9. Investments

On May 31, 2016, Corning completed the strategic realignment of its equity investment in Dow Corning Corporation (”Dow Corning”) pursuant to the Transaction Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in Hemlock Semiconductor Group (“HSG”) and approximately $4.8 billion in cash.

Prior to realignment, HSG, a wholly owned and consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the exchange, Corning now has a direct equity investment in HSG. Because our ownership percentage in HSG did not change as a result of the realignment, the investment in HSG is recorded at its carrying value, which had a negative carrying value of $383 million at the transaction date. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Excluding this charge, the entity is profitable and is expected to recover its equity in the near term.

Corning’s financial statements as of June 30, 2016 include the positive impact of the release of a deferred tax liability of $105 million related to Corning’s tax on Dow Corning’s earnings that were not distributed as of the date of the transaction and a non-taxable gain of $2,676 million on the realignment. Details of the gain are illustrated below (in millions):

Cash	$	4,818
Carrying Value of Dow Corning Equity Investment		(1,560)
Carrying Value of HSG Equity Investment		(383)
Other (1)		(199)
Gain	$	2,676

(1)	Primarily consists of the release of accumulated other comprehensive income items related to unamortized actuarial losses related to Dow Corning’s pension plan and foreign currency translation gains in the amounts of $260 million and $45 million, respectively.

Investments comprise the following (in millions):

	Ownership interest			June 30, 2016		December 31, 2015
Affiliated companies accounted for by the equity method
Dow Corning (1)		50%				$	1,483
All other (1)	20%	to	50%	$	279		422
					279		1,905
Other investments					67		70
Subtotal Investment Assets				$	346	$	1,975

Affiliated companies accounted for by the equity method
HSG (2)(3)		50%		$	361
Subtotal Investment Liabilities				$	361

(1)	Amounts reflect Corning’s direct ownership interests in the respective affiliated companies at June 30, 2016 and December 31, 2015. Corning does not control any of such entities.

(2)	The negative carrying value of the investment in HSG, recorded in Other Liabilities, was reduced by $22 million due to equity earnings recognized for the month of June, 2016.

(3)	HSG indirectly holds an 80.5% interest in a HSG operating partnership.

Dow Corning Corporation

For the period ended June 30, 2016, Corning reported Dow Corning equity earnings and dividends through May 31, 2016, the transaction date. Dow Corning information presented below is shown for the two and five months ended May 31, 2016 (in millions):

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Statement of Operations:
Net sales	$	898	$	1,424	$	2,215	$	2,788
Gross profit (1)	$	238	$	364	$	588	$	722
Net income attributable to Dow Corning (2)	$	52	$	113	$	163	$	298
Corning’s equity in earnings of Dow Corning	$	26	$	57	$	82	$	149

(1)	Gross profit for the three and six months ended June 30, 2016 includes research and development costs of $43 million and $100 million (2015: $63 million and $125 million).

(2)	In the first half of 2015 Dow Corning’s net income included a pre-tax gain of $178 million on the settlement of long-term sales agreements.