0000024741-16-000077.txt : 20160212 0000024741-16-000077.hdr.sgml : 20160212 20160212153103 ACCESSION NUMBER: 0000024741-16-000077 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 160 CONFORMED PERIOD OF REPORT: 20151231 FILED AS OF DATE: 20160212 DATE AS OF CHANGE: 20160212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING INC /NY CENTRAL INDEX KEY: 0000024741 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 160393470 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03247 FILM NUMBER: 161418433 BUSINESS ADDRESS: STREET 1: ONE RIVERFRONT PLAZA CITY: CORNING STATE: NY ZIP: 14831 BUSINESS PHONE: 6079749000 MAIL ADDRESS: STREET 1: ONE RIVERFRONT PLAZA CITY: CORNING STATE: NY ZIP: 14831 FORMER COMPANY: FORMER CONFORMED NAME: CORNING GLASS WORKS DATE OF NAME CHANGE: 19890512 10-K 1 form10k2015.htm 2015 FORM 10-K form10k2015.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

Form 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the fiscal year ended December 31, 2015

OR

o
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, NY
 
14831
(Address of principal executive offices)
 
(Zip Code)

607-974-9000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Name of each exchange on which registered
Common Stock, $0.50 par value per share
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes
x
 
No
o
 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
 
Yes
o
 
No
x
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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
o
 

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
o
 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.  x

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
o
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
 
Smaller reporting company
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes
o
 
No
x
 

As of June 30, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $24 billion based on the $19.73 price as reported on the New York Stock Exchange.

There were 1,112,837,205 shares of Corning’s common stock issued and outstanding as of January 31, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement dated March 15, 2016, and filed for the Registrant’s 2016 Annual Meeting of Shareholders are incorporated into Part III of this Annual Report on Form 10-K, as specifically set forth in Part III.

© 2016 Corning Incorporated. All Rights Reserved.

 
 


PART I


Corning Incorporated and its consolidated subsidiaries are hereinafter sometimes referred to as the “Company,” the “Registrant,” “Corning,” or “we.”

This report contains forward-looking statements that involve a number of risks and uncertainties.  These statements relate to our future plans, objectives, expectations and estimates and may contain words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” or similar expressions.  Our actual results could differ materially from what is expressed or forecasted in our forward-looking statements.  Some of the factors that could contribute to these differences include those discussed under “Forward-Looking Statements,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report.

Item 1.  Business

General

Corning traces its origins to a glass business established in 1851.  The present corporation was incorporated in the State of New York in December 1936.  The Company’s name was changed from Corning Glass Works to Corning Incorporated on April 28, 1989.

Corning Incorporated is one of the world’s leading innovators in materials science.  For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics, and optical physics to develop products that have created new industries and transformed people’s lives.  We succeed through sustained investment in research and development, a unique combination of material and process innovation, and close collaboration with customers to solve tough technology challenges.  Corning operates in five reportable segments:  Display Technologies, Optical Communications, Environmental Technologies, Specialty Materials and Life Sciences, and manufactures and processes products at approximately 89 plants in 17 countries.

Display Technologies Segment

Corning’s Display Technologies segment manufactures glass substrates for liquid crystal displays (“LCDs”) that are used primarily in LCD televisions, notebook computers and flat panel desktop monitors.  This segment develops, manufactures and supplies high quality glass substrates using technology expertise and a proprietary fusion manufacturing process, which Corning invented and is the cornerstone of the Company’s technology leadership in the LCD industry.  The highly automated process yields glass substrates with a pristine surface and excellent thermal dimensional stability and uniformity – essential attributes for the production of large, high performance LCDs.  Corning’s fusion process is scalable and we believe it is the most cost effective process in producing large size substrates.

We are recognized for providing product innovations that enable our customers to produce larger, lighter, thinner and higher-resolution displays more affordably.  Some of the product innovations that we have launched over the past ten years utilizing our world-class processes and capabilities include the following:
 
·  
EAGLE XG®, the industry’s first LCD glass substrate that is free of heavy metals;
·  
EAGLE XG® Slim glass, a line of thin glass substrates which enables lighter-weight portable devices and thinner televisions and monitors;
·  
Corning® Willow™ Glass, our ultra-thin flexible glass for use in next-generation consumer electronic technologies, including curved displays for immersive viewing or mounting on non-flat surfaces.  This glass is also used in a variety of non-display applications, such as decorative laminates for interior architecture and advanced semiconductor packaging; and
·  
The family of Corning Lotus™ Glass, high-performance display glass developed to enable cutting-edge technologies, including organic light-emitting diode (“OLED”) displays and next generation LCDs.  These substrate glasses provide industry-leading levels of low total pitch variation, resulting in brighter, more energy-efficient displays with higher resolutions for consumers and better yields for panel makers.
 
Through the end of 2013, the Display Technologies segment also included the equity affiliate Samsung Corning Precision Materials Co., Ltd. (“Samsung Corning Precision Materials”), of which Corning owned 57.5% and Samsung Display Co., Ltd. (“Samsung Display”) owned 42.5%.  As described more fully in Note 8 (Acquisitions) to the Consolidated Financial Statements, to extend Corning’s leadership in specialty glass and drive earnings growth, Corning entered into a series of strategic and financial agreements with Samsung Display intended to strengthen product and technology collaborations between the two companies.  Corning completed the acquisition of Samsung Corning Precision Materials on January 15, 2014.

© 2016 Corning Incorporated. All Rights Reserved.

 
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In the fourth quarter of 2015, Corning announced that with the support of the Hefei government it will locate a Gen 10.5 glass manufacturing facility adjacent to the BOE Technology Group Co. Ltd. (BOE) plant in the Hefei XinZhan General Pilot Zone in Anhui Province, China.  Glass substrate production from the new facility is expected to support BOE’s plan to begin mass production of LCD panels for large-size televisions by the third quarter of 2018.

As part of this investment, Corning and BOE have entered into a long-term supply agreement that commits BOE to the purchase of Gen 10.5 glass substrates from the Corning manufacturing facility in Hefei.  BOE also has extended its long-term supply agreement with Corning to purchase glass substrates for Gen 8.5 and smaller sizes.  This investment will enable Corning to become the first manufacturer of TFT-grade Gen 10.5 substrates.  At 2,940 mm x 3,370 mm, Gen 10.5 will be the largest LCD glass substrate available, providing the most economical cuts for 65-inch and 75-inch televisions.  The Gen 10.5 substrates manufactured at the Hefei facility will use Corning® EAGLE XG® slim glass.

Corning has LCD glass manufacturing operations in the United States, South Korea, Japan, Taiwan and China.  Following the acquisition of Samsung Corning Precision Materials, Corning services all specialty glass customers in all regions directly, utilizing its manufacturing facilities throughout Asia.

Patent protection and proprietary trade secrets are important to the Display Technologies segment’s operations.  Refer to the material under the heading “Patents and Trademarks” for information relating to patents and trademarks.

The Display Technologies segment represented 34% of Corning’s sales in 2015.

Optical Communications Segment

Corning invented the world’s first low-loss optical fiber in 1970.  Since that milestone, we have continued to pioneer optical fiber, cable and connectivity solutions.  As global bandwidth demand driven by video usage grows exponentially, telecommunications networks continue to migrate from copper to optical-based systems that can deliver the required cost-effective bandwidth-carrying capacity.  Our unrivaled experience puts us in a unique position to design and deliver optical solutions that reach every edge of the communications network.

This segment is classified into two main product groupings – carrier network and enterprise network.  The carrier network product group consists primarily of products and solutions for optical-based communications infrastructure for services such as video, data and voice communications.  The enterprise network product group consists primarily of optical-based communication networks sold to businesses, governments and individuals for their own use.

Our carrier network product portfolio begins with optical fiber products, including VascadeÒ submarine optical fibers for use in submarine networks; LEAFÒ optical fiber for long-haul, regional and metropolitan networks; SMF-28Ò ULL fiber for more scalable long-haul and regional networks; SMF-28e+Ô single-mode optical fiber that provides additional transmission wavelengths in metropolitan and access networks; ClearCurveÒ ultra-bendable single-mode fiber for use in multiple-dwelling units and fiber-to-the-home applications; and Corning® SMF-28® Ultra Fiber, designed for high performance across the range of long-haul, metro, access, and fiber-to-the-home network applications, combining the benefits of industry-leading attenuation and improved macrobend performance in one fiber.  A portion of our optical fiber is sold directly to end users and third-party cablers around the world.  Corning’s remaining fiber production is cabled internally and sold to end users as either bulk cable or as part of an integrated optical solution.  Corning’s cable products support various outdoor, indoor/outdoor and indoor applications and include a broad range of loose tube, ribbon and drop cable designs with flame-retardant versions available for indoor and indoor/outdoor use.

In addition to optical fiber and cable, our carrier network product portfolio also includes hardware and equipment products, including cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures, network interface devices, and other accessories.  These products may be sold as individual components or as part of integrated optical connectivity solutions designed for various carrier network applications.  Examples of these solutions include our FlexNAPTM terminal distribution system, which provides pre-connectorized distribution and drop cable assemblies for cost-effectively deploying Fiber-to-the-Home (“FTTH”) networks; and the CentrixTM platform, which provides a high-density fiber management system with industry-leading density and innovative jumper routing that can be deployed in a wide variety of carrier switching centers.

© 2016 Corning Incorporated. All Rights Reserved.

 
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To keep pace with surging demand for mobile bandwidth, Corning has a full complement of operator-grade distributed antenna systems (“DAS”), including the recently developed Optical Network Evolution (“ONE”) wireless platform.  ONE is the first all-optical converged cellular and Wi-Fi® solution built on an all-optical backbone with modular service support.  The ONE™ Wireless Platform provides virtually unlimited bandwidth, and meets all of the wireless service needs of large-scale enterprises at a lower cost than the typical DAS solution.

In addition to our optical-based portfolio, Corning’s carrier network portfolio also contains select copper-based products including subscriber demarcation, connection and protection devices, xDSL (different variations of digital subscriber lines) passive solutions and outside plant enclosures.  In addition, Corning offers coaxial RF interconnects for the cable television industry as well as for microwave applications for GPS, radars, satellites, manned and unmanned military vehicles, and wireless and telecommunications systems.

Our enterprise network product portfolio also includes optical fiber products, including ClearCurveÒ ultra-bendable multimode fiber for data centers and other enterprise network applications; InfiniCorÒ fibers for local area networks; and more recently ClearCurveÒ VSDNÒ ultra-bendable optical fiber designed to support emerging high-speed interconnects between computers and other consumer electronics devices.  The remainder of Corning’s fiber production is cabled internally and sold to end users as either bulk cable or as part of an integrated optical solution.  Corning’s cable products include a broad range of tight-buffered, loose tube and ribbon cable designs with flame-retardant versions available for indoor and indoor/outdoor applications that meet local building code requirements.

Corning’s hardware and equipment products for enterprise network applications include cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and other accessories.  These products may be sold as individual components or as part of integrated optical connectivity solutions designed for various network applications.  Examples of enterprise network solutions include the Pretium EDGEÒ platform, which provides high-density pre-connectorized solutions for data center applications, and continues to evolve with recent updates for upgrading to 40/100G applications and port tap modules for network monitoring; the previously mentioned ONE Wireless platform, which spans both carrier and enterprise network applications; and our recently introduced optical connectivity solutions to support customer initiatives.

Corning operates manufacturing facilities worldwide.  Our optical fiber manufacturing facilities are located in North Carolina, China and India.  Cabling operations include facilities in North Carolina, Germany, Poland, China and smaller regional locations and equity affiliates.  Our manufacturing operations for hardware and equipment products are located in Texas, Arizona, Mexico, Brazil, Denmark, Germany, Poland, Israel, Australia and China.

Patent protection is important to the segment’s operations.  The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes.  The segment licenses certain of its patents to third parties and generates revenue from these licenses, although the royalty income is not currently material to this segment’s operating results.  Corning is licensed to use certain patents owned by others, which are considered important to the segment’s operations.  Refer to the material under the heading “Patents and Trademarks” for information relating to the Company’s patents and trademarks.

The Optical Communications segment represented 33% of Corning’s sales for 2015.

Environmental Technologies Segment

Corning’s Environmental Technologies segment manufactures ceramic substrates and filter products for emissions control in mobile and stationary applications around the world.  In the early 1970s, Corning developed an economical, high-performance cellular ceramic substrate that is now the standard for catalytic converters in vehicles worldwide.  As global emissions control regulations tighten, Corning has continued to develop more effective and durable ceramic substrate and filter products for gasoline and diesel applications.  Corning manufactures substrate and filter products in New York, Virginia, China, Germany and South Africa.  Corning sells its ceramic substrate and filter products worldwide to catalyzers and manufacturers of emission control systems who then sell to automotive and diesel vehicle or engine manufacturers.  Although most sales are made to the emission control systems manufacturers, the use of Corning substrates and filters is generally required by the specifications of the automotive and diesel vehicle or engine manufacturers.

Patent protection is important to the segment’s operations.  The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes.  Corning is licensed to use certain patents owned by others, which are also considered important to the segment’s operations.  Refer to the material under the heading “Patents and Trademarks” for information relating to the Company’s patents and trademarks.

© 2016 Corning Incorporated. All Rights Reserved.

 
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The Environmental Technologies segment represented 12% of Corning’s sales for 2015.

Specialty Materials Segment

The Specialty Materials segment manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.  Consequently, this segment operates in a wide variety of commercial and industrial markets that include display optics and components, semiconductor optics components, aerospace and defense, astronomy, ophthalmic products, telecommunications components and cover glass that is optimized for portable display devices.

Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass designed specifically to function as a cover glass for display devices such as tablets, notebook PCs and mobile phones.  Elegant and lightweight, Corning Gorilla Glass is durable enough to resist many real-world events that commonly cause glass failure, enabling exciting new applications in technology and design.  Early in 2012, Corning launched Corning® Gorilla® Glass 2, the next generation in our Corning Gorilla Glass suite of products.  Corning Gorilla Glass 2 enables up to a 20% reduction in glass thickness over previous generations of competitive glass, while maintaining the industry-leading damage resistance, toughness and scratch-resistance.  In 2013, we introduced Corning® Gorilla® Glass 3 with Native Damage Resistance and Corning® Gorilla® Glass NBT™, designed to help protect touch notebook displays and handheld devices from scratches and other forms of damage that come from everyday handling and use.  And in the fourth quarter of 2014, Corning announced its latest breakthrough innovation in consumer electronics material design, Corning® Gorilla® Glass 4, which delivers the highest damage resistance performance versus all alternative compositions, and has the capability to significantly improve device drop performance.

Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan and Taiwan.

Semiconductor optics manufactured by Corning includes high-performance optical material products, optical-based metrology instruments, and optical assemblies for applications in the global semiconductor industry.  Corning’s semiconductor optics products are manufactured in New York.

Other specialty glass products include glass lens and window components and assemblies and are made in New York, New Hampshire, Kentucky and France or sourced from China.

Patent protection is important to the segment’s operations.  The segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes.  Brand recognition and loyalty, through well-known trademarks, are important to the segment.  Refer to the material under the heading “Patents and Trademarks” for information relating to the Company’s patents and trademarks.

The Specialty Materials segment represented approximately 12% of Corning’s sales for 2015.

Life Sciences Segment

As a leading developer, manufacturer and global supplier of scientific laboratory products for 100 years, Corning’s Life Sciences segment collaborates with researchers and drug manufacturers seeking new approaches to increase efficiencies, reduce costs and compress timelines.  Using unique expertise in the fields of materials science, surface science, optics, biochemistry and biology, the segment provides innovative solutions that improve productivity and enable breakthrough discoveries.

Life Sciences laboratory products include consumables (plastic vessels, specialty surfaces and media), as well as general labware and equipment, that are used for cell culture research, bioprocessing, genomics, drug discovery, microbiology and chemistry.  Corning sells life science products under these primary brands: Corning, Falcon, PYREX, Axygen, and Gosselin.  The products are marketed worldwide, primarily through distributors to pharmaceutical and biotechnology companies, academic institutions, hospitals, government entities, and other facilities.  Corning manufactures these products in the United States in Maine, New York, New Jersey, California, Utah, Virginia, Massachusetts and North Carolina, and outside of the U.S. in Mexico, France, Poland, and China.

In addition to being a global leader in laboratory consumables for life science research, Corning continues to develop and produce innovative technologies aimed at the growing biologic drug production markets.

© 2016 Corning Incorporated. All Rights Reserved.

 
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Patent protection is important to the segment’s operations.  The segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes.  Brand recognition and loyalty, through well-known trademarks, are important to the segment.  Refer to the material under the heading “Patents and Trademarks” for more information.

The Life Sciences segment represented approximately 9% of Corning’s sales for 2015.

All Other

All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.”  This group is primarily comprised of the results of Corning’s Pharmaceutical Technologies business, which consists of a pharmaceutical glass vessel business and a glass tubing business used in the pharmaceutical packaging industry.  This segment also includes Corning Precision Materials’ non-LCD business and new product lines and development projects such as precision laser cutting/shaping technologies, advanced flow reactors and adjacency businesses in pursuit of thin, strong glass, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates.

The All Other segment represented less than 1% of Corning’s sales for 2015.

Additional explanation regarding Corning and its five reportable segments, as well as financial information about geographic areas, is presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 20 (Reportable Segments) to the Consolidated Financial Statements.

Corporate Investments

Corning and The Dow Chemical Company (“Dow Chemical”) each own half of Dow Corning Corporation (“Dow Corning”), an equity company headquartered in Michigan that manufactures silicone products worldwide.  Dow Corning is a leader in silicon-based technology and innovation, offering more than 7,000 products and services.  Dow Corning is the majority-owner of Hemlock Semiconductor Group (“Hemlock”), a market leader in the production of high purity polycrystalline silicon for the semiconductor and solar energy industries.  Dow Corning’s sales were $5,649 million in 2015.

On December 11, 2015, Corning announced its intention to exchange its 50% equity interest in Dow Corning Corporation for 100% of the stock of a newly formed entity that will become a wholly-owned subsidiary of Corning Incorporated.  The newly formed entity will hold approximately 40% ownership in Hemlock Semiconductor Group and approximately $4.8 billion in cash.  Upon completion of this strategic realignment, which is expected to close during the first half of 2016, Dow Chemical, an equal owner of Dow Corning with Corning since 1943, will assume 100% ownership of Dow Corning.

Additional discussion about Dow Corning appears in Part II – Item 3. Legal Proceedings section and in Note 7 (Investments) to the Consolidated Financial Statements.  Dow Corning’s financial statements are attached in Item 15, Exhibits and Financial Statement Schedules.

Corning and PPG Industries, Inc. each own half of Pittsburgh Corning Corporation (“PCC”), an equity company in Pennsylvania that manufactures glass products for architectural and industrial uses.  PCC filed for Chapter 11 bankruptcy reorganization in April 2000.  Corning also owns half of Pittsburgh Corning Europe N.V. (“PCE”), a Belgian corporation that manufactures glass products for industrial uses primarily in Europe.  Additional discussion about PCC and PCE appears in the Legal Proceedings section.

Additional information about corporate investments is presented in the Legal Proceedings section and in Note 7 (Investments) to the Consolidated Financial Statements.

Competition

Corning competes across all of its product lines with many large and varied manufacturers, both domestic and foreign.  Some of these competitors are larger than Corning, and some have broader product lines.  Corning strives to maintain and improve its market position through technology and product innovation.  For the future, Corning believes its competitive advantage lies in its commitment to research and development, and its commitment to quality.  There is no assurance that Corning will be able to maintain or improve its market position or competitive advantage.

© 2016 Corning Incorporated. All Rights Reserved.

 
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Display Technologies Segment

We believe Corning is the largest worldwide producer of glass substrates for LCD displays.  The environment for LCD glass substrate products is very competitive and Corning believes it has sustained its competitive advantages by investing in new products, providing a consistent and reliable supply, and continually improving its proprietary fusion manufacturing process.  This process allows us to deliver glass that is larger, thinner and lighter, with exceptional surface quality and without heavy metals.  Asahi Glass Co. Ltd. and Nippon Electric Glass Co. Ltd. are Corning’s principal competitors in display glass substrates.

Optical Communications Segment

Competition within the communications equipment industry is intense among several significant companies.  Corning is a leading competitor in the segment’s principal product groups, which include carrier and enterprise networks.  The competitive landscape includes industry consolidation, price pressure and competition for the innovation of new products.  These competitive conditions are likely to persist.  Corning believes its large scale manufacturing experience, fiber process, technology leadership and intellectual property yield cost advantages relative to several of its competitors.

The primary competing producers of the Optical Communications segment are Commscope and Prysmian Group.

Environmental Technologies Segment

Corning has a major market position in worldwide automotive ceramic substrate products, as well as a strong presence in the heavy duty and light duty diesel vehicle market.  The Company believes its competitive advantage in automotive ceramic substrate products for catalytic converters and diesel filter products for exhaust systems is based upon global presence, customer service, engineering design services and product innovation.  Corning’s Environmental Technologies products face principal competition from NGK Insulators, Ltd. and Ibiden Co. Ltd.

Specialty Materials Segment

Corning is one of very few manufacturers with deep capabilities in materials science, optical design, shaping, coating, finishing, metrology, and system assembly.  Additionally, we are addressing emerging needs of the consumer electronics industry with the development of chemically strengthened glass.  Corning Gorilla Glass is a thin-sheet glass that is better able to survive events that most commonly cause glass failure.  Its advanced composition allows a deeper layer of chemical strengthening than is possible with most other chemically strengthened glasses, making it both durable and damage resistant.  Our products and capabilities in this segment position the Company to meet the needs of a broad array of markets including display, semiconductor, aerospace/defense, astronomy, vision care, industrial/commercial, and telecommunications.  For this segment, Schott, Asahi Glass Co. Ltd., Nippon Electric Glass Co. Ltd. and Heraeus are the main competitors.

Life Sciences Segment

Corning seeks to maintain a competitive advantage by emphasizing product quality, global distribution, supply chain efficiency, a broad product line and superior product attributes.  Our principle worldwide competitors include Thermo Fisher Scientific, Inc. and Perkin Elmer.  Corning also faces increasing competition from large distributors that have pursued backward integration or introduced private label products.

Raw Materials

Corning’s production of specialty glasses, ceramics, and related materials requires significant quantities of energy, uninterrupted power sources, certain precious metals, and various batch materials.

Although energy shortages have not been a problem recently, the cost of energy remains volatile.  Corning has achieved flexibility through engineering changes to take advantage of low-cost energy sources in most significant processes.  Specifically, many of Corning’s principal manufacturing processes can be operated with natural gas, propane, oil or electricity, or a combination of these energy sources.  Additionally, in the fourth quarter of 2015, we entered into a 25-year power purchase agreement for solar-generated electricity in which we will purchase 62.5% of the expected output of a solar power facility in North Carolina.  This is a major step in Corning’s commitment to reduce its carbon footprint and continues our long history of being an environmentally conscious company.

© 2016 Corning Incorporated. All Rights Reserved.

 
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Availability of resources (ores, minerals, polymers, helium and processed chemicals) required in manufacturing operations, appears to be adequate.  Corning’s suppliers, from time to time, may experience capacity limitations in their own operations, or may eliminate certain product lines.  Corning believes it has adequate programs to ensure a reliable supply of batch materials and precious metals.  For many products, Corning has alternate glass compositions that would allow operations to continue without interruption in the event of specific materials shortages.

Certain key materials and proprietary equipment used in the manufacturing of products are currently sole-sourced or available only from a limited number of suppliers.  Any future difficulty in obtaining sufficient and timely delivery of components could result in lost sales due to delays or reductions in product shipments, or reductions in Corning’s gross margins.

Patents and Trademarks

Inventions by members of Corning’s research and engineering staff continue to be important to the Company’s growth.  Patents have been granted on many of these inventions in the United States and other countries.  Some of these patents have been licensed to other manufacturers, including companies in which Corning has equity investments.  Many of our earlier patents have now expired, but Corning continues to seek and obtain patents protecting its innovations.  In 2015, Corning was granted about 420 patents in the U.S. and over 740 patents in countries outside the U.S.

Each business segment possesses a patent portfolio that provides certain competitive advantages in protecting Corning’s innovations.  Corning has historically enforced, and will continue to enforce, its intellectual property rights.  At the end of 2015, Corning and its wholly-owned subsidiaries owned over 7,750 unexpired patents in various countries of which over 3,250 were U.S. patents.  Between 2016 and 2017, approximately 6% of these patents will expire, while at the same time Corning intends to seek patents protecting its newer innovations.  Worldwide, Corning has about 9,170 patent applications in process, with about 2,350 in process in the U.S.  Corning believes that its patent portfolio will continue to provide a competitive advantage in protecting the Company’s innovation, although Corning’s competitors in each of its businesses are actively seeking patent protection as well.

The Display Technologies segment has over 1,430 patents in various countries, of which about 340 are U.S. patents.  No one patent is considered material to this business segment.  Some of the important U.S.-issued patents in this segment include patents relating to glass compositions and methods for the use and manufacture of glass substrates for display applications.  There are six important Display Technologies segment patents set to expire between 2016 and 2018.

The Optical Communications segment has over 2,730 patents in various countries, of which over 1,270 are U.S. patents.  No one patent is considered material to this business segment.  Some of the important U.S.-issued patents in this segment include: (i) patents relating to optical fiber products including low loss optical fiber, high data rate optical fiber, and dispersion compensating fiber, and processes and equipment for manufacturing optical fiber, including methods for making optical fiber preforms and methods for drawing, cooling and winding optical fiber; (ii) patents relating to optical fiber ribbons and methods for making such ribbon, fiber optic cable designs and methods for installing optical fiber cable; (iii) patents relating to optical fiber connectors, termination and storage and associated methods of manufacture; and (iv) patents related to distributed communication systems.  There are 10 important Optical Communications segment patents set to expire between 2016 and 2018.

The Environmental Technologies segment has over 690 patents in various countries, of which over 295 are U.S. patents.  No one patent is considered material to this business segment.  Some of the important U.S.-issued patents in this segment include patents relating to cellular ceramic honeycomb products, together with ceramic batch and binder system compositions, honeycomb extrusion and firing processes, and honeycomb extrusion dies and equipment for the high-volume, low-cost manufacture of such products.  There are 36 important Environmental Technologies segment patents set to expire between 2016 and 2018.

The Specialty Materials segment has over 750 patents in various countries, of which over 360 are U.S. patents.  No one patent is considered material to this business segment.  Some of the important U.S.-issued patents in this segment include patents relating to protective cover glass, ophthalmic glasses and polarizing dyes, and semiconductor/microlithography optics and blanks, metrology instrumentation and laser/precision optics, glass polarizers, specialty fiber, and refractories.  There are eight important Specialty Materials segment patents set to expire between 2016 and 2018.

The Life Sciences segment has over 540 patents in various countries, of which about 220 are U.S. patents.  No one patent is considered material to this business segment.  Some of the important U.S.-issued patents in this segment include patents relating to methods and apparatus for the manufacture and use of scientific laboratory equipment including multiwell plates and cell culture products, as well as equipment and processes for label independent drug discovery.  There are 31 important Life Sciences segment patents set to expire between 2016 and 2018.

© 2016 Corning Incorporated. All Rights Reserved.

 
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Products reported in All Other include development projects, new product lines, and other businesses or investments that do not meet the threshold for separate reporting.

Many of the Company’s patents are used in operations or are licensed for use by others, and Corning is licensed to use patents owned by others.  Corning has entered into cross-licensing arrangements with some major competitors, but the scope of such licenses has been limited to specific product areas or technologies.

Corning’s principal trademarks include the following:  Corning, Celcor, ClearCurve, DuraTrap, Eagle XG, Epic, Gorilla, HPFS, Pyrex, Steuben, Falcon, SMF-28e, and Willow.

Protection of the Environment

Corning has a program to ensure that its facilities are in compliance with state, federal and foreign pollution-control regulations.  This program has resulted in capital and operating expenditures each year.  In order to maintain compliance with such regulations, capital expenditures for pollution control in continuing operations were approximately $14 million in 2015 and are estimated to be $26 million in 2016.

Corning’s 2015 consolidated operating results were charged with approximately $45 million for depreciation, maintenance, waste disposal and other operating expenses associated with pollution control.  Corning believes that its compliance program will not place it at a competitive disadvantage.

Employees

At December 31, 2015, Corning had approximately 35,700 full-time employees, including approximately 12,100 employees in the United States.  From time to time, Corning also retains consultants, independent contractors, temporary and part-time workers.  Unions are certified as bargaining agents for approximately 23.1% of Corning’s U.S. employees.

© 2016 Corning Incorporated. All Rights Reserved.

 
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Executive Officers of the Registrant

James P. Clappin   President, Corning Glass Technologies
Mr. Clappin joined Corning in 1980 as a process engineer.  He transitioned to GTE Corporation in 1983 when the Central Falls facility was sold and returned to Corning in 1988.  He began working in the display business in 1994.  Mr. Clappin relocated to Japan in 1996, as plant manager at Corning Display Technologies Shizuoka facility.  In 2002, he was appointed as general manager of CDT worldwide business.  He served as president of Corning Display Technologies from September 2005 through July 2010.  He was appointed president, Corning Glass Technologies, in 2010.  Age 58.

Martin J. Curran   Executive Vice President and Corning Innovation Officer
Mr. Curran joined Corning in 1984 and has held a variety of roles in finance, manufacturing, and marketing.  He has served as senior vice president, general manager for Corning Cable Systems Hardware and Equipment Operations in the Americas, responsible for operations in Hickory, North Carolina; Keller, Texas; Reynosa, Mexico; Shanghai, China; and the Dominican Republic.  Mr. Curran was appointed as Corning’s first innovation officer in August 2012.  Age 57.

Jeffrey W. Evenson   Senior Vice President and Chief Strategy Officer
Dr. Evenson joined Corning in June 2011 as senior vice president and operations chief of staff.  In 2015, he was named Chief Strategy Officer.  He serves on the Management Committee and oversees a variety of strategic programs and growth initiatives.  Prior to joining Corning, Dr. Evenson was a senior vice president with Sanford C. Bernstein, where he served as a senior analyst since 2004.  Before that, Dr. Evenson was a partner at McKinsey & Company, where he led technology and market assessment for early-stage technologies.  Age 50.

Lisa Ferrero   Senior Vice President and Chief Administrative Officer
Ms. Ferrero joined Corning in 1987 as a statistician and held various production management positions until joining Display Technologies in 1995 as a market analyst in Tokyo.  While in Japan, she was appointed export sales manager for Taiwan and Korea.  In 1998, she returned to Corning, N.Y. and was named market development manager.  She was appointed director of strategic marketing, planning, and analysis for Display Technologies in 2000.  In 2002, Ms. Ferrero joined Environmental Technologies as business manager for the heavy-duty diesel business and was named director of the automotive substrates business in 2003.  She was named vice president and deputy general manager, Display Technologies Asia in June 2005.  She served as general manager of Corning Display Technologies from July 2010 through 2015 overseeing operations across four regions:  China, Japan, Taiwan and the U.S.  Ms. Ferrero became senior vice president and chief administrative officer in January 2016.  Age 52.

Clark S. Kinlin   Executive Vice President
Mr. Kinlin joined Corning in 1981 in the Specialty Materials division.  From 1985 to 1995 he worked in the Optical Fiber division.  In 1995, he joined Corning Consumer Products.  In 2000, Mr. Kinlin was named president, Corning International Corporation and, in 2003, he was appointed as general manager for Greater China.  From April 2007 to March 2008, he was chief operating officer, Corning Cable Systems (now Corning Optical Communications) and was named president and chief executive officer in 2008.  He was appointed executive vice president in 2012.  Mr. Kinlin is on the board of Dow Corning Corporation.  Age 56.

Lawrence D. McRae   Vice Chairman and Corporate Development Officer
Mr. McRae joined Corning in 1985 and served in various financial, sales and marketing positions.  He was appointed vice president Corporate Development in 2000, senior vice president Corporate Development in 2003, senior vice president Strategy and Corporate Development in October 2005, and executive vice president Strategy and Corporate Development in 2010.  He was appointed to his present position in August 2015.  Mr. McRae is on the board of directors of Dow Corning Corporation.  Age 57.

David L. Morse   Executive Vice President and Chief Technology Officer
Dr. Morse joined Corning in 1976 in glass research and worked as a composition scientist in developing and patenting several major products.  He served in a variety of product and materials research and technology director roles and was appointed division vice president and technology director for photonic technology groups beginning in March 1999.  He became director of corporate research, science and technology in December 2001.  He was appointed vice president in January 2003, becoming senior vice president and director of corporate research in 2006.  Dr. Morse was appointed to his current position in May 2012.  He is on the board of Dow Corning Corporation and a member of the National Academy of Engineering and the National Chemistry Board.  Age 63.

© 2016 Corning Incorporated. All Rights Reserved.

 
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Eric S. Musser   Executive Vice President, Corning Technologies and International
Mr. Musser joined Corning in 1986 and served in a variety of manufacturing positions at fiber plants in Wilmington, N.C. and Melbourne, Australia, before becoming manufacturing strategist for the Optical Fiber business in 1996.  Mr. Musser joined Corning Lasertron in 2000 and became president later that year.  He was named director, manufacturing operations for Photonic Technologies in 2002.  In 2003, he returned to Optical Fiber as division vice president, development and engineering and was named vice president and general manager in 2005.  In 2007, he was appointed general manager of Corning Greater China and was named president of Corning International in 2012.  Mr. Musser was appointed executive vice president in 2014.  Age 56.

Christine M. Pambianchi   Senior Vice President, Human Resources
Ms. Pambianchi joined Corning in 2000 as division human resource manager, Corning Optical Fiber, and later was named director, Human Resources, Corning Optical Communications.  She has led the Human Resources function since January 2008 when she was named vice president, Human Resources.  Ms. Pambianchi was appointed to senior vice president, Human Resources, in 2010, and is responsible for leading Corning’s global human resource function.  Age 47.

Mark S. Rogus   Senior Vice President and Treasurer
Mr. Rogus joined Corning in 1996 as manager, Corporate Finance.  In 1999 he was appointed assistant treasurer.  He was appointed as vice president and treasurer in December 2000, responsible for Corning’s worldwide treasury functions, including corporate finance, treasury operations, risk management, investment and pension plans.  He has served as senior vice president and treasurer of Finance since January 2004.  Prior to joining Corning, Mr. Rogus was a senior vice president at Wachovia Bank where he managed the bank’s business development activities in the U.S mid-Atlantic region and Canada for both investment and non-investment grade clients.  Age 56.

Edward A. Schlesinger   Vice President and Corporate Controller
Mr. Schlesinger joined Corning in 2013 as senior vice president and chief financial officer of Corning Optical Communications.  He led the Finance function for Corning Optical Communications and served on the Communications Leadership Team.  He was named vice president and corporate controller in September 2015, and appointed principal accounting officer in December 2015.  Prior to joining Corning, Mr. Schlesinger served as Vice President, Finance and Sector Chief Financial Officer for two of Ingersoll Rand’s business segments.  Mr. Schlesinger has a financial career that spans more than 20 years garnering extensive expertise in technical financial management and reporting.  Age 48.

Lewis A. Steverson   Senior Vice President and General Counsel
Mr. Steverson joined Corning in June 2013 as senior vice president and general counsel.  Prior to joining Corning, Mr. Steverson served as senior vice president, general counsel, and secretary of Motorola Solutions, Inc.  During his 18 years with Motorola, he held a variety of legal leadership roles across the company’s numerous business units.  Prior to Motorola, Mr. Steverson was in private practice at the law firm of Arnold & Porter.  Age 52.

R. Tony Tripeny   Senior Vice President and Chief Financial Officer
Mr. Tripeny joined Corning in 1985 as the corporate accounting manager of Corning Cable Systems, and became the Keller, Texas facility’s plant controller in 1989.  In 1993, he was appointed equipment division controller of Corning Cable Systems and, in 1996 corporate controller.  Mr. Tripeny was appointed chief financial officer of Corning Cable Systems in July 2000.  In 2003, he took on the additional role of Telecommunications group controller.  He was appointed division vice president, operations controller in August 2004, vice president, corporate controller in October 2005, and senior vice president and principal accounting officer in April 2009.  Mr. Tripeny was appointed to his current position as senior vice president and chief financial officer in September 2015.  He is a member of the board of directors of Hardinge, Inc.  Age 56.

Wendell P. Weeks   Chairman, Chief Executive Officer and President
Mr. Weeks joined Corning in 1983.  He was named vice president and general manager of the Optical Fiber business in 1996, senior vice president in 1997, senior vice president of Opto-Electronics in 1998, executive vice president in 1999, and president, Corning Optical Communications in 2001.  Mr. Weeks was named president and chief operating officer of Corning in 2002, president and chief executive officer in 2005 and chairman and chief executive officer on April 26, 2007.  He added the title of president in December 2010.  Mr. Weeks is a director of Merck & Co. Inc. and Amazon.com, Inc.  Mr. Weeks has been a member of Corning’s Board of Directors since 2000.  Age 56.

© 2016 Corning Incorporated. All Rights Reserved.

 
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Document Availability

A copy of Corning’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission is available upon written request to Corporate Secretary, Corning Incorporated, One Riverfront Plaza, Corning, NY 14831.  The Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 and other filings are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC, and can be accessed electronically free of charge, through the Investor Relations page on Corning’s website at www.corning.com.  The information contained on the Company’s website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.

Other

Additional information in response to Item 1 is found in Note 20 (Reportable Segments) to the Consolidated Financial Statements and in Item 6 (Selected Financial Data).

Item 1A.  Risk Factors

We operate in rapidly changing economic and technological environments that present numerous risks, many of which are driven by factors that we cannot control or predict.  Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock or debt.  The following discussion of “risk factors” identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance.  This information should be read in conjunction with MD&A and the consolidated financial statements and related notes incorporated by reference into this report.  The following discussion of risks is not all inclusive but is designed to highlight what we believe are important factors to consider, as these factors could cause our future results to differ from those in the forward-looking statements and from historical trends.

As a global company, we face many risks which could adversely impact our ongoing operations and reported financial results

We are a global company and derive a substantial portion of our revenues from, and have significant operations, outside of the United States.  Our international operations include manufacturing, assembly, sales, research and development, customer support, and shared administrative service centers.

Compliance with laws and regulations increases our costs.  These laws and regulations include U.S. laws and local laws which include data privacy requirements, employment and labor laws, tax laws, anti-competition regulations, prohibitions on payments to governmental officials, import and trade restrictions and export requirements.  Non-compliance or violations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business.  Such violations could result in prohibitions on our ability to offer our products and services in one or more countries and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results.  Our success depends, in part, on our ability to anticipate and manage these risks.

We are also subject to a variety of other risks in managing a global organization, including those related to:

·  
General economic conditions in each country or region;
·  
Many complex regulatory requirements affecting international trade and investment, including anti-dumping laws, export controls, the Foreign Corrupt Practices Act and local laws prohibiting improper payments.  Our operations may be adversely affected by changes in the substance or enforcement of these regulatory requirements, and by actual or alleged violations of them;
·  
Fluctuations in currency exchange rates, convertibility of currencies and restrictions involving the movement of funds between jurisdictions and countries;
·  
Sovereign and political risks that may adversely affect Corning’s profitability and assets;
·  
Geographical concentration of our factories and operations and regional shifts in our customer base;
·  
Periodic health epidemic concerns;
·  
Political unrest, confiscation or expropriation of our assets by foreign governments, terrorism and the potential for other hostilities;

© 2016 Corning Incorporated. All Rights Reserved.

 
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·  
Difficulty in protecting intellectual property, sensitive commercial and operations data, and information technology systems generally;
·  
Differing legal systems, including protection and treatment of intellectual property and patents;
·  
Complex or unclear tax regimes;
·  
Complex tariffs, trade duties and other trade barriers including anti-dumping duties;
·  
Difficulty in collecting obligations owed to us such as accounts receivable;
·  
Natural disasters such as floods, earthquakes, tsunamis and windstorms; and
·  
Potential power loss or disruption affecting manufacturing.

Our sales could be negatively impacted by the actions of one or more key customers, or the circumstances to which they are subject, leading to the substantial reduction in orders for our products

In 2015, Corning’s ten largest customers accounted for 45% of our sales.

A relatively small number of customers accounted for a high percentage of net sales in our reportable segments.  For 2015, three customers of the Display Technologies segment accounted for 62% of total segment net sales when combined.  In the Optical Communications segment in 2015, two customers accounted for 22% of total segment net sales when combined.  In the Environmental Technologies segment in 2015, three customers accounted for 86% of total segment sales in aggregate.  In the Specialty Materials segment, three customers accounted for 56% of total segment sales in 2015 when combined.  In the Life Sciences segment, two customers accounted for 46% of total segment sales in 2015 in aggregate.  As a result of mergers and consolidations between customers, Corning’s customer base could become more concentrated.

Our Optical Communications segment customers’ purchases of our products are affected by their capital expansion plans, general market and economic uncertainty and regulatory changes, including broadband policy.  Sales in the Optical Communications segment are expected to be impacted by the pace of fiber-to-the-premises deployments and data center expansions.  Our sales will be dependent on planned targets for homes passed and connected and construction of new and/or expansion of existing data centers.  Changes in our customers’ deployment plans could adversely affect future sales.

In the Environmental Technologies segment, sales of our ceramic substrate and filter products for automotive and diesel emissions tend to fluctuate with vehicle production.  Changes in laws and regulations for air quality and emission controls may also influence future sales.  Sales in our Environmental Technologies segment are mainly to three catalyzers and emission system control manufacturers.  Our customers sell these systems to automobile and diesel engine original equipment manufacturers.  Sales in this segment may be affected by adverse developments in the global vehicle or freight hauling industries or by such factors as higher fuel prices that may affect vehicle sales or downturns in freight traffic.

Certain sales in our Specialty Materials segment track worldwide economic cycles and our customers’ responses to those cycles.  In addition, any positive trends in prior years in the sales of strengthened glass may not continue.  We may experience losses relating to our inability to supply contracted quantities of this glass and processes planned to produce new versions of this glass may not be successful.

Sales in our Life Sciences segment are concentrated with two large distributors who are also competitors, and the balance is to a variety of pharmaceutical and biotechnology companies, hospitals, universities, and other research facilities.  Changes in our distribution arrangements in this segment may adversely affect this segment’s financial results.

Our operations and financial performance could be negatively impacted, if the markets for our products do not develop and expand as we anticipate

The markets for our products are characterized by rapidly changing technologies, evolving industry or regulatory standards and new product introductions.  Our success is dependent on the successful introduction of new products, or upgrades of current products, and our ability to compete with new technologies.  The following factors related to our products and markets, if they do not continue as in the recent past, could have an adverse impact on our operations:

·  
our ability to introduce advantaged products such as glass substrates for liquid crystal displays, optical fiber and cable and hardware and equipment, and environmental substrate and filter products at competitive prices;
·  
our ability to manufacture glass substrates and strengthened glass, to satisfy our customers’ technical requirements and our contractual obligations; and
·  
our ability to develop new products in response to government regulations and laws.

© 2016 Corning Incorporated. All Rights Reserved.

 
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We face pricing pressures in each of our businesses that could adversely affect our financial performance

We face pricing pressure in each of our businesses as a result of intense competition, emerging technologies, or over-capacity.  We may not be able to achieve proportionate reductions in costs or sustain our current rate of cost reduction to offset pricing pressures.  We anticipate pricing pressures will continue in the future in all our businesses.

Any of these items could cause our sales, profitability and cash flows to be significantly reduced.

We face risks due to foreign currency fluctuations

Because we have significant customers and operations outside the U.S., fluctuations in foreign currencies, especially the Japanese yen, New Taiwan dollar, South Korean won, and euro, will significantly impact our sales, profit and cash flows.  Foreign exchange rates may make our products less competitive in countries where local currencies decline in value relative to the U.S. dollar and Japanese yen.  Sales in our Display Technologies segment, representing 34% of Corning’s sales in 2015, are denominated in Japanese yen.  Corning hedges significant translation, transaction and balance sheet currency exposures and uses a variety of derivative instruments to reduce the impact of foreign currency fluctuations associated with certain monetary assets and liabilities as well as operating results including our net profits.

A large portion of our sales, profit and cash flows are transacted in non-U.S. dollar currencies and we expect that we will continue to realize gains or losses with respect to these exposures, net of gains or losses from our hedging programs.  For example, we will experience foreign currency gains and losses in certain instances if it is not possible or cost effective to hedge our foreign currency exposures or should we elect not to hedge certain foreign currency exposures.  Alternatively, we may experience gains or losses if the underlying exposure which we have hedged change (increases or decreases) and we are unable to reverse, unwind, or terminate the hedges concurrent with the change in the underlying notional exposure.  The objective of our hedging activities is to mitigate the risk associated with foreign currency exposures.  We are also exposed to potential losses in the event of non-performance by our counterparties to these derivative contracts.  Neither we nor our counterparties are required to post collateral for these financial instruments.  Our ultimate realized loss or gain with respect to currency fluctuations will generally depend on the size and type of cross-currency exposures that we enter into, the currency exchange rates associated with these exposures and changes in those rates, whether we have entered into foreign currency forward contracts to offset these exposures and other factors.  All of these factors could materially impact our results of operations, anticipated future results, financial position and cash flows, the timing of which is variable and generally outside of our control.

If the financial condition of our customers declines, our credit risks could increase

We have experienced, and in the future may experience, losses as a result of our inability to collect our accounts receivable.  If our customers or our indirect customers fail to meet their payment obligations for our products, we could experience reduced cash flows and losses in excess of amounts reserved.  Many customers of our Display Technologies and Specialty Materials segments are thinly capitalized and/or unprofitable.  In our Optical Communications segment, certain large infrastructure projects are subject to governmental funding, which, if terminated, could adversely impact the financial strength of our customers.  These factors may result in an inability to collect receivables or a possible loss in business.

The success of our business depends on our ability to develop and produce advantaged products that meet our customers’ needs
 
Our business relies on continued global demand for our brands and products.  To achieve business goals, we must develop and sell products that appeal to our customers, original equipment manufacturers and distributors.  This is dependent on a number of factors, including our ability to manage and maintain key customer relationships, our ability to produce products that meet the quality, performance and price expectations of our customers.  The manufacturing of our products involves complex and precise processes.  In some cases, existing manufacturing may be insufficient to achieve the requirements of our customers.  We will need to develop new manufacturing processes and techniques to maintain profitable operations.  While we continue to fund projects to improve our manufacturing techniques and processes and lower our costs, we may not achieve satisfactory manufacturing costs that will fully enable us to meet our profitability targets.

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In addition, our continued success in selling products that appeal to our customers is dependent on our ability to innovate, with respect to both products and operations, and on the availability and effectiveness of legal protection for our innovations.  Failure to continue to deliver quality and competitive products to the marketplace, to adequately protect our intellectual property rights, to supply products that meet applicable regulatory requirements or to predict market demands for, or gain market acceptance of, our products, could have a negative impact on our business, results of operations and financial condition.

Our future financial performance depends on our ability to purchase a sufficient amount of materials, precious metals, parts, and manufacturing equipment to meet the demands of our customers

Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of materials, precious metals, parts and components from our suppliers.  We may experience shortages that could adversely affect our operations.  There can be no assurances that we will not encounter problems in the future.  Furthermore, certain manufacturing equipment, raw materials or components are available only from a single source or limited sources.  We may not be able to find alternate sources in a timely manner.  A reduction, interruption or delay of supply, or a significant increase in the price for supplies, such as manufacturing equipment, precious metals, raw materials or energy, could have a material adverse effect on our businesses.

If our products, including materials purchased from our suppliers, experience performance issues, our business will suffer

Our business depends on the production of products of consistently high quality.  Our products, components and materials purchased from our suppliers, are typically tested for quality.  These testing procedures are limited to evaluating our products under likely and foreseeable failure scenarios.  For various reasons, our products, including materials purchased from our suppliers, may fail to perform as a customer expected.  In some cases, product redesigns or additional expense may be required to address such issues.  A significant or systemic quality issue could result in customer relations problems, lost sales, reduced volumes, product recalls and financial damages and penalties.

We have incurred, and may in the future incur, goodwill and other intangible asset impairment charges

At December 31, 2015, Corning had goodwill and other intangible assets of $2,086 million.  In the fourth quarter of 2015, we recorded a charge of $29 million for the impairment of goodwill resulting from a small acquisition in 2014.  While we believe the estimates and judgments about future cash flows used in the goodwill impairment tests are reasonable, we cannot provide assurance that additional impairment charges in the future will not be required if the expected cash flow estimates as projected by management do not occur, especially if an economic recession occurs and continues for a lengthy period or becomes severe, or if acquisitions and investments made by the Company fail to achieve expected returns.

We operate in a highly competitive environment

We operate in a highly competitive environment, and our outlook depends on the company’s share of industry sales based on our ability to compete with others in the marketplace.  The Company competes on the basis of product attributes, customer service, quality and price.  There can be no assurance that our products will be able to compete successfully with other companies’ products.  Our share of industry sales could be reduced due to aggressive pricing or product strategies pursued by competitors, unanticipated product or manufacturing difficulties, product performance failures, our failure to price our products competitively, our failure to produce our products at a competitive cost or unexpected, emerging technologies or products.  We expect that we will face continuous competition from existing competitors, low cost manufacturers and new entrants.  We believe we must invest in research and development, engineering, manufacturing and marketing capabilities, and continue to improve customer service in order to remain competitive.  We cannot provide assurance that we will be able to maintain or improve our competitive position.

We may need to change our pricing models to compete successfully

We face intense competition in all of our businesses, particularly LCD glass, and general economic and business conditions can put pressure on us to change our prices.  If our competitors offer significant discounts on certain products or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to retain our customers and market positions.  Any such changes may reduce our profitability and cash flow.  Any broad-based change to our prices and pricing policies could cause our revenues to decline or be delayed as we implement and our customers adjust to the new pricing policies.  If we do not adapt our pricing models to reflect changes in customer use of our products or changes in customer demand, our revenues could decrease.

© 2016 Corning Incorporated. All Rights Reserved.

 
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LCD glass generates a significant amount of the Company’s profits and cash flow, and any events that adversely affect the market for LCD glass substrates could have a material and negative impact on our financial results

Corning’s ability to generate profits and operating cash flow depends largely upon the level of profitability of our LCD glass business.  As a result, any event that adversely affects our Display business could have a significant impact on our consolidated financial results.  These events could include loss of patent protection, increased costs associated with manufacturing, and increased competition from the introduction of new, and more desirable products.  If any of these events had a material adverse effect on the sales of our LCD glass, such an event could result in material charges and a significant reduction in profitability.

Additionally, emerging material technologies could replace our glass substrates for certain applications, including display glass, cover glass and others, resulting in a decline in demand for our products.  Existing or new production capacity for glass substrates may exceed the demand for them.  Technologies for displays, cover glass and other applications in competition with our glass may reduce or eliminate the need for our glass substrates.  New process technologies developed by our competitors may also place us at a cost or quality disadvantage.  Our own process technologies may be acquired or used unlawfully by others, enabling them to compete with us.  Our inability to manufacture glass substrates to the specifications required by our customers may result in loss of revenue, margins and profits or liabilities for failure to supply.  A scarcity of resources, limitations on technology, personnel or other factors resulting in a failure to produce commercial quantities of glass substrates could have adverse financial consequences to us.

Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations

Our effective tax rate could be adversely impacted by several factors, including:

·  
changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
·  
changes in tax treaties and regulations or the interpretation of them;
·  
changes to our assessment about the realizability of our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic environments in which we do business;
·  
the outcome of current and future tax audits, examinations, or administrative appeals;
·  
changes in generally accepted accounting principles that affect the accounting for taxes; and
·  
limitations or adverse findings regarding our ability to do business in some jurisdictions.

We may have additional tax liabilities

We are subject to income taxes in the U.S. and many foreign jurisdictions and are commonly audited by various tax authorities.  In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.  Significant judgment is required in determining our worldwide provision for income taxes.  Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals.  The results of an audit or litigation could have a material effect on our financial statements in the period or periods for which that determination is made.

A significant amount of our net profits and cash flows are generated from outside the U.S., and certain repatriation of funds currently held in foreign jurisdictions may result in higher effective tax rates for the company.  In addition, there have been proposals to change U.S. tax laws that could significantly impact how U.S. global corporations are taxed on foreign earnings.  Although we cannot predict whether or in what form proposed legislation may pass, if enacted certain anti-deferral proposals could have a material adverse impact on our tax expense and cash flow.

Our business depends on our ability to attract and retain talented employees

The loss of the services of any member of our senior management team or key research and development or engineering personnel without adequate replacement, or the inability to attract new qualified personnel, could have a material adverse effect on our operations and financial performance.

© 2016 Corning Incorporated. All Rights Reserved.

 
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We are subject to strict environmental regulations and regulatory changes that could result in fines or restrictions that interrupt our operations

Some of our manufacturing processes generate chemical waste, waste water, other industrial waste or greenhouse gases, and we are subject to numerous laws and regulations relating to the use, storage, discharge and disposal of such substances.  We have installed anti-pollution equipment for the treatment of chemical waste and waste water at our facilities.  We have taken steps to control the amount of greenhouse gases created by our manufacturing operations.  However, we cannot provide assurance that environmental claims will not be brought against us or that government regulators will not take steps toward adopting more stringent environmental standards.

Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or imposition of fines against us, or the suspension/cessation of production or operations.  In addition, environmental regulations could require us to acquire costly equipment, incur other significant compliance expenses or limit or restrict production or operations and thus materially and negatively affect our financial condition and results of operations.

Changes in regulations and the regulatory environment in the U.S. and other countries, such as those resulting from the regulation and impact of global warming and CO2 abatement, may affect our businesses and their results in adverse ways by, among other things, substantially increasing manufacturing costs, limiting availability of scarce resources, especially energy, or requiring limitations on production and sale of our products or those of our customers.

We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others

We rely on patent and trade secret laws, copyright, trademark, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights.  Despite our efforts, these protections may be limited and we may encounter difficulties in protecting our intellectual property rights or obtaining rights to additional intellectual property necessary to permit us to continue or expand our businesses.  We cannot provide assurance that the patents that we hold or may obtain will provide meaningful protection against our competitors.  Changes in or enforcement of laws concerning intellectual property, worldwide, may affect our ability to prevent or address the misappropriation of, or the unauthorized use of, our intellectual property, potentially resulting in loss of market share.  Litigation may be necessary to enforce our intellectual property rights.  Litigation is inherently uncertain and outcomes are often unpredictable.  If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.

The intellectual property rights of others could inhibit our ability to introduce new products.  Other companies hold patents on technologies used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios.  We periodically receive notices from, or have lawsuits filed against us by third parties claiming infringement, misappropriation or other misuse of their intellectual property rights and/or breach of our agreements with them.  These third parties often include entities that do not have the capabilities to design, manufacture, or distribute products or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property through asserting claims of infringement and misuse.  Such claims of infringement or misappropriation may result in loss of revenue, substantial costs, or lead to monetary damages or injunctive relief against us.

Current or future litigation or regulatory investigations may harm our financial condition or results of operations

As described in Legal Proceedings in this Form 10-K, we are engaged in litigation and regulatory matters.  Litigation and regulatory proceedings may be uncertain, and adverse rulings could occur, resulting in significant liabilities, penalties or damages.  Such current or future substantial legal liabilities or regulatory actions could have a material adverse effect on our business, financial condition, cash flows and reputation.

We may not capture significant revenues from our current research and development efforts for several years, if at all

Developing our products through research and development is expensive and the investment often involves a long return on investment cycle.  We have made and expect to continue to make significant investments in research and development and related product opportunities.  Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results if not offset by increases in our gross margin.  We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position.

© 2016 Corning Incorporated. All Rights Reserved.

 
-16-



Business disruptions could affect our operating results

A significant portion of our manufacturing, research and development activities and certain other critical business operations are concentrated in a few geographic areas.  A major earthquake, fire or other catastrophic event that results in the destruction or disruption of any of our critical facilities could severely affect our ability to conduct normal business operations and, as a result, our future financial results could be materially and adversely affected.

Additionally, a significant amount of the specialized manufacturing capacity for our Display Technologies segment is concentrated in three overseas countries and it is reasonably possible that the operations of one or more such facilities could be disrupted.  Due to the specialized nature of the assets and the customers’ locations, it may not be possible to find replacement capacity quickly or substitute production from facilities in other countries.  Accordingly, loss of these facilities could produce a near-term severe impact on our Display business and the Company as a whole.

We face risks through equity affiliates that we do not control

Corning’s net income includes equity earnings from affiliated companies.  For the year ended December 31, 2015, we recognized $299 million of equity earnings, of which approximately 94% came from Dow Corning (which makes silicone and high purity polycrystalline products).

On December 11, 2015, Corning announced its intention to exchange its 50% equity interest in Dow Corning for 100% of the stock of a newly formed entity that will become a wholly-owned subsidiary of Corning Incorporated.  The newly formed entity will hold approximately 40% ownership in Hemlock Semiconductor Group and approximately $4.8 billion in cash.  Upon completion of this strategic realignment, which is expected to close during the first half of 2016, Dow Chemical, an equal owner of Dow Corning with Corning since 1943, will assume 100% ownership of Dow Corning.

Going forward, we face the risk that our other equity investments may not perform at the levels expected.  In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards or regulations may adversely affect us.

We may not have adequate insurance coverage for claims against us

We face the risk of loss resulting from product liability, asbestos, securities, fiduciary liability, intellectual property, antitrust, contractual, warranty, environmental, fraud and other lawsuits, whether or not such claims are valid.  In addition, our product liability, fiduciary, directors and officers, property policies including business interruption, natural catastrophe and comprehensive general liability insurance may not be adequate to cover such claims or may not be available to the extent we expect in the future.  A successful claim that exceeds or is not covered by our policies could require us to make substantial unplanned payments.  Some of the carriers in our historical primary and excess insurance programs are in liquidation and may not be able to respond if we should have claims reaching their policies.  The financial health of other insurers may deteriorate.  Several of our insurance carriers are litigating with us the extent, if any, of their obligation to provide insurance coverage for asbestos liabilities asserted against us.  The results of that litigation may adversely affect our insurance coverage for those risks.  In addition, we may not be able to obtain adequate insurance coverage for certain types of risk such as political risks, terrorism or war.

Our global operations are subject to extensive trade and anti-corruption laws and regulations
 
Due to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations, including U.S. regulations issued by Customs and Border Protection, the Bureau of Industry and Security, the Office of Antiboycott Compliance, the Directorate of Defense Trade Controls and the Office of Foreign Assets Control, as well as the counterparts of these agencies in other countries.  Any alleged or actual violations may subject us to government scrutiny, investigation and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States.  We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.

In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business, or obtaining an unfair advantage.  Recent years have seen a substantial increase in the global enforcement of anti-corruption laws.  Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of alleged violations.  Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or financial condition.

© 2016 Corning Incorporated. All Rights Reserved.

 
-17-



Moreover, several of our related partners are domiciled in areas of the world with laws, rules and business practices that differ from those in the United States, and we face the reputational and legal risk that our related partners may violate applicable laws, rules and business practices.

Acquisitions, equity investments and strategic alliances may have an adverse effect on our business

We expect to continue making acquisitions and entering into equity investments and strategic alliances as part of our business strategy.  These transactions involve significant challenges and risks including that a transaction may not advance our business strategy, that we do not realize a satisfactory return on our investment, or that we experience difficulty integrating new employees, business systems, and technology, or diversion of management’s attention from our other businesses.  It may take longer than expected to realize the full benefits, such as increased revenue and cash flow, enhanced efficiencies, or market share, or those benefits may ultimately be smaller than anticipated, or may not be realized.  These events could harm our operating results or financial condition.

Improper disclosure of personal data could result in liability and harm our reputation

We store and process personally-identifiable information of our employees and, in some case, our customers.  At the same time, the continued occurrence of high-profile data breaches provides evidence of the increasingly hostile information security environment.  This environment demands that we continuously improve our design and coordination of security controls across our business groups and geographies.  Despite these efforts, it is possible our security controls over personal data, our training of employees and vendors on data security, and other practices we follow may not prevent the improper disclosure of personally identifiable information.  Improper disclosure of this information could harm our reputation or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.

Significant macroeconomic events, changes in regulations, or a crisis in the financial markets could limit our access to capital

We utilize credit in both the capital markets and from banks to facilitate company borrowings, hedging transactions, leases and other financial transactions.  We maintain a $2 billion revolving credit agreement to fund potential liquidity needs and to backstop certain transactions.  An adverse macroeconomic event or changes in bank regulations could limit our ability to gain access to credit or to renew the revolving credit agreement upon expiration.  Additionally, a financial markets crisis may limit our ability to access liquidity.

Adverse economic conditions may adversely affect our cash investments

We maintain an investment portfolio of various types of securities with varying maturities and credit quality.  These investments are subject to general credit, liquidity, market, and interest rate risks, which may be exacerbated by unusual events that have affected global financial markets.  We also make significant investments in U.S. government securities, either directly, or through investment in money market funds.  If global credit and equity markets experience prolonged periods of decline, or if the U.S. defaults on its debt obligations or its debt is downgraded, our investment portfolio may be adversely impacted and we could determine that more of our investments have experienced an other-than-temporary decline in fair value, requiring impairment charges that could adversely impact our financial results.

Information technology dependency and security vulnerabilities could lead to reduced revenue, liability claims, or competitive harm

The Company is increasingly dependent on sophisticated information technology and infrastructure.  Any significant breakdown, intrusion, interruption or corruption of these systems or data breaches could have a material adverse effect on our business.  Like other global companies, we have, from time to time, experienced incidents related to our information technology (“IT”) systems, and expect that such incidents will continue, including malware and computer virus attacks, unauthorized access, systems failures and disruptions.  We have measures and defenses in place against unauthorized access, but we may not be able to prevent, immediately detect, or remediate such events.

© 2016 Corning Incorporated. All Rights Reserved.

 
-18-



We use electronic IT in our manufacturing processes and operations and other aspects of our business.  Our IT systems may be vulnerable to disruptions from computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions.  A material breach in the security of our IT systems could include the theft of our intellectual property or trade secrets.  Such disruptions or security breaches could result in the theft, unauthorized use or publication of our intellectual property and/or confidential business information, harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives, or otherwise adversely affect our business.

Additionally, utilities and other operators of critical energy infrastructure that serve our facilities face heightened security risks, including cyber-attack.  In the event of such an attack, disruption in service from our utility providers could disrupt our manufacturing operations which rely on a continuous source of power (electrical, gas, etc.).

International trade policies may impact demand for our products and our competitive position
 
Government policies on international trade and investment such as import quotas, capital controls or tariffs, whether adopted by individual governments or addressed by regional trade blocs, can affect the demand for our products and services, impact the competitive position of our products or prevent us (including our equity affiliates/joint ventures) from being able to sell products in certain countries.  The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we sell large quantities of products and services could negatively impact our business, results of operations and financial condition.  For example, a government’s adoption of “buy national” policies or retaliation by another government against such policies could have a negative impact on our results of operations.  These policies also affect our equity companies.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

We operate approximately 89 manufacturing plants and processing facilities in 17 countries, of which approximately 34% are located in the U.S.  We own 75% of our executive and corporate buildings, which are mainly located in and around Corning, New York.  We also own approximately 94% of our research and development facilities and the majority of our manufacturing facilities.  We own approximately 72% of our sales and administrative facilities.  The remaining facilities are leased.

For the years ended 2015, 2014 and 2013, we invested a total of $3.3 billion, primarily in facilities outside of the U.S. in our Display Technologies segment.  Of the $1.3 billion spent in 2015, over $781 million were for facilities outside the U.S.

Manufacturing, sales and administrative, and research and development facilities have an aggregate floor space of approximately 36.3 million square feet.  Distribution of this total area follows:
(million square feet)
Total
 
Domestic
 
Foreign
           
Manufacturing
29.5
 
7.6
 
21.9
Sales and administrative
2.3
 
1.9
 
0.4
Research and development
2.2
 
1.9
 
0.3
Warehouse
2.3
 
1.7
 
0.6
           
Total
36.3
 
13.1
 
23.2

Total assets and capital expenditures by operating segment are included in Note 20 (Reportable Segments) to the Consolidated Financial Statements.  Information concerning lease commitments is included in Note 14 (Commitments, Contingencies and Guarantees) to the Consolidated Financial Statements.

© 2016 Corning Incorporated. All Rights Reserved.

 
-19-



Item 3.  Legal Proceedings

Dow Corning Corporation. Corning and Dow Chemical each own 50% of the common stock of Dow Corning.

Dow Corning Breast Implant Litigation

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.  The Plan also includes releases for Corning and Dow Chemical as shareholders in exchange for contributions to the Plan.

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 $1.8 billion to the Settlement Trust.  As of December 31, 2015, Dow Corning had recorded a reserve for breast implant litigation of $291 million.  See Note 7 (Investments) to the Consolidated Financial Statements for additional detail.

Other Dow Corning Claims Arising From Bankruptcy Proceedings

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 December 31, 2015, Dow Corning has estimated the liability to commercial creditors to be within the range of $104 million to $341 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 $104 million, net of applicable tax benefits.  There are a number of other claims in the bankruptcy proceedings against Dow Corning awaiting resolution by the U.S. District Court, and it is reasonably possible that Dow Corning may record bankruptcy-related charges in the future.  The remaining tort claims against Dow Corning are expected to be channeled by the Plan into facilities established by the Plan or otherwise defended by the Litigation Facility.

Pittsburgh Corning Corporation and Asbestos Litigation.  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 were 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.  At the time PCC filed for bankruptcy protection, there were approximately 11,800 claims pending against Corning in state court lawsuits alleging various theories of liability based on exposure to PCC’s asbestos products and typically requesting monetary damages in excess of one million dollars per claim.  Corning has defended those claims on the basis of the separate corporate status of PCC and the absence of any facts supporting claims of direct liability arising from PCC’s asbestos products.

PCC Plan of Reorganization

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 courts and parties.  On November 12, 2013, the Bankruptcy Court issued a decision finally confirming an Amended PCC Plan of Reorganization (the “Amended PCC Plan” or the “Plan”).  On September 30, 2014, the United States District Court for the Western District of Pennsylvania (the “District Court”) affirmed the Bankruptcy Court’s decision confirming the Amended PCC Plan.  On October 30, 2014, one of the objectors to the Plan appealed the District Court’s affirmation of the Plan to the United States Court of Appeals for the Third Circuit (the “Third Circuit Court of Appeals”).  On January 6, 2016, all pending appeals of the Plan were withdrawn and Corning expects that the Plan will become effective in April 2016.

Under the Plan as affirmed by the Bankruptcy Court and affirmed by the District Court, Corning is required to contribute its equity interests in PCC and Pittsburgh Corning Europe N.V. (“PCE”), a Belgian corporation, and to contribute $290 million in a fixed series of payments, recorded at present value.  Corning will contribute its equity interest in PCC and PCE on the Plan’s Funding Effective Date, which is expected to occur in June 2016.  Corning has the option to use its common stock rather than cash to make these payments, but the liability is fixed by dollar value and not the number of shares.  The Plan requires Corning to make: (1) one payment of $70 million one year from the date the Plan becomes effective and certain conditions are met; and (2) five additional payments of $35 million, $50 million, $35 million, $50 million and $50 million, respectively, on each of the five subsequent anniversaries of the first payment, the final payment of which is subject to reduction based on the application of credits under certain circumstances.

© 2016 Corning Incorporated. All Rights Reserved.

 
-20-



Non-PCC Asbestos Litigation

In addition to the claims against Corning related to its ownership interest in PCC, Corning is also the defendant in approximately 9,700 other cases (approximately 37,300 claims) alleging injuries from asbestos related to its Corhart business and similar amounts of monetary damages per case (the “non-PCC asbestos claims”).  When PCC filed for bankruptcy protection, the Court granted a preliminary injunction to suspend all asbestos cases against PCC, PPG and Corning – including these non-PCC asbestos claims (the “Stay”).  The Stay remains in place as of the date of this filing; however, given that the Amended PCC Plan is now affirmed by the District Court and the Third Circuit Court of Appeals, Corning anticipates the Stay will be lifted in the second half of 2016.  These non-PCC asbestos claims have been covered by insurance without material impact to Corning to date.  As of December 31, 2015, Corning had received for these claims approximately $19 million in insurance payments.  When the Stay is lifted, these non-PCC asbestos claims will be allowed to proceed against Corning.  In prior periods, Corning recorded in its estimated asbestos litigation liability an additional $150 million for these and any future non-PCC asbestos claims.

Total Estimated Liability for the Amended PCC Plan and the Non-PCC Asbestos Claims

The liability for the Amended PCC Plan and the non-PCC asbestos claims was estimated to be $678 million at December 31, 2015, compared with an estimate of liability of $681 million at December 31, 2014.  The $678 million liability is comprised of $238 million of the fair value of PCE, $290 million for the fixed series of payments, and $150 million for the non-PCC asbestos claims, all referenced in the preceding paragraphs.  With respect to the PCE liability, at December 31, 2015 and 2014, the fair value of $238 million and $241 million of our interest in PCE significantly exceeded its carrying value of $154 million and $162 million, respectively.  There have been no impairment indicators for our investment in PCE and we continue to recognize equity earnings of this affiliate.  At the time Corning recorded this liability, it determined it lacked the ability to recover the carrying amount of its investment in PCC and its investment was other than temporarily impaired.  As a result, we reduced our investment in PCC to zero.  As the fair value in PCE is significantly higher than book value, management believes that the risk of an additional loss in an amount materially higher than the fair value of the liability is remote.  With respect to the liability for other asbestos litigation, the liability for non-PCC asbestos claims was estimated based upon industry data for asbestos claims since Corning does not have recent claim history due to the Stay issued by the Bankruptcy Court.  The estimated liability represents the undiscounted projection of claims and related legal fees over the next 20 years.  The amount may need to be adjusted in future periods as more data becomes available; however, we cannot estimate any additional losses at this time.  For the years ended December 31, 2015 and 2014, Corning recorded asbestos litigation income of $15 million and expense of $9 million, respectively.  At December 31, 2015, $440 million of the obligation, consisting of the $290 million for the fixed series of payments and $150 million for the non-PCC asbestos claims, 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.  The amount of the obligation related to the fair value of PCE, $238 million, was reclassified to a current liability in the fourth quarter of 2015, as the contribution of the assets is expected to be made within the next twelve months.

Non-PCC Asbestos Claims Insurance Litigation

Several of Corning’s insurers have commenced litigation in state courts for a declaration of the rights and obligations of the parties under insurance policies, including rights that may be affected by the potential resolutions described above.  Corning has resolved these issues with a majority of its relevant insurers, and is vigorously contesting these cases with the remaining relevant insurers.  Management is unable to predict the outcome of the litigation with these remaining insurers.

Environmental Litigation.  Corning has been named by the United States Environmental Protection Agency (the “EPA”) under the Superfund Act or by state governments under similar state laws, as a potentially responsible party for 17 active hazardous waste sites.  Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the EPA, are jointly and severally liable for the cost of cleanup unless the EPA 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 December 31, 2015 and 2014, Corning had accrued approximately $37 million (undiscounted) and $43 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.

© 2016 Corning Incorporated. All Rights Reserved.

 
-21-


Chinese Anti-Dumping Investigation Involving Optical Fiber Preforms Produced in the United States.  On March 19, 2014, the Chinese Ministry of Commerce (“MOFCOM”) initiated an anti-dumping investigation involving optical fiber preforms originating in the United States and Japan.  On July 23, 2015, MOFCOM announced its Final Determination that included a dumping margin of 41.79% against Corning.  The company is evaluating its options to appeal MOFCOM’s decision.

Department of Justice Grand Jury Subpoena.  In March 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.  The subpoena required Corning to produce to the Department of Justice certain documents from the period January 1999 to March 2012.  In November 2012, Corning received another subpoena from the Department of Justice, with the same scope, but extending the time frame for the documents to be produced back to January 1, 1988.  Corning’s policy is to comply with all laws and regulations, including all antitrust and competition laws.  Antitrust investigations can result in substantial liability for the Company.  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.

Item 4.  Mine Safety Disclosure

None.

© 2016 Corning Incorporated. All Rights Reserved.

 
-22-



PART II


Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)
Corning Incorporated common stock is listed on the New York Stock Exchange.  In addition, it is traded on the Boston, Midwest, Pacific and Philadelphia stock exchanges.  Common stock options are traded on the Chicago Board Options Exchange.  The ticker symbol for Corning Incorporated is “GLW.”

The following table sets forth the high and low sales price of Corning’s common stock as reported on the New York Stock Exchange Composite Tape.
 
First
quarter
 
Second
quarter
 
Third
quarter
 
Fourth
quarter
2015
                     
Price range
                     
High
$
25.16
 
$
22.98
 
$
20.02
 
$
19.29
Low
$
21.89
 
$
19.57
 
$
15.24
 
$
16.36
2014
                     
Price range
                     
High
$
20.99
 
$
22.20
 
$
22.37
 
$
23.52
Low
$
16.55
 
$
20.17
 
$
19.23
 
$
17.03

As of December 31, 2015, there were approximately 16,622 registered holders of common stock and approximately 492,337 beneficial shareholders.

On February 3, 2016, Corning’s Board of Directors declared a 12.5% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.12 to $0.135 per share of common stock, beginning with the dividend to be paid in the first quarter of 2016.  This increase marks the fifth dividend increase since October 2011.  The Board previously increased the quarterly dividend 20%, from $0.10 to $0.12, on December 3, 2014.  The Company paid four quarterly dividends of $0.12 during the year ended December 31, 2015 and paid four quarterly dividends of $0.10 during the year ended December 31, 2014.


© 2016 Corning Incorporated. All Rights Reserved.

 
-23-



Performance Graph

The following graph illustrates the cumulative total shareholder return over the last five years of Corning’s common stock, the S&P 500 and the S&P Communications Equipment Companies (in which Corning is currently included).  The graph includes the capital weighted performance results of those companies in the communications equipment company classification that are also included in the S&P 500.



(b)
Not applicable.

(c)
The following table provides information about our purchases of our common stock during the fiscal fourth quarter of 2015:

Issuer Purchases of Equity Securities
Period
Number
of shares
purchased (1)
 
Average
price paid
per share (1)
 
Number
of shares
purchased as
part of publicly
announced
plans or
programs (2)
 
Approximate
dollar value of
shares that
may yet be
purchased
under the plans
or programs (2)
October 1-31, 2015
54,513,746
 
$18.77
 
54,500,524
 
$4,521,528,007
November 1-30, 2015
       10,654
 
$18.82
     
$4,521,528,007
December 1-31, 2015
     141,145
 
$18.42
     
$4,521,528,007
Total at December 31, 2015
54,665,545
 
$18.77
 
54,500,524
 
$4,521,528,007

(1)
These columns reflect the following transactions during the fourth quarter of 2015:  (i) the deemed surrender to us of 86,015 shares of common stock to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units; (ii) the surrender to us of 79,006 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees; and (iii) the purchase of 54,500,524 shares of common stock in conjunction with the repurchase programs announced on July 15, 2015.
(2)
On July 15, 2015, Corning’s Board of Directors authorized the repurchase of up to $2 billion worth of shares of common stock between the date of announcement and December 31, 2016.  On October 26, 2015, Corning’s Board of Directors supplemented this program with the authorization to repurchase an additional $4 billion worth of shares of common stock.


© 2016 Corning Incorporated. All Rights Reserved.

 
-24-



Item 6.  Selected Financial Data (Unaudited)

(In millions, except per share amounts and number of employees)
 
Years ended December 31,
   
2015
 
2014
 
2013
 
2012
 
2011
                             
Results of operations
                           
                             
Net sales
$
9,111
 
$
9,715
 
$
7,819
 
$
8,012
 
$
7,890
Research, development and engineering expenses
$
769
 
$
815
 
$
710
 
$
769
 
$
668
Equity in earnings of affiliated companies
$
299
 
$
266
 
$
547
 
$
810
 
$
1,471
Net income attributable to Corning Incorporated
$
1,339
 
$
2,472
 
$
1,961
 
$
1,636
 
$
2,817
                             
Earnings per common share attributable to Corning Incorporated:
                           
Basic
$
1.02
 
$
1.82
 
$
1.35
 
$
1.10
 
$
1.80
Diluted
$
1.00
 
$
1.73
 
$
1.34
 
$
1.09
 
$
1.78
                             
Cash dividends declared per common share
$
0.36
 
$
0.52
 
$
0.39
 
$
0.32
 
$
0.23
Shares used in computing per share amounts:
                           
Basic earnings per common share
 
1,219
   
1,305
   
1,452
   
1,494
   
1,562
Diluted earnings per common share
 
1,343
   
1,427
   
1,462
   
1,506
   
1,583
                             
Financial position
                           
                             
Working capital
$
5,455
 
$
7,914
 
$
7,145
 
$
7,739
 
$
6,580
Total assets
$
28,547
 
$
30,063
 
$
28,478
 
$
29,375
 
$
27,848
Long-term debt
$
3,910
 
$
3,227
 
$
3,272
 
$
3,382
 
$
2,364
Total Corning Incorporated shareholders’ equity
$
18,788
 
$
21,579
 
$
21,162
 
$
21,486
 
$
21,078
                             
Selected data
                           
                             
Capital expenditures
$
1,250
 
$
1,076
 
$
1,019
 
$
1,801
 
$
2,432
Depreciation and amortization
$
1,184
 
$
1,200
 
$
1,002
 
$
997
 
$
957
Number of employees
 
35,700
   
34,600
   
30,400
   
28,700
   
28,800

Reference should be made to the Notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.


© 2016 Corning Incorporated. All Rights Reserved.

 
-25-


Item 7.  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.  This discussion includes the following sections:

·  
Overview
·  
Results of Operations
·  
Core Performance Measures
·  
Reportable Segments
·  
Liquidity and Capital Resources
·  
Environment
·  
Critical Accounting Estimates
·  
New Accounting Standards
·  
Forward-Looking Statements

OVERVIEW

Strategy and Capital Allocation Framework

In October 2015, Corning announced a new strategy and capital allocation framework that reflects the company’s financial and operational strengths, as well as its ongoing commitment to increasing shareholder value.

Our probability of success increases as we invest in our world-class capabilities.  Over the next four years, Corning will concentrate approximately 80% of its research, development and engineering investment and capital spending on a cohesive set of three core technologies, four manufacturing and engineering platforms, and five market-access platforms.  This strategy will allow us to quickly apply our talents and repurpose our assets as needed.

Our financial strength also allows us to increase our return to shareholders. Through 2019, we expect to generate and deploy over $20 billion in cash and to return more than $10 billion to shareholders through share repurchases and dividends. As a result, we expect to increase our dividend per common share by at least 10% annually through 2019.

Investing in our Future

Corning is one of the world’s leading innovators in materials science.  For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics, and optical physics to develop products that have created new industries and transformed people’s lives.  Our spending level for research, development and engineering remained consistent at 8% of sales in the year ended December 31, 2015 when compared to the year ended December 31, 2014.  We continue to maintain our innovation strategy focusing 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.  We continue to work on new products, including glass substrates for high-performance displays and LCD applications, precision glass for advanced displays, emission control products for cars, trucks, and off-road vehicles, products that accelerate drug discovery and manufacturing 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.  We have also focused our research, development and engineering spending to support the advancement of new product attributes for our Corning Gorilla Glass suite of products, including Gorilla Glass® in automotive and architectural markets.  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 and architectural applications. 

2015 Results

The global economic headwinds, the continued softening in the television and consumer electronic device retail markets and the negative impact of the strengthening of the U.S. dollar negatively impacted Corning in 2015, resulting in lower net sales and net income when compared to results in 2014.

© 2016 Corning Incorporated. All Rights Reserved.

 
-26-



Net sales in the year ended December 31, 2015 were $9,111 million, a decrease of $604 million, or 6%, when compared to the year ended December 31, 2014.  Sales in our Optical Communications segment increased by $328 million, or 12%, but were more than offset by declines in our other segments.  The increase in sales in the Optical Communications segment was due to an increase in volume in North America in both carrier network and enterprise network products and the impact of several acquisitions completed in 2015.  The decrease in sales of $765 million, or 20%, in the Display Technologies segment was the most significant segment decline, and was driven by the depreciation of the Japanese yen versus the U.S. dollar in the amount of $446 million and price declines in the low-teens in percentage terms, partially offset by a mid-single digit increase in volume.

For the year ended December 31, 2015, we generated net income of $1.3 billion, or $1.00 per share, compared to net income of $2.5 billion, or $1.73 per share, for 2014.  When compared to last year, the decrease in net income was due to the following items (amounts presented after tax):

·  
The decrease in the unrealized gains from our foreign currency hedges related to translated earnings in the amount of $1,054 million;
·  
A decrease in net income of $301 million in the Display Technologies segment, driven by price declines in the low-teens in percentage terms more than offsetting a mid-single digit percentage increase in volume, continued softening in the television and IT retail markets and the impact of the change in the fair value of the contingent consideration resulting from the acquisition of Corning Precision Materials in the amount of $184 million;
·  
The increase of $81 million in our defined benefit pension plans mark-to-market loss, driven by lower returns on our U.S. pension assets; and
·  
The absence of a gain of $38 million recorded in 2014 related to the settlement of an intellectual property dispute.

The decrease in net income for the year ended December 31, 2015 was partially offset by the following items:

·  
The positive change in the amounts recorded related to tax law changes and valuation allowance adjustments of $204 million;
·  
An increase of $43 million in the Optical Communications segment, due to higher sales volume for both carrier and enterprise network products, the favorable impact of several acquisitions completed this year and manufacturing efficiencies gained through cost reductions; and
·  
An increase in equity earnings of $33 million, driven by higher earnings at Dow Corning.

The translation impact of fluctuations in foreign currency exchange rates negatively affected Corning’s consolidated net income in the year ended December 31, 2015 in the amount of $294 million when compared to 2014.  This impact was partially offset by the increase in the realized gain from our foreign currency translation hedges related to translated earnings of $186 million.

2016 Corporate Outlook

In 2016, Corning expects its Display Technologies segment to experience continued moderate sequential LCD glass price declines and glass volume growth in the mid-single digit percentage year over year, in line with total glass demand growth.  We anticipate that a rise in global demand for Corning’s carrier and enterprise network products will drive an increase in sales of a mid-single digit percentage in our Optical Communications segment, and that an increase in Corning Gorilla Glass and advanced optics volume will drive sales growth in the low-teens on a percentage basis in our Specialty Materials segment.  We expect sales in our Environmental Technologies segment to be down slightly for the year, driven by lower year-over-year demand for heavy-duty diesel products.  And we expect to continue the execution of our strategy and capital allocation framework begun in the fourth quarter of 2015, under which we plan to grow and sustain our leadership position in the markets in which we operate and return more than $10 billion to shareholders through 2019.

© 2016 Corning Incorporated. All Rights Reserved.

 
-27-



RESULTS OF OPERATIONS

Selected highlights from our continuing operations follow (in millions):
 
2015
 
2014
 
2013
 
% change
15 vs. 14
 
14 vs. 13
                         
Net sales
$
9,111
 
$
9,715
 
$
7,819
 
(6)
 
24
                         
Gross margin
$
3,653
 
$
4,052
 
$
3,324
 
(10)
 
22
(gross margin %)
 
      40%
   
     42%
   
     43%
       
                         
Selling, general and administrative expenses
$
1,523
 
$
1,211
 
$
1,126
 
26
 
8
(as a % of net sales)
 
     17%
   
     12%
   
     14%
       
                         
Research, development and engineering expenses
$
769
 
$
815
 
$
710
 
(6)
 
15
(as a % of net sales)
 
     8%
   
    8%
   
    9%
       
                         
Restructuring, impairment and other charges
     
$
71
 
$
67
 
*
 
6
(as a % of net sales)
       
  1%
   
  1%
       
                         
Equity in earnings of affiliated companies
$
299
 
$
266
 
$
547
 
12
 
(51)
(as a % of net sales)
 
     3%
   
    3%
   
    7%
       
                         
Transaction-related gain, net
     
$
74
       
*
 
*
(as a % of net sales)
       
  1%
             
                         
Foreign currency hedge gain, net
$
85
 
$
1,411
 
$
622
 
(94)
 
127
(as a % of net sales)
 
  1%
   
     15%
   
    8%
       
                         
Income before income taxes
$
1,486
 
$
3,568
 
$
2,473
 
(58)
 
44
(as a % of net sales)
 
      16%
   
     37%
   
     32%
       
                         
Provision for income taxes
$
(147)
 
$
(1,096)
 
$
(512)
 
(87)
 
114
(as a % of net sales)
 
     (2)%
   
     (11)%
   
    (7)%
       
                         
Net income attributable to Corning Incorporated
$
1,339
 
$
2,472
 
$
1,961
 
(46)
 
26
(as a % of net sales)
 
      15%
   
     25%
   
     25%
       

*
Percent change not meaningful.

Net Sales

The following table presents net sales by reportable segment (in millions):
 
Year ended December 31,
 
%
Change
 
%
Change
 
2015
 
2014
 
2013
 
15 vs. 14
 
14 vs. 13
Display Technologies
$
3,086
 
$
3,851
 
$
2,545
 
(20)%
 
51%
Optical Communications
 
2,980
   
2,652
   
2,326
 
12%
 
14%
Environmental Technologies
 
1,053
   
1,092
   
919
 
(4)%
 
19%
Specialty Materials
 
1,107
   
1,205
   
1,170
 
(8)%
 
3%
Life Sciences
 
821
   
862
   
851
 
(5)%
 
1%
All Other
 
64
   
53
   
8
 
21%
 
563%
Total net sales
$
9,111
 
$
9,715
 
$
7,819
 
(6)%
 
24%


© 2016 Corning Incorporated. All Rights Reserved.

 
-28-



For the twelve months ended December 31, 2015, net sales decreased by $604 million, or 6%, when compared to the same period in 2014.  Driving the decline in net sales are the following items:

·  
A decrease of $765 million in the Display Technologies segment, driven by the depreciation of the Japanese yen versus the U.S. dollar, which adversely impacted net sales in the amount of $446 million, and price declines in the low-teens on a percentage basis.  Although volume increased in the mid-single digits in percentage terms, growth was muted somewhat by weakness in demand for televisions, computer monitors and mobile computing products;
·  
A decrease in the Environmental Technologies segment of $39 million, driven by the translation impact from movements in foreign currency exchange rates versus the U.S. dollar, primarily the euro, of $57 million and lower sales of light duty diesel products in Europe, partially offset by higher volume for heavy-duty diesel and light-duty substrate products;
·  
A decrease of $98 million in the Specialty Materials segment, driven primarily by a decline in advanced optics sales; and
·  
A decrease of $41 million in the Life Sciences segment due to the impact of unfavorable movements in foreign exchange rates of $43 million.

An increase of $328 million in the Optical Communications segment slightly offset the decline in sales.  The increase was driven by higher sales of enterprise network products, up $170 million, due to an acquisition completed in the first quarter of 2015 and an increase in data center products sales.  Sales of carrier network products also increased by $158 million driven by growth in fiber-to-the-home products in North America and the impact of two small acquisitions completed in the first quarter of 2015.

In the year ended December 31, 2015, the translation impact of fluctuations in foreign currency exchange rates, primarily the Japanese yen and the euro, negatively affected Corning’s consolidated net sales in the amount of $663 million when compared to the same period in 2014.

Corning’s net sales in the year ended December 31, 2014 improved in all of our segments, increasing by $1,896 million to $9,715 million, when compared to the same period in 2013, driven by the following events:
 
·  
Display Technologies increased by $1.3 billion, due to the consolidation of Corning Precision Materials, which increased sales by $1.8 billion, and an increase in volume that was slightly more than 10% in percentage terms, partially offset by price declines in the mid-teens on a percentage basis and the negative impact of the Japanese yen versus the U.S. dollar exchange rate in the amount of $373 million;
·  
Optical Communications increased by $326 million, driven by an increase in sales of carrier network products in the amount of $254 million, largely due to growth in North America and Europe, the impact of a full year of sales from a small acquisition and the consolidation of an investment due to a change in control that occurred at the end of the second quarter of 2013, which added $53 million, and an increase of $72 million in enterprise network products.  These increases were offset slightly by a $52 million decrease in optical fiber sales in China;
·  
An increase of $173 million in the Environmental Technologies segment, due mainly to an increase in demand for our heavy-duty diesel products, driven by new governmental regulations in Europe and China, and increased demand for Class 8 vehicles in North America.  Automotive substrate sales were also strong, increasing 9%, due to increased demand in Europe and China;
·  
Specialty Materials improved by $35 million, driven by an increase in sales of advanced optics products.  Corning Gorilla Glass sales remained consistent with the prior year, with volume increases offset by an unfavorable shift in product mix and price declines; and
·  
Life Sciences increased by $11 million, driven by growth in North America and China, up $12 million and $5 million, respectively.
 
In the year ended December 31, 2014, the translation impact of fluctuations in foreign currency exchange rates, primarily the Japanese yen, negatively affected Corning’s consolidated net sales in the amount of $347 million when compared to the same period in 2013.

In 2015, 2014 and 2013, sales in international markets accounted for 70%, 77% and 74%, respectively, of total net sales.

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 inspection); repairs and maintenance; inter-location inventory transfer costs; production and warehousing facility property insurance; rent for production facilities; and other production overhead.

© 2016 Corning Incorporated. All Rights Reserved.

 
-29-



Gross Margin

In the year ended December 31, 2015, gross margin dollars and gross margin as a percentage of net sales both declined when compared to the same period last year, declining $399 million and 2%, respectively.  The negative impact of the depreciation of the Japanese yen versus the U.S. dollar in the amount of $368 million and price declines in the Display Technologies segment in the low teens in percentage terms drove the decrease, but were partially offset by cost reductions and the impact of several small acquisitions in the Optical Communications segment, improvements in manufacturing performance in the Display Technologies and Specialty Materials segments and lower acquisition-related and restructuring costs.  Additionally, our Emerging Innovation Group and Corning Pharmaceutical Technologies business added $26 million in gross margin dollars in 2015, reflecting the growing significance of new business development.

For 2014, gross margin dollars increased by $728 million when compared to 2013, driven largely by the consolidation of Corning Precision Materials, combined with an increase of $102 million in the Environmental Technologies segment from higher volume and improved manufacturing efficiencies.  Gross margin as a percentage of net sales decreased when compared to the same period last year, due primarily to the impact of the depreciation of the Japanese yen versus the U.S. dollar in the amount of $333 million, price declines in the mid-teens in percentage terms in our Display Technologies segment, higher pension expense of approximately $50 million and the impact of inventory builds in 2013 in the Optical Communications and Specialty Materials segments that did not repeat in 2014.

Selling, General and Administrative Expenses

In the twelve months ended December 31, 2015, selling, general and administrative expenses increased by $312 million when compared to the same period in 2014, driven primarily by an increase of $133 million in our defined benefit pension plans mark-to-market loss, the absence of the positive impact of a contingent consideration fair value adjustment of $249 million recorded in 2014 and an increase in spending in the Optical Communications segment driven by several acquisitions completed in 2015.  Offsetting these increases somewhat were a decrease in variable compensation, lower spending in the Display Technologies and Specialty Materials segments and a decline in acquisition-related and post-combination expenses, which were higher last year due to additional costs incurred related to the acquisition of the remaining equity interests of Samsung Corning Precision Materials.  When compared to the same period last year, as a percentage of net sales, selling, general and administrative expenses increased driven by lower net sales in 2015.

Selling, general and administrative expenses for the year ended December 31, 2014 increased by $85 million when compared to 2013.  The increase was largely driven by the consolidation of Corning Precision Materials, which added $90 million, an increase in pension expense of approximately $27 million, an increase of $38 million in share-based and performance-based compensation expenses and an increase of approximately $90 million in acquisition-related costs, including $72 million of post-combination compensation expense, offset somewhat by the positive impact of a contingent consideration fair value adjustment of $249 million.  As a percentage of net sales, selling, general and administrative expenses were 12%, considerably lower than the same period in 2013, largely due to the contingent consideration fair value adjustment more than offsetting the increase in Selling, general and administrative expenses resulting from the acquisition of Samsung Corning Precision Materials.

The types of expenses included in the selling, general and administrative expenses line item are: salaries, wages and benefits; travel; professional fees; and depreciation and amortization, utilities, and rent for administrative facilities.

Research, Development and Engineering Expenses

For the year ended December 31, 2015, research, development and engineering expenses decreased by $46 million when compared to the same period last year, driven by lower variable compensation and a decrease in the Display Technologies and Specialty Materials segments.  As a percentage of net sales, research, development and engineering expenses remained consistent with the same period in 2014.

For the year ended December 31, 2014, research, development and engineering expenses increased by $105 million when compared to the same period last year, driven by the consolidation of Corning Precision Materials, which added $69 million, an increase of approximately $30 million in new business development spending and $20 million of additional pension expense.  We continue to focus on new product development in areas such as glass substrates for high performance displays in our Display Technologies segment, wireless solutions for diverse venue applications in the Optical Communications segment and advancement of new product attributes for our Corning Gorilla Glass suite of products in our Specialty Materials segment.  As a percentage of net sales, research, development and engineering expenses declined slightly, from 9% in 2013 to 8% in 2014, reflecting cost control measures implemented in 2014.

© 2016 Corning Incorporated. All Rights Reserved.

 
-30-



Restructuring, Impairment, and Other Charges

Corning recorded restructuring, impairment, and other charges and credits in 2014 and 2013, which affect the comparability of our results for the periods presented.  Additional information on restructuring and asset impairment is found in Note 2 (Restructuring, Impairment and Other Charges) to the Consolidated Financial Statements.  A description of those charges and credits follows:

2015 Activity

For the year ended December 31, 2015, we did not record significant restructuring, impairment and other charges or reversals.  Cash expenditures for restructuring activities were $40 million. 

2014 Activity

For the year ended December 31, 2014, we recorded charges of $71 million for workforce reductions, asset disposals and write-offs, and exit costs for restructuring activities with total cash expenditures of approximately $39 million.  Annualized savings from these actions are estimated to be approximately $94 million and will be reflected largely in selling, general and administrative expenses.

2013 Activity

To better align our 2014 cost position in several of our businesses, Corning implemented a global restructuring plan within several of our segments in the fourth quarter of 2013, consisting of workforce reductions, asset disposals and write-offs, and exit costs.  We recorded charges of $67 million, before tax, associated with these actions.  Cash expenditures were approximately $35 million.

Equity in Earnings of Affiliated Companies

The following provides a summary of equity earnings of affiliated companies (in millions):
 
Years ended December 31,
 
2015
 
2014
 
2013
                 
Samsung Corning Precision Materials
           
$
320
Dow Corning
$
281
 
$
252
   
196
All other
 
18
   
14
   
31
Total equity earnings
$
299
 
$
266
 
$
547

Equity earnings of affiliated companies increased by $33 million in the twelve months ended December 31, 2015, when compared to the same period in 2014, reflecting the increase in equity earnings from Dow Corning.

Equity earnings of affiliated companies decreased by $281 million in the twelve months ended December 31, 2014, when compared to the same period in 2013, reflecting the acquisition and consolidation of Samsung Corning Precision Materials, offset somewhat by an increase in equity earnings from Dow Corning.

Dow Corning

The following table provides a summary of equity earnings from Dow Corning, by component (in millions):
 
Year ended December 31,
 
2015
 
2014
 
2013
Silicones
$
160
 
$
653 
 
$
166
Polysilicon (Hemlock Semiconductor Group)
 
121
   
(401)
   
30
Total Dow Corning
$
281
 
$
252 
 
$
196

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.  The Plan also includes releases for Corning and Dow Chemical as shareholders in exchange for contributions to the Plan.

© 2016 Corning Incorporated. All Rights Reserved.

 
-31-



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 $1.8 billion to the Settlement Trust.  As of December 31, 2015, Dow Corning had recorded a reserve for breast implant litigation of $291 million.  See Note 7 (Investments) to the Consolidated Financial Statements and Part II – Item 3. Legal Proceedings for additional detail.

On December 11, 2015, Corning announced its intention to exchange its 50% equity interest in Dow Corning Corporation for 100% of the stock of a newly formed entity that will become a wholly-owned subsidiary of Corning.  The newly formed entity will hold approximately 40% ownership in Hemlock Semiconductor Group and approximately $4.8 billion in cash.  Upon completion of this strategic realignment, which is expected to close during the first half of 2016, Dow Chemical, an equal owner of Dow Corning with Corning since 1943, will assume 100% ownership of Dow Corning.

2015 vs. 2014
Equity earnings from Dow Corning increased by $29 million in the twelve months ended December 31, 2015, when compared to the same period in 2014, driven by the following items:
 
·  
A decrease in equity earnings from the silicones business of $493 million, driven by the following items:
o  
The absence of the gain resulting from the reduction of the Implant Liability in the amount of $393 million;
o  
The absence of $46 million of favorable tax adjustments recorded in 2014;
o  
The negative impact of the change in the mark-to-market of a derivative instrument in the amount of $56 million ($43 million loss in 2015 compared to $13 million gain in 2014); and
o  
Lower volume and unfavorable movements in foreign exchange rates.
·  
A significant increase in equity earnings from the polysilicon business in the amount of $522 million, driven by the absence of the $465 million charge for the abandonment of a polycrystalline silicon plant expansion recorded in 2014 and an increase in Corning’s share of settlements of long-term sales agreements in the amount of $40 million ($49 million in the first quarter of 2015 compared to $9 million in the first quarter of 2014), partially offset by lower volume.

2014 vs. 2013
Equity earnings from Dow Corning increased by $56 million in the twelve months ended December 31, 2014, when compared to the same period in 2013, driven by the following items:

·  
An increase in equity earnings of $487 million in the silicones segment, driven by the gain resulting from the reduction of the Implant Liability in the amount of $393 million, favorable tax adjustments in the amount of $46 million and a decrease in tax expense, offset somewhat by a $5 million decrease in the amount of gains recorded on the mark-to-market of a derivative instrument; and
·  
A decrease in equity earnings of $431 million in the polysilicon segment, driven by Corning’s share of Dow Corning’s charge for the abandonment of a polycrystalline silicon plant expansion in the amount of $465 million, offset slightly by higher volume, the absence of $11 million in restructuring charges incurred in the first half of 2013, a gain in the amount of $6 million related to energy tax credits and the settlement of a long-term sales agreement in the first quarter of 2014 in the amount of $9 million.

© 2016 Corning Incorporated. All Rights Reserved.

 
-32-



Foreign Currency Hedge Gain, Net

Included in the line item Foreign currency hedge gain, net, is the impact of foreign currency hedges which hedge our translation exposure arising from movements in the Japanese yen, South Korean won and euro against the U.S. dollar and its impact on our net earnings, as well as other foreign exchange hedges that limit exposures to foreign functional currency fluctuations.  The following tables provide detailed information on the impact of our foreign currency hedge gains and losses:
 
Year ended
December 31, 2015
 
Year ended
December 31, 2014
 
Change
2015 vs. 2014
(in millions)
Income
before
income
taxes
 
Net
income
 
Income
before
income
taxes
 
Net
income
 
Income
before
income
taxes
 
Net
income
Hedges related to translated earnings:
                                 
Realized gains, net
$
653 
 
$
410 
 
$
274
 
$
224
 
$
379 
 
$
186 
Unrealized (losses) gains
 
(573)
   
(362)
   
1,095
   
692
   
(1,668)
   
(1,054)
Total translated earnings contract gain
 
80 
   
48 
   
1,369
   
916
   
(1,289)
   
(868)
Foreign currency hedges, other
 
   
   
42
   
27
   
(37)
   
(24)
Foreign Currency Hedge Gain, Net
$
85 
 
$
51 
 
$
1,411
 
$
943
 
$
(1,326)
 
$
(892)

 
Year ended
December 31, 2014
 
Year ended
December 31, 2013
 
Change
2014 vs. 2013
(in millions)
Income
before
income
taxes
 
Net
income
 
Income
before
income
taxes
 
Net
income
 
Income
before
income
taxes
 
Net
income
Hedges related to translated earnings:
                                 
Realized gains, net
$
274
 
$
224
 
$
67
 
$
55
 
$
207 
 
$
169 
Unrealized gains
 
1,095
   
692
   
368
   
232
   
727 
   
460 
Total translated earnings contract gain
 
1,369
   
916
   
435
   
287
   
934 
   
629 
Foreign currency hedges, other
 
42
   
27
   
187
   
118
   
(145)
   
(91)
Foreign Currency Hedge Gain, Net
$
1,411
 
$
943
 
$
622
 
$
405
 
$
789 
 
$
538 

The gross notional value outstanding for our foreign currency hedges related to translated earnings at December 31, 2015 is $11.9 billion, and is comprised of the following:  1) Japanese yen-denominated hedges - $8.3 billion; 2) South Korean won-denominated hedges - $3.3 billion; and 3) euro-denominated hedges - $345 million.

Income Before Income Taxes

The translation impact of fluctuations in foreign currency exchange rates negatively affected Corning’s Income before income taxes in the year ended December 31, 2015 in the amount of $388 million when compared to 2014.  This impact was partially offset by the increase in the realized gain from our foreign currency translation hedges related to translated earnings of $379 million.

Provision for Income Taxes

Our provision for income taxes and the related effective income tax rates were as follows (dollars in millions):
 
Years ended December 31,
 
2015
 
2014
 
2013
Provision for income taxes
$
147
 
$
1,096
 
$
512
Effective tax rate
 
9.9%
   
30.7%
   
20.7%


© 2016 Corning Incorporated. All Rights Reserved.

 
-33-



The effective income tax rate for 2015 differed from the U.S. statutory rate of 35% primarily due to the following items:
 
·  
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of high-taxed foreign earnings in U.S. income;
·  
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax;
·  
$63 million tax expense for unrecognized tax benefit primarily for positions taken related to net transfer pricing adjustments (offset with benefit for competent authority relief); and
·  
$100 million tax benefit primarily related to change in judgment on the realizability of Germany and Japan deferred tax assets which is partially offset with tax expense from U.S. state and China deferred tax allowances increases.
 
The effective income tax rate for 2014 differed from the U.S. statutory rate of 35% primarily due to the following items:

·  
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of high-taxed foreign earnings in U.S. income; and
·  
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax.

Partially offsetting the benefits above is a $177 million charge attributable to a change in judgment on the realizability of certain foreign deferred tax assets in Germany and Japan.

Corning has valuation allowances on certain shorter-lived deferred tax assets such as those represented by capital loss and state tax net operating loss carryforwards, as well as other foreign net operating loss carryforwards, because we cannot conclude that it is more likely than not that we will earn income of the character or amount required to utilize these assets before they expire.  The amount of U.S. and foreign deferred tax assets that have remaining valuation allowances at December 31, 2015 and 2014 was $238 million and $298 million, respectively.

Corning continues to indefinitely reinvest substantially all of its foreign earnings, with the exception of an immaterial amount of current earnings that have very low or no tax cost associated with their repatriation.  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, derivative contract settlements or the development of tax planning ideas that allow us to repatriate earnings at minimal or no tax cost, 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.  As of December 31, 2015, taxes have not been provided on approximately $11 billion of accumulated foreign unremitted earnings that are expected to remain invested indefinitely.  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.

Our foreign subsidiary in Taiwan operates under various tax holiday arrangements.  The nature and extent of such arrangements vary, and the benefits of such arrangements phase out through 2018.  The impact of the tax holidays on our effective rate is a reduction in the rate of 0.5, 0.4 and 1.2 percentage points for 2015, 2014 and 2013, respectively.

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.

Refer to Note 6 (Income Taxes) to the Consolidated Financial Statements for further details regarding income tax matters.

© 2016 Corning Incorporated. All Rights Reserved.

 
-34-



Net Income Attributable to Corning Incorporated

As a result of the items discussed above, net income and per share data was as follows (in millions, except per share amounts):
 
Years ended December 31,
 
2015
 
2014
 
2013
                 
Net income attributable to Corning Incorporated
$
1,339
 
$
2,472
 
$
1,961
Net income attributable to Corning Incorporated used in basic earnings per common share calculation (1)
$
1,241
 
$
2,378
 
$
1,961
Net income attributable to Corning Incorporated used in diluted earnings per common share calculation (1)
$
1,339
 
$
2,472
 
$
1,961
Basic earnings per common share
$
1.02
 
$
1.82
 
$
1.35
Diluted earnings per common share
$
1.00
 
$
1.73
 
$
1.34
Shares used in computing per share amounts
               
Basic earnings per common share
 
1,219
   
1,305
   
1,452
Diluted earnings per common share
 
1,343
   
1,427
   
1,462

(1)
Refer to Note 18 (Earnings per Common Share) to the Consolidated Financial Statements for additional information.

Comprehensive Income

 
Years ended December 31,
(In millions)
2015
 
2014
 
2013
                 
Net income attributable to Corning Incorporated
$
1,339 
 
$
2,472 
 
$
1,961 
                 
Foreign currency translation adjustments and other
 
(590)
   
(1,073)
   
(682)
Net unrealized gains (losses) on investments
 
   
(1)
   
Unamortized gains (losses) and prior service (costs) credits for postretirement benefit plans
 
121 
   
(281)
   
392 
Net unrealized (losses) gains on designated hedges
 
(36)
   
   
(24)
Other comprehensive loss, net of tax (Note 17)
 
(504)
   
(1,351)
   
(312)
                 
Comprehensive income attributable to Corning Incorporated
$
835 
 
$
1,121 
 
$
1,649 

2015 vs. 2014
For the year ended December 31, 2015, comprehensive income decreased by $286 million when compared to the same period in 2014, driven by a decrease of $1,133 million in net income attributable to Corning Incorporated, offset by the positive impact of the change in foreign currency translation adjustments and the increase in unamortized gains for postretirement benefit plans.

The decrease in the loss on foreign currency translation adjustments for the year ended December 31, 2015 in the amount of $483 million (after-tax) was driven by the following items:  1) the decrease in the loss in the translation of Corning’s consolidated subsidiaries in the amount of $334 million;  2) the decrease in the loss in the translation of Corning’s equity method investments in the amount of $13 million; and 3) the absence of the reclassification of a gain to net income in 2014 in the amount of $136 million related to the acquisition of Samsung Corning Precision Materials.

The increase in unamortized gains for postretirement benefit plans in the amount of $402 million (after-tax) is due to the following:  1) the increase in the reclassification to the income statement of $81 million of actuarial losses in our defined benefit pension plans, largely driven by lower investment returns; 2) a decrease in actuarial losses of $119 million; and 3) the increase in actuarial gains of $202 million from our equity affiliate Dow Corning.

2014 vs. 2013
For the year ended December 31, 2014, comprehensive income decreased by $528 million when compared to the same period in 2013, driven by an increase in unamortized losses for postretirement benefit plans and the negative impact of the change in foreign currency translation adjustments, offset by an increase of $511 million in net income attributable to Corning Incorporated.

© 2016 Corning Incorporated. All Rights Reserved.

 
-35-



The increase in unamortized losses for postretirement benefit plans in the amount of $673 million is driven mainly by changes to the discount rate and mortality assumptions 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, 2014.  Corning and Dow Corning adopted the Society of Actuaries mortality table RP-2014 published in October 2014, along with an updated improvement scale, and the discount rate for our U.S. benefit plans decreased between 75 and 100 basis points.  At December 31, 2014, the decrease in discount rates and the change in the mortality assumption for our U.S. plans led to an actuarial after-tax loss of approximately $281 million versus a gain in 2013 of $392 million.  The loss of $281 million occurring in 2014 included the impact to our U.S. pension and OPEB plans from the mortality table change in the amount of $88 million, the impact of $89 million from changes in other actuarial assumptions and $124 million from our equity affiliate Dow Corning, offset by reclassifications to the income statement of $20 million after-tax related to U.S. non-qualified and international pension plans.  Because the actuarial loss for our U.S qualified pension plan 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, it was recorded in accumulated other comprehensive income (“AOCI”) and did not impact net income for the year ended December 31, 2014.

The increase in the loss on foreign currency translation adjustments for the year ended December 31, 2014 in the amount of $391 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 $65 million, which resulted primarily from the depreciation of the Japanese yen to U.S. dollar translation rate during 2014; 2) the increase in the loss in the translation of Corning’s equity method investments in the amount of $190 million; and 3) the reclassification of a gain to net income in the amount of $136 million related to the acquisition of Samsung Corning Precision Materials.

See Note 13 (Employee Retirement Plans) and Note 17 (Shareholders’ Equity) to the Consolidated Financial Statements for additional details.

CORE PERFORMANCE MEASURES

In managing the Company and assessing our financial performance, we supplement certain measures provided by our consolidated financial statements with measures adjusted to exclude certain items, to arrive at core performance measures.  We believe reporting core performance measures provides investors greater transparency to the information used by our management team to make financial and operational decisions.  Corning has adopted the use of constant currency reporting for the Japanese yen and South Korean won, and uses an internally derived management rate which is closely aligned to our foreign currency hedges.  In the first quarter of 2015, we changed the yen-to-dollar management rate from ¥93 to ¥99 to closely align with the yen-denominated hedges entered into for the years 2015 through 2017.  Prior periods presented have been recast based on the new rate.

Net sales, equity in earnings of affiliated companies and net income are adjusted to exclude the impacts of changes in the Japanese yen and the South Korean won, gains and losses on our foreign currency hedges related to translated earnings, acquisition-related costs, discrete tax items, restructuring and restructuring-related charges, certain litigation-related expenses, pension mark-to-market adjustments and other items which do not reflect on-going operating results of the Company or our equity affiliates.  Management’s discussion and analysis on our reportable segments has also been adjusted for these items, as appropriate.  These measures are not prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”).  We believe investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our core operating performance and how management evaluates our operational results and trends.  These measures are not, and should not be viewed as a substitute for GAAP reporting measures.  For a reconciliation of non-GAAP performance measures and a further discussion of the measures, please see “Reconciliation of Non-GAAP Measures” below.

RESULTS OF OPERATIONS – CORE PERFORMANCE MEASURES

Selected highlights from our continuing operations follow (in millions):
 
2015
 
2014
 
2013
 
% change
15 vs. 14
 
14 vs. 13
                         
Core net sales
$
9,800
 
$
9,955
 
$
7,780
 
(2)%
 
28%
Core equity in earnings of affiliated companies
$
269
 
$
310
 
$
531
 
(13)%
 
(42)%
Core earnings attributable to Corning Incorporated
$
1,882
 
$
2,023
 
$
1,656
 
(7)%
 
22%


© 2016 Corning Incorporated. All Rights Reserved.

 
-36-



Core Net Sales

The following table presents core net sales by reportable segment (in millions):
 
Year ended December 31,
 
%
Change
 
%
Change
 
2015
 
2014
 
2013
 
15 vs. 14
 
14 vs. 13
Display Technologies
$
3,774
 
$
4,092
 
$
2,507
 
(8)%
 
63%
Optical Communications
 
2,980
   
2,652
   
2,326
 
12%
 
14%
Environmental Technologies
 
1,053
   
1,092
   
919
 
(4)%
 
19%
Specialty Materials
 
1,107
   
1,205
   
1,170
 
(8)%
 
3%
Life Sciences
 
821
   
862
   
851
 
(5)%
 
1%
All Other
 
65
   
52
   
7
 
25%
 
643%
Total core net sales
$
9,800
 
$
9,955
 
$
7,780
 
(2)%
 
28%

In all segments except Display Technologies, core net sales are consistent with GAAP net sales.  Because a significant portion of revenues and manufacturing costs in the Display Technologies segment are denominated in Japanese yen, this segment is adjusted to remove the impact of translating yen into dollars.  Presenting results on a constant-yen basis mitigates the translation impact of the Japanese yen, and allows management to evaluate performance period over period, analyze underlying trends in our businesses and establish operational goals and forecasts.  As of January 1, 2015, we use an internally derived management rate of ¥99, which is closely aligned to our current yen-denominated hedges related to translated earnings, and have recast all periods presented based on this rate in order to effectively remove the impact of changes in the Japanese yen.

Core net sales decreased by $155 million to $9.8 billion in the year ended December 31, 2015 when compared to the same period in 2014.  Driving the decline in core net sales are the following items:

·  
A decrease of $318 million in the Display Technologies segment, driven by price declines in the low-teens on a percentage basis.  Although volume increased in the mid-single digits in percentage terms, growth was muted somewhat by weakness in demand for televisions, computer monitors and mobile computing products;
·  
A decrease in the Environmental Technologies segment of $39 million, driven by the translation impact from movements in foreign currency exchange rates versus the U.S. dollar, primarily the euro, of $57 million and lower sales of light duty diesel products in Europe, partially offset by higher volume for heavy duty diesel and light duty substrate products;
·  
A decrease of $98 million in the Specialty Materials segment, driven primarily by a decline in advanced optics sales; and
·  
A decrease of $41 million in the Life Sciences segment due to the impact of unfavorable movements in foreign exchange rates of $43 million.

An increase of $328 million in the Optical Communications segment slightly offset the decline in sales.  The increase was driven by higher sales of enterprise network products, up $170 million, due to an acquisition completed in the first quarter of 2015 and an increase in data center products sales.  Sales of carrier network products also increased, up $158 million, driven by growth in fiber-to-the-home products in North America and the impact of two small acquisitions completed in the first quarter of 2015.

Corning’s core net sales in the year ended December 31, 2014 improved in all of our segments, increasing by $2,175 million to $9,955 million, when compared to the same period in 2013.  Driving the growth in core net sales are the following items:

·  
Display Technologies increased by $1,585 million, due to the consolidation of Corning Precision Materials and an increase in volume that was slightly more than 10% in percentage terms, offset somewhat by price declines in the mid-teens;
·  
Optical Communications increased by $326 million, driven by an increase in sales of carrier network products in the amount of $254 million, largely due to growth in North America and Europe, the impact of a full year of sales from a small acquisition and the consolidation of an investment due to a change in control that occurred at the end of the second quarter of 2013, which added $53 million, and an increase of $72 million in enterprise network products.  These increases were offset slightly by a $52 million decrease in optical fiber sales in China;
·  
An increase of $173 million in the Environmental Technologies segment, due mainly to an increase in demand for our heavy duty diesel products, driven by new governmental regulations in Europe and China, and increased demand for Class 8 vehicles in North America.  Automotive substrate sales were also strong, increasing 9%, on increased demand in Europe and China;

© 2016 Corning Incorporated. All Rights Reserved.

 
-37-



·  
Specialty Materials improved by $35 million, driven by an increase in sales of advanced optics products.  Corning Gorilla Glass sales remained consistent with the prior year, with volume increases offset by an unfavorable shift in product mix and price declines; and
·  
Life Sciences increased by $11 million, driven by growth in North America and China, up $12 million and $5 million, respectively.

The translation impact from movements in foreign currency exchange rates in the years ended December 31, 2015 and 2014, excluding the Japanese yen and South Korean won, negatively affected core net sales in the amount of $215 million and $68 million, respectively, when compared to the prior years.

Core Equity in Earnings of Affiliated Companies

The following provides a summary of core equity in earnings of affiliated companies (in millions):
 
2015
 
2014
 
2013
 
% change
15 vs. 14
 
14 vs. 13
                         
Samsung Corning Precision Materials
           
$
356
       
Dow Corning *
$
245
 
$
287
   
145
 
(15)%
 
98%
All other
 
24
   
23
   
30
 
4%
 
(23)%
Total core equity earnings
$
269
 
$
310
 
$
531
 
(13)%
 
(42)%

*
In 2013, we excluded the operating results of Dow Corning’s consolidated subsidiary Hemlock Semiconductor, a producer of polycrystalline silicon, to remove the impact of the severe unpredictability and instability in the polysilicon market.

Core equity earnings of affiliated companies decreased by $41 million in the twelve months ended December 31, 2015, when compared to the same period in 2014, reflecting the decrease in equity earnings from Dow Corning.

Core equity earnings of affiliated companies decreased by $221 million in the twelve months ended December 31, 2014, when compared to the twelve months ended December 31, 2013, reflecting the acquisition and consolidation of Samsung Corning Precision Materials, offset somewhat by an increase in equity earnings from Dow Corning.

Dow Corning

The following table provides a summary of core equity earnings from Dow Corning, by component (in millions):
 
Year ended December 31,
 
2015
 
2014
 
2013
Silicones
$
176
 
$
197
 
$
145
Polysilicon (Hemlock Semiconductor Group)
 
69
   
90
   
31
Total Dow Corning
$
245
 
$
287
 
$
176

The following table reconciles the non-GAAP financial measure of equity earnings from Dow Corning to its most directly comparable GAAP financial measure:
 
2015
 
2014
 
2013
As reported
$
281 
 
$
252
 
$
196 
Hemlock Semiconductor operating results (8)
             
(31)
Hemlock Semiconductor non-operating results (8)
             
(1)
Equity in earnings of affiliated companies (8)
 
(36)
   
35
   
(19)
Core Performance measures
$
245 
 
$
287
 
$
145 

See Reconciliation of Non-GAAP Measures – Items Excluded from GAAP Measures below for the descriptions of the footnoted reconciling items.

2015 vs. 2014
Core equity earnings from Dow Corning decreased by $42 million, or 15%, in the year ended December 31, 2015, when compared to the same period last year, due to lower volume and unfavorable movements in foreign exchange rates and the devaluation of the Chinese yuan.

© 2016 Corning Incorporated. All Rights Reserved.

 
-38-



2014 vs. 2013
Core equity earnings from Dow Corning increased in the twelve months ended December 31, 2014, when compared to the same period in 2013, driven by higher earnings in both the silicones and polysilicon segments.  Driving the increase was a decrease in tax expense in the silicones segment and higher volume and improved manufacturing performance in the polysilicon segment.

Core Earnings

2015 vs. 2014
In the year ended December 31, 2015, we generated core earnings of $1,882 million or $1.40 per share, compared to $2,023 million or $1.42 per share in the year ended December 31, 2014.  The decrease was due to lower core earnings in the Display Technologies, Environmental Technologies, Specialty Materials and Life Sciences segments, and the unfavorable translation impact from movements in foreign currency exchange rates, excluding the Japanese yen and South Korean won, of $57 million.  Slightly offsetting the decline is higher core earnings in the Optical Communications segment, up $61 million, driven by higher sales volume for both carrier network and enterprise network products, the favorable impact of several acquisitions completed this year and manufacturing efficiencies gained through cost reductions.

2014 vs. 2013
When compared to the same period in the prior year, core earnings increased in the twelve months ended December 31, 2014 by $367 million, or 22%, to $2,023 million, driven by the following items (amounts presented after-tax):

·  
The impact of the consolidation of Corning Precision Materials and the resulting cost reductions and efficiencies gained through synergies;
·  
An increase in core equity earnings from Dow Corning, driven by a decrease in tax expense, improved manufacturing efficiency and an increase in volume;
·  
An increase of $58 million in the Environmental Technologies segment, driven by an increase in demand for our diesel products and improved manufacturing efficiency; and
·  
An increase of $34 million in the Optical Communications segment, driven by higher sales of carrier network and enterprise network products.

The increase in core earnings for the year ended December 31, 2014 was offset somewhat by price declines in the mid-teens in percentage terms outpacing an increase in volume slightly higher than 10% in our Display Technologies segment.

Included in core earnings for the years ended December 31, 2015, 2014 and 2013 is net periodic pension expense in the amount of $62 million, $74 million and $37 million, respectively, which excludes the annual pension mark-to-market adjustments.  In the years ended December 31, 2015, 2014 and 2013, the mark-to-market adjustments were a pre-tax loss of $165 million, a pre-tax loss of $29 million and a pre-tax gain of $30 million, respectively.  Refer to Note 13 (Employee Retirement Plans) to the Consolidated Financial Statements for additional information.

Core Earnings per Common Share
The following table sets forth the computation of core basic and core diluted earnings per common share (in millions, except per share amounts):
 
2015
 
2014
 
2013
Core earnings attributable to Corning Incorporated
$
1,882
 
$
2,023
 
$
1,656
Less:  Series A convertible preferred stock dividend
 
98
   
94
     
Core earnings available to common stockholders - basic
 
1,784
   
1,929
   
1,656
Add:  Series A convertible preferred stock dividend
 
98
   
94
     
Core earnings available to common stockholders - diluted
$
1,882
 
$
2,023
 
$
1,656
                 
Weighted-average common shares outstanding - basic
 
1,219
   
1,305
   
1,452
Effect of dilutive securities:
               
Stock options and other dilutive securities
 
9
   
12
   
10
Series A convertible preferred stock
 
115
   
110
     
Weighted-average common shares outstanding - diluted
 
1,343
   
1,427
   
1,462
Core basic earnings per common share
$
1.46
 
$
1.48
 
$
1.14
Core diluted earnings per common share
$
1.40
 
$
1.42
 
$
1.13


© 2016 Corning Incorporated. All Rights Reserved.

 
-39-



Reconciliation of Non-GAAP Measures
We utilize certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess our financial and operating performance.  A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of income or statement of cash flows, or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure as calculated and presented in accordance with GAAP in the statement of income or statement of cash flows.

Core net sales, core equity earnings of affiliated companies and core earnings are non-GAAP financial measures utilized by our management to analyze financial performance without the impact of items that are driven by general economic conditions and events that do not reflect the underlying fundamentals and trends in the Company’s operations.

The following tables reconcile our non-GAAP financial measures to their most directly comparable GAAP financial measure.
 
Year ended December 31, 2015
 
Net
sales
 
Equity
earnings
 
Income
before
income
taxes
 
Net
income
 
Effective
tax
rate
 
Earnings
per
share
As reported
$
9,111
 
$
299 
 
$
1,486 
 
$
1,339 
 
9.9%
 
$
1.00 
Constant-yen (1)
 
687
   
   
567 
   
423 
       
0.31 
Constant-won (1)
 
2
   
(2)
   
(25)
   
(19)
       
(0.01)
Foreign currency hedges related to translated earnings (2)
             
(80)
   
(48)
       
(0.04)
Acquisition-related costs (3)
             
55 
   
36 
       
0.03 
Discrete tax items and other tax-related adjustments (4)
                   
36 
       
0.03 
Litigation, regulatory and other legal matters (5)
             
   
         
Restructuring, impairment and other charges (6)
             
46 
   
42 
       
0.03 
Liquidation of subsidiary (7)
                               
Equity in earnings of affiliated companies (8)
       
(34)
   
(34)
   
(33)
       
(0.02)
Impacts from the acquisition of Samsung Corning Precision Materials (9)
             
(20)
   
(18)
       
(0.01)
Post-combination expenses (10)
             
25 
   
16 
       
0.01 
Pension mark-to-market adjustment (11)
             
165 
   
105 
       
0.08 
                                 
Core performance measures
$
9,800
 
$
269 
 
$
2,190 
 
$
1,882 
 
14.1%
 
$
1.40 

See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.

© 2016 Corning Incorporated. All Rights Reserved.

 
-40-



 
Year ended December 31, 2014
 
Net
sales
 
Equity
earnings
 
Income
before
income
taxes
 
Net
income
 
Effective
tax
rate
 
Earnings
per
share
As reported
$
9,715
 
$
266
 
$
3,568 
 
$
2,472 
 
30.7%
 
$
1.73 
Constant-yen (1)*
 
240
   
1
   
197 
   
144 
       
0.10 
Constant-won (1)
             
37 
   
26 
       
0.02 
Foreign currency hedges related to translated earnings (2)
             
(1,369)
   
(916)
       
(0.64)
Acquisition-related costs (3)
             
74 
   
57 
       
0.04 
Discrete tax items and other tax-related adjustments (4)
                   
240 
       
0.17 
Litigation, regulatory and other legal matters (5)
             
(1)
   
(2)
         
Restructuring, impairment and other charges (6)
             
86 
   
66 
       
0.05 
Liquidation of subsidiary (7)
                   
(3)
         
Equity in earnings of affiliated companies (8)
       
43
   
43 
   
38 
       
0.03 
Gain on previously held equity investment (9)
             
(394)
   
(292)
       
(0.20)
Settlement of pre-existing contract (9)
             
320 
   
320 
       
0.22 
Contingent consideration fair value adjustment (9)
             
(249)
   
(194)
       
(0.14)
Post-combination expenses (9)
             
72 
   
55 
       
0.04 
Impacts from the acquisition of Samsung Corning Precision Materials (9)
             
(9)
   
(12)
       
(0.01)
Pension mark-to-market adjustment (11)
             
29 
   
24 
       
0.02 
                                 
Core performance measures
$
9,955
 
$
310
 
$
2,404 
 
$
2,023 
 
15.8%
 
$
1.42 

*
In the first quarter of 2015, we changed the yen-to-dollar management rate from ¥93 to ¥99 to closely align with the yen-denominated hedges entered into for the years 2015 through 2017.  Prior periods presented have been recast based on the new rate.

See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.


© 2016 Corning Incorporated. All Rights Reserved.

 
-41-



 
Year ended December 31, 2013
(in millions)
Net
sales
 
Equity
earnings
 
Income
before
income
taxes
 
Net
income
 
Effective
tax
rate
 
Per
share
As reported
$
7,819 
 
$
547 
 
$
2,473 
 
$
1,961 
 
20.7%
 
$
1.34 
Constant-yen (1)*
 
(39)
   
(28)
   
(53)
   
(45)
       
(0.03)
Foreign currency hedges related to translated earnings (2)
             
(435)
   
(287)
       
(0.20)
Other yen-related transactions (2)
             
(99)
   
(69)
       
(0.05)
Acquisition-related costs (3)
             
54 
   
40 
       
0.03 
Discrete tax items and other tax-related adjustments (4)
                   
       
0.01 
Litigation, regulatory and other legal matters  (5)
             
19 
   
13 
       
0.01 
Restructuring, impairment and other charges (6)
             
67 
   
46 
       
0.03 
Equity in earnings of affiliated companies (8)
       
42 
   
42 
   
44 
       
0.02 
Hemlock Semiconductor operating results (8)
       
(31)
   
(31)
   
(30)
       
(0.02)
Hemlock Semiconductor non-operating results (8)
       
   
   
         
Pension mark-to-market adjustment (11)
             
(30)
   
(17)
       
(0.01)
Gain on change in control of equity investment (12)
             
(17)
   
(12)
       
(0.01)
Other
             
   
         
                                 
Core performance measures
$
7,780 
 
$
531 
 
$
1,995 
 
$
1,656 
 
17.0%
 
$
1.13 

*
In the first quarter of 2015, we changed the yen-to-dollar management rate from ¥93 to ¥99 to closely align with the yen-denominated hedges entered into for the years 2015 through 2017.  Prior periods presented have been recast based on the new rate.

See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.


© 2016 Corning Incorporated. All Rights Reserved.

 
-42-



Items Excluded from GAAP Measures

Items which we exclude from GAAP measures to arrive at Core performance measures are as follows:

(1)
Constant-currency adjustments:
 
Constant-yen:  Because a significant portion of Display Technologies segment revenues and manufacturing costs are denominated in Japanese yen, management believes it is important to understand the impact on core earnings of translating yen into dollars.  Presenting results on a constant-yen basis mitigates the translation impact of the Japanese yen, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts.  As of January 1, 2015, we used an internally derived management rate of ¥99, which is closely aligned to our current yen portfolio of foreign currency hedges, and have recast all periods presented based on this rate in order to effectively remove the impact of changes in the Japanese yen.
 
Constant-won:  Following the acquisition of Samsung Corning Precision Materials and because a significant portion of  Corning Precision Materials’ costs are denominated in South Korean won, management believes it is important to understand the impact on core earnings from translating won into dollars.  Presenting results on a constant-won basis mitigates the translation impact of the South Korean won, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts without the variability caused by the fluctuations caused by changes in the rate of this currency.  We use an internally derived management rate of 1,100, which is consistent with historical prior period averages of the won.
(2)
Foreign currency hedges related to translated earnings:  We have excluded the impact of the gains and losses of our foreign currency hedges related to translated earnings for each period presented.
(3)
Acquisition-related costs:  These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs.
(4)
Discrete tax items and other tax-related adjustments:  This represents the removal of discrete adjustments attributable to changes in tax law and changes in judgment about the realizability of certain deferred tax assets, as well as other non-operational tax-related adjustments, including the tax effect of transfer pricing out-of-period adjustments in 2014 and 2015.
(5)
Litigation, regulatory and other legal matters:  Includes amounts related to the Pittsburgh Corning Corporation (PCC) asbestos litigation, adjustments to our estimated liability for environmental-related items and other legal matters.
(6)
Restructuring, impairment and other charges:  This amount includes restructuring, impairment and other charges, including goodwill impairment charges and other expenses and disposal costs not classified as restructuring expense.
(7)
Liquidation of subsidiary:  The partial impact of non-restructuring related items due to the decision to liquidate a consolidated subsidiary that is not significant.
(8)
Equity in earnings of affiliated companies:  These adjustments relate to items which do not reflect expected on-going operating results of our affiliated companies, such as restructuring, impairment and other charges and settlements under “take-or-pay” contracts.  In 2013, we excluded the operating results of Dow Corning’s consolidated subsidiary Hemlock Semiconductor, a producer of polycrystalline silicon, to remove the impact of the severe unpredictability and instability in the polysilicon market.
(9)
Impacts from the acquisition of Samsung Corning Precision Materials:  Pre-acquisition gains and losses on previously held equity investment and other gains and losses related to the acquisition, including post-combination expenses, fair value adjustments to the indemnity asset related to contingent consideration and the impact of the withholding tax on a dividend from Samsung Corning Precision Materials.
(10)
Post-combination expenses:  Post-combination expenses incurred as a result of an acquisition in the first quarter of 2015.
(11)
Pension mark-to-market adjustment:  Mark-to-market pension gains and losses, which arise from changes in actuarial assumptions and the difference between actual and expected returns on plan assets and discount rates.
(12)
Gain on change in control of equity investment:  Gain as a result of certain changes to the shareholder agreement of an equity company, resulting in Corning having a controlling interest that requires consolidation of this investment.

© 2016 Corning Incorporated. All Rights Reserved.

 
-43-



REPORTABLE SEGMENTS

Our reportable segments are as follows:

·  
Display Technologies – manufactures glass substrates for flat panel liquid crystal displays.
·  
Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry.
·  
Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.
·  
Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.
·  
Life Sciences – manufactures glass and plastic labware, equipment, media and reagents to provide workflow solutions for scientific applications.

All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.”  This group is primarily comprised of the results of Corning’s Pharmaceutical Technologies business, which consists of a pharmaceutical glass business and a glass tubing business used in the pharmaceutical packaging industry.  This segment also includes Corning Precision Materials’ non-LCD business and new product lines and development projects such as laser technologies, advanced flow reactors and adjacency businesses in pursuit of thin, strong glass, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates.

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 our reportable segments differently than we would for stand-alone financial information prepared in accordance with U.S. GAAP.  The Display Technologies, Optical Communications, Environmental Technologies, Specialty Materials and Life Sciences segments include non-GAAP measures which are not prepared in accordance with GAAP.  We believe investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our core operating performance and with how management evaluates our operational results and trends.  These measures are not, and should not be viewed as a substitute for GAAP reporting measures.  For a reconciliation of non-GAAP performance measures to the most directly comparable GAAP financial measure, please see “Reconciliation of non-GAAP Measures” above.  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.

© 2016 Corning Incorporated. All Rights Reserved.

 
-44-



Display Technologies

The following table provides net sales and net income for the Display Technologies segment and reconciles the non-GAAP financial measures for the Display Technologies segment with our financial statements presented in accordance with GAAP (in millions):
 
Year ended
December 31, 2015
 
Year ended
December 31, 2014
 
Year ended
December 31, 2013
(in millions)
Sales
 
Net
income
 
Sales
 
Net
income
 
Sales
 
Net
income
As reported
$
3,086
 
$
1,095 
 
$
3,851
 
$
1,396 
 
$
2,545 
 
$
1,293 
Constant-yen (1)*
 
686
   
419 
   
240
   
142 
   
(38)
   
(47)
Constant-won (1)
 
2
   
(17)
         
27 
           
Foreign currency hedges related to translated earnings (2)
       
(416)
         
(290)
         
(90)
Other yen-related transactions (2)
                               
(67)
Acquisition-related costs (3)
                   
37 
         
Discrete tax items and other tax-related adjustments (4)
                   
         
10 
Restructuring, impairment and other charges (6)
                   
40 
         
Equity in earnings of affiliated companies (8)
                   
         
28 
Impacts from the acquisition of Samsung Corning Precision Materials (9)
       
(10)
   
1
   
(121)