Corning 2007 Annual Report

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The following table illustrates the sensitivity to a change in the discount rate assumption related to Corning’s U.S. OPEB plans: Change in Assumption Effect on 2008 Pre-Tax OPEB Expense Effective on December 31, 2007 APBO 25 basis point decrease in discount rate +$1 million +$20 million 25 basis point increase in discount rate -$1 million -$20 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. Revenue Recognition In certain instances, revenue recognition is based on estimates of fair value of deliverables as well as estimates of product returns, allowances, discounts, and other factors. These estimates are supported by historical data. While management believes that the estimates used are appropriate, differences in actual experience or changes in estimates may affect Corning’s future results. Stock Compensation Stock based compensation expense and disclosures are dependent on assumptions used in calculating such amounts. These assumptions include risk-free discount rates, expected term of the stock based compensation instrument granted, volatility of stock and option prices, expected time between grant date and date of exercise, attrition, performance, and other factors. These assumptions require us to exercise judgment. Our estimates of these assumptions typically are based upon our historical experience and currently available market place data. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Corning’s future stock based compensation expense and disclosures. NEW ACCOUNTING STANDARDS Refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financials statements. 40
Quantitative and Qualitative Disclosures About Market Risks We operate and conduct business in many foreign countries and as a result are exposed to movements in foreign currency exchange rates. Our exposure to exchange rates have the following effects: • exchange rate movements on financial instruments and transactions denominated in foreign currencies which impact earnings, and • exchange rate movements upon conversion of net assets and net income of foreign subsidiaries for which the functional currency is not the U.S. dollar, which impact our net equity. Our most significant foreign currency exposure is the Japanese yen and to a much lesser extent the Korean won, the Taiwan dollar, and the Euro. We selectively enter into foreign exchange forward and option contracts with durations generally 18 months or less to hedge our exposure to exchange rate risk on foreign source income and purchases. These hedges are scheduled to mature coincident with the timing of the underlying foreign currency commitments and transactions. The objective of these contracts is to neutralize the impact of exchange rate movements on our operating results. We also enter into foreign exchange forward contracts when situations arise where our foreign subsidiaries or Corning enter into lending situations, generally on an intercompany basis, denominated in currencies other than their local currency. We do not hold or issue derivative financial instruments for trading purposes. Corning uses derivative instruments (forwards) to limit the exposure to foreign currency fluctuations associated with certain monetary assets and liabilities. These derivative instruments are not designated as hedging instruments for accounting purposes and, as such, are referred to as undesignated hedges. Changes in the fair value of undesignated hedges, along with foreign currency gains and losses arising from the underlying monetary assets or liabilities, are recorded in current period earnings in the other income, net component in the consolidated statement of operations. Equity in earnings of affiliated companies has historically contributed a significant amount to our income from continuing operations. Equity in earnings of affiliated companies, net of impairments was $942 million in 2007 and $960 million in 2006 with foreign-based affiliates comprising over 63% of this amount in 2007. Equity earnings from Samsung Corning and Samsung Corning Precision totaled $532 million for 2007 and $555 million for 2006. Exchange rate fluctuations and actions taken by management of these entities can affect the earnings of these companies. We use a sensitivity analysis to assess the market risk associated with our foreign currency exchange risk. Market risk is defined as the potential change in fair value of assets and liabilities resulting from an adverse movement in foreign currency exchange rates. At December 31, 2007, we had open forward contracts, and foreign denominated debt with values exposed to exchange rate movements, all of which were designated as hedges at December 31, 2007. A 10% adverse movement in quoted foreign currency exchange rates could result in a loss in fair value of these instruments of $239 million. Specific to the Japanese yen, a 10% adverse movement in quoted yen exchange rates could result in a loss in fair value of these instruments of $146 million. As we derive approximately 70% of our net sales from outside the U.S., our sales and net income could be affected if the U.S. dollar significantly strengthens or weakens against foreign currencies, most notably the Japanese yen and Euro. Our outlooks included in Management’s Discussion and Analysis assume exchange rates during 2008 remain constant at January 2008 levels. A plus or minus 10 point movement in the U.S. dollar - Japanese yen exchange rate would result in a change to 2008 net sales of approximately $239 million and net income of approximately $220 million. A plus or minus 10 point movement in the U.S. dollar - Euro exchange rate would result in a change to 2008 net sales of approximately $61 million and net income of approximately $12 million. Interest Rate Risk Management It is our policy to conservatively manage our exposure to changes in interest rates. At December 31, 2007, our consolidated debt portfolio contained less than 34% of variable rate instruments. 41
Page 1 and 2: Corning 2007 Annual Report Environm
Page 3 and 4: To our shareholders: Corning Incorp
Page 5 and 6: Live the Values We also sustained o
Page 7 and 8: Corning Incorporated 2007 Annual Re
Page 9 and 10: Telecommunications Segment The Tele
Page 11 and 12: Competition Corning competes across
Page 13 and 14: Many of these patents are used in C
Page 15 and 16: Document Availability A copy of Cor
Page 17 and 18: We face risks related to our intern
Page 19 and 20: We are subject to strict environmen
Page 21 and 22: Pittsburgh Corning Corporation. Cor
Page 23 and 24: Market for Registrant’s Common Eq
Page 25 and 26: Selected Financial Data (Unaudited)
Page 27 and 28: We also remain committed to investi
Page 29 and 30: Effective January 1, 2006, the Comp
Page 31 and 32: The liability expected to be settle
Page 33 and 34: In 2004, significant events occurre
Page 35 and 36: When compared to 2006, income befor
Page 37 and 38: Telecommunications segment net sale
Page 39 and 40: Life Sciences The following table p
Page 41 and 42: In 2007 and 2006, we issued $231 mi
Page 43 and 44: Contractual Obligations The amounts
Page 45: Probability of litigation outcomes
Page 49 and 50: Report of Independent Registered Pu
Page 51 and 52: Consolidated Balance Sheets Corning
Page 53 and 54: Consolidated Statements of Changes
Page 55 and 56: 1. Summary of Significant Accountin
Page 61 and 62: 2. Restructuring, Impairment and Ot
Page 63 and 64: 4. Significant Customer Corning’s
Page 65 and 66: 6. Income Taxes (continued) The tax
Page 67 and 68: 6. Income Taxes (continued) We do n
Page 69 and 70: 7. Investments (continued) A discus
Page 71 and 72: 7. Investments (continued) Prior to
Page 73 and 74: 7. Investments (continued) On Decem
Page 75 and 76: 10. Other Liabilities (continued) C
Page 77 and 78: 12. Employee Retirement Plans Defin
Page 79 and 80: 12. Employee Retirement Plans (cont
Page 81 and 82: 12. Employee Retirement Plans (cont
Page 83 and 84: 13. Commitments, Contingencies, and
Page 85 and 86: 15. Shareholders’ Equity The foll
Page 87 and 88: 16. Earnings Per Common Share Basic
Page 89 and 90: 17. Share-based Compensation (conti
Page 91 and 92: 17. Share-based Compensation (conti
Page 93 and 94: 18. Operating Segments (continued)
Page 95 and 96: 18. Operating Segments (continued)
Page 97 and 98:
QUARTERLY OPERATING RESULTS (unaudi
Page 99 and 100:
Board of Directors John Seely Brown
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Corning 2007 Annual Report

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