Note 16 - Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

16.

   Fair Value Measurements

Fair value standards under U.S. GAAP define fair value, establish a framework for measuring fair value in applying generally accepted accounting principles, and require disclosures about fair value measurements. The standards also identify

two

kinds of inputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources while unobservable inputs are based on the Company’s own market assumptions. Once inputs have been characterized, the inputs are prioritized into

one

of

three

broad levels (provided in the table below) used to measure fair value. Fair value standards apply whenever an entity is measuring fair value under other accounting pronouncements that require or permit fair value measurement and require the use of observable market data when available.

The following tables provide

f

air value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis:

			Fair value measurements at reporting date using
(in millions)	December 31, 2016		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Current assets:
Short-term investments
Other current assets (1)	$	435		$	435
Non-current assets:
Other assets (1)(2)	$	464		$	175	$	289
Current liabilities:
Other accrued liabilities (1)	$	88		$	88
Non-current liabilities:
Other liabilities (1)	$	282		$	282

(1) Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets and liabilities.

(2) Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and a contingent consideration asset which was measured by applying an option pricing model using projected future Corning Precision Materials’ revenue.

			Fair value measurements at reporting date using
(in millions)	December 31, 2015		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Current assets:
Short-term investments	$	100	$	100
Other current assets (1)	$	522			$	522
Non-current assets:
Other assets (1)(2)	$	752			$	506	$	246
Current liabilities:
Other accrued liabilities (1)	$	55			$	55
Non-current liabilities:
Other liabilities (1)(2)	$	98			$	88	$	10

(1) Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets and liabilities.

(2) Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and contingent consideration assets or liabilities which are measured by applying an option pricing model using projected future revenues.

	Level 3 Roll-Forward – Other Assets
(in millions)	2016		2015
Beginning balance	$	246	$	445
Unrealized gains (loss)		43		13
Transfer in (out) of level 3				(212	)
Ending balance	$	289	$	246

As a result of the acquisition of Samsung Corning Precision Materials in

January

2014,

the Company has contingent consideration that was measured using unobservable (Level

3)

inputs. This contingent consideration arrangement potentially requires additional consideration to be paid between the parties in

2018:

one

based on projections of future revenues generated by the business of Corning Precision Materials for the period between the acquisition date and

December

31,

2017,

which is subject to a cap of

$665

million; and another based on the volumes of certain sales during the same period, which is subject to a separate cap of

$100

million. The fair value of the potential receipt of the contingent consideration in

2018

in the amount of

$196

million recognized on the acquisition date was estimated by applying an option pricing model using the Company’s projection of future revenues generated by Corning Precision Materials. Changes in the fair value of the contingent consideration in future periods are valued using an option pricing model and are recorded in Corning’s results in the period of the change.

On

December

29,

2015,

Corning and Samsung Display entered into an agreement pursuant to which Corning exchanged the amount of contingent consideration in excess of

$300

million (net present fair value:

$246

million), as consideration for the incremental fair value associated with a number of commercial agreements, including the amendment of its long-term supply agreement with Samsung Display. As of

December

29,

2015,

the net present fair value of the contingent consideration receivable was

$458

million. The net present fair value of the commercial benefit associated with the amended long-term supply agreement exceeds the value exchanged by Corning pursuant to this agreement (net present fair value:

$212

million). Consequently, Corning reclassified this amount to the other asset line of the Consolidated Balance Sheet and will amortize the amount over the remaining term of the long-term supply agreement as a reduction in revenue.

As of

December

31,

2016

and

2015,

the fair value of the potential receipt of the contingent consideration in

2018

was

$289

million and

$246

million, respectively.

There were

no

significant financial assets and liabilities measured on a nonrecurring basis during the years ended

December

31,

2016

and

2015.