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    Where science becomes material. 2016 Annual Report


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    Cover: Glass is remarkably versatile. To date, scientists have combined silica with approximately 50 elements to develop unique glass compositions. But we have the potential to use the entire Periodic Table in countless combinations. To drive that point home, imagine you’re holding an Oxford English Dictionary in your hands and think of how many words we can make using only 26 letters. That’s why we believe some of the greatest glass innovations are still ahead. Corning is one of the world’s leading innovators in materials science. For more than 165 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.


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    10.2015 1 1 .2015 Introduced Strategy Acquired Gerresheimer’s & Capital Allocation pharmaceutical glass Framework tubing business To Our Shareholders: Corning marked its 165th birthday in 2016. When you are 2016 Financial Results at the helm of an institution that spans three centuries, Before I review our execution against the Framework, here’s you learn to take the long view. That means rewarding a closer look at Corning’s financial performance. shareholders in the near term, while protecting the interests of all stakeholders long term. It means optimizing today’s Core sales were $9.7 billion, down 1 percent from 2015, businesses, while investing to create tomorrow’s growth while core earnings were $1.8 billion, down approximately drivers. And it means making strategic choices to ensure 6 percent year over year. However, core earnings per share sustainable success and ongoing relevance in an evolving of $1.55 were up 11 percent from 2015, driven by share and highly competitive global marketplace. repurchases as part of our strategy to create value for investors. That’s exactly what Corning’s Management Committee was doing when it laid out the company’s Strategy and The first quarter was our weakest, driven by a combination Capital Allocation Framework in late 2015. (Details follow.) of slow demand in some markets and a short-term execution issue. We told investors our performance would improve as Stakeholders’ assessment of Corning’s 2016 performance the year progressed, and we delivered on that commitment will depend on their vantage point. An examination of the with strong year-over-year growth in the second half. year’s financial results reveals core sales that were down slightly from 2015. A broader view shows a company that n In Display Technologies, volume was up despite a matur- strengthened its industry leadership and ended the year ing market for LCD televisions and lower-than-expected strong. And the long view reveals strong progress toward demand in the IT segment. Core sales were down year the targets Corning said it would achieve within a four-year over year due to price declines, which exceeded volume period. growth. However, price declines were more moderate than in 2015, and Corning continues to lead competitors Although 2016 was not a growth year for us, we were on sales and profitability by a wide margin. extremely pleased with several key achievements. We strengthened Corning’s portfolio with strategic transac- n In Optical Communications, strong demand for fiber- tions. We advanced major innovation programs. And we to-the-home technology was offset by problems with returned cash to shareholders through stock buybacks and a manufacturing software implementation early in the a double-digit dividend increase. As we look ahead, we are year. We resolved the issue in the second quarter and confident in Corning’s ability to deliver sustainable secular believe that the sales growth in the third and fourth growth over the long term. quarters reflects the true strength of this segment.


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    1 2.2015 1 2.2015 1.2016 1.2016 Announced Announced Corning® Formed new joint venture Completed $1.25 billion strategic realignment Gorilla® Glass for with Saint-Gobain Sekurit accelerated share of Dow Corning Automotive on Ford GT for lightweight automotive repurchase program glazing n Specialty Materials sales were lower than expected due Focusing Our Portfolio to weakness in the smartphone and tablet markets. The Framework focuses our portfolio on a set of reinforcing However, the year finished strong, driven by the capabilities with strong inter-connections. Our best-in- introduction of new products in the Corning® Gorilla® the-world capabilities include three core technologies Glass family. (glass science, ceramics science, and optical physics), n In Environmental Technologies, record sales of automo- four manufacturing and engineering platforms (vapor tive emissions-control products beat expectations and deposition, fusion, extrusion, and precision forming), and offset anticipated slow sales of products for heavy-duty five market-access platforms (optical communications, applications in North America and China. display, mobile consumer electronics, automotive, and life sciences vessels). We direct 80 percent or more of our n Life Sciences sales were up, driven by growth in the resources to opportunities that draw from at least two of bioprocess segment and in Greater China. these capabilities sets. We believe this approach reduces Our Strategy and Capital Allocation Framework the cost of innovation, increases our likelihood of success, and creates higher barriers to entry for our competitors. I described Corning’s Strategy and Capital Allocation Framework in my last letter, but here’s a quick recap. The Focusing our portfolio also means we will make strategic Framework articulates Corning’s plan for leveraging its acquisitions that enhance our product portfolio or increase financial strength and focusing its portfolio to deliver value our market reach, as well as divestitures that deliver value over the next several years. for shareholders. Utilizing Our Financial Strength The Framework underscores our commitment to good n capital stewardship, while also honoring our commitment We expect to generate and deploy $26 – $30 billion through to life-changing innovation. However, we follow Winston 2019. We will invest $10 billion to grow and sustain our Churchill’s sage advice: “However beautiful the strategy, leadership. We also plan to distribute more than $12.5 billion you should occasionally look at the results.” We have to our shareholders through share repurchases and annual been closely measuring our progress and providing dividend increases of at least 10 percent. Note that we regular updates to investors so they can assess Corning’s increased this distribution target from our original plan of performance and outlook for themselves. n $10 billion, which underscores our confidence in Corning’s future operating cash flows.


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    6.2016 6.2016 6.2016 2.2016 Increased quarterly Raised potential Acquired Alliance Fiber Completed realignment dividend 12.5% to $0.135 shareholder distributions Optic Products, Inc. of Dow Corning per share through 2019 to >$12.5 billion Since introducing the Framework in late 2015, we have n We have won the majority of platforms to date for gas distributed more than $6 billion to shareholders through particulate filters. share repurchases and a 12.5 percent increase to our n And we continue to expand the opportunities for quarterly dividend. We also announced a new $4 billion Gorilla Glass in the automotive market. Our first share repurchase authorization in December 2016 and a windshield, sunroof, and backlite windows went into 14.8 percent dividend increase in February 2017 as part of series production, and we have been selected for our ongoing commitment to reward our investors. multiple auto interior jobs. The 2016 Paris Auto Show Turning to our portfolio, we realigned our interest in Dow featured a curved Gorilla Glass console and instrument Corning, which creates significant value for shareholders, panel, and our Gorilla Glass-enabled concept car was including unlocking $4.8 billion in cash. We strengthened our lauded as one of the highlights of the 2017 Consumer position in Optical Communications with the acquisitions of Electronics Show. Alliance Fiber Optic Products, Inc. and STRAN Technologies. The Framework has paid off from a shareholder perspec- We also entered into a joint venture with Saint-Gobain tive, as well. Between October 2015 (when we introduced Sekurit to develop automotive glazing solutions and seeded the Framework) and December 2016, Corning returned a startup, Versalume, to commercialize our Fibrance® light- 50 percent versus 13.8 percent for the S&P 500 (both diffusing fiber in a range of industries. dividend adjusted). On the innovation front, we launched new products and Opportunities Ahead gained traction with customers on key growth initiatives. As we look to 2017 and beyond, here are some of the ways n We expanded our cover-glass portfolio with Gorilla® we are exploiting our distinctive capabilities to create new Glass 5, which offers superior drop performance versus revenue generators. its predecessor and competitive technologies; Gorilla® Glass SR+ for wearable devices; and Vibrant Gorilla® n In Display Technologies, we’re leveraging our fusion Glass, which enables high-resolution designs for smart- assets, glass science, and optical physics capabilities phones, tablets, and notebooks. to drive the next round of display innovations (better images, ubiquitous touch, flexible displays, thinner n Corning Iris™ Glass was named a “Display Component form factors) so we can continue creating and capturing of the Year” by the Society for Information Display. value as the LCD industry matures.


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    10.2016 8.2016 7.2016 7.2016 Launched $2 billion Launched Corning® Launched Corning® Paris Motor Show accelerated share Gorilla® Glass 5 Gorilla® Glass SR+ featured Corning® repurchase program Gorilla® Glass for Auto Interiors n In Optical Communications, we expect significant position us to resume growth in the medium term. Will they growth as we continue innovating for rapidly evolving all succeed? Probably not, but we are confident that many applications, such as fiber to the home, wireless will. And because we are leveraging existing capabilities technology, and data centers. and resources to capture these opportunities, we reduce the cost of our innovation investments, creating a very n The mobile consumer electronics market remains a attractive risk/reward ratio. key focus for our Specialty Materials segment. We will continue innovating to increase scratch resistance, Living in the Glass Age improve drop durability, enhance optical clarity, and The demand for advanced glass will continue to grow as enable new form factors. more industries recognize its unique aesthetic and technical n Corning is well positioned to benefit from the attributes. Last year, I told you that Corning believes we’ve automotive industry’s trend toward cleaner, safer, entered a new era that can best be described as The Glass and more connected cars. The adoption of gasoline Age. Several factors led us to that declaration, including particulate filters for gasoline direct-injection engines the ubiquity of glass and its central role in our day-to-day has the potential to increase our sales opportunity lives, the increasing relevance of glass to a broad range of per vehicle by a factor of three-to-four in our industries, and the accelerating pace of glass innovation. Environmental Technologies segment. We’re also Recent developments lend credence to our claim. pursuing opportunities for Gorilla Glass to reduce Corning has helped bring to life many of the products vehicle weight, improve damage resistance, increase that we envisioned in our 2011 video A Day Made of Glass, interactivity, and add aesthetic appeal. including infotainment walls, digital fitting rooms, and n Life Sciences growth will be driven by bioprocessing, connected cars. More and more of today’s leading innovators cell therapy, and 3D cell culture. Our Pharmaceutical are recognizing the potential of glass to solve some of Technologies business is also poised to capture an excit- their toughest problems, which is reflected in the diversity ing opportunity for next-generation glass packaging for of the companies who approach us and the enthusiastic drug storage and delivery. response we received at the Consumer Electronics Show. Additionally, the International Journal of Applied Glass We are excited to have such rich growth opportunities Science recently published a special issue titled “The Glass in diverse markets, and we believe that these initiatives Age,” featuring contributions from universities and research


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    12.2016 2.2017 1.2017 Authorized new Corning’s Gorilla® Increased quarterly $4 billion share Glass-powered concept dividend 14.8% to $0.155 repurchase program car cited as one of the per share highlights of the Consumer Electronics Show institutions across the globe on today’s most cutting- science, ceramics science, and optical physics — along with edge glass research, including technologies to enhance our expertise in vapor deposition, extrusion, and precision healthcare, explore planetary and geological phenomena, forming — we have continually increased the performance, and augment reality. Taken in sum, this work reinforces the lowered the cost, and improved the installation of optical fact that glass is not only one of the most transformative networks. This has allowed us to capture a disproportionate materials in history, but also has the potential to solve some share of the profits versus our competitors. And by of our world’s most urgent challenges in the future. leveraging our best-in-the-world capabilities, we believe we can grow our Optical Communications segment at Corning is excited to be leading the effort to enhance more than double the rate of the overall industry. people’s lives with advanced glass technologies, and we believe that some of the greatest glass innovations still Innovation done our way isn’t easy. It isn’t always fast. And lie ahead. it’s hard to predict the ultimate timing and returns. But I believe it’s worth it, because our successes have a profound Closing Thoughts impact on the world and create value for decades. I began my letter by talking about the long view. I’ll end Corning has a 165-year track record of life-changing with an example of what that looks like in action. More than innovation, and we are committed to another 165 years. four decades ago, Corning invented low-loss optical fiber You can count on us to manage through challenges, deliver and ushered in a communications revolution. Today, almost on our commitments, and communicate our progress along 3 billion kilometers of optical fiber are deployed worldwide, the way. and a single optical fiber link can carry up to 10 terabits per second — enough to stream 2 million high-definition Sincerely, videos simultaneously. In 2016, Corning won a Technical and Engineering Emmy® Award for this pioneering invention and its continued impact on the broadcasting industry. That’s the kind of innovation we do at Corning — inventions Wendell P. Weeks that transform industries and unleash significant new Chairman of the Board, capabilities. Our style of innovation also delivers long- Chief Executive Officer, and President term value for Corning and its shareholders. Using glass


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    Financial Highlights: In millions, except per share amounts As reported — GAAP Core performance* 2016 2015 2014 2016 2015 2014 Net Sales $ 9,390 $ 9,111 $ 9,715 $ 9,710 $ 9,800 $ 9,955 Net income attributable to Corning Incorporated $ 3,695 $ 1,339 $ 2,472 $ 1,774 $ 1,882 $ 2,023 Diluted earnings per common share attributable to Corning Incorporated $ 3.23 $ 1.00 $ 1.73 $ 1.55 $ 1.40 $ 1.42 * Core performance measures are non-GAAP financial measures. The reconciliation between these non-GAAP measures and their most directly comparable GAAP measure is provided on pages 23 through 25 of this Annual Report, as well as on the company’s website. Core performance measures are adjusted to exclude the impact of changes in Japanese yen and South Korean won foreign exchange rates, as well as other items that do not reflect ongoing operations of the company.


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    Corning Incorporated 2016 Annual Report Index Business Description..................................................................................................................................................... 1 Risk Factors..................................................................................................................................................................... 7 Legal Proceedings.......................................................................................................................................................... 11 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ......................................................................................................................... 11 Selected Financial Data (Unaudited) ......................................................................................................................... 13 Management’s Discussion and Analysis of Financial Condition and Results of Operations............................. 14 Quantitative and Qualitative Disclosures About Market Risks ............................................................................. 42 Management’s Annual Report on Internal Control Over Financial Reporting .................................................... 43 Report of Independent Registered Public Accounting Firm ................................................................................... 44 Consolidated Statements of Income .......................................................................................................................... 45 Consolidated Statements of Comprehensive Income ............................................................................................. 46 Consolidated Balance Sheets ...................................................................................................................................... 47 Consolidated Statements of Cash Flows ................................................................................................................... 48 Consolidated Statements of Changes in Shareholders’ Equity .............................................................................. 49 Notes to Consolidated Financial Statements ........................................................................................................... 50 1. Summary of Significant Accounting Policies ............................................................................................................................................... 50 2. Restructuring, Impairment and Other Charges ........................................................................................................................................... 55 3. Available-for-Sale Investments ...................................................................................................................................................................... 55 4. Significant Customers...................................................................................................................................................................................... 55 5. Inventories, Net of Inventory Reserves.......................................................................................................................................................... 55 6. Income Taxes ..................................................................................................................................................................................................... 56 7. Investments ....................................................................................................................................................................................................... 58 8. Acquisitions ....................................................................................................................................................................................................... 61 9. Property, Plant and Equipment, Net of Accumulated Depreciation ......................................................................................................... 64 10. Goodwill and Other Intangible Assets .......................................................................................................................................................... 65 11. Other Assets and Other Liabilities ................................................................................................................................................................. 66 12. Debt .................................................................................................................................................................................................................... 67 13. Employee Retirement Plans ............................................................................................................................................................................ 68 14. Commitments, Contingencies and Guarantees ........................................................................................................................................... 75 15. Hedging Activities ............................................................................................................................................................................................ 76 16. Fair Value Measurements ................................................................................................................................................................................ 78 17. Shareholders’ Equity ........................................................................................................................................................................................ 80 18. Earnings Per Common Share........................................................................................................................................................................... 83 19. Share-based Compensation ............................................................................................................................................................................ 84 20. Reportable Segments....................................................................................................................................................................................... 85 Valuation Accounts and Reserves ............................................................................................................................... 90 Quarterly Operating Results........................................................................................................................................ 91


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    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 as decorative laminates for interior architecture and advanced present corporation was incorporated in the State of New York in semiconductor packaging; and December 1936. The Company’s name was changed from Corning Glass Works to Corning Incorporated on April 28, 1989. • The family of Corning Lotus™ Glass, high-performance display glass developed to enable cutting-edge technologies, including organic Corning Incorporated is a leading innovator in materials science. For light-emitting diode (“OLED”) displays and next generation LCDs. more than 165 years, Corning has applied its unparalleled expertise in These substrate glasses provide industry-leading levels of low total specialty glass, ceramics, and optical physics to develop products that pitch variation, resulting in brighter, more energy-efficient displays have created new industries and transformed people’s lives. We succeed with higher resolutions for consumers and better yields for panel through sustained investment in research and development, a unique makers. combination of material and process innovation, and close collaboration with customers to solve tough technology challenges. Corning Through the end of 2013, the Display Technologies segment also operates in five reportable segments: Display Technologies, Optical included the equity affiliate Samsung Corning Precision Materials Co., Communications, Environmental Technologies, Specialty Materials and Ltd. (“Samsung Corning Precision Materials”), of which Corning owned Life Sciences, and manufactures products at 98 plants in 17 countries. 57.5% and Samsung Display Co., Ltd. (“Samsung Display”) owned 42.5%. As described more fully in Note 8 (Acquisitions) to the Consolidated Financial Statements, to extend Corning’s leadership in specialty glass and drive earnings growth, Corning entered into a series of strategic and Display Technologies Segment financial agreements with Samsung Display intended to strengthen Corning’s Display Technologies segment manufactures glass substrates product and technology collaborations between the two companies. for liquid crystal displays (“LCDs”) that are used primarily in LCD Corning completed the acquisition of Samsung Corning Precision televisions, notebook computers and flat panel desktop monitors. Materials on January 15, 2014. This segment develops, manufactures and supplies high quality Corning has LCD glass manufacturing operations in South Korea, Japan, glass substrates using technology expertise and a proprietary fusion Taiwan and China. Following the acquisition of Samsung Corning manufacturing process, which Corning invented and is the cornerstone Precision Materials, Corning services all specialty glass customers in all of the Company’s technology leadership in the LCD industry. The highly regions directly, utilizing its manufacturing facilities throughout Asia. automated process yields glass substrates with a pristine surface and excellent thermal dimensional stability and uniformity – essential Patent protection and proprietary trade secrets are important to the attributes for the production of large, high performance LCDs panels. Display Technologies segment’s operations. Refer to the material under Corning’s fusion process is scalable and we believe it is the most cost the heading “Patents and Trademarks” for information relating to effective process in producing large size substrates. patents and trademarks. We are recognized for providing product innovations that enable our The Display Technologies segment represented 34% of Corning’s sales customers to produce larger, lighter, thinner and higher-resolution in 2016. displays more affordably. Some of the product innovations that we have launched over the past ten years utilizing our world-class processes and capabilities include the following: Optical Communications Segment • EAGLE XG®, the industry’s first LCD glass substrate that is free of Corning invented the world’s first low-loss optical fiber in 1970. Since heavy metals; that milestone, we have continued to pioneer optical fiber, cable and • EAGLE XG® Slim glass, a line of thin glass substrates which enables connectivity solutions. As global bandwidth demand driven by video lighter-weight portable devices and thinner televisions and monitors; usage grows exponentially, telecommunications networks continue to migrate from copper to optical-based systems that can deliver the • Corning® Willow™ Glass, our ultra-thin flexible glass for use in required cost-effective bandwidth-carrying capacity. Our experience next-generation consumer electronic technologies, including curved puts us in a unique position to design and deliver optical solutions that displays for immersive viewing or mounting on non-flat surfaces. reach every edge of the communications network. This glass is also used in a variety of non-display applications, such CORNING INCORPORATED - 2016 Annual Report 1


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    Business Description This segment is classified into two main product groupings – carrier tube and ribbon cable designs with flame-retardant versions available network and enterprise network. The carrier network group consists for indoor and indoor/outdoor applications that meet local building primarily of products and solutions for optical-based communications code requirements. infrastructure for services such as video, data and voice communications. The enterprise network group consists primarily of optical-based Corning’s hardware and equipment for enterprise network applications communication networks sold to businesses, governments and include cable assemblies, fiber optic hardware, fiber optic connectors, individuals for their own use. optical components and couplers, closures and other accessories. These products may be sold as individual components or as part of integrated Our carrier network product portfolio encompassed an array of optical optical connectivity solutions designed for various network applications. fiber products, including Vascade® submarine optical fibers for use in Examples of enterprise network solutions include the Pretium EDGE® submarine networks; LEAF® optical fiber for long-haul, regional and platform, which provides high-density pre-connectorized solutions for metropolitan networks; SMF-28® ULL fiber for more scalable long-haul data center applications, and continues to evolve with recent updates for and regional networks; SMF-28e+™ single-mode optical fiber that upgrading to 40/100G applications and port tap modules for network provides additional transmission wavelengths in metropolitan and monitoring; the previously mentioned ONE Wireless platform, which access networks; ClearCurve® ultra-bendable single-mode fiber for use spans both carrier and enterprise network applications; and our recently in multiple-dwelling units and fiber-to-the-home applications; and introduced optical connectivity solutions to support customer initiatives. Corning® SMF-28® Ultra Fiber, designed for high performance across the range of long-haul, metro, access, and fiber-to-the-home network Our optical fiber manufacturing facilities are located in North Carolina, applications, combining the benefits of industry-leading attenuation China and India. Cabling operations are located in North Carolina, and improved macrobend performance in one fiber. A portion of our Germany, Poland, China and smaller regional locations. Our optical fiber is sold directly to end users and third-party cablers globally. manufacturing operations for hardware and equipment products are Corning’s remaining fiber production is cabled internally and sold to end located in Texas, Arizona, Mexico, Brazil, Denmark, Germany, Poland, users as either bulk cable or as part of an integrated optical solution. Israel, Australia and China. Corning’s cable products support various outdoor, indoor/outdoor and Patent protection is important to the segment’s operations. The indoor applications and include a broad range of loose tube, ribbon and segment has an extensive portfolio of patents relating to its products, drop cable designs with flame-retardant versions available for indoor technologies and manufacturing processes. The segment licenses and indoor/outdoor use. certain of its patents to third parties and generates revenue from these In addition to optical fiber and cable, our carrier network product licenses, although the royalty income is not currently material to this portfolio also includes hardware and equipment products, including segment’s operating results. Corning is licensed to use certain patents cable assemblies, fiber optic hardware, fiber optic connectors, optical owned by others, which are considered important to the segment’s components and couplers, closures, network interface devices, operations. Refer to the material under the heading “Patents and and other accessories. These products may be sold as individual Trademarks” for information relating to the Company’s patents and components or as part of integrated optical connectivity solutions trademarks. designed for various carrier network applications. Examples of these The Optical Communications segment represented 32% of Corning’s solutions include our FlexNAPTM terminal distribution system, which sales in 2016. provides pre-connectorized distribution and drop cable assemblies for cost-effectively deploying Fiber-to-the-Home (“FTTH”) networks; and the CentrixTM platform, which provides a high-density fiber management Environmental Technologies Segment system with industry-leading density and innovative jumper routing that can be deployed in a wide variety of carrier switching centers. Corning’s Environmental Technologies segment manufactures ceramic substrates and filter products for emissions control in mobile and To keep pace with surging demand for mobile bandwidth, Corning has a stationary applications around the world. In the early 1970s, Corning full complement of operator-grade distributed antenna systems (“DAS”), developed an economical, high-performance cellular ceramic substrate including the recently developed Optical Network Evolution wireless that is now the standard for catalytic converters in vehicles worldwide. platform. The ONE™ Wireless Platform (“ONE”) is the first all-optical As global emissions control regulations tighten, Corning has continued converged cellular and Wi-Fi® solution built on an all-optical backbone to develop more effective and durable ceramic substrate and filter with modular service support. It provides virtually unlimited bandwidth, products for gasoline and diesel applications. Corning manufactures and meets all of the wireless service needs of large-scale enterprises at a substrate and filter products in New York, Virginia, China, Germany and lower cost than the typical DAS solution. South Africa. Corning sells its ceramic substrate and filter products In addition to our optical-based portfolio, Corning’s carrier network worldwide to catalyzers and manufacturers of emission control systems portfolio also contains select copper-based products including subscriber who then sell to automotive and diesel vehicle or engine manufacturers. demarcation, connection and protection devices, xDSL (different Although most sales are made to the emission control systems variations of digital subscriber lines) passive solutions and outside plant manufacturers, the use of Corning substrates and filters is generally enclosures. In addition, Corning offers coaxial RF interconnects for the required by the specifications of the automotive and diesel vehicle or cable television industry as well as for microwave applications for GPS, engine manufacturers. radars, satellites, manned and unmanned military vehicles, and wireless Patent protection is important to the segment’s operations. The and telecommunications systems. segment has an extensive portfolio of patents relating to its products, Our enterprise network portfolio also includes optical fiber products, technologies and manufacturing processes. Corning is licensed to use including ClearCurve® ultra-bendable multimode fiber for data centers certain patents owned by others, which are also considered important and other enterprise network applications; InfiniCor® fibers for local to the segment’s operations. Refer to the material under the heading area networks; and more recently ClearCurve® VSDN® ultra-bendable “Patents and Trademarks” for information relating to the Company’s optical fiber designed to support emerging high-speed interconnects patents and trademarks. between computers and other consumer electronics devices. The The Environmental Technologies segment represented 11% of Corning’s remainder of Corning’s fiber production is cabled internally and sold to sales in 2016. end users as either bulk cable or as part of an integrated optical solution. Corning’s cable products include a broad range of tight-buffered, loose 2 CORNING INCORPORATED - 2016 Annual Report


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    Business Description Specialty Materials Segment approaches to increase efficiencies, reduce costs and compress timelines. Using unique expertise in the fields of materials science, surface science, The Specialty Materials segment manufactures products that biochemistry and biology, the segment provides innovative solutions provide more than 150 material formulations for glass, glass ceramics that improve productivity and enable breakthrough discoveries. and fluoride crystals to meet demand for unique customer needs. Consequently, this segment operates in a wide variety of commercial Life Sciences laboratory products include consumables (plastic vessels, and industrial markets that include display optics and components, specialty surfaces and media), as well as general labware and equipment, semiconductor optics components, aerospace and defense, astronomy, that are used for advanced cell culture research, bioprocessing, genomics, ophthalmic products, telecommunications components and cover glass drug discovery, microbiology and chemistry. Corning sells life science that is optimized for portable display devices. products under these primary brands: Corning, Falcon, PYREX, Axygen, and Gosselin. The products are marketed worldwide, primarily through Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass distributors to pharmaceutical and biotechnology companies, academic designed specifically to function as a cover glass for display devices such institutions, hospitals, government entities, and other facilities. Corning as mobile phones, tablets and notebook PCs. Elegant and lightweight, manufactures these products in the United States in Maine, New York, Corning Gorilla Glass is durable enough to resist many real-world events New Jersey, California, Utah, Virginia, Massachusetts and North Carolina, that commonly cause glass failure, enabling exciting new applications and outside of the U.S. in Mexico, France, Poland and China. in technology and design. In 2016, Corning unveiled its latest Corning Gorilla Glass innovation, Corning® Gorilla® Glass 5, which is designed to In addition to being a global leader in laboratory consumables for life provide further protection against breakage while maintaining optical science research, Corning continues to develop and produce innovative clarity, touch sensitivity, and damage resistance. technologies aimed at the growing biologic drug production markets. Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan Patent protection is important to the segment’s operations. The and Taiwan. segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. Brand recognition and Semiconductor optics manufactured by Corning includes loyalty, through well-known trademarks, are important to the segment. high-performance optical material products, optical-based metrology Refer to the material under the heading “Patents and Trademarks” for instruments, and optical assemblies for applications in the global more information. semiconductor industry. Corning’s semiconductor optics products are manufactured in New York. The Life Sciences segment represented approximately 9% of Corning’s sales in 2016. Other specialty glass products include glass lens and window components and assemblies and are made in New York, New Hampshire, Kentucky and France, and sourced from China. All Other Patent protection is important to the segment’s operations. The segment All other segments that do not meet the quantitative threshold has a growing portfolio of patents relating to its products, technologies for separate reporting have been grouped as “All Other.” This group and manufacturing processes. Brand recognition and loyalty, through is primarily comprised of the results of Corning’s Pharmaceutical well-known trademarks, are important to the segment. Refer to the Technologies business, our non-LCD glass business, new product lines material under the heading “Patents and Trademarks” for information and development projects, as well as certain corporate investments such relating to the Company’s patents and trademarks. as Eurokera and Keraglass equity affiliates. The Specialty Materials segment represented approximately 12% of The All Other segment represented 2% of Corning’s sales in 2016. Corning’s sales in 2016. Additional explanation regarding Corning and its five reportable segments, as well as financial information about geographic areas, Life Sciences Segment is presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 20 (Reportable Segments) As a leading developer, manufacturer and global supplier of scientific to the Consolidated Financial Statements. laboratory products for 100 years, Corning’s Life Sciences segment collaborates with researchers and drug manufacturers seeking new Corporate Investments Dow Corning Corporation. Prior to May 31, 2016, Corning and The Dow Prior to realignment, HSG, a consolidated subsidiary of Dow Corning, Chemical Company (“Dow Chemical”) each owned half of Dow Corning was an indirect equity investment of Corning. Upon completion of the Corporation (“Dow Corning”), an equity company headquartered in exchange, Corning now has a direct equity investment in HSG. Because Michigan that manufactures silicone products worldwide. Dow Corning our ownership percentage in HSG did not change as a result of the was the majority-owner of Hemlock Semiconductor Group (“HSG”), a realignment, the investment in HSG is recorded at its carrying value, market leader in the production of high purity polycrystalline silicon for which had a negative carrying value of $383 million at the transaction the semiconductor and solar energy industries. date. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. On May 31, 2016, Corning completed the strategic realignment of Excluding this charge, the entity is profitable and is expected to recover its equity investment in Dow Corning pursuant to the Transaction its equity in the near term. Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in HSG and approximately $4.8 billion in cash. CORNING INCORPORATED - 2016 Annual Report 3


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    Business Description Pittsburgh Corning Corporation. Prior to the second quarter of 2016, in PCC and Pittsburgh Corning Europe N.V. as required by the Plan and Corning and PPG Industries, Inc. each owned 50% of the capital stock recognized a gain of $56 million for the difference between the fair value of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11 of the asbestos litigation liability and carrying value of the investment. reorganization in 2000 and the Modified Third Amended Plan of Reorganization for PCC (the “Plan”) became effective in April 2016. In Additional information about corporate investments is presented in the second quarter of 2016, Corning contributed its equity interests Note 7 (Investments) to the Consolidated Financial Statements. Competition Corning competes with many large and varied manufacturers, both domestic and foreign. Some of these competitors are larger than Corning, Environmental Technologies Segment and some have broader product lines. Corning strives to maintain Corning believes it maintains a leadership position in the worldwide and improve its market position through technology and product automotive ceramic substrate products, and a strong presence in the innovation. For the future, Corning believes its competitive advantage heavy-duty and light-duty diesel vehicle market. The Company believes lies in its commitment to research and development, its commitment to its competitive advantage in automotive ceramic substrate products reliability of supply and product quality and technical specification of its for catalytic converters and diesel filter products for exhaust systems products. There is no assurance that Corning will be able to maintain or is based upon global presence, customer service, engineering design improve its market position or competitive advantage. services and product innovation. Corning’s Environmental Technologies products face principal competition from NGK Insulators, Ltd. and Ibiden Co. Ltd. Display Technologies Segment We believe Corning is the largest worldwide producer of glass substrates for LCD displays. The environment for LCD glass substrate products is Specialty Materials Segment very competitive and Corning believes it has sustained its competitive Corning has deep capabilities in materials science, optical design, advantages by investing in new products, providing a consistent shaping, coating, finishing, metrology, and system assembly. Additionally, and reliable supply, and continually improving its proprietary fusion we are addressing emerging needs of the consumer electronics industry manufacturing process. This process allows us to deliver glass that is with the development of chemically strengthened glass. Corning larger, thinner and lighter, with exceptional surface quality and without Gorilla Glass is a thin-sheet glass that is better able to survive events heavy metals. Asahi Glass Co. Ltd. and Nippon Electric Glass Co. Ltd. are that most commonly cause glass failure. Its advanced composition Corning’s principal competitors in display glass substrates. allows a deeper layer of chemical strengthening than is possible with most other chemically strengthened glasses, making it both durable and damage resistant. Our products and capabilities in this segment Optical Communications Segment position the Company to meet the needs of a broad array of markets including display, semiconductor, aerospace/defense, astronomy, vision Corning believes it maintains a leadership position in the segment’s care, industrial/commercial, and telecommunications. For this segment, principal product groups, which include carrier and enterprise networks. Schott, Asahi Glass Co. Ltd., Nippon Electric Glass Co. Ltd. and Heraeus are The competitive landscape includes industry consolidation, price the main competitors. pressure and competition for the innovation of new products. These competitive conditions are likely to persist. Corning believes its large scale manufacturing experience, fiber process, technology leadership and intellectual property provide cost advantages relative to several of Life Sciences Segment its competitors. Corning seeks to maintain a competitive advantage by emphasizing product quality, global distribution, supply chain efficiency, a broad The primary competing producers of the Optical Communications product line and superior product attributes. Our principle worldwide segment are Commscope and Prysmian Group. competitors include Thermo Fisher Scientific, Inc., Greiner Group AG, Eppendorf AG and Sarsedt AG. Corning also faces increasing competition from large distributors that have pursued backward integration or introduced private label products. Raw Materials Corning’s manufacturing processes and products require access to Certain key materials and proprietary equipment used in the uninterrupted power sources, significant quantities of industrial water, manufacturing of products are currently sole-sourced or available only certain precious metals, and various batch materials. Availability of from a limited number of suppliers. To minimize this risk, Corning closely resources (ores, minerals, polymers, helium and processed chemicals) monitors raw materials and equipment with limited availability or required in manufacturing operations, appears to be adequate. Corning’s which are sourced through one supplier. However, any future difficulty suppliers, from time to time, may experience capacity limitations in their in obtaining sufficient and timely delivery of components and/or raw own operations, or may eliminate certain product lines. Corning believes materials could result in lost sales due to delays or reductions in product it has adequate programs to ensure a reliable supply of raw and batch shipments, or reductions in Corning’s gross margins. materials as well as precious metals. For many products, Corning has alternate suppliers that would allow operations to continue without interruption in the event of specific materials shortages. 4 CORNING INCORPORATED - 2016 Annual Report


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    Business Description Patents and Trademarks Inventions by members of Corning’s research and engineering staff • Optical Communications: patents relating to (i) optical fiber products continue to be important to the Company’s growth. Patents have including low-loss optical fiber, high data rate optical fiber, and been granted on many of these inventions in the United States and dispersion compensating fiber, and processes and equipment for other countries. Some of these patents have been licensed to other manufacturing optical fiber, including methods for making optical manufacturers, including companies in which Corning has equity fiber preforms and methods for drawing, cooling and winding optical investments. Many of our earlier patents have now expired, but Corning fiber; (ii) optical fiber ribbons and methods for making such ribbon, continues to seek and obtain patents protecting its innovations. In fiber optic cable designs and methods for installing optical fiber cable; 2016, Corning was granted about 460 patents in the U.S. and over 1,100 (iii) optical fiber connectors, termination and storage and associated patents in countries outside the U.S. methods of manufacture; and (iv) distributed communication systems. Each business segment possesses a patent portfolio that provides • Environmental Technologies: patents relating to cellular ceramic certain competitive advantages in protecting Corning’s innovations. honeycomb products, together with ceramic batch and binder Corning has historically enforced, and will continue to enforce, its system compositions, honeycomb extrusion and firing processes, intellectual property rights. At the end of 2016, Corning and its and honeycomb extrusion dies and equipment for the high-volume, wholly-owned subsidiaries owned over 9,660 unexpired patents in low-cost manufacture of such products. various countries of which over 3,840 were U.S. patents. Between 2017 and 2019, approximately 6% of these patents will expire, while at • Specialty Materials: patents relating to protective cover glass, the same time Corning intends to seek patents protecting its newer ophthalmic glasses and polarizing dyes, and semiconductor/ innovations. Worldwide, Corning has about 10,500 patent applications microlithography optics and blanks, metrology instrumentation and in process, with about 2,500 in process in the U.S. Corning believes that laser/precision optics, glass polarizers, specialty fiber, and refractories. its patent portfolio will continue to provide a competitive advantage in • Life Sciences: patents relating to methods and apparatus for the protecting the Company’s innovation, although Corning’s competitors manufacture and use of scientific laboratory equipment including in each of its businesses are actively seeking patent protection as well. multiwell plates and cell culture products, as well as equipment and While each of our reportable segments has numerous patents in processes for label independent drug discovery. various countries, no one patent is considered material to any of these Products reported in All Other include development projects, new segments. Important U.S.-issued patents in our reportable segments product lines, and other businesses or investments that do not meet the include the following: threshold for separate reporting. • Display Technologies: patents relating to glass compositions and methods for the use and manufacture of glass substrates for display applications. Approximate number of patents granted to our reportable segments follows: Total Important number of patents expiring patents between 2017 worldwide U.S. patents and 2019 Display Technologies 1,700 370 11 Optical Communications 3,500 1,600 10 Environmental Technologies 800 320 36 Specialty Materials 920 430 8 Life Sciences 600 240 16 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, Edge8, Gorilla, Gosselin, HPFS, Corning has entered into cross-licensing arrangements with some major Leaf, Pyrex, Steuben, Falcon, SMF-28e, Unicam, 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 2016 consolidated operating results were charged with state, federal and foreign pollution-control regulations. This program approximately $43 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 for control. Corning believes that its compliance program will not place it at pollution control in operations were approximately $14 million in 2016 a competitive disadvantage. and are estimated to be $31 million in 2017. CORNING INCORPORATED - 2016 Annual Report 5


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    Business Description Employees At December 31, 2016, Corning had approximately 40,700 full-time employees. From time to time, Corning also retains consultants, independent contractors, temporary and part-time workers. Executive Officers James P. Clappin President, Corning Glass Technologies Lawrence D. McRae Vice Chairman and Corporate Development Officer Mr. Clappin joined Corning in 1980 as a process engineer. He transitioned Mr. McRae joined Corning in 1985 and served in various financial, sales to GTE Corporation in 1983 when the Central Falls facility was sold and and marketing positions. He was appointed vice president Corporate returned to Corning in 1988. He began working in the display business in Development in 2000, senior vice president Corporate Development 1994. Mr. Clappin relocated to Japan in 1996, as plant manager at Corning in 2003, senior vice president Strategy and Corporate Development in Display Technologies Shizuoka facility. In 2002, he was appointed as October 2005, and executive vice president Strategy and Corporate general manager of CDT worldwide business. He served as president of Development in 2010. He was appointed to his present position in Corning Display Technologies from September 2005 through July 2010. August 2015. Age 58. He was appointed president, Corning Glass Technologies, in 2010. Age 59. David L. Morse Executive Vice President and Chief Technology Officer Martin J. Curran Executive Vice President and Corning Innovation Officer Dr. Morse joined Corning in 1976 in glass research and worked as Mr. Curran joined Corning in 1984 and has held a variety of roles in a composition scientist in developing and patenting several major finance, manufacturing, and marketing. He has served as senior vice products. He served in a variety of product and materials research and president, general manager for Corning Cable Systems Hardware and technology director roles and was appointed division vice president Equipment Operations in the Americas, responsible for operations in and technology director for photonic technology groups beginning Hickory, North Carolina; Keller, Texas; Reynosa, Mexico; Shanghai, China; in March 1999. He became director of corporate research, science and and the Dominican Republic. He has also served as senior vice president technology in December 2001. He was appointed vice president in and general manager for Corning Optical Fiber. Mr. Curran was appointed January 2003, becoming senior vice president and director of corporate as Corning’s first innovation officer in August 2012. Age 58. research in 2006. Dr. Morse was appointed to his current position in May 2012. He is a member of the National Academy of Engineering and the Jeffrey W. Evenson Senior Vice President and Chief Strategy Officer National Chemistry Board. Age 64. Dr. Evenson joined Corning in June 2011 as senior vice president and Eric S. Musser Executive Vice President, Corning Technologies and International operations chief of staff. In 2015, he was named Chief Strategy Officer. He serves on the Management Committee and oversees a variety of Mr. Musser joined Corning in 1986 and served in a variety of strategic programs and growth initiatives. Prior to joining Corning, Dr. manufacturing positions at fiber plants in Wilmington, N.C. and Evenson was a senior vice president with Sanford C. Bernstein, where Melbourne, Australia, before becoming manufacturing strategist for he served as a senior analyst since 2004. Before that, Dr. Evenson was a the Optical Fiber business in 1996. Mr. Musser joined Corning Lasertron partner at McKinsey & Company, where he led technology and market in 2000 and became president later that year. He was named director, assessment for early-stage technologies. Age 51. manufacturing operations for Photonic Technologies in 2002. In 2003, he returned to Optical Fiber as division vice president, development and Lisa Ferrero Senior Vice President and Chief Administrative Officer engineering and was named vice president and general manager in Ms. Ferrero joined Corning in 1987 as a statistician and held various 2005. In 2007, he was appointed general manager of Corning Greater production management positions until joining Display Technologies China and was named president of Corning International in 2012. Mr. in 1995 as a market analyst in Tokyo. While in Japan, she was appointed Musser was appointed executive vice president in 2014. Age 57. export sales manager for Taiwan and Korea. In 1998, she returned to Christine M. Pambianchi Senior Vice President, Human Resources Corning, N.Y. and was named market development manager. She was appointed director of strategic marketing, planning, and analysis for Ms. Pambianchi joined Corning in 2000 as division human resource Display Technologies in 2000. In 2002, Ms. Ferrero joined Environmental manager, Corning Optical Fiber, and later was named director, Human Technologies as business manager for the heavy-duty diesel business Resources, Corning Optical Communications. She has led the Human and was named director of the automotive substrates business in 2003. Resources function since January 2008 when she was named vice She was named vice president and deputy general manager, Display president, Human Resources. Ms. Pambianchi was appointed to senior Technologies Asia in June 2005. She served as general manager of vice president, Human Resources, in 2010, and is responsible for leading Corning Display Technologies from July 2010 through 2015 overseeing Corning’s global human resource function. Age 48. operations across four regions: China, Japan, Taiwan and the U.S. Ms. Ferrero became senior vice president and chief administrative officer in Mark S. Rogus Senior Vice President and Treasurer January 2016. Age 53. Mr. Rogus joined Corning in 1996 as manager, Corporate Finance. In Clark S. Kinlin Executive Vice President 1999 he was appointed assistant treasurer. He was appointed as vice president and treasurer in December 2000, responsible for Corning’s Mr. Kinlin joined Corning in 1981 in the Specialty Materials division. From worldwide treasury functions, including corporate finance, treasury 1985 to 1995 he worked in the Optical Fiber division. In 1995, he joined operations, risk management, investment and pension plans. He has Corning Consumer Products. In 2000, Mr. Kinlin was named president, served as senior vice president and treasurer of Finance since January Corning International Corporation and, in 2003, he was appointed as 2004. Prior to joining Corning, Mr. Rogus was a senior vice president at general manager for Greater China. From April 2007 to March 2008, he Wachovia Bank where he managed the bank’s business development was chief operating officer, Corning Cable Systems (now Corning Optical activities in the U.S mid-Atlantic region and Canada for both investment Communications) and was named president and chief executive officer and non-investment grade clients. Age 57. in 2008. He was appointed executive vice president in 2012. Age 57. 6 CORNING INCORPORATED - 2016 Annual Report


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    Risk Factors Edward A. Schlesinger Vice President and Corporate Controller R. Tony Tripeny Senior Vice President and Chief Financial Officer Mr. Schlesinger joined Corning in 2013 as senior vice president and Mr. Tripeny joined Corning in 1985 as the corporate accounting chief financial officer of Corning Optical Communications. He led manager of Corning Cable Systems, and became the Keller, Texas the Finance function for Corning Optical Communications and facility’s plant controller in 1989. In 1993, he was appointed equipment served on the Communications Leadership Team. He was named vice division controller of Corning Cable Systems and, in 1996 corporate president and corporate controller in September 2015, and appointed controller. Mr. Tripeny was appointed chief financial officer of Corning principal accounting officer in December 2015. Prior to joining Corning, Cable Systems in July 2000. In 2003, he took on the additional role of Mr. Schlesinger served as Vice President, Finance and Sector Chief Telecommunications group controller. He was appointed division vice Financial Officer for two of Ingersoll Rand’s business segments. president, operations controller in August 2004, vice president, corporate Mr. Schlesinger has a financial career that spans more than 20 years controller in October 2005, and senior vice president and principal garnering extensive expertise in technical financial management and accounting officer in April 2009. Mr. Tripeny was appointed to his current reporting. Age 49. position as senior vice president and chief financial officer in September 2015. He is a member of the board of directors of Hardinge, Inc. Age 57. Lewis A. Steverson Senior Vice President and General Counsel Wendell P. Weeks Chairman, Chief Executive Officer and President Mr. Steverson joined Corning in June 2013 as senior vice president and general counsel. Prior to joining Corning, Mr. Steverson served as senior Mr. Weeks joined Corning in 1983. He was named vice president and vice president, general counsel, and secretary of Motorola Solutions, Inc. general manager of the Optical Fiber business in 1996, senior vice During his 18 years with Motorola, he held a variety of legal leadership president in 1997, senior vice president of Opto-Electronics in 1998, roles across the company’s numerous business units. Prior to Motorola, executive vice president in 1999, and president, Corning Optical Mr. Steverson was in private practice at the law firm of Arnold & Porter. Communications in 2001. Mr. Weeks was named president and chief Age 53. operating officer of Corning in 2002, president and chief executive officer in 2005 and chairman and chief executive officer on April 26, 2007. He added the title of president in December 2010. Mr. Weeks is a director of Merck & Co. Inc. and Amazon.com, Inc. Mr. Weeks has been a member of Corning’s Board of Directors since 2000. Age 57. Document Availability A copy of Corning’s 2016 Annual Report on Form 10-K filed with the are available as soon as reasonably practicable after such material Securities and Exchange Commission is available upon written request is electronically filed or furnished to the SEC, and can be accessed to Corporate Secretary, Corning Incorporated, One Riverfront Plaza, electronically free of charge, through the Investor Relations page on Corning, NY 14831. The Annual Report on Form 10-K, quarterly reports Corning’s website at www.corning.com. The information contained on on Form 10-Q, current reports on Form 8-K, and amendments pursuant the Company’s website is not included in, or incorporated by reference to Section 13(a) or 15(d) of the Exchange Act of 1934 and other filings into, this Annual Report on Form 10-K. Risk Factors We operate in rapidly changing economic, political, and technological As a global company, we face many risks which could adversely impact environments that present numerous risks, many of which are driven by our operations and reported financial results factors that we cannot control or predict. Our operations and financial results are subject to various risks and uncertainties, including those We are a global company and derive a substantial portion of our described below, that could adversely affect our business, financial revenues from, and have significant operations, outside of the United condition, results of operations, cash flows, our ability to successfully States. Our international operations include manufacturing, assembly, execute our strategy and capital allocation framework, and the trading sales, research and development, customer support, and shared price of our common stock or debt. The following discussion of “risk administrative service centers. factors” identifies the most significant factors that may adversely Compliance with laws and regulations increases our costs. We are affect our business, operations, financial position or future financial subject to both U.S. laws and local laws which, among other things, performance. This information should be read in conjunction with include data privacy requirements, employment and labor laws, MD&A and the consolidated financial statements and related notes tax laws, anti-competition regulations, prohibitions on payments incorporated by reference into this report. The following discussion of to governmental officials, import and trade restrictions and export risks is not all inclusive but is designed to highlight what we believe are requirements. Non-compliance or violations could result in fines, important factors to consider, as these factors could cause our future criminal sanctions against us, our officers or our employees, and results to differ from those in the forward-looking statements and from prohibitions on the conduct of our business. Such violations could result historical trends. in prohibitions on our ability to offer our products and services in one or more countries and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate and manage these risks. CORNING INCORPORATED - 2016 Annual Report 7


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    Risk Factors We are also subject to a variety of other risks in managing a global • Difficulty in collecting obligations owed to us; organization, including those related to: • Natural disasters such as floods, earthquakes, tsunamis and • The economic and political conditions in each country or region; windstorms; and • Complex regulatory requirements affecting international trade and • Potential loss of utilities or other disruption affecting manufacturing. investment, including anti-dumping laws, export controls, the Foreign Corrupt Practices Act and local laws prohibiting improper payments. Corning’s Display Technologies segment generates a significant amount Our operations may be adversely affected by changes in the substance of the Company’s profits and cash flow. Any significant decrease in or enforcement of these regulatory requirements, and by actual or LCD glass pricing could have a material and negative impact on our alleged violations of them; financial results • Fluctuations in currency exchange rates, convertibility of currencies and Corning’s ability to generate profits and operating cash flow depends restrictions involving the movement of funds between jurisdictions largely upon the profitability of our LCD glass business, which is subject and countries; to continuous pricing pressure due to intense industry competition, potential over-capacity, and development of new technologies. If we • Sovereign and political risks that may adversely affect Corning’s are not able to achieve proportionate reductions in costs or sustain our profitability and assets; current rate of cost reduction to offset potential pricing pressures it could have a material adverse impact on our financial results. • Geographical concentration of our factories and operations, and regional shifts in our customer base; Because we have a concentrated customer base in each of our businesses, our sales could be negatively impacted by the actions or • Periodic health epidemic concerns; insolvency of one or more key customers, as well as our ability to retain • Political unrest, confiscation or expropriation of our assets by foreign these customers governments, terrorism and the potential for other hostilities; A relatively small number of customers accounted for a high percentage • Difficulty in protecting intellectual property, sensitive commercial and of net sales in our reportable segments. Mergers and consolidations operations data, and information technology systems; between customers could result in further concentration of Corning’s customer base. If further concentration occurs or a key customer becomes • Differing legal systems, including protection and treatment of insolvent, the loss of a key customer could result in a substantial loss of intellectual property and patents; sales and reduction in anticipated in cash flows. Unforeseen events or • Complex, or competing tax regimes; actions on the part of Corning could also result in the loss of customers, resulting in further customer concentration. • Tariffs, trade duties and other trade barriers including anti-dumping duties; The following table details the number of combined customers of our segments that accounted for a large percentage of segment net sales: Number of % of total combined segment net sales customers in 2016 Display Technologies 3 65% Optical Communications 1 15% Environmental Technologies 3 85% Specialty Materials 3 56% Life Sciences 2 46% Business disruptions could affect our operating results We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject A significant portion of our manufacturing, research and development to claims of infringement of the intellectual property rights of others activities, and certain other critical business operations are concentrated in a few geographic areas. A major earthquake, fire or other catastrophic We rely on patent and trade secret laws, copyright, trademark, event that results in the destruction or disruption of any of our critical confidentiality procedures, controls and contractual commitments facilities could severely affect our ability to conduct normal business to protect our intellectual property rights. Despite our efforts, these operations and, as a result, our future financial results could be protections may be limited and we may encounter difficulties in materially and adversely affected. For example, certain manufacturing protecting our intellectual property rights or obtaining rights to sites require high quality, continuous, and uninterrupted power and additional intellectual property necessary to permit us to continue or access to industrial water. Unplanned outages could have a material expand our businesses. We cannot provide assurance that the patents negative impact on our operations and ability to supply our customers. that we hold or may obtain will provide meaningful protection against our competitors. Changes in or enforcement of laws concerning intellectual Additionally, a significant amount of the specialized manufacturing property, worldwide, may affect our ability to prevent or address the capacity for our reportable segments is concentrated in single-site misappropriation of, or the unauthorized use of, our intellectual property, locations and it is reasonably possible that the operations of one or potentially resulting in loss of market share. Litigation may be necessary more such facilities could be disrupted. Due to the specialized nature of to enforce our intellectual property rights. Litigation is inherently the assets, it may not be possible to find replacement capacity quickly uncertain and outcomes are often unpredictable. If we cannot protect or substitute production from other facilities. Accordingly, a disruption our intellectual property rights against unauthorized copying or use, or at a single-site manufacturing operation could significantly impact other misappropriation, we may not remain competitive. Corning’s ability to supply its customers and could produce a near-term severe impact on our individual businesses and the Company as a whole. 8 CORNING INCORPORATED - 2016 Annual Report


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    Risk Factors The intellectual property rights of others could inhibit our ability to We have significant exposure to foreign currency movements and to introduce new products. Other companies hold patents on technologies counterparties of our related derivatives portfolio used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios. We periodically receive notices from, A large portion of our sales, profit and cash flows are transacted in or have lawsuits filed against us by third parties claiming infringement, non-U.S. dollar currencies and we expect that we will continue to realize misappropriation or other misuse of their intellectual property rights gains or losses with respect to these exposures. We also maintain and/or breach of our agreements with them. These third parties often a significant portfolio of over the counter derivatives to hedge our include entities that do not have the capabilities to design, manufacture, projected currency exposure to the Japanese yen, New Taiwan dollar, or distribute products or that acquire intellectual property like patents South Korean won, Chinese yuan and euro. We are exposed to potential for the sole purpose of monetizing their acquired intellectual property losses in the event of non-performance by our counterparties to these through asserting claims of infringement and misuse. Such claims derivative contracts. Any failure of a counterparty to pay on such a of infringement or misappropriation may result in loss of revenue, contract when due could materially impact our results of operations, substantial costs, or lead to monetary damages or injunctive relief financial position, and cash flows. against us. For example, we will experience foreign currency gains and losses Information technology dependency and security vulnerabilities could in certain instances if it is not possible or cost effective to hedge our lead to reduced revenue, liability claims, or competitive harm currency exposures or should we elect not to hedge certain currency exposures. Alternatively, we may experience gains or losses if the The Company is dependent on information technology (“IT”) systems underlying exposure which we have hedged change (increases or and infrastructure for its business and manufacturing controls. Our IT decreases) and we are unable to reverse, unwind, or terminate the systems may be vulnerable to disruptions from human error, outdated hedges concurrent with the change in the underlying notional exposure. applications, computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions. Any significant disruption, Our ultimate realized loss or gain with respect to currency fluctuations breakdown, intrusion, interruption or corruption of these systems or data will generally depend on the size and type of cross-currency exposures breaches could cause the loss of data, equipment damage, downtime, that we enter into, the exchange rates associated with these exposures and/or safety related issues and could have a material adverse effect and changes in those rates, whether we have entered into foreign on our business. Like other global companies, we have, from time to currency contracts to offset these exposures and other factors. Our time, experienced incidents related to our IT systems, and expect that hedge portfolio may reduce our flexibility to respond to price moves by such incidents will continue, including malware and computer virus our Display Technologies segment competitors. attacks, unauthorized access, systems failures and disruptions. We have All of these factors could materially impact our results of operations, measures and defenses in place against unauthorized access, but we may anticipated future results, financial position and cash flows, the timing not be able to prevent, immediately detect, or remediate such events. A of which is variable and generally outside of our control. material breach in the security of our IT systems could include the theft of our intellectual property or trade secrets. Such disruptions or security If we are unable to obtain certain specialized equipment, raw and batch breaches could result in the theft, unauthorized use or publication of our materials or natural resources required in our products or processes, our intellectual property and/or confidential business information, harm our business will suffer competitive position, disrupt our manufacturing, reduce the value of our Our ability to meet customer demand depends, in part, on our ability investment in research and development and other strategic initiatives, to obtain timely and adequate delivery of equipment, parts and or otherwise adversely affect our business. components from our suppliers. We may experience shortages that Additionally, we believe that utilities and other operators of critical could adversely affect our operations. There can be no assurances that infrastructure that serve our facilities face heightened security risks, we will not encounter problems in the future. Certain manufacturing including cyber-attack. In the event of such an attack, disruption in equipment and components are available only from single or limited service from our utility providers could disrupt our manufacturing sources, and we may not be able to find alternate sources in a timely operations which rely on a continuous source of power (electrical, manner. A reduction, interruption or delay of supply, or a significant gas, etc.). increase in the price for supplies, such as manufacturing equipment, precious metals, raw materials, utilities including energy and industrial We may not earn a positive return from our research, development and water, could have a material adverse effect on our businesses. engineering investments We use specialized raw materials from single-source suppliers Developing our products through our innovation model of research and (e.g., specific mines or quarries) and natural resources (e.g., helium) in development is expensive and often involves a long investment cycle. certain products and processes. If a supplier is unable to provide the We make significant expenditures and investments in research and required raw materials or the natural resource is in scarce supply or not development and four process engineering platforms that may earn an readily available, we may be unable to change our product composition economic return. If our investments do not provide a pipeline of new or manufacturing process in order to prevent a disruption to our technologies that our customers demand or lower cost manufacturing business. platforms, it could negatively impact our revenues and operating margins both near- and long-term. CORNING INCORPORATED - 2016 Annual Report 9


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    Risk Factors We have incurred, and may in the future incur, goodwill and other We are subject to strict environmental regulations and regulatory intangible asset impairment charges changes that could result in fines or restrictions that interrupt our operations At December 31, 2016, Corning had goodwill and other intangible assets of $2.4 billion. While we believe the estimates and judgments about Some of our manufacturing processes generate chemical waste, waste future cash flows used in the goodwill impairment tests are reasonable, water, other industrial waste or greenhouse gases, and we are subject to we cannot provide assurance that additional impairment charges numerous laws and regulations relating to the use, storage, discharge in the future will not be required if the expected cash flow estimates and disposal of such substances. We have installed anti-pollution as projected by management do not occur, especially if an economic equipment for the treatment of chemical waste and waste water at recession occurs and continues for a lengthy period or becomes severe, our facilities. We have taken steps to control the amount of greenhouse or if acquisitions and investments made by the Company fail to achieve gases created by our manufacturing operations. However, we cannot expected returns. provide assurance that environmental claims will not be brought against us or that government regulators will not take steps to adopt Changes in our effective tax rate or tax liability may have an adverse more stringent environmental standards. effect on our results of operations Any failure on our part to comply with any present or future Our effective tax rate could be adversely impacted by several factors, environmental regulations could result in the assessment of damages or including: imposition of fines against us, or the suspension/cessation of production • Changes in the relative amounts of income before taxes in the various or operations. In addition, environmental regulations could require us to jurisdictions in which we operate that have differing statutory tax acquire costly equipment, incur other significant compliance expenses rates; or limit or restrict production or operations and thus materially and negatively affect our financial condition and results of operations. • Changes in tax laws, tax treaties and regulations or the interpretation of them; Changes in regulations and the regulatory environment in the U.S. and other countries, such as those resulting from the regulation and impact • Changes to our assessment about the realizability of our deferred tax of global warming and CO2 abatement, may affect our businesses assets that are based on estimates of our future results, the prudence and their results in adverse ways by, among other things, substantially and feasibility of possible tax planning strategies, and the economic increasing manufacturing costs, limiting availability of scarce resources, and political environments in which we do business; especially energy, or requiring limitations on production and sale of our • The outcome of current and future tax audits, examinations, or products or those of our customers. administrative appeals; Current or future litigation or regulatory investigations may harm our • Changes in generally accepted accounting principles that affect the financial condition or results of operations accounting for taxes; and As described in Legal Proceedings in this Form 10-K, we are engaged in • Limitations or adverse findings regarding our ability to do business in litigation and regulatory matters. Litigation and regulatory proceedings some jurisdictions. may be uncertain, and adverse rulings could occur, resulting in significant liabilities, penalties or damages. Such current or future substantial legal We may have additional tax liabilities liabilities or regulatory actions could have a material adverse effect on our business, financial condition, cash flows and reputation. We are subject to income taxes in the U.S. and many foreign jurisdictions and are commonly audited by various tax authorities. In the ordinary Our global operations are subject to extensive trade and anti-corruption course of our business, there are many transactions and calculations laws and regulations where the ultimate tax determination is uncertain. Significant judgment is required in determining our worldwide provision for Due to the international scope of our operations, we are subject to a income taxes. Although we believe our tax estimates are reasonable, complex system of import- and export-related laws and regulations, the final determination of tax audits and any related litigation could including U.S. regulations issued by Customs and Border Protection, the be materially different from our historical income tax provisions and Bureau of Industry and Security, the Office of Anti-boycott Compliance, accruals. The results of an audit or litigation could have a material effect the Directorate of Defense Trade Controls and the Office of Foreign on our financial statements in the period or periods for which that Assets Control, as well as the counterparts of these agencies in other determination is made. countries. Any alleged or actual violation by an employee or the Company may subject us to government scrutiny, investigation and civil A significant amount of our net profits and cash flows are generated and criminal penalties, and may limit our ability to import or export our from outside the U.S., and certain repatriation of funds currently held products or to provide services outside the United States. We cannot in foreign jurisdictions may result in higher effective tax rates for the predict the nature, scope or effect of future regulatory requirements to Company. In addition, there have been proposals to change U.S. tax which our operations might be subject or the manner in which existing laws that could significantly impact how U.S. global corporations are laws might be administered or interpreted. taxed. Although we cannot predict whether or in what form proposed legislation may pass, if enacted certain proposals could have a material In addition, the U.S. Foreign Corrupt Practices Act and similar adverse impact on our tax expense and cash flow. foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything Our innovation model depends on our ability to attract and retain of value to improperly influence foreign government officials for the specialized experts in our core technologies purpose of obtaining or retaining business, or obtaining an unfair advantage. Recent years have seen a substantial increase in the global Our innovation model requires us to employ highly specialized experts enforcement of anti-corruption laws. Our continued operation and in glass science, ceramic science, and optical physics to conduct our expansion outside the United States, including in developing countries, research and development and engineer our products and design could increase the risk of alleged violations. Violations of these laws may our manufacturing facilities. The loss of the services of any member result in severe criminal or civil sanctions, could disrupt our business, of our key research and development or engineering team without and result in an adverse effect on our reputation, business and results of adequate replacement, or the inability to attract new qualified operations or financial condition. personnel, could have a material adverse effect on our operations and financial performance. 10 CORNING INCORPORATED - 2016 Annual Report


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    Moreover, several of our related partners are domiciled in areas of the the demand for our products and services, impact the competitive world with laws, rules and business practices that differ from those in the position of our products or prevent us (including our equity affiliates/ United States, and we face the reputational and legal risk that our related joint ventures) from being able to sell and/or manufacture products partners may violate applicable laws, rules and business practices. in certain countries. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in International trade policies may negatively impact our ability to sell and which we sell large quantities of products and services could negatively manufacture our products outside of the U.S. impact our business, results of operations and financial condition. Government policies on international trade and investment such For example, a government’s adoption of “buy national” policies or as import quotas, tariffs, and capital controls, whether adopted by retaliation by another government against such policies could have a individual governments or addressed by regional trade blocs, can affect negative impact on our results of operations. These policies also affect our equity companies. Legal Proceedings Non-PCC Asbestos Litigation. Corning is a defendant in cases alleging cleanup unless the Agency agrees otherwise. It is Corning’s policy to injuries from asbestos which had been stayed pending the confirmation accrue for its estimated liability related to Superfund sites and other of the PCC Plan. The stay was lifted on August 25, 2016. For additional environmental liabilities related to property owned by Corning based on information and updates to estimated liabilities as of December 31, 2016, expert analysis and continual monitoring by both internal and external see Note 7 (Investments) to the Consolidated Financial Statements. consultants. At December 31, 2016 and December 31, 2015, Corning had accrued approximately $43 million (undiscounted) and $37 million Environmental Litigation. Corning has been named by the Environmental (undiscounted), respectively, for the estimated liability for environmental Protection Agency (the Agency) under the Superfund Act, or by state cleanup and related litigation. Based upon the information developed governments under similar state laws, as a potentially responsible to date, management believes that the accrued reserve is a reasonable party for 17 active hazardous waste sites. Under the Superfund Act, all estimate of the Company’s liability and that the risk of an additional loss parties who may have contributed any waste to a hazardous waste site, in an amount materially higher than that accrued is remote. identified by the Agency, are jointly and severally liable for the cost of Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Corning Incorporated common stock is listed on the New York Stock Exchange. In addition, it is traded on the Boston, Midwest, Pacific and Philadelphia stock exchanges. Common stock options are traded on the Chicago Board Options Exchange. The ticker symbol for Corning Incorporated is “GLW.” The following table sets forth the high and low sales price of Corning’s common stock as reported on the New York Stock Exchange Composite Tape. First quarter Second quarter Third quarter Fourth quarter 2016 Price range High $ 21.07 $ 21.30 $ 23.81 $ 25.35 Low $ 16.13 $ 18.21 $ 19.78 $ 22.23 2015 Price range High $ 25.16 $ 22.98 $ 20.02 $ 19.29 Low $ 21.89 $ 19.57 $ 15.24 $ 16.36 As of December 31, 2016, there were approximately 15,892 registered holders of common stock and approximately 456,079 beneficial shareholders. On February 3, 2016, Corning’s Board of Directors declared a 12.5% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.12 to $0.135 per share of common stock, beginning with the dividend paid in the first quarter of 2016. On February 1, 2017, Corning’s Board of Directors declared a 14.8% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.135 to $0.155 per share of common stock, beginning with the dividend to be paid in the first quarter of 2017. CORNING INCORPORATED - 2016 Annual Report 11


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    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. 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 2011 2012 2013 2014 2015 2016 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 2016: 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(2) per share plans or programs(1) or programs(1) October 1-31, 2016 Open market and shares surrendered for tax withholdings 4,888,855 $ 23.49 4,875,834 November 1-30, 2016 Open market and shares surrendered for tax withholdings 4,892,049 $ 23.48 4,876,439 ASR (Tranche I)(3) 3,306,805 (3) 3,306,805 December 1-31, 2016 Open market and shares surrendered for tax withholdings 4,732,989 $ 24.42 4,689,256 ASR (Tranche II)(3) 8,963,288 (3) 8,963,288 Total at December 31, 2016 26,783,986 26,711,622 $ 4,026,996,347 (1) On October 26, 2015, Corning’s Board of Directors authorized the repurchase of up to $4 billion of common stock. This authorization was fully utilized in the first quarter of 2017. On December 7, 2016, Corning’s Board of Directors authorized a share repurchase program with no expiration for the repurchase of up to $4 billion of common stock (the “2016 Repurchase Program”). (2) This column reflects the following transactions during the fourth quarter of 2016: (i) the deemed surrender to us of 16,996 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 55,368 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 26,711,622 shares of common stock (14,441,529 shares in open market repurchases and 12,270,093 shares as part of the Accelerated Share Repurchase (“ASR”) agreement entered into in the third quarter of 2016) under the 2015 Repurchase Program. (3) In the third quarter of 2016, the Company paid $2 billion under an ASR agreement with Morgan Stanley and Co. LLC and received an initial delivery of approximately 74.4 million shares. In the fourth quarter of 2016, the purchase period for this ASR ended and an additional 12.3 million shares were delivered in two tranches to Corning. In total, 86.7 million shares were delivered under the 2016 ASR at an average repurchase price of $23.07. See Note 17 (Shareholders’ Equity) to the Consolidated Financial Statements for additional detail. 12 CORNING INCORPORATED - 2016 Annual Report


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    Selected Financial Data (Unaudited) Years ended December 31, (In millions, except per share amounts and number of employees) 2016 2015 2014 2013 2012 Results of operations Net sales $ 9,390 $ 9,111 $ 9,715 $ 7,819 $ 8,012 Research, development and engineering expenses $ 742 $ 769 $ 815 $ 710 $ 769 Equity in earnings of affiliated companies $ 284 $ 299 $ 266 $ 547 $ 810 Net income attributable to Corning Incorporated(1) $ 3,695 $ 1,339 $ 2,472 $ 1,961 $ 1,636 Earnings per common share attributable to Corning Incorporated: Basic $ 3.53 $ 1.02 $ 1.82 $ 1.35 $ 1.10 Diluted $ 3.23 $ 1.00 $ 1.73 $ 1.34 $ 1.09 Cash dividends declared per common share $ 0.54 $ 0.36 $ 0.52 $ 0.39 $ 0.32 Shares used in computing per share amounts: Basic earnings per common share 1,020 1,219 1,305 1,452 1,494 Diluted earnings per common share 1,144 1,343 1,427 1,462 1,506 Financial position Working capital $ 6,297 $ 5,455 $ 7,914 $ 7,145 $ 7,739 Total assets $ 27,899 $ 28,527 $ 30,041 $ 28,455 $ 29,354 Long-term debt $ 3,646 $ 3,890 $ 3,205 $ 3,249 $ 3,361 Total Corning Incorporated shareholders’ equity $ 17,893 $ 18,788 $ 21,579 $ 21,162 $ 21,486 Selected data Capital expenditures $ 1,130 $ 1,250 $ 1,076 $ 1,019 $ 1,801 Depreciation and amortization $ 1,195 $ 1,184 $ 1,200 $ 1,002 $ 997 Number of employees 40,700 35,700 34,600 30,400 28,700 (1) Year ended December 31, 2016 includes a $2.7 billion non-taxable gain on the strategic realignment of our ownership interest in Dow Corning. 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 - 2016 Annual Report 13


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    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 • Environment • Results of Operations • Critical Accounting Estimates • Core Performance Measures • New Accounting Standards • Reportable Segments • Forward-Looking Statements • Liquidity and Capital Resources Overview We also utilized our financial strength in 2016 to continue our focus on Strategy and Capital Allocation Framework innovation, resulting in the launch of new products and traction with In October 2015, Corning announced a new strategy and capital allocation customers on key growth initiatives, including: framework (“the Framework”) that reflects the Company’s financial and • Gorilla® Glass 5, which offers superior drop performance versus its operational strengths, as well as its ongoing commitment to increasing predecessor and competitive technologies; expanding our cover-glass shareholder value. The Framework outlines our leadership priorities, and portfolio with Vibrant® Gorilla® Glass, which enables high-resolution articulates the opportunities we see across our businesses. We designed designs for smartphones, tablets, and notebooks; and Gorilla® Glass the Framework to create significant value for shareholders by focusing SR+ for wearable devices. our portfolio and leveraging our financial strength. Under our Framework we target generating $26 billion to $30 billion of cash through 2019, • Leveraging our competitive advantages and market-leading products returning more than $12.5 billion to shareholders and investing to continue to win business in the optical market, with customer $10 billion to sustain our leadership positions and deliver growth. commitments and demand that support the capacity expansions now underway. Our probability of success increases as we invest in our world-class capabilities. Over the next three years, Corning will concentrate • Winning business in the automotive sector for both substrates and approximately 80% of its research, development and engineering our new gas particulate filters. We anticipate that our gas particulate investment and capital spending on a cohesive set of three core filters will increase our sales opportunity by a factor of 3-to-4 per technologies, four manufacturing and engineering platforms, and five vehicle. market-access platforms. This strategy will allow us to quickly apply our talents and repurpose our assets as needed. • Expanding the opportunities for Corning Gorilla Glass in the automotive market. • Technical and commercial progress on Corning Iris™ glass. Performance against the Framework Since introducing the Framework, we have distributed approximately $6 billion to shareholders through share repurchases and dividends. Our 2016 Results Board also approved a new $4 billion share repurchase authorization Our sales grew in total in 2016 driven by year-over-year growth in most in December 2016, and annual dividend increases of 12.5% in 2016 and of our operating segments. The first quarter was our weakest, driven 14.8% in February 2017 as part of our ongoing commitment to return by a combination of slow demand in some markets and production cash to our investors. issues related to the implementation of new manufacturing software, Within our portfolio, we realigned our interest in Dow Corning, which which constrained our ability to manufacture product. Momentum built created significant value for shareholders, including unlocking $4.8 billion steadily throughout the year and our performance in the second half of in cash. We strengthened our position in Optical Communications with 2016 was significantly improved from the first half. two acquisitions to expand our access to various segments of the Net sales in the year ended December 31, 2016 were $9,390 million, telecommunications market. We also entered into a joint venture with an increase of $279 million, or 3%, when compared to the year ended Saint-Gobain Sekurit to develop automotive glazing solutions. December 31, 2015. The increase was primarily driven by the Display Technologies segment and the Corning Pharmaceutical Technologies business, up $152 million and $84 million, respectively. The Optical Communications, Specialty Materials and Life Sciences segments also increased, up $25 million, $17 million and $18 million, respectively. 14 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2016, we generated net income of • The increase in unrealized losses from our foreign currency translation $3.7 billion, or $3.23 per share, compared to net income of $1.3 billion, hedges in the amount of $47 million. or $1.00 per share, for 2015. When compared to last year, the $2.4 billion increase in net income was due to the following items (amounts The translation impact of fluctuations in foreign currency exchange rates presented after tax): positively affected Corning’s consolidated net income in the year ended December 31, 2016 in the amount of $229 million when compared to • A $2.7 billion non-taxable gain and $105 million positive tax adjustment 2015, largely due to the strengthening of the Japanese yen versus the U.S. on the strategic realignment of our ownership interest in Dow Corning dollar. This impact was more than offset by the decrease of $283 million completed on May 31, 2016; in the realized gain from our foreign currency translation hedges. • The positive change in the amounts recorded for tax law changes, valuation allowance adjustments and other discrete tax items of $104 million; and 2017 Corporate Outlook In 2017, Corning will continue to advance the objectives of its Strategy • A decrease of $61 million in the defined benefit pension plans and Capital Allocation Framework, which sets its leadership priorities mark-to-market loss, driven by higher returns on pension assets. and articulates opportunities across its businesses. In the Display Partially offsetting these events were the following items: Technologies segment, we expect the rate of growth in both retail market and glass demand to be in the mid-single digit percentage, and • Lower net income in the Display Technologies, Specialty Materials an overall favorable LCD glass price environment, with price declines and Life Sciences segments. The largest decrease was in the Display more moderate than in 2016. In the Optical Communications segment, Technologies segment, down $160 million, or 15%, primarily driven we anticipate sales to increase by a low-teens percentage over 2016. by LCD glass price declines which were slightly higher than 10% and In the Environmental Technologies segment, we expect sales to be a decrease of $289 million in net realized gains from our yen and consistent to up slightly from 2016, driven by continued sales growth won-denominated currency hedge contracts; in the auto market, offset somewhat by lower heavy-duty volume. We • The resolution of an investigation by the U.S. Department of Justice expect growth in the Specialty Materials segment, the amount of which and related costs in the total amount of $86 million; will depend on the timing and extent of customers deploying Gorilla Glass 5 and other Corning innovations. In the Life Sciences segment, • An increase of $71 million in acquisition and transaction related costs, we expect low-single digit sales growth, ahead of forecasted market driven primarily by expenses associated with the strategic realignment growth rates. of our ownership interest in Dow Corning; and Results of Operations Selected highlights from our operations follow (in millions): % change 2016 2015 2014 16 vs. 15 15 vs. 14 Net sales $ 9,390 $ 9,111 $ 9,715 3 (6) Gross margin $ 3,746 $ 3,653 $ 4,052 3 (10) (gross margin %) 40% 40% 42% Selling, general and administrative expenses $ 1,472 $ 1,508 $ 1,202 (2) 25 (as a % of net sales) 16% 17% 12% Research, development and engineering expenses $ 742 $ 769 $ 815 (4) (6) (as a % of net sales) 8% 8% 8% Equity in earnings of affiliated companies $ 284 $ 299 $ 266 (5) 12 (as a % of net sales) 3% 3% 3% Translated earnings contract (loss) gain, net $ (448) $ 80 $ 1,369 (660) (94) (as a % of net sales) (5)% 1% 14% Gain on realignment of equity investment $ 2,676 * * (as a % of net sales) 28% Income before income taxes $ 3,692 $ 1,486 $ 3,568 148 (58) (as a % of net sales) 39% 16% 37% Benefit (provision) for income taxes $ 3 $ (147) $ (1,096) 102 (87) (as a % of net sales) 0% (2)% (11)% Net income attributable to Corning Incorporated $ 3,695 $ 1,339 $ 2,472 176 (46) (as a % of net sales) 39% 15% 25% * Percent change not meaningful. CORNING INCORPORATED - 2016 Annual Report 15


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Net Sales The following table presents net sales by reportable segment (in millions): % % Years ended December 31, Change Change 2016 2015 2014 16 vs. 15 15 vs. 14 Display Technologies $ 3,238 $ 3,086 $ 3,851 5% (20)% Optical Communications 3,005 2,980 2,652 1% 12% Environmental Technologies 1,032 1,053 1,092 (2)% (4)% Specialty Materials 1,124 1,107 1,205 2% (8)% Life Sciences 839 821 862 2% (5)% All Other 152 64 53 138% 21% Total net sales $ 9,390 $ 9,111 $ 9,715 3% (6)% For the year ended December 31, 2016, net sales increased by $279 million, also increased by $158 million driven by growth in fiber-to-the-home or 3%, when compared to the same period in 2015. The following items products in North America and the impact of two small acquisitions drove the increase: completed in the first quarter of 2015; • An increase of $152 million in the Display Technologies segment, driven • A decrease in the Environmental Technologies segment of $39 million, by the positive impact from the strengthening of the Japanese yen in driven by the translation impact from movements in foreign currency the amount of $370 million and a mid-single digit percentage volume exchange rates versus the U.S. dollar, primarily the euro, of $57 million increase, offset somewhat by LCD glass price declines slightly higher and lower sales of light duty diesel products in Europe, partially offset than 10%; by higher volume for heavy-duty diesel and light-duty substrate products; • An increase of $25 million in the Optical Communications segment, driven primarily by an increase of $76 million in sales of carrier products • A decrease of $98 million in the Specialty Materials segment, driven and the impact of a small acquisition completed in the second primarily by a decline in advanced optics sales; and quarter of 2016, partially offset by production issues related to the implementation of new manufacturing software, which constrained • A decrease of $41 million in the Life Sciences segment due to the our ability to manufacture product in the first half of 2016; impact of unfavorable movements in foreign exchange rates of $43 million. • A decrease of $21 million in the Environmental Technologies segment driven by a decline of $78 million in sales of diesel products due to the In the year ended December 31, 2015, the translation impact of weakening of the North American truck market, offset partially by fluctuations in foreign currency exchange rates, primarily the Japanese an increase of $57 million in sales of light-duty substrates, driven by yen and the euro, negatively affected Corning’s consolidated net sales in strength in the North American, European and Chinese markets; the amount of $663 million when compared to the same period in 2014. • An increase of $17 million in the Specialty Materials segment, driven In 2016, 2015 and 2014, sales in international markets accounted for 72%, by an increase in sales of Corning Gorilla Glass 5 and advanced optics 70% and 77%, respectively, of total net sales. products; • An increase of $18 million in the Life Sciences segment, driven by Cost of Sales volume growth in Europe, North America and China; and The types of expenses included in the cost of sales line item are: raw • An increase of $88 million in the All Other segment, driven primarily by materials consumption, including direct and indirect materials; salaries, our glass tubing business acquired in the fourth quarter of 2015. wages and benefits; depreciation and amortization; production utilities; production-related purchasing; warehousing (including receiving and In the year ended December 31, 2016, the translation impact of inspection); repairs and maintenance; inter-location inventory transfer fluctuations in foreign currency exchange rates, primarily the Japanese costs; production and warehousing facility property insurance; rent for yen, positively affected Corning’s consolidated net sales in the amount production facilities; and other production overhead. of $330 million when compared to the same period in 2015. For the year ended December 31, 2015, net sales decreased by $604 million, or 6%, when compared to the same period in 2014. The Gross Margin following items drove the decrease: In the year ended December 31, 2016, gross margin dollars increased • A decrease of $765 million in the Display Technologies segment, driven $93 million, and gross margin as a percentage of net sales remained by the depreciation of the Japanese yen versus the U.S. dollar, which consistent at 40% when compared to the same period last year. The adversely impacted net sales in the amount of $446 million, and price increase in gross margin dollars was primarily driven by the positive declines in the low-teens on a percentage basis. Although volume impact from the strengthening of the Japanese yen in the amount increased in the mid-single digits in percentage terms, growth was of $266 million, an increase in manufacturing efficiency and cost muted somewhat by weakness in demand for televisions, computer reductions in our Display Technologies and Optical Communications monitors and mobile computing products; segments which added approximately $160 million, a more favorable mix of products sold in the Optical Communications segment and an • An increase of $328 million in the Optical Communications segment, increase in volume in the mid-single digit percentage in the Display driven by higher sales of enterprise network products, up $170 million, Technologies segment. Display Technologies segment price declines due to an acquisition completed in the first quarter of 2015 and an slightly above 10% partially offset the increase. increase in data center products sales. Sales of carrier network products 16 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations In the year ended December 31, 2015, gross margin dollars and gross When compared to the same period in 2014, as a percentage of net margin as a percentage of net sales both declined when compared to sales, selling, general and administrative expenses in the year ended the same period in 2014, declining $399 million and 2%, respectively. December 31, 2015 increased driven by lower net sales. The negative impact of the depreciation of the Japanese yen versus the U.S. dollar in the amount of $368 million and price declines in the The types of expenses included in the selling, general and administrative Display Technologies segment in the low teens in percentage terms expenses line item are: salaries, wages and benefits; travel; professional drove the decrease, but were partially offset by cost reductions and the fees; and depreciation and amortization, utilities, and rent for impact of several small acquisitions in the Optical Communications administrative facilities. segment, improvements in manufacturing performance in the Display Technologies and Specialty Materials segments and lower acquisition-related and restructuring costs. Additionally, our Emerging Research, Development and Engineering Innovation Group and Corning Pharmaceutical Technologies business Expenses added $26 million in gross margin dollars in 2015, reflecting the growing significance of new business development. In the year ended December 31, 2016, research, development and engineering expenses declined $27 million when compared to the same period in 2015 driven by the impact of a joint development agreement Selling, General and Administrative Expenses with a Display Technologies customer, offset partially by project development spending in the Optical Communications, Environmental In the year ended December 31, 2016, selling, general and administrative Technologies and Specialty Materials segments. As a percentage of expenses decreased by $36 million when compared to the same period net sales, research, development and engineering expenses remained in 2015, driven primarily by the following items: consistent with the same period in 2015. • A decrease of $94 million in the loss on the mark-to-market of our In the year ended December 31, 2015, research, development and defined benefit pension plans; engineering expenses decreased by $46 million when compared to the same period in 2014, driven by lower variable compensation and a • The positive impact of the change in the contingent consideration fair decrease in the Display Technologies and Specialty Materials segments. value adjustment of $43 million; and As a percentage of net sales, research, development and engineering • The absence of $25 million of post-combination expenses expenses remained consistent with the same period in 2014. incurred in 2015. Partially offsetting these events were: Restructuring, Impairment, and Other Charges • An increase of $59 million in acquisition-related costs primarily related Corning recorded restructuring, impairment, and other charges and to the realignment of our equity interest in Dow Corning and an credits in 2016 and 2014, which affect the comparability of our results acquisition completed in the second quarter of 2016; for the periods presented. Additional information on restructuring and • An increase of $49 million in litigation, regulatory and other legal costs, asset impairment is found in Note 2 (Restructuring, Impairment and driven by the resolution of an investigation by the U.S. Department of Other Charges) to the Consolidated Financial Statements. A description Justice and an environmental matter in the amount of $98 million, of those charges and credits follows: partially offset by the gain of $56 million on the contribution of our equity interests in PCC and PCE as partial settlement of the asbestos litigation; and 2016 Activity For the year ended December 31, 2016, we recorded charges of $77 million • Higher operating expenses in the Optical Communications, for employee related costs, asset disposals, and exit costs associated with Environmental Technologies and Specialty Materials segments. restructuring activities with total cash expenditures of approximately When compared to the same period in 2015, as a percentage of net sales, $12 million. selling, general and administrative expenses decreased by 1%. In the year ended December 31, 2015, selling, general and administrative 2015 Activity expenses increased by $312 million when compared to the same period in 2014, driven primarily by the following items: For the year ended December 31, 2015, we did not record significant restructuring, impairment and other charges or reversals. Cash • An increase of $133 million in our defined benefit pension plans expenditures for restructuring activities were $40 million. mark-to-market loss; • The absence of the positive impact of a contingent consideration fair 2014 Activity value adjustment of $249 million recorded in 2014; and For the year ended December 31, 2014, we recorded charges of $71 million • An increase in spending in the Optical Communications segment for workforce reductions, asset disposals and write-offs, and exit costs for driven by several acquisitions completed in 2015. restructuring activities with total cash expenditures of approximately Offsetting these increases somewhat were a decrease in variable $39 million. compensation, lower spending in the Display Technologies and Specialty Materials segments and a decline in acquisition-related and post-combination expenses, which were higher last year due to additional costs incurred related to the acquisition of the remaining equity interests of Samsung Corning Precision Materials. CORNING INCORPORATED - 2016 Annual Report 17


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Equity in Earnings of Affiliated Companies The following provides a summary of equity earnings of affiliated companies (in millions): Years ended December 31, 2016 2015 2014 (1) Dow Corning Corporation $ 82 $ 281 $ 252 Hemlock Semiconductor Group(2) 212 All other (10) 18 14 Total equity earnings $ 284 $ 299 $ 266 (1) Results include equity earnings for Dow Corning, which includes the silicones business and Hemlock Semiconductor business, through May 31, 2016, the date of the realignment of our ownership interest in Dow Corning. (2) Results include equity earnings for Hemlock Semiconductor Group beginning on June 1, 2016. On May 31, 2016, Corning completed the strategic realignment of earnings from the Hemlock Semiconductor business were reported on its equity investment in Dow Corning Corporation (“Dow Corning”) the equity in earnings line in Corning’s income statement, net of Dow pursuant to the Transaction Agreement announced on December 10, Corning’s 35% U.S. tax. Additionally, Corning reported its tax on equity 2015. Under the terms of the Transaction Agreement, Corning exchanged earnings from Dow Corning on the tax provision line on its income with Dow Corning its 50% stock interest in Dow Corning for 100% of statement at a U.S. tax provision rate of 7%. As part of the realignment, the stock of a newly formed entity, which holds an equity interest in Hemlock Semiconductor Group was converted to a partnership. Each Hemlock Semiconductor Group and approximately $4.8 billion in cash. of the partners is responsible for the taxes on their portion of equity earnings. Therefore, post-realignment, Hemlock Semiconductor Group’s The equity in earnings line on our income statement for the year ended equity earnings is reported before tax on the equity in earnings line and December 31, 2016 reflects both the equity earnings from the silicones and Corning’s tax is reported on the tax provision line. polysilicones (Hemlock Semiconductor) businesses of Dow Corning from January 1, 2016 through May 31, 2016, the closing date of the Transaction Refer to Note 7 (Investments) to the consolidated financial statements Agreement, and seven months of equity earnings from Hemlock for additional information. Semiconductor Group. Prior to the realignment of Dow Corning, equity Translated earnings contracts Included in the line item Translated earnings contract (loss) gain, net, is the impact of foreign currency hedges which hedge our translation exposure arising from movements in the Japanese yen, South Korean won, euro, New Taiwan dollar and Chinese yuan against the U.S. dollar and its impact on our net earnings. The following table provides detailed information on the impact of our translated earnings contract losses and gains: Year ended Year ended Change December 31, 2016 December 31, 2015 2016 vs. 2015 Income before Net Income before Net Income before Net (in millions) income taxes income income taxes income income taxes income Hedges related to translated earnings: Realized gain, net $ 201 $ 127 $ 653 $ 410 $ (452) $ (283) Unrealized (loss) gain (649) (409) (573) (362) (76) (47) Total translated earnings contract (loss) gain $ (448) $ (282) $ 80 $ 48 $ (528) $ (330) Year ended Year ended Change December 31, 2015 December 31, 2014 2015 vs. 2014 Income before Net Income before Net Income before Net (in millions) income taxes income income taxes income income taxes income Hedges related to translated earnings: Realized gain, net $ 653 $ 410 $ 274 $ 224 $ 379 $ 186 Unrealized (loss) gain (573) (362) 1,095 692 (1,668) (1,054) Total translated earnings contract gain (loss) $ 80 $ 48 $ 1,369 $ 916 $ (1,289) $ (868) 18 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations The gross notional value outstanding for our translated earnings contracts at December 31, 2016, 2015 and 2014 were as follows (in billions): Years ended December 31, 2016 2015 2014 Japanese yen-denominated hedges $ 14.9 $ 8.3 $ 9.8 South Korean won-denominated hedges 1.2 3.3 2.3 Euro-denominated hedges 0.3 0.3 Chinese yuan-denominated hedges 0.3 Total gross notional value outstanding $ 16.7 $ 11.9 $ 12.1 Income Before Income Taxes The translation impact of fluctuations in foreign currency exchange compared to 2015. This impact was partially offset by the decrease in rates positively affected Corning’s Income before income taxes in the the realized gain from our foreign currency translation hedges related to year ended December 31, 2016 in the amount of $304 million when translated earnings of $452 million. Benefit (Provision) for Income Taxes Our benefit (provision) for income taxes and the related effective income tax rates were as follows (dollars in millions): Years ended December 31, 2016 2015 2014 Benefit (provision) for income taxes $ 3 $ (147) $ (1,096) Effective tax rate (0.1)% 9.9% 30.7% The effective income tax rate for 2016 differed from the U.S. statutory Corning continues to indefinitely reinvest substantially all of its foreign rate of 35% primarily due to the following items: earnings, with the exception of an immaterial amount of current earnings that have very low or no tax cost associated with their • Rate differences on income (loss) of consolidated foreign companies, repatriation. Our current analysis indicates that we have sufficient U.S. including the benefit of excess foreign tax credits resulting from the liquidity, including borrowing capacity, to fund foreseeable U.S. cash inclusion of foreign earnings in U.S. income; and needs without requiring the repatriation of foreign cash. One time • The tax-free nature of the realignment of our equity interest in Dow or unusual items may impact our ability or intent to keep our foreign Corning during the period, as well as the release of the deferred tax earnings and cash indefinitely reinvested. As of December 31, 2016, taxes liability related to Corning’s tax on Dow Corning’s undistributed have not been provided on approximately $12.6 billion of accumulated earnings as of the date of the transaction. foreign unremitted earnings that are expected to remain invested indefinitely. While it remains impracticable to calculate the tax cost of The effective income tax rate for 2015 differed from the U.S. statutory repatriating our total unremitted foreign earnings, such cost could be rate of 35% primarily due to the following items: material to the results of operations of Corning in a particular period. • Rate differences on income (loss) of consolidated foreign companies, We do not expect a material change to the amount of unrecognized tax including the benefit of excess foreign tax credits resulting from the benefits in the next 12 months. inclusion of foreign earnings in U.S. income; Refer to Note 6 (Income Taxes) to the Consolidated Financial Statements • The impact of equity in earnings of nonconsolidated affiliates reported for further details regarding income tax matters. in the financials, net of tax; • $63 million tax expense for unrecognized tax benefit primarily for positions taken related to net transfer pricing adjustments (offset with benefit for competent authority relief); and • $100 million tax benefit primarily related to change in judgment on the realizability of deferred tax assets which is partially offset with tax expense from deferred tax allowance increases. CORNING INCORPORATED - 2016 Annual Report 19


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 2016 2015 2014 Net income attributable to Corning Incorporated $ 3,695 $ 1,339 $ 2,472 Net income attributable to Corning Incorporated used in basic earnings per common share calculation(1) $ 3,597 $ 1,241 $ 2,378 Net income attributable to Corning Incorporated used in diluted earnings per common share calculation(1) $ 3,695 $ 1,339 $ 2,472 Basic earnings per common share $ 3.53 $ 1.02 $ 1.82 Diluted earnings per common share $ 3.23 $ 1.00 $ 1.73 Weighted-average common shares outstanding - basic 1,020 1,219 1,305 Weighted-average common shares outstanding - diluted 1,144 1,343 1,427 (1) Refer to Note 18 (Earnings per Common Share) to the Consolidated Financial Statements for additional information. Comprehensive Income Years ended December 31, (in millions) 2016 2015 2014 Net income attributable to Corning Incorporated $ 3,695 $ 1,339 $ 2,472 Foreign currency translation adjustments and other (104) (590) (1,073) Net unrealized (losses) gain on investments (3) 1 (1) Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans 241 121 (281) Net unrealized gains (losses) on designated hedges 1 (36) 4 Other comprehensive income (loss), net of tax 135 (504) (1,351) Comprehensive income attributable to Corning Incorporated $ 3,830 $ 835 $ 1,121 2016 vs. 2015 2015 vs. 2014 For the year ended December 31, 2016, comprehensive income increased For the year ended December 31, 2015, comprehensive income decreased by $2,995 million when compared to the same period in 2015, driven by $286 million when compared to the same period in 2014, driven by an increase of $2,356 million in net income attributable to Corning by a decrease of $1,133 million in net income attributable to Corning Incorporated, the positive impact of the change in foreign currency Incorporated, offset by the positive impact of the change in foreign translation adjustments and an increase in unamortized actuarial gains currency translation adjustments and the increase in unamortized gains for postretirement benefit plans. for postretirement benefit plans. The decrease in the loss on foreign currency translation adjustments The decrease in the loss on foreign currency translation adjustments for the year ended December 31, 2016 in the amount of $486 million for the year ended December 31, 2015 in the amount of $483 million (after-tax) was driven by the following items: 1) the decrease in the loss (after-tax) was driven by the following items: 1) the decrease in the loss on the translation of Corning’s consolidated subsidiaries in the amount in the translation of Corning’s consolidated subsidiaries in the amount of $398 million, largely driven by the strengthening of the Japanese of $334 million; 2) the decrease in the loss in the translation of Corning’s yen; and 2) the decrease in the loss in the translation of Corning’s equity method investments in the amount of $13 million; and 3) the equity method investments in the amount of $88 million, driven by the absence of the reclassification of a gain to net income in 2014 in the realignment of our ownership interests in Dow Corning. amount of $136 million related to the acquisition of Samsung Corning Precision Materials. The increase in unamortized actuarial gains for postretirement benefit plans in the amount of $120 million (after-tax) is due to the following: The increase in unamortized gains for postretirement benefit plans in 1) the decrease of $65 million related to the reclassification of actuarial the amount of $402 million (after-tax) is due to the following: 1) the gains to the income statement, largely due to higher pension asset increase in the reclassification to the income statement of $81 million returns; 2) an increase in actuarial losses of $3 million; and 3) a decrease of actuarial losses in our defined benefit pension plans, largely driven by of $188 million in unamortized losses related to our equity companies. lower investment returns; 2) a decrease in actuarial losses of $119 million; The significant change was driven by the release of Dow Corning’s and 3) the increase in actuarial gains of $202 million from our equity unamortized actuarial loss, which was included in the gain on the affiliate Dow Corning. realignment of our ownership interests in Dow Corning. See Note 13 (Employee Retirement Plans) and Note 17 (Shareholders’ Equity) to the Consolidated Financial Statements for additional details. 20 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Core Performance Measures In managing the Company and assessing our financial performance, we measures are not prepared in accordance with Generally Accepted supplement certain measures provided by our consolidated financial Accounting Principles in the United States (“GAAP”). We believe investors statements with measures adjusted to exclude certain items, to arrive should consider these non-GAAP measures in evaluating our results at core performance measures. We believe reporting core performance as they are more indicative of our core operating performance and measures provides investors greater transparency to the information how management evaluates our operational results and trends. These used by our management team to make financial and operational measures are not, and should not be viewed as a substitute for GAAP decisions. Corning has adopted the use of constant currency reporting reporting measures. With respect to the Company’s outlooks for future for the Japanese yen and South Korean won, and uses an internally periods, it is not able to provide reconciliations for these non-GAAP derived yen-to-dollar management rate of ¥99 and won-to-dollar measures because the Company does not forecast the movement management rate of ₩1,100. of the Japanese yen and South Korean won against the U.S. dollar, or other items that do not reflect ongoing operations, nor does it forecast Net sales, equity in earnings of affiliated companies and net income are items that have not yet occurred or are out of the Company’s control. adjusted to exclude the impacts of changes in the Japanese yen and the As a result, the Company is unable to provide outlook information on a South Korean won, gains and losses on our translated earnings contracts, GAAP basis. acquisition-related costs, certain discrete tax items, restructuring and restructuring-related charges, certain litigation-related expenses, See “Use of Non-GAAP Financial Measures” for details on core pension mark-to-market adjustments and other items which do performance measures. For a reconciliation of non-GAAP performance not reflect on-going operating results of the Company or our equity measures to their most directly comparable GAAP financial measure, affiliates. Management’s discussion and analysis on our reportable please see “Reconciliation of Non-GAAP Measures” below. segments has also been adjusted for these items, as appropriate. These Results of Operations – Core Performance Measures Selected highlights from our operations follow (in millions): % change 2016 2015 2014 16 vs. 15 15 vs. 14 Core net sales $ 9,710 $ 9,800 $ 9,955 (1)% (2)% Core equity in earnings of affiliated companies $ 250 $ 269 $ 310 (7)% (13)% Core earnings $ 1,774 $ 1,882 $ 2,023 (6)% (7)% Core Net Sales The following table presents core net sales by reportable segment (in millions): % % Years ended December 31, Change Change 2016 2015 2014 16 vs. 15 15 vs. 14 Display Technologies $ 3,556 $ 3,774 $ 4,092 (6)% (8)% Optical Communications 3,005 2,980 2,652 1% 12% Environmental Technologies 1,032 1,053 1,092 (2)% (4)% Specialty Materials 1,124 1,107 1,205 2% (8)% Life Sciences 839 821 862 2% (5)% All Other 154 65 52 137% 25% Total core net sales $ 9,710 $ 9,800 $ 9,955 (1)% (2)% In all segments except Display Technologies, core net sales are consistent Core net sales decreased by $90 million in the year ended December 31, with GAAP net sales. Because a significant portion of revenues in the 2016 when compared to the same period in 2015. Core net sales in the Display Technologies segment are denominated in Japanese yen, this Display Technologies segment decreased by $218 million, or 6%, in the segment’s net sales are adjusted to remove the impact of translating year ended December 31, 2016, driven by LCD glass price declines slightly yen into dollars. As of January 1, 2015, we use an internally derived higher than 10%, partially offset by an increase in volume of a mid-single management rate of ¥99, which is closely aligned to our current digit percentage. yen-denominated hedges related to translated earnings, and have recast all periods presented based on this rate in order to effectively remove the impact of changes in the Japanese yen. CORNING INCORPORATED - 2016 Annual Report 21


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Core net sales decreased by $155 million to $9.8 billion in the year The translation impact from movements in foreign currency exchange ended December 31, 2015 when compared to the same period in rates in the years ended December 31, 2016 and 2015, excluding the 2014. The decline was driven by a decrease of $318 million in the Japanese yen and South Korean won, negatively affected core net Display Technologies segment primarily due to price declines in the sales in the amount of $39 million and $215 million, respectively, when low-teens on a percentage basis. Although volume increased in the compared to the prior years. mid-single digits in percentage terms, growth was muted somewhat by weakness in demand for televisions, computer monitors and mobile computing products. Core Equity in Earnings of Affiliated Companies The following provides a summary of core equity in earnings of affiliated companies (in millions): % change 2016 2015 2014 16 vs. 15 15 vs. 14 Dow Corning Corporation(1) $ 98 $ 245 $ 287 (60)% (15)% Hemlock Semiconductor Group(2) 154 All other (2) 24 23 (108)% 4% Total core equity earnings $ 250 $ 269 $ 310 (7)% (13)% (1) Results include equity earnings for Dow Corning, which includes the silicones business and Hemlock Semiconductor business, through May 31, 2016, the date of the realignment of our ownership interest in Dow Corning. (2) Results include equity earnings for Hemlock Semiconductor Group beginning on June 1, 2016. Core Earnings 2016 vs. 2015 unfavorable translation impact from movements in foreign currency exchange rates, excluding the Japanese yen and South Korean won, In the year ended December 31, 2016, we generated core earnings of of $57 million. Slightly offsetting the decline is higher core earnings in $1,774 million, or $1.55 per share, compared to $1,882 million, or $1.40 per the Optical Communications segment, up $61 million, driven by higher share, in the year ended December 31, 2015. The decrease was due to sales volume for both carrier network and enterprise network products, declines in the Display Technologies and Environmental Technologies the favorable impact of several acquisitions completed this year and segments. Slightly offsetting the decline was higher core earnings in the manufacturing efficiencies gained through cost reductions. Optical Communications segment, up $16 million, driven by higher sales volume in carrier network products, the favorable translation impact Included in core earnings for the years ended December 31, 2016, 2015 from movements in foreign currency exchange rates, excluding the and 2014 is net periodic pension expense in the amount of $50 million, Japanese yen and South Korean won, of $13 million and manufacturing $62 million and $74 million, respectively, which excludes the annual efficiencies gained through cost reductions. pension mark-to-market adjustments. In the years ended December 31, 2016, 2015 and 2014, the mark-to-market adjustments were a pre-tax loss of $67 million, $165 million and $29 million, respectively. Refer to Note 13 2015 vs. 2014 (Employee Retirement Plans) to the Consolidated Financial Statements for additional information. In the year ended December 31, 2015, we generated core earnings of $1,882 million, or $1.40 per share, compared to $2,023 million, or $1.42 per share in the year ended December 31, 2014. The decrease was due to lower core earnings in the Display Technologies, Environmental Technologies, Specialty Materials and Life Sciences segments, and the 22 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations 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): 2016 2015 2014 Core earnings attributable to Corning Incorporated $ 1,774 $ 1,882 $ 2,023 Less: Series A convertible preferred stock dividend 98 98 94 Core earnings available to common stockholders - basic 1,676 1,784 1,929 Add: Series A convertible preferred stock dividend 98 98 94 Core earnings available to common stockholders - diluted $ 1,774 $ 1,882 $ 2,023 Weighted-average common shares outstanding - basic 1,020 1,219 1,305 Effect of dilutive securities: Stock options and other dilutive securities 9 9 12 Series A convertible preferred stock 115 115 110 Weighted-average common shares outstanding - diluted 1,144 1,343 1,427 Core basic earnings per common share $ 1.64 $ 1.46 $ 1.48 Core diluted earnings per common share $ 1.55 $ 1.40 $ 1.42 Reconciliation of Non-GAAP Measures We utilize certain financial measures and key performance indicators excluded from the comparable measure as calculated and presented in that are not calculated in accordance with GAAP to assess our financial accordance with GAAP in the statement of income or statement of cash and operating performance. A non-GAAP financial measure is defined 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 in 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 of to analyze financial performance without the impact of items that are income or statement of cash flows, or (ii) includes amounts, or is subject driven by general economic conditions and events that do not reflect to adjustments that have the effect of including amounts, that are 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 (amounts in millions except percentages and per share amounts): Year ended December 31, 2016 Equity Income before Net Effective Earnings Net sales earnings income taxes income tax rate(a) per share As reported $ 9,390 $ 284 $ 3,692 $ 3,695 0% $ 3.23 Constant-yen(1) 316 4 300 222 0.19 Constant-won(1) 4 (1) (47) (34) (0.03) Translated earnings contract loss(2) 448 282 0.25 Acquisition-related costs(3) 127 107 0.09 Discrete tax items and other tax-related adjustments(4) (27) (0.02) Litigation, regulatory and other legal matters(5) 55 70 0.06 Restructuring, impairment and other charges(6) 199 138 0.12 Equity in earnings of affiliated companies(8) (37) (37) (18) (0.02) Impacts from the acquisition of Samsung Corning Precision Materials(9) (49) (42) (0.04) Pension mark-to-market adjustment(11) 67 44 0.04 Gain on realignment of equity investment(12) (2,676) (2,676) (2.34) Taiwan power outage(13) 17 13 0.01 Core performance measures $ 9,710 $ 250 $ 2,096 $ 1,774 15.4% $ 1.55 (a) Based upon statutory tax rates in the specific jurisdiction for each event. See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items. CORNING INCORPORATED - 2016 Annual Report 23


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Year ended December 31, 2015 Equity Income before Net Effective Earnings Net sales earnings income taxes income tax rate(a) per share As reported $ 9,111 $ 299 $ 1,486 $ 1,339 9.9% $ 1.00 (1) Constant-yen 687 6 567 423 0.31 Constant-won(1) 2 (2) (25) (19) (0.01) Translated earnings contract gain(2) (80) (48) (0.04) Acquisition-related costs(3) 55 36 0.03 Discrete tax items and other tax-related adjustments(4) 36 0.03 Litigation, regulatory and other legal matters(5) 5 3 Restructuring, impairment and other charges(6) 46 42 0.03 Equity in earnings of affiliated companies(8) (34) (34) (33) (0.02) Impacts from the acquisition of Samsung Corning Precision Materials(9) (20) (18) (0.01) Post-combination expenses(10) 25 16 0.01 Pension mark-to-market adjustment(11) 165 105 0.08 Core performance measures $ 9,800 $ 269 $ 2,190 $ 1,882 14.1% $ 1.40 (a) Based upon statutory tax rates in the specific jurisdiction for each event. See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items. Year ended December 31, 2014 Equity Income before Net Effective Earnings Net sales earnings income taxes income tax rate(a) per share As reported $ 9,715 $ 266 $ 3,568 $ 2,472 30.7% $ 1.73 Constant-yen(1)* 240 1 197 144 0.10 Constant-won(1) 37 26 0.02 Translated earnings contract gain(2) (1,369) (916) (0.64) Acquisition-related costs(3) 74 57 0.04 Discrete tax items and other tax-related adjustments(4) 240 0.17 Litigation, regulatory and other legal matters(5) (1) (2) Restructuring, impairment and other charges(6) 86 66 0.05 Liquidation of subsidiary(7) (3) Equity in earnings of affiliated companies(8) 43 43 38 0.03 Gain on previously held equity investment(9) (394) (292) (0.20) Settlement of pre-existing contract(9) 320 320 0.22 Contingent consideration fair value adjustment(9) (249) (194) (0.14) Post-combination expenses(9) 72 55 0.04 Impacts from the acquisition of Samsung Corning Precision Materials(9) (9) (12) (0.01) Pension mark-to-market adjustment(11) 29 24 0.02 Core performance measures $ 9,955 $ 310 $ 2,404 $ 2,023 15.8% $ 1.42 (a) Based upon statutory tax rates in the specific jurisdiction for each event. * In the first quarter of 2015, we changed the yen-to-dollar management rate from ¥93 to ¥99 to closely align with the yen-denominated hedges entered into for the years 2015 through 2017. Prior periods presented have been recast based on the new rate. See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items. 24 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Items Excluded from GAAP Measures Items which we exclude from GAAP measures to arrive at Core performance measures are as follows: (1) Constant-currency adjustments: Constant-yen: Because a significant portion of Display Technologies segment revenues and manufacturing costs are denominated in Japanese yen, management believes it is important to understand the impact on core earnings of translating yen into dollars. Presenting results on a constant-yen basis mitigates the translation impact of the Japanese yen, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts. As of January 1, 2015, we used an internally derived management rate of ¥99, which is closely aligned to our current yen portfolio of foreign currency hedges, and have recast all periods presented based on this rate in order to effectively remove the impact of changes in the Japanese yen. Constant-won: Because a significant portion of Corning Precision Materials’ costs are denominated in South Korean won, management believes it is important to understand the impact on core earnings from translating won into dollars. Presenting results on a constant-won basis mitigates the translation impact of the South Korean won, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts without the variability caused by the fluctuations caused by changes in the rate of this currency. We use an internally derived management rate of ₩1,100, which is consistent with historical prior period averages of the won. (2) Translated earnings contract loss (gain): We have excluded the impact of the gains and losses of our translated earnings contracts for each period presented. (3) Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs. (4) Discrete tax items and other tax-related adjustments: This represents the removal of discrete adjustments attributable to changes in tax law and changes in judgment about the realizability of certain deferred tax assets, as well as other non-operational tax-related adjustments, including the tax effect of transfer pricing out-of-period adjustments in 2014 and 2015. (5) Litigation, regulatory and other legal matters: Includes amounts related to the Pittsburgh Corning Corporation (PCC) asbestos litigation, adjustments to our estimated liability for environmental-related items and other legal matters. (6) Restructuring, impairment and other charges: This amount includes restructuring, impairment and other charges, including goodwill impairment charges and other expenses and disposal costs not classified as restructuring expense. (7) Liquidation of subsidiary: The partial impact of non-restructuring related items due to the decision to liquidate a consolidated subsidiary that is not significant. (8) Equity in earnings of affiliated companies: These adjustments relate to items which do not reflect expected on-going operating results of our affiliated companies, such as restructuring, impairment and other charges and settlements under “take-or-pay” contracts. (9) Impacts from the acquisition of Samsung Corning Precision Materials: Pre-acquisition gains and losses on previously held equity investment and other gains and losses related to the acquisition, including post-combination expenses, fair value adjustments to the indemnity asset related to contingent consideration and the impact of the withholding tax on a dividend from Samsung Corning Precision Materials. (10) Post-combination expenses: Post-combination expenses incurred as a result of an acquisition in the first quarter of 2015. (11) Pension mark-to-market adjustment: Mark-to-market pension gains and losses, which arise from changes in actuarial assumptions and the difference between actual and expected returns on plan assets and discount rates. (12) Gain on realignment of equity investment: Gain recorded upon the completion of the strategic realignment of our ownership interest in Dow Corning. (13) Taiwan power outage: Impact of the power outage that temporarily halted production at our Tainan, Taiwan manufacturing location in the second quarter of 2016. The impact includes asset write-offs and charges for facility repairs, offset somewhat by partial reimbursement through our insurance program. Reportable Segments Our reportable segments are as follows: • Life Sciences – manufactures glass and plastic labware, equipment, media and reagents enabling workflow solutions for scientific • Display Technologies – manufactures glass substrates primarily for flat applications. panel liquid crystal displays. All other segments that do not meet the quantitative threshold • Optical Communications – manufactures carrier and enterprise for separate reporting have been grouped as “All Other.” This group network components for the telecommunications industry. is primarily comprised of the results of Corning’s Pharmaceutical • Environmental Technologies – manufactures ceramic substrates and Technologies business, our non-LCD glass business, new product lines filters for automotive and diesel emission control applications. and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates. • Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs. CORNING INCORPORATED - 2016 Annual Report 25


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations We prepared the financial results for our reportable segments on a basis GAAP measures in evaluating our results as they are more indicative of that is consistent with the manner in which we internally disaggregate our core operating performance and how management evaluates our financial information to assist in making internal operating decisions. operational results and trends. These measures are not, and should We included the earnings of equity affiliates that are closely associated not be viewed as a substitute for GAAP reporting measures. For a with our reportable segments in the respective segment’s net income. reconciliation of non-GAAP performance measures to their most directly We have allocated certain common expenses among our reportable comparable GAAP financial measure, please see “Reconciliation of Non- segments differently than we would for stand-alone financial GAAP Measures” above. Segment net income may not be consistent information prepared in accordance with GAAP. Our reportable with measures used by other companies. The accounting policies of our segments include non-GAAP measures which are not prepared in reportable segments are the same as those applied in the consolidated accordance with GAAP. We believe investors should consider these non- financial statements. Display Technologies The following table provides net sales and net income for the Display Technologies segment and reconciles the non-GAAP financial measures for the Display Technologies segment with our financial statements presented in accordance with GAAP (in millions): Year ended December 31, 2016 Year ended December 31, 2015 Year ended December 31, 2014 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 3,238 $ 935 $ 3,086 $ 1,095 $ 3,851 $ 1,396 Constant-yen(1)* 316 222 686 419 240 142 Constant-won(1) 2 (33) 2 (17) 27 Translated earnings contract gain(2) (127) (416) (290) Acquisition-related costs(3) 37 Discrete tax items and other tax-related adjustments(4) 4 Restructuring, impairment and other charges(6) 44 40 Equity in earnings of affiliated companies(8) 6 Impacts from the acquisition of Samsung Corning Precision Materials(9) (42) (10) 1 (121) Pension mark-to-market adjustment(11) 1 4 2 Taiwan power outage(13) 6 Core performance measures $ 3,556 $ 1,006 $ 3,774 $ 1,075 $ 4,092 $ 1,243 * In the first quarter of 2015, we changed the yen-to-dollar management rate from ¥93 to ¥99 to closely align with the yen-denominated hedges entered into for the years 2015 through 2017. Prior periods presented have been recast based on the new rate. See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted reconciling items. As Reported The decrease in net income was partially offset by the following items: • A mid-single digit percentage increase in volume; 2016 vs. 2015 Net sales in the Display Technologies segment increased by $152 million, • An increase of $35 million in the gain on the fair value adjustment of or 5%, in the year ended December 31, 2016 when compared to the same the contingent consideration resulting from the acquisition of Corning period in 2015, driven by the positive impact from the strengthening of Precision Materials; the Japanese yen in the amount of $370 million and a mid-single digit percentage volume increase driven by growth in television screen size. • Improvements in manufacturing efficiency; and This increase was partially offset by LCD glass price declines slightly • A decline in operating expenses. higher than 10%. The translation impact of fluctuations in foreign currency exchange Net income in the Display Technologies segment decreased by rates positively impacted Display Technologies net income in the year $160 million, or 15%, in the year ended December 31, 2016 when ended December 31, 2016 in the amount of $213 million when compared compared to the same period in 2015. This decrease was driven by the to the same period in 2015. This impact was more than offset by the following items: decrease in the realized gain from our translated earnings contracts in • The impact of price declines slightly higher than 10%; the amount of $289 million. • A decrease of $289 million in the realized gain from our yen and won-denominated currency hedges; and • An increase of $44 million in asset write-off expenses. 26 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2015 vs. 2014 by a mid-single digit percentage volume increase. Core earnings also When compared to the same period in 2014, the decrease in net sales of decreased in this period, down $69 million, or 6%, driven by LCD glass $765 million, or 20%, in the year ended December 31, 2015 was driven by price declines slightly higher than 10%, partially offset by a mid-single price declines in the low-teens in percentage terms and the depreciation digit percentage volume increase, improvements in manufacturing of the Japanese yen versus the U.S. dollar, which adversely impacted efficiency and a decline in operating expenses. net sales in the amount of $446 million. Sequentially, fourth quarter LCD glass price declines were the lowest sequential decline of 2015. 2015 vs. 2014 Although volume increased in the mid-single digits in percentage terms, When compared to the same period in 2014, core net sales in the growth was muted somewhat by weakness in demand for televisions, Display Technologies segment decreased by $318 million, or 8%, in the computer monitors and mobile computing products. Additionally, in the year ended December 31, 2015, driven primarily by price declines in the third quarter of 2015, we experienced temporary share loss at one of our low-teens in percentage terms. Sequentially, LCD glass price declines in largest customers due to a contract dispute. We resolved the dispute the fourth quarter remained moderate. Although volume increased in in the fourth quarter of 2015, and extended our long-term supply the mid-single digits in percentage terms, growth was muted somewhat agreement with this customer to 2025. by weakness in demand for televisions, computer monitors and mobile computing products. Additionally, in the third quarter of 2015, we Net income in the Display Technologies segment decreased by experienced temporary share loss at one of our largest customers due $301 million, or 22%, in the year ended December 31, 2015 when to a contract dispute. We resolved the dispute in the fourth quarter of compared to the same period in 2014. This decrease was driven by the 2015, and extended our long-term supply agreement with this customer following items: to 2025. • The impact of price declines in the low-teens in percentage terms that Core earnings in the Display Technologies segment in the year ended more than offset the mid-single digit percent increase in volume; December 31, 2015 declined by $168 million, or 14%, when compared to the same period last year. Volume increases in the mid-single digits in • A decrease of $184 million in the gain on the fair value adjustment of percentage terms, lower manufacturing costs and a decline in operating the contingent consideration resulting from the acquisition of Corning expenses were more than offset by price declines in the low-teens and Precision Materials; and the absence of a gain on the settlement of an intellectual property • The absence of a gain on the settlement of an intellectual property dispute recorded in 2014 in the amount of $38 million. dispute recorded in 2014 in the amount of $38 million. The decrease in net income was partially offset by the following items: Other Information • Improvements in manufacturing efficiency of $79 million; The Display Technologies segment has a concentrated customer base comprised of LCD panel and color filter makers primarily located in Japan, • A decline in transaction and acquisition-related costs in the amounts South Korea, China and Taiwan. In 2016, 2015 and 2014, three customers of $73 million and $37 million, respectively; of the Display Technologies segment, which individually accounted for • A decrease of $40 million in restructuring, impairment and other more than 10% of segment net sales, accounted for a combined 65%, charges; and 62% and 61% of total segment sales in those years. Our near-term sales and profitability would be impacted if any of these significant customers • A decline in operating expenses. were unable to continue to purchase our products. The translation impact of fluctuations in foreign currency exchange Corning has invested to expand capacity to meet the projected demand rates negatively impacted Display Technologies net income in the year for LCD glass substrates. In 2016, 2015 and 2014, capital spending in this ended December 31, 2015 in the amount of $233 million when compared segment was $464 million, $594 million and $492 million, respectively. to the same period in 2014. This impact was partially offset by the increase in the realized gain from our translated earnings contracts in the amount of $126 million. Outlook: For full-year 2017, Corning expects the rate of growth in both retail Core Performance market and glass demand to be in the mid-single digit percentages. In the first quarter of 2017, the company expects Corning’s volume to 2016 vs. 2015 increase by mid-teen percentage year over year, and decline by mid-single Core net sales decreased by $218 million, or 6%, in the year ended digit percentage sequentially. The company expects an overall favorable December 31, 2016 when compared to the same period in 2015, driven LCD glass price environment for the full year, with price declines more by LCD glass price declines slightly higher than 10%, partially offset moderate than in 2016. CORNING INCORPORATED - 2016 Annual Report 27


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Optical Communications The following table provides net sales and net income for the Optical Communications segment and 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, 2016 December 31, 2015 December 31, 2014 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 3,005 $ 245 $ 2,980 $ 237 $ 2,652 $ 194 Acquisition-related costs(3) 23 16 (2) Litigation, regulatory and other legal matters(5) 13 Restructuring, impairment and other charges(6) 24 (1) 17 (7) Liquidation of subsidiary (2) Post-combination expenses(10) 16 Pension mark-to-market adjustment(11) 5 13 Core performance measures $ 3,005 $ 297 $ 2,980 $ 281 $ 2,652 $ 220 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. As Reported The increase in net income of $43 million, or 22%, was primarily driven by higher sales volume for both carrier network and enterprise network 2016 vs. 2015 products and manufacturing efficiencies gained through cost reductions, In the year ended December 31, 2016, net sales of the Optical offset somewhat by acquisition-related and post-combination expenses Communications segment increased $25 million, or 1%, when compared associated with three acquisitions completed in the first quarter of 2015. to the same period in 2015, driven by an increase in carrier network sales. Also somewhat offsetting the increase were price declines and a small The sales increase was driven by fiber-to-the-home products in North legal settlement. The translation impact from movements in foreign America, higher sales of optical fiber and the impact of an acquisition currency exchange rates did not significantly impact net income of this completed in the second quarter of 2016. These increases were partially segment in the year ended December 31, 2015 when compared to the offset by production issues related to the implementation of new same period in 2014. manufacturing software, which constrained our ability to manufacture product in the first half of 2016. Production returned to normal levels at the end of the second quarter. The translation impact from movements Core Performance in foreign currency exchange rates in 2016 negatively impacted Optical 2016 vs. 2015 Communications net sales in the amount of $8 million, when compared Core earnings increased $16 million, or 6%, in the year ended December to the same period in 2015. 31, 2016, driven by higher sales of our solutions products and cost Net income in the Optical Communications segment increased reductions, partially offset by the impact of the production issues $8 million, or 3%, in the year ended December 31, 2016 when compared described above. Movements in foreign exchange rates positively to the same period in 2015. The increase was driven by cost reductions impacted core earnings in the amounts of $12 million when compared and the continuation of the favorable shift toward sales of our solutions to 2015. products, partially offset by the impact of the production issues described above, costs incurred related to a small acquisition completed 2015 vs. 2014 in the second quarter of 2016 and restructuring and asset write-off In the year ended December 31, 2015, core earnings increased by expenses. Movements in foreign exchange rates positively impacted net $61 million, or 28%, driven by higher sales volume for both carrier network income in the amount of $12 million when compared to 2015. and enterprise network products and manufacturing efficiencies gained through cost reductions, offset somewhat by price declines. 2015 vs. 2014 The Optical Communications segment has a concentrated customer In the year ended December 31, 2015, net sales of the Optical base. In the year ended December 31, 2016, one customer, which Communications segment increased by $328 million, or 12%, when individually accounted for more than 10% of segment net sales, compared to the same period in 2014, driven by an increase in both accounted for 15% of total segment net sales. In the year ended December carrier network and enterprise network products. Carrier networks 31, 2015, two customers, which individually accounted for more than 10% increased by $158 million, driven by higher sales of fiber-to-the-home and of segment net sales, accounted for 22% of total segment net sales. In cable products in North America and the impact of recent acquisitions, the year ended December 31, 2014, one customer, which individually offset somewhat by lower sales of wireless products and fiber and cable accounted for more than 10% of segment net sales, accounted for 11% of products in Europe. Sales declined in Europe driven by lower volume and total segment net sales. the negative impact of movements in the euro exchange rate versus the U.S. dollar. Enterprise network sales grew by $170 million, primarily due to the impact of an acquisition completed in 2015 and an increase Outlook: in data center product sales. The translation impact from movements in foreign currency exchange rates in 2015 negatively impacted Optical In the first quarter of 2017, year-over-year Optical Communications sales Communications net sales in the amount of $101 million when compared growth is expected to be at least 25%. Full-year 2017 sales are expected to the same period in 2014. to increase by a low-teens percentage over 2016. 28 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Environmental Technologies The following table provides net sales and net income for the Environmental Technologies segment and 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, 2016 December 31, 2015 December 31, 2014 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 1,032 $ 133 $ 1,053 $ 161 $ 1,092 $ 178 Restructuring, impairment and other charges(6) 3 Pension mark-to-market adjustment(11) 5 Core performance measures $ 1,032 $ 136 $ 1,053 $ 161 $ 1,092 $ 183 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. As Reported Core Performance 2016 vs. 2015 2016 vs. 2015 Net sales in the Environmental Technologies segment decreased by Core earnings decreased by $25 million, or 16%, in the year ended $21 million, or 2%, in the year ended December 31, 2016 when compared December 31, 2016, driven by the items impacting our “As Reported” to the same period in 2015, driven by a decrease of $78 million in sales results described above. of diesel products due to the weakening of the heavy-duty diesel truck market in North America, offset partially by an increase of $57 million in 2015 vs. 2014 light-duty substrates sales, driven by strength in the North American, Core earnings declined by $22 million, or 12%, in the year ended December European and Chinese markets. Net income decreased by $28 million, 31, 2015, when compared to the same period in 2014, driven predominantly or 17%, driven by lower sales of heavy-duty diesel products and our by lower sales, the unfavorable impact of the depreciation of the euro investment in capacity for our gas particulate filters. Movements in versus the U.S. dollar and facility expansion costs to support growth foreign exchange rates versus the U.S. dollar negatively impacted net in China. The translation impact from movements in foreign currency sales and net income in this segment in the amounts of $22 million exchange rates versus the U.S. dollar, primarily the euro, negatively and $8 million, respectively, in the year ended December 31, 2016, when impacted net income in the Environmental Technologies segment in compared to the same period in 2015. the amount of $21 million in the year ended December 31, 2015 when compared to the same period in 2014. 2015 vs. 2014 In the year ended December 31, 2015, net sales of this segment decreased The Environmental Technologies segment sells to a concentrated by $39 million, or 4%, when compared to the same period in 2014. Sales of customer base of catalyzer and emission control systems manufacturers, automotive light-duty substrates declined driven almost entirely by the who then sell to automotive and diesel engine manufacturers. Although negative impact of movements in the euro exchange rate versus the U.S. our sales are to the emission control systems manufacturers, the use dollar, partially offset by higher volume in North America and Europe. of our substrates and filters is generally required by the specifications Sales of diesel products also declined in these periods, driven by lower of the automotive and diesel vehicle or engine manufacturers. For sales of light-duty diesel products in Europe and the negative impact 2016, 2015 and 2014, net sales to three customers, which individually of the movements in the euro exchange rate, partially offset by higher accounted for more than 10% of segment sales, accounted for 85%, 86% volume for heavy-duty diesel. The translation impact from movements and 88%, respectively, of total segment sales. While we are not aware in foreign currency exchange rates versus the U.S. dollar, primarily the of any significant customer credit issues with our direct customers, our euro, negatively impacted net sales in the Environmental Technologies near-term sales and profitability would be impacted if any individual segment in 2015 in the amount of $57 million when compared to the customers were unable to continue to purchase our products. same period in 2014. Net income declined in the year ended December 31, 2015 by $17 million, Outlook: or 10%, when compared to the same period in 2014, driven predominantly For the first quarter of 2017, year-over-year segment sales are expected by lower sales, the unfavorable impact of the depreciation of the euro to be consistent to down slightly. Full-year 2017 sales are expected to be versus the U.S. dollar and facility expansion costs to support growth consistent to up slightly from last year with continued strength in the in China. The translation impact from movements in foreign currency automotive market and lower demand for heavy-duty diesel products. exchange rates versus the U.S. dollar, primarily the euro, negatively Sales of the company’s new gas particulate filters are expected to begin impacted net income in the Environmental Technologies segment in during the second half of 2017. the amount of $21 million in the year ended December 31, 2015 when compared to the same period in 2014. CORNING INCORPORATED - 2016 Annual Report 29


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Specialty Materials The following table provides net sales and net income for the Specialty Materials segment and 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, 2016 December 31, 2015 December 31, 2014 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 1,124 $ 174 $ 1,107 $ 167 $ 1,205 $ 138 Constant-yen(1)* (1) (6) (3) Constant-won(1) (2) (2) Translated earnings contract loss (gain)(2) 5 14 (3) Acquisition-related costs (1) Restructuring, impairment and other charges(6) 15 14 12 Taiwan power outage(13) 3 Core performance measures $ 1,124 $ 189 $ 1,107 $ 178 $ 1,205 $ 160 * In the first quarter of 2015, we changed the yen-to-dollar management rate from ¥93 to ¥99 to closely align with the yen-denominated hedges entered into for the years 2015 through 2017. Prior periods presented have been recast based on the new rate. See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. As Reported optics products. The translation impact from movements in foreign currency exchange rates did not significantly impact net income of this 2016 vs. 2015 segment in 2015 when compared to the same period in 2014. Net sales in the Specialty Materials segment increased by $17 million, or 2%, in the year ended December 31, 2016 when compared to the same period in 2015, driven by an increase in sales of Corning Gorilla Glass 5 Core Performance and advanced optics products. Although Corning Gorilla Glass sales 2016 vs. 2015 were lower in the first three quarters of 2016, sales in the fourth quarter Core earnings in the twelve months ended December 31, 2016 increased of 2016 increased approximately 22% over the same period last year, led by $11 million, or 6%, driven primarily by cost reductions and an increase by the rapid adoption of Corning Gorilla Glass 5. Net income increased in advanced optics and Gorilla Glass 5 sales, offset slightly by higher by $7 million, or 4%, driven by manufacturing cost reductions, higher research and development costs. advanced optics sales and the impact of Gorilla Glass 5, offset slightly by higher research and development costs. Movements in foreign 2015 vs. 2014 exchange rates did not materially impact net sales and net income in When compared to the same period last year, core earnings increased the Specialty Materials segment in the twelve months ended December by $18 million, or 11%, in the year ended December 31, 2015, driven 31, 2016 when compared to the same period in 2015. by an increase in Corning Gorilla Glass volume, improvements in manufacturing efficiency and lower operating expenses gained through 2015 vs. 2014 cost reductions, offset somewhat by a decrease in sales of advanced Net sales for the year ended December 31, 2015 decreased by $98 million, optics products. or 8%, when compared to the same period in 2014, primarily due to lower sales of advanced optics products. This decline was driven by weakness For 2016, 2015 and 2014, three customers of the Specialty Materials in the semiconductor industry, delays in a large aerospace and defense segment, which individually accounted for more than 10% of program and the depreciation of the euro versus the U.S. dollar. The segment sales, accounted for 56%, 56% and 51%, respectively, of total translation impact from movements in foreign currency exchange rates segment sales. negatively impacted net sales in the Specialty Materials segment in the amount of $12 million in 2015 when compared to the same period in 2014. Outlook: When compared to the same period in 2014, the increase in net income In the first quarter of 2017, year-over-year segment sales growth is of $29 million, or 21%, in the year ended December 31, 2015 was driven expected to be in the high-teen percentages. The company expects full- by an increase in Corning Gorilla Glass volume, improvements in year 2017 segment sales to increase, with the rate of growth dependent manufacturing efficiency and lower operating expenses gained through on the timing and extent of customers deploying Gorilla Glass 5 and cost reductions, offset somewhat by a decrease in sales of advanced other Corning innovations. 30 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Life Sciences The following table provides net sales and net income for the Life Sciences segment and 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, 2016 December 31, 2015 December 31, 2014 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 839 $ 58 $ 821 $ 61 $ 862 $ 67 Acquisition-related costs(3) 12 12 14 Restructuring, impairment and other charges(6) 7 2 Core performance measures $ 839 $ 77 $ 821 $ 73 $ 862 $ 83 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. As Reported Core Performance 2016 vs. 2015 2016 vs. 2015 Net sales in the Life Sciences segment increased by $18 million, or 2%, in In the year ended December 31, 2016, core earnings in the Life Sciences the year ended December 31, 2016 when compared to the same period segment increased by $4 million, or 5%, when compared to the same in 2015, driven by volume growth in North America, China and Europe, period last year, with higher volume more than offsetting the negative slightly offset by the impact of movements in foreign exchange rates impact from movements in foreign exchange rates. in the amount of $11 million. Net income declined by $3 million, or 5%, driven by asset write-offs and exit costs and the impact of movements 2015 vs. 2014 in foreign exchange rates of $7 million, offset slightly by higher volume. In the year ended December 31, 2015, core earnings in the Life Sciences segment declined by $10 million, or 12%, when compared to the same 2015 vs. 2014 period in 2014, with the negative impact from movements in foreign Net sales for the year ended December 31, 2015 decreased by $41 million, exchange rates more than offsetting improvements in manufacturing or 5%, when compared to the same period in 2014, due to the negative efficiency. impact of the strengthening of the U.S. dollar versus foreign currencies, which negatively impacted net sales by $43 million. Net income in the For 2016, 2015 and 2014, two customers in the Life Sciences segment, Life Sciences segment declined by $6 million, or 9%, when compared to which individually accounted for more than 10% of total segment net the same period in 2014, with the negative impact from movements in sales, collectively accounted for 46%, 46% and 45%, respectively, of total foreign exchange rates in the amount of $14 million more than offsetting segment sales. improvements in manufacturing efficiency. Outlook: The Life Sciences segment is expected to have low-single-digit percentage sales growth for first-quarter and full-year 2017, ahead of forecasted market growth rates. All Other All other segments that do not meet the quantitative threshold Technologies business, our non-LCD glass business, new product lines for separate reporting have been grouped as “All Other.” This group and development projects, as well as certain corporate investments such is primarily comprised of the results of Corning’s Pharmaceutical as Eurokera and Keraglass equity affiliates. The following table provides net sales and other data for All Other (in millions): % change As Reported 2016 2015 2014 16 vs. 15 15 vs. 14 Net sales $ 152 $ 64 $ 53 138 21 Research, development and engineering expenses $ 191 $ 186 $ 177 3 5 Equity earnings of affiliated companies $ (6) $ 17 $ 18 (135) (6) Net loss $ (240) $ (202) $ (198) (19) (2) 2016 vs. 2015 2015 vs. 2014 The increase in net sales of this segment in the year ended December 31, The increase in net sales of this segment in the year ended December 31, 2016 reflects the impact of an acquisition in the Corning Pharmaceutical 2015 reflects the impact of an acquisition in the Corning Pharmaceutical Technologies business completed in the fourth quarter of 2015 and Technologies business completed in the fourth quarter of 2015 and an an increase in sales in our emerging businesses. The increase in the increase in sales in our emerging businesses. The slight increase in the net loss of this segment was driven by asset write-offs in emerging net loss of this segment was driven by a goodwill impairment loss of $29 businesses, offset slightly by the addition of the Corning Pharmaceutical million, offset by higher net income in the pharmaceutical technologies Technologies business net income. and Corning Precision Materials’ non-LCD glass businesses. CORNING INCORPORATED - 2016 Annual Report 31


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources with respect to payment of dividends and rights upon liquidation. The Financing and Capital Structure Preferred Stock is not redeemable except in the case of a certain deemed The following items impacted Corning’s financing and capital structure liquidation event, the occurrence of which is under the control of the during 2016 and 2015: Company. The Preferred Stock is convertible at the option of the holder and the Company upon certain events, at a conversion rate of 50,000 shares of Corning’s common stock per one share of Preferred Stock, 2016 subject to certain anti-dilution provisions. As of December 31, 2016, the • In the third quarter of 2016, Corning’s Board of Directors approved Preferred Stock has not been converted, and none of the anti-dilution a $1 billion increase to our commercial paper program, raising it provisions have been triggered. Following the seventh anniversary of the to $2 billion. If needed, this program is supported by our $2 billion closing of the acquisition of Samsung Corning Precision Materials, the revolving credit facility that expires in 2019. Corning did not have Preferred Stock will be convertible, in whole or in part, at the option of outstanding commercial paper at December 31, 2016. the holder. The Company has the right, at its option, to cause some or all of the shares of Preferred Stock to be converted into Common Stock, if, for 25 trading days (whether or not consecutive) within any period of 2015 40 consecutive trading days, the closing price of Common Stock exceeds $35 per share. If the aforementioned right becomes exercisable before • In the second quarter of 2015, we issued $375 million of 1.50% senior the seventh anniversary of the closing, the Company must first obtain unsecured notes that mature on May 8, 2018 and $375 million of 2.90% the written approval of the holders of a majority of the Preferred Stock senior unsecured notes that mature on May 15, 2022. The net proceeds before exercising its conversion right. The Preferred Stock does not have of $745 million will be used for general corporate purposes. We can any voting rights except as may be required by law. redeem these notes at any time, subject to certain customary terms and conditions. Customer Deposits Common Stock Dividends In December 2015, Corning announced that with the support of the Hefei government it will locate a Gen 10.5 glass manufacturing facility On February 3, 2016, Corning’s Board of Directors declared a 12.5% increase in the Hefei XinZhan General Pilot Zone in Anhui Province, China. Glass in the Company’s quarterly common stock dividend, which increased substrate production from the new facility is expected to support mass the quarterly dividend from $0.12 to $0.135 per share of common stock, production of LCD panels for large-size televisions beginning in 2018. beginning with the dividend to be paid in the first quarter of 2016. The Company paid four quarterly dividends of $0.135 during the year ended As part of this investment, Corning and a Chinese customer have entered December 31, 2016 and paid four quarterly dividends of $0.12 during the into a long-term supply agreement that commits the customer to the year ended December 31, 2015. purchase of Gen 10.5 glass substrates from the Corning manufacturing facility in Hefei. This agreement stipulates that the customer will On February 1, 2017, Corning’s Board of Directors declared a 14.8% increase provide a non-refundable cash deposit in the amount of approximately in the Company’s quarterly common stock dividend, which increased $400 million to Corning to secure rights to an amount of glass that is the quarterly dividend from $0.135 to $0.155 per share of common stock, produced by Corning over the next 10 years. Corning has collected the beginning with the dividend to be paid in the first quarter of 2017. This full amount of this deposit, adjusted for foreign exchange movements, increase marks the sixth dividend increase since October 2011. receiving $185 million of this deposit in 2016 and $197 million in 2015. As glass is shipped to the customer, Corning will recognize revenue and issue credit memoranda to reduce the amount of the customer Fixed Rate Cumulative Convertible Preferred deposit liability, which are applied against customer receivables Stock, Series A resulting from the sale of glass. In 2016 and 2015, there were no credit memoranda issued. On January 15, 2014, Corning designated a new series of its preferred stock as Fixed Rate Cumulative Convertible Preferred Stock, Series A, par value $100 per share, and issued 1,900 shares of Preferred Stock at Capital Spending an issue price of $1 million per share, for an aggregate issue price of $1.9 billion, to Samsung Display in connection with the acquisition of Capital spending totaled $1.1 billion in 2016, slightly below the amount its equity interests in Samsung Corning Precision Materials. Corning spent in 2015. Spending in our Display Technologies and Optical also issued to Samsung Display an additional 400 shares of Fixed Rate Communications segments represented 41% and 22%, respectively. We Cumulative Convertible Preferred Stock at closing, for an aggregate expect our 2017 capital expenditures to be approximately $1.5 billion, issue price of $400 million in cash. driven by expansions related to the Gen 10.5 glass manufacturing facility in China, the addition of capacity to support the new gas- Dividends on the Preferred Stock are cumulative and accrue at the particulate filters business in the Environmental Technologies segment annual rate of 4.25% on the per share issue price of $1 million. The and investment to support general business growth in the Optical dividends are payable quarterly as and when declared by the Company’s Communications and Specialty Materials segments. Board of Directors. The Preferred Stock ranks senior to our common stock 32 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Cash Flows Summary of cash flow data (in millions): Years ended December 31, 2016 2015 2014 Net cash provided by operating activities $ 2,521 $ 2,809 $ 4,709 Net cash provided by (used in) investing activities $ 3,662 $ (685) $ (962) Net cash used in financing activities $ (5,306) $ (2,603) $ (2,586) 2016 vs. 2015 Net cash used in financing activities in the year ended December 31, 2015 increased slightly when compared to the same period last year, driven Net cash provided by operating activities decreased $288 million in the by an increase in share repurchases and the absence of cash received year ended December 31, 2016 when compared to 2015, driven largely from the issuance of preferred stock, offset by proceeds received from by a decrease in net income excluding non-cash gains, an increase in the issuance of long-term debt and commercial paper. accounts receivable in the Optical Communications and Specialty Materials segments, up $81 and $70 respectively, partially offset by an Defined Benefit Pension Plans increase in accounts payable and other current liabilities. A decrease of $58 million in dividends received from equity affiliates, driven by the We have defined benefit pension plans covering certain domestic and strategic realignment of our ownership interest in Dow Corning, also international employees. Our largest single pension plan is Corning’s negatively impacted cash flow from operations. U.S. qualified plan. At December 31, 2016, this plan accounted for 77% of our consolidated defined benefit pension plans’ projected benefit Net cash provided by investing activities increased substantially, up obligation and 86% of the related plans’ assets. $4,347 million, in the year ended December 31, 2016 when compared to 2015, driven by $4,818 million in cash received upon the realignment of We have historically contributed to the U.S. qualified pension plan on Dow Corning, a decrease of $120 million in capital expenditures and a an annual basis in excess of the IRS minimum requirements. In 2016, decrease of $399 million in acquisition spending, partially offset by a we made voluntary cash contributions of $73 million to our domestic decrease of $452 million in realized gains on our translated earnings defined benefit pension plan and $16 million to our international contracts. pension plans. In 2015, we made voluntary cash contributions of $65 million to our domestic defined benefit pension plan and $35 million Net cash used in financing activities in the year ended December 31, to our international pension plans. We are not subject to any mandatory 2016 increased $2,703 when compared to 2015, driven by an increase contributions in 2017, and do not anticipate making voluntary cash of $999 million in share repurchases, the repayment of $481 million of contributions to our U.S. qualified pension plan. We anticipate commercial paper outstanding in 2015 and the absence of cash received contributing up to $23 million to our international pension plans in 2017. from the issuance of long-term debt in the amount of $745 million in the third quarter of 2015. Refer to Note 13 (Employee Retirement Plans) to the Consolidated Financial Statements for additional information. 2015 vs. 2014 Net cash provided by operating activities decreased significantly Restructuring in the year ended December 31, 2015, when compared to the same For the year ended December 31, 2016, we recorded charges of $77 million period last year, due to the absence of a special one-time dividend of for employee related costs, asset disposals, and exit costs associated $1,574 million received from Samsung Corning Precision Materials in the with some minor restructuring activities in all of the segments with first quarter of 2014, lower net income and cash outflows from working total cash expenditures of approximately $12 million. capital movements, offset somewhat by the receipt of a $197 million customer deposit and the adjustment to net income related to gains For the year ended December 31, 2015, we did not record significant on foreign currency hedges and other noncash operating adjustments. restructuring, impairment and other charges or reversals. Cash Cash outflows from working capital movements were largely driven by expenditures for restructuring activities were $40 million. an increase in variable compensation paid in 2015 and an increase in For the year ended December 31, 2014, we recorded charges of $71 million inventory in the Display Technologies segment. for workforce reductions, asset disposals and write-offs, and exit costs for Net cash used in investing activities decreased in the year ended restructuring activities with total cash expenditures of approximately December 31, 2015, when compared to the same period last year, due to $39 million. net liquidations of short-term investments and an increase in realized Refer to Note 2 (Restructuring, Impairment and Other Charges) to the gains on our translated earnings contracts, offset by higher capital Consolidated Financial Statements for additional information. spending and several acquisitions that were completed in 2015. CORNING INCORPORATED - 2016 Annual Report 33


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Key Balance Sheet Data Balance sheet and working capital measures are provided in the following table (in millions): December 31, 2016 2015 Working capital $ 6,297 $ 5,455 Current ratio 3.3:1 2.9:1 Trade accounts receivable, net of allowances $ 1,481 $ 1,372 Days sales outstanding 54 55 Inventories $ 1,471 $ 1,385 Inventory turns 3.8 4.0 Days payable outstanding(1) 45 42 Long-term debt $ 3,646 $ 3,890 Total debt to total capital 18% 19% (1) Includes trade payables only. Credit Ratings As of February 6, 2017, our credit ratings were as follows: Rating Agency Rating long-term debt Outlook last update Standard & Poor’s BBB+ Stable October 27, 2015 Moody’s Baa1 Stable October 28, 2015 Management Assessment of Liquidity Share Repurchases We ended the fourth quarter of 2016 with approximately $5.3 billion of During 2014, Corning repurchased 98.1 shares for approximately cash and cash equivalents. Our cash and cash equivalents are held in $2 billion through an accelerated share repurchase agreement and open various locations throughout the world and are generally unrestricted. market repurchases as part of the $2 billion share repurchase program Although approximately 62% of the consolidated amount was held announced on October 22, 2013 and made effective concurrent with the outside of the United States at December 31, 2016, we have sufficient closing of Corning’s acquisition of Samsung Corning Precision Materials U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash on January 15, 2014 (the “March 2014 Repurchase Program”). needs without requiring the repatriation of foreign cash. We utilize a variety of financing strategies to ensure that our worldwide cash is During 2015, Corning repurchased 167 million shares for approximately available in the locations in which it is needed. $3.25 billion through an accelerated share repurchase agreement and open market repurchases as part of a repurchase program authorized It is our policy to manage our exposure to changes in interest rates. by Corning’s Board of Directors in December 2014 (the “December 2014 To manage interest rate exposure, the Company, from time to time, Repurchase Program”) and repurchase programs authorized by Corning’s enters into interest rate swap agreements. We are currently party to Board of Directors in July 2015 and October 2015 (the “2015 Repurchase two interest rate swaps that are designated as fair value hedges and Programs”). economically exchange a notional amount of $550 million of previously issued fixed rate long-term debt to floating rate debt. Under the terms During 2016, Corning repurchased 197.1 million shares for approximately of the swap agreements, we pay the counterparty a floating rate that is $4.2 billion through an accelerated share repurchase agreement and indexed to the one-month LIBOR rate. open market repurchases as part of the 2015 Repurchase Programs. Corning also has a commercial paper program pursuant to which we Refer to Note 17 (Shareholders’ Equity) to the Consolidated Financial may issue short-term, unsecured commercial paper notes. On July 20, Statements for additional information. 2016, Corning’s Board of Directors approved an increase to the allowable maximum aggregate principal amount outstanding at any time from $1 billion to $2 billion. Under this program, the Company may issue Other the notes from time to time and will use the proceeds for general We complete comprehensive reviews of our significant customers corporate purposes. The Company’s $2 billion revolving credit facility is and their creditworthiness by analyzing their financial strength available to support obligations under the commercial paper program, at least annually or more frequently for customers where we have if needed. Corning did not have outstanding commercial paper at identified a measure of increased risk. We closely monitor payments December 31, 2016. and developments which may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity resulting from customer credit issues. 34 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Our major source of funding for 2017 and beyond will be our operating We have entered into a portfolio of zero-cost collars and average cash flow and our existing balances of cash and cash equivalents rate forwards to hedge against our euro translation exposure. In the and proceeds from any issuances of debt. We believe we have fourth quarter of 2016, the zero-cost collars expired. In the years ended sufficient liquidity for the next several years to fund operations, share December 31 2016 and 2015, we recorded net pre-tax gains of $15 million repurchase programs, acquisitions, the asbestos litigation, research and and $3 million, respectively. At December 31, 2016, the euro-denominated development, capital expenditures, scheduled debt repayments and average rate forwards had a gross notional amount of $278 million, and dividend payments. at December 31, 2015, the zero-cost collars and average rate forwards had a gross notional value of $345 million. Corning also has access to a $2 billion unsecured committed revolving credit facility. This credit facility includes a leverage ratio financial In 2016, we entered into a portfolio of average rate forwards to hedge covenant. The required leverage ratio, which measures debt to total against our translation exposure resulting from movements in the capital, is a maximum of 50%. At December 31, 2016, our leverage Chinese yuan and the New Taiwan dollar (“TWD”). These instruments using this measure was 18% and we are in compliance with the begin settling in the first quarter of 2017. In the year ended December 31 financial covenant. 2016, we recorded a net pre-tax unrealized loss of $11 million on the yuan- denominated translation hedges. At December 31, 2016, the yuan- Our debt instruments contain customary event of default provisions, denominated average rate forwards had a gross notional amount of which allow the lenders the option of accelerating all obligations $275 million, and the TWD average rate forwards had a gross notional upon the occurrence of certain events. In addition, some of our debt value of $56 million. instruments contain a cross default provision, whereby an uncured default in excess of a specified amount on one debt obligation of the These purchased collars, zero-cost collars, zero cost average rate collars Company, also would be considered a default under the terms of another and average rate forwards are not designated as accounting hedges, debt instrument. As of December 31, 2016, we were in compliance with and changes in their fair value are recorded in earnings in the translated all such provisions. earnings contract (loss) gain, net line of the Consolidated Statements of Income. Management is not aware of any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material increase or decrease in our liquidity. In addition, other than items discussed, there are no known Off Balance Sheet Arrangements material trends, favorable or unfavorable, in our capital resources and no Off balance sheet arrangements are transactions, agreements, or other expected material changes in the mix and relative cost of such resources. contractual arrangements with an unconsolidated entity for which Corning has an obligation to the entity that is not recorded in our consolidated financial statements. Translated Earnings Contracts Corning’s off balance sheet arrangements include guarantee contracts. In the first quarter of 2013, Corning executed a series of purchased collars At the time a guarantee is issued, the Company is required to recognize that expired quarterly across a two-year period to hedge its translation a liability for the fair value or market value of the obligation it assumes. exposure resulting from movements in the Japanese yen against the In the normal course of our business, we do not routinely provide U.S. dollar. Beginning in the second quarter of 2013 and continuing significant third-party guarantees. Generally, third-party guarantees throughout 2015, Corning entered into a series of zero cost average rate provided by Corning are limited to certain financial guarantees, including collars and average rate forwards to hedge the translation impact of stand-by letters of credit and performance bonds, and the incurrence of Japanese yen on Corning’s projected 2015, 2016 and 2017 net income. contingent liabilities in the form of purchase price adjustments related Additionally, in January 2016, Corning extended its foreign exchange to attainment of milestones. These guarantees have various terms, and hedging program to hedge a significant portion of its projected yen none of these guarantees are individually significant. exposure for the period 2018 through 2022. In the year ended December 31, 2016, we recorded a pre-tax net loss of $459 million, and in the years Refer to Note 14 (Commitments, Contingencies and Guarantees) to the ended December 31, 2015 and 2014, we recorded pre-tax net gains of Consolidated Financial Statements for additional information. $113 million and $1,406 million, respectively, related to changes in the For variable interest entities, we assess the terms of our interest in fair value of these derivative instruments. Included in these amounts each entity to determine if we are the primary beneficiary. The primary are realized gains of $207 million, $686 million and $280 million, beneficiary of a variable interest entity is the party that absorbs a respectively. The gross notional value outstanding for purchased collars majority of the entity’s expected losses, receives a majority of its expected and average rate forwards which hedge our exposure to the Japanese residual returns, or both, as a result of holding variable interests, which yen at December 31, 2016, 2015 and 2014 was $14.9 billion, $8.3 billion and are the ownership, contractual, or other pecuniary interests in an entity $9.8 billion, respectively. that change with changes in the fair value of the entity’s net assets We have entered into zero-cost collars and average rate forwards to excluding variable interests. hedge our translation exposure resulting from movements in the South Corning has identified eleven entities that qualify as a variable interest Korean won and its impact on our net earnings. In the year ended entity. These entities are not considered to be significant to Corning’s December 31, 2016, we recorded a pre-tax net gain of $7 million, and the consolidated statements of position. years ended December 31, 2015 and 2014, we recorded a pre-tax net loss of $36 million and $37 million, respectively, related to changes in the fair Corning does not have retained interests in assets transferred to an value of these instruments. Included in these amounts are realized losses unconsolidated entity that serve as credit, liquidity or market risk of $7 million, $33 million and $6 million, respectively. These instruments support to that entity. had a gross notional value outstanding at December 31, 2016, 2015 and 2014 of $1.2 billion, $3.3 billion and $2.3 billion, respectively. CORNING INCORPORATED - 2016 Annual Report 35


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Contractual Obligations The amounts of our obligations follow (in millions): Amount of commitment and contingency expiration per period 5 years and Total Less than 1 year 1 to 3 years 3 to 5 years thereafter Performance bonds and guarantees $ 178 $ 102 $ 2 $ 74 Stand-by letters of credit(1) 51 44 $ 1 6 Credit facility to equity company 30 30 Loan guarantees 8 1 7 Subtotal of commitment expirations per period $ 267 $ 176 $ 3 $ 1 $ 87 Purchase obligations(6) $ 231 $ 127 $ 81 $ 20 $ 3 Capital expenditure obligations(2) 378 378 Total debt(3) 3,557 250 625 362 2,320 Interest on long-term debt(4) 2,222 162 299 259 1,502 Capital leases and financing obligations 359 6 8 10 335 Imputed interest on capital leases and financing obligations 231 18 36 36 141 Minimum rental commitments 545 68 111 76 290 Amended PCC Plan(7) 290 70 85 85 50 Uncertain tax positions(5) 48 Subtotal of contractual obligation payments due by period(5) $ 7,861 $ 1,079 $ 1,245 $ 848 $ 4,641 Total commitments and contingencies(5) $ 8,128 $ 1,255 $ 1,248 $ 849 $ 4,728 (1) At December 31, 2016, $39 million of the $51 million was included in other accrued liabilities on our consolidated balance sheets. (2) Capital expenditure obligations primarily reflect amounts associated with our capital expansion activities. (3) Total debt above is stated at maturity value, and excludes interest rate swap gains/losses and bond discounts. (4) The estimate of interest payments assumes interest is paid through the date of maturity or expiration of the related debt, based upon stated rates in the respective debt instruments. (5) At December 31, 2016, $48 million was included on our balance sheet related to uncertain tax positions. Of this amount, we are unable to estimate when any of that amount will become payable. (6) Purchase obligations are enforceable and legally binding obligations which primarily consist of raw material and energy-related take-or-pay contracts. (7) See Note 7 (Investments) to the Consolidated Financial Statements for additional details. We are required, at the time a guarantee is issued, to recognize a liability contingent liabilities in the form of purchase price adjustments related for the fair value or market value of the obligation it assumes. In the to attainment of milestones. These guarantees have various terms, and normal course of our business, we do not routinely provide significant none of these guarantees are individually significant. third-party guarantees. Generally, third-party guarantees provided by Corning are limited to certain financial guarantees, including stand- We believe a significant majority of these guarantees and contingent by letters of credit and performance bonds, and the incurrence of liabilities will expire without being funded. Environment Corning has been named by the Environmental Protection Agency and continual monitoring by both internal and external consultants. (the Agency) under the Superfund Act, or by state governments under At December 31, 2016 and 2015, Corning had accrued approximately similar state laws, as a potentially responsible party for 17 active $43 million (undiscounted) and $37 million (undiscounted), respectively, hazardous waste sites. Under the Superfund Act, all parties who may for its estimated liability for environmental cleanup and related have contributed any waste to a hazardous waste site, identified by the litigation. Based upon the information developed to date, management Agency, are jointly and severally liable for the cost of cleanup unless believes that the accrued reserve is a reasonable estimate of the the Agency agrees otherwise. It is Corning’s policy to accrue for its Company’s liability and that the risk of an additional loss in an amount estimated liability related to Superfund sites and other environmental materially higher than that accrued is remote. liabilities related to property owned by Corning based on expert analysis 36 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Estimates The preparation of financial statements requires us to make estimates the temporary idling of capacity and the expected timing for placing and assumptions that affect amounts reported therein. The estimates this capacity back into production. If there is an impairment, a loss is that required us to make difficult, subjective or complex judgments, recorded to reflect the difference between the assets’ fair value and including future projections of performance and relevant discount rates, carrying value. This may require judgment in estimating future cash are set forth below. flows and relevant discount rates and residual values in estimating the current fair value of the impaired assets to be held and used. For an asset group that fails the test of recoverability, the estimated fair Impairment of assets held for use value of long-lived assets is determined using an “income approach” We are required to assess the recoverability of the carrying value of that starts with the forecast of all the expected future net cash flows long-lived assets when an indicator of impairment has been identified. including the eventual disposition at market value of long-lived assets, We review our long-lived assets in each quarter to assess whether and also considers the fair market value of all precious metals. We assess impairment indicators are present. We must exercise judgment in the recoverability of the carrying value of long-lived assets at the lowest assessing whether an event of impairment has occurred. level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If there is an impairment, a loss Manufacturing equipment includes certain components of production is recorded to reflect the difference between the assets’ fair value and equipment that are constructed of precious metals, primarily platinum carrying value. Our estimates are based upon our historical experience, and rhodium. These metals are not depreciated because they have very our commercial relationships, and available external information about low physical losses and are repeatedly reclaimed and reused in our future trends. We believe fair value assessments are most sensitive to manufacturing process over a very long useful life. Precious metals are market growth and the corresponding impact on volume and selling reviewed for impairment as part of our assessment of long-lived assets. prices and that these are also more subjective than manufacturing cost This review considers all of the Company’s precious metals that are and other assumptions. The Company believes its current assumptions either in place in the production process; in reclamation, fabrication, and estimates are reasonable and appropriate. or refinement in anticipation of re-use; or awaiting use to support increased capacity. Precious metals are only acquired to support our At December 31, 2016 and December 31, 2015, the carrying value of operations and are not held for trading or other non-manufacturing precious metals was higher than the fair market value by $890 million related purposes. and $976 million, respectively. The majority of these precious metals are utilized by the Display Technologies and Specialty Materials segments. Examples of events or circumstances that may be indicative of Corning believes these precious metal assets to be recoverable due to impairments include, but are not limited to: the significant positive cash flow in both segments. The potential for • A significant decrease in the market price of an asset; impairment exists in the future if negative events significantly decrease the cash flow of these segments. Such events include, but are not • A significant change in the extent or manner in which a long-lived limited to, a significant decrease in demand for products or a significant asset is being used or in its physical condition; decrease in profitability in our Display Technologies or Specialty Materials segments. • A significant adverse change in legal factors or in the business climate that could affect the value of the asset, including an adverse action or assessment by a regulator; Impairment of Goodwill • An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset; We are required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, • A current-period operating or cash flow loss combined with a including assumptions and estimates used to determine the fair history of operating or cash flow losses or a projection or forecast value of our reporting units. We test for goodwill impairment at the that demonstrates continuing losses associated with the use of an reporting unit level and our reporting units are the operating segments asset; and or the components of operating segments which constitute businesses for which discrete financial information is available and is regularly • A current expectation that, more likely than not, an asset will be sold reviewed by segment management. or otherwise disposed of significantly before the end of its previously estimated useful life. Corning has recorded goodwill in the Display Technologies, Optical Communications, Specialty Materials, Life Sciences and All Other For purposes of recognition and measurement of an impairment loss, a operating segments. On a quarterly basis, management performs a long-lived asset or assets is grouped with other assets and liabilities at qualitative assessment of factors in each reporting unit within these the lowest level for which identifiable cash flows are largely independent operating segments to determine whether there have been any of the cash flows of other assets and liabilities. We must exercise triggering events. The two-step impairment test is required only if we judgment in assessing the lowest level for which identifiable cash flows conclude that it is more likely than not that a reporting unit’s fair value are largely independent of the cash flows of other assets and liabilities. is less than its carrying amount. We perform a detailed, two-step process For the majority of our reportable segments, we concluded that locations every three years if no indicators suggest a test should be performed or businesses which share production along the supply chain must be in the interim. We use this calculation as quantitative validation of the combined in order to appropriately identify cash flows that are largely step-zero qualitative process that is performed during the intervening independent of the cash flows of other assets and liabilities. periods and does not represent an election to perform the two-step For long-lived assets, when impairment indicators are present, we process in place of the step-zero review. compare estimated undiscounted future cash flows, including the The following summarizes our qualitative process to assess our goodwill eventual disposition of the asset group at market value, to the assets’ balances for impairment: carrying value to determine if the asset group is recoverable. This assessment requires the exercise of judgment in assessing the future • We assess qualitative factors in each of our reporting units which carry use of and projected value to be derived from the assets to be held and goodwill to determine whether it is necessary to perform the first step used. Assessments also consider changes in asset utilization, including of the two-step quantitative goodwill impairment test. CORNING INCORPORATED - 2016 Annual Report 37


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations • The following events and circumstances are considered when assessment, we have aggregated these two components into one evaluating whether it is more likely than not that the fair value of a reporting unit based upon their similar economic characteristics. reporting unit is less than its carrying amount: On a quarterly basis in 2016, management performed a qualitative assessment of factors and determined there had not been any triggering – Macroeconomic conditions, such as a deterioration in general events which would indicate that the Optical Communications reporting economic conditions, fluctuations in foreign exchange rates and/or unit’s fair value is less than its carrying amount. other developments in equity and credit markets; In addition to assessing qualitative factors each quarter, we performed – Market capital in relation to book value; a quantitative goodwill recoverability test in 2015 for this reporting – Industry and market considerations, such as a deterioration in the unit. A discount rate of 5.6% and a growth rate of 3% were used in 2015. environment in which an entity operates, material loss in market The results of our impairment test indicated that the fair value of the share and significant declines in product pricing; reporting unit exceeded its book value by a significant amount, and as such, further goodwill impairment testing was not necessary. We – Cost factors, such as an increase in raw materials, labor or other costs; determined a range of discount rates between 3.6% and 7.6% and growth – Overall financial performance, such as negative or declining cash rates between 0% and 3% would not have affected our conclusion. flows or a decline in actual or forecasted revenue; – Other relevant entity-specific events, such as material changes in Specialty Materials management or key personnel; and Goodwill for the Specialty Materials segment is tested at the reporting – Events affecting a reporting unit, such as a change in the unit level, which is one level below an operating segment, as the goodwill composition or carrying amount of its net assets including is the result of transactions associated with a certain business within acquisitions and dispositions. this operating segment. On a quarterly basis in 2016, management performed a qualitative assessment of factors and determined there had The examples noted above are not all-inclusive, and the Company will not been any triggering events which would indicate that the Specialty consider other relevant events and circumstances that affect the fair Materials reporting unit’s fair value is less than its carrying amount. value of a reporting unit in determining whether to perform the first step of the goodwill impairment test. In addition to assessing qualitative factors each quarter, we performed a quantitative goodwill recoverability test in 2015 for this reporting Our two-step goodwill recoverability assessment is based on our annual unit. A discount rate of 5.8% and a growth rate of 3% were used in 2015. strategic planning process. This process includes an extensive review of The results of our impairment test indicated that the fair value of the expectations for the long-term growth of our businesses and forecasted reporting unit exceeded its book value by a significant amount, and future cash flows. Our valuation method is an “income approach” using as such, further goodwill impairment testing was not necessary. We a discounted cash flow model in which cash flows anticipated over determined a range of discount rates between 3.8% and 7.8% and growth several periods, plus a terminal value at the end of that time horizon, rates between 0% and 3% would not have affected our conclusion. are discounted to their present value using an appropriate rate of return. Our estimates are based upon our historical experience, our current knowledge from our commercial relationships, and available external Life Sciences information about future trends. Goodwill for the Life Sciences segment is tested at the reporting unit level, which is also the operating segment level. On a quarterly basis in Display Technologies 2016, management performed a qualitative assessment of factors and determined there had not been any triggering events which would Goodwill for the Display Technologies segment is tested at the reporting indicate that the Life Sciences reporting unit’s fair value is less than its unit level, which is also the operating segment level consisting of two carrying amount. components. For the purposes of the annual goodwill impairment assessment, we have aggregated these two components into one In addition to assessing qualitative factors each quarter, we performed a reporting unit based upon their similar economic characteristics. quantitative goodwill recoverability test in 2015 for this reporting unit. A On a quarterly basis in 2016, management performed a qualitative discount rate of 6% and a growth rate of 3% were used in 2015. The results assessment of factors and determined there had not been any triggering of our impairment test indicated that the fair value of the reporting unit events which would indicate that the Display Technologies reporting exceeded its book value by a significant amount, and as such, further unit’s fair value is less than its carrying amount. goodwill impairment testing was not necessary. We determined a range of discount rates between 4% and 8% and growth rates between 0% and In addition to assessing qualitative factors each quarter, we performed 3% would not have affected our conclusion. a quantitative goodwill recoverability test in 2015 for this reporting unit. A discount rate of 5.8% and a growth rate of 1% were used in 2015. The results of our impairment test indicated that the fair value of the All Other reporting unit exceeded its book value by a significant amount, and All Other segment is comprised of various operating segments and as such, further goodwill impairment testing was not necessary. We corporate investments that do not meet the quantitative threshold determined a range of discount rates between 3.8% and 7.8% and growth for separate reporting. Goodwill for the All Other segment is tested rates between 0% and 3% would not have affected our conclusion. at the reporting unit level, which is also the operating segment level. For the purposes of the annual goodwill impairment assessment, we Optical Communications have identified two reporting units in this segment that require an assessment of their goodwill. On a quarterly basis in 2016, management Goodwill for the Optical Communications segment is tested at the performed a qualitative assessment of factors and determined there reporting unit level, which is also the operating segment level consisting had not been any triggering events which would indicate that the of two components. For the purposes of the annual goodwill impairment reporting units’ fair value is less than the carrying amount. 38 CORNING INCORPORATED - 2016 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations In addition to assessing qualitative factors each quarter, we performed a stock interest in Dow Corning for 100% of the stock of a newly formed quantitative goodwill recoverability test in 2015 for this reporting unit. A entity, which holds an equity interest in Hemlock Semiconductor Group discount rate of 7.4% and a growth rate of 3% were used in 2015. The results and approximately $4.8 billion in cash. of our impairment test indicated that the book value of one of the reporting units exceeded its fair value by 80%. We determined a range of discount The equity in earnings line on our income statement for the year ended rates between 5.4% and 9.4% and growth rates between 0% and 3% would December 31, 2016 reflects both the equity earnings from the silicones and not have affected our conclusion. Corning concluded that a Step 2 analysis polysilicones (Hemlock Semiconductor) businesses of Dow Corning from was required to measure the impairment loss for this reporting unit. January 1, 2016 through May 31, 2016, the closing date of the Transaction Agreement, and seven months of equity earnings from Hemlock Our Step 2 test consisted of identifying the underlying net assets in the Semiconductor Group. Prior to the realignment of Dow Corning, equity reporting unit, allocating the implied purchase price to the asset and earnings from the Hemlock Semiconductor business were reported on liabilities of the reporting unit and the calculation of the implied fair value of the equity in earnings line in Corning’s income statement, net of Dow goodwill and the resulting impairment loss. In December 2015, we recorded Corning’s 35% U.S. tax. Additionally, Corning reported its tax on equity a goodwill impairment loss of $29 million related to this reporting unit. earnings from Dow Corning on the tax provision line on its income statement at a U.S. tax provision rate of 7%. As part of the realignment, Hemlock Semiconductor Group was converted to a partnership. Each Restructuring charges and impairments of the partners is responsible for the taxes on their portion of equity earnings. Therefore, post-realignment, Hemlock Semiconductor Group’s resulting from restructuring actions equity earnings is reported before tax on the equity in earnings line and We are required to assess whether and when a restructuring event has Corning’s tax is reported on the tax provision line. occurred and in which periods charges related to such events should be At December 31, 2016 and 2015, the carrying value of our equity method recognized. We must estimate costs of plans to restructure including, for investments was $269 million and $1.9 billion, respectively. We review our example, employee termination costs. Restructuring charges require us to equity method investments for indicators of impairment on a periodic exercise judgment about the expected future of our businesses, of portions basis or if events or circumstances change to indicate the carrying thereof, their profitability, cash flows and in certain instances eventual amount may be other-than-temporarily impaired. When such indicators outcome. The judgment involved can be difficult, subjective and complex in are present, we then perform an in-depth review for impairment. An a number of areas, including assumptions and estimates used in estimating impairment assessment requires the exercise of judgment related to the future profitability and cash flows of our businesses. key assumptions such as forecasted revenue and profitability, forecasted Restructuring events often give rise to decisions to dispose of or abandon tax rates, foreign currency exchange rate movements, terminal value certain assets or asset groups which, as a result, require impairment. We assumptions, historical experience, our current knowledge from are required to carry assets to be sold or abandoned at the lower of cost our commercial relationships, and available external information or fair value. We must exercise judgment in assessing the fair value of about future trends. As of December 31, 2016 and 2015, we have not the assets to be sold or abandoned. identified any instances where the carrying values of our equity method investments were not recoverable. Income taxes Fair value measures We are required to exercise judgment about our future results in assessing the realizability of our deferred tax assets. Inherent in this As required, Corning uses two kinds of inputs to determine the fair value estimation process is the requirement for us to estimate future book and of assets and liabilities: observable and unobservable. Observable inputs taxable income and possible tax planning strategies. These estimates are based on market data or independent sources, while unobservable require us to exercise judgment about our future results, the prudence inputs are based on the Company’s own market assumptions. Once inputs and feasibility of possible tax planning strategies, and the economic have been characterized, we prioritize the inputs used to measure fair environments in which we do business. It is possible that actual results value into one of three broad levels. Characterization of fair value inputs is required for those accounting pronouncements that prescribe or permit will differ from assumptions and require adjustments to allowances. fair value measurement. In addition, observable market data must be used Corning accounts for uncertain tax positions in accordance with FASB when available and the highest-and-best-use measure should be applied ASC Topic 740, Income Taxes. As required under FASB ASC Topic 740, we to non-financial assets. Corning’s major categories of financial assets only record tax benefits for technical positions that we believe have and liabilities required to be measured at fair value are short-term and a greater than 50% likelihood of being sustained on their technical long-term investments, certain pension asset investments and derivatives. merits and then only to the extent of the amount of tax benefit that is These categories use observable inputs only and are measured using a greater than 50% likely of being realized upon settlement. In estimating market approach based on quoted prices in markets considered active or in these amounts, we must exercise judgment around factors such as the markets in which there are few transactions. weighting of the tax law in our favor, the willingness of a tax authority Derivative assets and liabilities may include interest rate swaps and to aggressively pursue a particular position, or alternatively, consider a forward exchange contracts that are measured using observable quoted negotiated compromise, and our willingness to dispute a tax authorities prices for similar assets and liabilities. Included in our forward exchange assertion to the level of appeal we believe is required to sustain our contracts are foreign currency hedges that hedge our translation position. As a result, it is possible that our estimate of the benefits we exposure resulting from movements in the Japanese yen, South Korean will realize for uncertain tax positions may change when we become won, euro, New Taiwan dollar and Chinese yuan. These contracts are aware of new information affecting these judgments and estimates. not designated as accounting hedges, and changes in their fair value are recorded in earnings in the translated earnings contract (loss) gain, net line of the Consolidated Statements of Income. In arriving at the fair Equity method investments value of Corning’s derivative assets and liabilities, we have considered the appropriate valuation and risk criteria, including such factors as On May 31, 2016, Corning completed the strategic realignment of credit risk of the relevant party to the transaction. Amounts related to its equity investment in Dow Corning pursuant to the Transaction credit risk are not material. Agreement announced on December 10, 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% Refer to Note 16 (Fair Value Measurements) to the Consolidated Financial Statements for additional information. CORNING INCORPORATED - 2016 Annual Report 39


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Probability of litigation outcomes them into our operating results over the average remaining service period of employees expected to receive benefits under the plans, to the We are required to make judgments about future events that are extent such gains and losses are outside of the corridor. inherently uncertain. In making determinations of likely outcomes of litigation matters, we consider the evaluation of legal counsel Prior to the December 31, 2015 valuation of its defined benefit pension knowledgeable about each matter, case law, and other case-specific and OPEB plans, Corning used the traditional, single weighted-average issues. See Part II – Item 3. Legal Proceedings for a discussion of the discount rate approach to develop the obligation, interest cost and service material litigation matters we face. cost components of net periodic benefit cost for its defined benefit pension and OPEB plans. The individual spot rates from the yield curve are used in measuring the pension plan projected benefit obligation (PBO) or OPEB plan accumulated postretirement benefit obligation Other possible liabilities (APBO) at the measurement date. The benefit obligation is effectively We are required to make judgments about future events that are calculated as the aggregate present value at the measurement date of inherently uncertain. In making determinations of likely outcomes of each future benefit payment related to past service, with each payment certain matters, including certain tax planning and environmental discounted using a spot rate from a high-quality corporate bond matters, these judgments require us to consider events and actions that yield curve that matches the duration of the benefit payment. Under are outside our control in determining whether probable or possible Corning’s traditional, single weighted-average discount rate approach, a liabilities require accrual or disclosure. It is possible that actual results single weighted-average rate is developed from the approach described will differ from assumptions and require adjustments to accruals. above and rounded to the nearest 25 basis points. Traditionally, the weighted-average discount rate is determined at the plan measurement date, based on the same projected future benefit payments used in Pension and other postretirement employee developing the benefit obligation. The traditional single weighted- average discount rate represents the constant annual rate that would be benefits (OPEB) required to discount all future benefit payments related to past service Corning offers employee retirement plans consisting of defined benefit from the date of expected future payment to the measurement date pension plans covering certain domestic and international employees such that the aggregate present value equals the benefit obligation. and postretirement plans that provide health care and life insurance Beginning with the December 31, 2015 valuation of its defined benefit benefits for eligible retirees and dependents. The costs and obligations pension and OPEB plans, Corning changed its methodology of related to these benefits reflect the Company’s assumptions related determining the service and interest cost components of net periodic to general economic conditions (particularly interest rates), expected pension and other postretirement benefit costs to a more granular return on plan assets, rate of compensation increase for employees and approach. Under the new approach, the cash flows from each applicable health care trend rates. The cost of providing plan benefits depends pension and OPEB plan are used to directly calculate the benefit on demographic assumptions including retirements, mortality, obligation, service cost and interest cost using the spot rates from the turnover and plan participation. While management believes that the applicable yield curve. assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Corning’s employee pension and Moving to a more granular approach has a limited impact on the other postretirement obligations, and current and future expense. determination of the respective benefit obligations. The only impacts are as a result of the elimination of the rounding of the discount rate that Costs for our defined benefit pension plans consist of two elements: occurred in the traditional approach and the use of specific cash flows 1) on-going costs recognized quarterly, which are comprised of service for Corning’s non-qualified pension plans, while separately applying and interest costs, expected return on plan assets and amortization of the yield curve to each separate OPEB plan instead of aggregating the prior service costs; and 2) mark-to-market gains and losses outside of the OPEB plan cash flows. This change will result in a decrease in the interest corridor, where the corridor is equal to 10% of the greater of the benefit cost and service cost components of net periodic pension and OPEB obligation or the market-related value of plan assets at the beginning of costs. For the year ended December 31, 2017, net periodic pension and the year, which are recognized annually in the fourth quarter of each year. OPEB costs will be lower by approximately $23 million and $5 million, These gains and losses result from changes in actuarial assumptions for respectively, due to this change. For Corning’s pension plans, this change discount rates and the differences between actual and expected return will increase the immediate recognition of actuarial losses (or decrease on plan assets. Any interim remeasurements triggered by a curtailment, the immediate recognition of actuarial gains), due to Corning’s previous settlement or significant plan changes, as well as any true-up to the election to immediately recognize actuarial gains and losses outside annual valuation, are recognized as a mark-to-market adjustment in the of the corridor. For Corning’s OPEB plans, this change will increase the quarter in which such event occurs. accumulated other comprehensive income (AOCI) account balance due Costs for our OPEB plans consist of on-going costs recognized quarterly, to the accumulation of lower actuarial gains or higher actuarial losses. and are comprised of service and interest costs, amortization of prior Over time, the amortization of the actuarial losses from AOCI will begin service costs and amortization of actuarial gains and losses. We recognize to reduce the savings from the lower interest cost and service cost. the actuarial gains and losses resulting from changes in actuarial This change was a change in accounting estimate and therefore assumptions for discount rates as a component of Stockholders’ Equity was applied prospectively beginning with the measurement date of on our consolidated balance sheets on an annual basis and amortize December 31, 2015. No restatement of prior periods is required. The following table presents our actual and expected return on assets, as well as the corresponding percentage, for the years ended 2016, 2015 and 2014: December 31, (In millions) 2016 2015 2014 Actual return on plan assets – Domestic plans $ 235 $ (111) $ 287 Expected return on plan assets – Domestic plans 153 166 159 Actual return on plan assets – International plans 75 3 68 Expected return on plan assets – International plans 12 12 15 40 CORNING INCORPORATED - 2016 Annual Report

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