Corning 2007 Annual Report

Probability of litigation outcomes
SFAS No. 5, “Accounting for Contingencies,” (SFAS 5) requires us to make judgments about future events that are inherently
uncertain. In making determinations of likely outcomes of litigation matters, we consider the evaluation of legal counsel
knowledgeable about each matter, case law, and other case-specific issues. See Legal Proceedings for a discussion of the material
litigation matters we face. The most significant matter involving judgment is the PCC asbestos liability. There are a number of factors
bearing upon our potential liability, including the inherent complexity of a Chapter 11 filing, our history of success in defending
asbestos claims, our assessment of the strength of our corporate veil defenses, our continuing dialogue with our insurance carriers and
the claimants’ representatives. We have reached a tentative plan of settlement on PCC as disclosed in Legal Proceedings and Note 7
(Investments) to the Consolidated Financial Statements. The settlement is subject to a number of contingencies, including approval by
the bankruptcy court and resolution of any appeals. On December 21, 2006, the bankruptcy court denied confirmation of the PCC Plan
of Reorganization due to the scope of the channeling injunction proposed of the two shareholders with respect to other asbestos claims
not deriving directly from PCC’s products or operations. Several parties, including Corning, have moved for reconsideration of the
ruling. We continue to exercise judgment in assessing the likelihood that reconsideration will lead to a revised ruling, or that an
alternative plan of reorganization will emerge to address the claims deriving from PCC. It is possible that actual results will differ
from assumptions and require adjustments to accruals.
Other possible liabilities
SFAS 5 and other similarly focused accounting literature require us to make judgments about future events that are inherently
uncertain. In making determinations of likely outcomes of certain matters, including certain tax planning matters and environmental
matters, these judgments require us to consider events and actions that are outside our control in determining whether probable or
possible liabilities require accrual or disclosure. It is possible that actual results will differ from assumptions and require adjustments
to accruals.
Pension and other postretirement employee benefits (OPEB)
Pension and OPEB costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include
discount rates, health care cost trend rates, benefits earned, interest cost, expected return on plan assets, mortality rates, and other
factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods
and, therefore, generally affect recognized expense and the recorded obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Corning’s pension and other
postretirement obligations and future expense.
As of December 31, 2007, the Projected Benefit Obligation (PBO) for U.S. pension plans was $2,246 million.
The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans:
Change in Assumption
Effect on 2008
Pre-Tax Pension
Expense
Effective on
December 31, 2007
PBO
25 basis point decrease in discount rate +$5.4 million +$61 million
25 basis point increase in discount rate -$5.4 million -$59 million
25 basis point decrease in expected return on assets +$5.5 million
25 basis point increase in expected return on assets -$5.5 million
The above sensitivities reflect the impact of changing one assumption at a time. Note that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. These changes in
assumptions would have no effect on Corning’s funding requirements.
In addition, at December 31, 2007, a 25 basis point decrease in the discount rate would decrease stockholders’ equity by $79 million
before tax, a 25 basis point increase in the discount rate would increase stockholders’ equity by $81 million. In addition, the impact of
greater than a 25 basis point decrease in discount rate would not be proportional to the first 25 basis point decrease in the discount
rate.
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