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    Annual Report


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    “We are not only building a bigger company, we are also building a stronger, more resilient one.” — Wendell P. Weeks


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    Wendell P. Weeks Chairman, Chief Executive Officer, and President To Our Shareholders: 2018 was a terrific year for Corning. We grew core sales Financial Performance and earnings per share. We returned cash to shareholders Before I review our execution against the Framework through stock buybacks and a double-digit dividend increase. in more detail, here are some highlights from Corning’s 2018 We won new customers. And we launched new products that financial results. continue our track record of innovation. Most importantly, Core sales were $11.4 billion and core earnings per we have positioned the company for sustainable, long-term share were $1.78, both up 11 percent year over year. From my growth by delivering on our Strategy and Capital Allocation perspective as CEO, two observations are particularly worth Framework. noting. First, our performance improved significantly in the Since introducing the Framework in October 2015, we have second half of the year as we introduced new innovations, been investing for growth through a combination of capacity extended our cost leadership, and increased our capacity. expansions, strategic acquisitions, and innovation programs. We went from a $10 billion run rate at the beginning of In 2018, the benefits of our investments became apparent the year to a $12 billion run rate with expanded margins as we improved our financial performance and extended in the second half. This step change in performance our leadership in all businesses. Our execution has been illustrates the benefits of our investments and strategy. strong, and we expect our momentum to continue in 2019 Second, all of Corning's major businesses produced year- and beyond. over-year sales increases in 2018. That means we are not only building a bigger company, we are also building a stronger, more resilient one.


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    January February March Opened new manufacturing Increased quarterly dividend by 16.1% Introduced optical communica- plant in Newton, North Carolina, tions innovations, including to meet growing worldwide Corning® RocketRibbon™ demand for optical fiber extreme-density cable and and cable TXF™ optical fiber Strategy and Capital Allocation Framework Framework Execution and Results If you follow Corning closely, you are probably familiar So how are we doing? Our stakeholders are the ultimate with our Strategy and Capital Allocation Framework. But judges of our performance, but we are extremely pleased we believe it is worth reviewing, because we want to ensure with our execution. you understand Corning’s priorities and our plan for achieving Since introducing the Framework more than three years our goals. ago, our cash generation is on target. Through the end of 2018, The Framework articulates our strategy for leveraging we have distributed $11.8 billion to shareholders through Corning’s financial strength and focusing our portfolio to share repurchases and quarterly dividends. Repurchases have deliver value for our stakeholders. Under the Framework, reduced outstanding shares by approximately 36 percent. We we target generating $26 to $30 billion in cash between increased the annual dividend by 11.1 percent in February 2019, 2016 and 2019. We plan to return more than $12.5 billion to 16.1 percent in February 2018, 14.8 percent in 2017, and 12.5 our shareholders through repurchases and dividends, and percent in 2016, for a combined increase of 67 percent. invest $10 billion to extend our leadership and deliver growth. Investments in RD&E, capital expenditures, and To advance our innovation effectiveness, the Framework acquisitions also remain on track, totaling $8.2 billion through focuses our portfolio on a set of reinforcing capabilities with the end of 2018. As previously noted, these investments are strong interconnections. Our best-in-the-world capabilities already having a positive impact on our financial results. For include three core technologies (glass science, ceramic example, our new Gen 10.5 LCD plant was one of the factors science, and optical physics), four manufacturing and in Display Technologies’ year-over-year sales improvement, engineering platforms (vapor deposition, fusion, precision while gasoline particulate filters (GPFs) contributed more forming, and extrusion), and five market-access platforms than $50 million last year to Environmental Technologies' (optical communications, display, mobile consumer sales. Our strategic acquisitions and capital expansion electronics, automotive, and life sciences vessels). We direct projects helped drive Optical Communications sales up 80 percent or more of our resources to opportunities that by nearly $400 million from the first half of the year to draw from at least two of these categories. We believe this the second half. approach increases our likelihood of success, reduces the cost We are also making good progress extending our leadership of innovation, and creates stronger competitive advantages. across our market-access platforms. n In Optical Communications, we passed 45 million homes globally with Corning’s fiber-to-the-home solutions. We launched new products that reduce network costs and increase the speed of installation, such as an extreme- density cable for next-generation hyperscale data centers and a fiber that offers significant advantages for high-throughput transmission.


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    April May June Announced plans to build Opened Gen 10.5 LCD glass Completed the acquisition high-volume manufacturing substrate facility in Hefei, China of 3M’s Communication facility in Durham County, Markets Division North Carolina, for Corning Produced one-millionth Valor® Glass Corning® DuraTrap® gasoline particulate filter n In Display, we achieved a substantial increase in packaging solution, which helps protect patients and improve profitability in the second half of 2018 as price declines manufacturing throughput. Valor shipments increased moderated year-over-year to mid-single-digit percentages. fourfold from 2017 as we continue to support customers We also extended our global leadership by successfully preparing for regulatory filings. We have also been scaling ramping the world’s first Gen 10.5 LCD glass plant. up production capabilities and announced our plans to n In Mobile Consumer Electronics, we made significant construct a high-volume manufacturing facility for Valor progress toward our goal of doubling sales over the next in North Carolina. several years by capturing more value per device and winning Looking Ahead in new device categories. We extended our leadership in the As proud as we are of our progress in 2018, we’re even cover-glass market with the launch of Corning® Gorilla® Glass more excited about what’s ahead. We are on track to fully 6. We benefited from stronger demand for glass on the back deliver the goals of our Strategy and Capital Allocation of smartphones, which enables wireless charging and higher Framework, and we expect 2019 to be another growth data rates. And we launched Corning® Gorilla® Glass DX and year. Longer term, important trends such as 5G, smart cars, DX plus, which provide enhanced anti-reflective optics and connected homes, and augmented reality are converging scratch resistance for wearable technology. around Corning’s capabilities. Bringing these trends to life n In Automotive, we exceeded $50 million in GPF sales requires technologies that have been our fundamental in 2018, as new emissions regulations took effect in Europe. strengths for decades. Moreover, they are making us a vital We began ramping dedicated capacity in China to support participant in complex, interconnected ecosystems that upcoming Chinese regulations and committed demand from continue to unlock new opportunities. customers, such as Changan Automobile. We also experienced strong customer pull for Gorilla Glass for Automotive. To date, Here’s more detail on what we expect in each of our we have been awarded more than 55 platforms globally, as market-access platforms: customers value our ability to deliver 3D shapes, superior n In Optical Communications, we are enabling the network readability, and enhanced durability at a competitive cost. densification and integrated passive optical solutions n In Life Sciences Vessels, we continued to grow faster necessary for 5G, while continuing to innovate for rapidly than the market, driven by our innovative products for evolving applications, such as fiber to the home, hyperscale bioprocess and cell therapy. We made strong progress with data centers, and in-building networks. We expect to continue Corning Valor® Glass, our revolutionary pharmaceutical growing at more than twice the rate of the communications infrastructure market, and we are confident in our ability to exceed our goal of $5 billion in annual sales by 2020, with further growth in the years ahead.


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    July October December Launched new Gorilla® Glass Chosen by Changan Signed long-term supply innovations, including Automobile as supplier agreement with WaveOptics Corning® Gorilla® Glass 6 of gasoline particulate filters for high-performance to meet China 6 emissions augmented reality optics standards n In Display, we look forward to a full year of stable returns. Closing Thoughts This will come not only from continued improvements in the When we introduced our Strategy and Capital Allocation pricing environment, but also volume growth driven by larger Framework in 2015, we knew it would take time and relentless TV screen sizes and increasing shipments of Gen 10.5 LCD execution to deliver our goals. We asked for your confidence, glass. Simultaneously, we continue to build on our industry and I believe we have earned it. But we never take that leadership to support the next round of display innovations confidence for granted. We are committed to continuing – e.g., higher resolution, expanding color gamut, and next- to earn it every day with our performance, our innovations, generation displays. and our actions. n In Mobile Consumer Electronics, we continue to innovate I truly believe that Corning’s future has never been for customers and secure more Corning content in leading brighter. We have multiple businesses driving our growth. mobile devices. We are also winning in new device categories, We have unique capabilities that are becoming increasingly such as augmented reality. For example, we signed a long- vital. We are helping enable trends that matter. We have term agreement with WaveOptics in December to supply relationships with industry-leading customers that continue high-performance augmented reality optics. to unlock new opportunities. We have a proven track record n In Automotive, our materials expertise is helping to of delivering results. And we have more than 50,000 employees propel the auto industry into a new era of cleaner vehicles around the globe committed to doing their part to make the with enhanced cockpit functionality, connectivity, and design. company stronger and the world better. We expect sales of GPFs to continue ramping in 2019 and We look forward to delivering the Framework’s goals beyond, driven by regulations in Europe, with additional this year, unleashing new capabilities in the years ahead, growth from the China market when new regulations take and sharing milestones along the way. Thank you for being effect. We are also investing in Gorilla Glass for Automotive, on this journey with us. and expect to bring new manufacturing capacity online in the second half of 2019. Sincerely, n Finally, in Life Sciences Vessels, we expect to increase our cell-culture leadership position, driven by the industry’s move to cell therapies. Longer term, we continue to believe that Wendell P. Weeks Corning Valor® Glass has the potential to power Corning’s Chairman, Chief Executive Officer, and President growth for the next decade and beyond. Key customers are advancing toward the FDA certification required for the use of Valor with each drug, and our development partners Merck and Pfizer are at the forefront.


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    Making a Difference with More Than Our Products At Corning, we believe how we do things is as important as what we achieve. We are committed to making the world a better place, not only with our innovations, but also with our actions. Here are some of the ways we are helping to create a sustainable future for the company, the communities where we operate, and the planet we all share. Corning is doing its part to help protect the environment through the ongoing improvement of processes, products, and services. Since 2006, we have increased our energy efficiency by 35 percent, and we continue to identify new ways to use less energy. Last year, we expanded the use of solar panels at our facilities, launched an Employee Community Solar Program, and made our first investment in the China Clean Energy Fund. We also earned accolades for our environmental initiatives. In 2018, Corning won the Horizon 2020 Materials for Clean Air Award from the European Commission for our innovative air-purification technology. Corning also received its Corning invests to strengthen the economy and enhance fifth consecutive ENERGY STAR® Partner of the Year award and the quality of life in the communities where we live and third consecutive Sustained Excellence designation from the work. Our investments include support for libraries, daycare U.S. Environmental Protection Agency. centers, schools, arts and cultural organizations, economic development initiatives, and infrastructure improvements. In 2018, we participated in the United Way Day of Action to promote hands-on volunteer efforts in our communities. We promoted literacy through initiatives such as the Corning Valley Read-In Program. We helped underprivileged children in China’s Sichuan Province gain better access to scientific education through programs such as “Corning Glass Class.” And we financed a new elementary school in Pune, India. Corning is committed to ensuring an inclusive environment In 2018, Corning’s commitment to positive environmental, for its employees around the world. In 2018, we celebrated social, and governance-related business practices resulted the 50th anniversary of Corning's formal diversity initiative. in receiving an “AA” rating by MSCI ESG Research, Inc., placing What began in 1968 as a U.S.-centered, compliance-focused Corning among the top quartile of companies in our industry. effort has grown into a global celebration of diversity and We are proud of Corning’s achievements, but we know our inclusion. Corning has received a score of 100 on the Corporate sustainability efforts are a work in progress. In 2018, we Equality Index for 14 consecutive years. Corning also earned appointed our first sustainability director, and we look a score of 100 on the 2018 Disability Equality Index and forward to evolving our practices to continue making was recognized as a “Best Place to Work” by the American Corning a better version of itself. Association of People with Disabilities. In addition, Corning was named a "Best of the Best Corporation for Inclusion" For more information about sustainability at Corning, by the National Gay & Lesbian Chamber of Commerce for visit www.corning.com/sustainability the third year in a row.


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    Financial Highlights: In millions, except per share amounts As reported — GAAP Core performance* 2018 2017 2016 2018 2017 2016 Net Sales $ 11,290 $ 10,116 $ 9,390 $ 11,398 $ 10,258 $ 9,440 Net income (loss) attributable to Corning Incorporated $ 1,066 $ (497) $ 3,695 $ 1,673 $ 1,634 $ 1,651 Diluted earnings (loss) per common share attributable to Corning Incorporated $ 1.13 $ (0.66) $ 3.23 $ 1.78 $ 1.60 $ 1.44 * Core performance measures are non-GAAP financial measures. The reconciliation between these non-GAAP measures and their most directly comparable GAAP measure is provided on pages 23 through 25 of this Annual Report, as well as on the Company’s website.


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    Corning Incorporated 2018 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) ....................................................................................................................... 13 Management’s Discussion and Analysis of Financial Condition and Results of Operations........................... 14 Quantitative and Qualitative Disclosures About Market Risks ........................................................................... 38 Management’s Annual Report on Internal Control over Financial Reporting ................................................... 39 Report of Independent Registered Public Accounting Firm ................................................................................. 40 Consolidated Statements of Income (Loss) ............................................................................................................. 41 Consolidated Statements of Comprehensive Income ........................................................................................... 42 Consolidated Balance Sheets .................................................................................................................................... 43 Consolidated Statements of Cash Flows ................................................................................................................. 44 Consolidated Statements of Changes in Shareholders’ Equity ............................................................................ 45 Notes to Consolidated Financial Statements ......................................................................................................... 46 1. Summary of Significant Accounting Policies ............................................................................................................................................ 46 2. Revenue ........................................................................................................................................................................................................... 51 3. Inventories, Net of Inventory Reserves....................................................................................................................................................... 52 4. Income Taxes .................................................................................................................................................................................................. 52 5. Investments .................................................................................................................................................................................................... 56 6. Acquisitions .................................................................................................................................................................................................... 58 7. Property, Plant and Equipment, Net of Accumulated Depreciation ...................................................................................................... 58 8. Goodwill and Other Intangible Assets ....................................................................................................................................................... 59 9. Other Assets and Other Liabilities .............................................................................................................................................................. 60 10. Debt ................................................................................................................................................................................................................. 61 11. Employee Retirement Plans ......................................................................................................................................................................... 62 12. Commitments, Contingencies and Guarantees ........................................................................................................................................ 69 13. Hedging Activities ......................................................................................................................................................................................... 70 14. Fair Value Measurements ............................................................................................................................................................................. 73 15. Shareholders’ Equity ..................................................................................................................................................................................... 74 16. Earnings (Loss) Per Common Share ............................................................................................................................................................. 77 17. Reportable Segments.................................................................................................................................................................................... 78 Valuation and Qualifying Accounts.......................................................................................................................... 82 Quarterly Operating Results...................................................................................................................................... 83


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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 combination of material and process innovation, and deep, trust-based and 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, OLEDs and next Corning’s markets include optical communications, mobile consumer generation LCDs. These substrate glasses provide industry-leading electronics, display technology, automotive emissions control products, levels of low total pitch variation, resulting in brighter, more and life sciences vessels. Corning’s industry-leading products include energy-efficient displays with higher resolutions for consumers and damage-resistant cover glass for mobile devices; precision glass for better yields for panel makers; and advanced displays; optical fiber, wireless technologies, and connectivity solutions for state-of-the-art communications networks; trusted products • The world’s first Gen 10 and Gen 10.5 glass substrates in support of to accelerate drug discovery and delivery; and clean-air technologies for improved efficiency in manufacturing large-sized televisions. cars and trucks. Corning has display glass manufacturing operations in South Korea, Corning operates in five reportable segments: Display Technologies, Japan, Taiwan and China, and services all its glass customers in all Optical Communications, Environmental Technologies, Specialty regions directly, utilizing its manufacturing facilities throughout Asia. Materials and Life Sciences, and manufactures products at 108 plants in Patent protection and proprietary trade secrets are important to the 15 countries. Display Technologies segment’s operations. Refer to the material under the heading “Patents and Trademarks” for information relating to patents and trademarks. Display Technologies Segment The Display Technologies segment represented 29% of Corning’s segment Corning’s Display Technologies segment manufactures glass substrates net sales in 2018. for high performance displays, including organic light-emitting diode (“OLEDs”) and liquid crystal displays (“LCDs”) that are used primarily in televisions, notebook computers and flat panel desktop monitors. Optical Communications Segment This segment develops, manufactures and supplies high quality glass substrates using technology expertise and a proprietary fusion Corning invented the world’s first low-loss optical fiber in 1970. Since manufacturing process, which Corning invented and is the cornerstone that milestone, we have continued to pioneer optical fiber, cable and of the Company’s technology leadership in the display glass industry. connectivity solutions. As global bandwidth demand driven by video Our highly automated process yields glass substrates with a pristine usage grows exponentially, telecommunications networks continue surface and excellent thermal dimensional stability and uniformity – to migrate from copper to optical-based systems that can deliver the essential attributes in the production of large, high performance display required cost-effective bandwidth-carrying capacity. Our experience panels. Corning’s fusion process is scalable and we believe it is the most puts us in a unique position to design and deliver optical solutions that cost-effective process in producing large size substrates. reach every edge of the communications network. CORNING INCORPORATED - 2018 Annual Report 1


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    Business Description This segment is classified into two main product groupings – carrier optical fiber designed to support emerging high-speed interconnects network and enterprise network. The carrier network group consists between computers and other consumer electronics devices. The primarily of products and solutions for optical-based communications remainder of Corning’s fiber production is cabled internally and sold to infrastructure for services such as video, data and voice communications. end users as either bulk cable or as part of an integrated optical solution. The enterprise network group consists primarily of optical-based Corning’s cable products include a broad range of tight-buffered, loose communication networks sold to businesses, governments and tube and ribbon cable designs with flame-retardant versions available individuals for their own use. for indoor and indoor/outdoor applications that meet local building code requirements. Our carrier network product portfolio encompasses an array of optical fiber products, including Vascade® submarine optical fibers for use in Corning’s hardware and equipment for enterprise network applications submarine networks; LEAF® optical fiber for long-haul, regional and include cable assemblies, fiber optic hardware, fiber optic connectors, metropolitan networks; SMF-28® ULL fiber for more scalable long-haul optical components and couplers, closures and other accessories. These and regional networks; SMF-28e+™ single-mode optical fiber that products may be sold as individual components or as part of integrated provides additional transmission wavelengths in metropolitan and optical connectivity solutions designed for various network applications. access networks; ClearCurve® ultra-bendable single-mode fiber for use Examples of enterprise network solutions include the Pretium EDGE® in multiple-dwelling units and fiber-to-the-home applications; and platform, which provides high-density pre-connectorized solutions for Corning® SMF-28® Ultra Fiber, designed for high performance across data center applications, and continues to evolve with recent updates for the range of long-haul, metro, access, and fiber-to-the-home network upgrading to 40/100G applications and port tap modules for network applications, combining the benefits of industry-leading attenuation monitoring; the previously mentioned ONE Wireless platform, which and improved macrobend performance in one fiber. A portion of our spans both carrier and enterprise network applications; and our recently optical fiber is sold directly to end users and third-party cablers globally. introduced optical connectivity solutions to support customer initiatives. Corning’s remaining fiber production is cabled internally and sold to end users as either bulk cable or as part of an integrated optical solution. In December 2017, Corning announced that it had entered into Corning’s cable products support various outdoor, indoor/outdoor and agreements with the 3M Company (3M) to purchase substantially all its indoor applications and include a broad range of loose tube, ribbon and Communication Markets Division (“CMD”) in a cash transaction. During drop cable designs with flame-retardant versions available for indoor 2018, Corning acquired substantially all of CMD for $841 million. and indoor/outdoor use. Corning believes that this transaction will augment its Optical In addition to optical fiber and cable, our carrier network product Communications segment’s global market access and expand its portfolio also includes hardware and equipment products, including broad portfolio of high-bandwidth optical connectors, assemblies, cable assemblies, fiber optic hardware, fiber optic connectors, optical hardware, and accessories for carrier networks, enterprise LAN, and data components and couplers, closures, network interface devices, and other center solutions. accessories. These products may be sold as individual components or as Our optical fiber manufacturing facilities are in North Carolina, China part of integrated optical connectivity solutions designed for various and India. Cabling operations are in North Carolina, Germany, Poland, carrier network applications. Examples of these solutions include our China and smaller regional locations. Our manufacturing operations for FlexNAP™ terminal distribution system, which provides pre-connectorized hardware and equipment products are in Texas, Arizona, Mexico, Brazil, distribution and drop cable assemblies for cost-effectively deploying Denmark, Germany, Poland, Israel, Australia and China. fiber-to-the-home (“FTTH”) networks; and the Centrix™ platform, which provides a high-density fiber management system with industry-leading Patent protection is important to the segment’s operations. The density and innovative jumper routing that can be deployed in a wide segment has an extensive portfolio of patents relating to its products, variety of carrier switching centers. technologies and manufacturing processes. The segment licenses certain of its patents to third parties and generates revenue from these licenses, To keep pace with surging demand for mobile bandwidth, Corning has a although the royalty income is not currently material to this segment’s full complement of operator-grade distributed antenna systems (“DAS”), operating results. Corning is licensed to use certain patents owned by including the recently developed Optical Network Evolution wireless others, which are considered important to the segment’s operations. platform. The ONE™ Wireless Platform (“ONE”) is the first all-optical Refer to the material under the heading “Patents and Trademarks” for converged cellular and Wi-Fi® solution built on an all-optical backbone information relating to the Company’s patents and trademarks. with modular service support. It provides virtually unlimited bandwidth, and meets all wireless service needs of large-scale enterprises at a lower The Optical Communications segment represented 37% of Corning’s cost than the typical DAS solution. segment net sales in 2018. In addition to our optical-based portfolio, Corning’s carrier network portfolio also contains select copper-based products including subscriber Specialty Materials Segment demarcation, connection and protection devices, xDSL (different variations of digital subscriber lines) passive solutions and outside plant The Specialty Materials segment manufactures products that provide enclosures. In addition, Corning offers coaxial RF interconnects for the more than 150 material formulations for glass, glass ceramics and fluoride cable television industry as well as for microwave applications for GPS, crystals to meet demand for unique customer needs. Consequently, this radars, satellites, manned and unmanned military vehicles, and wireless segment operates in a wide variety of commercial and industrial markets and telecommunications systems. that include display optics and components, semiconductor optics components, aerospace and defense, astronomy, ophthalmic products, Our enterprise network portfolio also includes optical fiber products, telecommunications components and cover glass that is optimized for including ClearCurve® ultra-bendable multimode fiber for data centers display devices. and other enterprise network applications; InfiniCor® fibers for local area networks; and more recently ClearCurve® VSDN® ultra-bendable 2 CORNING INCORPORATED - 2018 Annual Report


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    Business Description Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass Patent protection is important to the segment’s operations. The designed specifically to function as a cover glass for display devices such segment has an extensive portfolio of patents relating to its products, as mobile phones, tablets and notebook PCs. Elegant and lightweight, technologies and manufacturing processes. Corning is licensed to use Corning Gorilla Glass is durable enough to resist many real-world certain patents owned by others, which are also considered important events that commonly cause glass failure, while maintaining optical to the segment’s operations. Refer to the material under the heading clarity, touch sensitivity, and damage resistance, enabling exciting new “Patents and Trademarks” for information relating to the Company’s applications in technology and design. In 2018, Corning unveiled its patents and trademarks. latest Corning Gorilla Glass innovation, Corning® Gorilla® Glass 6, which is designed to be stronger than previous formulas and provide further The Environmental Technologies segment represented 11% of Corning’s protection against breakage. Gorilla Glass 6 survives higher drop heights segment net sales in 2018. than Gorilla Glass 5, and survives repeated drops. Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan Life Sciences Segment and Taiwan. As a leading developer, manufacturer and global supplier of laboratory Semiconductor optics manufactured by Corning includes high- products for over 100 years, Corning’s Life Sciences segment works with performance optical material products, optical-based metrology researchers and drug manufacturers seeking to increase efficiencies, instruments, and optical assemblies for applications in the global reduce costs and compress timelines. Using unique expertise in the fields semiconductor industry. Corning’s semiconductor optics products are of materials science, polymer surface science, cell culture and biology, manufactured in New York. the segment provides innovative solutions that improve productivity and enable breakthrough research. Other specialty glass products include glass lens and window components and assemblies and are made in New York, New Hampshire Life Sciences products include consumables (such as plastic vessels, and France, and sourced from China. specialty surfaces, cell culture media and serum), as well as general labware and equipment, that are used for advanced cell culture research, Patent protection is important to the segment’s operations. The segment bioprocessing, genomics, drug discovery, microbiology and chemistry. has a growing portfolio of patents relating to its products, technologies Corning sells life sciences products under these primary brands: Corning, and manufacturing processes. Brand recognition and loyalty, through Falcon, Pyrex and Axygen. The products are marketed globally, primarily well-known trademarks, are important to the segment. Refer to the through distributors, to pharmaceutical and biotechnology companies, material under the heading “Patents and Trademarks” for information academic institutions, hospitals, government entities, and other relating to the Company’s patents and trademarks. facilities. Corning manufactures these products in the United States in The Specialty Materials segment represented approximately 13% of California, Illinois, Maine, Massachusetts, New York, North Carolina, Utah Corning’s segment net sales in 2018. and Virginia and outside of the U.S. in China, France, Mexico and Poland. Patent protection is important to the segment’s operations. The segment has a growing portfolio of patents relating to its products, Environmental Technologies Segment technologies and manufacturing processes. Brand recognition and Corning’s Environmental Technologies segment manufactures ceramic loyalty, through well-known trademarks, are important to the segment. substrates and filter products for emissions control in mobile applications Refer to the material under the heading “Patents and Trademarks” for around the world. In the early 1970s, Corning developed an economical, more information. high-performance cellular ceramic substrate that is now the standard The Life Sciences segment represented 8% of Corning’s segment net for catalytic converters in vehicles worldwide. As global emissions control sales in 2018. regulations tighten, Corning has continued to develop more effective and durable ceramic substrate and filter products for gasoline and diesel applications. For example, in response to the growing popularity of gasoline direct injection engines, Corning introduced gasoline All Other particulate filters to help automakers reduce particulate emissions All other segments that do not meet the quantitative threshold for generated by these engines. Corning manufactures substrate and filter separate reporting have been grouped as “All Other.”This group is primarily products in New York, Virginia, China, Germany and South Africa. Corning comprised of the results of the pharmaceutical technologies business sells its ceramic substrate and filter products worldwide to catalyzers and new product lines and development projects, as well as certain and manufacturers of emission control systems who then sell to corporate investments such as Eurokera and Keraglass equity affiliates. automotive and diesel vehicle or engine manufacturers. Although most sales are made to the emission control systems manufacturers, the use of The All Other segment represented 2% of Corning’s segment net sales Corning substrates and filters is generally required by the specifications in 2018. of the automotive and diesel vehicle or engine manufacturers. Additional explanation regarding Corning and its five reportable segments, as well as financial information about geographic areas, is presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17 (Reportable Segments) to the Consolidated Financial Statements. CORNING INCORPORATED - 2018 Annual Report 3


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    Business Description Corporate Investments Dow Corning Corporation and Hemlock Semiconductor Group (“HSG”). realignment, the investment in HSG is recorded at its carrying value, Prior to May 31, 2016, Corning and The Dow Chemical Company which had a negative carrying value of $383 million at the transaction (“Dow Chemical”) each owned half of Dow Corning Corporation date. The negative carrying value resulted from a one-time charge to (“Dow Corning”), an equity company headquartered in Michigan that this entity in 2014 for the permanent abandonment of certain assets. manufactures silicone products worldwide. Dow Corning was the Excluding this charge, the entity is profitable and recovered its equity majority-owner of HSG, a market leader in the production of high purity during 2018. polycrystalline silicon for the semiconductor and solar 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 held 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 5 (Investments) to the Consolidated Financial Statements. our ownership percentage in HSG did not change as a result of the Competition Corning competes with many large and varied manufacturers, both domestic and foreign. Some of these competitors are larger than Corning, Specialty Materials Segment and some have broader product lines. Corning strives to maintain and Corning has deep capabilities in materials science, optical design, improve its market position through technology and product innovation. shaping, coating, finishing, metrology, and system assembly. Additionally, For the foreseeable future, Corning believes its competitive advantage we are addressing emerging needs of the consumer electronics industry lies in its commitment to research and development, its commitment with the development of chemically strengthened glass. Corning to reliability of supply and product quality and technical specification of Gorilla Glass is a thin-sheet glass that is better able to survive events its products. There is no assurance that Corning will be able to maintain that most commonly cause glass failure. Its advanced composition or improve its market position or competitive advantage. allows a deeper layer of chemical strengthening than is possible with most other chemically strengthened glasses, making it both durable and damage resistant. Our products and capabilities in this segment Display Technologies Segment position the Company to meet the needs of a broad array of markets including display, semiconductor, aerospace/defense, astronomy, vision Corning is the largest worldwide producer of glass substrates for high care, industrial/commercial, and telecommunications. For this segment, performance display glass. The environment for high performance display Schott, Asahi Glass Co. Ltd., Nippon Electric Glass Co. Ltd. and Heraeus are glass substrate products is very competitive and Corning believes it has the main competitors. maintained its competitive advantages by investing in new products, providing a consistent and reliable supply, and continually improving its proprietary fusion manufacturing process. This process allows us to deliver glass that is larger, thinner and lighter, with exceptional surface Environmental Technologies Segment quality and without heavy metals. Asahi Glass Co. Ltd. and Nippon Corning believes it maintains a strong position in the worldwide market Electric Glass Co. Ltd. are Corning’s principal competitors in display for automotive ceramic substrate and filter products, as well as in the glass substrates. heavy-duty and light-duty diesel vehicle markets. The Company believes its competitive advantage in automotive ceramic substrate products for catalytic converters and filter products for particulate emissions Optical Communications Segment in exhaust systems is based on an advantaged product portfolio, collaborative engineering design services, customer service and support, Corning believes it maintains a leadership position in the segment’s strategic global presence and continued product innovation. Corning’s principal product groups, which include carrier and enterprise networks. Environmental Technologies products face principal competition from The competitive landscape includes industry consolidation, price NGK Insulators, Ltd. and Ibiden Co. Ltd. pressure and competition for the innovation of new products. These competitive conditions are likely to persist. Corning believes its large- scale manufacturing experience, fiber process, technology leadership and intellectual property provide cost advantages relative to several of Life Sciences Segment its competitors. Corning seeks to maintain a competitive advantage by emphasizing product quality, global distribution, supply chain efficiency, a broad The primary competing producers of the Optical Communications product line and superior product attributes. Our principal competitors segment are CommScope and Prysmian Group. include Thermo Fisher Scientific, Inc., Greiner Group AG, Eppendorf AG and Starstedt AG. Corning also faces increasing competition from large distributors that have pursued backward integration or introduced private label products. 4 CORNING INCORPORATED - 2018 Annual Report


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    Business Description Raw Materials Corning’s manufacturing processes and products require access to Certain key materials and proprietary equipment used in the uninterrupted power sources, significant quantities of industrial water, manufacturing of products are currently sole-sourced or available only certain precious metals, and various batch materials. Availability of from a limited number of suppliers. To minimize this risk, Corning closely resources (ores, minerals, polymers, helium and processed chemicals) monitors raw materials and equipment with limited availability or required in manufacturing operations, appears to be adequate. Corning’s which are sourced through one supplier. However, any future difficulty suppliers, from time to time, may experience capacity limitations in in obtaining sufficient and timely delivery of components and/or raw their own operations, or may eliminate certain product lines. Corning materials could result in lost sales due to delays or reductions in product believes it has adequate programs to ensure a reliable supply of raw and shipments, or reductions in Corning’s gross margins. batch materials as well as precious metals. For many of its materials, Corning has alternate suppliers that would allow operations to continue without interruption in the event of specific materials shortages. 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 2018, Corning was granted about 520 patents in the U.S. and over ribbon, fiber optic cable designs and methods for installing optical 1,430 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 2018, Corning and its wholly- honeycomb products, together with ceramic batch and binder owned subsidiaries owned over 11,600 unexpired patents in various system compositions, honeycomb extrusion and firing processes, countries of which over 4,400 were U.S. patents. Between 2019 and and honeycomb extrusion dies and equipment for the high-volume, 2021, approximately 11% of these patents will expire, while at the same low-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, ophthalmic with about 2,500 in process in the U.S. Corning believes that its patent glasses and polarizing dyes, and semiconductor/microlithography portfolio will continue to provide a competitive advantage in protecting optics and blanks, metrology instrumentation and laser/precision the Company’s innovation, although Corning’s competitors in each of its 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 threshold for separate reporting. display applications. Approximate number of patents granted to our reportable segments follows: Important Number of patents expiring patents between 2019 worldwide U.S. patents and 2021 Display Technologies 1,700 340 6 Optical Communications 5,060 2,340 27 Environmental Technologies 1,100 380 14 Specialty Materials 1,600 680 7 Life Sciences 560 240 1 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, Valor, Willow, LOTUS and IRIS. competitors, but the scope of such licenses has been limited to specific product areas or technologies. CORNING INCORPORATED - 2018 Annual Report 5


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    Business Description Protection of the Environment Corning has an extensive program to ensure that its facilities are in Corning’s 2018 consolidated operating results were charged with compliance with state, federal and foreign pollution-control regulations. approximately $47 million for depreciation, maintenance, waste disposal This program has resulted in capital and operating expenditures each and other operating expenses associated with pollution control. year. To maintain compliance with such regulations, capital expenditures Corning believes that its compliance program does not place it at a for pollution control in operations were approximately $11.3 million in competitive disadvantage. 2018 and are estimated to be $21.1 million in 2019. Employees At December 31, 2018, Corning had approximately 51,500 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 Lawrence D. McRae Vice Chairman and Corporate Development Officer Mr. Clappin joined Corning in 1980 as a process engineer. He transitioned Mr. McRae joined Corning in 1985 and has held a broad range of leadership to GTE Corporation in 1983 and returned to Corning in 1988. He held a positions in various finance, sales, marketing, and general management variety of manufacturing management roles in the consumer products across Corning’s businesses. He was appointed vice president Corporate division, transferring to the display business in 1994. He was appointed Development in 2000, senior vice president Corporate Development as general manager of Corning Display Technologies (CDT) in 2002, in 2003, senior vice president Strategy and Corporate Development in and was president of CDT from September 2005 to July 2010. He was 2005, and executive vice president Strategy and Corporate Development appointed president, Corning Glass Technologies, in 2010. He was in 2010. Mr. McRae has served on Corning’s management committee appointed to his present position in 2017. Age 61. since 2002 and was named vice chairman in 2015. Age 60. Martin J. Curran Executive Vice President and Corning Innovation Officer David L. Morse Executive Vice President and Chief Technology Officer Mr. Curran joined Corning in 1984 and has held a variety of roles in Dr. Morse joined Corning in 1976 as a composition scientist in glass finance, manufacturing, and marketing. He has served as senior vice research. In 1985, he was named senior research associate, manager president, general manager for Corning Cable Systems Hardware and of consumer products development in 1987 and director of materials Equipment Operations in the Americas, responsible for operations in research in 1990. He served in a variety of technology leadership Hickory, North Carolina; Keller, Texas; Reynosa, Mexico; Shanghai, China; positions in organic materials and telecommunications before joining and the Dominican Republic. He has also served as senior vice president corporate research in 2001. Prior to his current role, he served as senior and general manager for Corning Optical Fiber. Mr. Curran was appointed vice president and director, corporate research. Dr. Morse was appointed as Corning’s first innovation officer in August 2012. Age 60. to his current position in 2012. He is a member of the National Academy of Engineering. Age 66. Jeffrey W. Evenson Executive Vice President and Chief Strategy Officer Eric S. Musser Executive Vice President, Corning Technologies and Dr. Evenson joined Corning in 2011 as senior vice president and operations International chief of staff. In 2015, he was named Chief Strategy Officer. He serves on the Management Committee and oversees corporate strategy, corporate Mr. Musser joined Corning in 1986 and served in a variety of communications, and advanced analytics. Prior to joining Corning, manufacturing and general management roles in Corning’s optical Dr. Evenson was a senior vice president with Sanford C. Bernstein, where communications businesses. In 2005, he was named vice president and he served as a senior analyst. Before that, Dr. Evenson was a partner at general manager of Optical Fiber. Mr. Musser served as general manager, McKinsey & Company, where he led technology and market assessment Corning Greater China 2007-2012 and president of Corning International for early-stage technologies. He was appointed executive vice president 2012-2014. He was appointed executive vice president in 2014. Age 59. in 2018. Age 53. Christine M. Pambianchi Executive Vice President, People and Digital Clark S. Kinlin Executive Vice President Ms. Pambianchi joined Corning in 2000 as division human resource Mr. Kinlin joined Corning in 1981 in the Specialty Materials division. From manager, Corning Optical Fiber, and later was named director, Human 1985 to 1995 he worked in the Optical Fiber division. In 1995, he joined Resources, Corning Optical Communications. She was named division Corning Consumer Products. In 2000, Mr. Kinlin was named president, vice president, Business Human Resource in 2004. She has led the Corning International Corporation and, in 2003, he was appointed as Human Resources function since January 2008 when she was named general manager for Greater China. From April 2007 to March 2008, vice president, Human Resources. Ms. Pambianchi was appointed as he was chief operating officer, Corning Cable Systems, (now Corning senior vice president, Human Resources, in 2010 and to her current role Optical Communications) with responsibility for global sales, marketing, in 2018. Age 50. and operations. He was named president and chief executive officer of Corning Cable Systems in April 2008. He was appointed executive vice president in 2012. Age 59. 6 CORNING INCORPORATED - 2018 Annual Report


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    Risk Factors Edward A. Schlesinger Senior Vice President and Corporate Controller controller and, in 1996, corporate controller. Mr. Tripeny was appointed chief financial officer of Corning Cable Systems in July 2000 and, in 2003, Mr. Schlesinger joined Corning in 2013 as senior vice president and he took on the additional role of group controller, Telecommunications. chief financial officer of Corning Optical Communications. He was He was appointed division vice president, operations controller in elected vice president and corporate controller in September 2015 and August 2004, vice president, corporate controller in October 2005, and principal accounting officer in December 2015. He was named senior senior vice president and principal accounting officer in April 2009. Mr. vice president in February 2019. Prior to joining Corning, Mr. Schlesinger Tripeny was then appointed as Corning’s senior vice president and chief served as Vice President, Finance and Sector Chief Financial Officer for financial officer in September 2015. He was appointed executive vice the Climate Solutions Sector for Ingersoll Rand. Mr. Schlesinger has a president in 2018. Age 59. financial career that spans more than 20 years garnering extensive expertise in technical financial management and reporting. Age 51. Wendell P. Weeks Chairman, Chief Executive Officer and President Lewis A. Steverson Executive Vice President and General Counsel Mr. Weeks joined Corning in 1983 in the finance group. He has held a variety of financial, business development, commercial, and general Mr. Steverson joined Corning in 2013 as senior vice president and management roles. In 1993 he was named general manager of external general counsel. Prior to joining Corning, Mr. Steverson served as senior development in Corning’s telecommunications business. He was named vice president, general counsel, and corporate secretary of Motorola vice president and general manager of the Optical Fiber business in 1996 Solutions, Inc. During his 18 years with Motorola, he held a variety of law and president, Corning Optical Communications in 2001. Mr. Weeks has leadership roles across the company’s numerous business units. Prior to been a member of Corning’s Board of Directors since December 2000. He Motorola, Mr. Steverson was in private practice at the law firm of Arnold became Corning’s president and chief operating officer in 2002. He was & Porter. He was appointed executive vice president in 2018. Age 55. named chief executive officer in April 2005 and chairman of the board in R. Tony Tripeny Executive Vice President and Chief Financial Officer April 2007. He added the title of president in 2010. Mr. Weeks is a director of Merck & Co. Inc. and Amazon.com, Inc. Age 59. Mr. Tripeny joined Corning Cable Systems in 1985 as the corporate accounting manager and became the Keller, Texas facility’s plant controller in 1989. In 1993, he was appointed equipment division Document Availability A copy of Corning’s 2018 Annual Report on Form 10-K filed with other filings are available as soon as reasonably practicable after such the Securities and Exchange Commission is available upon written material is electronically filed or furnished to the SEC, and can be request to Corporate Secretary, Corning Incorporated, One Riverfront accessed electronically free of charge at www.SEC.gov, or through the Plaza, Corning, NY 14831. The Annual Report on Form 10-K, quarterly Investor Relations page on Corning’s website at www.corning.com. The reports on Form 10-Q, current reports on Form 8-K, and amendments information contained on the Company’s website is not included in, or pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 and incorporated by reference into, this Annual Report on Form 10-K. Risk Factors We operate in rapidly changing economic, political, and technological sales, research and development, customer support, and shared environments that present numerous risks. Our operations and financial administrative service centers. Additionally, we rely on a global supply results are subject to risks and uncertainties, including those described chain for key components and capabilities that are central to our ability below, that could adversely affect our business, financial condition, to invent, make and sell products. results of operations, cash flows, our ability to successfully execute our strategy and capital allocation framework, and the trading price of our Compliance with laws and regulations increases our costs. We are subject common stock or debt. The following discussion identifies the most to both U.S. laws and local laws which, among other things, include significant factors that may adversely affect our business, operations, data privacy requirements, employment and labor laws, tax laws, anti- financial position or future financial performance. This information competition regulations, prohibitions on payments to governmental should be read in conjunction with our MD&A and the consolidated officials, import and trade restrictions and export requirements. financial statements and related notes incorporated by reference into Non-compliance or violations could result in fines, criminal sanctions this report. The following discussion of risks is not all inclusive but is against us, our officers or employees, and prohibitions on the conduct of designed to highlight what we believe are important factors to consider, our business. Such violations could result in prohibitions on our ability as these factors could cause our future results to differ from those in our to offer our products and services in one or more countries and could forward-looking statements and from historical trends. also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our As a global company, we face many risks which could adversely impact business and operating results. Our success depends, in part, on our our operations and financial results ability to anticipate and manage these risks. We are a global company and derive a substantial portion of our revenues from, and have significant operations, outside of the United States. Our international operations include manufacturing, assembly, CORNING INCORPORATED - 2018 Annual Report 7


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    Risk Factors We are also subject to a variety of other risks in managing a global • Complex, or competing tax regimes; organization, including those related to: • Difficulty in collecting obligations owed to us; • The economic and political conditions in each country or region; • Natural disasters such as floods, earthquakes, tsunamis and • Complex regulatory requirements affecting international trade and windstorms; and investment, including anti-dumping laws, export controls, the Foreign Corrupt Practices Act and local laws prohibiting improper payments. • Potential loss of utilities or other disruption affecting manufacturing. Our operations may be adversely affected by changes in the substance Corning’s Display Technologies segment generates a significant amount or enforcement of these regulatory requirements, and by actual or of the Company’s profits and cash flow. Any significant decrease in alleged violations of them; display glass pricing could have a material and negative impact on our • Fluctuations in currency exchange rates, convertibility of currencies and financial results restrictions involving the movement of funds between jurisdictions Corning’s ability to generate profits and operating cash flow depends and countries; largely on the profitability of our display glass business, which is subject • Governmental protectionist policies and sovereign and political risks to continuous pricing pressure due to industry competition, potential that may adversely affect Corning’s profitability and assets; over-capacity, and development of new technologies. If we are not able to achieve proportionate reductions in costs and increases in volume • Tariffs, trade duties and other trade barriers including to offset potential pricing pressures it could have a material adverse anti-dumping duties; impact on our financial results. • Geographical concentration of our factories and operations, and Because we have a concentrated customer base in each of our regional shifts in our customer base; businesses, our sales could be negatively impacted by the actions or insolvency of one or more key customers, as well as our ability to retain • Periodic health epidemic concerns; these customers • Political unrest, confiscation or expropriation of assets by foreign A relatively small number of end-customers accounted for a high governments, terrorism and the potential for other hostilities; percentage of net sales in each of our reportable segments. Mergers and • Difficulty in protecting intellectual property, sensitive commercial and consolidations between customers could result in further concentration operations data, and information technology systems; of Corning’s customer base. Further concentration, or the loss or insolvency of a key customer, could result in a substantial loss of sales • Differing legal systems, including protection and treatment of and reduction in anticipated in cash flows. intellectual property and patents; 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 2018 Display Technologies 4 70% Optical Communications 1 18% Specialty Materials 3 58% Environmental Technologies 3 78% Life Sciences 2 44% Business disruptions could affect our operating results Geopolitical events, as well as other events outside of Corning’s control, could cause a disruption to our manufacturing operations and adversely A major earthquake, fire or other catastrophic event that results in the impact our customers, resulting in a negative impact to Corning’s net destruction or disruption of any of our critical facilities could severely sales, net income, asset values and liquidity affect our ability to conduct normal business operations and, as a result, our future financial results could be materially and adversely affected. For A natural disaster, epidemic, labor strike, war or political unrest in example, certain manufacturing sites require high quality, continuous, regions where we operate could adversely affect Corning’s ability and uninterrupted power and access to industrial water. Unplanned to supply our customers and impact the value of our assets. Such outages could have a material negative impact on our operations and events may also impact our customers’ facilities and reduce our sales ability to supply our customers. to such customers. For example, a sizeable portion of Corning’s glass manufacturing capacity is in South Korea and we generate a significant Additionally, a significant amount of the specialized manufacturing portion of our sales through two South Korean customers. Deterioration capacity for our reportable segments is concentrated in single-site of the geopolitical climate in such a region could cause a disruption to locations. Due to the specialized nature of the assets, in the event our manufacturing operations and adversely impact our customers, such a location experiences disruption, it may not be possible to find resulting in a negative impact to Corning’s net sales, net income, asset replacement capacity quickly or substitute production from other values and liquidity. facilities. Accordingly, disruption at a single-site manufacturing operation could significantly impact Corning’s ability to supply its customers and could produce a near-term severe impact on our individual businesses and the Company as a whole. 8 CORNING INCORPORATED - 2018 Annual Report


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    Risk Factors 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. We confidentiality procedures, controls and contractual commitments make significant expenditures and investments in research, development to protect our intellectual property rights. Despite our efforts, these and engineering that may not earn an economic return. If our investments protections may be limited and we may encounter difficulties in do not provide a pipeline of products or technologies that our customers protecting our intellectual property rights or obtaining rights to demand or lower our manufacturing costs, it could negatively impact our additional intellectual property necessary to permit us to continue or revenues and operating margins both near- and long-term. expand our businesses. We cannot provide assurance that the patents that we hold or may obtain will provide meaningful protection against We have significant exposure to foreign currency movements our competitors. Changes in or enforcement of laws concerning A large portion of our sales, profit and cash flows are transacted in non- intellectual property may affect our ability to prevent or address the U.S. dollar currencies and we expect that we will continue to experience misappropriation of, or the unauthorized use of, our intellectual property, fluctuations in the US Dollar value of these activities if it is not possible potentially resulting in loss of market share. Litigation may be necessary or cost effective to hedge our currency exposures or should we elect not to enforce our intellectual property rights. Litigation is inherently to hedge certain currency exposures. Alternatively, we may experience uncertain and outcomes are often unpredictable. If we cannot protect gains or losses if the underlying exposure which we have hedged our intellectual property rights against unauthorized copying or use, or changes (increases or decreases) and we are unable to reverse, unwind, other misappropriation, we may not remain competitive. or terminate the hedges concurrent with changes in the underlying The intellectual property rights of others could inhibit our ability to notional exposure. introduce new products. Other companies hold patents on technologies Our ultimate realized loss or gain with respect to currency fluctuations used in our industries and are aggressively seeking to expand, enforce will generally depend on the size and type of cross-currency exposures and license their patent portfolios. We periodically receive notices from, that we have, the exchange rates associated with these exposures and or have lawsuits filed against us by third parties claiming infringement, changes in those rates, whether we have entered into foreign currency misappropriation or other misuse of their intellectual property rights contracts to offset these exposures and other factors. and/or breach of our agreements with them. These third parties often include entities that do not have the capabilities to design, manufacture, Our hedge portfolio may reduce our ability to respond to price moves or distribute products or that acquire intellectual property like patents by our Display Technologies segment competitors. Foreign currency for the sole purpose of monetizing their acquired intellectual property movements may impact our competitive cost position relative to our through asserting claims of infringement and misuse. Such claims largest, Japan-based competitors in the Display Technologies segment. of infringement or misappropriation may result in loss of revenue, The profitability of customers may also be impacted as they typically substantial costs, or lead to monetary damages or injunctive relief purchase from us in Japanese yen and they sell in various currencies. against us. These factors could materially impact our results of operations, Information technology dependency and cyber security vulnerabilities anticipated future results, financial position and cash flows, the timing could lead to reduced revenue, liability claims, or competitive harm of which is variable and generally outside of our control. The Company is dependent on information technology systems and We may have significant exposure to counterparties of our related infrastructure, including cloud-based services, (“IT systems”) to conduct derivatives portfolio its business. Our IT systems may be vulnerable to disruptions from We maintain a significant portfolio of over the counter derivatives to human error, outdated applications, computer viruses, natural disasters, hedge our projected currency exposure to the Japanese yen, New Taiwan unauthorized access, cyber-attack and other similar disruptions. dollar, South Korean won, Chinese yuan and euro. We are exposed to Any significant disruption, breakdown, intrusion, interruption or potential losses in the event of non-performance by our counterparties corruption of these systems or data breaches could cause the loss to these derivative contracts. Any failure of a counterparty to pay on such of data or intellectual property, equipment damage, downtime, and/ a contract when due could materially impact our results of operations, or safety related issues and could have a material adverse effect on financial position, and cash flows. our business. Like other global companies, we have, from time to time, experienced incidents related to our IT systems, and expect that If we are unable to obtain certain specialized equipment, raw and batch such incidents will continue, including malware and computer virus materials or natural resources required in our products or processes, our outbreaks, unauthorized access, systems failures and disruptions. We business will suffer have measures and defenses in place against such events, but we may Our ability to meet customer demand depends, in part, on our ability to not be able to prevent, immediately detect, or remediate all instances obtain timely and adequate delivery of equipment, parts, components of such events. A material security breach or disruption of our IT and raw materials from our suppliers. We may experience shortages systems could result in theft, unauthorized use, or publication of our that could adversely affect our operations. Certain manufacturing intellectual property and/or confidential business information, harm our equipment, components and raw materials are available only from competitive position, disrupt our manufacturing, reduce the value of our single or limited sources, and we may not be able to find alternate investment in research and development and other strategic initiatives, sources in a timely manner. A reduction, interruption or delay of supply, impair our ability to access vendors, suppliers and cloud-based services, or a significant increase in the price for supplies, such as manufacturing or otherwise adversely affect our business. equipment, precious metals, raw materials, utilities including energy and Additionally, we believe that utilities and other operators of critical industrial water, could have a material adverse effect on our businesses. infrastructure that serve our facilities face heightened security risks, We use specialized raw materials from single-source suppliers (e.g., including cyber-attack. In the event of such an attack, disruption in specific mines or quarries) and natural resources (e.g., helium) in certain service from our utility providers could disrupt our manufacturing products and processes. If a supplier is unable to provide the required operations which rely on a continuous source of power (electrical, raw materials or the natural resource is in scarce supply or not readily gas, etc.). available, we may be unable to change our product composition or manufacturing process to prevent disruption to our business. CORNING INCORPORATED - 2018 Annual Report 9


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    Risk Factors We have incurred, and may in the future incur, goodwill and other Our innovation model depends on our ability to attract and retain intangible asset impairment charges specialized experts in our core technologies At December 31, 2018, Corning had goodwill and other intangible assets Our innovation model requires us to employ highly specialized experts of approximately $3.2 billion. While we believe the estimates and in glass science, ceramic science, and optical physics to conduct our judgments about future cash flows used in the goodwill impairment research and development and engineer our products and design our tests are reasonable, we cannot provide assurance that additional manufacturing facilities. The loss of the services of any member of our impairment charges in the future will not be required if the expected key research and development or engineering team without adequate cash flow as projected by management do not occur, especially if replacement, or the inability to attract new qualified personnel, could have an economic downturn occurs and continues for a lengthy period or a material adverse effect on our operations and financial performance. becomes severe, or if the Company’s acquisitions and investments fail to achieve expected returns. We are subject to strict environmental regulations and regulatory changes that could result in fines or restrictions that interrupt Changes in our effective tax rate or tax liability may have an adverse our operations effect on our results of operations Some of our manufacturing processes generate chemical waste, waste Our effective tax rate could be adversely impacted by several water, other industrial waste or greenhouse gases, and we are subject to factors, including: numerous laws and regulations relating to the use, storage, discharge and disposal of such substances. We have installed anti-pollution • Changes in the relative amounts of income before taxes in the various equipment for the treatment of chemical waste and waste water at jurisdictions in which we operate; our facilities. We have taken steps to control the amount of greenhouse • Changes in tax laws, tax treaties and regulations or the interpretation gases created by our manufacturing operations. However, we cannot of them, including the impact of the Tax Cuts and Jobs Act (the “2017 provide assurance that environmental claims will not be brought Tax Act”) which was passed by the U.S. Congress and signed into law against us or that government regulators will not take steps to adopt on December 22, 2017; more stringent environmental standards. • Changes to our assessment about the realizability of our deferred tax Any failure on our part to comply with any present or future assets that are based on estimates of our future results, the prudence environmental regulations could result in the assessment of damages or and feasibility of possible tax planning strategies, and the economic imposition of fines against us, or the suspension/cessation of production and political environments in which we do business; or operations. In addition, environmental regulations could require us to acquire costly equipment, incur other significant compliance expenses • The outcome of current and future tax audits, examinations, or or limit or restrict production or operations and thus materially and administrative appeals; negatively affect our financial condition and results of operations. • Changes in generally accepted accounting principles that affect the Changes in regulations and the regulatory environment in the U.S. and accounting for taxes; and other countries, such as those resulting from the regulation and impact • Limitations or adverse findings regarding our ability to do business in of global warming and CO2 abatement, may affect our businesses some jurisdictions. and their results in adverse ways by, among other things, substantially increasing manufacturing costs, limiting availability of scarce resources, We may have additional tax liabilities especially energy, or requiring limitations on production and sale of our 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 Current or future litigation or regulatory investigations may harm our course of our business, there are many transactions and calculations financial condition or results of operations where the ultimate tax determination is uncertain. Significant judgment is required in determining our worldwide provision for As a global technology and manufacturing company, we are engaged income taxes. Although we believe our tax estimates are reasonable, in various litigation and regulatory matters. Litigation and regulatory the final determination of tax audits and any related litigation could proceedings may be uncertain, and adverse rulings could occur, be materially different from our historical income tax provisions and resulting in significant liabilities, penalties or damages. Such current accruals. The results of an audit or litigation could have a material effect or future substantial legal liabilities or regulatory actions could have a on our financial statements in the period or periods for which that material adverse effect on our business, financial condition, cash flows determination is made. and reputation. The 2017 Tax Act significantly impacted how U.S. global corporations Our global operations are subject to extensive trade and anti-corruption are taxed. Among other things, the 2017 Tax Act required companies laws and regulations to pay a one-time mandatory tax on unrepatriated earnings of certain Due to the international scope of our operations, we are subject to a foreign subsidiaries that were previously tax deferred (the “toll charge”) complex system of import- and export-related laws and regulations, and created new taxes on certain foreign sourced earnings. Significant including U.S. regulations issued by Customs and Border Protection, the guidance has been issued with the intention of clarifying the new tax Bureau of Industry and Security, the Office of Anti-boycott Compliance, provisions. To date, a considerable amount of this guidance has been the Directorate of Defense Trade Controls and the Office of Foreign issued in the form of proposed regulations. The volume and complexity Assets Control, as well as the counterparts of these agencies in other of the proposed regulations as well as the impact of final regulations countries. Any alleged or actual violation by an employee or the which were recently issued, has resulted in many questions regarding Company may subject us to government scrutiny, investigation and civil how the effect of such regulations should be considered. We continue to and criminal penalties, and may limit our ability to import or export our evaluate the impact of this legislation and certain changes could have a products or to provide services outside the United States. We cannot material adverse impact on our tax expense and cash flow. predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the way existing laws might be administered or interpreted. 10 CORNING INCORPORATED - 2018 Annual Report


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    Legal Proceedings In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti- International trade policies may negatively impact our ability to sell and corruption laws generally prohibit companies and their intermediaries manufacture our products outside of the U.S. from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose Government policies on international trade and investment such of obtaining or retaining business, or obtaining an unfair advantage. as import quotas, tariffs, and capital controls, whether adopted by Recent years have seen a substantial increase in the global enforcement individual governments or addressed by regional trade blocs, can affect of anti-corruption laws. Our continued operation and expansion outside the demand for our products and services, impact the competitive the United States, including in developing countries, could increase the position of our products or prevent us (including our equity affiliates/ risk of alleged violations. Violations of these laws may result in severe joint ventures) from being able to sell and/or manufacture products criminal or civil sanctions, could disrupt our business, and result in an in certain countries. The implementation of more restrictive trade adverse effect on our reputation, business and results of operations or policies, such as higher tariffs or new barriers to entry, in countries in financial condition. which we sell large quantities of products and services could negatively impact our business, results of operations and financial condition. Moreover, several of our related partners are domiciled in areas of the For example, a government’s adoption of “buy national” policies or world with laws, rules and business practices that differ from those in retaliation by another government against such policies could have a the United States, and we face the reputational and legal risk that our negative impact on our results of operations. These policies also affect related partners may violate applicable laws, rules and business practices. our equity companies. Legal Proceedings Corning is a defendant in various lawsuits and is subject to various cleanup unless the Agency agrees otherwise. It is Corning’s policy to claims that arise in the normal course of business, the most significant of accrue for its estimated liability related to Superfund sites and other which are summarized in Note 12 (Commitments and Contingencies) to environmental liabilities related to property owned by Corning based on the Consolidated Financial Statements. In the opinion of management, expert analysis and continual monitoring by both internal and external the likelihood that the ultimate disposition of these matters will have consultants. At December 31, 2018 and December 31, 2017, Corning had a material adverse effect on Corning’s consolidated financial position, accrued approximately $30 million (undiscounted) and $38 million liquidity, or results of operations, is remote. (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation. Based upon the information developed Environmental Litigation. Corning has been named by the Environmental to date, management believes that the accrued reserve is a reasonable Protection Agency (the Agency) under the Superfund Act, or by state estimate of the Company’s liability and that the risk of an additional loss governments under similar state laws, as a potentially responsible in an amount materially higher than that accrued is remote. party for 15 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of CORNING INCORPORATED - 2018 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”. As of December 31, 2018, there were approximately 14,599 registered holders of common stock and approximately 468,550 beneficial shareholders. Performance Graph The following graph illustrates the cumulative total shareholder return over the last five years of Corning’s common stock, the S&P 500 and the S&P Communications Equipment Companies. The graph includes the capital weighted performance results of those companies in the communications equipment company classification that are also included in the S&P 500. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG CORNING INCORPORATED, S&P 500 AND S&P COMMUNICATIONS EQUIPMENT (Fiscal Years Ended December 31) $250 Indexed to 100 $200 $150 $100 $50 $0 2013 2014 2015 2016 2017 2018 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 2018: 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 per share plans or programs(1) or programs(1) October 1-31, 2018 3,383,124 $ 31.95 3,338,983 November 1-30, 2018 3,676,736 $ 32.10 3,658,311 December 1-31, 2018 4,398,326 $ 30.64 4,378,063 Total 11,458,186 $ 31.49 11,375,357 $ 1,348,213,211 (1) This column reflects the following transactions during the year ended December 31, 2018: (i) the deemed surrender to us of 31,702 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 50,575 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees; (iii) the deemed surrender to us of 552 shares of common stock to pay the exercise price and to satisfy tax withholding obligations in connection with the exercise of employee stock options; and (iv) the purchase of 11,375,357 shares of common stock under the 2018 Repurchase Programs. 12 CORNING INCORPORATED - 2018 Annual Report


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    Selected Financial Data (Unaudited) Years ended December 31, (In millions, except per share amounts and number of employees) 2018 2017 2016 2015 2014 Results of operations Net sales $ 11,290 $ 10,116 $ 9,390 $ 9,111 $ 9,715 Research, development and engineering expenses $ 993 $ 864 $ 736 $ 745 $ 811 Equity in earnings of affiliated companies $ 390 $ 361 $ 284 $ 299 $ 266 Net income (loss) attributable to Corning Incorporated(1)(2) $ 1,066 $ (497) $ 3,695 $ 1,339 $ 2,472 Earnings (loss) per common share attributable to Corning Incorporated: Basic $ 1.19 $ (0.66) $ 3.53 $ 1.02 $ 1.82 Diluted $ 1.13 $ (0.66) $ 3.23 $ 1.00 $ 1.73 Cash dividends declared per common share $ 0.72 $ 0.62 $ 0.54 $ 0.36 $ 0.52 Shares used in computing per share amounts: Basic earnings per common share 816 895 1,020 1,219 1,305 Diluted earnings per common share 941 895 1,144 1,343 1,427 Financial position Working capital $ 3,723 $ 5,618 $ 6,297 $ 5,455 $ 7,914 Total assets $ 27,505 $ 27,494 $ 27,899 $ 28,527 $ 30,041 Long-term debt $ 5,994 $ 4,749 $ 3,646 $ 3,890 $ 3,205 Total Corning Incorporated shareholders’ equity $ 13,792 $ 15,698 $ 17,893 $ 18,788 $ 21,579 Selected data Capital expenditures $ 2,242 $ 1,804 $ 1,130 $ 1,250 $ 1,076 Depreciation and amortization $ 1,293 $ 1,158 $ 1,195 $ 1,184 $ 1,200 Number of employees 51,500 46,200 40,700 35,700 34,600 (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. CORNING INCORPORATED - 2018 Annual Report 13


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Organization of Information Management’s Discussion and Analysis provides a historical and prospective narrative on the Company’s financial condition and results of operations. This discussion includes the following sections: • Overview • Environment • Results of Operations • Critical Accounting Estimates • Core Performance Measures • New Accounting Standards • Reportable Segments • Forward-Looking Statements • Liquidity and Capital Resources Overview • Increasing our shipments of Valor Glass by four times year-over-year, Strategy and Capital Allocation Framework indicating progress toward certification across more pharmaceutical In October 2015, Corning announced a strategy and capital allocation companies in Life Sciences Vessels; and framework (the “Framework”) that reflects the Company’s financial and • Reaching stable returns in Display Technologies as the glass pricing operational strengths, as well as its ongoing commitment to increasing environment continued to improve and Corning extended global shareholder value. The Framework outlines our leadership priorities, and leadership by successfully ramping the world’s first Gen 10.5 LCD articulates the opportunities we see across our businesses. We designed glass plant. 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 2018 Results $10 billion to extend our leadership positions and deliver growth. Net sales in the year ended December 31, 2018 were $11.3 billion, an Our probability of success increases as we invest in our world-class increase of $1.2 billion, or 12%, when compared to the year ended capabilities. Corning is concentrating approximately 80% of its research, December 31, 2017, driven by sales increases across all segments. development and engineering investment and capital spending on For the year ended December 31, 2018, we generated net income of $1.1 a cohesive set of three core technologies, four manufacturing and billion, or $1.13 per share, compared to a net loss of $0.5 billion, or $(0.66) engineering platforms, and five market-access platforms. This strategy per share, for 2017. When compared to 2017, the $1.6 billion increase will allow us to quickly apply our talents and repurpose our assets in net income was primarily due to the following items (amounts as needed. presented after tax): • The absence of $1.5 billion in tax reform adjustments related to the Performance against the Framework 2017 Tax Act; Since introducing the Framework, we have distributed $11.8 billion to • Higher segment net income in our Optical Communications, shareholders through share repurchases and dividends, and increased Environmental Technologies, Specialty Materials and Life Sciences the annual dividend by 11.1% in 2019, 16.1% in 2018, 14.8% in 2017 and segments, up $123 million, $43 million, $12 million and $22 million, 12.5% in 2016 as part of our ongoing commitment to return cash to respectively; and our investors. • The positive impact of $48 million in tax adjustments, primarily related Highlights of progress in Corning’s market-access platforms include: to changes in the valuation allowances on deferred tax assets offset by the preliminary 2013-2014 IRS audit settlement. • Securing contracts with industry leaders in the carrier and data center segments that will add significant sales in 2019 and beyond, and Partially offsetting these events were the following items: completing the acquisition of CMD in Optical Communications; • An increase of $105 million in legal expenses, driven by a ruling • Extending the company’s leadership in mobile consumer electronics in an intellectual property lawsuit and developments in civil with the launch and adoption of Gorilla Glass 6 as well as other cover litigation matters; glass and sensing technology innovations; • An impact of $99 million resulting from an increase of mark-to-market • Gaining significant new sales and platforms for gasoline particulate loss for our defined benefit pension plans; and filters and strong pull for Gorilla Glass for Automotive solutions, • Lower segment net income in our Display Technologies and All Other particularly the industry’s first AutoGrade Glass Solutions for segments in the amount of $53 million and $22 million, respectively. automotive interiors, reaching more than 55 platforms to date; 14 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Diluted earnings per share increased by $1.79 per share, or 271%, when to improve further to a mid-single digit percentage. We anticipate compared to 2017, driven by the increase in net income described above, Corning’s display glass volume will grow faster than the expected coupled with the repurchase of 74.8 million shares of common stock display glass market growth of mid-single digits, driven by television over the last twelve months. screen size growth and the ramp of our Gen 10.5 facility in China. In the Optical Communications segment, we expect sales to increase by low- The translation impact of fluctuations in foreign currency exchange teens in percentage terms, including the impact of a full year of sales rates, including the impact of hedges realized in 2018, did not from the acquisition of 3M’s Communication Markets Division. We materially impact Corning’s consolidated net income in the year ended expect high-single digit sales growth in our Environmental Technologies December 31, 2018 when compared to the year ended December 31, 2017. segment. We expect growth in the Specialty Materials segment, the rate of which will depend on the adoption of our innovations. We anticipate low to mid-single digit percentage growth in sales for the Life 2019 Corporate Outlook Sciences segment. We believe 2019 will be another year of strong growth and investment, consistent with our Strategy and Capital Allocation Framework. In our Display Technologies segment, we expect full year 2019 price declines Results of Operations Selected highlights from our operations follow (in millions): % change 2018 2017 2016 18 vs. 17 17 vs. 16 Net sales $ 11,290 $ 10,116 $ 9,390 12 8 Gross margin $ 4,461 $ 4,020 $ 3,763 11 7 (gross margin %) 40% 40% 40% Selling, general and administrative expenses $ 1,799 $ 1,473 $ 1,462 22 1 (as a % of net sales) 16% 15% 16% Research, development and engineering expenses $ 993 $ 864 $ 736 15 17 (as a % of net sales) 9% 9% 8% Equity in earnings of affiliated companies $ 390 $ 361 $ 284 8 27 (as a % of net sales) 3% 4% 3% Translated earnings contract loss, net $ (93) $ (121) $ (448) 23 73 (as a % of net sales) (1)% (1)% (5)% Gain on realignment of equity investment $ 2,676 * * (as a % of net sales) 28% Income before income taxes $ 1,503 $ 1,657 $ 3,692 (9) (55) (as a % of net sales) 13% 16% 39% (Provision) benefit for income taxes $ (437) $ (2,154) $ 3 80 * (as a % of net sales) (4)% (21)% * Net income (loss) attributable to Corning Incorporated $ 1,066 $ (497) $ 3,695 * * (as a % of net sales) 9% (5)% 39% * Percent change not meaningful. CORNING INCORPORATED - 2018 Annual Report 15


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Segment Net Sales The following table presents segment net sales by reportable segment (in millions): % % Years ended December 31, change change 2018 2017 2016 18 vs. 17 17 vs. 16 Display Technologies $ 3,276 $ 3,137 $ 3,288 4% (5)% Optical Communications 4,192 3,545 3,005 18% 18% Specialty Materials 1,479 1,403 1,124 5% 25% Environmental Technologies 1,289 1,106 1,032 17% 7% Life Sciences 946 879 839 8% 5% All Other 216 188 152 15% 24% Total segment net sales $ 11,398 $ 10,258 $ 9,440 11% 9% For the year ended December 31, 2018, segment net sales increased • An increase of $74 million in the Environmental Technologies segment, by $1.1 billion, or 11%, when compared to the same period in 2017. The driven by higher net sales of automotive products, up $42 million, due to primary sales drivers by segment were as follows: market strength in Europe, China and Asia, and initial commercial sales of gas particulate filters. Diesel product sales increased $32 million • Display Technologies segment net sales increased $139 million with higher demand for heavy-duty diesel products in North America compared to the prior year. Total display glass market volume was up in and Asia; 2018. Our volume growth in this market more than offset price declines on a year-over-year basis. 2018 was the best pricing environment in • An increase of $40 million in the Life Sciences segment, driven by more than a decade, achieving the important milestone of mid-single higher sales in North America and China; and digit year-over-year declines during the second half of the year; • An increase of $36 million in the All Other segment, driven by an • An increase of $647 million in the Optical Communications segment, increase in sales in our emerging businesses. due to higher sales of carrier and enterprise network products, up $364 million and $283 million, respectively. The acquisition of CMD driving Movements in foreign exchange rates did not materially impact $200 million of the increase in sales; Corning’s consolidated net sales in the year ended December 31, 2017, respectively, when compared to the same period in 2016. • An increase of $76 million in the Specialty Materials segment driven by higher net sales of Gorilla Glass products, advanced optics and other In 2018, 2017 and 2016, sales in international markets accounted for 69%, specialty glass; 69% and 72%, respectively, of total net sales. • An increase of $183 million in the Environmental Technologies segment, driven by sales growth in all categories including sales of gas Cost of Sales particulate filters; and The types of expenses included in the cost of sales line item are: raw • An increase of $67 million in the Life Sciences segment, as the business materials consumption, including direct and indirect materials; salaries, continued to outpace the market. wages and benefits; depreciation and amortization; production utilities; production-related purchasing; warehousing (including receiving and Movements in foreign exchange rates did not materially impact inspection); repairs and maintenance; inter-location inventory transfer Corning’s consolidated net sales in the year ended December 31, 2018, costs; production and warehousing facility property insurance; rent for respectively, when compared to the same period in 2017. production facilities; and other production overhead. For the year ended December 31, 2017, net sales increased by $818 million, or 9%, when compared to the same period in 2016. The primary sales drivers by segment were as follows: Gross Margin • A decrease of $151 million in the Display Technologies segment, driven In the year ended December 31, 2018, gross margin dollars increased by by price declines of approximately 10%, partially offset by an increase $441 million, or 11%, and gross margin as a percentage of net sales was in volume in the mid-single digits in percentage terms; consistent when compared to the same period last year. The increase in gross margin dollars was primarily driven by the following items: • An increase of $540 million in the Optical Communications segment, due to higher sales of carrier and enterprise network products, • Higher sales in the Optical Communications segment, driven by up $446 million and $94 million, respectively, combined with the growth in Carrier and Enterprise products, resulting in increased gross absence of production issues related to the implementation of margin of $291 million; new manufacturing software in the first quarter of 2016. Strong growth in the North American market drove the increase in carrier • An increase in Gorilla Glass and advanced optics product volume network products; which contributed $48 million to gross margin; and • An increase of $279 million in the Specialty Materials segment, driven • Higher sales in the Environmental technologies segment drove an $85 by strong growth in segment net sales of Corning Gorilla Glass million increase. products, combined with an increase of $42 million in advanced Gross margin increases were partially offset by higher costs related to optics products; capacity expansions across multiple business segments and display glass price declines. 16 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Movements in foreign exchange rates did not materially impact When compared to the year ended December 31, 2016, selling, general Corning’s consolidated gross margin in the year ended December 31, and administrative expenses increased by $11 million in the year ended 2018, respectively, when compared to the same period in 2017. December 31, 2017. The increase was due to the following items: In the year ended December 31, 2017, gross margin dollars increased • A decrease of $52 million in acquisition-related costs, driven by the by $257 million, or 7%, and gross margin as a percentage of net sales absence of costs related to the realignment of our equity interests in remained consistent at 40%, when compared to the same period last Dow Corning completed in the second quarter of 2016, offset slightly year. The increase in gross margin dollars was primarily driven by the by several small acquisitions occurring in 2017; following items: • A decrease of $64 million in litigation, regulatory and other legal • Higher volume in the Display Technologies segment, offset by higher costs, primarily driven by the absence of events occurring in the costs related to capacity expansion; second quarter of 2016. In this period, we recorded litigation and other expenses related to the resolution of an investigation by the U.S. • Higher volume in the Optical Communications segment, driven Department of Justice and an environmental matter in the amount of by growth in North America and Europe, partially offset by higher $98 million, offset somewhat by the gain on the contribution of our manufacturing expenses related to capacity expansion; equity interests in PCC and PCE as partial settlement of the asbestos • An increase in Gorilla Glass and advanced optics product volume, litigation in the amount of $56 million; and slightly offset by higher raw materials costs; and • A decrease of $46 million in the mark-to-market of our defined benefit • Higher light-duty substrate demand in Europe, China and Asia, offset pension plans. somewhat by lower North America demand, as well as an increase Offsetting these events were the following items: in demand for heavy-duty diesel products in North America and Asia. Partially offsetting the increase in demand was a decline in • A decrease of $32 million in gains from the contingent consideration manufacturing efficiency due to the use of higher-cost manufacturing fair value adjustment; facilities and sales of lower margin products. • An increase of $51 million in the Optical Communications segment due Display glass price declines of approximately 10% and the negative to costs associated with acquisitions and growth initiatives; and impact of movements in the Japanese yen and South Korean won in the amount of $73 million, which primarily impacted the Display • An increase of $24 million in the Specialty Materials segment in Technologies segment, partially offset the increase. support of new product launches. Movements in foreign exchange rates did not materially impact The types of expenses included in the selling, general and administrative Corning’s consolidated net sales in the year ended December 31, 2017, expenses line item are: salaries, wages and benefits; travel; professional respectively, when compared to the same period in 2016. fees; and depreciation and amortization, utilities, and rent for administrative facilities. Selling, General and Administrative Expenses Research, Development and Engineering When compared to the year ended December 31, 2017, selling, general and administrative expenses increased by $326 million, or 22%, in the Expenses year ended December 31, 2018. Selling, general and administrative For year ended December 31, 2018, research, development and expenses increased by 1% as a percentage of sales. The increase was engineering expenses increased by $129 million, or 15%, when compared primarily driven by the following items: to 2017, driven by higher costs associated with new product launches and our emerging businesses. As a percentage of sales, these expenses • An increase of $137 million in litigation and other legal expenses, driven were flat when compared to the same period last year. by a ruling in an intellectual property lawsuit and developments in commercial litigation matters; In the year ended December 31, 2017, research, development and engineering expenses increased by $128 million, or 17%, when compared • An increase in the Optical Communications segment, up $65 million, to the same period last year, driven by the absence of the impact of a 2016 largely driven by the acquisition of CMD; joint development agreement in the Display Technologies segment, as • Increased corporate expenses of $55 million; well as higher costs associated with new product launches in the Optical Communications, Specialty Materials and Environmental Technologies • Increased acquisition related costs of $25 million; and segments, up $20 million, $11 million and $7 million, respectively. As • Increased costs in our emerging businesses, up $20 million, driven by a percentage of sales, these expenses decreased one percent when investments in new customers and new business growth. compared to the same period last year. CORNING INCORPORATED - 2018 Annual Report 17


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Equity in Earnings of Affiliated Companies The following provides a summary of equity earnings of affiliated companies (in millions): Years ended December 31, 2018 2017 2016 Dow Corning Corporation(1) $ 82 Hemlock Semiconductor Group(2) $ 388 $ 352 212 All other 2 9 (10) Total equity earnings $ 390 $ 361 $ 284 (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 HSG beginning on June 1, 2016. On May 31, 2016, Corning completed the strategic realignment of equity earnings from the HSG business were reported on the equity its equity investment in Dow Corning Corporation (“Dow Corning”) in earnings line in Corning’s income statement, net of Dow Corning’s pursuant to the Transaction Agreement announced on December 10, 35% U.S. tax. Additionally, Corning reported its tax on equity earnings 2015. Under the terms of the Transaction Agreement, Corning exchanged from Dow Corning on the tax provision line on its income statement with Dow Corning its 50% stock interest in Dow Corning for 100% of the at a U.S. tax provision rate of 7%. As part of the realignment, HSG was stock of a newly formed entity, which held an equity interest in Hemlock converted to a partnership. Each of the partners is responsible for the Semiconductor Group (HSG) and approximately $4.8 billion in cash. taxes on their portion of equity earnings. Therefore, post-realignment, HSG’s equity earnings is reported before tax on the equity in earnings The equity in earnings line on our income statement for the year ended line and Corning’s tax is reported on the tax provision line. December 31, 2016 reflects both the equity earnings from the silicones and polysilicones (HSG) businesses of Dow Corning from January 1, Refer to Note 12 (Commitments, Contingencies and Guarantees) to the 2016 through May 31, 2016. Prior to the realignment of Dow Corning, consolidated financial statements for additional information. Translated earnings contracts Included in the line item Translated earnings contract loss, net, is the impact of foreign currency hedges which hedge our translation exposure arising from movements in the Japanese yen, South Korean won, euro, Chinese yuan and British pound against the U.S. dollar and its impact on our net income (loss). The following table provides detailed information on the gains and losses associated with our translated earnings contracts: Year ended Year ended Change December 31, 2018 December 31, 2017 2018 vs. 2017 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 $ 97 $ 78 $ 270 $ 169 $ (173) $ (91) Unrealized loss (190) (189) (391) (247) 201 58 Total translated earnings contract loss, net $ (93) $ (111) $ (121) $ (78) $ 28 $ (33) 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 (391) (247) (649) (409) 258 162 Total translated earnings contract loss, net $ (121) $ (78) $ (448) $ (282) $ 327 $ 204 18 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations The gross notional value outstanding for our translated earnings contracts at December 31, 2018, 2017 and 2016 were as follows (in billions): Years ended December 31, 2018 2017 2016 Japanese yen-denominated hedges $ 11.6 $ 13.0 $ 14.9 South Korean won-denominated hedges 0.1 0.8 1.2 Euro-denominated hedges 1.2 0.3 0.3 Chinese yuan-denominated hedges 0.6 0.2 0.3 British pound-denominated hedges 0.1 Total gross notional value outstanding $ 13.6 $ 14.3 $ 16.7 Income Before Income Taxes The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in 2018, did not impact Corning’s income before income taxes in the years ended December 31, 2018 and 2017, respectively, when compared to the same period in the prior year. (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, 2018 2017 2016 (Provision) benefit for income taxes $ (437) $ (2,154) $ 3 Effective tax rate (benefit) 29.1% 130.0% (0.1)% For the year ended December 31, 2018, the effective income tax rate In December 2017, the U.S. enacted the 2017 Tax Act which resulted in differed from the U.S. statutory rate of 21% primarily due to the following: significant changes for our financial results, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate to 21%, and (2) • Additional taxes of $55 million related primarily to the global intangible imposing a one-time toll charge tax on certain unrepatriated earnings low-taxed income (“GILTI”) provisions of the 2017 Tax Act; and of foreign subsidiaries of U.S. companies that had not been previously • Incremental tax expense of $172 million related to a preliminary taxed in the U.S. agreement with the IRS for the income tax audit of years 2013 and 2014. Given the significant complexity of the 2017 Tax Act and the lack of These items were partially offset by the following: clear tax and accounting regulatory guidance for this new law, the Securities Exchange Commission issued its Staff Accounting Bulletin 118 • A benefit of $35 million related to the finalization of the one-time toll (“SAB 118”) to provide registrants additional time to analyze and report charge recorded in 2017; and the effects of tax reform during the “measurement period”. Under SAB • An $82 million benefit from the release of a valuation allowance on 118, the registrant was required to record those items where ASC 740 deferred tax assets that are now considered realizable. analysis was complete; include reasonable estimates and label them as provisional where ASC 740 analysis was incomplete; and if reasonable For the year ended December 31, 2017, the effective income tax rate estimates could not be made, record items under the previous tax law. differed from the U.S. statutory rate of 35% primarily due to the following: The measurement period, not to exceed one year, ended on the date the entity had obtained, prepared, and analyzed the information that was • As a result of the 2017 Tax Act, a provisional tax expense of $1.1 billion needed to complete the accounting requirements under ASC Topic 740. for the one-time toll charge on unrepatriated earnings of certain foreign subsidiaries that were previously deferred; The 2017 Tax Act also established new tax provisions affecting our 2018 results, including, but not limited to: (1) Creating a new provision to tax • The result of a provisional tax expense of $347 million recorded for the global intangible low-taxed income (GILTI); (2) generally eliminating U.S. U.S. deferred tax assets and liabilities re-measured at the reduced rate federal taxes on dividends from foreign subsidiaries; (3) eliminating of 21%; and the corporate alternative minimum tax (“AMT”); (4) creating the base • Rate differences on income (loss) of consolidated foreign companies. erosion anti-abuse tax (“BEAT”); (5) establishing a deduction for foreign derived intangible income (“FDII”); (6) establishing new limitations on The effective income tax rate for 2016 differed from the U.S. statutory deductible interest expense; and (7) establishing new limitations on the rate of 35% primarily due to the following items: deductibility of certain executive compensation. • Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income; and • The tax-free nature of the realignment of our equity interest in Dow Corning during the period, as well as the release of the deferred tax liability related to Corning’s tax on Dow Corning’s undistributed earnings as of the date of the transaction. CORNING INCORPORATED - 2018 Annual Report 19


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2018, Corning’s results included a Beginning in 2018, Corning will indefinitely reinvest the foreign earnings worldwide tax provision of $437 million, inclusive of tax on ongoing of: (1) any of its subsidiaries located in jurisdictions where Corning lacks operations of $412 million and the impacts of the 2017 Tax Act of $25 the ability to repatriate its earnings, (2) any of its subsidiaries where million. The impacts of the 2017 Tax Act include: GILTI tax of $55 million, Corning’s intention is to reinvest those earnings in operations, (3) legal FDII benefit of $10 million, and a $20 million benefit related to truing up entities for which Corning holds a non-controlling interest, (4) any the toll charge and our measurement of U.S. deferred taxes, offset by subsidiaries with an accumulated deficit in earnings and profits and the recording of a provision related to lifting our assertion of indefinite (5) any subsidiaries which have a positive earnings and profits balance reinvestment on certain foreign earnings. As of December 31, 2018, but for which the entity lacks sufficient local statutory earnings or stock Corning has completed its analysis of the impact of the 2017 Tax Act as basis from which to make a distribution. required by SAB 118. The GILTI tax of $55 million was largely driven by the receipt of customer deposits. See Note 2 (Revenue) to these Consolidated During 2018, the Company distributed approximately $4.2 billion from Financial Statements for more information. foreign subsidiaries to their respective U.S. parent companies. There are no incremental taxes beyond the toll charge due with respect to Corning has completed its analysis on the impact of the 2017 Tax Act these distributions. As of December 31, 2018, Corning has approximately on its assertion regarding its indefinitely reinvested foreign earnings. $1.5 billion of indefinitely reinvested foreign earnings. It remains Corning has determined that it will no longer assert indefinite impracticable to calculate the tax cost of repatriating our unremitted asset reinvestment on $15.4 billion of unremitted foreign earnings earnings which are considered indefinitely reinvested. accumulated prior to 2018. This represents approximately 94% of Corning’s unremitted foreign earnings as of the end of 2017. Corning will Refer to Note 4 (Income Taxes) to the Consolidated Financial Statements continue to indefinitely reinvest the remaining 6% of historic foreign for further details regarding income tax matters. earnings as of December 31, 2017. Net Income (Loss) Attributable to Corning Incorporated As a result of the items discussed above, net income (loss) and per share data was as follows (in millions, except per share amounts): Years ended December 31, 2018 2017 2016 Net income (loss) attributable to Corning Incorporated $ 1,066 $ (497) $ 3,695 Net income (loss) attributable to Corning Incorporated used in basic earnings per common share calculation(1) $ 968 $ (595) $ 3,597 Net income (loss) attributable to Corning Incorporated used in diluted earnings per common share calculation(1) $ 1,066 $ (595) $ 3,695 Basic earnings (loss) per common share $ 1.19 $ (0.66) $ 3.53 Diluted earnings (loss) per common share $ 1.13 $ (0.66) $ 3.23 Weighted-average common shares outstanding - basic 816 895 1,020 Weighted-average common shares outstanding - diluted 941 895 1,144 (1) Refer to Note 16 (Earnings per Common Share) to the Consolidated Financial Statements for additional information. Comprehensive Income Years ended December 31, (in millions) 2018 2017 2016 Net income (loss) attributable to Corning Incorporated $ 1,066 $ (497) $ 3,695 Foreign currency translation adjustments and other (185) 746 (104) Net unrealized (loss) gain on investments (1) 14 (3) Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans 19 30 241 Net unrealized (loss) gain on designated hedges (1) 44 1 Other comprehensive (loss) income, net of tax (168) 834 135 Comprehensive income attributable to Corning Incorporated $ 898 $ 337 $ 3,830 2018 vs. 2017 Partially offsetting this increase was a decrease in the gain on foreign currency translation adjustments in the amount of $0.9 billion For the year ended December 31, 2018, comprehensive income increased (after-tax), largely driven by the strengthening of foreign currencies, by $0.6 billion, when compared to the same period in 2017, driven by an most significantly the South Korean won, euro and the Chinese yuan, increase in net income of $1.6 billion largely driven by the absence of $1.5 which impacted comprehensive income in the amounts of $556 million, billion in tax reform adjustments related to the 2017 Tax Act. $156 million and $114 million, respectively. 20 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations 2017 vs. 2016 U.S. deferred tax assets and liabilities. Our unamortized actuarial gains decreased driven by a decrease in the discount rates used to value our For the year ended December 31, 2017, comprehensive income decreased postretirement benefit obligations. by $3.5 billion, when compared to the same period in 2016, driven by a decrease in net income of $4.2 billion and a decrease in unamortized Partially offsetting these decreases was an increase in the gain on actuarial gains for postretirement benefit plans. The significant decrease foreign currency translation adjustments in the amount of $850 million in net income was largely driven by the absence of a $2.7 billion non- (after-tax), largely driven by the weakening of foreign currencies, most taxable gain and a $105 million positive tax adjustment on the strategic significantly the South Korean won, Japanese yen and the euro, which realignment of our ownership interest in Dow Corning recorded in the impacted comprehensive income in the amounts of $420 million, $164 second quarter of 2016, combined with the impact of the passage of the million and $115 million, respectively. 2017 Tax Act, which included a provisional toll charge of $1.1 billion and See Note 11 (Employee Retirement Plans) and Note 15 (Shareholders’ a provisional charge of $347 million as a result of the remeasurement of Equity) to the Consolidated Financial Statements for additional details. Core Performance Measures In managing the Company and assessing our financial performance, Core performance measures are not prepared in accordance with we adjust certain measures provided by our consolidated financial Generally Accepted Accounting Principles in the United States (“GAAP”). statements to exclude specific items to arrive at core performance We believe investors should consider these non-GAAP measures in measures. These items include gains and losses on our translated evaluating our results as they are more indicative of our core operating earnings contracts, acquisition-related costs, certain discrete tax items, performance and how management evaluates our operational results restructuring and restructuring-related charges, certain litigation- and trends. These measures are not, and should not be viewed as a related expenses, pension mark-to-market adjustments and other items substitute for, GAAP reporting measures. With respect to the Company’s which do not reflect on-going operating results of the Company or our outlook for future periods, it is not possible to provide reconciliations equity affiliates. Additionally, Corning has adopted the use of constant for these non-GAAP measures because the Company does not forecast currency reporting for our Display Technologies and Specialty Materials the movement of the Japanese yen, South Korean won, Chinese yuan segments for the Japanese yen, South Korean won, Chinese yuan and or New Taiwan dollar against the U.S. dollar, or other items that do not New Taiwan dollar currencies. The Company believes that the use of reflect ongoing operations, nor does it forecast items that have not yet constant currency reporting allows investors to understand our results occurred or are out of the Company’s control. As a result, the Company is without the volatility of currency fluctuations, and reflects the underlying unable to provide outlook information on a GAAP basis. economics of the translated earnings contracts used to mitigate the impact of changes in currency exchange rates on our earnings and cash For a reconciliation of non-GAAP performance measures to their most flows. Corning also believes that reporting core performance measures directly comparable GAAP financial measure, please see “Reconciliation provides investors greater transparency to the information used by our of Non-GAAP Measures” below. management team to make financial and operational decisions. Results of Operations – Core Performance Measures Selected highlights from our continuing operations, excluding certain items, follow (in millions): Years ended December 31, % change 2018 2017 2016 18 vs. 17 17 vs. 16 Core net sales $ 11,398 $ 10,258 $ 9,440 11% 9% Core equity in earnings of affiliated companies $ 241 $ 211 $ 249 14% (15)% Core earnings $ 1,673 $ 1,634 $ 1,651 2% (1)% Core Net Sales Core net sales are consistent with net sales by reportable segment. The following table presents segment net sales by reportable segment (in millions): Years ended December 31, % change 2018 2017 2016 18 vs. 17 17 vs. 16 Display Technologies $ 3,276 $ 3,137 $ 3,288 4% (5)% Optical Communications 4,192 3,545 3,005 18% 18% Specialty Materials 1,479 1,403 1,124 5% 25% Environmental Technologies 1,289 1,106 1,032 17% 7% Life Sciences 946 879 839 8% 5% All Other 216 188 152 15% 24% Total segment net sales(1) $ 11,398 $ 10,258 $ 9,440 11% 9% (1) Segment net sales and variances are discussed in detail in the Reportable Segments section of our MD&A. CORNING INCORPORATED - 2018 Annual Report 21


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Core Equity in Earnings of Affiliated Companies The following provides a summary of core equity in earnings of affiliated companies (in millions): Years ended December 31, % change 2018 2017 2016 18 vs. 17 17 vs. 16 Dow Corning Corporation(1) $ 98 (100)% (2) Hemlock Semiconductor Group $ 236 $ 201 154 17% 31% All other 5 10 (3) (50)% 433% Total core equity earnings $ 241 $ 211 $ 249 14% (15)% (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 HSG beginning on June 1, 2016. Core Earnings 2018 vs. 2017 2017 vs. 2016 In the year ended December 31, 2018, we generated core earnings of In the year ended December 31, 2017, we generated core earnings of $1,673 million or $1.78 per share, compared to core earnings generated $1,634 million or $1.60 per share, compared to core earnings generated in the year ended December 31, 2017 of $1,634 million, or $1.60 per in the year ended December 31, 2016 of $1,651 million, or $1.44 per share. The increase in core earnings of $39 million was driven by the share. The decrease in core earnings of $17 million was driven by the following items: following items: • An increase in the Optical Communications segment of $123 million, • The absence of equity earnings of $98 million from Dow Corning’s driven by higher sales of carrier and enterprise network products; silicones business due to our 2016 realignment of our ownership interest in Dow Corning; • An increase in the Environmental Technologies segment of $43 million resulting from sales growth across all product lines; • A decrease of $65 million in the Display Technologies segment, driven by display glass price declines of approximately 10%, partially offset by • An increase of $22 million in the Life Sciences segment resulting from an increase in volume in the mid-single digits in percentage terms; and higher sales, as well as improved manufacturing efficiencies; and • An increase in corporate project expenses and variable compensation • An increase of $12 million in the Specialty Materials segment driven by of $29 million and $25 million, respectively. higher sales of Gorilla Glass, advanced optics and other specialty glass. The decline was offset by an increase in core earnings in the Optical Partially offsetting these increases in earnings were the following: Communications segment of $118 million, due to higher sales of carrier • A decrease in the Display Technologies segment of $53 million, with and enterprise network products, combined with the absence of the the costs of expanding Gen 10.5 capacity, ramping production and production issues in the first half of 2016 related to the implementation rebuilding tanks for fleet optimization during the first half of the year of new software and an increase in the Specialty Materials segment of more than offsetting increased sales; $73 million, driven by an increase in Corning Gorilla Glass and advanced optics products. • A decrease of $22 million in the All Other segment resulting from increased investment in development projects; Although core net earnings decreased in the year ended December 31, 2017, core earnings per share increased $0.16 per share, driven by • Increased financing expenses of $30 million; and lower weighted average shares outstanding due to repurchases of our • Increased corporate project expenses $39 million. common stock in 2017. Core earnings per share increased in the year ended December 31, 2018 to Included in core earnings for the years ended December 31, 2018, 2017 $1.78 per share, driven by the increase in core income and lower weighted and 2016 is net periodic pension expense in the amount of $52 million, average shares outstanding due to repurchases of our common stock $49 million and $51 million, respectively, which excludes the annual during 2018. pension mark-to-market adjustments. In the years ended December 31, 2018, 2017 and 2016, the mark-to-market adjustments pre-tax losses of $145 million, $21 million and $67 million, respectively. Refer to Note 11 (Employee Retirement Plans) to the Consolidated Financial Statements for additional information. 22 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Core Earnings per Common Share The following table sets forth the computation of core basic and core diluted earnings per common share (in millions, except per share amounts): 2018 2017 2016 Core earnings attributable to Corning Incorporated $ 1,673 $ 1,634 $ 1,651 Less: Series A convertible preferred stock dividend 98 98 98 Core earnings available to common stockholders - basic 1,575 1,536 1,553 Add: Series A convertible preferred stock dividend 98 98 98 Core earnings available to common stockholders - diluted $ 1,673 $ 1,634 $ 1,651 Weighted-average common shares outstanding - basic 816 895 1,020 Effect of dilutive securities: Stock options and other dilutive securities 10 11 9 Series A convertible preferred stock 115 115 115 Weighted-average common shares outstanding - diluted 941 1,021 1,144 Core basic earnings per common share $ 1.93 $ 1.72 $ 1.52 Core diluted earnings per common share $ 1.78 $ 1.60 $ 1.44 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. 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, 2018 Equity Income before Net Effective Earnings per Net Sales earnings income taxes income tax rate(a) share As reported $ 11,290 $ 390 $ 1,503 $ 1,066 29.1% $ 1.13 (1) Constant-currency adjustment 108 2 156 127 0.13 Translation loss on Japanese yen-denominated debt(2) 18 15 0.02 (3) Translated earnings contract loss, net 73 97 0.10 Acquisition-related costs(4) 132 103 0.11 Discrete tax items and other tax-related adjustments(5) 79 0.08 Litigation, regulatory and other legal matters(6) 124 96 0.10 Restructuring, impairment and other charges(7) 130 96 0.10 Equity in earnings of affiliated companies(8) (151) (151) (119) (0.13) (10) Pension mark-to-market adjustment 145 113 0.12 Core performance measures $ 11,398 $ 241 $ 2,130 $ 1,673 21.5% $ 1.78 (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 - 2018 Annual Report 23


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Year ended December 31, 2017 Equity Income before Net (loss) Effective (Loss) earnings Net sales earnings income taxes income tax rate(a) per share As reported $ 10,116 $ 361 $ 1,657 $ (497) 130.0% $ (0.66) Constant-currency adjustment(1) 142 2 168 138 0.15 Translation gain on Japanese yen-denominated debt(2) (14) (9) (0.01) Translated earnings contract loss, net(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 resulting from the 2017 Tax Act(13) 1,755 1.96 Core performance measures $ 10,258 $ 211 $ 1,960 $ 1,634 16.6% $ 1.60 (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-currency adjustment(1) 50 1 85 65 0.06 Translated earnings contract loss, net(3) 448 282 0.25 (4) Acquisition-related costs 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) Adjustments related to acquisitions(9) (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 $ 9,440 $ 248 $ 1,928 $ 1,651 14.4% $ 1.44 (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. 24 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Items which we exclude from GAAP measures to arrive at core performance measures are as follows: (1) Constant-currency adjustments: Because a significant portion of Display Technologies segment revenues are denominated in Japanese yen, and a significant portion of Display Technologies and Specialty Materials segment manufacturing costs are denominated in Japanese Yen, Korean won, New Taiwan dollar and Chinese yuan, management believes it is important to understand the impact on earnings of translating these currencies into U.S. dollars. Presenting results on a constant-currency basis mitigates the translation impact and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts. Constant-yen: As of January 1, 2018, we use an internally derived management rate of ¥107, which is closely aligned to our current yen portfolio of foreign currency hedges, and have recast all periods presented based on this rate to effectively remove the impact of changes in the Japanese yen. Constant-won: As of January 1, 2018, we use an internally derived management rate of ₩1,175, which is closely aligned to our current won portfolio of foreign currency hedges, and have recast all periods presented based on this rate. Constant-yuan: In January 2018, we began presenting results of the Display Technologies and Specialty Materials segments on a constant-yuan basis to mitigate the translation impact of this currency on these segments. We use an internally derived management rate of yuan 6.7, which is closely aligned to our current yuan portfolio of foreign currency hedges and consistent with historical prior period averages. Constant-Taiwan dollar: In January 2018, we began presenting results of the Display Technologies and Specialty Materials segments on a constant- Taiwan dollar basis to mitigate the translation impact of this currency on these segments. We use an internally derived management rate of New Taiwan dollar 31, which is closely aligned to our current New Taiwan dollar portfolio of cash flow hedges, and approximates the 10-year historical average of the currency. (2) Translation (gain) loss on Japanese yen-denominated debt: We have excluded the gain or loss on the translation of our yen-denominated debt to U.S. dollars. (3) Translated earnings contract (gain) loss: We have excluded the impact of the realized and unrealized gains and losses of our Japanese yen, South Korean won, Chinese yuan and New Taiwan dollar-denominated foreign currency hedges related to translated earnings, as well as the unrealized gains and losses of our euro and British pound-denominated foreign currency hedges related to translated earnings. (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: For 2018, this amount primarily relates to the preliminary IRS audit settlement offset by changes in judgment about the realizability of certain deferred tax assets. For 2017, this amount represents the removal of discrete adjustments (e.g., changes in tax law, other than those of the 2017 Tax Act which are set forth separately, and 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 that reflect developments in commercial litigation, intellectual property disputes and other legal matters. (7) Restructuring, impairment and other charges: This amount includes restructuring, impairment and other charges, as well as other expenses which are not related to continuing operations and are not classified as restructuring expense. (8) Equity in earnings of affiliated companies: These adjustments relate to costs not related to continuing operations of our affiliated companies, such as restructuring, impairment and other charges and settlements, or modifications, 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: Defined benefit pension mark-to-market 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 resulting from the 2017 Tax Act: 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 credit planning. CORNING INCORPORATED - 2018 Annual Report 25


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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, equipment, substitute for GAAP reporting measures. For a reconciliation of non- media and reagents enabling workflow solutions for scientific GAAP performance measures to their most directly comparable GAAP 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 pharmaceutical technologies, auto glass, 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: Years ended December 31, % change % change 2018 2017 2016 18 vs. 17 17 vs. 16 Segment net sales $ 3,276 $ 3,137 $ 3,288 4% (5%) Segment net income $ 835 $ 888 $ 953 (6%) (7%) 2018 vs. 2017 The decrease in net income was partially offset by the following items: Display Technologies segment net sales increased $139 million compared • A mid-single digit percentage increase in volume; and to the prior year. Total display glass market volume was up in 2018. Our volume growth in this market more than offset price declines on a year- • Improvements in manufacturing efficiency, which added $68 million. over-year basis. 2018 was the best pricing environment in more than a decade, achieving the important milestone of mid-single digit year-over- year declines during the second half of the year. Outlook: Net income decreased by $53 million, or 6%, mainly driven by the costs of For full-year 2019, Corning expects the display glass market to grow by a expanding Gen 10.5 capacity, ramping production and rebuilding tanks mid-single digit percentage, consistent with 2018. The Company expects for fleet optimization during the first half of the year. Corning’s volume to grow faster than the market due to expansion of our Gen 10.5 manufacturing capacity in China. 2018 was the best pricing 2017 vs. 2016 environment in more than a decade achieving the important milestone Net sales decreased by $151 million, or 5%, in the year ended December 31, of mid-single digit year-over-year declines in the second half of the year. 2017, when compared to the same period in 2016, driven by price declines We expect our full year 2019 price declines to improve further to a mid- of approximately 10%, partially offset by an increase in volume in the single digit percentage and to be even better than they were in 2018. mid-single digits in percentage terms. Net income decreased by $65 million, or 7%, driven by the following items: • The impact of price declines of approximately 10%; and • An increase of $40 million in research, development and engineering expenses, primarily driven by the absence of the impact of a 2016 joint development agreement. 26 CORNING INCORPORATED - 2018 Annual Report


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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: Years ended December 31, % change % change 2018 2017 2016 18 vs. 17 17 vs. 16 Segment net sales $ 4,192 $ 3,545 $ 3,005 18% 18% Segment net income $ 592 $ 469 $ 351 26% 34% 2018 vs. 2017 new manufacturing software in the first half of 2016 and the impact of Net sales increased by $647 million, or 18%, in the year ended December 31, several small acquisitions completed in the 2017. Strong growth in the 2018, when compared to the same period in 2017, due to higher sales of North American fiber-to-the-home market drove the increase in carrier carrier and enterprise network products. The acquisition of CMD drove network products. $200 million of increased sales. Net income in the year ended December 31, 2017 increased by $118 million, Net income in the year ended December 31, 2018 increased by or 34%, driven by the increase in sales described above, partially offset by $123 million, or 26%, driven by the increase in sales described above, capacity expansion spending. partially offset by capacity expansion spending. Movements in foreign currency exchange rates did not materially impact Movements in foreign currency exchange rates did not materially impact net sales or net income in this segment in the year ended December 31, net sales or net income in this segment in the year ended December 31, 2017 when compared to the same period in 2016. 2018 when compared to the same period in 2017. 2017 vs. 2016 Outlook: Net sales increased by $540 million, or 18%, in the year ended Full-year 2019 Optical Communications sales are expected to increase by December 31, 2017, when compared to the same period in 2016, due to a low-teens percentage on a year-over-year basis, including the impact higher sales of carrier and enterprise network products, combined with of a full year of sales from the acquisition of CMD. the absence of production issues related to the implementation of Specialty Materials The following table provides net sales and net income for the Specialty Materials segment: Years ended December 31, % change % change 2018 2017 2016 18 vs. 17 17 vs. 16 Segment net sales $ 1,479 $ 1,403 $ 1,124 5% 25% Segment net income $ 313 $ 301 $ 228 4% 32% 2018 vs. 2017 Net income in year ended December 31, 2017 increased by $73 million, or Net sales in the Specialty Materials segment increased by $76 million, or 32%, when compared to the same period in 2016, primarily due to the 5%, in the year ended December 31, 2018, when compared to the same increase in net sales. period in 2017, driven by an increase in sales of Gorilla Glass products, Movements in foreign currency exchange rates did not materially impact combined with an increase in sales of advanced optics products. net sales or net income in this segment in the year ended December 31, Net income in year ended December 31, 2018 increased by $12 million, 2017 when compared to the same period in 2016. or 4%, when compared to the same period in 2017, primarily due to the increase in net sales outlined above. Outlook: Movements in foreign currency exchange rates did not materially impact The company expects year-over-year sales growth for Specialty net sales or net income in this segment in the year ended December 31, Materials in 2019, with the rate dependent upon customer adoptions of 2018 when compared to the same period in 2017. our innovations. 2017 vs. 2016 Net sales in the Specialty Materials segment increased by $279 million, 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 advanced optics products. CORNING INCORPORATED - 2018 Annual Report 27


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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: Years ended December 31, % change % change 2018 2017 2016 18 vs. 17 17 vs. 16 Segment net sales $ 1,289 $ 1,106 $ 1,032 17% 7% Segment net income $ 208 $ 165 $ 159 26% 4% 2018 vs. 2017 Net income in the year ended December 31, 2017 increased by Net sales increased $183 million, or 17% in the year ended December 31, $6 million, or 4%, with offsets driven by expenses in support of new 2018 driven by growth in all product categories, including more than $50 product launches. million in sales of gasoline particulate filters. Movements in foreign currency exchange rates did not materially impact Net income in the year ended December 31, 2018 increased by net sales or net income in this segment in the year ended December 31, $43 million, or 26%, driven by the reasons outlined above and improved 2017 when compared to the same period in 2016. manufacturing efficiencies. Movements in foreign currency exchange rates did not materially impact Outlook: net sales or net income in this segment for the year ended December 31, We expect high-single digit sales growth on a year-over-year basis in our 2018 when compared to the same period in 2017. Environmental Technologies segment in 2019. 2017 vs. 2016 Net sales increased $74 million, or 7% in the year ended December 31, 2017. Automotive product sales increased by $42 million, due to market strength in Europe, China and Asia, and initial commercial sales of gas particulate filters. Diesel product sales increased $32 million with higher demand for heavy-duty diesel products in North America and Asia. Life Sciences The following table provides net sales and net income for the Life Sciences segment: Years ended December 31, % change % change 2018 2017 2016 18 vs. 17 17 vs. 16 Segment net sales $ 946 $ 879 $ 839 8% 5% Segment net income $ 117 $ 95 $ 90 23% 6% 2018 vs. 2017 Net income increased by $5 million, or 6%, in the year ended December 31, Net sales in the Life Sciences segment increased by $67 million, or 8%, in 2017, driven by an increase in volume, offset somewhat by higher raw the year ended December 31, 2018, when compared to the same period in materials costs. Movements in foreign exchange rates did not materially 2017, driven by strong performance across all product categories. impact net sales or net income in this period when compared to the same period in the prior year. Net income increased by $22 million, or 23%, in the year ended December 31, 2018, driven by the reasons outlined above and improved manufacturing efficiencies. Outlook: Movements in foreign exchange rates did not materially impact net For full-year 2019, sales are expected to grow by a low to mid-single-digit sales or net income in this period when compared to the same period percentage on a year-over-year basis. in the prior year. 2017 vs. 2016 Net sales in the Life Sciences segment increased by $40 million, or 5%, in the year ended December 31, 2017, when compared to the same period in 2016, driven by strong performance in North America and China, combined with a small acquisition completed in 2017. 28 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, auto glass, 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 net income for All Other (in millions): Years ended December 31, % change % change 2018 2017 2016 18 vs. 17 17 vs. 16 Segment net sales $ 216 $ 188 $ 152 15% 24% Segment net income $ (281) $ (259) $ (220) (8%) (18%) 2018 vs. 2017 2017 vs. 2016 Net sales of this segment increased by $28 million, or 15%, in the Net sales of this segment increased by $36 million, or 24%, in the year year ended December 31, 2018, respectively, when compared to the ended December 31, 2017, respectively, when compared to the same same period in 2018, driven by an increase in sales in our emerging period in 2016, driven by an increase in sales in our emerging businesses. businesses. The increase in the net loss of $22 million, a decline of 8%, The increase in the net loss in the year ended December 31, 2017 reflects in the year ended December 31, 2017 reflects increased spending on our increased spending on our development projects versus the prior year. development projects when compared to 2017. Liquidity and Capital Resources Financing and Capital Structure 2017 The following items discuss Corning’s financing and changes in capital In the third quarter of 2017, Corning issued ¥78 billion Japanese structure during 2018 and 2017: yen-denominated debt securities in tranches of 7, 10 and 20 years. The proceeds from these notes were received in Japanese yen and immediately converted to U.S. dollars on the date of issuance. The net 2018 proceeds received in U.S. dollars, after deducting offering expenses, was approximately $700 million. Payments of principal and interest In the second quarter of 2018, Corning issued ¥65.5 billion Japanese on the notes will be in Japanese yen, or should yen be unavailable due yen-denominated debt securities in tranches of 7, 10 and 12 years. to circumstances beyond Corning’s control, a U.S. dollar equivalent. The proceeds from these notes were received in Japanese yen and The net proceeds of $700 million were made available for general immediately converted to U.S. dollars on the date of issuance. The net corporate purposes. proceeds received in U.S. dollars, after deducting offering expenses, was $596 million. Payments of principal and interest on the notes will In the fourth quarter of 2017, Corning issued $750 million of 4.375% senior be in Japanese yen, or should yen be unavailable due to circumstances unsecured notes that mature on November 15, 2057. The net proceeds of beyond Corning’s control, a U.S. dollar equivalent. The net proceeds of $743 million will be used for general corporate purposes. We can redeem $596 million will be used for general corporate purposes. these notes at any time, subject to certain terms and conditions. In the third quarter of 2018, Corning amended and restated its revolving On a quarterly basis, Corning will recognize the transaction gains and credit agreement (the “Revolving Credit Agreement”). The Revolving losses resulting from changes in the JPY/USD exchange rate in the Credit Agreement provides a $1.5 billion unsecured multi-currency line Other expense, net line of the Consolidated Statements of Income. Cash of credit and expires August 15, 2023. The Revolving Credit Agreement proceeds from the offerings and payments for debt issuance costs are includes affirmative and negative covenants with which Corning must disclosed as financing activities, and cash payments to bondholders comply, including a leverage (debt to capital ratio) financial covenant. for interest will be disclosed as operating activities, in the Consolidated The required leverage ratio is a maximum of 60%. Statements of Cash Flows. In the fourth quarter of 2018, Corning issued $900 million U.S. dollar- denominated unsecured long-term notes in tranches of 19, 30, and 50 years. The net proceeds of $889 million will be used for general corporate Common Stock Dividends purposes. We can redeem these notes at any time, subject to certain On February 1, 2017, Corning’s Board of Directors declared a 14.8% increase terms and conditions. in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.135 to $0.155 per share of common stock, In the fourth quarter of 2018, Corning redeemed $250 million of 6.625% beginning with the dividend to be paid in the first quarter of 2017. Notes due 2019, paying a nominal call premium. The bond redemption incurred an insignificant loss during the fourth quarter of 2018. CORNING INCORPORATED - 2018 Annual Report 29


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations On February 6, 2018, Corning’s Board of Directors declared a 16.1% increase Customer Deposits in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.155 to $0.18 per share of common stock, As of December 31, 2018 and 2017, Corning had customer deposits of beginning with the dividend to be paid in the first quarter of 2018. approximately $1.0 billion and $0.4 billion, respectively. The majority of these represent non-refundable cash deposits for customers to secure On February 6, 2019, Corning’s Board of Directors declared an 11.1% rights to an amount of glass produced by Corning under long-term increase in the Company’s quarterly common stock dividend, which supply agreements. The duration of these long-term supply agreements increased the quarterly dividend from $0.18 to $0.20 per share of common ranges up to ten years. As glass is shipped to customers, Corning will stock, beginning with the dividend paid in the first quarter of 2019. This recognize revenue and issue credit memoranda to reduce the amount increase marks the eighth dividend increase since October 2011. of the customer deposit liability, which are applied against customer receivables resulting from the sale of glass. No credit memoranda were issued in 2018 and 2017. 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 $2.2 billion in 2018, an increase of approximately at the option of the holder and the Company upon certain events, at $0.4 billion when compared to 2017, driven by expansions related to a conversion rate of 50,000 shares of Corning’s common stock per one the Gen 10.5 glass manufacturing facilities 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, 2018, 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 2019 capital expenditures to be slightly more than $2.0 billion. Cash Flows Summary of cash flow data (in millions): Years ended December 31, 2018 2017 2016 Net cash provided by operating activities $ 2,919 $ 2,004 $ 2,537 Net cash (used in) provided by investing activities $ (2,887) $ (1,710) $ 3,662 Net cash used in financing activities $ (1,995) $ (1,624) $ (5,322) 2018 vs. 2017 Net cash used in financing activities in the year ended December 31, 2018 increased by $371 million when compared to the same period last Net cash provided by operating activities increased by $915 million in the year, driven by higher debt repayments, up $377 million and a decrease of year ended December 31, 2018 when compared to the same period last $228 million for proceeds from the exercise of stock options. A decrease year, primarily driven by an increase in customer incentives and deposits of $225 million in share repurchases partially offset the negative cash of $600 million. Favorable movements of $189 million in accounts impact of these items. payable and other current liabilities were driven largely by an increase in accounts payable in the Optical Communications segment and higher current liabilities in the Specialty Materials segment. Cash received 2017 vs. 2016 of $104 million, which represents the excess of the fair value of the Net cash provided by operating activities decreased by $533 million in contingent consideration asset related to the acquisition of Samsung the year ended December 31, 2017 when compared to the same period Corning Precision Materials (refer to Note 14 (Fair Value Measurements) last year, driven by $501 million of unfavorable movements in working to the Consolidated Financial Statements for additional information), capital. The negative impact of working capital changes was largely also increased cash provided by operating activities. driven by an increase of $143 million in VAT receivables in Asia, a payment Net cash used in investing activities increased by $1,177 million in the year of $70 million related to our obligation under the plan of reorganization ended December 31, 2018, when compared to the same period last year, for PCC (refer to Note 12 (Commitments, Contingencies and Guarantees) driven by increased capital expenditures of $438 million due to capacity to the Consolidated Financial Statements for additional information), expansions, increased acquisition spending of $671 million and lower an increase in accounts receivable and inventory to support growth in gains realized on translated earnings contracts of $162 million. Cash the Optical Communications, Environmental Technologies and Specialty received of $196 million, which represents the original fair value of the Materials segments. contingent consideration asset related to the acquisition of Samsung Corning Precision Materials (refer to Note 14 (Fair Value Measurements) to the Consolidated Financial Statements for additional information), partially offset the net cash used in investing activities. 30 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Net cash used in investing activities increased by $5.4 billion in the Defined Benefit Pension Plans year ended December 31, 2017, when compared to the same period last year, driven by the absence of $4.8 billion of cash received in the second We have defined benefit pension plans covering certain domestic and quarter of 2016 on the realignment of Dow Corning, coupled with an international employees. Our largest single pension plan is Corning’s increase of $674 million in capital expenditures largely due to capacity U.S. qualified plan. At December 31, 2018, this plan accounted for 76% expansions and a decline of $92 million in liquidations of short-term of our consolidated defined benefit pension plans’ projected benefit investments. A decline of $162 million in acquisition spending partially obligation and 85% of the related plans’ assets. offset these events. In 2018, we made voluntary cash contributions of $105 million to Net cash used in financing activities in the year ended December 31, 2017 our domestic defined benefit pension plan and $12 million to our decreased by $3.7 billion when compared to the same period last year, international pension plans. In 2017, we made no voluntary cash driven by lower share repurchases, down $1.8 billion, proceeds from the contributions to our domestic defined benefit pension plan and issuance of long-term debt of $1.4 billion, the absence of $481 million $29 million to our international pension plans. During 2019, we of commercial paper repayments made in 2016 and an increase of $171 anticipate making cash contributions of $75 million to our U.S. qualified million in proceeds from the exercise of stock options. pension plan and $31 million to our international pension plans. Refer to Note 11 (Employee Retirement Plans) to the 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, 2018 2017 Working capital $ 3,723 $ 5,618 Current ratio 2.1:1 2.8:1 Trade accounts receivable, net of allowances $ 1,940 $ 1,807 Days sales outstanding 58 62 Inventories $ 2,037 $ 1,712 Inventory turns 3.6 3.7 (1) Days payable outstanding 55 51 Long-term debt $ 5,994 $ 4,749 Total debt to total capital 30% 25% (1) Includes trade payables only. of $1.5 billion. Under this program, the Company may issue the paper Management Assessment of Liquidity from time to time and will use the proceeds for general corporate We ended the fourth quarter of 2018 with approximately $2.4 billion of purposes. The Company’s Revolving Credit Agreement is available to cash and cash equivalents. Our cash and cash equivalents are held in support obligations under the commercial paper program, if needed. At various locations throughout the world and are generally unrestricted. December 31, 2018 Corning did not have outstanding commercial paper. We utilize a variety of strategies to ensure that our worldwide cash is available in the locations in which it is needed. At December 31, 2018, approximately 56% of the consolidated amount was held outside of Share Repurchases the United States. During 2018, the Company distributed approximately $2.2 billion in cash from foreign subsidiaries to the U.S. parent. There During 2016, Corning repurchased 197.1 million shares for approximately were no incremental taxes beyond the toll charge due with respect to $4.2 billion through an accelerated share repurchase agreement and this distribution of cash. open market repurchases as part of the 2015 Repurchase Programs. In December 2016, Corning’s Board of Directors approved a $4 billion share To manage interest rate exposure, the Company, from time to time, repurchase program with no expiration (the “2016 Repurchase Program”). enters into interest rate swap agreements. As of December 31, 2018, there are no interest rate swaps outstanding. During 2017, Corning repurchased 84.4 million shares for approximately $2.4 billion through accelerated share repurchase agreements and open Corning also has a commercial paper program pursuant to which we market repurchases under the 2016 Repurchase Program. may issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding at any one time CORNING INCORPORATED - 2018 Annual Report 31


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations During 2018, Corning repurchased 74.8 million shares for approximately the years ended December 31, 2017 and 2016, we recorded pre-tax net $2.2 billion through open market repurchases under the 2016 and 2018 gains of $95 million and $7 million, respectively, related to changes in the Repurchase Programs. fair value of these instruments. Included in these amounts is a realized gain of $46 million, and realized losses of $1 million and $7 million, Refer to Note 15 (Shareholders’ Equity) to the Consolidated Financial respectively. These instruments had a gross notional value outstanding Statements for additional information. at December 31, 2018, 2017 and 2016 of $0.1 billion, $0.8 billion and $1.2 billion, respectively. Other We have entered into a portfolio average rate forwards to hedge against our euro translation exposure. In the years ended December 31, 2018, 2017 We complete comprehensive reviews of our significant customers and 2016, we recorded a pre-tax gain of $43 million, a net pre-tax loss of and their creditworthiness by analyzing their financial strength $40 million, and a net pre-tax gain of $15 million, respectively. Included at least annually or more frequently for customers where we have in these amounts are realized losses of $14 million and $2 million, and a identified a measure of increased risk. We closely monitor payments realized gain of $1 million, respectively. At December 31, 2018, the euro- and developments which may signal possible customer credit issues. denominated average rate instruments had a gross notional amount of We currently have not identified any potential material impact on our $1.2 billion, and at 2017 and 2016, a gross notional amount of $0.3 billion. liquidity resulting from customer credit issues. These derivative instruments are not designated as accounting hedges, Our major source of funding for 2019 and beyond will be our operating and changes in fair value are recorded in earnings in the translated cash flow, our existing balances of cash and cash equivalents and earnings contract loss, net line of the Consolidated Statements of proceeds from any issuances of debt. We believe we have sufficient Income (Loss). liquidity to fund operations, acquisitions, capital expenditures, scheduled debt repayments, dividend payments and share repurchase programs. Our Revolving Credit Agreement includes affirmative and negative Off Balance Sheet Arrangements covenants with which we must comply, including a leverage (debt Off balance sheet arrangements are transactions, agreements, or other to capital ratio) financial covenant. The required leverage ratio is a contractual arrangements with an unconsolidated entity for which maximum of 60%. At December 31, 2018, our leverage using this measure Corning has an obligation to the entity that is not recorded in our was approximately 30%. As of December 31, 2018, we were in compliance consolidated financial statements. with this financial covenant. Corning’s off balance sheet arrangements include guarantee contracts. Our debt instruments contain customary event of default provisions, At the time a guarantee is issued, the Company is required to recognize which allow the lenders the option of accelerating all obligations a liability for the fair value or market value of the obligation it assumes. upon the occurrence of certain events. In addition, some of our debt In the normal course of our business, we do not routinely provide instruments contain a cross default provision, whereby an uncured significant third-party guarantees. Generally, third-party guarantees default in excess of a specified amount on one debt obligation of the provided by Corning are limited to certain financial guarantees, including Company, also would be considered a default under the terms of another stand-by letters of credit and performance bonds, and the incurrence of debt instrument. As of December 31, 2018, we were in compliance with contingent liabilities in the form of purchase price adjustments related all such provisions. to attainment of milestones. These guarantees have various terms, and Management is not aware of any known trends or any known demands, none of these guarantees are individually significant. commitments, events or uncertainties that will result in or that are Refer to Note 12 (Commitments, Contingencies and Guarantees) to the reasonably likely to result in a material decrease in our liquidity. In Consolidated Financial Statements for additional information. addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resources and no expected For variable interest entities, we assess the terms of our interest in material changes in the mix and relative cost of such resources. each entity to determine if we are the primary beneficiary. The primary 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 Translated Earnings Contracts residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity Corning has hedged a significant portion of its projected yen exposure that change with changes in the fair value of the entity’s net assets for the period 2018 through 2022, with average rate forwards, collars and excluding variable interests. puts. In the years ended December 31, 2018, 2017 and 2016, we recorded pre-tax net losses of $96 million, $201 million and $459 million related Corning has identified ten entities that qualify as a variable interest to changes in the fair value of these instruments. Included in these entity and are not consolidated. These entities are not considered to be amounts are realized gains of $64 million, $268 million and $207 million, significant to Corning’s consolidated statements of position. respectively. The gross notional value outstanding for these instruments Corning does not have retained interests in assets transferred to an which hedge our exposure to the Japanese yen at December 31, 2018, unconsolidated entity that serve as credit, liquidity or market risk 2017 and 2016 was $11.6 billion, $13 billion and $14.9 billion, respectively. support to that entity. We have entered into zero-cost collars and average rate forwards to hedge our translation exposure resulting from movements in the South Korean won and its impact on our net income. In the year ended December 31, 2018, we recorded a pre-tax net loss of $26 million, and in 32 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Contractual Obligations The amounts of our obligations follow (in millions): Amount of commitment and contingency expiration per period 5 years and Total Less than 1 year 1 to 3 years 3 to 5 years thereafter Performance bonds and guarantees $ 152 $ 23 $ 4 $ 2 $ 123 Stand-by letters of credit(1) 84 71 8 5 Credit facility to equity company 4 4 Subtotal of commitment expirations per period $ 240 $ 98 $ 12 $ 2 $ 128 Purchase obligations(2) $ 339 $ 214 $ 56 $ 28 $ 41 Capital expenditure obligations(3) 412 412 Total debt(4) 5,642 362 670 4,610 Interest on long-term debt(5) 5,117 231 450 408 4,028 Capital leases and financing obligations 393 4 11 132 246 Imputed interest on capital leases and financing obligations 205 20 38 37 110 Minimum rental commitments 581 82 133 111 255 Amended PCC Plan 185 50 85 50 Uncertain tax positions(6) 95 Subtotal of contractual obligation payments due by period(6) $ 12,969 $ 1,013 $ 1,135 $ 1,436 $ 9,290 Total commitments and contingencies(6) $ 13,209 $ 1,111 $ 1,147 $ 1,438 $ 9,418 (1) At December 31, 2018, $39 million of the $84 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, 2018, $95 million was included on our balance sheet related to uncertain tax positions. We believe a significant majority of these guarantees and contingent liabilities will expire without being funded. Environment Refer to Item 3. Legal Proceedings or Note 12 (Commitments, Contingencies and Guarantees) to the Consolidated Financial Statements for information. Critical Accounting Estimates The preparation of financial statements requires us to make estimates require judgment in ascertaining the related fair values. Independent and assumptions that affect amounts reported therein. The estimates appraisals may be used to assist in the determination of the fair value that required us to make difficult, subjective or complex judgments, of certain assets and liabilities. Such appraisals are based on significant including future projections of performance and relevant discount rates, estimates provided by us, such as forecasted revenues and profits are set forth below. utilized in determining the fair value of contract-related acquired intangible assets or liabilities. Significant changes in assumptions and estimates subsequent to completing the allocation of the purchase Acquired assets and liabilities price to the assets and liabilities acquired, as well as differences in actual and estimated results could result in impacts to our financial We account for the acquisition of a business using the purchase results. Additional information related to the acquisition date fair value method of accounting, which requires us to estimate the fair values of acquired assets and liabilities obtained during the allocation period, of the assets acquired and liabilities assumed. This includes acquired not to exceed one year, may result in changes to the recorded values of intangible assets such as customer-related intangibles and patents, acquired assets and liabilities, resulting in an offsetting adjustment to fixed assets and inventories. Liabilities assumed may include litigation the goodwill associated with the business acquired. and other contingency reserves existing at the time of acquisition and CORNING INCORPORATED - 2018 Annual Report 33


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations In 2018 we acquired CMD from 3M in a business combination. Included Our assessment is performed at the reportable segment level. For the in the acquisition were other intangible assets consisting primarily majority of our reportable segments, we concluded that locations or of $434 million of customer relationships and $91 million of other businesses within these segments which share production along the intangibles that are amortized over the weighted average useful life of supply chain must be combined to appropriately identify cash flows that approximately 14 and 11 years, respectively. The customer relationship are largely independent of the cash flows of other assets and liabilities. intangible asset was valued using the Multi-Period Excess Earnings Valuation Method, which is an income approach method that estimates For long-lived assets, when impairment indicators are present, we fair value of revenue based upon the present value of cash flows that compare estimated undiscounted future cash flows, including the are expected to be generated from the acquired customer base. Key eventual disposition of the asset group at market value, to the assets’ assumptions used in this valuation include a discount rate of 12.5%, carrying value to determine if the asset group is recoverable. This revenue growth rates in the range of 0% to 3% and a customer attrition assessment requires the exercise of judgment in assessing the future rate of 6%. use of and projected value to be derived from the assets to be held and used. Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing this capacity back into production. If there is an impairment, a loss is Impairment of assets held for use recorded to reflect the difference between the assets’ fair value and We are required to assess the recoverability of the carrying value of carrying value. This may require judgment in estimating future cash long-lived assets when an indicator of impairment has been identified. flows and relevant discount rates and residual values in estimating the We review our long-lived assets in each quarter to assess whether current fair value of the impaired assets to be held and used. impairment indicators are present. We must exercise judgment in For an asset group that fails the test of recoverability, the estimated fair assessing whether an event of impairment has occurred. value of long-lived assets is determined using an “income approach” Manufacturing equipment includes certain components of production that starts with the forecast of all the expected future net cash flows equipment that are constructed of precious metals, primarily platinum including the eventual disposition at market value of long-lived assets, and rhodium. These metals are not depreciated because they have and considers the fair market value of all precious metals. We assess the very low physical losses and are repeatedly reclaimed and reused in recoverability of the carrying value of long-lived assets at the lowest our manufacturing process over a very long useful life. Precious metals level for which identifiable cash flows are largely independent of the are reviewed for impairment as part of our assessment of long-lived cash flows of other assets and liabilities. If there is an impairment, a loss assets. This review considers all the Company’s precious metals that is recorded to reflect the difference between the assets’ fair value and are either in place in the production process; in reclamation, fabrication, carrying value. Our estimates are based upon our historical experience, or refinement in anticipation of re-use; or awaiting use to support our commercial relationships, and available external information about increased capacity. Precious metals are only acquired to support our future trends. We believe fair value assessments are most sensitive to operations and are not held for trading or other non-manufacturing market growth and the corresponding impact on volume and selling related purposes. prices and that these are also more subjective than manufacturing cost and other assumptions. The Company believes its current assumptions Examples of events or circumstances that may be indicative of and estimates are reasonable and appropriate. impairments include, but are not limited to: At December 31, 2018 and December 31, 2017, the carrying value of • A significant decrease in the market price of an asset; precious metals was higher than the fair market value by $719 million • A significant change in the extent or manner in which a long-lived and $711 million, respectively. The majority of these precious metals are asset is being used or in its physical condition; utilized by the Display Technologies and Specialty Materials segments. Corning believes these precious metal assets to be recoverable due to • A significant adverse change in legal factors or in the business climate the significant positive cash flow in both segments. The potential for that could affect the value of the asset, including an adverse action or impairment exists in the future if negative events significantly decrease assessment by a regulator; the cash flow of these segments. Such events include, but are not limited to, a significant decrease in demand for products or a significant • An accumulation of costs significantly in excess of the amount decrease in profitability in our Display Technologies or Specialty originally expected for the acquisition or construction of an asset; Materials segments. • A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of an Impairment of Goodwill asset; and We are required to make certain subjective and complex judgments in • A current expectation that, more likely than not, an asset will be sold assessing whether an event of impairment of goodwill has occurred, or otherwise disposed of significantly before the end of its previously including assumptions and estimates used to determine the fair value estimated useful life. of our reporting units. Goodwill is tested for impairment at the reporting unit level. A reporting unit is equivalent to an operating segment or For purposes of recognition and measurement of an impairment loss, a a component of an operating segment which constitutes a business long-lived asset or assets is grouped with other assets and liabilities at and for which discrete financial information is regularly reviewed the lowest level for which identifiable cash flows are largely independent by segment management. An impairment loss generally would be of the cash flows of other assets and liabilities. We must exercise recognized when the carrying amount of a reporting unit’s net assets judgment in assessing the lowest level for which identifiable cash flows exceeds the estimated fair value of the reporting unit. are largely independent of the cash flows of other assets and liabilities. 34 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Corning has recorded goodwill in the Display Technologies, Optical tax law in our favor, the willingness of a tax authority to aggressively Communications, Specialty Materials, Life Sciences and All Other pursue a particular position, or alternatively, consider a negotiated operating segments. Each of these operating segments is a separate compromise, and our willingness to dispute a tax authorities’ assertion reporting unit; however, Specialty Materials and All Other are each made to the level of appeal we believe is required to sustain our position. As up of two separate reporting units. On a quarterly basis, or if an event a result, it is possible that our estimate of the benefits we will realize occurs or circumstances change that indicate the carrying amount may for uncertain tax positions may change when we become aware of new be impaired, management performs a qualitative assessment of factors information affecting these judgments and estimates. in each reporting unit within these operating segments to determine if there have been any triggering events. We also perform a detailed As of December 31, 2018, Corning has completed its analysis of the quantitative impairment test every three years if no indicators suggest impact of the 2017 Tax Act as required by SAB 118. a test should be performed in the interim. We use this calculation as a Beginning in 2018, Corning will indefinitely reinvest the foreign earnings quantitative validation of the qualitative process; this process does not of: (1) any of its subsidiaries located in jurisdictions where Corning lacks represent an election to perform the quantitative impairment test in the ability to repatriate its earnings, (2) any of its subsidiaries where place of the qualitative review. Corning’s intention is to reinvest those earnings in operations, (3) legal The qualitative assessment is performed by assessing various factors entities for which Corning holds a non-controlling interest, (4) any to determine whether it is more likely than not that the fair value of a subsidiaries with an accumulated deficit in earnings and profits and reporting unit is less than its carrying amount. These factors include, but (5) any subsidiaries which have a positive earnings and profits balance are not limited to, changes in macroeconomic conditions, industry and but for which the entity lacks sufficient local statutory earnings or stock market considerations, cost factors, overall financial performance, other basis from which to make a distribution. relevant entity-specific events, or a sustained decrease in share price. Under the 2017 Tax Act, a company can make a policy election to account In 2018, we performed a quantitative goodwill impairment assessment for the tax on GILTI as a period cost or to recognize deferred tax assets in addition to assessing the qualitative factors each quarter. Our and liabilities when basis differences exist that are expected to affect assessment is based on our annual strategic planning process. This the amount of GILTI inclusion upon reversal. Corning has elected to process includes an extensive review of expectations for the long-term account for the GILTI provisions as a period cost. growth of our businesses and forecasted future cash flows. Our valuation method is an “income approach” using a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value Fair value measures at the end of that time horizon, are discounted to present value using an As required, Corning uses two kinds of inputs to determine the fair value appropriate discount rate. Our estimates are based upon our historical of assets and liabilities: observable and unobservable. Observable inputs experience, our current knowledge from our commercial relationships, are based on market data or independent sources, while unobservable and available external information about future trends. The quantitative inputs are based on the Company’s own market assumptions. Once assessment requires the exercise of significant judgment, including inputs have been characterized, we prioritize the inputs used to judgment about appropriate discount rates, growth rates and the measure fair value into one of three broad levels. Characterization of timing of expected future cash flows of the respective reporting unit. fair value inputs is required for those accounting pronouncements that The quantitative assessment of goodwill resulted in fair values prescribe or permit fair value measurement. In addition, observable significantly exceeding the carrying values for all of our reporting units. market data must be used when available and the highest-and-best- We also performed a sensitivity analysis, using a range between 7-10% for use measure should be applied to non-financial assets. Corning’s major the discount rate and 0%-3% for the growth rate, which had no material categories of financial assets and liabilities required to be measured at impact on our results. Based on the quantitative test performed in 2018, fair value are short-term and long-term investments, certain pension no goodwill impairment was required. asset investments and derivatives. These categories use observable inputs only and are measured using a market approach based on quoted prices in markets considered active or in markets in which there are Income taxes few transactions. We are required to exercise judgment about our future results in Derivative assets and liabilities may include interest rate swaps and assessing the realizability of our deferred tax assets. Inherent in this forward exchange contracts that are measured using observable quoted estimation process is the requirement for us to estimate future book and prices for similar assets and liabilities. Included in our forward exchange taxable income and possible tax planning strategies. These estimates contracts are foreign currency hedges that hedge our translation require us to exercise judgment about our future results, the prudence exposure resulting from movements in the Japanese yen, South Korean and feasibility of possible tax planning strategies, and the economic won, euro, New Taiwan dollar, Chinese yuan and British pound. These environments in which we do business. It is possible that actual results contracts are not designated as accounting hedges, and changes in fair will differ from assumptions and require adjustments to allowances. value are recorded in earnings in the translated earnings contract loss, net line of the Consolidated Statements of Income (Loss). In arriving Corning accounts for uncertain tax positions in accordance with ASC at the fair value of Corning’s derivative assets and liabilities, we have Topic 740, Income Taxes, which requires that companies only record tax considered the appropriate valuation and risk criteria, including such benefits for technical positions that are believed to have a greater than factors as credit risk of the relevant party to the transaction. Amounts 50% likelihood of being sustained on their technical merits and then related to credit risk are not material. 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, Refer to Note 14 (Fair Value Measurements) to the Consolidated Financial we must exercise judgment around factors such as the weighting of the Statements for additional information. CORNING INCORPORATED - 2018 Annual Report 35


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations Probability of litigation outcomes Costs for our defined benefit pension plans consist of two elements: 1) on-going costs recognized quarterly, which are comprised of service We are required to make judgments about future events that are and interest costs, expected return on plan assets and amortization of inherently uncertain. In making determinations of likely outcomes prior service costs; and 2) mark-to-market gains and losses outside of the of litigation matters, we consider the evaluation of legal counsel corridor, where the corridor is equal to 10% of the greater of the benefit knowledgeable about each matter, case law, and other case-specific obligation or the market-related value of plan assets at the beginning of issues. See Part II – Item 3. Legal Proceedings for a discussion of Corning’s the year, which are recognized annually in the fourth quarter of each year. material litigation matters. These gains and losses result from changes in actuarial assumptions and the differences between actual and expected return on plan assets. Any interim remeasurements triggered by a curtailment, settlement or Other possible liabilities significant plan changes, as well as any true-up to the annual valuation, are recognized as a mark-to-market adjustment in the quarter in which We are required to make judgments about future events that are such event occurs. inherently uncertain. In making determinations of likely outcomes of certain matters, including certain tax planning and environmental Costs for our OPEB plans consist of on-going costs recognized quarterly, matters, these judgments require us to consider events and actions that and are comprised of service and interest costs, amortization of prior are outside our control in determining whether probable or possible service costs and amortization of actuarial gains and losses. We liabilities require accrual or disclosure. It is possible that actual results recognize the actuarial gains and losses resulting from changes in will differ from assumptions and require adjustments to accruals. actuarial assumptions as a component of Stockholders’ Equity on our consolidated balance sheets on an annual basis and amortize them into our operating results over the average remaining service period of Pension and other postretirement employee employees expected to receive benefits under the plans, to the extent such gains and losses are outside of the corridor. benefits (OPEB) On January 1, 2018, Corning adopted ASU No. 2017-07, Compensation Corning offers employee retirement plans consisting of defined benefit Retirement Benefits (Topic 715): Improving the Presentation of Net pension plans covering certain domestic and international employees Periodic Pension Cost and Net Periodic Post-Retirement Benefit and postretirement plans that provide health care and life insurance Cost, which presents the service cost component with other current benefits for eligible retirees and dependents. The costs and obligations compensation costs in operating income. The remaining components related to these benefits reflect the Company’s assumptions related are included in the line item Other expense, net, in the Consolidated to general economic conditions (particularly interest rates), expected Statements of Income (Loss). Corning applied the practical return on plan assets, rate of compensation increase for employees and expedient as the estimation basis for applying the retrospective health care trend rates. The cost of providing plan benefits depends presentation requirements. on demographic assumptions including retirements, mortality, turnover and plan participation. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Corning’s employee pension and other postretirement obligations, and current and future expense. The following tables present our actual and expected return on assets, as well as the corresponding percentage, for the years ended 2018, 2017 and 2016: December 31, (In millions) 2018 2017 2016 Actual return on plan assets – Domestic plans $ (202) $ 393 $ 235 Expected return on plan assets – Domestic plans 178 163 153 Actual return on plan assets – International plans 1 18 75 Expected return on plan assets – International plans 11 11 12 December 31, 2018 2017 2016 Weighted-average actual and expected return on assets: Actual return on plan assets – Domestic plans (6.83)% 14.92% 9.62% Expected return on plan assets – Domestic plans 6.00% 6.00% 6.00% Actual return on plan assets – International plans (0.06)% 3.93% 19.06% Expected return on plan assets – International plans 2.13% 3.97% 3.92% As of December 31, 2018, the Projected Benefit Obligation (PBO) for U.S. pension plans was $3.4 billion. 36 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans: Effect on 2019 Effect on Change in assumption pre-tax pension expense December 31, 2018 PBO 25 basis point decrease in each spot rate - 2 million + 91 million 25 basis point increase in each spot rate + 2 million - 87 million 25 basis point decrease in expected return on assets + 7 million 25 basis point increase in expected return on assets - 7 million The above sensitivities reflect the impact of changing one assumption In addition, at December 31, 2018, a 25 basis point decrease in each spot at a time. Note that economic factors and conditions often affect rate would decrease stockholders’ equity by $112 million before tax, and multiple assumptions simultaneously and the effects of changes in key a 25 basis point increase in each spot rate would increase stockholders’ assumptions are not necessarily linear. These changes in assumptions equity by $107 million. In addition, the impact of greater than a 25 basis would have no effect on Corning’s funding requirements. point decrease in each spot rate would not be proportional to the first 25 basis point decrease in each spot rate. The following table illustrates the sensitivity to a change in each spot rate assumption related to Corning’s U.S. OPEB plans: Effect on 2019 Effect on Change in assumption pre-tax OPEB expense December 31, 2018 APBO* 25 basis point decrease in each spot rate - 0 million + 21 million 25 basis point increase in each spot rate + 0 million - 20 million * Accumulated Postretirement Benefit Obligation (APBO). The above sensitivities reflect the impact of changing one assumption at a time. Note that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. amortization method or an input method using incurred and forecasted Revenue recognition expense to predict revenue recognition patterns which follows The Company recognizes revenue when all performance obligations satisfaction of the performance obligation. under the terms of a contract with our customer are satisfied, and On January 1, 2018, we adopted Accounting Standards Update (“ASU”) control of the product has been transferred to the customer. If customer No. 2014-09 ASC (Topic 606), Revenue from Contracts with Customers, acceptance clauses are present and it cannot be objectively determined and applied the modified retrospective method of accounting to those that control has been transferred, revenue is only recorded when contracts which were not completed as of January 1, 2018. Results for customer acceptance is received and all performance obligations have reporting periods beginning after January 1, 2018 are presented under been satisfied. Sales of goods typically do not include multiple product Topic 606, while prior period amounts are not adjusted and continue and/or service elements. Corning also has contractual arrangements to be reported in accordance with our historic accounting under ASC with certain customers in which we recognize revenue over time. Topic 605 “Revenue Recognition”. Because the impact of adopting the The performance obligations under these contracts generally require standard on Corning’s financial statements was immaterial, we have not services to be performed over time, resulting in either a straight-line made an adjustment to opening retained earnings. New Accounting Standards Refer to Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements. CORNING INCORPORATED - 2018 Annual Report 37


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    Quantitative and Qualitative Disclosures About Market Risks We operate and conduct business in many foreign countries and as a of the Company’s non-U.S. revenues are denominated in Japanese yen. result are exposed to movements in foreign currency exchange rates. When these revenues are translated back to U.S. dollars, the Company Our exposure to exchange rates has the following effects: is exposed to foreign exchange rate movements in the Japanese yen. To protect translated earnings against movements in the Japanese yen, the • Exchange rate movements on financial instruments and transactions Company has entered into a series of average rate forwards and other denominated in foreign currencies that impact earnings; and derivative instruments. • Exchange rate movements upon conversion of net assets and net We use a sensitivity analysis to assess the market risk associated income of foreign subsidiaries for which the functional currency is not with our foreign currency exchange risk. Market risk is defined as the the U.S. dollar, which impact our net equity. potential change in fair value of assets and liabilities resulting from an Our most significant foreign currency exposures relate to the Japanese adverse movement in foreign currency exchange rates. At December 31, yen, South Korean won, New Taiwan dollar, Chinese yuan, and the 2018, with respect to open foreign exchange forward and option euro. We seek to mitigate the impact of exchange rate movements contracts, and foreign denominated debt with values exposed to in our income statement by using over-the-counter (OTC) derivative exchange rate movements, a 10% adverse movement in quoted foreign instruments including foreign exchange forward and option contracts. currency exchange rates could result in a loss in fair value of these In general, these hedges expire coincident with the timing of the instruments of $1.1 billion compared to $1.4 billion at December 31, 2017. underlying foreign currency commitments and transactions. Specific to the Japanese yen, a 10% adverse movement in quoted yen exchange rates could result in a loss in fair value of these instruments of We are exposed to potential losses in the event of non-performance $1.0 billion compared to $1.3 billion at December 31, 2017. The Company by our counterparties to these derivative contracts. However, we expects that these hypothetical losses from a 10% adverse movement minimize this risk by maintaining a diverse group of highly-rated in quoted foreign currency exchange rates on the derivative financial major financial institutions as our counterparties. We do not expect instruments should largely offset gains on the assets, liabilities and to record any losses as a result of such counterparty default. Neither future transactions being hedged. we nor our counterparties are required to post collateral for these financial instruments. Our cash flow hedging activities utilize OTC foreign exchange forward Interest Rate Risk Management contracts to reduce the risk that movements in exchange rates will To manage interest rate exposure, the Company, from time to time, adversely affect the net cash flows resulting from the sale of products enters into interest rate derivatives agreements. In the second quarter to foreign customers and purchases from foreign suppliers. We also of 2018, the Company entered into Treasury rate lock agreements with use OTC foreign exchange forward and option contracts that are not notional amounts of $300 million to hedge against the variability in designated as hedging instruments for accounting purposes. The cash flows due to changes in the benchmark interest rate related to an undesignated hedges limit exposures to foreign functional currency anticipated debt issuance. The instruments were designated as cash fluctuations related to certain subsidiaries’ monetary assets, monetary flow hedges, and were settled with $16 million received on October 31, liabilities and net earnings in foreign currencies. A significant portion 2018 concurrent with the debt issuance. 38 CORNING INCORPORATED - 2018 Annual Report


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    Management’s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate or timely detection of unauthorized acquisition, use, or disposition disclosure controls and procedures and adequate internal control over of Corning’s assets that could have a material effect on the financial financial reporting for Corning. Management is also responsible for the statements. Because of its inherent limitations, internal control over assessment of the effectiveness of disclosure controls and procedures financial reporting may not prevent or detect misstatements. Also, and the effectiveness of internal control over financial reporting. projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of Disclosure controls and procedures mean controls and other procedures changes in conditions, or that the degree of compliance with the policies of an issuer that are designed to ensure that information required to and procedures may deteriorate. be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, Management conducted an evaluation of the effectiveness of the within the time periods specified in the SEC’s rules and forms. Corning’s system of internal control over financial reporting based on the disclosure controls and procedures include, without limitation, controls framework in Internal Control – Integrated Framework (2013) issued and procedures designed to ensure that information required to by the Committee of Sponsoring Organizations of the Treadway be disclosed by Corning in the reports that it files or submits under Commission. Management’s assessment of internal control over the Exchange Act is accumulated and communicated to Corning’s financial reporting includes controls over recognition of equity earnings management, including Corning’s principal executive and principal and equity investments by Corning. Internal control over financial financial officers, or other persons performing similar functions, as reporting for Hemlock Semiconductor Group is the responsibility of appropriate to allow timely decisions regarding required disclosure. its management. Corning’s internal control over financial reporting is a process designed Corning acquired substantially all of CMD during 2018, and management to provide reasonable assurance regarding the reliability of financial excluded CMD from its assessment of the effectiveness of the Company’s reporting and the preparation of financial statements for external internal control over financial reporting as of December 31, 2018. CMD’s purposes in accordance with accounting principles generally accepted internal control over financial reporting is associated with less than 1% in the United States of America. Corning’s internal control over financial of total assets and 2% of net sales included in the consolidated financial reporting includes those policies and procedures that (i) pertain to statements of the Company and its subsidiaries as of and for the year the maintenance of records that, in reasonable detail, accurately and ended December 31, 2018. fairly reflect the transactions and dispositions of Corning’s assets; (ii) provide reasonable assurance that transactions are recorded as Based on this evaluation, management concluded that Corning’s internal necessary to permit preparation of financial statements in accordance control over financial reporting was effective as of December 31, 2018. with accounting principles generally accepted in the United States of The effectiveness of Corning’s internal control over financial reporting America, and that Corning’s receipts and expenditures are being made as of December 31, 2018, has been audited by PricewaterhouseCoopers only in accordance with authorizations of Corning’s management and LLP, an independent registered public accounting firm, as stated in their directors; and (iii) provide reasonable assurance regarding prevention report which is included herein. Wendell P. Weeks R. Tony Tripeny Chairman, Chief Executive Officer and President Executive Vice President and Chief Financial Officer CORNING INCORPORATED - 2018 Annual Report 39


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    Report of Independent Registered Public Accounting Firm Our audits of the consolidated financial statements included PricewaterhouseCoopers LLP performing procedures to assess the risks of material misstatement To the Board of Directors and Shareholders of Corning Incorporated: of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such Opinions on the Financial Statements and Internal Control over procedures included examining, on a test basis, evidence regarding Financial Reporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used We have audited the accompanying consolidated balance sheets of and significant estimates made by management, as well as evaluating Corning Incorporated and its subsidiaries as of December 31, 2018 the overall presentation of the consolidated financial statements. Our and 2017, and the related consolidated statements of income (loss), audit of internal control over financial reporting included obtaining an comprehensive income, changes in shareholders’ equity and cash understanding of internal control over financial reporting, assessing flows for each of the three years in the period ended December 31, 2018, the risk that a material weakness exists, and testing and evaluating including the related notes and schedule of valuation and qualifying the design and operating effectiveness of internal control based on the accounts for each of the three years in the period ended assessed risk. Our audits also included performing such other procedures December 31, 2018 appearing under Item 15 (a)(2) (collectively as we considered necessary in the circumstances. We believe that our referred to as the “consolidated financial statements”). We also have audits provide a reasonable basis for our opinions. audited the Company’s internal control over financial reporting as of As described in Management’s Annual Report on Internal Control December 31, 2018, based on criteria established in Internal Control - over Financial Reporting, management has excluded CMD from Integrated Framework (2013) issued by the Committee of Sponsoring its assessment of internal control over financial reporting as of Organizations of the Treadway Commission (COSO). December 31, 2018 because it was acquired by the Company in a In our opinion, the consolidated financial statements referred to purchase business combination during 2018. We have also excluded above present fairly, in all material respects, the financial position of CMD from our audit of internal control over financial reporting. CMD the Company as of December 31, 2018 and 2017, and the results of its is a wholly-owned business whose total assets and net sales excluded operations and its cash flows for each of the three years in the period from management’s assessment and our audit of internal control over ended December 31, 2018 in conformity with accounting principles financial reporting represent less than 1% and 2%, respectively, of the generally accepted in the United States of America. Also in our opinion, related consolidated financial statement amounts as of and for the year the Company maintained, in all material respects, effective internal ended December 31, 2018. control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by Definition and Limitations of Internal Control over the COSO. Financial Reporting Basis for Opinions A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of The Company’s management is responsible for these consolidated financial reporting and the preparation of financial statements for financial statements, for maintaining effective internal control over external purposes in accordance with generally accepted accounting financial reporting, and for its assessment of the effectiveness of principles. A company’s internal control over financial reporting includes internal control over financial reporting, included in Management’s those policies and procedures that (i) pertain to the maintenance Annual Report on Internal Control over Financial Reporting appearing of records that, in reasonable detail, accurately and fairly reflect the under Item 9A. Our responsibility is to express opinions on the transactions and dispositions of the assets of the company; (ii) provide Company’s consolidated financial statements and on the Company’s reasonable assurance that transactions are recorded as necessary to internal control over financial reporting based on our audits. We are a permit preparation of financial statements in accordance with generally public accounting firm registered with the Public Company Accounting accepted accounting principles, and that receipts and expenditures of Oversight Board (United States) (“PCAOB”) and are required to be the company are being made only in accordance with authorizations of independent with respect to the Company in accordance with the U.S. management and directors of the company; and (iii) provide reasonable federal securities laws and the applicable rules and regulations of the assurance regarding prevention or timely detection of unauthorized Securities and Exchange Commission and the PCAOB. acquisition, use, or disposition of the company’s assets that could have a We conducted our audits in accordance with the standards of the material effect on the financial statements. PCAOB. Those standards require that we plan and perform the audits to Because of its inherent limitations, internal control over financial obtain reasonable assurance about whether the consolidated financial reporting may not prevent or detect misstatements. Also, projections of statements are free of material misstatement, whether due to error or any evaluation of effectiveness to future periods are subject to the risk fraud, and whether effective internal control over financial reporting that controls may become inadequate because of changes in conditions, was maintained in all material respects. or that the degree of compliance with the policies or procedures may deteriorate. New York, New York February 12, 2019 We have served as the Company’s auditor since 1944. 40 CORNING INCORPORATED - 2018 Annual Report


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    Consolidated Statements of Income (Loss) Corning Incorporated and Subsidiary Companies Years ended December 31, (In millions, except per share amounts) 2018 2017 2016 Net sales $ 11,290 $ 10,116 $ 9,390 Cost of sales 6,829 6,096 5,627 Gross margin 4,461 4,020 3,763 Operating expenses: Selling, general and administrative expenses 1,799 1,473 1,462 Research, development and engineering expenses 993 864 736 Amortization of purchased intangibles 94 75 64 Restructuring, impairment and other charges 77 Operating income 1,575 1,608 1,424 Equity in earnings of affiliated companies (Note 5) 390 361 284 Interest income 38 45 32 Interest expense (191) (155) (159) Translated earnings contract loss, net (93) (121) (448) Gain on realignment of equity investment 2,676 Other expense, net (216) (81) (117) Income before income taxes 1,503 1,657 3,692 (Provision) benefit for income taxes (Note 4) (437) (2,154) 3 Net income (loss) attributable to Corning Incorporated $ 1,066 $ (497) $ 3,695 Earnings (loss) per common share attributable to Corning Incorporated: Basic (Note 16) $ 1.19 $ (0.66) $ 3.53 Diluted (Note 16) $ 1.13 $ (0.66) $ 3.23 Dividends declared per common share $ 0.72 $ 0.62 $ 0.54 The accompanying notes are an integral part of these consolidated financial statements. CORNING INCORPORATED - 2018 Annual Report 41

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