Corning 2007 Annual Report

Off Balance Sheet Arrangements
Off balance sheet arrangements are transactions, agreements, or other contractual arrangements with an unconsolidated entity for
which Corning has an obligation to the entity that is not recorded in our consolidated financial statements.
Corning’s off balance sheet arrangements include the following:
• Guarantee contracts that require applying the provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45).
• Variable interests held in certain unconsolidated entities.
FIN 45 requires a company, 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,
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. These guarantees have various terms, and none of these guarantees are individually significant.
Refer to Note 13 (Commitments, Contingencies, and Guarantees) to the consolidated financial statements for additional information.
Corning leases certain transportation equipment from three Trusts that qualify as variable interest entities under FASB Interpretation
46R, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (FIN 46R). The sole
purpose of these entities is to lease transportation equipment to Corning.
For variable interest entities, we assess the terms of our interest in each entity to determine if we are the primary beneficiary as
prescribed by FIN 46R. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s
expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the
ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity’s net assets
excluding variable interests.
Corning is the primary beneficiary of one of the three entities, and as required by FIN 46R the financial statements of the entity are
included in Corning’s consolidated financial statements. Corning is not the primary beneficiary of two of the three variable interest
entities and as such, FIN 46R does not require Corning to include them in it’s consolidated financial statements.
Refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements for additional information.
Corning does not have retained interest in assets transferred to an unconsolidated entity that serve as credit, liquidity or market risk
support to that entity.
In 2005 and prior to adopting SFAS 123(R), Corning had employee compensation awards (stock options) that were excluded from the
balance sheet. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), requires all derivative
instruments to be recorded on the balance sheet at fair market value. Paragraph 11(a) of SFAS 133 provides an exception to this
requirement for contracts that are indexed to an entity’s own stock and classified in the shareholders’ equity section of the
consolidated financial statements. Therefore, prior to adopting SFAS 123(R), employee stock option awards were excluded from the
balance sheet because they met the paragraph 11(a) criteria. In 2007 and 2006, those options were recorded in the equity section of the
consolidated balance sheet. In 2005 and in the first quarter of 2006, we had other non-employee contracts that did not meet the criteria
in paragraph 11(a). Those contracts were considered derivative instruments and were accounted for as such in the respective reporting
periods.
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