UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | To |
Commission file number:
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
| | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
| | |||
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
| ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated Filer | ☐ | |||
Non-Accelerated Filer | ☐ | Smaller Reporting Company | | |||
Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
| Yes | ☐ | No | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | | No | ☒ |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding as of April 22, 2022 | |||
Corning’s Common Stock, $0.50 par value per share | |
© 2022 Corning Incorporated. All Rights Reserved.
© 2022 Corning Incorporated. All Rights Reserved.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in millions, except per share amounts)
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Net sales | $ | $ | ||||||
Cost of sales | ||||||||
Gross margin | ||||||||
Operating expenses: | ||||||||
Selling, general and administrative expenses | ||||||||
Research, development and engineering expenses | ||||||||
Amortization of purchased intangibles | ||||||||
Operating income | ||||||||
Interest income | ||||||||
Interest expense | ( | ) | ( | ) | ||||
Translated earnings contract gain, net (Note 10) | ||||||||
Other income, net | ||||||||
Income before income taxes | ||||||||
Provision for income taxes (Note 3) | ( | ) | ( | ) | ||||
Net income attributable to Corning Incorporated | $ | $ | ||||||
Earnings per common share available to common shareholders: | ||||||||
Basic (Note 4) | $ | $ | ||||||
Diluted (Note 4) | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
© 2022 Corning Incorporated. All Rights Reserved.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in millions)
Three months ended |
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March 31, |
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2022 |
2021 |
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Net income attributable to Corning Incorporated |
$ | $ | ||||||
Foreign currency translation adjustments and other |
( |
) | ( |
) | ||||
Unamortized losses and prior service costs for postretirement benefit plans |
( |
) | ||||||
Net unrealized gains on designated hedges |
||||||||
Other comprehensive loss, net of tax |
( |
) | ( |
) | ||||
Comprehensive income attributable to Corning Incorporated |
$ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
© 2022 Corning Incorporated. All Rights Reserved.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Trade accounts receivable, net of doubtful accounts - $ and $ | ||||||||
Inventories, net (Note 5) | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Property, plant and equipment, net of accumulated depreciation - $ and $ | ||||||||
Goodwill, net | ||||||||
Other intangible assets, net | ||||||||
Deferred income taxes (Note 3) | ||||||||
Other assets | ||||||||
Total Assets | $ | $ | ||||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt and short-term borrowings (Note 7) | $ | $ | ||||||
Accounts payable | ||||||||
Other accrued liabilities (Note 6 and Note 9) | ||||||||
Total current liabilities | ||||||||
Long-term debt (Note 7) | ||||||||
Postretirement benefits other than pensions (Note 8) | ||||||||
Other liabilities (Note 6 and Note 9) | ||||||||
Total liabilities | ||||||||
Commitments and contingencies (Note 9) | ||||||||
Shareholders’ equity (Note 12): | ||||||||
Preferred stock – Par value $ per share; Shares authorized million; Shares issued: | ||||||||
Common stock – Par value $ | ||||||||
Additional paid-in capital – common stock | ||||||||
Retained earnings | ||||||||
Treasury stock, at cost; Shares held: million and million | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total Corning Incorporated shareholders’ equity | ||||||||
Non-controlling interests | ||||||||
Total equity | ||||||||
Total Liabilities and Equity | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
© 2022 Corning Incorporated. All Rights Reserved.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Three months ended |
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March 31, |
||||||||
2022 |
2021 |
|||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
||||||||
Amortization of purchased intangibles |
||||||||
Gain on sale of business |
( |
) | ( |
) | ||||
Loss on investment |
||||||||
Share-based compensation expense |
||||||||
Translation gain on Japanese yen-denominated debt |
( |
) | ( |
) | ||||
Deferred tax provision |
||||||||
Translated earnings contract gain |
( |
) | ( |
) | ||||
Unrealized translation losses on transactions |
||||||||
Changes in assets and liabilities: |
||||||||
Trade accounts receivable |
||||||||
Inventories |
( |
) | ||||||
Other current assets |
( |
) | ( |
) | ||||
Accounts payable |
( |
) | ||||||
Other current liabilities |
( |
) | ||||||
Customer deposits and government incentives |
( |
) | ||||||
Deferred income |
( |
) | ( |
) | ||||
Other, net |
( |
) | ( |
) | ||||
Net cash provided by operating activities |
||||||||
Cash Flows from Investing Activities: |
||||||||
Capital expenditures |
( |
) | ( |
) | ||||
Proceeds from sale of business |
||||||||
Realized gains (losses) on translated earnings contract |
( |
) | ||||||
Other, net |
( |
) | ( |
) | ||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
Cash Flows from Financing Activities: |
||||||||
Repayments of short-term borrowings |
( |
) | ( |
) | ||||
Proceeds from exercise of stock options |
||||||||
Purchases of common stock for treasury |
( |
) | ||||||
Dividends paid |
( |
) | ( |
) | ||||
Other, net |
( |
) | ( |
) | ||||
Net cash used in financing activities |
( |
) | ( |
) | ||||
Effect of exchange rates on cash |
( |
) | ( |
) | ||||
Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
Cash and cash equivalents at beginning of period |
||||||||
Cash and cash equivalents at end of period |
$ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
© 2022 Corning Incorporated. All Rights Reserved.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited; in millions)
(In millions) | Common stock | Additional paid-in capital common | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total Corning Incorporated shareholders' equity | Non-controlling interests | Total | ||||||||||||||||||||||||
Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||
Other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Purchase of common stock for treasury | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Shares issued to benefit plans and for | ||||||||||||||||||||||||||||||||
Common dividends ($ per share) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Other, net | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
(In millions) | Convertible preferred stock | Common stock | Additional paid-in capital common | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total Corning Incorporated shareholders' equity | Non-controlling interests | Total | |||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Shares issued to benefit plans and for | ||||||||||||||||||||||||||||||||||||
Common dividends ($ per share) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Preferred dividends ($ per share) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Other, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
© 2022 Corning Incorporated. All Rights Reserved.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation
In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and its subsidiary companies.
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with Corning’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).
The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities.
Certain prior year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no impact on the results of operations, financial position, or changes in shareholders’ equity.
New Accounting Standards
In November 2021, the FASB issued Accounting Standards Update ("ASU") 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, effective for financial statements issued for annual periods beginning after December 15, 2021. ASU 2021-10 requires business entities to disclose information in the notes to the financial statements about certain types of government assistance. The annual disclosure requirements apply to transactions with a government that are accounted for by analogizing to either a grant model or a contribution model. We plan to adopt ASU 2020-10 when we issue our annual financial statements. We do not expect it to have a material impact on our consolidated financial statements.
Other Accounting Standards
No other accounting standards, newly issued or adopted as of March 31, 2022, had a material impact on Corning’s financial statements or disclosures.
© 2022 Corning Incorporated. All Rights Reserved.
2. Revenue
Revenue Disaggregation Table
The following table shows revenues by major product categories, similar to the Company’s reportable segment disclosure. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty of revenue recognition and cash flows are substantially similar. Commercial markets and selling channels are also similar. Except for an inconsequential amount of revenue for Telecommunications products, product category revenues are recognized at point in time when control transfers to the customer.
Revenues by product category are as follows (in millions):
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Telecommunication products | $ | $ | ||||||
Display products | ||||||||
Specialty glass products | ||||||||
Environmental substrate and filter products | ||||||||
Life science products | ||||||||
Polycrystalline silicon and all other products | ||||||||
Total revenue | $ | $ | ||||||
Impact of foreign currency movements (1) | ( | ) | ||||||
Net sales of reportable segments and Hemlock and Emerging Growth Businesses | $ | $ |
(1) | This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment. |
Refer to Note 14 (Reportable Segments) to the consolidated financial statements for additional information.
Contract Assets and Liabilities
Contract assets, such as incremental costs to obtain or fulfill contracts, are an insignificant component of Corning’s revenue recognition process. Most of Corning’s fulfillment costs as a manufacturer of products are classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other contract fulfillment costs are immaterial due to the nature of the products and their respective manufacturing processes.
Contract liabilities include deferred revenue, other advance payments and customer deposits. Other advance payments are not significant to operations and are classified as part of other accrued liabilities in the consolidated financial statements. Customer deposits are predominately related to Display products and deferred revenue is predominately related to obtaining a controlling interest in Hemlock Semiconductor Group ("Hemlock").
© 2022 Corning Incorporated. All Rights Reserved.
Customer Deposits
As of March 31, 2022 and December 31, 2021, Corning had customer deposits of approximately $
Customer deposits used were $
Deferred Revenue
As of March 31, 2022 and December 31, 2021, Corning had deferred revenue of approximately $
The deferred revenue is tracked on a per-customer contract-unit basis. As customers take delivery of the committed volumes under the terms of the contract, a per-unit amount of deferred revenue is recognized when control of the promised goods is transferred to the customer based upon the units shipped.
As of March 31, 2022 and December 31, 2021, $
3. Income Taxes
The provision for income taxes and the related effective income tax rates are as follows (in millions):
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Provision for income taxes | $ | ( | ) | $ | ( | ) | ||
Effective tax rate | % | % |
For the three months ended March 31, 2022, the effective income tax rate differed from the United States (“U.S.”) statutory rate of
Corning Precision Materials is currently appealing certain tax assessments and tax refund claims in South Korea for tax years 2010 through 2018. The Company was required to deposit the disputed amounts with the South Korean government as a condition of its appeal of any tax assessments. Corning believes that it is more likely than not the Company will prevail in the appeals process. As of March 31, 2022 and December 31, 2021, non-current receivables of $
© 2022 Corning Incorporated. All Rights Reserved.
4. Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (in millions, except per share amounts):
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Net income attributable to Corning Incorporated | $ | $ | ||||||
Less: Series A convertible preferred stock dividend | ||||||||
Net income available to common shareholders – basic | ||||||||
Plus: Series A convertible preferred stock dividend | ||||||||
Net income available to common shareholders – diluted | $ | $ | ||||||
Weighted-average common shares outstanding – basic | ||||||||
Effect of dilutive securities: | ||||||||
Employee stock options and other dilutive securities | ||||||||
Series A convertible preferred stock | ||||||||
Weighted-average common shares outstanding – diluted | ||||||||
Basic earnings per common share | $ | $ | ||||||
Diluted earnings per common share | $ | $ | ||||||
Anti-dilutive potential shares excluded from diluted earnings per common share: | ||||||||
Employee stock options and awards | — | |||||||
Total | — |
5. Inventories, Net
Inventories, net comprise the following (in millions):
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Finished goods | $ | $ | ||||||
Work in process | ||||||||
Raw materials and accessories | ||||||||
Supplies and packing materials | ||||||||
Total inventories, net | $ | $ |
© 2022 Corning Incorporated. All Rights Reserved.
6. Other Liabilities
Other liabilities follow (in millions):
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Current liabilities: | ||||||||
Wages and employee benefits | $ | $ | ||||||
Income taxes | ||||||||
Derivative instruments (Note 10) | ||||||||
Deferred revenue (Note 2) | ||||||||
Customer deposits (Note 2) | ||||||||
Share repurchase liability (Note 12) | ||||||||
Short-term operating leases | ||||||||
Other current liabilities | ||||||||
Other accrued liabilities | $ | $ | ||||||
Non-current liabilities: | ||||||||
Defined benefit pension plan liabilities | $ | $ | ||||||
Derivative instruments (Note 10) | ||||||||
Deferred revenue (Note 2) | ||||||||
Customer deposits (Note 2) | ||||||||
Share repurchase liability (Note 12) | ||||||||
Deferred tax liabilities | ||||||||
Long-term operating leases | ||||||||
Other non-current liabilities | ||||||||
Other liabilities | $ | $ |
7. Debt
Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $
Corning had
outstanding commercial paper as of March 31, 2022 and December 31, 2021.
© 2022 Corning Incorporated. All Rights Reserved.
8. Employee Retirement Plans
Corning has defined benefit pension plans covering certain domestic and international employees. The Company’s funding policy is to contribute, over time, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During 2022, the Company expects to make cash contributions of $
The following table summarizes the components of net periodic benefit expense for Corning’s defined benefit pension and postretirement health care and life insurance plans (in millions):
Pension benefits | Postretirement benefits | |||||||||||||||
Three months ended | Three months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Service cost | $ | $ | $ | $ | ||||||||||||
Interest cost | ||||||||||||||||
Expected return on plan assets | ( | ) | ( | ) | ||||||||||||
Amortization of prior service cost (credit) | ( | ) | ( | ) | ||||||||||||
Total pension and postretirement benefit expense | $ | $ | $ | $ |
The components of net periodic benefit expense, other than the service cost component, are included in the line item other income, net, in the consolidated statements of income.
9. Commitments and Contingencies
Corning is a defendant in various lawsuits and is subject to various claims that arise in the normal course of business, the most significant of which are summarized below. In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse effect on Corning’s consolidated financial position, liquidity, or results of operations, is remote.
Dow Corning Chapter 11 Related Matters
Until June 1, 2016, Corning and Dow each owned
Dow Corning Breast Implant Litigation
In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from many thousands of breast implant product lawsuits. On June 1, 2004, Dow Corning emerged from Chapter 11 with a Plan of Reorganization (the “Plan”) which provided for the settlement or other resolution of implant claims. The Plan includes releases for Corning and Dow as shareholders in exchange for contributions to the Plan.
Under the terms of the Plan, Dow Corning has established and funded a Settlement Trust and a Litigation Facility, to provide a means for tort claimants to settle or litigate their claims. Inclusive of insurance, Dow Corning has paid approximately $
© 2022 Corning Incorporated. All Rights Reserved.
Dow Corning Bankruptcy Pendency Interest Claims
As a separate matter arising from the bankruptcy proceedings, Dow Corning had been defending claims asserted by commercial creditors who claimed additional compounded interest at default and state statutory judgment rates as well as attorneys’ fees and other enforcement costs, during the period from May 1995 through June 2004. As of May 31, 2016, Dow Corning had recorded a reserve for these claims of $
Dow Corning Environmental Claims
In September 2019, Dow formally notified Corning of certain environmental matters for which Dow asserts that it has, or will, experience losses arising from remediation and response at a number of sites. In the event Dow is liable for these claims, Corning may be required to indemnify Dow for up to
Environmental Litigation
Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for
10. Hedging Activities
Designated Hedges
Corning uses over-the-counter (“OTC”) foreign exchange forward contracts as cash flow hedges to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to customers and purchases from suppliers. The total gross notional values for foreign currency cash flow hedges are $
Corning has entered into leases of precious metals with maturities through 2025. To offset the risk of changes in the fair value of the Company's separate accounting pool of leased precious metals due to adverse changes in the respective market prices, Corning designated the bifurcated embedded derivatives included in these leases as fair value hedges. The gain or loss on the derivatives, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings. The amounts representing the time value component of the derivatives are excluded from the assessment of effectiveness and amortized in earnings. The impact of the excluded component on Corning's other comprehensive income and earnings is not material. The carrying amount of the leased precious metals pool, which is included in the property, plant and equipment, net of accumulated depreciation line of the consolidated balance sheets is $
© 2022 Corning Incorporated. All Rights Reserved.
Undesignated Hedges
Corning uses OTC foreign exchange forward and option contracts not designated as hedging instruments for accounting purposes to offset economic currency risks. The undesignated hedges limit exposure to foreign functional currency fluctuations related to certain subsidiaries’ monetary assets, monetary liabilities and net earnings in foreign currencies.
A significant portion of the Company's non-U.S. revenue and expenses are denominated in Japanese yen, South Korean won, new Taiwan dollar, Chinese yuan, and euro. When this revenue and these expenses are translated back to U.S. dollars, the Company is exposed to foreign exchange rate movements. To protect translated earnings against movements in these currencies, the Company has entered into a series of average rate forwards and option contracts. Most of these contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning years 2022 through 2024.
The following table summarizes the total gross notional value for translated earnings contracts at March 31, 2022 and December 31, 2021 (in billions):
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Average rate forward contracts: | ||||||||
Japanese yen-denominated | $ | $ | ||||||
South Korean won-denominated | ||||||||
Euro-denominated | ||||||||
Other foreign currencies (1) | ||||||||
Option contracts: | ||||||||
Japanese yen-denominated (2) | ||||||||
Other foreign currencies (3) | ||||||||
Total gross notional value for translated earning contracts | $ | $ |
(1) | Denominational currencies for average rate forward contracts include the Chinese yuan and British pound. |
(2) | Japanese yen-denominated option contracts include zero-cost collars, purchased put and call options. With respect to the zero-cost collars, the gross notional amount includes the value of the put and call options. However, due to the nature of the zero-cost collars, only the put or call option can be exercised at maturity. |
(3) | Other foreign currency option contracts are purchased basket options that include a basket of underlying currencies, including the Japanese yen, South Korean won, euro and British pound, and each basket option will be settled against U.S. dollars. |
The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for March 31, 2022 and December 31, 2021 (in millions):
Asset derivatives | Liability derivatives | |||||||||||||||||||||||||
Notional amount | Balance | Fair value | Balance | Fair value | ||||||||||||||||||||||
March | December | sheet | March | December | sheet | March | December | |||||||||||||||||||
31, 2022 | 31, 2021 | location | 31, 2022 | 31, 2021 | location | 31, 2022 | 31, 2021 | |||||||||||||||||||
Derivatives designated as hedging | ||||||||||||||||||||||||||
Foreign exchange contracts and other | $ | $ | Other current assets | $ | $ | Other accrued liabilities | $ | ( | ) | $ | ( | ) | ||||||||||||||
Other assets | Other liabilities | ( | ) | ( | ) | |||||||||||||||||||||
Derivatives not designated as hedging | ||||||||||||||||||||||||||
Foreign exchange contracts | Other current assets | Other accrued liabilities | ( | ) | ( | ) | ||||||||||||||||||||
Translated earnings contracts | Other current assets | Other accrued liabilities | ( | ) | ( | ) | ||||||||||||||||||||
Other assets | Other liabilities | ( | ) | ( | ) | |||||||||||||||||||||
Total derivatives | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) |
(1) | At March 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $ |
© 2022 Corning Incorporated.
All Rights Reserved.
The following tables summarize the effect of Corning’s derivative financial instruments on the consolidated financial statements (in millions):
Three months ended March 31, | |||||||||||||||||
Gain recognized | Location of gain (loss) | Gain reclassified | |||||||||||||||
Derivatives in hedging | in other comprehensive | reclassified from accumulated | from accumulated | ||||||||||||||
relationships for cash | income (OCI) | OCI into income | OCI into income | ||||||||||||||
flow and fair value hedges | 2022 | 2021 | effective (ineffective) | 2022 | 2021 | ||||||||||||
Net sales | $ | $ | |||||||||||||||
Foreign exchange contracts | $ | $ | Cost of sales | ||||||||||||||
Total cash flow and fair | $ | $ | $ | $ | |||||||||||||
Gain recognized in income | |||||||||
Three months ended | |||||||||
Location of gain | March 31, | ||||||||
Undesignated derivatives | recognized in income | 2022 | 2021 | ||||||
Foreign exchange contracts | Other income, net | $ | $ | ||||||
Translated earnings contracts | Translated earnings contract gain, net | ||||||||
Total undesignated | $ | $ |
11. Fair Value Measurements
Fair value standards under 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 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 fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis; Level 1 ("L1"), quoted market prices in active markets for identical assets, Level 2 ("L2"), significant other observable inputs, and Level 3 ("L3"), significant unobservable inputs as of our reportable dates (in millions):
March 31, | L1 | L2 | L3 | December 31, | L1 | L2 | L3 | |||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||
Other current assets (1) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Non-current assets: | ||||||||||||||||||||||||||||||||
Other assets (1) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||
Other accrued liabilities (1) | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Non-current liabilities: | ||||||||||||||||||||||||||||||||
Other liabilities (1) | $ | $ | $ | $ |
(1) | Derivative assets and liabilities mainly consist of foreign exchange contracts which were measured using observable inputs for similar assets and liabilities. |
© 2022 Corning Incorporated. All Rights Reserved.
Assets and Liabilities Measured on a Non-Recurring Basis
There were no significant financial assets and liabilities measured on a non-recurring basis as of March 31, 2022 and December 31, 2021.
12. Shareholders’ Equity
Fixed Rate Cumulative Convertible Preferred Stock, Series A
On January 16, 2021, the Preferred Stock became convertible into
Immediately following the conversion, Corning repurchased and retired
The remaining
Share Repurchases
On July 17, 2019, Corning’s Board of Directors authorized $
For the three months ended March 31, 2022, the Company repurchased
The Company made no open market share repurchases for the three months ended March 31, 2021.
© 2022 Corning Incorporated. All Rights Reserved.
Accumulated Other Comprehensive Loss
In the three months ended March 31, 2022 and 2021, the change in accumulated other comprehensive loss was primarily related to the foreign currency translation adjustment.
A summary of changes in the foreign currency translation adjustment component of accumulated other comprehensive loss is as follows (in millions) (1):
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Beginning balance | $ | ( | ) | $ | ( | ) | ||
Losses on foreign currency translation (2) | ( | ) | ( | ) | ||||
Equity method affiliates (3) | ( | ) | ( | ) | ||||
Net current-period other comprehensive loss | ( | ) | ( | ) | ||||
Ending balance | $ | ( | ) | $ | ( | ) |
(1) | All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss. |
(2) | For the three months ended March 31, 2022 and 2021, amounts are net of tax benefit of $ |
(3) | Tax effects are not significant. |
13. Share-Based Compensation
Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of its Board of Directors. The Plans allow Corning to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At March 31, 2022, there were approximately
Share-based compensation cost is allocated to the cost of sales, selling, general and administrative, and research, development and engineering, expenses lines in the consolidated statements of income.
The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.
Total share-based compensation cost was $
Stock Options
Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued common shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from
© 2022 Corning Incorporated. All Rights Reserved.
The following table summarizes information regarding stock options outstanding, including the related transactions under the stock option plans, for the three months ended March 31, 2022:
Weighted- | ||||||||||||||||
average | ||||||||||||||||
Weighted- | remaining | Aggregate | ||||||||||||||
Number | average | contractual | intrinsic | |||||||||||||
of shares | exercise | term | value | |||||||||||||
(in thousands) | price | (in years) | (in thousands) | |||||||||||||
Options outstanding as of December 31, 2021 | $ | |||||||||||||||
Exercised | ( | ) | ||||||||||||||
Forfeited and expired | ( | ) | ||||||||||||||
Options outstanding as of March 31, 2022 | $ | |||||||||||||||
Options expected to vest as of March 31, 2022 | ||||||||||||||||
Options exercisable as of March 31, 2022 |
Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term is the period the options are expected to be outstanding and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. Ranges used reflect results from separate groups of employees exhibiting different exercise behavior.
There have been
stock options granted for the three months ended March 31, 2022 or 2021.
Incentive Stock Plans
The Corning Incentive Stock Plans permit restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plans are granted at the closing market price on the grant date, contingently vest over a period of generally
year to years, and is aligned to the contractual terms. The fair value is based on the grant date closing price of the Company’s stock.
Time-Based Restricted Stock and Restricted Stock Units
Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company’s common stock upon vesting. The fair value is based on the closing market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.
Weighted | ||||||||
Number | average | |||||||
of shares | grant-date | |||||||
(in thousands) | fair value | |||||||
Non-vested shares and share units at December 31, 2021 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Forfeited | ( | ) | ||||||
Non-vested shares and share units at March 31, 2022 | $ |
© 2022 Corning Incorporated. All Rights Reserved.
Performance-Based Restricted Stock Units
Performance-based restricted stock units are earned upon the achievement of certain targets, and are payable in shares of the Company’s common stock upon vesting, typically over a
year period. The fair value is based on the closing market price of the Company’s stock on the grant date and assumes that the target payout level will be achieved. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting. During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.
The following table summarizes the Company’s non-vested performance-based restricted stock units and changes which occurred during the three months ended March 31, 2022:
Weighted | ||||||||
Number | average | |||||||
of shares | grant-date | |||||||
(in thousands) | fair value | |||||||
Non-vested share units at December 31, 2021 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Performance adjustments | ||||||||
Forfeited | ( | ) | ||||||
Non-vested share units at March 31, 2022 | $ |
14. Reportable Segments
The Company’s reportable segments are as follows:
● | Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry. |
● | Display Technologies – manufactures glass substrates for flat panel liquid crystal displays and other high-performance display panels. |
● | Specialty Materials – manufactures products that provide more than |
● | Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications. |
● | Life Sciences – manufactures glass and plastic labware, equipment, media, serum and reagents enabling workflow solutions for drug discovery and bioproduction. |
All other businesses that do not meet the quantitative threshold for separate reporting have been grouped as “Hemlock and Emerging Growth Businesses”. The net sales for this group are primarily attributable to Hemlock, which is an operating segment that produces solar and semiconductor products. The emerging growth businesses primarily consist of Pharmaceutical Technologies (“CPT”), Auto Glass Solutions (“AGS”) and the Emerging Innovations Group (“EIG”), which are also operating segments.
Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the chief operating decision maker (“CODM”) in making internal operating decisions. A significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar. Management believes it is important to understand the impact on core net income of translating these currencies into U.S. dollars. The Company uses constant currency reporting for Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences. Corning excludes the impact of these currencies from segment sales and net income. The adjustment for constant currency is primarily related to the Display Technologies’ segment and excludes the impact of the fluctuation of the Japanese yen, South Korean won, Chinese yuan, and new Taiwan dollar. Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in evaluating the results of, or in allocating resources to, the segments and include the following: the impact of translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.
© 2022 Corning Incorporated. All Rights Reserved.
Earnings of equity affiliates that are closely associated with the reportable segments are included in the respective segment’s net income (loss). Certain common expenses among reportable segments have been allocated differently than they would be for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies.
Reportable Segments and Hemlock and Emerging Growth Businesses (in millions):
Hemlock and | ||||||||||||||||||||||||||||
Emerging | ||||||||||||||||||||||||||||
Optical | Display | Specialty | Environmental | Life | Growth | |||||||||||||||||||||||
Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | ||||||||||||||||||||||
Three months ended | ||||||||||||||||||||||||||||
March 31, 2022 | ||||||||||||||||||||||||||||
Segment net sales | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Depreciation (1) | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Research, development and | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Income tax provision (3) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Segment net income (loss) (4) | $ | $ | $ | $ | $ | $ | ( | ) | $ |
Hemlock and | ||||||||||||||||||||||||||||
Emerging | ||||||||||||||||||||||||||||
Optical | Display | Specialty | Environmental | Life | Growth | |||||||||||||||||||||||
Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | ||||||||||||||||||||||
Three months ended | ||||||||||||||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||||
Segment net sales | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Depreciation (1) | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Research, development and | $ | $ | $ |