CORNING INC /NY [GLW] Filings

10-Q 1 glw20220331_10q.htm FORM 10-Q glw20220331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number: 1-3247

CORNING INCORPORATED

(Exact name of registrant as specified in its charter)

	New York		16-0393470
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	One Riverfront Plaza, Corning, New York		14831
	(Address of principal executive offices)		(Zip Code)

607-974-9000

(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
Common Stock		GLW		New York Stock Exchange (NYSE)

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.

Yes

☒

☐

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).

Yes

☒

☐

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.

Large Accelerated Filer	☒	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

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

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		844,612,498 shares

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INDEX

PART I – FINANCIAL INFORMATION
	Page
Item 1. Financial Statements

Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2022 and 2021	3

Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2022 and 2021	4

Consolidated Balance Sheets at March 31, 2022 (Unaudited) and December 31, 2021	5

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2022 and 2021	6

Consolidated Statements of Changes to Shareholders’ Equity (Unaudited) for the three months ended March 31, 2022 and 2021	7

Notes to Consolidated Financial Statements (Unaudited)	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3. Quantitative and Qualitative Disclosures About Market Risk	40

Item 4. Controls and Procedures	40

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	41

Item 1A. Risk Factors	41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 6. Exhibits	43

Signatures	44

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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	$	3,680		$	3,290
Cost of sales		2,397			2,134

Gross margin		1,283			1,156

Operating expenses:
Selling, general and administrative expenses		434			400
Research, development and engineering expenses		248			222
Amortization of purchased intangibles		31			32

Operating income		570			502

Interest income		3			3
Interest expense		(71	)		(77	)
Translated earnings contract gain, net (Note 10)		129			272
Other income, net		130			125

Income before income taxes		761			825
Provision for income taxes (Note 3)		(180	)		(226	)

Net income attributable to Corning Incorporated	$	581		$	599

Earnings per common share available to common shareholders:
Basic (Note 4)	$	0.69		$	0.75
Diluted (Note 4)	$	0.68		$	0.67

The accompanying notes are an integral part of these consolidated financial statements.

‎

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in millions)

	Three months ended
	March 31,
	2022			2021
Net income attributable to Corning Incorporated	$	581		$	599

Foreign currency translation adjustments and other		(200	)		(363	)
Unamortized losses and prior service costs for postretirement benefit plans		(1	)
Net unrealized gains on designated hedges		14			11
Other comprehensive loss, net of tax		(187	)		(352	)

Comprehensive income attributable to Corning Incorporated	$	394		$	247

The accompanying notes are an integral part of these consolidated financial statements.

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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	$	2,016		$	2,148
Trade accounts receivable, net of doubtful accounts - $39 and $42		1,910			2,004
Inventories, net (Note 5)		2,618			2,481
Other current assets		1,317			1,026
Total current assets		7,861			7,659

Property, plant and equipment, net of accumulated depreciation - $14,010 and $13,969		15,780			15,804
Goodwill, net		2,408			2,421
Other intangible assets, net		1,118			1,148
Deferred income taxes (Note 3)		1,030			1,066
Other assets		2,060			2,056

Total Assets	$	30,257		$	30,154

Liabilities and Equity

Current liabilities:
Current portion of long-term debt and short-term borrowings (Note 7)	$	120		$	55
Accounts payable		1,849			1,612
Other accrued liabilities (Note 6 and Note 9)		3,092			3,139
Total current liabilities		5,061			4,806

Long-term debt (Note 7)		6,839			6,989
Postretirement benefits other than pensions (Note 8)		620			622
Other liabilities (Note 6 and Note 9)		5,108			5,192
Total liabilities		17,628			17,609

Commitments and contingencies (Note 9)
Shareholders’ equity (Note 12):
Preferred stock – Par value $100 per share; Shares authorized 10 million; Shares issued: 0
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1.8 billion and 1.8 billion		908			907
Additional paid-in capital – common stock		16,531			16,475
Retained earnings		16,737			16,389
Treasury stock, at cost; Shares held: 973 million and 970 million		(20,419	)		(20,263	)
Accumulated other comprehensive loss		(1,362	)		(1,175	)
Total Corning Incorporated shareholders’ equity		12,395			12,333
Non-controlling interests		234			212
Total equity		12,629			12,545

Total Liabilities and Equity	$	30,257		$	30,154

The accompanying notes are an integral part of these consolidated financial statements.

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

	Three months ended
	March 31,
	2022			2021
Cash Flows from Operating Activities:
Net income	$	581		$	599
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		342			330
Amortization of purchased intangibles		31			32
Gain on sale of business		(53	)		(14	)
Loss on investment					36
Share-based compensation expense		42			34
Translation gain on Japanese yen-denominated debt		(84	)		(118	)
Deferred tax provision		24			121
Translated earnings contract gain		(129	)		(272	)
Unrealized translation losses on transactions		20			59
Changes in assets and liabilities:
Trade accounts receivable		7			109
Inventories		(159	)		44
Other current assets		(81	)		(26	)
Accounts payable		238			(49	)
Other current liabilities		(161	)		22
Customer deposits and government incentives		(9	)		31
Deferred income		(25	)		(34	)
Other, net		(50	)		(181	)
Net cash provided by operating activities		534			723

Cash Flows from Investing Activities:
Capital expenditures		(383	)		(289	)
Proceeds from sale of business		74			24
Realized gains (losses) on translated earnings contract		40			(3	)
Other, net		(9	)		(20	)
Net cash used in investing activities		(278	)		(288	)

Cash Flows from Financing Activities:
Repayments of short-term borrowings		(11	)		(25	)
Proceeds from exercise of stock options		18			51
Purchases of common stock for treasury		(149	)
Dividends paid		(228	)		(208	)
Other, net		(5	)		(8	)
Net cash used in financing activities		(375	)		(190	)
Effect of exchange rates on cash		(13	)		(49	)
Net (decrease) increase in cash and cash equivalents		(132	)		196
Cash and cash equivalents at beginning of period		2,148			2,672
Cash and cash equivalents at end of period	$	2,016		$	2,868

The accompanying notes are an integral part of these consolidated financial statements.

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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	$	907	$	16,475	$	16,389		$	(20,263	)	$	(1,175	)	$	12,333		$	212	$	12,545
Net income						581									581			22		603
Other comprehensive loss												(187	)		(187	)				(187	)
Purchase of common stock for treasury									(151	)					(151	)				(151	)
Shares issued to benefit plans and for option exercises		1		56											57					57
Common dividends ($0.27 per share)						(233	)								(233	)				(233	)
Other, net									(5	)					(5	)				(5	)
Balance, March 31, 2022	$	908	$	16,531	$	16,737		$	(20,419	)	$	(1,362	)	$	12,395		$	234	$	12,629

(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	$	2,300	$	863	$	14,642	$	16,120		$	(19,928	)	$	(740	)	$	13,257		$	191		$	13,448
Net income								599									599			2			601
Other comprehensive loss														(352	)		(352	)		(1	)		(353	)
Shares issued to benefit plans and for option exercises				1		80											81						81
Common dividends ($0.24 per share)								(187	)								(187	)					(187	)
Preferred dividends ($10,625 per share)								(24	)								(24	)					(24	)
Other, net								1			(6	)					(5	)		(3	)		(8	)
Balance, March 31, 2021	$	2,300	$	864	$	14,722	$	16,509		$	(19,934	)	$	(1,092	)	$	13,369		$	189		$	13,558

The accompanying notes are an integral part of these consolidated financial statements.

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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.

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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	$	1,198	$	937

Display products		906		888

Specialty glass products		493		451

Environmental substrate and filter products		401		442

Life science products		307		301

Polycrystalline silicon and all other products		375		271
Total revenue	$	3,680	$	3,290
Impact of foreign currency movements ⁽¹⁾		64		(27	)
Net sales of reportable segments and Hemlock and Emerging Growth Businesses	$	3,744	$	3,263

⁽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").

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Customer Deposits

As of March 31, 2022 and December 31, 2021, Corning had customer deposits of approximately $1.2 billion and $1.3 billion, respectively. Most of these customer deposits were non-refundable and allowed customers to secure rights to products produced by Corning under long-term supply agreements. The duration of these long-term supply agreements ranges up to 10 years. As products are shipped to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability.

Customer deposits used were $83 million and $93 million, respectively, in the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, $1.0 billion and $1.1 billion, respectively, were recorded as other long-term liabilities. The remaining $236 million and $223 million, respectively, were classified as other current liabilities.

Deferred Revenue

As of March 31, 2022 and December 31, 2021, Corning had deferred revenue of approximately $887 million and $912 million, respectively. The deferred revenue was related to the performance obligations of non-refundable consideration previously received by Hemlock from its customers under long-term supply agreements.

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, $751 million and $764 million, respectively, were classified as long-term liabilities and $136 million and $148 million, respectively, were classified as current liabilities.

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	$	(180	)	$	(226	)
Effective tax rate		23.7	%		27.4	%

For the three months ended March 31, 2022, the effective income tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to changes in tax reserves and the impact of changes in tax legislation, partially offset by differences arising from foreign earnings. For the three months ended March 31, 2021, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to adjustments to our permanently reinvested foreign income position and tax reform items.

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 $354 million and $350 million, respectively, were recorded related to these appeals.

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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	$	581	$	599
Less: Series A convertible preferred stock dividend				24
Net income available to common shareholders – basic		581		575
Plus: Series A convertible preferred stock dividend				24
Net income available to common shareholders – diluted	$	581	$	599

Weighted-average common shares outstanding – basic		843		766
Effect of dilutive securities:
Employee stock options and other dilutive securities		16		17
Series A convertible preferred stock				115
Weighted-average common shares outstanding – diluted		859		898
Basic earnings per common share	$	0.69	$	0.75
Diluted earnings per common share	$	0.68	$	0.67

Anti-dilutive potential shares excluded from diluted earnings per common share:
Employee stock options and awards		—		1
Total		—		1

5. Inventories, Net

Inventories, net comprise the following (in millions):

	March 31,		December 31,
	2022		2021
Finished goods	$	1,216	$	1,190
Work in process		383		358
Raw materials and accessories		485		427
Supplies and packing materials		534		506
Total inventories, net	$	2,618	$	2,481

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6. Other Liabilities

Other liabilities follow (in millions):

	March 31,		December 31,
	2022		2021
Current liabilities:
Wages and employee benefits	$	488	$	824
Income taxes		238		196
Derivative instruments (Note 10)		276		144
Deferred revenue (Note 2)		136		148
Customer deposits (Note 2)		236		223
Share repurchase liability (Note 12)		507		506
Short-term operating leases		93		94
Other current liabilities		1,118		1,004
Other accrued liabilities	$	3,092	$	3,139

Non-current liabilities:
Defined benefit pension plan liabilities	$	696	$	707
Derivative instruments (Note 10)		85		49
Deferred revenue (Note 2)		751		764
Customer deposits (Note 2)		985		1,072
Share repurchase liability (Note 12)		518		517
Deferred tax liabilities		248		258
Long-term operating leases		676		691
Other non-current liabilities		1,149		1,134
Other liabilities	$	5,108	$	5,192

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 $7.3 billion and $8.3 billion at March 31, 2022 and December 31, 2021, respectively, compared to recorded book values of $6.8 billion and $7.0 billion at March 31, 2022 and December 31, 2021, respectively. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.

Corning had no outstanding commercial paper as of March 31, 2022 and December 31, 2021.

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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 $30 million to international pension plans.

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	$	32		$	32		$	2		$	2
Interest cost		27			22			4			4
Expected return on plan assets		(55	)		(54	)
Amortization of prior service cost (credit)		1			1			(1	)		(1	)
Total pension and postretirement benefit expense	$	5		$	1		$	5		$	5

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 50% of the common stock of Dow Corning. On May 31, 2016, Corning and Dow realigned their ownership interest in Dow Corning. Following the realignment, Corning no longer owned any interest in Dow Corning. With the realignment, Corning agreed to indemnify Dow Corning for 50% of Dow Corning’s non-ordinary course, pre-closing liabilities to the extent such liabilities exceed the amounts reserved for them by Dow Corning as of May 31, 2016, subject to certain conditions and limits.

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 $1.8 billion to the Settlement Trust. As of May 31, 2016, Dow Corning had recorded a reserve for breast implant litigation of $290 million. In the event Dow Corning’s total liability for these claims exceeds such amount, Corning may be required to indemnify Dow for up to 50% of the excess liability, subject to certain conditions and limits. As of March 31, 2022 and December 31, 2021, Dow Corning had recorded a reserve for breast implant litigation of $127 million and $130 million, respectively. As a result, Corning does not believe its indemnity obligation for Dow Corning’s breast implant litigation liability, if any, will be material.

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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 $107 million. Dow Corning settled those claims as of September 30, 2019 and received approval of the settlement from the bankruptcy court. Corning does not believe its indemnity obligation, if any, for Dow Corning’s liability to be material.

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 50% of that liability, subject to certain conditions and limits. As of March 31, 2022, Corning has determined a potential liability for these environmental matters is probable and the amount reserved was not material.

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 15 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. As of March 31, 2022 and December 31, 2021, Corning had accrued approximately $50 million and $55 million, respectively, for the estimated undiscounted liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

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 $714 million and $780 million at March 31, 2022 and December 31, 2021, respectively, with maturities spanning the years 2022 through 2023. Corning defers gains and losses related to the cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. At March 31, 2022, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $53 million.

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 $223 million and $107 million at March 31, 2022 and December 31, 2021, respectively.

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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	$	2.4	$	2.9
South Korean won-denominated		1.6		1.2
Euro-denominated		0.1		0.2
Other foreign currencies ⁽¹⁾		0.1		0.1
Option contracts:
Japanese yen-denominated ⁽²⁾		4.9		3.6
Other foreign currencies ⁽³⁾		0.3		0.9
Total gross notional value for translated earning contracts	$	9.4	$	8.9

⁽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 instruments (1)

Foreign exchange contracts and other	$	714	$	780	Other current assets	$	55	$	49	Other accrued liabilities	$	(2	)	$	(2	)
					Other assets		19		10	Other liabilities		(44	)		(9	)

Derivatives not designated as hedging instruments

Foreign exchange contracts		3,842		3,864	Other current assets		155		91	Other accrued liabilities		(133	)		(95	)
Translated earnings contracts		9,396		8,899	Other current assets		358		196	Other accrued liabilities		(141	)		(47	)
					Other assets		180		154	Other liabilities		(41	)		(40	)
Total derivatives	$	13,952	$	13,543		$	767	$	500		$	(361	)	$	(193	)

⁽¹⁾

At March 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $714 million and fair value hedges of leased precious metals with gross notional amounts of 11,417 troy ounces. At December 31, 2021, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $780 million and fair value hedges of leased precious metals with gross notional amounts of 7,559 troy ounces.

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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	$	10	$	2
Foreign exchange contracts and other	$	34	$	26	Cost of sales		7		7
Total cash flow and fair value hedges	$	34	$	26		$	17	$	9

		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	$	26	$	44
Translated earnings contracts	Translated earnings contract gain, net		129		272

Total undesignated		$	155	$	316

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, 2022		L1		L2		L3		December 31, 2021		L1		L2		L3
Current assets:
Other current assets ⁽¹⁾	$	622	$	11	$	568	$	43	$	352	$	10	$	336	$	6
Non-current assets:
Other assets ⁽¹⁾	$	199			$	199			$	175			$	164	$	11
Current liabilities:
Other accrued liabilities ⁽¹⁾	$	276			$	276			$	144			$	144
Non-current liabilities:
Other liabilities ⁽¹⁾	$	102			$	102			$	66			$	66

⁽¹⁾	Derivative assets and liabilities mainly consist of foreign exchange contracts which were measured using observable inputs for similar assets and liabilities.

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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 115 million Common Shares. On April 5, 2021 (“Initial Closing Date”), Corning and Samsung Display Co., Ltd. ("SDC") executed the Share Repurchase Agreement (“SRA”) and the Preferred Stock was fully converted as of April 8, 2021.

Immediately following the conversion, Corning repurchased and retired 35 million of the Common Shares held by SDC for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid on the Initial Closing Date. Subsequent payments of approximately $507 million will be paid on each of the first and second anniversaries of the Initial Closing Date.

The remaining 80 million Common Shares were accounted for as a conversion of Preferred Stock and resulted in an increase of common stock and additional paid-in-capital based on the carrying value of the Preferred Stock and were included in the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share. SDC has the option to sell 22 million common shares to Corning subject to certain conditions beginning in 2024-2027. The remaining 58 million common shares are subject to a seven-year lock-up period expiring in 2027.

Share Repurchases

On July 17, 2019, Corning’s Board of Directors authorized $5 billion in share repurchases with no expiration date (the “2019 Repurchase Program”).

For the three months ended March 31, 2022, the Company repurchased 3.9 million shares of common stock on the open market for approximately $151 million as part of its 2019 Repurchase Program.

The Company made no open market share repurchases for the three months ended March 31, 2021.

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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	$	(933	)	$	(329	)

Losses on foreign currency translation ⁽²⁾		(198	)		(355	)
Equity method affiliates ⁽³⁾		(2	)		(8	)
Net current-period other comprehensive loss		(200	)		(363	)
Ending balance	$	(1,133	)	$	(692	)

⁽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 $11 million and $10 million, respectively.

⁽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 39 million unissued common shares available for future grants authorized under the Plans.

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 $42 million and $34 million, respectively, for the three months ended March 31, 2022 and 2021. The income tax benefit realized from share-based compensation was $4 million for the three months ended March 31, 2022, and not significant during the same period in 2021.

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 one year to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 years from the grant date. An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”).

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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		11,904		$	22.31
Exercised		(941	)		18.60
Forfeited and expired		(109	)		17.82
Options outstanding as of March 31, 2022		10,854			22.68		6.60	$	154,501
Options expected to vest as of March 31, 2022		10,802			22.69		6.60		153,600
Options exercisable as of March 31, 2022		5,594			21.68		5.50		85,179

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 no 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 one year to ten 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.

The following table summarizes the Company’s non-vested time-based restricted stock and 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 shares and share units at December 31, 2021		10,594		$	25.83
Granted		117			42.48
Vested		(180	)		30.99
Forfeited		(71	)		22.47
Non-vested shares and share units at March 31, 2022		10,460		$	25.95

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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 three 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		3,684		$	34.17
Granted		1,215			42.74
Vested		(48	)		38.72
Performance adjustments		367			34.46
Forfeited		(27	)		41.26
Non-vested share units at March 31, 2022		5,191		$	36.11

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 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.
●	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.

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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	$	1,198		$	959		$	493		$	409		$	310		$	375		$	3,744
Depreciation ⁽¹⁾	$	59		$	156		$	40		$	33		$	14		$	38		$	340
Research, development and engineering expenses ⁽²⁾	$	55		$	31		$	53		$	25		$	9		$	40		$	213
Income tax provision ⁽³⁾	$	(45	)	$	(63	)	$	(20	)	$	(20	)	$	(11	)	$	(1	)	$	(160	)
Segment net income (loss) ⁽⁴⁾	$	166		$	236		$	75		$	74		$	42		$	(8	)	$	585

											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	$	937	$	863	$	451	$	441	$	300	$	271	$	3,263
Depreciation ⁽¹⁾	$	58	$	148	$	41	$	36	$	12	$	32	$	327
Research, development and engineering expenses ⁽²⁾	$	51	$	22	$