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    2017 Annual Report


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    2017 January Corning® Gorilla® Glass- enabled concept car cited as highlight of the Consumer Electronics Show Wendell P. Weeks Chairman, Chief Executive Officer, and President To Our Shareholders: Corning had a very strong 2017. We grew core sales and earnings per share. We returned cash to shareholders through stock buybacks and a double-digit dividend increase. We introduced new products that continue Corning’s track record of producing life-changing innovations, while positioning the company for future growth. We strengthened our portfolio with strategic acquisitions. And we captured exciting new opportunities with customers who are global leaders in their industries. We’re proud of our performance. But it’s important to outstanding results, with our Optical Communications recognize that our achievements are not just the result and Specialty Materials segments having particularly of strong execution this year. Our success stems from our strong years. Demand for carrier and enterprise products ongoing execution of the Strategy and Capital Allocation drove Optical Communications sales up 18 percent. Framework that we introduced more than two years ago, Meanwhile, adoption of Corning® Gorilla® Glass 5 in the the ability of our leaders to consistently take the long view mobile consumer electronics market helped drive sales of what’s best for Corning and all its stakeholders, and the in our Specialty Materials segment up 25 percent. dedication of our 46,000 global employees, who remain The stock market has reflected the company’s strong resilient during challenging times and always keep their performance. In 2017, Corning returned 35 percent, versus eyes on the big picture. 22 percent for the S&P 500 (both dividend adjusted). Our 2017 results confirm that we have the right strategy Those numbers, however, only tell part of the story. We are and talent in place to achieve the goals of our Framework particularly excited about how strong execution against and drive sustainable growth long term. our Framework is positioning Corning for continued growth Financial Results in the years ahead. Before I review the key elements of the Strategy and Capital Strategy and Capital Allocation Framework Allocation Framework, here’s a closer look at Corning’s 2017 By now, you should be familiar with Corning’s Strategy and financial performance. Capital Allocation Framework, but here’s a quick refresher. Core sales were $10.5 billion, up 8 percent from 2016, while The Framework articulates Corning’s plan for leveraging its core earnings per share of $1.72 were up 11 percent year over financial strength and focusing its portfolio to deliver value year. All of Corning’s major businesses contributed to these over the next several years.


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    2017 2017 2017 2017 February March April May Increased quarterly dividend Corning® Gorilla® Glass 5 Announced >$1 billion three- Announced investment in new 14.8% featured on front and back year minimum fiber purchase facility in China to support of Samsung Galaxy S8 contract with Verizon demand for gas particulate filters Announced plans to add capacity in North Carolina to support Gorilla® Glass SR+ featured on Awarded $200 million advanced optical communications growth Acer’s Leap Ware fitness watch manufacturing investment by Apple to produce next-generation mobile devices We expect to generate and deploy $26 – $30 billion from On the innovation front, we advanced key programs across 2016 through 2019. We are investing $10 billion to grow our market-access platforms. and extend our leadership through a combination of Q In Optical Communications, we celebrated a major research and development, capital spending, and strategic milestone in September with the production of our one- acquisitions. We are also returning more than $12.5 billion billionth kilometer of optical fiber. That’s approximately to our shareholders through share repurchases and annual one third of the fiber ever produced worldwide, and dividend increases of at least 10 percent. enough to travel to the sun and back nearly three- The Framework focuses our portfolio on a set of reinforcing and-a-half times. We also continued our technology capabilities with strong interconnections. Our best-in- leadership with the introduction of a new multiuse the-world capabilities include three core technologies platform to simplify installation and reduce the costs (glass science, ceramic science, and optical physics), of deploying 4G and 5G networks. four manufacturing and engineering platforms (vapor Q In Display, we began shipping the world’s first Gen 10.5 deposition, fusion, precision forming, and extrusion), and LCD glass, and we continue to capture opportunities for five market-access platforms (optical communications, our other display glass innovations. Samsung chose our display, mobile consumer electronics, automotive, and Corning Lotus® NXT Glass for their flexible LTPS-OLED life sciences vessels). We direct 80 percent or more of our line, and Corning Iris™ Glass has helped enable Dell’s resources to opportunities that draw from at least two of and Lenovo's new ultra-slim, ultra-bright monitors. these capabilities sets. We believe this approach increases Q In Mobile Consumer Electronics, we marked the 10th our likelihood of success, reduces the cost of innovation, anniversary of Corning® Gorilla® Glass by winning creates higher barriers to entry for our competitors, and new models, adding more of our glass to devices, and ultimately delights our customers. expanding into new applications. Gorilla Glass has now Execution and Results been used on more than five billion devices worldwide. The superior drop performance of Gorilla Glass 5 has Since introducing the Framework in late 2015, we have enabled new smartphone designs that feature glass distributed more than $9 billion to shareholders through on both the front and back. And Gorilla Glass is now share repurchases and increases to our quarterly featured on approximately 75 percent of smartwatches. dividend. Repurchases have reduced outstanding shares by approximately 30 percent. We increased the annual Q In Automotive, we generated our first sales of gas dividend 16.1 percent in February 2018, 14.8 percent in 2017, particulate filters and secured an exclusive global and 12.5 percent in 2016, for a combined increase of supply agreement with Groupe PSA for the PureTech 50 percent. engine platform, which powers the latest models in the Peugeot and Citroën brands. We are also experiencing strong customer pull for Gorilla Glass for Automotive and have been awarded 35 platforms globally. Q In Life Sciences Vessels, we launched Valor® Glass, a revolutionary new pharmaceutical packaging solution that dramatically reduces particle contamination, breaks, and cracks. As a result, Valor Glass helps protect patients, while increasing throughput for pharmaceutical manufacturers.


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    2017 2017 2017 2017 June July August September Launched multiuse platform Launched Valor® Glass Secured exclusive global supply Produced one-billionth to enable next-generation in collaboration with Merck agreement for gas particulate kilometer of optical fiber optical networks and Pfizer filters with Groupe PSA for Posted first sales of gas PureTech models Acquired SpiderCloud particulate filters Wireless, Inc. We supplemented these organic growth initiatives with Opportunities Ahead strategic transactions to strengthen our portfolio. In July, As we look to 2018 and beyond, here are some of the ways we acquired SpiderCloud Wireless, Inc., a leading provider we are exploiting our distinctive capabilities to drive growth of in-building wireless solutions. Then in December, we in both the near and long term. announced our plans to acquire virtually all of 3M’s Commu- Q In Optical Communications, we remain the only nication Markets Division. These transactions strengthen true end-to-end supplier of optical solutions, and we our product portfolio, extend our global reach, and support continue innovating for rapidly evolving applications, our objective to grow annual sales in our Optical Communi- such as fiber to the home, hyperscale data centers, and cations segment to $5 billion by 2020. in-building networks. We’re growing at more than twice To support our growth across multiple market-access plat- the rate of the communications infrastructure market, forms, we are undertaking one of the largest expansions in and we are confident in our ability to reach $5 billion Corning’s history. In 2017, we began adding capacity in North in annual sales by 2020, with further growth in the Carolina and Poland to help meet demand for optical com- years ahead. munications products. We are expanding manufacturing in Q In Display, we expect to maintain stable returns due to China to produce Gen 10.5 LCD glass and support demand our strong share position, lowest-cost manufacturing, for gas particulate filters. We also announced the expansion and the more favorable pricing environment. Simulta- of an existing plant in New York and the construction of a neously, we continue to leverage our fusion assets and new high-volume manufacturing facility in North Carolina other capabilities to drive the next round of display to produce Valor® Glass. Between 2017 and 2019, we expect innovations ⎯ e.g., better images, ubiquitous touch, to add, expand, or integrate more than 20 plants overall. and new form factors. Delighting Our Customers Q In Mobile Consumer Electronics, we continue making Perhaps the greatest measure of our success is the fact progress on our goal to double sales over the next that other innovators are turning to us to help realize their several years by producing best-in-class products, own visions. In April, Verizon announced that they would capturing more real estate on mobile devices, winning be purchasing more than a billion dollars’ worth of our share in new markets, and innovating for new product optical solutions to expand their coverage and enable next- categories such as augmented reality. generation networks. In May, Apple announced a significant Q In Automotive, Corning is benefiting from the industry’s investment in our advanced glass manufacturing capabili- trend toward cleaner, safer, and more connected vehicles. ties in Harrodsburg, Kentucky, to produce next-generation We expect sales of gas particulate filters to ramp mobile devices. And our July introduction of Valor Glass quickly, driven by new regulations in Europe and China, was made possible through close collaboration with Merck and we believe this could be a $500 million business by and Pfizer. early in the next decade. Meanwhile, more customers are recognizing the potential of Gorilla® Glass to reduce We continue to attract global leaders with our distinctive vehicle weight, increase fuel efficiency, add aesthetic capabilities. We earn their trust through strong relation- appeal, and enable sophisticated interactive displays, ships and close collaboration. And we delight them by thanks to events such as the 2017 Frankfurt Motor Show, producing unique solutions to tough challenges. Our track which showcased Gorilla Glass on the Renault SYMBIOZ record leads to future opportunities for collaboration with concept car. existing customers, while also attracting other innovators in a broad range of industries.


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    2017 2017 2017 2018 October November December January Began shipping Gen 10.5 LCD Announced expansion of Announced plans to acquire Opened new fiber-optic cable glass to customers facility in Big Flats, New York, 3M’s Communication Markets manufacturing plant in North to produce Valor® Glass Division Carolina Announced expansion of facility Confirmed plans to construct Announced that Gorilla® in Poland to meet demand high-volume manufacturing Glass for Automotive has been for optical communications plant in North Carolina to awarded a total of 35 platforms products produce Valor® Glass Q Finally, in Life Sciences Vessels, we’re building a long- Second, you need a distinctive set of capabilities. At term, multi-billion dollar franchise. Although this Corning, we are the best in the world at what we do, and industry moves at a deliberate pace, we believe Valor® we continue to enhance our knowledge and hone our skills Glass has the potential to power Corning’s growth for so that we are always creating a better version of ourselves. the next decade and beyond. Our distinctive capabilities make us vital to our customers. They make us increasingly relevant to new industries. Closing Thoughts And, because our capabilities are versatile and synergistic, As we look ahead, we are confident in our ability to deliver they make it possible for us to evolve to meet the needs on the goals of our Framework and continue doing what of changing markets. We don’t know exactly how all our Corning does best ⎯ transforming industries, enhancing products and markets will evolve in the decades to come, people’s lives, and delivering disruptive innovations that but we know that Corning will be there helping customers create value for decades. Our confidence is based not only navigate their own transformations. on our outstanding 2017 results, but also on Corning’s 166-year track record. So I’d like to close by sharing my thoughts on Third, you need to maintain the trust of your stakeholders. what it takes to succeed for more than 165 years. We work hard every day to earn that trust with our performance and our actions. We live our values, honor First, you need to focus on problems that matter. For example, our commitments, and communicate candidly about we all want cleaner air to breathe. We all want medicines good news and bad. that are safe and effective. We all want fast, reliable access to information and communications networks that help us This formula has worked for us for more than 165 years, stay connected to our loved ones. And we all want devices and we are confident that it will drive our success for that enhance our lives with style and performance, beauty the next 165 years. We hope you share our confidence in and durability. Corning’s innovations are front and center this strategy, our pride in Corning’s track record, and our for all these needs. By focusing on problems that matter, excitement about the future. Thank you for being on this we ensure our ongoing relevance in a changing world. We journey with us. activate the passion of our people, who care deeply about applying Corning’s distinctive skills to make the world a Sincerely, better place. And we maintain our focus and commitment during tough times and setbacks, because we know that we are doing important work that makes a real difference. Wendell P. Weeks Chairman, Chief Executive Officer, and President


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    Best-in-the-World Capabilities Our cohesive portfolio allows us to capture synergies among our capabilities and reapply them to multiple market-access platforms. Here are some examples of those synergies in action. Core Technologies We use our Glass Science expertise to formulate glasses with the right optical, chemical, mechanical, and thermal properties for particular applications. This capability is at the heart of our industry-leading display and cover glass. We also use glass science to continually reinvent optical fiber. And today, we’re using our glass science expertise to make next-generation pharmaceutical packaging. Optical Physics refers to our ability to characterize and control the path of light. This capability has enabled our leadership in optical communications for more than four decades. We also leverage this capability for Corning Iris Glass, where the management of light distribution allows customers to design TVs that are just half a centimeter thick. In addition, we applied our optical physics expertise to create anti-reflective glass, which makes display screens much easier to read. Ceramic Science transforms inorganic, non-metallic materials into a broad range of objects and technologies. This capability is at the heart of our emissions-control products. Today, we’re also developing beautiful glass ceramics that create new design possibilities in mobile consumer electronics. Manufacturing and Engineering Platforms Our Vapor Deposition process makes glass so pure that if it replaced the water in the ocean, you could see the bottom clearly from any point on the surface. Vapor deposition is essential to make low-loss optical fiber. It’s also the foundation for high-purity fused silica, which enables stepper lenses that are used to fabricate small, power-efficient semiconductors for mobile devices. More recently, we applied this capability to create Gorilla Glass SR+ for wearable devices. Our Fusion process allows us to make sheets of glass twice the size of a king-size bed, as thin as a business card, and flat to within 200 atoms. We use this platform to make our industry-leading display glass, as well as our tough, thin Gorilla Glass. We also leverage our fusion process to enable flexible OLED displays and create new interconnects for high-speed switches, routers, and servers. We use our Precision Forming assets to make life sciences vessels that require an extremely high degree of accuracy, such as liquid-handling tools and cell-growth surfaces. We apply this same expertise to make optical connectors that align hair-thin fibers perfectly and eliminate the need for splices. Precision Forming is also enhancing the value proposition of Gorilla Glass for auto interior applications. Corning’s expertise in Extrusion is why our cellular ceramic substrates can pack the surface area of a football field into an object the size of a soda can. We also use extrusion to make highly reliable and accurate pipettes for life sciences applications. And we’re leveraging this same expertise to make durable optical fiber cables for data centers. We are constantly reapplying our knowledge and repurposing our assets across product sets and markets. These synergies increase our likelihood of success, reduce the cost of innovation, create higher barriers to entry for our competitors, and allow us to produce unique solutions that delight our customers. They also make it possible for us to evolve to meet the needs of changing markets.


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    Financial Highlights: In millions, except per share amounts As reported — GAAP Core performance* 2017 2016 2015 2017 2016 2015 Net Sales $ 10,116 $ 9,390 $ 9,111 $ 10,514 $ 9,710 $ 9,800 Net (loss) income attributable to Corning Incorporated $ (497) $ 3,695 $ 1,339 $ 1,756 $ 1,774 $ 1,882 Diluted (loss) earnings per common share attributable to Corning Incorporated $ (0.66) $ 3.23 $ 1.00 $ 1.72 $ 1.55 $ 1.40 * 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 24 through 27 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 Korean won foreign exchange rates, as well as other items that do not reflect ongoing operations of the Company. The Company believes that the use of constant currency reporting allows investors to understand our results without the volatility of currency fluctuations, and reflects the underlying economics of the translated earnings contracts used to mitigate the impact of changes in currency exchange rates on our earnings and cash flows.


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    Corning Incorporated 2017 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 ......................................................................................................................... 12 Selected Financial Data (Unaudited) ......................................................................................................................... 14 Management’s Discussion and Analysis of Financial Condition and Results of Operations............................. 15 Quantitative and Qualitative Disclosures About Market Risks ............................................................................. 44 Management’s Annual Report on Internal Control Over Financial Reporting .................................................... 45 Report of Independent Registered Public Accounting Firm ................................................................................... 46 Consolidated Statements of (Loss) Income ............................................................................................................... 47 Consolidated Statements of Comprehensive Income ............................................................................................. 48 Consolidated Balance Sheets ...................................................................................................................................... 49 Consolidated Statements of Cash Flows ................................................................................................................... 50 Consolidated Statements of Changes in Shareholders’ Equity .............................................................................. 51 Notes to Consolidated Financial Statements ........................................................................................................... 52 1. Summary of Significant Accounting Policies ............................................................................................................................................... 52 2. Restructuring, Impairment and Other Charges ........................................................................................................................................... 57 3. Available-for-Sale Investments ...................................................................................................................................................................... 57 4. Significant Customers...................................................................................................................................................................................... 57 5. Inventories, Net of Inventory Reserves.......................................................................................................................................................... 57 6. Income Taxes ..................................................................................................................................................................................................... 57 7. Investments ....................................................................................................................................................................................................... 61 8. Acquisitions ....................................................................................................................................................................................................... 63 9. Property, Plant and Equipment, Net of Accumulated Depreciation ......................................................................................................... 63 10. Goodwill and Other Intangible Assets .......................................................................................................................................................... 64 11. Other Assets and Other Liabilities ................................................................................................................................................................. 65 12. Debt .................................................................................................................................................................................................................... 66 13. Employee Retirement Plans ............................................................................................................................................................................ 67 14. Commitments, Contingencies and Guarantees ........................................................................................................................................... 74 15. Hedging Activities ............................................................................................................................................................................................ 76 16. Fair Value Measurements ................................................................................................................................................................................ 78 17. Shareholders’ Equity ........................................................................................................................................................................................ 79 18. (Loss) Earnings Per Common Share ................................................................................................................................................................ 82 19. Share-based Compensation ............................................................................................................................................................................ 83 20. Reportable Segments....................................................................................................................................................................................... 84 Valuation Accounts and Reserves ............................................................................................................................... 88 Quarterly Operating Results........................................................................................................................................ 89


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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 We are recognized for providing product innovations that enable our present corporation was incorporated in the State of New York in customers to produce larger, lighter, thinner and higher-resolution December 1936. The Company’s name was changed from Corning Glass displays. Some of the product innovations that we have launched over Works to Corning Incorporated on April 28, 1989. the past ten years utilizing our world-class processes and capabilities include the following: Corning Incorporated is a leading innovator in materials science. For more than 165 years, Corning has combined its unparalleled expertise in glass • Corning® EAGLE XG® Glass, the industry’s first LCD glass substrate that science, ceramic science, and optical physics with deep manufacturing is free of heavy metals; and engineering capabilities to develop category-defining products that transform industries and enhance people’s lives. We succeed • Corning® EAGLE XG® Slim Glass, a line of thin glass substrates which through sustained investment in research and development, a unique enables lighter-weight portable devices and thinner televisions and combination of material and process innovation, and deep, trust-based monitors; relationships with customers who are global leaders in their industries. • Corning Iris™ Glass, a light-guide plate solution which enables Corning’s capabilities are versatile and synergistic, which allows the televisions and monitors to be less the 5 mm thick; company to evolve to meet changing market needs, while also helping • The family of Corning Lotus™ Glass, high-performance display glass our customers capture new opportunities in dynamic industries. Today, developed to enable cutting-edge technologies, including organic Corning’s markets include optical communications, mobile consumer light-emitting diode (“OLED”) displays and next generation LCDs. electronics, display technology, automotive, and life sciences vessels. These substrate glasses provide industry-leading levels of low total Corning’s industry-leading products include damage-resistant cover pitch variation, resulting in brighter, more energy-efficient displays glass for mobile devices; precision glass for advanced displays; optical with higher resolutions for consumers and better yields for panel fiber, wireless technologies, and connectivity solutions for state-of-the- makers; and art communications networks; trusted products to accelerate drug discovery and delivery; and clean-air technologies for cars and trucks. • The world’s first Gen 10 and Gen 10.5 glass substrates in support of improved efficiency in manufacturing large-sized televisions. Corning operates in five reportable segments: Display Technologies, Optical Communications, Environmental Technologies, Specialty Corning has LCD glass manufacturing operations in South Korea, Japan, Materials and Life Sciences, and manufactures products at 105 plants in Taiwan and China, and services all specialty glass customers in all 15 countries. regions directly, utilizing its manufacturing facilities throughout Asia. Patent protection and proprietary trade secrets are important to the Display Technologies segment’s operations. Refer to the material under Display Technologies Segment the heading “Patents and Trademarks” for information relating to Corning’s Display Technologies segment manufactures glass substrates patents and trademarks. for liquid crystal displays (“LCDs”) that are used primarily in LCD The Display Technologies segment represented 30% of Corning’s sales televisions, notebook computers and flat panel desktop monitors. in 2017. This segment develops, manufactures and supplies high quality glass substrates using technology expertise and a proprietary fusion manufacturing process, which Corning invented and is the cornerstone Optical Communications Segment of the Company’s technology leadership in the LCD glass industry. The highly automated process yields glass substrates with a pristine surface Corning invented the world’s first low-loss optical fiber in 1970. Since and excellent thermal dimensional stability and uniformity – essential that milestone, we have continued to pioneer optical fiber, cable and attributes for the production of large, high performance LCDs panels. connectivity solutions. As global bandwidth demand driven by video Corning’s fusion process is scalable and we believe it is the most cost usage grows exponentially, telecommunications networks continue effective process in producing large size substrates. to migrate from copper to optical-based systems that can deliver the required cost-effective bandwidth-carrying capacity. Our experience puts us in a unique position to design and deliver optical solutions that reach every edge of the communications network. CORNING INCORPORATED - 2017 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 encompasses 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+TM 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 In December 2017, Corning announced that it had entered applications, combining the benefits of industry-leading attenuation into agreements with 3M to purchase substantially all of 3M’s and improved macrobend performance in one fiber. A portion of our Communication Markets Division in a cash transaction valued at optical fiber is sold directly to end users and third-party cablers globally. approximately $900 million. The acquisition is expected to close Corning’s remaining fiber production is cabled internally and sold to end during 2018, subject to customary closing conditions and regulatory users as either bulk cable or as part of an integrated optical solution. approval. Corning believes that this transaction will augment its Corning’s cable products support various outdoor, indoor/outdoor and Optical Communications segment’s global market access and expand indoor applications and include a broad range of loose tube, ribbon and its broad portfolio of high-bandwidth optical connectors, assemblies, drop cable designs with flame-retardant versions available for indoor hardware, and accessories for carrier networks, enterprise LAN, and and indoor/outdoor use. data center solutions. In addition to optical fiber and cable, our carrier network product Our optical fiber manufacturing facilities are located in North portfolio also includes hardware and equipment products, including Carolina, China and India. Cabling operations are located in North cable assemblies, fiber optic hardware, fiber optic connectors, optical Carolina, Germany, Poland, China and smaller regional locations. Our components and couplers, closures, network interface devices, manufacturing operations for hardware and equipment products are and other accessories. These products may be sold as individual located in Texas, Arizona, Mexico, Brazil, Denmark, Germany, Poland, components or as part of integrated optical connectivity solutions Israel, Australia and China. designed for various carrier network applications. Examples of these Patent protection is important to the segment’s operations. The solutions include our FlexNAPTM terminal distribution system, which segment has an extensive portfolio of patents relating to its products, provides pre-connectorized distribution and drop cable assemblies for technologies and manufacturing processes. The segment licenses cost-effectively deploying fiber-to-the-home (“FTTH”) networks; and the certain of its patents to third parties and generates revenue from these CentrixTM platform, which provides a high-density fiber management licenses, although the royalty income is not currently material to this system with industry-leading density and innovative jumper routing segment’s operating results. Corning is licensed to use certain patents that can be deployed in a wide variety of carrier switching centers. owned by others, which are considered important to the segment’s To keep pace with surging demand for mobile bandwidth, Corning has a operations. Refer to the material under the heading “Patents and full complement of operator-grade distributed antenna systems (“DAS”), Trademarks” for information relating to the Company’s patents and including the recently developed Optical Network Evolution wireless trademarks. platform. The ONE™ Wireless Platform (“ONE”) is the first all-optical The Optical Communications segment represented 35% of Corning’s converged cellular and Wi-Fi® solution built on an all-optical backbone sales in 2017. with modular service support. It provides virtually unlimited bandwidth, and meets all of the wireless service needs of large-scale enterprises at a lower cost than the typical DAS solution. Environmental Technologies Segment In addition to our optical-based portfolio, Corning’s carrier network Corning’s Environmental Technologies segment manufactures portfolio also contains select copper-based products including subscriber ceramic substrates and filter products for emissions control in mobile demarcation, connection and protection devices, xDSL (different applications around the world. In the early 1970s, Corning developed an variations of digital subscriber lines) passive solutions and outside plant economical, high-performance cellular ceramic substrate that is now enclosures. In addition, Corning offers coaxial RF interconnects for the the standard for catalytic converters in vehicles worldwide. As global cable television industry as well as for microwave applications for GPS, emissions control regulations tighten, Corning has continued to develop radars, satellites, manned and unmanned military vehicles, and wireless more effective and durable ceramic substrate and filter products for and telecommunications systems. gasoline and diesel applications. For example, in response to the growing Our enterprise network portfolio also includes optical fiber products, popularity of gasoline direct injection engines, Corning introduced including ClearCurve® ultra-bendable multimode fiber for data centers gasoline particulate filters to help automakers reduce particulate and other enterprise network applications; InfiniCor® fibers for local emissions generated by these engines. Corning manufactures substrate area networks; and more recently ClearCurve® VSDN® ultra-bendable and filter products in New York, Virginia, China, Germany and South optical fiber designed to support emerging high-speed interconnects Africa. Corning sells its ceramic substrate and filter products worldwide between computers and other consumer electronics devices. The to catalyzers and manufacturers of emission control systems who remainder of Corning’s fiber production is cabled internally and sold to then sell to automotive and diesel vehicle or engine manufacturers. end users as either bulk cable or as part of an integrated optical solution. Although most sales are made to the emission control systems Corning’s cable products include a broad range of tight-buffered, loose manufacturers, the use of Corning substrates and filters is generally required by the specifications of the automotive and diesel vehicle or engine manufacturers. 2 CORNING INCORPORATED - 2017 Annual Report


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    Business Description Patent protection is important to the segment’s operations. The of materials science, polymer surface science, cell culture and biology, segment has an extensive portfolio of patents relating to its products, the segment provides innovative solutions that improve productivity technologies and manufacturing processes. Corning is licensed to use and enable breakthrough research. certain patents owned by others, which are also considered important to the segment’s operations. Refer to the material under the heading Life Sciences products include consumables (such as plastic vessels, “Patents and Trademarks” for information relating to the Company’s specialty surfaces, cell culture media and serum), as well as general patents and trademarks. labware and equipment, that are used for advanced cell culture research, bioprocessing, genomics, drug discovery, microbiology and chemistry. The Environmental Technologies segment represented 11% of Corning’s Corning sells life sciences products under these primary brands: Corning, sales in 2017. Falcon, Pyrex, Axygen, and Gosselin. The products are marketed globally, primarily through distributors, to pharmaceutical and biotechnology companies, academic institutions, hospitals, government entities, and Specialty Materials Segment other facilities. Corning manufactures these products in the United States in Illinois, Maine, Massachusetts, New York, North Carolina, Utah The Specialty Materials segment manufactures products that and Virginia and outside of the U.S. in China, France, Mexico and Poland. provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs. Patent protection is important to the segment’s operations. The Consequently, this segment operates in a wide variety of commercial segment has a growing portfolio of patents relating to its products, and industrial markets that include display optics and components, technologies and manufacturing processes. Brand recognition and semiconductor optics components, aerospace and defense, astronomy, loyalty, through well-known trademarks, are important to the segment. ophthalmic products, telecommunications components and cover glass Refer to the material under the heading “Patents and Trademarks” for that is optimized for display devices. more information. Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass The Life Sciences segment represented approximately 9% of Corning’s designed specifically to function as a cover glass for display devices such sales in 2017. as mobile phones, tablets and notebook PCs. Elegant and lightweight, Corning Gorilla Glass is durable enough to resist many real-world events that commonly cause glass failure, enabling exciting new applications All Other in technology and design. In 2016, Corning unveiled its latest Corning Gorilla Glass innovation, Corning® Gorilla® Glass 5, which is designed to All other segments that do not meet the quantitative threshold for provide further protection against breakage while maintaining optical separate reporting have been grouped as “All Other.” This group is clarity, touch sensitivity, and damage resistance. primarily comprised of the results of the pharmaceutical technologies business and new product lines and development projects, as well as Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan certain corporate investments such as Eurokera and Keraglass equity and Taiwan. affiliates. Semiconductor optics manufactured by Corning includes high- In 2017, Corning’s pharmaceutical technologies business, in collaboration performance optical material products, optical-based metrology with two leading pharmaceutical companies, introduced Corning instruments, and optical assemblies for applications in the global Valor® Glass, a revolutionary pharmaceutical glass packaging solution semiconductor industry. Corning’s semiconductor optics products are that enhances the storage and delivery of today’s drug formulations manufactured in New York. and provides more reliable access to medicines essential to public health. Insights into manufacturing processes from the pharmaceutical Other specialty glass products include glass lens and window companies, in combination with Corning’s glass science and precision components and assemblies and are made in New York, New Hampshire forming capabilities, helped deliver a glass packaging solution for and France, and sourced from China. injectable drugs in vials and cartridges. Corning Valor Glass packaging Patent protection is important to the segment’s operations. The segment offers superior chemical durability, strength and damage resistance. has a growing portfolio of patents relating to its products, technologies These qualities enable increased throughput and more reliable access and manufacturing processes. Brand recognition and loyalty, through to state-of-the-art medicines for patients, while maintaining a high level well-known trademarks, are important to the segment. Refer to the of quality assurance for pharmaceutical companies. material under the heading “Patents and Trademarks” for information The All Other segment represented 1% of Corning’s sales in 2017. relating to the Company’s patents and trademarks. Additional explanation regarding Corning and its five reportable The Specialty Materials segment represented approximately 14% of segments, as well as financial information about geographic areas, Corning’s sales in 2017. is presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 20 (Reportable Segments) to the Consolidated Financial Statements. Life Sciences Segment As a leading developer, manufacturer and global supplier of laboratory products for over 100 years, Corning’s Life Sciences segment works with researchers and drug manufacturers seeking to increase efficiencies, reduce costs and compress timelines. Using unique expertise in the fields CORNING INCORPORATED - 2017 Annual Report 3


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    Business Description Corporate Investments Dow Corning Corporation and Hemlock Semiconductor Group. Prior to our ownership percentage in HSG did not change as a result of the May 31, 2016, Corning and The Dow Chemical Company (“Dow Chemical”) realignment, the investment in HSG is recorded at its carrying value, each owned half of Dow Corning Corporation (“Dow Corning”), an which had a negative carrying value of $383 million at the transaction equity company headquartered in Michigan that manufactures silicone date. The negative carrying value resulted from a one-time charge to products worldwide. Dow Corning was the majority-owner of Hemlock this entity in 2014 for the permanent abandonment of certain assets. Semiconductor Group (“HSG”), a market leader in the production of Excluding this charge, the entity is profitable and is expected to recover high purity polycrystalline silicon for the semiconductor and solar its equity in the near term. energy industries. Pittsburgh Corning Corporation. Prior to the second quarter of 2016, On May 31, 2016, Corning completed the strategic realignment of Corning and PPG Industries, Inc. each owned 50% of the capital stock its equity investment in Dow Corning pursuant to the Transaction of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11 Agreement announced in December 2015. Under the terms of the reorganization in 2000 and the Modified Third Amended Plan of Transaction Agreement, Corning exchanged with Dow Corning its Reorganization for PCC (the “Plan”) became effective in April 2016. In 50% stock interest in Dow Corning for 100% of the stock of a newly the second quarter of 2016, Corning contributed its equity interests formed entity, which holds an equity interest in HSG and approximately in PCC and Pittsburgh Corning Europe N.V. as required by the Plan and $4.8 billion in cash. recognized a gain of $56 million for the difference between the fair value of the asbestos litigation liability and carrying value of the investment. Prior to realignment, HSG, a consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the Additional information about corporate investments is presented in exchange, Corning now has a direct equity investment in HSG. Because 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 and Corning believes it maintains a strong position in the worldwide market improve its market position through technology and product innovation. for automotive ceramic substrate and filter products, as well as in the For the foreseeable future, Corning believes its competitive advantage heavy-duty and light-duty diesel vehicle markets. 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 filter products for particulate emissions products. There is no assurance that Corning will be able to maintain or in exhaust systems is based on an advantaged product portfolio, improve its market position or competitive advantage. collaborative engineering design services, customer service and support, strategic global presence and continued product innovation. Corning’s Environmental Technologies products face principal competition from Display Technologies Segment NGK Insulators, Ltd. and Ibiden Co. Ltd. Corning is the largest worldwide producer of glass substrates for LCD displays. The environment for LCD glass substrate products is very competitive and Corning believes it has sustained its competitive Specialty Materials Segment advantages by investing in new products, providing a consistent Corning has deep capabilities in materials science, optical design, and reliable supply, and continually improving its proprietary fusion shaping, coating, finishing, metrology, and system assembly. manufacturing process. This process allows us to deliver glass that is Additionally, we are addressing emerging needs of the consumer larger, thinner and lighter, with exceptional surface quality and without electronics industry with the development of chemically strengthened heavy metals. Asahi Glass Co. Ltd. and Nippon Electric Glass Co. Ltd. are glass. Corning Gorilla Glass is a thin-sheet glass that is better able to Corning’s principal competitors in display glass substrates. survive events that most commonly cause glass failure. Its advanced composition allows a deeper layer of chemical strengthening than is possible with most other chemically strengthened glasses, making Optical Communications Segment it both durable and damage resistant. Our products and capabilities in this segment position the Company to meet the needs of a Corning believes it maintains a leadership position in the segment’s broad array of markets including display, semiconductor, aerospace/ principal product groups, which include carrier and enterprise networks. defense, astronomy, vision care, industrial/commercial, and The competitive landscape includes industry consolidation, price telecommunications. For this segment, Schott, Asahi Glass Co. Ltd., pressure and competition for the innovation of new products. These Nippon Electric Glass Co. Ltd. and Heraeus are the main competitors. 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 its competitors. Life Sciences Segment Corning seeks to maintain a competitive advantage by emphasizing The primary competing producers of the Optical Communications product quality, global distribution, supply chain efficiency, a broad segment are Commscope and Prysmian Group. product line and superior product attributes. Our principal 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. 4 CORNING INCORPORATED - 2017 Annual Report


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    Business Description Raw Materials Corning’s manufacturing processes and products require access to interruption in the event of specific materials shortages. uninterrupted power sources, significant quantities of industrial water, certain precious metals, and various batch materials. Availability of Certain key materials and proprietary equipment used in the resources (ores, minerals, polymers, helium and processed chemicals) manufacturing of products are currently sole-sourced or available only required in manufacturing operations, appears to be adequate. Corning’s from a limited number of suppliers. To minimize this risk, Corning closely suppliers, from time to time, may experience capacity limitations in their monitors raw materials and equipment with limited availability or own operations, or may eliminate certain product lines. Corning believes which are sourced through one supplier. However, any future difficulty it has adequate programs to ensure a reliable supply of raw and batch in obtaining sufficient and timely delivery of components and/or raw materials as well as precious metals. For many of its products, Corning materials could result in lost sales due to delays or reductions in product has alternate suppliers that would allow operations to continue without shipments, or reductions in Corning’s gross margins. 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. Many of our earlier patents have now expired, but fiber preforms and methods for drawing, cooling and winding Corning continues to seek and obtain patents protecting its innovations. optical fiber; (ii) optical fiber ribbons and methods for making such In 2017, Corning was granted about 560 patents in the U.S. and over 1,280 ribbon, fiber optic cable designs and methods for installing optical patents in countries outside the U.S. fiber cable; (iii) optical fiber connectors, hardware, termination and storage and associated methods of manufacture; and (iv) distributed Each business segment possesses a patent portfolio that provides communication systems. certain competitive advantages in protecting Corning’s innovations. Corning has historically enforced, and will continue to enforce, its • Environmental Technologies: patents relating to cellular ceramic intellectual property rights. At the end of 2017, Corning and its wholly- honeycomb products, together with ceramic batch and binder owned subsidiaries owned over 10,900 unexpired patents in various system compositions, honeycomb extrusion and firing processes, and countries of which over 4,560 were U.S. patents. Between 2018 and honeycomb extrusion dies and equipment for the high-volume, low- 2020, approximately 7% of these patents will expire, while at the same cost manufacture of such products. time Corning intends to seek patents protecting its newer innovations. Worldwide, Corning has about 10,300 patent applications in process, • Specialty Materials: patents relating to protective cover glass, with about 2,280 in process in the U.S. Corning believes that its patent ophthalmic glasses and polarizing dyes, and semiconductor/ portfolio will continue to provide a competitive advantage in protecting microlithography optics and blanks, metrology instrumentation and the Company’s innovation, although Corning’s competitors in each of its laser/precision optics, glass polarizers, specialty fiber, and refractories. businesses are actively seeking patent protection as well. • Life Sciences: patents relating to methods and apparatus for the While each of our reportable segments has numerous patents in manufacture and use of scientific laboratory equipment including various countries, no one patent is considered material to any of these multiwell plates and cell culture products, as well as equipment and segments. Important U.S.-issued patents in our reportable segments processes for label independent drug discovery. include the following: Products reported in All Other include development projects, new • Display Technologies: patents relating to glass compositions and product lines, and other businesses or investments that do not meet the methods for the use and manufacture of glass substrates for display threshold for separate reporting. applications. Approximate number of patents granted to our reportable segments follows: Important Number of patents expiring patents between 2018 worldwide U.S. patents and 2020 Display Technologies 1,900 400 18 Optical Communications 4,200 1,900 34 Environmental Technologies 900 350 20 Specialty Materials 1,200 590 8 Life Sciences 570 240 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, HPFS, Leaf, Pyrex, Corning has entered into cross-licensing arrangements with some major Steuben, Falcon, SMF-28e, Unicam, and Willow. competitors, but the scope of such licenses has been limited to specific product areas or technologies. CORNING INCORPORATED - 2017 Annual Report 5


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    Business Description Protection of the Environment Corning has a program to ensure that its facilities are in compliance with Corning’s 2017 consolidated operating results were charged with state, federal and foreign pollution-control regulations. This program approximately $43 million for depreciation, maintenance, waste disposal has resulted in capital and operating expenditures each year. In order and other operating expenses associated with pollution control. Corning to maintain compliance with such regulations, capital expenditures for believes that its compliance program does not place it at a competitive pollution control in operations were approximately $39 million in 2017 disadvantage. and are estimated to be $23 million in 2018. Employees At December 31, 2017, Corning had approximately 46,200 full-time employees. From time to time, Corning also retains consultants, independent contractors, temporary and part-time workers. Executive Officers James P. Clappin Executive Vice President, Corning Glass Technologies Technologies as business manager for the heavy-duty diesel business and was named director of the automotive substrates business in 2003. Mr. Clappin joined Corning in 1980 as a process engineer. He transitioned She was named vice president and deputy general manager, Display to GTE Corporation in 1983 when the Central Falls facility was sold and Technologies Asia in June 2005. She served as general manager of returned to Corning in 1988. He began working in the display business in Corning Display Technologies from July 2010 through 2015 overseeing 1994. Mr. Clappin relocated to Japan in 1996, as plant manager at Corning operations across four regions: China, Japan, Taiwan and the U.S. Display Technologies Shizuoka facility. In 2002, he was appointed as Ms. Ferrero became senior vice president and chief administrative officer general manager of CDT worldwide business. He served as president of in January 2016. Age 54. Corning Display Technologies from September 2005 through July 2010. He was appointed president, Corning Glass Technologies, in 2010. He was Clark S. Kinlin Executive Vice President appointed to his present position in 2017. Age 60. Mr. Kinlin joined Corning in 1981 in the Specialty Materials division. From Martin J. Curran Executive Vice President and Corning Innovation Officer 1985 to 1995 he worked in the Optical Fiber division. In 1995, he joined Corning Consumer Products. In 2000, Mr. Kinlin was named president, Mr. Curran joined Corning in 1984 and has held a variety of roles in Corning International Corporation and, in 2003, he was appointed as finance, manufacturing, and marketing. He has served as senior vice general manager for Greater China. From April 2007 to March 2008, he president, general manager for Corning Cable Systems Hardware and was chief operating officer, Corning Cable Systems (now Corning Optical Equipment Operations in the Americas, responsible for operations in Communications) and was named president and chief executive officer Hickory, North Carolina; Keller, Texas; Reynosa, Mexico; Shanghai, China; in 2008. He was appointed executive vice president in 2012. Age 58. and the Dominican Republic. He has also served as senior vice president and general manager for Corning Optical Fiber. Mr. Curran was appointed Lawrence D. McRae Vice Chairman and Corporate Development Officer as Corning’s first innovation officer in August 2012. Age 59. Mr. McRae joined Corning in 1985 and served in various financial, sales Jeffrey W. Evenson Senior Vice President and Chief Strategy Officer and marketing positions. He was appointed vice president Corporate Development in 2000, senior vice president Corporate Development Dr. Evenson joined Corning in June 2011 as senior vice president and in 2003, senior vice president Strategy and Corporate Development in operations chief of staff. In 2015, he was named Chief Strategy Officer. October 2005, and executive vice president Strategy and Corporate He serves on the Management Committee and oversees a variety of Development in 2010. He was appointed to his present position in strategic programs and growth initiatives. Prior to joining Corning, August 2015. Age 59. Dr. Evenson was a senior vice president with Sanford C. Bernstein, where he served as a senior analyst since 2004. Before that, Dr. Evenson was a David L. Morse Executive Vice President and Chief Technology Officer partner at McKinsey & Company, where he led technology and market assessment for early-stage technologies. Age 52. Dr. Morse joined Corning in 1976 in glass research and worked as a composition scientist in developing and patenting several major Lisa Ferrero Senior Vice President and Chief Administrative Officer products. He served in a variety of product and materials research and technology director roles and was appointed division vice president and Ms. Ferrero joined Corning in 1987 as a statistician and held various technology director for photonic technology groups beginning in March production management positions until joining Display Technologies in 1999. He became director of corporate research, science and technology 1995 as a market analyst in Tokyo. While in Japan, she was appointed in December 2001. He was appointed vice president in January 2003, export sales manager for Taiwan and Korea. In 1998, she returned to becoming senior vice president and director of corporate research in Corning, N.Y. and was named market development manager. She was 2006. Dr. Morse was appointed to his current position in May 2012. He appointed director of strategic marketing, planning, and analysis for is a member of the National Academy of Engineering and the National Display Technologies in 2000. In 2002, Ms. Ferrero joined Environmental Chemistry Board. Age 65. 6 CORNING INCORPORATED - 2017 Annual Report


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    Risk Factors Eric S. Musser Executive Vice President, Corning Technologies and International Lewis A. Steverson Senior Vice President and General Counsel Mr. Musser joined Corning in 1986 and served in a variety of Mr. Steverson joined Corning in June 2013 as senior vice president and manufacturing positions at fiber plants in Wilmington, N.C. and general counsel. Prior to joining Corning, Mr. Steverson served as senior Melbourne, Australia, before becoming manufacturing strategist for vice president, general counsel, and secretary of Motorola Solutions, Inc. the Optical Fiber business in 1996. Mr. Musser joined Corning Lasertron During his 18 years with Motorola, he held a variety of legal leadership in 2000 and became president later that year. He was named director, roles across the company’s numerous business units. Prior to Motorola, manufacturing operations for Photonic Technologies in 2002. In 2003, Mr. Steverson was in private practice at the law firm of Arnold & Porter. he returned to Optical Fiber as division vice president, development and Age 54. engineering and was named vice president and general manager in 2005. In 2007, he was appointed general manager of Corning Greater R. Tony Tripeny Senior Vice President and Chief Financial Officer China and was named president of Corning International in 2012. Mr. Tripeny joined Corning in 1985 as the corporate accounting manager Mr. Musser was appointed executive vice president in 2014. Age 58. of Corning Cable Systems, and became the Keller, Texas facility’s plant Christine M. Pambianchi Senior Vice President, Human Resources controller in 1989. In 1993, he was appointed equipment division controller of Corning Cable Systems and, in 1996 corporate controller. Mr. Tripeny Ms. Pambianchi joined Corning in 2000 as division human resource was appointed chief financial officer of Corning Cable Systems in July manager, Corning Optical Fiber, and later was named director, Human 2000. In 2003, he took on the additional role of Telecommunications Resources, Corning Optical Communications. She has led the Human group controller. He was appointed division vice president, operations Resources function since January 2008 when she was named vice controller in August 2004, vice president, corporate controller in October president, Human Resources. Ms. Pambianchi was appointed to senior 2005, and senior vice president and principal accounting officer in April vice president, Human Resources, in 2010, and is responsible for leading 2009. Mr. Tripeny was appointed to his current position as senior vice Corning’s global human resource function. Age 49. president and chief financial officer in September 2015. He is a member of the board of directors of Hardinge, Inc. Age 58. Edward A. Schlesinger Vice President and Corporate Controller Wendell P. Weeks Chairman, Chief Executive Officer and President Mr. Schlesinger joined Corning in 2013 as senior vice president and chief financial officer of Corning Optical Communications. He led Mr. Weeks joined Corning in 1983. He was named vice president and the Finance function for Corning Optical Communications and general manager of the Optical Fiber business in 1996, senior vice served on the Communications Leadership Team. He was named vice president in 1997, senior vice president of Opto-Electronics in 1998, president and corporate controller in September 2015, and appointed executive vice president in 1999, and president, Corning Optical principal accounting officer in December 2015. Prior to joining Corning, Communications in 2001. Mr. Weeks was named president and chief Mr. Schlesinger served as Vice President, Finance and Sector Chief operating officer of Corning in 2002, president and chief executive Financial Officer for two of Ingersoll Rand’s business segments. officer in 2005 and chairman and chief executive officer on April 26, Mr. Schlesinger has a financial career that spans more than 20 years 2007. He added the title of president in December 2010. Mr. Weeks is a garnering extensive expertise in technical financial management and director of Merck & Co. Inc. and Amazon.com, Inc. Mr. Weeks has been a reporting. Age 50. member of Corning’s Board of Directors since 2000. Age 58. Document Availability A copy of Corning’s 2017 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 risks is not all inclusive but is designed to highlight what we believe are environments that present numerous risks, many of which are driven by important factors to consider, as these factors could cause our future factors that we cannot control or predict. Our operations and financial results to differ from those in our forward-looking statements and from results are subject to various risks and uncertainties, including those historical trends. described below, that could adversely affect our business, financial condition, results of operations, cash flows, our ability to successfully As a global company, we face many risks which could adversely impact execute our strategy and capital allocation framework, and the trading our operations and reported financial results price of our common stock or debt. The following discussion of “risk We are a global company and derive a substantial portion of our factors” identifies the most significant factors that may adversely revenues from, and have significant operations, outside of the United affect our business, operations, financial position or future financial States. Our international operations include manufacturing, assembly, performance. This information should be read in conjunction with sales, research and development, customer support, and shared MD&A and the consolidated financial statements and related notes administrative service centers. incorporated by reference into this report. The following discussion of CORNING INCORPORATED - 2017 Annual Report 7


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    Risk Factors Compliance with laws and regulations increases our costs. We are subject • Political unrest, confiscation or expropriation of our assets by foreign to both U.S. laws and local laws which, among other things, include governments, terrorism and the potential for other hostilities; data privacy requirements, employment and labor laws, tax laws, anti- competition regulations, prohibitions on payments to governmental • Difficulty in protecting intellectual property, sensitive commercial and officials, import and trade restrictions and export requirements. Non- operations data, and information technology systems; compliance or violations could result in fines, criminal sanctions against • Differing legal systems, including protection and treatment of us, our officers or our employees, and prohibitions on the conduct of our intellectual property and patents; business. Such violations could result in prohibitions on our ability to offer our products and services in one or more countries and could also • Complex, or competing tax regimes; materially damage our reputation, our brand, our international expansion • Difficulty in collecting obligations owed to us; efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate • Natural disasters such as floods, earthquakes, tsunamis and windstorms; and manage these risks. and We are also subject to a variety of other risks in managing a global • Potential loss of utilities or other disruption affecting manufacturing. organization, including those related to: Corning’s Display Technologies segment generates a significant amount • The economic and political conditions in each country or region; of the Company’s profits and cash flow. Any significant decrease in LCD glass pricing could have a material and negative impact on our • Complex regulatory requirements affecting international trade and financial results investment, including anti-dumping laws, export controls, the Foreign Corrupt Practices Act and local laws prohibiting improper payments. Corning’s ability to generate profits and operating cash flow depends Our operations may be adversely affected by changes in the substance largely upon the profitability of our LCD glass business, which is subject or enforcement of these regulatory requirements, and by actual or to continuous pricing pressure due to intense industry competition, alleged violations of them; potential over-capacity, and development of new technologies. If we are not able to achieve proportionate reductions in costs or sustain our • Fluctuations in currency exchange rates, convertibility of currencies and current rate of cost reduction to offset potential pricing pressures it could restrictions involving the movement of funds between jurisdictions and have a material adverse impact on our financial results. countries; Because we have a concentrated customer base in each of our businesses, • Governmental protectionist policies and sovereign and political risks our sales could be negatively impacted by the actions or insolvency of one that may adversely affect Corning’s profitability and assets; or more key customers, as well as our ability to retain these customers • Tariffs, trade duties and other trade barriers including anti-dumping A relatively small number of customers accounted for a high percentage duties; of net sales in our reportable segments. Mergers and consolidations • Geographical concentration of our factories and operations, and between customers could result in further concentration of Corning’s regional shifts in our customer base; customer base. If further concentration occurs or a key customer becomes insolvent, the loss of a key customer could result in a substantial loss of • Periodic health epidemic concerns; sales and reduction in anticipated in cash flows. Unforeseen events or actions on the part of Corning could also result in the loss of customers, resulting in further customer concentration. 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 2017 Display Technologies 3 62% Optical Communications 1 19% Environmental Technologies 3 81% Specialty Materials 3 58% Life Sciences 2 47% Business disruptions could affect our operating results Additionally, a significant amount of the specialized manufacturing capacity for our reportable segments is concentrated in single-site A major earthquake, fire or other catastrophic event that results in the locations and it is reasonably possible that the operations of one or more destruction or disruption of any of our critical facilities could severely such facilities could be disrupted. Due to the specialized nature of the affect our ability to conduct normal business operations and, as a result, assets, it may not be possible to find replacement capacity quickly or our future financial results could be materially and adversely affected. For substitute production from other facilities. Accordingly, a disruption at a example, certain manufacturing sites require high quality, continuous, single-site manufacturing operation could significantly impact Corning’s and uninterrupted power and access to industrial water. Unplanned ability to supply its customers and could produce a near-term severe outages could have a material negative impact on our operations and impact on our individual businesses and the Company as a whole. ability to supply our customers. 8 CORNING INCORPORATED - 2017 Annual Report


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    Risk Factors Geopolitical events, as well as other events outside of Corning’s control, measures and defenses in place against unauthorized access, but we may could cause a disruption to our manufacturing operations and adversely not be able to prevent, immediately detect, or remediate such events. A impact our customers, resulting in a negative impact to Corning’s net material breach in the security of our IT systems could include the theft sales, net income, asset values and liquidity of our intellectual property or trade secrets. Such disruptions or security breaches could result in the theft, unauthorized use or publication of our A natural disaster, epidemic, labor strike, war or political unrest intellectual property and/or confidential business information, harm our may adversely affect Corning’s ability to supply our customers and competitive position, disrupt our manufacturing, reduce the value of our impact the value of our assets. Such events may also impact our investment in research and development and other strategic initiatives, customers’ facilities and reduce our sales to such customers. For example, or otherwise adversely affect our business. a sizeable portion of Corning’s glass manufacturing capacity is located in South Korea and we generate a significant portion of our sales through Additionally, we believe that utilities and other operators of critical two South Korean customers. Deterioration of the geopolitical climate in infrastructure that serve our facilities face heightened security risks, such a region could cause a disruption to our manufacturing operations including cyber-attack. In the event of such an attack, disruption in service and adversely impact our customers, resulting in a negative impact to from our utility providers could disrupt our manufacturing operations Corning’s net sales, net income, asset values and liquidity. which rely on a continuous source of power (electrical, gas, etc.). We may experience difficulties in enforcing our intellectual property We may not earn a positive return from our research, development and rights, which could result in loss of market share, and we may be subject engineering investments to claims of infringement of the intellectual property rights of others Developing our products through our innovation model of research and We rely on patent and trade secret laws, copyright, trademark, development is expensive and often involves a long investment cycle. confidentiality procedures, controls and contractual commitments We make significant expenditures and investments in research and to protect our intellectual property rights. Despite our efforts, these development and four process engineering platforms that may earn an protections may be limited and we may encounter difficulties in economic return. If our investments do not provide a pipeline of new protecting our intellectual property rights or obtaining rights to technologies that our customers demand or lower cost manufacturing additional intellectual property necessary to permit us to continue or platforms, it could negatively impact our revenues and operating margins expand our businesses. We cannot provide assurance that the patents both near- and long-term. that we hold or may obtain will provide meaningful protection against our We have significant exposure to foreign currency movements competitors. Changes in or enforcement of laws concerning intellectual property, worldwide, may affect our ability to prevent or address the A large portion of our sales, profit and cash flows are transacted in non- misappropriation of, or the unauthorized use of, our intellectual property, U.S. dollar currencies and we expect that we will continue to realize gains potentially resulting in loss of market share. Litigation may be necessary or losses with respect to these exposures. We will experience foreign to enforce our intellectual property rights. Litigation is inherently currency gains and losses in certain instances if it is not possible or uncertain and outcomes are often unpredictable. If we cannot protect our cost effective to hedge our currency exposures or should we elect not intellectual property rights against unauthorized copying or use, or other to hedge certain currency exposures. Alternatively, we may experience misappropriation, we may not remain competitive. gains or losses if the underlying exposure which we have hedged change (increases or decreases) and we are unable to reverse, unwind, The intellectual property rights of others could inhibit our ability to or terminate the hedges concurrent with the change in the underlying introduce new products. Other companies hold patents on technologies notional exposure. used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios. We periodically receive notices from, Our ultimate realized loss or gain with respect to currency fluctuations or have lawsuits filed against us by third parties claiming infringement, will generally depend on the size and type of cross-currency exposures misappropriation or other misuse of their intellectual property rights that we have, the exchange rates associated with these exposures and and/or breach of our agreements with them. These third parties often changes in those rates, whether we have entered into foreign currency include entities that do not have the capabilities to design, manufacture, contracts to offset these exposures and other factors. Our hedge portfolio or distribute products or that acquire intellectual property like patents may reduce our flexibility to respond to price moves by our Display for the sole purpose of monetizing their acquired intellectual property Technologies segment competitors. through asserting claims of infringement and misuse. Such claims of infringement or misappropriation may result in loss of revenue, Foreign currency movements may also impact our competitive cost substantial costs, or lead to monetary damages or injunctive relief position relative to our largest, Japan-based competitors in the Display against us. Technologies segment. The profitability of customers may also be impacted as they typically purchase from us in Japanese yen and they sell Information technology dependency and cyber security vulnerabilities in various currencies. could lead to reduced revenue, liability claims, or competitive harm All of these factors could materially impact our results of operations, The Company is dependent on information technology (“IT”) systems anticipated future results, financial position and cash flows, the timing of and infrastructure for its business and manufacturing controls. Our IT which is variable and generally outside of our control. systems may be vulnerable to disruptions from human error, outdated We have significant exposure to counterparties of our related derivatives applications, computer viruses, natural disasters, unauthorized access, portfolio cyber-attack and other similar disruptions. Any significant disruption, breakdown, intrusion, interruption or corruption of these systems or data We maintain a significant portfolio of over the counter derivatives to breaches could cause the loss of data, equipment damage, downtime, hedge our projected currency exposure to the Japanese yen, New Taiwan and/or safety related issues and could have a material adverse effect dollar, South Korean won, Chinese yuan and euro. We are exposed to on our business. Like other global companies, we have, from time to potential losses in the event of non-performance by our counterparties time, experienced incidents related to our IT systems, and expect that to these derivative contracts. Any failure of a counterparty to pay on such such incidents will continue, including malware and computer virus a contract when due could materially impact our results of operations, attacks, unauthorized access, systems failures and disruptions. We have financial position, and cash flows. 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    Risk Factors If we are unable to obtain certain specialized equipment, raw and batch judgment is required in determining our worldwide provision for materials or natural resources required in our products or processes, our income taxes. Although we believe our tax estimates are reasonable, business will suffer the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and Our ability to meet customer demand depends, in part, on our ability accruals. The results of an audit or litigation could have a material effect to obtain timely and adequate delivery of equipment, parts and on our financial statements in the period or periods for which that components from our suppliers. We may experience shortages that determination is made. could adversely affect our operations. There can be no assurances that we will not encounter problems in the future. Certain manufacturing The recent 2017 Tax Act could significantly impact how U.S. global equipment and components are available only from single or limited corporations are taxed. We are in the process of evaluating the impact sources, and we may not be able to find alternate sources in a timely of this new legislation and certain changes could have a material manner. A reduction, interruption or delay of supply, or a significant adverse impact on our tax expense and cash flow. Among other things, increase in the price for supplies, such as manufacturing equipment, the 2017 Tax Act requires companies to pay a one-time mandatory tax precious metals, raw materials, utilities including energy and industrial on unrepatriated earnings of certain foreign subsidiaries that were water, could have a material adverse effect on our businesses. previously tax deferred (the “toll charge”) and creates new taxes on certain foreign sourced earnings. The toll charge resulted in an We use specialized raw materials from single-source suppliers (e.g., additional $1.1 billion provisional tax expense. However, settlement of specific mines or quarries) and natural resources (e.g., helium) in certain the toll charge will occur almost entirely through the use of existing products and processes. If a supplier is unable to provide the required foreign tax credit carryovers of $1.1 billion. raw materials or the natural resource is in scarce supply or not readily available, we may be unable to change our product composition or Our innovation model depends on our ability to attract and retain manufacturing process in order to prevent a disruption to our business. specialized experts in our core technologies We have incurred, and may in the future incur, goodwill and other Our innovation model requires us to employ highly specialized experts intangible asset impairment charges in glass science, ceramic science, and optical physics to conduct our research and development and engineer our products and design At December 31, 2017, Corning had goodwill and other intangible assets our manufacturing facilities. The loss of the services of any member of approximately $2.6 billion. While we believe the estimates and of our key research and development or engineering team without judgments about future cash flows used in the goodwill impairment adequate replacement, or the inability to attract new qualified tests are reasonable, we cannot provide assurance that additional personnel, could have a material adverse effect on our operations and impairment charges in the future will not be required if the expected financial performance. cash flow estimates as projected by management do not occur, especially if an economic recession occurs and continues for a lengthy We are subject to strict environmental regulations and regulatory period or becomes severe, or if acquisitions and investments made by changes that could result in fines or restrictions that interrupt the Company fail to achieve expected returns. our operations Changes in our effective tax rate or tax liability may have an adverse Some of our manufacturing processes generate chemical waste, waste effect on our results of operations water, other industrial waste or greenhouse gases, and we are subject to numerous laws and regulations relating to the use, storage, discharge Our effective tax rate could be adversely impacted by several and disposal of such substances. We have installed anti-pollution factors, including: equipment for the treatment of chemical waste and waste water at • Changes in the relative amounts of income before taxes in the our facilities. We have taken steps to control the amount of greenhouse various jurisdictions in which we operate that have differing statutory gases created by our manufacturing operations. However, we cannot tax rates; provide assurance that environmental claims will not be brought against us or that government regulators will not take steps to adopt • Changes in tax laws, tax treaties and regulations or the interpretation more stringent environmental standards. of them, including the recent Tax Cuts and Jobs Act (the “2017 Tax Act”) passed by the U.S. Congress and signed into law on December 22, 2017; Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or • Changes to our assessment about the realizability of our deferred tax imposition of fines against us, or the suspension/cessation of production assets that are based on estimates of our future results, the prudence or operations. In addition, environmental regulations could require us to and feasibility of possible tax planning strategies, and the economic acquire costly equipment, incur other significant compliance expenses and political environments in which we do business; or limit or restrict production or operations and thus materially and • The outcome of current and future tax audits, examinations, or negatively affect our financial condition and results of operations. administrative appeals; Changes in regulations and the regulatory environment in the U.S. and • Changes in generally accepted accounting principles that affect the other countries, such as those resulting from the regulation and impact accounting for taxes; and of global warming and CO2 abatement, may affect our businesses and their results in adverse ways by, among other things, substantially • Limitations or adverse findings regarding our ability to do business in increasing manufacturing costs, limiting availability of scarce resources, some jurisdictions. especially energy, or requiring limitations on production and sale of our We may have additional tax liabilities products or those of our customers. We are subject to income taxes in the U.S. and many foreign jurisdictions and are commonly audited by various tax authorities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Significant 10 CORNING INCORPORATED - 2017 Annual Report


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    Legal Proceedings Current or future litigation or regulatory investigations may harm our of obtaining or retaining business, or obtaining an unfair advantage. financial condition or results of operations Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our continued operation and expansion outside As a global technology and manufacturing company, we are engaged the United States, including in developing countries, could increase the in various litigation and regulatory matters. Litigation and regulatory risk of alleged violations. Violations of these laws may result in severe proceedings may be uncertain, and adverse rulings could occur, criminal or civil sanctions, could disrupt our business, and result in an resulting in significant liabilities, penalties or damages. Such current adverse effect on our reputation, business and results of operations or or future substantial legal liabilities or regulatory actions could have a financial condition. material adverse effect on our business, financial condition, cash flows and reputation. Moreover, several of our related partners are domiciled in areas of the world with laws, rules and business practices that differ from Our global operations are subject to extensive trade and anti-corruption those in the United States, and we face the reputational and legal laws and regulations risk that our related partners may violate applicable laws, rules and Due to the international scope of our operations, we are subject to a business practices. complex system of import- and export-related laws and regulations, International trade policies may negatively impact our ability to sell and including U.S. regulations issued by Customs and Border Protection, the manufacture our products outside of the U.S. Bureau of Industry and Security, the Office of Anti-boycott Compliance, the Directorate of Defense Trade Controls and the Office of Foreign Assets Government policies on international trade and investment such Control, as well as the counterparts of these agencies in other countries. as import quotas, tariffs, and capital controls, whether adopted by Any alleged or actual violation by an employee or the Company may individual governments or addressed by regional trade blocs, can affect subject us to government scrutiny, investigation and civil and criminal the demand for our products and services, impact the competitive penalties, and may limit our ability to import or export our products position of our products or prevent us (including our equity affiliates/ or to provide services outside the United States. We cannot predict the joint ventures) from being able to sell and/or manufacture products nature, scope or effect of future regulatory requirements to which our in certain countries. The implementation of more restrictive trade operations might be subject or the manner in which existing laws might policies, such as higher tariffs or new barriers to entry, in countries in be administered or interpreted. which we sell large quantities of products and services could negatively impact our business, results of operations and financial condition. In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti- For example, a government’s adoption of “buy national” policies or corruption laws generally prohibit companies and their intermediaries retaliation by another government against such policies could have a from making improper payments or providing anything of value to negative impact on our results of operations. These policies also affect improperly influence foreign government officials for the purpose our equity companies. Legal Proceedings Environmental Litigation. Corning has been named by the owned by Corning based on expert analysis and continual monitoring Environmental Protection Agency (the Agency) under the Superfund by both internal and external consultants. At December 31, 2017 and Act, or by state governments under similar state laws, as a potentially December 31, 2016, Corning had accrued approximately $38 million responsible party for 15 active hazardous waste sites. Under the (undiscounted) and $43 million (undiscounted), respectively, for the Superfund Act, all parties who may have contributed any waste to a estimated liability for environmental cleanup and related litigation. hazardous waste site, identified by the Agency, are jointly and severally Based upon the information developed to date, management believes liable for the cost of cleanup unless the Agency agrees otherwise. that the accrued reserve is a reasonable estimate of the Company’s It is Corning’s policy to accrue for its estimated liability related to liability and that the risk of an additional loss in an amount materially Superfund sites and other environmental liabilities related to property higher than that accrued is remote. CORNING INCORPORATED - 2017 Annual Report 11


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    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 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 2017 Price range High $ 28.36 $ 30.60 $ 32.17 $ 32.82 Low $ 24.12 $ 26.32 $ 27.71 $ 29.52 2016 Price range High $ 21.07 $ 21.30 $ 23.81 $ 25.35 Low $ 16.13 $ 18.21 $ 19.78 $ 22.23 As of December 31, 2017, there were approximately 15,205 registered holders of common stock and approximately 474,059 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 paid in the first quarter of 2017. On February 6, 2018, Corning’s Board of Directors declared a 16.1% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.155 to $0.18 per share of common stock, beginning with the dividend paid in the first quarter of 2018. This increase marks the seventh dividend increase since October 2011. 12 CORNING INCORPORATED - 2017 Annual Report


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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) $300 Indexed to 100 $250 $200 $150 $100 $50 $0 2012 2013 2014 2015 2016 2017 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 2017: 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, 2017 Open market and shares surrendered for tax withholdings 4,888,629 $ 30.41 4,866,701 November 1-30, 2017 Open market and shares surrendered for tax withholdings 3,971,949 $ 31.87 3,954,613 December 1-31, 2017 Open market and shares surrendered for tax withholdings 3,759,076 $ 32.27 3,719,863 Total at December 31, 2017 12,619,654 $ 31.42 12,541,177 $ 1,578,548,148 (1) 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 2017: (i) the deemed surrender to us of 26,639 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 51,838 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 12,541,177 shares of common stock under the 2016 Repurchase Program. CORNING INCORPORATED - 2017 Annual Report 13


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    Selected Financial Data (Unaudited) Years ended December 31, (In millions, except per share amounts and number of employees) 2017 2016 2015 2014 2013 Results of operations Net sales $ 10,116 $ 9,390 $ 9,111 $ 9,715 $ 7,819 Research, development and engineering expenses $ 860 $ 742 $ 769 $ 815 $ 710 Equity in earnings of affiliated companies $ 361 $ 284 $ 299 $ 266 $ 547 Net (loss) income attributable to Corning Incorporated(1)(2) $ (497) $ 3,695 $ 1,339 $ 2,472 $ 1,961 (Loss) earnings per common share attributable to Corning Incorporated: Basic $ (0.66) $ 3.53 $ 1.02 $ 1.82 $ 1.35 Diluted $ (0.66) $ 3.23 $ 1.00 $ 1.73 $ 1.34 Cash dividends declared per common share $ 0.62 $ 0.54 $ 0.36 $ 0.52 $ 0.39 Shares used in computing per share amounts: Basic earnings per common share 895 1,020 1,219 1,305 1,452 Diluted earnings per common share 895 1,144 1,343 1,427 1,462 Financial position Working capital $ 5,618 $ 6,297 $ 5,455 $ 7,914 $ 7,145 Total assets $ 27,494 $ 27,899 $ 28,527 $ 30,041 $ 28,455 Long-term debt $ 4,749 $ 3,646 $ 3,890 $ 3,205 $ 3,249 Total Corning Incorporated shareholders’ equity $ 15,698 $ 17,893 $ 18,788 $ 21,579 $ 21,162 Selected data Capital expenditures $ 1,804 $ 1,130 $ 1,250 $ 1,076 $ 1,019 Depreciation and amortization $ 1,158 $ 1,195 $ 1,184 $ 1,200 $ 1,002 Number of employees 46,200 40,700 35,700 34,600 30,400 (1) Year ended December 31, 2017 includes the impact of the 2017 Tax Act, including a provisional toll charge ($1.1 billion) and provisional re-measurement of deferred tax balances due to the reduction in Corning’s tax rate ($347 million). (2) 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. 14 CORNING INCORPORATED - 2017 Annual Report


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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 • Securing an exclusive global supply agreement for gas particulate Strategy and Capital Allocation Framework filters. We also won new customers for Gorilla Glass for Automotive, In October 2015, Corning announced a strategy and capital allocation which is featured on thirty-five automotive platforms globally. framework (the “Framework”) that reflects the Company’s financial and • Launching Valor® Glass, a revolutionary new pharmaceutical operational strengths, as well as its ongoing commitment to increasing packaging solution that dramatically reduces particle contamination, shareholder value. The Framework outlines our leadership priorities, and breaks, and cracks. As a result, Valor helps protect patients, while articulates the opportunities we see across our businesses. We designed increasing manufacturing throughput. the Framework to create significant value for shareholders by focusing our portfolio and leveraging our financial strength. Under the Framework we target generating $26 billion to $30 billion of cash through 2019, returning more than $12.5 billion to shareholders and investing $10 2017 Results billion to extend our leadership positions and deliver growth. Net sales in the year ended December 31, 2017 were $10,116 million, Our probability of success increases as we invest in our world-class an increase of $726 million, or 8%, when compared to the year capabilities. Corning is concentrating approximately 80% of its research, ended December 31, 2016. The increase was driven by the Optical development and engineering investment and capital spending on a Communications and the Specialty Materials segments, up $540 cohesive set of three core technologies, four manufacturing and engineering million and $279 million, respectively. The Environmental Technologies platforms, and five market-access platforms. This strategy will allow us to and Life Sciences segments also increased, up $74 million and $40 quickly apply our talents and repurpose our assets as needed. million, respectively. A decline in net sales of $241 million in the Display Technologies segment partially offset these increases, driven by price declines of approximately 10%. Performance against the Framework For the year ended December 31, 2017, we generated a net loss of $497 million, or $(0.66) per share, compared to net income of $3,695 million, Since introducing the Framework, we have distributed $9 billion to or $3.23 per share, for 2016. When compared to last year, the $4.2 billion shareholders through share repurchases and dividends, and increased decrease in net income was due to the following items (amounts the annual dividend by 16.1% in 2018, 14.8% in 2017 and 12.5% in 2016 as presented after tax): part of our ongoing commitment to return cash to our investors. • The absence of a $2.7 billion non-taxable gain and $105 million positive We also utilized our financial strength in 2017 to continue our focus on tax adjustment on the strategic realignment of our ownership interest innovation, advancing key programs across our market platforms. Some in Dow Corning recorded in the second quarter of 2016; of our achievements in 2017 included: • The impact of the passage of the 2017 Tax Act, including a provisional • Celebrating a major milestone with the production of our one billionth amount related to the one-time mandatory tax on unrepatriated kilometer of optical fiber. We also continued our technology leadership foreign earnings of $1.1 billion and a provisional amount related to with the introduction of a new multi-use platform to simplify the remeasurement of U.S. deferred tax assets and liabilities of $347 installation and reduce the costs of deploying 4G and 5G networks. million; • Shipping the world’s first Gen 10.5 glass. In addition, we captured • The change in the amounts recorded for tax law changes, valuation new opportunities for Corning Iris™ Glass, which is featured in new allowance adjustments and other discrete tax items in the amount of ultra-slim, ultra-bright lines of monitors. $186 million; • Expanding into new Corning® Gorilla® Glass applications and • Higher research, development and engineering expenses, driven by increasing the amount of our glass on mobile electronic devices. the absence of the impact of a 2016 joint development agreement in Additionally, the superior drop performance of Gorilla Glass 5 has the Display Technologies segment, as well as higher costs associated enabled new smartphone designs that feature glass on both the front with new product launches in the Optical Communications, Specialty and back. Materials and Environmental Technologies segments; and CORNING INCORPORATED - 2017 Annual Report 15


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations • A decrease of $104 million in net income in the Display Technologies • Lower acquisition-related expenses, down $48 million, driven by the segment, primarily driven by price declines of approximately 10%, the absence of costs related to the realignment of our equity interests in absence of a gain of $24 million recorded in 2016 from the contingent Dow Corning completed in the second quarter of 2016, offset slightly consideration fair value adjustment and the negative impact of by several small acquisitions occurring in 2017. movements in the Japanese yen and South Korean won in the amount of $59 million. The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in 2017, did not materially impact Corning’s consolidated net income in the year ended December Partially offsetting these events were the following items: 30, 2017 when compared to the year ended December 31, 2016. • A decrease in unrealized losses from our translated earnings contracts in the amount of $162 million; • Higher net income in the Optical Communications segment, up 2018 Corporate Outlook $96 million, driven by an 18% increase in net sales; We believe 2018 will be another year of strong growth and investment, consistent with our Strategy and Capital Allocation Framework, and • Higher net income in the Specialty Materials segment, up $75 million, anticipate that core sales will grow to approximately $11 billion. In our driven by a 25% increase in net sales; Display Technologies segment, we expect pricing to continue to improve, • The absence of a charge of $86 million related to the resolution of an with year-over-year declines reaching mid-single digits, an important investigation by the U.S. Department of Justice and related costs; milestone toward our goal of stabilizing returns. We anticipate Corning’s LCD glass volume will grow faster than the expected LCD glass market • Higher equity earnings of affiliated companies, driven by an increase growth of mid-single digits, driven by television screen size growth and of $90 million in equity earnings from HSG, offset somewhat by the the ramp of our Gen 10.5 facility in China. In the Optical Communications absence of $76 million in equity earnings from Dow Corning’s silicones segment, we expect sales to increase by about 10%, excluding any business. The HSG increase was due to higher volume, which added $33 contribution from the pending acquisition of 3M’s Communications million, and an increase of approximately $78 million in settlements of Market Division, driven by strong demand from carrier and enterprise long-term sales agreements, partially offset by higher restructuring network customers. We expect high-single digit sales growth in our and impairment charges of $17 million; Environmental Technologies segment, driven by continued strength in • A decrease in restructuring, impairment and other charges, largely automotive product sales, on-going improvements in the heavy-duty due to the absence of charges incurred in 2016 associated with diesel market and from the commercial launch of gas-particulate filters. restructuring activity and the disposal of long-lived assets; and We expect growth in the Specialty Materials segment, the rate of which will depend on new model launches and the adoption of our innovations, and anticipate mid-single digit growth in the Life Sciences segment. Results of Operations Selected highlights from our operations follow (in millions): % change 2017 2016 2015 17 vs. 16 16 vs. 15 Net sales $ 10,116 $ 9,390 $ 9,111 8 3 Gross margin $ 4,032 $ 3,746 $ 3,653 8 3 (gross margin %) 40% 40% 40% Selling, general and administrative expenses $ 1,467 $ 1,472 $ 1,508 0 (2) (as a % of net sales) 15% 16% 17% Research, development and engineering expenses $ 860 $ 742 $ 769 16 (4) (as a % of net sales) 9% 8% 8% Equity in earnings of affiliated companies $ 361 $ 284 $ 299 27 (5) (as a % of net sales) 4% 3% 3% Translated earnings contract (loss) gain, net $ (121) $ (448) $ 80 73 * (as a % of net sales) (1)% (5)% 1% Gain on realignment of equity investment $ 2,676 * * (as a % of net sales) 28% Income before income taxes $ 1,657 $ 3,692 $ 1,486 (55) 148 (as a % of net sales) 16% 39% 16% (Provision) benefit for income taxes $ (2,154) $ 3 $ (147) * * (as a % of net sales) (21)% 0% (2)% Net (loss) income attributable to Corning Incorporated $ (497) $ 3,695 $ 1,339 * 176 (as a % of net sales) (5)% 39% 15% * Percent change not meaningful. 16 CORNING INCORPORATED - 2017 Annual Report


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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 2017 2016 2015 17 vs. 16 16 vs. 15 Display Technologies $ 2,997 $ 3,238 $ 3,086 (7)% 5% Optical Communications 3,545 3,005 2,980 18% 1% Environmental Technologies 1,106 1,032 1,053 7% (2)% Specialty Materials 1,403 1,124 1,107 25% 2% Life Sciences 879 839 821 5% 2% All Other 186 152 64 22% 138% Total net sales $ 10,116 $ 9,390 $ 9,111 8% 3% For the year ended December 31, 2017, net sales increased by $726 million, implementation of new manufacturing software, which constrained or 8%, when compared to the same period in 2016. The primary sales our ability to manufacture product in the first half of 2016; drivers by segment were as follows: • A decrease of $21 million in the Environmental Technologies segment • A decrease of $241 million in the Display Technologies segment, driven driven by a decline of $78 million in sales of diesel products due to the by price declines of approximately 10% and the negative impact from weakening of the North American truck market, offset partially by the weakening of the Japanese yen in the amount of $79 million, an increase of $57 million in sales of light-duty substrates, driven by partially offset by an increase in volume in the mid-single digits in strength in the North American, European and Chinese markets; percentage terms; • An increase of $17 million in the Specialty Materials segment, driven • An increase of $540 million in the Optical Communications segment, by an increase in sales of Corning Gorilla Glass 5 and advanced due to higher sales of carrier and enterprise network products, optics products; up $446 million and $94 million, respectively, combined with the absence of production issues related to the implementation of new • An increase of $18 million in the Life Sciences segment, driven by manufacturing software in the first quarter of 2016 and the impact volume growth in Europe, North America and China; and of several small acquisitions completed in 2017. Strong growth in the • An increase of $88 million in the All Other segment, driven primarily by North American market drove the increase in carrier network products; our glass tubing business acquired in the fourth quarter of 2015. • An increase of $74 million in the Environmental Technologies segment, In the year ended December 31, 2016, the translation impact of driven by higher sales of automotive products, up $42 million, due to fluctuations in foreign currency exchange rates, primarily the Japanese market strength in Europe, China and Asia, and initial commercial sales yen, positively affected Corning’s consolidated net sales in the amount of gas particulate filters. Diesel product sales increased $32 million of $330 million when compared to the same period in 2015. with higher demand for heavy-duty diesel products in North America and Asia; In 2017, 2016 and 2015, sales in international markets accounted for 69%, 72% and 70%, respectively, of total net sales. • An increase of $279 million in the Specialty Materials segment, driven by strong growth in sales of Corning Gorilla Glass products, combined with an increase of $42 million in advanced optics products; Cost of Sales • An increase of $40 million in the Life Sciences segment, driven by The types of expenses included in the cost of sales line item are: raw higher sales in North America and China; and materials consumption, including direct and indirect materials; salaries, • An increase of $34 million in the All Other segment, driven by an wages and benefits; depreciation and amortization; production utilities; increase in sales in our emerging businesses. production-related purchasing; warehousing (including receiving and inspection); repairs and maintenance; inter-location inventory transfer Movements in foreign exchange rates did not materially impact costs; production and warehousing facility property insurance; rent for Corning’s consolidated net sales in the year ended December 31, 2017, production facilities; and other production overhead. respectively, when compared to the same period in 2016. For the year ended December 31, 2016, net sales increased by $279 million, or 3%, when compared to the same period in 2015. The following Gross Margin items drove the increase: In the year ended December 31, 2017, gross margin dollars increased • An increase of $152 million in the Display Technologies segment, driven by $286 million, or 8%, and gross margin as a percentage of net sales by the positive impact from the strengthening of the Japanese yen in remained consistent at 40%, when compared to the same period last the amount of $370 million and a mid-single digit percentage volume year. The increase in gross margin dollars was primarily driven by the increase, offset somewhat by LCD glass price declines slightly higher following items: than 10%; • Higher volume in the Optical Communications segment, driven • An increase of $25 million in the Optical Communications segment, by growth in North America and Europe, partially offset by higher driven primarily by an increase of $76 million in sales of carrier products manufacturing expenses related to capacity expansion; and the impact of a small acquisition completed in the second • An increase in Gorilla Glass and advanced optics product volume, quarter of 2016, partially offset by production issues related to the slightly offset by higher raw materials costs; and CORNING INCORPORATED - 2017 Annual Report 17


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations • Higher light-duty substrate demand in Europe, China and Asia, offset Partially offsetting these events were: somewhat by lower North America demand, as well as an increase in demand for heavy-duty diesel products in North America and • An increase of $59 million in acquisition-related costs primarily related Asia. Partially offsetting the increase in demand was a decline in to the realignment of our equity interest in Dow Corning and an manufacturing efficiency due to the use of higher-cost manufacturing acquisition completed in the second quarter of 2016; facilities and sales of lower margin products. • An increase of $49 million in litigation, regulatory and other legal costs, LCD glass price declines of approximately 10% and the negative impact driven by the resolution of an investigation by the U.S. Department of of movements in the Japanese yen and South Korean won in the amount Justice and an environmental matter in the amount of $98 million, of $73 million, which primarily impacted the Display Technologies partially offset by the gain of $56 million on the contribution of our segment, partially offset the increase. equity interests in PCC and PCE as partial settlement of the asbestos litigation; and In the year ended December 31, 2016, gross margin dollars increased $93 million, and gross margin as a percentage of net sales remained • Higher operating expenses in the Optical Communications, consistent at 40% when compared to the same period last year. The Environmental Technologies and Specialty Materials segments. increase in gross margin dollars was primarily driven by the positive When compared to the same period in 2015, as a percentage of net sales, impact from the strengthening of the Japanese yen in the amount selling, general and administrative expenses decreased by 1%. of $266 million, an increase in manufacturing efficiency and cost reductions in our Display Technologies and Optical Communications The types of expenses included in the selling, general and administrative segments which added approximately $160 million, a more favorable expenses line item are: salaries, wages and benefits; travel; professional mix of products sold in the Optical Communications segment and an fees; and depreciation and amortization, utilities, and rent for increase in volume in the mid-single digit percentage in the Display administrative facilities. Technologies segment. Display Technologies segment price declines slightly above 10% partially offset the increase. Research, Development and Engineering Expenses Selling, General and Administrative Expenses In the year ended December 31, 2017, research, development and When compared to the year ended December 31, 2016, selling, general engineering expenses increased by $118 million, or 16%, when compared and administrative expenses decreased by $5 million in the year ended to the same period last year, driven by the absence of the impact of a 2016 December 31, 2017. The decrease was due to the following items: joint development agreement in the Display Technologies segment, as • A decrease of $52 million in acquisition-related costs, driven by the well as higher costs associated with new product launches in the Optical absence of costs related to the realignment of our equity interests in Communications, Specialty Materials and Environmental Technologies Dow Corning completed in the second quarter of 2016, offset slightly segments, up $20 million, $11 million and $7 million, respectively. As by several small acquisitions occurring in 2017; a percentage of sales, these expenses increased one percent when compared to the same period last year. • A decrease of $64 million in litigation, regulatory and other legal costs, primarily driven by the absence of events occurring in the In the year ended December 31, 2016, research, development and second quarter of 2016. In this period, we recorded litigation and engineering expenses declined $27 million when compared to the same other expenses related to the resolution of an investigation by the U.S. period in 2015 driven by the impact of a joint development agreement Department of Justice and an environmental matter in the amount of with a Display Technologies customer, offset partially by project $98 million, offset somewhat by the gain on the contribution of our development spending in the Optical Communications, Environmental equity interests in PCC and PCE as partial settlement of the asbestos Technologies and Specialty Materials segments. As a percentage of litigation in the amount of $56 million; and net sales, research, development and engineering expenses remained consistent with the same period in 2015. • A decrease of $46 million in the mark-to-market of our defined benefit pension plans. Offsetting these events were the following items: Restructuring, Impairment, and Other Charges • A decrease of $32 million in gains from the contingent consideration Corning recorded restructuring, impairment, and other charges and fair value adjustment; credits in 2016 and 2015. Additional information on restructuring and asset impairment is found in Note 2 (Restructuring, Impairment and • An increase of $51 million in the Optical Communications segment due Other Charges) to the Consolidated Financial Statements. A description to costs associated with acquisitions and growth initiatives; and of those charges and credits follows: • An increase of $24 million in the Specialty Materials segment in support of new product launches. 2017 Activity In the year ended December 31, 2016, selling, general and administrative For the year ended December 31, 2017, we did not record significant expenses decreased by $36 million when compared to the same period restructuring, impairment and other charges or reversals. Cash in 2015, driven primarily by the following items: expenditures for restructuring activities were $4 million. • A decrease of $94 million in the loss on the mark-to-market of our defined benefit pension plans; 2016 Activity • The positive impact of the change in the contingent consideration fair For the year ended December 31, 2016, we recorded charges of $77 million value adjustment of $43 million; and for employee related costs, asset disposals, and exit costs associated with • The absence of $25 million of post-combination expenses incurred restructuring activities with total cash expenditures of approximately in 2015. $12 million. 18 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2015 Activity For the year ended December 31, 2015, we did not record significant restructuring, impairment and other charges or reversals. Cash expenditures for restructuring activities were $40 million. Equity in Earnings of Affiliated Companies The following provides a summary of equity earnings of affiliated companies (in millions): Years ended December 31, 2017 2016 2015 Dow Corning Corporation(1) $ 82 $ 281 Hemlock Semiconductor Group(2) $ 352 212 All other 9 (10) 18 Total equity earnings $ 361 $ 284 $ 299 (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 of Dow Corning, equity earnings from the Hemlock Semiconductor its equity investment in Dow Corning Corporation (“Dow Corning”) business were reported on the equity in earnings line in Corning’s pursuant to the Transaction Agreement announced on December 10, income statement, net of Dow Corning’s 35% U.S. tax. Additionally, 2015. Under the terms of the Transaction Agreement, Corning exchanged Corning reported its tax on equity earnings from Dow Corning on the with Dow Corning its 50% stock interest in Dow Corning for 100% of tax provision line on its income statement at a U.S. tax provision rate the stock of a newly formed entity, which holds an equity interest in of 7%. As part of the realignment, Hemlock Semiconductor Group was Hemlock Semiconductor Group and approximately $4.8 billion in cash. converted to a partnership. Each of the partners is responsible for the taxes on their portion of equity earnings. Therefore, post-realignment, The equity in earnings line on our income statement for the year Hemlock Semiconductor Group’s equity earnings is reported before tax ended December 31, 2016 reflects both the equity earnings from the on the equity in earnings line and Corning’s tax is reported on the tax silicones and polysilicones (Hemlock Semiconductor) businesses of provision line. Dow Corning from January 1, 2016 through May 31, 2016, the closing date of the Transaction Agreement, and seven months of equity Refer to Note 14 (Commitments, Contingencies and Guarantees) to the earnings from Hemlock Semiconductor Group. Prior to the realignment consolidated financial statements for additional information. 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 (loss) income. The following table provides detailed information on the impact of our translated earnings contract losses and gains: Year ended Year ended Change December 31, 2017 December 31, 2016 2017 vs. 2016 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 $ 270 $ 169 $ 201 $ 127 $ 69 $ 42 Unrealized (loss) gain (391) (247) (649) (409) 258 162 Total translated earnings contract (loss) gain $ (121) $ (78) $ (448) $ (282) $ 327 $ 204 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 gain (loss) $ (448) $ (282) $ 80 $ 48 $ (528) $ (330) CORNING INCORPORATED - 2017 Annual Report 19


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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, 2017, 2016 and 2015 were as follows (in billions): Years ended December 31, 2017 2016 2015 Japanese yen-denominated hedges $ 13.0 $ 14.9 $ 8.3 South Korean won-denominated hedges 0.8 1.2 3.3 Euro-denominated hedges 0.3 0.3 0.3 Chinese yuan-denominated hedges 0.2 0.3 Total gross notional value outstanding $ 14.3 $ 16.7 $ 11.9 Income Before Income Taxes The translation impact of fluctuations in foreign currency exchange The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in 2017, did not impact rates positively affected Corning’s income before income taxes in the Corning’s income before income taxes in the year ended December 31, year ended December 31, 2016 in the amount of $304 million when 2017 when compared to the same period in 2016. compared to 2015. This impact was partially offset by the decrease in the realized gain from our foreign currency translation hedges related to translated earnings of $452 million. (Provision) Benefit for Income Taxes Our (provision) benefit for income taxes and the related effective income tax rates were as follows (dollars in millions): Years ended December 31, 2017 2016 2015 (Provision) benefit for income taxes $ (2,154) $ 3 $ (147) Effective tax rate (benefit) 130% (0.1)% 9.9% For the year ended December 31, 2017, the effective income tax rate as provisional where ASC 740 analysis is incomplete; and if reasonable differed from the U.S. statutory rate of 35% primarily due to the estimates cannot be made, record items under the previous tax law. The following benefits: measurement period ends on the date the entity has obtained, prepared, and analyzed the information that was needed in order to complete the • As a result of the 2017 Tax Act, a provisional tax expense of $1.1 billion accounting requirements under ASC Topic 740 and is not to exceed 1 year. for the one-time mandatory tax on uprepatriated earnings of certain foreign subsidiaries that were previously deferred (the “toll charge”); In addition to SAB 118, the FASB has issued guidance regarding how to account for tax reform as well as a proposal to reclassify stranded tax • The result of a provisional tax expense recorded for the U.S. deferred costs from AOCI to retained earnings. Furthermore, to date, the U.S. tax assets and liabilities re-measured at the reduced rate of 21%; and Treasury has issued Notice 2018-07 on December 29, 2017 and Notice • Rate differences on income (loss) of consolidated foreign companies. 2018-13 on January 19, 2018 with additional guidance on how to compute the toll charges. The effective income tax rate for 2016 differed from the U.S. statutory rate of 35% primarily due to the following items: At December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the 2017 Tax Act; however, we have made • Rate differences on income (loss) of consolidated foreign companies, a reasonable estimate of the effects on our U.S. deferred tax balances including the benefit of excess foreign tax credits resulting from the in the amount of $347 million, the one-time toll charge of $1.1 billion inclusion of foreign earnings in U.S. income; and and the impact on our state valuation allowances and recorded these • The tax-free nature of the realignment of our equity interest in Dow as provisional amounts. The initial accounting is incomplete as we Corning during the period, as well as the release of the deferred tax need additional time and information to analyze all aspects of the liability related to Corning’s tax on Dow Corning’s undistributed newly enacted law and how it impacts our worldwide operations. The earnings as of the date of the transaction. additional information that needs to be obtained, prepared or analyzed in order to complete the accounting requirements includes receiving Corning’s results for the year ending December 31, 2017 included a further guidance from the tax authorities; additional time to prepare total $2.2 billion worldwide tax provision, inclusive of tax on normal basis calculations; post-enactment impacts, and further time to validate operations and the impacts of the 2017 Tax Act. Given the significant our assumptions. complexity of the 2017 Tax Act and anticipated future guidance from the U. S. Treasury, the Securities and Exchange Commission and the We re-measured the U.S. deferred tax assets and liabilities based on Financial Accounting Standards Board (“FASB”) related to the 2017 Tax the rates at which they are expected to reverse in the future, which is Act, the Securities Exchange Commission has issued its Staff Accounting generally 21%. However, we are still analyzing certain aspects of the Bulletin 118 (“SAB 118”) to provide registrants additional time to analyze 2017 Tax Act and refining our calculations, which could potentially affect and report the effects of tax reform during the “measurement period”. the measurement of these balances or potentially give rise to new Under SAB 118, the registrant is required to record those items where ASC deferred tax amounts. The provisional amount recorded related to the 740 analysis is complete; include reasonable estimates and label them re-measurement of our deferred tax balances was $347 million. 20 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations The one-time toll charge is based on our unrepatriated earnings of cost associated with their repatriation. Our current analysis indicates certain foreign subsidiaries that were previously deferred. This charge that we have sufficient U.S. liquidity, including borrowing capacity, to resulted in an additional provisional tax expense amount of $1.1 billion. fund foreseeable U.S. cash needs without requiring the repatriation of We have not yet completed our calculation of the toll charge. This foreign cash. amount may change when we finalize the calculation of unrepatriated earnings that were previously deferred from U.S. federal taxation and Corning’s accounting for the impact of the global intangible low-taxed finalize the amounts held in cash or other specified assets. Settlement income (GILTI) provisions of the 2017 Tax Act is incomplete and, as a of the toll charge will occur almost entirely through the use of existing result, it has not yet elected a policy to account for the GILTI provisions. foreign tax credit carryovers. We will continue to monitor future guidance and to assess the impacts Corning has not made sufficient progress on estimating the impact of of the 2017 Tax Act. tax reform on its assertion regarding its indefinitely reinvested foreign It is reasonably possible that the amount of unrecognized tax benefits earnings so the Company will continue to follow its historic position will change due to one or more of the following events during the next while it continues to analyze this issue. As of December 31, 2017, Corning twelve months: audit activity, tax payments, or final decisions in matters estimates that its unremitted foreign earnings were $16.9 billion. While that are the subject of controversy in various jurisdictions within which Corning is not changing its assertion at this time, the Company has we operate. We believe we have provided adequate contingent reserves distributed approximately $2 billion in January 2018 from two of its for these matters. However, if upon conclusion of these matters, the foreign subsidiaries to the U.S. parent of those subsidiaries. There are ultimate determination of taxes owed is for an amount materially no incremental taxes beyond the toll charge due with respect to this different than our current reserves, our overall tax expense and effective distribution of cash. tax rate could be materially impacted in the period of adjustment. Under its historic policy, Corning will continue to indefinitely reinvest Refer to Note 6 (Income Taxes) to the Consolidated Financial Statements substantially all of its foreign earnings, with the exception of an for further details regarding income tax matters. immaterial amount of current earnings that have very low or no tax Net (Loss) Income Attributable to Corning Incorporated As a result of the items discussed above, net (loss) income and per share data was as follows (in millions, except per share amounts): Years ended December 31, 2017 2016 2015 Net (loss) income attributable to Corning Incorporated $ (497) $ 3,695 $ 1,339 Net (loss) income attributable to Corning Incorporated used in basic earnings per common share calculation(1) $ (595) $ 3,597 $ 1,241 Net (loss) income attributable to Corning Incorporated used in diluted earnings per common share calculation(1) $ (595) $ 3,695 $ 1,339 Basic (loss) earnings per common share $ (0.66) $ 3.53 $ 1.02 Diluted (loss) earnings per common share $ (0.66) $ 3.23 $ 1.00 Weighted-average common shares outstanding - basic 895 1,020 1,219 Weighted-average common shares outstanding - diluted 895 1,144 1,343 (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) 2017 2016 2015 Net (loss) income attributable to Corning Incorporated $ (497) $ 3,695 $ 1,339 Foreign currency translation adjustments and other 746 (104) (590) Net unrealized gains (losses) on investments 14 (3) 1 Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans 30 241 121 Net unrealized gains (losses) on designated hedges 44 1 (36) Other comprehensive income (loss), net of tax 834 135 (504) Comprehensive income attributable to Corning Incorporated $ 337 $ 3,830 $ 835 CORNING INCORPORATED - 2017 Annual Report 21


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2017 vs. 2016 2016 vs. 2015 For the year ended December 31, 2017, comprehensive income For the year ended December 31, 2016, comprehensive income increased decreased by $3.5 billion, when compared to the same period in 2016, by $2,995 million when compared to the same period in 2015, driven by driven by a decrease in net income of $4.2 billion and a decrease in an increase of $2,356 million in net income, the positive impact of the unamortized actuarial gains for postretirement benefit plans. The change in foreign currency translation adjustments and an increase in significant decrease in net income was largely driven by the absence unamortized actuarial gains for postretirement benefit plans. of a $2.7 billion non-taxable gain and a $105 million positive tax adjustment on the strategic realignment of our ownership interest The decrease in the loss on foreign currency translation adjustments in Dow Corning recorded in the second quarter of 2016, combined for the year ended December 31, 2016 in the amount of $486 million with the impact of the passage of the 2017 Tax Act, which included a (after-tax) was driven by the following items: 1) the decrease in the loss provisional toll charge of $1.1 billion and a provisional charge of $347 on the translation of Corning’s consolidated subsidiaries in the amount million as a result of the remeasurement of U.S. deferred tax assets of $398 million, largely driven by the strengthening of the Japanese and liabilities. Our unamortized actuarial gains decreased driven by yen; and 2) the decrease in the loss in the translation of Corning’s a decrease in the discount rates used to value our postretirement equity method investments in the amount of $88 million, driven by the benefit obligations. realignment of our ownership interests in Dow Corning. Partially offsetting these decreases was an increase in the gain on The increase in unamortized actuarial gains for postretirement benefit foreign currency translation adjustments in the amount of $850 million plans in the amount of $120 million (after-tax) is due to the following: (after-tax), largely driven by the weakening of foreign currencies, most 1) the decrease of $65 million related to the reclassification of actuarial significantly the South Korean won, Japanese yen and the euro, which gains to the income statement, largely due to higher pension asset impacted comprehensive income in the amounts of $420 million, returns; 2) an increase in actuarial losses of $3 million; and 3) a decrease $164 million and $115 million, respectively. of $188 million in unamortized losses related to our equity companies. The significant change was driven by the release of Dow Corning’s unamortized actuarial loss, which was included in the gain on the 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. Core Performance Measures In managing the Company and assessing our financial performance, not reflect on-going operating results of the Company or our equity we supplement certain measures provided by our consolidated affiliates. Management’s discussion and analysis on our reportable financial statements with measures adjusted to exclude certain items, segments has also been adjusted for these items, as appropriate. These to arrive at core performance measures. We believe that reporting measures are not prepared in accordance with Generally Accepted core performance measures provides investors greater transparency Accounting Principles in the United States (“GAAP”). We believe to the information used by our management team to make financial investors should consider these non-GAAP measures in evaluating our and operational decisions. Corning has adopted the use of constant results as they are more indicative of our core operating performance currency reporting for the Japanese yen and South Korean won, and and how management evaluates our operational results and trends. uses an internally derived yen-to-dollar management rate of ¥99 and These measures are not, and should not be viewed as a substitute for won-to-dollar management rate of ₩1,100. The Company believes that GAAP reporting measures. With respect to the Company’s outlooks for the use of constant currency reporting allows investors to understand future periods, it is not able to provide reconciliations for these non- our results without the volatility of currency fluctuations, and reflects GAAP measures because the Company does not forecast the movement the underlying economics of the translated earnings contracts used of the Japanese yen and South Korean won against the U.S. dollar, or to mitigate the impact of changes in currency exchange rates on our other items that do not reflect ongoing operations, nor does it forecast earnings and cash flows. items that have not yet occurred or are out of the Company’s control. As a result, the Company is unable to provide outlook information on a Net sales, equity in earnings of affiliated companies and net income are GAAP basis. adjusted to exclude the impacts of changes in the Japanese yen and the South Korean won, gains and losses on our translated earnings contracts, See “Use of Non-GAAP Financial Measures” for details on core acquisition-related costs, certain discrete tax items, restructuring performance measures. For a reconciliation of non-GAAP performance and restructuring-related charges, certain litigation-related expenses, measures to their most directly comparable GAAP financial measure, pension mark-to-market adjustments and other items which do please see “Reconciliation of Non-GAAP Measures” below. Results of Operations – Core Performance Measures Selected highlights from our operations follow (in millions): % change 2017 2016 2015 17 vs. 16 16 vs. 15 Core net sales $ 10,514 $ 9,710 $ 9,800 8% (1)% Core equity in earnings of affiliated companies $ 212 $ 250 $ 269 (15)% (7)% Core earnings $ 1,756 $ 1,774 $ 1,882 (1)% (6)% 22 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Core Net Sales The following table presents core net sales by reportable segment (in millions): Years ended December 31, % change 2017 2016 2015 17 vs. 16 16 vs. 15 Display Technologies $ 3,394 $ 3,556 $ 3,774 (5)% (6)% Optical Communications 3,545 3,005 2,980 18% 1% Environmental Technologies 1,106 1,032 1,053 7% (2)% Specialty Materials 1,403 1,124 1,107 25% 2% Life Sciences 879 839 821 5% 2% All Other 187 154 65 21% 137% Total core net sales $ 10,514 $ 9,710 $ 9,800 8% (1)% 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. The translation impact from movements in foreign currency exchange Core net sales increased by $804 million, or 8%, in the year ended rates, excluding the Japanese yen and South Korean won, in the year December 31, 2017 when compared to the same period in 2016, driven ended December 31, 2017 positively impacted core net sales in the by increases in the Optical Communications and Specialty Materials amount of $12 million, and in the year ended December 31, 2016, segments. Lower core net sales in the Display Technologies segment negatively impacted core net sales in the amount of $39 million. partially offset the increase, down $162 million, or 5%, driven by LCD glass price declines of approximately 10%, partially offset by an increase in volume in the mid-single digits in percentage terms. Core Equity in Earnings of Affiliated Companies The following provides a summary of core equity in earnings of affiliated companies (in millions): % change 2017 2016 2015 17 vs. 16 16 vs. 15 Dow Corning Corporation (1) $ 98 $ 245 (100)% (60)% Hemlock Semiconductor Group(2) $ 201 154 All other 11 (2) 24 650% (108)% Total core equity earnings $ 212 $ 250 $ 269 (15)% (7)% (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 2017 vs. 2016 • An increase in corporate project expenses and variable compensation of $29 million and $25 million, respectively. In the year ended December 31, 2017, we generated core earnings of $1,756 million or $1.72 per share, compared to core earnings generated The decline was offset by an increase in core earnings in the Optical in the year ended December 31, 2016 of $1,774 million, or $1.55 per Communications segment of $99 million, due to higher sales of carrier share. The decrease in core earnings of $18 million was driven by the and enterprise network products, combined with the absence of the following items: production issues in the first half of 2016 related to the implementation of new software and an increase in the Specialty Materials segment of • The absence of equity earnings of $102 million from Dow Corning’s $61 million, driven by an increase in Corning Gorilla Glass and advanced silicones business due to our 2016 realignment of our ownership optics products. interest in Dow Corning; • A decrease of $62 million in the Display Technologies segment, driven by LCD glass price declines of approximately 10%, partially offset by an increase in volume in the mid-single digits in percentage terms; CORNING INCORPORATED - 2017 Annual Report 23


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Although core net earnings decreased in the year ended December 31, volume in carrier network products, the favorable translation impact 2017, core earnings per share increased $0.17 per share, driven by lower from movements in foreign currency exchange rates, excluding the weighted average shares outstanding due to repurchases of our common Japanese yen and South Korean won, of $13 million and manufacturing stock in 2017. efficiencies gained through cost reductions. Included in core earnings for the years ended December 31, 2017, 2016 2016 vs. 2015 and 2015 is net periodic pension expense in the amount of $49 million, $51 million and $62 million, respectively, which excludes the annual In the year ended December 31, 2016, we generated core earnings of pension mark-to-market adjustments. In the years ended December 31, $1,774 million, or $1.55 per share, compared to $1,882 million, or $1.40 2017, 2016 and 2015, the mark-to-market adjustments were a pre-tax loss per share, in the year ended December 31, 2015. The decrease was due of $21 million, $67 million and $165 million, respectively. Refer to Note 13 to declines in the Display Technologies and Environmental Technologies (Employee Retirement Plans) to the Consolidated Financial Statements segments. Slightly offsetting the decline was higher core earnings in the for additional information. Optical Communications segment, up $16 million, driven by higher sales 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): 2017 2016 2015 Core earnings attributable to Corning Incorporated $ 1,756 $ 1,774 $ 1,882 Less: Series A convertible preferred stock dividend 98 98 98 Core earnings available to common stockholders - basic 1,658 1,676 1,784 Add: Series A convertible preferred stock dividend 98 98 98 Core earnings available to common stockholders - diluted $ 1,756 $ 1,774 $ 1,882 Weighted-average common shares outstanding - basic 895 1,020 1,219 Effect of dilutive securities: Stock options and other dilutive securities 11 9 9 Series A convertible preferred stock 115 115 115 Weighted-average common shares outstanding - diluted 1,021 1,144 1,343 Core basic earnings per common share $ 1.85 $ 1.64 $ 1.46 Core diluted earnings per common share $ 1.72 $ 1.55 $ 1.40 Reconciliation of Non-GAAP Measures We utilize certain financial measures and key performance indicators are excluded from the comparable measure as calculated and presented that are not calculated in accordance with GAAP to assess our financial in accordance with GAAP in the statement of income or statement of and operating performance. A non-GAAP financial measure is defined cash flows. as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect Core net sales, core equity 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 to analyze financial performance without the impact of items that are of income or statement of cash flows, or (ii) includes amounts, or is driven by general economic conditions and events that do not reflect subject to adjustments that have the effect of including amounts, that the underlying fundamentals and trends in the Company’s operations. 24 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of 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, 2017 (Loss) Equity Income before Net (loss) Effective earnings Net Sales earnings income taxes income tax rate(a) per share As reported $ 10,116 $ 361 $ 1,657 $ (497) 130.0% $ (0.66) (1) Constant-yen 396 3 354 276 0.31 Constant-won(1) 2 (21) (16) (0.02) Translation gain on Japanese yen-denominated debt(2) (14) (9) (0.01) Translated earnings contract loss(3) 125 78 0.09 Acquisition-related costs(4) 84 59 0.07 Discrete tax items and other tax-related adjustments(5) 127 0.14 Litigation, regulatory and other legal matters(6) (12) (9) (0.01) Restructuring, impairment and other charges(7) 72 62 0.07 Equity in earnings of affiliated companies(8) (152) (152) (97) (0.11) Adjustments related to acquisitions(9) 10 13 0.01 Pension mark-to-market adjustment(10) 22 14 0.02 Adjustments to remove the impacts of the Tax Cuts and Job Act of 2017(13) 1,755 1.96 Core performance measures $ 10,514 $ 212 $ 2,125 $ 1,756 17.4% $ 1.72 (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, 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(3) 448 282 0.25 Acquisition-related costs(4) 127 107 0.09 Discrete tax items and other tax-related adjustments(5) (27) (0.02) Litigation, regulatory and other legal matters(6) 55 70 0.06 Restructuring, impairment and other charges(7) 199 138 0.12 Equity in earnings of affiliated companies(8) (37) (37) (18) (0.02) (9) Adjustments related to acquisitions (49) (42) (0.04) Pension mark-to-market adjustment(10) 67 44 0.04 Gain on realignment of equity investment(11) (2,676) (2,676) (2.34) (12) Taiwan power outage 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 - 2017 Annual Report 25


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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 Constant-yen(1) 687 6 567 423 0.31 Constant-won(1) 2 (2) (25) (19) (0.01) Translated earnings contract loss(3) (80) (48) (0.04) (4) Acquisition-related costs 55 36 0.03 Discrete tax items and other tax-related adjustments(5) 36 0.03 Litigation, regulatory and other legal matters(6) 5 3 Restructuring, impairment and other charges(7) 46 42 0.03 Equity in earnings of affiliated companies(8) (34) (34) (33) (0.02) Adjustments related to acquisitions(9) 5 (2) Pension mark-to-market adjustment(10) 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. 26 CORNING INCORPORATED - 2017 Annual Report


  • Page 37

    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) Translation gain on Japanese yen-denominated debt: The gain on the translation of our Yen-denominated debt to U.S. dollars. (3) Translated earnings contract loss (gain): We have excluded the impact of the gains and losses of our translated earnings contracts for each period presented. (4) Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs. (5) Discrete tax items and other tax-related adjustments: This represents the removal of discrete adjustments (e.g. changes in judgment about the realizability of certain deferred tax assets) as well as other non-operational tax-related adjustments. (6) Litigation, regulatory and other legal matters: Includes amounts related to the Pittsburgh Corning Corporation (PCC) asbestos litigation, significant, non-recurring adjustments to our estimated liability for environmental-related items and other legal matters. (7) 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. (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) Adjustments related to acquisitions: Includes fair value adjustments to the Corning Precision Materials indemnity asset related to contingent consideration, post-combination expenses and other acquisition and disposal adjustments. (10) 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. (11) Gain on realignment of equity investment: Gain recorded upon the completion of the strategic realignment of our ownership interest in Dow Corning. (12) 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. (13) Adjustments to remove the impacts of the Tax Cuts and Job Act of 2017: Includes a provisional amount related to the one-time mandatory tax on unrepatriated foreign earnings, a provisional amount related to the remeasurement of U.S. deferred tax assets and liabilities, changes in valuation allowances as a result of the 2017 Tax Act, and adjustments for the elimination of excess foreign tax credits planning. CORNING INCORPORATED - 2017 Annual Report 27


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Reportable Segments Our reportable segments are as follows: We prepared the financial results for our reportable segments on a basis that is consistent with the manner in which we internally disaggregate • Display Technologies – manufactures glass substrates primarily for flat financial information to assist in making internal operating decisions. panel liquid crystal displays. We included the earnings of equity affiliates that are closely associated • Optical Communications – manufactures carrier and enterprise with our reportable segments in the respective segment’s net income. network components for the telecommunications industry. We have allocated certain common expenses among our reportable segments differently than we would for stand-alone financial • Environmental Technologies – manufactures ceramic substrates and information prepared in accordance with GAAP. Our reportable segments filters for automotive and diesel emission control applications. include non-GAAP measures which are not prepared in accordance with • Specialty Materials – manufactures products that provide more than GAAP. We believe investors should consider these non-GAAP measures in 150 material formulations for glass, glass ceramics and fluoride crystals evaluating our results as they are more indicative of our core operating to meet demand for unique customer needs. performance and how management evaluates our operational results and trends. These measures are not, and should not be viewed as a • Life Sciences – manufactures glass and plastic labware, substitute for GAAP reporting measures. For a reconciliation of non- equipment, media and reagents enabling workflow solutions for GAAP performance measures to their most directly comparable GAAP scientific applications. financial measure, please see “Reconciliation of Non-GAAP Measures” above. Segment net income may not be consistent with measures used All other segments that do not meet the quantitative threshold for by other companies. The accounting policies of our reportable segments separate reporting have been grouped as “All Other.” This group is are the same as those applied in the consolidated financial statements. primarily comprised of the results of the pharmaceutical technologies business and new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates. 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, 2017 Year ended December 31, 2016 Year ended December 31, 2015 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 2,997 $ 831 $ 3,238 $ 935 $ 3,086 $ 1,095 Constant-yen(1) 395 260 316 222 686 419 (1) Constant-won 2 (12) 2 (33) 2 (17) Translated earnings contract gain(3) (169) (127) (416) Discrete tax items and other tax-related adjustments(5) 38 Litigation, regulatory and other legal matters(6) (9) Restructuring, impairment and other charges(7) 13 44 Adjustments related to acquisitions(9) (8) (42) (10) Pension mark-to-market adjustment(10) 1 4 (12) Taiwan power outage 6 Core performance measures $ 3,394 $ 944 $ 3,556 $ 1,006 $ 3,774 $ 1,075 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted reconciling items. 28 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations As Reported • An increase of $35 million in the gain on the fair value adjustment of the contingent consideration resulting from the acquisition of Corning 2017 vs. 2016 Precision Materials; Net sales decreased by $241 million, or 7%, in the year ended December 31, 2017, when compared to the same period in 2016, driven by price declines • Improvements in manufacturing efficiency; and of approximately 10% and the negative impact from the weakening of • A decline in operating expenses. the Japanese yen in the amount of $79 million, partially offset by an increase in volume in the mid-single digits in percentage terms. The translation impact of fluctuations in foreign currency exchange rates positively impacted Display Technologies net income in the year Net income decreased by $104 million, or 11%, driven by the ended December 31, 2016 in the amount of $213 million when compared following items: to the same period in 2015. This impact was more than offset by the • The impact of price declines of approximately 10%; decrease in the realized gain from our translated earnings contracts in the amount of $289 million. • The impact of the write-off of a net deferred tax asset of $38 million; • A reduction of $24 million in the gain on the fair value adjustment of Core Performance the contingent consideration resulting from the acquisition of Corning Precision Materials; and 2017 vs. 2016 When compared to the same period in 2016, core net sales in the Display • An increase of $40 million in research, development and engineering Technologies segment decreased by $162 million, or 5%, in the year expenses, primarily driven by the absence of the impact of a 2016 joint ended December 31, 2017, driven by the price declines described above, development agreement. partially offset by the increase in volume. Core earnings also decreased The decrease in net income was partially offset by the following items: in this period, down $62 million, or 6%, driven by price declines, offset somewhat by the increase in volume. • A mid-single digit percentage increase in volume; 2016 vs. 2015 • Improvements in manufacturing efficiency, which added $68 million; Core net sales decreased by $218 million, or 6%, in the year ended • An increase of $42 million in the realized gain from our yen and December 31, 2016 when compared to the same period in 2015, driven won-denominated currency hedges; and by LCD glass price declines slightly higher than 10%, partially offset by a mid-single digit percentage volume increase. Core earnings also • A decrease in asset write-off expenses of $31 million. decreased in this period, down $69 million, or 6%, driven by LCD glass The translation impact of fluctuations in foreign currency exchange price declines slightly higher than 10%, partially offset by a mid-single rates negatively impacted Display Technologies net income in the year digit percentage volume increase, improvements in manufacturing ended December 31, 2017 in the amount of $59 million when compared efficiency and a decline in operating expenses. to the same period in 2016. This impact was partially offset by the The Display Technologies segment has a concentrated customer base increase in the realized gain from our translated earnings contracts in comprised of LCD panel and color filter makers primarily located in Japan, the amount of $42 million. South Korea, China and Taiwan. In 2017, 2016 and 2015, three customers of the Display Technologies segment, which individually accounted for 2016 vs. 2015 more than 10% of segment net sales, accounted for a combined 62%, Net sales increased by $152 million, or 5%, in the year ended December 31, 65% and 62% of total segment sales in those years. Our near-term sales 2016 when compared to the same period in 2015, driven by the positive and profitability would be impacted if any of these significant customers impact from the strengthening of the Japanese yen in the amount of were unable to continue to purchase our products. $370 million and a mid-single digit percentage volume increase driven by growth in television screen size. This increase was partially offset by Corning has invested to expand capacity to meet the projected demand LCD glass price declines slightly higher than 10%. for LCD glass substrates. In 2017, 2016 and 2015, capital spending in this segment was $795 million, $464 million and $594 million, respectively. Net income decreased by $160 million, or 15%, in the year ended December 31, 2016 when compared to the same period in 2015. This decrease was driven by the following items: Outlook: • The impact of price declines slightly higher than 10%; For full-year 2018, Corning expects LCD glass market growth to be in the mid-single digit percentages, similar to 2017. The company expects • A decrease of $289 million in the realized gain from our yen and won- Corning’s volume to grow faster than the market as Corning ramps up denominated currency hedges; and the world’s first Gen 10.5 fab in Hefei, China. We expect LCD glass pricing • An increase of $44 million in asset write-off expenses. to continue to improve, with year-over-year declines reaching mid-single digits on a percentage basis, an important milestone toward our goal of The decrease in net income was partially offset by the following items: stabilizing returns in this segment. • A mid-single digit percentage increase in volume; CORNING INCORPORATED - 2017 Annual Report 29


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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, 2017 December 31, 2016 December 31, 2015 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 3,545 $ 341 $ 3,005 $ 245 $ 2,980 $ 237 Acquisition-related costs(4) 39 23 16 Litigation, regulatory and other legal matters(6) 13 (7) Restructuring, impairment and other charges 14 24 (1) Adjustments related to acquisitions(9) 16 Pension mark-to-market adjustment(10) 2 5 Core performance measures $ 3,545 $ 396 $ 3,005 $ 297 $ 2,980 $ 281 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. As Reported and the continuation of the favorable shift toward sales of our solutions products, partially offset by the impact of the production issues 2017 vs. 2016 described above, costs incurred related to a small acquisition completed Net sales increased by $540 million, or 18%, in the year ended in the second quarter of 2016 and restructuring and asset write-off December 31, 2017, when compared to the same period in 2016, due to expenses. Movements in foreign exchange rates positively impacted net higher sales of carrier and enterprise network products, combined with income in the amount of $12 million when compared to 2015. the absence of production issues related to the implementation of new manufacturing software in the first half of 2016 and the impact of several small acquisitions completed in the 2017. Strong growth in the Core Performance North American fiber-to-the-home market drove the increase in carrier 2017 vs. 2016 network products. Core earnings increased in the year ended December 31, 2017 by Net income in the year ended December 31, 2017 increased by $96 million, $99 million, or 33%, driven by the increase in sales described above, or 39%, driven by the increase in sales described above and a decrease of partially offset by capacity expansion spending. $10 million in restructuring and asset write-off expenses, partially offset by capacity expansion spending and an increase in acquisition-related 2016 vs. 2015 expenses. Core earnings increased $16 million, or 6%, in the year ended December 31, 2016, driven by higher sales of our solutions products and cost reductions, Movements in foreign currency exchange rates did not materially impact partially offset by the impact of the production issues described above. net sales or net income in this segment in the year ended December 31, Movements in foreign exchange rates positively impacted core earnings 2017 when compared to the same period in 2016. in the amounts of $12 million when compared to 2015. 2016 vs. 2015 The Optical Communications segment has a concentrated customer In the year ended December 31, 2016, net sales of the Optical base. In the year ended December 31, 2017, one customer that individually Communications segment increased $25 million, or 1%, when compared accounted for more than 10% of segment net sales, accounted for 19% to the same period in 2015, driven by an increase in carrier network sales. of total segment net sales. In the year ended December 31, 2016, one The sales increase was driven by fiber-to-the-home products in North customer that individually accounted for more than 10% of segment net America, higher sales of optical fiber and the impact of an acquisition sales, accounted for 15% of total segment net sales. In the year ended completed in the second quarter of 2016. These increases were partially December 31, 2015, two customers that individually accounted for more offset by production issues related to the implementation of new than 10% of segment net sales, accounted for 22% of total segment manufacturing software, which constrained our ability to manufacture net sales. product in the first half of 2016. Production returned to normal levels at the end of the second quarter. The translation impact from movements in foreign currency exchange rates in 2016 negatively impacted Optical Outlook: Communications net sales in the amount of $8 million, when compared Full-year 2018 Optical Communications sales are expected to increase by to the same period in 2015. about 10% year over year, excluding any contribution from the pending Net income in the Optical Communications segment increased acquisition of 3M’s Communications Markets Division. $8 million, or 3%, in the year ended December 31, 2016 when compared to the same period in 2015. The increase was driven by cost reductions 30 CORNING INCORPORATED - 2017 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, 2017 December 31, 2016 December 31, 2015 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 1,106 $ 127 $ 1,032 $ 133 $ 1,053 $ 161 Restructuring, impairment and other charges(7) 12 3 Core performance measures $ 1,106 $ 139 $ 1,032 $ 136 $ 1,053 $ 161 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. As Reported Core Performance 2017 vs. 2016 2017 vs. 2016 Net sales increased $74 million, or 7% in the year ended December 31, In the year ended December 31, 2017, core earnings increased by $3 million, 2017. Automotive product sales increased by $42 million, due to market or 2%, when compared to the same period in 2016, driven by higher strength in Europe, China and Asia, and initial commercial sales of gas volume in both automotive and diesel products, offset by expenses particulate filters. Diesel product sales increased $32 million with higher in support of new product launches and a decline in manufacturing demand for heavy-duty diesel products in North America and Asia. efficiency due to the use of higher-cost manufacturing facilities and sales of lower margin products. Net income in the year ended December 31, 2017 decreased by $6 million, or 5%, driven by expenses in support of new product launches and 2016 vs. 2015 charges related to the disinvestment of an equity company. Core earnings decreased by $25 million, or 16%, in the year ended Movements in foreign currency exchange rates did not materially impact December 31, 2016, driven by the items impacting our “As Reported” net sales or net income in this segment in the year ended December 31, results described above. 2017 when compared to the same period in 2016. The Environmental Technologies segment sells to a concentrated customer base of catalyzer and emission control systems manufacturers, 2016 vs. 2015 who then sell to automotive and diesel engine manufacturers. Although Net sales in the Environmental Technologies segment decreased by our sales are to the emission control systems manufacturers, the use $21 million, or 2%, in the year ended December 31, 2016 when compared of our substrates and filters is generally required by the specifications to the same period in 2015, driven by a decrease of $78 million in sales of the automotive and diesel vehicle or engine manufacturers. For of diesel products due to the weakening of the heavy-duty diesel truck 2017, 2016 and 2015, net sales to three customers, which individually market in North America, offset partially by an increase of $57 million in accounted for more than 10% of segment sales, accounted for 81%, 85% light-duty substrates sales, driven by strength in the North American, and 86%, respectively, of total segment sales. While we are not aware European and Chinese markets. of any significant customer credit issues with our direct customers, our Net income decreased by $28 million, or 17%, driven by lower sales of near-term sales and profitability would be impacted if any individual heavy-duty diesel products and our investment in capacity for our gas customers were unable to continue to purchase our products. particulate filters. Movements in foreign exchange rates versus the U.S. dollar negatively impacted net sales and net income in this segment in the amounts of $22 million and $8 million, respectively, in the year ended Outlook: December 31, 2016, when compared to the same period in 2015. For 2018, Environmental Technologies sales are expected to increase by a high-single digit percentage. CORNING INCORPORATED - 2017 Annual Report 31


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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, 2017 December 31, 2016 December 31, 2015 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 1,403 $ 249 $ 1,124 $ 174 $ 1,107 $ 167 Constant-yen(1) (1) (6) Constant-won(1) (1) (2) (2) (3) Translated earnings contract gain 5 Restructuring, impairment and other charges(7) 2 15 14 Taiwan power outage(12) 3 Core performance measures $ 1,403 $ 250 $ 1,124 $ 189 $ 1,107 $ 178 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. As Reported higher research and development costs. Movements in foreign exchange rates did not materially impact net sales and net income in the Specialty 2017 vs. 2016 Materials segment in the twelve months ended December 31, 2016 Net sales in the Specialty Materials segment increased by $279 million, when compared to the same period in 2015. or 25%, in the year ended December 31, 2017, when compared to the same period in 2016, driven by an increase in sales of Gorilla Glass products in support of new product launches, combined with an increase in Core Performance advanced optics products. 2017 vs. 2016 Net income in year ended December 31, 2017 increased by $75 million, Core earnings increased by $61 million, or 32%, in the year ended or 43%, when compared to the same period in 2016, primarily due to December 31, 2017, driven primarily by the increase in sales of Corning the significant increase in net sales, lower restructuring charges and the Gorilla Glass and advanced optics products, offset slightly by higher absence of the costs associated with a power outage in Taiwan. selling and administrative costs. Movements in foreign currency exchange rates did not materially 2016 vs. 2015 impact net sales or net income in this segment in the year ended Core earnings in the twelve months ended December 31, 2016 increased December 31, 2017 when compared to the same period in 2016. by $11 million, or 6%, driven primarily by cost reductions and an increase in advanced optics and Gorilla Glass 5 sales, offset slightly by higher 2016 vs. 2015 research and development costs. 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 For 2017, 2016 and 2015, three customers of the Specialty Materials period in 2015, driven by an increase in sales of Corning Gorilla Glass 5 segment, which individually accounted for more than 10% of segment and advanced optics products. Although Corning Gorilla Glass sales sales, accounted for 58%, 56% and 56%, respectively, of total segment sales. were lower in the first three quarters of 2016, sales in the fourth quarter of 2016 increased approximately 22% over the same period last year, led by the rapid adoption of Corning Gorilla Glass 5. Net income increased Outlook: by $7 million, or 4%, driven by manufacturing cost reductions, higher The company expects year-over-year sales growth for Specialty Materials advanced optics sales and the impact of Gorilla Glass 5, offset slightly by in 2018, with the rate and pace dependent upon customer adoptions. 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, 2017 December 31, 2016 December 31, 2015 Net Net Net (in millions) Sales income Sales income Sales income As reported $ 879 $ 64 $ 839 $ 58 $ 821 $ 61 Acquisition-related costs(4) 13 12 12 Restructuring, impairment and other charges(7) 2 7 Pension mark-to-market adjustment(10) 1 Core performance measures $ 879 $ 80 $ 839 $ 77 $ 821 $ 73 See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items. 32 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations As Reported Core Performance 2017 vs. 2016 2017 vs. 2016 Net sales in the Life Sciences segment increased by $40 million, or 5%, in In the year ended December 31, 2017, core earnings increased by $3 million, the year ended December 31, 2017, when compared to the same period or 4%, when compared to the same period last year, driven by higher in 2016, driven by strong performance in North America and China, volume, offset somewhat by higher raw materials costs. combined with a small acquisition completed in 2017. 2016 vs. 2015 Net income increased by $6 million, or 10%, in the year ended In the year ended December 31, 2016, core earnings increased by $4 December 31, 2017, driven by an increase in volume and lower asset million, or 5%, when compared to the same period last year, with higher write-offs and exit costs, offset somewhat by higher raw materials costs. volume more than offsetting the negative impact from movements in Movements in foreign exchange rates did not materially impact net sales foreign exchange rates. or net income in this period when compared to the same period in the prior year. For 2017, 2016 and 2015, two customers in the Life Sciences segment, which individually accounted for more than 10% of total segment net 2016 vs. 2015 sales, collectively accounted for 47%, 46% and 46%, respectively, of total Net sales in the Life Sciences segment increased by $18 million, or 2%, in segment sales. the year ended December 31, 2016 when compared to the same period in 2015, driven by volume growth in North America, China and Europe, slightly offset by the impact of movements in foreign exchange rates Outlook: in the amount of $11 million. Net income declined by $3 million, or 5%, For full-year 2018, sales are expected to grow by a mid-single-digit driven by asset write-offs and exit costs and the impact of movements percentage year over year. in foreign exchange rates of $7 million, offset slightly by higher volume. All Other All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily comprised of the results of the pharmaceutical technologies business and new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates. The following table provides net sales and other data for All Other (in millions): As Reported 2017 2016 2015 Net sales $ 186 $ 152 $ 64 Research, development and engineering expenses $ 211 $ 191 $ 186 Net loss $ (229) $ (240) $ (202) 2017 vs. 2016 2016 vs. 2015 Net sales of this segment increased by $34 million, or 22%, in the year The increase in net sales of this segment in the year ended December 31,2016 ended December 31, 2017, respectively, when compared to the same reflects the impact of an acquisition in the pharmaceutical technologies period in 2016, driven by an increase in sales in our emerging businesses. business completed in the fourth quarter of 2015 and an increase in sales The decrease in the net loss in the year ended December 31, 2017 reflects in our emerging businesses. The increase in the net loss of this segment an increase of $14 million in equity earnings and the absence of asset was driven by asset write-offs in emerging businesses, offset slightly by write-offs in emerging businesses recorded in the first quarter of 2016. the addition of the pharmaceutical technologies business net income. Liquidity and Capital Resources In the fourth quarter of 2017, Corning issued $750 million of 4.375% senior Financing and Capital Structure unsecured notes that mature on November 15, 2057. The net proceeds of The following items discuss Corning’s financing and changes in capital $743 million will be used for general corporate purposes. We can redeem structure during 2017 and 2016: these notes at any time, subject to certain terms and conditions. 2017 2016 In the third quarter of 2017, Corning issued ¥78 billion Japanese In the third quarter of 2016, Corning’s Board of Directors approved a yen-denominated debt securities in tranches of 7, 10 and 20 years. $1 billion increase to our commercial paper program, raising it to $2 The proceeds from these notes were received in Japanese yen and billion. If needed, this program is supported by our $2 billion revolving immediately converted to U.S. dollars on the date of issuance. The net credit facility that expires in 2019. Corning did not have outstanding proceeds received in U.S. dollars, after deducting offering expenses, commercial paper at December 31, 2016. was approximately $700 million. Payments of principal and interest on the notes will be in Japanese yen, or should yen be unavailable due to circumstances beyond Corning’s control, a U.S. dollar equivalent. CORNING INCORPORATED - 2017 Annual Report 33


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Common Stock Dividends Customer Deposits On February 3, 2016, Corning’s Board of Directors declared a 12.5% increase In December 2015, Corning announced that with the support of the in the Company’s quarterly common stock dividend, which increased Hefei government it will locate a Gen 10.5 glass manufacturing facility the quarterly dividend from $0.12 to $0.135 per share of common stock, in the Hefei XinZhan General Pilot Zone in Anhui Province, China. Glass beginning with the dividend to be paid in the first quarter of 2016. The substrate production from the new facility is expected to support mass Company paid four quarterly dividends of $0.135 during the year ended production of LCD panels for large-size televisions beginning in 2018. December 31, 2016 and paid four quarterly dividends of $0.12 during the year ended December 31, 2015. As part of this investment, Corning and a Chinese customer have entered into a long-term supply agreement that commits the customer to the On February 1, 2017, Corning’s Board of Directors declared a 14.8% increase purchase of Gen 10.5 glass substrates from the Corning manufacturing in the Company’s quarterly common stock dividend, which increased facility in Hefei. This agreement stipulates that the customer will the quarterly dividend from $0.135 to $0.155 per share of common stock, provide a non-refundable cash deposit in the amount of approximately beginning with the dividend to be paid in the first quarter of 2017. $400 million to Corning to secure rights to an amount of glass that is produced by Corning over the next 10 years. Corning has collected the On February 6, 2018, Corning’s Board of Directors declared a 16.1% increase full amount of this deposit, adjusted for foreign exchange movements, in the Company’s quarterly common stock dividend, which increased receiving $185 million of this deposit in 2016 and $197 million in 2015. the quarterly dividend from $0.155 to $0.18 per share of common stock, As glass is shipped to the customer, Corning will recognize revenue and beginning with the dividend to be paid in the first quarter of 2018. This issue credit memoranda to reduce the amount of the customer deposit increase marks the seventh dividend increase since October 2011. liability, which are applied against customer receivables resulting from the sale of glass. In 2017, 2016 and 2015, no credit memoranda were issued. Fixed Rate Cumulative Convertible Preferred Stock, Series A Capital Spending Corning has 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A. The Preferred Stock is convertible Capital spending totaled $1.8 billion in 2017, an increase of approximately at the option of the holder and the Company upon certain events, at $700 million when compared to 2016, driven by expansions related a conversion rate of 50,000 shares of Corning’s common stock per one to the Gen 10.5 glass manufacturing facility in China, the addition of share of Preferred Stock, subject to certain anti-dilution provisions. As of capacity to support the new gas-particulate filters business in the December 31, 2017, the Preferred Stock has not been converted, and none Environmental Technologies segment, fiber and cable capacity in the of the anti-dilution provisions have been triggered. Optical Communications segment and general business growth in the Specialty Materials segment. We expect our 2018 capital expenditures to be slightly more than $2 billion. Cash Flows Summary of cash flow data (in millions): Years ended December 31, 2017 2016 2015 Net cash provided by operating activities $ 2,004 $ 2,537 $ 2,829 Net cash (used in) provided by investing activities $ (1,710) $ 3,662 $ (685) Net cash used in financing activities $ (1,624) $ (5,322) $ (2,623) 2017 vs. 2016 Net cash used in financing activities in the year ended December 31, 2017 decreased by $3.7 billion when compared to the same period last year, Net cash provided by operating activities decreased by $533 million in driven by lower share repurchases, down $1.8 billion, proceeds from the the year ended December 31, 2017 when compared to the same period issuance of long-term debt of $1.4 billion, the absence of $481 million last year, driven by $501 million of unfavorable movements in working of commercial paper repayments made in 2016 and an increase of $171 capital. The negative impact of working capital changes was largely million in proceeds from the exercise of stock options. driven by an increase of $143 million in VAT receivables in Asia, a payment of $70 million related to our obligation under the plan of reorganization for PCC (refer to Note 2 (Commitments, Contingencies and Guarantees) 2016 vs. 2015 to the consolidated financial statements for additional information), Net cash provided by operating activities decreased $292 million in the an increase in accounts receivable and inventory to support growth in year ended December 31, 2016 when compared to 2015, driven largely the Optical Communications, Environmental Technologies and Specialty by a decrease in net income excluding non-cash gains, an increase in Materials segments. accounts receivable in the Optical Communications and Specialty Net cash used in investing activities increased by $5.4 billion in the Materials segments, up $81 and $70 respectively, partially offset by an year ended December 31, 2017, when compared to the same period last increase in accounts payable and other current liabilities. A decrease year, driven by the absence of $4.8 billion of cash received in the second of $58 million in dividends received from equity affiliates, driven by the quarter of 2016 on the realignment of Dow Corning, coupled with an strategic realignment of our ownership interest in Dow Corning, also increase of $674 million in capital expenditures largely due to capacity negatively impacted cash flow from operations. expansions and a decline of $92 million in liquidations of short-term investments. A decline of $162 million in acquisition spending partially offset these events. 34 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Net cash provided by investing activities increased substantially, up $73 million to our domestic defined benefit pension plan and $16 million $4.3 billion, in the year ended December 31, 2016 when compared to to our international pension plans. Although we are not subject to any 2015, driven by $4.8 billion in cash received upon the realignment of Dow mandatory contributions in 2018, we anticipate making voluntary cash Corning, a decrease of $120 million in capital expenditures and a decrease contributions of $105 million to our U.S. qualified pension plan and up to of $399 million in acquisition spending, partially offset by a decrease of $27 million to our international pension plans in 2018. $452 million in realized gains on our translated earnings contracts. Refer to Note 13 (Employee Retirement Plans) to the Consolidated Net cash used in financing activities in the year ended December 31, 2016 Financial Statements for additional information. increased $2.7 billion when compared to 2015, driven by an increase of $999 million in share repurchases, the repayment of $481 million of commercial paper outstanding in 2015 and the absence of cash received Restructuring from the issuance of long-term debt in the amount of $745 million in the third quarter of 2015. For the year ended December 31, 2017, we did not record significant restructuring, impairment and other charges or reversals. Cash expenditures for restructuring activities were approximately $4 million. Defined Benefit Pension Plans For the year ended December 31, 2016, we recorded charges of $77 million We have defined benefit pension plans covering certain domestic and for employee related costs, asset disposals, and exit costs associated international employees. Our largest single pension plan is Corning’s with some minor restructuring activities in all of the segments with U.S. qualified plan. At December 31, 2017, this plan accounted for 77% total cash expenditures of approximately $12 million. of our consolidated defined benefit pension plans’ projected benefit For the year ended December 31, 2015, we did not record significant obligation and 85% of the related plans’ assets. restructuring, impairment and other charges or reversals. Cash In 2017, we made no voluntary cash contributions to our domestic expenditures for restructuring activities were approximately $40 million. defined benefit pension plan and $29 million to our international Refer to Note 2 (Restructuring, Impairment and Other Charges) to the pension plans. In 2016, we made voluntary cash contributions of Consolidated Financial Statements for additional information. Key Balance Sheet Data Balance sheet and working capital measures are provided in the following table (in millions): December 31, 2017 2016 Working capital $ 5,618 $ 6,297 Current ratio 2.8:1 3.3:1 Trade accounts receivable, net of allowances $ 1,807 $ 1,481 Days sales outstanding 62 54 Inventories $ 1,712 $ 1,471 Inventory turns 3.7 3.8 Days payable outstanding(1) 51 45 Long-term debt $ 4,749 $ 3,646 Total debt to total capital 25% 18% (1) Includes trade payables only. Credit Ratings As of February 15, 2018, 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 CORNING INCORPORATED - 2017 Annual Report 35


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Management Assessment of Liquidity Our major source of funding for 2017 and beyond will be our operating cash flow, our existing balances of cash and cash equivalents and We ended the fourth quarter of 2017 with approximately $4.3 billion of proceeds from any issuances of debt. We believe we have sufficient cash and cash equivalents. Our cash and cash equivalents are held in liquidity for the next several years to fund operations, acquisitions, the various locations throughout the world and are generally unrestricted. asbestos litigation, capital expenditures, scheduled debt repayments, We utilize a variety of strategies to ensure that our worldwide cash is dividend payments and share repurchase programs. available in the locations in which it is needed. At December 31, 2017, approximately 79% of the consolidated amount was held outside of the Corning also has access to a $2 billion unsecured committed revolving United States. In January 2018, the Company distributed approximately credit facility. This credit facility includes a leverage ratio financial $2 billion from two of its foreign subsidiaries to the U.S. parent of those covenant. The required leverage ratio, which measures debt to total subsidiaries. There are no incremental taxes beyond the toll charge due capital, is a maximum of 50%. At December 31, 2017, our leverage with respect to this distribution of cash. using this measure was 25% and we are in compliance with the financial covenant. To manage interest rate exposure, the Company, from time to time, enters into interest rate swap agreements. We are currently party to Our debt instruments contain customary event of default provisions, two interest rate swaps that are designated as fair value hedges and which allow the lenders the option of accelerating all obligations economically exchange a notional amount of $550 million of previously upon the occurrence of certain events. In addition, some of our debt issued fixed rate long-term debt to floating rate debt. Under the terms instruments contain a cross default provision, whereby an uncured of the swap agreements, we pay the counterparty a floating rate that is default in excess of a specified amount on one debt obligation of the indexed to the one-month LIBOR rate. Company, also would be considered a default under the terms of another debt instrument. As of December 31, 2017, we were in compliance with Corning also has a commercial paper program pursuant to which we all such provisions. may issue short-term, unsecured commercial paper notes. In the third quarter of 2016, Corning’s Board of Directors approved an increase to Management is not aware of any known trends or any known demands, the allowable maximum aggregate principal amount outstanding at commitments, events or uncertainties that will result in or that are any time from $1 billion to $2 billion. Under this program, the Company reasonably likely to result in a material increase or decrease in our may issue the paper from time to time and will use the proceeds for liquidity. In addition, other than items discussed, there are no known general corporate purposes. The Company’s $2 billion revolving credit material trends, favorable or unfavorable, in our capital resources and no facility is available to support obligations under the commercial paper expected material changes in the mix and relative cost of such resources. program, if needed. Corning did not have outstanding commercial paper at December 31, 2017. Translated Earnings Contracts In the second quarter of 2013 and continuing throughout 2015, Corning Share Repurchases entered into a series of zero cost average rate collars and average rate During 2015, Corning repurchased 167 million shares for approximately forwards to hedge the translation impact of Japanese yen on Corning’s $3.25 billion through an accelerated share repurchase agreement and projected 2015, 2016 and 2017 net income. Additionally, Corning extended open market repurchases as part of a repurchase program authorized its foreign exchange hedging program to hedge a significant portion of by Corning’s Board of Directors in December 2014 (the “December its projected yen exposure for the period 2018 through 2022, with average 2014 Repurchase Program”) and repurchase programs authorized rate forwards, collars and puts. In the years ended December 31, 2017 and by Corning’s Board of Directors in July 2015 and October 2015 (the 2016, we recorded pre-tax net losses of $201 million and $459 million, “2015 Repurchase Programs”). and in the year ended December 31, 2015, we recorded a pre-tax net gain of $113 million related to changes in the fair value of these instruments. During 2016, Corning repurchased 197.1 million shares for approximately Included in these amounts are realized gains of $268 million, $207 million $4.2 billion through an accelerated share repurchase agreement and and $686 million, respectively. The gross notional value outstanding for open market repurchases as part of the 2015 Repurchase Programs. In these instruments which hedge our exposure to the Japanese yen at December 2016, Corning’s Board of Directors approved a $4 billion share December 31, 2017, 2016 and 2015 was $13 billion, $14.9 billion and $8.3 repurchase program with no expiration (the “2016 Repurchase Program”). billion, respectively. During 2017, Corning repurchased 84.4 million shares for approximately We have entered into zero-cost collars and average rate forwards to $2.4 billion through accelerated share repurchase agreements and open hedge our translation exposure resulting from movements in the market repurchases under the 2016 Repurchase Program. South Korean won and its impact on our net income. In the years ended December 31, 2017 and 2016, we recorded pre-tax net gains of $95 million Refer to Note 17 (Shareholders’ Equity) to the Consolidated Financial and $7 million, respectively, and the year ended December 31, 2015, we Statements for additional information. recorded a pre-tax net loss of $36 million related to changes in the fair value of these instruments. Included in these amounts are realized losses of $1 million, $7 million and $33 million, respectively. These instruments Other had a gross notional value outstanding at December 31, 2017, 2016 and We complete comprehensive reviews of our significant customers 2015 of $0.8 billion, $1.2 billion and $3.3 billion, respectively. and their creditworthiness by analyzing their financial strength We have entered into a portfolio of zero-cost collars and average rate at least annually or more frequently for customers where we have forwards to hedge against our euro translation exposure. In the fourth identified a measure of increased risk. We closely monitor payments quarter of 2016, the zero-cost collars expired. In the year ended December and developments which may signal possible customer credit issues. 31 2017 we recorded a net pre-tax loss of $40 million, and in the years We currently have not identified any potential material impact on our ended December 31, 2016 and 2015, we recorded net pre-tax gains of $15 liquidity resulting from customer credit issues. million and $3 million, respectively. At December 31, 2017, 2016 and 2015, the euro-denominated average rate instruments had a gross notional amount of $0.3 billion. 36 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations In 2016, we entered into a portfolio of average rate forwards to hedge significant third-party guarantees. Generally, third-party guarantees against our translation exposure resulting from movements in the provided by Corning are limited to certain financial guarantees, including Chinese yuan. In the year ended December 31 2017, we recorded a net stand-by letters of credit and performance bonds, and the incurrence of pre-tax gain of $27 million, and in the year ended December 31, 2016, contingent liabilities in the form of purchase price adjustments related we recorded a net pre-tax loss of $11 million related to changes in the to attainment of milestones. These guarantees have various terms, and fair value of these instruments. At December 31, 2017 and 2016, the none of these guarantees are individually significant. yuan-denominated average rate forwards had a gross notional amount of $0.2 billion and $0.3 billion, respectively. Refer to Note 14 (Commitments, Contingencies and Guarantees) to the Consolidated Financial Statements for additional information. These derivative instruments are not designated as accounting hedges, and changes in their fair value are recorded in earnings in the translated For variable interest entities, we assess the terms of our interest in earnings contract (loss) gain, net line of the Consolidated Statements of each entity to determine if we are the primary beneficiary. The primary (Loss) Income. beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity Off Balance Sheet Arrangements that change with changes in the fair value of the entity’s net assets Off balance sheet arrangements are transactions, agreements, or other excluding variable interests. contractual arrangements with an unconsolidated entity for which Corning has identified ten entities that qualify as a variable interest Corning has an obligation to the entity that is not recorded in our entity. These entities are not considered to be significant to Corning’s consolidated financial statements. consolidated statements of position. Corning’s off balance sheet arrangements include guarantee contracts. Corning does not have retained interests in assets transferred to an At the time a guarantee is issued, the Company is required to recognize unconsolidated entity that serve as credit, liquidity or market risk a liability for the fair value or market value of the obligation it assumes. support to that entity. In the normal course of our business, we do not routinely provide 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 $ 198 $ 88 $ 3 $ 1 $ 106 (1) Stand-by letters of credit 75 62 9 4 Credit facility to equity company 10 10 Subtotal of commitment expirations per period $ 283 $ 160 $ 12 $ 1 $ 110 Purchase obligations(2) $ 265 $ 142 $ 72 $ 21 $ 30 Capital expenditure obligations(3) 583 583 Total debt(4) 4,749 375 550 437 3,387 Interest on long-term debt(5) 3,437 195 359 314 2,569 Capital leases and financing obligations 406 4 9 11 382 Imputed interest on capital leases and financing obligations 233 19 40 39 135 Minimum rental commitments 563 74 122 91 276 Amended PCC Plan 220 35 85 100 Uncertain tax positions(6) 54 Subtotal of contractual obligation payments due by period(6) $ 10,510 $ 1,427 $ 1,237 $ 1,013 $ 6,779 (6) Total commitments and contingencies $ 10,793 $ 1,587 $ 1,249 $ 1,014 $ 6,889 (1) At December 31, 2017, $39 million of the $75 million was included in other accrued liabilities on our consolidated balance sheets. (2) Purchase obligations are enforceable and legally binding obligations which primarily consist of raw material and energy-related take-or- pay contracts. (3) Capital expenditure obligations primarily reflect amounts associated with our capital expansion activities. (4) Total debt above is stated at maturity value, and excludes interest rate swap gains/losses and bond discounts. (5) 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. (6) At December 31, 2017, $54 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. We believe a significant majority of these guarantees and contingent liabilities will expire without being funded. CORNING INCORPORATED - 2017 Annual Report 37


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Environment Corning has been named by the Environmental Protection Agency (the monitoring by both internal and external consultants. At December 31, Agency) under the Superfund Act, or by state governments under similar 2017 and December 31, 2016, Corning had accrued approximately $38 state laws, as a potentially responsible party for 15 active hazardous waste million (undiscounted) and $43 million (undiscounted), respectively, for sites. Under the Superfund Act, all parties who may have contributed the estimated liability for environmental cleanup and related litigation. any waste to a hazardous waste site, identified by the Agency, are jointly Based upon the information developed to date, management believes and severally liable for the cost of cleanup unless the Agency agrees that the accrued reserve is a reasonable estimate of the Company’s otherwise. It is Corning’s policy to accrue for its estimated liability liability and that the risk of an additional loss in an amount materially related to Superfund sites and other environmental liabilities related higher than that accrued is remote. to property owned by Corning based on expert analysis and continual Critical Accounting Estimates The preparation of financial statements requires us to make estimates and assumptions that affect amounts reported therein. The estimates that required us to make difficult, subjective or complex judgments, including future projections of performance and relevant discount rates, are set forth below. For purposes of recognition and measurement of an impairment loss, Impairment of assets held for use a long-lived asset or assets is grouped with other assets and liabilities We are required to assess the recoverability of the carrying value of at the lowest level for which identifiable cash flows are largely long-lived assets when an indicator of impairment has been identified. independent of the cash flows of other assets and liabilities. We must We review our long-lived assets in each quarter to assess whether exercise judgment in assessing the lowest level for which identifiable impairment indicators are present. We must exercise judgment in cash flows are largely independent of the cash flows of other assets assessing whether an event of impairment has occurred. and liabilities. Our assessment is performed at the reportable segment level. For the majority of our reportable segments, we concluded that Manufacturing equipment includes certain components of production locations or businesses within these segments which share production equipment that are constructed of precious metals, primarily platinum along the supply chain must be combined in order to appropriately and rhodium. These metals are not depreciated because they have very identify cash flows that are largely independent of the cash flows of low physical losses and are repeatedly reclaimed and reused in our other assets and liabilities. manufacturing process over a very long useful life. Precious metals are reviewed for impairment as part of our assessment of long-lived assets. For long-lived assets, when impairment indicators are present, we This review considers all of the Company’s precious metals that are compare estimated undiscounted future cash flows, including the either in place in the production process; in reclamation, fabrication, eventual disposition of the asset group at market value, to the assets’ or refinement in anticipation of re-use; or awaiting use to support carrying value to determine if the asset group is recoverable. This increased capacity. Precious metals are only acquired to support our assessment requires the exercise of judgment in assessing the future operations and are not held for trading or other non-manufacturing use of and projected value to be derived from the assets to be held and related purposes. used. Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing Examples of events or circumstances that may be indicative of this capacity back into production. If there is an impairment, a loss is impairments include, but are not limited to: recorded to reflect the difference between the assets’ fair value and • A significant decrease in the market price of an asset; carrying value. This may require judgment in estimating future cash flows and relevant discount rates and residual values in estimating the • A significant change in the extent or manner in which a long-lived current fair value of the impaired assets to be held and used. asset is being used or in its physical condition; For an asset group that fails the test of recoverability, the estimated fair • A significant adverse change in legal factors or in the business climate value of long-lived assets is determined using an “income approach” that could affect the value of the asset, including an adverse action or that starts with the forecast of all the expected future net cash flows assessment by a regulator; including the eventual disposition at market value of long-lived assets, and also considers the fair market value of all precious metals. We assess • An accumulation of costs significantly in excess of the amount the recoverability of the carrying value of long-lived assets at the lowest originally expected for the acquisition or construction of an asset; level for which identifiable cash flows are largely independent of the • A current-period operating or cash flow loss combined with a cash flows of other assets and liabilities. If there is an impairment, a loss history of operating or cash flow losses or a projection or forecast is recorded to reflect the difference between the assets’ fair value and that demonstrates continuing losses associated with the use of an carrying value. Our estimates are based upon our historical experience, asset; and our commercial relationships, and available external information about future trends. We believe fair value assessments are most sensitive to • A current expectation that, more likely than not, an asset will be sold market growth and the corresponding impact on volume and selling or otherwise disposed of significantly before the end of its previously prices and that these are also more subjective than manufacturing cost estimated useful life. and other assumptions. The Company believes its current assumptions and estimates are reasonable and appropriate. 38 CORNING INCORPORATED - 2017 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations At December 31, 2017 and December 31, 2016, the carrying value of The examples noted above are not all-inclusive, and the Company precious metals was higher than the fair market value by $711 million will consider other relevant events and circumstances that affect the and $890 million, respectively. The majority of these precious metals are fair value of a reporting unit in determining whether to perform the utilized by the Display Technologies and Specialty Materials segments. quantitative goodwill impairment test. Corning believes these precious metal assets to be recoverable due to the significant positive cash flow in both segments. The potential for Our goodwill recoverability assessment is based on our annual strategic impairment exists in the future if negative events significantly decrease planning process. This process includes an extensive review of expectations the cash flow of these segments. Such events include, but are not for the long-term growth of our businesses and forecasted future cash limited to, a significant decrease in demand for products or a significant flows. Our valuation method is an “income approach” using a discounted decrease in profitability in our Display Technologies or Specialty cash flow model in which cash flows anticipated over several periods, plus Materials segments. a terminal value at the end of that time horizon, 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 information about future trends. If the Impairment of Goodwill fair value is less than the carrying value, a loss is recorded to reflect the We are required to make certain subjective and complex judgments in difference between the fair value and carrying value. assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. We test for goodwill impairment at the Display Technologies reporting unit level and our reporting units are the operating segments Goodwill for the Display Technologies segment is tested at the reporting or the components of operating segments which constitute businesses unit level, which is also the operating segment level consisting of two for which discrete financial information is available and is regularly components. For the purposes of the annual goodwill impairment reviewed by segment management. assessment, we have aggregated these two components into one Corning adopted ASU 2017-04, Intangibles – Goodwill and Other, on reporting unit based upon their similar economic characteristics. On a January 1, 2017, which simplifies the subsequent measurement of quarterly basis in 2017, management performed a qualitative assessment goodwill by removing the second step of the two-step impairment test. of factors and determined there had not been any triggering events The amendment requires an entity to perform its annual, or interim which would indicate that the Display Technologies reporting unit’s fair goodwill impairment test by comparing the fair value of a reporting unit value is less than its carrying amount. with its carrying amount. An impairment charge should be recognized In addition to assessing qualitative factors each quarter, we performed a for the amount by which the carrying amount exceeds the reporting quantitative goodwill recoverability test in 2015 for this reporting unit. A unit’s fair value. discount rate of 5.8% and a growth rate of 1% were used in 2015. The results Corning has recorded goodwill in the Display Technologies, Optical of our impairment test indicated that the fair value of the reporting unit Communications, Specialty Materials, Life Sciences and All Other exceeded its book value by a significant amount, and as such, further operating segments. On a quarterly basis, or if an event occurs or goodwill impairment testing was not necessary. We determined a range circumstances change that indicate the carrying amount may be of discount rates between 3.8% and 7.8% and growth rates between 0% impaired, management performs a qualitative assessment of factors and 3% would not have affected our conclusion. in each reporting unit within these operating segments to determine if there have been any triggering events. We also perform a detailed Optical Communications quantitative impairment test every three years if no indicators suggest a test should be performed in the interim. We use this calculation as Goodwill for the Optical Communications segment is tested at the quantitative validation of the qualitative process; this process does not reporting unit level, which is also the operating segment level consisting represent an election to perform the quantitative impairment test in of two components. For the purposes of the annual goodwill impairment place of the qualitative review. assessment, we have aggregated these two components into one reporting unit based upon their similar economic characteristics. On a The following events and circumstances are considered when evaluating quarterly basis in 2017, management performed a qualitative assessment whether it is more likely than not that the fair value of a reporting unit is of factors and determined there had not been any triggering events less than its carrying amount: which would indicate that the Optical Communications reporting unit’s • Macroeconomic conditions, such as a deterioration in general fair value is less than its carrying amount. economic conditions, fluctuations in foreign exchange rates and/or In addition to assessing qualitative factors each quarter, we performed other developments in equity and credit markets; a quantitative goodwill recoverability test in 2015 for this reporting • Market capital in relation to book value; unit. A discount rate of 5.6% and a growth rate of 3% were used in 2015. The results of our impairment test indicated that the fair value of the • Industry and market considerations, such as a deterioration in the reporting unit exceeded its book value by a significant amount, and environment in which an entity operates, material loss in market share as such, further goodwill impairment testing was not necessary. We and significant declines in product pricing; determined a range of discount rates between 3.6% and 7.6% and growth rates between 0% and 3% would not have affected our conclusion. • Cost factors, such as an increase in raw materials, labor or other costs; • Overall financial performance, such as negative or declining cash flows or a decline in actual or forecasted revenue; Specialty Materials • Other relevant entity-specific events, such as material changes in Goodwill for the Specialty Materials segment is tested at the reporting management or key personnel; and unit level, which is one level below an operating segment, as the goodwill is the result of transactions associated with a certain business within • Events affecting a reporting unit, such as a change in the composition this operating segment. On a quarterly basis in 2017, management or carrying amount of its net assets including acquisitions performed a qualitative assessment of factors and determined there had and dispositions. not been any triggering events which would indicate that the Specialty Materials reporting unit’s fair value is less than its carrying amount. CORNING INCORPORATED - 2017 Annual Report 39


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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 and complex in a number of areas, including assumptions and a quantitative goodwill recoverability test in 2015 for this reporting estimates used in estimating the future profitability and cash flows of unit. A discount rate of 5.8% and a growth rate of 3% were used in 2015. our businesses. The results of our impairment test indicated that the fair value of the reporting unit exceeded its book value by a significant amount, and Restructuring events often give rise to decisions to dispose of or abandon as such, further goodwill impairment testing was not necessary. We certain assets or asset groups which, as a result, require impairment. We determined a range of discount rates between 3.8% and 7.8% and growth are required to carry assets to be sold or abandoned at the lower of cost rates between 0% and 3% would not have affected our conclusion. or fair value. We must exercise judgment in assessing the fair value of the assets to be sold or abandoned. Life Sciences Goodwill for the Life Sciences segment is tested at the reporting unit Income taxes level, which is also the operating segment level. On a quarterly basis in We are required to exercise judgment about our future results in 2017, management performed a qualitative assessment of factors and assessing the realizability of our deferred tax assets. Inherent in this determined there had not been any triggering events which would estimation process is the requirement for us to estimate future book and indicate that the Life Sciences reporting unit’s fair value is less than its taxable income and possible tax planning strategies. These estimates carrying amount. require us to exercise judgment about our future results, the prudence and feasibility of possible tax planning strategies, and the economic In addition to assessing qualitative factors each quarter, we performed environments in which we do business. It is possible that actual results a quantitative goodwill recoverability test in 2015 for this reporting will differ from assumptions and require adjustments to allowances. unit. A discount rate of 6% and a growth rate of 3% were used in 2015. The results of our impairment test indicated that the fair value of the Corning accounts for uncertain tax positions in accordance with ASC reporting unit exceeded its book value by a significant amount, and Topic 740, Income Taxes, which requires that companies only record tax as such, further goodwill impairment testing was not necessary. We benefits for technical positions that are believed to have a greater than determined a range of discount rates between 4% and 8% and growth 50% likelihood of being sustained on their technical merits and then rates between 0% and 3% would not have affected our conclusion. only to the extent of the amount of tax benefit that is greater than 50% likely of being realized upon settlement. In estimating these amounts, we must exercise judgment around factors such as the weighting of the All Other tax law in our favor, the willingness of a tax authority to aggressively All Other segment is comprised of various operating segments and pursue a particular position, or alternatively, consider a negotiated corporate investments that do not meet the quantitative threshold compromise, and our willingness to dispute a tax authorities assertion for separate reporting. Goodwill for the All Other segment is tested to the level of appeal we believe is required to sustain our position. As at the reporting unit level, which is also the operating segment level. a result, it is possible that our estimate of the benefits we will realize For the purposes of the annual goodwill impairment assessment, we for uncertain tax positions may change when we become aware of new have identified two reporting units in this segment that require an information affecting these judgments and estimates. assessment of their goodwill. On a quarterly basis in 2017, management At December 31, 2017, Corning has not completed its accounting for the performed a qualitative assessment of factors and determined there tax effects of the enactment of the 2017 Tax Act. Pursuant to SAB 118, had not been any triggering events which would indicate that the the Company has made a reasonable estimate of the effects on its U.S. reporting units’ fair value is less than the carrying amount. deferred tax balances, the one-time toll charge and the impact on its In addition to assessing qualitative factors each quarter, we performed a state valuation allowances. In addition, Corning has not made sufficient quantitative goodwill recoverability tests in 2015. A discount rate of 7.4% progress on estimating the impact of tax reform on its assertion and a growth rate of 3% were used in 2015. The results of our impairment regarding its indefinitely reinvested foreign earnings so the Company test indicated that the book value of one of the reporting units exceeded will continue to follow its historic position while it continues to analyze its fair value by 80%. We determined a range of discount rates between this issue. In addition, Corning’s accounting for the impact of the global 5.4% and 9.4% and growth rates between 0% and 3% would not have intangible low-taxed income (GILTI) provisions of the 2017 Tax Act is affected our conclusion. Corning concluded that a Step 2 analysis was incomplete and, as a result, it has not yet elected a policy to account for required to measure the impairment loss for this reporting unit. the GILTI provisions. Our Step 2 test consisted of identifying the underlying net assets in the The initial accounting is incomplete as we need additional time and reporting unit, allocating the implied purchase price to the asset and information to analyze all aspects of the newly enacted law and how liabilities of the reporting unit and the calculation of the implied fair it impacts our worldwide operations. The additional information that value of goodwill and the resulting impairment loss. In December 2015, needs to be obtained, prepared or analyzed in order to complete the we recorded a goodwill impairment loss of $29 million related to this accounting requirements includes receiving further guidance from reporting unit. the tax authorities; additional time to prepare basis calculations; post enactment impacts and further time to validate of our assumptions. Restructuring charges and impairments Equity method investments resulting from restructuring actions On May 31, 2016, Corning completed the strategic realignment of We are required to assess whether and when a restructuring event has its equity investment in Dow Corning pursuant to the Transaction occurred and in which periods charges related to such events should be Agreement announced on December 10, 2015. Under the terms of the recognized. We must estimate costs of plans to restructure including, Transaction Agreement, Corning exchanged with Dow Corning its 50% for example, employee termination costs. Restructuring charges require stock interest in Dow Corning for 100% of the stock of a newly formed us to exercise judgment about the expected future of our businesses, of entity, which holds an equity interest in Hemlock Semiconductor Group portions thereof, their profitability, cash flows and in certain instances and approximately $4.8 billion in cash. eventual outcome. The judgment involved can be difficult, subjective 40 CORNING INCORPORATED - 2017 Annual Report

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