corning annual reports 2000

2000 REVIEW

$4 2 2

$516

$4 62

$4 21

$ 217

$0 .48

$0 . 66

$0 . 56

$0 . 61

$0 . 3 0

N E T I N C O M E

( I N M I L L I O N S )

D I L U T E D E A R N I N G S

P E R S H A R E

96 97 98 99 00

$ 7,127

$4,741

$3, 831 $3, 832

$3, 328

96 97 98 99 00

N E T S A LE S

( I N M I L L I O N S )

$ 1. 23

$0 . 67

$0 . 53

$0 . 59

$0 .48

* P R O F O R M A D I L U T E D

E A R N I N G S P E R S H A R E

96 97 98 99 00

*Pro forma diluted ea rn i ngs per share excl udes the amortization of pu r chased inta ng i bles and go o d w i l l, pu r chased in- pro cess resea r ch and development cos ts,

one- ti me acqu i s ition- r elated cos ts, disconti nued operations and non- r ecu r r i ng items. This measure is not in accorda n ce with, or an alternati ve for, genera l ly accepted

accou nti ng pr i n ci ples and may not be cons i s tent with measu r es used by other compa n ies. It shou ld be cons ider ed supplemental data.

96 97 98 99 00

*

F I N A N C I A L H I G H L I G H T S

20 0 0) 19 9 9) 19 9 8) 19 9 7) 19 9 6)

N E T S A L E S $ 7 , 1 2 7 . 1) $4 , 7 4 1 . 1) $3 , 8 3 1 . 9) $3 , 8 3 1 . 2) $3 , 3 2 7 . 5)

Income from continuing operations $ 4 0 9 . 5) $ 5 1 1 . 0) $ 3 5 4 . 8) $ 4 3 0 . 6) $ 3 5 5 . 2)

Income from discontinued operations, net of tax 1 2 . 5) 4 . 8) 6 6 . 5) 3 0 . 9) ( 1 3 6 . 9 )

E x t r a o rd i n a ry charge, net of tax and

minority intere s t ( 0 . 9 )

N E T I N C O M E $ 4 2 2 . 0) $ 5 1 5 . 8) $ 4 2 1 . 3) $ 4 6 1 . 5) $ 2 1 7 . 4)

D I L U T E D E A R N I N G S P E R S H A R E

Continuing operations $ 0 . 4 6) $ 0 . 6 5) $ 0 . 4 7) $ 0 . 5 7) $ 0 . 4 8)

Discontinued operations 0 . 0 2) 0 . 0 1) 0 . 0 9) 0 . 0 4) ( 0 . 1 8)

N E T I N C O M E $ 0 . 4 8) $ 0 . 6 6) $ 0 . 5 6) $ 0 . 6 1) $ 0 . 3 0)

P R O F O R M A D I L U T E D E A R N I N G S P E R S H A R E $ 1 . 2 3) $ 0 . 6 7) $ 0 . 5 3) $ 0 . 5 9) $ 0 . 4 8)

4 3

C o rning Incorporated and Subsidiary Companies

S EGM EN T HIGH LIGH T S Revenues( In m il l ions) 2000 1999 1998

Telecommunications $5,120.7 $2,958.2 $2,139.6Advanced Materials 1,086.0 1,053.9 1,020.1Information Display 894.1 701.2 644.7

Total Segments 7,100.8 4,713.3 3,804.4

Non-segment net sales (1) 26.3 27.8 27.5Interest income 104.6 11.7 15.0Royalty and dividend income 34.6 29.7 35.0Nonoperating gains 6.8 30.0 39.7Total $ 7,273.1 $ 4,812.5 $ 3,921.6

( 1 ) Includes amounts der ived from corpora te in vestments .

44 Consolidated Statements of Income45 Consolidated Balance Sheets46 Consolidated Statements of Cash Flows47 Consolidated Statements of Changes in Shareholders’ Equity48 Management’s Discussion and Analysis of Financial Condition and Results of Operations68 Notes to Consolidated Financial Statements96 Statement of Management Responsibility for Financial Statements97 Report of Independent Accountants98 Quarterly Operating Results and Related Market Data99 Five Years in Review – Historical Comparison

F IN A NCIAL SECTION

4 4

CONS OLIDAT ED S TAT EME NTS OF INC OM E C o rning Incorporated and Subsidiary Companies

Year Ended December 31,(In millions, except per share amounts) 2 0 0 0 1 9 9 9 1 9 9 8

R E V E N U E S

Net sales $ 7,127.1 $ 4,741.1 $ 3,831.9I n t e rest income 1 0 4 . 6 1 1 . 7 1 5 . 0Royalty and dividend income 3 4 . 6 2 9 . 7 3 5 . 0Nonoperating gains 6 . 8 3 0 . 0 3 9 . 7

7 , 2 7 3 . 1 4 , 8 1 2 . 5 3 , 9 2 1 . 6

D E D U C T I O N S

Cost of sales 4 , 1 3 1 . 1 2 , 9 3 0 . 3 2 , 3 6 0 . 5Selling, general and administrative expenses 1 , 0 4 7 . 4 6 6 7 . 4 5 4 2 . 8R e s e a rch, development and engineering expenses 5 3 9 . 9 3 7 8 . 2 3 0 7 . 4A m o rtization of purchased intangibles,

including goodwill 2 4 5 . 0 2 7 . 8 2 2 . 2I n t e rest expense 1 0 6 . 6 9 3 . 2 6 6 . 8A c q u i s i t i o n - related charg e s 4 6 2 . 6P rovision for impairment and re s t ru c t u r i n g 1 . 4 8 4 . 6O t h e r, net 4 9 . 1 3 9 . 3 5 5 . 0

Income from continuing operations before taxes on income 6 9 1 . 4 6 7 4 . 9 4 8 2 . 3

Taxes on income from continuing operations 4 0 7 . 1 2 0 7 . 1 1 4 9 . 5

Income from continuing operations before minority i n t e rest and equity earn i n g s 2 8 4 . 3 4 6 7 . 8 3 3 2 . 8

Minority interest in earnings of subsidiaries ( 2 3 . 7 ) ( 6 6 . 8 ) ( 6 1 . 6 )Dividends on convertible pre f e rred securities of subsidiary ( 2 . 3 ) ( 1 3 . 7 )Equity in earnings of associated companies 1 8 5 . 2 1 1 2 . 3 9 7 . 3I m p a i rment of equity investment ( 3 6 . 3 )

Income from continuing operations 4 0 9 . 5 5 1 1 . 0 3 5 4 . 8Income from discontinued operations, net of

income taxes 1 2 . 5 4 . 8 6 6 . 5N E T I N C O M E $ 4 2 2 . 0 $ 515.8 $ 4 2 1 . 3

B A S I C E A R N I N G S P E R S H A R E

Continuing operations $ 0 . 4 8 $ 0 . 6 7 $ 0 . 4 8Discontinued operations 0 . 0 1 0 . 0 9N E T I N C O M E $ 0 . 4 9 $ 0 . 6 7 $ 0 . 5 7

D I L U T E D E A R N I N G S P E R S H A R E

Continuing operations $ 0 . 4 6 $ 0 . 6 5 $ 0 . 4 7Discontinued operations 0 . 0 2 0 . 0 1 0 . 0 9N E T I N C O M E $ 0 . 4 8 $ 0 . 6 6 $ 0 . 5 6

S H A R E S U S E D I N C O M P U T I N G E A R N I N G S P E R S H A R E

Basic earnings per share 8 5 8 . 4 7 6 5 . 3 7 3 3 . 2Diluted earnings per share 8 7 9 . 3 7 9 5 . 0 7 7 7 . 6

The accompanying notes are an integral part of these statements.

CONS OLIDAT ED B A LA NC E SHE ET S C o rning Incorporated and Subsidiary Companies

December 31,(In millions, except share amounts) 2 0 0 0 1 9 9 9

A S S E T S

C U R R E N T A S S E T S

C a s h $ 1 3 8 . 0 $ 1 2 1 . 8S h o rt - t e rm investments, at cost, which approximates market value 1 , 6 5 5 . 8 1 5 8 . 6Accounts receivable, net of doubtful accounts and

allowances - $46.6/2000; $19.9/1999 1 , 4 8 9 . 7 8 7 2 . 4I n v e n t o r i e s 1 , 0 3 9 . 9 6 0 2 . 2D e f e rred taxes on income and other current assets 3 1 1 . 0 2 2 9 . 2

Total current assets 4 , 6 3 4 . 4 1 , 9 8 4 . 2

I n v e s t m e n t sAssociated companies, at equity 4 7 8 . 6 4 2 1 . 9Others, at cost or fair value 1 5 6 . 2 8 2 . 5

Plant and equipment, at cost, net of accumulated depre c i a t i o n 4 , 6 7 9 . 0 3 , 2 0 1 . 7Goodwill, net of accumulated amortization - $302.7/2000; $99.5/1999 6 , 7 7 9 . 2 4 6 3 . 9Other intangible assets, net of accumulated amort i z a t i o n

- $52.4/2000; $12.8/1999 5 6 0 . 7 4 2 . 8Other assets 2 3 7 . 6 3 2 9 . 0

T O T A L A S S E T S $ 17,525.7 $ 6,526.0

L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y

C U R R E N T L I A B I L I T I E S

Loans payable $ 128.4 $ 420.7Accounts payable 8 5 4 . 7 4 1 8 . 0Other accrued liabilities 9 6 5 . 6 7 1 5 . 3

Total current liabilities 1 , 9 4 8 . 7 1 , 5 5 4 . 0

L o n g - t e rm debt 3 , 9 6 6 . 4 1 , 4 9 0 . 4P o s t re t i rement benefits other than pensions 5 8 8 . 3 5 7 4 . 0D e f e rred taxes on income 6 0 . 5Other liabilities 1 8 1 . 1 1 4 6 . 6Minority interest in subsidiary companies 1 3 9 . 1 2 8 4 . 8Mandatorily redeemable convertible pre f e rred stock 8 . 7 1 3 . 5Common shareholders’ equity

Common stock, including excess over par valueand other capital - par value $0.50 per share ;S h a res authorized: 3.8 billion;S h a res issued: 1.0 billion/2000; 855.6 million/1999 9 , 5 1 2 . 5 1 , 3 5 9 . 3

Retained earn i n g s 2 , 0 0 0 . 5 1 , 7 9 0 . 0Less cost of 75.9 million/2000 and 75.0 million/1999

s h a res of common stock in tre a s u ry ( 7 5 3 . 2 ) ( 6 5 6 . 0 )Accumulated other comprehensive loss ( 1 2 6 . 9 ) ( 3 0 . 6 )

Total common shareholders’ equity 1 0 , 6 3 2 . 9 2 , 4 6 2 . 7

T O T A L L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y $ 17,525.7 $ 6,526.0


4 5

4 6

CONS OLIDAT ED S TAT EME NTS OF CA SH FLOW S C o rning Incorporated and Subsidiary Companies

Year Ended December 31,(In millions) 2 0 0 0 1 9 9 9 1 9 9 8

C A S H F L O W S F R O M O P E R A T I N G A C T I V I T I E S :

Net income $ 4 2 2 . 0 $ 5 1 5 . 8 $ 4 2 1 . 3Adjustments to reconcile net income to net cash provided by operating

activities of continuing operations:Income from discontinued operations ( 1 2 . 5 ) ( 4 . 8 ) ( 6 6 . 5 )A m o rtization of purchased intangibles, including goodwill 2 4 5 . 0 2 7 . 8 2 2 . 2D e p reciation and amortization of other intangible assets 5 1 9 . 9 3 8 0 . 5 2 9 7 . 9Nonoperating gains ( 6 . 8 ) ( 3 0 . 0 ) ( 4 0 . 4 )A c q u i s i t i o n - related charg e s 4 6 2 . 6P rovision for impairment and re s t ructuring, net of cash spent 1 . 4 6 1 . 3Employee benefit expense in excess of (less than) cash funding 3 . 4 ( 1 7 . 1 ) 3 9 . 4Equity in earnings of associated companies in excess of dividends re c e i v e d ( 1 4 0 . 5 ) ( 6 1 . 4 ) ( 3 3 . 9 )I m p a i rm e n t of equity investment 3 6 . 3Minority interest in earnings of subsidiaries in excess of (less than)

dividends paid ( 8 3 . 2 ) 5 0 . 5 8 . 3Losses on disposition of pro p e rties and investments 1 6 . 4 8 . 8 8 . 9D e f e rred tax (benefit ) / e x p e n s e ( 4 8 . 4 ) 4 2 . 8 2 . 0Tax benefit on stock options 3 2 1 . 2 5 9 . 9 1 3 . 8Changes in certain working capital items ( 4 0 2 . 3 ) ( 1 4 4 . 1 ) ( 8 0 . 8 )O t h e r 8 8 . 1 3 6 . 8 2 8 . 7

N E T C A S H P R O V I D E D B Y O P E R A T I N G A C T I V I T I E S

O F C O N T I N U I N G O P E R A T I O N S 1 , 4 2 1 . 2 8 6 6 . 9 6 8 2 . 2

C A S H F L O W S F R O M I N V E S T I N G A C T I V I T I E S :

Capital expenditure s ( 1 , 5 2 4 . 9 ) ( 7 5 7 . 1 ) ( 7 3 0 . 4 )Acquisitions of businesses and leased assets, net of cash acquire d ( 5 , 0 0 9 . 4 ) ( 1 8 8 . 1 ) ( 8 5 . 0 )Net proceeds from disposition of pro p e rties and investments 7 9 . 8 6 7 . 9 1 4 1 . 2P roceeds from divestiture of consumer housewares business 5 9 3 . 1Net increase in long-term investments and other noncurrent assets ( 5 5 . 6 ) ( 3 7 . 7 ) ( 1 0 2 . 1 )Transaction costs related to pooling of intere s t s ( 4 4 . 5 )O t h e r 5 . 5 ( 1 7 . 9 ) 0 . 4

N E T C A S H U S E D I N I N V E S T I N G A C T I V I T I E S

O F C O N T I N U I N G O P E R A T I O N S ( 6 , 5 4 9 . 1 ) ( 9 3 2 . 9 ) ( 1 8 2 . 8 )

C A S H F L O W S F R O M F I N A N C I N G A C T I V I T I E S :

P roceeds from issuance of debt 2 , 8 0 8 . 2 6 8 0 . 7 4 8 9 . 6Repayments of loans ( 6 3 5 . 1 ) ( 1 9 9 . 2 ) ( 3 0 0 . 8 )Repayments of loans with proceeds from divestiture of

consumer housewares business ( 3 4 3 . 0 )P roceeds from issuance of common stock 4 , 7 4 3 . 6 1 1 3 . 2 2 8 . 7R e p u rchases of common stock ( 9 6 . 2 ) ( 7 4 . 3 )Redemption of common stock for income tax withholding ( 5 7 . 0 ) ( 1 8 . 0 ) ( 9 . 8 )Dividends paid ( 2 1 1 . 5 ) ( 1 7 6 . 9 ) ( 1 6 8 . 3 )O t h e r 0 . 3 ( 0 . 3 )

N E T C A S H P R O V I D E D B Y ( U S E D I N ) F I N A N C I N G

A C T I V I T I E S O F C O N T I N U I N G O P E R A T I O N S 6 , 6 4 8 . 2 3 0 3 . 9 ( 3 7 8 . 2 )E ffect of exchange rates on cash ( 5 . 3 ) ( 4 . 2 ) 4 . 4Cash used in discontinued operations ( 1 . 6 ) ( 1 2 . 5 ) ( 1 7 2 . 0 )Net change in cash and cash equivalents 1 , 5 1 3 . 4 2 2 1 . 2 ( 4 6 . 4 )Cash and cash equivalents at beginning of year 2 8 0 . 4 5 9 . 2 1 0 5 . 6

C A S H A N D C A S H E Q U I V A L E N T S A T E N D O F Y E A R $ 1 , 7 9 3 . 8 $ 2 8 0 . 4 $ 5 9 . 2

The accompanying notes are an integral part of these statements. Certain amounts have been re c l a s s i fied to conform to 2000 classific a t i o n s .

4 7

CONS OL IDAT E D S TAT E ME N T S OF C H ANGE S IN S HA R EHOLDE RS ’ EQ UIT Y C o rning Incorporated and Subsidiary Companies

A c c u m u l a t e dCapital in o t h e r To t a l

C o m m o n excess of U n e a rn e d R e t a i n e d Tre a s u ry c o m p re h e n s i v e s h a re h o l d e r s ’s t o c k par value c o m p e n s a t i o n e a rn i n g s s t o c k income (loss) e q u i t y

B A L A N C E , D E C E M B E R 3 1 , 1 9 9 7 $ 1 3 2 . 4 $ 9 7 6 . 3 $ ( 1 1 9 . 9 ) $ 1 , 1 9 8 . 1 $ ( 7 2 4 . 5 ) $ (33.9) $ 1 , 4 2 8 . 5

Net income 4 2 1 . 3 4 2 1 . 3F o reign currency translation adjustment 3 8 . 3 3 8 . 3U n realized loss on marketable securities, net of tax ( 1 . 0 ) ( 1 . 0 )

Realized gains on securities, net of tax ( 0 . 2 ) ( 0 . 2 )Total comprehensive income 4 5 8 . 4

S h a res issued 0 . 8 4 8 . 2 4 9 . 0C o rning Stock Ownership Tru s t 1 5 . 6 ( 3 . 1 ) 1 2 . 5R e p u rchases of share s ( 7 4 . 3 ) ( 7 4 . 3 )R e t i rement of tre a s u ry share s ( 1 4 . 6 ) 1 4 . 6Tax benefit from exercise of options 1 3 . 8 1 3 . 8Dividends on stock ($0.24 per share ) ( 1 6 8 . 3 ) ( 1 6 8 . 3 )O t h e r, net 2 . 1 ( 9 . 3 ) ( 5 . 8 ) ( 1 3 . 0 )

B A L A N C E , D E C E M B E R 3 1 , 1 9 9 8 1 3 3 . 2 1 , 0 4 1 . 4 ( 1 3 2 . 3 ) 1 , 4 5 1 . 1 ( 7 9 0 . 0 ) 3 . 2 1 , 7 0 6 . 6

Net income 5 1 5 . 8 5 1 5 . 8F o reign currency translation adjustment ( 5 3 . 8 ) ( 5 3 . 8 )U n realized gain on marketable

securities, net of tax 2 3 . 2 2 3 . 2Realized gains on securities, net of tax ( 3 . 2 ) ( 3 . 2 )Total comprehensive income 4 8 2 . 0

Conversion of monthly income p re f e rred securities 1 0 2 . 7 2 6 2 . 6 3 6 5 . 3

S h a res issued 2 . 2 1 6 0 . 5 1 6 2 . 7C o rning Stock Ownership Tru s t 1 4 4 . 8 ( 1 2 7 . 3 ) 1 7 . 5R e p u rchases of share s ( 9 6 . 2 ) ( 9 6 . 2 )R e t i rement of tre a s u ry share s ( 3 0 . 2 ) 3 0 . 2Tax benefit from exercise of options 5 9 . 9 5 9 . 9Dividends on stock ($0.24 per share ) ( 1 7 6 . 9 ) ( 1 7 6 . 9 )O t h e r, net 4 . 4 ( 6 2 . 6 ) ( 5 8 . 2 )

B A L A N C E , D E C E M B E R 3 1 , 1 9 9 9 1 3 5 . 4 1 , 4 7 9 . 1 ( 2 5 5 . 2 ) 1 , 7 9 0 . 0 ( 6 5 6 . 0 ) ( 3 0 . 6 ) 2 , 4 6 2 . 7

Net income 4 2 2 . 0 4 2 2 . 0F o reign currency translation adjustment ( 1 1 8 . 3 ) ( 1 1 8 . 3 )U n realized gain on marketable

securities, net of tax 3 2 . 6 3 2 . 6Realized gains on securities, net of tax ( 1 0 . 6 ) ( 1 0 . 6 )Total comprehensive income 3 2 5 . 7

S h a res issued in acquisitions 1 0 . 4 2 , 9 8 0 . 0 2 , 9 9 0 . 4S h a res issued in equity off e r i n g s 3 1 . 9 4 , 5 6 0 . 1 4 , 5 9 2 . 0Other shares issued 3 . 6 2 6 0 . 6 2 6 4 . 2Stock split 3 1 9 . 6 ( 3 1 9 . 6 )C o rning Stock Ownership Tru s t 4 4 . 6 ( 2 5 . 8 ) 1 8 . 8Tax benefit from exercise of options 3 2 1 . 2 3 2 1 . 2Dividends on stock ($0.24 per share ) ( 2 1 1 . 5 ) ( 2 1 1 . 5 )O t h e r, net ( 1 0 . 2 ) ( 2 3 . 2 ) ( 9 7 . 2 ) ( 1 3 0 . 6 )B A L A N C E , D E C E M B E R 3 1 , 2 0 0 0 $ 5 0 0 . 9 $ 9,315.8 $ (304.2) $ 2,000.5 $ (753.2) $ (126.9) $1 0 , 6 3 2 . 9


(In millions, except per share amounts)

4 8

M A N AGE M E N T ’ S DIS CUS SION AND A NA LYSI S O F F IN A NCI A L Corning Incorporated and Subsidiary Companies

CON DIT ION A ND R ES ULTS OF OPE R AT ION (U na ud ited)

F IN A NCIAL R EV IE W

C o rn i n g ’s financial perf o rmance in 2000 was strong as the company re c o rded sales at $7.1 billion, the highestsales ever in its 149-year history. In 2000, Corning continued its strategy of growth through re s e a rch and devel-opment, capacity expansion, new product development in key growth markets and acquisitions. Corning alsosaw the results of past investments in acquisitions, capital expenditures and re s e a rch and development begin tocontribute to 2000 earnings.

Overall, Corning re p o rted robust results in 2000 as each of its three segments experienced sales gro w t hover 1999 which was also a very strong year. Sales growth in 2000 was most pronounced in theTelecommunications Segment where demand for Corn i n g ’s premium fib e r, cable and photonic products, dri-ven by the growth of the Internet, and the impact of acquisitions generated high double-digit growth. TheTelecommunications and Information Display Segments demonstrated strong earnings perf o rmances in 2000as both segments more than doubled their 1999 earn i n g s .

B U S I N E S S C O M B I N A T I O N S

In 2000, Corning completed 12 strategic business combinations valued at approximately $10 billion within theTelecommunications Segment, including the pooling of interests with Oak Industries, Inc. (Oak) in January 2000.The largest purchases closed in the year included:

— the acquisition of Pirelli S.p.A.’s (90%) and Cisco Systems Inc.’s (10%) optical components and devices business (P i relli acquisition),

— the acquisition of NetOptix Corporation, a manufacturer of thin film filters for use in dense wavelength division multiplexing (D W D M) components,

— the acquisition of Siemens AG’s worldwide optical fiber and cable systems and equipment business, includ-ing its 50% ownership in Siecor Corporation and Siecor GmbH (Siemens transaction).

Each of these transactions supports Corn i n g ’s strategic growth initiatives in the Te l e c o m m u n i c a t i o n sSegment and also strengthens and broadens Corn i n g ’s portfolio of businesses. See Note 2 of the Notes toConsolidated Financial Statements for more information on business combinations for 2000, 1999 and 1998.

Allocation of the purchase price of the acquisitions resulted in charges related to purchased in-pro c e s sre s e a rch and development (IPRD) in certain acquisitions. Further discussion re g a rding these charges isincluded on page 61.

C A P I T A L E X P E N D I T U R E S

In 2000, Corning committed $1.7 billion in capital spending, more than double any other year in its history.The capital spending plan for 2001 will approximate $2.5 billion. Corn i n g ’s 2000 and 2001 spending concen-t r a t e s on key growth prospects in optical fiber and cable, photonics and the display technologies businesses.S i g n i ficant capital expenditures in 2000 were as follows:

— $610 million to expand capacity for optical fiber and cable,— $295 million to expand capacity of liquid crystal display glass,— $265 million to expand capacity in photonics.

4 9

C o rning Incorporated and Subsidiary CompaniesF IN A NCIAL RE V IEW (co n cl uded )

C o rn i n g ’s growth strategy is not solely dependent upon acquisitions, but also calls for a continuous com-mitment to internal growth through re s e a rch and development. Corn i n g ’s dedication to excellence thro u g hre s e a rch and development was evidenced in 2000 as Corning spent an unprecedented $540 million. Corn i n ganticipates increasing re s e a rch and development to more than $700 million in 2001. In 2000 Corning intro-duced the following main products resulting from its discovery eff o rt s :

— M e t ro C or™, a premium fiber solution for optical communications in the metropolitan marketplace.— C o rning micro a rray products for applications in human genome re s e a rc h .— E A G LE2 0 0 0, fusion formed glass for applications in the liquid crystal display business.— P u re P a th™, optical switches for wavelength division multiplexing systems in the optical networking busin e s s .

O U T L O O K

Looking forw a rd to 2001, Corning will continue to invest in new product development, capacity expansion ande x t e rnal growth. Corning expects its sales will grow by 20% to 25% and that each segment’s net income willshow double-digit gro w t h .

O T H E R

The consolidated financial statements presented for 1999 and 1998 have been restated to include the fin a n c i a lposition and results of operations of Oak to re flect the pooling of interests accounting used in the Oak merg e rconsummated on January 28, 2000.

All share and per share amounts have been restated to re flect the thre e - f o r-one stock split of Corning com-mon stock that became effective October 3, 2000.

R E S U LTS OF CON TIN UING OPE R ATIONS

Consolidated sales in 2000 were $7.1 billion, a 50% increase over 1999. Excluding the impact of acquisitions,C o rn i n g ’s consolidated sales in 2000 increased 36% over 1999. In 1999, consolidated sales totaled $4.7 billion,a 24% increase over 1998. Strong demand for Corn i n g ’s new premium fib e r, cable and photonics products andthe impact of acquisitions contributed to the overall sales growth. Sales growth for 2000 was most pro n o u n c e din the Telecommunications Segment where the impact of acquisitions and demand for Corn i n g ’s premium fib e r,cable and photonics products drove year over year sales growth of 73%. Excluding acquisitions, sales inTelecommunications grew 50% over 1999.

C o rn i n g ’s income from continuing operations totaled $409.5 million in 2000, a decrease compared to$511.0 million in 1999, primarily due to substantial non-cash acquisition-related charges. Income from con-tinuing operations increased 44% from $354.8 million in 1998, a year in which results were adversely impactedby economic factors in Asia, to $511.0 million in 1999. Diluted earnings per share from continuing operationswas $0.46 per share in 2000 compared to $0.65 per share in 1999. In 1999, diluted earnings per share from con-tinuing operations increased 37% from $0.47 per share in 1998 to $0.65 per share .

C o rn i n g ’s 2000, 1999 and 1998 results were impacted by significant nonre c u rring items including gainsand losses on the disposition and re s t ructuring of businesses, IPRD charges, other acquisition-related charg e sand impairment losses. In addition, as a result of its acquisition strategy, Corning began to re c o rd signific a n tamounts of amortization of purchased intangibles and goodwill in 2000. These amounts will increase in 2001as a result of transactions completed throughout 2000.

C o rning believes a better understanding of the changes in its operating results is provided by comparingits operating results on a pro forma basis excluding amortization of purchased intangibles and goodwill,p u rchased IPRD costs, one-time acquisition costs and nonre c u rring items. This measure is not in accord a n c ewith, or an alternative for, generally accepted accounting principles (GAAP) and may not be consistent withm e a s u res used by other companies. It should be considered supplemental data.

5 0

C o rning Incorporated and Subsidiary CompaniesR E S U LTS OF CON TIN UING OPE R ATIONS (co n cl uded )

P ro forma net income in 2000 totaled $1.1 billion and pro forma earnings per share was $1.23, an incre a s eof 108% and 84%, respectively over 1999. Pro forma net income in 1999 was $524.7 million, or $0.67 per share ,an increase of 32% and 26%, respectively over 1998. Corning calculates pro forma net income from net incomef rom continuing operations as follows (after tax and in millions):

Year Ended December 31,2 0 0 0 1 9 9 9 1998

Net income from continuing operations $ 409.5 $ 511.0 $ 354.8Nonoperating gains ( 4 . 2 ) ( 9 . 5 ) ( 2 2 . 9 )A m o rtization of purchased intangibles, including goodwill 2 1 8 . 4 2 1 . 8 1 7 . 4I n - p rocess re s e a rch and development charg e s 3 9 9 . 3Other acquisition-related charg e s 4 3 . 4P rovision for impairment and re s t ructuring charges, net 1 . 4 4 9 . 2Gain in equity in earnings of associated companies ( 1 1 . 7 )I m p a i rment of equity investment 3 6 . 3

P ro forma net income $ 1,091.0 $ 524.7 $ 398.5

P ro forma diluted earnings per share $ 1.23 $ 0.67 $ 0.53

See Non-Segment Results on page 58 for a discussion of these nonre c u rring items.

OPE R ATING SEGM E N T S

C o rning groups its products into three operating segments: Telecommunications, Advanced Materials andI n f o rmation Display. Corning also includes the earnings of equity affiliates that are closely associated withC o rn i n g ’s operating segments in segment net income. Information about the perf o rmance of Corn i n g ’s operating segments is presented on the following pages. Segment amounts exclude revenues, expenses and equitye a rnings not specifically identifiable to segments. In the first quarter of 2 0 0 0, Corning changed the perf o rm a n c em e a s u rement of its operating segments to a new metric — segment net income excluding amortization o f p u rchased intangibles and goodwill, purchased I P R D costs, one-time acquisition costs and other nonre c u rr i n gitems. This measure is not in accordance with G A A P and may not be consistent with measures used by othercompanies. The segment results for 1 9 9 9 and 1 9 9 8 have been restated to conform to the new measure .

C o rning pre p a red the financial results for its three operating segments on a basis that is consistent with themanner in which Corning management internally disaggregates financial information to assist in makingi n t e rnal operating decisions. Corning has allocated some common expenses among segments diff e rently thanit would for stand alone financial information pre p a red in accordance with G A A P. The nonre c u rring items notedabove are excluded from segment net income, but are described more fully in Non-Segment Results.

5 1

C o rning Incorporated and Subsidiary CompaniesOPE R ATING SEGM EN TS ( cont i nued )

T E L E C O M M U N I C AT I O N S

(In millions) 2 0 0 0 1 9 9 9 1 9 9 8

Net sales $ 5,120.7 $ 2,958.2 $ 2,139.6R e s e a rch, development and engineering expenses $ 390.4 $ 260.8 $ 203.7I n t e rest expense $ 6 9 . 0 $ 58.8 $ 3 9 . 8Segment earnings before minority intere s t

and equity earn i n g s $ 677.2 $ 330.4 $ 265.3Minority interest in (earnings) losses of subsidiaries 3 . 0 ( 3 4 . 6 ) ( 3 8 . 0 )Equity in earnings of associated companies 1 . 0 1 4 . 9 2 2 . 7

Segment net income $ 681.2 $ 310.7 $ 250.0

Segment earnings before minority interest andequity earnings as a percentage of segment sales 1 3 . 2 % 1 1 . 2 % 1 2 . 4 %

Segment net income as a percentage of segment sales 1 3 . 3 % 1 0 . 5 % 1 1 . 7 %

The Telecommunications Segment produces optical fiber and cable, optical hard w a re and equipment, pho-tonic modules and components and optical networking devices for the worldwide telecommunications industry.

2 0 0 0 V S . 1 9 9 9

Sales in the Telecommunications Segment increased 73% over 1999 to $5.1 billion. Excluding acquisitions,sales growth was 50%. The sales growth in the segment was led primarily by volume gains in the opticalfiber and cable business, hard w a re and equipment and photonic technologies businesses. Segment net incomemore than doubled in 2000 compared to 1999. The percentage increase in segment net income exceeds thei n c rease in sales, re flecting an overall increase in segment gross margin percentage and a decrease in re s e a rc h ,development and engineering as a percentage of sales.

Sales in the optical fiber and cable business in 2000 increased approximately 70% over 1999 to appro x i m a t e l y$2.9 billion. The increase in sales resulted chiefly from the impact of acquisitions and strong volume gains forL E AF ® optical fib e r. Volume growth continues to be driven by regional, local and long-haul telephone com-panies and cable television operators, including significant European carriers benefiting from continued dere g-ulation of the telecommunications industry throughout Europe. Approximately $460 million of the increase inoptical fiber and cable sales primarily resulted from the following acquisitions:

— the acquisition of the remaining 50% interest in Siecor GmbH and the cabling business previously owned b ySiemens in the first quarter of 2000,

— the acquisition of the optical cable business from BICC, plc and the remaining 50% interest in OpticalWaveguides Australia, Pty. Ltd. in the second quarter of 1999.

Excluding the impact of these acquisitions, sales in the optical fiber and cable business increased 42% forthe year principally due to volume gains of almost 50%, re flecting continued strong demand for Corn i n g ’s pre-mium fiber products. Volume of premium fiber and cable products, including Corn i n g ’s LEAF optical fib e r, morethan doubled over the same period in 1999. Price declines ranged between 5% and 10% for Corn i n g ’s opticalfiber and cable products in comparison with last year. The weighted-average optical fiber and cable price in 2000remained relatively stable compared to 1999. The rate of price declines for cabled products slowed thro u g h-out 2000 commensurate with the worldwide tightening of supply of optical fib e r.

5 2


As a result of continued strong worldwide demand for optical fiber and cable, Corning continued to pro-duce at maximum manufacturing capacity and invest capital to further expand capacity. The following opticalfiber capacity expansion announcements were made in 2000 (approximate amounts):

— In December, Corning announced plans to invest in a new optical fiber manufacturing facility in OklahomaC i t y, O K with construction to begin in 2001 and production to start in 2004. In Febru a ry 2001, Corn i n g ’sb o a rd of directors approved a $400 million investment for the pro j e c t .

— In December, Corning announced plans to invest an additional $450 million in its Concord, N C facility cre-ating the largest optical fiber plant in the world by 2004.

— In September, Corning announced plans to upgrade and expand its Deeside, North Wales facility by invest-ing $50 million. This investment will increase capacity for the optical fiber manufacturing facility by over 50%.

— In Febru a ry, Corning announced a $750 million expansion of its Concord and Wilmington, NC fiber pro-duction facilities which are expected to come on-line in late 2001 and 2002.

The effect of all the expansions announced in 2000 will permit Corning to increase its manufacturing cap-a city for optical fiber 20% in 2001 and at least 25% per year from 2002 to 2004.

Net income from the optical fiber and cable business increased approximately 84% in 2000 compared to1999. The strong earnings perf o rmance is due to volume growth in high-data rate products, relatively stablepricing and a shift to a higher premium product mix.

Sales in the telecommunications hard w a re and equipment business, including the Gilbert Connectorsb u s iness acquired in the Oak merg e r, increased over 82% in 2000 to approximately $1.02 billion. This incre a s eresulted from a higher volume of existing products, the Siemens transaction and particularly strong demandf rom cable television customers, offset in part by price declines. Excluding acquisitions, sales increased 57% over1999. Overall net income almost doubled over 1999 largely due to volume incre a s e s .

The photonic technologies business, including the Lasert ron business acquired in the Oak merg e r, man-u f a c t u res photonic modules and components primarily for the optical amplification market. Sales in thisb u s iness more than doubled over 1999 to approximately $970 million. The business realized strong volumegains in 2000 led by new product sales, growth in amplifier sales and acquisitions. The operating perf o rm a n c ein this business improved in 2000 as the business became solidly pro fitable due to strong volume, pro d u c t i vi t ygains and more cost efficient access to pump lasers achieved through the acquisition of Lasert ron. Corn i n gcontinues to invest heavily in re s e a rch and development in this business.

Photonic technologies is an integral part of Corn i n g ’s capital spending plan. Corning is investing signif-icant capital to support the business and in early 2001 and 2000 announced the following (appro x i m a t eamounts) capital expansion plans:

— In Febru a ry 2001, Corning announced plans to invest $150 million at Optical Technologies in Milan, Italyto increase capacity of the business purchased from Pire l l i .

— In December, Corning announced plans to invest $150 million at Benton Park, PA effectively incre a s i n gc a p a city of amplifier modules by 50% and dispersion compensation modules over 200%.

— In August, Corning announced plans to invest $80 million in constructing a new passive componentsm a nufacturing facility in Henrietta, NY. The investment will double production of fiber-based passive com-ponents and is expected to begin production in early 2001.

— In July, Corning announced a $225 million expansion of Corning Lasert ron in Nashua, NH that combinedwith the $45 million expansion announced in April 2000 will increase the existing capacity of Corning Lasert ro np roducts by six times over the next two years.

— In June, Corning announced a $50 million investment in its Erwin, NY facility to bolster capacity forphotonic modules.

— In April, Corning announced a $50 million investment for the addition of a second amplifier assembly plantin Benton Park, PA. Startup production began in the third quarter with initial shipments in early October.This expansion will more than double Corn i n g ’s module and amplifier manufacturing capacity.

5 3

C o rning Incorporated and Subsidiary CompaniesOPE R ATING SEGM EN TS ( conti nued )

— In Febru a ry, Corning and Samsung Electronics announced the formation of an equity-venture to mass pro-duce micro optic products. Samsung Corning Micro-Optics will manufacture DWDM packaged compon e n t s .

— In June, Corning and Samsung Electronics announced the approval of a $110 million capacity expansion inthe equity-venture that will quadruple its production of DWDM components.

During the third quarter of 2000, the optical networking business which designs and manufactures wave-length management products and optical switch modules, began shipments of its wavelength managementp ro ducts to customers. Sales for 2000 were approximately $10 million. This business operated at a loss due tos i g n i ficant re s e a rch and development investments. In August, Corning announced plans to invest $20 millionto increase its capacity for the manufacture of wavelength management products. This investment will incre a s ecapacity of PurePath products by six times and is expected to become operational in the third quarter of 2001.

The other business in this segment is the Controls and Connectors business acquired in the Oak merg e r.This business manufactures control systems, switches, and encoders and also designs and manufactures devicesused in wireless, wireline and fib e r-optic applications. Sales in this business increased 14% in 2000 to appro x-imately $240 million. Net income from this business improved slightly, moving from breakeven in 1999 tom o dest pro fitability in 2000, primarily due to volume incre a s e s .

Sales to Corn i n g ’s largest customer accounted for approximately 12% of the Telecommunications S e g m e n tsales in 2000, including a significant portion of total sales in the photonic technologies business. Sales to thiscustomer in 1999 were approximately 11% of the Telecommunication Segment sales.

1 9 9 9 V S . 1 9 9 8

Sales in the Telecommunications Segment increased 38% over 1998 to approximately $3.0 billion. The salesg rowth in the segment was led primarily by volume gains in the optical fiber and cable and photonic technologiesbusinesses. Segment net income rose 24% in 1999 compared to 1998. The percentage increase in net incomeis lower than that of sales because of planned higher re s e a rch and development spending and an increased vol-ume of lower margin pro d u c t s .

Sales in the optical fiber and cable business in 1999 increased 45% over 1998 to approximately $1.7 billion.The increase in sales resulted primarily from the impact of acquisitions and volume gains. Appro x i m a t e l y$220 million of the increase in optical fiber and cable sales resulted from the following acquisitions:

—the acquisition of the optical cable business from BICC, plc and the remaining 50% interest in OpticalWaveguides Australia, Pty. Ltd. in the second quarter of 1999,

—the acquisition of Optical Fibres in December 1998.

Excluding the impact of these acquisitions, sales in the optical fiber and cable business increased appro x i-mately 38% for the year due to volume gains of approximately 40%, re flecting continued strong demand forC o rn i n g ’s premium fiber products. Volume growth continues to be driven by regional, local and long-hault e l ephone companies and cable television operators, including large European carriers. These operators andc a rriers are installing optical fiber and adding new services to increase network capacity, as well as re d u c i n go p e rating costs. Volume of premium fiber and cable products, including Corn i n g ’s new LEAF optical fib e r, tripledover the same period in 1998. Price declines ranged between 10% and 20% for Corn i n g ’s optical fiber and cablep roducts in comparison with 1998. However, the weighted-average optical fiber and cable price in 1999declined approximately 5% compared to 1998, due to the higher mix of premium product sales. The rate ofprice declines slowed during the second half of 1999 commensurate with the worldwide tightening of supplyof optical fib e r.

Net income from the optical fiber and cable business increased more than 30% in 1999 compared to 1998.The percentage increase in net income is lower than that of sales because of increased volume of lower mar-gin products, start-up costs incurred at the Concord facility and lower equity earn i n g s .

5 4

C o rning Incorporated and Subsidiary CompaniesOPE R ATING SEGM EN TS (c onti nued )

Sales in the telecommunications hard w a re and equipment business increased 17% in 1999 to appro x i m a t e l y$560 million. This increase resulted primarily from a higher volume of existing products and particularly stro n gdemand from cable television customers, offset in part by price declines. Overall net income increased only 7%,as increased volume was offset by lower margins due to price declines.

The photonic technologies business realized strong volume gains throughout 1999 led by new product sales.Sales in this business increased 64% in 1999 to approximately $475 million compared to 1998 sales of appro x-imately $295 million. The operating perf o rmance in this business improved substantially in 1999 as a result ofmanufacturing efficiencies and cost reductions. Due to continued investment in re s e a rch and development, thisbusiness incurred a loss; however, the overall results improved approximately 30% in comparison to 1998.

C o rning continues to invest significantly in the re s e a rch and development of future technologies, includ-ing spending on products within the optical switching market. Corning invested approximately $30 million in1999 on these pro d u c t s .

The other business in this segment, the controls and connectors business, re p o rted a sales increase of 23%in 1999 to approximately $210 million. The increase was primarily a result of the addition of sales from Tele Quarz ,which was acquired in the fourth quarter of 1998. Excluding this acquisition, sales increased by 5%. Net incomef rom these businesses declined 84%, primarily due to costs associated with the re o rganization of the business’N o rth American operations and the inclusion of the results of Tele Quarz, whose products sell at lower marg i n s .

O u t l o o k : Sales in the Telecommunications Segment are expected to trend upward by approximately 25%in 2001, led by the following factors:

— the continued demand for Corn i n g ’s cabled premium fiber products, including L E A F and Metro C o r, — g rowth in demand for Corn i n g ’s photonic technology devices, particularly from new products and customers,— full year contributions from acquisitions completed in 2000 including the Pirelli acquisition, the Siemens

transaction, NetOptix, N Z Applied Technologies ( N Z AT ) and IntelliSense Corporation.

In early 2001, several customers in both the optical fiber and photonic technologies businesses announcedthat their order rate may be lower than expected. In addition, capital availability issues have caused the overalltelecommunications market to soften. Corning has implemented a process to allocate fiber volume to pre v i-ously unmet customer needs and has plans to add new customers and control spending to mitigate the impactof market softness.

Segment net income is expected to continue its double-digit growth as sales gains, cost reductions in optic a lfiber and cable and photonics products, and the elimination of integration costs related to the Siemens trans-action should more than offset increased re s e a rch and development spending and capacity expansion related costs.

A D V A N C E D M A T E R I A L S

(In millions) 2 0 0 0 1 9 9 9 1 9 9 8

Net sales $ 1,086.0 $ 1,053.9 $ 1,020.1R e s e a rch, development and engineering expenses $ 1 2 0 . 3 $ 9 4 . 5 $ 8 0 . 0I n t e rest expense $ 1 8 . 2 $ 2 2 . 7 $ 1 6 . 7Segment earnings before minority interest and

equity earn i n g s $ 8 8 . 0 $ 9 0 . 9 $ 7 5 . 9Minority interest in losses of subsidiaries 0 . 3Equity in earnings of associated companies 2 2 . 6 2 1 . 7 1 7 . 6

Segment net income $ 110.6 $ 1 1 2 . 6 $ 9 3 . 8

Segment earnings before minority interest andequity earnings as a percentage of segment sales 8 . 1 % 8 . 6 % 7 . 4 %

Segment net income as a percentage of segment sales 1 0 . 2 % 1 0 . 7 % 9 . 2 %

The Advanced Materials Segment manufactures specialized products with unique applications utilizingglass, glass ceramic and polymer technologies.

5 5


2 0 0 0 V S . 1 9 9 9

Sales in the Advanced Materials Segment increased 3% in comparison to 1999 to approximately $1.1 billion,c h i e fly due to growth in the semiconductor materials business and the environmental technologies business,which more than offset sales declines due to the divestiture of the Quanterra business in January 2000.Excluding the impact of the divestiture, sales improved almost 10%. Segment net income remained re l a t i v e l yflat in 2000 in comparison to last year as net income gains in most businesses were offset by losses in the lifesciences business and flat equity earn i n g s .

Sales in the environmental technologies business, the largest business in the segment and a manufacture rof catalytic converter substrates, increased almost 3% over 1999 to approximately $410 million. The gro w t hin sales resulted from a strong worldwide automotive market in 2000 and increased market penetration ofC o rn i n g ’s thin-wall products coupled with increases in the base substrate business that was partially offset bythe weak Euro. Earnings in this business decreased approximately 12%, principally due to start-up costs of newplants in South Africa and China and elevated re s e a rch and development spending on diesel substrate pro g r a m s .South Africa began to ship products in September and China is expected to start shipments in 2001.

Sales in the life sciences business, a supplier of advanced microplates, high-density micro a rrays and otherl a b o r a t o ry products, of approximately $250 million were down over 6% in comparison to 1999 as the businesscontinues to see a shift in spending in the pharmaceutical industry from traditional products to genomics. Thebusiness re p o rted a small loss in 2000 compared to a small pro fit in 1999. The loss was primarily due to ani n c reased commitment to re s e a rch and development and marketing costs associated with the launch ofC o rn i n g ’s micro a rray technology products in the third quarter of 2000. Excluding start-up costs related tom i c ro a rrays, earnings were flat compared to 1999.

Sales in Corn i n g ’s other Advanced Materials businesses, including semiconductor materials and ophthalmicp roducts, increased over 9% from 1999 to approximately $425 million. This increase was led by elevated salesof high purity fused silica products in the semiconductor materials business which more than offset the impactof the divestiture of Quanterra in January. Excluding the divestiture of Quanterra, sales improved over 32%.E a rnings from these businesses more than doubled over 1999 due largely to increased volume and despite fla tp e rf o rmances from Eurokera and Keraglass, S.N.C., French based manufacturers of glass ceramic cooktops.

1 9 9 9 V S . 1 9 9 8

Sales in the Advanced Materials Segment increased 3% in comparison to 1998 to approximately $1.1 billion,primarily due to growth in the environmental technologies business, offset by lower sales in the ophthalmic busi-ness. Segment net income increased 20% in 1999 in comparison to the prior year. This significant increase re s u l t e df rom sales gains, as well as manufacturing efficiencies, in the environmental technologies business. Incre a s e dequity earnings also contributed to segment re s u l t s .

Sales in the environmental technologies business increased 12% over 1998 to approximately $400 million.The increase in sales in this business resulted primarily from the introduction of Corn i n g ’s new thin-wall ceramicsubstrate product and strong sales in North America. Earnings in this business increased over 30%, re fle c t i n gthe strong sales gains and manufacturing efficiencies. To meet anticipated demands for emission control pro d-ucts, Corning started construction on a new $80 million wholly owned manufacturing facility in China andannounced plans to build a finishing facility in South Africa.

Sales in the life sciences business in 1999 of approximately $265 million were flat in comparison to 1998sales re flecting the impact of divestitures in 1998 and 1999. Excluding the impact of divestitures, sales in thisbusiness increased 9% in 1999 as a result of strong volume gains in the advanced life science market. Earn i n g sin this business decreased significantly in 1999, primarily due to higher re s e a rch and development spending onadvanced life science pro d u c t s .

Sales in Corn i n g ’s other Advanced Materials businesses decreased 2% from 1998 to approximately $390 million.Sales of high purity fused silica products in the semiconductor materials business continued to be impacted bysoftness in the semiconductor manufacturing equipment industry, particularly during the first half of the year.

5 6

C o rning Incorporated and Subsidiary CompaniesOPE R ATING SEGM EN TS ( conti nued )

During the latter part of 1999, Corning brought a portion of its manufacturing facility near Charleston, S Con-line as demand increased. Sales in the ophthalmic business in 1999 were impacted by the continued ero s i o nin the worldwide demand for glass optical products, due to the consumer’s increased pre f e rence for plastic lenses.E a rnings from the other Advanced Materials businesses remained flat in comparison to 1998, as these sales declinesw e re offset by increased equity earnings from Eurokera and Keraglass, S . N . C .

In January 2000, Corning sold Quanterra Incorporated to Severn Trent Laboratories for $35 million.C o nc u rrent with management’s decision to dispose of this business, Corning recognized an impairment lossin the third quarter of 1999 of $15.5 million ($10.0 million after tax) and a nonoperating gain of $6.8 million($4.2 million after tax) in the first quarter of 2000. Neither of these events are included in the results of theAdvanced Materials Segment.

O u t l o o k: Segment sales in 2001 are expected to increase 8% to 10%. Volumes in high purity fused silicaa re expected to increase. Sales of environmental technologies are expected to be flat due to the recent slowdownin the domestic automotive market. Life science products, particularly the new micro a rray products, also areexpected to continue to gro w. Segment net income is expected to increase in 2001 re flecting these sales gains,a g g ressive cost reduction initiatives and the wind-down of startup costs in environmental technologies off s e tin part by the continued investment in re s e a rch and development spending on advanced life science pro d u c t sand diesel substrates.

I N F O R M A T I O N D I S P L A Y

(In millions) 2 0 0 0 1 9 9 9 1 9 9 8

Net sales $ 894.1 $ 701.2 $ 644.7R e s e a rch, development and engineering expenses $ 29.2 $ 22.9 $ 23.7I n t e rest expense $ 19.1 $ 11.2 $ 10.0Segment earnings before minority interest and

equity earn i n g s $ 114.2 $ 57.6 $ 39.2Minority interest in earnings of subsidiaries ( 2 6 . 7 ) ( 2 2 . 7 ) ( 2 7 . 6 )Equity in earnings of associated companies 1 4 4 . 5 6 7 . 8 4 4 . 9

Segment net income $ 232.0 $ 102.7 $ 56.5

Segment earnings before minority interest andequity earnings as a percentage of segment sales 1 2 . 8 % 8 . 2 % 6 . 1 %

Segment net income as a percentage of segment sales 2 6 . 0 % 1 4 . 6 % 8 . 8 %

The Information Display Segment manufactures glass panels and funnels for televisions and CRTs (conven-tional video components), liquid crystal display glass for flat panel displays (display technologies) and prec i s i o nlens assemblies for projection video systems.

2 0 0 0 V S . 1 9 9 9

Sales in the Information Display Segment increased 28% in 2000 to approximately $895 million, primarilydue to strong growth in the display technologies and precision lens businesses. Segment net income morethan doubled as did equity earnings, reflecting increased earnings in each business over 1999.

Sales in the conventional video components business remained relatively flat in 2000 in comparison to1999 at approximately $355 million due to slightly lower volumes offset in part by price increases as the supp l yof television glass began to tighten. Earnings in this business increased 83% in comparison to 1999 primarily

5 7


due to higher equity earnings, in addition to cost reductions and the impact of volume and mix as a shift tohigher premium p roducts occurred in 2000. The increase in equity earnings re flects improved volume ands t able pricing at Samsung C o rning Company Ltd. (Samsung Corning), a manufacturer based in South Kore athat produces glass panels and funnels for television and display monitors.

Sales in the display technologies business in 2000 increased 76% over 1999 to approximately $335 million.This significant increase was the result of continued strong demand for the business’ liquid crystal glass for fla tpanel displays, led by increased penetration into the desktop display market. Earnings in this business more thandoubled compared to 1999, re flecting strong volume gains and stable pricing. Also equity earnings fro mSamsung Corning Precision Glass Company Ltd. (Samsung Corning Precision), a Korean manufacturer of liq-uid crystal display glass, more than doubled largely due to strong volume gains in the Korean marketplace.

The market for flat panel displays continues to grow annually in double digits. As a result, Corning con-tinued to produce at maximum manufacturing capacity. In 2000, capacity doubled at Corn i n g ’s facility in Japanand at Samsung Corning Pre c i s i o n ’s facility in Korea. The previously announced construction of a new fin i s h i n gfacility in Taiwan is on schedule to begin production in 2001. Corning invested approximately $295 million inthe display technologies business in 2000 to increase capacity of liquid crystal glass.

Sales in the precision lens business increased 32% in 2000 to over $205 million as a result of stro n gv o lume growth for projection televisions driven by demand for larger size digital television sets in thee n t e rtainment market sector. Earnings in this business increased 59% over 1999 primarily due to volumegains, manufacturing efficiencies and the refocusing of product lines. In October, Corning announced a$55 million investment in this business to increase capacity of projection television assemblies by morethan 60%.

During the fourth quarter of 2000, Samsung Corning recognized a nonoperating gain of $23.4 millionf rom the divestment of its 40% interest in Samsung Corning Precision. Corn i n g ’s $11.7 million share of thisgain is excluded from segment equity earn i n g s .

1 9 9 9 V S . 1 9 9 8

Sales in the Information Display Segment increased 9% in 1999 to approximately $700 million in comparisonto 1998, primarily due to growth in the display technologies business, partially offset by declines in the con-ventional video components business. Segment net income almost doubled, re flecting strong equity earn i n g sand gains within the display technologies business.

Sales in the conventional video components business declined 6% in 1999 to approximately $355 million,primarily due to volume declines and price reductions caused by a surplus of television glass. Earnings in thisbusiness decreased approximately 5% as the impact of volume and price declines more than offset higher equitye a rnings, cost reductions and the elimination of tank repair costs incurred in the prior year. The increase in equitye a rnings re flects strong volume and stable pricing at Samsung Corn i n g .

Sales in the display technologies business in 1999 increased almost 60% compared to 1998 to appro x i-mately $190 million. This significant increase was the result of strong demand for the business’ liquid cry s t a lglass for flat panel displays, led by increased penetration into the desktop display market. Earnings in thisb u s iness increased substantially in 1999, compared to 1998, re flecting volume gains, stable pricing and manu-facturing improvements, along with significant equity earnings from Samsung Corning Precision. The incre a s ein earnings from Samsung Corning Precision was primarily due to strong volume gains in the Korean marketplaceand favorable exchange rates.

Sales in the precision lens business increased 8% in 1999 to approximately $155 million as a result ofs t rong volume growth for projection televisions driven by demand for larger size televisions in the entert a i n m e n tmarket sector. Earnings in this business increased approximately 25% in 1999 compared to 1998, primarilydue to volume gains and manufacturing eff i c i e n c i e s .

O u t l o o k: Sales in the Information Display Segment are expected to increase by approximately 20% in 2001and segment net income is expected to increase by double-digit growth rates. These expected impro v e m e n t s

5 8

C o rning Incorporated and Subsidiary CompaniesOPE R ATING SEGM EN TS ( con cl ude d )

a re primarily led by the liquid crystal display business but with solid support from the precision lens busi-ness. Capacity expansions will come on-line in 2001 in both businesses to meet strong anticipated demand.In addition to increased volume, cost reduction programs in each business will contribute to the anticipatedi m p rovement in earn i n g s .

NON-S EGME NT RE SULT S

C o rn i n g ’s non-segment results include the operations of Steuben, a crystal manufacture r, and equity earn i n g sf rom small strategic investments that are not aligned with Corn i n g ’s three operating segments. In addition, theresults of operating segments do not include nonoperating gains, amortization of purchased intangibles and good-will, acquisition-related expenses including IPRD charges, or re s t ructuring and impairment charg e s .

N O N O P E R A T I N G G A I N S

In 2000, Samsung Corning re c o rded a fourth quarter nonoperating gain of $23.4 million from the divestmentof its 40% interest in Samsung Corning Precision. Corn i n g ’s $11.7 million share of this gain is included in equityin earnings of associated companies.

In 2000, Corning re c o rded a first quarter nonoperating gain of $6.8 million ($4.2 million after tax) on thesale of Quanterra Incorporated to Severn Trent Laboratories for approximately $35 million.

In 1999, Corning re c o rded a third quarter nonoperating gain of $30.0 million ($9.5 million after tax andminority interest) as a result of the sale by Siecor Corporation of Republic Wi re and Cable for appro x i m a t e l y$52 million in cash and short - t e rm notes.

In 1998, Corning re c o rded a second quarter nonoperating gain of $20.5 million ($13.2 million after tax)as a result of the merger between Molecular Simulations, Inc. and Pharmacopeia, Inc. The 1998 results alsoinclude a fourth quarter nonoperating gain of $19.2 million ($9.7 million after tax) related to the divestiture ofseveral small life sciences businesses.

A M O RT I Z A T I O N O F P U R C H A S E D I N T A N G I B L E S A N D G O O D W I L L

A m o rtization of purchased intangibles and goodwill totaled $245.0 million ($218.4 million after tax) in 2000c o m p a red to $27.8 million ($21.8 million after tax) in 1999 and $22.2 million ($17.4 million after tax) in 1998.A m o rtization of purchased intangibles and goodwill primarily relates to purchase business combinations. SeeNote 2 of the Notes to Consolidated Financial Statements for more information on purchase business combi-nations. Amortization of purchased intangibles and goodwill will increase in 2001 and will include charges forthe entire year related to transactions completed late in 2000.

A C Q U I S I T I O N - R E L A T E D E X P E N S E S

In the fourth quarter of 2000, Corning re c o rded a non-tax deductible I P R D c h a rge of $ 3 2 2 . 9 million re l a t e dto the Pirelli acquisition.

In the second quarter of 2000, Corning re c o rded a non-tax deductible I P R D c h a rge of $ 5 0 . 7 million re l a t e dto the acquisitions of IntelliSense ($6.7 million) and N Z AT ($44.0 million).

In the first quarter of 2000, Corning re c o rded an IPRD charge of $42.0 million ($25.7 million after tax)related to the acquisition of Photonics Technology Research Center (P T R C) .

In the first quarter of 2000, Corning re c o rded a charge for acquisition costs related to the merger of Oakof $47.0 million ($43.4 million after tax) primarily comprised of legal and investment banking fees.

C h a rges for I P R D a re described in more detail beginning on page 61.

R E S T R U C T U R I N G A N D I M P A I R M E N T C H A R G E S

In the first quarter of 2000, Corning discontinued recognition of equity earnings from Pittsburgh Corn i n gCorporation (PCC) and re c o rded a charge to impair its investment for $36.3 million due to PCC’s decision tofile for bankruptcy protection and re o rganization under Chapter 11 for asbestos litigation. See pages 65 and82 for further detail.

5 9

C o rning Incorporated and Subsidiary CompaniesNON-S EGME NT RES ULTS (con cl uded )

In the third quarter of 1999, Corning recognized an impairment charge of $15.5 million ($10.0 millionafter tax) in connection with management’s decision to sell Quanterra Incorporated.

In the second quarter of 1998, Corning re c o rded a re s t ructuring charge of $84.6 million ($49.2 millionafter tax and minority interest). The charge was comprised of early re t i rement incentives off e red to certain salariednon-union employees 55 years old or older satisfying service criteria and severance costs associated with work-f o rce reductions of other non-union employees. The re s t ructuring charge related to approximately 650employees, all of whom were terminated as of June 30,1999. Corning determined in the fourth quarter of 1999 that the total costs of the incentive package would be less than anticipated. Consequently, Corning re l e a s e dre s t ructuring re s e rves totaling $14.1 million ($8.6 million after tax) in the fourth quarter of 1999. All paymentsassociated with this program have been made at December 31, 2000. Management estimates that the annual-ized cost savings related to these programs is approximately $30 million per year after taxes.

TA X E S

C o rn i n g ’s effective tax rate for continuing operations was 58.9% in 2000, 30.7% in 1999 and 31.0% in 1998.The increase in 2000 was primarily due to the large amounts of nondeductible amortization of purc h a s e dintangibles and goodwill along with nondeductible purchased IPRD charges associated with acquisitionso c c u rring in 2000. Excluding the impact of these and other nonre c u rring items, the effective income taxrate was 32.4% in 2000, 30.0% in 1999 and 30.8% in 1998. The higher 2000 rate in comparison to 1999was due to a higher percentage of Corn i n g ’s earnings resulting from consolidated entities with higher eff e c t i v etax rates. Note 6 of the Notes to Consolidated Financial Statements reconciles the effective tax rate to thestatutory tax rate.

R E S U LT S OF DIS CON TINU ED OPE R AT IONS

On December 31, 1996, Corning distributed shares of Quest Diagnostics Incorporated and Covance Inc., whichcollectively comprised Corn i n g ’s Health Care Services Segment, to its shareholders on a pro rata basis (theDistributions). Corning agreed to indemnify Quest Diagnostics on an after-tax basis for the settlement of cert a i ng o v e rnment claims and against certain other claims that were pending at December 31, 1996. Coincident withthe Distributions, Corning re c o rded a payable to Quest Diagnostics of approximately $25 million, which wasm a n a g e m e n t ’s best estimate of amounts which were probable of being paid by Corning to Quest Diagnosticsto satisfy the remaining indemnified claims on an after-tax basis. Quest Diagnostics settled a significant matt e rwith the Department of Justice late in 2000 requiring Corning to reimburse Quest Diagnostics $9 million. Asa result, in the fourth quarter Corning released re s e rves totaling $12.5 million after tax in excess of the indem-n i fied settlement between Quest Diagnostics and the Department of Justice.

On April 1, 1998, Corning completed the recapitalization and sale of a controlling interest in its consumerh o u s e w a res business (the Consumer transaction). Corn i n g ’s Consolidated Financial Statements re p o rt the con-sumer housewares business as discontinued operations.

Results of discontinued operations in 1999 and 1998 pertain to the consumer housewares business andinclude operating results through March 31, 1998. During the fourth quarter of 1999, certain indemnific a t i o na g reements related to this transaction expired. As a result, Corning re c o rded income from discontinued oper-ations in 1999 of $4.8 million after tax from the release of re s e rves provided at the date of the transaction. Incomef rom discontinued operations in 1998 totaled $66.5 million and included an after tax gain from the transactionof $67.1 million recognized in the second quart e r.

6 0

C o rning Incorporated and Subsidiary CompaniesLIQUIDIT Y A ND C A PITA L R ES OU RC ES

C o rn i n g ’s working capital increased from $430.2 million at the end of 1999 to $2,685.7 million at the end of 2000.The ratio of current assets to current liabilities was 2.4 at the end of 2000 compared to 1.3 at the end of 1999.The increase in working capital is due primarily to financing transactions, higher accounts receivable and inven-t o ry balances and a reduction in short term debt. Corn i n g ’s long-term debt as a percentage of total capital decre a s e df rom 35% at year-end 1999 to 27% at the end of 2000. The decrease is largely due to equity offerings totaling79.35 million shares and over 90 million shares issued in business combinations during 2000.

C o rning has ready access to capital markets and issues stock and debt from time to time to fund its gro w t h .In 2000, Corning completed the following significant financing transactions:

— In November, Corning issued 34.5 million shares of Corning common stock to generate net proceeds ofa p p roximately $2.4 billion.

— In November, Corning off e red $2.7 billion of senior unsecured zero coupon convertible debentures due i n2015. The net proceeds from the debentures approximated $2 billion.

A portion of the proceeds from both November offerings were used to finance the approximate $3.6 bill i o ncash portion of the Pirelli acquisition in December 2000. The remaining proceeds will be used for general cor-porate purposes.

— In January 2000, Corning issued 44.85 million shares of Corning common stock to generate net pro c e e d sof approximately $2.2 billion.

— In Febru a ry 2000, Corning completed an offering of 500 million Euro-denominated securities which gen-erated net proceeds of approximately $485 million.

A portion of the proceeds from both the January and Febru a ry financing transactions were used to fundthe Siemens acquisition, repay debt assumed in the merger with Oak and satisfy all of Corn i n g ’s outstandingc o m m e rcial paper obligations.

Also in support of Corn i n g ’s growth strategy and to enhance its financial flexibility, in August 2000,C o rning renegotiated a revolving line of credit totaling $2 billion, which expires August 17, 2005. As ofDecember 31, 2000 there were no borrowings under the facility.

C o rning filed a $4 billion global shelf registration statement in August 2000 that was later amended to$4.8 billion. The November financing transactions have substantially depleted its capacity. Corning will file ashelf registration in the first quarter of 2001 in accordance with its policy to readily access capital markets.

C o rning believes that its financial condition is strong and that its cash, short - t e rm investments, operatingcash flows and access to equity capital markets and borrowing capacity, taken together, provide adequatere s o u rces to fund ongoing operating re q u i rements, future capital expenditures related to the expansion of exist-ing businesses and external gro w t h .

CA SH FLO W S

Cash and short - t e rm investments at the end of 2000 increased from 1999 by $1.5 billion. This increase is theresult of operating and financing activities which provided cash of $1.4 billion and $6.7 billion, re s p e c t i v e l y, off-set by investing activities which used $6.6 billion of cash. Cash and short - t e rm investments at the end of 1999i n c reased from 1998 by $221.2 million. This increase is the result of operating and financing activities whichp rovided cash of $866.9 million and $303.9 million, re s p e c t i v e l y, offset partially by investing activities whichused $932.9 million of cash.

Net cash provided by operating activities was $1,421.2 million, $866.9 million and $682.2 million in 2000,1999 and 1998, re s p e c t i v e l y. The increase in net cash provided by operating activities in 2000 primarily re s u l t e df rom significant non-cash acquisition-related charges, higher depreciation and amortization of purchased intan-gibles and goodwill, increased tax benefits related to stock options offset by an increase in accounts re c e i v a b l e

6 1

C o rning Incorporated and Subsidiary CompaniesCA S H FLO WS (con cl uded )

and inventory. The increase in net cash provided by operating activities in 1999 as compared to 1998 primarilyresulted from the increase in net income from continuing operations before depreciation and amort i z a t i o n .

Net cash used in investing activities was $6,549.1 million, $932.9 million and $182.8 million in 2000, 1999and 1998, re s p e c t i v e l y. The increase in net cash used in investing activities in 2000 was primarily attributableto increased net cash used for capital expenditures and acquisitions of businesses including the Pirelli acquisi-tion, the Siemens transaction, Champion Products Inc. and PTRC. The increase in net cash used in investingactivities in 1999 as compared to 1998 primarily resulted from capital expenditure s .

C o rning has invested significant cash in capital expansions in the last three years. Capital spending in 2000totaled $1.7 billion, $196 million of which was unpaid at year-end and re c o rded in accounts payable atDecember 31, 2000. Capital spending totaled $757.1 million and $730.4 million in 1999 and 1998, re s p e c t i v e l y.The high level of capital spending since 1998 relates primarily to capacity expansions in Corn i n g ’s growth busi-nesses and expanded re s e a rch and development facilities. Corn i n g ’s 2001 capital spending program anticipatesa re q u i rement of approximately $2.5 billion.

Net cash provided by or (used in) financing activities was $6,648.2 million, $303.9 million and $(378.2)million in 2000, 1999 and 1998, re s p e c t i v e l y. The increase in net cash provided by financing activities wasprimarily due to proceeds from issuance of common stock related to two common stock offerings in 2000 andp roceeds from issuance of debt generated by the off e r i n go f E u ro-denominated debt and zero coupon convert i b l ed e b e n t u res. The increase in net cash provided by financing activities in 1999 from 1998 was primarily dueto an increase in proceeds from issuance of debt.

C o rning did not re p u rchase any of its common stock in 2000. Cash used to re p u rchase stock totaled$96.2 million and $74.3 million in 1999 and 1998, re s p e c t i v e l y. These amounts include Oak’s historicalre p u rchases of its stock. Corning re p u rchased 4.2 million and 6.0 million shares of its common stock in1999 and 1998, re s p e c t i v e l y.

Dividends paid to common shareholders in 2000 totaled $210.7 million compared with $175.7 million in1999 and $166.8 million in 1998. The increase is due to an increase in the number of shares outstanding.

Cash used in discontinued operations totaled $1.6 million, $12.5 million and $172.0 million in 2000, 1999and 1998, re s p e c t i v e l y. The high level of cash used in discontinued operations in 1998 is primarily a result oftransaction costs and tax payments related to the Consumer transaction.

IN- PROC ES S R E SE A RCH AND DE V E LOPM E N T

C o rning completed a number of purchase acquisitions in 2000. As part of analyzing each of these acquisitions,C o rning made a decision to buy technology that had not yet been commercialized rather than develop the tech-nology intern a l l y. Corning based this decision on a number of factors, including the amount of time it wouldtake to bring the technology to market. Corning also considered its internal re s e a rch re s o u rce allocation andits pro g ress on comparable technology, if any. Corning expects to use the same decision process in the future .

In connection with the acquisitions accounted for under the purchase method, management is re s p o n s i-ble for estimating the fair value of the assets and liabilities acquired. Management has made estimates andassumptions that affect the re p o rted amounts of assets, liabilities and expenses resulting from such acquisitions.

Amounts allocated to purchased IPRD were established through recognized valuation techniques in thehigh technology communications industry. Certain projects were acquired for which technological feasibility hadnot been established at the date of acquisition and for which no alternative future uses existed. In accordance withStatement of Financial Accounting Standards No. 2, “Accounting for Research and Development Costs” as inter-p reted by FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business CombinationsAccounted for by the Purchase Method,” amounts assigned to IPRD meeting the above criteria must be charg e dto expense at the date of consummation of the purc h a s e .

The value allocated to projects for which a charge was re c o rded was determined by the traditional incomea p p roach, which discounts expected future debt-free income to present value. The discount rates used were

6 2

C o rning Incorporated and Subsidiary CompaniesIN- PRO CESS RE SE A RCH AND DE V E LOPM ENT ( conti nued )

s p e c i fic to each project and were derived from a cost of capital for each specific acquisition target, adjusted upwardfor the stage of completion of each pro j e c t .

Expected future debt-free income was derived with the following considerations:

— Revenues were estimated based on relevant market size, growth trends in the industry and individual pro d-uct sales cycles.

— Estimated operating expenses included cost of goods sold, selling, general and administrative expenses, andre s e a rch and development expenses to maintain the products once they have been intro d u c e d .

— Estimated tax expenses were specific to each acquired entity and its tax pro fil e .— For certain projects, as appropriate, a re t u rn on core technology was deducted based upon market standard s

for licensed existing technology and a re t u rn on assets was deducted based upon industry comparisons.

The nature of the eff o rts to develop the acquired technology into commercially viable products consistsprincipally of planning, designing and testing activities necessary to determine that the product can meet mar-ket expectations. Corning expects that products incorporating the acquired technology from these projects willbe completed and will begin to generate cash flows over the next five years following integration.

Management expects to continue supporting these re s e a rch and development eff o rts. This support is n o texpected to change Corn i n g ’s re s e a rch and development expense trends. However, the timing and successof development of these technologies remains a risk due to the remaining eff o rt to achieve technical viabil-i t y, rapidly changing customer markets, uncertain standards for new products and significant competition inthe marketplace.

The following is a more detailed discussion of the valuations associated with acquisitions for which suchc h a rges have been re c o rd e d :

O P T I C A L T E C H N O L O G I E S U S A ( O T U S A )

On December 12, 2000, Corning completed the acquisition of Pire l l i ’s optical components and devices busi-ness based in Milan, Italy. This business had significant re s e a rch and development projects ongoing at the timeof the acquisition. Twelve of these projects were valued as IPRD projects. Projected debt-free income wasi n itially discounted using a rate of 17% to re flect the weighted-average cost of capital (entity risk) for this entity.Each product was also discounted to account for the re s e a rch pro j e c t ’s stage of development. Corning re c o rd e da non-tax deductible IPRD charge of $322.9 million in the fourth quarter of 2000.

F a i l u re to achieve the expected levels of revenue and net income from these products could negativelyimpact the re t u rn on investment expected at the time that the acquisition was completed and potentially re s u l tin impairment of other assets related to this investment.

Costs to complete the in-process re s e a rch programs are expected to approximate $25 million to $30 million.These projects have been categorized into four product technologies as follows:

Lithium Niobate ModulatorsOTUSA is developing a number of diff e rent lithium niobate modulators. Lithium niobate modulators areideally suited for use in high-speed, long-haul optical communications networks. The technology has beenchosen by a majority of long-haul equipment suppliers because it has the best combination of optical, electro n i cand reliability perf o rmance. Five of the re s e a rch projects qualified as IPRD projects, and the completionp e rcentages of these five projects ranged from 10%-90%. A non-tax deductible charge of $235.0 millionwas recognized and the value of individual modulator projects in-process ranged from $18.8 million to$82.5 million.

6 3

C o rning Incorporated and Subsidiary CompaniesIN- PRO CESS R E SE A RCH AND DE V E LOPME NT ( con ti nued )

Submarine ProductsOT U SA’s optical components and devices business is continuing to develop high reliability 980 nanometer (nm)pump laser chips and modules for submarine use. These devices are components within an optical amplifie r. Atthe acquisit i o n date, two IPRD projects with completion percentages of 10% and 50% were valued. A non-taxdeductible charge of $25.6 million resulted from 980 nm pump laser submarine projects in process. Individualre s e a rch values were $2.9 million and $22.7 million.

G ra t i n g sAt the date of acquisition, three qualifying gratings programs with completion percentages ranging from 20%-85% were valued. A non-tax deductible IPRD charge of $16.6 million resulted from gratings pro g r a m s .Individual in-process projects were valued between $2.4 million and $10.6 million.

Specialty Fi b e rTwo specialty fiber programs at OTUSA’s optical components and devices business met the definition of IPRD.Specialty fibers are used in conjunction with several other components to make an erbium doped fiber ampli-fie r, which boosts the strength of the optical signal. At the acquisition date, these projects were 40% and 60%complete. A non-tax deductible IPRD charge of $45.7 million resulted from specialty fiber programs, with thel a rgest program being valued at $42.0 million.

I N T E L L I S E N S E

On June 12, 2000, C o rning completed the acquistion of the remaining shares of IntelliSense, a manufacturer anddeveloper of micro - e l e c t ro-mechanical systems (MEMs), or small electro-mechanical, micro-fabricated devices.MEMs technology, when integrated with optics and packaging expertise, enables the development of opticala d d - d rop switches and optical cross connects, that are expected to play a key role in the development and buildout of the optical networking layer. As of the acquisition date, IntelliSense had three qualifying re s e a rch pro j e c t su n d e rw a y. These re s e a rch and development projects are anticipated to result primarily in the development ofnew telecommunications products. Projected debt-free income was initially discounted using a rate of 20% tore flect the weighted-average cost of capital (entity risk) for IntelliSense. Each product was also discounted to accountfor the re s e a rch pro j e c t ’s stage of development. The completion percentages ranged from 10%-90%. At the acqui-sition date, the projected costs to complete the IPRD programs approximated $20 million. Corning re c o rded a$6.7 million IPRD charge in the second quarter of 2000. No project valued exceeded $4.5 million.

If none of the projects are successfully completed, Corning may lose an opportunity to capitalize on emerg-ing markets. Failure of any single project would not materially impact Corn i n g ’s financial condition, results ofoperations or liquidity.

In all material respects, the re s e a rch projects have pro g ressed as planned at acquisition.

N Z A P P L I E D T E C H N O L O G I E S

On May 5, 2000, Corning completed the acquisition of N Z AT. NZAT was developing a line of high speed,solid-state components for D W D M systems, such as variable optical attenuators, that will meet industry demandsfor speed and quality. Of these projects, four were determined to meet the criteria for purchased IPRD as ofthe acquisition date. Projected debt-free income was initially discounted using a rate of 21% to re flect theweighted-average cost of capital (entity risk) for N Z AT. Each product was also discounted to account for there s e a rch pro j e c t ’s stage of development. The completion percentages ranged from 10%-80%. At the acqui-sition date, the projected costs to complete the IPRD programs approximated $10 million. A $44.0 millionnon-tax deductible IPRD charge was recognized and the value of individual projects ranged from $0.5 mill i o nto $29.3 million.

6 4

C o rning Incorporated and Subsidiary CompaniesIN- PROCESS R ES EA RC H AND DE V E LOPM E NT ( con cl ude d )


In the fourth quarter of 2000, NZAT completed certain product development milestones for its variableoptical attenuator pro d u c t s .

P H O T O N I C S T E C H N O L O G Y R E S E A R C H C E N T E R

On Febru a ry 14, 2000, Corning acquired British Te l e c o m m u n i c a t i o n ’s PTRC. Located in Suffolk, UK, thePTRC had extensive re s e a rch and development eff o rts underway at the acquisition date including work on pla-nar integrated optics, semiconductor optical amplifiers, electro-absorption modulators, and optical networkingdevices. Seven projects were determined to meet the criteria for purchased IPRD. Projected debt-free incomewas determined for each of the projects and initially discounted using a rate of 35% to re flect the weighted-aver-age cost of capital (entity risk) for PTRC. Each product was also discounted to account for the re s e a rch pro j e c t ’sstage of development. The completion percentages ranged from 50%-80%. At the acquisition date, the pro j e c t e dcosts to complete the IPRD programs approximated $40 million. A $42.0 million ($25.7 million after tax)IPRD c h a rge was recognized and the value of individual projects ranged from $0.1 million to $16.0 million.


Overall, substantial pro g ress has been made on these projects, and the assumptions used to value thesep rojects have not substantially changed since the acquisition date.

DO W COR NING COR P OR ATION

C o rning is a 50% owner of Dow Corning Corporation (Dow Corning), a manufacturer of silicones. The other50% of Dow Corning is owned by The Dow Chemical Company (Dow Chemical).

On May 15, 1995, Dow Corning sought protection under the re o rganization provisions of Chapter 11of the United States Bankruptcy Code, as a result of several negative developments related to the breast implantlitigation. At that time, Corning management believed it was impossible to predict if and when Dow Corn i n gwould successfully emerge from Chapter 11 proceedings. As a result, Corning re c o rded an after tax charge of$365.5 million to fully re s e rve its investment in Dow Corning and discontinued recognition of equity earn i n g sf rom Dow Corning in 1995. The bankruptcy proceeding is pending in the United States Bankruptcy Court forthe Eastern District of Michigan, Nort h e rn Division (Bay City, Michigan). The bankruptcy filing stayed thep rosecution against Dow Corning of approximately 19,000 breast-implant product liability lawsuits, including45 class actions. In the period from December 1996 through Febru a ry 1998, Dow Corning filed a plan of re o r-ganization and two amended plans, each of which was opposed by creditor re p resentatives. In 1998, Dow C o rn i n gand the To rt Claimants Committee engaged in extended negotiations and reached certain compromises. OnNovember 8, 1998, Dow Corning and the To rt Claimants Committee jointly filed a revised Plan ofR e o rganization (Joint Plan). The Joint Plan and related disclosure materials were mailed to claimants for theira p p roval. Following a favorable vote from all but four classes of creditors, a hearing to confirm the Joint Planwas held in mid 1999.

On November 30, 1999, the Bankruptcy Court entered an order confirming the Joint Plan and indicatedthat certain written opinions would follow. On December 21, 1999, the Bankruptcy Court issued an opinionthat approved the principal elements of the Joint Plan with respect to tort claimants, but construed the JointPlan as providing releases for third parties (including Corning and Dow Chemical as shareholders) only withrespect to tort claimants who voted in favor of the Joint Plan. A number of parties opposing the Joint Plan fil e dappeals on a variety of grounds to the United States District Court for the Eastern District of Michigan. DowC o rning and the Committee of To rt Claimants filed a notice of appeal seeking review of the ruling limiting the

6 5

C o rning Incorporated and Subsidiary CompaniesDOW COR NING COR P OR ATION (con cl uded )

scope of the shareholder releases. Corning and Dow Chemical filed separate notices of appeal on this issue. O nNovember 13, 2000, the District Court entered an Order affirming the Bankruptcy Court ’s November 30, 1999O rder confirming the Joint Amended Plan and reversing the Bankruptcy Court ’s December 21, 1999 Opinionon the release and injunction provisions. One group of plaintiffs filed a motion for reconsideration in the DistrictC o u rt and the District Court entered a Febru a ry 5, 2001 Opinion Denying Motion for Reconsideration, con-firming that the Litigation Facility under the Joint Plan is the defendant in place of Dow Corning, Corn i n gand Dow Chemical, and that Corning and Dow Chemical are not named defendants for direct claims.A p p roximately 20 appeals were filed from the District Court ’s Order and are pending in the Sixth Circuit Courtof Appeals, which is expected to rule in the second half of 2001. After all appeals are exhausted, if the Joint Planis upheld but the shareholder releases are effective only for those voting in favor of the Joint Plan, Corning wouldexpect to defend any remaining claims against it on the same grounds that led to a series of orders and judgmentsdismissing all claims against Corning in the federal courts and the state courts. With respect to the possibilityof additional direct or indirect claims against Corning if the full releases are not reinstated in the Joint Plan,management believes that such claims lack merit and that the breast implant litigation against Corning will beresolved without material impact on Corn i n g ’s financial statements.

Under the terms of the Joint Plan, Dow Corning would be re q u i red to establish a Settlement Trust anda Litigation Facility to provide a means for tort claimants to settle or litigate their claims. Dow Corning wouldhave the obligation to fund the Trust and the Facility, over a period of up to 16 years, in an amount up to appro x-imately $3.2 billion (nominal value), subject to the limitations, terms and conditions stated in the Joint Plan.Dow Corning proposes to provide the re q u i red funding over the 16 year period t h rough a combination of cash,p roceeds from insurance, and cash flow from operations. Corning and Dow Chemical have each agreed top rovide a credit facility to Dow Corning of up to $150 million ($300 million in the aggregate), subject to thet e rms and conditions stated in the Joint Plan. The Joint Plan also provides for Dow Corning to make fullp a yment, through cash and the issuance of senior notes, to its commercial creditors. If and when Dow Corn i n ge m e rges from bankru p t c y, Corning will likely begin to recognize equity earnings from Dow Corning. Corn i n gdoes not expect to receive dividends from Dow Corning in the foreseeable future .

PI TT S BU RGH COR NING COR P OR AT ION

C o rning and PPG Industries, Inc. each own 50% of the capital stock of Pittsburgh Corning Corporation (PCC).PCC and several other defendants have been named in numerous lawsuits involving claims alleging personali n j u ry from exposure to asbestos. As of the bankruptcy filing on April 16, 2000 PCC had in excess of 240,000open claims. In the first quarter of 2000, after incurring adverse verdicts in five trials involving 19 claimants,PCC filed for Chapter 11 re o rganization in the United States Bankruptcy Court for the We s t e rn District ofPennsylvania. At the time of its Chapter 11 filing, PCC sought and obtained a temporary restraining order andfiled a motion for a pre l i m i n a ry injunction against the prosecution of asbestos actions against its two share h o l d e r s .The pre l i m i n a ry injunction has been extended by stipulation of the parties and by court order to May 21, 2001to enable the parties to negotiate a plan of re o rganization for PCC. Upon expiration of the injunction on orafter May 21, 2001, PCC, PPG Industries and Corning will have 90 days to seek removal and transfer of stayedcases that have not been resolved through a plan of re o rganization. As a result of PCC’s bankruptcy filing, Corn i n gre c o rded an after tax charge of $36.3 million in the first quarter of 2000 to impair its entire investment in PCCand discontinued recognition of equity earnings. At the time PCC filed for bankruptcy protection, there werea p p roximately 12,400 claims pending against Corning alleging various theories of liability based on exposureto PCC’s asbestos products, all of which are stayed pursuant to the injunction of the bankruptcy court. BeforePCC filed for bankruptcy protection, Corning was dismissed from similar claims as cases against PCC proc e e d e dto trial. The Chapter 11 filing may lead to additional claims against Corning with related costs of defense, charg e sand expenses. Although the outcome of litigation and the bankruptcy case is uncertain, management believes

6 6

C o rning Incorporated and Subsidiary CompaniesPIT T S BU RGH COR NING COR P OR AT ION (con cl uded )

that the separate corporate status of PCC will continue to be upheld. Management is continuing to investigateC o rn i n g ’s options for defending claims against it, which might include vigorously defending itself on all fro n t sor exploring a global settlement through the bankruptcy process. The range of cost for these options (net ofinsurance) cannot be estimated at this time, although management believes these matters will be resolved with-out a materially adverse impact on Corn i n g ’s financial position.

E N V IRON M E N T

C o rning has been named by the Environmental Protection Agency under the Superfund Act, or by state gov-e rnments under similar state laws, as a potentially responsible party for 11 active hazardous waste sites. Underthe Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by suchA g e n c y, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corn i n g ’spolicy to accrue for its estimated liability related to Superfund sites and other environmental liabilities re l a t e dto pro p e rty owned and operated by Corning based on expert analysis and continual monitoring by both intern a land external consultants. Corning has accrued approximately $17.1 million for its estimated liability for envi-ronmental cleanup and related litigation at December 31, 2000. Based upon the information developed to date,management believes that the accrued re s e rve is a reasonable estimate of Corn i n g ’s estimated liability and thatthe risk of an additional loss in an amount materially higher than that accrued is re m o t e .

E F FECTS OF IN FL ATI ON

Amounts re flected in the financial statements do not provide for the effect of inflation on operations or fin a nc i a lposition. The expenses and asset values, specifically those related to long-lived assets, re flect historical cost anddo not necessarily re p resent replacement cost or charges to operations based on replacement cost. Corn i n g ’soperations provide funds which, along with other sources, are sufficient to replace fixed assets as necessary. Netincome would be lower than re p o rted if the effects of inflation were re flected by charging operations for re p l a c e-ment costs.

MAR KET RISK DIS CLOS U R E S

C o rning operates and conducts business in many foreign countries and as a result is exposed to movements inf o reign currency exchange rates. Corn i n g ’s exposure to exchange rate effects includes:

— Exchange rate movements on financial instruments and transactions denominated in foreign currencies whichimpact earn i n g s .

— Exchange rate movements upon conversion of net assets in foreign subsidiaries for which the functional cur-rency is not the U.S Dollar which impact Corn i n g ’s net equity.

C o rn i n g ’s most significant foreign currency exposures relate to Japan, Korea and We s t e rn European c o u n-tries. C o rning selectively enters into foreign exchange forw a rd and option contracts with durations generally12 months or less to hedge its exposure to exchange rate risk on foreign source income and purchases. Thehedges are scheduled to mature coincident with the timing of the underlying foreign currency commitmentsand transactions. The objective of these contracts is to neutralize the impact of exchange rate movements onC o rn i n g ’s operating results. Corning also enters into foreign exchange forw a rd contracts when situations arisew h e re its foreign subsidiaries or Corning Incorporated enter into lending situations, generally on an interc o m p a n ybasis, denominated in currencies other than their local curre n c y. Corning does not hold or issue any derivativecontracts that hedge its foreign currency denominated net asset exposures. In addition, prior to July 2000 oneof Corn i n g ’s subsidiaries entered into revenue sales contracts for certain of its revenues generated in foreign

6 7

C o rning Incorporated and Subsidiary CompaniesM ARKET RISK DI S CLOSU RES (c on cl uded )

c u rrencies. Such contracts were not subject to foreign currency gains or losses. Corning does not hold or issuederivative financial instruments for trading purposes.

Equity in earnings of associated companies re p resented 36% of Corn i n g ’s income from continuing operationsin 2000. Excluding PCC, foreign-based affiliates comprised 100% of this amount. Exchange rate fluctuations andactions taken by management of these entities to reduce this risk can affect the earnings of these companies.

C o rning uses a sensitivity analysis to assess the market risk associated with its foreign currency exchangerisk. Market risk is defined as the potential change in fair value of assets and liabilities resulting from an adversemovement in foreign currency exchange rates. At December 31, 2000, Corning and its consolidated subsidiarieshad open forw a rd contracts, open option contracts, foreign denominated debt and foreign cash and cash equiv-alent holdings with values exposed to exchange rate movements, all of which were designated as hedges atDecember 31, 2000. A 10% adverse movement in quoted foreign currency exchange rates could result in aloss in fair value of these instruments of $86 million.

The nature of Corn i n g ’s foreign exchange rate risk exposures have not changed materially fro mDecember 31, 1999, however Corn i n g ’s acquisition activity has expanded its presence in intern a t i o n a lmarkets and thus increased the degree of its exposures overall.

N EW AC COU N TING PRONOU NC E M E N T S

In December 1 9 9 9, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101,“Revenue Recognition in Financial Statements,” (SAB 101), which provides guidance on the recognition, pre-sentation and disclosure of revenue in financial statements. In June 2 0 0 0, the implementation of SAB 101 w a sdelayed until the end of 2 0 0 0. Corning was re q u i red to comply with SAB 101 in the fourth quarter of 2 0 0 0( re t roactive to January 1, 2 0 0 0). Corn i n g ’s revenue recognition policy was in compliance with this guidanceand as a result, SAB 101 had no effect on Corn i n g ’s financial position or results of operations.

In June 1 9 9 8, the Financial Accounting Standards Board issued Statement No. 133, “Accounting forDerivative Instruments and Hedging Activities” (FAS 133), which establishes accounting and re p o rting standard sfor derivative instruments and hedging activities. FAS 133 re q u i res an entity to recognize all derivatives as eitherassets or liabilities in the statement of financial position and measure those instruments at fair value. In June2 0 0 0, the FA S B issued Statement No. 138, “Accounting for Certain Derivative Instruments and Certain H e d g i n gActivities” ( FAS 138), an amendment of FAS 133. These amendments include allowing fore i g n -c u rre n c ydenominated assets and liabilities to qualify for hedge accounting, permit the offsetting of certain inter-e n t i t yf o reign currency exposures that reduce the need for third party derivatives, re d e fines the nature of i n t e rest raterisk to avoid sources of ineffectiveness and excludes from applicability any contract that would othe rwise meetthe definition of a derivative but provide for the purchase or sale of nonfinancial assets that will be delivered inquantities expected to be used or sold by the re p o rting entity over a reasonable period in the normal course ofbusiness and/or which physical delivery is probable. Corning currently enters into derivatives in the form off o reign currency hedge instruments to reduce its exposure to exchange rate risk on foreign source income andp u rchases. Corning will adopt FAS 133 e ffective on January 1, 2001. At that time, Corning will re c o rd an unre-alized gain of $2.3 million to other comprehensive income to recognize at fair value all derivatives that a red e signated as cash flow hedging instruments at adoption. FAS 133 will have no effect on results of operations atthe date of adoption.

6 8

NO TE S TO CONS OLIDAT ED FIN A NCI AL STAT E ME NT S C o rning Incorporated and Subsidiary Companies

(In millions, except share and per share amounts)

1. S U M M A RY OF SIGNIF I C AN T ACCOU N TING P OLI CIE S

P R I N C I P L E S O F C O N S O L I D A T I O N

The consolidated financial statements include the accounts of all entities controlled by Corning. All signific a n ti n t e rcompany accounts and transactions are eliminated.

The equity method of accounting is used for investments in associated companies which are not contro l l e dby Corning and in which Corn i n g ’s interest is generally between 20% and 50%.

As more fully described in Note 2, Corning merged with Oak Industries, Inc. (Oak) on January 28, 2000in a pooling of interests transaction. The consolidated financial statements for 1999 and 1998 have been re s t a t e dto include the financial position, results of operations and cash flows of Oak. No adjustments were needed toc o n f o rm the accounting policies of Corning and Oak. In addition, no adjustments have been made for trans-actions between Corning and Oak as such transactions were not signific a n t .

All share and per share amounts have been restated to re flect the thre e - f o r-one stock split of Corning com-mon stock that became effective October 3, 2000.

U S E O F E S T I M A T E S

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP)re q u i res management to make estimates and assumptions that affect amounts re p o rted therein. Due to the inher-ent uncertainty involved in making estimates, actual results re p o rted in future periods may be based upon amountsthat could differ from those estimates.

R E V E N U E R E C O G N I T I O N

C o rning recognizes revenue when it is realized or realizable and has been earned. Product revenue is re c-ognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title andall risks of ownership have been transferred, written contract and sales terms are complete, customer acceptancehas occurred and payment is reasonably assured. Corning reduces revenue for estimated product re t u rn s ,allowances and price discounts based on experience.

F O R E I G N C U R R E N C I E S

Balance sheet accounts of foreign subsidiaries are translated at current exchange rates and income statementaccounts are translated at average exchange rates for the year. Translation gains and losses are accumulated as acomponent of other accumulated comprehensive income. Foreign currency transaction gains and losses aff e c t-ing cash flows are included in current earn i n g s .

C o rning enters into foreign exchange contracts primarily as hedges against identifiable foreign curre n c ycommitments. Gains and losses on contracts identified as hedges are deferred and included in the measure m e n tof the related foreign currency transactions. Gains and losses on foreign currency contracts which are not des-ignated as hedges of foreign currency commitments are included in current earnings.

Prior to July 2000, Corning entered into revenue sales contracts for certain of its revenues generated in f o r-eign currencies. Such contracts, because of their terms, were not subject to foreign currency gains and l o s s e s .

C A S H A N D C A S H E Q U I V A L E N T S

S h o rt - t e rm investments, comprised of re p u rchase agreements and debt instruments with original maturities of90 days or less, are considered cash equivalents.

6 9

C o rning Incorporated and Subsidiary Companies1. S U M M A RY OF SIGNIF I C AN T ACCOU N T ING P OLI CIES ( con ti nued)

Supplemental disclosure of cash flow information is as follows:

2 0 0 0 1 9 9 9 1 9 9 8Changes in certain working capital items:

Accounts re c e i v a b l e $ (362.9) $ (152.1) $ ( 6 1 . 9 )I n v e n t o r i e s ( 2 8 0 . 2 ) ( 8 1 . 3 ) ( 1 9 . 6 )Other current assets ( 7 8 . 3 ) ( 6 . 8 ) ( 1 3 . 6 )Accounts payable and other current liabilities 3 1 9 . 1 9 6 . 1 1 4 . 3To t a l $ (402.3) $ (144.1) $ ( 8 0 . 8 )

Cash paid for interest and income taxes is as follows:I n t e re s t $ 1 3 1 . 7 $ 1 3 0 . 9 $ 111.5Income taxes $ 1 2 1 . 1 $ 1 8 6 . 4 $ 194.2

M A R K E T A B L E S E C U R I T I E S

C o rn i n g ’s marketable securities consist of equity securities classified as available-for-sale which are stated at esti-mated fair value based primarily upon market quotes. Unrealized gains and losses, net of tax, are computed onthe basis of specific identification and are re p o rted as a separate component of accumulated other compre h e n-sive income in shareholders’ equity until realized. A decline in the value of any marketable security below costthat is deemed other than temporary is charged to earnings, resulting in a new cost basis for the security.

I N V E N T O R I E S

Inventories are stated at the lower of cost (first-in, first-out basis) or market. Inventories at December 31, con-sisted of the following:

2 0 0 0 1 9 9 9Finished goods $ 2 9 9 . 9 $ 206.1Work in pro c e s s 2 6 2 . 9 1 5 2 . 6Raw materials and accessories 3 7 7 . 0 1 6 2 . 0Supplies and packing materials 1 0 0 . 1 8 1 . 5Total inventories $ 1,039.9 $ 602.2

P R O P E R T Y A N D D E P R E C I A T I O N

Land, buildings and equipment are re c o rded at cost. Depreciation is based on estimated useful lives of pro p e rt i e susing straight-line and accelerated methods. The estimated useful lives range from 20-40 years for buildingsand 3-20 years for the majority of Corn i n g ’s equipment. At December 31, plant and equipment consisted ofthe following:

2 0 0 0 1 9 9 9L a n d $ 8 4 . 0 $ 6 8 . 8B u i l d i n g s 1 , 6 2 6 . 4 1 , 4 4 6 . 7E q u i p m e n t 4 , 4 5 4 . 8 3 , 4 8 7 . 7C o n s t ruction in pro g re s s 1 , 1 7 5 . 4 5 5 5 . 4

7 , 3 4 0 . 6 5 , 5 5 8 . 6Accumulated depre c i a t i o n ( 2 , 6 6 1 . 6 ) ( 2 , 3 5 6 . 9 )Plant and equipment, net $ 4 , 6 7 9 . 0 $ 3 , 2 0 1 . 7

7 0

C o rning Incorporated and Subsidiary Companies1. S U M M A RY OF SIGNIF I C AN T AC COU N TING POLI CIES ( con cl uded)

D e p reciation expense for 2000, 1999 and 1998 was $516.2 million, $375.5 million and $292.6 million,re s p e ct i v e l y. Approximately $56.5 million, $41.3 million and $46.8 million of interest costs were capitalized asp a rt of plant and equipment in 2000, 1999 and 1998, re s p e c t i v e l y.

G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S

Investment costs in excess of the fair value of net assets acquired are amortized over appropriate periods notexceeding 40 years, but principally ranging from 5 to 25 years for acquisitions over the past three years. Otherintangible assets are re c o rded at cost and amortized over periods generally ranging from 5 to 20 years. Corn i n greviews the recoverability of its long-lived assets, including goodwill and other intangible assets, when eventsor changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. Theassessment of possible impairment is based on Corn i n g ’s ability to recover the carrying value of the asset fro mthe expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. Ifthese cash flows are less than the carrying value of such asset, an impairment loss is recognized for the diff e r-ence between estimated fair value and carrying value. The measurement of impairment re q u i res managementto make estimates of these cash flows related to long-lived assets. It is reasonably possible that future events orc i rcumstances could cause these estimates to change. Amortization expense for the years ended December 31,was as follows:

2 0 0 0 1 9 9 9 1 9 9 8

A m o rtization of purchased intangibles, including goodwill $ 245.0 $ 27.8 $ 22.2A m o rtization of other intangible assets 3 . 7 5 . 0 5 . 3

A m o rtization expense $ 248.7 $ 32.8 $ 27.5

T A X E S O N I N C O M E

C o rning uses the asset and liability approach to account for income taxes. Under this method, deferred tax assetsand liabilities are recognized for the expected future tax consequences of diff e rences between the carrying amountsof assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which thed i ff e rences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is re c-ognized in income in the period when the change is enacted.

2 . BUSIN ESS COM BIN ATIONS AN D DI V E S TIT U R E S

P O O L I N G O F I N T E R E S T S

On January 28, 2000, Corning merged with Oak in a pooling of interests transaction. Corning issued44,293,491 shares of Corning common stock and 8,137,500 options to purchase Oak common shares to com-plete the transaction. The consolidated financial statements for 1999 and 1998 have been restated to includethe financial position and results of operations of Oak. During the first quarter of 2000, Corning recognized

7 1

C o rning Incorporated and Subsidiary Companies2 . BUSINES S COM BIN ATIONS AN D DI V E S TIT UR ES ( conti nued )

a c h a rge of $47.0 million ($43.4 million after tax) for one-time acquisition costs related to Oak. The acquisi-tion costs are primarily related to investment banking, legal and other fees of approximately $30 million. Thec h a rge also includes approximately $17 million of severance and other termination benefits for Oak corpo-rate officers and headquarters employees. As of December 31, 2000, total severance benefits paid out werea p p ro ximately $14 million. Separate revenue and income amounts of the merged companies for the years endedDecember 31, a re as follows (in millions):

1 9 9 9 1 9 9 8Total re v e n u e s :

C o rn i n g $ 4,368.1 $ 3,572.1O a k 4 4 4 . 4 3 4 9 . 5C o m b i n e d $ 4,812.5 $ 3,921.6

Net income:C o rn i n g $ 481.7 $ 394.0O a k 3 4 . 1 2 7 . 3C o m b i n e d $ 515.8 $ 421.3

P U R C H A S E S

The transactions listed below were all accounted for under the purchase method of accounting. Management isresponsible for estimating the fair value of the assets and liabilities acquired. Management has made estimates andassumptions that affect the re p o rted amounts of assets, liabilities and expenses resulting from such acquisitions.

Amounts allocated to purchased in-process re s e a rch and development (IPRD) were established thro u g hre cognized valuation techniques in the high technology communications industry. Certain projects werea c q u i red for which technological feasibility had not been established at the date of acquisition and for whichno alternative future uses existed. In accordance with Statement of Financial Accounting Standards No. 2,“Accounting for Research and Development Costs” as interpreted by FASB Interpretation No. 4, “Applicabilityof FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method,” amounts assignedto IPRD meeting the above criteria must be charged to expense at the date of consummation of the purc h a s e .

The value allocated to projects for which a charge was re c o rded was determined by the traditional incomea p p roach which discounts expected future debt-free income to present value. The discount rates used weres p ec i fic to each project and were derived from a cost of capital for each specific acquisition target, adjusted upwardfor the stage of completion of each project. The acquired entity discount rates ranged from 17% to 35%, andthe stage of completion assigned to IPRD projects varied from 10% to 90%.

C o rning expects that products incorporating the acquired technology from these projects will be comp-leted and will begin to generate cash flows over the next five years following integration.

Optical Te chnologies USAOn December 12, 2000, Corning completed the acquisition of Optical Technologies USA, a manufacturer oflithium niobate modulators, pump lasers, certain specialty fibers and fiber gratings used in optical networks fro mP i relli S.p.A. (90%) and Cisco Systems Inc. (10%) for approximately $3.6 billion in cash consideration to Pire l l iand 5,473,684 shares of unre g i s t e red Corning stock to Cisco (the Pirelli acquisition). Based upon the averageclosing price of Corning common stock for a range of days surrounding the agreement adjusted for a discountcommensurate with restrictions on the shares the total purchase price was $4.0 billion. The excess of the pur-chase price over the estimated fair value of tangible assets acquired was allocated primarily to goodwill, otherintangibles and IPRD. Goodwill of approximately $3,472 million is being amortized on a straight-line basis over13 years. Patents of approximately $152 million are also being amortized over 13 years. Corning re c o rded a non-tax deductible charge of $322.9 million for IPRD in the fourth quarter of 2000 associated with this transaction.The allocation of the purchase price is based on pre l i m i n a ry data and could change when final valuation infor-mation is obtained.

7 2

C o rning Incorporated and Subsidiary Companies2 . BUSINES S COM BIN ATIONS AN D DI V E S TIT URES ( conti nued )

Champion ProductsOn October 10, 2000, Corning completed the acquisition of Champion Products Inc., a manufacturer of enclo-s u res, power pedestals, shelters and a unique patented design for temperature controlled enclosures fortelecommunications customers, for approximately $85 million in cash. The excess of the purchase price overthe estimated fair value of tangible assets acquired was allocated primarily to goodwill. Purchased intangiblesand goodwill of approximately $69 million are being amortized on a straight-line basis over 20 years.

I n t e l l i S e n s eOn June 12, 2000, Corning completed the acquisition of the remaining 67% interest in IntelliSense Corporation,a manufacturer of micro - e l e c t ro-mechanical devices in exchange for 6,050,259 shares of unre g i s t e red Corn i n gcommon stock and the assumption of stock options convertible into 1,968,312 shares of Corning common stock.Based upon the average closing price of Corning stock for a range of days surrounding the announcement adjustedfor a discount commensurate with restrictions on the shares issued and a Black-Scholes valuation of theoptions issued, the re c o rded purchase price approximated $410 million. An additional 1,019,763 shares wereissued upon the achievement of certain product milestones in the fourth quart e r. This additional considerationwas valued at approximately $77 million. The excess of the purchase price over the estimated fair value of tang i b l eassets acquired was allocated primarily to goodwill. Goodwill of approximately $483 million is being amort i z e don a straight-line basis over 13 years. Corning re c o rded a non-tax deductible charge of $6.7 million for IPRDin the second quarter of 2000.

N e t O p t i xOn May 12, 2000, Corning completed the acquisition of NetOptix Corporation for 33,719,067 shares of Corn i n gcommon stock and the assumption of stock options convertible into 2,487,240 Corning shares. Based on theaverage closing price of Corning stock for a range of days surrounding the announcement and a Black Scholesvaluation of options issued, the re c o rded purchase price approximated $2.1 billion. NetOptix manufactures thinfilm filters for use in dense wavelength division multiplexing components. The excess of the purchase price overthe estimated fair value of tangible assets acquired was allocated to goodwill. Goodwill of appro x i m a t e l y$2,066 million is being amortized on a straight-line basis over 10 years.

NZ Applied Te ch n o l o g i e sOn May 5, 2000, Corning completed the acquisition of the remaining 84% interest in NZ Applied Te c h n o l o g i e s( N Z AT), a developer and manufacturer of photonic components for optical telecommunications applicationsincluding the optical networks industry, in exchange for Corning common stock. Based upon a range of dayss u rrounding May 1, 2000, the date on which the number of shares became fixed, and adjusted for a discountcommensurate with the restrictions on the shares, Corning issued 1,321,749 shares of unre g i s t e red commonstock at closing with a fair value of approximately $75 million. In addition, Corning placed an extra 1,321,749s h a res in escrow to be earned over the next three years contingent upon NZAT achieving certain product devel-opment and sales milestones. In the fourth quart e r, NZAT achieved two milestones earning 528,702 shares ofthe escrowed stock valued at approximately $42 million. The remaining contingent proceeds, if earned, will bere c o rded at the then current fair value of Corning common stock. The excess of the purchase price over theestimated fair value of tangible assets acquired was allocated to goodwill and IPRD. Goodwill of appro x i m a t e l y$73 million is being amortized on a straight-line basis over 10 years. Corning re c o rded a non-tax deductiblec h a rge of $44 million for IPRD in the second quarter of 2000.

Photonics Te chnology Research CenterOn Febru a ry 14, 2000, Corning acquired British Te l e c o m m u n i c a t i o n ’s Photonics Technology Research Center(P T R C) for approximately $66 million in cash. The excess of the purchase price over the estimated fair value oftangible assets acquired was allocated to I P R D and purchased intangibles and goodwill. Purchased intangibles

7 3

C o rning Incorporated and Subsidiary Companies2 . BUSINES S COM BIN ATIONS AN D DI V E S TIT UR ES ( con ti nued )

and goodwill of approximately $24 million is being amortized over lives up to nine years. Corning re c o rded ac h a rge of $42.0 million ($25.7 million after tax) for IPRD in the first quarter of 2000.

Siemens Tra n s a c t i o nOn Febru a ry 2, 2000, Corning acquired the worldwide optical cable and hard w a re business of Siemens AG andthe remaining 50% in Siecor Corporation and Siecor GmbH (the Siemens transaction). The purchase priceof $1.4 billion (subject to customary purchase price adjustments) includes approximately $120 million inassumed debt and $145 million in contingent perf o rmance payments to be paid, if earned, over a four-year period.At December 31, 2000, approximately $50 million of this contingent consideration has been earned. Lesssignificant portions of the transaction may close at various dates into 2001. At December 31, 2000, total cashpaid to Siemens approximated $1.1 billion. The excess of the purchase price over the estimated fair value oftangible assets acquired, pending final determination of certain acquired balances, was allocated primarilyto purchased intangibles and goodwill. Purchased intangibles and goodwill of approximately $650 milliona re being amortized over lives of 5 t o2 0 y e a r s .

C o rning Japan K.K.On September 29, 1999, Corning acquired the 21% interest in Corning Japan K.K. it did not own for cash con-sideration of approximately $32 million. The excess purchase price over the estimated fair value of tangible assetsa c q u i red was allocated primarily to goodwill. Goodwill of approximately $18 million is being amortized on astraight-line basis over 20 years. Corning Japan K.K. produces flat panel display glass within the Inform a t i o nDisplay Segment, and will continue to be consolidated within Corn i n g ’s operating re s u l t s .

BICC and Optical Wa veguides Au s t ra l i aOn April 30, 1999, Corning acquired BICC, plc’s telecommunications cable business and the 50% equityi n t e rest in Optical Waveguides Australia, Pty. Ltd. (OWA) it did not already own for cash consideration of appro x-imately $135 million. The excess purchase price over the estimated fair value of tangible assets acquired wasallocated to goodwill and other intangible assets. Goodwill and other intangible assets of appro x i m a t e l y$37 million are being amortized over periods ranging from 5 to 25 years. During the third and fourth quart e r sof 1999, adjustments to purchase accounting increased goodwill and primarily reduced pro p e rt y, plant and equip-ment. OWA became a wholly owned subsidiary as a result of this transaction and the results of its operations areincluded in the consolidated financial statements from the date of the transaction.

Optical Fi b re sOn December 1, 1998, Corning acquired the 50% interest in Optical Fibres previously owned by BICC, plc.The consideration was comprised of approximately $47 million in cash and the assumption of $27 million indebt. During the fourth quarter of 1999, adjustments to purchase accounting eliminated intangible assets andi n c reased pro p e rt y, plant and equipment. Optical Fibres became a wholly owned subsidiary as a result of thistransaction and the results of its operations are included in the consolidated financial statements from the dateof the transaction.

Tele Quarz GmbHOn October 30, 1998, Oak completed the acquisition of Tele Quarz GmbH (Tele Quarz), a German manu-f a c t u rer of frequency control products. The total purchase price, including debt assumed and transaction costs,was approximately $63.5 million. The excess purchase price over the estimated fair value of tangible assets acquire dwas allocated primarily to goodwill and other intangibles. Goodwill and other intangibles of appro x i m a t e l y$18 million are being amortized over periods ranging from 12 to 30 years.

7 4

C o rning Incorporated and Subsidiary Companies2 . BUSINES S C OM BIN ATIONS AN D DI V E S TI TUR ES ( conti nued )

O t h e rT h roughout 2000, Corning completed other acquisitions with an aggregate purchase price of appro x i m a t e l y$67 million in cash. The excess purchase price over the fair value of net tangible assets acquired totaled$64 million and is being amortized over periods of up to 20 years. These acquisitions were not significant to theconsolidated financial statements.

In December 1999, Corning completed other acquisitions with an aggregate purchase price of $17.5 mill i o nin cash. The excess purchase price over the fair value of net tangible assets acquired totaled $8.5 million andis being amortized over periods of up to 10 years. These acquisitions were not significant to the consolidatedfinancial statements.

Pro Fo rma Pre s e n t a t i o nThe foregoing acquisitions have been re c o rded under the purchase method of accounting and, accord i n g l y, theresults of the acquired businesses are included in the consolidated financial statements since the date of acqui-sition. The following unaudited pro forma financial information re flects the consolidated results of operationsof Corning as if the Pirelli, NetOptix and Siemens acquisitions took place at the beginning of January 1999.The effects of the other acquisitions on Corn i n g ’s consolidated financial statements were not material on eitheran individual or an aggregate basis. The pro forma information includes adjustments for interest expense ands h a res outstanding that would have been incurred to finance the transactions, additional depreciation based onthe fair market value of the pro p e rt y, plant and equipment acquired, amortization of purchased intangibles andgoodwill and the elimination of minority interest related to Siemens 50% ownership of Siecor Corporation. Thep ro forma financial information is not necessarily indicative of the results of operations as they would have beenhad the transactions been effected on the assumed acquisition date.

Year Ended December 31,(In millions, except per share amounts) 2 0 0 0 1 9 9 9

S a l e s $ 7,298.8 $ 5,525.8Net income $ 59.5 $ ( 3 4 8 . 3 )Basic earnings per share $ 0.02 $ (0.41)Diluted earnings per share $ 0.02 $ (0.41)

D I V E S T I T U R E S

On January 31, 2000, Corning sold Quanterra Incorporated to Severn Trent Laboratories for $35 million.In the first quarter of 2000, Corning re c o rded a nonoperating gain of $6.8 million, ($4.2 million after tax),as a result of this transaction. Concurrent with management’s decision to dispose of this business, Corn i n grecognized an impairment loss of $15.5 million ($10.0 million after tax), in the third quarter of 1999. Thei m p a i rment loss reduced Corn i n g ’s investment in these assets to an amount equal to management’s curre n testimate of fair value. The results of operations of this business were not material to Corning.

During the third quarter of 1999, Corning sold Republic Wi re and Cable, a manufacturer of elevatorcables and a subsidiary of Siecor Corporation, for approximately $52 million in cash and short - t e rm notes.C o rning re c o rded a nonoperating gain of $30 million ($9.5 million after tax and minority interest), as a re s u l tof this transaction.

In the fourth quarter of 1998, Corning re c o rded a nonoperating gain of $19.2 million ($9.7 million aftertax), related to the divestiture of several small businesses within the life sciences business.

7 5

C o rning Incorporated and Subsidiary Companies2 . BUSINES S COM BIN ATIONS AN D DI V E S TIT UR ES ( con cl u ded )

O T H E R

In June 1998, Molecular Simulations, Inc. (MSI) merged with Pharmacopeia, Inc., a publicly traded com-p a n y. Corning previously owned 35% of MSI and owned approximately 15% of the combined entity atthe time of the merg e r. Corning realized a nonoperating gain of $20.5 million ($13.2 million after tax), fro mthis transaction.

3 . IN FOR M ATION BY OPE R AT ING SEGM E N T

Operating segments are defined as components of an enterprise about which separate financial information isavailable that is evaluated regularly by the chief operating decision maker, or decision making group, in decid-ing how to allocate re s o u rces and in assessing perf o rmance. Corn i n g ’s chief operating decision-making gro u pis comprised of the Chief Executive Officer and the officers who re p o rt to him dire c t l y.

C o rn i n g ’s re p o rtable segments include Telecommunications, Advanced Materials and Information Display.The Telecommunications Segment produces optical fiber and cable, optical hard w a re and equipment, phot o n i cmodules and components and optical networking devices for the worldwide telecommunications industry. TheAdvanced Materials Segment manufactures specialized products with unique pro p e rties for customer applic a t i o n sutilizing glass, glass ceramic and polymer technologies. Businesses within this segment include enviro n m e n t a ltechnologies, life sciences, semiconductor materials and optical and lighting products. The Information DisplaySegment manufactures glass panels and funnels for televisions and CRTs, projection video lens assemblies andliquid crystal display glass for flat panel displays.

In the first quarter of 2000, Corning changed the perf o rmance measurement of its operating segmentsto a new metric. Corning evaluates perf o rmance based on an after tax pro fit measure, which is identified as seg-ment net income. Segment net income excludes amortization of purchased intangibles and goodwill, purc h a s e dIPRD costs, one-time acquisition costs and other nonre c u rring items. The accounting policies of the operat-ing segments are the same as those described in the summary of significant accounting policies. The fin a n c i a lresults for Corn i n g ’s three operating segments have been pre p a red on a basis which is consistent with the man-ner in which Corning management internally disaggregates financial information for the purposes of assistingin making internal operating decisions. In this re g a rd, certain common expenses have been allocated amongsegments diff e rently than would be re q u i red for stand alone financial information pre p a red in accordance withG A A P. Revenue attributed to geographic areas is based on the location of the customer. The segment re s u l t sfor 1999 and 1998 have been restated to conform to the new measure .

7 6

C o rning Incorporated and Subsidiary Companies3 . IN FOR M ATION BY OPE R AT ING SEGM E NT ( conti nued )

OPE R ATING SEGM E N T S

Advanced I n f o rm a t i o n To t a l(in millions) Te l e c o m m u n i c a t i o n s M a t e r i a l s D i s p l a y S e g m e n t s

2 0 0 0

N E T S A L E S $ 5,120.7 $ 1,086.0 $ 894.1 $ 7,100.8D e p re c i a t i on( 1 ) 3 4 1 . 2 8 8 . 3 8 9 . 3 5 1 8 . 8R e s e a rch, development and engineering expenses ( 2 ) 3 9 0 . 4 1 2 0 . 3 2 9 . 2 5 3 9 . 9I n t e rest income 1 . 2 1 . 2I n t e rest expense ( 3 ) 6 9 . 0 1 8 . 2 1 9 . 1 1 0 6 . 3Income tax expense 3 2 6 . 5 4 3 . 5 4 6 . 6 4 1 6 . 6S E G M E N T E A R N I N G S B E F O R E M I N O R I T Y

I N T E R E S T A N D E Q U I T Y E A R N I N G S ( 4 ) 6 7 7 . 2 8 8 . 0 1 1 4 . 2 8 7 9 . 4Minority interest in (earnings) losses of subsidiaries 3 . 0 ( 2 6 . 7 ) ( 2 3 . 7 )Equity in earnings of associated companies 1 . 0 2 2 . 6 1 4 4 . 5 1 6 8 . 1S E G M E N T N E T I N C O M E 6 8 1 . 2 1 1 0 . 6 2 3 2 . 0 1 , 0 2 3 . 8Investment in associated companies, at equity 3 3 . 9 5 0 . 9 3 8 1 . 0 4 6 5 . 8Segment assets( 5 ) 4 , 0 7 8 . 9 9 1 0 . 4 1 , 4 3 8 . 5 6 , 4 2 7 . 8Capital expenditure s 9 4 2 . 1 1 2 2 . 4 3 6 6 . 1 1 , 4 3 0 . 6

1 9 9 9

N E T S A L E S $ 2,958.2 $ 1,053.9 $ 701.2 $ 4,713.3D e p re c i a t i on( 1 ) 2 1 4 . 9 8 0 . 7 7 8 . 1 3 7 3 . 7R e s e a rch, development and engineering expenses( 2 ) 2 6 0 . 8 9 4 . 5 2 2 . 9 3 7 8 . 2I n t e rest income 8 . 5 2 . 0 0 . 8 1 1 . 3I n t e rest expense( 3 ) 5 8 . 8 2 2 . 7 1 1 . 2 9 2 . 7Income tax expense 1 3 7 . 5 4 3 . 0 1 9 . 0 1 9 9 . 5S E G M E N T E A R N I N G S B E F O R E M I N O R I T Y

I N T E R E S T A N D E Q U I T Y E A R N I N G S ( 4 ) 3 3 0 . 4 9 0 . 9 5 7 . 6 4 7 8 . 9Minority interest in earnings of subsidiaries ( 3 4 . 6 ) ( 2 2 . 7 ) ( 5 7 . 3 )Equity in earnings of associated companies 1 4 . 9 2 1 . 7 6 7 . 8 1 0 4 . 4S E G M E N T N E T I N C O M E 3 1 0 . 7 1 1 2 . 6 1 0 2 . 7 5 2 6 . 0Investment in associated companies, at equity 5 8 . 4 4 5 . 3 2 6 1 . 0 3 6 4 . 7Segment assets( 5 ) 2 , 3 0 3 . 4 8 7 8 . 4 9 9 0 . 0 4 , 1 7 1 . 8Capital expenditure s 3 2 9 . 2 1 1 2 . 9 5 9 . 5 5 0 1 . 6

1 9 9 8

N E T S A L E S $ 2,139.6 $ 1,020.1 $ 644.7 $ 3,804.4D e p re c i a t i on( 1 ) 1 4 1 . 3 7 6 . 6 7 3 . 5 2 9 1 . 4R e s e a rch, development and engineering expenses ( 2 ) 2 0 3 . 7 8 0 . 0 2 3 . 7 3 0 7 . 4I n t e rest income 1 0 . 5 3 . 2 1 . 1 1 4 . 8I n t e rest expense( 3 ) 3 9 . 8 1 6 . 7 1 0 . 0 6 6 . 5Income tax expense 1 1 8 . 1 3 8 . 4 8 . 2 1 6 4 . 7S E G M E N T E A R N I N G S B E F O R E M I N O R I T Y

I N T E R E S T A N D E Q U I T Y E A R N I N G S ( 4 ) 2 6 5 . 3 7 5 . 9 3 9 . 2 3 8 0 . 4Minority interest in (earnings) losses of subsidiaries ( 3 8 . 0 ) 0 . 3 ( 2 7 . 6 ) ( 6 5 . 3 )Equity in earnings of associated companies 2 2 . 7 1 7 . 6 4 4 . 9 8 5 . 2S E G M E N T N E T I N C O M E 2 5 0 . 0 9 3 . 8 5 6 . 5 4 0 0 . 3Investment in associated companies, at equity 3 6 . 8 4 2 . 0 1 9 0 . 4 2 6 9 . 2Segment assets( 5 ) 1 , 8 4 6 . 7 8 3 4 . 0 9 1 5 . 1 3 , 5 9 5 . 8Capital expenditure s 2 7 6 . 8 1 3 1 . 0 5 3 . 0 4 6 0 . 8( 1 ) Includes an allocation of depreciation of corporate pro p e rt y, plant and equipment not specifically identifiable to a segment. Related depreciable assets are

not allocated to segment assets.( 2 ) N o n - d i rect re s e a rch, development and engineering expenses are allocated based upon direct project spending for each segment.( 3 ) I n t e rest expense is allocated to segments based on a percentage of segment net operating assets. Consolidated subsidiaries with independent capital stru c t u re s

do not receive additional allocations of interest expense.(4) Many of Corn i n g ’s administrative and staff functions are perf o rmed on a centralized basis. Where practicable, Corning charges these expenses to segments

based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human re s o u rces and legal area l l ocated to segments, primarily as a percentage of sales.

( 5 ) Includes inventory, accounts receivable, plant, pro p e rty and equipment and investments in associated equity companies.

7 7

C o rning Incorporated and Subsidiary Companies3 . IN FOR M ATION BY OPE R ATING SEGME NT ( con ti nued )

A reconciliation of the totals re p o rted for the operating segments to the applicable line items in the consolidatedfinancial statements is as follows:

2 0 0 0 1 9 9 9 1 9 9 8R E V E N U E S

Total segment net sales $ 7,100.8 $ 4,713.3 $ 3,804.4Non-segment net sales( 1 ) 2 6 . 3 2 7 . 8 2 7 . 5I n t e rest income 1 0 4 . 6 1 1 . 7 1 5 . 0Royalty and dividend income 3 4 . 6 2 9 . 7 3 5 . 0Nonoperating gains 6 . 8 3 0 . 0 3 9 . 7

Total re v e n u e s $ 7,273.1 $ 4,812.5 $ 3,921.6

N E T I N C O M E

Total segment net income ( 2 ) $ 1,023.8 $ 526.0 $ 400.3Unallocated items:

Non-segment income ( 1 ) 1 2 . 7 2 0 . 2 3 9 . 5A m o rtization of purchased intangibles including goodwill( 3 ) ( 2 4 5 . 0 ) ( 2 7 . 8 ) ( 2 2 . 2 )A c q u i s i t i o n - related charg es ( 4 ) ( 4 6 2 . 6 )P rovision for impairment and re s t ru c t u r i ng ( 5 ) ( 1 . 4 ) ( 8 4 . 6 )I n t e rest income ( 6 ) 1 0 3 . 4I n t e rest expense ( 0 . 3 ) ( 0 . 5 ) ( 0 . 3 )Income tax( 7 ) 8 . 4 ( 1 . 6 ) 2 0 . 0Equity in earnings of associated companies 5 . 4 7 . 9 1 2 . 1I m p a i rment of equity investment ( 3 6 . 3 )Minority intere s t ( 9 . 5 ) 3 . 7Dividends on convertible pre f e rred securities of subsidiary ( 2 . 3 ) ( 1 3 . 7 )

Net income from continuing operations $ 409.5 $ 511.0 $ 354.8

A S S E T S

Total segment assets $ 6,427.8 $ 4,171.8 $ 3,595.8N o n - s egment assets:

P ro p e rt y, plant and equipment ( 8 ) 1 , 1 0 0 . 1 8 2 8 . 9 6 2 4 . 7I n v e s t m e n ts ( 9 ) 1 3 9 . 7 1 3 9 . 6 1 0 8 . 1Other assets ( 1 0 ) 7 , 5 7 7 . 5 7 9 9 . 7 8 1 1 . 1Remaining corporate assets ( 1 1 ) 2 , 2 8 0 . 6 5 8 6 . 0 3 2 4 . 6

Total consolidated assets $ 17,525.7 $ 6,526.0 $ 5,464.3

( 1 ) Includes amounts derived from corporate investments. Non-segment income also includes nonoperating gains and losses. Includes one-time gain of$11.7 million included in equity earnings from Samsung Corning related to divestment of its interest in Samsung Corning Pre c i s i o n .

( 2 ) Includes ro y a l t y, interest and dividend income.( 3 ) A m o rtization of purchased intangibles and goodwill relates primarily to the Telecommunications segment.( 4 ) Includes in-process re s e a rch and development and relates primarily to the Telecommunications segment.( 5 ) The 1999 amount is the net impact of a $15.5 million impairment charge related to the Advanced Materials Segment and the release of re s t ructuring re s e rv e s

totaling $14.1 million. See Note 7 to the consolidated financial statements for further discussion of the re s t ructuring re s e rve. The portion of the 1998 re s t ru c-turing charge related to Telecommunications, Advanced Materials and Information Display Segments was $8.3 million, $26.9 million, and $16.3 million,re s p e c t i v e l y. The remainder pertains to corporate functions.

( 6 ) Corporate interest income is not allocable to re p o rtable segments.( 7 ) Includes tax associated with the impairment and re s t ructuring charges, amortization of purchased intangibles and goodwill, acquisition-related charg e s

and nonoperating gains.( 8 ) R e p resents corporate pro p e rt y, plant and equipment not specifically identifiable to a segment.( 9 ) R e p resents corporate investments in associated companies, both at cost and at equity.( 1 0 ) Includes non-current corporate assets, primarily goodwill and other intangibles, pension assets and deferred taxes.( 1 1 ) Includes current corporate assets, primarily cash, short - t e rm investments and deferred taxes.

7 8

C o rning Incorporated and Subsidiary Companies3 . IN FOR M ATION BY OPE R AT ING SEGM E NT ( conti nued )

OT HE R SIGNIF I CA NT IT E MS

S e g m e n t R e c o n c i l i n g C o n s o l i d a t e dTo t a l A d j u s t m e n t s To t a l

2 0 0 0

D e p re c i a t i o n $ 518.8 $ ( 2 . 6 ) $ 516.2I n t e rest expense 1 0 6 . 3 0 . 3 1 0 6 . 6Income taxes 4 1 6 . 6 ( 9 . 5 ) 4 0 7 . 1Equity in earnings of associated companies( 1 ) 1 6 8 . 1 1 7 . 1 1 8 5 . 2Minority intere s t ( 2 3 . 7 ) ( 2 3 . 7 )Investment in associated companies, at equity 4 6 5 . 8 1 2 . 8 4 7 8 . 6Capital expenditure s 1 , 4 3 0 . 6 2 9 0 .7 ( 2 ) 1 , 7 2 1 . 3

1 9 9 9

D e p re c i a t i o n $ 373.7 $ 1 . 8 $ 375.5I n t e rest expense 9 2 . 7 0 . 5 9 3 . 2Income taxes 1 9 9 . 5 7 . 6 2 0 7 . 1Equity in earnings of associated companies 1 0 4 . 4 7 . 9 1 1 2 . 3Minority intere s t ( 5 7 . 3 ) ( 9 . 5 ) ( 6 6 . 8 )Investment in associated companies, at equity 3 6 4 . 7 5 7 . 2 4 2 1 . 9Capital expenditure s 5 0 1 . 6 2 5 5 .5 ( 2 ) 7 5 7 . 1

1 9 9 8

D e p re c i a t i o n $ 291.4 $ 1.2 $ 292.6I n t e rest expense 6 6 . 5 0 . 3 6 6 . 8Income taxes 1 6 4 . 7 ( 1 5 . 2 ) 1 4 9 . 5Equity in earnings of associated companies 8 5 . 2 1 2 . 1 9 7 . 3Minority intere s t ( 6 5 . 3 ) 3 . 7 ( 6 1 . 6 )Investment in associated companies, at equity 2 6 9 . 2 5 4 . 7 3 2 3 . 9Capital expenditure s 4 6 0 . 8 2 6 9 .6 ( 2 ) 7 3 0 . 4

( 1 ) Includes nonoperating gain of $11.7 million (Corn i n g ’s share) re c o rded by Samsung Corning upon divestment of its interest in Samsung C o rn i n g P re c i s i o n .( 2 ) Includes capital spending on shared re s e a rch facilities of $116.4 million, $134.5 million and $166.0 million in 2000, 1999 and 1998, re s p e c t i v e l y.

7 9

C o rning Incorporated and Subsidiary Companies3 . IN FOR M ATION BY OPE R ATING SEGME NT ( con cl ude d )

I n f o rmation concerning principal geographic areas is as follows:

2 0 0 0 1 9 9 9 1 9 9 8N e t N o n - c u rre n t N e t N o n - c u rre n t N e t N o n - c u rre n t

S a l e s Assets S a l e s A s s e ts( 1 ) S a l e s A s s e ts ( 1 )

N o rth AmericaUnited States $ 3,580.6 $ 7,516.2 $ 2,792.7 $ 3,427.9 $ 2,498.8 $ 3,120.4C a n a d a 8 4 8 . 5 9 5 . 0 4 7 3 . 0 9 2 . 9 3 1 2 . 0 9 4 . 5M e x i c o 9 7 . 7 8 3 . 0 6 7 . 1 5 8 . 2 5 8 . 3 4 4 . 2

Total North America 4 , 5 2 6 . 8 7 , 6 9 4 . 2 3 , 3 3 2 . 8 3 , 5 7 9 . 0 2 , 8 6 9 . 1 3 , 2 5 9 . 1

Asia PacificJ a p a n 5 7 5 . 0 2 5 7 . 3 3 9 1 . 4 1 4 8 . 5 3 1 8 . 4 1 0 9 . 6C h i n a 1 4 2 . 7 1 2 0 . 9 7 9 . 4 3 8 . 0 7 5 . 7 1 3 . 0K o re a 6 7 . 6 3 8 5 . 4 5 0 . 8 2 6 4 . 6 2 4 . 3 1 9 5 . 2O t h e r 1 2 6 . 8 5 1 . 7 8 0 . 1 4 5 . 7 4 2 . 8 1 5 . 1

Total Asia Pacific 9 1 2 . 1 8 1 5 . 3 6 0 1 . 7 4 9 6 . 8 4 6 1 . 2 3 3 2 . 9

E u ro p eG e rm a n y 4 6 5 . 0 5 0 5 . 4 1 8 9 . 7 9 1 . 2 1 2 3 . 7 9 5 . 6F r a n c e 2 5 6 . 6 1 1 4 . 5 1 0 7 . 5 9 1 . 9 8 1 . 3 7 8 . 1United Kingdom 2 4 2 . 8 1 7 3 . 3 1 3 2 . 8 1 5 0 . 4 8 4 . 2 7 6 . 0I t a l y 6 9 . 3 3 , 4 8 8 . 5 5 3 . 4 3 . 0 1 . 2 0 . 2O t h e r 4 1 9 . 0 4 7 . 0 2 0 7 . 8 5 7 . 0 1 3 2 . 1 2 9 . 1

Total Euro p e 1 , 4 5 2 . 7 4 , 3 2 8 . 7 6 9 1 . 2 3 9 3 . 5 4 2 2 . 5 2 7 9 . 0

Latin AmericaB r a z i l 5 9 . 3 1 9 . 5 4 4 . 2 2 0 . 7 3 2 . 4 1 0 . 4O t h e r 2 1 . 6 7 . 1 1 3 . 3 1 3 . 7

Total Latin America 8 0 . 9 2 6 . 6 5 7 . 5 2 0 . 7 4 6 . 1 1 0 . 4

All Other 1 5 4 . 6 2 6 . 5 5 7 . 9 7 . 9 3 3 . 0 2 2 . 0To t a l $ 7,127.1 $ 1 2 , 8 9 1 . 3 $ 4,741.1 $ 4,497.9 $ 3,831.9 $ 3,903.4

( 1 ) Excludes deferred taxes of $43.9 million and $85.2 million in 1999 and 1998, re s p e c t i v e l y.

8 0

C o rning Incorporated and Subsidiary Companies4. IN V E S TM E N T S

A S S O C I A T E D C O M P A N I E S A T E Q U I T Y

Samsung Corning Company Ltd., a 50%-owned South Korea-based manufacturer of glass panels and funnelsfor television and display monitors, re p resented $284.5 million and $220.5 million of Corn i n g ’s investmentsaccounted for by the equity method at year-end 2000 and 1999, re s p e c t i v e l y.

The financial position and results of operations of Samsung Corning and Corn i n g ’s other equity compa-nies are summarized as follows:

2 0 0 0 1 9 9 9 1 9 9 8

S a m s u n g To t a l S a m s u n g To t a l S a m s u n g To t a lC o rn i n g E q u i t y C o rn i n g E q u i t y C o rn i n g E q u i t yCo. Ltd. C o m p a n i e s Co. Ltd. C o m p a n i e s Co. Ltd. Companies

Net sales $ 1 , 0 1 0 . 5 $ 1 , 7 3 8 . 7 $ 9 6 4 . 6 $1 , 8 3 0 . 7 $ 8 8 4 . 1 $1 , 6 6 5 . 2G ross pro fit 3 4 5 . 5 6 5 0 . 0 2 7 5 . 6 5 8 2 . 8 2 3 9 . 6 5 7 7 . 1Net income 2 1 0 . 7 3 6 5 . 9 9 6 . 5 2 4 4 . 3 7 7 . 8 2 2 8 . 1

C o rn i n g ’s equity in net income ( 1 ) $ 1 0 3 . 8 $ 1 8 5 . 2 $ 4 7 . 7 $ 1 1 2 . 3 $ 3 8 . 4 $ 9 7 . 3

C u rrent assets $ 4 1 0 . 4 $ 9 1 0 . 8 $ 2 7 4 . 5 $ 6 0 8 . 2 $ 3 6 2 . 6 $ 6 7 7 . 1N o n - c u rrent assets 8 6 5 . 6 1 , 2 8 4 . 1 1 , 0 0 6 . 9 1 , 3 3 4 . 8 1 , 0 2 2 . 7 1 , 3 2 4 . 0

C u rrent liabilities $ 2 9 2 . 7 $ 7 4 6 . 3 $ 2 8 2 . 4 $ 4 6 5 . 8 $ 3 6 9 . 7 $ 5 3 9 . 1N o n - c u rrent liabilities 3 2 9 . 9 4 9 2 . 4 5 1 2 . 7 6 3 1 . 7 6 5 7 . 3 7 5 7 . 3

( 1 ) Equity in earnings shown above and in the Consolidated Statements of Income are net of amounts re c o rded for income tax.

Dividends received from Samsung Corning and Corn i n g ’s other equity companies totaled $44.7 million,$50.9 million and $63.4 million in 2000, 1999 and 1998, re s p e c t i v e l y. At December 31, 2000, appro x i m a t e l y$436.6 million of equity in undistributed earnings of equity companies were included in Corn i n g ’s retained earni n g s .

Samsung Corning results include a nonoperating gain of $23.4 million from the sale of its interest inSamsung Corning Precision Glass Company Ltd. (Samsung Corning Precision). Corn i n g ’s 50% share of this gainis included in its equity earnings. Corning continues to maintain a 50% interest in Samsung Corning Pre c i s i o n .

D O W C O R N I N G C O R P O R A T I O N

C o rning is a 50% owner of Dow Corning Corporation (Dow Corning), a manufacturer of silicones. The other50% of Dow Corning is owned by The Dow Chemical Company (Dow Chemical).

On May 15, 1995, Dow Corning voluntarily filed for protection under Chapter 11 of the United StatesB a n k ruptcy Code as a result of several negative developments related to the breast implant litigation. At thattime, Corning management believed it was impossible to predict if and when Dow Corning would successfullye m e rge from Chapter 11 proceedings. As a result, Corning re c o rded an after-tax charge of $365.5 million tofully re s e rve its investment in Dow Corning and discontinued recognition of equity earnings from DowC o rning in 1995.The bankruptcy proceeding is pending in the United States Bankruptcy Court for the EasternDistrict of Michigan, Nort h e rn Division (Bay City, Michigan). The bankruptcy filing stayed the pro s e c u t i o nagainst Dow Corning of approximately 19,000 breast implant product liability lawsuits, including 45 class actions.In the period from December 1996 through Febru a ry 1998, Dow Corning filed a plan of re o rganization andtwo amended plans, each of which was opposed by creditor re p resentatives. In 1998, Dow Corning and the To rtClaimants Committee engaged in extended negotiations and reached certain compromises. On November 8, 1 9 9 8 ,Dow Corning and the To rt Claimants Committee jointly filed a revised Plan of Reorganization (Joint Plan).The Joint Plan and related disclosure materials were mailed to claimants for their approval. Following a favor-able vote from all but four classes of creditors, a hearing to confirm the Joint Plan was held in mid 1999.

On November 30, 1999, the Bankruptcy Court entered an order confirming the Joint Plan and indicatedthat certain written opinions would follow. On December 21, 1999, the Bankruptcy Court issued an opinion

8 1

C o rning Incorporated and Subsidiary Companies4. IN V E S TM EN TS ( con ti nued )

that approved the principal elements of the Joint Plan with respect to tort claimants, but construed the JointPlan as providing releases for third parties (including Corning and Dow Chemical as shareholders) only withrespect to tort claimants who voted in favor of the Joint Plan. A number of parties opposing the Joint Plan fil e dappeals on a variety of grounds to the United States District Court for the Eastern District of Michigan. DowC o rning and the Committee of To rt Claimants filed a notice of appeal seeking review of the ruling limiting thescope of the shareholder releases. Corning and Dow Chemical filed separate notices of appeal on this issue. OnNovember 13, 2000, the District Court entered an Order affirming the Bankruptcy Court ’s November 30, 1999O rder confirming the Joint Amended Plan and reversing the Bankruptcy Court ’s December 21, 1999 Opinionon the release and injunction provisions. One group of plaintiffs filed a motion for reconsideration in the DistrictC o u rt and the District Court entered a Febru a ry 5, 2001 Opinion Denying Motion for Reconsideration, con-firming that the Litigation Facility under the Joint Plan is the defendant in place of Dow Corning, Corn i n gand Dow Chemical, and that Corning and Dow Chemical are not named defendants for direct claims.A p p roximately 20 appeals were filed from the District Court ’s Order and are pending in the Sixth Circuit Courtof Appeals, which is expected to rule in the second half of 2001. After all appeals are exhausted, if the Joint Planis upheld but the shareholder releases are effective only for those voting in favor of the Joint Plan, Corning wouldexpect to defend any remaining claims against it on the same grounds that led to a series of orders and judgmentsdismissing all claims against Corning in the federal courts and the state courts. With respect to the possibilityof additional direct or indirect claims against Corning if the full releases are not reinstated in the Joint Plan,management believes that such claims lack merit and that the breast implant litigation against Corning will beresolved without material impact on Corn i n g ’s financial statements.

Under the terms of the Joint Plan, Dow Corning would be re q u i red to establish a Settlement Trust and aLitigation Facility to provide a means for tort claimants to settle or litigate their claims. Dow Corning wouldhave the obligation to fund the Trust and the Facility, over a period of up to 16 years, in an amount up to appro x-imately $3.2 billion (nominal value), subject to the limitations, terms and conditions stated in the Joint Plan.Dow Corning proposes to provide the re q u i red funding over the 16 year period through a combination of cash,p roceeds from insurance and cash flow from operations. Corning and Dow Chemical have each agreed to pro-vide a credit facility to Dow Corning of up to $150 million ($300 million in the aggregate), subject to the term sand conditions stated in the Joint Plan. The Joint Plan also provides for Dow Corning to make full payment,t h rough cash and the issuance of senior notes, to its commercial creditors. If and when Dow Corning emerg e sf rom bankru p t c y, Corning will likely begin to recognize equity earnings from Dow Corning. Corning does notexpect to receive dividends from Dow Corning in the foreseeable future .

The financial position and results of operations of Dow Corning are summarized in the table below(amounts in millions):

2 0 0 0 1 9 9 9 1 9 9 8

Net sales $ 2,750.9 $ 2,603.3 $ 2,568.0G ross pro fit 8 1 4 . 2 7 7 2 . 2 8 2 6 . 7Net income (loss) 1 0 4 . 6 1 0 9 . 7 ( 5 9 5 . 0 )

C u rrent assets $ 1,793.8 $ 1,601.7 $ 1,555.6N o n - c u rrent assets 4 , 6 7 6 . 9 4 , 6 2 5 . 4 4 , 6 1 0 . 7

C u rrent liabilities $ 947.3 $ 769.9 $ 729.2N o n - c u rrent liabilities 3 4 8 . 9 3 6 6 . 5 3 9 1 . 2Liabilities subject to compro m i se ( 1 ) 4 , 6 1 8 . 3 4 , 5 9 2 . 3 4 , 6 0 9 . 6S h a reholders’ equity 5 5 6 . 2 4 9 8 . 4 4 3 6 . 3( 1 ) Dow Corn i n g ’s financial statements for 2000, 1999 and 1998 have been pre p a red in conformity with the American Institute of Cert i fied Public Accountants’

Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” (SOP 90-7). SOP 90-7 re q u i res a segre g a-tion of liabilities subject to compromise by the Bankruptcy Court as of the filing date (May 15, 1995) and identification of all transactions and events thata re directly associated with the re o rg a n i z a t i o n .

8 2

C o rning Incorporated and Subsidiary Companies4. IN V E S TMEN TS ( con cl ude d )

Dow Corn i n g ’s 1998 results reflect the impact of a pre-tax charge of approximately $1.1 billion, re p re-senting Dow Corn i n g ’s best estimate of the anticipated financial consequences to be incurred in resolving allclaims arising from the Chapter 11 proceedings and from the breast implant contro v e r s y.

Dow Corn i n g ’s 1998 results have also been impacted by the suspension of interest payments and re o r-g anization costs resulting from the Chapter 11 pro c e e d i n g s .

P I T T S B U R G H C O R N I N G C O R P O R A T I O N

C o rning and PPG Industries, Inc. each own 50% of the capital stock of Pittsburgh Corning Corporation (PCC).PCC and several other defendants have been named in numerous lawsuits involving claims alleging personali n j u ry from exposure to asbestos. As of the bankruptcy filing on April 16, 2000, PCC had in excess of 240,000open claims. In the first quarter of 2000, after incurring adverse verdicts in five trials involving 19 claimants,PCC filed for Chapter 11 re o rganization in the United States Bankruptcy Court for the We s t e rn District ofPennsylvania. At the time of its Chapter 11 filing, PCC sought and obtained a temporary restraining order andfiled a motion for a pre l i m i n a ry injunction against the prosecution of asbestos actions against its two share h o l d e r s .The pre l i m i n a ry injunction has been extended by stipulation of the parties and by court order to May 21, 2001to enable the parties to negotiate a plan of re o rganization for PCC. Upon expiration of the injunction on orafter May 21, 2001, PCC, PPG Industries and Corning will have 90 days to seek removal and transfer of stayedcases that have not been resolved through a plan of re o rganization. As a result of PCC’s bankruptcy filing, Corn i n gre c o rded an after tax charge of $36.3 million in the first quarter to impair its entire investment in PCC and dis-continued recognition of equity earnings. At the time PCC filed for bankruptcy protection, there were appro x-imately 12,400 claims pending against Corning alleging various theories of liability based on exposure to PCC’sasbestos products, all of which are stayed pursuant to the injunction of the bankruptcy court. Before PCC fil e dfor bankruptcy protection, Corning was dismissed from similar claims as cases against PCC proceeded to trial.The Chapter 11 filing may lead to additional claims against Corning with related costs of defense, charges andexpenses. Although the outcome of litigation and the bankruptcy case is uncertain, management believes that theseparate corporate status of PCC will continue to be upheld. Management is continuing to investigate Corn i n g ’soptions for defending claims against it, which might include vigorously defending itself on all fronts or explor-ing a global settlement through the bankruptcy process. The range of cost for these options (net of insurance)cannot be estimated at this time, although management believes these matters will be resolved without a mate-rially adverse impact on Corn i n g ’s financial position.

O T H E R I N V E S T M E N T S

C o rn i n g ’s other investments include equity securities, which are classified as available-for-sale. At December 31, 2000,the fair value and cost of C o rn i n g ’s equity securities was $156.2 million and $89.5 million, re s p e c t i v e l y. The diff e re n c eincludes gross unrealized gains of $67.3 million and gross unrealized losses of $0.1 million. At December 31, 1999,the fair value and cost of C o rn i n g ’s equity securities was $82.5 million and $51.4 million, re s p e c t i v e l y. The diff e re n c eincludes gross unrealized gains of $32.8 million and gross unrealized losses of $1.7 million. The net change in theu n realized gain/(loss) on marketable securities classified as available-for-sale included as a component of accumulatedother comprehensive income was $36.1 million and $31.0 million for the years ended December 31, 2000 and1999, re s p e c t i v e l y.

P roceeds from sales of marketable securities were $16.3 million and $0.8 million in 2000 and 1999, re s p e c-t i v e l y, and related net realized gains included in income were $26.5 million and $5.6 million in 2000 and1999, re s p e c t i v e l y.

5. E M PLOYE E R ETIRE ME NT PL A NS

C o rning has defined benefit pension plans covering certain domestic and international employees. Corn i n g ’sfunding policy has been to contribute as necessary an amount determined jointly by Corning and its consult-ing actuaries, which provides for the current cost and amortization of prior service cost. In 2000, Corning amended

8 3

C o rning Incorporated and Subsidiary Companies5 . E M PLOY E E R ETIR E MENT P L A NS ( conti nued )

its US pension plan to include a cash balance pension feature. All salaried and non-union hourly employees hire db e f o re July 1, 2000 were given the choice of staying in the existing plan or participating in the cash balance planbeginning January 1, 2001. Salaried employees hired after July 1, 2000 automatically became participants in thenew cash balance plan. Under the cash balance plan, employee accounts are credited monthly with a perc e n t-age of eligible pay based on age and years of service. Benefits remain 100% vested after five years of serv i c e .

C o rning and certain of its domestic subsidiaries also offer defined benefit postre t i rement plans that pro-vide health care and life insurance benefits for re t i rees and eligible dependents. Certain employees may becomeeligible for such postre t i rement benefits upon reaching re t i rement age. Corn i n g ’s principal re t i ree medical plansre q u i re re t i ree contributions each year equal to the excess of medical cost increases over general inflation rates.

The change in benefit obligation and funded status of Corn i n g ’s employee re t i rement plans are as follows:

Pension Benefit s P o s t re t i rement Benefit s2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9

C H A N G E I N B E N E F I T O B L I G A T I O N

(in millions)

B e n e fit obligation at beginning of year $ (1,431.1) $ (1,561.1) $ (592.3) $ (632.3)B e n e fit obligation of acquired businesses ( 5 8 . 0 )S e rvice cost ( 3 1 . 8 ) ( 2 6 . 9 ) ( 1 0 . 3 ) ( 1 1 . 6 )I n t e rest cost ( 1 1 7 . 4 ) ( 9 5 . 5 ) ( 4 0 . 5 ) ( 3 9 . 8 )Plan participants’ contribution ( 4 . 0 ) ( 2 . 5 ) ( 2 . 2 ) ( 1 . 7 )A m e n d m e n t s 7 . 5 ( 6 1 . 5 ) 1 . 0 ( 0 . 9 )S e t t l e m e n t s ( 7 . 1 )Gain/(loss) from changes in actuarial assumptions ( 9 5 . 8 ) 1 5 7 . 4 5 3 . 4 5 8 . 0Experience gain/(loss) 4 2 . 3 1 . 3B e n e fits paid 1 2 7 . 3 1 1 6 . 7 3 4 . 9 3 4 . 7

B e n e fit obligation at end of year $ (1,610.4) $ (1,431.1) $ ( 5 5 6 . 0 ) $ (592.3)

C H A N G E I N P L A N A S S E T S

Fair value of plan assets at beginning of year $ 1,718.4 $ 1,537.3Fair value of plan assets from acquired businesses 1 5 . 8Actual re t u rn on plan assets 2 2 7 . 8 2 5 8 . 6Employer contribution 3 5 . 3 3 6 . 7Plan participants’ contributions 2 . 5 2 . 5B e n e fits paid ( 1 2 7 . 3 ) ( 1 1 6 . 7 )

Fair value of plan assets at end of year $ 1,872.5 $ 1,718.4

Funded status $ 2 6 2 . 1 $ 2 8 7 . 3 $ (556.0) $ (592.3)U n recognized transition amount ( 2 . 1 ) ( 2 . 2 )U n recognized prior service cost 1 2 6 . 0 1 4 9 . 2 ( 3 . 1 ) ( 3 . 4 )U n recognized net (gains)/losses from changes

in actuarial assumptions ( 3 1 1 . 3 ) ( 3 3 1 . 4 ) ( 6 7 . 2 ) ( 1 7 . 4 )

Recognized asset (liability) $ 7 4 . 7 $ 1 0 2 . 9 $ ( 6 2 6 . 3 ) $ (613.1)

Less current port i o n 3 8 . 0 3 9 . 1

A c c rued postre t i rement benefit liability $ ( 5 8 8 . 3 ) $ (574.0)

8 4

C o rning Incorporated and Subsidiary Companies5 . E M PLOY E E R ETIR E MENT P L A NS (conti nued )

D e fined benefit pension plan assets are comprised principally of publicly traded debt and equity securities.C o rning common stock re p resented 1.7% and 4.1% of plan assets at year-end 2000 and 1999, re s p e c t i v e l y.C o rning has not funded its postre t i rement benefit obligations.

The weighted-average assumptions for Corn i n g ’s employee re t i rement plans are as follows:

Pension Benefit s P o s t re t i rement Benefit s2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9

Discount rate 7 . 7 5 % 7 . 7 5 % 7 . 7 5 % 7 . 7 5 %Expected re t u rn on plan assets 9 . 0 % 9 . 0 %Rate of compensation incre a s e 4 . 5 % 4 . 5 %

C o rn i n g ’s consolidated postre t i rement benefit obligation is determined by application of the terms of healthc a re and life insurance plans, together with relevant actuarial assumptions and health care cost trend rates. Thehealth care cost trend rate for Corn i n g ’s principal plan is assumed to be 7.08% in 2000 decreasing gradually to5.0% in 2010 and there a f t e r.

Assumed health care trend rates have a significant effect on the amounts re p o rted for the health care plans.A one-percentage-point change in 2000 assumed health care trend rates would have the following eff e c t s :

1 - P e rc e n t a g e - P o i n tI n c re a s e D e c re a s e

E ffect on total of service and interest cost components $ 4.1 $ (3.6)

E ffect on postre t i rement benefit obligation 3 8 . 9 ( 3 3 . 6 )

The components of net periodic benefit cost for Corn i n g ’s employee re t i rement plans are as follows:

Pension Benefit s P o s t re t i rement Benefit s2 0 0 0 1 9 9 9 1 9 9 8 2 0 0 0 1 9 9 9 1 9 9 8

S e rvice cost $ 3 1 . 8 $ 2 6 . 9 $ 2 2 . 6 $ 10.3 $ 11.6 $ 9.6I n t e rest cost 1 1 7 . 4 9 5 . 5 9 7 . 8 4 0 . 5 3 9 . 8 4 0 . 2Expected re t u rn on plan assets ( 1 4 8 . 5 ) ( 1 3 2 . 8 ) ( 1 2 1 . 9 )A m o rtization of transition asset ( 0 . 7 ) ( 0 . 6 ) ( 0 . 6 ) 0 . 2A m o rtization of net loss (gain) ( 1 . 2 ) 1 3 . 5 1 3 . 1 ( 1 . 6 )A m o rtization of prior service cost 1 6 . 3 2 . 2 1 . 8 ( 0 . 9 ) ( 0 . 9 ) ( 1 . 1 )

Net periodic benefit cost 1 5 . 1 4 . 7 1 2 . 8 4 8 . 3 5 0 . 7 4 8 . 7

Recognition of curtailment and settlement 1 1 . 5 5 . 4 1 4 .2 ( 1 )

Recognition of special termination b e n e fit s 7 . 5 0 . 5

Total cost $ 2 6 . 6 $ 1 0 . 1 $ 3 4 . 5 $ 48.3 $ 50.7 $ 49.2

( 1 ) Included in the gain on sale of the consumer housewares business, which is re c o rded in income from discontinued operations.

8 5

C o rning Incorporated and Subsidiary Companies5 . E M PLOY E E R ETIR E MENT P L A NS (con cl uded )

M e a s u rement of postre t i rement benefit expense is based on assumptions used to value the postre t i re m e n tb e n e fit obligation at the beginning of the year. In addition to defined benefit re t i rement plans, Corning off e r sd e fined contribution plans covering employees meeting certain eligibility re q u i rements. Total consolidated defin e dcontribution expense was $80.9 million in 2000, $50.0 million in 1999 and $39.5 million in 1998.

6 .TAXE S ON INCOM E

(in millions) 2 0 0 0 1 9 9 9 1 9 9 8

Income from continuing operations before taxes on income:U.S. companies $ 762.7 $ 526.7 $ 378.5Non-U.S. companies ( 7 1 . 3 ) 1 4 8 . 2 1 0 3 . 8

Income before taxes on income $ 691.4 $ 674.9 $ 482.3

Taxes on income from continuing operations $ 407.1 $ 207.1 $ 149.5

E ffective tax rate re c o n c i l i a t i o n :S t a t u t o ry U.S. tax rate 3 5 . 0 % 3 5 . 0 % 3 5 . 0 %State taxes, net of federal benefit 3 . 9 0 . 8 0 . 8A c q u i s i t i o n - related costs( 1 ) 2 7 . 1F o reign and other tax cre d i t s ( 0 . 4 ) ( 0 . 8 )Lower taxes on subsidiary earn i n g s ( 7 . 4 ) ( 2 . 4 ) ( 5 . 7 )O t h e r 0 . 3 ( 2 . 3 ) 1 . 7

E ffective tax rate 5 8 . 9 % 3 0 . 7 % 3 1 . 0 %

C u rrent and deferred tax expense (benefit) from continuing operations:

C u rre n t :U . S . $ 306.2 $ 92.9 $ 96.4State and municipal 6 6 . 4 3 . 4 1 0 . 6F o re i g n 8 2 . 9 6 8 . 0 4 0 . 5

D e f e rre d :U . S . ( 3 7 . 0 ) 4 0 . 0 3 . 7State and municipal ( 1 7 . 4 ) 5 . 4 ( 0 . 9 )F o re i g n 6 . 0 ( 2 . 6 ) ( 0 . 8 )

Taxes on income from continuing operations $ 407.1 $ 207.1 $ 149.5

( 1 ) Includes non-tax deductible in-process re s e a rch and development, non-tax deductible amortization of purchased intangibles and goodwill and other merg e r- related expenses.

8 6

C o rning Incorporated and Subsidiary Companies6 . TAX ES ON INCOME (con cl uded )

The tax effects of temporary diff e rences and carry f o rw a rds that gave rise to significant portions of thed e f e rred tax assets and liabilities as of year end are comprised of the following:

2 0 0 0 1 9 9 9

P o s t re t i rement medical and life benefit s $ 234.8 $ 240.9Other employee benefit s 3 3 . 0 5 9 . 2Other accrued liabilities 4 9 . 3 2 9 . 8R e s t ructuring re s e rv e s 3 . 0 3 . 3Loss and tax credit carry f o rw a rd s 1 1 4 . 0 8 3 . 9O t h e r 5 7 . 7 3 7 . 4

G ross deferred tax assets 4 9 1 . 8 4 5 4 . 5D e f e rred tax assets valuation allowance ( 4 4 . 7 ) ( 5 0 . 3 )

D e f e rred tax assets 4 4 7 . 1 4 0 4 . 2

Fixed assets ( 2 5 5 . 5 ) ( 1 7 6 . 5 )P e n s i o n s ( 4 1 . 6 ) ( 4 1 . 0 )O t h e r ( 3 7 . 9 ) ( 2 9 . 0 )

D e f e rred tax liabilities ( 3 3 5 . 0 ) ( 2 4 6 . 5 )

Net deferred tax assets $ 112.1 $ 157.7

The change in the total valuation allowance for the years ended December 31, 2000 and 1999, was ad e c rease of $5.6 million and an increase of $16.5 million, re s p e c t i v e l y.

C o rning currently provides income taxes on the earnings of foreign subsidiaries and associated companiesto the extent such earnings are currently taxable or expected to be remitted. Taxes have not been provided on$777.1 million of accumulated foreign unremitted earnings which are expected to remain invested indefin i t e l y.It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings; how-e v e r, if these earnings were remitted, income taxes payable would be provided at a rate which is signific a n t l ylower than the effective tax rate.

C o rning, as re q u i red, provided for tax on undistributed earnings of its domestic subsidiaries and affil i a t e dcompanies beginning in 1993 even though these earnings have been and will continue to be reinvested indef-i n i t e l y. Corning estimates that $32.1 million of tax would be payable on pre-1993 undistributed earnings of itsdomestic subsidiaries and affiliated companies should the unremitted earnings reverse and become taxable toC o rning. Corning expects these earnings to be reinvested indefin i t e l y.

D e f e rred income tax benefits totaling $172.6 million and $113.5 million were included in other curre n tassets at year-end 2000 and 1999, re s p e c t i v e l y. At December 31, 2000, Corning had tax benefits attributable toloss carry f o rw a rds and credits aggregating $114.0 million that expire at various dates through 2014.

7. PRO V ISION FOR R E STR UCT U RING

In the second quarter of 1998, Corning re c o rded a re s t ructuring charge of $84.6 million ($49.2 million after taxand minority interest). The charge was comprised of early re t i rement incentives off e red to certain salaried non-union employees 55 years old or older satisfying service criteria and severance costs associated with workforc ereductions of other non-union employees. The re s t ructuring charge related to approximately 650 employees,

8 7

C o rning Incorporated and Subsidiary Companies7. PRO V ISION FOR R ES TRUCT U RING (con cl uded )

all of whom were terminated as of June 30, 1999. Corning determined in the fourth quarter of 1999 that thetotal costs of the incentive package would be less than anticipated. Consequently, Corning released re s t ru c t u r i n gre s e rves totaling $14.1 million ($8.6 million after tax), in the fourth quarter of 1999. All payments associatedwith this program have been made at December 31, 2000. Management estimates that the annualized cost sav-ings related to this program is approximately $30 million per year after taxes.

8. OTH ER ACC RU ED LI A BILI TIE S

Other accrued liabilities at December 31, included the following:(in millions) 2 0 0 0 1 9 9 9Taxes on income $ 1 8 5 . 8 $ 1 1 5 . 0R e s t ructuring re s e rv e s 7 . 8Wages and employee benefit s 3 0 0 . 7 2 2 4 . 5Dividends payable to minority share h o l d e r s 9 5 . 0Other liabilities 4 7 9 . 1 2 7 3 . 0Other accrued liabilities $ 9 6 5 . 6 $ 7 1 5 . 3

9 . LONG -T ERM DE BT AN D LOA NS PAYA BLE

(in millions) 2 0 0 0 1 9 9 9

L O A N S P A Y A B L E

C u rrent portion of long-term debt $ 1 2 8 . 4 $ 4 5 . 6Other short - t e rm borro w i n g s 3 7 5 . 1

$ 1 2 8 . 4 $ 4 2 0 . 7

L O N G - T E R M D E B T

Series B senior notes, 8.25%, due 2002 $ 1 4 . 4 $ 2 1 . 5D e b e n t u res, 8.25%, due 2002 7 5 . 0 7 5 . 0D e b e n t u res, 6%, due 2003 9 9 . 8 9 9 . 8E u ro notes, 5.625%, due 2005 1 8 0 . 5D e b e n t u res, 7%, due 2007, net of unamortized discount of

$32.3 million in 2000 and $34.6 million in 1999 6 7 . 7 6 5 . 4Notes, 6.73%, due 2008 3 2 . 8C o n v e rtible notes, 4.875%, due 2008 9 9 . 5 1 0 0 . 0Notes, 6.83%, due 2009 2 7 . 2Notes, 6.3%, due 2009 1 5 0 . 0 1 5 0 . 0E u ro notes, 6.25%, due 2010 2 7 0 . 0D e b e n t u res, 6.75%, due 2013 9 9 . 6 9 9 . 6Z e ro coupon convertible debentures, 2%, due 2015 2 , 0 1 8 . 3D e b e n t u res, 8.875%, due 2016 7 4 . 5 7 4 . 5D e b e n t u res, 8.875%, due 2021 7 4 . 9 7 4 . 9D e b e n t u res, 7.625%, putable in 2004, due 2024 9 9 . 8 9 9 . 7M e d i u m - t e rm notes, average rate 7.8%, due through 2025 2 5 4 . 0 2 6 5 . 0D e b e n t u res, 6.85%, due 2029 1 4 9 . 7 1 4 9 . 7O t h e r, average rate 6.5%, due through 2016 3 6 7 . 1 2 0 0 . 9

4 , 0 9 4 . 8 1 , 5 3 6 . 0Less current maturities 1 2 8 . 4 4 5 . 6

$ 3 , 9 6 6 . 4 $ 1 , 4 9 0 . 4

8 8

C o rning Incorporated and Subsidiary Companies9 . LONG -TER M DE BT AN D LOA NS PAYA BLE (con cl uded)

At December 31, 2000 and 1999, the weighted-average interest rate on short - t e rm borrowings was 6.1%.The following table shows the maturities by year of the total long-term debt obligations at December 31:

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 - 2 0 2 9

$ 181.9 $ 269.7 $ 19.5 $ 185.6 $ 3,309.7

Based on borrowing rates currently available to Corning for loans with similar terms and maturities, thefair value of long-term debt was $3.8 billion at year-end 2000.

In Febru a ry 1998, Oak issued $100 million of convertible subordinated notes bearing interest at 4.875%due in 2008. The notes are convertible into 6.3 million shares of Corning common stock at a conversion priceof approximately $16 per share .

In January 2000, Corning called and re t i red two long-term note issues of Siecor Corporation, 6.73% due2008 and 6.83% due 2009, in the aggregate principal amount of $60.0 million. In January 2000, Corning re p a i dall outstanding indebtedness under Oak’s revolving credit facility, which approximated $98 million, and term i-nated the remaining revolving credit commitment of $250 million with Oak’s existing bank gro u p .

In Febru a ry 2000, Corning issued EUR 500 million of Euro-denominated notes in two tranches: EUR200 million at 5.625% due Febru a ry 18, 2005 and EUR 300 million at 6.25% due Febru a ry 18, 2010. Intere s tis payable on Febru a ry 1 of each year beginning in 2001. The notes are not redeemable before they mature, unlessC o rning becomes obligated to pay additional amounts because of changes in U.S. withholding tax re q u i re m e n t s .The net proceeds of approximately $485 million were used to finance a portion of the Siemens transaction.

C o rning has available a revolving line of credit with a syndicate of banks for $2.0 billion. The line of cre d i te x p i res in August 2005, unless extended. There were no borrowings under the agreement at December 31, 2000.The revolving credit agreements provide for borrowing of U.S. dollars and Euro c u rrency at various rates.

In November 2000, Corning completed an offering of $2.7 billion (amount due at maturity) of zero couponc o n v e rtible debentures which generated net proceeds of approximately $2 billion. The initial price of the deben-t u res was $741.92 with a 2% yield annually. Interest is compounded semi-annually with a 25% conversion fac-t o r. The debentures mature on November 8, 2015, and are convertible into approximately 22.6 million share sof Corning common stock at the rate of 8.3304 per $1,000 principal amount. Corning may call the debenture sat any time on or after November 8, 2005. The debentures may be redeemed for $819.54 on November 8, 2005and $905.29 on November 8, 2010. The holder can convert the debenture into Corning common stock at anytime prior to maturity or redemption. The proceeds were used to finance a portion of the Pirelli acquisition.D e f e rred financing costs totaled approximately $40.9 million and are being amortized ratably over the term ofthe debenture s .

10 . M A N DATORILY R EDE E M A BLE CON V E RTIBLE PR E FE RRE D S TO CK

C o rning has 10 million authorized shares of Series Pre f e rred Stock, par value $100 per share. Of the authorizeds h a res, Corning has designated 2.4 million shares as Series A Junior Participating Pre f e rred Stock for whichno shares have been issued.

At December 31, 2000, 1999 and 1998, 86,800, 134,700 and 178,700 shares of Series B Convertible Pre -f e rred Stock were outstanding, re s p e c t i v e l y. Each Series B share is convertible into 14.37 shares of Corn i n gc o mmon stock and has voting rights equivalent to 14 common shares. The Series B shares were sold exclusivelyto the trustee of Corn i n g ’s existing employee investment plans, based upon directions from plan part i c i p a n t s .P a rticipants may cause Corning to redeem the shares at 100% of par upon reaching age 55 or later, re t i re m e n t ,t e rmination of employment or in certain cases of financial hardship. The Series B shares are redeemable byC o rning at $100 per share .

8 9

C o rning Incorporated and Subsidiary Companies11. COM MON SHAR EH OLDERS’ EQUIT Y

On January 31, 2000, Corning completed an equity offering of 44.85 million shares of common stock generatingnet proceeds to Corning of approximately $2.2 billion. On November 6, 2000, Corning completed an equity off e r-ing of 34.5 million shares of common stock generating net proceeds to Corning of approximately $2.4 billion.

On April 27, 2000, the shareholders of Corning approved an increase to the authorized number of share sof common stock from 500 million to 1.2 billion shares and on November 8, 2000, the shareholders of Corn i n ga p p roved an increase to the authorized number of shares of common stock from 1.2 billion to 3.8 billion share s .In August 2000, Corning authorized a thre e - f o r-one stock split of its common stock, effected in the form ofa stock dividend, which was distributed on October 3, 2000, to shareholders of re c o rd on September 5, 2000.All of the share and per share data in these financial statements and footnotes have been re t roactively adjustedto re flect the stock split.

C o rning has established the Corning Stock Ownership Trust (CSOT) to fund a portion of future employeep u rchases and company contributions of common stock to its Corn i n g ’s Investment and Employee Stock Purc h a s ePlans (the Plans). Corning sold 12 million tre a s u ry shares to the CSOT. At December 31, 2000, 4.5 million share sremained in the CSOT. Shares held by the CSOT are not considered outstanding for earnings per commons h a re calculations until released to the Plans.

C o rning re p u rchased approximately 4.2 million and 6.0 million shares of its common stock in 1999 and1998, re s p e c t i v e l y. No shares of common stock were re p u rchased in 2000.

In June 1996, the Board of Directors approved the renewal of the Pre f e rred Share Purchase Right Planwhich entitles shareholders to purchase 0.01 of a share of Series A Junior Participating Pre f e rred Stock uponthe occurrence of certain events. In addition, the rights entitle shareholders to purchase shares of common stockat a 50 percent discount in the event a person or group acquires 20 percent or more of Corn i n g ’s outstandingcommon stock. The pre f e rred share purchase rights became effective July 15, 1996 and expire July 15, 2006.

Components of other comprehensive income (loss) accumulated in shareholders’ equity are as follows(in m i l l i o n s ) :

F o re i g n U n re a l i z e d A c c u m u l a t e dc u rre n c y gains (losses) o t h e r

t r a n s l a t i o n on marketable c o m p re h e n s i v ea d j u s t m e n t s e c u r i t i e s income (loss)

D E C E M B E R 3 1 , 1 9 9 7 $ (34.1) $ 0.2 $ (33.9)F o reign currency translation adjustment 3 8 . 3 3 8 . 3U n realized loss on marketable securities

(net of tax of $0.6 million) ( 1 . 0 ) ( 1 . 0 )Realized gains on securities ( 0 . 2 ) ( 0 . 2 )

D E C E M B E R 3 1 , 1 9 9 8 $ 4 . 2 $ ( 1 . 0 ) $ 3 . 2F o reign currency translation adjustment ( 5 3 . 8 ) ( 5 3 . 8 )U n realized gain on marketable securities

(net of tax of $14.9 million) 2 3 . 2 2 3 . 2Realized gains on securities (net of tax of $2.1 million) ( 3 . 2 ) ( 3 . 2 )

D E C E M B E R 3 1 , 1 9 9 9 $ (49.6) $ 19.0 $ ( 3 0 . 6 )F o reign currency translation adjustment ( 1 1 8 . 3 ) ( 1 1 8 . 3 )U n realized gain on marketable securities

(net of tax of $20.8 million) 3 2 . 6 3 2 . 6Realized gains on securities (net of tax of $6.7 million) ( 1 0 . 6 ) ( 1 0 . 6 )

D E C E M B E R 3 1 , 2 0 0 0 $ (167.9) $ 41.0 $ (126.9)

9 0

C o rning Incorporated and Subsidiary Companies12. E A R NINGS P ER COM MON SH AR E

Basic earnings per share is computed by dividing income available to common shareholders (the numerator) by theweighted-average number of common shares outstanding (the denominator) for the period. Diluted earnings per shareassumes that any dilutive convertible pre f e rred shares, subordinated notes and convertible zero coupon debentures out-standing at the beginning of the year were converted at those dates, with related pre f e rred stock dividend re q u i re m e n t sand outstanding common shares adjusted accord i n g l y. It also assumes that outstanding common shares were incre a s e dby shares issuable upon exercise of those stock options for which market price exceeds the exercise price, less shares whichcould have been purchased by Corning with the related pro c e e d s .

A reconciliation of the basic and diluted earnings per share from continuing operations computations for 2000,1999 and 1998 are as follows:

For the years ended December 31,

2 0 0 0 1 9 9 9 1 9 9 8

We i g h t e d - We i g h t e d - We i g h t e d -

Av e r a g e Av e r a g e Av e r a g e

S h a re s Per Share S h a re s Per Share S h a re s Per Share

I n c o m e (in millions) A m o u n t I n c o m e (in millions) A m o u n t I n c o m e (in millions) A m o u n t

Net income from continuing o p e r a t i o n s $ 409.5 $ 511.0 $ 354.8

Less: Pre f e rred stock dividends ( 0 . 8 ) ( 1 . 2 ) ( 1 . 5 )

B A S I C E A R N I N G S P E R S H A R E 4 0 8 . 7 8 5 8 . 4 $ 0.48 5 0 9 . 8 7 6 5 . 3 $ 0.67 3 5 3 . 3 7 3 3 . 2 $ 0.48

E F F E C T O F D I L U T I V E

S E C U R I T I E S

O p t i o n s 2 0 . 6 1 5 . 6 9 . 9Contingent shares

f rom acquisitions 0 . 3C o n v e rtible pre f e rred

securities of subsidiary 2 . 3 5 . 7 1 3 . 7 3 4 . 5C o n v e rtible subordinated notes 3 . 4 6 . 3Manditoraly redeemable

c o n v e rtible pre f e rred stock 1 . 2 2 . 1

D I L U T E D E A R N I N G S

P E R S H A R E $ 408.7 8 7 9 . 3 $ 0.46 $ 516.7 7 9 5 . 0 $ 0.65 $ 367.0 7 7 7 . 6 $ 0.47

At December 31, 2000, the convertible shares from the pre f e rred stock, the subordinated notes and the zerocoupon c o n v e rtible debentures were not included in the calculation of diluted earnings per share due to the anti-dilu-tive effect they would have had on earnings per share if converted. Also, the 2000 computation of diluted earnings pers h a re excluded 23.7 million options since the option exercise price was greater than the average market price of thecommon shares for the period.

During the first quarter of 1999, the Convertible Monthly Income Pre f e rred Securities (MIPS) were re d e e m e dand converted into 34.5 million shares of Corning common stock. The MIPS dividends paid prior to the date of theconversion are re flected within the dilutive earnings per share calculation for 1999.

At December 31, 1998, 178,700 shares of Series B Convertible Pre f e rred Stock were outstanding. Each Series Bs h a re is convertible into 14.37 shares of Corning common stock. In addition, the convertible subordinated notes werealso outstanding. These notes were convertible into 5.4 million weighted-average shares of Corning common stock.The convertible shares from the pre f e rred stock and the subordinated notes were not included in the calculation of dilutede a rnings per share in 1998 due to the anti-dilutive effect they would have had on earnings per share if convert e d .

9 1

C o rning Incorporated and Subsidiary Companies13 . S TO CK COM PE NS ATION PL A NS

At December 31, 2000, Corn i n g ’s stock compensation programs are in accordance with the 2000 Employee EquityP a rticipation Program and 2000 Equity Plan for Non-Employee Directors Program (Programs). For calendaryears beginning January 1, 2001, 3.5% of Corn i n g ’s Common Stock Outstanding at the beginning of the yearand any ungranted shares from prior years will be available for grant in the current year. At December 31, 2000,41.9 million shares will be available under the Programs for 2001. Any remaining shares available for grant butnot yet granted will be carried over and used in the following year.

S T O C K O P T I O N P L A N S

C o rning stock option plans provide non-qualified and incentive stock options to purchase unissued or tre a s u rys h a res at the market price on the grant date and generally become exercisable in installments from one to fiv eyears from the grant date. The maximum term of non-qualified and incentive stock options is 10 years fro mthe grant date.

Option activity for the three years ended December 31, 2000 was:

N u m b e r We i g h t e d -of Share s Av e r a g e

(in thousands) E x e rcise Price

Options outstanding January 1, 1998 3 6 , 7 4 7 $ 8.99Options granted under Plans 1 1 , 2 5 9 1 1 . 1 7Options exerc i s e d ( 3 , 4 5 0 ) 6 . 7 9Options term i n a t e d ( 7 3 8 ) 1 0 . 2 4

Options outstanding January 1, 1999 4 3 , 8 1 8 $ 9.70Options granted under Plans 7 , 6 2 3 2 1 . 6 6Options exerc i s e d ( 1 5 , 2 3 4 ) 8 . 7 7Options term i n a t e d ( 9 1 8 ) 1 2 . 0 0

Options outstanding January 1, 2000 3 5 , 2 8 9 $ 12.63Options granted under Plans 2 3 , 5 4 9 6 6 . 2 7Options issued in Acquisitions 4 , 4 5 6 2 6 . 5 5Options exerc i s e d ( 1 7 , 2 9 7 ) 1 0 . 6 2Options term i n a t e d ( 9 9 4 ) 4 2 . 7 8

Options outstanding December 31, 2000 4 5 , 0 0 3 $ 42.27

The number of options exercisable and the corresponding weighted-average exercise price was 12.0 mill i o nand $11.32 at December 31, 2000, 14.1 million and $10.36 at December 31, 1999 and 21.3 million and $8.95at December 31, 1998. The weighted-average fair value of options granted was $38.46 in 2000, $8.29 in 1999and $4.11 in 1998.

9 2

C o rning Incorporated and Subsidiary Companies13 . S TO CK C OM PE NS ATION PL A NS (conti nued )

The following table summarizes information about stock options outstanding at December 31, 2000:

Options Outstanding Options Exerc i s a b l eNumber N u m b e r

Outstanding at R e m a i n i n g We i g h t e d - E x e rcisable at We i g h t e d -Range of December 31, 2000 Contractual Life Av e r a g e December 31, 2000 Av e r a g e

E x e rcise Prices (in thousands) in Ye a r s E x e rcise Price (in thousands) E x e rcise Price

$ 0.16 to 8.70 4 , 4 7 2 5 . 1 $ 7.68 4 , 1 2 2 $ 7.91$ 8.84 to 8.96 3 4 9 4 . 3 $ 8.85 3 4 9 $ 8.85$ 9.38 to 9.49 5 , 1 7 9 7 . 7 $ 9.38 1 , 9 0 2 $ 9.38$ 9.54 to 13.50 3 , 4 0 2 5 . 7 $ 11.56 3 , 0 5 9 $ 11.35$ 13.52 to 31.78 3 , 8 4 8 7 . 9 $ 17.76 2 , 3 0 6 $ 16.36$ 31.83 to 41.95 3 , 7 9 4 9 . 0 $ 33.75 2 2 9 $ 36.89$ 48.33 to 55.08 5 , 8 3 3 9 . 8 $ 53.97 1 2 $ 53.64$ 55.48 to 69.56 4 , 6 9 8 9 . 3 $ 61.80 1 0 $ 62.91$ 70.08 to 70.75 5 , 6 7 5 9 . 9 $ 70.75$ 71.04 to 72.38 6 , 9 8 7 9 . 4 $ 72.11$ 72.99 to 111.00 7 6 6 9 . 6 $ 91.46

4 5 , 0 0 3 8 . 4 $ 42.27 1 1 , 9 8 9 $ 11.32

I N C E N T I V E S T O C K P L A N S

The Corning Incentive Stock Plan permits stock grants, either determined by specific perf o rmance goals or issuedd i re c t l y, in most instances, subject to the possibility of forf e i t u re and without cash consideration.

In 2000, 1999 and 1998, grants of 1,429,000 shares, 1,236,000 shares and 2,094,000 shares, re s p e c t i v e l y,w e re made under this plan. The weighted-average price of the grants was $61.07 in 2000, $21.87 in 1999 and$11.17 in 1998, re s p e c t i v e l y. A total of 7.1 million shares issued remain subject to forf e i t u re at December 31, 2000.

In October 1995, the Financial Accounting Standards Board issued Statement No. 123, “Accounting forStock-Based Compensation” (FAS 123). This statement defines a fair value-based method of accounting foremployee stock options and similar equity investments and encourages adoption of that method of accountingfor employee stock compensation plans. However, it also allows entities to continue to measure compensationcost for employee stock compensation plans using the intrinsic value-based method of accounting pre s c r i b e dby Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25).C o rning applies APB 25 accounting for its stock-based compensation plans. Compensation expense is re c o rd e dfor awards of shares or share rights over the period earned. Compensation expense of $31.0 million, $7.2 mill i o nand $5.4 million was re c o rded in 2000, 1999 and 1998, re s p e c t i v e l y.

W O R L D W I D E E M P L O Y E E S H A R E P U R C H A S E P L A N

In addition to the Stock Option Plan and Incentive Stock Plans, Corning has a Worldwide Employee ShareP u rchase Plan (WESPP). Under the WESPP, substantially all employees can elect to have up to 10% of theirannual wages withheld to purchase Corning common stock. The purchase price of the stock is 85% of the lowerof the beginning-of-quarter or end-of-quarter market price. The Corning Stock Ownership Trust is utilizedto fund a portion of employee purchases of common stock under the WESPP.

9 3

C o rning Incorporated and Subsidiary Companies13 . S TO CK C OM PE NS ATION PL A NS (con cl uded )

P R O F O R M A I M P A C T O F F A S 1 2 3

C o rning has adopted the disclosure-only provisions of FAS 123. If Corning had elected to recognize com-pensation expense under FAS 123, Corn i n g ’s net income in 2000, 1999 and 1998 would have decreased by$113.8 million, $28.7 million and $19.0 million, re s p e c t i v e l y. Corn i n g ’s diluted earnings per share amountsin 2000, 1999 and 1998 would have decreased by $0.13, $0.04 and $0.02 re s p e c t i v e l y.

FAS 123 re q u i res that reload options be treated as separate grants from the related original option grants.Under Corn i n g ’s reload program, upon exercise of an option, employees may tender unrestricted shares ownedat the time of exercise to pay the exercise price and related tax withholding, and receive a reload option cover-ing the same number of shares tendered for such purposes at the market price on the date of exercise. The re l o a doptions vest in one year and are only granted in certain circumstances according to the original terms of the optionbeing exercised. The existence of the reload feature results in a greater number of options being measure d .

For purposes of FAS 123 the fair value of each option grant is estimated on the date of grant using theB l a c k -Scholes option-pricing model. The following are weighted-average assumptions used for grants underC o rning stock plans and predecessor Oak plans in 2000, 1999 and 1998, re s p e c t i v e l y :

C o rn i n g C o rn i n gFor Options Option Plan I n c o r p o r a t e d O a kGranted During 2 0 0 0 1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8

Risk Free Interest Rate 5 . 8 % 5 . 7 % 4 . 4 % 5 . 7 % 4 . 9 %Dividend Yi e l d 0 . 3 6 % 0 . 4 0 % 0 . 5 7 %Expected Vo l a t i l i t y 6 5 % 3 3 % 2 9 % 4 9 % 4 5 %

14. COM MI TM E N T S, CON TINGE NCIE S, GUA RA NT EE S AN D HEDGING ACTI V ITIE S

C O M M I T M E N T S A N D G U A R A N T E E S

Minimum rental commitments under leases outstanding at December 31, 2000 are (in millions):

2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 - 2 0 2 1

$ 55.4 $ 50.1 $ 45.7 $ 41.2 $ 38.5 $ 188.9

Total rental expense amounted to approximately $72.1 million for 2000, $64.1 for 1999 and $58.3 millionfor 1998.

At December 31, 2000, future minimum lease payments to be received under a noncancelable sublease toQuest Diagnostics totaled $53.5 million. Quest Diagnostics, in turn, has a noncancelable sublease covering appro x-imately $35.7 million of the minimum lease payments due to Corning. Corning has agreed to indemnify QuestDiagnostics should Quest Diagnostics’ sublessee default on the minimum lease payments. Additionally, Corn i n gcontinues to guarantee certain obligations of Quest Diagnostics totaling $14.1 million.

In January 1998, Corning completed a sale leaseback transaction related to certain equipment assets thatresulted in gross proceeds of approximately $95 million. During 2000 Corning elected to re p u rchase the assetsfor approximately $95 million.

9 4

C o rning Incorporated and Subsidiary Companies14. COM MITM E N T S, CON TINGE NCIE S, GUAR A NT EE S

AND HE DGING A CT I V ITIES (c on cl ude d )

The ability of certain subsidiaries and associated companies to transfer funds is limited by provisions ofc e rtain loan agreements and foreign government regulations. At December 31, 2000, the amount of equity sub-ject to such restrictions for consolidated subsidiaries totaled $55.1 million. While this amount is legally re s t r i c t e d ,it does not result in operational difficulties since Corning has generally permitted subsidiaries to retain a major-ity of equity to support their growth programs. At December 31, 2000, loans of equity affiliates guaranteed byC o rning totaled $37.4 million. In addition, Corning and certain of its subsidiaries have provided other fin a n c i a lguarantees and contingent liabilities in the form of loan guarantees, stand-by letters of credit and perf o rm a n c ebonds. The amounts of these obligations are re p resented in the following table. Corning believes that all of theguarantees and almost all of the other contingent liabilities will expire without being funded (in millions):

Loan Guarantees $ 103Stand-by Letters of Cre d i t 4 5P e rf o rmance Bonds 3 1 7To t a l $ 465

H E D G I N G A C T I V I T I E S

C o rning operates and conducts business in many foreign countries. As a result, there is exposure to potentiallyadverse movement in foreign currency rate changes. Corning enters into foreign exchange forw a rd and optioncontracts with durations generally 12 months or less to reduce its exposure to exchange rate risk on foreign sourc eincome and purchases. The objective of these contracts is to neutralize the impact of foreign currency exchangerate movements on Corn i n g ’s operating re s u l t s .

C o rning engages in foreign currency hedging activities to reduce the risk that changes in exchange rateswill adversely affect the eventual net cash flows resulting from the sale of products to foreign customers and pur-chases from foreign suppliers. The hedge contracts reduce the exposure to fluctuations in exchange rate move-ments because the gains and losses associated with foreign currency balances and transactions are generally off s e twith gains and losses of the hedge contracts. Because the impact of movements in foreign exchange rates onhedge contracts offsets the related impact on the underlying items being hedged, these financial instru m e n t shelp alleviate the risk that might otherwise result from currency exchange rate flu c t u a t i o n s .

The following table (in millions) summarizes the notional amounts and respective fair values of the deriv-ative financial instruments at December 31, 2000. These contracts are held by Corning and its subsidiaries andm a t u re at varying dates:

Notional Amount Fair Va l u eF o reign exchange forw a rd contracts $ 526.4 $ 15.4F o reign exchange option contracts $ 121.7 $ 1.7

In December 1998, one of Corn i n g ’s subsidiaries entered into financing agreements which provide for thesale of certain future yen based revenues, beginning Febru a ry 1999 and expiring in December 2001. These con-tracts were terminated in 2000. These contracts re q u i red the counterparty to advance U.S. dollars in amountsup to $10.1 million each month and Corning to repay the notes only to the extent of future yen denominatedrevenues. The obligations under these contracts were not cancelable by either part y. Borrowings under the agre e-ments bore interest at a premium to the Eurodollar rate. Transaction gains or losses related to these contractsw e re deferred and recognized as an adjustment to the revenue securing the note repayments. Borrowings werere c o rded on the balance sheet only to the extent they were outstanding. The cumulative borrowings betweenJ a n u a ry 2000 and July 2000 and those for Febru a ry 1999 and December 1999 were $60.4 million and $95.0 mill i o n ,re s p e c t i v e l y. Cumulative repayments approximated 6.6 billion and 9.4 billion yen for the same periods.

9 5

C o rning Incorporated and Subsidiary Companies15 . D IS CON TINU ED OP E R AT IONS

D I S T R I B U T I O N O F S H A R E S O F Q U E S T D I A G N O S T I C S A N D C O V A N C E I N C .

On December 31, 1996, Corning distributed shares of Quest Diagnostics Incorporated and Covance Inc., whichcollectively comprised Corn i n g ’s Health Care Services Segment, to its shareholders on a pro rata basis (theDistributions). Corning agreed to indemnify Quest Diagnostics on an after-tax basis for the settlement of cert a i ng o v e rnment claims and against certain other claims that were pending at December 31, 1996. Coincident withthe Distributions, Corning re c o rded a payable to Quest Diagnostics of approximately $25 million, which wasm a n a g e m e n t ’s best estimate of amounts which were probable of being paid by Corning to Quest Diagnosticsto satisfy the remaining indemnified claims on an after-tax basis. Quest Diagnostics settled a significant matt e rwith the Department of Justice late in 2000 requiring Corning to reimburse Quest Diagnostics $9 million.As a result, in the fourth quarter Corning released re s e rves totaling $12.5 million after tax in excess of the indem-n i fied settlement between Quest Diagnostics and the Department of Justice.

R E C A P I TA L I Z A T I O N A N D S A L E O F T H E C O N S U M E R H O U S E W A R E S B U S I N E S S

On April 1, 1998, Corning completed the recapitalization and sale of a controlling interest in its consumer house-w a res business to an affiliate of Borden, Inc. Corning received cash proceeds of $593 million and continues toretain a three percent interest in World Kitchen Inc., formerly Corning Consumer Products Company.

During the fourth quarter of 1999 certain indemnification agreements related to this transaction expire d .As a result, Corning re c o rded income from discontinued operations of $7.9 million ($4.8 million after tax), fro mthe release of re s e rves provided at the date of the transaction.

Summarized results of Corn i n g ’s discontinued operations are as follows (in millions):

2 0 0 0 1 9 9 9 1 9 9 8

S a l e s $ 116.8

Loss before income taxes $ ( 0 . 9 )Income tax benefit ( 0 . 3 )Loss from operations, net of income taxes ( 0 . 6 )Gain on sale of consumer housewares business, net of tax

o f $3.1 million and $75.8 million, re s p e c t i v e l y $ 4.8 $ 67.1Reversal of provision for loss on Distributions $ 12.5Discontinued operations, net of income taxes $ 12.5 $ 4.8 $ 66.5

The results of operations from the consumer housewares business are for the period through March 31, 1998.Results of the discontinued businesses include allocations of consolidated interest expense totaling $2.7 millionin 1998. The allocation was based on the ratio of net assets of discontinued operations to consolidated net assets.

9 6

C o rning Incorporated and Subsidiary CompaniesS TATEM EN T OF M AN AGE ME NT RE SP ONSIBILIT Y FOR F IN A NCIA L STAT E M E N T S

The management of Corning Incorporated is responsible for the preparation, presentation and integrity of theconsolidated financial statements and other information included in this annual re p o rt. The financial statementshave been pre p a red in accordance with generally accepted accounting principles and include certain amountsbased on management’s best estimates and judgments.

In meeting its responsibility for the reliability of these financial statements, Corning maintains compre h e n-sive systems of internal accounting control. These systems are designed to provide reasonable assurance atre asonable cost that corporate assets are protected against loss or unauthorized use and that transactions andevents are properly re c o rded. Such systems are re i n f o rced by written policies, selection and training of com-petent financial personnel, appropriate division of responsibilities and a program of internal audits.

The consolidated financial statements have been audited by our independent accountants, Pricewaterh o u s e -Coopers LLP. Their responsibility is to express an independent, professional opinion with respect to thec o nsolidated financial statements on the basis of an audit conducted in accordance with generally accepteda u d i ting standards.

The Board of Directors, through its Audit Committee, is responsible for reviewing and monitoringC o rn i n g ’s financial reporting and accounting practices and recommending annually the appointment of theindependent accountants. The Committee, comprised of non-management directors, meets periodically withmanagement, the internal auditors and the independent accountants to review and assess the activities of each.Both the independent accountants and the internal auditors meet with the Committee, without managementp resent, to review the results of their audits and their assessment of the adequacy of the systems of intern a laccounting control and the quality of financial reporting.

John W. LooseP resident and Chief Executive Offic e r

James B. FlawsExecutive Vice President and Chief Financial Offic e r

Katherine A. AsbeckSenior Vice President and Contro l l e r

9 7

C o rning Incorporated and Subsidiary CompaniesR E P ORT OF IN DE PE N DE NT ACC OU N TA N T S

P r i c e w a t e rhouseCoopers LLP

To the Board of Directors and Shareholders of Corning Incorporated

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements ofincome, cash flows and changes in shareholders’ equity, appearing on pages 44 through 47 present fairly, inall material respects, the financial position of Corning Incorporated and its subsidiaries at December 31, 2000and 1999, and the results of their operations and their cash flows for each of the three years in the periodended December 31, 2000, in conformity with accounting principles generally accepted in the UnitedStates of America. These financial statements are the responsibility of the Company’s management; ourresponsibility is to express an opinion on these financial statements based on our audits. We conducted ouraudits of these statements in accordance with auditing standards generally accepted in the United States ofAmerica, which re q u i re that we plan and perf o rm the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles usedand significant estimates made by management, and evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

P r i c e w a t e rhouseCoopers LLP1301 Avenue of the AmericasNew York, New York 10019

J a n u a ry 24, 2001

9 8

QUA RT E R LY OPE R ATING RESU LT S AND RE L AT ED MARK ET DATA C o rning Incorporated and Subsidiary Companies

( u n a u d i t e d )


F i r s t S e c o n d T h i rd F o u rt h To t a l2 0 0 0 Q u a rt e r Q u a rt e r Q u a rt e r Q u a rt e r Ye a r

R e v e n u e s $ 1,381.7 $ 1,802.5 $ 1,944.0 $ 2,144.9 $ 7,273.1G ross pro fit 5 6 3 . 6 7 4 5 . 7 8 0 3 . 1 8 8 3 . 6 2 , 9 9 6 . 0Income (loss) from continuing operations before income

taxes, minority interest and equity earn i n g s 1 3 6 . 8 2 5 4 . 3 3 2 0 . 3 ( 2 0 . 0 ) 6 9 1 . 4Taxes on income (loss) from continuing operations 5 4 . 9 1 3 6 . 9 1 1 1 . 7 1 0 3 . 6 4 0 7 . 1Minority interest in earnings of subsidiaries ( 2 . 6 ) ( 7 . 5 ) ( 7 . 3 ) ( 6 . 3 ) ( 2 3 . 7 )Equity in earnings of associated companies 3 3 . 9 3 9 . 3 5 2 . 3 5 9 . 7 1 8 5 . 2I m p a i rment of equity investment ( 3 6 . 3 ) ( 3 6 . 3 )Income (loss) from continuing operations $ 76.9 $ 149.2 $ 253.6 $ ( 7 0 . 2 ) $ 4 0 9 . 5Income from discontinued operations, net of income tax ( 1 ) 1 2 . 5 1 2 . 5Net income (loss) $ 76.9 $ 149.2 $ 253.6 $ ( 5 7 . 7 ) $ 4 2 2 . 0

B A S I C E A R N I N G S ( L O S S ) P E R S H A R E

Continuing operations $ 0.09 $ 0.18 $ 0 . 2 9 $ ( 0 . 0 8 ) $ 0 . 4 8Discontinued operations ( 1 ) 0 . 0 2 0 . 0 1Net income (loss) $ 0.09 $ 0.18 $ 0 . 2 9 $ ( 0 . 0 6 ) $ 0 . 4 9

D I L U T E D E A R N I N G S ( L O S S ) P E R S H A R E

Continuing operations $ 0.09 $ 0.17 $ 0 . 2 8 $ ( 0 . 0 8 ) $ 0 . 4 6Discontinued operations ( 1 ) 0 . 0 2 0 . 0 2Net income (loss) $ 0.09 $ 0.17 $ 0 . 2 8 $ ( 0 . 0 6 ) $ 0 . 4 8

Dividend declare d $ 0.06 $ 0.06 $ 0 . 0 6 $ 0 . 0 6 $ 0 . 2 4Price range

H i g h $ 73.33 $ 89.96 $ 113.11 $ 105.94L o w 3 4 . 5 8 4 8 . 3 3 7 7 . 5 8 5 2 . 8 1

1 9 9 9

R e v e n u e s $ 1,007.0 $ 1,141.0 $ 1,284.0 $ 1,380.5 $ 4,812.5G ross pro fit 3 8 3 . 2 4 3 6 . 4 4 7 8 . 2 5 1 3 . 0 1 , 8 1 0 . 8Income from continuing operations before income

taxes, minority interest and equity earn i n g s 1 2 1 . 0 1 6 9 . 9 1 8 4 . 1 1 9 9 . 9 6 7 4 . 9Taxes on income from continuing operations 3 7 . 3 5 2 . 3 5 5 . 7 6 1 . 8 2 0 7 . 1Minority interest in earnings of subsidiaries ( 1 0 . 1 ) ( 1 7 . 4 ) ( 1 8 . 6 ) ( 2 0 . 7 ) ( 6 6 . 8 )Dividends on convertible pre f e rred securities

of subsidiary ( 2 . 3 ) ( 2 . 3 )Equity in earnings of associated companies 2 1 . 2 3 0 . 8 3 2 . 1 2 8 . 2 1 1 2 . 3Income from continuing operations $ 92.5 $ 131.0 $ 141.9 $ 1 4 5 . 6 $ 5 1 1 . 0Income from discontinued operations, net of income tax ( 1 ) 4 . 8 4 . 8Net income $ 92.5 $ 131.0 $ 141.9 $ 1 5 0 . 4 $ 5 1 5 . 8

B A S I C E A R N I N G S P E R S H A R E

Continuing operations $ 0.12 $ 0.17 $ 0.18 $ 0 . 1 9 $ 0.67Discontinued operations ( 1 )

Net income $ 0.12 $ 0.17 $ 0.18 $ 0 . 1 9 $ 0.67D I L U T E D E A R N I N G S P E R S H A R E

Continuing operations $ 0.12 $ 0.17 $ 0.18 $ 0 . 1 8 $ 0.65Discontinued operations ( 1 ) 0 . 0 1 0 . 0 1Net income $ 0.12 $ 0.17 $ 0.18 $ 0 . 1 9 $ 0.66

Dividend declare d $ 0.06 $ 0.06 $ 0.06 $ 0 . 0 6 $ 0.24Price range

H i g h $ 20.31 $ 23.38 $ 25.00 $ 4 2 . 9 8L o w 1 5 . 1 7 1 6 . 0 0 2 0 . 4 6 2 1 . 8 8

( 1 ) Discontinued operations are described in Note 15 of the Notes to Consolidated Financial Statements.

9 9

F IVE Y E ARS IN RE V IE W – HIS TORI CA L COM PA RIS ON C o rning Incorporated and Subsidiary Companies


2 0 0 0 1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 6B A S I C E A R N I N G S ( L O S S ) P E R S H A R E

Continuing operations $ 0 . 4 8 $ 0.67 $ 0 . 4 8 $ 0 . 5 9 $ 0 . 4 9Discontinued operations 0 . 0 1 0 . 0 0 0 . 0 9 0 . 0 4 ( 0 . 1 9 )Net income $ 0 . 4 9 $ 0 . 6 7 $ 0 . 5 7 $ 0 . 6 3 $ 0 . 3 0

D I L U T E D E A R N I N G S ( L O S S ) P E R S H A R E

Continuing operations $ 0 . 4 6 $ 0 . 6 5 $ 0 . 4 7 $ 0 . 5 7 $ 0 . 4 8Discontinued operations 0 . 0 2 0 . 0 1 0 . 0 9 0 . 0 4 ( 0 . 1 8 )Net income $ 0 . 4 8 $ 0 . 6 6 $ 0 . 5 6 $ 0 . 6 1 $ 0 . 3 0

Dividends declare d $ 0 . 2 4 $ 0 . 2 4 $ 0 . 2 4 $ 0 . 2 4 $ 0 . 2 4S h a res used in computing per share amounts

Basic earnings per share 8 5 8 . 4 7 6 5 . 3 7 3 3 . 2 7 2 8 . 7 7 2 6 . 0Diluted earnings per share 8 7 9 . 3 7 9 5 . 0 7 7 7 . 6 7 8 1 . 2 7 6 5 . 0

O P E R AT I O N S

Net sales $ 7,127.1 $ 4,741.1 $ 3,831.9 $ 3,831.2 $ 3,327.5Nonoperating gains 6 . 8 3 0 . 0 3 9 . 7 2 1 . 5R e s e a rch, development and engineering expenses 5 3 9 . 9 3 7 8 . 2 3 0 7 . 4 2 6 2 . 9 2 0 0 . 1A m o rtization of purchased intangibles, including goodwill 2 4 5 . 0 2 7 . 8 2 2 . 2 2 1 . 8 1 6 . 3A c q u i s i t i o n - related charg e s 4 6 2 . 6P rovision for impairment and re s t ru c t u r i n g 1 . 4 8 4 . 6 5 . 9Taxes on income from continuing operations 4 0 7 . 1 2 0 7 . 1 1 4 9 . 5 2 2 3 . 3 1 7 4 . 2Minority interest in earnings of subsidiaries (2 3 . 7 ) ( 6 6 . 8 ) ( 6 1 . 6 ) ( 7 7 . 4 ) ( 5 9 . 8 )Dividends on convertible pre f e rred securities of subsidiary ( 2 . 3 ) ( 1 3 . 7 ) ( 1 3 . 7 ) ( 1 3 . 7 )Equity in earnings of associated companies 1 8 5 . 2 1 1 2 . 3 9 7 . 3 7 9 . 2 8 3 . 8I m p a i rment of equity investment ( 3 6 . 3 )Income from continuing operations $ 409.5 $ 511.0 $ 354.8 $ 430.6 $ 3 5 5 . 2Income (loss) from discontinued operations, net of income taxes 1 2 . 5 4 . 8 6 6 . 5 3 0 . 9 ( 1 3 6 . 9 )E x t r a o rd i n a ry charge, net of income taxes and minority intere s t ( 0 . 9 )

N E T I N C O M E $ 422.0 $ 515.8 $ 421.3 $ 461.5 $ 2 1 7 . 4

F I N A N C I A L P O S I T I O N

A S S E T S

Working capital $ 2,685.7 $ 430.2 $ 347.7 $ 326.2 $ 5 2 4 . 2Plant and equipment, net 4 , 6 7 9 . 0 3 , 2 0 1 . 7 2 , 7 8 3 . 9 2 , 3 3 7 . 3 1 , 8 7 3 . 6Goodwill and other intangible assets, net 7 , 3 3 9 . 9 5 0 6 . 7 5 0 6 . 2 4 7 2 . 8 4 2 6 . 4Total assets 1 7 , 5 2 5 . 7 6 , 5 2 6 . 0 5 , 4 6 4 . 3 5 , 0 7 9 . 7 4 , 5 5 7 . 7

C A P I TA L I Z AT I O N

L o n g - t e rm debt $ 3,966.4 $ 1,490.4 $ 1,217.8 $ 1,277.3 $ 1,333.3Other liabilities 8 2 9 . 9 7 2 0 . 6 6 8 2 . 7 6 3 6 . 0 6 0 5 . 8Minority interest in subsidiary companies 1 3 9 . 1 2 8 4 . 8 3 4 6 . 1 3 5 4 . 3 3 2 0 . 8C o n v e rtible pre f e rred securities of subsidiary 3 6 5 . 2 3 6 5 . 3 3 6 5 . 1Mandatorily redeemable convertible pre f e rred stock 8 . 7 1 3 . 5 1 7 . 9 1 9 . 8 2 2 . 2Common shareholders' equity 1 0 , 6 3 2 . 9 2 , 4 6 2 . 7 1 , 7 0 6 . 6 1 , 4 2 8 . 5 1 , 1 3 2 . 8Total capitalization $ 15,577.0 $ 4,972.0 $ 4,336.3 $ 4,081.2 $ 3,780.0

S E L E C T E D D A T A

Common dividends declare d $ 210.7 $ 175.7 $ 166.8 $ 166.2 $ 165.3P re f e rred dividends declare d $ 0 . 8 $ 1 . 2 $ 1 . 5 $ 1 . 6 $ 1 . 9Capital expenditure s $ 1,721.3 $ 757.1 $ 730.4 $ 760.3 $ 583.4D e p reciation and amort i z a t i o n $ 764.9 $ 408.3 $ 320.1 $ 305.0 $ 266.3Number of employees ( 1 ) 4 0 , 3 0 0 2 1 , 5 0 0 1 9 , 3 0 0 1 9 , 5 0 0 1 8 , 2 0 0Number of common share h o l d e r s 2 0 , 1 4 0 2 0 , 2 0 0 2 2 , 1 0 0 2 3 , 6 0 0 2 4 , 3 0 0( 1 ) Amounts do not include employees of discontinued operations.

1 0 0

DIR ECTOR S

ROGER G. ACKER MANC h a i rman and Chief Executive Offic e rC o rning Incorporated

JOHN SEELY BROWNVice President and Chief ScientistX e rox Corporation, Palo Alto, C A

JOHN H. FOSTERManaging Part n e rFoster Management Company, King of Prussia, PA

NORMAN E. GARRITY††Vice Chairm a nC o rning Incorporated

GORDON GUNDP resident and Chief Executive Offic e rGund Investment Corporation, Princeton, N J

JAMES B. FLAW S* *Executive Vice President and Chief Financial Offic erC o rning Incorporated

JOHN M. HENNES SYExecutive Advisor C redit Suisse First Boston Advisory Partners, L L CNew York, N Y

JAMES R. HOUGHT ONC h a i rman Emeritus, Corning Incorporated

JOHN W. LOOSEP resident and Chief Executive Offic er* C o rning Incorporated

JAMES J . O’CONNORR e t i red Chairman and Chief Executive Offic e rUnicom Corporation, Chicago, I L

C ATHERINE A. REINP resident and Chief Executive Offic e rM e t ropolitan Pro p e rty and Casualty Insurance CompanyWa rwick, R I

DEBORAH D. R IEMANE n t re p reneur in ResidenceU.S. Ve n t u re Partners, Menlo Park, C A

H. ONNO RUDINGVice Chairm a nCitibank, N.A., New York, N Y

WILLIAM D. SMITHBURGR e t i red Chairman and Chief Executive Offic e rThe Quaker Oats Company, Chicago, I L

PETER F. VOLANAKIS* *P re s i d e nt* C o rning Te c h n o l o g i e sC o rning Incorporated

WENDELL P. WEEKS* *P re s i d e nt*C o rning Optical CommunicationsC o rning Incorporated

DIR EC TORS E M ERIT I

R O B E RT BARKERP rofessor and Provost EmeritusC o rnell University, Ithaca, N Y

M A RY L. BUNDYR e t i red Clinical Social Wo r k e rNew York, N Y

FRANCIS H. BURRP a rt n e rRopes & Gray, Boston, MA

JOHN B. COBURNR e t i red BishopEpiscopal Diocese of MassachusettsBoston, M A

BARBER B. CONABLE JR.R e t i red Pre s i d e n tWorld Bank, New York, N Y

R O B E RT L. GENILLARDVice Chairman, Credit Suisse Gro u pZürich, Switzerland

VERNON E. JORDAN JR.Senior Managing Dire c t o rL a z a rd Fre res and CompanyNew York, N Y

JAMES W. KINNEARR e t i red President and Chief Executive Offic e rTexaco Inc., White Plains, N Y

R O B E RT S. MCNAMARAR e t i red Pre s i d e n tWorld Bank, Washington, D . C .

E D WARD L. PA L M E RR e t i red Chairman, Executive CommitteeCitibank, N . A ., New York, N Y

H E N RY ROSOVSKYGeyser University Professor EmeritusH a rv a rd University, Cambridge, M A

R O B E RT G. STONE JR.C h a i rman EmeritusKirby Corporation, New York, N Y

***E ffective January 1, 2001* **Elected Director December 6, 2000††R e t i red Febru a ry 2001

1 0 1

COR P OR AT E OF F I C E R S

ROGER G. ACKER MANC h a i rman and Chief Executive Offic e r

JOHN W. LOOSEP resident and Chief Executive Offic e r*

JAMES B. FLAW SExecutive Vice President and Chief Financial Offic er

NORMAN E. GA RRITY† †Vice Chairm an

PETER F. VOLANAKISP re s i d e nt*C o rning Te c h n o l o g i e s

WENDELL P. WEEKSP re s i d e nt*C o rning Optical Communications

K ATHERINE A. A SBECKSenior Vice President and Contro l l er*

CHARLES W. DENEKA †Executive Vice President andChief Technology Offic er

WILLIAM D. EGGERSSenior Vice President andGeneral Counsel

A. JOHN PECK JR.Senior Vice President and Secre t a ry*

MARK S. ROGUSVice President and Tre a s u rer**

S TA FF OF F I C E R S

K ATHERINE M . DIETZVice President, Investor Relations*

G A RY K. EMMICKSenior Vice President Employee Relations

K U RT R. FISCHERVice Pre s i d e nt*Business Human Resourc e s

RICHARD J. FISHBURNVice President and Chief Information Offic e r

D AVID H. FULLERVice President, Science & Te c h n o l o g yand Technology Delivery Offic e r

R O B E RT A. GILCHRISTSenior Vice President, Manufacturing E ffectiveness and Corporate Quality

KIRK P. GREGGSenior Vice President, Administration

VINCENT P. HAT T O NVice President, and Director Legal Depart m e n t

DONA LD B. KECKVice President and Technology Dire c t or*Optical Physics Te c h n o l o g y

JOHN P. MACMAHONVice Pre s i d e nt*Worldwide Compensation

DONA LD H. MCCONNELL JR.Senior Vice President, and Dire c t o rScience & Te c h n o l o gy*

ALFR ED L. MICHAELSEN† † †Senior Vice President and General Patent Counsel

K ATHYRN M. MURPHYVice President, Materials Management

TIMOTHY J. REGANSenior Vice Pre s i d e n tG o v e rnment Aff a i rs*

PAMELA C. SCHNEIDERSenior Vice President, HumanR e s o u rces and Diversity Offic e r

SUZANNE D. WELCHVice President, Corporate Marketing*

GROU P OF F I C E R S

L A R RY AIELLO JR.Senior Vice President Optical Communications

R. PIERCE BAKER IIISenior Vice President, Life Sciences

R O B E RT B. BROWNVice President and General Manager*E l e c t ro-Optic Component Pro d u c ts

PHILIPPE DELLOYEP resident, Corning Europe, andPrésident and Directeur Général,C o rning S . A ., and General Manager,Optical Pro d u c t s

R O B E RT L. ECKLINExecutive Vice Pre s i d e ntOptical Communications

ALAN T. EUSDENSenior Vice President and General Manager*Optical Fiber

RALF FA B E RVice Pre s i d e nt and General Manager*M i c ro Optic Components

GERALD J . FINEExecutive Vice Pre s i d e nt* Photonic Te c h n o l o g i e s

S ATOSHI FURUYA M AP resident, Corning Japan K . K .

KENNET H KAOP resident and Chief Executive Offic e rC o rning Asahi Video Products Company

FRANK R. LITTLEVice President and General Manager*Optical Tr a n s p o rt Pro d u c t s

SANFORD D. LY O N SP resident and Chief Executive Offic e rC o rning Cable Systems

SIMON J. MACKINNONVice President, Corning Intern a t i o n a lP resident, Corning China

JEAN-LOUIS MALINGEVice Pre s i d e nt and General Manager*Optical Component Pro d u c t s

E. MAR IE MCKEEC h a i rman, SteubenSenior Vice President C o rning Incorporated

L AWR ENCE D. MCRAE Vice Pre s i d e n tCorporate Development

MARK A. NEWHOUSEVice President and General Manager*Optical Networking Devices

WILLIAM P LER HOPLES Vice President, ManufacturingTechnology and Engineering

CLIFT ON L. SMITH † † †P resident and Chief Executive Offic e rC o rning Asahi Video Products Company

G R E G O RY E. SMITHP resident, Corning Innovation Ve n t u re s

JAMES R. STEINERVice President and General ManagerSpeciality Materials

ST EVEN P. SUTTLEVice President and General ManagerE n v i ronmental Te c h n o l o g i e s

D AVID E. SZKUTA KP resident and Chief Executive Offic e rC o rning Precision Lens

R O B E RT V. VA N D E W O E S T I N EVice Pre s i d e n t*, New Fiber Pro d u c t s

* ***E ffective January 1, 2001** **Elected December 6, 2000† †† R e t i red January 2001††† R e t i red Febru a ry 2001† †† R e t i red March 2001

1 0 2

PRINCIPAL SU BS IDI A RIE S

CORNING ASAHI V IDEO PRODUCTS COMPA N Y

C o rning, N Y(4 9 % owned by Asahi Glass America Inc.)

CORNING CABLE SYSTEMS LLC

H i c k o ry, N C

COR NI NG CABLE SYST EMS GMBH & CO KG

Munich, Germ a n y

CORNING GMBH

Wiesbaden, Germ a n y

CORNING JAPAN K.K.

Tokyo, Japan

CORNING NETOPTIX, INC.

Natick, M A

CORNING NOBLE PARK PTY. LIMITED

M e l b o u rne, Australia

CORNING OAK HOLDING, INC.

Waltham, MA

CORNING OPTICAL FIBER

Deeside, U.K. (5 0 % owned by Corning Optical Fiber, Inc. and 50%owned by Corning Limited)

CORNING OPTICAL FIBER GMBH & CO KG

Neustadt, Germ a n y

CORNING PRECISION LENS INCORP ORAT E D

C i n c i n n a t i , O H

CORNING S.A.

Avon, France

INTELLISENSE CORP ORAT I O N

Wi l m i n g t o n, M A

OPT ICAL TECHNOLOGIES ITALIA S.P. A .

Milan, Italy

PRINCIPAL A S S O CI AT E D COM PA NIE S

[investors shown in italics] (p e rcent owned in pare n t h e s es)

AME RIC AN VIDEO GLAS S COMPA N Y

Pittsburgh, PA[Partnership between Asahi Glass America Inc., CorningIncorporated and Sony Corporation] (25%)

CORMETECH IN C.

Durham, NC[Mitsubishi Heavy Industries Ltd.; Mitsubishi ChemicalCompany Ltd.] (50%)

DOW CORNING COR PORAT I O N

Midland, MI[The Dow Chemical Company] (50%)

EUROKER A, S.N. C.

Château Thierry, France[St. Gobain Vitrage S.A.] (50%)

EUROKERA N ORTH AMER IC A, IN C.

Greenville, SC[St. Gobain Vitrage S.A.] (50%)

P ITTSBURGH CORNIN G CORPO RAT I O N

Pittsburgh, PA[PPG Industries Inc.] (50%)

PITTS BUR GH CORNING EUR OPE N .V.

Brussels, Belgium[PPG Industries Inc.] (50%)

SAMARA OPTICAL CABLE COMPA N Y

Samara, Russia[Samara Cable Company] (51%)

SAM COR GLA SS L IMITED

New Delhi, India[Samtel Group; Samsung-Corning Company Ltd. ] (45%)

SAMSUNG-COR NING COMPANY LT D .

Seoul, South Korea[Samsung Group] (50%)

SAMSU NG-COR NIN G MICR O- OPTIC S COMPA N Y, LT D .

Seoul, South Korea[Samsung G r o u p] (50%)

SAMSU NG-CORNING PRE CISI ON GLASS COMPA N Y, LT D .

Seoul, South Korea[Samsung G r o u p] (50%)

1 0 3

IN V E S T OR IN FOR M AT ION

A N N U A L M E E T I N G

The annual meeting of shareholders will be held onT h u r s d a y, June 21, 2001, in Corning, NY. A form a lnotice of the meeting together with a proxy statementwill be mailed to shareholders on or about April 23,2001. The proxy statement can also be accessed elec-t ronically through the Investor Relations category of theC o rning home page on the Internet ath t t p : //w w w. c o rning.com. A summary re p o rt of thep roceedings at the annual meeting will be availablewithout charge upon written request to Mr. A. JohnPeck Jr., senior vice president and secre t a ry, Corn i n gIncorporated, HQ-E2-10, Corning, NY 14831.

A D D I T I O N A L I N F O R M A T I O N

A copy of Corn i n g ’s 2000 Annual Report on Form1 0 -K filed with the Securities and ExchangeCommission is available upon written request toM r. A. John Peck Jr., senior vice president ands e c re t a ry, Corning Incorporated, HQ-E2-10,C o rning, NY 14831. The Annual Report on Form1 0 -K can also be accessed electronically through theInvestor Relations category of the Corning homepage on the Internet at http://www. c o rn i n g . c o m .

I N V E S T O R I N F O R M A T I O N

Investment analysts who need additional inform a t i o nmay contact Ms. Katherine M. Dietz, vice p re s i d e n tof investor relations, Corning Incorporated, H Q -E2-25, Corning, NY 14831; Telephone (607) 974-9 0 0 0 .

C O M M O N S T O C K

C o rning Incorporated common stock is listed on theNew York Stock Exchange and the Zurich StockExchange. In addition, it is traded on the Boston,Midwest, Pacific and Philadelphia stock exchanges.Common stock options are traded on the ChicagoB o a rd Options Exchange. The abbreviated ticker sym-bol for Corning Incorporated is “GLW. ”

D I V I D E N D R E I N V E S T M E N T

C o rn i n g ’s Dividend Reinvestment Plan allows share-holders to reinvest dividends in Corning Incorporatedcommon stock automatically, regularly and conve-n i e n t l y. In addition, participating shareholders maysupplement the amount invested with voluntary cashinvestments. Plan participation is voluntary ands h a reholders may join or withdraw at any time.

Full details of the Plan are available by writingto the Secre t a ry of the company.

T R A N S F E R A G E N T, R E G I S T R A R A N D D I V I D E N D

D I S B U R S I N G A G E N T

C o m p u t e r s h a re Investor Services LLCP.O. Box A-3504Chicago, IL 60690-3504Telephone: (800) 255-0461

C H A N G E O F A D D R E S S

R e p o rt change of address to Computershare Investor Services at the above addre s s .

I N D E P E N D E N T A C C O U N T A N T S

P r i c e w a t e rhouseCoopers LLP1301 Avenue of the AmericasNew York, NY 10019

“ S A F E H A R B O R ” S T A T E M E N T U N D E R T H E

P R I V A T E S E C U R I T I E S L I T I G A T I O N R E F O R M

A C T O F 1 9 9 5

The statements in this Annual Report that arenot historical facts or information are forw a rd -looking s t a t e m e n t s . These forw a rd-looking state-ments involve risks and uncertainties that may causethe outcome to be materially diff e rent. Such risksand uncertainties include, but are not limited to:– global economic conditions,– c u rrency flu c t u a t i o n s ,– p roduct demand and industry capacity,– competitive products and pricing,– s u fficiency of manufacturing capacity

and effic i e n c i e s ,– cost re d u c t i o n s ,– availability and costs of critical materials,– new product development and

c o m m e rc i a l i z a t i o n ,– attracting and retaining key personnel,– facility expansions and new plant start-up costs,– the effect of re g u l a t o ry and legal developments,– capital re s o u rce and cash flow activities,– capital spending,– equity company activities,– i n t e rest costs,– acquisition and divestiture activity,– the rate of technology change, – the ability to enforce patents, – stock price fluctuations, and– other risks detailed in Corn i n g ’s Securities and

Exchange Commission fil i n g s .

1 0 4

C o rning Incorporated and Subsidiary Companies

C O R P O R A T E V A L U E S

C o rn i n g ’s values provide an unchanging moral andethical compass that guides the actions of everyone inthe company. The corporate values: Q u a l i t y, I n t eg r i t y,Pe r f o rm a n c e ,L e a d e rs h i p, Te ch n o l o g y, Independence andThe I n d i v i d u a l .

O P E R A T I N G E N V I R O N M E N T

C o rning employees work in an environment foundedon the corporate values and designed to promote per-sonal, professional and business growth. The eightdimensions of the operating environment: C u s t o m e rFo c u s e d ,Results Oriented,Fo r wa rd Looking,E n t re p re n e u r i a l ,R i go r o u s ,O p e n ,E n gaging and Enabling.

T O T A L Q U A L I T Y

Total Quality is the guiding principle of Corn i n g ’sbusiness life. Total Quality perf o rmance meansunderstanding who the customer is and what there q u i rements are, and meeting those re q u i re m e n t sbetter than anyone else, without erro r, on time,e v e ry time.

E N V I R O N M E N T A L P O L I C Y

C o rning Incorporated is committed to pro t e c t i n gthe environment wherever we operate in the world.We achieve this by complying with and striving toexceed all applicable laws, regulations and companys t a n d a rds; maintaining an environmental manage-ment system that assures policy implementations;recycling whenever possible and working to cre a t einnovative recycling opportunities; and pro m o t i n gand increasing environmental awareness within ourplants and facilities.

C O R N I N G F O U N D A T I O N

The Corning Foundation was established to admin-ister the charitable contributions of Corn i n gIncorporated. Grants to communities in whichC o rning operates account for over 50% ofFoundation assistance. Typical recipients are per-f o rming arts organizations, school systems, libraries,hospitals and programs to promote technical educa-tion for women and other under- re p resented gro u p s .

Employee giving is encouraged by the Foundationt h rough its Matching Gifts Program. A FoundationR e p o rt of Activities is available to shareholders uponwritten request to Mr. A. John Peck Jr., senior vice pre s-ident and secre t a ry, Corning Incorporated, HQ-E2-10,C o rning, NY 14831.

T R A D E M A R K S

The following trademarks of Corning Incorporatedand its subsidiaries appear in this re p o rt :

C o rn i n gDiscovering Beyond ImaginationFlame of Discovery designL a s e rt ro nL E A FM e t ro C o rP u re P a t hS t e u b e n

Neither this re p o rt nor any statement containedh e rein is furnished in connection with any offering ofsecurities or for the purpose of promoting or influ-encing the sale of securities.

C o rning is an equal opportunity employer. Printed in USA

corning annual reports 2000

Economy & Finance