avatar Corning Incorporated Manufacturing
  • Location: New York 
  • Founded:
  • Website:

Pages

  • Page 1

    2014 Annual Report


  • Page 2

    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.


  • Page 3

    Wendell P. Weeks Chairman of the Board, To Our Shareholders, Chief Executive Officer, Corning has certainly come a long way since January 2012 when we declared our and President mandate to “March Up” in response to a decline in net income that began the prior year. In 2014, we delivered our ninth consecutive quarter of core year-over-year earnings- per-share growth, along with the highest sales in Corning’s history. We successfully completed the acquisition of Samsung Corning Precision Materials (now Corning Precision Materials). We launched new products and advanced innovation programs across our businesses. And we returned cash to shareholders through dividend increases and share repurchases. Thanks to outstanding execution by our 35,000 employees across the globe, Corning has entered 2015 as a bigger, stronger, and more agile company. We are financially healthy, we have multiple businesses driving our growth, and we are capturing exciting new opportunities to apply our materials and process expertise to solve tough technology challenges. Corning’s 2014 performance proves once again that this company is built to survive difficult times and emerge as a better version of itself. Our results also demonstrate that you can count on us to do what we say we’re going to do. Strong Financial and Operational Performance In last year’s letter, I said that after effectively stabilizing the company, we would shift our focus to growth. We honored that commitment. In 2014, we delivered record core sales of more than $10 billion; we increased sales in all our businesses; we grew core earnings per share each quarter; and we generated strong free cash flow. Along the way, we maintained a strong balance sheet, which helps ensure we have the stability to weather difficult times when they come.


  • Page 4

    Bringing A Day Made of Glass to Life Corning’s products and markets have changed many times over the years, but our innovations share fundamental ingredients: a really tough problem; a combination of materials and process innovation; and a solution that makes a real difference in people’s lives. This formula has led to more than 160 years of life-changing innovations, and we continue to apply it today. Four years ago, we shared Corning’s vision for the future in our video, A Day Made of Glass. People were excited by the idea of living in the world we depicted — a world of ubiquitous displays, intuitive interfaces, seamless delivery of real-time information, and everyday surfaces with extraordinary capabilities. In four short years, we’ve made significant progress bringing this world to life. Of course, the numbers alone don’t give you the full volume, and outstanding operational performance picture. While Corning’s performance has historically contributed to higher profits. Meanwhile, the supply been driven by a primary business, we now have multiple chain maintained healthy inventory levels, and price business segments that are contributing materially to declines returned to moderate levels in the second the company’s growth. Display Technologies remains half of the year. a revenue, profit, and cash-generation powerhouse n In Optical Communications, strong demand for fiber for us, despite a maturing LCD market. At the same to the home, data centers, and wireless technologies time, aggregate sales in our four other major business drove double-digit sales growth. We also increased segments grew more than 10 percent from 2013, driven profitability through tight control of operational by exceptional results in Optical Communications and expenses. Environmental Technologies. n In Environmental Technologies, new emissions-control In addition, it is worth noting that we achieved Corning’s regulations in China and Europe created strong demand earnings growth not only by capturing market oppor- for our diesel products, propelling the business to more tunities, but also by reducing costs. Several businesses than $1 billion in sales. Profits were also up significantly significantly increased manufacturing efficiencies, while from last year, thanks to higher volume and greater our staff groups did a terrific job setting priorities and manufacturing efficiencies. controlling spending. Last year I observed that our employees are united in their determination to preserve n In Specialty Materials, sales and Gorilla® Glass volume this great institution. That dedication was certainly evident were up from 2013. However, results were lower than in 2014, as every part of the company contributed to expected due primarily to a weak tablet market. Corning’s improvement. n In Life Sciences, we continue to realize synergies from Here’s a closer look at how each of our major the integration of Discovery Labware (acquired in 2012), businesses performed: but lower spending levels by the National Institutes of n Sales in Display Technologies increased dramatically Health negatively impacted the segment’s growth. from 2013, driven by the consolidation of Corning Although we are navigating some market challenges, Precision Materials, strong TV retail sales, and the shift the diversity of Corning’s business portfolio remains a key to larger screen sizes. It was a record year for LCD glass advantage, evidenced by the company’s strong performance overall.


  • Page 5

    High-Performance Displays Always-On Information We depicted lifelike displays that dissolve the boundaries Our video portrayed an always-on world, with massive amounts between the physical and the virtual world. Since then, Corning of data that you can access anytime, anywhere. In 2014, Corning has developed new glass compositions, such as the Corning Lotus began rolling out an all-optical distributed antenna system called Glass family, to enable next-generation mobile and IT displays ONE™ Wireless. This technology enables clear signals and that provide unprecedented picture quality, sleek form factors, maximum bandwidth — even in really tough indoor environments and lower power consumption. like convention centers and sports stadiums where thousands of people are connecting at once. Value for Shareholders We also announced two acquisitions in December to increase Corning’s strength in Optical Communications. As our earnings improved, the stock market responded in The integration of Samsung Electronics’ optical fiber kind. Corning’s stock price was up 30 percent for the year, business will help us capture growth in Asia, while the our second consecutive year of outperforming the major addition of TR Manufacturing, Inc. increases our market market indices. access and enhances our ability to offer comprehensive In the fourth quarter, Corning announced a 20 percent optical solutions to our enterprise customers. increase in the company’s quarterly common stock dividend Of course, the primary way Corning grows is through and a new $1.5 billion share-repurchase program, honoring innovation. Here are a few success stories from 2014: our commitment to return cash to shareholders. These actions mark our fourth dividend increase and fourth n In November, we announced the highly anticipated share-repurchase program since October 2011. launch of Corning® Gorilla® Glass 4. This new composition is up to twice as tough as competitive cover glasses and New Growth Drivers specifically formulated to reduce screen breakage when As part of our commitment to growth, we are actively users drop their mobile devices. creating new revenue and profit drivers through a n We made good progress extending Gorilla Glass into combination of strategic acquisitions and new business adjacent markets. We secured new automotive and development. architectural customers, and earned BMW’s supplier The integration of Corning Precision Materials was one of innovation award for our lightweight automotive our stated priorities for the year, and I’m pleased to report Gorilla Glass. that this effort has been incredibly successful. We realized n In a colorful twist on our prior fiber inventions, we $100 million in pre-tax synergies in 2014 and expect to launched Corning® Fibrance™ light-diffusing fiber, achieve even greater synergies in the coming years. This which is designed to provide thin, multi-colored, transaction is also delivering many strategic benefits. We aesthetic lighting. Fibrance allows designers to increased the flexibility of our fusion assets and our ability enhance a product’s functionality and appeal to serve our global customers. We added 3,500 talented by adding light how and where they want it. employees. And we gained access to low-cost manufac- turing platforms that we can leverage to develop new fusion-glass products with smaller capital expenditures.


  • Page 6

    Ultra-Slim, Flexible Display Devices Dynamic Windows We imagined futuristic displays that combine the flexibility We envisioned electrochromic windows that transition of plastic with the superior transparency, stability, and optical automatically from transparent to opaque, to increase people’s quality of glass. In 2013, Corning rolled out ultra-slim Willow® comfort and reduce energy consumption. Today, Corning Glass, which is thinner than a dollar bill, and our scientists is working with a company called View to develop dynamic continue to increase its flexibility. This remarkable glass could architectural glass. We think dynamic windows could capture help bring exciting new technologies to life, including rollable a significant portion of the commercial window market displays and wearable technologies. opportunity — and may even be part of your home someday soon. n We rolled out Corning’s ONE™ Wireless technology, few years, we have generated approximately two-and-a-half which is delivering robust, reliable optical connections times the profit per dollar of revenue versus competitors in venues such as Texas A&M University’s Kyle Field. in our major market segments. When you consider the impact Corning’s inventions have had on the world and n We continued Corning’s track record of clean-air the competitive advantage we create through R&D, you innovations with the introduction of Corning FLORA™ can understand why our commitment to innovation technology. This revolutionary system addresses the is unwavering. critical problem of cold-start emissions, which occur in the first 30 seconds of starting an engine and are Looking Ahead responsible for 70 percent of a car’s total emissions. Corning’s 2015 focus is to sustain momentum in all major Our diverse innovation portfolio includes products at all businesses while leveraging our innovation engine to drive stages of development to drive both near-term and future both near-term and long-term growth. We expect to grow growth. And while our new business opportunities under- core sales and earnings, while increasing efficiencies across standably generate a lot of excitement, there is another the company. And, of course, we will always live our values important part of our research and development efforts to preserve the trust of all of our stakeholders. that stakeholders often overlook. More than half of Here are a few key focus areas: Corning’s R&D investment is devoted to innovating for existing businesses. Our ability to innovate throughout n We will realize even greater financial synergies from a product and industry’s life cycle is one of the primary Corning Precision Materials. reasons for Corning’s long-term competitive advantage in n We believe we can capture new opportunities in the markets where we compete. For example, Corning has Display Technologies. Sales of ultra-high-definition increased its leadership position in LCD glass, despite slower televisions are expected to double in 2015. Moreover, growth in the industry overall, through product innovations we’ve developed a new glass composition called Iris™ such as new compositions that enable thinner displays and that enables thinner form factors for advanced displays process improvements that increase yields. Our ongoing by replacing plastic and metal structural components. innovations allow us to capture a significant share of the market, achieve the lowest-cost manufacturing position, gain the trust and loyalty of our customers, and earn a higher share of the industry’s profits. In fact, over the past


  • Page 7

    Digital Fitting Rooms Our video portrayed sophisticated shopping experiences that These are just a few of the ways we are bringing our vision blended digital and physical environments. Today, we’re working to life. As more designers and technology developers discover with eBay Enterprise to take interactive shopping to the next the remarkable technical and aesthetic properties of glass, level by creating digital fitting rooms that allow customers we continue to expand our vision of what glass can do. In fact, to experiment virtually. we believe we’ve entered “the Glass Age.” The technology would create a more efficient experience for To learn more about how glass is inspiring a new generation consumers, while providing retailers the opportunity to target of artists, designers, and engineers, visit TheGlassAge.com. customers more precisely. n We expect to make significant progress on several Closing Thoughts initiatives in our new product portfolio. We have I’ll close by reminding you of the kind of company you are identified more than 200 different uses for Corning® investing in when you put your faith in Corning. Willow® Glass and are currently prototyping the most promising ones, which range from laminates for This is a company that is built to last. This is a company architectural applications to roll-to-roll components that continually produces innovations that enhance people’s for enhancing display devices. We are also pursuing lives and transform industries. This is a company that a very exciting opportunity in Life Sciences. Although rewards its shareholders with stability, a reliable dividend, it is too early to discuss publicly, we believe it has and the opportunity for explosive growth from successful the opportunity to be a significant new business new products. But most importantly, this is a company for Corning, while continuing our track record that makes a real difference in the world. of life-enhancing technologies. I said earlier that all of us at Corning are united in our n Finally, we will continue working with other innovators desire to preserve this great institution. That’s because to bring our vision for A Day Made of Glass to life. we take pride in being part of something that will outlast We’re proud of the progress we’ve made in a few short us — a company that invents and manufactures things years, and know that we have only scratched the that matter. surface. As Corning extends the capabilities of glass, We understand that, ultimately, your investment is based more and more customers from a broad range of on Corning’s performance, and we are committed to industries are turning to us to solve tough problems, earning your confidence with our continued growth. But and we are excited about the opportunity to apply we also hope you share our pride in being part of this very our skills to tackle new challenges. special company. Thank you for being on this journey with us. Sincerely, Wendell P. Weeks Chairman of the Board, Chief Executive Officer, and President


  • Page 8

    Financial Highlights: In millions, except per share amounts 2014 2013 2012 2011 2010 Net Sales $ 9,715 $ 7,819 $ 8,012 $ 7,890 $ 6,632 Net income attributable to Corning Incorporated 2,472 1,961 1,636 2,817 3,574 Diluted earnings per common share attributable to Corning Incorporated $ 1.73 $ 1.34 $ 1.09 $ 1.78 $ 2.26


  • Page 9

    Corning Incorporated 2014 Annual Report Index Business Description..................................................................................................................................................... 1 Risk Factors..................................................................................................................................................................... 7 Legal Proceedings.......................................................................................................................................................... 13 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ......................................................................................................................... 15 Selected Financial Data (Unaudited) ......................................................................................................................... 17 Management’s Discussion and Analysis of Financial Condition and Results of Operations............................. 18 Quantitative and Qualitative Disclosures About Market Risks ............................................................................. 52 Management’s Annual Report on Internal Control Over Financial Reporting .................................................... 53 Report of Independent Registered Public Accounting Firm ................................................................................... 54 Consolidated Statements of Income .......................................................................................................................... 55 Consolidated Statements of Comprehensive Income ............................................................................................. 56 Consolidated Balance Sheets ...................................................................................................................................... 57 Consolidated Statements of Cash Flows ................................................................................................................... 58 Consolidated Statements of Changes in Shareholders’ Equity .............................................................................. 59 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies ............................................................................................................................................... 60 2. Restructuring, Impairment and Other Charges ........................................................................................................................................... 65 3. Available-for-Sale Investments ...................................................................................................................................................................... 66 4. Significant Customers...................................................................................................................................................................................... 67 5. Inventories, Net of Inventory Reserves.......................................................................................................................................................... 67 6. Income Taxes ..................................................................................................................................................................................................... 67 7. Investments ....................................................................................................................................................................................................... 70 8. Acquisition ......................................................................................................................................................................................................... 74 9. Property, Plant and Equipment, Net of Accumulated Depreciation ......................................................................................................... 78 10. Goodwill and Other Intangible Assets .......................................................................................................................................................... 78 11. Other Assets and Other Liabilities ................................................................................................................................................................. 79 12. Debt .................................................................................................................................................................................................................... 80 13. Employee Retirement Plans ............................................................................................................................................................................ 81 14. Commitments, Contingencies, and Guarantees .......................................................................................................................................... 89 15. Hedging Activities ............................................................................................................................................................................................ 90 16. Fair Value Measurements ................................................................................................................................................................................ 92 17. Shareholders’ Equity ........................................................................................................................................................................................ 93 18. Earnings Per Common Share........................................................................................................................................................................... 96 19. Share-based Compensation ............................................................................................................................................................................ 97 20. Reportable Segments....................................................................................................................................................................................... 98 Valuation Accounts and Reserves ............................................................................................................................... 103 Quarterly Operating Results........................................................................................................................................ 104


  • Page 10

    This page intentionally left blank.


  • Page 11

    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. Business Description General Corning traces its origins to a glass business established in 1851. The high-performance displays. The Corning Lotus Glass platform offers an present corporation was incorporated in the State of New York in energy-efficient, immersive display device that features high resolution, December 1936. The Company’s name was changed from Corning Glass fast response times, and bright picture quality. In January 2015, Corning Works to Corning Incorporated on April 28, 1989. introduced Corning Iris™ Glass, a substrate that can significantly reduce the thickness of a liquid crystal display television set, making it as thin Corning Incorporated is a world leader in the manufacture of specialty as a smartphone, as well as providing outstanding transmission quality. glass and ceramics. Drawing on more than 160 years of materials science and process engineering knowledge, Corning creates and Through the end of 2013, the Display Technologies segment also included makes keystone components that enable high-technology systems for the equity affiliate Samsung Corning Precision Materials Co., Ltd. consumer electronics, mobile emissions control, optical communications (“Samsung Corning Precision Materials”), of which Corning owned 57.5% and life sciences. Corning operates in five reportable segments: Display and Samsung Display Co., Ltd. (“Samsung Display”) owned 42.5%. To Technologies, Optical Communications, Environmental Technologies, extend Corning’s leadership in specialty glass and drive earnings growth, Specialty Materials and Life Sciences. Corning manufactures and Corning entered into a series of strategic and financial agreements processes products at approximately 90 plants in 17 countries. with Samsung Display intended to strengthen product and technology collaborations between the two companies (“Acquisition”). Corning completed this transaction on January 15, 2014. Display Technologies Segment The following is a summary of the series of transactions, and the impacts Corning’s Display Technologies segment manufactures glass substrates to the Display Technologies segment: for active matrix liquid crystal displays (“LCDs”) that are used primarily • Corning obtained full ownership of Samsung Corning Precision in LCD televisions, notebook computers and flat panel desktop monitors. Materials. This organization, named Corning Precision Materials, was This segment develops, manufactures and supplies high quality integrated into Corning’s Display Technologies segment during 2014. glass substrates using technology expertise and a proprietary fusion manufacturing process, which Corning invented and is the cornerstone • Corning and Samsung Display extended their long-term LCD display of the Company’s technology leadership in the LCD industry. The glass supply agreement through 2023. automated process yields high quality glass substrates with excellent dimensional stability and uniformity – essential attributes for the • The two companies’ strengthened their technology collaborations on production of large, high performance active matrix LCDs. Corning’s strategic product development and commercialization initiatives. fusion process is scalable and is thought to be the most effective process In connection with these agreements, in the fourth quarter of 2013, in producing large size substrates. We are recognized for providing Corning acquired the minority interests of three shareholders in product innovations that help our customers produce larger, lighter, Samsung Corning Precision Materials for $506 million, which included thinner and higher-resolution displays more affordably. In 2006, Corning payment for the transfer of non-operating assets and the pro-rata launched EAGLE XG®, the industry’s first LCD glass substrate that is portion of cash on Samsung Corning Precision Materials’ balance sheet free of heavy metals. In 2010, leveraging the EAGLE XG® composition, at September 30, 2013. The resulting transfer of shares to Corning Corning introduced EAGLE XG® Slim glass, a line of slim glass substrates increased Corning’s ownership percentage of Samsung Corning which enables lighter-weight portable devices and thinner televisions Precision Materials from 50% to 57.5%. Because this transaction did not and monitors. In 2011, Corning launched Corning Lotus™ Glass, a result in a change in control based on the governing documents of this high-performance display glass developed to enable cutting-edge entity, Corning did not consolidate this entity as of December 31, 2013. technologies, including organic light-emitting diode (“OLED”) displays The remaining transactions were completed on January 15, 2014, which and next generation LCDs. Corning Lotus Glass helps support the increased Corning’s ownership to 100% and resulted in consolidation of demanding manufacturing processes of both OLED and liquid crystal the entity beginning in the first quarter of 2014. displays for high performance, portable devices such as smart phones, tablets, and notebook computers. In 2012, Corning introduced Corning® LCD glass manufacturing is a capital intensive business. Important Willow™ Glass, our ultra-slim flexible glass for use in next-generation attributes for success include efficient manufacturing, access to capital, consumer electronic technologies. Not only does this technology support technology know-how, and patents. As a result of the transactions with thinner backplanes for both OLED and LCD displays, it also allows for Samsung Display, Corning expects to realize increased flexibility in curved displays for immersive viewing or mounting on non-flat surfaces. glass-melting capabilities, which will allow the company to re-evaluate In 2013, Corning announced the commercial launch of Corning Lotus™ the need for major capital expenditures for additional fusion glass XT Glass, a second-generation glass substrate specially formulated for manufacturing assets. CORNING INCORPORATED - 2014 Annual Report 1


  • Page 12

    Business Description Corning has LCD glass manufacturing operations in the United States, provides pre-connectorized distribution and drop cable assemblies for South Korea, Japan, Taiwan and China. Following the Acquisition, Corning cost-effectively deploying Fiber-to-the-Home (“FTTH”) networks; and the services all specialty glass customers in all regions directly, utilizing its Centrix™ platform, which provides a high-density fiber management manufacturing facilities throughout Asia. system with industry-leading density and innovative jumper routing that can be deployed in a wide variety of carrier switching centers. Patent protection and proprietary trade secrets are important to the Display Technologies segment’s operations. Corning has a growing To keep pace with surging demand for mobile bandwidth, Corning has a portfolio of patents relating to its products, technologies and full complement of operator-grade distributed antenna systems (“DAS”), manufacturing processes. Corning licenses certain of its patents to third including the recently developed Optical Network Evolution (“ONE”) parties and generates royalty income from these licenses. Refer to the wireless platform. ONE is the first all-optical converged cellular and material under the heading “Patents and Trademarks” for information Wi-Fi® solution built on an all-optical backbone with modular service relating to patents and trademarks. support. The ONE™ Wireless Platform provides virtually unlimited bandwidth, and meets all of the wireless service needs of large-scale The Display Technologies segment represented 40% of Corning’s sales enterprises at a lower cost than the typical DAS solution. in 2014. In addition to our optical-based portfolio, Corning’s carrier network portfolio also contains select copper-based products including subscriber Optical Communications Segment demarcation, connection and protection devices, xDSL (different variations of digital subscriber lines) passive solutions and outside plant Corning invented the world’s first low-loss optical fiber in 1970. Since enclosures. In addition, Corning offers coaxial RF interconnects for the that milestone, we have continued to pioneer optical fiber, cable and cable television industry as well as for microwave applications for GPS, connectivity solutions. As global bandwidth demand driven by video radars, satellites, manned and unmanned military vehicles, and wireless usage grows exponentially, networks continue to migrate from copper and telecommunications systems. to optical-based systems that can deliver the required cost-effective bandwidth-carrying capacity. Our unrivaled experience puts us in a Our enterprise network product portfolio also includes optical fiber unique position to design and deliver optical solutions that reach every products, including ClearCurve® ultra-bendable multimode fiber for edge of the communications network. data centers and other enterprise network applications; InfiniCor® fibers for local area networks; and more recently ClearCurve® VSDN® Our Optical Communications segment has recently evolved from ultra-bendable optical fiber designed to support emerging high-speed being a manufacturer of optical fiber and cable, hardware and interconnects between computers and other consumer electronics equipment to being a comprehensive provider of industry-leading devices. The remainder of Corning’s fiber production is cabled internally optical solutions across the broader communications industry. This and sold to end users as either bulk cable or as part of an integrated segment is classified into two main product groupings – carrier network optical solution. Corning’s cable products include a broad range of tight- and enterprise network. The carrier network product group consists buffered, loose tube and ribbon cable designs with flame-retardant primarily of products and solutions for optical-based communications versions available for indoor and indoor/outdoor applications that meet infrastructure for services such as video, data and voice communications. local building code requirements. The enterprise network product group consists primarily of optical- based communication networks sold to businesses, governments and Corning’s hardware and equipment products for enterprise network individuals for their own use. applications include cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and other Our carrier network product portfolio begins with optical fiber products, accessories. These products may be sold as individual components including Vascade® submarine optical fibers for use in submarine or as part of integrated optical connectivity solutions designed for networks; LEAF® optical fiber for long-haul, regional and metropolitan various network applications. Examples of enterprise network solutions networks; SMF-28® ULL fiber for more scalable long-haul and regional include the Pretium EDGE® platform, which provides high-density networks; SMF-28e+™ single-mode optical fiber that provides additional pre-connectorized solutions for data center applications, and continues transmission wavelengths in metropolitan and access networks; to evolve with recent updates for upgrading to 40/100G applications ClearCurve® ultra-bendable single-mode fiber for use in multiple- and port tap modules for network monitoring; the previously mentioned dwelling units and fiber-to-the-home applications; and Corning® ONE Wireless platform, which spans both carrier and enterprise network SMF-28® Ultra Fiber, designed for high performance across the range of applications; and our recently introduced optical connectivity solutions long-haul, metro, access, and fiber-to-the-home network applications, to support customer initiatives. combining the benefits of industry-leading attenuation and improved macrobend performance in one fiber. Our optical fiber is sold directly to In 2014, we introduced Corning® Fibrance™ Light-Diffusing Fiber, a glass end users or third-party cablers around the world. Corning’s remaining optical fiber optimized for thin, colorful, aesthetic lighting. Fibrance Light- fiber production is cabled internally and sold to end users as either bulk Diffusing Fiber enables decorative lighting to be designed or embedded cable or as part of an integrated optical solution. Corning’s cable products into tight or small places where other bulky lighting elements cannot fit, support various outdoor, indoor/outdoor and indoor applications and thereby enhancing a product’s overall aesthetics and user experience, include a broad range of loose tube, ribbon and drop cable designs with and opening up new design possibilities for a variety of markets such as flame-retardant versions available for indoor and indoor/outdoor use. automotive, architecture, consumer electronics or appliances. In addition to optical fiber and cable, our carrier network product Corning operates manufacturing facilities worldwide. Our optical portfolio also includes hardware and equipment products, including fiber manufacturing facilities are located in North Carolina, China and cable assemblies, fiber optic hardware, fiber optic connectors, optical India. Cabling operations include facilities in North Carolina, Germany, components and couplers, closures, network interface devices, Poland, China and smaller regional locations and equity affiliates. Our and other accessories. These products may be sold as individual manufacturing operations for hardware and equipment products components or as part of integrated optical connectivity solutions are located in North Carolina, Texas, Arizona, Mexico, Brazil, Denmark, designed for various carrier network applications. Examples of these Germany, Poland, Israel, Australia and China. solutions include our FlexNAP™ terminal distribution system, which 2 CORNING INCORPORATED - 2014 Annual Report


  • Page 13

    Business Description Patent protection is important to the segment’s operations. The Corning® Gorilla® Glass 4, which delivers the highest damage resistance segment has an extensive portfolio of patents relating to its products, performance versus all alternative compositions, and has the capability technologies and manufacturing processes. The segment licenses certain to significantly improve device drop performance. of its patents to third parties and generates revenue from these licenses, although the royalty income is not currently material to this segment’s Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan operating results. Corning is licensed to use certain patents owned by and Taiwan. others, which are considered important to the segment’s operations. Semiconductor optics manufactured by Corning includes high- Refer to the material under the heading “Patents and Trademarks” for performance optical material products, optical-based metrology information relating to the Company’s patents and trademarks. instruments, and optical assemblies for applications in the global The Optical Communications segment represented 27% of Corning’s semiconductor industry. Corning’s semiconductor optics products are sales for 2014. manufactured in New York. Other specialty glass products include glass lens and window components and assemblies and are made in New York, New Hampshire, Environmental Technologies Segment Kentucky and France or sourced from China. Corning’s Environmental Technologies segment manufactures ceramic Patent protection is important to the segment’s operations. The segment substrates and filter products for emissions control in mobile and has a growing portfolio of patents relating to its products, technologies stationary applications around the world. In the early 1970s, Corning and manufacturing processes. Brand recognition and loyalty, through developed an economical, high-performance cellular ceramic substrate well-known trademarks, are important to the segment. Refer to the that is now the standard for catalytic converters in vehicles worldwide. material under the heading “Patents and Trademarks” for information As global emissions control regulations tighten, Corning has continued relating to the Company’s patents and trademarks. to develop more effective and durable ceramic substrate and filter products for gasoline and diesel applications. Corning manufactures The Specialty Materials segment represented approximately 12% of substrate and filter products in New York, Virginia, China, Germany and Corning’s sales for 2014. 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. Life Sciences Segment Although most sales are made to the emission control systems As a leading developer, manufacturer and global supplier of scientific manufacturers, the use of Corning substrates and filters is generally laboratory products for 100 years, Corning’s Life Sciences segment required by the specifications of the automotive and diesel vehicle or collaborates with researchers seeking new approaches to increase engine manufacturers. efficiencies, reduce costs and compress timelines in the drug discovery Patent protection is important to the segment’s operations. The process. Using unique expertise in the fields of materials science, segment has an extensive portfolio of patents relating to its products, surface science, optics, biochemistry and biology, the segment technologies and manufacturing processes. Corning is licensed to use provides innovative solutions that improve productivity and enable certain patents owned by others, which are also considered important breakthrough discoveries. to the segment’s operations. Refer to the material under the heading Life Sciences laboratory products include general labware and “Patents and Trademarks” for information relating to the Company’s equipment, as well as specialty surfaces, media and reagents that are patents and trademarks. used for cell culture research, bioprocessing, genomics, drug discovery, The Environmental Technologies segment represented 11% of Corning’s microbiology and chemistry. Corning sells life science products under sales for 2014. these primary brands: Corning, Falcon, PYREX, Axygen, and Gosselin. The products are marketed worldwide, primarily through distributors to pharmaceutical and biotechnology companies, academic institutions, Specialty Materials Segment hospitals, government entities, and other research facilities. Corning manufactures these products in the United States in Maine, New York, The Specialty Materials segment manufactures products that New Jersey, California, Utah, Virginia, Massachusetts and North Carolina, provide more than 150 material formulations for glass, glass ceramics and outside of the U.S. in Mexico, France, Poland, and China. and fluoride crystals to meet demand for unique customer needs. Consequently, this segment operates in a wide variety of commercial In addition to being a global leader in consumable glass and plastic and industrial markets that include display optics and components, laboratory tools for life science research, Corning continues to develop semiconductor optics components, aerospace and defense, astronomy, and produce unique technologies aimed at simplifying customer lab ophthalmic products, telecommunications components and cover glass processes, or “workflows”, through three key categories: that is optimized for portable display devices. • Vessels – Corning® HYPER platform of vessels for increased cell Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass yields; Corning® Microcarriers for cell scale-up, therapy and designed specifically to function as a cover glass for display devices such vaccine applications; as tablets, notebook PCs and mobile phones. Elegant and lightweight, • Surfaces – Corning® CellBIND® Surface; Corning®Matrigel®; Corning Gorilla Glass is durable enough to resist many real-world events Corning®BioCoat™; Corning Synthemax® II Surface; that commonly cause glass failure, enabling exciting new applications in technology and design. Early in 2012, Corning launched Corning® • Media – Corning® stemgro® Gorilla® Glass 2, the next generation in our Corning Gorilla Glass suite of Patent protection is important to the segment’s operations. The segment products. Corning Gorilla Glass 2 enables up to a 20% reduction in glass has a growing portfolio of patents relating to its products, technologies thickness, while maintaining the industry-leading damage resistance, and manufacturing processes. Brand recognition and loyalty, through toughness and scratch-resistance. In 2013, we introduced Corning® well-known trademarks, are important to the segment. Refer to the Gorilla® Glass 3 with Native Damage Resistance and Corning® Gorilla® material under the heading “Patents and Trademarks” for information Glass NBT™, designed to help protect touch notebook displays from relating to the Company’s patents and trademarks. scratches and other forms of damage that come from everyday handling and use. And in the fourth quarter of 2014, Corning announced its latest The Life Sciences segment represented approximately 9% of Corning’s breakthrough innovation in consumer electronics material design, sales for 2014. CORNING INCORPORATED - 2014 Annual Report 3


  • Page 14

    Business Description All Other All other segments that do not meet the quantitative threshold for The All Other segment represented less than 1% of Corning’s sales separate reporting have been grouped as “All Other.” This group is for 2014. primarily comprised of the results of Corning Precision Materials’ non- LCD business and new product lines and development projects such Additional explanation regarding Corning and its five reportable as advanced flow reactors and adjacency businesses in pursuit of thin, segments is presented in Management’s Discussion and Analysis of strong glass. This segment also includes certain corporate investments Financial Condition and Results of Operations and Note 20 (Reportable such as Eurokera and Keraglass equity affiliates, which manufacture Segments) to the Consolidated Financial Statements. smooth cooktop glass/ceramic products. Corporate Investments Corning and The Dow Chemical Company (“Dow Chemical”) each own Corning and PPG Industries, Inc. each own half of Pittsburgh Corning half of Dow Corning Corporation (“Dow Corning”), an equity company Corporation (“PCC”), an equity company in Pennsylvania that headquartered in Michigan that manufactures silicone products manufactures glass products for architectural and industrial uses. PCC worldwide. Dow Corning is a leader in silicon-based technology and filed for Chapter 11 bankruptcy reorganization in April 2000. Corning innovation, offering more than 7,000 products and services. Dow Corning also owns half of Pittsburgh Corning Europe N.V. (“PCE”), a Belgian is the majority-owner of Hemlock Semiconductor Group (“Hemlock”), a corporation that manufactures glass products for industrial uses market leader in the production of high purity polycrystalline silicon for primarily in Europe. Additional discussion about PCC and PCE appears in the semiconductor and solar energy industries. Dow Corning’s sales were the Legal Proceedings section. $6,221 million in 2014. Additional discussion about Dow Corning appears in the Legal Proceedings section. Dow Corning’s financial statements are Additional information about corporate investments is presented in attached in Item 15, Exhibits and Financial Statement Schedules. 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 sustain 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. Display Technologies Segment Environmental Technologies Segment We believe Corning is the largest worldwide producer of glass substrates For worldwide automotive ceramic substrate products, Corning has for active matrix LCD displays. The environment for LCD glass substrate a major market position that has remained relatively stable over the products is very competitive and Corning believes it has sustained past year. Corning has also established a strong presence in the heavy its competitive advantages by investing in new products, providing duty and light duty diesel vehicle market and believes its competitive a consistent and reliable supply, and using its proprietary fusion advantage in automotive ceramic substrate products for catalytic manufacturing process. This process allows us to deliver glass that is converters and diesel filter products for exhaust systems is based upon larger, thinner and lighter, with exceptional surface quality and without global presence, customer service, engineering design services and heavy metals. Asahi Glass Co. Ltd. and Nippon Electric Glass Co. Ltd. are product innovation. Corning’s Environmental Technologies products Corning’s principal competitors in display glass substrates. face principal competition from NGK Insulators, Ltd. and Ibiden Co. Ltd. Optical Communications Segment Specialty Materials Segment Competition within the communications equipment industry is intense Corning is one of very few manufacturers with deep capabilities in among several significant companies. Corning is a leading competitor in materials science, optical design, shaping, coating, finishing, metrology, the segment’s principal product groups, which include carrier network and system assembly. Additionally, we are addressing emerging needs of and enterprise network. The competitive landscape includes industry the consumer electronics industry with the development of chemically consolidation, price pressure and competition for the innovation strengthened glass. Corning Gorilla Glass is a thin-sheet glass that is of new products. These competitive conditions are likely to persist. better able to survive events that most commonly cause glass failure. Its Corning believes its large scale manufacturing experience, fiber process, advanced composition allows a deeper layer of chemical strengthening technology leadership and intellectual property yield cost advantages than is possible with most other chemically strengthened glasses, making relative to several of its competitors. it both durable and damage resistant. Our products and capabilities in this segment position the Company to meet the needs of a broad The primary competing producers of the Optical Communications array of markets including display, semiconductor, aerospace/defense, segment are TE Connectivity Ltd. and Prysmian Group. 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. 4 CORNING INCORPORATED - 2014 Annual Report


  • Page 15

    Business Description Life Sciences Segment Corning seeks to maintain a competitive advantage by emphasizing competitors include Thermo Fisher Scientific, Inc. and Perkin Elmer. product quality, product availability, supply chain efficiency, a wide Corning also faces increasing competition from large distributors that product line and superior product attributes. Our principle worldwide have pursued backward integration or introduced private label products. Raw Materials Corning’s production of specialty glasses, ceramics, and related materials capacity limitations in their own operations, or may eliminate certain requires significant quantities of energy, uninterrupted power sources, product lines. Corning believes it has adequate programs to ensure certain precious metals, and various batch materials. a reliable supply of batch materials and precious metals. For many products, Corning has alternate glass compositions that would allow Although energy shortages have not been a problem recently, the cost operations to continue without interruption in the event of specific of energy remains volatile. Corning has achieved flexibility through materials shortages. engineering changes to take advantage of low-cost energy sources in most significant processes. Specifically, many of Corning’s principal Certain key materials and proprietary equipment used in the manufacturing processes can be operated with natural gas, propane, oil manufacturing of products are currently sole-sourced or available only or electricity, or a combination of these energy sources. from a limited number of suppliers. Any future difficulty in obtaining sufficient and timely delivery of components could result in lost sales Availability of resources (ores, minerals, polymers, helium and due to delays or reductions in product shipments, or reductions in processed chemicals) required in manufacturing operations, appears Corning’s gross margins. to be adequate. Corning’s suppliers, from time to time, may experience Patents and Trademarks Inventions by members of Corning’s research and engineering staff (ii) patents relating to optical fiber ribbons and methods for making have been, and continue to be, important to the Company’s growth. such ribbon, fiber optic cable designs and methods for installing optical Patents have been granted on many of these inventions in the United fiber cable; (iii) patents relating to optical fiber connectors, termination States and other countries. Some of these patents have been licensed to and storage and associated methods of manufacture; and (iv) patents other manufacturers, including companies in which Corning has equity related to distributed communication systems. There is no group of investments. Many of our earlier patents have now expired, but Corning important Optical Communications segment patents set to expire continues to seek and obtain patents protecting its innovations. In 2014, between 2015 and 2017. Corning was granted about 400 patents in the U.S. and over 750 patents in countries outside the U.S. The Environmental Technologies segment has over 600 patents in various countries, of which over 250 are U.S. patents. No one patent is Each business segment possesses a patent portfolio that provides considered material to this business segment. Some of the important certain competitive advantages in protecting Corning’s innovations. U.S.-issued patents in this segment include patents relating to cellular Corning has historically enforced, and will continue to enforce, its ceramic honeycomb products, together with ceramic batch and binder intellectual property rights. At the end of 2014, Corning and its wholly- system compositions, honeycomb extrusion and firing processes, owned subsidiaries owned over 8,000 unexpired patents in various and honeycomb extrusion dies and equipment for the high-volume, countries of which over 3,300 were U.S. patents. Between 2015 and low-cost manufacture of such products. There is no group of important 2016, approximately 7% of these patents will expire, while at the same Environmental Technologies segment patents set to expire between time Corning intends to seek patents protecting its newer innovations. 2015 and 2017. Worldwide, Corning has about 7,000 patent applications in process, with about 2,200 in process in the U.S. Corning believes that its patent The Specialty Materials segment has over 700 patents in various portfolio will continue to provide a competitive advantage in protecting countries, of which over 350 are U.S. patents. No one patent is considered Corning’s innovation, although Corning’s competitors in each of its material to this business segment. Some of the important U.S.-issued businesses are actively seeking patent protection as well. patents in this segment include patents relating to protective cover glass, ophthalmic glasses and polarizing dyes, and semiconductor/ The Display Technologies segment has over 1,200 patents in various microlithography optics and blanks, metrology instrumentation and countries, of which about 300 are U.S. patents. No one patent is laser/precision optics, glass polarizers, specialty fiber, and refractories. considered material to this business segment. Some of the important There is no group of important Specialty Materials segment patents set U.S.-issued patents in this segment include patents relating to glass to expire between 2015 and 2017. compositions and methods for the use and manufacture of glass substrates for display applications. There is no group of important The Life Sciences segment has over 650 patents in various countries, of Display Technologies segment patents set to expire between 2015 which about 250 are U.S. patents. No one patent is considered material and 2017. to this business segment. Some of the important U.S.-issued patents in this segment include patents relating to methods and apparatus for The Optical Communications segment has over 3,100 patents in the manufacture and use of scientific laboratory equipment including various countries, of which over 1,200 are U.S. patents. No one patent is multiwell plates and cell culture products, as well as equipment and considered material to this business segment. Some of the important processes for label independent drug discovery. There is no group of U.S.-issued patents in this segment include: (i) patents relating to optical important Life Sciences segment patents set to expire between 2015 fiber products including low loss optical fiber, high data rate optical fiber, and 2017. and dispersion compensating fiber, and processes and equipment for manufacturing optical fiber, including methods for making optical fiber Products reported in All Other include development projects, new preforms and methods for drawing, cooling and winding optical fiber; product lines, and other businesses or investments that do not meet the threshold for separate reporting. CORNING INCORPORATED - 2014 Annual Report 5


  • Page 16

    Business Description Many of the Company’s patents are used in operations or are licensed for Corning’s principal trademarks include the following: Axygen, Corning, use by others, and Corning is licensed to use patents owned by others. Celcor, ClearCurve, DuraTrap, Eagle XG, Epic, Evolant, Gosselin, Gorilla, Corning has entered into cross-licensing arrangements with some major HPFS, Lanscape, Pretium, Pyrex, Steuben, Falcon, SMF-28e, and Willow. competitors, but the scope of such licenses has been limited to specific product areas or technologies. Protection of the Environment Corning has a program to ensure that its facilities are in compliance with Corning’s 2014 consolidated operating results were charged with state, federal and foreign pollution-control regulations. This program approximately $49 million for depreciation, maintenance, waste has resulted in capital and operating expenditures each year. In order disposal and other operating expenses associated with pollution to maintain compliance with such regulations, capital expenditures control. Corning believes that its compliance program will not place it at for pollution control in continuing operations were approximately a competitive disadvantage. $10 million in 2014 and are estimated to be $13 million in 2015. Employees At December 31, 2014, Corning had approximately 34,600 full-time employees, including approximately 11,500 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 24.1% of Corning’s U.S. employees. Executive Officers James P. Clappin President, Corning Glass Technologies Kirk P. Gregg Executive Vice President and Chief Administrative Officer Mr. Clappin joined Corning in 1980 as a process engineer. He transitioned Mr. Gregg joined Corning in 1993 as director of Executive Compensation. to GTE Corporation in 1983 when the Central Falls facility was sold and He was named vice president of Executive Resources and Employee returned to Corning in 1988. He began working in the display business Benefits in 1994, senior vice president, Administration in December in 1994. Mr. Clappin relocated to Japan in 1996, as plant manager at 1997 and to his current position in 2002. He is responsible for Human Corning Display Technologies (CDT) Shizuoka facility. In 2002, he was Resources, Information Technology, Procurement and Transportation, appointed as general manager of CDT worldwide business. He served Aviation, Community Affairs, Government Affairs, Business Services and as president of CDT from September 2005 through July 2010. He was Corporate Security. Prior to joining Corning, Mr. Gregg was with General appointed president, Corning Glass Technologies, in 2010. Age 57. Dynamics Corporation as corporate director, Key Management Programs, and was responsible for executive compensation and benefits, executive Jeffrey W. Evenson Senior Vice President and Operations Chief of Staff development and recruiting. Age 55. Dr. Evenson joined Corning in June 2011 and was elected to his current Clark S. Kinlin Executive Vice President, Corning Optical Communications position at that time. He serves on the Management Committee and oversees a variety of strategic programs and growth initiatives. Prior to Mr. Kinlin joined Corning in 1981 in the Specialty Materials division. joining Corning, Dr. Evenson was a senior vice president with Sanford From 1985 to 1995 he worked in the Optical Fiber division. In 1995, he C. Bernstein, where he served as a senior analyst since 2004. Before joined Corning Consumer Products (CCP). In 2000, Mr. Kinlin was named that, Dr. Evenson was a partner at McKinsey & Company, where he led president, Corning International Corporation and, in 2003, he was technology and market assessment for early-stage technologies. Age 49. appointed as general manager for Greater China. From April 2007 to March 2008, he was chief operating officer, Corning Cable Systems (now James B. Flaws Vice Chairman and Chief Financial Officer Corning Optical Communications) and was named president and chief Mr. Flaws joined Corning in 1973 and served in a variety of controller executive officer in 2008. He was appointed executive vice president in and business management positions. Mr. Flaws was elected assistant 2012. Age 55. treasurer of Corning in 1993, vice president and controller in 1997, vice Lawrence D. McRae Executive Vice President, Strategy and president of finance and treasurer in May 1997, senior vice president Corporate Development and chief financial officer in December 1997, executive vice president and chief financial officer in 1999 and to his current position in 2002. Mr. McRae joined Corning in 1985 and served in various financial, sales Mr. Flaws is a director of Dow Corning Corporation. Mr. Flaws has been a and marketing positions. He was elected vice president Corporate member of Corning’s Board of Directors since 2000. Age 66. Development in 2000, senior vice president Corporate Development in 2003, and senior vice president Strategy and Corporate Development in October 2005. He was elected to his present position in October 2010. Mr. McRae is on the board of directors of Dow Corning Corporation. Age 56. 6 CORNING INCORPORATED - 2014 Annual Report


  • Page 17

    Risk Factors David L. Morse Executive Vice President and Chief Technology Officer Lewis A. Steverson Senior Vice President and General Counsel Dr. Morse joined Corning in 1976 in glass research and worked as Mr. Steverson joined Corning in June 2013 as Senior Vice President and a composition scientist in developing and patenting several major General Counsel. Prior to joining Corning, Mr. Steverson served as senior products. He served in a variety of product and materials research and vice president, general counsel, and secretary of Motorola Solutions, Inc. technology director roles and was appointed division vice president During his 18 years with Motorola, he held a variety of legal leadership and technology director for photonic technology groups beginning roles across the company’s numerous business units. Prior to Motorola, in March 1999. He became director of corporate research, science and Mr. Steverson was in private practice at the law firm of Arnold & Porter. technology in December 2001. He was elected vice president in January Age 51. 2003, becoming senior vice president and director of corporate research in 2006. Dr. Morse was elected to his current position in May 2012. He is R. Tony Tripeny Senior Vice President, Corporate Controller and Principal on the board of Dow Corning Corporation and a member of the National Accounting Officer Academy of Engineering and the National Chemistry Board. Age 62. Mr. Tripeny joined Corning in 1985 as the corporate accounting Eric S. Musser Executive Vice President, Corning Technologies manager of Corning Cable Systems, and became the Keller, Texas and International facility’s plant controller in 1989. In 1993, he was appointed equipment division controller of Corning Cable Systems and, in 1996 corporate Mr. Musser joined Corning in 1986 and served in a variety of controller. Mr. Tripeny was appointed chief financial officer of Corning manufacturing positions at fiber plants in Wilmington, N.C. and Cable Systems in July 2000. In 2003, he took on the additional role of Melbourne, Australia, before becoming manufacturing strategist for Telecommunications group controller. He was appointed division vice the Optical Fiber business in 1996. Mr. Musser joined Corning Lasertron president, operations controller in August 2004, and vice president, in 2000 and became president later that year. He was named director, corporate controller in October 2005. Mr. Tripeny was elected to his manufacturing operations for Photonic Technologies in 2002. In 2003, current position in April 2009. He is on the board of directors of Hardinge he returned to Optical Fiber as division vice president, development and Inc. Age 55. engineering and was named vice president and general manager in 2005. In 2007, he was appointed general manager of Corning Greater Wendell P. Weeks Chairman, Chief Executive Officer and President China and was named president of Corning International in 2012. Mr. Weeks joined Corning in 1983. He was named vice president Mr. Musser was appointed executive vice president in 2014. Age 55. and general manager of the Optical Fiber business in 1996, senior Christine M. Pambianchi Senior Vice President, Human Resources vice president in 1997, senior vice president of Opto-Electronics in 1998, executive vice president in 1999, and president, Corning Optical Ms. Pambianchi joined Corning in 2000 as division human resource Communications in 2001. Mr. Weeks was named president and chief manager, Corning Optical Fiber, and later was named director, Human operating officer of Corning in 2002, president and chief executive Resources, Corning Optical Communications. She has led the Human officer in 2005 and chairman and chief executive officer on April 26, Resources function since January 2008 when she was named vice 2007. He added the title of president in December 2010. Mr. Weeks is a president, Human Resources. Ms. Pambianchi was appointed to senior director of Merck & Co. Inc. Mr. Weeks has been a member of Corning’s vice president, Human Resources, in 2010, and is responsible for leading Board of Directors since 2000. Age 55. Corning’s global human resource function. Age 46. Document Availability A copy of Corning’s 2014 Annual Report on Form 10-K filed with the soon as reasonably practicable after such material is electronically Securities and Exchange Commission is available upon written request filed or furnished to the SEC, and can be accessed electronically free to Corporate Secretary, Corning Incorporated, Corning, NY 14831. The of charge, through the Investor Relations page on Corning’s web site Annual Report on Form 10-K, quarterly reports on Form 10-Q, current at www.corning.com. The information contained on the Company’s reports on Form 8-K, and amendments pursuant to Section 13(a) or website is not included in, or incorporated by reference into, this Annual 15(d) of the Exchange Act of 1934 and other filings are available as Report on Form 10-K. Risk Factors We operate in rapidly changing economic and technological business, operations, financial position or future financial performance. environments that present numerous risks, many of which are driven by This information should be read in conjunction with MD&A and the factors that we cannot control or predict. Our operations and financial consolidated financial statements and related notes incorporated by results are subject to various risks and uncertainties, including those reference into this report. The following discussion of risks is not all described below, that could adversely affect our business, financial inclusive but is designed to highlight what we believe are important condition, results of operations, cash flows, and the trading price of factors to consider, as these factors could cause our future results our common stock or debt. The following discussion of “risk factors” to differ from those in the forward-looking statements and from identifies the most significant factors that may adversely affect our historical trends. CORNING INCORPORATED - 2014 Annual Report 7


  • Page 18

    Risk Factors As a global company, we face many risks which could adversely impact In addition, a relatively small number of customers accounted for a our ongoing operations and reported financial results high percentage of net sales in our reportable segments. For 2014, three customers of the Display Technologies segment accounted for 61% of We operate in over 100 countries and derive a substantial portion of our total segment net sales when combined. In the Optical Communications revenues from, and have significant operations, outside of the United segment, one customer accounted for 11% of segment net sales. In the States. Our international operations include manufacturing, assembly, Environmental Technologies segment, three customers accounted for sales, customer support, and shared administrative service centers. 88% of total segment sales in aggregate. In the Specialty Materials Compliance with laws and regulations increases our cost of doing segment, three customers accounted for 51% of segment sales in 2014. In business. These laws and regulations include U.S. laws and local laws the Life Sciences segment, two customers accounted for 45% of segment which include data privacy requirements, employment and labor laws, sales in 2014. As a result of mergers and consolidations between tax laws, anti-competition regulations, prohibitions on payments customers, Corning’s customer base could become more concentrated. to governmental officials, import and trade restrictions and export Our Optical Communications segment customers’ purchases of our requirements. Non-compliance or violations could result in fines, products are affected by their capital expansion plans, general market criminal sanctions against us, our officers or our employees, and and economic uncertainty and regulatory changes, including broadband prohibitions on the conduct of our business. Such violations could result policy. Sales in the Optical Communications segment are expected to be in prohibitions on our ability to offer our products and services in one impacted by the pace of fiber-to-the-premises deployments. Our sales or more countries and could also materially damage our reputation, will be dependent on planned targets for homes passed and connected. our brand, our international expansion efforts, our ability to attract and Changes in our customers’ deployment plans could adversely affect retain employees, our business and our operating results. Our success future sales. depends, in part, on our ability to anticipate and manage these risks. In the Environmental Technologies segment, sales of our ceramic We are also subject to a variety of other risks in managing a global substrate and filter products for automotive and diesel emissions tend organization, including those related to: to fluctuate with vehicle production. Changes in laws and regulations • General economic conditions in each country or region; for air quality and emission controls may also influence future sales. Sales in our Environmental Technologies segment are mainly to three • Many complex regulatory requirements affecting international trade catalyzers and emission system control manufacturers. Our customers and investment, including anti-dumping laws, export controls, the sell these systems to automobile and diesel engine original equipment Foreign Corrupt Practices Act and local laws prohibiting improper manufacturers. Sales in this segment may be affected by adverse payments. Our operations may be adversely affected by changes in the developments in the global vehicle or freight hauling industries or substance or enforcement of these regulatory requirements, and by by such factors as higher fuel prices that may affect vehicle sales or actual or alleged violations of them; downturns in freight traffic. • Fluctuations in currency exchange rates, convertibility of currencies and Certain sales in our Specialty Materials segment track worldwide restrictions involving the movement of funds between jurisdictions economic cycles and our customers’ responses to those cycles. In and countries; addition, any positive trends in prior years in the sales of strengthened • Sovereign and political risks that may adversely affect Corning’s glass may not continue. We may experience losses relating to our profitability and assets; inability to supply contracted quantities of this glass and processes planned to produce new versions of this glass may not be successful. • Geographical concentration of our factories and operations and regional shifts in our customer base; Sales in our Life Sciences segment are concentrated with two large distributors who are also competitors, and the balance is to a variety • Periodic health epidemic concerns; of pharmaceutical and biotechnology companies, hospitals, universities, and other research facilities. In 2014, our two largest distributors • Political unrest, confiscation or expropriation of our assets by foreign accounted for 45% of Life Sciences’ segment sales. Changes in our governments, terrorism and the potential for other hostilities; distribution arrangements in this segment may adversely affect this • Difficulty in protecting intellectual property, sensitive commercial and segment’s financial results. operations data, and information technology systems generally; Our operations and financial performance could be negatively • Differing legal systems, including protection and treatment of impacted, if the markets for our products do not develop and expand intellectual property and patents; as we anticipate • Complex or unclear tax regimes; The markets for our products are characterized by rapidly changing technologies, evolving industry or regulatory standards and new product • Complex tariffs, trade duties and other trade barriers including anti- introductions. Our success is dependent on the successful introduction dumping duties; of new products, or upgrades of current products, and our ability to • Difficulty in collecting obligations owed to us such as compete with new technologies. The following factors related to our accounts receivable; products and markets, if they do not continue as in the recent past, could have an adverse impact on our operations: • Natural disasters such as floods, earthquakes, tsunamis and windstorms; and • our ability to introduce advantaged products such as glass substrates for liquid crystal displays, optical fiber and cable and hardware and • Potential power loss or disruption affecting manufacturing. equipment, and environmental substrate and filter products at competitive prices; Our sales could be negatively impacted by the actions of one or more key customers, or the circumstances to which they are subject, leading • our ability to manufacture glass substrates and strengthened glass, to the substantial reduction in orders for our products to satisfy our customers’ technical requirements and our contractual obligations; and In 2014, Corning’s ten largest customers accounted for 48% of our sales. • our ability to develop new products in response to government regulations and laws. 8 CORNING INCORPORATED - 2014 Annual Report


  • Page 19

    Risk Factors We face pricing pressures in each of our businesses that could adversely The success of our business depends on our ability to develop and affect our financial performance produce advantaged products that meet our customers’ needs We face pricing pressure in each of our businesses as a result of intense Our business relies on continued global demand for our brands and competition, emerging technologies, or over-capacity. While we work products. To achieve business goals, we must develop and sell products consistently toward reducing our costs to offset pricing pressures, we that appeal to our customers, original equipment manufacturers and may not be able to achieve proportionate reductions in costs or sustain distributors. This is dependent on a number of factors, including our our current rate of cost reduction. We anticipate pricing pressures will ability to manage and maintain key customer relationships, our ability continue in the future in all our businesses. to produce products that meet the quality, performance and price expectations of our customers. The manufacturing of our products Any of these items could cause our sales, profitability and cash flows to involves complex and precise processes. In some cases, existing be significantly reduced. manufacturing may be insufficient to achieve the requirements of our We face risks due to foreign currency fluctuations customers. We will need to develop new manufacturing processes and techniques to maintain profitable operations. While we continue to Because we have significant customers and operations outside the fund projects to improve our manufacturing techniques and processes U.S., fluctuations in foreign currencies, especially the Japanese yen, and lower our costs, we may not achieve satisfactory manufacturing New Taiwan dollar, Korean won, and Euro, will significantly impact costs that will fully enable us to meet our profitability targets. our sales, profit and cash flows. Foreign exchange rates may make our products less competitive in countries where local currencies decline In addition, our continued success in selling products that appeal to our in value relative to the US dollar and Japanese yen. Sales in our Display customers is dependent on our ability to innovate, with respect to both Technologies segment, representing 40% of Corning’s sales in 2014, are products and operations, and on the availability and effectiveness of denominated in Japanese yen. Corning hedges significant translation, legal protection for our innovations. Failure to continue to deliver quality transaction and balance sheet currency exposures and uses a variety and competitive products to the marketplace, to adequately protect our of derivative instruments to reduce the impact of foreign currency intellectual property rights, to supply products that meet applicable fluctuations associated with certain monetary assets and liabilities as regulatory requirements or to predict market demands for, or gain well as operating results including our net profits. market acceptance of, our products, could have a negative impact on our business, results of operations and financial condition. A large portion of our sales, profit and cash flows are transacted in non-US dollar currencies and we expect that we will continue to realize Our future financial performance depends on our ability to purchase gains or losses with respect to these exposures, net of gains or losses a sufficient amount of materials, precious metals, parts, and from our hedging programs. For example, we will experience foreign manufacturing equipment to meet the demands of our customers currency gains and losses in certain instances if it is not possible or cost Our ability to meet customer demand depends, in part, on our ability to effective to hedge our foreign currency exposures or should we elect obtain timely and adequate delivery of materials, precious metals, parts not to hedge certain foreign currency exposures. Alternatively, we may and components from our suppliers. We may experience shortages that experience gains or losses if the underlying exposure which we have could adversely affect our operations. Although we work closely with our hedged change (increases or decreases) and we are unable to reverse, suppliers to avoid shortages, there can be no assurances that we will not unwind, or terminate the hedges concurrent with the change in the encounter problems in the future. Furthermore, certain manufacturing underlying notional exposure. The objective of our hedging activities is equipment, raw materials or components are available only from a to mitigate the risk associated with foreign currency exposures. We are single source or limited sources. We may not be able to find alternate also exposed to potential losses in the event of non-performance by our sources in a timely manner. A reduction, interruption or delay of supply, counterparties to these derivative contracts. However, we minimize this or a significant increase in the price for supplies, such as manufacturing risk by maintaining a diverse group of highly-rated major international equipment, precious metals, raw materials or energy, could have a financial institutions with which we have other financial relationships material adverse effect on our businesses. as our counterparties. We do not expect to record any losses as a result of such counterparty default. Neither we nor our counterparties are If our products, including materials purchased from our suppliers, required to post collateral for these financial instruments. Our ultimate experience performance issues, our business will suffer realized loss or gain with respect to currency fluctuations will generally depend on the size and type of cross-currency exposures that we enter Our business depends on the production of products of consistently into, the currency exchange rates associated with these exposures high quality. Our products, components and materials purchased from and changes in those rates, whether we have entered into foreign our suppliers, are typically tested for quality. These testing procedures currency forward contracts to offset these exposures and other factors. are limited to evaluating our products under likely and foreseeable All of these factors could materially impact our results of operations, failure scenarios. For various reasons, our products, including materials anticipated future results, financial position and cash flows, the timing purchased from our suppliers, may fail to perform as a customer of which is variable and generally outside of our control. expected. In some cases, product redesigns or additional expense may be required to address such issues. A significant or systemic quality issue If the financial condition of our customers declines, our credit risks could result in customer relations problems, lost sales, reduced volumes, could increase product recalls and financial damages and penalties. Although we have a rigorous process to administer credit and believe We have incurred, and may in the future incur, goodwill and other our bad debt reserve is adequate, we have experienced, and in the intangible asset impairment charges future may experience, losses as a result of our inability to collect our accounts receivable. If our customers or our indirect customers fail to At December 31, 2014, Corning had goodwill and other intangible assets meet their payment obligations for our products, we could experience of $1,647 million. While we believe the estimates and judgments about reduced cash flows and losses in excess of amounts reserved. Many future cash flows used in the goodwill impairment tests are reasonable, customers of our Display Technologies and Specialty Materials we cannot provide assurance that future impairment charges will segments are thinly capitalized and/or unprofitable. In our Optical not be required if the expected cash flow estimates as projected by Communications segment, certain large infrastructure projects are management do not occur, especially if an economic recession occurs subject to governmental funding, which, if terminated, could adversely and continues for a lengthy period or becomes severe, or if acquisitions impact the financial strength of our customers. These factors may result and investments made by the Company fail to achieve expected returns. in an inability to collect receivables or a possible loss in business. CORNING INCORPORATED - 2014 Annual Report 9


  • Page 20

    Risk Factors We operate in a highly competitive environment Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations We operate in a highly competitive environment, and our outlook depends on the company’s share of industry sales based on our ability Our effective tax rate could be adversely impacted by several to compete with others in the marketplace. The Company competes factors, including: on the basis of product attributes, customer service, quality and price. There can be no assurance that our products will be able to compete • changes in the relative amounts of income before taxes in the various successfully with other companies’ products. Our share of industry jurisdictions in which we operate that have differing statutory sales could be reduced due to aggressive pricing or product strategies tax rates; pursued by competitors, unanticipated product or manufacturing • changes in tax treaties and regulations or the interpretation of them; difficulties, product performance failures, our failure to price our products competitively, our failure to produce our products at a • changes to our assessments about the realizability of our deferred tax competitive cost or unexpected, emerging technologies or products. assets that are based on estimates of our future results, the prudence We expect that we will face continuous competition from existing and feasibility of possible tax planning strategies, and the economic competitors, low cost manufacturers and new entrants. We believe we environments in which we do business; must invest in research and development, engineering, manufacturing • the outcome of current and future tax audits, examinations, or and marketing capabilities, and continue to improve customer service in administrative appeals; order to remain competitive. We cannot provide assurance that we will be able to maintain or improve our competitive position. • changes in generally accepted accounting principles that affect the accounting for taxes; and We may need to change our pricing models to compete successfully • limitations or adverse findings regarding our ability to do business in We face intense competition in all of our businesses, particularly LCD some jurisdictions. glass, and general economic and business conditions can put pressure on us to change our prices. If our competitors offer significant discounts We may have additional tax liabilities on certain products or develop products that the marketplace considers We are subject to income taxes in the U.S. and many foreign jurisdictions more valuable, we may need to lower prices or offer other favorable and are commonly audited by various tax authorities. In the ordinary terms in order to retain our customers and market positions. Any such course of our business, there are many transactions and calculations changes may reduce our profitability and cash flow. Any broad-based where the ultimate tax determination is uncertain. Significant change to our prices and pricing policies could cause our revenues to judgment is required in determining our worldwide provision for decline or be delayed as we implement and our customers adjust to the income taxes. Although we believe our tax estimates are reasonable, new pricing policies. If we do not adapt our pricing models to reflect the final determination of tax audits and any related litigation could changes in customer use of our products or changes in customer be materially different from our historical income tax provisions and demand, our revenues could decrease. accruals. The results of an audit or litigation could have a material effect LCD glass generates a significant amount of the Company’s profits on our financial statements in the period or periods for which that and cash flow, and any events that adversely affect the market for determination is made. LCD glass substrates could have a material and negative impact on our A significant amount of our net profits and cash flows are generated financial results from outside the U.S., and certain repatriation of funds currently held Corning’s ability to generate profits and operating cash flow depends in foreign jurisdictions may result in higher effective tax rates for the largely upon the level of profitability of our LCD glass business. As a company. In addition, there have been proposals to change U.S. tax laws result, any event that adversely affects our Display business could have that could significantly impact how U.S. global corporations are taxed on a significant impact on our consolidated financial results. These events foreign earnings. Although we cannot predict whether or in what form could include loss of patent protection, increased costs associated with proposed legislation may pass, if enacted certain anti-deferral proposals manufacturing, and increased competition from the introduction of could have a material adverse impact on our tax expense and cash flow. new, and more desirable products. If any of these events had a material Our business depends on our ability to attract and retain adverse effect on the sales of our LCD glass, such an event could result in talented employees material charges and a significant reduction in profitability. The loss of the services of any member of our senior management Additionally, emerging material technologies could replace our glass team or key research and development or engineering personnel substrates for certain applications, including display glass, cover glass without adequate replacement, or the inability to attract new qualified and others, resulting in a decline in demand for our products. Existing or personnel, could have a material adverse effect on our operations and new production capacity for glass substrates may exceed the demand financial performance. for them. Technologies for displays, cover glass and other applications in competition with our glass may reduce or eliminate the need for We are subject to strict environmental regulations and regulatory our glass substrates. New process technologies developed by our changes that could result in fines or restrictions that interrupt competitors may also place us at a cost or quality disadvantage. Our our operations own process technologies may be acquired or used unlawfully by others, enabling them to compete with us. Our inability to manufacture glass Some of our manufacturing processes generate chemical waste, waste substrates to the specifications required by our customers may result water, other industrial waste or greenhouse gases, and we are subject to in loss of revenue, margins and profits or liabilities for failure to supply. numerous laws and regulations relating to the use, storage, discharge A scarcity of resources, limitations on technology, personnel or other and disposal of such substances. We have installed anti-pollution factors resulting in a failure to produce commercial quantities of glass equipment for the treatment of chemical waste and waste water at substrates could have adverse financial consequences to us. 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. 10 CORNING INCORPORATED - 2014 Annual Report


  • Page 21

    Risk Factors Any failure on our part to comply with any present or future in research and development and related product opportunities. environmental regulations could result in the assessment of damages or Accelerated product introductions and short product life cycles require imposition of fines against us, or the suspension/cessation of production high levels of expenditures for research and development that could or operations. In addition, environmental regulations could require us to adversely affect our operating results if not offset by increases in our acquire costly equipment, incur other significant compliance expenses gross margin. We believe that we must continue to dedicate a significant or limit or restrict production or operations and thus materially and amount of resources to our research and development efforts to negatively affect our financial condition and results of operations. maintain our competitive position. Changes in regulations and the regulatory environment in the U.S. and Business disruptions could affect our operating results other countries, such as those resulting from the regulation and impact of global warming and CO2 abatement, may affect our businesses A significant portion of our manufacturing, research and development and their results in adverse ways by, among other things, substantially activities and certain other critical business operations are concentrated increasing manufacturing costs, limiting availability of scarce resources, in a few geographic areas. A major earthquake, fire or other catastrophic especially energy, or requiring limitations on production and sale of our event that results in the destruction or disruption of any of our critical products or those of our customers. facilities could severely affect our ability to conduct normal business operations and, as a result, our future financial results could be materially We may experience difficulties in enforcing our intellectual property and adversely affected. rights and we may be subject to claims of infringement of the intellectual property rights of others Additionally, a significant amount of the specialized manufacturing capacity for our Display Technologies segment is concentrated in three We rely on patent and trade secret laws, copyright, trademark, overseas countries and it is reasonably possible that the operations of confidentiality procedures, controls and contractual commitments one or more such facilities could be disrupted. Due to the specialized to protect our intellectual property rights. Despite our efforts, these nature of the assets and the customers’ locations, it may not be possible protections may be limited and we may encounter difficulties in to find replacement capacity quickly or substitute production from protecting our intellectual property rights or obtaining rights to facilities in other countries. Accordingly, loss of these facilities could additional intellectual property necessary to permit us to continue or produce a near-term severe impact on our Display business and the expand our businesses. We cannot provide assurance that the patents Company as a whole. that we hold or may obtain will provide meaningful protection against our competitors. Changes in or enforcement of laws concerning We face risks through equity affiliates that we do not control intellectual property, worldwide, may affect our ability to prevent Corning’s net income includes equity earnings from affiliated companies. or address the misappropriation of, or the unauthorized use of, our For the year ended December 31, 2014, we recognized $266 million of intellectual property. Litigation may be necessary to enforce our equity earnings, of which approximately 95% came from Dow Corning intellectual property rights. Litigation is inherently uncertain and (which makes silicone and high purity polycrystalline products). outcomes are often unpredictable. If we cannot protect our intellectual property rights against unauthorized copying or use, or other Our equity investments may not continue to perform at the same levels misappropriation, we may not remain competitive. as in recent years. Dow Corning emerged from Chapter 11 bankruptcy in 2004 and has certain obligations under its Plan of Reorganization to The intellectual property rights of others could inhibit our ability to resolve and fund claims of its creditors and personal injury claimants. introduce new products. Other companies hold patents on technologies Dow Corning may incur further bankruptcy charges in the future, which used in our industries and are aggressively seeking to expand, enforce may adversely affect its operations or assets. Dow Corning also could and license their patent portfolios. We periodically receive notices from, be adversely impacted by diminished performance at their consolidated or have lawsuits filed against us by third parties claiming infringement, subsidiary, Hemlock Semiconductor Group. In addition, we rely on the misappropriation or other misuse of their intellectual property rights internal controls and financial reporting controls of these entities and/or breach of our agreements with them. These third parties often and their failure to maintain effectiveness or comply with applicable include entities that do not have the capabilities to design, manufacture, standards may adversely affect us. or distribute products or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property We may not have adequate insurance coverage for claims against us through asserting claims of infringement and misuse. Such claims We face the risk of loss resulting from product liability, asbestos, of infringement or misappropriation may result in loss of revenue, securities, fiduciary liability, intellectual property, antitrust, contractual, substantial costs, or lead to monetary damages or injunctive relief warranty, environmental, fraud and other lawsuits, whether or not such against us. claims are valid. In addition, our product liability, fiduciary, directors Current or future litigation or regulatory investigations may harm our and officers, property policies including business interruption, natural financial condition or results of operations catastrophe and comprehensive general liability insurance may not be adequate to cover such claims or may not be available to the extent we As described in Legal Proceedings in this Form 10-K, we are engaged in expect in the future. A successful claim that exceeds or is not covered by litigation and regulatory matters. Litigation and regulatory proceedings our policies could require us to make substantial unplanned payments. may be uncertain, and adverse rulings could occur, resulting in significant Some of the carriers in our historical primary and excess insurance liabilities, penalties or damages. Such current or future substantial legal programs are in liquidation and may not be able to respond if we should liabilities or regulatory actions could have a material adverse effect on have claims reaching their policies. The financial health of other insurers our business, financial condition, cash flows and reputation. may deteriorate. Several of our insurance carriers are litigating with us We may not capture significant revenues from our current research and the extent, if any, of their obligation to provide insurance coverage for development efforts for several years, if at all asbestos liabilities asserted against us. The results of that litigation may adversely affect our insurance coverage for those risks. In addition, we Developing our products through research and development is expensive may not be able to obtain adequate insurance coverage for certain types and the investment often involves a long return on investment cycle. of risk such as political risks, terrorism or war. We have made and expect to continue to make significant investments CORNING INCORPORATED - 2014 Annual Report 11


  • Page 22

    Risk Factors Our global operations are subject to extensive trade and anti-corruption Significant macroeconomic events, changes in regulations, or a crisis in laws and regulations the financial markets could limit our access to capital Due to the international scope of our operations, we are subject to a We utilize credit in both the capital markets and from banks to facilitate complex system of import- and export-related laws and regulations, company borrowings, hedging transactions, leases and other financial including U.S. regulations issued by Customs and Border Protection, the transactions. We maintain a $2 billion revolving credit agreement to Bureau of Industry and Security, the Office of Antiboycott Compliance, fund potential liquidity needs and to backstop certain transactions. An the Directorate of Defense Trade Controls and the Office of Foreign adverse macroeconomic event or changes in bank regulations could Assets Control, as well as the counterparts of these agencies in other limit our ability to gain access to credit or to renew the revolving credit countries. Any alleged or actual violations may subject us to government agreement upon expiration. Additionally, a financial markets crisis may scrutiny, investigation and civil and criminal penalties, and may limit our limit our ability to access liquidity. ability to import or export our products or to provide services outside Adverse economic conditions may adversely affect our cash investments the United States. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or We maintain an investment portfolio of various types of securities with the manner in which existing laws might be administered or interpreted. varying maturities and credit quality. These investments are subject to general credit, liquidity, market, and interest rate risks, which may In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti- be exacerbated by unusual events that have affected global financial corruption laws generally prohibit companies and their intermediaries markets. We also make significant investments in U.S. government from making improper payments or providing anything of value to securities, either directly, or through investment in money market improperly influence foreign government officials for the purpose funds. If global credit and equity markets experience prolonged periods of obtaining or retaining business, or obtaining an unfair advantage. of decline, or if the U.S. defaults on its debt obligations or its debt is Recent years have seen a substantial increase in the global enforcement downgraded, our investment portfolio may be adversely impacted and of anti-corruption laws. Our continued operation and expansion outside we could determine that more of our investments have experienced the United States, including in developing countries, could increase the an other-than-temporary decline in fair value, requiring impairment risk of alleged violations. Violations of these laws may result in severe charges that could adversely impact our financial results. criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or Information technology dependency and security vulnerabilities could financial condition. lead to reduced revenue, liability claims, or competitive harm Moreover, several of our related partners are domiciled in areas of the The Company is increasingly dependent on sophisticated information world with laws, rules and business practices that differ from those technology and infrastructure. Any significant breakdown, intrusion, in the United States. Although we strive to select equity partners interruption or corruption of these systems or data breaches could have a and affiliates who share our values and understand our reporting material adverse effect on our business. Like other global companies, we have, from time to time, experienced incidents related to our information requirements as a U.S.-domiciled company and to ensure that an technology (“IT”) systems, and expect that such incidents will continue, appropriate business culture exists within these ventures to minimize including malware and computer virus attacks, unauthorized access, and mitigate our risk, we nonetheless face the reputational and legal systems failures and disruptions. We have measures and defenses in risk that our equity partners and affiliates may violate applicable laws, place against unauthorized access, but we may not be able to prevent, rules and business practices. immediately detect, or remediate such events. Acquisitions, equity investments and strategic alliances may have an We use electronic IT in our manufacturing processes and operations and adverse effect on our business other aspects of our business. Despite our implementation of security We expect to continue making acquisitions and entering into equity measures, our IT systems are vulnerable to disruptions from computer investments and strategic alliances as part of our business strategy. viruses, natural disasters, unauthorized access, cyber-attack and other These transactions involve significant challenges and risks including similar disruptions. A material breach in the security of our IT systems that a transaction may not advance our business strategy, that we do could include the theft of our intellectual property or trade secrets. Such not realize a satisfactory return on our investment, or that we experience disruptions or security breaches could result in the theft, unauthorized difficulty integrating new employees, business systems, and technology, use or publication of our intellectual property and/or confidential or diversion of management’s attention from our other businesses. business information, harm our competitive position, reduce the value It may take longer than expected to realize the full benefits, such as of our investment in research and development and other strategic increased revenue and cash flow, enhanced efficiencies, or market initiatives, or otherwise adversely affect our business. share, or those benefits may ultimately be smaller than anticipated, or Additionally, utilities and other operators of critical energy infrastructure may not be realized. These events could harm our operating results or that serve our facilities face heightened security risks, including cyber- financial condition. attack. In the event of such an attack, disruption in service from our utility providers could disrupt our manufacturing operations which rely Improper disclosure of personal data could result in liability and harm on a continuous source of power (electrical, gas, etc.). our reputation International trade policies may impact demand for our products and We store and process personally-identifiable information of our our competitive position employees and, in some case, our customers. At the same time, the continued occurrence of high-profile data breaches provides evidence Government policies on international trade and investment such as of the increasingly hostile information security environment. This import quotas, capital controls or tariffs, whether adopted by individual environment demands that we continuously improve our design governments or addressed by regional trade blocs, can affect the and coordination of security controls across our business groups and demand for our products and services, impact the competitive position geographies. Despite these efforts, it is possible our security controls of our products or prevent us (including our equity affiliates/joint over personal data, our training of employees and vendors on data ventures) from being able to sell products in certain countries. The security, and other practices we follow may not prevent the improper implementation of more restrictive trade policies, such as higher tariffs disclosure of personally identifiable information. Improper disclosure or new barriers to entry, in countries in which we sell large quantities of this information could harm our reputation or subject us to liability of products and services could negatively impact our business, results under laws that protect personal data, resulting in increased costs or of operations and financial condition. For example, a government’s loss of revenue. 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. 12 CORNING INCORPORATED - 2014 Annual Report


  • Page 23

    Legal Proceedings Legal Proceedings Dow Corning Corporation. Corning and The Dow Chemical Company PCC Plan of Reorganization (“Dow”) each own 50% of the common stock of Dow Corning Corporation (“Dow Corning”). Corning, with other relevant parties, has been involved in ongoing efforts to develop a Plan of Reorganization that would resolve the concerns and Dow Corning Breast Implant Litigation objections of the relevant courts and parties. On November 12, 2013, the Bankruptcy Court issued a decision finally confirming an Amended In May 1995, Dow Corning filed for bankruptcy protection to address PCC Plan of Reorganization (the “Amended PCC Plan” or the “Plan”). On pending and claimed liabilities arising from many thousands of breast September 30, 2014, the United States District Court for the Western implant product lawsuits. On June 1, 2004, Dow Corning emerged from District of Pennsylvania (the “District Court”) affirmed the Bankruptcy Chapter 11 with a Plan of Reorganization (the “Plan”) which provided Court’s decision confirming the Amended PCC Plan. On October 30, 2014, for the settlement or other resolution of implant claims. The Plan also one of the objectors to the Plan appealed the District Court’s affirmation includes releases for Corning and Dow as shareholders in exchange for of the Plan to the United States Court of Appeals for the Third Circuit contributions to the Plan. (the “Third Circuit Court of Appeals”), and that appeal is currently being Under the terms of the Plan, Dow Corning has established and is scheduled for briefing. It will likely take many months for the Third funding a Settlement Trust and a Litigation Facility to provide a means Circuit Court of Appeals to render its decision. for tort claimants to settle or litigate their claims. Inclusive of insurance, Under the Plan as affirmed by the Bankruptcy Court and affirmed by the Dow Corning has paid approximately $1.8 billion to the Settlement District Court, Corning is required to contribute its equity interests in Trust. As of December 31, 2014, Dow Corning had recorded a reserve for PCC and Pittsburgh Corning Europe N.V. (“PCE”), a Belgian corporation, breast implant litigation of $400 million. See Note 7 (Investments) for and to contribute $290 million in a fixed series of payments, recorded additional detail. at present value. Corning has the option to use its shares rather than Other Dow Corning Claims Arising From Bankruptcy Proceedings 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: As a separate matter arising from the bankruptcy proceedings, Dow (1) one payment of $70 million one year from the date the Plan becomes Corning is defending claims asserted by a number of commercial creditors effective and certain conditions are met; and (2) five additional payments who claim additional interest at default rates and enforcement costs, of $35 million, $50 million, $35 million, $50 million, and $50 million, during the period from May 1995 through June 2004. As of December 31, respectively, on each of the five subsequent anniversaries of the first 2014, Dow Corning has estimated the liability to commercial creditors payment, the final payment of which is subject to reduction based on to be within the range of $99 million to $324 million. As Dow Corning the application of credits under certain circumstances. management believes no single amount within the range appears to be a better estimate than any other amount within the range, Dow Non-PCC Asbestos Litigation Corning has recorded the minimum liability within the range. Should In addition to the claims against Corning related to its ownership Dow Corning not prevail in this matter, Corning’s equity earnings would interest in PCC, Corning is also the defendant in approximately 9,700 be reduced by its 50% share of the amount in excess of $99 million, net other cases (approximately 37,300 claims) alleging injuries from of applicable tax benefits. There are a number of other claims in the asbestos related to its Corhart business and similar amounts of bankruptcy proceedings against Dow Corning awaiting resolution by monetary damages per case. When PCC filed for bankruptcy protection, the U.S. District Court, and it is reasonably possible that Dow Corning the Court granted a preliminary injunction to suspend all asbestos cases may record bankruptcy-related charges in the future. The remaining against PCC, PPG and Corning – including these non-PCC asbestos cases tort claims against Dow Corning are expected to be channeled by the (the “stay”). The stay remains in place as of the date of this filing. Under Plan into facilities established by the Plan or otherwise defended by the the Bankruptcy Court’s order confirming the Amended PCC Plan, the stay Litigation Facility. will remain in place until the Amended PCC Plan is finally affirmed by Pittsburgh Corning Corporation and Asbestos Litigation. Corning the District Court and the Third Circuit Court of Appeals. These non-PCC and PPG Industries, Inc. (“PPG”) each own 50% of the capital stock of asbestos cases have been covered by insurance without material impact Pittsburgh Corning Corporation (“PCC”). Over a period of more than to Corning to date. As of December 31, 2014, Corning had received for two decades, PCC and several other defendants have been named these cases approximately $19 million in insurance payments related to in numerous lawsuits involving claims alleging personal injury those claims. If and when the Bankruptcy Court’s confirmation of the from exposure to asbestos. On April 16, 2000, PCC filed for Chapter 11 Amended PCC Plan is finally affirmed, these non-PCC asbestos claims reorganization in the U.S. Bankruptcy Court for the Western District would be allowed to proceed against Corning. Corning has recorded in of Pennsylvania. At the time PCC filed for bankruptcy protection, there its estimated asbestos litigation liability an additional $150 million for were approximately 11,800 claims pending against Corning in state these and any future non-PCC asbestos cases. 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. CORNING INCORPORATED - 2014 Annual Report 13


  • Page 24

    Legal Proceedings Total Estimated Liability for the Amended PCC Plan and the Non-PCC to date, management believes that the accrued reserve is a reasonable Asbestos Claims estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote. The liability for the Amended PCC Plan and the non-PCC asbestos claims was estimated to be $681 million at December 31, 2014, compared Chinese Anti-dumping Investigation Involving Single-Mode Optical with an estimate of liability of $690 million at December 31, 2013. The Fiber Produced in India. In August 2013, China’s Ministry of Commerce $681 million liability is comprised of $241 million of the fair value of PCE, (“MOFCOM”) initiated an anti-dumping proceeding involving $290 million for the fixed series of payments, and $150 million for the single-mode optical fiber produced in India and exported to China. On non-PCC asbestos litigation, all referenced in the preceding paragraphs. August 13, 2014, MOFCOM announced its final determination in this With respect to the PCE liability, at December 31, 2014 and 2013, the fair investigation assessing a 24.5% dumping margin on Corning’s Indian value of $241 million and $250 million of our interest in PCE significantly affiliate, CTIPL’s, exports to China. The dumping margins will remain in exceeded its carrying value of $162 million and $167 million, respectively. effect until August 13, 2019 unless lowered, eliminated, or increased on There have been no impairment indicators for our investment in PCE interim review or extended by sunset review. and we continue to recognize equity earnings of this affiliate. At the time Corning recorded this liability, it determined it lacked the ability to Chinese Anti-Dumping Investigation Involving Optical Fiber Preforms recover the carrying amount of its investment in PCC and its investment Produced in the United States. On March 19, 2014, China’s MOFCOM was other than temporarily impaired. As a result, we reduced our initiated an anti-dumping investigation involving optical fiber preforms investment in PCC to zero. As the fair value in PCE is significantly higher originating in the United States and Japan. The petition was submitted than book value, management believes that the risk of an additional by China’s domestic industry who is seeking to have anti-dumping loss in an amount materially higher than the fair value of the liability duties in the range of 15-24% assessed against subject merchandise. is remote. With respect to the liability for other asbestos litigation, the On September 10, 2014, MOFCOM held an injury hearing, in which liability for non-PCC claims was estimated based upon industry data for Corning participated and presented strong evidence of non-injury. asbestos claims since Corning does not have recent claim history due to We subsequently submitted a detailed non-injury brief and economic the injunction issued by the Bankruptcy Court. The estimated liability report further supporting the absence of threat of injury to the Chinese represents the undiscounted projection of claims and related legal fees industry. We expect a final determination sometime in the first quarter over the next 20 years. The amount may need to be adjusted in future of 2015. periods as more data becomes available; however, we cannot estimate Trade Secret Misappropriation Suits Concerning LCD Glass Technology. any additional losses at this time. For the years ended December 31, 2014 On July 18, 2011, in China, Corning Incorporated filed suit in the Beijing and 2013, Corning recorded asbestos litigation income of $9 million and Second Intermediate People’s Court against Hebei Dongxu Investment expense of $19 million, respectively. The entire obligation is classified as Group Co., Ltd., which changed its name to Dongxu Group Co., Ltd. a non-current liability, as installment payments for the cash portion of (“Dongxu”) for misappropriation of certain trade secrets related to the the obligation are not planned to commence until more than 12 months fusion draw process for manufacturing glass substrates used in active after the Amended PCC Plan becomes effective and the PCE portion matrix liquid crystal displays (“LCDs”). On July 18, 2011, in South Korea, of the obligation will be fulfilled through the direct contribution of Corning Incorporated and Samsung Corning Precision Materials filed Corning’s investment in PCE (currently recorded as a non-current other suits in the Daejeon District Court against Dongxu, one of its officers, and equity method investment). two other named individuals, for related trade secret misappropriation. Non-PCC Asbestos Cases Insurance Litigation On November 15, 2013, these cases were settled with Dongxu taking a license to the misappropriated technology for a royalty, broken up into Several of Corning’s insurers have commenced litigation in state two payments. Dongxu made the first payment in December 2013, and courts for a declaration of the rights and obligations of the parties the second payment in November 2014. under insurance policies, including rights that may be affected by the potential resolutions described above. Corning is vigorously contesting Department of Justice Grand Jury Subpoena. In March 2012, Corning these cases, and management is unable to predict the outcome of received a grand jury subpoena issued in the United States District the litigation. Court for the Eastern District of Michigan from the U.S. Department of Justice in connection with an investigation into conduct relating to Environmental Litigation. Corning has been named by the United States possible antitrust law violations involving certain automotive products, Environmental Protection Agency (the “EPA”) under the Superfund including catalytic converters, diesel particulate filters, substrates Act or by state governments under similar state laws, as a potentially and monoliths. The subpoena required Corning to produce to the responsible party for 15 active hazardous waste sites. Under the Department of Justice certain documents from the period January 1999 Superfund Act, all parties who may have contributed any waste to a to March 2012. In November 2012, Corning received another subpoena hazardous waste site, identified by the EPA, are jointly and severally liable from the Department of Justice, with the same scope, but extending the for the cost of cleanup unless the EPA agrees otherwise. It is Corning’s time frame for the documents to be produced back to January 1, 1988. policy to accrue for its estimated liability related to Superfund sites and Corning’s policy is to comply with all laws and regulations, including all other environmental liabilities related to property owned by Corning antitrust and competition laws. Antitrust investigations can result in based on expert analysis and continual monitoring by both internal substantial liability for the Company. Currently, Corning cannot estimate and external consultants. At December 31, 2014 and 2013, Corning had the ultimate financial impact, if any, resulting from the investigation. accrued approximately $42.5 million (undiscounted) and $15 million Such potential impact, if an antitrust violation by Corning is found, (undiscounted), respectively, for the estimated liability for environmental could however, be material to the results of operations of Corning in a cleanup and related litigation. Based upon the information developed particular period. 14 CORNING INCORPORATED - 2014 Annual Report


  • Page 25

    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 Composite Tape. First quarter Second quarter Third quarter Fourth quarter 2014 Price range High $ 20.99 $ 22.20 $ 22.37 $ 23.52 Low $ 16.55 $ 20.17 $ 19.23 $ 17.03 2013 Price range High $ 13.35 $ 16.43 $ 15.51 $ 18.07 Low $ 11.75 $ 12.64 $ 13.84 $ 13.82 As of December 31, 2014, there were approximately 17,819 record holders of common stock and approximately 501,928 beneficial shareholders. On October 3, 2012, Corning’s Board of Directors declared a 20% increase in the Company’s quarterly common stock dividend, increasing Corning’s quarterly dividend to $0.09 per share of common stock. On April 24, 2013, Corning’s Board of Directors declared an 11% increase in the Company’s quarterly common stock dividend, increasing Corning’s quarterly dividend to $0.10 per share of common stock. And on December 3, 2014, Corning’s Board of Directors declared a 20% increase in the Company’s quarterly common stock dividend, increasing Corning’s quarterly dividend to $0.12 per share of common stock. Equity Compensation Plan Information The following table shows the total number of outstanding options and shares available for other future issuances of options under our existing equity compensation plans as of December 31, 2014, including the 2010 Equity Plan for Non-Employee Directors and 2012 Long-Term Incentive Plan: A B C Number of securities remaining available for future Number of securities to be issued Weighted-average exercise price issuance under equity compensation upon exercise of outstanding of outstanding options, warrants plans (excluding securities reflected Plan category options, warrants and rights and rights in column A) Equity compensation plans approved by security holders(1) 48,724,000 $ 18.94 75,235,046 Equity compensation plans not approved by security holders 0 0 0 Total 48,724,000 $ 18.94 75,235,046 (1) Shares indicated are total grants under the most recent shareholder approved plans as well as any shares remaining outstanding from any prior shareholder approved plans. CORNING INCORPORATED - 2014 Annual Report 15


  • Page 26

    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG CORNING INCORPORATED, S&P 500 AND S&P COMMUNICATIONS EQUIPMENT (Fiscal Years Ended December 31) $250 Indexed to 100 $200 $150 $100 $50 $0 2009 2010 2011 2012 2013 2014 Corning incorporated S&P Communications Equipment 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 2014: ISSUER PURCHASES OF EQUITY SECURITIES Number of shares purchased as Approximate dollar value of shares that Number of shares Average price paid part of publicly announced may yet be purchased under the plans Period purchased(1) per share(1) plans or programs(2) or programs(2)(3) October 1-31, 2014 4,374,592 $ 18.33 4,364,700 $ 102,845,099 November 1-30, 2014 4,985,050 $ 20.63 4,984,411 $ 0 December 1-31, 2014 29,601 $ 21.21 0 $ 1,500,000,000 Total at December 31, 2014 9,389,243 $ 19.56 9,349,111 $ 1,500,000,000 (1) This column reflects the following transactions during the fiscal fourth quarter of 2014: (i) the deemed surrender to us of 878 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 39,254 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 9,349,111 shares of common stock in conjunction with the repurchase program made effective concurrent with the closing of Corning’s Acquisition of Samsung Corning Precision Materials on January 15, 2014. (2) On October 22, 2013, we announced authorization to repurchase up to $2 billion of our common stock by December 31, 2015, through a repurchase program made effective on January 15, 2014. This program was finalized in the fourth quarter of 2014. (3) On December 3, 2014, Corning’s Board of Directors authorized the repurchase of up to $1.5 billion of our common stock between the date of announcement and December 31, 2016. 16 CORNING INCORPORATED - 2014 Annual Report


  • Page 27

    Selected Financial Data (Unaudited) Years ended December 31, (In millions, except per share amounts and number of employees) 2014 2013 2012 2011 2010 Results of operations Net sales $ 9,715 $ 7,819 $ 8,012 $ 7,890 $ 6,632 Research, development and engineering expenses $ 815 $ 710 $ 769 $ 668 $ 599 Equity in earnings of affiliated companies $ 266 $ 547 $ 810 $ 1,471 $ 1,958 Net income attributable to Corning Incorporated $ 2,472 $ 1,961 $ 1,636 $ 2,817 $ 3,574 Earnings per common share attributable to Corning Incorporated: Basic $ 1.82 $ 1.35 $ 1.10 $ 1.80 $ 2.29 Diluted $ 1.73 $ 1.34 $ 1.09 $ 1.78 $ 2.26 Cash dividends declared per common share $ 0.52 $ 0.39 $ 0.32 $ 0.23 $ 0.20 Shares used in computing per share amounts: Basic earnings per common share 1,305 1,452 1,494 1,562 1,558 Diluted earnings per common share 1,427 1,462 1,506 1,583 1,581 Financial position Working capital $ 7,914 $ 7,145 $ 7,739 $ 6,580 $ 6,873 Total assets $ 30,063 $ 28,478 $ 29,375 $ 27,848 $ 25,833 Long-term debt $ 3,227 $ 3,272 $ 3,382 $ 2,364 $ 2,262 Total Corning Incorporated shareholders’ equity $ 21,579 $ 21,162 $ 21,486 $ 21,078 $ 19,375 Selected data Capital expenditures $ 1,076 $ 1,019 $ 1,801 $ 2,432 $ 1,007 Depreciation and amortization $ 1,167 $ 1,002 $ 997 $ 957 $ 854 Number of employees 34,600 30,400 28,700 28,800 26,200 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. CORNING INCORPORATED - 2014 Annual Report 17


  • Page 28

    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 • Liquidity and Capital Resources • Results of Operations • Environment • Core Performance Measures • Critical Accounting Estimates • Reportable Segments • New Accounting Standards Overview The impact of the Acquisition of the remaining equity interests in our • An increase of $173 million in the Environmental Technologies affiliate Samsung Corning Precision Materials, now known as Corning segment, due mainly to an increase in demand for our heavy duty Precision Materials, combined with strong business performance in the diesel products, driven by new governmental regulations in Europe Environmental Technologies and Optical Communications segments, and China and increased demand for Class 8 vehicles in North America. drove an increase in sales of 24% in the year ended December 31, 2014, when compared to the same period last year. Net income increased For the year ended December 31, 2014, we generated net income of significantly in 2014, up 26%, driven by the net gain on our yen- $2.5 billion or $1.73 per share compared to net income of $2 billion or denominated hedging program, the consolidation of Corning Precision $1.34 per share for 2013. When compared to last year, the increase in net Materials, the positive impact of the change in the contingent income was due to the following items (amounts presented after tax): consideration fair value resulting from the Acquisition, an increase • The positive net impact of our yen-denominated hedge programs, in equity earnings from Dow Corning and higher net income in the driven by the weakening of the Japanese yen in 2014, in the amount of Environmental Technologies and Optical Communications segments. $560 million; The increase was offset somewhat by price declines outpacing volume increases in the Display Technologies segment, the negative impact of • The impact of the consolidation of Corning Precision Materials, as well the depreciation of the Japanese yen against the U.S. dollar, several tax- as cost reductions and efficiencies gained through synergies; related items and the net loss on several Acquisition-related items. • The change in the contingent consideration fair value resulting from Net sales in the year ended December 31, 2014 were $9,715 million, the Acquisition in the amount of $194 million; compared to $7,819 million in the year ended December 31, 2013. • An increase of $56 million in equity earnings from Dow Corning, When compared to 2013, the change in net sales was driven by the driven by Corning’s share of a gain in the amount of $393 million following items: from the reduction in the implant liability, favorable tax adjustments • An increase of $1.3 billion in the Display Technologies segment, driven of $46 million and an increase in business results in both the silicone by the consolidation of Corning Precision Materials, which increased and polysilicon segments, offset by Corning’s share of a charge taken sales by $1.8 billion, and an increase in volume that was slightly more related to the abandonment of a polycrystalline silicon facility in the than 10% in percentage terms, offset somewhat by price declines in amount of $465 million; and the mid-teens in percentage terms and the negative impact of the • A $50 million increase in net income in the Environmental Japanese yen versus the U.S. dollar exchange rate in the amount of Technologies segment, driven by an increase in demand for our diesel $373 million; and automotive products and improved manufacturing efficiency. • An increase in net sales in the Optical Communications segment in the The increase in net income for the year ended December 31, 2014 was amount of $326 million, driven by an increase in sales of carrier network offset somewhat by the following items (amounts presented after-tax): products in the amount of $254 million, largely due to growth in North America and Europe, the $53 million impact of a small acquisition and • The impact of several tax-related items in the amount of $231 million, the consolidation of an investment due to a change in control which including changes in deferred tax valuation allowances of $150 million, occurred at the end of the second quarter of 2013 and an increase of $46 million of tax expense related to out-of-period transfer pricing $72 million in enterprise network products. These increases were offset adjustments and the absence of a tax benefit in the amount of $54 million slightly by a $52 million decrease in optical fiber sales in China; and recorded in the first quarter of 2013 related to the impact of the American Taxpayer Relief Act enacted on January 3, 2013 retroactive to 2012; 18 CORNING INCORPORATED - 2014 Annual Report


  • Page 29

    Management’s Discussion and Analysis of Financial Condition and Results of Operations • The net impact of several Acquisition-related items in the amount of our innovation strategy focused on growing our existing businesses, $72 million; developing opportunities adjacent or closely related to our existing technical and manufacturing capabilities, and investing in long-range • The negative impact from the Japanese yen versus the U.S. dollar opportunities in each of our market segments. We continue to work on exchange rate in the amount of $210 million; and new products, including glass substrates for high performance displays • In the Display Technologies segment, price declines in the mid-teens and LCD applications, precision glass for advanced displays, emissions in percentage terms outpacing an increase in volume slightly higher control products for cars, trucks, and off-road vehicles, products that than 10%. accelerate drug discovery and manufacturing and the optical fiber, cable and hardware and equipment that enable fiber-to-the-premises, Corning remains committed to a strategy of growing through global and next generation data centers. In addition, we are focusing on innovation. This strategy has served us well. Our key priorities for 2014 wireless solutions for diverse venue applications, such as distributed were similar to those in prior years: protect our financial health and antenna systems, fiber-to-the cell site and fiber-to-the antenna. We invest in the future. During 2014, we made the following progress on have focused our research, development and engineering spending to these priorities: support the advancement of new product attributes for our Corning® Gorilla® Glass suite of products. We will continue to focus on adjacent glass opportunities which leverage existing materials or manufacturing Protecting Financial Health processes, including Corning® Willow™ Glass, our ultra-slim flexible glass substrate for use in next-generation consumer electronic technologies. Our financial position remained sound and we delivered strong cash flows from operating activities. Significant items in 2014 included Capital spending totaled $1.1 billion in 2014, slightly above the amount the following: spent in 2013. Spending in 2014 was driven primarily by the Display Technologies segment, and focused on finishing line optimization • We ended the year with $6.1 billion of cash, cash equivalents and short- and tank rebuilds. We expect our 2015 capital expenditures to be term investments, an increase from the December 31, 2013 balance approximately $1.3 billion to $1.4 billion. We anticipate approximately of $5.2 billion, well above our debt balance at December 31, 2014 of $650 million will be allocated to our Display Technologies segment. $3.3 billion. The increase in cash was driven by the consolidation of Corning Precision Materials, the cash received from Samsung Display for the additional issuance of Preferred Stock in connection with the Acquisition and strong operating cash flow, offset by the cash paid for Corporate Outlook our share repurchases. We expect 2015 to produce another year of sales increases in our Optical • Our debt to capital ratio of 13% at December 31, 2014 was consistent Communications, Life Sciences, Specialty Materials and Environmental with our ratio at December 31, 2013. Technologies segments, and for the LCD retail glass market and Corning’s glass volume to grow. We believe the overall LCD glass retail market in • Operating cash flow for the year was $4.7 billion, an increase of 2015 will increase in the high-single digits, driven by the combination $1.9 billion when compared to December 31, 2013, driven by a dividend of an increase in retail sales of LCD televisions and the demand for in the amount of approximately $1.6 billion from Samsung Corning larger television screen sizes. We anticipate a rise in global demand for Precision Materials distributed subsequent to the Acquisition of the Corning’s carrier network products, combined with growth of enterprise remaining equity interests of the affiliate. network products, will increase sales in our Optical Communications segment. We believe sales of Corning Gorilla Glass will improve in 2015, as we expect price declines to be moderate and volume to improve Investing in our Future in line with the increase in the handheld market. And we expect another strong year of manufacturing process improvements and cost Corning is one of the world’s leading innovators in materials science. For reductions, which, in combination with sales growth, will deliver overall more than 160 years, Corning has applied its unparalleled expertise in earnings growth for Corning. We remain confident that our strategy to specialty glass, ceramics, and optical physics to develop products that grow through global innovation, while preserving our financial stability, have created new industries and transformed people’s lives. Although will enable our continued long-term success. our spending level for research, development and engineering decreased slightly from 9% of sales in 2013 to 8% of sales in 2014, we maintained CORNING INCORPORATED - 2014 Annual Report 19


  • Page 30

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Selected highlights from our continuing operations follow (in millions): % change 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 9,715 $ 7,819 $ 8,012 24 (2) Gross margin $ 4,052 $ 3,324 $ 3,319 22 * (gross margin %) 42% 43% 41% Selling, general and administrative expense $ 1,211 $ 1,126 $ 1,205 8 (7) (as a % of net sales) 12% 14% 15% Research, development and engineering expenses $ 815 $ 710 $ 769 15 (8) (as a % of net sales) 8% 9% 10% Restructuring, impairment and other charges $ 71 $ 67 $ 133 6 (50) (as a % of net sales) 1% 1% 2% Equity in earnings of affiliated companies $ 266 $ 547 $ 810 (51) (32) (as a % of net sales) 3% 7% 10% Transaction-related gain, net $ 74 * (as a % of net sales) 1% Other income, net $ 1,394 $ 667 $ 83 109 704 (as a % of net sales) 14% 9% 1% Income before income taxes $ 3,568 $ 2,473 $ 1,975 44 25 (as a % of net sales) 37% 32% 25% Provision for income taxes $ (1,096) $ (512) $ (339) 114 51 (as a % of net sales) (11)% (7)% (4)% Net income attributable to Corning Incorporated $ 2,472 $ 1,961 $ 1,636 26 20 (as a % of net sales) 25% 25% 20% * Percent change not meaningful. • Specialty Materials improved by $35 million, driven by an increase Net Sales in sales of advanced optics products. Corning Gorilla Glass sales Corning’s net sales in the year ended December 31, 2014 improved in all remained consistent with the prior year, with volume increases offset of our segments, increasing by $1,896 million to $9,715 million, when by an unfavorable shift in product mix and price declines; and compared to the same period in 2013, driven by the following events: • Life Science increased by $11 million, driven by growth in North America • Display Technologies increased by $1.3 billion, due to the consolidation and China, up $12 million and $5 million, respectively. of Corning Precision Materials, which increased sales by $1.8 billion, and For the year ended December 31, 2013, net sales remained relatively an increase in volume that was slightly more than 10% in percentage consistent when compared to the year ended December 31, 2012, terms, offset somewhat by price declines in the mid-teens and the with higher sales in the Optical Communications and Life Sciences negative impact of the Japanese yen versus the U.S. dollar exchange segments offset by declines in the Display Technologies, Environmental rate in the amount of $373 million; Technologies and Specialty Materials segments. The change in net sales • Optical Communications increased by $326 million, driven by an was largely driven by the following: increase in sales of carrier network products in the amount of • Optical Communications sales increased by $196 million, driven by an $254 million, largely due to growth in North America and Europe, up increase in sales of our carrier products in the amount of $163 million, $113 million and $46 million, respectively, the impact of a full year of largely due to the ramp-up of the fiber-to-the-premises initiative in sales from a small acquisition and the consolidation of an investment Australia, which increased by $28 million, an increase of $23 million in due to a change in control that occurred at the end of the second sales of wireless products and higher sales of fiber and cable products quarter of 2013, which added $53 million, and an increase of $72 million in North America, China and Europe, up $52 million, $33 million and in enterprise network products. These increases were offset slightly by $26 million, respectively. Also included in the increase in sales of carrier a $52 million decrease in optical fiber sales in China; products is the impact of a small acquisition completed in the second • An increase of $173 million in the Environmental Technologies segment, quarter of 2013 and the consolidation of an investment due to a due mainly to an increase in demand for our heavy duty diesel change in control, which added approximately $53 million in 2013; products, driven by new governmental regulations in Europe and • Net sales increased by $194 million in the Life Sciences segment, driven China, and increased demand for Class 8 vehicles in North America. by the impact of the acquisition of the Discovery Labware business in Automotive substrate sales were also strong, increasing 9%, due to the fourth quarter of 2012; increased demand in Europe and China; 20 CORNING INCORPORATED - 2014 Annual Report


  • Page 31

    Management’s Discussion and Analysis of Financial Condition and Results of Operations • Display Technologies segment sales were lower, driven by price Selling, general, and administrative expenses for 2013 decreased by declines in the mid-teens and the impact of the depreciation of the $79 million when compared to 2012. This decrease was largely driven Japanese yen versus the U.S. dollar offsetting volume increases in the by a decrease in pension expense in the amount of $76 million driven mid-twenties in percentage terms; by a 100 basis point increase in the discount rate used to value our U.S. pension liability, cost control measures implemented in our segments • Environmental Technologies segment sales decreased, driven by a and a decline in variable compensation in the amount of $27 million, decline of 9% for diesel products; offset somewhat by an increase in costs in the Optical Communications, • Net sales declined by $176 million in the Specialty Materials segment, Specialty Materials and Life Sciences segments. As a percentage of net driven by a 17% decline in sales of Corning Gorilla Glass. sales, these expenses decreased when compared to the same period last year. In 2014, 2013 and 2012, sales into international markets accounted for 77%, 74% and 77%, respectively, of total net sales. 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 Cost of Sales administrative facilities. The types of expenses included in the cost of sales line item are: raw materials consumption, including direct and indirect materials; salaries, Research, Development and Engineering wages and benefits; depreciation and amortization; production utilities; production-related purchasing; warehousing (including receiving and Expenses inspection); repairs and maintenance; inter-location inventory transfer For the year ended December 31, 2014, research, development, and costs; production and warehousing facility property insurance; rent for engineering expenses increased by $105 million when compared to the production facilities; and other production overhead. 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 Gross Margin of additional pension expense. We continue to focus on new product For 2014, gross margin dollars increased by $728 million when development in areas such as glass substrates for high performance compared to 2013, driven largely by the consolidation of Corning displays in our Display Technologies segment, wireless solutions for Precision Materials, combined with an increase of $102 million in the diverse venue applications in the Optical Communications segment and Environmental Technologies segment from higher volume and improved advancement of new product attributes for our Corning Gorilla Glass manufacturing efficiencies. Gross margin as a percentage of net sales suite of products in our Specialty Materials segment. As a percentage decreased when compared to the same period last year, due primarily of net sales, research, development and engineering expenses declined to the impact of the depreciation of the Japanese yen versus the U.S. slightly, from 9% in 2013 to 8% in 2014, reflecting cost control measures dollar in the amount of $333 million, price declines in the mid-teens in implemented in 2014. percentage terms in our Display Technologies segment, higher pension For the year ended December 31, 2013, research, development, and expense of approximately $50 million and the impact of inventory engineering expenses decreased by $59 million when compared to builds in 2013 in the Optical Communications and Specialty Materials the same period last year, driven by a decrease in pension expense in segments that did not repeat in 2014. the amount of $47 million driven by a 100 basis point increase in the For 2013, gross margin dollars and as a percentage of sales increased discount rate used to value our U.S. pension liability and declines in when compared to 2012, led by a decrease in pension expense in the our Display Technologies and Environmental Technologies segments of amount of $150 million driven by a 100 basis point increase in the $19 million and $11 million, respectively, offset slightly by higher costs discount rate used to value our U.S. pension liability and an increase of in the Optical Communications, Specialty Materials and Life Sciences 6% in the Specialty Materials segment, resulting from improvements in segments. As a percentage of net sales, research, development and manufacturing efficiency and cost reduction programs. The depreciation engineering expenses declined slightly in the year ended December 31, of the Japanese yen versus the U.S. dollar and price declines in the 2013, when compared to the same period in 2012. Display Technologies segment partially offset the increase. Restructuring, Impairment, and Other Charges Selling, General, and Administrative Expenses and Credits Selling, general, and administrative expenses for the year ended Corning recorded restructuring, impairment, and other charges and December 31, 2014 increased by $85 million when compared to 2013. credits in 2014, 2013 and 2012, which affect the comparability of our The increase was largely driven by the consolidation of Corning results for the periods presented. Additional information on restructuring Precision Materials, which added $90 million, an increase in pension and asset impairment is found in Note 2 (Restructuring, Impairment and expense of approximately $27 million, an increase of $38 million in Other Charges) to the Consolidated Financial Statements. A description share-based and performance-based compensation expenses and of those charges and credits follows: 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 2014 Activity value adjustment of $249 million. As a percentage of net sales, selling, For the year ended December 31, 2014, we recorded charges of $71 million general and administrative expenses were 12%, considerably lower than for workforce reductions, asset disposals and write-offs, and exit costs the same period in 2013, largely due to the contingent consideration fair for restructuring activities with total cash expenditures estimated to value adjustment more than offsetting the increase in Selling, general, be $51 million. Annualized savings from these actions are estimated and administrative expenses resulting from the Acquisition. to be approximately $94 million and will be reflected largely in selling, general, and administrative expenses. CORNING INCORPORATED - 2014 Annual Report 21


  • Page 32

    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2013 Activity in 2012 than our expectations, demand for larger-sized cover glass was declining, and the market for this type of glass was instead targeting To better align our 2014 cost position in several of our businesses, Corning smaller gen size products. Additionally, in the fourth quarter of 2012, our implemented a global restructuring plan within several of our segments primary customer of large cover glass notified Corning of its decision in the fourth quarter of 2013, consisting of workforce reductions, asset to exit from this display market. Based on these events, we recorded disposals and write-offs, and exit costs. an additional impairment charge in the fourth quarter of 2012 in the We recorded charges of $67 million, before tax, associated with these amount of $44 million, before tax. This impairment charge represents actions, with total cash expenditures expected to be approximately a write-down of assets specific to the glass-strengthening process for $40 million. large size cover glass to their fair market values, and includes machinery and equipment used in the ion exchange process. 2012 Activity In response to uncertain global economic conditions, and the Asbestos Litigation potential for slower growth in many of our businesses in 2013, Corning In 2014, we recorded a decrease to our asbestos litigation liability of implemented a corporate-wide restructuring plan in the fourth quarter $9 million compared to an increase of $19 million in 2013 and $14 million of 2012. We recorded charges of $89 million, before tax, which included in 2012. costs for workforce reductions, asset write-offs and exit costs. Total cash expenditures associated with these actions were approximately Our asbestos litigation liability was estimated to be $681 million at $49 million, and spending for employee-related costs was completed December 31, 2014, compared with an estimate of $690 million at in 2013. December 31, 2013. The entire obligation is classified as a non-current liability as installment payments for the cash portion of the obligation The Specialty Materials segment recorded an impairment charge in are not planned to commence until more than 12 months after the the fourth quarter of 2011 in the amount of $130 million, before tax, proposed Amended PCC Plan is ultimately effective, and a portion of the related to certain assets used in the production of large cover glass due obligation will be fulfilled through the direct contribution of Corning’s to sales that were significantly below our expectations. In the fourth investment in PCE (currently recorded as a non-current other equity quarter of 2012, after reassessing the large cover glass business, Corning method investment). concluded that the large cover glass market was developing differently See Legal Proceedings for additional information about this matter. Equity in Earnings of Affiliated Companies The following provides a summary of equity earnings of affiliated companies (in millions): Years ended December 31, 2014 2013 2012 Samsung Corning Precision Materials $ 320 $ 699 Dow Corning $ 252 196 90 All other 14 31 21 Total equity earnings $ 266 $ 547 $ 810 Equity earnings of affiliated companies decreased in the twelve months ended December 31, 2014, when compared to the same period last year, 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, 2014 2013 2012 Silicones $ 653 $ 166 $ 122 Polysilicon (Hemlock Semiconductor Group) (401) 30 (32) Total Dow Corning $ 252 $ 196 $ 90 Beginning in the latter half of 2011, and continuing into 2012, Dow Corning Corning determined that a polycrystalline silicon plant expansion began experiencing unfavorable industry conditions at its consolidated previously delayed since the fourth quarter of 2011 would no longer be subsidiary Hemlock, a producer of high purity polycrystalline silicon economically viable and made the decision to abandon this expansion for the semiconductor and solar industries, driven by over-capacity at activity. The abandonment resulted in an impairment charge of all levels of the solar industry supply chain. This over-capacity led to $57 million, before tax, for Corning’s share of the write down in the value significant declines in polycrystalline spot prices in the fourth quarter of of these construction-in-progress assets. Further, the startup of another 2011, and prices remained depressed throughout 2012. In 2013, markets polycrystalline silicon plant expansion that was expected to begin stabilized, but prices remain significantly below historical levels. production in 2013 was delayed and its assets were idled. Due to the conditions and uncertainties during 2012 described above, sales volume declined and production levels of certain operating assets were reduced. As a result, in the fourth quarter of 2012, Dow 22 CORNING INCORPORATED - 2014 Annual Report


  • Page 33

    Management’s Discussion and Analysis of Financial Condition and Results of Operations In July 2012, the MOFCOM initiated antidumping and countervailing duty Facility is expected to be lower than the full funding cap set forth in the investigations of imports of solar-grade polycrystalline silicon products Plan. On December 12, 2014, Dow Corning reduced its Implant Liability from the U.S. and South Korea based on a petition filed by Chinese by approximately $1.3 billion (Corning’s share after-tax: $393 million). solar-grade polycrystalline silicon producers. The petition alleged that Previously, the Implant Liability was based on the full funding cap set producers within these countries exported solar-grade polycrystalline forth in the Plan. The revised Implant Liability reflects Dow Corning’s silicon to China at less than fair value and that production of solar- best estimate of its remaining obligations under the Plan. Should events grade polycrystalline silicon in the U.S. has been subsidized by the U.S. or circumstances occur in the future which change Dow Corning’s government. On July 18, 2013, MOFCOM announced its preliminary estimate of the remaining funding obligations, the Implant Liability will determination that China’s solar-grade polycrystalline silicon industry be revised. This adjustment does not affect Dow Corning’s commitment suffered material damage because of dumping by producers in or ability to fulfill its obligations under the settlement, and all claims the U.S. and Korea. The Chinese authorities imposed provisional that qualify under the settlement will be paid according to the terms antidumping duties on producers in the U.S. and Korea ranging from of the Plan. 2.4% to 57.0%, including duties of 53.3% on future imports of solar- grade polycrystalline silicon product from the Dow Corning subsidiary into China. On September 16, 2013, the Chinese authorities imposed 2014 vs. 2013 provisional countervailing duties of 6.5% on solar grade polycrystalline Equity earnings from Dow Corning increased by $56 million in the twelve silicon products from the Dow Corning subsidiary. On January 20, months ended December 31, 2014, when compared to the same period in 2014, MOFCOM issued a final determination. The final determination 2013, driven by the following items: resulted in no change to the antidumping duties, and the countervailing duties were reduced to 2.1%. The requirement for customers to pay • An increase in equity earnings of $487 million in the silicones segment, provisional duties on imports from solar-grade polycrystalline silicon driven by the gain resulting from the reduction of the Implant Liability producers became effective on July 24, 2013 for the antidumping duties in the amount of $393 million, favorable tax adjustments in the and on September 20, 2013 for the countervailing duties, adjusted for amount of $46 million and a decrease in tax expense, offset somewhat the final determination. Dow Corning will not be subject to duties for by a $5 million decrease in the amount of gains recorded on the mark- previous sales. to-market of a derivative instrument; and In December 2014, Dow Corning determined its polycrystalline silicon • An decrease in equity earnings of $431 million in the polysilicon plant expansion which was delayed in the fourth quarter of 2012, would segment, driven by Corning’s share of Dow Corning’s charge for the not be economically viable and made the decision to permanently abandonment of a polycrystalline silicon plant expansion in the abandon the assets. This decision was made after review of sustained amount of $465, offset slightly by higher volume, the absence of adverse market conditions and continued oversupply, the cost of $11 million in restructuring charges incurred in the first half of 2013, a operating the facility and the ongoing impact of tariffs on polycrystalline gain in the amount of $6 million related to energy tax credits and the silicon imported into China. The decision to permanently cease use settlement of a long-term sales agreement in the first quarter of 2014 of these assets resulted in Dow Corning taking a pre-tax charge of in the amount of $9 million. approximately $1.5 billion in the fourth quarter of 2014 (Corning’s share after-tax: $465 million). As a result of the significant change in the use of this asset, Dow Corning assessed whether the carrying value of all 2013 vs. 2012 polycrystalline silicon assets might be impaired. Dow Corning’s estimates Equity earnings from Dow Corning increased by 118% in the twelve of future undiscounted cash flows indicated the polycrystalline silicon months ended December 31, 2013 when compared to the same period in asset group was recoverable. 2012, due to the following items: In May 1995, Dow Corning filed for bankruptcy protection to address • In the silicones segment, a gain of $20 million associated with the pending and claimed liabilities arising from breast implant product termination of a long-term sales agreement, the positive impact of the lawsuits. On June 1, 2004, Dow Corning emerged from Chapter 11 with recognition of a derivative instrument in the amount of $16 million, a Plan of Reorganization (the “Plan”) which provided for the settlement the absence of the 2012 restructuring charge of $30 million, coupled or other resolution of implant claims. Under the Plan, Dow Corning with cost reduction resulting from these actions, and lower variable established and agreed to fund a products liability settlement program compensation costs. The increase in earnings was partially offset by (the “Settlement Facility”). The Plan contains a cap on the amount of the negative impact of price declines and weaker demand in Asia and payments required from Dow Corning to fund the Settlement Facility. the Americas; and Inclusive of insurance, Dow Corning has paid approximately $1.8 billion to the Settlement Facility, and approximately $1.3 billion has been paid to • In the polysilicon segment, the absence of the impairment charge claimants out of the Settlement Facility. Dow Corning’s recorded liability of $57 million recorded in 2012 related to the abandonment of a related to implant matters (“Implant Liability”) was approximately polycrystalline silicon plant expansion, offset by Corning’s share of $1.7 billion at September 30, 2014, representing Dow Corning’s estimated restructuring charges at Hemlock in the amount of $11 million and the remaining obligation for future funding of the Settlement Facility. absence of the gain of $10 million associated with the resolution of a contract dispute. During the fourth quarter of 2014, Dow Corning, with the assistance of a third-party advisor, developed an estimate of the future Implant Liability based on evidence that the actual funding required for the Settlement CORNING INCORPORATED - 2014 Annual Report 23


  • Page 34

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Other Income, Net “Other income, net” in Corning’s consolidated statements of income includes the following (in millions): Years ended December 31, 2014 2013 2012 Royalty income from Samsung Corning Precision Materials $ 56 $ 83 Foreign currency transaction and hedge gains, net $ 1,352 500 8 Loss on retirement of debt (26) Foreign government subsidy 3 55 Other, net 39 56 18 Total $ 1,394 $ 667 $ 83 Beginning in the first quarter of 2014, due to the Acquisition and and 2013 exchange rates for the Japanese yen versus the U.S. dollar of consolidation of Samsung Corning Precision Materials (now Corning 14% and 22%, respectively. The gross notional value outstanding for Precision Materials), royalty income from Corning Precision Materials purchased collars and average rate forward contracts was $9.8 billion is no longer recognized in Corning’s consolidated statement of income. at December 31, 2014 and $6.8 billion at December 31, 2013. Refer to Item 7A Quantitative and Qualitative Disclosures About Market Risks for Included in the line item Foreign currency transaction and hedge gains, additional details. net, for the years ended December 31, 2014 and 2013 is the impact of purchased collars and average forward contracts which hedge our In the second quarter of 2014, following the Acquisition, we entered translation exposure resulting from movements in the Japanese into a portfolio of zero cost collars to hedge our exposure to movements yen against the U.S. dollar and its impact on our net earnings. In the in the Korean won and its impact on our net earnings. These zero cost years ended December 31, 2014 and 2013, we recorded net pre-tax collars have a gross notional value outstanding at December 31, 2014 gains on our yen-denominated hedging programs in the amount of of $2.3 billion, and began settling quarterly in the third quarter of 2014 $1,406 million and $435 million, respectively, which included $344 million and will conclude at the end of 2015. The net pre-tax loss on these zero and $110 million of realized gains, respectively. These gains were driven cost collars, which is also included in the line item Foreign currency by the mark-to-market valuation of the purchased collars and average transaction and hedge gains, net, was $37 million for the twelve months forward contracts, and occurred due to the depreciation in the 2014 ended December 31, 2014, and included $6 million of realized losses. Income Before Income Taxes Income before income taxes for the year ended December 31, 2014, was negatively impacted by the depreciation of the Japanese yen versus the U.S. dollar in the amount of $297 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, 2014 2013 2012 Provision for income taxes $ 1,096 $ 512 $ 339 Effective tax rate 30.7% 20.7% 17.2% The effective income tax rate for 2014 differed from the U.S. statutory • The benefit of tax incentives in foreign jurisdictions, primarily rate of 35% primarily due to the following items: Taiwan; and • Rate differences on income (loss) of consolidated foreign companies, • Tax benefit of $54 million for the impact of the American Taxpayer including the benefit of excess foreign tax credits attributable to a Relieve Act enacted on January 3, 2013 and made retroactive to 2012. taxable intercompany loan made to the U.S., and Partially offsetting the benefits above is a $48 million charge attributable • The impact of equity in earnings of nonconsolidated affiliates reported to a change in the judgment regarding the realizability of certain foreign in the financials, net of tax. and state deferred tax assets. Partially offsetting the benefits above is a $177 million charge attributable Corning has valuation allowances on certain shorter-lived deferred to a change in judgment on the realizability of certain foreign deferred tax assets such as those represented by capital loss and state tax net taxes assets in Germany and Japan. operating loss carry forwards, as well as other foreign net operating loss carryforwards, because we cannot conclude that it is more likely than not The effective income tax rate for 2013 differed from the U.S. statutory that we will earn income of the character or amount required to utilize rate of 35% primarily due to the following items: these assets before they expire. The amount of U.S. and foreign deferred • Rate differences on income (loss) of consolidated foreign companies; tax assets that have remaining valuation allowances at December 31, 2014 and 2013 was $298 million and $286 million, respectively. • The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax; 24 CORNING INCORPORATED - 2014 Annual Report


  • Page 35

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Corning continues to indefinitely reinvest substantially all of its foreign unremitted earnings that are expected to remain invested indefinitely. earnings, with the exception of approximately $10 million of current While it remains impracticable to calculate the tax cost of repatriating earnings that have very low or no tax cost associated with their our total unremitted foreign earnings, such cost could be material to the repatriation. Our current analysis indicates that we have sufficient U.S. results of operations of Corning in a particular period. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash. One time Our foreign subsidiary in Taiwan operates under various tax holiday or unusual items that may impact our ability or intent to keep our arrangements. The nature and extent of such arrangements vary, and foreign earnings and cash indefinitely reinvested include significant the benefits of such arrangements phase out through 2018. The impact U.S. acquisitions, stock repurchases, shareholder dividends, changes of the tax holidays on our effective rate is a reduction in the rate of 0.4, in tax laws, derivative contract settlements or the development of tax 1.2 and 1.7 percentage points for 2014, 2013 and 2012, respectively. planning ideas that allow us to repatriate earnings at minimal or no While we expect the amount of unrecognized tax benefits to change in tax cost, and/or a change in our circumstances or economic conditions the next 12 months, we do not expect the change to have a significant that negatively impact our ability to borrow or otherwise fund U.S. impact on the results of operations or our financial position. needs from existing U.S. sources. As of December 31, 2014, taxes have not been provided on approximately $10.3 billion of accumulated foreign Refer to Note 6 (Income Taxes) to the Consolidated Financial Statements for further details regarding income tax matters. 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, 2014 2013 2012 Net income attributable to Corning Incorporated $ 2,472 $ 1,961 $ 1,636 Basic earnings per common share $ 1.82 $ 1.35 $ 1.10 Diluted earnings per common share $ 1.73 $ 1.34 $ 1.09 Shares used in computing per share amounts Basic earnings per common share 1,305 1,452 1,494 Diluted earnings per common share 1,427 1,462 1,506 Comprehensive Income Years ended December 31, (In millions) 2014 2013 2012 Net income attributable to Corning Incorporated $ 2,472 $ 1,961 $ 1,636 Foreign currency translation adjustments and other (1,073) (682) (179) Net unrealized (losses) gains on investments (1) 2 13 Unamortized (losses) gains and prior service costs for postretirement benefit plans (281) 392 (1) Net unrealized gains (losses) on designated hedges 4 (24) 47 Other comprehensive loss, net of tax (Note 17) (1,351) (312) (120) Comprehensive income attributable to Corning Incorporated $ 1,121 $ 1,649 $ 1,516 2014 vs. 2013 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 For the year ended December 31, 2014, comprehensive income decreased the mortality assumption for our U.S. plans led to an actuarial after-tax by $528 million when compared to the same period in 2013, driven by loss of approximately $281 million versus a gain in 2013 of $392 million. an increase in unamortized losses for postretirement benefit plans The loss of $281 million occurring in 2014 included the impact to our U.S. and the negative impact of the change in foreign currency translation pension and OPEB plans from the mortality table change in the amount adjustments, offset by an increase of $511 million in net income of $88 million, the impact of $89 million from changes in other actuarial attributable to Corning Incorporated. assumptions and $124 million from our equity affiliate Dow Corning, offset by reclassifications to the income statement of $20 million The increase in unamortized losses for postretirement benefit plans after-tax related to U.S. non-qualified and international pension plans. in the amount of $673 million is driven mainly by changes to the Because the actuarial loss for our U.S qualified pension plan did not fall discount rate and mortality assumptions used to value Corning’s U.S. outside of the corridor, which is defined as equal to 10% of the greater pension and postretirement medical and life benefit plan (“OPEB”) of the benefit obligation or the market-related value of plan assets obligations and the benefit plan obligations of our equity affiliate at the beginning of the year, it was recorded in accumulated other Dow Corning at December 31, 2014. Corning and Dow Corning adopted comprehensive income (“AOCI”) and did not impact net income for the the Society of Actuaries mortality table RP-2014 published in October, year ended December 31, 2014. 2014, along with an updated improvement scale, and the discount rate CORNING INCORPORATED - 2014 Annual Report 25


  • Page 36

    Management’s Discussion and Analysis of Financial Condition and Results of Operations The increase in the loss on foreign currency translation adjustments for postretirement medical and life benefit plan (“OPEB”) obligations and the year ended December 31, 2014 in the amount of $391 million was the benefit plan obligations of our equity affiliate Dow Corning. At driven by the following items: 1) the increase in the loss in the translation December 31, 2013, the increase in discount rates led to an actuarial after- of Corning’s consolidated subsidiaries in the amount of $65 million, tax gain of $392 million. Because this gain did not fall outside of the which resulted primarily from the depreciation of the Japanese yen to corridor, which is defined as equal to 10% of the greater of the benefit U.S. dollar translation rate during 2014; 2) the increase in the loss in the obligation or the market-related value of plan assets at the beginning of translation of Corning’s equity method investments in the amount of the year, the gain was recorded in AOCI and did not impact net income $190 million; and 3) the reclassification of a gain to net income in the for the year ended December 31, 2013. amount of $136 million related to the Acquisition of Samsung Corning Precision Materials. The increase in the loss on foreign currency translation adjustments for the year ended December 31, 2013 in the amount of $503 million was driven by the following items: 1) the increase in the loss in the translation 2013 vs. 2012 of Corning’s consolidated subsidiaries in the amount of $317 million, which resulted primarily from the depreciation of the Japanese yen to For the year ended December 31, 2013, comprehensive income increased U.S. dollar translation rate during 2013; 2) the increase in the loss in the by $133 million, when compared to the same period in 2012, driven translation of Corning’s equity method investments in the amount of by an increase in net income attributable to Corning Incorporated $238 million, which is attributed to the change in the Korean won to U.S. and an increase in unamortized gains for postretirement benefit dollar translation rate during 2013, which impacted our equity affiliate plans, offset partially by the increase in the loss on foreign currency Samsung Corning Precision Materials; and 3) the absence of the 2012 translation adjustments. reclassification of a gain to net income in the amount of $52 million The increase in the amount of unamortized gains for postretirement related to the gain on the liquidation of a foreign subsidiary. benefit plans is due to an increase of between 75 and 100 basis See Note 13 (Employee Retirement Plans) and Note 17 (Shareholders’ points in the discount rates used to value Corning’s U.S. pension and Equity) for additional details. Core Performance Measures In managing the Company and assessing our financial performance, we regulatory expenses, pension mark-to-market adjustments, and other supplement certain measures provided by our consolidated financial items which do not reflect on-going operating results of the Company statements with measures adjusted to exclude certain items, to arrive or our equity affiliates. Management discussion and analysis on our at Core Performance measures. We believe reporting Core Performance reportable segments has also been adjusted for these items. These measures provides investors greater transparency to the information measures are not prepared in accordance with U.S. Generally Accepted used by our management team to make financial and operational Accounting Principles (“GAAP”). We believe investors should consider decisions. Net sales, equity in earnings of affiliated companies, and net these non-GAAP measures in evaluating our results as they are more income are adjusted to exclude the impacts of changes in the Japanese indicative of our core operating performance and how management yen and Korean won, the impact of the purchased and zero cost evaluates our operational results and trends. These measures are collars, average forward contracts and other yen-related transactions, not, and should not be viewed as a substitute for U.S. GAAP reporting acquisition-related costs, the 2013 results of the polysilicon business measures. For a reconciliation of non-GAAP performance measures and of our equity affiliate Dow Corning Corporation, discrete tax items, a further discussion of the measures, please see “Reconciliation of Non- restructuring and restructuring-related charges, certain litigation and GAAP Measures” below. Results of Operations – Core Performance Measures Selected highlights from our continuing operations follow (in millions): % change 2014 2013 2012 14 vs. 13 13 vs. 12 Core net sales $ 10,217 $ 7,948 $ 7,605 29 5 Core equity in earnings of affiliated companies $ 311 $ 595 $ 713 48 (17) Core earnings attributable to Corning Incorporated $ 2,185 $ 1,797 $ 1,595 22 13 Core Net Sales Corning’s core net sales in the year ended December 31, 2014 improved in • Optical Communications increased by $326 million, driven by an all of our segments, increasing by $2,269 million to $10,217 million, when increase in sales of carrier network products in the amount of compared to the same period in 2013. Driving the growth in core net $254 million, largely due to growth in North America and Europe, up sales are the following items: $113 million and $46 million, respectively, the impact of a full year of sales from a small acquisition and the consolidation of an investment • Display Technologies increased by $1.7 billion, due to the consolidation due to a change in control that occurred at the end of the second of Corning Precision Materials, which increased sales by $1.9 billion, and quarter of 2013, which added $53 million, and an increase of $72 million an increase in volume that was slightly more than 10% in percentage in enterprise network products. These increases were offset slightly by terms, offset somewhat by price declines in the mid-teens; a $52 million decrease in optical fiber sales in China; 26 CORNING INCORPORATED - 2014 Annual Report


  • Page 37

    Management’s Discussion and Analysis of Financial Condition and Results of Operations • An increase of $173 million in the Environmental Technologies segment, • In the Display Technologies segment, volume increases in the mid- due mainly to an increase in demand for our heavy duty diesel products, twenties in percentage terms more than offset price declines in the driven by new governmental regulations in Europe and China, and mid-teens, which drove an increase in core sales of $173 million, or 7%; increased demand for Class 8 vehicles in North America. Automotive substrate sales were also strong, increasing 9%, on increased demand • Optical Communications increased by $196 million, driven by an in Europe and China; increase in sales of our carrier products in the amount of $163 million, largely due to the ramp-up of the fiber-to-the-premises initiative in • Specialty Materials improved by $35 million, driven by an increase Australia, which increased by $28 million, an increase of $23 million in in sales of advanced optics products. Corning Gorilla Glass sales sales of wireless products and higher sales of cable products in North remained consistent with the prior year, with volume increases offset America, China and Europe, up $52 million, $33 million and $26 million, by an unfavorable shift in product mix and price declines; and respectively; • Life Sciences increased by $11 million, driven by growth in North • An increase in the Life Sciences segment of $194 million, driven by the America and China, up $12 million and $5 million, respectively. impact of the acquisition of the Discovery Labware business in the fourth quarter of 2012; For the year ended December 31, 2013, core net sales increased by 5% when compared to the same period in 2012. Higher net core sales in • In the Environmental Technologies segment, while automotive the Display Technologies, Optical Communications and Life Sciences product sales remained relatively consistent with the prior year, core segments were offset slightly by declines in the Environmental sales of our diesel products declined by 9%; and Technologies and Specialty Materials segments. The change in core net sales was driven by the following events: • A decline of $176 million in the Specialty Materials segment, due to a 17% decline in Corning Gorilla Glass sales. Core Equity in Earnings of Affiliated Companies The following provides a summary of core equity in earnings of affiliated companies (in millions): % change 2014 2013 2012 14 vs. 13 13 vs. 12 Samsung Corning Precision Materials $ 419 $ 549 (24) Dow Corning* $ 287 $ 145 $ 143 98 1 All other $ 24 $ 31 $ 21 (23) 48 Total core equity earnings $ 311 $ 595 $ 713 (48) (17) * In 2013 and 2012, 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 in the twelve months ended December 31, 2014, when compared to the same period last year, 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, 2014 2013 2012 Silicones $ 197 $ 145 $ 143 Polysilicon (Hemlock Semiconductor Group) 90 31 25 Total Dow Corning $ 287 $ 176 $ 168 The following table reconciles the non-GAAP financial measure of equity earnings from Dow Corning to its most directly comparable GAAP financial measure: 2014 2013 2012 As reported $ 252 $ 196 $ 90 Hemlock Semiconductor operating results(3) (31) (25) Hemlock Semiconductor non-operating results(3) (1) 77 Equity in earnings of affiliated companies(9) 35 (19) 1 Core Performance measures $ 287 $ 145 $ 143 See Part 1, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures,“Items which we exclude from GAAP measures to arrive at Core Performance measures” for the descriptions of the footnoted reconciling items. CORNING INCORPORATED - 2014 Annual Report 27


  • Page 38

    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2014 vs. 2013 • An increase in core equity earnings from Dow Corning, driven by a decrease in tax expense, improved manufacturing efficiency and an Core equity earnings from Dow Corning increased in the twelve months increase in volume; ended December 31, 2014, when compared to the same period in 2013, driven by higher earnings in both the silicones and polysilicon segments. • An increase of $57 million in the Environmental Technologies segment, Driving the increase was a decrease in tax expense in the silicones driven by an increase in demand for our diesel products and improved segment and higher volume and improved manufacturing performance manufacturing efficiency; and in the polysilicon segment. • An increase of $35 million in the Optical Communications segment, driven by higher sales of carrier network and enterprise network products. 2013 vs. 2012 The increase in core earnings for the year ended December 31, 2014 was Core equity earnings of affiliated companies declined by 17% in the year offset somewhat by price declines in the mid-teens in percentage terms ended December 31, 2013, when compared to the same period in 2012. outpacing an increase in volume slightly higher than 10% in our Display Equity earnings from Samsung Corning Precision Materials decreased Technologies segment. by $130 million, or 24%, driven primarily by price declines in the mid- When compared to the same period last year, core earnings increased teens in percentage terms and higher taxes due to the expiration of in the twelve months ended December 31, 2013 by $202 million, or 13%, tax holidays in the amount of $54 million. Slightly offsetting the decline driven by the following items: were manufacturing improvements in the amount of $28 million. Core equity earnings from Dow Corning were relatively consistent in • Higher core earnings in the Optical Communications, Life Sciences, the twelve months ended December 31, 2013, when compared to the Environmental Technologies and Display Technologies segments in same period in 2012, with lower prices and weaker demand for silicone the amounts of $59 million, $44 million, $11 million and $7 million, products in Europe and China and higher interest expense offset by a respectively; and reduction in costs as a result of restructuring actions implemented in • Lower operating expenses in the amount of $49 million, driven by the fourth quarter of 2012. a decrease in variable compensation and cost control measures implemented by our segments. Core Earnings Included in core earnings for the years ended December 31, 2014, 2013 and 2012 is net periodic pension expense in the amount of $74 million, When compared to the same period last year, core earnings increased $37 million and $63 million, respectively, which excludes the annual in the twelve months ended December 31, 2014 by $388 million, or 22%, pension mark-to-market adjustments. In 2014, 2013 and 2012, the mark- driven by the following items (amounts presented after-tax): to-market adjustments were a pre-tax loss in the amount of $29 million, • The impact of the consolidation of Corning Precision Materials and the a gain in the amount of $30 million and a loss in the amount of resulting cost reductions and efficiencies gained through synergies; $217 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): 2014 2013 2012 Core earnings attributable to Corning Incorporated $ 2,185 $ 1,797 $ 1,595 Less: Series A convertible preferred stock dividend 94 Core earnings available to common stockholders - basic 2,091 1,797 1,595 Add: Series A convertible preferred stock dividend 94 Core earnings available to common stockholders - diluted $ 2,185 $ 1,797 $ 1,595 Weighted-average common shares outstanding - basic 1,305 1,452 1,494 Effect of dilutive securities: Stock options and other dilutive securities 12 10 12 Series A convertible preferred stock 110 Weighted-average common shares outstanding - diluted 1,427 1,462 1,506 Core basic earnings per common share $ 1.60 $ 1.24 $ 1.07 Core diluted earnings per common share $ 1.53 $ 1.23 $ 1.06 28 CORNING INCORPORATED - 2014 Annual Report


  • Page 39

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Reconciliation of Non-GAAP Measures We utilize certain financial measures and key performance indicators are excluded from the comparable measure as calculated and presented that are not calculated in accordance with GAAP to assess our financial in accordance with GAAP in the statement of income or statement of and operating performance. A non-GAAP financial measure is defined cash flows. as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect Core net sales, core equity earnings of affiliated companies and core of excluding amounts, that are included in the comparable measure earnings are non-GAAP financial measures utilized by our management calculated and presented in accordance with GAAP in the statement to analyze financial performance without the impact of items that are of income or statement of cash flows, or (ii) includes amounts, or is driven by general economic conditions and events that do not reflect subject to adjustments that have the effect of including amounts, that 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, 2014 Equity Income before Net Effective Earnings Net sales earnings income taxes income tax rate per share As reported $ 9,715 $ 266 $ 3,568 $ 2,472 30.7% $ 1.73 Constant-yen(1) 502 2 419 306 0.22 Constant-won(1) 37 26 0.02 Purchased collars and average forward contracts(2) (1,369) (916) (0.64) (4) Acquisition-related costs 74 57 0.04 Discrete tax items and other tax-related adjustments(5) 240 0.17 Litigation, regulatory and other legal matters(6) (1) (2) Restructuring, impairment and other charges(7) 86 66 0.05 (8) Liquidation of subsidiary (3) Equity in earnings of affiliated companies(9) 43 43 38 0.03 Gain on previously held equity investment(10) (394) (292) (0.20) Settlement of pre-existing contract(10) 320 320 0.22 Contingent consideration fair value adjustment(10) (249) (194) (0.14) Post-combination expenses(10) 72 55 0.04 Other items related to the Acquisition of Samsung Corning Precision Materials(10) (10) (12) (0.01) Pension mark-to-market adjustment(11) 29 24 0.02 Core performance measures $ 10,217 $ 311 $ 2,625 $ 2,185 16.8% $ 1.53 CORNING INCORPORATED - 2014 Annual Report 29


  • Page 40

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Year ended December 31, 2013 Equity Income before Net Effective (in millions) Net sales earnings income taxes income tax rate Per share As reported $ 7,819 $ 547 $ 2,473 $ 1,961 20.7% $ 1.34 Constant-yen(1) 129 36 122 96 0.07 Purchased collars and average rate forwards(2) (435) (287) (0.20) Other yen-related transactions(2) (99) (69) (0.05) Hemlock Semiconductor operating results(3) (31) (31) (30) (0.02) Hemlock Semiconductor non-operating results(3) 1 1 1 Acquisition-related costs(4) 54 40 0.03 Discrete tax items and other tax-related adjustments(5) 9 0.01 Certain litigation-related charges and credits(6) 19 13 0.01 Restructuring, impairment and other charges(7) 67 46 0.03 Equity in earnings of affiliated companies(9) 42 42 44 0.02 Pension mark-to-market adjustment(11) (30) (17) (0.01) Gain on change in control of equity investment(12) (17) (12) (0.01) Other 4 2 Core performance measures $ 7,948 $ 595 $ 2,170 $ 1,797 17.2% $ 1.23 Year ended December 31, 2012 Equity Income before Net Effective (in millions) Net sales earnings income taxes income tax rate Per share As reported $ 8,012 $ 810 $ 1,975 $ 1,636 17.2% $ 1.09 Constant-yen(1) (407) (167) (434) (353) (0.23) Other yen-related transactions(2) (22) (16) (0.01) Hemlock Semiconductor operating results(3) (25) (25) (23) (0.02) Hemlock Semiconductor non-operating results(3) 77 77 72 0.05 (4) Acquisition-related costs 24 16 0.01 Discrete tax items and other tax-related adjustments(5) 41 0.03 Certain litigation-related charges and credits(6) 14 9 0.01 Restructuring, impairment and other charges(7) 133 91 0.06 Pension mark-to-market adjustment(11) 217 140 0.09 Equity in earnings of affiliated companies(9) 18 18 17 0.01 (13) Loss on repurchase of debt 26 17 0.01 Accumulated other comprehensive income(14) (52) (52) (0.03) Core performance measures $ 7,605 $ 713 $ 1,951 $ 1,595 18.2% $ 1.06 30 CORNING INCORPORATED - 2014 Annual Report


  • Page 41

    Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 Corning’s LCD glass business 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 December 31, 2014, we used an internally derived management rate of ¥93, which is aligned to our yen portfolio of purchased collars and average rate forwards, 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 Samsung Corning Precision Materials’(now Corning Precision Materials) costs are denominated in 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 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. We have not recast prior periods presented as the impact is not material to Corning in those periods. (2) Purchased and zero cost collars, average forward contracts and other yen-related transactions: We have excluded the impact of our yen-denominated purchased collars, average forward contracts, and other yen-related transactions for each period presented. Additionally, we are also excluding the impact of our portfolio of Korean won-denominated zero cost collars which we entered into in the second quarter of 2014. By aligning an internally derived rate with our portfolio of purchased collars and average forward contracts, and excluding other yen-related transactions and the constant-currency adjustments, we have materially mitigated the impact of changes in the Japanese yen and Korean won. (3) Results of Dow Corning’s consolidated subsidiary, Hemlock Semiconductor: In 2013, we excluded the results of Dow Corning’s consolidated subsidiary, Hemlock Semiconductor, a producer of polycrystalline silicon, to remove the operating and non-operating items and events which have caused severe unpredictability and instability in earnings beginning in 2012. These events were primarily driven by the macro-economic environment. Specifically, the negative impact of the determination by the Chinese Ministry of Commerce (“MOFCOM”), which imposed provisional anti-dumping duties on solar-grade polysilicon imports from the United States, and the impact of asset write-offs, offset by the benefit of large payments required under Hemlock Semiconductor customers’ “take-or-pay” contracts, are events that are unrelated to Dow Corning’s core operations, and that have, or could have, significant impacts to this business. Beginning in 2014, due to the stabilization of the polycrystalline silicon industry, we will no longer exclude the operating results of Hemlock Semiconductor from core performance measures. (4) Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs. (5) 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 a transfer pricing out of period adjustment in 2014. This item also includes the income tax effects of adjusting from GAAP earnings to core earnings. (6) 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 the settlement of litigation related to a small acquisition. (7) Restructuring, impairment and other charges. This amount includes restructuring, impairment and other charges, as well as other expenses and disposal costs not classified as restructuring expense. (8) Liquidation of subsidiary: The partial impact of non-restructuring related items due to the decision to liquidate a consolidated subsidiary that is not significant. (9) 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. (10) 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. (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. Management believes that pension actuarial gains and losses are primarily financing activities that are more reflective of changes in current conditions in global financial markets, and are not directly related to the underlying performance of our businesses. For further information on the actuarial assumptions and plan assets referenced above, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, under Critical Accounting Estimates - Employee Retirement Plans, and Note 13, Employee Retirement Plans, of Notes to the Consolidated Financial Statements. (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. (13) Loss on repurchase of debt: In 2012, Corning recorded a loss on the repurchase of $13 million of our 8.875% senior unsecured notes due 2021, $11 million of our 8.875% senior unsecured notes due 2016, and $51 million of our 6.75% senior unsecured notes due 2013. (14) Accumulated other comprehensive income: In 2012, Corning recorded a translation capital gain on the liquidation of a foreign subsidiary. CORNING INCORPORATED - 2014 Annual Report 31


  • Page 42

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Reportable Segments Our reportable segments are as follows: We prepared the financial results for our segments on a basis that is consistent with the manner in which we internally disaggregate • Display Technologies – manufactures glass substrates for flat panel financial information to assist in making internal operating decisions. liquid crystal displays. We included the earnings of equity affiliates that are closely associated • Optical Communications – manufactures carrier network and with our reportable segments in the respective segment’s net income. enterprise network components for the telecommunications industry. We have allocated certain common expenses among our reportable segments differently than we would for stand-alone financial • Environmental Technologies – manufactures ceramic substrates and information prepared in accordance with U.S. GAAP. The Display filters for automotive and diesel applications. Technologies, Optical Communications, Environmental Technologies, • Specialty Materials – manufactures products that provide more than Specialty Materials and Life Sciences segments include non-GAAP 150 material formulations for glass, glass ceramics and fluoride crystals measures which are not prepared in accordance with GAAP. We believe to meet demand for unique customer needs. investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our core operating performance • Life Sciences – manufactures glass and plastic labware, and with how management evaluates our operational results and trends. equipment, media and reagents to provide workflow solutions for These measures are not, and should not be viewed as a substitute for scientific applications. GAAP reporting measures. For a reconciliation of non-GAAP performance measures to the most directly comparable GAAP financial measure, All other reportable segments that do not meet the quantitative please see “Reconciliation of non-GAAP Measures” below. Segment net threshold for separate reporting have been grouped as “All Other”. This income may not be consistent with measures used by other companies. group is primarily comprised of development projects and results for The accounting policies of our reportable segments are the same as new product lines. those applied in the consolidated financial statements. Display Technologies % change As Reported (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 3,851 $ 2,545 $ 2,909 51 (13) Equity earnings of affiliated companies $ (20) $ 357 $ 692 (106) (48) Net income $ 1,369 $ 1,267 $ 1,589 8 (20) % change Core Performance (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 4,354 $ 2,674 $ 2,501 63 7 Equity earnings of affiliated companies $ (10) $ 420 $ 544 (102) (23) Net income $ 1,390 $ 1,253 $ 1,246 11 1 32 CORNING INCORPORATED - 2014 Annual Report


  • Page 43

    Management’s Discussion and Analysis of Financial Condition and Results of Operations The following table 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, 2014 Year ended December 31, 2013 Year ended December 31, 2012 Equity Net Equity Net Equity Net (in millions) Sales earnings income Sales earnings income Sales earnings income As reported $ 3,851 $ (20) $ 1,369 $ 2,545 $ 357 $ 1,267 $ 2,909 $ 692 $ 1,589 Constant-yen(1) 502 3 316 129 35 99 (408) (166) (380) (1) Constant-won 27 Purchased collars and average forward contracts(2) (290) (90) Other yen-related transactions(2) (67) (15) Acquisition-related costs(4) 37 8 Discrete tax items(5) 4 10 Restructuring, impairment, and other charges(7) 40 6 17 Equity in earnings of affiliated companies(9) 7 6 28 28 18 18 Contingent consideration fair value adjustment(10) (194) Other items related to the Acquisition of Samsung Corning Precision Materials(10) 1 73 Pension mark-to- market(11) 2 (8) 17 Core performance $ 4,354 $ (10) $ 1,390 $ 2,674 $ 420 $ 1,253 $ 2,501 $ 544 $ 1,246 See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, “Items which we exclude from GAAP measures to arrive at Core Performance measures” for an explanation of the reconciling items. As Reported The increase in net income was partially offset by the following items: • The impact of price declines in the mid-teens in percentage terms that 2014 vs. 2013 more than offset the increase in volume; When compared to the same period last year, the increase of $1,306 million in net sales in the year ended December 31, 2014, was • The absence of the $67 million gain from our yen-denominated cash due to the Acquisition of the remaining equity interests of our affiliate flow hedging program; Samsung Corning Precision Materials, and the consolidation of this entity, which added $1.8 billion in net sales. This impact was somewhat • The increase in transaction and acquisition-related costs related to offset by price declines in the mid-teens in percentage terms, which the Acquisition of Corning Precision Materials in the amounts of more than offset an increase in volume that was slightly more than 10% $73 million and $29 million, respectively; and in percentage terms, and the depreciation of the Japanese yen versus • An increase of $34 million in restructuring, impairment and the U.S. dollar, which adversely impacted net sales by $373 million. other charges. Net income in the Display Technologies segment increased by $102 million, or 8%, in the year ended December 31, 2014, when 2013 vs. 2012 In 2013, net sales in the Display Technologies segment declined in the compared to the same period last year. This increase was driven by the amount of $364 million when compared to 2012, primarily due to the following items: impact of the depreciation of the Japanese yen versus the U.S. dollar in the • The impact of the Acquisition of Corning Precision Materials and the amount of $537 million and price declines in the mid-teens in percentage resulting cost reductions gained through synergies; terms, offset somewhat by an increase in volume in the mid-twenties. The increase in volume was driven by higher sales of larger-sized LCD • The fair value adjustment of the contingent consideration resulting televisions, defined as greater than 40 inches, which increased by nearly from the Acquisition of Corning Precision Materials in the amount of 100% in 2013, and higher sales in mobile computing products, including $194 million; and tablets and smart phones. Additionally, during the fourth quarter of 2013, • Improvements in manufacturing efficiency of $46 million. we renewed the agreements with key customers that we had announced in the fourth quarter of 2012, which stabilize Corning’s share at each of the customers and maintain a fixed relationship between Corning’s pricing and competitive pricing at that customer. CORNING INCORPORATED - 2014 Annual Report 33


  • Page 44

    Management’s Discussion and Analysis of Financial Condition and Results of Operations When compared to 2012, the $335 million decrease in equity earnings When compared to 2012, the increase in core earnings in the Display from Samsung Corning Precision Materials in 2013 reflected the impact Technologies segment in 2013 reflects an increase in volume in the mid- of the depreciation of the Japanese yen versus the U.S. dollar in the twenties in percentage terms and the impact of cost reduction programs, amount of $201 million and price declines in the mid-teens in percentage partially offset by price declines in the mid-teens in percentage terms terms. Volume remained relatively consistent in 2013 when compared and the impact of lower equity earnings. to the levels in 2012. Manufacturing improvements in the amount of $28 million were more than offset by higher taxes in the amount of $54 million, driven by the partial expiration of a Korean tax holiday and Other Information $28 million of asset write-offs and disposals. The Display Technologies segment has a concentrated customer base When compared to 2012, the decrease in net income of $322 million comprised of LCD panel and color filter makers primarily located in in the Display Technologies segment in 2013 reflects the impact of the Japan, South Korea, China and Taiwan. In 2014, three customers of the depreciation of the Japanese yen versus the U.S. dollar in the amount Display Technologies segment, which individually accounted for more of $479 million and the impact of price declines in the mid-teens in than 10% of segment net sales, accounted for a combined 61% of total percentage terms. These declines were partially offset by an increase in segment sales. In 2013, four customers of the Display Technologies volume in the mid-twenties in percentage terms, the impact of gains segment, which individually accounted for more than 10% of segment realized on our purchased collars and average rate forwards in the net sales, accounted for a combined 94% of total segment sales. In 2012, amount of $90 million and cost reduction programs. three customers of the Display Technologies segment, which individually accounted for more than 10% of segment net sales, accounted for a combined 63% of total segment sales. Our customers face the same Core Performance global economic dynamics as we do in this market. Our near-term sales and profitability would be impacted if any of these significant customers 2014 vs. 2013 were unable to continue to purchase our products. When compared to the same period last year, the increase in core net sales of $1,680 million, or 63%, in the year ended December 31, 2014, In addition, prior to consolidation, Samsung Corning Precision Materials’ was due to the Acquisition of the remaining equity interests of our sales were concentrated across a small number of its customers. In affiliate Corning Precision Materials, and the consolidation of this entity, 2013 and 2012, sales to two LCD panel makers located in South Korea which added $1.9 billion in net sales. This impact was somewhat offset accounted for approximately 93% of Samsung Corning Precision by price declines in the mid-teens in percentage terms, which more Materials sales in each of those two years. than offset an increase in volume that was slightly more than 10% in Corning has invested to expand capacity to meet the projected demand percentage terms. for LCD glass substrates. In 2014, 2013 and 2012, capital spending in this Core earnings in the Display Technologies segment increased by segment was approximately $400 million, $350 million and $850 million, $137 million, or 11%, in the year ended December 31, 2014, when respectively. We expect capital spending for 2015 to be approximately compared to the same period last year. The increase was driven by the $650 million. positive impact of the Acquisition of Corning Precision Materials and the resulting cost reductions gained through synergies, coupled with Outlook: improvements in manufacturing efficiency of $46 million, partially offset by the impact of price declines in the mid-teens in percentage Corning anticipates another year of growth in the LCD glass market terms that more than offset the increase in volume. in 2015, with retail demand up high-single digits in percentage terms, as measured in square feet. We believe that supply chain inventory 2013 vs. 2012 levels remain healthy and industry glass supply appears aligned with In 2013, our Display Technologies segment regained positive momentum, overall demand. as demonstrated by the increase in core net sales of 7%, when compared to core net sales in 2012, which declined by 7% when compared to 2011. In the first quarter of 2015, Corning anticipates LCD glass volume in its During 2013, volume improvements in the mid-twenties in percentage Display Technologies segment will be consistent to down slightly on a terms more than outpaced price declines in the mid-teens. The increase sequential basis, following a very strong fourth quarter performance. in volume was driven by higher sales of larger-sized LCD televisions, This is in line with normal seasonality in the business. Quarterly glass defined as greater than 40 inches, which increased by nearly 100% in price declines are expected to be moderate again. 2013, and higher sales in mobile computing products, including tablets The end market demand for LCD televisions, monitors and notebooks is and smart phones. Additionally, during the fourth quarter of 2013, we dependent on consumer retail spending, among other factors. We are renewed the agreements with key customers that we had announced in cautious about the potential negative impact that economic conditions, the fourth quarter of 2012, which stabilize Corning’s share at each of the particularly a global economic recession, excess market capacity and customers and maintain a fixed relationship between Corning’s pricing world political tensions could have on consumer demand. While the LCD and competitive pricing at that customer. industry has grown, economic volatility along with consumer preferences When compared to 2012, the decrease in core equity earnings from for panels of differing sizes, prices, or other factors may lead to pauses in Samsung Corning Precision Materials in 2013 reflected relatively market growth. Therefore, it is possible that glass manufacturing capacity consistent volume and price declines in the mid-teens in percentage may exceed demand from time to time but we believe that we have terms. Manufacturing improvements in the amount of $28 million were sufficient manufacturing flexibility to adjust to fluctuations in demand. more than offset by higher taxes in the amount of $54 million, driven by We may incur further charges in this segment to reduce our workforce the partial expiration of a Korean tax holiday. and consolidate capacity. In addition, changes in foreign exchange rates, principally the Japanese yen, will continue to impact the sales and profitability of this segment. In order to mitigate this risk, Corning entered into a series of foreign exchange contracts to hedge our exposure to movements in the Japanese yen and its impact on our earnings. 34 CORNING INCORPORATED - 2014 Annual Report


  • Page 45

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Optical Communications % change As Reported (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales: Carrier network $ 2,036 $ 1,782 $ 1,619 14 10 Enterprise network 616 544 511 13 6 Total net sales $ 2,652 $ 2,326 $ 2,130 14 9 Net income $ 205 $ 199 $ 146 3 36 % change Core Performance (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales: Carrier network $ 2,036 $ 1,782 $ 1,619 14 10 Enterprise network 616 544 511 13 6 Total net sales $ 2,652 $ 2,326 $ 2,130 14 9 Net income $ 231 $ 196 $ 137 18 43 The following table reconciles the non-GAAP financial measures for the Optical Communications segment with our financial statements presented in accordance with GAAP (in millions). Year ended Year ended Year ended December 31, 2014 December 31, 2013 December 31, 2012 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 2,652 $ 205 $ 2,326 $ 199 $ 2,130 $ 146 Acquisition-related costs(4) (2) 9 1 (7) Restructuring, impairment, and other charges 17 8 31 Pension mark-to-market(11) 13 (9) 11 Gain on change in control(12) (11) Accumulated other comprehensive income(14) (52) (8) Liquidation of subsidiary (2) Core performance $ 2,652 $ 231 $ 2,326 $ 196 $ 2,130 $ 137 See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, “Items which we exclude from GAAP measures to arrive at Core Performance measures” for an explanation of the reconciling items. As Reported Sales of enterprise network products also increased in the twelve months ended December 31, 2014, up $72 million, when compared to the 2014 vs. 2013 same period in 2013, due to strong sales in all regions of the world, led by In the twelve months ended December 31, 2014, net sales of the Optical an increase in sales of data center and LAN products in Europe and North Communications segment increased by $326 million, or 14%, when America, up $21 million and $20 million, respectively, and an increase of compared to the same period in 2013, driven by a $254 million increase $16 million in wireless products sales. in sales of our carrier network products. Specifically, the following items Net income increased by $6 million, or 3%, in 2014, when compared to impacted sales within the carrier network products group in the year 2013. The significant increase in volume for carrier network products ended December 31, 2014: in North America and Europe and an increase in worldwide enterprise • Higher sales of cable and hardware and equipment products primarily network product volume were somewhat offset by price declines in fiber used in fiber-to-the-home solutions in North America and Europe, up and cable products, $17 million of additional operating expenses driven $113 million and $46 million, respectively; by two small acquisitions and the absence of the inventory build we experienced in the first half of 2013. An increase in restructuring charges • The impact of a full year of sales from a small acquisition and the of $9 million, an increase of $22 million in the amount of the pension consolidation of an investment due to a change in control which mark-to-market adjustment and the absence of the $11 million gain on occurred at the end of the second quarter of 2013, which added change in control of an equity company that occurred in the second approximately $53 million; and quarter of 2013 also negatively impacted the results of this segment. • An increase of $11 million in sales of optical fiber, driven by higher sales in North America and Europe, partially offset by a decrease in China. CORNING INCORPORATED - 2014 Annual Report 35


  • Page 46

    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2013 vs. 2012 Core Performance In 2013, net sales of the Optical Communications segment increased when compared to 2012, driven by an increase of $163 million in the 2014 vs. 2013 carrier network market. Driving the growth in carrier network products When compared to the same period last year, core earnings in the twelve are the following items: months ended December 31, 2014 increased by $35 million, or 18%, when compared to 2013. The significant increase in volume for carrier network • The ramp-up of the fiber-to-the-premises initiative in Australia, which products in North America and Europe and an increase in worldwide increased sales by $28 million; enterprise network product volume were somewhat offset by price • An increase of $23 million in sales of wireless products; declines in fiber and cable products, $17 million of additional operating expenses driven by two small acquisitions and the absence of the • Higher sales of cable products in North America, China and Europe, up inventory build we experienced in the first half of 2013. $52 million, $33 million and $26 million, respectively; 2013 vs. 2012 • The impact of a small acquisition and the consolidation of an The increase in core earnings in 2013 when compared to 2012 reflects an investment due to a change in control, which added approximately increase in volume in carrier and enterprise network products, improved $53 million in 2013; and manufacturing performance and the implementation of strong • Offsetting the increase in sales of carrier network products in 2013 was spending controls and cost reduction initiatives, offset by lower volume a decline in sales of optical fiber, driven by lower demand for single- in optical fiber, lower price and a less favorable mix of products sales in mode fiber in China, Europe and North America. 2013. Movements in foreign exchange rates did not significantly impact the results of this segment. Sales in the enterprise network market increased by $33 million in the year ended 2013, when compared to 2012, driven by higher sales of data The Optical Communications segment has a concentrated customer center products in North America. base. In the years ended December 31, 2014, 2013 and 2012, one customer, which individually accounted for more than 10% of segment net sales, The increase in net income in 2013 when compared to 2012 reflects an accounted for 11%, 10% and 12%, respectively, of total segment net sales. increase in volume in carrier and enterprise network products, improved manufacturing performance and the implementation of strong spending controls and cost reduction initiatives, combined with an increase of Outlook: $20 million on the gain in 2013 versus a loss in 2012 on the mark-to- Optical Communications segment sales in the first quarter of 2015 are market of our defined benefit pension plans, a reduction of $23 million in expected to increase by more than 10 percent when compared to the first restructuring charges and a gain of $11 million on the change in control of quarter of 2014, as the segment continues its strong overall performance. an equity company. This increase was somewhat offset by an increase in acquisition-related costs of $8 million and lower volume in optical fiber, lower price and a less favorable mix of products sales in 2013. Movements in foreign exchange rates did not significantly impact the results of this segment in the years ended December 31, 2014 and 2013. Environmental Technologies % change As Reported (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales: Automotive $ 528 $ 485 $ 486 9 Diesel 564 434 478 30 (9) Total net sales $ 1,092 $ 919 $ 964 19 (5) Net income $ 182 $ 132 $ 112 38 18 % change Core Performance (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales: Automotive $ 528 $ 485 $ 486 9 Diesel 564 434 478 30 (9) Total net sales $ 1,092 $ 919 $ 964 19 (5) Net income $ 187 $ 130 $ 119 44 9 36 CORNING INCORPORATED - 2014 Annual Report


  • Page 47

    Management’s Discussion and Analysis of Financial Condition and Results of Operations The following table reconciles the non-GAAP financial measures for the Environmental Technologies segment with our financial statements presented in accordance with GAAP (in millions). Year ended Year ended Year ended December 31, 2014 December 31, 2013 December 31, 2012 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 1,092 $ 182 $ 919 $ 132 $ 964 $ 112 (7) Restructuring, impairment, and other charges 1 2 Pension mark-to-market(11) 5 (3) 5 Core performance $ 1,092 $ 187 $ 919 $ 130 $ 964 $ 119 See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, “Items which we exclude from GAAP measures to arrive at Core Performance measures” for an explanation of the reconciling items. As Reported Core Performance 2014 vs. 2013 2014 vs. 2013 In the twelve months ended December 31, 2014, net sales of this segment When compared to the same period last year, core earnings in the increased by $173 million, or 19%, when compared to the same period in twelve months ended December 31, 2014 increased by $57 million, 2013, driven by higher sales across all product lines. Driving the increase or 44%, driven by improvements in manufacturing efficiency and was higher demand for our heavy duty diesel products propelled by new strong volume gains across both automotive and diesel product lines. governmental regulations in Europe and China and increased demand Improving market conditions for heavy-duty diesel products in Europe, for Class 8 vehicles in North America. Sales of light-duty diesel products China and North America and higher European sales of light-duty diesel also improved due to higher volume in Europe. Automotive substrate products, combined with an increase in automotive vehicle builds, drove product sales increased due to higher demand in Europe and China. the increase. Higher costs associated with facility expansion projects somewhat offset the increase in net income When compared to the same period last year, net income in the twelve months ended December 31, 2014 improved significantly, up $50 million, 2013 vs. 2012 or 38%, driven by improvements in manufacturing efficiency and Although net sales declined in 2013 when compared to 2012, core earnings strong volume gains across both automotive and diesel product lines. increased by 9%, driven by significantly improved manufacturing Improving market conditions for heavy-duty diesel products in Europe, performance for our automotive and heavy-duty diesel products, and China and North America and higher European sales of light-duty diesel lower operating expenses. products, combined with an increase in automotive vehicle builds, drove the increase. Higher costs associated with facility expansion projects The Environmental Technologies segment sells to a concentrated and an increase in the pension mark-to-market adjustment somewhat customer base of catalyzer and emission control systems manufacturers, offset the increase in net income. who then sell to automotive and diesel engine manufacturers. Although our sales are to the emission control systems manufacturers, the use 2013 vs. 2012 of our substrates and filters is generally required by the specifications When compared to 2012, net sales in the Environmental Technologies of the automotive and diesel vehicle or engine manufacturers. For segment decreased in 2013, due to lower sales of light-duty diesel filters 2014, 2013, and 2012, net sales to three customers, which individually and heavy-duty diesel products. Demand for light-duty diesel vehicles accounted for more than 10% of segment sales, accounted for 88%, 87% which use our filters declined due to weak economic conditions in and 86%, respectively, of total segment sales. While we are not aware Europe. Heavy-duty diesel product sales were lower due to the decline of any significant customer credit issues with our direct customers, our in the production of Class 8 vehicles in North America. Net sales of this near-term sales and profitability would be impacted if any individual segment in 2013 were not materially impacted by movements in foreign customers were unable to continue to purchase our products. exchange rates when compared to 2012. Although net sales declined in 2013 when compared to 2012, net income Outlook: increased by 18%, driven by significantly improved manufacturing performance for our automotive and heavy-duty diesel products, and We anticipate that Environmental Technologies sales in the first quarter lower operating expenses. Net income also included an increase of of 2015 will be consistent when compared to the first quarter of 2014. $8 million due to the positive change in the mark-to-market of our defined benefit pension plans. Movements in foreign exchange rates did not significantly impact the results of this segment in the years ended December 31, 2014 and 2013. CORNING INCORPORATED - 2014 Annual Report 37


  • Page 48

    Management’s Discussion and Analysis of Financial Condition and Results of Operations Specialty Materials % change As Reported (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 1,205 $ 1,170 $ 1,346 3 (13) Net income $ 144 $ 187 $ 137 (23) 36 % change Core Performance (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 1,205 $ 1,170 $ 1,346 3 (13) Net income $ 162 $ 196 $ 201 (17) (2) The following table reconciles the non-GAAP financial measures for the Specialty Materials segment with our financial statements presented in accordance with GAAP (in millions). Year ended Year ended Year ended December 31, 2014 December 31, 2013 December 31, 2012 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 1,205 $ 144 $ 1,170 $ 187 $ 1,346 $ 137 (1) Constant-yen (7) (2) 25 Purchased collars and average forward contracts(2) 14 Acquisition-related costs(4) (1) 1 Restructuring, impairment, and other charges(7) 12 12 33 (11) Pension mark-to-market (2) 6 Core performance $ 1,205 $ 162 $ 1,170 $ 196 $ 1,346 $ 201 See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, “Items which we exclude from GAAP measures to arrive at Core Performance measures” for an explanation of the reconciling items. As Reported 2013 vs. 2012 Net sales for the year ended December 31, 2013 decreased in the Specialty 2014 vs. 2013 Materials segment when compared to 2012, due to a 17% decline in sales The Specialty Materials segment manufactures products that of Corning Gorilla Glass. Although retail demand for products using provide more than 150 material formulations for glass, glass ceramics our Corning Gorilla Glass has increased in 2013, supply chain variability, and fluoride crystals to meet demand for unique customer needs. during which we experienced robust sales of this glass in the latter Consequently, this segment operates in a wide variety of commercial half of 2012, resulted in a supply chain contraction throughout 2013. and industrial markets that include display optics and components, Advanced optics products sales increased slightly in the year ended semiconductor optics components, aerospace and defense, astronomy, December 31, 2013, driven by the beginning of a business recovery. ophthalmic products, telecommunications components and a protective cover glass that is optimized for portable display devices. Although net sales declined by 13% in the year ended December 31, 2013, net income increased by 36%, when compared to 2012, due to strong Net sales for the twelve months ended December 31, 2014 in the cost controls, lower restructuring charges, manufacturing cost reduction Specialty Materials segment increased by $35 million, or 3%, when initiatives and the beginning of the advanced optics products business compared to the same period in 2013, driven by higher sales of our recovery, which partially offset the lower sales of Corning Gorilla Glass. advanced optics and commercial optics products. Although Corning The depreciation of the Japanese yen versus the U.S. dollar positively Gorilla Glass volume increased by 23%, net sales remained consistent impacted net income by approximately $27 million in the year ended with the prior year, driven by an unfavorable shift in product mix and December 31, 2013, when compared to the same period in the prior year. price declines. Additionally, although volume increased in 2014 when compared to 2013, the growth did not meet our expectations due to the Movements in foreign exchange rates did not significantly impact the flat market for tablets. results of this segment in the years ended December 31, 2014 and 2013. When compared to the same period last year, the decrease in net income for the twelve months ended December 31, 2014 was driven Core Performance by the absence of the inventory build we experienced in the first half of 2013, the write-off a trade receivable balance in the amount of $8 2014 vs. 2013 million and price declines for Corning Gorilla Glass. Partially offsetting When compared to the same period last year, the decrease in core the decrease was an increase in volume for both Corning Gorilla Glass earnings in the twelve months ended December 31, 2014 was driven and advanced optics products and the impact of costs reductions as a by the absence of the inventory build we experienced in the first half result of restructuring actions. of 2013, price declines for Corning Gorilla Glass and higher production costs. Partially offsetting the decrease was an increase in volume for both Corning Gorilla Glass and advanced optics products and the impact of costs reductions as a result of restructuring actions. 38 CORNING INCORPORATED - 2014 Annual Report


  • Page 49

    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2013 vs. 2012 two customers of the Specialty Materials segment, which individually Although core net sales declined by 13% in the year ended December 31, accounted for more than 10% of segment sales, accounted for 54% of 2013, core earnings decreased by only 2%, when compared to 2012, due total segment sales. to strong cost controls, manufacturing cost reduction initiatives and the beginning of the advanced optics products business recovery, which partially offset the lower sales of Corning Gorilla Glass. Outlook: In the first quarter of 2015, Specialty Materials segment sales are For 2014 and 2013, three customers of the Specialty Materials segment, expected to increase by approximately 10% when compared to the which individually accounted for more than 10% of segment sales, first quarter of 2014, as a result of increased Gorilla Glass demand for accounted for 51% and 47%, respectively, of total segment sales. For 2012, products launched in the third and fourth quarters of 2014. Life Sciences % change As Reported (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 862 $ 851 $ 657 1 30 Net income $ 71 $ 71 $ 28 154 % change Core Performance (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 862 $ 851 $ 657 1 30 Net income $ 87 $ 92 $ 48 (5) 92 The following table reconciles the non-GAAP financial measures for the Life Sciences segment with our financial statements presented in accordance with GAAP (in millions). Year ended Year ended Year ended December 31, 2014 December 31, 2013 December 31, 2012 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 862 $ 71 $ 851 $ 71 $ 657 $ 28 (4) Acquisition-related costs 14 21 15 Restructuring, impairment, and other charges(7) 2 3 1 Pension mark-to-market(11) (3) 4 Core performance $ 862 $ 87 $ 851 $ 92 $ 657 $ 48 See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, “Items which we exclude from GAAP measures to arrive at Core Performance measures” for an explanation of the reconciling items. As Reported When compared to the same period in 2012, net income in the year ended December 31, 2013 increased substantially, driven by a $38 million 2014 vs. 2013 improvement attributable to the impact of the Discovery Labware Net sales for the year ended December 31, 2014 increased by $11 million acquisition and the positive impact of $7 million on the change in when compared to the same period in the prior year. Higher sales in the mark-to-market of our defined benefit pension plans. Offsetting North America and China, up $12 million and $5 million, respectively, the gains from Discovery Labware and the pension mark-to-market were offset slightly by lower sales in Australia. Net income remained were an increase in acquisition-related costs of $6 million and higher consistent when compared to the same period in 2013, driven by less restructuring charges. favorable product mix and higher operating expenses which were Movements in foreign exchange rates did not significantly impact the offset by higher volume and lower acquisition-related costs due to the results of this segment in the years ended December 31, 2014 and 2013. completion of the integration of Discovery Labware business. 2013 vs. 2012 Core Performance Net sales for the year ended December 31, 2013 increased when compared to the same period last year, due to the impact of the acquisition of the 2014 vs. 2013 Discovery Labware business completed in the fourth quarter of 2012, Core earnings decreased slightly when compared to the same period which increased net sales by $192 million. Net sales of the segment’s in 2013, driven by less favorable product mix, offset somewhat by existing lines remained relatively consistent. higher volume. CORNING INCORPORATED - 2014 Annual Report 39


  • Page 50

    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2013 vs. 2012 sales, collectively accounted for 45%, 44% and 38%, respectively, of total When compared to the same period in 2012, core earnings in the year segment sales. ended December 31, 2013 increased substantially, driven by the impact of the Discovery Labware acquisition in the amount of $38 million. Movements in foreign exchange rates did not significantly impact the Outlook: results of this segment in the year ended December 31, 2013. Sales in the Life Sciences segment are expected to remain relatively consistent in the first quarter of 2015, when compared to the same For 2014, 2013 and 2012, two customers in the Life Sciences segment, period in 2014. which individually accounted for more than 10% of total segment net All Other % change As Reported (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 53 $ 8 $ 6 563 33 Research, development and engineering expenses $ 177 $ 116 $ 123 53 (6) Equity earnings of affiliated companies $ 18 $ (24) $ 17 * * Net loss $ (196) $ (163) $ (98) 20 66 * Percent change not meaningful % change Core Performance (in millions) 2014 2013 2012 14 vs. 13 13 vs. 12 Net sales $ 53 $ 8 $ 6 563 33 Research, development and engineering expenses $ 177 $ 116 $ 123 53 (6) Equity earnings of affiliated companies $ 18 $ 12 $ 17 50 (29) Net loss $ (193) $ (122) $ (98) 58 24 The following table reconciles the non-GAAP financial measures for the All Other segment with our financial statements presented in accordance with GAAP (in millions). Year ended December 31, 2014 Year ended December 31, 2013 Equity Net Equity Net (in millions) Sales earnings income Sales earnings income As reported $ 53 $ 18 $ (196) $ 8 $ (24) $ (163) Purchased collars and average forward contracts(2) 2 Restructuring, impairment, and other charges(7) Pension mark-to-market(11) 1 36 41 Core performance $ 53 $ 18 $ (193) $ 8 $ 12 $ (122) See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, “Items which we exclude from GAAP measures to arrive at Core Performance measures” for an explanation of the reconciling items. All other segments that do not meet the quantitative threshold for 2014 vs. 2013 separate reporting have been grouped as “All Other.” This group is The increase in net sales of this segment in the year ended December 31, primarily comprised of the results of Corning Precision Materials’ 2014 reflects the consolidation of the Corning Precision Materials’ non- non-LCD business and new product lines and development projects LCD business as a result of the Acquisition. The increase in the net loss of that involve the use of various technologies for new products such as this segment reflects higher spending for development projects which advanced flow reactors and adjacency businesses in pursuit of thin, were not part of the segment in the year ended December 31, 2013. strong glass. This segment also includes results for certain corporate investments such as Eurokera and Keraglass equity affiliates, which manufacture smooth cooktop glass/ceramic products. 40 CORNING INCORPORATED - 2014 Annual Report

  • View More

Get the full picture and Receive alerts on lawsuits, news articles, publications and more!