  Dow Corning and its consolidated subsidiaries are complying with MOFCOM in the investigations and are vigorously contesting the allegations.  As the outcome of such actions is uncertain, Dow Corning cannot predict the ultimate impact of these matters.

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10.      Acquisition

On October 31, 2012, Corning acquired all of the shares of Discovery Labware, Inc. and Plasso Technology Limited and certain other assets (collectively referred to as “Purchased Assets”) from Becton Dickinson and Company for approximately $723 million, net of $1.4 million cash received at closing.  The Purchased Assets constitute a business; therefore, the acquisition was accounted for as a business combination.  The business, referred to as Discovery Labware, designs, manufactures, markets and supplies cell culture, other laboratory reagents, core and advanced consumables for basic and applied research for life scientists, clinical researchers, and laboratory professionals globally.

The purchase price of the acquisition was allocated to the net tangible and other intangible assets acquired, with the remainder recorded as goodwill on the basis of fair value as follows (in millions):

Inventory and other current assets	$	74
Fixed Assets		81
Other intangible assets		279
Current and non-current liabilities		(21)
Net tangible and intangible assets	$	413
Purchase price		723
Goodwill (1)	$	310

(1) The goodwill recognized is partly deductible for U.S. income tax purposes.  The goodwill was allocated to the Life Sciences segment.

Goodwill is primarily related to the value of the Discovery Labware product portfolio and distribution network and its combination with Corning’s existing life sciences platform, as well as synergies and other intangibles that do not qualify for separate recognition.  Other intangible assets consist mainly of distributor relationships, trademark and trade names and are amortized over a useful life of 20 years.  Acquisition-related costs of $22 million in the twelve months ended December 31, 2012 included costs for legal, accounting, valuation and other professional services and were included in selling, general and administrative expense in the Consolidated Statements of Income.  Supplemental pro forma information was not provided because the Purchased Assets are not material to Corning’s consolidated financial statements.

11.      Property, Net of Accumulated Depreciation

Property, net follows (in millions):

	March 31, 2013		December 31, 2012
Land	$	108	$	112
Buildings		4,233		4,324
Equipment		12,323		12,571
Construction in progress		1,113		1,270
		17,777		18,277
Accumulated depreciation		(7,606)		(7,652)
Total	$	10,171	$	10,625

In the three months ended March 31, 2013 and 2012, interest costs capitalized as part of property, net, were $9 million and $21 million, respectively.

Manufacturing equipment includes certain components of production equipment that are constructed of precious metals.  At March 31, 2013 and December 31, 2012, the recorded value of precious metals each totaled $2.3 billion and $2.4 billion, respectively.  Depletion expense for precious metals in the three months ended March 31, 2013 and 2012 totaled $6 million and $5 million, respectively.

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12.      Goodwill and Other Intangible Assets

The carrying amount of goodwill by segment for the periods ended March 31, 2013 and December 31, 2012 is as follows (in millions):

	Telecom- munications		Display Technologies		Specialty Materials		Life Sciences		Total
Balance at December 31, 2012	$	209	$	9	$	150	$	606	$	974
Foreign currency translation adjustment		(1)						(1)		(2)
Balance at March 31, 2013	$	208	$	9	$	150	$	605	$	972

Corning’s gross goodwill balances for the periods ended March 31, 2013 and December 31, 2012 were $7.4 billion.  Accumulated impairment losses were $6.5 billion for the periods ended March 31, 2013 and December 31, 2012, and were generated entirely through goodwill impairments related to the Telecommunications segment recorded primarily in 2001.

Other intangible assets are as follows (in millions):

	March 31, 2013						December 31, 2012
	Gross		Accumulated amortization		Net		Gross		Accumulated amortization		Net
Amortized intangible assets:
Patents, trademarks, and trade names	$	281	$	130	$	151	$	282	$	128	$	154
Customer lists and other		393		31		362		394		26		368
Total	$	674	$	161	$	513	$	676	$	154	$	522

Amortized intangible assets are primarily related to the Telecommunications and Life Sciences segments.  The net carrying amount of intangible assets decreased $9 million during the first three months of 2013, primarily due to amortization of $7 million and foreign currency translation adjustments.

Amortization expense related to these intangible assets is estimated to be $30 million for 2013, and approximately $30 million for 2014 through 2018.

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13.      Employee Retirement Plans

As discussed in Note 1 to the financial statements, in the first quarter of 2013, we elected to change our method of recognizing actuarial gains and losses for our defined benefit pension plans.

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

	Pension benefits				Postretirement benefits
	Three months ended March 31,				Three months ended March 31,
	2013		2012		2013		2012
Service cost	$	19	$	15	$	4	$	3
Interest cost		34		38		10		11
Expected return on plan assets (1)		(42)		(41)
Amortization of net loss (1)						4		4
Amortization of prior service cost		1		1		(2)		(1)
Total pension and postretirement benefit expense (1)	$	12	$	13	$	16	$	17

(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 months ended March 31, 2012.

Corning offers postretirement plans that provide health care and life insurance benefits for retirees and eligible dependents.  Certain employees may become eligible for such postretirement benefits upon reaching retirement age and service requirements.  For current retirees (including surviving spouses) and active employees eligible for the salaried retiree medical program, we placed a “cap” on the amount we will contribute toward retiree medical coverage in the future.  The cap is equal to 120% of our 2005 contributions toward retiree medical benefits.  Once our contributions toward salaried retiree medical costs reach this cap, impacted retirees will have to pay the excess amount in addition to their regular contributions for coverage.  This cap was attained for post-65 retirees in 2008 and has impacted their contribution rate in 2009 and going forward.  The pre-65 retirees triggered the cap in 2010, which has impacted their contribution rate in 2011 and going forward.  Furthermore, employees hired or rehired on or after January 1, 2007 will be eligible for Corning retiree medical upon retirement; however, these employees will pay 100% of the cost.

14.      Hedging Activities

Corning operates in many foreign countries and as a result is exposed to movements in foreign currency exchange rates.  The areas in which exchange rate fluctuations affect us include:

·   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.

Our most significant foreign currency exposures relate to the Japanese yen, Korean won, New Taiwan dollar and the Euro.  We seek to mitigate the impact of exchange rate movements on our operating results and we do this by using both foreign exchange forward and option contracts with durations of generally 24 months or less to hedge foreign currency risk.  In general, the hedges are scheduled to expire coincident with the timing of the underlying foreign currency commitments and transactions.

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While we transact our forward and option contracts with a diverse group of highly-rated major global financial institutions, we are exposed to potential losses in the event of non-performance by these counterparties.  However, we minimize this risk by limiting the counterparties to a diverse group of highly-rated major domestic and international financial institutions with which we have other financial relationships.  We are exposed to potential losses in the event of non-performance by these counterparties.  We do not expect to record any losses as a result of such counterparty default.  Neither we nor our counterparties are required to post collateral for these financial instruments.

Cash Flow Hedges

Our cash flow hedging activities utilize foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to foreign customers and purchases from foreign suppliers.  Our cash flow hedging activity also utilizes interest rate forwards to reduce the risk of changes in benchmark interest rate from the probable forecasted issuance of debt.  Corning uses a regression analysis to monitor the effectiveness of its cash flow hedges both prospectively and retrospectively.  Corning defers net gains and losses related to effective portion of cash flow hedges into accumulated other comprehensive income on the consolidated balance sheet until such time as the hedged item impacts earnings.  At March 31, 2013, the amount of net gain expected to be reclassified into earnings within the next 12 months is $70 million.

Fair Value Hedges

In October of 2012, we entered into two interest rate swaps that are designated as fair value hedges and economically exchange a notional amount of $550 million of previously issued fixed rate long-term debt to floating rate debt.  Under the terms of the swap agreements, we pay the counterparty a floating rate that is indexed to the one-month LIBOR rate.

Each fair value hedge (swap) was entered into subsequent to the initial recognition of the hedged item; therefore these swaps do not meet the criteria to qualify for the shortcut method.  Therefore, Corning utilizes the long haul method for effectiveness analysis, both retrospectively and prospectively.  The analysis excludes the impact of credit risk from the assessment of hedge effectiveness.  The amount recorded in current period earnings in the other income, net component, relative to ineffectiveness, is nominal for the periods ended March 31, 2013 and December 31, 2012.

Corning records net gains and losses from fair value hedges into the same line item of the consolidated statement of operations as where the effects of the hedged item are recorded.

Undesignated Hedges

Corning also uses foreign exchange forward contracts that are not designated as hedging instruments for accounting purposes.  The undesignated hedges limit exposures to foreign functional currency fluctuations related to certain subsidiaries, monetary assets, monetary liabilities and net earnings in foreign currencies.

A significant portion of the Company’s non-U.S. revenues are denominated in Japanese yen.  When these revenues are translated back to U.S. dollar the Company is exposed to foreign exchange rate movements in the Japanese yen.  To protect translated earnings against movements in the Japanese yen, the Company has entered into a series of purchased collars.

The Company uses purchased collar contracts to reduce the potential for unfavorable changes in foreign exchange rates to decrease the U.S. dollar value of translated earnings.  With a collar structure, the Company writes a local currency call option and purchases a local currency put option.  The purchased collars offset the impact of translated earnings above the put call price and below the call strike price and that offset is reported in other income, net.  The Company entered into a series of purchased collars to hedge the effect of translation impact for each respective quarter, settling quarterly, and spanning up to the fourth quarter of 2014.  Due to the nature of the instruments, only either the put option or the call option can be exercised at maturity.  As of March 31, 2013, the U.S. dollar net notional value of the purchased collars is $5.2 billion.

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The Company benefits from the increase in the U.S. dollar equivalent value of its foreign currency cash flows in translation and the purchased collar, within other income, would cap the benefit at the strike price of the written call or offset the decline from translation above the strike price of the purchased put.

All derivatives are recorded at fair value on the balance sheet.  The fair value of these derivative contracts are recorded as either assets (gain position) or liabilities (loss position) on the Consolidated Balance Sheet.  Changes in the fair value of the derivative contracts are recorded currently in earnings in the other income line of the consolidated statement of operations.

The following tables summarize the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for March 31, 2013 and December 31, 2012 (in millions):

	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	$   520	$  719	Other current assets	$  71	$  57	Other accrued liabilities	$    (1)	$  (3)
Interest rate swap	$   550	$  550				Other liabilities	$    (3)
Derivatives not designated as hedging instruments
Foreign exchange contracts	$  2,235	$1,939	Other current assets	$  61	$109	Other accrued liabilities	$  (21)	$(10)
Purchased collars	$10,325		Other current assets	$  85		Other accrued liabilities	$  (24)
			Other assets	$124		Other liabilities	$  (57)
Total derivatives	$13,630	$3,208		$341	$166		$(106)	$(13)

The following table summarizes the effect of derivative financial instruments on Corning’s consolidated financial statements for the three months ended March 31, 2013 (in millions):

	Effect of derivative instruments on the consolidated financial statements for the quarter ended March 31
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 hedges		$15	Cost of sales	$  8	$3
Foreign exchange contracts	$37	$40	Royalties	$13	$3
Total cash flow hedges	$37	$55		$21	$6

(1) The amount of hedge ineffectiveness at March 31, 2013 and 2012 was insignificant.

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

Undesignated derivatives	Location of gain/(loss) recognized in income	Gain/(loss) recognized in income
		2013	2012
Foreign exchange contracts	Other income, net	$153	$138
Purchased collars	Other income, net	$  24
Total undesignated		$177	$138

15.      Fair Value Measurements

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

Fair value standards apply whenever an entity is measuring fair value under other accounting pronouncements that require or permit fair value measurement and require the use of observable market data when available.  As of March 31, 2013 and December 31, 2012, the Company did not have any financial assets or liabilities that were measured on a recurring basis using unobservable (or Level 3) inputs.

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

			Fair value measurements at reporting date using
	March 31, 2013		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Current assets:
Short-term investments	$	978	$	978
Other current assets (1)	$	217			$	217
Non-current assets:
Other assets (1)(2)	$	163			$	163
Current liabilities:
Other accrued liabilities (1)	$	46			$	46
Non-current liabilities:
Other liabilities (1)	$	61			$	60

(1) Derivative assets and liabilities include foreign exchange forward and purchased collar contracts, and interest rate swaps which are measured using observable quoted prices for similar assets and liabilities.

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

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			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.

16.      Accumulated Other Comprehensive Income

A summary of changes in the components of accumulated other comprehensive income (loss), including our proportionate share of equity method investee’s accumulated other comprehensive income (loss), is as follows (in millions):

	Changes in Accumulated Other Comprehensive Income by Component (1) March 31, 2013
	Foreign currency translation adjustment and other		Unamortized actuarial losses and prior service costs (4)		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 income before reclassifications (2)		(329)				(2)		24		(307)
Amounts reclassified from accumulated other comprehensive income (3)				1				(14)		(13)
Equity method affiliates		(176)		6		1		1		(168)
Net current-period other comprehensive income		(505)		7		(1)		11		(488)
Ending balance	$	669	$	(813)	$	(17)	$	29	$	(132)

(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 $(15) million, including $(13) million related to the hedges component and $(2) million related to the investments component.

(3) Amounts are net of total tax benefit of $5 million, including $7 million related to the hedges component and $(2) million related to the retirement plans component.

(4) 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 to the beginning balance.

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	Changes in Accumulated Other Comprehensive Income by Component (1) March 31, 2012
	Foreign currency translation adjustment and other		Unamortized actuarial losses and prior service costs (4)		Net unrealized gains (losses) on investments		Net unrealized gains (losses) on designated hedges		Accumulated other comprehensive income (loss)
Beginning balance	$	1,353	$	(819)	$	(29)	$	(29)	$	476
Other comprehensive income before reclassifications (2)		(213)				6		35		(172)
Amounts reclassified from accumulated other comprehensive income (3)				2		(7)		(4)		(9)
Equity method affiliates		114				7		(1)		120
Net current-period other comprehensive income		(99)		2		6		30		(61)
Ending balance	$	1,254	$	(817)	$	(23)	$	1	$	415

(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 $(23) million, including $(20) million related to the hedges and $(3) million related to the investments.

(3) Amounts are net of total tax benefit of $3 million, including $2 million related to the hedges, $3 million related to the investments and $(2) million related to the retirement plans.

(4) 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 months ended March 31, 2012.

Reclassifications Out of Accumulated Other Comprehensive Income  (AOCI) by Component (1)
Details about AOCI Components	Amount reclassified from AOCI in the three months ended March 31,				Affected line item in the consolidated statements of income
	2013		2012
Amortization of net actuarial loss	$	(4)	$	(4)	(2)
Amortization of prior service cost		1			(2)
		(3)		(4)	Total before tax
		2		2	Tax benefit
	$	(1)	$	(2)	Net of tax
Realized gains on investments			$	10	Other income, net
				(3)	Tax expense
				7	Net of tax
Realized gains on designated hedges	$	8	$	3	Cost of sales
		13		3	Royalties
		21		6	Total before tax
		(7)		(2)	Tax expense
		14		4	Net of tax
Total reclassifications for the period	$	13	$	9	Net of tax

(1) Amounts in parentheses indicate debits to the statement of income.

(2) These accumulated other comprehensive income components are included in net periodic pension cost.  See Note 13 – Employee Retirement Plans for additional details.

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17.      Share-based Compensation

Stock Compensation Plans

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.  Fair values for stock options were estimated using a multiple-point Black-Scholes valuation model.  Share-based compensation cost was approximately $11 million and $24 million for the three months ended March 31, 2013 and 2012, respectively.  Amounts for all periods presented included compensation expense for employee stock options and time-based restricted stock and restricted stock units.  Performance-based restricted stock and restricted stock units fully vested in the first quarter of 2012.  Compensation expense for performance-based restricted stock units is included in periods ended prior to April 1, 2012.

Stock Options

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

The following table summarizes information concerning stock options outstanding including the related transactions under the Stock Option Plans for the three months ended March 31, 2013:

	Number of Shares (in thousands)	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (in thousands)
Options Outstanding as of December 31, 2012	64,061	$16.63
Granted	1,575	13.32
Exercised	(2,213)	5.76
Forfeited and Expired	(1,058)	13.62
Options Outstanding as of March 31, 2013	62,365	16.99	4.94	63,001
Options Expected to Vest as of March 31, 2013	62,201	16.99	4.94	62,951
Options Exercisable as of March 31, 2013	51,192	17.51	4.11	60,234

The aggregate intrinsic value (market value of stock less option exercise price) in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price on March 31, 2013, which would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date.

As of March 31, 2013, there was approximately $25 million of unrecognized compensation cost related to stock options granted under the Plans.  The cost is expected to be recognized over a weighted-average period of 2 years.  Compensation cost related to stock options was approximately $5 million and $12 million for the three months ended March 31, 2013 and 2012, respectively.

Proceeds received from the exercise of stock options were $12 million and $16 million for the three months ended March 31, 2013 and 2012, respectively.  Proceeds received from the exercise of stock options were included in financing activities on the Company’s Consolidated Statements of Cash Flows.  The total intrinsic value of options exercised for the three months ended March 31, 2013 and 2012 was approximately $13 million and $15 million, respectively, which is currently deductible for tax purposes.  However, these tax benefits were not fully recognized due to net operating loss carryforwards available to the Company.  Refer to Note 5 (Income Taxes) to the consolidated financial statements.

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

	Three months ended March 31,
	2013	2012
Expected volatility	47%	48-49%
Weighted-average volatility	47%	49%
Expected dividends	3.02%	2.33%
Risk-free rate	1.1-1.5%	0.9-1.3%
Average risk-free rate	1.4%	1.3%
Expected term (in years)	5.8-7.2	5.7-7.1
Pre-vesting departure rate	0.4-4.1%	0.4-4.2%

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

Incentive Stock Plans

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

Time-Based Restricted Stock and Restricted Stock Units:

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

The following table represents a summary of the status of the Company’s non-vested time-based restricted stock and restricted stock units as of December 31, 2012, and changes which occurred during the three months ended March 31, 2013:

	Shares (000’s)	Weighted Average Grant-Date Fair Value
Non-vested shares and share units at December 31, 2012	5,363	$	15.97
Granted	1,964		13.13
Vested	(1,140)		17.66
Forfeited	(21)		17.72
Non-vested shares and share units at March 31, 2013	6,166	$	14.74

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As of March 31, 2013, there was approximately $42 million of unrecognized compensation cost related to non-vested time-based restricted stock and restricted stock units compensation arrangements granted under the Plan.  The cost is expected to be recognized over a weighted-average period of two years.  Compensation cost related to time-based restricted stock and restricted stock units was approximately $6 million and $10 million for the three months ended March 31, 2013 and 2012, respectively.

Performance-Based Restricted Stock and Restricted Stock Units:

Performance-based restricted stock and restricted stock units are earned upon the achievement of certain targets, and are payable in shares of the Company’s common stock upon vesting, typically over a three-year period.  The fair value is based on the closing market price of the Company’s stock on the grant date and assumes that the target payout level will be achieved.  Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.  During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.

The performance-based restricted stock and restricted stock unit compensation program was terminated in 2010.  All performance-based restricted stock and stock units were fully vested in the first quarter of 2012.

As of March 31, 2013, there is no unrecognized compensation cost related to non-vested performance-based restricted stock and restricted stock units compensation arrangements granted under the Plan.  Compensation cost related to performance-based restricted stock and restricted stock units was approximately $2 million for the three months ended March 31, 2012.

18.      Significant Customers

For the three months ended March 31, 2013 and 2012, Corning had no customers that individually accounted for 10% or more of the Company’s consolidated net sales.

19.      Reportable Segments

Our reportable segments are as follows:

·   Display Technologies – manufactures liquid crystal display (LCD) glass for flat panel displays.

·   Telecommunications – manufactures optical fiber and cable, and hardware and equipment components for the telecommunications industry.

·   Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.  This reportable segment is an aggregation of our Automotive and Diesel operating segments as these two segments share similar economic characteristics, products, customer types, production processes and distribution methods.

·   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 segments that do not meet the quantitative threshold for separate reporting are grouped as “All Other.”  This group is primarily comprised of development projects and results for new product lines.

We prepared the financial results for our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions.  We included the earnings of equity affiliates that are closely associated with our reportable segments in the respective segment’s net income.  We have allocated certain common expenses among segments differently than we would for stand-alone financial information prepared in accordance with U.S. GAAP.  Segment net income may not be consistent with measures used by other companies.  The accounting policies of our reportable segments are the same as those applied in the consolidated financial statements.

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Reportable Segments (in millions)

	Display Technologies		Telecom- munications		Environmental Technologies		Specialty Materials		Life Sciences		All Other		Total
Three months ended   March 31, 2013
Net sales	$	650	$	470	$	228	$	258	$	207	$	1	$	1,814
Depreciation (1)	$	124	$	34	$	31	$	39	$	14	$	4	$	246
Amortization of purchased intangibles			$	2					$	5			$	7
Research, development and engineering expenses (2)(4)	$	19	$	35	$	23	$	35	$	5	$	36	$	153
Equity in earnings of affiliated companies	$	133	$	1							$	5	$	139
Income tax (provision) benefit	$	(80)	$	(17)	$	(13)	$	(19)	$	(5)	$	15	$	(119)
Net income (loss) (3)	$	349	$	35	$	27	$	39	$	12	$	(28)	$	434
Three months ended   March 31, 2012
Net sales	$	705	$	508	$	263	$	288	$	155	$	1	$	1,920
Depreciation (1)	$	129	$	30	$	28	$	34	$	10	$	3	$	234
Amortization of purchased intangibles			$	3					$	2			$	5
Research, development and engineering expenses (2)(4)	$	27	$	35	$	26	$	37	$	6	$	27	$	158
Equity in earnings of affiliated companies	$	182	$	(4)	$	1					$	4	$	183
Income tax (provision) benefit (4)	$	(96)	$	(12)	$	(20)	$	(11)	$	(6)	$	11	$	(134)
Net income (loss) (3)(4)	$	422	$	21	$	41	$	22	$	12	$	(20)	$	498

(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) 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.

(4) 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 months ended March 31, 2012.

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

	Three months ended March 31,
	2013		2012
Net income of reportable segments (4)	$	462	$	518
Non-reportable segments		(28)		(20)
Unallocated amounts:
Net financing costs (1)		(34)		(40)
Stock-based compensation expense		(11)		(24)
Exploratory research		(24)		(23)
Corporate contributions		(13)		(13)
Equity in earnings of affiliated companies, net of impairments (2)		34		35
Asbestos settlement (3)		(2)		(1)
Purchased collars (6)		24
Other corporate items (4)(5)		86		42
Net income (4)	$	494	$	474

(1) Net financing costs include interest income, interest expense, and interest costs and investment gains associated with benefit plans.

(2) Primarily represents the equity earnings of Dow Corning Corporation, which includes a $2 million restructuring charge for our share of costs for headcount reductions and asset write-offs for the three months ended March 31, 2013.

(3) In the first quarter of 2013, Corning recorded a charge of $2 million to adjust the asbestos liability for the change in value of components of the Amended PCC Plan.  In the first quarter of 2012, Corning recorded a charge of $1 million to adjust the asbestos liability for the change in value of components of the Amended PCC Plan.

(4) 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 months ended March 31, 2012.

(5) For the three months ended March 31, 2013, Corning recorded a $54 million tax benefit for the impact of the American Taxpayer Relief Act enacted on January 3, 2013 retroactive to 2012.

(6) For the three months ended March 31, 2013, Corning recorded a net gain of $24 million related to its purchased collars.

In the Specialty Materials operating segment, assets decreased from $1.7 billion at December 31, 2012 to $1.5 billion at March 31, 2013.  The decrease is due primarily to the decrease in accounts receivables from lower sales in the first quarter of 2013, when compared to the fourth quarter of 2012 and the impact of translating fixed assets held in foreign locations.

The sales of each of our reportable segments are concentrated across a relatively small number of customers.  In the first quarter of 2013, 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, 4 customers accounted for 90% of total segment sales.

·   In the Telecommunications segment, 1 customer accounted for 12% of total segment sales.

·   In the Environmental Technologies segment, 3 customers accounted for 87% of total segment sales.

·   In the Specialty Materials segment, 2 customers accounted for 38% of total segment sales.

·   In the Life Sciences segment, 2 customers accounted for 42% 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 operation of a facility 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 on our display business and the Company as a whole.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ORGANIZATION OF INFORMATION

Management’s Discussion and Analysis provides a historical and prospective narrative on the Company’s financial condition and results of operations.  The discussion includes the following sections:

·   Overview

·   Results of Operations

·   Core Performance Measures

·   Reportable Segments

·   Liquidity and Capital Resources

·   Critical Accounting Estimates

·   New Accounting Standards

·   Environment

·   Forward-Looking Statements

OVERVIEW

Although Corning’s net sales declined by $106 million, or 6%, in the first quarter of 2013 when compared to the first quarter of 2012, reflecting lower sales in all of our segments except Life Sciences, net income increased by $20 million, or 4%, driven by improvements in the Telecommunications and Specialty Materials segment.  Lower volume in the Telecommunications segment was more than offset by improved manufacturing performance and strong spending controls.  Results in our Specialty Materials segment improved by 77%, driven by improved manufacturing efficiency in the production of Corning® Gorilla® Glass and an increase in sales of higher-profit products.  Partially offsetting the improvements in these segments were declines in operating results in the Environmental Technologies and Display Technologies segments.  In the Environmental Technologies segment, operating results declined in the first quarter of 2013, due to reductions in demand for both light-duty and heavy-duty diesel products, and price declines in the automotive products business.  Results in the Display Technologies segment were lower primarily due to the significant depreciation of the Japanese yen versus the U.S. dollar.  Volume in the Display Technologies segment base business increased in the double-digits, which more than offset price declines.

In the first quarter of 2013, we generated net income of $494 million or $0.33 per share, compared to net income of $474 million or $0.31 per share for the same period in 2012.  When compared to the same period last year, the increase in net income in the three months ended March 31, 2013 was due largely to the following items:

·   A tax benefit in the amount of $54 million related to the impact of the American Taxpayer Relief Act enacted on January 3, 2013 retroactive to 2012;

·   Lower operating expenses, driven by a decrease in stock compensation expense and cost control measures implemented by our segments;

·   Higher net income in the Specialty Materials and Telecommunications segments; and

·   Net gain recorded on our foreign exchange purchased collar hedge contracts.

The increase in net income for the three months ended March 31, 2013 was offset somewhat by the following:

·   The negative impact on our Display Technologies segment of the significant depreciation of the Japanese yen versus the U.S. dollar; and

·   Lower net income in the Environmental Technologies segment, driven by lower demand for our diesel products.

Our key priorities for 2013 remain similar to those from previous years:  protect our financial health and invest in the future.  During the first quarter of 2013, we made the following progress toward these priorities:

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Protecting Financial Health

Our balance sheet remains strong, and we generated positive cash flow from operating activities:

·   We ended the first quarter of 2013 with $5.8 billion of cash, cash equivalents and short-term investments, a decrease from the balance at December 31, 2012 of $6.1 billion, but well above our debt balance at March 31, 2013 of $2.9 billion.  The decrease in cash was largely driven by the repayment of the Chinese credit facility in the first quarter of 2013, in the amount of approximately $500 million.

·   Our debt to capital ratio decreased from 14% reported at December 31, 2012 to 12% at March 31, 2013.

·   Although operating cash flow in the three months ended March 31, 2013 declined by $139 million when compared to the first quarter of 2012, we generated significant positive operating cash flow in the amount of $623 million.

Investing In Our Future

We continue to focus on the future and on what we do best – creating keystone components that enable high-technology systems.  We remain committed to investing in research, development and engineering to drive innovation.  During 2013, we will maintain our balanced innovation strategy focused on:  growing our existing businesses; developing opportunities adjacent or closely related to our existing technical and manufacturing capabilities; and investing in long range opportunities in each of our market segments.  Our spending levels for research, development, and engineering remained relatively consistent in the first quarter of 2013 when compared to the same period last year, and were approximately 10% of sales in both periods.

We continue to work on new products, including glass substrates for high performance displays and LCD applications, diesel filters and substrates, and the optical fiber, cable and hardware and equipment that enable fiber-to-the-premises, and next generation data centers.  In addition, we are focusing on wireless solutions for diverse venue applications, such as distributed antenna systems, fiber to the cell site and fiber to the antenna.  We have focused our research, development and engineering spending to support the advancement of new product attributes for our Corning Gorilla Glass suite of products.  We will continue to focus on adjacent glass opportunities which leverage existing materials or manufacturing processes, including Corning® Willow™ Glass, our ultra-slim flexible glass substrate for use in next-generation consumer electronic technologies.

Capital spending totaled $194 million and $412 million for the three months ended March 31, 2013 and 2012, respectively.  Spending in the first three months of 2013 was driven primarily by the Display Technologies segment, and focused on high performance display capital investments, tank rebuilds and the expansion project in China.  We expect our 2013 capital spending to be approximately $1.3 billion.  Approximately $457 million will be directed toward our Display Technologies segment, of which approximately $82 million is related to capital projects started in 2011 and 2012.

Corporate Outlook

We expect sales to grow in our Telecommunications, Life Sciences, Specialty Materials and Environmental Technologies segments, and for our market share to remain stable and price declines to be moderate in our Display Technologies segment.  A rise in global demand for Corning’s optical fiber and cable, combined with growth of enterprise network solutions products and fiber-to-the-premises sales in Australia should propel the sales improvement in our Telecommunications segment.  Our recent acquisition of the Discovery Labware business is expected to drive the Life Sciences segment sales growth in 2013.  We believe the overall LCD glass retail market in 2013 will increase in the mid-to-high single digits from 3.5 billion square feet in 2012, driven by the combination of an increase in retail sales of LCD televisions and the demand for larger television screen sizes.  Net income may be negatively impacted by lower equity earnings from our equity affiliate Dow Corning and the impact of movements in foreign exchange rates.  We may take advantage of acquisition opportunities that support the long-term strategies of our businesses.  We remain confident that our strategy to grow through global innovation, while preserving our financial health, will enable our continued long-term success.

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RESULTS OF OPERATIONS

Selected highlights for the first quarter follow (dollars in millions):

	Three months ended March 31,				% change
	2013		2012		13 vs. 12
Net sales	$	1,814	$	1,920	(6)
Gross margin	$	770	$	824	(7)
(gross margin %)		42%		43%
Selling, general, and administrative expenses	$	259	$	273	(5)
(as a % of net sales)		14%		14%
Research, development, and engineering expenses	$	178	$	184	(3)
(as a % of net sales)		10%		10%
Equity in earnings of affiliated companies	$	173	$	218	(21)
(as a % of net sales)		10%		11%
Income before income taxes	$	528	$	592	(11)
(as a % of net sales)		29%		31%
Provision for income taxes	$	(34)	$	(118)	71
(as a % of net sales)		(2)%		(6)%
Net income attributable to Corning Incorporated	$	494	$	474	4
(as a % of net sales)		27%		25%

Net Sales

For the three months ended March 31, 2013, net sales decreased by $106 million when compared to the same period in 2012, driven by lower sales in our Display Technologies, Telecommunications, Environmental Technologies and Specialty Materials segments.  Net sales increased in the Life Sciences segment, driven by the impact of the acquisition of the Discovery Labware business in the fourth quarter of 2012.  Although the impact of fluctuations in foreign currency exchange rates did not materially impact our Telecommunications, Environmental Technologies, Life Sciences and Specialty Materials segments, the impact of the fluctuation in the Japanese yen had a negative impact of approximately $100 million on sales in our Display Technologies segment in the first quarter, when compared to the first quarter of 2012.  Volume gains more than outpaced the decline in price in the Display Technologies segment in the first quarter of 2013.

Cost of Sales

The types of expenses included in the cost of sales line item are: raw materials consumption, including direct and indirect materials; salaries, wages, and benefits; depreciation and amortization; production utilities; production-related purchasing; warehousing (including receiving and in