7. 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			June 30,		December 31,
	interest			2017		2016
Affiliated companies accounted for by the equity method (1)	20%	to	50%	$	279	$	269
Other investments					69		67
Subtotal Investment Assets				$	348	$	336

Affiliated companies accounted for by the equity method
HSG (1)(2)		50%		$	198	$	241
Subtotal Investment Liabilities				$	198	$	241

(1)

Amounts reflect Corning’s direct ownership interests in the respective affiliated companies at June 30, 2017 and December 31, 2016. Corning does not control any of such entities.

(2)

HSG indirectly holds an 80.5% interest in a HSG operating partnership. The negative carrying value of the investment in HSG is recorded in Other Liabilities.

Hemlock Semiconductor Group

HSG’s results of operations follow (in millions):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016 (2)		2017 (1)		2016 (2)
Statement of Operations:
Net sales	$	320	$	180	$	601	$	180
Gross profit	$	80	$	51	$	108	$	51
Net income attributable to HSG	$	67	$	44	$	226	$	44

(1)

HSG’s net income for the first half of 2017 includes pre-tax gains on settlement of long-term sales agreements in the amount of $150 million (after tax and non-controlling interests, Corning’s share was approximately $75 million).

(2)

Amounts reflect HSG’s results of operations for the month of June 2016.