10-Q 1 glw20220630_10q.htm FORM 10-Q glw20220630_10q.htm
0000024741 CORNING INC /NY false --12-31 Q2 2022 38 42 13,499 13,969 100 100 10 10 0 0 0.50 0.50 3.8 3.8 1.8 1.8 976 970 0.27 0.54 0.24 10,625 0.48 0 0 35 1 5 0 0 1 10 21 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. Tax effects are not significant. Income tax (provision) benefit reflects a tax rate of 21%. Refer to Note 4 (Earnings (Loss) per Common Share) and Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information. Many of Corning’s administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal, are allocated to segments, primarily as a percentage of sales. Expenses that are not allocated to the segments are included in the reconciliation of reportable segment net income (loss) to consolidated net income. Derivative assets and liabilities mainly consist of foreign exchange contracts which were measured using observable inputs for similar assets and liabilities. For the three and six months ended June 30, 2022, amounts are net of tax benefit of $27 million and $38 million, respectively. For the three and six months ended June 30, 2021, amounts are net of tax benefit of $1 million and $11 million, respectively At June 30, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $600 million and fair value hedges of leased precious metals with gross notional amounts of 23,152 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. Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations. For the three and six months ended June 30, 2021, the Preferred Stock was anti-dilutive; therefore, it was excluded from the calculation of diluted earnings (loss) per share 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 are settled against U.S. dollars. This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment. Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment. Refer to Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information. A loss of $14 million was reclassified from accumulated other comprehensive loss into other expense, net, resulting from the de-designation of certain cash flow hedges during the year ended December 31, 2020. All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive (loss) income. Research, development and engineering expenses include direct project spending that is identifiable to a segment. Denominational currencies for average rate forward contracts include the Chinese yuan and British pound. 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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 June 30, 2022

 

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: 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, $0.50 par value per share

 

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

 

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).

 

 

Yes

 

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.

 

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

 

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 July 20, 2022

 
 

Corning’s Common Stock, $0.50 par value per share

 

845,318,144 shares

 

 

© 2022 Corning Incorporated. All Rights Reserved.
1

 

 

 

 

INDEX

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1. Financial Statements

 
   

Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2022 and 2021

3

   

Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the three and six months ended June 30, 2022 and 2021

4

   

Consolidated Balance Sheets at June 30, 2022 (Unaudited) and December 31, 2021

5

   

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2022 and 2021

6

   

Consolidated Statements of Changes to Shareholders’ Equity (Unaudited) for the three and six months ended June 30, 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

24

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

44

   

Item 4. Controls and Procedures

44

   

PART II – OTHER INFORMATION

 
   

Item 1. Legal Proceedings

45

   

Item 1A. Risk Factors

45

   

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

46

   

Item 6. Exhibits

47

   

Signatures

48

 

© 2022 Corning Incorporated. All Rights Reserved.
2

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in millions, except per share amounts)

 

 

   

Three months ended

   

Six months ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net sales

  $ 3,615     $ 3,501     $ 7,295     $ 6,791  

Cost of sales

    2,369       2,186       4,766       4,320  
                                 

Gross margin

    1,246       1,315       2,529       2,471  
                                 

Operating expenses:

                               

Selling, general and administrative expenses

    486       465       920       865  

Research, development and engineering expenses

    240       242       488       464  

Amortization of purchased intangibles

    30       33       61       65  
                                 

Operating income

    490       575       1,060       1,077  
                                 

Interest income

    3       2       6       5  

Interest expense

    (72 )     (78 )     (143 )     (155 )

Translated earnings contract gain, net (Note 10)

    196       3       325       275  

Other income, net

    133       19       285       146  
                                 

Income before income taxes

    750       521       1,533       1,348  

Provision for income taxes (Note 3)

    (166 )     (67 )     (346 )     (293 )
                                 

Net income

    584       454       1,187       1,055  
                                 

Net income attributable to non-controlling interests

    (21 )     (5 )     (43 )     (7 )
                                 

Net income attributable to Corning Incorporated

  $ 563     $ 449     $ 1,144     $ 1,048  
                                 

Earnings (loss) per common share available to common shareholders:

                               

Basic (Note 4)

  $ 0.67     $ (0.42 )   $ 1.36     $ 0.27  

Diluted (Note 4)

  $ 0.66     $ (0.42 )   $ 1.33     $ 0.27  
                                 

Reconciliation of net income attributable to Corning Incorporated versus net income (loss) available to common shareholders:

                               
                                 

Net income attributable to Corning Incorporated

  $ 563     $ 449     $ 1,144     $ 1,048  
                                 

Series A convertible preferred stock dividend

                      (24 )

Excess consideration paid for redemption of preferred shares (1)

          (803 )           (803 )
                                 

Net income (loss) available to common shareholders

  $ 563     $ (354 )   $ 1,144     $ 221  

 

 

(1)

Refer to Note 4 (Earnings (Loss) per Common Share) and Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.

 

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

© 2022 Corning Incorporated. All Rights Reserved.
3

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited; in millions)

 

  

Three months ended

  

Six months ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Net income

 $584  $454  $1,187  $1,055 
                 

Foreign currency translation adjustments and other

  (650)  40   (850)  (323)

Unamortized losses and prior service costs for postretirement benefit plans

  (51)  (1)  (52)  (1)

Net unrealized (losses) gains on designated hedges

  (31)  1   (17)  12 

Other comprehensive (loss) income, net of tax

  (732)  40   (919)  (312)
                 

Comprehensive (loss) income

  (148)  494   268   743 
                 

Comprehensive income attributable to non-controlling interests

  (21)  (5)  (43)  (7)
                 

Comprehensive (loss) income attributable to Corning Incorporated

 $(169) $489  $225  $736 

 

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

 

© 2022 Corning Incorporated. All Rights Reserved.
4

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions, except share and per share amounts)

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 
         

Assets

        
         

Current assets:

        

Cash and cash equivalents

 $1,629  $2,148 

Trade accounts receivable, net of doubtful accounts - $38 and $42

  1,786   2,004 

Inventories, net (Note 5)

  2,835   2,481 

Other current assets

  1,633   1,026 

Total current assets

  7,883   7,659 
         

Property, plant and equipment, net of accumulated depreciation - $13,499 and $13,969

  15,350   15,804 

Goodwill, net

  2,389   2,421 

Other intangible assets, net

  1,088   1,148 

Deferred income taxes (Note 3)

  982   1,066 

Other assets

  2,026   2,056 
         

Total Assets

 $29,718  $30,154 
         

Liabilities and Equity

        
         

Current liabilities:

        

Current portion of long-term debt and short-term borrowings (Note 7)

 $121  $55 

Accounts payable

  1,934   1,612 

Other accrued liabilities (Note 6 and Note 9)

  3,475   3,139 

Total current liabilities

  5,530   4,806 
         

Long-term debt (Note 7)

  6,677   6,989 

Postretirement benefits other than pensions (Note 8)

  588   622 

Other liabilities (Note 6 and Note 9)

  4,941   5,192 

Total liabilities

  17,736   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

  910   907 

Additional paid-in capital – common stock

  16,590   16,475 

Retained earnings

  16,837   16,389 

Treasury stock, at cost; Shares held: 976 million and 970 million

  (20,509)  (20,263)

Accumulated other comprehensive loss

  (2,094)  (1,175)

Total Corning Incorporated shareholders’ equity

  11,734   12,333 

Non-controlling interests

  248   212 

Total equity

  11,982   12,545 
         

Total Liabilities and Equity

 $29,718  $30,154 

 

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

 

© 2022 Corning Incorporated. All Rights Reserved.
5

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

   

Six months ended

 
   

June 30,

 
   

2022

   

2021

 

Cash Flows from Operating Activities:

               

Net income

  $ 1,187     $ 1,055  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    687       666  

Amortization of purchased intangibles

    61       65  

Gain on sale of business

    (53 )     (54 )

Share-based compensation expense

    93       78  

Translation gain on Japanese yen-denominated debt

    (237 )     (123 )

Deferred tax provision

    72       56  

Translated earnings contract gain

    (325 )     (275 )

Unrealized translation losses on transactions

    77       51  

Changes in assets and liabilities:

               

Trade accounts receivable

    55       (49 )

Inventories

    (436 )     18  

Other current assets

    (77 )     (153 )

Accounts payable and other current liabilities

    209       171  

Customer deposits and government incentives

    4       56  

Deferred income

    (24 )     (60 )

Other, net

    (1 )     (8 )

Net cash provided by operating activities

    1,292       1,494  
                 

Cash Flows from Investing Activities:

               

Capital expenditures

    (736 )     (613 )

Proceeds from sale or disposal of assets

          17  

Proceeds from sale of business

    74       102  

Investment in and proceeds from unconsolidated entities, net

    (6 )     85  

Realized gains on translated earnings contract

    132       13  

Other, net

    (31 )     (19 )

Net cash used in investing activities

    (567 )     (415 )
                 

Cash Flows from Financing Activities:

               

Repayments of short-term borrowings

    (11 )     (460 )

Proceeds from issuance of long-term debt

    28        

Payment for redemption of preferred stock

    (507 )     (507 )

Payments of employee withholding tax on stock awards

    (42 )     (55 )

Proceeds from exercise of stock options

    28       82  

Purchases of common stock for treasury

    (201 )     (1 )

Dividends paid

    (462 )     (442 )

Other, net

    (11 )     (6 )

Net cash used in financing activities

    (1,178 )     (1,389 )

Effect of exchange rates on cash

    (66 )     (42 )

Net decrease in cash and cash equivalents

    (519 )     (352 )

Cash and cash equivalents at beginning of period

    2,148       2,672  

Cash and cash equivalents at end of period

  $ 1,629     $ 2,320  

 

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

 

© 2022 Corning Incorporated. All Rights Reserved.
6

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited; in millions, except per share amounts)

 

  

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 (1)

           (5)     (5)     (5)

Balance, March 31, 2022

 $908  $16,531  $16,737  $(20,419) $(1,362) $12,395  $234  $12,629 

Net income

        563         563   21   584 

Other comprehensive loss

              (732)  (732)  (2)  (734)

Purchase of common stock for treasury

           (53)     (53)     (53)

Shares issued to benefit plans and for option exercises

  2   59            61      61 

Common dividends ($0.54 per share)

        (463)        (463)     (463)

Other, net (1)

           (37)     (37)  (5)  (42)

Balance, June 30, 2022

 $910  $16,590  $16,837  $(20,509) $(2,094) $11,734  $248  $11,982 

 

  

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)

           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 

Net income

           449         449   5   454 

Other comprehensive income

                 40   40   1   41 

Redemption of preferred stock (2)

  (700)        (803)        (1,503)     (1,503)

Conversion of preferred stock to common stock (3)

  (1,600)  40   1,560                   

Purchase of common stock for treasury

              (1)     (1)     (1)

Shares issued to benefit plans and for option exercises

     3   70            73      73 

Common dividends ($0.48 per share)

           (416)        (416)     (416)

Other, net (1)

              (51)     (51)  (13)  (64)

Balance, June 30, 2021

 $  $907  $16,352  $15,739  $(19,986) $(1,052) $11,960  $182  $12,142 

 

(1) Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations.

(2)

Refer to Note 4 (Earnings (Loss) per Common Share) and Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.

(3) Refer to Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.

 

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

 

© 2022 Corning Incorporated. All Rights Reserved.
7

 

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”) for interim financial information and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). 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. The non-controlling interest as recorded in the financial statements represents the amounts attributable to the minority shareholders of Hemlock and other less-than-wholly-owned consolidated subsidiaries.

 

Certain prior year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no material 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 June 30, 2022, had a material impact on Corning’s financial statements or disclosures.

 

© 2022 Corning Incorporated. All Rights Reserved.
8

 
 

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

   

Six months ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Telecommunication products

  $ 1,313     $ 1,075     $ 2,511     $ 2,012  
                                 

Display products

    759       934       1,665       1,822  
                                 

Specialty glass products

    485       483       978       934  
                                 

Environmental substrate and filter products

    336       409       737       851  
                                 

Life science products

    304       312       611       613  
                                 

Polycrystalline silicon and all other products

    418       288       793       559  

Total revenue

  $ 3,615     $ 3,501     $ 7,295     $ 6,791  

Impact of foreign currency movements (1)

    147       3       211       (24 )

Net sales of reportable segments and Hemlock and Emerging Growth Businesses

  $ 3,762     $ 3,504     $ 7,506     $ 6,767  

 

(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 Hemlock Semiconductor Group (“Hemlock”).

 

© 2022 Corning Incorporated. All Rights Reserved.
9

 

Customer Deposits

 

As of June 30, 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 $48 million and $131 million, respectively, and $28 million and $123 million, respectively in the three and six months ended June 30, 2022 and 2021.  As of June 30, 2022 and December 31, 2021, $1 billion and $1.1 billion, respectively, were recorded as other long-term liabilities.  The remaining $190 million and $223 million, respectively, were classified as other current liabilities. 

 

Deferred Revenue

 

As of June 30, 2022 and December 31, 2021, Corning had deferred revenue of approximately $892 million and $912 million, respectively.  The deferred revenue was primarily 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 June 30, 2022 and December 31, 2021, $780 million and $764 million, respectively, were classified as long-term liabilities and $112 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

  

Six months ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Provision for income taxes

 $(166) $(67) $(346) $(293)

Effective tax rate

  22.1%  12.9%  22.6%  21.7%

 

For the three months ended June 30, 2022, the effective income tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to differences arising from foreign earnings and changes in tax reserves, partially offset by the impact of changes in tax legislation and adjustments to share-based compensation.  For the six months ended June 30, 2022, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings and changes in tax reserves, partially offset by the impact of changes in tax legislation and adjustments to share-based compensation.

 

For the three months ended June 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to excess tax benefits related to share-based compensation payments, foreign-rate differential and tax reform items. For the six months ended June 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to our permanently reinvested foreign income position, excess tax benefit related to share-based compensation payments, foreign rate differential 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 June 30, 2022 and December 31, 2021, non-current receivables of $342 million and $350 million, respectively, were recorded related to these appeals.

 

© 2022 Corning Incorporated. All Rights Reserved.
10

 

 

4. Earnings (Loss) per Common Share

 

The following table sets forth the computation of basic and diluted earnings (loss) per common share (in millions, except per share amounts):

 

   

Three months ended

   

Six months ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net income attributable to Corning Incorporated

  $ 563     $ 449     $ 1,144     $ 1,048  

Less: Series A convertible preferred stock dividend

                      24  

Less: Excess consideration paid for redemption of preferred shares

          803             803  

Net income (loss) available to common shareholders – basic

    563       (354 )     1,144       221  

Net income (loss) available to common shareholders – diluted

  $ 563     $ (354 )   $ 1,144     $ 221  
                                 

Weighted-average common shares outstanding – basic

    843       844       843       805  

Effect of dilutive securities:

                               

Employee stock options and other dilutive securities

    13             14       17  

Weighted-average common shares outstanding – diluted

    856       844       857       822  

Basic earnings (loss) per common share

  $ 0.67     $ (0.42 )   $ 1.36     $ 0.27  

Diluted earnings (loss) per common share

  $ 0.66     $ (0.42 )   $ 1.33     $ 0.27  
                                 

Anti-dilutive potential shares excluded from diluted earnings (loss) per common share:

                               

Series A convertible preferred stock (1)

          9             62  

Employee stock options and awards

    2       24       2       1  

Total

    2       33       2       63  

 

(1) For the three and six months ended June 30, 2021, the Preferred Stock was anti-dilutive; therefore, it was excluded from the calculation of diluted earnings (loss) per share


Fixed Rate Cumulative Convertible Preferred Stock, Series A


As of December 31, 2020, Corning had 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A (the “Preferred Stock”).


On January 16, 2021, the Preferred Stock became convertible into 115 million common shares, in whole or in part, at the option of the holder, Samsung Display Co., Ltd. (“SDC”). On April 5, 2021, Corning and SDC executed the Share Repurchase Agreement ("SRA").


Pursuant to the SRA, on April 8, 2021, the Preferred Stock was fully converted into 115 million common shares. The preferred shares were removed from the calculation of diluted earnings per share.


The Company repurchased 35 million of the converted common shares pursuant to the SRA and excluded them from the weighted average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share. The redemption of these common shares resulted in a reduction of retained earnings of $803 million which reduced the net income available to common shareholders and resulted in negative earnings per share in the second quarter of 2021.


The remaining 80 million common shares are outstanding and are included in the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share.


Refer to Note 12 (Shareholders’ Equity) to the consolidated financial statements for more information.

 

© 2022 Corning Incorporated. All Rights Reserved.
11

 
 

5. Inventories, Net

 

Inventories, net comprise the following (in millions):

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Finished goods

  $ 1,391     $ 1,215  

Work in process

    410       358  

Raw materials and accessories

    550       427  

Supplies and packing materials

    484       481  

Total inventories, net

  $ 2,835     $ 2,481  

 

 

6. Other Liabilities

 

Other liabilities follow (in millions):

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Current liabilities:

               

Wages and employee benefits

  $ 531     $ 824  

Income taxes

    184       196  

Derivative instruments (Note 10)

    484       144  

Deferred revenue (Note 2)

    112       148  

Customer deposits (Note 2)

    190       223  

Share repurchase liability (Note 12)

    502       506  

Short-term operating leases

    96       94  

Other current liabilities

    1,376       1,004  

Other accrued liabilities

  $ 3,475     $ 3,139  
                 

Non-current liabilities:

               

Defined benefit pension plan liabilities

  $ 716     $ 707  

Derivative instruments (Note 10)

    154       49  

Deferred revenue (Note 2)

    780       764  

Customer deposits (Note 2)

    1,003       1,072  

Share repurchase liability (Note 12)

    18       517  

Deferred tax liabilities

    206       258  

Long-term operating leases

    678       691  

Other non-current liabilities

    1,386       1,134  

Other liabilities

  $ 4,941     $ 5,192  

 

© 2022 Corning Incorporated. All Rights Reserved.
12

 

 

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 $6.4 billion and $8.3 billion at June 30, 2022 and December 31, 2021, respectively, compared to recorded book values of $6.7 billion and $7.0 billion at June 30, 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.

 

Debt Issuances and Redemptions

 

In the second quarter of 2022, Corning amended and restated its existing revolving credit agreement, which provides a committed $1.5 billion unsecured multi-currency line of credit, primarily to extend the term to 2027.  Additionally, Corning amended and restated its 25 billion Japanese yen liquidity facility, equivalent to approximately $184 million, primarily to extend the term to 2025.  As of June 30, 2022 and December 31, 2021, there were no outstanding amounts under either the amended and restated or the existing facilities, respectively.

 

In the second quarter of 2021, Corning redeemed $375 million of 2.9% debentures due in 2022, paying a premium of $10 million by exercising our make-whole call.  The bond redemption resulted in an $11 million loss during the same quarter.

 

Corning had no outstanding commercial paper as of  June 30, 2022 and December 31, 2021.

 

 

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

   

Six months ended

   

Three months ended

   

Six months ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

   

2022

   

2021

   

2022

   

2021

 

Service cost

  $ 32     $ 32     $ 64     $ 64     $ 2     $ 3     $ 4     $ 5  

Interest cost

    27       21       54       43       4       4       8       8  

Expected return on plan assets

    (54 )     (54 )     (109 )     (108 )                        

Amortization of prior service cost (credit)

    2       1       3       2       (1 )     (2 )     (2 )     (3 )

Recognition of actuarial loss (gain)

    22       10       22       10       (1 )     1       (1 )     1  

Total pension and postretirement benefit expense

  $ 29     $ 10     $ 34     $ 11     $ 4     $ 6     $ 9     $ 11  

 

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.

 

© 2022 Corning Incorporated. All Rights Reserved.
13

 

 

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  June 30, 2022 and December 31, 2021, Dow Corning had recorded a reserve for breast implant litigation of $106 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.


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 June 30, 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 designated by federal or state governments under environmental laws, including Superfund, as a potentially responsible party that may be liable for cleanup costs associated with 17 hazardous waste sites.  It is Corning’s policy to accrue for its estimated liability related to such hazardous waste 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  June 30, 2022 and December 31, 2021, Corning had accrued approximately $86 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.

 

© 2022 Corning Incorporated. All Rights Reserved.
14

 

 

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 $600 million and $780 million at June 30, 2022 and December 31, 2021, respectively, with maturities spanning the years 2022 through 2024. 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 June 30, 2022, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $44 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 $324 million and $107 million at  June 30, 2022 and December 31, 2021, respectively. 

 

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 June 30, 2022 and December 31, 2021 (in billions):

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Average rate forward contracts:

               

Japanese yen-denominated

  $ 1.7     $ 2.9  

South Korean won-denominated

    2.2       1.2  

Euro-denominated

    0.1       0.2  

Other foreign currencies (1)

    0.4       0.1  

Option contracts:

               

Japanese yen-denominated (2)

    4.7       3.6  

Other foreign currencies (3)

          0.9  

Total gross notional value for translated earning contracts

  $ 9.1     $ 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 are settled against U.S. dollars.

 

© 2022 Corning Incorporated. All Rights Reserved.
15

 

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for June 30, 2022 and December 31, 2021 (in millions):