# CORNING INC /NY (GLW) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from CORNING INC /NY's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/24741/000143774922003247/glw20211231_10k.htm Accession: 0001437749-22-003247 Filing date: 2022-02-14 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/GLW/ All MD&A years: /company/GLW/mda/ Next year: /company/GLW/mda/fy2022/ (FY 2022) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations For discussion of 2020 results year-over-year comparison with 2019 results refer to "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Organization of Information Management’s Discussion and Analysis provides a historical and prospective narrative on the Company’s financial condition and results of operations. This discussion includes the following sections: [[GREPCENT_TABLE]] [["\u2022","Overview"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Results of Operations"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Core Performance Measures"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Reportable Segments"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Liquidity and Capital Resources"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Environment"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Critical Accounting Estimates"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","New Accounting Standards"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Forward-Looking Statements"]] [[/GREPCENT_TABLE]] 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: protecting employees and communities; delivering on customer commitments and preserving the financial health of the Company.  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 full year 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. 24 Table of Contents 2021 Results Net sales in the year ended December 31, 2021 were $14.1 billion, a net increase of $2.8 billion, or 25%, when compared to the year ended December 31, 2020, driven by higher sales for all segments. For the year ended December 31, 2021, we generated net income of $1,906 million, or $1.28 per diluted share, compared to a net income of $512 million, or $0.54 per diluted share, for 2020. When compared to 2020, the $1.4 billion increase in net income was primarily due to the following items (amounts presented after tax): [[GREPCENT_TABLE]] [["\u2022","Higher net income of $505 million for reportable segments;"],["\u2022","Lower restructuring, impairment and other charges of $543 million;"],["\u2022","The positive impact of mark-to-market translated earnings contract gains of $309 million;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Higher translation gains on Japanese yen-denominated debt of $205 million; and"],["\u2022","Lower net losses of $163 million for \"All Other\" primarily driven by full-year consolidation of HSG."]] [[/GREPCENT_TABLE]] The increases in net income, outlined above, were partially offset by the absence of a gain on a previously held equity investment in HSG of $387 million in 2020. Diluted earnings per share increased in 2021 by $0.74 per diluted share, or 137%, when compared to 2020, primarily driven by the increase in net income, described above, partially offset by the immediate repurchase and retirement of 35 million Common Shares which resulted in an $803 million one-time reduction to net income available to common shareholders during the second quarter of 2021.  Refer to Note 17 (Shareholders' Equity) and Note 18 (Earnings per Common Share) 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 year, positively impacted Corning’s net income by approximately $104 million in the year ended December 31, 2021, when compared to the same period in 2020. 2022 Corporate Outlook We believe 2022 will be another year of growth and strong cash-flow generation. We expect full year net sales of approximately $15 billion in 2022. 25 Table of Contents RESULTS OF OPERATIONS Selected highlights from our operations follow (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","","20 vs. 19"],["Net sales","","$","14,082","","","$","11,303","","","$","11,503","","","","25","","","","(2",")"],["Gross margin","","$","5,063","","","$","3,531","","","$","4,035","","","","43","","","","(12",")"],["(gross margin %)","","","36","%","","","31","%","","","35","%"],["Selling, general and administrative expenses","","$","1,827","","","$","1,747","","","$","1,585","","","","5","","","","10"],["(as a % of net sales)","","","13","%","","","15","%","","","14","%"],["Research, development and engineering expenses","","$","995","","","$","1,154","","","$","1,031","","","","(14",")","","","12"],["(as a % of net sales)","","","7","%","","","10","%","","","9","%"],["Equity in earnings (losses) of affiliated companies","","$","35","","","$","(25",")","","$","17","","","","*","","","","*"],["(as a % of net sales)","","","0","%","","","(0",")%","","","0","%"],["Translated earnings contract gain (loss), net","","$","354","","","$","(38",")","","$","248","","","","*","","","","*"],["(as a % of net sales)","","","3","%","","","(0",")%","","","2","%"],["Transaction-related gain, net","","","","","","$","498","","","","","","","","*","","","","*"],["(as a % of net sales)","","","","","","","4","%"],["Income before income taxes","","$","2,397","","","$","623","","","$","1,216","","","","285","","","","(49",")"],["(as a % of net sales)","","","17","%","","","6","%","","","11","%"],["Provision for income taxes","","$","(491",")","","$","(111",")","","$","(256",")","","","(342",")","","","57"],["(as a % of net sales)","","","(3",")%","","","(1",")%","","","(2",")%"],["Net income attributable to Corning Incorporated","","$","1,906","","","$","512","","","$","960","","","","272","","","","(47",")"],["(as a % of net sales)","","","14","%","","","5","%","","","8","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Percent change not meaningful."]] [[/GREPCENT_TABLE]] 26 Table of Contents Segment Net Sales The following table presents segment net sales by reportable segment (in millions): [[GREPCENT_TABLE]] [["","","","","","","","","","","","","","","%","","%"],["","","Year ended December 31,","","","change","","change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Display Technologies","","$","3,700","","","$","3,172","","","$","3,254","","","17%","","(3)%"],["Optical Communications","","","4,349","","","","3,563","","","","4,064","","","22%","","(12)%"],["Specialty Materials","","","2,008","","","","1,884","","","","1,594","","","7%","","18%"],["Environmental Technologies","","","1,586","","","","1,370","","","","1,499","","","16%","","(9)%"],["Life Sciences","","","1,234","","","","998","","","","1,015","","","24%","","(2)%"],["All Other","","","1,243","","","","465","","","","230","","","167%","","102%"],["Net sales of reportable segments and All Other","","$","14,120","","","$","11,452","","","$","11,656","","","23%","","(2)%"],["Impact of foreign currency movements (1)","","","(38",")","","","(44",")","","","(153",")","","14%","","71%"],["Cumulative adjustment related to customer contract (2)","","","","","","","(105",")","","","","","","*","","*"],["Consolidated net sales","","$","14,082","","","$","11,303","","","$","11,503","","","25%","","(2)%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Amount represents the negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue in the amount of $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."]] [[/GREPCENT_TABLE]] *    Percent change not meaningful. For the year ended December 31, 2021, segment and "All Other" net sales increased by $2.7 billion, or 23%, when compared to the same period in 2020. The primary sales drivers by segment were as follows: [[GREPCENT_TABLE]] [["\u2022","Display Technologies\u2019 net sales increased by $528 million, primarily driven by volume increases of approximately mid-teens in percentage terms and pricing consistent with 2020;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Optical Communications\u2019 net sales increased $786 million, as sales increased for carrier products by $588 million and enterprise products by $198 million, primarily driven by strong growth of 5G, broadband and cloud computing;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Net sales for Environmental Technologies increased $216 million, primarily due to increased sales of heavy-duty diesel products and gas-particulate filters;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Net sales in the Life Sciences segment increased by $236 million, primarily driven by ongoing increased demand to support the global pandemic response, continued recovery in research labs, and strong demand for bioproduction vessels and diagnostic-related consumables.;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Net sales increased in the Specialty Materials segment in the amount of $124 million, primarily driven by strong demand for premium cover materials and advanced optics content used in semiconductor manufacturing; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Net sales for \u201cAll Other\u201d increased by $778 million, primarily driven by full-year consolidation of HSG."]] [[/GREPCENT_TABLE]] Movements in foreign exchange rates positively impacted Corning’s consolidated net sales by $83 million in the year ended December 31, 2021, when compared to the same period in 2020. In 2021 and 2020, sales in international markets accounted for 68% and 70% of total net sales, respectively. 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; and other production overhead. 27 Table of Contents Gross Margin In the year ended December 31, 2021, gross margin increased by $1,532 million, or 43%. Gross margin as a percentage of sales increased by 5 percentage points.  The increase in gross margin was primarily driven by higher sales in all segments, as well as lower charges for severance and capacity realignment costs of $89 million and $252 million, respectively, partially offset by increased expenses due to elevated freight, logistics and raw material costs for the year ended December 31, 2021. Movements in foreign exchange rates had a positive impact of $77 million on Corning’s consolidated gross margin in the year ended December 31, 2021, when compared to the same period in 2020. Selling, General and Administrative Expenses When compared to the year ended December 31, 2020, selling, general and administrative expenses increased by $80 million, or 5%, in the year ended December 31, 2021.  The increase was primarily driven by higher litigation and share-based compensation costs.  Selling, general and administrative expenses decreased by 2 percentage points as a percentage of sales. 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 year ended December 31, 2021, research, development and engineering expenses decreased by $159 million, or 14%, when compared to the same period in the prior year, primarily driven by the absence of a pre-tax asset impairment loss of $211 million related to the reassessment and reprioritization of research and development programs within “All Other” that was incurred in 2020.  As a percentage of sales, these expenses were 3 percentage points lower when compared to the same period last year. Translated earnings contract gain (loss), net Included in the line item translated earnings contract gain (loss), net, is the impact of foreign currency contracts which hedge our translation exposure arising from movements in the Japanese yen, South Korean won, new Taiwan dollar, euro, Chinese yuan and British pound and its impact on our net income. The following table provides detailed information on the impact of our translated earnings contracts gains and losses for the years ended December 31, 2021, 2020 and 2019: [[GREPCENT_TABLE]] [["(in millions)","","Income (loss) before tax","","","Net income (loss)","","","(Loss) income before tax","","","Net (loss) income","","","Income before tax","","","Net income"],["","","2021","","","2020","","","2021 vs. 2020"],["Hedges related to translated earnings:"],["Realized gain (loss), net (1)","","$","47","","","$","36","","","$","(8",")","","$","(5",")","","$","55","","","$","41"],["Unrealized gain (loss), net (2)","","","307","","","","237","","","","(30",")","","","(24",")","","","337","","","","261"],["Total translated earnings contract gain (loss), net","","$","354","","","$","273","","","$","(38",")","","$","(29",")","","$","392","","","$","302"],["","","2020","","","2019","","","2020 vs. 2019"],["Hedges related to translated earnings:"],["Realized (loss) gain, net (1)","","$","(8",")","","$","(5",")","","$","18","","","$","14","","","$","(26",")","","$","(19",")"],["Unrealized (loss) gain, net (2)","","","(30",")","","","(24",")","","","230","","","","179","","","","(260",")","","","(203",")"],["Total translated earnings contract (loss) gain, net","","$","(38",")","","$","(29",")","","$","248","","","$","193","","","$","(286",")","","$","(222",")"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Includes pre-tax realized losses related to the expiration of option contracts for the year ended December 31, 2021, 2020, and 2019 of $20 million, $20 million and $37 million, respectively. These amounts were reflected in operating activities in the consolidated statements of cash flows."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","The impact to income was primarily driven by Japanese yen, South Korean won, and euro-denominated hedges of translated earnings."]] [[/GREPCENT_TABLE]] 28 Table of Contents Income Before Income Taxes The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current year, positively impacted Corning’s income before income taxes by $134 million in the year ended December 31, 2021, when compared to the same period in 2020. Provision for Income Taxes  Our provision for income taxes and the related effective income tax rates were as follows (in millions): [[GREPCENT_TABLE]] [["","","","Year ended December 31,"],["","","","2021","","","2020","","","2019"],["Provision for income taxes","","","$","(491",")","","$","(111",")","","$","(256",")"],["Effective tax rate","","","","20.5","%","","","17.8","%","","","21.1","%"]] [[/GREPCENT_TABLE]] For the year ended December 31, 2021, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to the following: [[GREPCENT_TABLE]] [["\u2022","A net provision of $52 million due to differences arising from foreign earnings, including the impact of intercompany asset sales;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","A net benefit of $37 million related to share-based compensation payments; and"],["\u2022","A net benefit of $62 million due to tax credits."]] [[/GREPCENT_TABLE]] For the year ended December 31, 2020, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to the following: [[GREPCENT_TABLE]] [["\u2022","Additional net provision of $73 million from changes to our tax reserves;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","A net provision of $45 million due primarily to stronger foreign earnings relative to U.S. earnings in the current year, as well as U.S. income inclusion under the Internal Revenue Code (\u201cSubpart F income\u201d); and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","A net benefit of $116 million due to a net operating loss carryback allowed under the CARES Act."]] [[/GREPCENT_TABLE]] During 2021, the Company distributed approximately $2.3 billion from foreign subsidiaries to their respective U.S. parent companies.  As of December 31, 2021, Corning has approximately $2.4 billion of indefinitely reinvested foreign earnings.  It remains impracticable to calculate the tax cost of repatriating our unremitted earnings which are considered indefinitely reinvested.  Refer to Note 8 (Income Taxes) to the consolidated financial statements for further details regarding income tax matters. 29 Table of Contents Net Income Attributable to Corning Incorporated As a result of the items discussed above, net income and per share data was as follows (in millions, except per share amounts): [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2021","","","2020","","","2019"],["Net income attributable to Corning Incorporated","","$","1,906","","","$","512","","","$","960"],["Series A convertible preferred stock dividend","","","(24",")","","","(98",")","","","(98",")"],["Excess consideration paid for redemption of preferred stock (1)","","","(803",")"],["Net income available to common shareholders used in basic earnings per common share calculation","","$","1,079","","","$","414","","","$","862"],["Net income available to common shareholders used in diluted earnings per common share calculation","","$","1,079","","","$","414","","","$","960"],["Basic earnings per common share","","$","1.30","","","$","0.54","","","$","1.11"],["Diluted earnings per common share","","$","1.28","","","$","0.54","","","$","1.07"],["Weighted-average common shares outstanding - basic","","","828","","","","761","","","","776"],["Weighted-average common shares outstanding - diluted","","","844","","","","772","","","","899"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","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. (\u201cSDC\u201d). On April 5, 2021, Corning and SDC executed a Share Repurchase Agreement (\"SRA\"). Refer to Note 18 (Earnings per Common Share) to the consolidated financial statements for additional information."]] [[/GREPCENT_TABLE]] Comprehensive Income [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["(In millions)","","2021","","","2020","","","2019"],["Net income attributable to Corning Incorporated","","$","1,906","","","$","512","","","$","960"],["Foreign currency translation adjustments and other (Note 17)","","","(604",")","","","528","","","","(143",")"],["Net unrealized gains on investments","","","","","","","","","","","1"],["Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans","","","178","","","","(88",")","","","(64",")"],["Net unrealized (losses) gains on designated hedges","","","(9",")","","","(9",")","","","45"],["Other comprehensive (loss) income, net of tax","","","(435",")","","","431","","","","(161",")"],["Comprehensive income attributable to Corning Incorporated","","$","1,471","","","$","943","","","$","799"]] [[/GREPCENT_TABLE]] For the year ended December 31, 2021, comprehensive income increased by $528 million, when compared to the same period in 2020, primarily due to the following: [[GREPCENT_TABLE]] [["\u2022","An increase in net income of $1.4 billion; and"],["\u2022","The positive change of $266 million of unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans."]] [[/GREPCENT_TABLE]] This gain was partially offset by the following: [[GREPCENT_TABLE]] [["\u2022","The unfavorable change in foreign currency translation adjustments of $1.1 billion, largely driven by the Japanese yen, South Korean won and Chinese yuan."]] [[/GREPCENT_TABLE]] Refer to Note 13 (Employee Retirement Plans) and Note 17 (Shareholders’ Equity) to the consolidated financial statements for additional details. 30 Table of Contents CORE PERFORMANCE MEASURES In managing the Company and assessing our financial performance, we adjust certain measures provided by our consolidated financial statements to exclude specific items to report core performance measures. These items include gains and losses on our 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 our earnings and cash flows. Corning also believes that reporting core performance measures provides investors greater transparency to the information used by our management team to make financial and operational decisions. Core performance measures are not prepared in accordance with Generally Accepted Accounting Principles in the U.S. (“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 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 our continuing operations, excluding certain items, follow (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Core net sales","","$","14,120","","","$","11,452","","","$","11,656","","","23%","","(2)%"],["Core equity in earnings of affiliated companies","","$","38","","","$","86","","","$","237","","","(56)%","","(64)%"],["Core net income","","$","1,811","","","$","1,237","","","$","1,578","","","46%","","(22)%"]] [[/GREPCENT_TABLE]] Core Net Sales Core net sales are consistent with net sales by reportable segment and "All Other". The following table presents segment net sales by reportable segment and "All Other" (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Display Technologies","","$","3,700","","","$","3,172","","","$","3,254","","","17%","","(3)%"],["Optical Communications","","","4,349","","","","3,563","","","","4,064","","","22%","","(12)%"],["Specialty Materials","","","2,008","","","","1,884","","","","1,594","","","7%","","18%"],["Environmental Technologies","","","1,586","","","","1,370","","","","1,499","","","16%","","(9)%"],["Life Sciences","","","1,234","","","","998","","","","1,015","","","24%","","(2)%"],["All Other","","","1,243","","","","465","","","","230","","","167%","","102%"],["Net sales of reportable segments and All Other","","$","14,120","","","$","11,452","","","$","11,656","","","23%","","(2)%"]] [[/GREPCENT_TABLE]] Segment and "All Other" net sales and variances are discussed in detail in the Reportable Segments section of our MD&A. 31 Table of Contents Core Equity in Earnings of Affiliated Companies The following provides a summary of core equity in earnings of affiliated companies (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","","20 vs. 19"],["Hemlock Semiconductor Group (1)","","","","","","$","82","","","$","229","","","","(100",")%","","","(64",")%"],["All other","","$","38","","","","4","","","","8","","","","850","%","","","(50",")%"],["Total core equity earnings","","$","38","","","$","86","","","$","237","","","","(56",")%","","","(64",")%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","The year ended December 31, 2020, includes HSG\u2019s results of operations through September 8, 2020. Corning began consolidating HSG on September 9, 2020."]] [[/GREPCENT_TABLE]] Core Net Income  In the year ended December 31, 2021, we generated core net income of $1.8 billion or $2.07 per share, compared to core net income generated in the year ended December 31, 2020 of $1.2 billion, or $1.39 per share. The increase in core net income of $574 million was driven by the following items: [[GREPCENT_TABLE]] [["\u2022","Higher reportable segment net income of $505 million, primarily driven by higher sales volume; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Lower net losses of $163 million for \"All Other\" primarily driven by full-year consolidation of HSG."]] [[/GREPCENT_TABLE]] Core earnings per share increased in the year ended December 31, 2021 to $2.07 per share, primarily driven by the increase in core net income, outlined above. Core Earnings per Common Share The following table sets forth the computation of core basic and core diluted earnings per common share (in millions, except per share amounts): [[GREPCENT_TABLE]] [["","","2021","","","2020","","","2019"],["Core net income attributable to Corning Incorporated","","$","1,811","","","$","1,237","","","$","1,578"],["Less: Series A convertible preferred stock dividend","","","24","","","","98","","","","98"],["Core net income available to common shareholders - basic","","","1,787","","","","1,139","","","","1,480"],["Plus: Series A convertible preferred stock dividend","","","24","","","","98","","","","98"],["Core net income available to common shareholders - diluted","","$","1,811","","","$","1,237","","","$","1,578"],["Weighted-average common shares outstanding - basic","","","828","","","","761","","","","776"],["Effect of dilutive securities:"],["Stock options and other dilutive securities","","","16","","","","11","","","","8"],["Series A convertible preferred stock","","","31","","","","115","","","","115"],["Weighted-average common shares outstanding - diluted","","","875","","","","887","","","","899"],["Core basic earnings per common share","","$","2.16","","","$","1.50","","","$","1.91"],["Core diluted earnings per common share","","$","2.07","","","$","1.39","","","$","1.76"]] [[/GREPCENT_TABLE]] 32 Table of Contents Reconciliation of Non-GAAP Measures We utilize certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the consolidated statements of income or statements of cash flows, or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure as calculated and presented in accordance with GAAP in the consolidated statements of income or statements of cash flows. Core net sales, core equity in earnings of affiliated companies, core net income and the related per share numbers are non-GAAP financial measures utilized by our management to analyze financial performance without the impact of items that are driven by general economic conditions and events that do not reflect the underlying fundamentals and trends in the Company’s operations. See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items. The following tables reconcile our non-GAAP financial measures to their most directly comparable GAAP financial measure (amounts in millions except percentages and per share amounts): [[GREPCENT_TABLE]] [["","Year ended December 31, 2021"],["","Net Sales","","Equity earnings","","Income before income taxes","","Net income","","Effective tax rate (a)","","Earnings per share"],["As reported","$","14,082","","$","35","","$","2,397","","$","1,906","","20.5%","","$","1.28"],["Preferred stock redemption (b)","","","","","","","","","","","","","","","","0.90"],["Subtotal","","14,082","","","35","","","2,397","","","1,906","","20.5%","","","2.18"],["Constant-currency adjustment (1)","","38","","","3","","","87","","","76","","","","","0.09"],["Translation gain on Japanese yen-denominated debt (2)","","","","","","","","(180)","","","(138)","","","","","(0.16)"],["Translated earnings contract gain, net (3)","","","","","","","","(354)","","","(273)","","","","","(0.32)"],["Acquisition-related costs (4)","","","","","","","","159","","","123","","","","","0.15"],["Discrete tax items and other tax-related adjustments (5)","","","","","","","","","","","(24)","","","","","(0.03)"],["Pension mark-to-market adjustment (6)","","","","","","","","32","","","25","","","","","0.03"],["Restructuring, impairment and other charges and credits (7)","","","","","","","","110","","","78","","","","","0.09"],["Litigation, regulatory and other legal matters (8)","","","","","","","","16","","","27","","","","","0.03"],["Preferred stock conversion (9)","","","","","","","","17","","","17","","","","","0.02"],["Bond redemption loss (10)","","","","","","","","31","","","23","","","","","0.03"],["Loss on investment (11)","","","","","","","","23","","","17","","","","","0.02"],["Gain on sale of business (12)","","","","","","","","(54)","","","(46)","","","","","(0.05)"],["Core performance measures","$","14,120","","$","38","","$","2,284","","$","1,811","","20.7%","","$","2.07"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(a)","Based upon statutory tax rates in the specific jurisdiction for each event."],["(b)","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. (\u201cSDC\u201d). On April 5, 2021, Corning and SDC executed a Share Repurchase Agreement (\"SRA\"). 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\u2019s basic and diluted earnings per share. The redemption of these Common Shares resulted in an $803 million reduction of retained earnings which reduced the net income available to common shareholders."]] [[/GREPCENT_TABLE]] 33 Table of Contents See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items. [[GREPCENT_TABLE]] [["","","Year ended December 31, 2020"],["","","Net sales","","","Equity (losses) earnings","","","Income before income taxes","","","Net income","","","Effective tax rate (a)","","","Earnings per share"],["As reported","","$","11,303","","","$","(25",")","","$","623","","","$","512","","","","17.8","%","","$","0.54"],["Constant-currency adjustment (1)","","","44","","","","","","","","22","","","","17","","","","","","","","0.02"],["Translation loss on Japanese yen-denominated debt (2)","","","","","","","","","","","86","","","","67","","","","","","","","0.09"],["Translated earnings contract loss, net (3)","","","","","","","","","","","46","","","","36","","","","","","","","0.05"],["Acquisition-related costs (4)","","","","","","","","","","","156","","","","114","","","","","","","","0.15"],["Discrete tax items and other tax-related adjustments (5)","","","","","","","","","","","","","","","(24",")","","","","","","","(0.03",")"],["Pension mark-to-market adjustment (6)","","","","","","","","","","","31","","","","24","","","","","","","","0.03"],["Restructuring, impairment and other charges and credits (7)","","","","","","","","","","","827","","","","621","","","","","","","","0.80"],["Litigation, regulatory and other legal matters (8)","","","","","","","","","","","144","","","","120","","","","","","","","0.16"],["Bond redemption loss (10)","","","","","","","","","","","22","","","","17","","","","","","","","0.02"],["Gain on investment (11)","","","","","","","","","","","(107",")","","","(83",")","","","","","","","(0.11",")"],["Equity in losses of affiliated companies (13)","","","","","","","111","","","","111","","","","98","","","","","","","","0.13"],["Transaction-related gain, net (14)","","","","","","","","","","","(498",")","","","(387",")","","","","","","","(0.50",")"],["Cumulative adjustment related to customer contract (15)","","","105","","","","","","","","105","","","","105","","","","","","","","0.14"],["Core performance measures","","$","11,452","","","$","86","","","$","1,568","","","$","1,237","","","","21.1","%","","$","1.39"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","Year ended December 31, 2019"],["","","Net sales","","","Equity earnings","","","Income before income taxes","","","Net income","","","Effective tax rate (a)","","","Earnings per share"],["As reported","","$","11,503","","","$","17","","","$","1,216","","","$","960","","","","21.1","%","","$","1.07"],["Constant-currency adjustment (1)","","","153","","","","1","","","","115","","","","115","","","","","","","","0.13"],["Translation loss on Japanese yen-denominated debt (2)","","","","","","","","","","","3","","","","2","","","","","","","","0.00"],["Translated earnings contract gain, net (3)","","","","","","","","","","","(245",")","","","(190",")","","","","","","","(0.21",")"],["Acquisition-related costs (4)","","","","","","","","","","","130","","","","99","","","","","","","","0.11"],["Discrete tax items and other tax-related adjustments (5)","","","","","","","","","","","","","","","37","","","","","","","","0.04"],["Litigation, regulatory and other legal matters (8)","","","","","","","","","","","(17",")","","","(13",")","","","","","","","(0.01",")"],["Restructuring, impairment and other charges and credits (7)","","","","","","","6","","","","439","","","","334","","","","","","","","0.37"],["Pension mark-to-market adjustment (6)","","","","","","","","","","","95","","","","69","","","","","","","","0.08"],["Equity in losses of affiliated companies (13)","","","","","","","213","","","","213","","","","165","","","","","","","","0.18"],["Core performance measures","","$","11,656","","","$","237","","","$","1,949","","","$","1,578","","","","19.0","%","","$","1.76"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(a)","Based upon statutory tax rates in the specific jurisdiction for each event."]] [[/GREPCENT_TABLE]] 34 Table of Contents Items Excluded from GAAP Measures Items we exclude from GAAP measures to arrive at core performance measures are as follows: [[GREPCENT_TABLE]] [["(1)","Constant-currency adjustment: Because a significant portion of segment revenue 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. Our Display Technologies and Specialty Materials segments sales and net income are primarily denominated in Japanese yen, but are also impacted by the South Korean won, Chinese yuan, and new Taiwan dollar. Environmental Technologies and Life Science segment 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 our 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","","\u00a5107","","\u20a91,175","","\u00a56.7","","NT$31","","\u20ac.81"],["(2)","Translation (gain) loss on Japanese yen-denominated debt: We have excluded the gain or loss on the translation of our yen-denominated debt to U.S. dollars."],["(3)","Translated earnings contract (gain) loss, net: We have excluded the impact of the realized and unrealized gains and losses of our 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 our British pound-denominated foreign currency hedges related to translated earnings."],["(4)","Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs."],["(5)","Discrete tax items and other tax-related adjustments: For 2021, 2020 and 2019, these include discrete period tax items such as changes in tax law, the impact of tax audits, changes in tax reserves, changes in judgement about the realizability of certain deferred tax assets, net Subpart F income, and other tax-related adjustments."],["(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, as well as other expenses, 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 our estimated liability for environmental-related items and other legal matters."],["(9)","Preferred stock conversion: This amount is 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) gain on investment: Amount represents the gain or loss recognized on investment due to mark-to-mark adjustments for the change in fair value or the disposition of the investment."],["(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, and other charges and credits and settlements under \u201ctake-or-pay\u201d contracts. The year ended December 31, 2020 includes the Company\u2019s share of a loss related to the sale of a business."],["(14)","Transaction-related gain, net: Amount represents the 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."]] [[/GREPCENT_TABLE]] 35 Table of Contents REPORTABLE SEGMENTS Reportable segments are as follows: [[GREPCENT_TABLE]] [["\u2022","Display Technologies \u2013 manufactures glass substrates for flat panel liquid crystal displays and other high-performance display panels."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Optical Communications \u2013 manufactures carrier network and enterprise network components for the telecommunications industry."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Specialty Materials \u2013 manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Environmental Technologies \u2013 manufactures ceramic substrates and filters for automotive and diesel applications."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","Life Sciences \u2013 manufactures glass and plastic labware, equipment, media, serum and reagents enabling workflow solutions for drug discovery and bioproduction."]] [[/GREPCENT_TABLE]] 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 HSG, pharmaceutical technologies, auto glass, new product lines and development projects, as well as other businesses 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” since September 9, 2020.  Refer to Note 4 (HSG Transactions and Acquisitions) 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. The impact of changes in the Japanese yen, South Korean won, Chinese yuan and new Taiwan dollar are excluded from segment sales and segment net income for the Display Technologies and Specialty Materials segments. The impact of changes in the euro and Chinese yuan are excluded from segment sales and segment net income for the Environment Technologies segment. The impact of changes in the euro, Chinese yuan and Japanese yen are excluded from segment sales and segment net income for the Life Sciences segment. 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 the translated earnings contracts; acquisition-related costs; certain 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): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Segment net sales","","$","3,700","","","$","3,172","","","$","3,254","","","17%","","(3%)"],["Segment net income","","$","960","","","$","717","","","$","786","","","34%","","(9%)"]] [[/GREPCENT_TABLE]] Net sales in the Display Technologies segment increased by $528 million, or 17%, for the year ended December 31, 2021, when compared to the prior year, primarily driven by volume increases of approximately mid-teens in percentage terms and pricing consistent with 2020. Net income in the Display Technologies segment increased by $243 million, or 34%, in the year ended December 31, 2021, primarily driven by the changes in sales, outlined above. 36 Table of Contents Optical Communications The following table provides net sales and net income for the Optical Communications segment (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Segment net sales","","$","4,349","","","$","3,563","","","$","4,064","","","22%","","(12%)"],["Segment net income","","$","553","","","$","366","","","$","489","","","51%","","(25%)"]] [[/GREPCENT_TABLE]] Net sales increased by $786 million, or 22%, in the year ended December 31, 2021, when compared to the same period in 2020, primarily due to higher sales in carrier products and enterprise products, up $588 million and $198 million, respectively, primarily driven by strong growth of 5G, broadband and cloud computing. Net income in the year ended December 31, 2021 increased by $187 million, or 51%, primarily driven by the changes in sales, outlined above, partially offset by increased raw material, freight and logistics costs.  Movements in foreign currency exchange rates did not materially impact net income in this segment in the year ended December 31, 2021 when compared to the same period in 2020. Specialty Materials The following table provides net sales and net income for the Specialty Materials segment (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Segment net sales","","$","2,008","","","$","1,884","","","$","1,594","","","7%","","18%"],["Segment net income","","$","371","","","$","423","","","$","302","","","(12%)","","40%"]] [[/GREPCENT_TABLE]] Net sales in the Specialty Materials segment increased by $124 million, or 7%, in the year ended December 31, 2021, when compared to the same period in 2020, primarily driven by demand for our premium cover materials and advanced optics content used in semiconductor manufacturing. Net income in the year ended December 31, 2021 decreased by $52 million, or 12%, when compared to the same period in 2020, primarily driven by increased investments in innovation programs that are moving towards commercialization. Environmental Technologies The following table provides net sales and net income for the Environmental Technologies segment (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Segment net sales","","$","1,586","","","$","1,370","","","$","1,499","","","16%","","(9%)"],["Segment net income","","$","269","","","$","197","","","$","263","","","37%","","(25%)"]] [[/GREPCENT_TABLE]] Net sales increased $216 million, or 16% in the year ended December 31, 2021, primarily due to increased sales of heavy-duty diesel products and gas-particulate filters. Net income in the year ended December 31, 2021 increased by $72 million, or 37%, driven by the sales increase outlined above, but negatively impacted by inflation and increased freight and logistics costs. 37 Table of Contents Life Sciences The following table provides net sales and net income for the Life Sciences segment (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Segment net sales","","$","1,234","","","$","998","","","$","1,015","","","24%","","(2%)"],["Segment net income","","$","194","","","$","139","","","$","150","","","40%","","(7%)"]] [[/GREPCENT_TABLE]] Net sales in the Life Sciences segment increased by $236 million, or 24%, primarily driven by ongoing increased demand to support the global pandemic response, continued recovery in research labs, and strong demand for bioproduction vessels and diagnostic-related consumables. Net income increased by $55 million, or 40%, in the year ended December 31, 2021, primarily driven by the changes in sales outlined above. All Other All other businesses that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily comprised of the results of HSG, pharmaceutical technologies, auto glass, new product lines and development projects, as well as other businesses and certain corporate investments. The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” since September 9, 2020.  Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information on this transaction. The following table provides net sales and net loss for “All Other” (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","% change","","% change"],["","","2021","","","2020","","","2019","","","21 vs. 20","","20 vs. 19"],["Segment net sales","","$","1,243","","","$","465","","","$","230","","","167%","","102%"],["Segment net loss","","$","(51",")","","$","(214",")","","$","(289",")","","76%","","26%"]] [[/GREPCENT_TABLE]] Net sales of this segment increased by $778 million, or 167%, in the year ended December 31, 2021, when compared to the same period in 2020, driven primarily by full-year consolidation of HSG. The decrease in the net loss of $163 million is primarily driven by the increases in sales outlined above. LIQUIDITY AND CAPITAL RESOURCES Financing and Capital Structure The following items discuss Corning’s financing and changes in capital structure during 2021 and 2020: 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. Losses on bond redemption have been recorded in other income (expense), net on the consolidated statements of income during the quarter in which they occurred.  38 Table of Contents Borrowings under the three unsecured variable rate loan facilities for the year ended December 31, 2021, totaled 1,764 million Chinese yuan, or approximately $277 million. As of December 31, 2021, the 25 billion Japanese yen facility, equivalent to $217 million, has not been drawn upon.  2020 During the fourth quarter of 2020, Corning redeemed $100 million of 7.0% debentures due in 2024 with a carrying amount of $99 million, paying a $21 million make-whole call premium. The total payment of $121 million is disclosed in financing activities in the consolidated statements of cash flows. The redemption resulted in a loss of $22 million. In conjunction with the change in control of HSG on September 9, 2020, a variable interest rate loan of $175 million, maturing on September 8, 2021, was made to DC HSC Holdings, LLC, now a consolidated subsidiary of Corning.  As of December 31, 2021, the third-party debt has been fully repaid.  Refer to Note 3 (Investments) to the consolidated financial statements for additional information. During the second quarter of 2020, Corning established an incremental liquidity facility for 25 billion Japanese yen, equivalent to $232 million with a maturity of three years. As of December 31, 2020, the facility has not been drawn upon. In the first quarter of 2020, Corning established two unsecured variable rate loan facilities for 1,050 million Chinese yuan, equivalent to $150 million, and 749 million Chinese yuan, equivalent to $105 million, each with a maturity of five years.  In the fourth quarter of 2020, Corning established a third unsecured variable rate loan facility for 546 million Chinese yuan, equivalent to $84 million, with a maturity of five years. Borrowings under these loan facilities for the year ended December 31, 2020, totaled 1,691 million Chinese yuan, or approximately $243 million. These Chinese yuan-denominated proceeds will not be converted into USD and will be used for capital projects. Payments of principal and interest on the Notes will be in Chinese yuan, or should yuan be unavailable due to circumstances beyond Corning’s control, a USD equivalent. These loans are the sole obligations of the subsidiary borrowers and are not guaranteed by any other Corning entity. Common Stock Dividends On February 2, 2022, Corning’s Board of Directors declared a 13% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.24 to $0.27 per share of common stock, beginning with the dividend paid in the first quarter of 2022. This increase marks the eleventh dividend increase since October 2011. On February 3, 2021, Corning’s Board of Directors declared a 9% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.22 to $0.24 per share of common stock, beginning with the dividend paid in the first quarter of 2021.  On February 5, 2020, Corning’s Board of Directors declared a 10% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.20 to $0.22 per share of common stock, beginning with the dividend paid in the first quarter of 2020. 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 SDC.  On April 5, 2021, Corning and SDC executed the SRA.  39 Table of Contents Pursuant to the SRA, on April 8, 2021 (the "Initial Closing Date"), the Preferred Stock was fully converted into Common Shares.  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. [[GREPCENT_TABLE]] [["\u2022","The 35 million Common Shares repurchased by Corning were excluded from the weighted-average common shares outstanding for the calculation of the Company\u2019s basic and diluted earnings per share starting on the Initial Closing Date."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","The Common 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."]] [[/GREPCENT_TABLE]] 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. Refer to Note 17 (Shareholders’ Equity) to the consolidated financial statements for additional information. Customer Deposits As of December 31, 2021 and 2020, Corning had customer deposits of approximately $1.3 billion and $1.4 billion. The majority of these were non-refundable cash deposits by customers to secure rights to products produced by Corning under long-term supply agreements. The duration of these long-term supply agreements ranges up to 10 years. As products are shipped to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability.  In the years ended December 31, 2021 and 2020, customer deposits used were $216 million and $140 million, respectively. As of December 31, 2021 and 2020, $1.1 billion was recorded as other long-term liabilities and the remaining $223 million and $211 million, respectively, were classified as other current liabilities on our consolidated balance sheets. Deferred Revenue During the third quarter of 2020, Corning obtained a controlling interest in HSG and recorded deferred revenue of $1,070 million at fair value 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 compared to the remaining contractual units. As of December 31, 2021 and 2020, $764 million and $872 million, respectively, were classified as a long-term liability and $148 million and $152 million, respectively, were classified as a current liability.  Capital Spending Capital spending was $1.6 billion in 2021, an increase of $260 million when compared to 2020. We expect our 2022 capital expenditures to be consistent with 2021. Cash Flows Summary of cash flow data (in millions): [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2021","","","2020","","","2019"],["Net cash provided by operating activities","","$","3,412","","","$","2,180","","","$","2,031"],["Net cash used in investing activities","","$","(1,419",")","","$","(1,310",")","","$","(1,891",")"],["Net cash used in financing activities","","$","(2,452",")","","$","(729",")","","$","(47",")"]] [[/GREPCENT_TABLE]] 40 Table of Contents Net cash provided by operating activities increased by $1,232 million in the year ended December 31, 2021, when compared to the same period in the prior year.  The change was primarily driven by an increase in net income.   Net cash used in investing activities increased by $109 million in the year ended December 31, 2021, when compared to the same period last year, primarily driven by an increase in capital expenditures. Net cash used in financing activities increased by $1,723 million in the year ended December 31, 2021, when compared to the same period last year.  The increase was primarily driven by higher debt repayments, redemption of Preferred Stock and repurchases of common stock of $639 million, $507 million and $169 million, respectively. Defined Benefit Pension Plans We have defined benefit pension plans covering certain domestic and international employees. Our largest single pension plan is Corning’s U.S. qualified plan. At December 31, 2021, this plan accounted for 77% of our consolidated defined benefit pension plans’ projected benefit obligation and 86% of the related plans’ assets. In 2021, Corning made no voluntary contributions to our domestic defined benefit pension plan and cash contributions of $24 million to our international pension plans. During 2022, the Company anticipates making cash contributions of $29 million to the international pension plans. Refer to Note 13 (Employee Retirement Plans) to the consolidated financial statements for additional information. Key Balance Sheet Data Balance sheet and working capital measures are provided in the following table (in millions): [[GREPCENT_TABLE]] [["","","December 31,"],["","","2021","","","2020"],["Working capital","","$","2,853","","","$","4,237"],["Current ratio","","1.6:1","","","2.1:1"],["Trade accounts receivable, net of doubtful accounts","","$","2,004","","","$","2,133"],["Days sales outstanding","","","49","","","","57"],["Inventories","","$","2,481","","","$","2,438"],["Inventory turns","","","3.7","","","","3.2"],["Days payable outstanding (1)","","","50","","","","44"],["Long-term debt","","$","6,989","","","$","7,816"],["Total debt","","$","7,044","","","$","7,972"],["Total debt to total capital","","","36","%","","","37","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Includes trade payables only."]] [[/GREPCENT_TABLE]] Management Assessment of Liquidity We ended 2021 with $2.1 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 December 31, 2021, approximately 58% of the consolidated cash and cash equivalents were held outside the U.S. Corning also 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.  At December 31, 2021, Corning did not have outstanding commercial paper. The Company’s $1.5 billion Revolving Credit Agreement is available to support obligations under the commercial paper program and for general corporate purposes, if needed.  At December 31, 2021, Corning did not have any amounts outstanding under the Revolving Credit Agreement. 41 Table of Contents Share Repurchases During the years ended December 31, 2021 and 2020, the Company repurchased 7.3 million and 4.1 million shares of common stock, respectively, on the open market for approximately $274 million and $105 million as part of its 2018 and 2019 Repurchase Programs.  On April 8, 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 Stock, 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.  Refer to Note 17 (Shareholders’ Equity) to the consolidated financial statements for additional information. 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 to identify potential customer credit issues.  From time to time, we factor or sell accounts receivable. Sales of accounts receivable during 2021 were $602 million.  We believe $405 million would have been collected during the normal course of business in 2021. We currently have not identified any potential material impact on our liquidity resulting from customer credit issues. Our major source of funding for 2021 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 to fund operations, acquisitions, capital expenditures, scheduled debt repayments, dividend payments and share repurchase programs for the next twelve months. Our 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 December 31, 2021, our leverage using this measure was approximately 36%. As of December 31, 2021, Corning was in compliance and no amounts were outstanding under the Company’s Revolving Credit Agreement. 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 exceeding 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 December 31, 2021, 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. Translated Earnings Contracts Corning has hedged a significant portion of its projected yen exposure for the period 2022 through 2024, with average rate forwards and options. In the years ended December 31, 2021 and 2020, we recorded a pre-tax net gain of $363 million and a pre-tax  net loss of $38 million, respectively, related to changes in the fair value of these instruments.  Included in these amounts is a realized gain of $27 million and a realized loss of $31 million, respectively.  The gross notional value outstanding for these instruments which hedge our exposure to the Japanese yen at December 31, 2021 and 2020, was $6.5 billion. We have entered into average rate forwards to hedge our translation exposure resulting from movements in the South Korean won and its impact on our net income.  In the years ended December 31, 2021 and 2020, we recorded a pre-tax net loss of $33 million and a pre-tax net gain of $24 million, respectively, related to changes in the fair value of these instruments.  Included in these amounts are realized gains of $11 million and $1 million, respectively.  These instruments had a gross notional value outstanding at December 31, 2021 and 2020, of $1.2 billion and $0.4 billion, respectively. 42 Table of Contents We have entered into a portfolio of average rate forwards to hedge against our euro translation exposure.  In the years ended December 31, 2021 and 2020, we recorded pre-tax losses of $24 million and $21 million, respectively.  Included in these amounts are realized gains of $12 million and $20 million, respectively.  At December 31, 2021 and 2020, the euro-denominated average rate instruments had a gross notional amount of $0.2 billion and $0.5 billion, respectively. These derivative instruments are not designated as accounting hedges, and changes in fair value are recorded in earnings in the translated earnings contract gain (loss), net line of the consolidated statements of income.  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 guarantee and indemnity contracts. At the time a guarantee is issued, the Company is required 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 14 (Commitments, Contingencies and Guarantees) to the consolidated financial statements for additional information. For variable interest entities, we assess the terms of our interest in each entity to determine if we are the primary beneficiary. The primary beneficiary of a variable interest entity is the party that holds a controlling financial interest.  Variable interests 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 interest entities. Corning has identified nine entities that qualify as variable interest entities and are not consolidated. These entities are not significant to Corning’s consolidated financial statements. 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. ENVIRONMENT Refer to Item 3. Legal Proceedings or Note 14 (Commitments, Contingencies and Guarantees) to the consolidated financial statements for information. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements requires us to make estimates and assumptions that affect amounts reported therein. The estimates that required us to make difficult, subjective or complex judgments, including future projections of performance and relevant discount rates, are set forth below. 43 Table of Contents Valuation of the Previously Held Equity Interest from the Consolidation of HSG We account for the change in controlling interest using the acquisition method of accounting, which requires us to estimate the fair values of the assets and liabilities recorded.  Assets recorded include intangible assets such as developed technologies and know-how, tradenames and customer-related intangibles, fixed assets and inventories. Liabilities recorded include contract liabilities such as customer deposits and deferred revenue, debt, and other liabilities. These assets and liabilities recorded are assessed at the time of the change in control and require judgment in ascertaining the fair values. In this business combination, achieved in stages, we also remeasure the previously held equity interest in HSG at the time of the change in control at fair value and recognize the resulting gain in earnings. Independent appraisals assisted the Company in the determination of the fair value of certain assets and liabilities.  Such appraisals are based on acceptable valuation models as well as inputs and assumptions provided by us. Additional information related to the fair value of the assets and liabilities recorded during the allocation period, not to exceed one year, may result in changes to the recorded values of assets and liabilities, resulting in an offsetting adjustment to the goodwill associated with the business combination. Changes in assumptions and estimates after completing the allocation of the purchase price to the assets and liabilities acquired, as well as differences in actual and estimated results could result in impacts to Corning’s financial results. In September 2020, HSG redeemed DuPont’s entire ownership interest in HSG for $250 million (the "Redemption"). Upon completion of the Redemption, Corning recognized a pre-tax gain of $498 million on its previously held equity investment in HSG as a result of the consolidation resulting from the Redemption. The gain was calculated based on the difference between fair value and carrying value of the equity method investment immediately preceding the Redemption. The fair value of Corning’s equity interest in HSG was estimated by applying the income approach, which was based on significant assumptions such as projected revenue and discount rate. The Company used a discount rate of 16.5% and terminal growth rate of zero. Upon completion of the Redemption, we recognized intangible assets consisting 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. The developed technologies and know-how intangible assets were valued using two appropriate valuation methods. The developed technologies and know-how intangibles assets valued at $125 million utilized the relief from royalty method, which was based on significant inputs such as projected revenue and key assumptions, including a discount rate of 21.0% and a royalty rate of 7.0%. The developed technologies and know-how intangibles assets valued at $90 million utilized the multi-period excess earnings method under the income approach, which was based on significant inputs such as projected revenue and the key assumption of a discount rate of 19.0%. Valuation of Deferred Revenue and Customer Deposits from the consolidation of HSG Upon completion of the Redemption and resulting consolidation, we recorded a customer deposit liability and deferred revenue. Corning recorded a customer deposit of $264 million, at the fair value, of refundable payments that HSG received from a customer under a long-term supply agreement. The discount rates used to calculate the present value of the customer deposit range from 2.54% to 3.23%. The deposits will be repaid from 2029 to 2034 provided that all purchase obligations of this customer under the supply agreement have been satisfied. We recorded deferred revenue of $1,070 million at fair value related to the performance obligations of non-refundable consideration previously received by HSG from its customers under long term supply agreements. The fair values of deferred revenue were estimated by applying a bottoms-up cost buildup method of the cost approach based on significant inputs such as the cost to fulfill the obligations as well as key assumptions including a normal profit margin. Refer to Note 3 (Investments) and Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information. 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. 44 Table of Contents 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 over a very long useful life. Precious metals are reviewed for impairment as part of our 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 only acquired to support our operations and are not held for trading or other non-manufacturing related purposes. Examples of events or circumstances that may be indicative of impairments include, but are not limited to: [[GREPCENT_TABLE]] [["\u2022","A significant decrease in the market price of an asset;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","A significant change in the use of a long-lived asset or its physical condition;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","A significant adverse change in legal factors or in the business climate that could affect the value of the asset, including an adverse action or assessment by a regulator;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","An accumulation of costs significantly more than the amount originally expected for the acquisition or construction of an asset;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of an asset; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2022","A current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life."]] [[/GREPCENT_TABLE]] For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. We must exercise judgment in assessing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Our assessment is performed at the reportable segment level. For most of our reportable segments, we concluded that locations or businesses within these segments which share production along the supply chain must be combined to appropriately identify cash flows that are largely independent of the cash flows of other assets and liabilities. For long-lived assets, when impairment indicators are present, we compare estimated undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the assets’ carrying value to determine if the asset group is recoverable. This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived from the assets to be held and used. Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing this capacity back into production. For an asset group that fails the test of recoverability, the estimated fair value of long-lived assets is determined using an “income approach” that starts with the forecast of all the expected future net cash flows, including the eventual disposition at market value of long-lived assets, and considers the fair market value of all precious metals, if applicable. We assess the 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. If there is an impairment, a loss is recorded to reflect the difference between the assets’ fair value and carrying value. Our estimates are based upon our historical experience, our commercial relationships, and available external information about future trends. We believe fair value assessments are most sensitive to market growth and the corresponding impact on volume and selling prices and that these are also more subjective than manufacturing cost and other assumptions. The Company believes its current assumptions and estimates are reasonable and appropriate. At December 31, 2021 and 2020, the carrying value of precious metals was $3.5 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 our Display Technologies or Specialty Materials segments. 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 and reprioritization 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, 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. 45 Table of Contents Refer to Note 2 (Restructuring, Impairment and Other Charges and Credits) to the consolidated financial statements for additional information on restructuring activities and impairment. Income taxes We are required to exercise judgment about our future results in assessing the realizability of our deferred tax assets. Inherent in this estimation process is the requirement for us to estimate future book and taxable income and possible tax planning strategies. These estimates require us to exercise judgment about our future results, the prudence and feasibility of possible tax planning strategies, and the economic environments in which we do business. It is possible that actual results will differ from assumptions and require adjustments to allowances. Corning accounts for uncertain tax positions in accordance with ASC Topic 740, Income Taxes, which requires that companies only record tax benefits for technical positions that are believed to have a greater than 50% likelihood of being sustained on their technical merits and then only to the extent of the amount of tax benefit that is greater than 50% likely of being realized upon settlement. In estimating these amounts, we must exercise judgment around factors such as the weighting of the tax law in our favor, the willingness of a tax authority to aggressively pursue an opposing position, or alternatively, consider a negotiated compromise, and our willingness to dispute a tax authorities’ assertion to the level of appeal we believe is required to sustain our position. As a result, it is possible that our estimate of the benefits we will realize for uncertain tax positions may change when we become aware of new information affecting these judgments and estimates. Fair value measures As required, Corning uses two kinds of inputs 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, we prioritize the inputs used to measure fair value into one of three broad levels. Characterization of fair value inputs is required for those accounting pronouncements that prescribe or permit fair value measurement. In addition, observable market data must be used when available and the highest-and-best-use measure should be applied to non-financial assets. Corning’s major categories of financial assets and liabilities required to be measured at fair value are short-term and long-term investments, certain pension asset investments and derivatives. These categories use observable inputs only and are measured using a market approach based on quoted prices in markets considered active or in markets in which there are few transactions. Derivative assets and liabilities may include interest rate swaps and forward exchange contracts that are measured using observable quoted prices for similar assets and liabilities.  Included in our forward exchange contracts are foreign currency hedges that hedge our cash flow and translation exposure resulting from movements in the Japanese yen, South Korean won, euro, new Taiwan dollar, Chinese yuan and British pound.  Changes in the fair value of contracts designated as cash flow hedges are recorded in accumulated other comprehensive loss in shareholders’ equity and reclassified into income when the underlying hedged item impacts earnings.  For contracts that are not designated as accounting hedges, changes in fair value are recorded in earnings in the translated earnings contract gain (loss), net line of the consolidated statements of income.  In arriving at the fair value of Corning’s derivative assets and liabilities, we have considered the appropriate valuation and risk criteria, including such factors as credit risk of the relevant party to the transaction.  Amounts related to credit risk are not material. Refer to Note 16 (Fair Value Measurements) to the consolidated financial statements for additional information. Probability of litigation outcomes Corning is required 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 Part II – Item 3. Legal Proceedings for a discussion of Corning’s material litigation matters. Other possible liabilities The Company is required to make judgments about future events that are inherently uncertain. In making determinations of likely outcomes of certain matters, including certain tax planning 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. 46 Table of Contents Pension and other postretirement employee benefits (OPEB) Corning offers employee retirement plans consisting of defined benefit pension plans covering certain domestic and international employees and postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. The costs and obligations related to these benefits reflect the Company’s assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, rate of compensation increase for employees and health care trend rates. The cost of providing plan benefits depends on demographic assumptions including retirements, mortality, turnover and plan participation. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Corning’s employee pension and other postretirement obligations, and current and future expense. Costs for our defined benefit pension plans consist of two elements: 1) on-going costs recognized quarterly, which are comprised of service and interest costs, expected return on plan assets and amortization of prior service costs; and 2) mark-to-market gains and losses outside of the corridor, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, which are recognized annually in the fourth quarter of each year. These gains and losses result from changes in actuarial assumptions and the differences between actual and expected return on plan assets. Any interim remeasurement, such as curtailments, settlements, significant plan changes, or adjustments to the annual valuation, is recognized as a mark-to-market adjustment in the quarter in which such an event occurs. Costs for OPEB plans consist of on-going costs recognized quarterly, and are comprised of service and interest costs, amortization of prior service costs and amortization of actuarial gains and losses. We recognize the actuarial gains and losses resulting from changes in actuarial assumptions as a component of accumulated other comprehensive loss in shareholders’ equity on an annual basis and amortize them into our operating results over the average remaining service period of employees expected to receive benefits under the plans, to the extent such gains and losses are outside of the corridor. The following table presents our actual and expected return on assets, as well as the corresponding percentages: [[GREPCENT_TABLE]] [["","","December 31,"],["(In millions)","","2021","","","2020","","","2019"],["Actual return on plan assets \u2013 Domestic plans","","$","208","","","$","420","","","$","576"],["Expected return on plan assets \u2013 Domestic plans","","","209","","","","186","","","","161"],["Actual return on plan assets \u2013 International plans","","","(2",")","","","49","","","","39"],["Expected return on plan assets \u2013 International plans","","","7","","","","9","","","","10"],["Weighted-average actual and expected return on assets:"],["Actual return on plan assets \u2013 Domestic plans","","","6.17","%","","","13.90","%","","","21.89","%"],["Expected return on plan assets \u2013 Domestic plans","","","6.00","%","","","6.00","%","","","6.00","%"],["Actual return on plan assets \u2013 International plans","","","(0.33",")%","","","10.00","%","","","7.99","%"],["Expected return on plan assets \u2013 International plans","","","1.26","%","","","1.71","%","","","2.01","%"]] [[/GREPCENT_TABLE]] As of December 31, 2021, the Projected Benefit Obligation (PBO) for U.S. pension plans was $4.1 billion. The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans: [[GREPCENT_TABLE]] [["Change in assumption","Effect on 2022 pre-tax pension expense","","Effect on December 31, 2021 PBO"],["25 basis point decrease in each spot rate","- 3 million","","+ 115 million"],["25 basis point increase in each spot rate","+ 3 million","","- 109 million"],["25 basis point decrease in expected return on assets","+ 9 million"],["25 basis point increase in expected return on assets","- 9 million"]] [[/GREPCENT_TABLE]] 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. 47 Table of Contents In addition, at December 31, 2021, a 25 basis point decrease in each spot rate would decrease shareholders’ equity by $137 million before tax, and a 25 basis point increase in each spot rate would increase shareholders’ equity by $129 million. In addition, the impact of greater than a 25 basis point decrease in each spot rate would not be proportional to the first 25 basis point decrease in each spot rate. The following table illustrates the sensitivity to a change in each spot rate assumption related to Corning’s U.S. OPEB plans: [[GREPCENT_TABLE]] [["Change in assumption","Effect on 2022 pre-tax OPEB expense","","Effect on December 31, 2021 APBO*"],["25 basis point decrease in each spot rate","+ 2 million","","+ 22 million"],["25 basis point increase in each spot rate","- 2 million","","- 20 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["*","Accumulated Postretirement Benefit Obligation (APBO)."]] [[/GREPCENT_TABLE]] 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 The Company recognizes revenue when all performance obligations under the terms of a contract with our customer are satisfied, and control of the product has been transferred to the customer. If customer acceptance clauses are present and it cannot be objectively determined that control has been transferred, revenue is only recorded when customer acceptance is received and all performance obligations have been satisfied. Sales of goods typically do not include multiple product and/or service elements. Corning also has contractual arrangements with certain customers in which we recognize revenue over time. The performance obligations under these contracts generally require services to be performed over time, resulting in either a straight-line amortization method or an input method using incurred and forecasted expense to predict revenue recognition patterns which follows satisfaction of the performance obligation. NEW ACCOUNTING STANDARDS Refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements. 48 Table of Contents FORWARD-LOOKING STATEMENTS  The statements in this Annual Report on Form 10-K, in reports subsequently filed by Corning with the Securities and Exchange Commission (SEC) on Form 10-Q and Form 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 future operating performance, the Company’s share of new and existing markets, the Company’s revenue and earnings growth rates, the Company’s ability to innovate and commercialize new products, the Company's expected capital expenditure, and the Company’s implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the Company’s manufacturing capacity. Although the 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, actual results could differ materially.  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: [[GREPCENT_TABLE]] [["\u2014","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;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","the effects of acquisitions, dispositions and other similar transactions;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","global 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;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","changes in macroeconomic and market conditions and market volatility, including developments and volatility arising from the COVID-19 pandemic, inflation, interest rates, the value of securities and other financial assets, precious metals, oil, natural gas and other commodity prices and exchange rates (particularly between the U.S. dollar and the Japanese yen, new Taiwan dollar, euro, Chinese yuan and South Korean won), decreases or sudden increases of consumer demand, and the impact of such changes and volatility on our financial position and businesses;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","product demand and industry capacity;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","competitive products and pricing;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","availability and costs of critical components, materials, equipment, natural resources and utilities;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","new product development and commercialization;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","order activity and demand from major customers;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","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;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","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;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","loss of intellectual property due to theft, cyber-attack, or disruption to our information technology infrastructure;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","unanticipated disruption to Corning's, our suppliers' and manufacturers' supply chain, equipment, facilities, IT systems or operations;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","effect of regulatory and legal developments;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","ability to pace capital spending to anticipated levels of customer demand;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","our ability to increase margins through implementation of operational changes, pricing actions and cost reduction measures;"],["\u2014","rate of technology change;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","ability to enforce patents and protect intellectual property and trade secrets;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","adverse litigation;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","product and components performance issues;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","retention of key personnel;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","customer ability to maintain profitable operations and obtain financing to fund ongoing operations and manufacturing expansions and pay receivables when due;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","loss of significant customers;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","changes in tax laws, regulations and international tax standards;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","the impacts of audits by taxing authorities; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u2014","the potential impact of legislation, government regulations, and other government action and investigations."]] [[/GREPCENT_TABLE]] While the Company continually reviews trends and uncertainties affecting the Company's results of operations and financial condition, the Company does not assume any obligation to update or supplement any particular forward-looking statements contained in this document, unless required by law. 49 Table of Contents