UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ ~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2021

☐ ~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number: 1-3247

CORNING INCORPORATED

(Exact name of registrant as specified in its charter)

NewYork
~~New York~~		16-0393470
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

OneRiverfrontPlaza,Corning,NewYork	~~One Riverfront Plaza, Corning, New York~~		14831
(Address of principal executive offices)		(Zip Code)

607-974-9000

(Registrant’s telephone number, including area code)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		GLW		New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large ~~accelerated filer~~Accelerated Filer	☒		Accelerated ~~filer~~Filer	☐
~~Non‑accelerated filer~~Non-Accelerated Filer	☐	~~(Do not check if a smaller reporting company)~~
Smaller ~~reporting company~~Reporting Company	☐
			Emerging ~~growth company~~Growth Company	☐

If an emerging growth company, ~~indicated~~indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.

Yes

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


	Class		Outstanding as of October ~~13, 2017~~22, 2021
	Corning’s Common Stock, $0.50 par value per share		~~869,057,436~~853,408,459 shares

Table of Contents

INDEX

~~Index~~

IN~~DEX~~


PART I – FINANCIAL INFORMATION
		Page
Item 1. Financial Statements


Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, ~~2017~~2021 and ~~2016~~2020		3

Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, ~~2017~~2021 and ~~2016~~2020		4

Consolidated Balance Sheets ~~(Unaudited)~~ at September 30, ~~2017~~2021 (Unaudited) and December 31, ~~2016~~2020		5

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, ~~2017~~2021 and ~~2016~~2020		6

Consolidated Statements of Changes to Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, 2021 and 2020		7

Notes to Consolidated Financial Statements (Unaudited)		79

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2530

Item 3. Quantitative and Qualitative Disclosures About Market Risk		4951

Item 4. Controls and Procedures		4951

PART II – OTHER INFORMATION


Item 1. Legal Proceedings		5052

Item 1A. Risk Factors		5052

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5153

Item 6. Exhibits		5254

Signatures	55	53

Table of Contents

~~Index~~

COR ~~NING~~CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in millions, except per share amounts)

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Net sales	$	3,615		$	3,001		$	10,406		$	7,953
Cost of sales		2,294			2,000			6,614			5,635

Gross margin		1,321			1,001			3,792			2,318

Operating expenses:
Selling, general and administrative expenses		486			480			1,351			1,276
Research, development and engineering expenses		251			231			715			922
Amortization of purchased intangibles		32			33			97			87

Operating income		552			257			1,629			33

Equity in earnings (losses) of affiliated companies		16			(76	)		31			17
Interest income		3			3			8			12
Interest expense		(72	)		(70	)		(227	)		(201	)
Translated earnings contract (loss) gain, net (Note 12)		(13	)		(100	)		262			5
Transaction-related gain, net (Note 3)					498						498
Other (expense) income, net		(6	)		(62	)		118			(71	)

Income before income taxes		480			450			1,821			293
Provision for income taxes (Note 5)		(109	)		(23	)		(402	)		(33	)

Net income attributable to Corning Incorporated	$	371		$	427		$	1,419		$	260

Earnings per common share available to common shareholders:
Basic (Note 6)	$	0.44		$	0.53		$	0.72		$	0.25
Diluted (Note 6)	$	0.43		$	0.48		$	0.71		$	0.24

Reconciliation of net income attributable to Corning Incorporated versus net income available to common shareholders:

Net income attributable to Corning Incorporated	$	371		$	427		$	1,419		$	260

Series A convertible preferred stock dividend								(24	)		(73	)
Excess consideration paid for redemption of preferred shares ⁽¹⁾								(803	)

Net income available to common shareholders	$	371		$	427		$	592		$	187

⁽¹⁾	Refer to Note 6 (Earnings per Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.

The accompanying notes are an integral part of these consolidated financial statements.

‎

Table of Contents

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in millions)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
Net sales

$
2,607

$
2,507

$
7,479

$
6,914
Cost of sales

1,551

1,466

4,481

4,158

Gross margin

1,056

1,041

2,998

2,756

Operating expenses:

.

Selling, general and administrative expenses

372

302

1,067

1,104
Research, development and engineering expenses

213

187

620

569
Amortization of purchased intangibles

18

17

53

46
Restructuring, impairment and other charges

78

Operating income

453

535

1,258

959

Equity in earnings of affiliated companies

31

19

148

119
Interest income

10

9

33

21
Interest expense

(37)

(41)

(112)

(122)
Translated earnings contract gain (loss), net

26

(237)

(193)

(2,295)
Gain on realignment of equity investment

2,676
Other expense, net

(4)

(28)

(43)

(70)

Income before income taxes

479

257

1,091

1,288
(Provision) benefit for income taxes (Note 4)

(89)

27

(176)

835

Net income attributable to Corning Incorporated

$
390

$
284

$
915

$
2,123

Earnings per common share attributable to
Corning Incorporated:

Basic (Note 5)

$
0.41

$
0.27

$
0.93

$
1.96
Diluted (Note 5)

$
0.39

$
0.26

$
0.89

$
1.81

Dividends declared per common share

$
0.155

$
0.135

$
0.465

$
0.405

	Three months ended					Nine months ended
	September 30,					September 30,
	2021			2020		2021			2020
Net income attributable to Corning Incorporated	$	371		$	427	$	1,419		$	260

Foreign currency translation adjustments and other (Note 14)		(192	)		283		(515	)		76
Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans		0			4		(1	)		(8	)
Net unrealized (losses) gains on designated hedges		(15	)		11		(3	)		(31	)
Other comprehensive (loss) income, net of tax		(207	)		298		(519	)		37

Comprehensive income attributable to Corning Incorporated	$	164		$	725	$	900		$	297

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

~~Index~~

CO~~RNING~~CORNING INCORPORATED AND SUBSIDIARY COMPANIES

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited; in millions)~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net income attributable to Corning Incorporated

$
390

$
284

$
915

$
2,123

Foreign currency translation adjustments and other

53

245

457

869
Net unrealized (losses) gains on investments

(2)

14

(3)
Unamortized (losses) gains and prior service credits
for postretirement benefit plans

(5)

17

260
Net unrealized gains (losses) on designated hedges

4

11

42

(30)
Other comprehensive income, net of tax (Note 13)

55

251

530

1,096

Comprehensive income attributable to Corning Incorporated

$
445

$
535

$
1,445

$
3,219

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~Index~~

~~CORNING INCORPORATED AND SUBSIDIARY COMPANIES~~

CONSOLIDATED BALANCE SHEETS

(~~Unaudited; in~~In millions, except share and per share amounts)

					September 30,			December 31,
	September 30,		December 31,		2021			2020
	2017		2016		(unaudited)
Assets

Current assets:
Cash and cash equivalents	$	3,865	$	5,291	$	2,212		$	2,672
Trade accounts receivable, net of doubtful accounts and allowances - $63 and $59		1,748		1,481
Inventories, net of inventory reserves - $162 and $151 (Note 6)		1,693		1,471
Trade accounts receivable, net of doubtful accounts - $43 and $46						2,114			2,133
Inventories, net (Note 7)						2,463			2,438
Other current assets		948		805		890			761
Total current assets		8,254		9,048		7,679			8,004

Investments (Note 7)		352		336
Property, plant and equipment, net of accumulated depreciation - $10,684 and $9,884		13,344		12,546
Goodwill, net (Note 8)		1,684		1,577
Other intangible assets, net (Note 8)		891		796
Deferred income taxes (Note 4)		2,641		2,325
Property, plant and equipment, net of accumulated depreciation - $13,857 and $13,663						15,383			15,742
Goodwill, net						2,425			2,460
Other intangible assets, net						1,192			1,308
Deferred income taxes (Note 5)						1,062			1,121
Other assets		928		1,271		1,965			2,140

Total Assets	$	28,094	$	27,899	$	29,706		$	30,775

Liabilities and Equity

Current liabilities:
Current portion of long-term debt and short-term borrowings (Note 3)	$	631	$	256
Current portion of long-term debt and short-term borrowings (Note 9)					$	50		$	156
Accounts payable		1,179		1,079		1,396			1,174
Other accrued liabilities (Note 2 and Note 10)		1,255		1,416
Other accrued liabilities (Note 8 and Note 11)						2,891			2,437
Total current liabilities		3,065		2,751		4,337			3,767

Long-term debt		3,994		3,646
Postretirement benefits other than pensions (Note 9)		712		737
Other liabilities (Note 2 and Note 10)		2,940		2,805
Long-term debt (Note 9)						7,019			7,816
Postretirement benefits other than pensions (Note 10)						729			727
Other liabilities (Note 8 and Note 11)						5,266			5,017
Total liabilities		10,711		9,939		17,351			17,327

Commitments, contingencies and guarantees (Note 2)
Shareholders’ equity (Note 13):
Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 3,100; Shares issued: 2,300		2,300		2,300
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1,706 million and 1,691 million		853		846
Commitments and contingencies (Note 11)
Shareholders’ equity (Note 14):
Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 10 million; Shares issued: 0 and 2,300						0			2,300
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1.8 billion and 1.7 billion						907			863
Additional paid-in capital – common stock		14,013		13,695		16,398			14,642
Retained earnings		17,533		16,880		16,110			16,120
Treasury stock, at cost; Shares held: 837 million and 765 million		(16,236)		(14,152)
Treasury stock, at cost; Shares held: 963 million and 961 million						(20,011	)		(19,928	)
Accumulated other comprehensive loss		(1,146)		(1,676)		(1,259	)		(740	)
Total Corning Incorporated shareholders’ equity		17,317		17,893		12,145			13,257
Noncontrolling interests		66		67
Non-controlling interests						210			191
Total equity		17,383		17,960		12,355			13,448

Total Liabilities and Equity	$	28,094	$	27,899	$	29,706		$	30,775

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

~~Index~~

~~COR~~~~NING~~CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)



	Nine Months Ended				Nine months ended
	September 30,				September 30,
	2017		2016		2021			2020
Cash Flows from Operating Activities:
Net income	$	915	$	2,123	$	1,419		$	260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		799		844		1,005			1,041
Amortization of purchased intangibles		53		46		97			87
Restructuring, impairment and other charges				78
Loss on disposal of assets						8			107
Severance charges									141
Severance payments						(24	)		(126	)
Share-based compensation expense						117			127
Equity in earnings of affiliated companies		(148)		(119)		(31	)		(17	)
Dividends received from affiliated companies		101		20
Deferred tax benefit		(62)		(1,047)
Translated earnings contract loss		193		2,295
Unrealized translation gains on transactions		(264)		(177)
Gain on realignment of equity investment				(2,676)
Translation (gain) loss on Japanese yen-denominated debt						(127	)		50
Deferred tax provision (benefit)						68			(96	)
Pension plan contributions									(80	)
Customer deposits and government incentives						168			184
Translated earnings contract gain						(262	)		(5	)
Unrealized translation losses (gains) on transactions						65			(54	)
Tax assessment refunds									101
Asset impairment									217
Transaction-related gain, net									(498	)
Changes in certain working capital items:
Trade accounts receivable		(190)		(184)		(146	)		(281	)
Inventories		(166)		(69)		(72	)		240
Other current assets		(109)		(42)		(210	)		(19	)
Accounts payable and other current liabilities		(123)		28		425			(139	)
Other, net		117		(11)		(111	)		166
Net cash provided by operating activities		1,116		1,109		2,389			1,406

Cash Flows from Investing Activities:
Capital expenditures		(1,247)		(815)		(1,014	)		(986	)
Acquisition of business, net of cash received		(171)		(279)
Cash received on realignment of equity investment				4,818
Short-term investments – acquisitions				(20)
Short-term investments – liquidations		29		121
Realized gains on translated earnings contracts		199		146
Proceeds from sale or disposal of assets						17			27
Proceeds from sale of business						102
Proceeds from and investment in unconsolidated entities, net						87			(7	)
Realized gains on translated earnings contract						30			10
Other, net		(28)		(15)		(25	)		24
Net cash (used in) provided by investing activities		(1,218)		3,956
Net cash used in investing activities						(803	)		(932	)

Cash Flows from Financing Activities:
Net repayments of short-term borrowings and current portion of long-term debt				(85)
Proceeds from issuance of long-term debt, net		702
Principal payments under capital lease obligations		(1)		(1)
Repayments of short-term borrowings						(144	)
Repayments of long-term debt						(716	)
Proceeds from issuance of long-term debt						19			212
Payment for redemption of preferred stock						(507	)
Payments of employee withholding tax on stock awards		(14)		(14)		(57	)		(10	)
Proceeds from issuance of commercial paper				(481)
Proceeds from the exercise of stock options		275		86
Repurchases of common stock for treasury		(2,064)		(3,884)
Proceeds from exercise of stock options						91			49
Purchases of common stock for treasury						(22	)		(105	)
Dividends paid		(493)		(493)		(659	)		(587	)
Other, net						5			26
Net cash used in financing activities		(1,595)		(4,872)		(1,990	)		(415	)
Effect of exchange rates on cash		271		128		(56	)		21
Net (decrease) increase in cash and cash equivalents		(1,426)		321		(460	)		80
Cash and cash equivalents at beginning of period		5,291		4,500		2,672			2,434
Cash and cash equivalents at end of period	$	3,865	$	4,821	$	2,212		$	2,514

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

~~Index~~

~~COR~~~~NING~~CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited; in millions)

(In millions)	Convertible preferred stock			Common stock		Additional paid-in capital common		Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total Corning Incorporated shareholders' equity			Non-controlling interests			Total
Balance, December 31, 2020	$	2,300		$	863	$	14,642	$	16,120		$	(19,928	)	$	(740	)	$	13,257		$	191		$	13,448
Net income									599									599			2			601
Other comprehensive loss															(352	)		(352	)		(1	)		(353	)
Shares issued to benefit plans and for option exercises					1		80											81						81
Common dividends ($0.24 per share)									(187	)								(187	)					(187	)
Preferred dividends ($10,625 per share)									(24	)								(24	)					(24	)
Other, net ⁽¹⁾									1			(6	)					(5	)		(3	)		(8	)
Balance, March 31, 2021	$	2,300		$	864	$	14,722	$	16,509		$	(19,934	)	$	(1,092	)	$	13,369		$	189		$	13,558
Net income									449									449			5			454
Other comprehensive income															40			40			1			41
Redemption of preferred stock ⁽²⁾		(700	)						(803	)								(1,503	)					(1,503	)
Conversion of preferred stock to common stock ⁽³⁾		(1,600	)		40		1,560											—						0
Purchase of common stock for treasury												(1	)					(1	)					(1	)
Shares issued to benefit plans and for option exercises					3		70											73						73
Common dividends ($0.48 per share)									(416	)								(416	)					(416	)
Other, net ⁽¹⁾												(51	)					(51	)		(13	)		(64	)
Balance, June 30, 2021	$	0		$	907	$	16,352	$	15,739		$	(19,986	)	$	(1,052	)	$	11,960		$	182		$	12,142
Net income									371									371			13			384
Other comprehensive loss															(207	)		(207	)		(1	)		(208	)
Purchase of common stock for treasury												(24	)					(24	)					(24	)
Shares issued to benefit plans and for option exercises					0		46											46						46
Other, net									0			(1	)					(1	)		16			15
Balance, September 30, 2021	$	0		$	907	$	16,398	$	16,110		$	(20,011	)	$	(1,259	)	$	12,145		$	210		$	12,355

Table of Contents

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited; in millions)

(In millions)	Convertible preferred stock		Common stock		Additional paid-in capital common		Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total Corning Incorporated shareholders' equity			Non-controlling interests			Total
Balance, December 31, 2019	$	2,300	$	859	$	14,323	$	16,408		$	(19,812	)	$	(1,171	)	$	12,907		$	90		$	12,997
Net loss						0		(96	)								(96	)					(96	)
Other comprehensive loss														(326	)		(326	)		(1	)		(327	)
Purchase of common stock for treasury											(105	)					(105	)					(105	)
Shares issued to benefit plans and for option exercises						17											17						17
Common dividends ($0.22 per share)								(168	)								(168	)					(168	)
Preferred dividends ($10,625 per share)								(24	)								(24	)					(24	)
Other, net								(6	)		(1	)					(7	)					(7	)
Balance, March 31, 2020	$	2,300	$	859	$	14,340	$	16,114		$	(19,918	)	$	(1,497	)	$	12,198		$	89		$	12,287
Net (loss) income								(71	)								(71	)		6			(65	)
Other comprehensive income														65			65						65
Shares issued to benefit plans and for option exercises				1		58											59						59
Common dividends ($0.22 per share)								(171	)								(171	)					(171	)
Preferred dividends ($10,625 per share)								(25	)								(25	)					(25	)
Other, net											(6	)					(6	)		(11	)		(17	)
Balance, June 30, 2020	$	2,300	$	860	$	14,398	$	15,847		$	(19,924	)	$	(1,432	)	$	12,049		$	84		$	12,133
Net income								427									427			5			432
Other comprehensive income														298			298			1			299
Shares issued to benefit plans and for option exercises				1		96											97						97
Common dividends ($0.22 per share)								(171	)								(171	)					(171	)
Preferred dividends ($10,625 per share)								(24	)								(24	)					(24	)
Non-controlling interest in HSG ⁽⁴⁾																				102			102
Other, net								(14	)		(2	)					(16	)		5			(11	)
Balance, September 30, 2020	$	2,300	$	861	$	14,494	$	16,065		$	(19,926	)	$	(1,134	)	$	12,660		$	197		$	12,857

⁽¹⁾	Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations.
⁽²⁾	Refer to Note 6 (Earnings per Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.
⁽³⁾	Refer to Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.
⁽⁴⁾	Refer to Note 3 (HSG Transactions) to the consolidated financial statements for more information.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation

In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and its subsidiary companies.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with Corning’s consolidated financial statements and notes thereto included in its Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2016~~2020 (“~~2016~~2020 Form ~~10-K”~~10-K”).

The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.

The equity method of accounting is used for investments in affiliated companies that are not controlled by Corning and in which the Company’s interest is generally between 20% and 50% and we have significant influence over the entity.

On ~~January 1, 2017, Corning adopted ASU 2016-09, Improvements~~September 9, 2020, Hemlock Semiconductor Group (“HSG”) redeemed the entire ownership interest of DuPont de Nemours, Inc. (“DuPont”) in HSG with a value of $250 million ("Redemption"). Upon completion of the Redemption, the Company obtained a 100% interest in Hemlock Semiconductor LLC ("HS LLC") and an 80.5% interest in Hemlock Semiconductor Operations LLC ("HSO LLC"), which are affiliated entities within HSG. HSG's results have been consolidated in “All Other”. Refer to ~~Employee Share-Based Payment Accounting,~~Note 3 (HSG Transactions) to the consolidated financial statements for additional information.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The novel coronavirus (“COVID-19”) pandemic and the resulting adverse impacts to global economic conditions may impact future estimates including, but not limited to, inventory valuations, fair value measurements, goodwill and long-lived asset impairments, the effectiveness of ~~which include~~ the ~~recording of cumulative~~Company’s hedging instruments, deferred tax ~~benefits of $233 million in beginning retained earnings~~valuation allowances, actuarial losses on retirement benefit plans and ~~cash flow reclassifications that were not significant.~~ discount rate assumptions.

Certain prior year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no impact on ~~our~~the results of operations, financial position, or changes in shareholders’ equity.

New Accounting Standards

~~In May 2014,~~During the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, as~~first quarter of 2021, Corning early adopted ASU 2020-06. This simplifies an issuer’s accounting for convertible instruments by eliminating separate accounting for beneficial and cash conversion features under ASC 470-20. The ASU clarifies the settlement assessment that entities are required to perform to determine whether a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The new revenue recognition standard relates to revenue from contracts with customers, which, along with amendments issued in 2015 and 2016, will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. The underlying principle iscontract qualifies for equity classification under ASC 815-40. Entities are required to use the if-converted method for all convertible instruments in the diluted earnings per share calculation, to include the effect of potential share settlement if the effect is more dilutive, for instruments that may be settled in cash or shares under ASC 260. The adoption of ASU 2020-06 did not have any impact on Corning’s consolidated financial statements.

Other Accounting Standards

No other accounting standards, newly issued or adopted as of September 30, 2021, had a ~~five-step analysis~~material impact on Corning’s financial statements or disclosures.

Table of ~~transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects~~Contents

2. Restructuring, Impairment and Other Charges and Credits

2021

There was no material restructuring, impairment and other charges and credits activity for the ~~consideration that~~firstnine months of 2021. As of September 30, 2021, Corning had unpaid severance liabilities of $17 million, and payment is expected to be received for those goods or services. Corning has evaluated its material contracts, and has concluded that the impact of adopting the standard on its financial statements and related disclosure will not be material. The standard, as amended, will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. We will adopt the standard on a modified retrospective basiscomplete in ~~2018.~~less than twelve months.

Corning’s equity affiliates are currently evaluating their material contracts, and have not concluded on the potential impact of adopting ASU 2014-09 on their financial statements and related disclosure.2020

In ~~February 2016,~~ the ~~FASB issued ASU 2016-02, Leases (Topic 842)~~firstnine months of 2020, and in response to uncertain global economic conditions, Corning undertook actions to transform the Company’s cost structure and improve operational efficiency.

During the three and nine months ended September 30, 2020, ~~which supersedes all existing guidance on accounting~~$171 million and $733 million were recorded, respectively, in restructuring, impairment and other charges and credits. Severance charges of $6 million and $141 million, respectively, were primarily related to a reduction in workforce to facilitate realignment of capacity in the Asia regions for ~~leases~~our Display Technologies segment, optimize our Optical Communications segment and certain corporate costs. Asset impairment losses of $22 million and $217 million, respectively, were incurred for an asset group related to the reassessment of research and development programs within "All Other". Charges of $143 million and $375 million, respectively, primarily included accelerated depreciation, asset disposals and other related exit costs in ~~ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency~~our Display Technologies and ~~comparability by requiring lessees to record right-of-use assets~~Specialty Materials segments.

For the three and ~~corresponding lease liabilities~~nine months ended September 30, 2020, total restructuring, impairment and other charges and credits were reflected on the ~~balance sheet. ASU 2016-02 will continue to classify leases~~consolidated statements of income as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. We are currently assessing the potential impact of adopting ASU 2016-02 on our financial statements and related disclosures.follows:

	Three months ended
	September 30, 2020
			Selling,		Research,
			general		development
			and		and
	Gross		administrative		engineering
	margin (1)		expenses		expenses		Other		Total
Severance	$	3	$	3					$	6
Asset impairment				6	$	16				22
Capacity realignment		95				1				96
Other charges and credits		26		12		1	$	8		47
Total restructuring, impairment and other charges and credits	$	124	$	21	$	18	$	8	$	171

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 refines how companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and for interim periods within those fiscal years. We are currently assessing the potential impact of adopting ASU 2016-15 on our financial statements and related disclosures, but the effect is not expected to be material.

⁽¹⁾	Activity reflected in cost of sales.

	Nine months ended
	September 30, 2020
			Selling,		Research,
			general		development
			and		and
	Gross		administrative		engineering
	margin (1)		expenses		expenses		Other		Total
Severance	$	79	$	34	$	28			$	141
Asset impairment				6		211				217
Capacity realignment		243				2				245
Other charges and credits		61		51		2	$	16		130
Total restructuring, impairment and other charges and credits	$	383	$	91	$	243	$	16	$	733

⁽¹⁾	Activity reflected in cost of sales.

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In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. We are currently evaluating the impact of ASU 2016-16 on our consolidated financial statements and related disclosures.

3. HSG Transactions

In ~~January 2017,~~2016, Corning realigned its ownership interest in Dow Corning Corporation ("Dow Corning"), exchanging its 50% interest in the ~~FASB issued ASU 2017-04, Intangibles – Goodwill~~joint venture between Corning and ~~Other (Topic 350). ASU 2017-04 simplifies~~The Dow Chemical Corporation ("Dow") for a newly formed company that held a 49.9% interest in HS LLC and a 40.25% interest in HSO LLC, which were recorded as equity method investments of Corning and are affiliated companies of HSG. DuPont subsequently undertook Dow's ownership interest in HSG. HSG manufactures polysilicon products for the ~~subsequent measurement of goodwill by removing the second step~~semiconductor and solar industries, and is one of the ~~two-step impairment test.~~world’s leading providers of ultra-pure polycrystalline silicon to the semiconductor industry.

2020

On September 9, 2020, HSG entered into a series of agreements with DuPont resulting in a change in control and consolidation for Corning.

HSG acquired DuPont’s TCS manufacturing assets, which were determined to be a business and recorded as a business combination. The ~~amendment requires~~fair value of the purchase price was $255 million. In conjunction with this acquisition, HSG settled the pre-existing TCS relationship (“TCS Settlement”) for a contractual amount of $175 million, which was determined to have a fair value of $200 million. HSG is paying for the TCS Settlement over three years with equal annual payments of approximately $58 million. Corning’s share of the pre-tax loss related to the TCS Settlement was $81 million and was recorded in equity in earnings of affiliated companies in the consolidated statements of income (loss).

HSG also completed the Redemption, redeeming Dupont’s entire ownership of HSG with a value of $250 million. The Redemption was funded with HSG’s existing cash on-hand of $75 million and its newly obtained third-party debt of $175 million, maturing on September 8, 2021. Debt repayments have been recorded as a financing activity on Corning's consolidated statements of cash flows. As of September 30, 2021, the third-party debt has been fully repaid.

Upon completion of the Redemption, Corning obtained a 100% interest in HS LLC and an ~~entity to perform its annual, or interim goodwill impairment test by comparing~~80.5% interest in HSO LLC. Corning accounted for the Redemption under the acquisition method of accounting in accordance with business combinations without the transfer of net cash consideration. The Redemption price of $250 million approximated the fair value of Corning’s equity interest in HSG immediately preceding the Redemption.

The net gain on previously owned equity was calculated as follows (in millions):

Fair value of previously held equity investment	$	250
Equity investment liability balance as of acquisition date		(248	)
Corning's gain on previously held equity investment	$	498

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The following table summarizes the amounts of recorded assets acquired and liabilities assumed as of September 9, 2020, which includes the TCS assets and liabilities acquired by HSG immediately prior to the Redemption and the consolidation by Corning. Recognized amounts of identified assets and liabilities recorded at fair value (in millions):

Inventory	$	503
Property, plant and equipment		651
Intangible assets		285
Other current and non-current assets ⁽¹⁾		173
Short-term borrowings		(178	)
Trade payables and other accrued liabilities		(329	)
Other liabilities		(1,261	)
Total identified net liabilities		(156	)
Non-controlling interests ⁽²⁾		(102	)
Total fair value of Corning's previously held equity investment ⁽²⁾		(250	)
Goodwill ⁽³⁾	$	508

⁽¹⁾	The other current and non-current assets included a contingent consideration asset of $20 million at fair value for a cost adjustment contract related to the TCS Transaction. Refer to Note 13 (Fair Value Measurements) to the consolidated financial statements for additional information.
⁽²⁾	The purchase price being used to measure the goodwill of the Redemption is $352 million, including the fair value of Corning’s previously held equity interest and non-controlling interest, of $250 million and $102 million, respectively.
⁽³⁾	The goodwill recognized is not deductible for U.S. income tax purposes. The goodwill was allocated to “All Other” within segment reporting as disclosed in Note 16 (Reportable Segments) to the consolidated financial statements.

Upon completion of the Redemption and resulting consolidation, Corning recorded the values of assets acquired and liabilities assumed from HSG, including a ~~reporting unit~~customer deposit liability and deferred revenue. Refer to Note 4 (Revenue) to the consolidated financial statements for additional information.

The goodwill is primarily related to other intangibles and synergies of the acquired business which do not qualify for separate recognition. Intangible assets consist primarily of $215 million of developed technologies and know-how, and $70 million of other intangibles that are amortized over the weighted-average useful life of approximately 20 and 15 years, respectively.

HSG's revenue and net income have been consolidated in “All Other” in Corning’s consolidated statements of income.

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4. Revenue

Revenue Disaggregation Table

The following table shows revenues by major product categories, similar to the Company’s reportable segment disclosure. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty of revenue recognition and cash flows are substantially similar. Commercial markets and selling channels are also similar. Except for an inconsequential amount of revenue for Telecommunications products, product category revenues are recognized at point in time when control transfers to the customer.

Revenues by product category are as follows (in millions):

	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Display products	$	936	$	834	$	2,758	$	2,211

Telecommunication products		1,131		909		3,143		2,587

Specialty glass products		556		570		1,490		1,339

Environmental substrate and filter products		382		369		1,233		891

Life science products		304		220		917		707

All Other ⁽¹⁾		306		99		865		218
Total revenue	$	3,615	$	3,001	$	10,406	$	7,953
Impact of foreign currency movements ⁽²⁾		24		6		0		66
Cumulative adjustment related to customer contract ⁽³⁾								105
Net sales of reportable segments and All Other	$	3,639	$	3,007	$	10,406	$	8,124

⁽¹⁾	The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in "All Other" as of September 9, 2020.
⁽²⁾	This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.
⁽³⁾	Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.

Refer to Note 16 (Reportable Segments) to the consolidated financial statements for additional information.

Contract Assets and Liabilities

Contract assets, such as incremental costs to obtain or fulfill contracts, are an insignificant component of Corning’s revenue recognition process. Most of Corning’s fulfillment costs as a manufacturer of products are classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other contract fulfillment costs are immaterial due to the nature of the products and their respective manufacturing processes.

Contract liabilities include deferred revenue, other advance payments and customer deposits. Other advance payments are not significant to operations and are classified as part of other accrued liabilities in the consolidated financial statements. Customer deposits and deferred revenue are predominately related to Display products and Corning's controlling interest in HSG, respectively.

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Customer Deposits

As of September 30, 2021 and December 31, 2020, Corning had customer deposits of approximately $1.3 billion and $1.4 billion, respectively. Most of these customer deposits were non-refundable and allowed customers to secure rights to glass produced by Corning under long-term supply agreements. The duration of these long-term supply agreements ranges up to 10 years. As glass is shipped to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability.

Customer deposits used were $59 million and $182 million, respectively, and $34 million and $107 million, respectively, in the three and nine months ended September 30, 2021 and 2020. As of September 30, 2021 and December 31, 2020, $1.1 billion was recorded as other long-term liabilities. The remaining $224 million and $211 million, respectively, were classified as other current liabilities.

Deferred Revenue

As of September 30, 2021 and December 31, 2020, Corning had deferred revenue of approximately $932 million and $1.0 billion, respectively. The deferred revenue was related to the performance obligations of non-refundable consideration previously received by HSG from its customers under long-term supply agreements.

The deferred revenue is tracked on a per-customer contract-unit basis. As customers take delivery of the committed volumes under the terms of the contract, a per-unit amount of deferred revenue is recognized when control of the promised goods is transferred to the customer based upon the units shipped.

As of September 30, 2021 and December 31, 2020, $792 million and $872 million, respectively, were classified as long-term liabilities and $140 million and $152 million, respectively, were classified as current liabilities.

Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information.

5. Income Taxes

The provision for income taxes and the related effective income tax rates are as follows (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Provision for income taxes	$	(109	)	$	(23	)	$	(402	)	$	(33	)
Effective tax rate		22.7	%		5.1	%		22.1	%		11.3	%

For the three months ended September 30, 2021, the effective income tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to non-deductible expenses for tax purposes, foreign rate differential, and tax reform items. For the nine months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an adjustment to the permanently reinvested foreign income position, excess tax benefit related to share-based compensation payments, foreign rate differential, and tax reform items related to The Tax Cuts and Jobs Act of 2017.

For the three and nine months ended September 30, 2020, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to an estimate of income tax benefits generated by a current year net operating loss that will be carried-back to prior years as allowed under the CARES Act and changes of estimates based on the final 2019 U.S. tax return which were partially offset by additional income tax reserves. For the nine months ended September 30, 2020, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an estimate of income tax benefits generated by a current year net operating loss that will be carried-back to prior years as allowed under the CARES Act and changes of estimates based on the final 2019 U.S. tax return which were partially offset by income tax reserves, an adjustment to the permanently reinvested foreign income position and foreign valuation allowances on deferred tax assets.

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Corning Precision Materials is currently appealing certain tax assessments and tax refund claims in South Korea for tax years 2010 through 2018. The Company was required to deposit the disputed amounts with the South Korean government as a condition of its ~~carrying amount. An impairment charge should be recognized~~appeal of any tax assessments. Corning believes that it is more likely than not the Company will prevail in the appeals process. As of September 30, 2021 and December 31, 2020, non-current receivables of $350 million and $365 million, respectively, were recorded related to these appeals.

6. Earnings per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (in millions, except per share amounts):

	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income attributable to Corning Incorporated	$	371	$	427	$	1,419	$	260
Less: Series A convertible preferred stock dividend				24		24		73
Less: Excess consideration paid for redemption of preferred shares						803
Net income available to common shareholders – basic		371		403		592		187
Plus: Series A convertible preferred stock dividend				24
Net income available to common shareholders – diluted	$	371	$	427	$	592	$	187

Weighted-average common shares outstanding – basic		852		760		821		760
Effect of dilutive securities:
Employee stock options and other dilutive securities		14		14		16		8
Series A convertible preferred stock ⁽¹⁾				115
Weighted-average common shares outstanding – diluted		866		889		837		768
Basic earnings per common share	$	0.44	$	0.53	$	0.72	$	0.25
Diluted earnings per common share	$	0.43	$	0.48	$	0.71	$	0.24

Anti-dilutive potential shares excluded from diluted earnings per common share:
Series A convertible preferred stock ⁽¹⁾						41		115
Employee stock options and awards				3				7
Total		0		3		41		122

⁽¹⁾	For the nine months ended September 30, 2021 and 2020, the Preferred Stock was anti-dilutive; therefore, it was excluded from the calculation of diluted earnings per share.

Fixed Rate Cumulative Convertible Preferred Stock, Series A

As of December 31, 2020, Corning had 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A (the “Preferred Stock”).

On January 16, 2021, the Preferred Stock became convertible into 115 million Common Shares, in whole or in part, at the option of the holder, Samsung Display Co., Ltd. (“SDC”). On April 5, 2021, Corning and SDC executed a Share Repurchase Agreement ("SRA").

Pursuant to the SRA, on April 8, 2021 ("Initial Closing Date"), the Preferred Stock was fully converted into 115 million Common Shares. The common equivalent for the ~~amount by which~~preferred shares was prospectively removed from the ~~carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount~~calculation of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendment should be applied on a prospective basis. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. diluted earnings per share.

The Company ~~adopted~~repurchased 35 million of the ~~ASU~~converted Common Shares pursuant to the SRA and excluded them from the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share. The redemption of these Common Shares resulted in a reduction of retained earnings of $803 million which reduced the net income available to common shareholders.

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The remaining 80 million Common Shares are outstanding and are included in the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share.

Refer to Note 14 (Shareholders’ Equity) to the consolidated financial statements for more information.

7. Inventories, Net

Inventories, net comprise the following (in millions):

	September 30,		December 31,
	2021		2020
Finished goods	$	1,195	$	1,236
Work in process		339		357
Raw materials and accessories		419		370
Supplies and packing materials		510		475
Total inventories, net	$	2,463	$	2,438

8. Other Liabilities

Other liabilities follow (in millions):

	September 30,		December 31,
	2021		2020
Current liabilities:
Wages and employee benefits	$	636	$	572
Income taxes		145		173
Derivative instruments (Note 12)		72		189
Deferred revenue (Note 4)		140		152
Settlement liability (Note 3)		58		58
Customer deposits (Note 4)		224		211
Share repurchase liability (Note 14)		504		0
Short-term operating leases		96		96
Other current liabilities		1,016		986
Other accrued liabilities	$	2,891	$	2,437

Non-current liabilities:
Defined benefit pension plan liabilities	$	884	$	887
Derivative instruments (Note 12)		29		155
Asbestos and other litigation		35		94
Deferred revenue (Note 4)		792		872
Settlement liability (Note 3)		58		117
Customer deposits (Note 4)		1,095		1,148
Share repurchase liability (Note 14)		515		0
Deferred tax liabilities		263		313
Long-term operating leases		626		633
Other non-current liabilities		969		798
Other liabilities	$	5,266	$	5,017

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9. Debt

Based on ~~January 1, 2017.~~borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $8.4 billion and $9.4 billion at September 30, 2021 and December 31, 2020, respectively, compared to recorded book values of $7.0 billion and $7.8 billion at September 30, 2021 and December 31, 2020, respectively. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.

Corning had no outstanding commercial paper at September 30, 2021 and December 31, 2020.

Debt Issuances and Redemptions

2021

In ~~March 2017,~~ the ~~FASB issued ASU No. 2017-07, Compensation—~~third quarter of 2021, Corning redeemed $250 million of 3.7% debentures due in 2023, paying a premium of $19 million by exercising our make-whole call. The bond redemption resulted in a $20 million loss during the same quarter.

In the second quarter of 2021, Corning redeemed $375 million of 2.9% debentures due in 2022, paying a premium of $10 million by exercising our make-whole call. The bond redemption resulted in an $11 million loss during the same quarter.

Losses on bond redemption have been recorded in other (expense) income, net on the consolidated statements of income during the quarter in which they occurred.

On a quarterly basis, Corning will recognize the foreign currency translation gains and losses resulting from changes in exchanges rates within accumulated other comprehensive income (loss) in shareholders’ equity. Cash proceeds from loans and debt issuances are disclosed as financing activities, and cash payments for interest are disclosed as operating activities, in the consolidated statements of cash flows.

10. Employee Retirement ~~Benefits (Topic 715): Improving~~Plans

Corning has defined benefit pension plans covering certain domestic and international employees. The Company’s funding policy is to contribute, over time, an amount exceeding the ~~Presentation~~minimum requirements to achieve the Company’s long-term funding targets. During 2021, the Company expects to make cash contributions of ~~Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires entities~~$30 million to ~~(1) disaggregate~~our international pension plans.

The following table summarizes the ~~current-service-cost component from the other~~ components of net periodic benefit cost ~~(the “other components”)~~for Corning’s defined benefit pension and ~~present it with~~postretirement health care and life insurance plans (in millions):

	Pension benefits												Postretirement benefits
	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Service cost	$	32		$	29		$	96		$	87		$	3		$	2		$	8		$	7
Interest cost		22			32			65			94			3			5			11			15
Expected return on plan assets		(54	)		(49	)		(162	)		(147	)
Amortization of prior service cost (credit)		1			1			3			4			(1	)		(2	)		(4	)		(5	)
Recognition of actuarial loss (gain)								10			(2	)					1			1			1
Total pension and postretirement benefit expense	$	1		$	13		$	12		$	36		$	5		$	6		$	16		$	18

The components of net periodic benefit cost, other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. In addition, the ASU requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The amendment should be applied retrospectively for the presentation ofthan the service cost component, and prospectively for the capitalization of the service cost component. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted at the beginning of any annual period for which an entity’s financial statements have not been issued or made available for issuance. We are ~~currently evaluating the impact of ASU 2017-07 on our consolidated financial statements and related disclosures, but the impact is not expected to be material.~~

~~2. Commitments, Contingencies and Guarantees~~

~~Asbestos Claims~~

Corning and PPG Industries, Inc. each owned 50% of the capital stock of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11 reorganization in 2000 and the Modified Third Amended Plan of Reorganization for PCC (the “Plan”) became effective in April 2016. At December 31, 2016, this estimated liability was $290 million, due to the Company’s contribution,included in the ~~second quarter of 2016, of its equity interests in PCC and Pittsburgh Corning Europe N.V. (“PCE”)~~line item other (expense) income, net, in the ~~total amount~~consolidated statements of $238 million, as required by the Plan. A payment for $70 million was made in June 2017. At September 30, 2017, the total amount of payments due in years 2018 through 2022 is $220 million. A $35 million payment is due in the second quarter of 2018 and is classified as a current liability. The remaining $185 million is classified as a non-current liability.

~~Non-PCC Asbestos Claims Insurance Litigation~~

Corning is a defendant in certain cases alleging injuries from asbestos unrelated to PCC (the “non-PCC asbestos claims”) which had been stayed pending the confirmation of the Plan. The stay was lifted on August 25, 2016. Corning previously established a $150 million reserve for these non-PCC asbestos claims. The estimated reserve represents the undiscounted projection of claims and related legal fees over the next 20 years. The amount may need to be adjusted in future periods as more data becomes available; however, we cannot estimate any lesser or greater liabilities at this time. At September 30, 2017 and December 31, 2016, the amount of the reserve for these non-PCC asbestos claims was $148 million and $149 million, respectively.

Several of Corning’s insurers have commenced litigation in state courts for a declaration of the rights and obligations of the parties under insurance policies related to Corning’s asbestos claims. Corning has resolved these issues with a majority of its relevant insurers, and is vigorously contesting these cases with the remaining relevant insurers. Management is unable to predict the outcome of the litigation with these remaining insurers.income.

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~~Other~~

11. Commitments and Contingencies

We are required, at the time a guarantee is issued, to recognize a liability for the fair value or market value of the obligation it assumes. In the normal course of our business, we do not routinely provide significant third-party guarantees. Generally, any third party guarantees provided by Corning are limited to certain financial guarantees including stand-by letters of credit and performance bonds, and the incurrence of contingent liabilities in the form of purchase price adjustments related to attainment of milestones. When provided, these guarantees have various terms, and none of these guarantees are individually significant.

As of September 30, 2017 and December 31, 2016, contingent guarantees totaled a notional value of $317 million and $267 million, respectively. We believe a significant majority of these contingent guarantees will expire without being funded. We also were contingently liable for purchase obligations of $230 million and $231 million, at September 30, 2017 and December 31, 2016, respectively.

~~Product warranty liability accruals were considered insignificant at September 30, 2017 and December 31, 2016.~~

Corning is a defendant in various lawsuits ~~including environmental and product-related suits,~~ and is subject to various claims that arise in the normal course of ~~business.~~business, the most significant of which are summarized below. In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse effect on Corning’s consolidated financial position, liquidity, or results of operations, is remote. ~~Other than~~

Asbestos Claims

Corning is a defendant in certain cases alleging injuries from asbestos. At September 30, 2021 and December 31, 2020, the amount of the reserve for these asbestos claims was estimated to be $38 million and $96 million, respectively, and represented the undiscounted projection of claims and related legal fees for the estimated life of the litigation.

Dow Corning Chapter 11 Related Matters

Until June 1,2016, Corning and Dow each owned 50% of the common stock of Dow Corning. On May 31,2016, Corning and Dow realigned their ownership interest in Dow Corning. Following the realignment, Corning no longer owned any interest in Dow Corning. With the realignment, Corning agreed to indemnify Dow Corning for 50% of Dow Corning’s non-ordinary course, pre-closing liabilities to the extent such liabilities exceed the amounts reserved for them by Dow Corning as of May 31,2016, subject to certain conditions and limits.

Dow Corning Breast Implant Litigation

In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from many thousands of breast implant product lawsuits. On June 1, 2004, Dow Corning emerged from Chapter 11 with a Plan of Reorganization (the “Plan”) which provided for the settlement or other resolution of implant claims. The Plan includes releases for Corning and Dow as shareholders in exchange for contributions to the Plan.

Under the terms of the Plan, Dow Corning has established and funded a Settlement Trust and a Litigation Facility, referred to above, to provide a means for tort claimants to settle or litigate their claims. Inclusive of insurance, Dow Corning has paid approximately $1.8 billion to the Settlement Trust. As of May 31,2016, Dow Corning had recorded a reserve for breast implant litigation of $290 million. In the event Dow Corning’s total liability for these claims ~~there are no~~exceeds such amount, Corning may be required to indemnify Dow for up to 50% of the excess liability, subject to certain conditions and limits. As of September 30, 2021 and December 31, 2020, Dow Corning had recorded a reserve for breast implant litigation of $160 million. As a result, Corning does not believe its indemnity obligation for Dow Corning’s breast implant litigation liability, if any, will be material.

Dow Corning Bankruptcy Pendency Interest Claims

As a separate matter arising from the bankruptcy proceedings, Dow Corning had been defending claims asserted by commercial creditors who claimed additional compounded interest at default and state statutory judgment rates as well as attorneys’ fees and other ~~material loss contingencies related~~enforcement costs, during the period from May 1995 through June 2004. As of May 31, 2016, Dow Corning had recorded a reserve for these claims of $107 million. Dow Corning settled those claims as of September 30, 2019 and received approval of the settlement from the bankruptcy court. Corning does not believe its indemnity obligation, if any, for Dow Corning’s liability to ~~litigation.~~be material.

Dow Corning Environmental Claims

In September 2019, Dow formally notified Corning of certain environmental matters for which Dow asserts that it has, or will, experience losses arising from remediation and response at a number of sites. In the event Dow is liable for these claims, Corning may be required to indemnify Dow for up to 50% of that liability, subject to certain conditions and limits. As of September 30, 2021, Corning has determined a potential liability for these environmental matters is probable and the amount recorded was not material.

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Environmental Litigation

Corning has been named by the Environmental Protection Agency ~~(“the Agency”)~~(the Agency) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible 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 cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. As of September 30, 2021 and December 31, 2020, Corning had accrued approximately $60 million and $68 million, respectively, for the estimated undiscounted liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

12. Hedging Activities

Cash Flow Hedges

Corning uses over-the-counter (“OTC”) foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to customers and purchases from suppliers. The total gross notional values for foreign currency cash flow hedges are $751 million and $1.1 billion at September 30, 2021 and December 31, 2020, respectively, with maturities spanning the years 2021 through 2023. Corning defers gains and losses related to the cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. At September 30, 2021, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $41 million.

Undesignated Hedges

Corning uses OTC foreign exchange forward and option contracts that are not designated as hedging instruments for accounting purposes. The undesignated hedges limit exposure to foreign functional currency fluctuations related to certain subsidiaries’ monetary assets, monetary liabilities and net earnings in foreign currencies.

The majority of average rate forward and option contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning years 2021 through 2024. The following table summarizes the total gross notional value for translated earnings contracts at September 30, 2021 and December 31, 2020 (in billions):

	September 30,		December 31,
	2021		2020
Average rate forward contracts:
Japanese yen-denominated	$	3.5	$	4.5
South Korean won-denominated		0.7		0.4
Euro-denominated		0.3		0.5
Other foreign currencies ⁽¹⁾		0.1		0.1
Option contracts:
Japanese yen-denominated ⁽²⁾		1.9		2.0
Other foreign currencies ⁽³⁾		1.4		0
Total gross notional value for translated earning contracts	$	7.9	$	7.5

⁽¹⁾	Denominational currencies for average rate forward contracts include the Chinese yuan and British pound.
⁽²⁾	Japanese yen-denominated option contracts include zero-cost collars, purchased put and call options. With respect to the zero-cost collars, the gross notional amount includes the value of the put and call options. However, due to the nature of the zero-cost collars, only the put or call option can be exercised at maturity.
⁽³⁾	Other foreign currencies option contracts are purchased basket options that include a basket of underlying currencies, including the Japanese yen, South Korean won, Chinese yuan, euro and British pound, and each basket option will be settled against USD.

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The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for September 30, 2021 and December 31, 2020 (in millions):

					Asset derivatives					Liability derivatives
	Notional amount				Balance	Fair value				Balance	Fair value
	September 30,		December 31,		sheet	September 30,		December 31,		sheet	September 30,			December 31,
	2021		2020		location	2021		2020		location	2021			2020

Derivatives designated as hedging instruments

Foreign exchange contracts and other (1)	$	751	$	1,143	Other current assets	$	43	$	37	Other accrued liabilities	$	(1	)	$	(3	)
					Other assets		19		21	Other liabilities		(2	)		(1	)

Derivatives not designated as hedging instruments

Foreign exchange contracts		5,278		6,144	Other current assets		43		45	Other accrued liabilities		(49	)		(76	)
					Other assets		10		41	Other liabilities		(19	)		(59	)
Translated earnings contracts		7,909		7,453	Other current assets		90		66	Other accrued liabilities		(22	)		(110	)
					Other assets		126		61	Other liabilities		(8	)		(95	)
Total derivatives	$	13,938	$	14,740		$	331	$	271		$	(101	)	$	(344	)

⁽¹⁾

At September 30, 2021, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $751 million. At December 31, 2020, derivatives designated as hedging instruments include foreign currency contracts with notional amounts of $892 million and $251 million, respectively, for cash flow hedges and net investment hedges.

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The following tables summarize the effect of Corning’s derivative financial instruments on the consolidated financial statements (in millions):



	Three months ended September 30,
Derivatives in hedging	(Loss) gain recognized in other						Location of gain (loss) reclassified from	Gain (loss) reclassified from
relationships for	comprehensive income (OCI)						accumulated OCI into income	accumulated OCI into income
cash flow hedges	2021			2020			effective (ineffective)	2021		2020

							Net sales	$	3	$	(2	)
Foreign exchange contracts and other	$	(5	)	$	16		Cost of sales		11		3
Total cash flow hedges	$	(5	)	$	16			$	14	$	1

	Nine months ended September 30,
Derivatives in hedging	Gain (loss) recognized in other						Location of gain (loss) reclassified from	Gain (loss) reclassified from
relationships for	comprehensive income (OCI)						accumulated OCI into income	accumulated OCI into income
cash flow hedges	2021			2020			effective (ineffective)	2021		2020

							Net sales	$	9	$	(4	)
							Cost of sales		28		7
Foreign exchange contracts and other	$	36		$	(51	)	Other expense, net (1)				(14	)
Total cash flow hedges	$	36		$	(51	)		$	37	$	(11	)

⁽¹⁾	A loss of $14 million was reclassified from accumulated other comprehensive loss into other expense, net, resulting from the de-designation of certain cash flow hedges.

		(Loss) gain recognized in income
		Three months ended						Nine months ended
	Location of (loss) gain	September 30,						September 30,
Undesignated derivatives	recognized in income	2021			2020			2021		2020

Foreign exchange contracts	Other income (expense), net	$	(9	)	$	(48	)	$	26	$	(62	)
Translated earnings contracts	Translated earnings contract (loss) gain, net		(13	)		(100	)		262		5

Total undesignated		$	(22	)	$	(148	)	$	288	$	(57	)

13. Fair Value Measurements

Fair value standards under GAAP define fair value, establish a framework for measuring fair value in applying generally accepted accounting principles, and require disclosures about fair value measurements. The standards identify two kinds of inputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources, while unobservable inputs are based on the Company’s own market assumptions. Once inputs have been characterized, the inputs are prioritized into one of three broad levels (provided in the table below) used to measure fair value. Fair value standards apply whenever an entity is measuring fair value under other accounting pronouncements that require or permit fair value measurement and require the use of observable market data when available.

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The following tables provide fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis; Level 1, quoted market prices in active markets for identical assets, Level 2, significant other observable inputs, and Level 3, significant unobservable inputs (in millions):

			Fair value measurements at reporting date
	September 30, 2021		(Level 1)		(Level 2)		(Level 3)
Current assets:
Other current assets ^(1)(2)(3)	$	197	$	11	$	176	$	10
Non-current assets:
Other assets ⁽¹⁾⁽²⁾	$	162		0	$	155	$	7
Current liabilities:
Other accrued liabilities ⁽¹⁾	$	72		0	$	72		0
Non-current liabilities:
Other liabilities ⁽¹⁾⁽⁴⁾	$	46		0	$	46		0

⁽¹⁾	Derivative assets and liabilities include foreign exchange contracts which were measured using observable inputs for similar assets and liabilities.
⁽²⁾	Included in other current assets and other assets is a contingent consideration asset for a cost adjustment contract of $17 million, resulting from the HSG Transactions as of September 9, 2020, that was measured using unobservable (Level 3) inputs.
⁽³⁾	Equity securities with readily available fair values of $11 million were measured using Level 1 inputs and have been included in other current assets as of September 30, 2021. An investment was sold for $84 million during the second quarter of 2021.
⁽⁴⁾	Other liabilities include a $17 million put option pursuant to the Share Repurchase Agreement with SDC, which was measured using significant other observable (Level 2) inputs. Refer to Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.

			Fair value measurements at reporting date
	December 31, 2020		(Level 1)		(Level 2)		(Level 3)
Current assets:
Other current assets ^(1)(2)(3)	$	152		0	$	148	$	4
Non-current assets:
Investments ⁽⁴⁾	$	137	$	137		0		0
Other assets ^(1)(2)(3)	$	139		0	$	123	$	16
Current liabilities:
Other accrued liabilities ⁽¹⁾	$	189		0	$	189		0
Non-current liabilities:
Other liabilities ⁽¹⁾	$	155		0	$	155		0

⁽¹⁾	Derivative assets and liabilities include foreign exchange contracts which were measured using observable inputs for similar assets and liabilities.
⁽²⁾	Included in other current assets and other assets is a contingent consideration asset for a cost adjustment contract of $20 million, resulting from the HSG Transactions as of September 9, 2020, that was measured using unobservable (Level 3) inputs.
⁽³⁾	For the year ended December 31, 2020, assets and liabilities that were measured using unobservable (Level 3) inputs resulted in losses recognized in earnings of $21 million for a renewable energy derivative contract and $4 million for auction rate securities.
⁽⁴⁾	Included in investments were equity securities with readily available fair values that were measured using Level 1 inputs. A pre-tax gain of $107 million was recognized from the initial public offering of an investment for the year ended December 31, 2020.

Assets and Liabilities Measured on a Non-Recurring Basis

For the year ended December 31, 2020, Corning incurred a long-lived asset impairment and disposal loss for an asset group related to the reassessment of research and development programs within “All Other”. Given the economic environment and market opportunities, Corning discontinued its investment in these research and development programs. The impairment analysis and disposition of certain assets resulted in a total pre-tax charge of $217 million primarily recorded in the second quarter of 2020, which was substantially all the carrying value, inclusive of an insignificant amount of goodwill. The fair value of the asset group for the impairment analysis was measured using unobservable (Level 3) inputs.

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Fair value measurements (Level 3) related to the Redemption are disclosed in Note 3 (HSG Transactions) to the consolidated financial statements.

There were no other significant financial assets and liabilities measured on a nonrecurring basis as of September 30, 2021 and December 31, 2020.

14. Shareholders’ Equity

Fixed Rate Cumulative Convertible Preferred Stock, Series A

As of December 31, 2020, Corning had 2,300 outstanding shares of Preferred Stock.

On January 16, 2021, the Preferred Stock became convertible into 115 million Common Shares, in whole or in part, at the option of SDC. On April 5, 2021, Corning and SDC executed the SRA.

Pursuant to the SRA, on the Initial Closing Date, the Preferred Stock was fully converted. As a result, the 115 million Common Share equivalent resulting from the conversion of the Preferred Stock was prospectively removed from the calculation of diluted earnings per share.

Immediately following the conversion, Corning repurchased and retired 35 million of the Common Shares held by SDC for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid on the Initial Closing Date. Subsequent payments of approximately $507 million will be paid on each of the first and second anniversaries of the Initial Closing Date.

●	The 35 million Common Shares repurchased by Corning were excluded from the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share starting on the Initial Closing Date.
●	The Shares repurchased were accounted for as a redemption of Preferred Stock. The excess of the $1.5 billion consideration paid over the carrying value of the Preferred Stock reduced the net income available to common shareholders by $803 million.

The remaining 80 million Common Shares were accounted for as a conversion of Preferred Stock and resulted in an increase of common stock and additional paid-in-capital based on the carrying value of the Preferred Stock and were included in the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share.

Pursuant to the SRA, with respect to the 80 million Common Shares outstanding held by SDC:

●

SDC has the option to sell an additional 22 million Common Shares to Corning in specified tranches from time to time in calendar years 2024 through 2027. Corning may, at its sole discretion, elect to repurchase such Common Shares. If Corning elects not to repurchase the Common Shares and SDC sells the Common Shares on the open market, Corning will be required to pay SDC a make-whole payment, subject to a 5% cap of the repurchase proceeds that otherwise would have been paid by Corning. As of September 30, 2021, the fair value of the option was $17 million when measured using significant other observable inputs.

●

The remaining 58 million shares of Common Shares are subject to a seven-year lock-up period expiring in 2027.

Refer to Note 13 (Fair Value Measurements) to the consolidated financial statements for additional information.

Share Repurchases

On April 26, 2018, Corning’s Board of Directors approved a $2 billion share repurchase program with no expiration date (the “2018 Repurchase Program”). On July 17, 2019, Corning’s Board of Directors authorized $5 billion in share repurchases with no expiration date (the “2019 Repurchase Program”).

For the three and nine months ended September 30, 2021, the Company repurchased 629 thousand and 668 thousand shares of common stock on the open market for approximately $24 million and $25 million, respectively, as part of its 2019 Repurchase Program.

During the three months ended June 30, 2021, the Company repurchased 35 million shares of common stock, under the 2018 and 2019 Repurchase Programs, for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid on the Initial Closing Date. Subsequent payments of approximately $507 million will be paid on each of the first and second anniversaries of the Initial Closing Date. These shares were repurchased immediately following the conversion of preferred shares, as discussed above.

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The Company made no share repurchases for the three months ended September 30, 2020. For the nine months ended September 30, 2020, the Company repurchased 4.1 million shares of common stock on the open market for approximately $105 million, as part of its 2018 Repurchase Program.

Accumulated Other Comprehensive Loss

In the three and nine months ended September 30, 2021 and 2020, the change in accumulated other comprehensive loss was primarily related to the foreign currency translation adjustment.

A summary of changes in the foreign currency translation adjustment component of accumulated other comprehensive loss is as follows (in millions) ⁽¹⁾:

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Beginning balance	$	(652	)	$	(1,064	)	$	(329	)	$	(857	)

Other comprehensive (loss) income ⁽²⁾		(185	)		274			(501	)		75
Equity method affiliates ⁽³⁾		(7	)		9			(14	)		1
Net current-period other comprehensive (loss) income		(192	)		283			(515	)		76
Ending balance	$	(844	)	$	(781	)	$	(844	)	$	(781	)

⁽¹⁾	All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss.

⁽²⁾	For the three and nine months ended September 30, 2021, amounts are net of tax benefit of $31 million and $42 million, respectively. For the three and nine months ended September 30, 2020, amounts are net of tax expense of $21 million and $10 million, respectively.

⁽³⁾	Tax effects are not significant.

15. Share-Based Compensation

Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of its Board of Directors. The Plans allow Corning to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At September 30, 2021, there were approximately 39 million unissued common shares available for future grants authorized under the Plans.

Share-based compensation cost is allocated to the cost of sales, selling, general and administrative, and research, development and engineering, expenses lines in the consolidated statements of income.

Stock Compensation Plans

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.

Total share-based compensation cost was $39 million and $62 million, respectively, and $117 million and $127 million, respectively, for the three and nine months ended September 30, 2021 and 2020. The income tax benefit realized from share-based compensation was $3 million and $31 million for the three and nine months ended September 30, 2021, respectively, and not significant during the same periods in 2020. Refer to Note 5 (Income Taxes) to the consolidated financial statements for additional information.

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Stock Options

Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued common shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from one year to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 years from the grant date. An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”).

The following table summarizes information regarding stock options outstanding, including the related transactions under the stock option plans for the nine months ended September 30, 2021:

						Weighted-
						average
				Weighted-		remaining		Aggregate
	Number			average		contractual		intrinsic
	of shares			exercise		term		value
	(in thousands)			price		(in years)		(in thousands)
Options outstanding as of December 31, 2020		17,095		$	21.60
Granted		0			0
Exercised		(4,464	)		20.17
Forfeited and expired		(324	)		21.98
Options outstanding as of September 30, 2021		12,307			22.10		6.74	$	176,960
Options expected to vest as of September 30, 2021		12,206			22.13		6.72		175,319
Options exercisable as of September 30, 2021		6,919			20.90		5.53		107,865

Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term is the period the options are expected to be outstanding and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. Ranges used reflect results from separate groups of employees exhibiting different exercise behavior.

The following inputs were used for the valuation of option grants under our stock option plans ⁽¹⁾:

	Three months ended
	June 30,
	2020
Expected volatility		32.9	%
Weighted-average volatility		32.9	%
Expected dividends		4.48	%
Risk-free rate		0.5	%
Average risk-free rate		0.5	%
Expected term (in years)		7.4
Pre-vesting executive departure rate		0.6	%
Pre-vesting non-executive departure rate		2.5	%

⁽¹⁾	Stock options were only granted during the second quarter of 2020. There have been no stock options granted since June 30, 2020.

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Incentive Stock Plans

The Corning Incentive Stock Plans permit restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plans are granted at the closing market price on the grant date, contingently vest over a period of generally one year to ten years, and generally have contractual lives of one year to ten years. The fair value is based on the grant date closing price of the Company’s stock.

Time-Based Restricted Stock and Restricted Stock Units

Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company’s common stock upon vesting. The fair value is based on the closing market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.

The following table summarizes the Company’s non-vested time-based restricted stock and restricted stock units as of December 31, 2020 and changes which occurred during the nine months ended September 30, 2021:

				Weighted
	Number			average
	of shares			grant-date
	(in thousands)			fair value
Non-vested shares and share units at December 31, 2020		12,943		$	22.87
Granted		1,399			42.07
Vested		(3,518	)		22.82
Forfeited		(424	)		23.74
Non-vested shares and share units at September 30, 2021		10,400		$	25.44

Performance-Based Restricted Stock Units

Performance-based restricted stock units are earned upon the achievement of certain targets, and are payable in shares of the Company’s common stock upon vesting, typically over a three year period. The fair value is based on the closing market price of the Company’s stock on the grant date and assumes that the target payout level will be achieved. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting. During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.

The following table summarizes the Company’s non-vested performance-based restricted stock units as of December 31, 2020 and September 30, 2021:

				Weighted
	Number			average
	of shares			grant-date
	(in thousands)			fair value
Non-vested share units at December 31, 2020		1,765		$	28.06
Granted		1,222			38.82
Vested		(119	)		28.06
Forfeited		(79	)		31.83
Non-vested share units at September 30, 2021		2,789		$	32.67

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16. Reportable Segments

The Company’s reportable segments are as follows:

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

All other businesses 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, auto glass, new product lines, development projects, and certain corporate investments.‎

The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as of September 9, 2020. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information on this transaction.

Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the chief operating decision maker (“CODM”) in making internal operating decisions. A significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar. Management believes it is important to understand the impact on core net income of translating these currencies into U.S. dollars. The Company uses constant currency reporting for Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences. Corning excludes the impact of these currencies from segment sales and net income. The adjustment for constant currency is primarily related to the Display Technologies’ segment and excludes the impact of the fluctuation of the Japanese yen, South Korean won, Chinese yuan, and new Taiwan dollar. Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in evaluating the results of, or in allocating resources to, the segments and include the following: the impact of translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; adjustments relating to acquisitions; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.

Earnings of equity affiliates that are closely associated with the reportable segments are included in the respective segment’s net income (loss). Certain common expenses among reportable segments have been allocated differently than they would be for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies.

Reportable Segments (in millions):

	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Three months ended
September 30, 2021
Segment net sales	$	956		$	1,131		$	556		$	385		$	305		$	306		$	3,639
Depreciation ⁽¹⁾	$	153		$	58		$	42		$	34		$	14		$	38		$	339
Research, development and engineering expenses ⁽²⁾	$	31		$	57		$	49		$	28		$	9		$	44		$	218
Income tax (provision) benefit ⁽³⁾	$	(64	)	$	(38	)	$	(28	)	$	(16	)	$	(12	)	$	(1	)	$	(159	)
Segment net income (loss) ⁽⁴⁾	$	247		$	139		$	107		$	60		$	45		$	(5	)	$	593

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	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Three months ended
September 30, 2020
Segment net sales	$	827		$	909		$	570		$	379		$	223		$	99		$	3,007
Depreciation ⁽¹⁾	$	134		$	59		$	40		$	32		$	12		$	16		$	293
Research, development and engineering expenses ⁽²⁾	$	22		$	50		$	39		$	24		$	7		$	35		$	177
Income tax (provision) benefit ⁽³⁾	$	(52	)	$	(32	)	$	(38	)	$	(18	)	$	(8	)	$	12		$	(136	)
Segment net income (loss) ⁽⁴⁾	$	196		$	115		$	146		$	69		$	28		$	(50	)	$	504

	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Nine months ended
September 30, 2021
Segment net sales	$	2,758		$	3,143		$	1,490		$	1,233		$	917		$	865		$	10,406
Depreciation ⁽¹⁾	$	450		$	174		$	125		$	105		$	40		$	104		$	998
Research, development and engineering expenses ⁽²⁾	$	79		$	160		$	143		$	84		$	25		$	114		$	605
Income tax (provision) benefit ⁽³⁾	$	(184	)	$	(109	)	$	(74	)	$	(57	)	$	(39	)	$	10		$	(453	)
Segment net income (loss) ⁽⁴⁾	$	708		$	398		$	279		$	215		$	145		$	(44	)	$	1,701

	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Nine months ended
September 30, 2020
Segment net sales	$	2,331		$	2,587		$	1,339		$	925		$	724		$	218		$	8,124
Depreciation ⁽¹⁾	$	400		$	183		$	120		$	99		$	37		$	43		$	882
Research, development and engineering expenses ⁽²⁾	$	77		$	157		$	113		$	74		$	20		$	126		$	567
Income tax (provision) benefit ⁽³⁾	$	(133	)	$	(63	)	$	(76	)	$	(27	)	$	(26	)	$	50		$	(275	)
Segment net income (loss) ⁽⁴⁾	$	500		$	225		$	287		$	104		$	97		$	(185	)	$	1,028

⁽¹⁾	Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.
⁽²⁾	Research, development and engineering expenses include direct project spending that is identifiable to a segment.
⁽³⁾	Income tax (provision) benefit reflects a tax rate of 21%.
⁽⁴⁾	Many of Corning’s administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal, are allocated to segments, primarily as a percentage of sales. Expenses that are not allocated to the segments are included in the reconciliation of reportable segment net income (loss) to consolidated net income.

A reconciliation of reportable segment and All Other net sales to consolidated net sales follows (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021		2020
Net sales of reportable segments and All Other	$	3,639		$	3,007		$	10,406	$	8,124
Impact of foreign currency movements (1)		(24	)		(6	)		0		(66	)
Cumulative adjustment related to customer contract (2)		0			0			0		(105	)
Consolidated net sales	$	3,615		$	3,001		$	10,406	$	7,953

⁽¹⁾	This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.
⁽²⁾	Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.

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A reconciliation of reportable segment net income (loss) to consolidated net income follows (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Net income of reportable segments	$	598		$	554		$	1,745		$	1,213
Net loss of All Other ⁽¹⁾		(5	)		(50	)		(44	)		(185	)
Unallocated amounts:
Impact of foreign currency movements not included in segment net income (loss)		(33	)		0			(47	)		(25	)
(Loss) gain on foreign currency hedges related to translated earnings		(13	)		(99	)		262			(6	)
Translation gain (loss) on Japanese yen-denominated debt		4			(39	)		127			(50	)
Litigation, regulatory and other legal matters		(3	)		(83	)		(11	)		(108	)
Research, development, and engineering expenses ⁽²⁾⁽³⁾		(34	)		(35	)		(103	)		(111	)
Transaction-related gain, net ⁽⁴⁾		0			498			0			498
Equity in earnings (losses) of affiliated companies ⁽⁵⁾		10			(79	)		9			20
Amortization of intangibles		(32	)		(33	)		(97	)		(87	)
Interest expense, net		(64	)		(67	)		(205	)		(189	)
Income tax benefit		50			113			51			242
Cumulative adjustment related to customer contract ⁽⁶⁾		0			0			0			(105	)
Severance charges ⁽³⁾		1			(6	)		0			(141	)
Asset impairment ⁽³⁾		0			(22	)		0			(217	)
Capacity realignment and other charges and credits ⁽³⁾		(41	)		(143	)		(42	)		(375	)
Gain on sale of a business		0			0			54			0
Other corporate items		(67	)		(82	)		(280	)		(114	)
Net income	$	371		$	427		$	1,419		$	260

⁽¹⁾	The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as of September 9, 2020.

⁽²⁾	Amount does not include research, development, and engineering expense related to restructuring, impairment and other charges and credits.
⁽³⁾	Refer to Note 2 (Restructuring, Impairment and Other Charges and Credits) to the consolidated financial statements for additional information on restructuring activities and impairment.

⁽⁴⁾	Amount represents the pre-tax gain recorded on Corning's previously held equity investment in HSG. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information.

⁽⁵⁾	Primarily represents the equity earnings of HSG prior to September 9, 2020. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information.
⁽⁶⁾	Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ORGANIZATION OF INFORMATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a historical and prospective narrative on the Company’s financial condition and results of operations. This interim MD&A should be read in conjunction with the MD&A in Corning’s 2020 Form 10-K. The various sections of this MD&A contain forward-looking statements that involve risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “plans,” “goals,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of the Company’s future financial performance, anticipated growth and trends in the businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in “Risk Factors” in Part I, Item 1A of Corning’s 2020 Form 10-K, and as may be updated in the Forms 10-Q. Actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of September 30, 2021.

MD&A includes the following sections:

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

OVERVIEW

In response to the COVID-19 pandemic ("the pandemic") and the ensuing economic uncertainty, including changing market conditions, the Company has and will continue to focus on three core priorities: preserving the financial health of the Company; protecting employees and communities; and delivering on customer commitments. We are continuing to build a stronger, more resilient company that is committed to rewarding shareholders and supporting all global stakeholders.

Despite the pandemic and resulting global disruptions, Corning adapted rapidly and remained resilient. We acted quickly to preserve our financial strength by executing well and advancing major innovations with industry leaders. We have continued to effectively leverage our focused and cohesive portfolio to create value and outperform our underlying markets, contributing to sales and earnings growth and strong free cash flow in the second half of 2020 and the first nine months of 2021.

Corning announced the Strategy & Growth Framework in 2019, highlighting significant opportunities to sell more Corning content through each of our Market-Access Platforms. The Company is focused on our cohesive portfolio and the utilization of our financial strength, supported by strong operating cash flow generation, which we expect to continue. Corning has and will continue to use its cash to grow, extend its leadership and reward shareholders. Our key growth drivers remain intact, and some are accelerating as key trends converge around Corning’s capabilities.

Corning will continue to advance the objectives of the Strategy & Growth Framework, which sets its leadership priorities and articulates opportunities across its businesses. Our probability of success increases as we invest in our world-class capabilities. Corning is concentrating approximately 80% of its research, development and engineering investment along with capital spending on a cohesive set of three core technologies, four manufacturing and engineering platforms, and five market-access platforms. This strategy allows us to quickly apply our talents and repurpose our assets across the company, as needed, to capture high-return opportunities.

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Summary of results for the three and nine months ended September 30, 2021

In the third quarter, net sales were $3,615 million, compared to $3,001 million during the same period in 2020, a net increase of $614 million, or 20%. Net sales for the nine months ended September 30, 2021 were $10,406 million, compared to $7,953 million during the same period in 2020, a net increase of $2,453 million, or 31%, driven by increases in all segments.

In the third quarter of 2021, Corning generated net income of $371 million, or $0.43 per diluted share, compared to net income of $427 million, or $0.48 per diluted share, for the same period in 2020. The decrease in net income of $56 million was primarily driven by the following items (amounts presented after-tax):

●	The absence of an after-tax gain recorded on a previously held equity investment in HSG of $387 million.

The negative impacts to net income, outlined above, were partially offset by the following items:

●	Higher segment net income primarily driven by higher sales; net income increases by segment were $51 million, $24 million, $17 million and $45 million for Display Technologies, Optical Communications, Life Sciences and "All Other", respectively;
●	Lower severance charges, impairment losses, capacity realignment and other costs of $98 million;
●	Translated earnings contract losses were $67 million lower than the third quarter of 2020; and
●	Equity in losses of affiliated companies were $66 million lower.

In the first nine months of 2021, Corning generated net income of $1,419 million, or $0.71 per diluted share, compared to net income of $260 million, or $0.24 per diluted share, for the same period in 2020. The increase in net income of $1,159 million and diluted earnings per share of $0.47, was primarily driven by the following items (amounts presented after-tax):

●	Higher segment net income of $673 million primarily driven by higher sales; net income increases by segment were $208 million, $173 million, $111 million, $48 million, and $141 million for Display Technologies, Optical Communications, Environmental Technologies, Life Sciences and "All Other", respectively;
●	The absence of after-tax asset impairment losses related to investments in research and development programs within our All Other segment of $170 million;
●	Lower severance charges, capacity realignment and other costs of $346 million;
●	Translated earnings contract gains in the current period were $207 million higher than prior year;
●	The absence of a negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue $105 million; and
●	Higher translation gains of $137 million on Japanese yen-denominated debt.

The positive impacts to net income, outlined above, were partially offset by the following items:

●	The absence of an after-tax gain recorded on a previously held equity investment in HSG of $387 million.

The change in diluted earnings per share for the three months ended September 30, 2021, was primarily driven by changes in net income, outlined above. The change in diluted earnings per share for the nine months ended September 30, 2021, was primarily driven by the changes in net income, outlined above, as well as the conversion of the Preferred Stock into 115 million Common Shares. The immediate repurchase and retirement of 35 million Common Shares resulted in an $803 million one-time reduction to net income available to common shareholders during the second quarter of 2021. Refer to Note 6 (Earnings per Common Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.

The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current quarter, adversely impacted Corning’s consolidated net income by $19 million and $20 million in the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020.

2021 Corporate Outlook

We expect core net sales of approximately $3.5 to $3.7 billion for the fourth quarter of 2021.

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RESULTS OF OPERATIONS

Selected highlights from operations are as follows (in millions):

	Three months ended						%			Nine months ended						%
	September 30,						change			September 30,						change
	2021			2020			21 vs. 20			2021			2020			21 vs. 20

Net sales	$	3,615		$	3,001			20	%	$	10,406		$	7,953			31	%

Gross margin	$	1,321		$	1,001			32	%	$	3,792		$	2,318			64	%
(gross margin %)		37	%		33	%					36	%		29	%

Selling, general and administrative expenses	$	486		$	480			1	%	$	1,351		$	1,276			6	%
(as a % of net sales)		13	%		16	%					13	%		16	%

Research, development and engineering expenses	$	251		$	231			9	%	$	715		$	922			(22	%)
(as a % of net sales)		7	%		8	%					7	%		12	%

Translated earnings contract (loss) gain, net	$	(13	)	$	(100	)		(87	%)	$	262		$	5			*
(as a % of net sales)		0	%		(3	%)					3	%		0	%

Transaction-related gain, net				$	498			*					$	498			*
(as a % of net sales)					17	%								6	%

Income before income taxes	$	480		$	450			7	%	$	1,821		$	293			522	%
(as a % of net sales)		13	%		15	%					17	%		4	%

Provision for income taxes	$	(109	)	$	(23	)		374	%	$	(402	)	$	(33	)		1118	%
(as a % of net sales)		(3	%)		(1	%)					(4	%)		0	%

Net income attributable to Corning Incorporated	$	371		$	427			(13	%)	$	1,419		$	260			446	%
(as a % of net sales)		10	%		14	%					14	%		3	%

* Not meaningful

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Segment Net Sales

The following table presents segment net sales by reportable segment and All Other (in millions):

	Three months ended						%			Nine months ended					%
	September 30,						change			September 30,					change
	2021			2020			21 vs. 20			2021		2020			21 vs. 20
Display Technologies	$	956		$	827			16	%	$	2,758	$	2,331			18	%
Optical Communications		1,131			909			24	%		3,143		2,587			21	%
Specialty Materials		556			570			(2	%)		1,490		1,339			11	%
Environmental Technologies		385			379			2	%		1,233		925			33	%
Life Sciences		305			223			37	%		917		724			27	%
All Other ⁽¹⁾		306			99			209	%		865		218			297	%
Net sales of reportable segments and All Other		3,639			3,007			21	%		10,406		8,124			28	%
Impact of foreign currency movements ⁽²⁾		(24	)		(6	)		(300	%)				(66	)		*
Cumulative adjustment related to customer contract ⁽³⁾													(105	)		*
Consolidated net sales	$	3,615		$	3,001			20	%	$	10,406	$	7,953			31	%

⁽¹⁾	The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as of September 9, 2020.
⁽²⁾	This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.
⁽³⁾	Amount represents the negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue by $105 million. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.

* Not meaningful

In the third quarter, net sales of reportable segments were $3,639 million, compared to $3,007 million during the same period in 2020, a net increase of $632 million, or 21%. Changes in net sales were as follows:

●	Display Technologies’ net sales increased by $129 million or 16%, largely due to volume growth of more than 10 percent and increased price in the low-single digits in percentage terms;

●	Optical Communications’ net sales increased by $222 million, or 24%, as sales volumes increased $179 million and $43 million for carrier products and enterprise products, respectively, primarily driven by 5G, broadband and cloud computing;

●	Specialty Materials’ net sales decreased by $14 million, or 2%, primarily due to extremely strong demand for cover materials in support of customer product launches experienced during the third quarter of 2020;

●	Net sales for Environmental Technologies increased by $6 million, or 2%, driven by higher diesel product sales, partially offset by lower automotive product sales, which were significantly impacted by an industry-wide shortage of automotive components and semiconductor chips;

●	Net sales for Life Sciences increased by $82 million, or 37%, primarily driven by the ongoing recovery in academic and pharmaceutical research labs and continued strong demand for bioproduction vessels and diagnostic-related consumables; and
●	Net sales for “All Other” increased by $207 million, mainly driven by the consolidation of HSG, as of September 9, 2020.

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In the nine months ended September 30, 2021, net sales of reportable segments were $10,406 million, compared to $8,124 million during the same period in 2020, a net increase of $2,282 million, or 28%. Changes in net sales were as follows:

●	Display Technologies’ net sales increased by $427 million or 18%, largely due to mid-teens volume growth, in percentage terms, and consistent pricing;

●	Optical Communications’ net sales increased by $556 million, or 21%, as sales volumes increased $372 million and $184 million for carrier products and enterprise products, respectively, primarily driven by 5G, broadband and cloud computing;

●	Specialty Materials’ net sales increased by $151 million, or 11%, primarily driven by strong demand for premium cover materials, strength in the IT market, and greater optical content in semiconductor manufacturing;

●	Net sales for Environmental Technologies increased by $308 million, or 33%, primarily driven by improving markets and increased Corning content, along with strong demand for diesel products in China and North America;

●	Net sales for Life Sciences increased by $193 million, or 27%, primarily driven by the ongoing recovery in academic and pharmaceutical research labs and continued strong demand for bioproduction vessels and diagnostic-related consumables; and
●	Net sales for “All Other” increased by $647 million, mainly driven by the consolidation of HSG.

Movements in foreign exchange rates adversely impacted Corning’s consolidated net sales by $24 million and positively by $53 million, in the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020.

Cost of Sales

The types of expenses included in the cost of sales line item are: raw materials consumption, including direct and indirect materials; salaries, wages and benefits; depreciation and amortization; production utilities; production-related purchasing; warehousing (including receiving and inspection); repairs and maintenance; inter-location inventory transfer costs; production and warehousing facility property insurance; rent for production facilities; freight and logistics costs; and other production overhead.

Gross Margin

In the three and nine months ended September 30, 2021, gross margin increased by $320 million, or 32% and $1,474 million, or 64%, respectively. Gross margin as a percentage of sales increased by 4 percentage points and 7 percentage points, respectively. The increase in gross margin was primarily driven by higher sales, as well as lower charges for restructuring and capacity realignment of $124 million and $383 million, respectively. These increases were partially offset by increased expenses due to elevated freight and logistics costs, as well as higher inflation.

The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current quarter, adversely impacted Corning’s consolidated gross margin by $42 million and $40 million in the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020.

Selling, General and Administrative Expenses

In the three and nine months ended September 30, 2021, selling, general and administrative expenses increased by $6 million, or 1%, and $75 million, or 6%, respectively, and declined by 3 percentage points as a percentage of sales, when compared to the prior periods. Increases in these costs were primarily driven by higher compensation and benefit expenses and the consolidation of HSG, partially offset by lower restructuring and other charges and credits of $21 million and $91 million, respectively, when compared to the same periods in 2020.

The types of expenses included in the selling, general and administrative expenses line item are: salaries, wages and benefits; share-based compensation expense; travel; sales commissions; professional fees; and depreciation and amortization, utilities, rent for administrative facilities and restructuring, impairment and other charges and credits.

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Research, Development and Engineering Expenses

In the three and nine months ended September 30, 2021, research, development and engineering expenses increased by $20 million, or 9%, and decreased $207 million, or 22%, respectively, when compared to the same periods last year. The primary driver was lower restructuring, impairment, and other charges and credits of $18 million and $243 million, respectively. As a percentage of sales, these expenses were 1 and 5 percentage points lower, respectively, for the three and nine months ended September 30, 2021, when compared to the same periods last year.

Translated earnings contract (loss) gain, net

Included in the line item translated earnings contract (loss) gain, net, is the impact of foreign currency hedges which hedge translation exposure arising from movements in the Japanese yen, South Korean won, new Taiwan dollar, euro, Chinese yuan and British pound and its impact on net income. The following table provides detailed information on the impact of translated earnings contract gains and losses:

	Three months ended						Three months ended						Change
	September 30, 2021						September 30, 2020						2021 vs. 2020
	Income						Income						Income
	before			Net			before			Net			before		Net
(in millions)	taxes			income			taxes			income			taxes		income
Hedges related to translated earnings:
Realized gain (loss), net ⁽¹⁾	$	12		$	9		$	(7	)	$	(5	)	$	19	$	14
Unrealized loss, net ⁽²⁾		(25	)		(19	)		(93	)		(73	)		68		54
Total translated earnings contract loss, net	$	(13	)	$	(10	)	$	(100	)	$	(78	)	$	87	$	68

	Nine months ended				Nine months ended						Change
	September 30, 2021				September 30, 2020						2021 vs. 2020
	Income				Income						Income
	before		Net		before			Net			before		Net
(in millions)	taxes		income		taxes			income			taxes		income
Hedges related to translated earnings:
Realized gain (loss), net ⁽¹⁾	$	11	$	9	$	(9	)	$	(6	)	$	20	$	15
Unrealized gain, net ⁽²⁾		251		193		14			10			237		183
Total translated earnings contract gain, net	$	262	$	202	$	5		$	4		$	257	$	198

⁽¹⁾

Includes before tax realized losses related to the expiration of option contracts for the three and nine months ended September 30, 2021 and 2020 of $5 million and $19 million, respectively, for both periods. Activity has been reflected in operating activities in the consolidated statements of cash flows.

⁽²⁾	The impact to income was primarily driven by yen-denominated hedges of translated earnings.

Income Before Income Taxes

The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current quarter, adversely impacted Corning’s consolidated income before income taxes by $23 million and $25 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020.

Provision for Income Taxes

The provision for income taxes and the related effective income tax rates are as follows (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Provision for income taxes	$	(109	)	$	(23	)	$	(402	)	$	(33	)
Effective tax rate		22.7	%		5.1	%		22.1	%		11.3	%

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For the three months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to non-deductible expenses for tax purposes, foreign rate differential, and tax reform items. For the nine months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an adjustment to the permanently reinvested foreign income position, excess tax benefit related to share-based compensation payments, foreign rate differential, and tax reform items related to The Tax Cuts and Jobs Act of 2017.

For the three and nine months ended September 30, 2020, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to an estimate of income tax benefits generated by a current year net operating loss that will be carried-back to prior years as allowed under the CARES Act and changes of estimates based on the final 2019 U.S. tax return which were partially offset by additional income tax reserves. For the nine months ended September 30, 2020, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an estimate of income tax benefits generated by a current year net operating loss that will be carried-back to prior years as allowed under the CARES Act and changes of estimates based on the final 2019 U.S. tax return which were partially offset by income tax reserves, an adjustment to the permanently reinvested foreign income position and foreign valuation allowances on deferred tax assets.

Refer to Note 5 (Income Taxes) to the consolidated financial statements for additional information.

Net Income Attributable to Corning Incorporated

Net income and per share data is as follows (in millions, except per share amounts):

	Three months ended					Nine months ended
	September 30,					September 30,
	2021		2020			2021			2020
Net income attributable to Corning Incorporated	$	371	$	427		$	1,419		$	260
Less: Series A convertible preferred stock dividend				(24	)		(24	)		(73	)
Less: Excess consideration paid for redemption of preferred shares ⁽¹⁾							(803	)
Net income available to common shareholders used in basic earnings per common share calculation ⁽¹⁾	$	371	$	403		$	592		$	187

Net income available to common shareholders used in diluted earnings per common share calculation ⁽¹⁾	$	371	$	427		$	592		$	187

Basic earnings per common share	$	0.44	$	0.53		$	0.72		$	0.25
Diluted earnings per common share	$	0.43	$	0.48		$	0.71		$	0.24

Weighted-average common shares outstanding - basic		852		760			821			760
Weighted-average common shares outstanding - diluted		866		889			837			768

⁽¹⁾	Refer to Note 6 (Earnings per Common Share) to the consolidated financial statements for additional information.

Comprehensive Income

For the three months ended September 30, 2021, comprehensive income decreased by $561 million when compared to the same period in 2020, primarily due to a decline in net income of $56 million and a net loss on foreign currency translation adjustments of $475 million, largely driven by the Japanese yen, South Korean won and euro.

For the nine months ended September 30, 2021, comprehensive income increased by $603 million when compared to the same period in 2020, primarily due to an increase in net income of $1,159 million. The increase in comprehensive income was partially offset by the net loss on foreign currency translation adjustments of $591 million, primarily driven by the Japanese yen, South Korean won, and euro.

Refer to Note 14 (Shareholders’ Equity) to the consolidated financial statements for additional information.

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CORE PERFORMANCE MEASURES

In managing the Company and assessing our financial performance, certain measures provided by our consolidated financial statements are adjusted to exclude specific items to arrive at core performance measures. These items include gains and losses on translated earnings contracts, acquisition-related costs, certain discrete tax items and other tax-related adjustments, restructuring, impairment losses, and other charges and credits, certain litigation-related expenses, pension mark-to-market adjustments and other items which do not reflect on-going operating results of the Company or our equity affiliates. Corning utilizes constant-currency reporting for our Display Technologies, Environmental Technologies, Specialty Materials and Life Sciences segments for the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and the euro. The Company believes that the use of constant-currency reporting allows investors to understand our results without the volatility of currency fluctuations and reflects the underlying economics of the translated earnings contracts used to mitigate the impact of changes in currency exchange rates on earnings and cash flows. Corning also believes that reporting core performance measures provides investors greater transparency to the information used by the management team to make financial and operational decisions.

Core performance measures are not prepared in accordance with GAAP. We believe investors should consider these non-GAAP measures in evaluating results as they are more indicative of our core operating performance and how management evaluates operational results and trends. These measures are not, and should not, be viewed as a substitute for GAAP reporting measures. With respect to the Company’s outlook for future periods, it is not possible to provide reconciliations for these non-GAAP measures because the Company does not forecast the movement of foreign currencies against the U.S. dollar, or other items that do not reflect ongoing operations, nor does it forecast items that have not yet occurred or are out of the Company’s control. As a result, the Company is unable to provide outlook information on a GAAP basis.

For a reconciliation of non-GAAP performance measures to their most directly comparable GAAP financial measure, please see “Reconciliation of Non-GAAP Measures”.

RESULTS OF OPERATIONS – CORE PERFORMANCE MEASURES

Selected highlights from continuing operations, excluding certain items, follow (in millions):

	Three months ended				%			Nine months ended				%
	September 30,				change			September 30,				change
	2021		2020		21 vs. 20			2021		2020		21 vs. 20
Core net sales	$	3,639	$	3,007		21	%	$	10,406	$	8,124		28	%
Core equity in earnings of affiliated companies	$	17	$	9		89	%	$	33	$	78		(58	)%
Core net income	$	485	$	380		28	%	$	1,346	$	775		74	%

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Core Net Sales

Core net sales are consistent with net sales by reportable segment. Net sales by reportable segment are presented below (in millions):

	Three months ended				%			Nine months ended				%
	September 30,				change			September 30,				change
	2021		2020		21 vs. 20			2021		2020		21 vs. 20
Display Technologies	$	956	$	827		16	%	$	2,758	$	2,331		18	%
Optical Communications		1,131		909		24	%		3,143		2,587		21	%
Specialty Materials		556		570		(2	)%		1,490		1,339		11	%
Environmental Technologies		385		379		2	%		1,233		925		33	%
Life Sciences		305		223		37	%		917		724		27	%
All Other ⁽¹⁾		306		99		209	%		865		218		297	%
Net sales of reportable segments and All Other	$	3,639	$	3,007		21	%	$	10,406	$	8,124		28	%

⁽¹⁾	The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as of September 9, 2020.

Core Net Income

In the three months ended September 30, 2021, we generated core net income of $485 million, or $0.56 per diluted share, compared to core net income generated in the three months ended September 30, 2020 of $380 million, or $0.43 per diluted share. The increase of $105 million, or $0.13 per diluted share, was primarily due to higher segment net income when compared to the same period in 2020. Net income increases by reportable segment are as follows:

●	Display Technologies’ net income increased by $51 million, primarily driven by increased volume;

●	Optical Communications’ net income increased by $24 million, largely driven by volume, partially offset by increased raw material and shipping costs; and

●	Life Sciences’ and “All Other” net income increased by $17 million, and $45 million, respectively.

The increases to segment net income were partially offset by income declines of $39 million and $9 million for Specialty Materials and Environmental Technologies, respectively. The change in diluted earnings per share was primarily driven by changes in net income.

In the nine months ended September 30, 2021, we generated core net income of $1,346 million, or $1.53 per diluted share, compared to core net income generated in the nine months ended September 30, 2020 of $775 million, or $0.88 per diluted share. The increase of $571 million, and $0.65 per diluted share, was primarily due to higher earnings across most operating segments when compared to the same period in 2020. Net income changes by reportable segment are as follows:

●	Display Technologies’ net income increased by $208 million, primarily driven by increased volume;

●	Optical Communications’ net income increased by $173 million, largely driven by volume, partially offset by increased raw material and shipping costs;
●	Specialty Materials' net income decreased by $8 million;

●	Environmental Technologies’ net income increased by $111 million; and
●	Life Sciences' and "All Other" net income increased by $48 million and $141 million, respectively.

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The change in diluted earnings per share was primarily driven by changes in net income, outlined above, and the Company's repurchase and retirement of 35 million Common Shares. Refer to Note 6 (Earnings per Common Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.

Net periodic pension expense of $1 million and $2 million, respectively, and $13 million and $38 million, respectively, is included in core net income for the three and nine months ended September 30, 2021 and September 30, 2020.

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):

	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Core net income attributable to Corning Incorporated	$	485	$	380	$	1,346	$	775
Less: Series A convertible preferred stock dividend				24		24		73
Core net income available to common shareholders - basic		485		356		1,322		702
Plus: Series A convertible preferred stock dividend				24		24		73
Core net income available to common shareholders - diluted	$	485	$	380	$	1,346	$	775

Weighted-average common shares outstanding - basic		852		760		821		760
Effect of dilutive securities:
Stock options and other dilutive securities		14		14		16		8
Series A convertible preferred stock				115		41		115
Weighted-average common shares outstanding - diluted		866		889		878		883
Core basic earnings per common share	$	0.57	$	0.47	$	1.61	$	0.92
Core diluted earnings per common share	$	0.56	$	0.43	$	1.53	$	0.88

Reconciliation of Non-GAAP Measures

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

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

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The following tables reconcile the non-GAAP financial measures to their most directly comparable GAAP financial measure (amounts in millions except percentages and per share amounts):

	Three months ended September 30, 2021
					Income
					before						Effective
	Net		Equity		income			Net			tax			Per
	sales		earnings		taxes			income			rate (a)			share
As reported - GAAP	$	3,615	$	16	$	480		$	371			22.7	%	$	0.43
Constant-currency adjustment ⁽¹⁾		24		1		33			23						0.03
Translation gain on Japanese yen-denominated debt ⁽²⁾						(4	)		(4	)					(0.00	)
Translated earnings contract loss ⁽³⁾						13			10						0.01
Acquisition-related costs ⁽⁴⁾						38			30						0.03
Discrete tax items and other tax-related adjustments ⁽⁵⁾									(1	)					(0.00	)
Pension mark-to-market adjustment ⁽⁶⁾						(1	)		(1	)					(0.00	)
Restructuring, impairment and other charges and credits ⁽⁷⁾						40			31						0.04
Litigation, regulatory and other legal matters ⁽⁸⁾						3			15						0.02
Preferred stock conversion ⁽⁹⁾						(4	)		(4	)					(0.00	)
Bond redemption loss ⁽¹⁰⁾						20			15						0.02
Core performance measures	$	3,639	$	17	$	618		$	485			21.5	%	$	0.56

(a)	Based upon statutory tax rates in the specific jurisdiction for each event.

	Three months ended September 30, 2020
						Income
			Equity			before						Effective
	Net		(losses)			income			Net			tax			Per
	sales		earnings			taxes			income			rate (a)			share
As reported - GAAP	$	3,001	$	(76	)	$	450		$	427			5.1	%	$	0.48
Constant-currency adjustment ⁽¹⁾		6								(14	)					(0.02	)
Translation loss on Japanese yen-denominated debt ⁽²⁾							39			31						0.03
Translated earnings contract loss ⁽³⁾							99			77						0.09
Acquisition-related costs ⁽⁴⁾							47			37						0.04
Discrete tax items and other tax-related adjustments ⁽⁵⁾										(58	)					(0.07	)
Restructuring, impairment and other charges and credits ⁽⁷⁾							171			129						0.15
Litigation, regulatory and other legal matters ⁽⁸⁾							83			72						0.08
Equity in losses of affiliated companies ⁽¹³⁾				85			85			66						0.07
Transaction-related gain, net ⁽¹⁴⁾							(498	)		(387	)					(0.44	)
Core performance measures	$	3,007	$	9		$	476		$	380			20.2	%	$	0.43

(a)	Based upon statutory tax rates in the specific jurisdiction for each event.

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to report core performance measures” for the descriptions of the footnoted reconciling items.

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	Nine months ended September 30, 2021
					Income
					before						Effective
	Net		Equity		income			Net			tax			Per
	sales		earnings		taxes			income			rate (a)			share
As reported – GAAP	$	10,406	$	31	$	1,821		$	1,419			22.1	%	$	0.71
Preferred stock redemption (b)															0.91
Subtotal		10,406		31		1,821			1,419			22.1	%		1.62

Constant-currency adjustment ⁽¹⁾				2		47			29						0.03
Translation gain on Japanese yen-denominated debt ⁽²⁾						(127	)		(98	)					(0.12	)
Translated earnings contract gain ⁽³⁾						(262	)		(202	)					(0.24	)
Acquisition-related costs ⁽⁴⁾						123			95						0.11
Discrete tax items and other tax-related adjustments ⁽⁵⁾									5						0.01
Pension mark-to-market adjustment ⁽⁶⁾						23			18						0.02
Restructuring, impairment and other charges and credits ⁽⁷⁾						42			33						0.04
Litigation, regulatory and other legal matters ⁽⁸⁾						11			23						0.03
Preferred stock conversion ⁽⁹⁾						17			17						0.02
Bond redemption loss ⁽¹⁰⁾						31			23						0.03
Loss on investments ⁽¹¹⁾						39			30						0.04
Gain on sale of business ⁽¹²⁾						(54	)		(46	)					(0.05	)
Core performance measures	$	10,406	$	33	$	1,711		$	1,346			21.3	%	$	1.53

(a)

Based upon statutory tax rates in the specific jurisdiction for each event.

(b)

Pursuant to the SRA, the Preferred Stock was converted into 115 million Common Shares. Corning immediately repurchased 35 million of the converted Common Shares and excluded them from the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share. The redemption of these Common Shares resulted in an $803 million reduction of retained earnings which reduced the net income available to common shareholders.

	Nine months ended September 30, 2020
					Income
					before						Effective
	Net		Equity		income			Net			tax			Per
	sales		earnings		taxes			income			rate (a)			share
As reported - GAAP	$	7,953	$	17	$	293		$	260			11.3	%	$	0.24
Constant-currency adjustment ⁽¹⁾		66				25			(33	)					(0.04	)
Translation loss on Japanese yen-denominated debt ⁽²⁾						50			39						0.05
Translated earnings contract loss ⁽³⁾						6			5						0.01
Acquisition-related costs ⁽⁴⁾						104			79						0.10
Discrete tax items and other tax-related adjustments ⁽⁵⁾									19						0.02
Pension mark-to-market adjustment ⁽⁶⁾						(2	)		(1	)					(0.00	)
Restructuring, impairment and other charges and credits ⁽⁷⁾						733			549						0.71
Litigation, regulatory and other legal matters ⁽⁸⁾						108			92						0.12
Equity in losses of affiliated companies ⁽¹³⁾				61		61			48						0.06
Transaction-related gain, net ⁽¹⁴⁾						(498	)		(387	)					(0.50	)
Cumulative adjustment related to customer contract ⁽¹⁵⁾		105				105			105						0.14
Core performance measures	$	8,124	$	78	$	985		$	775			21.3	%	$	0.88

(a)	Based upon statutory tax rates in the specific jurisdiction for each event.

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

(1)	Constant-currency adjustment: Because a significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on core net income of translating these currencies into U.S. dollars. Display Technologies’ segment sales and net income are primarily denominated in Japanese yen, but also impacted by the South Korean won, Chinese yuan, and new Taiwan dollar. Environmental Technologies and Life Science segments sales and net income are primarily impacted by the euro and Chinese yuan. Presenting results on a constant-currency basis mitigates the translation impact and allows management to evaluate performance period over period, analyze underlying trends in the businesses, and establish operational goals and forecasts. We establish constant-currency rates based on internally derived management estimates which are closely aligned with the currencies we have hedged.

	Constant-currency rates are as follows:
	Currency	Japanese yen	Korean won	Chinese yuan	New Taiwan dollar	Euro
	Rate	¥107	₩1,175	¥6.7	NT$31	€.81

(2)	Translation (gain) loss on Japanese yen-denominated debt: We have excluded the gain or loss on the translation of the yen-denominated debt to U.S. dollars.
(3)	Translated earnings contract (loss) gain: We have excluded the impact of the realized and unrealized gains and losses of the Japanese yen, South Korean won, Chinese yuan, euro and new Taiwan dollar-denominated foreign currency hedges related to translated earnings, as well as the unrealized gains and losses of the British pound-denominated foreign currency hedges related to translated earnings.
(4)	Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments, external acquisition-related deal costs, and other transaction related costs.
(5)	Discrete tax items and other tax-related adjustments: These include discrete period tax items such as changes of tax reserves and changes in our permanently reinvested foreign income position.
(6)	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.
(7)	Restructuring, impairment and other charges and credits: This amount includes restructuring, impairment losses and other charges and credits, primarily accelerated depreciation and asset write-offs, which are not related to continuing operations and are not classified as restructuring expense. During the third quarter of 2021, we recorded asset write-offs and charges related to facility repairs resulting from the impact of power outages. The Company is pursuing recoveries under its applicable property insurance policies.
(8)	Litigation, regulatory and other legal matters: Includes amounts that reflect developments in commercial litigation, intellectual property disputes, adjustments to the estimated liability for environmental-related items and other legal matters.
(9)	Preferred stock conversion: This amount includes the put option from the Share Repurchase Agreement with Samsung Display Co., Ltd.
(10)	Bond redemption loss: Amount represents premiums on redemption of debentures
(11)	Loss on investments: Amount represents the loss recognized due to mark-to-mark adjustments capturing the change in fair value based on the closing stock market price.
(12)	Gain on sale of business: Amount represents the gain recognized for the sale of certain businesses.
(13)	Equity in losses of affiliated companies: These adjustments relate to costs not related to continuing operations of our affiliated companies, such as restructuring, impairment losses, inventory adjustments, other charges and credits and settlements under "take-or-pay" contracts, including Corning's share of HSG's settlement of its pre-existing relationship of its long-term supply contract related to the HSG's acquisition of TCS.
(14)	Transaction-related gain, net: Amount represents the pre-tax gain recorded on a previously held equity investment in HSG.
(15)	Cumulative adjustment related to customer contract: The negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue by $105 million. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.

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REPORTABLE SEGMENTS

Reportable segments are as follows:

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

All other businesses 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, auto glass, new product lines, development projects, and certain corporate investments.

The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as of September 9, 2020. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information on this transaction.

Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the CODM in making internal operating decisions. A significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar. Management believes it is important to understand the impact on core net income of translating these currencies into U.S. dollars. The Company uses constant currency reporting for Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences. Corning excludes the impact of these currencies from segment sales and net income. The adjustment for constant currency is primarily related to the Display Technologies’ segment and excludes the impact of the fluctuation of the Japanese yen, South Korean won, Chinese yuan, and new Taiwan dollar. Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in evaluating the results of or in allocating resources to the segments and include the following items: the impact of translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; adjustments relating to acquisitions; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.

Earnings of equity affiliates that are closely associated with the reportable segments are included in the respective segment’s net income (loss). Certain common expenses among reportable segments have been allocated differently than they would for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies.

Display Technologies

The following table provides net sales and net income for the Display Technologies segment (in millions):

	Three months ended				%			Nine months ended				%
	September 30,				change			September 30,				change
	2021		2020		21 vs. 20			2021		2020		21 vs. 20
Segment net sales	$	956	$	827		16	%	$	2,758	$	2,331		18	%
Segment net income	$	247	$	196		26	%	$	708	$	500		42	%

Net sales in the Display Technologies segment increased by $129 million and $427 million in the three and nine months ended September 30, 2021, respectively, and were largely driven by volume growth of more than 10 percent and mid-teens in percentage terms, respectively, and low single-digit price increases in percentage terms and consistent pricing, respectively.

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Net income in the Display Technologies segment increased by $51 million and $208 million in the three and nine months ended September 30, 2021, respectively, primarily driven by the increases in sales outlined above.

Optical Communications

The following table provides net sales and net income for the Optical Communications segment (in millions):

	Three months ended				%			Nine months ended				%
	September 30,				change			September 30,				change
	2021		2020		21 vs. 20			2021		2020		21 vs. 20
Segment net sales	$	1,131	$	909		24	%	$	3,143	$	2,587		21	%
Segment net income	$	139	$	115		21	%	$	398	$	225		77	%

Optical Communications' net sales increased by $222 million and $556 million, respectively, in the three and nine months ended September 30, 2021. Net sales of carrier products increased by $179 million and $372 million, respectively, and enterprise products were $43 million and $184 million higher, respectively, primarily driven by 5G, broadband and cloud computing.

Net income increased by $24 million and $173 million for the three and nine months ended September 30, 2021, respectively, primarily driven by the changes in sales, outlined above, and cost control measures, partially offset by increased raw material and shipping costs.

Movements in foreign currency exchange rates did not materially impact net income in this segment in the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020.

Specialty Materials

The following table provides net sales and net income for the Specialty Materials segment (in millions):

	Three months ended				%			Nine months ended				%
	September 30,				change			September 30,				change
	2021		2020		21 vs. 20			2021		2020		21 vs. 20
Segment net sales	$	556	$	570		(2	%)	$	1,490	$	1,339		11	%
Segment net income	$	107	$	146		(27	%)	$	279	$	287		(3	%)

Net sales in the Specialty Materials segment declined by $14 million and increased $151 million, respectively, for the three and nine months ended September 30, 2021. Net sales declined slightly for the three months ended September 30, 2021, primarily due to extremely strong demand for cover materials in support of customer product launches experienced during the third quarter of 2020. Strong demand for premium cover materials, strength in the IT market and greater optical content in semiconductor manufacturing were the primary drivers of the increase for the nine months ended September 30, 2021.

Net income decreased by $39 million and $8 million, respectively, for the three and nine months ended September 30, 2021, primarily driven by increased investments in innovation programs that are moving towards commercialization and higher inflationary and logistics costs.

Environmental Technologies

The following table provides net sales and net income for the Environmental Technologies segment (in millions):

	Three months ended				%			Nine months ended				%
	September 30,				change			September 30,				change
	2021		2020		21 vs. 20			2021		2020		21 vs. 20
Segment net sales	$	385	$	379		2	%	$	1,233	$	925		33	%
Segment net income	$	60	$	69		(13	%)	$	215	$	104		107	%

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Net sales in the Environmental Technologies segment increased by $6 million and $308 million, respectively, for the three and nine months ended September 30, 2021. Sales of diesel products grew $38 million and $176 million, respectively, primarily driven by customers continuing to adopt more advanced aftertreatment in China and continued strength in the North American heavy-duty truck market. Automotive sales declined $32 million and increased $132 million, respectively. In the first half of 2021, we saw year-over-year growth versus 2020, primarily driven by improving markets and increased Corning content, along with strong demand for diesel products in China and North America. In the third quarter of 2021, diesel product sales were higher, partially offset by lower automotive product sales, which were significantly impacted by an industry-wide shortage of automotive components and semiconductor chips.

Net income decreased by $9 million and increased $111 million for the three and nine months ended September 30, 2021, respectively, primarily driven by the sales drivers outlined above, partially offset by higher inflationary and logistics costs.

Life Sciences

The following table provides net sales and net income for the Life Sciences segment (in millions):

	Three months ended				%			Nine months ended				%
	September 30,				change			September 30,				change
	2021		2020		21 vs. 20			2021		2020		21 vs. 20
Segment net sales	$	305	$	223		37	%	$	917	$	724		27	%
Segment net income	$	45	$	28		61	%	$	145	$	97		49	%

Net sales in the Life Sciences segment increased by $82 million and $193 million for the three and nine months ended September 30, 2021, respectively, primarily driven by the ongoing recovery in academic and pharmaceutical research labs and continued strong demand for bioproduction vessels and diagnostic-related consumables.

Net income increased by $17 million and $48 million for the three and nine months ended September 30, 2021, respectively, primarily driven by the higher sales volume outlined above.

All Other

All other businesses 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, auto glass, new product lines and development projects, as well as certain corporate investments.

The following table provides net sales and net loss for All Other (in millions):

	Three months ended						%			Nine months ended						%
	September 30,						change			September 30,						change
	2021			2020			21 vs. 20			2021			2020			21 vs. 20
Segment net sales	$	306		$	99			209	%	$	865		$	218			297	%
Segment net loss	$	(5	)	$	(50	)		90	%	$	(44	)	$	(185	)		76	%

Net sales of this segment increased by $207 million and $647 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020, driven mainly by the consolidation of HSG. Net loss decreased by $45 million and $141 million, also primarily driven by the consolidation of HSG.

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CAPITAL RESOURCES AND LIQUIDITY

Financing and Capital Resources

2021

In the third quarter of 2021, Corning redeemed $250 million of 3.7% debentures due in 2023, paying a premium of $19 million by exercising our make-whole call. The bond redemption resulted in a $20 million loss during the same quarter.

In the second quarter of 2021, Corning redeemed $375 million of 2.9% debentures due in 2022, paying a premium of $10 million by exercising our make-whole call. The bond redemption resulted in an $11 million loss during the same quarter.

Share Repurchase Program

On April 26, 2018, Corning’s Board of Directors approved a $2 billion share repurchase program with no expiration date (the “2018 Repurchase Program”). On July 17, 2019, Corning’s Board of Directors authorized $5 billion in share repurchases with no expiration date (the “2019 Repurchase Program”).

For the three and nine months ended September 30, 2021, the Company repurchased 629 thousand and 668 thousand shares of common stock on the open market for approximately $24 million and $25 million, respectively, as part of its 2019 Repurchase Program.

During the three months ended June 30, 2021, the Company repurchased 35 million shares of common stock, under the 2018 and 2019 Repurchase Programs. These shares were repurchased immediately following the conversion of preferred shares, for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid on the Initial Closing Date. Subsequent payments of approximately $507 million will be paid on each of the first and second anniversaries of the Initial Closing Date.

The Company made no share repurchases for the three months ended September 30, 2020. For the nine months ended September 30, 2020, the Company repurchased 4.1 million shares of common stock on the open market for approximately $105 million, as part of its 2018 Repurchase Program.

Refer to Note 6 (Earnings per Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.

Capital Spending

Capital spending totaled $1.0 billion for the nine months ended September 30, 2021.

Cash Flow

Summary of cash flow data (in millions):

	Nine months ended
	September 30,
	2021			2020
Net cash provided by operating activities	$	2,389		$	1,406
Net cash used in investing activities	$	(803	)	$	(932	)
Net cash used in financing activities	$	(1,990	)	$	(415	)

Net cash provided by operating activities increased by $983 million in the nine months ended September 30, 2021, when compared to the same period in the prior year, primarily driven by an increase in net income.

Net cash used in investing activities decreased by $129 million in the nine months ended September 30, 2021, when compared to the same period last year. The decrease was primarily driven by higher proceeds from the sales of businesses and investments in unconsolidated entities of $102 million and $94 million, respectively, partially offset by an increase in capital expenditures of $28 million.

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Net cash used in financing activities increased by $1.6 billion in the nine months ended September 30, 2021, when compared to the same period last year. The increase was primarily driven by higher debt repayments of $860 million, the payment for conversion of the Preferred Stock of $507 million, lower proceeds of long-term debt and repurchases of common stock of $193 million and $83 million, respectively.

Defined Benefit Pension Plans

Corning has defined benefit pension plans covering certain domestic and international employees. The Company’s funding policy is to contribute, over time, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During 2021, the Company expects to make cash contributions of $30 million to our international pension plans.

Key Balance Sheet Data

Balance sheet and working capital measures are provided in the following table (in millions):

	September 30,			December 31,
	2021			2020
Working capital	$	3,342		$	4,237
Current ratio	1.8:1			2.1:1
Trade accounts receivable, net of doubtful accounts	$	2,114		$	2,133
Days sales outstanding		53			57
Inventories, net	$	2,463		$	2,438
Inventory turns		3.6			3.2
Days payable outstanding ⁽¹⁾		48			44
Long-term debt	$	7,019		$	7,816
Total debt	$	7,069		$	7,972
Total debt to total capital		36	%		37	%

⁽¹⁾	Includes trade payables only.

Management Assessment of Liquidity

Corning is committed to strong financial stewardship and expects to maintain a strong cash balance and generate positive free cash flow for the year.

We ended the third quarter of 2021 with approximately $2.2 billion of cash and cash equivalents. Our cash and cash equivalents are held in various locations throughout the world and are generally unrestricted. We utilize a variety of strategies to ensure that our worldwide cash is available in the locations in which it is needed. At September 30, 2021, approximately 74% of the consolidated amount was held outside the U.S.

Corning has a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding at any one time of $1.5 billion. Under this program, the Company may issue the paper from time to time and will use the proceeds for general corporate purposes. As of September 30, 2021, Corning had no outstanding commercial paper.

The Company’s $1.5 billion Revolving Credit Agreement is available to support its commercial paper program, if needed, and for general corporate purposes.

Other

Comprehensive reviews of significant customers and their creditworthiness are completed by analyzing their financial strength, at least annually or more frequently, for customers where Corning has identified an increased measure of risk. The Company closely monitors payments and developments which may signal possible customer credit issues. During the three months ended September 30, 2021, Corning sold accounts receivable and accelerated collections for the period by $80 million. Sales of accounts receivable during the first and second quarter of 2021, were $133 million and $192 million, respectively, which the Company believes would have been collected during the normal course of business in the quarter following the respective sales. Corning has not currently identified any potential material impact on our liquidity resulting from customer credit issues.

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We believe we have sufficient liquidity to fund operations, acquisitions, capital expenditures, scheduled debt repayments and dividend payments

The Revolving Credit Agreement includes affirmative and negative covenants with which we must comply, including a leverage (debt to capital ratio) financial covenant. The required leverage ratio is a maximum of 60%. At September 30, 2021, the leverage using this measure was approximately 36%. As of September 30, 2021, we were in compliance and no amounts were outstanding under the Company’s Revolving Credit Agreement.

The Company’s debt instruments contain customary event of default provisions, which allow the lenders the option of accelerating all obligations upon the occurrence of certain events. In addition, some of the debt instruments contain a cross default provision, whereby an uncured default of a specified amount on one debt obligation of the Company, would be considered a default under the terms of another debt instrument. As of September 30, 2021, we were in compliance with all such provisions.

Other than discussed, management is not aware of any known trends or any known demands, commitments, events or uncertainties that will, or are reasonably likely to, result in insufficient liquidity. There are no known trends, favorable or unfavorable, that would have a material change in the overall cost of liquidity.

Off Balance Sheet Arrangements

There have been no material changes outside the ordinary course of business in off balance sheet arrangements as disclosed in the 2020 Form 10-K under the caption “Off Balance Sheet Arrangements.”

Contractual Obligations

There have been no material changes outside the ordinary course of business in the contractual obligations disclosed in the 2020 Form 10-K under the caption “Contractual Obligations”.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The estimates that require management’s most difficult, subjective or complex judgments are described in the 2020 Form 10-K and remain unchanged through the first nine months of 2021. For certain items, additional details are provided below.

Impairment of Assets Held for Use

We are required to assess the recoverability of the carrying value of long-lived assets when an indicator of impairment has been identified. We review long-lived assets in each quarter in which impairment indicators are present. We must exercise judgment in assessing whether an event of impairment has occurred.

Manufacturing equipment includes certain components of production equipment that are constructed of precious metals, primarily platinum and rhodium. These metals are not depreciated because they have very low physical losses and are repeatedly reclaimed and reused in the manufacturing process and have a very long useful life. Precious metals are reviewed for impairment as part of the assessment of long-lived assets. This review considers all the Company’s precious metals that are either in place in the production process; in reclamation, fabrication, or refinement in anticipation of re-use; or awaiting use to support increased capacity. Precious metals are acquired to support the manufacturing operations and are not held for trading or other purposes.

At September 30, 2021 and December 31, 2020, the carrying value of precious metals was $3.3 billion and $3.4 billion, respectively, and significantly lower than the fair market value. Most of these precious metals are utilized by the Display Technologies and Specialty Materials segments. The potential for impairment exists in the future if negative events significantly decrease the cash flow of these segments. Such events include, but are not limited to, a significant decrease in demand for products or a significant decrease in profitability in these segments.

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NEW ACCOUNTING STANDARDS

Refer to Note 1 (Significant Accounting Policies) to the consolidated financial statements.

ENVIRONMENT

Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible 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 cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, Corning had accrued approximately ~~$40~~$60 million ~~(undiscounted)~~ and ~~$43~~$68 million, ~~(undiscounted),~~ respectively, for the estimated undiscounted liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

The ability of certain subsidiaries and affiliated companies to transfer funds is limited by provisions of foreign government regulations, affiliate agreements and certain loan agreements. At September 30, 2017, the amount of equity subject to such restrictions for consolidated subsidiaries and affiliated companies was not significant. While this amount is legally restricted, it does not result in operational difficulties since we have generally permitted subsidiaries to retain a majority of equity to support their growth programs.

~~3. Debt~~

Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $4.4 billion and $3.9 billion at September 30, 2017 and December 31, 2016, respectively, compared to recorded book values of $4.0 billion at September 30, 2017 and $3.6 billion at December 31, 2016. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.

~~Corning did not have outstanding commercial paper at September 30, 2017 and December 31, 2016.~~

~~Debt Issuances~~

~~2017~~

~~In the third quarter of 2017, Corning issued three Japanese yen-denominated debt securities (the “Notes”), as follows:~~

~~¥21 billion 0.698% senior unsecured long term notes with a maturity of 7 years;~~

~~¥47 billion 0.992% senior unsecured long term notes with a maturity of 10 years; and~~

~~¥10 billion 1.583% senior unsecured long term notes with a maturity of 20 years.~~

The proceeds from these Notes were received in Japanese yen and converted to U.S. dollars on the date of issuance. The net proceeds received in U.S. dollars, after deducting offering expenses, was approximately $700 million. Payments of principle and interest on the Notes will be in Japanese yen, or should yen be unavailable due to circumstances beyond Corning’s control, a U.S. dollar equivalent.

~~Index~~

~~On a quarterly basis, Corning will recognize the transaction gains and losses resulting from changes in the JPY/USD exchange rate in the Other expense, net line~~Table of the Consolidated Statements of Income. Cash proceeds from the offerings and payments for debt issuance costs are disclosed as financing activities, and cash payments to bondholders for interest will be disclosed as operating activities, in the Consolidated Statements of Cash Flows.

~~4. Income Taxes~~

~~Our (provision) benefit for income taxes and the related effective income tax rates were as follows (in millions):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(Provision) benefit for income taxes

$
(89)

$
27

$
(176)

$
835
Effective tax rate

18.6%

(10.5%)

16.1%

(64.8%)
Contents

~~For the three months ended September 30, 2017, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following benefits:~~

~~Rate differences on income (loss) of consolidated foreign companies; and~~

~~The benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income.~~

~~For the nine months ended September 30, 2017, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following benefits:~~

~~Rate differences on income (loss) of consolidated foreign companies;~~

~~The benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income; and~~

~~Discrete tax items.~~

~~For the three months ended September 30, 2016, the effective income tax benefit differed from the U.S. statutory rate of 35% primarily due to the following benefit:~~

~~Rate differences on income (loss) of consolidated foreign companies; and~~

~~The benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income.~~

~~For the nine months ended September 30, 2016, the effective income tax benefit differed from the U.S. statutory rate of 35% primarily due to the following benefits:~~

~~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;~~

~~The impact of equity in earnings of nonconsolidated affiliates reported in the financial statements, net of tax; and~~

The tax-free nature of the realignment of our equity interests 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 continues to indefinitely reinvest substantially all of its foreign earnings, with the exception of an immaterial amount of current earnings that have very low or no tax cost associated with their repatriation. Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash. One time or unusual items may impact our ability or intent to keep our foreign earnings and cash indefinitely reinvested. While it remains impracticable to calculate the tax cost of repatriating our total unremitted foreign earnings, such cost could be material to the results of operations of Corning in a particular period.

~~Index~~

~~5. Earnings per Common Share~~

~~The following table sets forth the computation of basic and diluted earnings per common share (in millions, except per share amounts):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
Net income attributable to Corning Incorporated

$
390

$
284

$
915

$
2,123
Less:  Series A convertible preferred stock dividend

24

24

73

73
Net income available to common stockholders – basic

366

260

842

2,050
Plus:  Series A convertible preferred stock dividend

24

24

73

73
Net income available to common stockholders – diluted

$
390

$
284

$
915

$
2,123

Weighted-average common shares outstanding – basic

883

978

905

1,046
Effect of dilutive securities:

Stock options and other dilutive securities

11

9

11

9
Series A convertible preferred stock

115

115

115

115
Weighted-average common shares outstanding – diluted

1,009

1,102

1,031

1,170
Basic earnings per common share

$
0.41

$
0.27

$
0.93

$
1.96
Diluted earnings per common share

$
0.39

$
0.26

$
0.89

$
1.81

Antidilutive potential shares excluded from
  diluted earnings per common share:

Series A convertible preferred stock

Employee stock options and awards

1

13

2

18
Accelerated share repurchase forward contract

14

14
Total

1

27

2

32

~~6. Inventories, Net of Inventory Reserves~~

~~Inventories, net of inventory reserves comprise the following (in millions):~~

September 30,

December 31,

2017

2016
Finished goods

$
720

$
606
Work in process

328

303
Raw materials and accessories

314

270
Supplies and packing materials

331

292
Total inventories, net of inventory reserves

$
1,693

$
1,471

~~7. Investments~~

On May 31, 2016, Corning completed the strategic realignment of its equity investment in Dow Corning Corporation (“Dow Corning”) pursuant to the Transaction Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in Hemlock Semiconductor Group (“HSG”) and approximately $4.8 billion in cash.

Prior to realignment, HSG, a wholly-owned and consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the exchange, Corning now has a direct equity investment in HSG. Because our ownership percentage in HSG did not change as a result of the realignment, the investment in HSG is recorded at its carrying value, which had a negative carrying value of $383 million at the transaction date. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Excluding this charge, the entity is profitable and is expected to recover its equity in the near term.

~~Index~~

Corning’s financial statements as of June 30, 2016 include the positive impact of the release of a deferred tax liability of $105 million related to Corning’s tax on Dow Corning’s earnings that were not distributed as of the date of the transaction and a non-taxable gain of $2,676 million on the realignment. Details of the gain are illustrated below (in millions):


~~Cash~~	$	~~4,818~~
~~Carrying Value of Dow Corning Equity Investment~~		~~(1,560)~~
~~Carrying Value of HSG Equity Investment~~		~~(383)~~
~~Other~~ ~~(1)~~		~~(199)~~
~~Gain~~	$	~~2,676~~

~~(1)~~

Primarily consists of the release of accumulated other comprehensive loss items related to unamortized actuarial losses related to Dow Corning’s pension plan and foreign currency translation gains in the amounts of $260 million and $45 million, respectively.

~~Investments comprise the following (in millions):~~

Ownership

September 30,

December 31,

interest

2017

2016
Affiliated companies accounted for by the equity method (1)
20%
to
50%

$
284

$
269
Other investments

68

67
Subtotal Investment Assets

$
352

$
336

Affiliated companies accounted for by the equity method

HSG (1)(2)

50%

$
202

$
241
Subtotal Investment Liabilities

$
202

$
241

~~(1)~~

~~Amounts reflect Corning’s direct ownership interests in the respective affiliated companies at September 30, 2017 and December 31, 2016. Corning does not control any of such entities.~~

~~(2)~~

~~HSG indirectly holds an 80.5% interest in a HSG operating partnership. The negative carrying value of the investment in HSG is recorded in Other Liabilities.~~

~~Hemlock Semiconductor Group~~

~~HSG’s results of operations follow (in millions):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017 (1)

2016 (2)
Statement of Operations:

Net sales

$
286

$
217

$
887

$
397
Gross profit

$
72

$
61

$
180

$
113
Net income attributable to HSG

$
59

$
44

$
285

$
87

~~(1)~~

HSG’s net income in the nine months ended September 30, 2017 includes pre-tax gains on settlements of long-term sales agreements in the amount of $151 million (after tax and non-controlling interests, Corning’s share was approximately $75 million).

~~(2)~~

~~Amounts reflect HSG’s results of operations for the month of June 1, 2016 through September 30, 2016.~~

~~Index~~

~~8. Goodwill and Other Intangible Assets~~

~~The carrying amount of goodwill by segment for the periods ended September 30, 2017 and December 31, 2016 is as follows (in millions):~~

Display

Optical

Specialty

Life

All

Technologies

Communications

Materials

Sciences

Other

Total
Balance at December 31, 2016

$
126

$
645

$
150

$
558

$
98

$
1,577
Acquired goodwill (1)

22

43

34

99
Measurement period
adjustment (2)

(28)

(28)
Foreign currency translation
adjustment

4

7

18

7

36
Balance at September 30, 2017

$
130

$
674

$
150

$
619

$
111

$
1,684

~~(1)~~

The Company completed two small acquisitions in the third quarter of 2017 which are being reported in the Optical Communications and Life Sciences segment and one small acquisition in the first quarter of 2017 which is reported in All Other.

~~(2)~~

~~In the second quarter of 2017, the Company recorded measurement period adjustments of $28 million related to an acquisition completed in a previous period.~~

Corning’s gross goodwill balances for the periods ended September 30, 2017 and December 31, 2016 each were $8.2 billion and $8.1 billion, respectively. Accumulated impairment losses were $6.5 billion for the periods ended September 30, 2017 and December 31, 2016, and were generated primarily through goodwill impairments related to the Optical Communications segment.

~~Other intangible assets are as follows (in millions):~~

September 30, 2017

December 31, 2016

Accumulated

Accumulated

Gross

amortization

Net

Gross

amortization

Net
Amortized intangible assets:

Patents, trademarks, and
trade names

$
382

$
192

$
190

$
360

$
176

$
184
Customer lists and other

892

191

701

761

149

612
Total

$
1,274

$
383

$
891

$
1,121

$
325

$
796

Corning’s amortized intangible assets are primarily related to the Optical Communications and Life Sciences segments. The net carrying amount of intangible assets increased in the first nine months of 2017, primarily due to acquisitions of $132 million of other intangible assets and foreign currency translation adjustments of $16 million, offset by amortization of $53 million.

~~Amortization expense related to these intangible assets is estimated to be $71 million for 2017, $74 million annually for 2018 and 2019, and $70 million annually from 2020 to 2022.~~

~~Index~~

~~9. Employee Retirement Plans~~

~~The following table summarizes the components of net periodic benefit cost for Corning’s defined benefit pension and postretirement health care and life insurance plans (in millions):~~

Pension benefits

Postretirement benefits

Three months ended

Nine months ended

Three months ended

Nine months ended

September 30,

September 30,

September 30,

September 30,

2017

2016

2017

2016

2017

2016

2017

2016

Service cost

$
22

$
22

$
69

$
65

$
2

$
3

$
7

$
7
Interest cost

32

31

94

93

7

6

20

19
Expected return on plan assets

(43)

(41)

(130)

(124)

Amortization of net loss

(1)
Amortization of prior service
cost (credit)

1

1

4

4

(1)

(1)

(2)

(3)
Recognition of actuarial loss

26

15

60

Total pension and postretirement
benefit expense

$
12

$
39

$
52

$
98

$
8

$
8

$
25

$
22

The impact of the finalization of our 2016 benefit plan valuations resulted in a charge of $15 million in the nine months ended September 30, 2017. The recognition of actuarial loss of $26 million in the three months ended September 30, 2016 resulted from small settlements in several of our benefit plans which triggered plan remeasurements. In addition to the settlements occurring in the third quarter of 2016, results in the nine months ended September 30, 2016 also included the impact of the finalization of our 2015 benefit plan valuations.

~~10. Other Liabilities~~

~~Other liabilities follow (in millions):~~

September 30,

December 31,

2017

2016
Current liabilities:

Wages and employee benefits

$
513

$
487
Income taxes

135

150
Derivative instruments

58

88
Asbestos and other litigation

39

70
Other current liabilities

510

621
Other accrued liabilities

$
1,255

$
1,416

Non-current liabilities:

Defined benefit pension plan liabilities

$
743

$
692
Derivative instruments

343

282
Asbestos and other litigation

342

369
Investment in Hemlock Semiconductor Group (1)

202

241
Other non-current liabilities

1,310

1,221
Other liabilities

$
2,940

$
2,805

~~(1)~~

~~The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets.~~

~~Asbestos Claims~~

Corning and PPG each owned 50% of the capital stock of PCC. Over a period of more than two decades, PCC and several other defendants were named in numerous lawsuits involving claims alleging personal injury from exposure to asbestos. Refer to Note 2 (Commitments, Contingencies and Guarantees) to the consolidated financial statements for additional information on the asbestos claims.

~~Index~~

~~11. Hedging Activities~~

~~Undesignated Hedges~~

The table below includes a total gross notional value for translated earnings contracts of $15.2 billion and $16.7 billion at September 30, 2017 and December 31, 2016, respectively. The translated earnings contracts include average rate forwards of $14.1 billion and $14.7 billion and zero-cost collars of $1.1 billion and $2.0 billion at September 30, 2017 and December 31, 2016, respectively. The majority of the average rate forward contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning the years 2017-2022 and with gross notional values of $12.4 billion and $13.6 billion at September 30, 2017 and December 31, 2016, respectively. The average rate forward contracts also partially hedge the impacts of the South Korean won, New Taiwan dollar, Chinese yuan, Euro and British pound translation on the Company’s projected net income. With respect to the zero-cost collars, the gross notional amount includes the value of both the put and call options. However, due to the nature of the zero-cost collars, either the put or the call option can be exercised at maturity. The total net notional value of the zero-cost collars was $0.7 billion and $1.0 billion at September 30, 2017 and December 31, 2016, respectively.

The following tables summarize the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for September 30, 2017 and December 31, 2016 (in millions):

Asset derivatives

Liability derivatives

Gross notional amount

Balance

Fair value

Balance

Fair value

Sept. 30,

Dec. 31,

sheet

Sept. 30,

Dec. 31,

sheet

Sept. 30,

Dec. 31,

2017

2016

location

2017

2016

location

2017

2016

Derivatives
  designated as
  hedging
  instruments

Foreign exchange
  contracts (1)
$
381

$
458

Other current
assets

$
12

$
1

Other accrued
liabilities

$
(3)

$
(29)

Other assets

8

Interest rate
  contracts

550

550

Other liabilities

(5)

(5)

Derivatives not
  designated as
  hedging
  instruments

Foreign exchange
  contracts, other

676

890

Other current
assets

7

11

Other accrued
liabilities

(3)

(7)

Translated earnings
  contracts

15,211

16,711

Other current
assets

175

423

Other accrued
liabilities

(52)

(52)

Other assets

82

146

Other liabilities

(338)

(277)

Total derivatives
$
16,818

$
18,609

$
284

$
581

$
(401)

$
(370)

~~(1)~~

~~Cash flow hedges with a typical duration of 24 months or less.~~

~~Index~~

The following table summarizes the effect of derivative financial instruments on Corning’s consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 (in millions):

Effect of derivative instruments on the consolidated financial statements

for the three months ended September 30,

Gain recognized in other

Location of gain/(loss)

Gain/(loss) reclassified from

comprehensive income

reclassified from

accumulated OCI into
Derivatives in hedging

(OCI)

accumulated OCI into

income (effective) (1)
relationships

2017

2016

income (effective)

2017

2016

Sales

$
1
Foreign exchange contracts

$
3

$
1

Cost of sales

$
(1)

(13)

Total cash flow hedges

$
3

$
1

$
(1)

$
(12)

Effect of derivative instruments on the consolidated financial statements

for the nine months ended September 30,

Gain (loss) recognized in

Location of gain/(loss)

Gain/(loss) reclassified from

other comprehensive income

reclassified from

accumulated OCI into
Derivatives in hedging

(OCI)

accumulated OCI into

income ineffective/effective (1)
relationships

2017

2016

income (effective)

2017

2016

Sales

$
1

$
2

Cost of sales

(11)

(27)
Foreign exchange contracts

$
36

$
(63)

Other expense, net

(1)

(1)

Total cash flow hedges

$
36

$
(63)

$
(11)

$
(26)

~~(1)~~

~~The amount of hedge ineffectiveness at September 30, 2017 and 2016 was insignificant.~~

~~The following table summarizes the effect on the consolidated financial statements relating to Corning’s derivative financial instruments (in millions):~~

Gain (loss) recognized in income

Three months ended

Nine months ended

Location of gain/(loss)

September 30,

September 30,
Undesignated derivatives
recognized in income

2017

2016

2017

2016

Foreign exchange contracts
  – balance sheet and loans
Other expense, net

$
(7)

$
(4)

$
(19)

$
(78)
Foreign currency hedges
  related to translated earnings
Translated earnings
  contract gain (loss), net

26

(237)

(193)

(2,295)

Total undesignated

$
19

$
(241)

$
(212)

$
(2,373)

~~12. Fair Value Measurements~~

Fair value standards under U.S. GAAP define fair value, establish a framework for measuring fair value in applying generally accepted accounting principles, and require disclosures about fair value measurements. The standards also identify two kinds of inputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources while unobservable inputs are based on the Company’s own market assumptions. Once inputs have been characterized, the inputs are prioritized into one of three broad levels (provided in the table below) used to measure fair value. Fair value standards apply whenever an entity is measuring fair value under other accounting pronouncements that require or permit fair value measurement and require the use of observable market data when available.

~~Index~~

~~The following tables provide fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis (in millions):~~

Fair value measurements at reporting date using

Quoted prices in

Significant other

Significant

active markets for

observable

unobservable

September 30,

identical assets

inputs

inputs

2017

(Level 1)

(Level 2)

(Level 3)

Current assets:

Other current assets (1)(2)

$
488

$
194

$
294
Non-current assets:

Other assets (1)

$
90

$
90

Current liabilities:

Other accrued liabilities (1)(3)

$
63

$
58

$
5
Non-current liabilities:

Other liabilities (1)(3)

$
363

$
343

$
20

~~(1)~~

~~Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets and liabilities.~~

~~(2)~~

~~Other assets include a contingent consideration asset which was measured by applying an option pricing model using projected future Corning Precision Materials’ revenues.~~

~~(3)~~

Other accrued liabilities and other liabilities include contingent consideration that was measured using unobservable (Level 3) inputs. As of September 30, 2017 the fair value of the contingent consideration payables is $25 million.

Fair value measurements at reporting date using

Quoted prices in

Significant other

Significant

active markets for

observable

unobservable

December 31,

identical assets

inputs

inputs

2016

(Level 1)

(Level 2)

(Level 3)

Current assets:

Other current assets (1)

$
435

$
435

Non-current assets:

Other assets (1)(2)

$
464

$
175

$
289

Current liabilities:

Other accrued liabilities (1)

$
88

$
88

Non-current liabilities:

Other liabilities (1)

$
282

$
282

~~(1)~~

~~Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets and liabilities.~~

~~(2)~~

Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and a contingent consideration asset which was measured by applying an option pricing model using projected future Corning Precision Materials’ revenues.

As a result of the acquisition of Samsung Corning Precision Materials in January 2014, the Company has contingent consideration that was measured using unobservable (Level 3) inputs. Changes in the fair value of the contingent consideration in future periods are valued using an option pricing model and are recorded in Corning’s results in the period of the change. As of September 30, 2017 and December 31, 2016, the fair value of the potential receipt of the contingent consideration in 2018 was $294 million and $289 million, respectively.

~~There were no significant financial assets and liabilities measured on a nonrecurring basis as of September 30, 2017 and December 31, 2016.~~

~~Index~~

~~13. Shareholders’ Equity~~

~~Fixed Rate Cumulative Convertible Preferred Stock, Series A~~

Corning has 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A. The Preferred Stock is convertible at the option of the holder and the Company upon certain events, at a conversion rate of 50,000 shares of Corning’s common stock per one share of Preferred Stock, subject to certain anti-dilution provisions. As of September 30, 2017, the Preferred Stock has not been converted, and none of the anti-dilution provisions have been triggered.

~~Share Repurchases~~

~~2016 Share Repurchases~~

In July 2016, Corning entered into an accelerated share repurchase agreement (the “2016 ASR agreement”) under the 2015 Repurchase Program to repurchase Corning’s common stock. Under the 2016 ASR agreement, Corning paid $2.0 billion for a total of 86.7 million shares.

In addition to the 2016 ASR agreement, during the year ended December 31, 2016, the Company repurchased 110.4 million shares of common stock on the open market for approximately $2.2 billion as part of its 2015 Repurchase Programs, resulting in a total of 197.1 million shares repurchased for $4.2 billion during 2016.

~~2017 Share Repurchases~~

In December 2016, Corning’s Board of Directors approved a $4 billion share repurchase program with no expiration (the “2016 Repurchase Program”). In the nine months ended September 30, 2017, Corning entered into two separate accelerated share repurchase agreements under this program (the “2017 ASR agreements”). In the second quarter of 2017, Corning entered into and finalized an accelerated share repurchase agreement under which we paid $500 million for a total of 17.1 million shares. In the third quarter of 2017, Corning entered into and finalized an additional accelerated share repurchase agreement under which we paid $500 million for a total of 17.2 million shares.

In addition to the 2017 ASR agreements, during the three and nine months ended September 30, 2017, the Company repurchased 17.2 million and 37.6 million shares of common stock on the open market for approximately $507.7 million and $1.1 billion, respectively.

~~Accumulated Other Comprehensive Loss~~

In the three and nine months ended September 30, 2017 and 2016, the primary changes in accumulated other comprehensive loss were related to the foreign currency translation adjustment and unamortized actuarial gains (losses) for postretirement benefit plan components.

~~A summary of changes in the foreign currency translation adjustment component of accumulated other comprehensive loss is as follows (in millions)~~ ~~(1)~~:

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016
Beginning balance

$
(871)

$
(547)

$
(1,275)

$
(1,171)
Other comprehensive income (2)

49

235

435

860
Equity method affiliates (3)

4

10

22

9
Net current-period other comprehensive income

53

245

457

869
Ending balance

$
(818)

$
(302)

$
(818)

$
(302)

~~(1)~~

~~All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss.~~

~~(2)~~

For the three months ended September 30, 2017, tax amounts are not significant. For the nine months ended September 30, 2017, amounts are net of total tax expense of $47 million. For the three and nine months ended September 30, 2016, amounts are net of total tax expense of $32 million and $51 million, respectively.

~~(3)~~

~~Tax effects are not significant.~~

In the second quarter of 2016, a $45 million cumulative foreign currency translation gain was released as a result of the realignment of Dow Corning and included in the gain on realignment of equity investment.

In the second quarter of 2016, a $22 million cumulative foreign currency translation loss was released as a result of the contribution of our investment in PCE to the PCC litigation trust and included in selling, general and administrative expenses.

~~Index~~

~~A summary of changes in the unamortized actuarial gains (losses) for postretirement benefit plan component of accumulated other comprehensive loss is as follows (in millions)~~ ~~(1):~~

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016
Beginning balance

$
(330)

$
(323)

$
(347)

$
(588)
Other comprehensive loss before
   reclassifications (2)

(31)

(64)
Amounts reclassified from accumulated other
   comprehensive income (2)

26

17

60
Equity method affiliates (3)

264
Net current-period other comprehensive  (loss) income

(5)

17

260
Ending balance

$
(330)

$
(328)

$
(330)

$
(328)

~~(1)~~

~~All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss.~~

~~(2)~~

For the three months ended September 30, 2017, tax effects are not significant. For the nine months ended September 30, 2017, amounts are net of total tax expense of $10 million. For the three and nine months ended September 30, 2016, amounts are net of total tax benefit of ($3) million and ($4) million, respectively.

~~(3)~~

For the three and nine months ended September 30, 2017, tax effects are not significant. For the three and nine months ended September 30, 2016, tax effects are not significant and are net of total tax expense and $19 million, respectively.

In the second quarter of 2016, a $260 million cumulative unamortized actuarial loss, net of tax of $19 million, was released as a result of the realignment of Dow Corning and included in the gain on realignment of equity investment.

In addition, for the nine months ended September 30, 2017, in the investment component of accumulated other comprehensive loss, a cumulative loss of $14 million, mainly comprising income tax, was reclassified to the income statement.

~~14. Share-based Compensation~~

~~Stock Compensation Plans~~

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values. Fair values for stock options were estimated using a multiple-point Black-Scholes valuation model. Share-based compensation cost for employee stock options and time-based restricted stock and restricted stock units was approximately $10 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $35 million and $33 million for the nine months ended September 30, 2017 and 2016, respectively. The income tax (expense) benefit from share-based compensation was not significant for the three and nine months ended September 30, 2017 and 2016.

~~Stock Options~~

Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued shares, or treasury shares, at the market price on the grant date and generally become exercisable three years from the grant date. The maximum term of non-qualified and incentive stock options is ten years from the grant date.

~~Index~~

~~The following table summarizes information concerning stock options outstanding including the related transactions under the stock option plans for the nine months ended September 30, 2017:~~

Weighted-

Average

Weighted-

Remaining

Aggregate

Number

Average

Contractual

Intrinsic

of Shares

Exercise

Term in

Value

(in thousands)

Price

Years

(in thousands)
Options Outstanding as of December 31, 2016

31,507

$
19.40

Granted

1,505

27.01

Exercised

(12,915)

21.26

Forfeited and Expired

(254)

23.21

Options Outstanding as of September 30, 2017

19,843

18.72

4.66

$
222,313
Options Expected to Vest as of September 30, 2017

19,801

18.71

4.65

222,056
Options Exercisable as of September 30, 2017

15,173

17.47

3.47

188,890

The aggregate intrinsic value (market value of stock less option exercise price) in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price on September 30, 2017, which would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date.

As of September 30, 2017, there was approximately $8 million of unrecognized compensation cost related to stock options granted under the plans. The cost is expected to be recognized over a weighted-average period of 2 years. Compensation cost related to stock options was approximately $1 million and $2 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $11 million and $10 million for the nine months ended September 30, 2017 and 2016, respectively.

Proceeds received from the exercise of stock options were $275 million and $86 million for the nine months ended September 30, 2017 and 2016, respectively. Proceeds received from the exercise of stock options were included in financing activities on the Company’s Consolidated Statements of Cash Flows. The total intrinsic value of options exercised for the nine months ended September 30, 2017 and 2016 was approximately $83 million and $36 million, respectively.

~~The following inputs were used for the valuation of option grants under our stock option plans:~~

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016
Expected volatility

34.2%

38.6%

34.2
-
36.1%

38.6
-
43.1%
Weighted-average volatility

34.2%

38.6%

34.2
-
36.1%

38.6
-
43.1%
Expected dividends

2.18%

2.34%

2.11
-
2.28%

2.34
-
2.94%
Risk-free rate

2.1%

1.4%

2.1
-
2.3%

1.4
-
1.6%
Average risk-free rate

2.1%

1.4%

2.1
-
2.3%

1.4
-
1.6%
Expected term (in years)

7.4

7.4

7.4
-
7.4

7.4
-
7.4
Pre-vesting departure rate

0.6%

0.6%

0.6
-
0.6%

0.6
-
0.6%

Expected volatility is based on a blended approach defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term assumption is the period of time the options are expected to be outstanding, and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rate assumption is the implied rate for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term.

~~Incentive Stock Plans~~

Corning’s incentive stock plan permits restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the incentive stock plan are granted at the closing market price on the grant date, contingently vest over a period of generally three years. The fair value of each restricted stock grant or restricted stock unit awarded under the Incentive Stock Plan is based on the grant date closing price of the Company’s stock.

~~Index~~

~~Time-Based Restricted Stock and Restricted Stock Units:~~

The following table represents a summary of the status of the Company’s non-vested time-based restricted stock and restricted stock units as of December 31, 2016, and changes which occurred during the nine months ended September 30, 2017:

Weighted

Average

Shares

Grant-Date

(000’s)

Fair Value
Non-vested shares and share units at December 31, 2016

4,640

$
20.15
Granted

1,576

27.67
Vested

(1,243)

20.65
Forfeited

(88)

22.13
Non-vested shares and share units at September 30, 2017

4,885

$
22.42

As of September 30, 2017, there was approximately $51 million of unrecognized compensation cost related to non-vested time-based restricted stock and restricted stock units compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.5 years. Compensation cost related to time-based restricted stock and restricted stock units was approximately $9 million and $8 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $24 million and $23 million for the nine months ended September 30, 2017 and 2016, respectively.

~~15. Reportable Segments~~

~~Our reportable segments are as follows:~~

~~Display Technologies – manufactures glass substrates primarily for flat panel liquid crystal displays.~~

~~Optical Communications – manufactures carrier and enterprise network components for the telecommunications industry.~~

~~Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.~~

~~Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.~~

~~Life Sciences – manufactures glass and plastic labware, equipment, media and reagents enabling workflow solutions for scientific applications.~~

All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily comprised of the results of the pharmaceutical technologies business and new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates.

~~Index~~

~~Reportable Segments~~ ~~(in millions)~~

Display

Optical

Environmental

Specialty

Life

All

Technologies

Communications

Technologies

Materials

Sciences

Other

Total
Three months ended

September 30, 2017

Net sales

$
768

$
917

$
277

$
373

$
223

$
49

$
2,607
Depreciation (1)

$
134

$
49

$
31

$
34

$
14

$
12

$
274
Amortization of purchased
   intangibles

$
11

$
6

$
1

$
18
Research, development and
   engineering expenses (2)

$
21

$
44

$
28

$
37

$
5

$
52

$
187
Income tax (provision)
   benefit

$
(82)

$
(52)

$
(17)

$
(36)

$
(8)

$
28

$
(167)
Net income (loss) (3)

$
203

$
102

$
34

$
72

$
17

$
(55)

$
373

Display

Optical

Environmental

Specialty

Life

All

Technologies

Communications

Technologies

Materials

Sciences

Other

Total
Three months ended

September 30, 2016

Net sales

$
902

$
795

$
264

$
295

$
214

$
37

$
2,507
Depreciation (1)

$
152

$
41

$
32

$
26

$
14

$
12

$
277
Amortization of purchased
   intangibles

$
10

$
5

$
2

$
17
Research, development and
   engineering expenses (2)

$
14

$
37

$
24

$
31

$
6

$
47

$
159
Income tax (provision)
   benefit

$
(98)

$
(49)

$
(17)

$
(21)

$
(8)

$
21

$
(172)
Net income (loss) (3)

$
279

$
84

$
35

$
42

$
16

$
(47)

$
409

~~Index~~

Display

Optical

Environmental

Specialty

Life

All

Technologies

Communications

Technologies

Materials

Sciences

Other

Total
Nine Months Ended

September 30, 2017

Net sales

$
2,252

$
2,617

$
815

$
1,010

$
654

$
131

$
7,479
Depreciation (1)

$
393

$
142

$
93

$
94

$
39

$
34

$
795
Amortization of purchased
   intangibles

$
33

$
16

$
4

$
53
Research, development and
   engineering expenses (2)

$
63

$
121

$
80

$
110

$
17

$
156

$
547
Income tax (provision)
   benefit

$
(270)

$
(149)

$
(47)

$
(88)

$
(23)

$
83

$
(494)
Net income (loss) (3)

$
663

$
285

$
97

$
176

$
48

$
(166)

$
1,103

Display

Optical

Environmental

Specialty

Life

All

Technologies

Communications

Technologies

Materials

Sciences

Other

Total
Nine Months Ended

September 30, 2016

Net sales

$
2,408

$
2,186

$
787

$
788

$
633

$
112

$
6,914
Depreciation (1)

$
452

$
125

$
97

$
81

$
42

$
34

$
831
Amortization of purchased
   intangibles

$
25

$
15

$
6

$
46
Research, development and
   engineering expenses (2)

$
49

$
110

$
75

$
96

$
18

$
139

$
487
Income tax (provision)
   benefit

$
(277)

$
(99)

$
(52)

$
(52)

$
(22)

$
87

$
(415)
Net income (loss) (3)

$
692

$
178

$
106

$
106

$
45

$
(187)

$
940

~~(1)~~

~~Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.~~

~~(2)~~

~~Research, development and engineering expenses include direct project spending that is identifiable to a segment.~~

~~(3)~~

Many of Corning’s administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal, are allocated to segments, primarily as a percentage of sales. Expenses that are not allocated to the segments are included in the reconciliation of reportable net segment net income to consolidated net income below.

~~Index~~

~~A reconciliation of reportable segment net income to consolidated net income follows (in millions):~~

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016
Net income of reportable segments

$
428

$
456

$
1,269

$
1,127
Net loss of All Other

(55)

(47)

(166)

(187)
Unallocated amounts:

Net financing costs (1)

(27)

(26)

(79)

(84)
Stock-based compensation expense

(10)

(10)

(35)

(33)
Exploratory research

(24)

(27)

(71)

(82)
Corporate contributions

(7)

(15)

(29)

(38)
Gain on realignment of equity investment

2,676
Equity in earnings of affiliated companies (2)

30

22

140

126
Unrealized loss on foreign currency hedges
related to translated earnings

(24)

(239)

(392)

(2,441)
Resolution of Department of Justice investigation

(98)
Income tax benefit

66

193

299

1,247
Other corporate items

13

(23)

(21)

(90)
Net income

$
390

$
284

$
915

$
2,123

~~(1)~~

~~Net financing costs include interest income, interest expense, and interest costs and investment gains and losses associated with benefit plans.~~

~~(2)~~

For the periods ending September 30, 2017, and the three months ending September 30, 2016, the amounts represent the equity earnings of HSG. Through May 31, 2016, the date of the strategic realignment of our equity interest in Dow Corning, this amount primarily represents the equity earnings from Dow Corning. Refer to Note 7, Investments, for additional information.

~~Index~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~ORGANIZATION OF INFORMATION~~

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a historical and prospective narrative on the Company’s financial condition and results of operations. This interim MD&A should be read in conjunction with the MD&A in our 2016 Form 10-K. The various sections of this MD&A contain a number of forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “plans,” “goals,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in “Risk Factors” in Part I, Item 1A of our 2016 Form 10-K, and as may be updated in our Forms 10-Q. Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of September 30, 2017.

~~Our MD&A includes the following sections:~~

~~Overview~~

~~Results of Operations~~

~~Core Performance Measures~~

~~Reportable Segments~~

~~Capital Resources and Liquidity~~

~~Critical Accounting Estimates~~

~~New Accounting Standards~~

~~Environment~~

~~Forward-Looking Statements~~

~~OVERVIEW~~

~~Strategy and Capital Allocation Framework~~

In October 2015, Corning announced a strategy and capital allocation framework (the “Framework”) that reflects the Company’s financial and operational strengths, as well as its ongoing commitment to increasing shareholder value. The Framework outlines our leadership priorities, and articulates the opportunities we see across our businesses. We designed the Framework to create significant value for shareholders by focusing our portfolio and leveraging our financial strength. Under our Framework we target generating $26 billion to $30 billion of cash through 2019, returning more than $12.5 billion to shareholders and investing $10 billion to sustain our leadership positions and deliver growth.

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

~~Summary of results for the three months and nine months ended September 30, 2017~~

Net sales in the three and nine months ended September 30, 2017 were $2,607 million and $7,479 million, respectively, compared to $2,507 million and $6,914 million in the same periods in 2016. The increase in both periods was driven by higher sales in the Optical Communications and Specialty Materials segments. Optical Communications segment sales increased $122 million and $431 million, respectively, due to higher sales of carrier and enterprise network products. Specialty Materials segment sales increased $78 million and $222 million, respectively, driven by higher sales of Corning Gorilla Glass and advanced optics products.

~~Index~~

In the third quarter of 2017, we generated net income of $390 million, or $0.39 per share, compared to net income of $284 million, or $0.26 per share, for the same period in 2016. The increase in net income of $106 million, or 37%, was primarily driven by the following items (amounts presented after-tax):

~~A decrease of $135 million in unrealized losses from our translated earnings contracts;~~

~~An increase of $30 million in net income in the Specialty Materials segment, driven by an increase in net sales of Corning Gorilla Glass and advanced optics products;~~

~~An increase of $18 million in net income in the Optical Communications segment, due to higher sales of carrier and enterprise network products; and~~

~~The absence of a $17 million charge recorded in the third quarter of 2016 resulting from several small settlements in our defined benefit pension plan.~~

Partially offsetting these items was a decrease of $76 million in net income in the Display Technologies segment, driven by LCD glass price declines of approximately 10%, the absence of a $41 million gain resulting from the contingent consideration fair value adjustment recorded in the third quarter of 2016 and the impact of the weakening of the Japanese yen in the amount of $25 million, partially offset by a small increase in volume, an increase of $31 million from realized gains on our yen-denominated currency hedges and improvements in manufacturing efficiency.

The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current quarter, did not materially impact Corning’s consolidated net income in the three months ended September 30, 2017 when compared to the same period in 2016.

In the first three quarters of 2017, we generated net income of $915 million or $0.89 per share, compared to net income of $2,123 million or $1.81 per share for the same period in 2016. The decrease in net income of $1,208 million was primarily driven by the following items (amounts presented after-tax):

~~The absence of a $2.7 billion non-taxable gain and $105 million positive tax adjustment on the strategic realignment of our ownership interest in Dow Corning recorded in the second quarter of 2016;~~

A decrease in net income of $29 million in the Display Technologies segment, primarily driven by price declines of approximately 10%, the absence of a gain of $35 million from the contingent consideration fair value adjustment during 2016 and the impact from the weakening of the Japanese yen and South Korean won in the amount of $36 million; and

~~The absence of a gain of $25 million on the contribution of our equity interests in PCC and PCE as partial settlement of the asbestos litigation recorded in the second quarter of 2016.~~

~~Partially offsetting these events were the following items:~~

~~A decrease in unrealized losses from our translated earnings contracts in the amount of $1.3 billion;~~

~~The absence of a charge of $86 million related to the resolution of an investigation by the U.S. Department of Justice and related costs;~~

A decrease of $56 million in restructuring, impairment and other charges, largely due to the absence of charges incurred in 2016 associated with restructuring activity and the disposal of long-lived assets;

~~An increase in net income of $107 million in the Optical Communications segment, due to higher sales of carrier and enterprise network products;~~

~~An increase in net income of $70 million in the Specialty Materials segment, driven by an increase in Corning Gorilla Glass and advanced optics products; and~~

Lower acquisition-related expenses, down $54 million, largely due to the absence of costs related to the realignment of our equity interests in Dow Corning completed in the second quarter of 2016, offset slightly by several small acquisitions occurring in 2017.

The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current quarter, did not materially impact Corning’s consolidated net income in the nine months ended September 30, 2017 when compared to the same period in 2016.

~~Index~~

~~2017 Corporate Outlook~~

In 2017, Corning will continue to advance its Framework initiatives. In the Display Technologies segment, we expect the rate of growth in both retail market and glass demand to be in the mid-single digit percentage. We believe the full-year 2017 LCD glass pricing environment will be favorable and better than last year, with expectations of price declines of approximately 10% or even less. In the Optical Communications segment, we anticipate sales to increase by more than 15% over 2016. In the Environmental Technologies segment, we expect sales to be up mid-single digits in percentage terms from 2016. We expect growth in the Specialty Materials segment to be more than 20% year-over-year, reflecting very strong customer deployment of Corning® Gorilla® Glass 5 and other Corning innovations. In the Life Sciences segment, we expect low-single digit sales growth, ahead of forecasted market growth rates.

~~Index~~

~~RESULTS OF OPERATIONS~~

~~Selected highlights for the three and nine months ended September 30, 2017 and 2016 follow (in millions):~~

Three months ended

%

Nine months ended

%

September 30,

change

September 30,

change

2017

2016

17 vs. 16

2017

2016

17 vs. 16

Net sales

$
2,607

$
2,507

4%

$
7,479

$
6,914

8%

Gross margin

$
1,056

$
1,041

1%

$
2,998

$
2,756

9%
(gross margin %)

41%

42%

40%

40%

Selling, general and
  administrative expenses

$
372

$
302

23%

$
1,067

$
1,104

(3%)
(as a % of net sales)

14%

12%

14%

16%

Research, development and
  engineering expenses

$
213

$
187

14%

$
620

$
569

9%
(as a % of net sales)

8%

7%

8%

8%

Equity in earnings of
  affiliated companies

$
31

$
19

63%

$
148

$
119

24%
(as a % of net sales)

1%

1%

2%

2%

Translated earnings contract gain
  (loss), net

$
26

$
(237)

*

$
(193)

$
(2,295)

(92%)
(as a % of net sales)

1%

*

*

*

Gain on realignment
  of equity investment

$
2,676

(100%)
(as a % of net sales)

39%

Income before income taxes

$
479

$
257

86%

$
1,091

$
1,288

(15%)
(as a % of net sales)

18%

10%

15%

19%

(Provision) benefit for income taxes

$
(89)

$
27

*

$
(176)

$
835

*
(as a % of net sales)

*

1%

*

12%

Net income attributable to
  Corning Incorporated

$
390

$
284

37%

$
915

$
2,123

(57%)
(as a % of net sales)

15%

11%

12%

31%

*Percent change is not meaningful.

~~Index~~

~~Net Sales~~

~~The following table presents net sales by reportable segment (in millions):~~

Three months ended

%

Nine months ended

%

September 30,

change

September 30,

change

2017

2016

17 vs. 16

2017

2016

17 vs. 16
Display Technologies

$
768

$
902

(15%)

$
2,252

$
2,408

(6%)
Optical Communications

917

795

15%

2,617

2,186

20%
Environmental Technologies

277

264

5%

815

787

4%
Specialty Materials

373

295

26%

1,010

788

28%
Life Sciences

223

214

4%

654

633

3%
All Other

49

37

32%

131

112

17%
Total net sales

$
2,607

$
2,507

4%

$
7,479

$
6,914

8%

~~For the three months ended September 30, 2017, net sales increased by $100 million, or 4% when compared to the same period in 2016. The primary sales drivers by segment were as follows:~~

A decrease of $134 million in the Display Technologies segment, driven by LCD glass price declines of approximately 10% and the negative impact from the weakening of the Japanese yen in the amount of $51 million, partially offset by a small increase in volume;

~~An increase of $122 million in the Optical Communications segment, due to higher sales of carrier and enterprise network products;~~

An increase of $13 million in the Environmental Technologies segment, driven by an increase in demand in North America for heavy-duty diesel products and an increase of $9 million in sales of automotive products due to worldwide growth;

~~An increase of $78 million in the Specialty Materials segment, driven by strong growth in sales of Corning Gorilla Glass products, combined with an increase in advanced optics products; and~~

~~An increase of $9 million in the Life Sciences segment.~~

~~For the nine months ended September 30, 2017, net sales increased by $565 million, or 8%, when compared to the same period in 2016. The primary sales drivers by segment were as follows:~~

A decrease of $156 million in the Display Technologies segment, driven by price declines of approximately 10% and the negative impact from the weakening of the Japanese yen in the amount of $51 million, partially offset by an increase in volume in the high-single digits in percentage terms;

An increase of $431 million in the Optical Communications segment, due to higher sales of carrier and enterprise network products, combined with the absence of production issues related to the implementation of new manufacturing software in the first quarter of 2016. Strong growth in the North American market drove the increase in carrier network products;

~~An increase of $28 million in the Environmental Technologies segment, driven by higher sales of automotive products due to market strength in Europe, China and Asia;~~

~~An increase of $222 million in the Specialty Materials segment, driven by strong growth in sales of Corning Gorilla Glass products, combined with an increase in advanced optics products; and~~

~~An increase of $21 million in the Life Sciences segment.~~

Movements in foreign exchange rates did not materially impact Corning’s consolidated net sales in the three and nine months ended September 30, 2017, respectively, when compared to the same periods in 2016.

~~Cost of Sales~~

~~Gross Margin~~

In the three months ended September 30, 2017, gross margin dollars increased $15 million, or 1%, but gross margin as a percentage of net sales declined slightly when compared to the same period in 2016, driven by LCD glass price declines of approximately 10% and the impact of the weakening of the Japanese yen in the amount of $34 million, which negatively impacted the Display Technologies segment. Gross margin increased in the remainder of our segments, up $102 million, primarily driven by higher sales volume in the Specialty Materials and Optical Communications segments.

~~Index~~

In the nine months ended September 30, 2017, gross margin dollars increased by $242 million, or 9%, and gross margin as a percentage of net sales remained consistent, when compared to the same period last year. Gross margin increased in the remainder of our segments, up $328 million, primarily driven by higher sales volume in the Specialty Materials and Optical Communications segments. LCD glass price declines of approximately 10% and the impact of the weakening of the Japanese yen and South Korean won in the amount of $44 million, which negatively impacted the Display Technologies segment, partially offset the increase.

~~Selling, General and Administrative Expenses~~

When compared to the third quarter of 2016, selling, general and administrative expenses increased by $70 million, or 23%, in the three months ended September 30, 2017. The increase was due to the following items:

~~The absence of a gain of $49 million from the contingent consideration fair value adjustment recorded in the third quarter of 2016; and~~

~~An increase in the Optical Communications segment and for our emerging businesses of $17 million and $7 million, respectively, driven by new business growth.~~

When compared to the first three quarters of 2016, selling, general and administrative expenses decreased by $37 million, or 3%, in the nine months ended September 30, 2017. The decrease was due to the following items:

A decrease of $55 million in acquisition-related costs, driven by the absence of costs related to the realignment of our equity interests in Dow Corning completed in the second quarter of 2016, offset slightly by several small acquisitions occurring in 2017;

A decrease of $64 million in litigation, regulatory and other legal costs, driven by the absence of events occurring in the second quarter of 2016. In this period, we recorded litigation and other expenses related to the resolution of an investigation by the U.S. Department of Justice and an environmental matter in the amount of $98 million, offset somewhat by the gain on the contribution of our equity interests in PCC and PCE as partial settlement of the asbestos litigation in the amount of $56 million; and

~~A decrease of $45 million in the mark-to-market of our defined benefit pension plans.~~

~~Offsetting these events were the following items:~~

~~The absence of $39 million of gains from the contingent consideration fair value adjustments recorded in 2016;~~

~~An increase of $35 million in the Optical Communications segment due to costs associated with capacity expansion and growth initiatives; and~~

~~An increase of $17 million in the Specialty Materials segment.~~

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

~~Research, Development and Engineering Expenses~~

For the three and nine months ended September 30, 2017, research, development and engineering expenses increased by $26 million, or 14%, and $51 million, or 9%, respectively, when compared to the same periods last year, driven by the absence of the impact of a 2016 joint development agreement in the Display Technologies segment, as well as higher costs associated with new product launches and our emerging businesses. As a percentage of sales, these expenses increased slightly in the third quarter, and remained consistent in the first nine months of 2017, when compared to the same periods last year.

~~Index~~

~~Equity in Earnings of Affiliated Companies~~

~~The following provides a summary of equity in earnings of affiliated companies (in millions):~~

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016
Dow Corning Corporation (1)

$
82
Hemlock Semiconductor Group

$
29

$
22

$
139

44
All other

2

(3)

9

(7)
Total equity earnings

$
31

$
19

$
148

$
119

~~(1)~~

~~Results include equity earnings of the silicones business and Hemlock Semiconductor business of Dow Corning from January 1, 2016 through May 31, 2016.~~

~~Refer to Note 7 (Investments) to the consolidated financial statements for additional information.~~

~~Translated earnings contract gain (loss), net~~

Included in the line item Translated earnings contract gain (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, New Taiwan dollar and Chinese yuan against the U.S. dollar and its impact on our net earnings. The following table provides detailed information on the impact of our translated earnings contract losses and gains:

Three Months Ended

Three Months Ended

Change

September 30, 2017

September 30, 2016

2017 vs. 2016

Income

Income

Income

before

before

before

income

Net

income

Net

income

Net
(in millions)

taxes

income

taxes

income

taxes

income
Hedges related to translated earnings:

Realized gain, net

$
50

$
31

$
2

$
1

$
48

$
30
Unrealized loss, net

(24)

(15)

(239)

(150)

215

135
Total translated earnings contract
gain (loss), net

$
26

$
16

$
(237)

$
(149)

$
263

$
165

Nine Months Ended

Nine Months Ended

Change

September 30, 2017

September 30, 2016

2017 vs. 2016

Income

Income

Income

before

before

before

income

Net

income

Net

income

Net
(in millions)

taxes

income

taxes

income

taxes

income
Hedges related to translated earnings:

Realized gain, net

$
199

$
124

$
146

$
92

$
53

$
32
Unrealized loss, net

(392)

(247)

(2,441)

(1,539)

2,049

1,292
Total translated earnings contract
loss, net

$
(193)

$
(123)

$
(2,295)

$
(1,447)

$
2,102

$
1,324

~~The gross notional value outstanding on our translated earnings contracts at September 30, 2017 and December 31, 2016 were as follows (in billions):~~

September 30,
2017

December 31,
2016
Japanese yen-denominated hedges
$
13.5

$
14.9
South Korean won-denominated hedges

1.1

1.2
Euro-denominated hedges

0.4

0.3
Chinese yuan-denominated hedges

0.2

0.3
Total gross notional value outstanding
$
15.2

$
16.7

~~Index~~

~~Income Before Income Taxes~~

In the three and nine months ended September 30, 2017, the impact of fluctuations in foreign exchange rates did not materially impact Corning’s consolidated income before income taxes when compared to the same periods in 2016.

~~(Provision)Benefit for Income Taxes~~

~~Our (provision) benefit for income taxes and the related effective income tax rate were as follows (in millions):~~

~~For the three months ended September 30, 2017, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following benefits:~~

~~Rate differences on income (loss) of consolidated foreign companies; and~~

~~The benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income.~~

~~For the nine months ended September 30, 2017, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following benefits:~~

~~Rate differences on income (loss) of consolidated foreign companies;~~

~~The benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income; and~~

~~Discrete tax items.~~

~~For the three months ended September 30, 2016, the effective income tax benefit differed from the U.S. statutory rate of 35% primarily due to the following benefit:~~

~~Rate differences on income (loss) of consolidated foreign companies; and~~

~~The benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income.~~

~~For the nine months ended September 30, 2016, the effective income tax benefit differed from the U.S. statutory rate of 35% primarily due to the following benefits:~~

~~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;~~

~~The impact of equity in earnings of nonconsolidated affiliates reported in the financial statements, net of tax; and~~

~~Refer to Note 4 (Income Taxes) to the consolidated financial statements for additional information.~~

~~Index~~

~~Net Income Attributable to Corning Incorporated~~

~~As a result of the items discussed above, our net income and per share data is as follows (in millions, except per share amounts):~~

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016
Net income attributable to Corning Incorporated

$
390

$
284

$
915

$
2,123
Net income attributable to Corning Incorporated used
in basic earnings per common share calculation (1)

$
366

$
260

$
842

$
2,050
Net income attributable to Corning Incorporated used
in diluted earnings per common share calculation (1)

$
390

$
284

$
915

$
2,123
Basic earnings per common share

$
0.41

$
0.27

$
0.93

$
1.96
Diluted earnings per common share

$
0.39

$
0.26

$
0.89

$
1.81

Weighted-average common shares outstanding - basic

883

978

905

1,046
Weighted-average common shares outstanding - diluted

1,009

1,102

1,031

1,170

~~(1)~~

~~Refer to Note 5 (Earnings per Common Share) to the consolidated financial statements for additional information.~~

~~Comprehensive Income~~

For the three months ended September 30, 2017, comprehensive income decreased by $90 million when compared to the same period in 2016, due to the negative impact of the change in foreign currency translation gains and losses of $192 million, driven primarily by the Japanese yen, partially offset by the increase in net income of $106 million.

~~For the nine months ended September 30, 2017, comprehensive income decreased by $1.8 billion, when compared to the same period in 2016, driven by the following items:~~

~~The decrease in net income attributable to Corning Incorporated of $1,208 million;~~

~~The negative impact of the change in foreign currency translation gains and losses of $412 million, driven primarily by the Japanese yen; and~~

The negative impact of the change in the amount of unamortized gains and losses for postretirement benefit plans of $243 million driven by the release in the second quarter of 2016 of unamortized actuarial losses as a result of the realignment of our equity interests in Dow Corning.

~~Offsetting these decreases was an increase in net unrealized gains on designated hedges in the amount of $72 million.~~

~~Refer to Note 13 (Shareholders’ Equity) to the consolidated financial statements for additional information.~~

~~CORE PERFORMANCE MEASURES~~

In managing the Company and assessing our financial performance, we supplement certain measures provided by our consolidated financial statements with measures adjusted to exclude certain items, to arrive at core performance measures. We believe that reporting core performance measures provides investors greater transparency to the information used by our management team to make financial and operational decisions. Corning has adopted the use of constant currency reporting for the Japanese yen and South Korean won, and uses an internally derived yen-to-dollar management rate of ¥99 and won-to-dollar management rate of ₩1,100.

Net sales, equity in earnings of affiliated companies and net income are adjusted to exclude the impacts of changes in the Japanese yen and the South Korean won, gains and losses on our foreign currency hedges related to translated earnings, acquisition-related costs, discrete tax items, restructuring and restructuring-related charges, certain litigation-related expenses, pension mark-to-market adjustments and other items which do not reflect on-going operating results of the Company or our equity affiliates. Management’s discussion and analysis on our reportable segments has also been adjusted for these items, as appropriate. These measures are not prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). We believe investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our core operating performance and how management evaluates our operational results and trends. These measures are not, and should not be viewed as a substitute for, GAAP reporting measures. With respect to the Company’s outlooks for future periods, it is not able to provide reconciliations for these non-GAAP measures because the Company does not forecast the movement of the Japanese yen and South Korean won against the U.S. dollar, or other items that do not reflect ongoing operations, nor does it forecast items that have not yet occurred or are out of the Company’s control. As a result, the Company is unable to provide outlook information on a GAAP basis.

~~Index~~

See “Use of Non-GAAP Financial Measures” for details on core performance measures. For a reconciliation of non-GAAP performance measures to their most directly comparable GAAP financial measure, please see “Reconciliation of Non-GAAP Measures” below.

~~RESULTS OF OPERATIONS – CORE PERFORMANCE MEASURES~~

~~Selected highlights from our continuing operations, excluding certain items, follow (in millions):~~

Three months ended

%

Nine months ended

%

September 30,

change

September 30,

change

2017

2016

17 vs. 16

2017

2016

17 vs. 16
Core net sales

$
2,700

$
2,548

6%

$
7,775

$
7,159

9%
Core equity in earnings of affiliated companies

$
32

$
19

68%

$
78

$
138

(43)%
Core earnings

$
433

$
466

(7)%

$
1,271

$
1,240

3%

~~Core Net Sales~~

~~The following table presents core net sales by reportable segment (in millions):~~

Three months ended

%

Nine months ended

%

September 30,

change

September 30,

change

2017

2016

17 vs. 16

2017

2016

17 vs. 16
Display Technologies

$
860

$
943

(9)%

$
2,547

$
2,652

(4)%
Optical Communications

917

795

15%

2,617

2,186

20%
Environmental Technologies

277

264

5%

815

787

4%
Specialty Materials

373

295

26%

1,010

788

28%
Life Sciences

223

214

4%

654

633

3%
All Other

50

37

35%

132

113

17%
Total core net sales

$
2,700

$
2,548

6%

$
7,775

$
7,159

9%

Core net sales increased by $152 million, or 6%, and $616 million, or 9%, in the three months and nine months ended September 30, 2017, respectively, when compared to the same periods in 2016. In all segments except Display Technologies, core net sales are consistent with GAAP net sales. Because a significant portion of revenues in the Display Technologies segment are denominated in Japanese yen, this segment’s net sales are adjusted to remove the impact of translating yen into dollars.

When compared to the third quarter of 2016, core net sales in the Display Technologies segment decreased by $83 million, or 9%, in the third quarter of 2017, driven by LCD glass price declines of approximately 10%, partially offset by a small increase in volume. When compared to the first nine months of 2016, core net sales in the Display Technologies segment decreased by $105 million, or 4%, in the first nine months of 2017, driven by LCD glass price declines of approximately 10%, partially offset by an increase in volume in the high-single digits in percentage terms.

~~Core Equity in Earnings of Affiliated Companies~~

~~The following provides a summary of core equity in earnings of affiliated companies (in millions):~~

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016

Dow Corning Corporation (1)

$
98
Hemlock Semiconductor Group

$
29

$
22

$
67

44
All other

3

(3)

11

(4)
Total core equity earnings

$
32

$
19

$
78

$
138

~~(1)~~

~~Results include core equity earnings of the silicones business and Hemlock Semiconductor business of Dow Corning from January 1, 2016 through May 31, 2016.~~

~~Index~~

~~Core Earnings~~

In the three months ended September 30, 2017, we generated core earnings of $433 million or $0.43 per share, compared to core earnings generated in the three months ended September 30, 2016 of $466 million, or $0.42 per share. The decrease of $33 million was primarily due to lower core earnings in the Display Technologies segment, down $43 million, and in emerging businesses, down $10 million, combined with an increase in corporate spending of approximately $20 million. Higher core earnings in the Optical Communications and Specialty Materials segments, up $13 million and $27 million, respectively, partially offset the decrease.

In the nine months ended September 30, 2017, we generated core earnings of $1,271 million or $1.23 per share, compared to core earnings generated in the nine months ended September 30, 2016 of $1,240 million, or $1.06 per share. The increase of $31 million, or $0.17 per share, was driven by the following items:

An increase in core earnings of $102 million in the Optical Communications segment, due to higher sales of carrier and enterprise network products, combined with the absence of the production issues in the first half of 2016 related to the implementation of new software; and

~~An increase in core earnings of $53 million in the Specialty Materials segment, driven by an increase in Corning Gorilla Glass and advanced optics products.~~

Offsetting these increases were the absence of the equity earnings of $102 million from Dow Corning’s silicones business due to our 2016 realignment of our ownership interest in Dow Corning, and lower core earnings in the Display Technologies and Environmental Technologies segments.

Included in core earnings for the three months and nine months ended September 30, 2017 is net periodic pension expense in the amounts of $12 million and $37 million, respectively, and for the same periods in 2016, $13 million and $38 million, respectively.

~~Refer to Note 9 (Employee Retirement Plans) to the Consolidated Financial Statements for additional information.~~

~~Core Earnings per Common Share~~

~~The following table sets forth the computation of core basic and core diluted earnings per common share (in millions, except per share amounts):~~

Three months ended

Nine months ended

September 30,

September 30,

2017

2016

2017

2016
Core earnings attributable to Corning Incorporated

$
433

$
466

$
1,271

$
1,240
Less: Series A convertible preferred stock dividend

24

24

73

73
Core earnings available to common stockholders - basic

409

442

1,198

1,167
Add: Series A convertible preferred stock dividend

24

24

73

73
Core earnings available to common stockholders - diluted

$
433

$
466

$
1,271

$
1,240

Weighted-average common shares outstanding - basic

883

978

905

1,046
Effect of dilutive securities:

Stock options and other dilutive securities

11

9

11

9
Series A convertible preferred stock

115

115

115

115
Weighted-average common shares outstanding - diluted

1,009

1,102

1,031

1,170
Core basic earnings per common share

$
0.46

$
0.45

$
1.32

$
1.12
Core diluted earnings per common share

$
0.43

$
0.42

$
1.23

$
1.06

~~Reconciliation of Non-GAAP Measures~~

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

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

~~Index~~

~~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):~~

Three Months Ended September 30, 2017

Income

before

Effective

Net

Equity

income

Net

tax

Per

sales

earnings

taxes

income

rate (a)

share
As reported - GAAP

$
2,607

$
31

$
479

$
390

18.6%

$
0.39
Constant-yen (1)

92

1

81

62

0.06
Constant-won (1)

1

(6)

(4)

Translated earnings contract gain (2)

(28)

(18)

(0.02)
Acquisition-related costs (3)

21

14

0.01
Discrete tax items and other tax-related
adjustments (4)

(2)

Translation gain on Japanese yen-denominated
debt (12)

(14)

(9)

(0.01)
Core performance measures

$
2,700

$
32

$
533

$
433

18.8%

$
0.43

~~(a)~~

~~Based upon statutory tax rates in the specific jurisdiction for each event.~~

Three Months Ended September 30, 2016

Income

before

Effective

Net

Equity

income

Net

tax (benefit)

Per

sales

earnings

taxes

income

rate (a)

share
As reported - GAAP

$
2,507

$
19

$
257

$
284

(10.5%)

$
0.26
Constant-yen (1)

40

47

30

0.03
Constant-won (1)

1

(4)

(3)

Translated earnings contract loss (2)

237

149

0.14
Acquisition-related costs (3)

15

11

0.01
Discrete tax items and other tax-related
adjustments (4)

6

0.01
Restructuring, impairment and other charges (6)

11

9

0.01
Impacts from the acquisition of Samsung
Corning Precision Materials (8)

(49)

(41)

(0.04)
Pension mark-to-market adjustment (9)

26

17

0.02
Taiwan power outage (11)

5

4

Core performance measures

$
2,548

$
19

$
545

$
466

14.5%

$
0.42

~~(a)~~

~~Based upon statutory tax rates in the specific jurisdiction for each event.~~

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to arrive at core performance measures” for the descriptions of the footnoted reconciling items.

~~Index~~

~~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):~~

Nine Months Ended September 30, 2017

Income

before

Effective

Net

Equity

income

Net

tax

Per

sales

earnings

taxes

income

rate (a)

share
As reported – GAAP

$
7,479

$
148

$
1,091

$
915

16.1%

$
0.89
Constant-yen (1)

294

2

266

201

0.19
Constant-won (1)

2

(20)

(15)

(0.01)
Translated earnings contract loss (2)

198

124

0.12
Acquisition-related costs (3)

60

41

0.04
Discrete tax items and other tax-related
  adjustments (4)

28

0.03
Litigation, regulatory and other legal matters (5)

(12)

(9)

(0.01)
Restructuring, impairment and other charges (6)

50

35

0.03
Equity in earnings of affiliated companies (7)

(72)

(72)

(46)

(0.04)
Impacts from the acquisition of Samsung
  Corning Precision Materials (8)

(5)

(3)

Pension mark-to-market adjustment (9)

15

9

0.01
Translation gain on Japanese yen-denominated
  debt (12)

(14)

(9)

(0.01)
Core performance measures

$
7,775

$
78

$
1,557

$
1,271

18.4%

$
1.23

~~(a)~~

~~Based upon statutory tax rates in the specific jurisdiction for each event.~~

Nine Months Ended September 30, 2016

Income

before

Effective

Net

Equity

income

Net

tax (benefit)

Per

sales

earnings

taxes

income

rate (a)

share
As reported

$
6,914

$
119

$
1,288

$
2,123

(64.8%)

$
1.81
Constant-yen (1)

242

4

232

164

0.14
Constant-won (1)

3

(1)

(36)

(26)

(0.02)
Translated earnings contract loss (2)

2,295

1,447

1.24
Acquisition-related costs (3)

109

95

0.08
Discrete tax items and other tax-related
adjustments (4)

(83)

(0.07)
Litigation, regulatory and other legal matters (5)

55

70

0.06
Restructuring, impairment and other charges (6)

131

91

0.08
Equity in earnings of affiliated companies (7)

16

16

15

0.01
Impacts from the acquisition of Samsung
Corning Precision Materials (8)

(45)

(38)

(0.03)
Pension mark-to-market adjustment (9)

60

39

0.03
Gain on realignment of equity investment (10)

(2,676)

(2,676)

(2.29)
Taiwan power outage (11)

25

19

0.02
Core performance measures

$
7,159

$
138

$
1,454

$
1,240

14.7%

$
1.06

~~(a)~~

~~Based upon statutory tax rates in the specific jurisdiction for each event.~~

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to arrive at core performance measures” for the descriptions of the footnoted reconciling items.

~~Index~~

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


~~(1)~~	~~Constant-currency adjustments:~~
	~~Constant-yen~~: Because a significant portion of Display Technologies segment revenues and manufacturing costs are denominated in Japanese yen, management believes it is important to understand the impact on core earnings of translating yen into dollars. Presenting results on a constant-yen basis mitigates the translation impact of the Japanese yen, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts. As of January 1, 2015, we used an internally derived management rate of ¥99, which is closely aligned to our current yen portfolio of foreign currency hedges, and have recast all periods presented based on this rate in order to effectively remove the impact of changes in the Japanese yen.
	~~Constant-won~~: Because a significant portion of Corning Precision Materials’ costs are denominated in South Korean won, management believes it is important to understand the impact on core earnings from translating won into dollars. Presenting results on a constant-won basis mitigates the translation impact of the South Korean won, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts without the variability caused by the fluctuations caused by changes in the rate of this currency. We use an internally derived management rate of ₩1,100, which is consistent with historical prior period averages of the won.
~~(2)~~	~~Translated earnings contract gain (loss)~~: We have excluded the impact of the gains and losses of our Japanese yen and South Korean won-denominated foreign currency hedges related to translated earnings, as well as the unrealized gains and losses of our euro, New Taiwan dollar and Chinese yuan-denominated foreign currency hedges related to translated earnings.
~~(3)~~	~~Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs.~~
~~(4)~~	~~Discrete tax items and other tax-related adjustments~~: This represents the removal of discrete adjustments (e.g. changes in tax law and changes in judgment about the realizability of certain deferred tax assets) as well as other non-operational tax-related adjustments.
~~(5)~~	~~Litigation, regulatory and other legal matters: Includes amounts related to legal matters.~~
~~(6)~~	~~Restructuring, impairment and other charges: This amount includes restructuring, impairment and other charges, including goodwill impairment charges and other expenses and disposal costs not classified as restructuring expense.~~
~~(7)~~	~~Equity in earnings of affiliated companies~~: These adjustments relate to items which do not reflect expected on-going operating results of our affiliated companies, such as restructuring, impairment and other charges and settlements under “take-or-pay” contracts.
~~(8)~~	~~Impacts from the acquisition of Samsung Corning Precision Materials: This amount primarily represents the fair value adjustments to the indemnity asset related to contingent consideration.~~
~~(9)~~	~~Pension mark-to-market adjustment: Mark-to-market pension gains and losses, which arise from changes in actuarial assumptions and the difference between actual and expected returns on plan assets and discount rates.~~
~~(10)~~	~~Gain on realignment of equity investment: Gain recorded upon the completion of the strategic realignment of our ownership interest in Dow Corning.~~
~~(11)~~	~~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.
~~(12)~~	~~Translation gain on Japanese yen-denominated debt: The gain on the translation of our Yen-denominated debt to U.S. dollars.~~

~~Index~~

~~REPORTABLE SEGMENTS~~

~~Our reportable segments are as follows:~~

~~Display Technologies – manufactures glass substrates primarily for flat panel liquid crystal displays.~~

~~Optical Communications – manufactures carrier and enterprise network components for the telecommunications industry.~~

~~Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel emission control applications.~~

~~Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.~~

~~Life Sciences – manufactures glass and plastic labware, equipment, media and reagents enabling workflow solutions for scientific applications.~~

We prepared the financial results for our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We included the earnings of equity affiliates that are closely associated with our reportable segments in the respective segment’s net income. We have allocated certain common expenses among our reportable segments differently than we would for stand-alone financial information prepared in accordance with GAAP. Our reportable segments include non-GAAP measures which are not prepared in accordance with GAAP. We believe investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our core operating performance and how management evaluates our operational results and trends. These measures are not, and should not be viewed as a substitute for GAAP reporting measures. For a reconciliation of non-GAAP performance measures to their most directly comparable GAAP financial measure, please see “Reconciliation of Non-GAAP Measures” above. Segment net income may not be consistent with measures used by other companies. The accounting policies of our reportable segments are the same as those applied in the consolidated financial statements.

~~Display Technologies~~

The following tables provide net sales and net income for the Display Technologies segment and reconcile the non-GAAP financial measures for the Display Technologies segment with our consolidated financial statements presented in accordance with GAAP (in millions):

Three months ended

Nine months ended

September 30, 2017

September 30, 2017

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
768

$
203

$
2,252

$
663
Constant-yen (1)

91

60

293

195
Constant-won (1)

1

(3)

2

(12)
Translated earnings contract gain (2)

(33)

(124)
Litigation, regulatory and other legal matters (5)

(9)
Restructuring, impairment and other charges (6)

13
Impacts from the acquisition of Samsung Corning
Precision Materials (8)

(3)
Core performance

$
860

$
227

$
2,547

$
723

~~Index~~

Three months ended

Nine months ended

September 30, 2016

September 30, 2016

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
902

$
279

$
2,408

$
692
Constant-yen (1)

40

35

242

171
Constant won (1)

1

(3)

2

(24)
Translated earnings contract gain (2)

(2)

(93)
Restructuring, impairment and other charges (6)

13
Impacts from the acquisition of Samsung Corning
Precision Materials (8)

(41)

(38)
Taiwan power outage (11)

2

9
Core performance

$
943

$
270

$
2,652

$
730

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to arrive at core performance measures” for the descriptions of the footnoted reconciling items.

~~As Reported~~

Net sales in the Display Technologies segment decreased by $134 million, or 15%, in the third quarter of 2017, when compared to the third quarter of 2016. The decrease was driven by LCD glass price declines of approximately 10% and the negative impact from the weakening of the Japanese yen in the amount of $51 million, partially offset by a small increase in volume. Net income decreased by $76 million, or 27%, driven by the LCD glass price declines described above, the absence of a $41 million gain resulting from the contingent consideration fair value adjustment recorded in the third quarter of 2016 and the impact of the weakening of the Japanese yen in the amount of $25 million. These items were partially offset by a small increase in volume, an increase of $31 million from realized gains on our yen-denominated currency hedges and improvements in manufacturing efficiency.

Net sales decreased by $156 million, or 6%, in the first nine months of 2017, when compared to the same period in 2016, driven by price declines of approximately 10% and the negative impact from the weakening of the Japanese yen in the amount of $51 million, partially offset by an increase in volume in the high-single digits in percentage terms. Net income decreased by $29 million, or 4%, primarily driven by the price declines described above, the absence of net gains of $35 million from the contingent consideration fair value adjustments during 2016 and the impact from the weakening of the Japanese yen and South Korean won in the amount of $36 million. These items were partially offset by an increase in volume in the high-single digits, an increase of $31 million from realized gains on our yen-denominated currency hedges and improvements in manufacturing efficiency.

~~Core Performance~~

When compared to the same periods in 2016, core net sales in the Display Technologies segment decreased by $83 million, or 9%, and $105 million, or 4%, in the third quarter and first nine months of 2017, respectively, driven by the price declines described above, partially offset by an increase in volume in both periods. Core earnings also decreased in these periods, down $43 million, or 16%, and $7 million, or 1%, respectively, driven by price declines, offset somewhat by the increase in volume and improvements in manufacturing efficiency.

~~Outlook:~~

~~For the fourth quarter, the LCD glass market and Corning volume are expected to be consistent with the previous quarter, and sequential glass price declines should remain moderate.~~

~~Index~~

~~Optical Communications~~

The following tables provide net sales and net income for the Optical Communications segment and reconcile the non-GAAP financial measures for the Optical Communications segment with our consolidated financial statements presented in accordance with GAAP (in millions):

Three months ended

Nine months ended

September 30, 2017

September 30, 2017

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
917

$
102

$
2,617

$
285
Acquisition-related costs (3)

9

25
Restructuring, impairment and other charges (6)

2
Core performance

$
917

$
111

$
2,617

$
312

Three months ended

Nine months ended

September 30, 2016

September 30, 2016

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
795

$
84

$
2,186

$
178
Acquisition-related costs (3)

3

16
Restructuring, impairment and other charges (6)

7

12
Pension mark-to-market (9)

4

4
Core performance

$
795

$
98

$
2,186

$
210

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to arrive at core performance measures” for the descriptions of the footnoted reconciling items.

~~As Reported~~

Net sales in the Optical Communications segment increased by $122 million, or 15%, in the third quarter of 2017, due to higher sales of carrier and enterprise network products. Net sales increased by $431 million, or 20%, in the first three quarters of 2017, when compared to the same periods in 2016, due to higher sales of carrier and enterprise network products, combined with the absence of production issues related to the implementation of new manufacturing software in the first quarter of 2016. Strong growth in the North American fiber-to-the-home market drove the increase in carrier network products.

Net income in the third quarter and first nine months of 2017 increased by $18 million, or 21%, and $107 million, or 60%, respectively, driven by the increase in sales described above and lower restructuring expenses, partially offset by capacity expansion spending and an increase in acquisition-related costs.

~~Movements in foreign exchange rates did not materially impact net sales and net income in this segment in the three and nine months ended September 30, 2017 when compared to the same periods in 2016.~~

~~Core Performance~~

Core earnings increased in the three and nine months ended September 30, 2017 by $13 million, or 13%, and $102 million, or 49%, respectively, driven by the increase in sales described above, partially offset by capacity expansion spending.

~~Index~~

~~Outlook~~:

~~In the fourth quarter, the sales growth rate is expected to be a high-single digit percentage on a year-over-year basis.~~

~~Environmental Technologies~~

The following tables provide net sales and net income for the Environmental Technologies segment and reconcile the non-GAAP financial measures for the Environmental Technologies segment with our consolidated financial statements presented in accordance with GAAP (in millions):

Three months ended

Nine months ended

September 30, 2017

September 30, 2017

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
277

$
34

$
815

$
97
Restructuring, impairment and other charges (6)

6
Core performance measures

$
277

$
34

$
815

$
103

Three months ended

Nine months ended

September 30, 2016

September 30, 2016

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
264

$
35

$
787

$
106
Restructuring, impairment and other charges (6)

3
Core performance measures

$
264

$
35

$
787

$
109

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to arrive at core performance measures” for the descriptions of the footnoted reconciling items.

~~As Reported~~

Net sales in the Environmental Technologies segment increased $13 million, or 5%, in the third quarter of 2017 when compared to the same period in 2016, due to an increase in demand in North America for heavy-duty diesel products, which drove sales of diesel products up $4 million, and an increase of $9 million in sales of automotive products due to market strength worldwide. Net sales in the first three quarters of 2017 increased $28 million, or 4%, driven by higher sales of automotive products due to market strength in Europe, China and Asia. Movements in foreign exchange rates did not materially impact net sales in this segment in the three and nine months ended September 30, 2017 when compared to the same periods in 2016.

Net income in the third quarter and first nine months of 2017 decreased by $1 million, or 3%, and $9 million, or 8%, driven by expenses in support of new product launches, and in the first nine months of 2017 by higher restructuring, impairment and other charges. Movements in foreign exchange rates did not materially impact net income in this segment in the three and nine months ended September 30, 2017 when compared to the same periods in 2016.

~~Core Performance~~

In the three and nine months of 2017, core earnings decreased by $1 million, or 3%, and $6 million, or 6%, when compared to the same periods in 2016, driven by the items impacting the “As Reported” results described above.

~~Outlook~~:

~~In the fourth quarter of 2017, the sales growth rate is expected to be a low-teens percentage compared to the same period a year ago.~~

~~Index~~

~~Specialty Materials~~

The following tables provide net sales and net income for the Specialty Materials segment and reconcile the non-GAAP financial measures for the Specialty Materials segment with our consolidated financial statements presented in accordance with GAAP (in millions):

Three months ended

Nine months ended

September 30, 2017

September 30, 2017

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
373

$
72

$
1,010

$
176
Constant-won (1)

(1)

(1)
Restructuring, impairment and other charges (6)

2
Core performance

$
373

$
71

$
1,010

$
177

Three months ended

Nine months ended

September 30, 2016

September 30, 2016

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported - GAAP

$
295

$
42

$
788

$
106
Constant-yen (1)

(1)
Constant-won (1)

(1)
Restructuring, impairment and other charges (6)

14
Taiwan power outage (11)

2

6
Core performance

$
295

$
44

$
788

$
124

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to arrive at core performance measures” for the descriptions of the footnoted reconciling items.

~~As Reported~~

Net sales in the Specialty Materials segment increased by $78 million, or 26%, and $222 million, or 28%, in the third quarter and first nine months of 2017, respectively, when compared to the same periods 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. Net income in these periods increased by $30 million, or 71%, and $70 million, or 66%, primarily due to the significant increase in net sales, and, in the first three quarters, lower restructuring charges and the absence of the costs associated with a power outage in Taiwan. Movements in foreign exchange rates did not materially impact net sales and net income in these periods when compared to the same periods in the prior year.

~~Core Performance~~

Core earnings increased by $27 million, or 61%, and $53 million, or 43%, in the three and nine months ended September 30, 2017, respectively, driven primarily by the increase in sales of Corning Gorilla Glass and advanced optics products, offset slightly by higher selling and administrative costs.

~~Outlook~~:

~~In the fourth quarter of 2017, the sales growth rate is expected to increase by a low-to mid-teens percentage from a very strong 2016 fourth quarter.~~

~~Index~~

~~Life Sciences~~

The following tables provide net sales and net income for the Life Sciences segment and reconcile the non-GAAP financial measures for the Life Sciences segment with our consolidated financial statements presented in accordance with GAAP (in millions):

Three months ended

Nine months ended

September 30, 2017

September 30, 2017

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported – GAAP

$
223

$
17

$
654

$
48
Acquisition-related costs (3)

4

10
Restructuring, impairment and other charges (6)

2
Core performance

$
223

$
21

$
654

$
60

Three months ended

Nine months ended

September 30, 2016

September 30, 2016

Net

Net

Net

Net
(in millions)

sales

income

sales

income
As reported – GAAP

$
214

$
16

$
633

$
45
Acquisition-related costs (3)

3

9
Restructuring, impairment and other charges (6)

2

6
Core performance

$
214

$
21

$
633

$
60

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to arrive at core performance measures” for the descriptions of the footnoted reconciling items.

~~As Reported~~

Net sales in the Life Sciences segment increased by $9 million, or 4%, and $21 million, or 3%, in the three and nine months ended September 30, 2017, when compared to the same periods in 2016, driven by higher sales in North America and China in the third quarter, and strong performance globally in the first nine months of 2017. Movements in foreign exchange rates did not materially impact net sales in this segment in the three and nine months ended September 30, 2017 when compared to the same periods in 2016.

Net income increased by $1 million, or 6%, and $3 million, or 7%, in the three and nine months ended September 30, 2017, respectively, driven by an increase in volume and lower restructuring expenses. Movements in foreign exchange rates did not materially impact net income in these periods when compared to the same periods in the prior year.

~~Core Performance~~

~~Core earnings remained consistent in the three and nine months ended September 30, 2017, when compared to the same periods in 2016.~~

~~Outlook~~:

~~Fourth-quarter sales are expected to grow by a mid-single digit percentage on a year-over-year basis.~~

~~All Other~~

~~The following table provides net sales and other data for All Other (in millions):~~

Three months ended

Nine months ended

September 30,

September 30,
As Reported

2017

2016

2017

2016

Net sales

$
49

$
37

$
131

$
112
Research, development and engineering expenses

$
52

$
47

$
156

$
139
Net loss

$
(55)

$
(47)

$
(166)

$
(187)

~~Index~~

Net sales of this segment increased by $12 million, or 32%, and $19 million, or 17%, in the three and nine months ended September 30, 2017, respectively, when compared to the same periods in 2016, driven by an increase in sales of pharmaceutical packaging products. The increase in the net loss in the third quarter of $8 million reflects higher losses in our development projects and the pharmaceutical technologies business. The decrease in the net loss in the first nine months of 2017 reflects the absence of asset write-offs in emerging businesses recorded in the first quarter of 2016.

~~CAPITAL RESOURCES AND LIQUIDITY~~

~~Financing and Capital Resources~~

~~The following items impacted Corning’s financing and capital structure in the periods ended September 30, 2017 and 2016:~~

~~Debt Issuances~~

~~In the third quarter of 2017, Corning issued three Japanese yen-denominated debt securities (the “Notes”), as follows:~~

~~¥21 billion 0.698% senior unsecured long term notes with a maturity of 7 years;~~

~~¥47 billion 0.992% senior unsecured long term notes with a maturity of 10 years; and~~

~~¥10 billion 1.583% senior unsecured long term notes with a maturity of 20 years.~~

~~Common Stock Dividends~~

On February 3, 2016, Corning’s Board of Directors declared a 12.5% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.12 to $0.135 per share of common stock, beginning with the dividend paid in the first quarter of 2016.

On February 1, 2017, Corning’s Board of Directors declared a 14.8% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.135 to $0.155 per share of common stock, beginning with the dividend to be paid in the first quarter of 2017. This increase marks the sixth dividend increase since October 2011.

~~Share Repurchase Program~~

In December 2016, Corning’s Board of Directors approved a $4 billion share repurchase program with no expiration (the “2016 Repurchase Program”). In the nine month ended September 30, 2017, Corning entered into two separate accelerated share repurchase agreements under this program (the “2017 ASR agreements”). In the second quarter of 2017, Corning entered into and finalized an accelerated share repurchase agreement, in which we paid $500 million for a total of 17.1 million shares. In the third quarter of 2017, Corning entered into and finalized an additional accelerated share repurchase agreement, in which we paid $500 million for a total of 17.2 million shares.

~~Refer to Note 13 (Shareholders’ Equity) for additional information.~~

~~Capital Spending~~

Capital spending totaled $1.2 billion and $815 million in the nine months ended September 30, 2017 and 2016, respectively. We expect our 2017 capital expenditures to be more than $1.5 billion, driven by expansions related to the Gen 10.5 glass manufacturing facility, the addition of capacity to support the new gas-particulate filters business in the Environmental Technologies segment and investment to support growth in customer demand in the Optical Communications and Specialty Materials segments.

~~Index~~

~~Cash Flow~~

~~Summary of cash flow data (in millions):~~

Nine months ended

September 30,

2017

2016
Net cash provided by operating activities

$
1,116

$
1,109
Net cash (used in) provided by investing activities

$
(1,218)

$
3,956
Net cash used in financing activities

$
(1,595)

$
(4,872)

Net cash provided by operating activities increased by $7 million in the nine months ended September 30, 2017 when compared to the same period last year, driven largely by higher net income in the Optical Communications and Specialty Materials segments, up $177 million and an increase in dividends received from affiliated companies of $81 million, partially offset by a payment of $70 million related to our obligation under the plan of reorganization for PCC (refer to Note 2 (Commitments, Contingencies and Guarantees) to the consolidated financial statements for additional information) and unfavorable movements in working capital, driven by an increase of $92 million in inventory to support growth in the Optical Communications segment and an increase of $63 million in other receivables in the Display Technologies segment.

Net cash used in investing activities increased by $5.2 billion in the nine months ended September 30, 2017, when compared to the same period last year, driven by the absence of $4.8 billion of cash received in the second quarter of 2016 on the realignment of Dow Corning, coupled with an increase of $432 million in capital expenditures largely due to capacity expansion projects in our Optical Communications segment and a decline of $92 million in liquidations of short-term investments. A decline of $108 million in acquisition spending partially offset these events.

Net cash used in financing activities in the nine months ended September 30, 2017 decreased by $3.3 billion when compared to the same period last year, driven by lower share repurchases, down $1.8 billion, cash received of $702 million from the issuance of long-term debt, the absence of $566 million of commercial paper and debt repayments made in the first nine months of 2016 and an increase of $189 million in proceeds from the exercise of stock options

~~Key Balance Sheet Data~~

~~Balance sheet and working capital measures are provided in the following table (in millions):~~

As of

As of

September 30,

December 31,

2017

2016

Working capital

$
5,189

$
6,297
Current ratio

2.7:1

3.3:1
Trade accounts receivable, net of allowances

$
1,748

$
1,481
Days sales outstanding

60

54
Inventories

$
1,693

$
1,471
Inventory turns

3.8

3.8
Days payable outstanding (1)

44

45
Long-term debt

$
3,994

$
3,646
Total debt to total capital

21%

18%

~~(1)~~

~~Includes trade payables only.~~

~~Index~~

~~Credit Rating~~

~~Our credit ratings remain the same as those disclosed in our 2016 Form 10-K.~~



	~~Rating~~	~~Outlook~~
~~RATING AGENCY~~	~~Long-Term Debt~~	~~last update~~

~~Standard & Poor’s~~	~~BBB+~~	~~Stable~~
		~~October 27, 2015~~

~~Moody’s~~	~~Baa1~~	~~Stable~~
		~~October 28, 2015~~

~~Management Assessment of Liquidity~~

We ended the third quarter of 2017 with approximately $3.9 billion of cash and cash equivalents. Our cash and cash equivalents are held in various locations throughout the world and generally are unrestricted. Although approximately 84% of the consolidated amount was held outside of the United States at September 30, 2017, we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash. We utilize a variety of financing strategies to ensure that our worldwide cash is available in the locations in which it is needed.

It is our policy to manage our exposure to changes in interest rates. To manage interest rate exposure, the Company, from time to time, enters into interest rate swap agreements. We are currently party to two interest rate swaps that are designated as fair value hedges and economically exchange a notional amount of $550 million of previously issued fixed rate long-term debt to floating rate debt. Under the terms of the swap agreements, we pay the counterparty a floating rate that is indexed to the one-month LIBOR rate.

Corning also has a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes. On July 20, 2016, Corning’s Board of Directors approved an increase to the allowable maximum aggregate principal amount outstanding at any time from $1 billion to $2 billion. Under this program, the Company may issue the notes from time to time and will use the proceeds for general corporate purposes. The Company’s $2 billion revolving credit facility is available to support obligations under the commercial paper program, if needed. Corning did not have outstanding commercial paper at September 30, 2017 and December 31, 2016.

~~Other~~

We complete comprehensive reviews of our significant customers and their creditworthiness by analyzing their financial strength at least annually or more frequently for customers where we have identified a measure of increased risk. We closely monitor payments and developments which may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity resulting from customer credit issues.

Our major source of funding for 2017 and beyond will be our operating cash flow, our existing balances of cash and cash equivalents and proceeds from any issuances of debt. We believe we have sufficient liquidity for the next several years to fund operations, acquisitions, the asbestos litigation, capital expenditures, scheduled debt repayments and dividend payments and share repurchase programs.

Corning has access to a $2 billion unsecured committed revolving credit facility. This credit facility includes a leverage ratio financial covenant. The required leverage ratio, which measures debt to total capital, is a maximum of 50%. At September 30, 2017, our leverage using this measure was approximately 21% and we are in compliance with the financial covenant.

Our debt instruments contain customary event of default provisions, which allow the lenders the option of accelerating all obligations upon the occurrence of certain events. In addition, some of our debt instruments contain a cross default provision, whereby an uncured default in excess of a specified amount on one debt obligation of the Company, also would be considered a default under the terms of another debt instrument. As of September 30, 2017, we were in compliance with all such provisions.

Management is not aware of any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material decrease in our liquidity. In addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resources and no expected material changes in the mix and relative cost of such resources.

~~Index~~

~~Off Balance Sheet Arrangements~~

There have been no material changes outside the ordinary course of business in our off balance sheet arrangements as disclosed in our 2016 Form 10-K under the caption “Off Balance Sheet Arrangements.”

~~Contractual Obligations~~

~~There have been no material changes outside the ordinary course of business in the contractual obligations disclosed in our 2016 Form 10-K under the caption “Contractual Obligations.”~~

~~CRITICAL ACCOUNTING ESTIMATES~~

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The estimates that require management’s most difficult, subjective or complex judgments are described in our 2016 Form 10-K and remain unchanged through the first nine months of 2017. For certain items, additional details are provided below.

~~Impairment of Assets Held for Use~~

We are required to assess the recoverability of the carrying value of long-lived assets when an indicator of impairment has been identified. We review our long-lived assets in each quarter in which impairment indicators are present. We must exercise judgment in assessing whether an event of impairment has occurred.

Manufacturing equipment includes certain components of production equipment that are constructed of precious metals, primarily platinum and rhodium. These metals are not depreciated because they have very low physical losses and are repeatedly reclaimed and reused in our manufacturing process and have a very long useful life. Precious metals are reviewed for impairment as part of our assessment of long-lived assets. This review considers all of the Company’s precious metals that are either in place in the production process; in reclamation, fabrication, or refinement in anticipation of re-use; or awaiting use to support increased capacity. Precious metals are only acquired to support our manufacturing operations and are not held for trading or other purposes.

At September 30, 2017 and December 31, 2016, the carrying value of precious metals was higher than the fair market value by $815 million and $890 million, respectively. These precious metals are utilized by the Display Technologies and Specialty Materials segments. Corning believes these precious metal assets to be recoverable due to the significant positive cash flow in both segments. The potential for impairment exists in the future if negative events significantly decrease the cash flow of these segments. Such events include, but are not limited to, a significant decrease in demand for products or a significant decrease in profitability in our Display Technologies or Specialty Materials segments.

~~NEW ACCOUNTING STANDARDS~~

~~Refer to Note 1 (Significant Accounting Policies) to the Consolidated Financial Statements.~~

~~ENVIRONMENT~~

Corning has been named by the Environmental Protection Agency (“the Agency”) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 16 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 cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At September 30, 2017 and December 31, 2016, Corning had accrued approximately $40 million (undiscounted) and $43 million (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

FORWARD-LOOKING STATEMENTS

The statements in this Quarterly Report on Form 10-Q, in reports subsequently filed by Corning with the ~~Securities and Exchange Commission (“SEC”)~~SEC on Forms 8-K, and related comments by management that are not historical facts or information and contain words such as “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “seek,” “see,” “would,” and “target” and similar expressions are forward-looking statements. Such statements relate to future events that by their nature address matters that are, to different degrees, uncertain. These forward-looking statements relate to, among other things, the ~~company’s~~Company’s future operating performance, the ~~company's~~Company's share of new and existing markets, the ~~company's~~Company's revenue and earnings growth rates, the ~~company’s~~Company’s ability to innovate and commercialize new products, and the ~~company’s~~Company’s implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the ~~company’s~~Company’s manufacturing capacity.

~~Index~~

Although the ~~company~~Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, current estimates and forecasts, general economic conditions, its knowledge of its business, and key performance indicators that impact the ~~company,~~Company, actual results could differ materially. The ~~company~~Company does not undertake to update forward-looking statements. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:

-	the duration and severity of the COVID-19 pandemic, and its impact across our businesses on demand, operations, our global supply chains and stock price;
-	the effects of acquisitions, dispositions and other similar transactions;
-	global ~~business,~~economic trends, competition and geopolitical risks, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our businesses' global supply chains and strategies;
-	changes in macroeconomic and market conditions and market volatility (including developments and volatility arising from the COVID-19 pandemic), including inflation, interest rates, the value of securities and other financial ~~economic~~assets, precious metals, oil, natural gas and ~~political conditions;~~

~~tariffs~~other commodity prices and ~~import duties;~~

~~currency fluctuations~~exchange rates (particularly between the U.S. dollar and ~~other currencies, primarily~~ the Japanese yen, ~~New~~new Taiwan dollar, euro, Chinese yuan and South Korean ~~won;~~won), and the impact of such changes and volatility on our financial position and businesses;

product demand and industry capacity;

competitive products and pricing;

availability and costs of critical components and materials;

new product development and commercialization;

order activity and demand from major customers;

the amount and timing of our cash flows and earnings and other conditions, which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels;

possible disruption in commercial activities or our supply chain due to terrorist activity, cyber-attack, armed conflict, political or financial instability, natural disasters, international trade disputes or major health concerns;

-	-loss of intellectual property due to theft, cyber-attack, or disruption to our information technology infrastructure;
-	unanticipated disruption to our supply chain, equipment, facilities, IT systems or operations;

effect of regulatory and legal developments;

ability to pace capital spending to anticipated levels of customer demand;

-	-our ability to increase margins through implementation of operational changes, pricing actions and cost reduction measures;
-	rate of technology change;

ability to enforce patents and protect intellectual property and trade secrets;

adverse litigation;

product and components performance issues;

retention of key personnel;

customer ability ~~most notably in the Display Technologies segment,~~ to maintain profitable operations and obtain financing to fund ~~their~~ ongoing operations and manufacturing expansions and pay ~~their~~ receivables when due;

loss of significant customers;

changes in tax laws and regulations;

the impacts of audits by taxing authorities; and the potential impact of legislation, government regulations, and other government action and investigations; and

-other risks detailed in Corning’s SEC filings.

~~other risks detailed in Corning’s SEC filings.~~

Table of Contents

ITEM 3. ~~QUANTITATIVE~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosures

As noted in ~~our 2016~~the 2020 Form 10-K, we operate and conduct business in many foreign countries and as a result are exposed to fluctuations between the U.S. dollar and other currencies. Volatility in the global financial markets could increase the volatility of foreign currency exchange rates which would, in turn, impact ~~our~~ sales and net income. For a discussion of ~~our~~the Company’s exposure to market risk and how we mitigate that risk, refer to Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q and Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risks, contained in ~~our 2016~~the 2020 Form 10-K.

ITEM 4. ~~CONTROLS~~CONTROLS AND PROCEDURES

Under the supervision of and with the participation of Corning’s management, including ~~our~~the chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of ~~our~~the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of September 30, ~~2017,~~2021, the end of the period covered by this report. Based on that evaluation, we have concluded that the Company’s disclosure controls and procedures were effective as of that date. Corning’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by Corning in the reports that it files or submits under the Exchange Act is accumulated and communicated to Corning’s management, including Corning’s principal executive and principal financial officers, or other persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

An evaluation of ~~our~~ internal controls over financial reporting was ~~also~~ performed to determine whether any changes have occurred during the period covered by this ~~Report~~report that have materially affected, or are reasonably likely to materially affect, ~~our~~the internal control over financial reporting. The chief executive officer and chief financial officer concluded that there was no change in Corning’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

Table of Contents

~~Index~~

Part II – Ot~~her~~Other Information

ITEM 1. LE~~GAL~~LEGAL PROCEEDINGS

~~Non-PCC Asbestos Claims.~~Environmental Litigation. See ~~our 2016~~the 2020 Form 10-K, Part I, Item 3. For additional information and updates to estimated liabilities as of September 30, ~~2017,~~2021, see Part I, Item 1, Financial Statements, Note 211 (Commitments ~~Contingencies~~ and ~~Guarantees)~~Contingencies) of the ~~Notes~~notes to ~~Unaudited Consolidated Financial Statements~~the consolidated financial statements included under Item 1 of this ~~quarterly report,~~Quarterly Report, which is incorporated herein by reference.

~~Environmental Litigation.~~ See our 2016 Form 10-K, Part I, Item 3. For additional information and updates to estimated liabilities as of September 30, 2017, see Part I, Item 1, Financial Statements, Note 2 (Commitments, Contingencies and Guarantees) of the Notes to Unaudited Consolidated Financial Statements included under Item 1 of this quarterly report, which is incorporated herein by reference.

ITEM 1A. ~~RIS~~KRISK FACTORS

In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in ~~our 2016~~Corning’s 2020 Form 10-K, which could materially impact ~~our~~the Company’s business, financial condition or future results. Risks disclosed in ~~our 2016~~the 2020 Form 10-K are not the only risks facing ~~our~~the Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact ~~our~~Corning’s business, financial condition or operating results. There have been no material changes to Part I, Item 1A. Risk Factors in ~~our 2016~~the 2020 Form 10-K.

Table of Contents

~~Index~~

ITEM 2. ~~UNREGISTERED~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

This table provides information about ~~our~~ purchases of ~~our~~ common stock during the third quarter of ~~2017:~~2021:

Issuer Purchases of Equity Securities

					Number of
					shares purchased as		Approximate dollar
	Total number		Average		part of publicly		value of shares that
	of shares		price paid		announced		may yet be purchased
Period	purchased (1)		per share (2)		programs		under the programs
July 1 - 31, 2021		31,731	$	40.01
August 1 - 31, 2021		1,567		40.23
September 1 - 30, 2021		630,568		38.16		628,931
Total		663,866	$	38.26		628,931	$	3,770,708,134

Number of

Approximate dollar

shares purchased as

value of shares that

Total number

Average

part of publicly

may yet be purchased

of shares

price paid

announced plan

under the plans
Period

purchased (2)

per share

or program (1)

or programs (1)

July 1-31, 2017

Open market and shares surrendered
   for tax withholdings

7,141,756

$
30.37

7,086,419

ASR (initial delivery)

13,149,244

(3)

13,149,244

August 1-31, 2017

Open market and shares surrendered
   for tax withholdings

7,777,321

$
28.79

7,763,241

September 1-30, 2017

Open market and shares surrendered
   for tax withholdings

2,397,603

$
28.88

2,394,915

ASR (final delivery)

4,051,678

(3)

4,051,678

Total

34,517,602

$
29.26

34,445,497

$
1,972,629,479

⁽¹⁾

~~On December 7, 2016, Corning’s Board of Directors authorized a share repurchase program with no expiration for the repurchase of up to $4 billion of common stock (the “2016 Repurchase Program”).~~

~~(2)~~

This column reflects the ~~following transactions~~deemed surrender to the Company of common stock to satisfy employee tax withholding obligations during the third quarter of ~~2017:~~2021: (i) ~~the deemed surrender to us of 16,049~~4,367 shares of common stock related to ~~satisfy tax withholding obligations in connection with~~ the vesting of employee restricted stock units; (ii) ~~the surrender to us of 56,056~~30,375 shares of common stock related to ~~satisfy tax withholding obligations in connection with~~ the vesting of restricted stock issued to employees; ~~and~~ (iii) ~~the purchase of 34,445,497~~193 shares of common stock related to the vesting of employee performance-based restricted stock units; and (iv) the purchase of 628,931 shares of common stock in open market repurchases under the ~~2016~~2019 Repurchase Program.

⁽²⁾

~~(3)~~

InRepresents the ~~third quarter~~stock price at the time of 2017, the Company paid $500 million under an ASR agreement and received an initial delivery of 13,149,244 shares in July and a final delivery of 4,051,678 shares in September. In total, 17,200,922 shares were delivered under the ASR at an average purchase price of $29.07. See Note 13 (Shareholders’ Equity) to the Consolidated Financial Statements for additional detail.

surrender.

Table of Contents

51ITEM 6. EXHIBITS

~~Index~~

~~ITEM 6. EXHIBITS~~


(a)	Exhibits

	Exhibit Number	Exhibit Name

	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Exchange Act

	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Exchange Act

	32	Certification Pursuant to 18 U.S.C. Section 1350

	101.INS	Inline XBRL Instance Document

	101.SCH	Inline XBRL Taxonomy Extension Schema Document

	101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document

	101.LAB	Inline XBRL Taxonomy Label Linkbase Document

	101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document

	101.DEF	Inline XBRL Taxonomy Definition Document

	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Table of Contents

~~Index~~

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Corning Incorporated
	(Registrant)



October ~~26, 2017~~29, 2021	/s/ Edward A. Schlesinger
Date	Edward A. Schlesinger
		Senior Vice President and Corporate Controller



	Ownership			September 30,		December 31,
	interest			2017		2016
Affiliated companies accounted for by the equity method (1)	20%	to	50%	$	284	$	269
Other investments					68		67
Subtotal Investment Assets				$	352	$	336

Affiliated companies accounted for by the equity method
HSG (1)(2)		50%		$	202	$	241
Subtotal Investment Liabilities				$	202	$	241


	Display		Optical		Specialty		Life		All
	Technologies		Communications		Materials		Sciences		Other		Total
Balance at December 31, 2016	$	126	$	645	$	150	$	558	$	98	$	1,577
Acquired goodwill (1)				22				43		34		99
Measurement period adjustment (2)										(28)		(28)
Foreign currency translation adjustment		4		7				18		7		36
Balance at September 30, 2017	$	130	$	674	$	150	$	619	$	111	$	1,684



	September 30, 2017						December 31, 2016
			Accumulated						Accumulated
	Gross		amortization		Net		Gross		amortization		Net
Amortized intangible assets:
Patents, trademarks, and trade names	$	382	$	192	$	190	$	360	$	176	$	184
Customer lists and other		892		191		701		761		149		612
Total	$	1,274	$	383	$	891	$	1,121	$	325	$	796



	Pension benefits								Postretirement benefits
	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2017		2016		2017		2016

Service cost	$	22	$	22	$	69	$	65	$	2	$	3	$	7	$	7
Interest cost		32		31		94		93		7		6		20		19
Expected return on plan assets		(43)		(41)		(130)		(124)
Amortization of net loss																(1)
Amortization of prior service cost (credit)		1		1		4		4		(1)		(1)		(2)		(3)
Recognition of actuarial loss				26		15		60
Total pension and postretirement benefit expense	$	12	$	39	$	52	$	98	$	8	$	8	$	25	$	22



					Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value
	Sept. 30,		Dec. 31,		sheet	Sept. 30,		Dec. 31,		sheet	Sept. 30,		Dec. 31,
	2017		2016		location	2017		2016		location	2017		2016

Derivatives designated as hedging instruments

Foreign exchange contracts (1)	$	381	$	458	Other current assets	$	12	$	1	Other accrued liabilities	$	(3)	$	(29)
					Other assets		8

Interest rate contracts		550		550						Other liabilities		(5)		(5)

Derivatives not designated as hedging instruments

Foreign exchange contracts, other		676		890	Other current assets		7		11	Other accrued liabilities		(3)		(7)

Translated earnings contracts		15,211		16,711	Other current assets		175		423	Other accrued liabilities		(52)		(52)
					Other assets		82		146	Other liabilities		(338)		(277)

Total derivatives	$	16,818	$	18,609		$	284	$	581		$	(401)	$	(370)



	Effect of derivative instruments on the consolidated financial statements
	for the three months ended September 30,
	Gain recognized in other				Location of gain/(loss)	Gain/(loss) reclassified from
	comprehensive income				reclassified from	accumulated OCI into
Derivatives in hedging	(OCI)				accumulated OCI into	income (effective) (1)
relationships	2017		2016		income (effective)	2017		2016


					Sales			$	1
Foreign exchange contracts	$	3	$	1	Cost of sales	$	(1)		(13)

Total cash flow hedges	$	3	$	1		$	(1)	$	(12)



	Effect of derivative instruments on the consolidated financial statements
	for the nine months ended September 30,
	Gain (loss) recognized in				Location of gain/(loss)	Gain/(loss) reclassified from
	other comprehensive income				reclassified from	accumulated OCI into
Derivatives in hedging	(OCI)				accumulated OCI into	income ineffective/effective (1)
relationships	2017		2016		income (effective)	2017		2016

					Sales	$	1	$	2
					Cost of sales		(11)		(27)
Foreign exchange contracts	$	36	$	(63)	Other expense, net		(1)		(1)

Total cash flow hedges	$	36	$	(63)		$	(11)	$	(26)



		Gain (loss) recognized in income
		Three months ended				Nine months ended
	Location of gain/(loss)	September 30,				September 30,
Undesignated derivatives	recognized in income	2017		2016		2017		2016

Foreign exchange contracts – balance sheet and loans	Other expense, net	$	(7)	$	(4)	$	(19)	$	(78)
Foreign currency hedges related to translated earnings	Translated earnings contract gain (loss), net		26		(237)		(193)		(2,295)

Total undesignated		$	19	$	(241)	$	(212)	$	(2,373)



			Fair value measurements at reporting date using
			Quoted prices in	Significant other		Significant
			active markets for	observable		unobservable
	September 30,		identical assets	inputs		inputs
	2017		(Level 1)	(Level 2)		(Level 3)

Current assets:
Other current assets (1)(2)	$	488		$	194	$	294
Non-current assets:
Other assets (1)	$	90		$	90

Current liabilities:
Other accrued liabilities (1)(3)	$	63		$	58	$	5
Non-current liabilities:
Other liabilities (1)(3)	$	363		$	343	$	20



				Weighted-
				Average
		Weighted-		Remaining	Aggregate
	Number	Average		Contractual	Intrinsic
	of Shares	Exercise		Term in	Value
	(in thousands)	Price		Years	(in thousands)
Options Outstanding as of December 31, 2016	31,507	$	19.40
Granted	1,505		27.01
Exercised	(12,915)		21.26
Forfeited and Expired	(254)		23.21
Options Outstanding as of September 30, 2017	19,843		18.72	4.66	$	222,313
Options Expected to Vest as of September 30, 2017	19,801		18.71	4.65		222,056
Options Exercisable as of September 30, 2017	15,173		17.47	3.47		188,890



		Weighted
		Average
	Shares	Grant-Date
	(000’s)	Fair Value
Non-vested shares and share units at December 31, 2016	4,640	$	20.15
Granted	1,576		27.67
Vested	(1,243)		20.65
Forfeited	(88)		22.13
Non-vested shares and share units at September 30, 2017	4,885	$	22.42



	Display		Optical		Environmental		Specialty		Life		All
	Technologies		Communications		Technologies		Materials		Sciences		Other		Total
Three months ended
September 30, 2017
Net sales	$	768	$	917	$	277	$	373	$	223	$	49	$	2,607
Depreciation (1)	$	134	$	49	$	31	$	34	$	14	$	12	$	274
Amortization of purchased intangibles			$	11					$	6	$	1	$	18
Research, development and engineering expenses (2)	$	21	$	44	$	28	$	37	$	5	$	52	$	187
Income tax (provision) benefit	$	(82)	$	(52)	$	(17)	$	(36)	$	(8)	$	28	$	(167)
Net income (loss) (3)	$	203	$	102	$	34	$	72	$	17	$	(55)	$	373


	September 30, 2017		December 31, 2016
Japanese yen-denominated hedges	$	13.5	$	14.9
South Korean won-denominated hedges		1.1		1.2
Euro-denominated hedges		0.4		0.3
Chinese yuan-denominated hedges		0.2		0.3
Total gross notional value outstanding	$	15.2	$	16.7



	Three Months Ended September 30, 2017
					Income
					before				Effective
	Net		Equity		income		Net		tax		Per
	sales		earnings		taxes		income		rate (a)		share
As reported - GAAP	$	2,607	$	31	$	479	$	390	18.6%	$	0.39
Constant-yen (1)		92		1		81		62			0.06
Constant-won (1)		1				(6)		(4)
Translated earnings contract gain (2)						(28)		(18)			(0.02)
Acquisition-related costs (3)						21		14			0.01
Discrete tax items and other tax-related adjustments (4)								(2)
Translation gain on Japanese yen-denominated debt (12)						(14)		(9)			(0.01)
Core performance measures	$	2,700	$	32	$	533	$	433	18.8%	$	0.43



	Three Months Ended September 30, 2016

					Income
					before				Effective
	Net		Equity		income		Net		tax (benefit)		Per
	sales		earnings		taxes		income		rate (a)		share
As reported - GAAP	$	2,507	$	19	$	257	$	284	(10.5%)	$	0.26
Constant-yen (1)		40				47		30			0.03
Constant-won (1)		1				(4)		(3)
Translated earnings contract loss (2)						237		149			0.14
Acquisition-related costs (3)						15		11			0.01
Discrete tax items and other tax-related adjustments (4)								6			0.01
Restructuring, impairment and other charges (6)						11		9			0.01
Impacts from the acquisition of Samsung Corning Precision Materials (8)						(49)		(41)			(0.04)
Pension mark-to-market adjustment (9)						26		17			0.02
Taiwan power outage (11)						5		4
Core performance measures	$	2,548	$	19	$	545	$	466	14.5%	$	0.42



	Nine Months Ended September 30, 2017
					Income
					before				Effective
	Net		Equity		income		Net		tax		Per
	sales		earnings		taxes		income		rate (a)		share
As reported – GAAP	$	7,479	$	148	$	1,091	$	915	16.1%	$	0.89
Constant-yen (1)		294		2		266		201			0.19
Constant-won (1)		2				(20)		(15)			(0.01)
Translated earnings contract loss (2)						198		124			0.12
Acquisition-related costs (3)						60		41			0.04
Discrete tax items and other tax-related adjustments (4)								28			0.03
Litigation, regulatory and other legal matters (5)						(12)		(9)			(0.01)
Restructuring, impairment and other charges (6)						50		35			0.03
Equity in earnings of affiliated companies (7)				(72)		(72)		(46)			(0.04)
Impacts from the acquisition of Samsung Corning Precision Materials (8)						(5)		(3)
Pension mark-to-market adjustment (9)						15		9			0.01
Translation gain on Japanese yen-denominated debt (12)						(14)		(9)			(0.01)
Core performance measures	$	7,775	$	78	$	1,557	$	1,271	18.4%	$	1.23



	Nine Months Ended September 30, 2016
					Income
					before				Effective
	Net		Equity		income		Net		tax (benefit)		Per
	sales		earnings		taxes		income		rate (a)		share
As reported	$	6,914	$	119	$	1,288	$	2,123	(64.8%)	$	1.81
Constant-yen (1)		242		4		232		164			0.14
Constant-won (1)		3		(1)		(36)		(26)			(0.02)
Translated earnings contract loss (2)						2,295		1,447			1.24
Acquisition-related costs (3)						109		95			0.08
Discrete tax items and other tax-related adjustments (4)								(83)			(0.07)
Litigation, regulatory and other legal matters (5)						55		70			0.06
Restructuring, impairment and other charges (6)						131		91			0.08
Equity in earnings of affiliated companies (7)				16		16		15			0.01
Impacts from the acquisition of Samsung Corning Precision Materials (8)						(45)		(38)			(0.03)
Pension mark-to-market adjustment (9)						60		39			0.03
Gain on realignment of equity investment (10)						(2,676)		(2,676)			(2.29)
Taiwan power outage (11)						25		19			0.02
Core performance measures	$	7,159	$	138	$	1,454	$	1,240	14.7%	$	1.06



	Three months ended				Nine months ended
	September 30, 2016				September 30, 2016
	Net		Net		Net		Net
(in millions)	sales		income		sales		income
As reported - GAAP	$	902	$	279	$	2,408	$	692
Constant-yen (1)		40		35		242		171
Constant won (1)		1		(3)		2		(24)
Translated earnings contract gain (2)				(2)				(93)
Restructuring, impairment and other charges (6)								13
Impacts from the acquisition of Samsung Corning Precision Materials (8)				(41)				(38)
Taiwan power outage (11)				2				9
Core performance	$	943	$	270	$	2,652	$	730



	As of		As of
	September 30,		December 31,
	2017		2016

Working capital	$	5,189	$	6,297
Current ratio		2.7:1		3.3:1
Trade accounts receivable, net of allowances	$	1,748	$	1,481
Days sales outstanding		60		54
Inventories	$	1,693	$	1,471
Inventory turns		3.8		3.8
Days payable outstanding (1)		44		45
Long-term debt	$	3,994	$	3,646
Total debt to total capital		21%		18%