Corning 2007 Annual Report

Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R) using the modified prospective application method.
Under the modified prospective application method, compensation cost recognized in 2006 includes: (a) compensation cost for all
share-based awards granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based awards granted subsequent to
January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Compensation cost is
recognized in the consolidated statements of operations over the period during which an employee is required to provide service in
exchange for the award. In accordance with the modified prospective application method, results for prior periods have not been
restated. The adoption of SFAS 123(R) resulted in a decrease of $0.05 in basic and diluted earnings per share for the year ended
December 31, 2006. See Note 17 (Share-based Compensation) to the consolidated financial statements for further detail on the impact
of SFAS 123(R).
Research, Development, and Engineering Expenses
Research, development, and engineering expenditures for 2007 and 2006 increased by $48 million and $74 million, respectively,
when compared to the previous year but remained even as a percentage of net sales. In 2007, approximately one-third of total
research, development, and engineering expenditures were for research spending related to our existing businesses, new business
development, exploratory research, and early stage marketing. Expenditures for the past three years have been focused on our Display
Technologies, Environmental Technologies and Telecommunications segments as we looked to capitalize on market opportunities in
those segments. Expenses in each year also reflect costs associated with later stage development projects to support future growth.
These projects include investments in new technologies such as synthetic green lasers, silicon-on-glass, and microreactors.
Restructuring, Impairment and Other Charges and (Credits)
Corning recorded restructuring, impairment, and other charges and credits in 2006 and 2005 which affect the comparability of our
results for the periods presented. A description of those charges follows:
Impairment of Long-Lived Assets Other Than Goodwill
2006 Impairment Charge for Assets Held for Use
In 2006, we recorded an asset held for use impairment charge of $44 million to impair certain long-lived assets of our
Telecommunications segment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (SFAS 144). Due to our lowered long-term outlook for this business, we determined that an event of impairment, as
defined by SFAS 144, had occurred in that business, which further required us to test this asset group for impairment. We assess
recoverability of the carrying value of long-lived assets at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. We estimated the fair value of the long-lived assets for this business
using a discounted expected cash flow approach as a measure of fair value. As a result of our impairment evaluation, we recorded
an impairment charge to write-down the asset group to its estimated fair value.
Other Credits
2005 Reversal of Currency Translation Adjustment
In 2003, Corning sold its photonic business operations to Avanex. The photonics business was the sole operation of Corning
O.T.I. S.r.l. (OTI), a wholly-owned Italian subsidiary of Corning, whose results were included in Corning’s Telecommunications
segment. Subsequent to the sale of the operating assets of OTI to Avanex, Corning began liquidating OTI. In October 2005, the
assets of OTI were determined to be substantially liquidated. As a result of the substantial liquidation, OTI’s cumulative
translation account was reversed, resulting in a gain of $84 million in the fourth quarter.
Impairment of Available for Sale Securities
2005 Impairment Charge
In 2005, we recorded impairment charges of $25 million for an other than temporary decline in the fair value of our investment
in Avanex Corporation (Avanex) below its adjusted cost basis. Our investment in Avanex was accounted for as an
available-for-sale security under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS
115). In the fourth quarter of 2005, we completed the sale of our shares of Avanex.
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