10-Q 1 glw20230930_10q.htm FORM 10-Q glw20230930_10q.htm
0000024741 CORNING INC /NY false --12-31 Q3 2023 30 40 14,257 14,147 0.50 0.50 3.8 3.8 1.8 1.8 980 977 0.28 0.56 0.27 0.54 21 21 300 550 0 850 850 507 0 0 5 5 5 21 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. Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment. Tax effects are not significant. For the three and nine months ended September 30, 2023, the amount recorded in cost of sales in the consolidated statements of income was $10 million and $51 million, respectively. For the three and nine months ended September 30, 2022, the amount recorded in cost of sales in the consolidated statements was not material. 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 nine months ended September 30, 2023, the amount recorded in cost of sales in the consolidated statements of income was $53 million and $145 million, respectively. The activity primarily related to asset write-offs during the period. For the three and nine months ended September 30, 2022, the amount recorded in cost of sales in the consolidated statements of income was $124 million and $192 million, respectively. The activity primarily related to capacity optimization of an emerging growth business. Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations. As of September 30, 2023 and December 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with total notional amounts of $301 million and $419 million, respectively, and fair value hedges of leased precious metals with total notional amounts of 21,652 troy ounces and 23,152 troy ounces, respectively. Income tax provision reflects a tax rate of 21%. This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment. All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive (loss) income. Denominational currencies for other average rate forward contracts include the Chinese yuan, New Taiwan dollar, and British pound. Research, development and engineering expenses include direct project spending that is identifiable to a segment. For the three and nine months ended September 30, 2023, amounts are net of tax benefit of $14 million and $33 million, respectively. For the three and nine months ended September 30, 2022, amounts are net of tax benefit of $49 million and $87 million, respectively. Amount does not include research, development, and engineering expense related to restructuring, impairment and other charges and credits. 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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 September 30, 2023

 

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

3.875% Notes due 2026 GLW26 New York Stock Exchange
4.125% Notes due 2031 GLW31 New York Stock Exchange

 

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.        ☐

 

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 October 26, 2023

 
 

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

 

853,174,879 shares

 

 

 

 

 

 

INDEX

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1. Financial Statements

 
   

Consolidated Statements of Income

3

   

Consolidated Statements of Comprehensive (Loss) Income

4

   

Consolidated Balance Sheets

5

   

Consolidated Statements of Cash Flows

6

   

Consolidated Statements of Changes in Shareholders’ Equity

7

   

Notes to Consolidated Financial Statements

8

   

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

22

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

39

   

Item 4. Controls and Procedures

39

   

PART II – OTHER INFORMATION

 
   

Item 1. Legal Proceedings

40

   

Item 1A. Risk Factors

40

   

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

41

   
Item 5. Other Information 41
   

Item 6. Exhibits

42

   

Signatures

43

 

 

 

Consolidated Statements of Income Corning Incorporated and Subsidiary Companies
(Unaudited; in millions, except per share amounts)  

 

    Three months ended     Nine months ended  
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net sales

  $ 3,173     $ 3,488     $ 9,594     $ 10,783  

Cost of sales

    2,169       2,426       6,574       7,192  
                                 

Gross margin

    1,004       1,062       3,020       3,591  
                                 

Operating expenses:

                               

Selling, general and administrative expenses

    468       461       1,329       1,381  

Research, development and engineering expenses

    270       278       787       766  

Amortization of purchased intangibles

    30       31       92       92  
                                 

Operating income

    236       292       812       1,352  
                                 

Interest income

    10       3       25       9  

Interest expense

    (82 )     (73 )     (239 )     (216 )

Translated earnings contract gain (loss), net (Note 10)

    20       (68 )     128       257  

Other income, net

    33       106       128       391  
                                 

Income before income taxes

    217       260       854       1,793  

Provision for income taxes (Note 3)

    (35 )     (34 )     (178 )     (380 )
                                 

Net income

    182       226       676       1,413  
                                 

Net income attributable to non-controlling interest

    (18 )     (18 )     (55 )     (61 )
                                 

Net income attributable to Corning Incorporated

  $ 164     $ 208     $ 621     $ 1,352  
                                 

Earnings per common share available to common shareholders:

                               

Basic (Note 4)

  $ 0.19     $ 0.25     $ 0.73     $ 1.60  

Diluted (Note 4)

  $ 0.19     $ 0.24     $ 0.72     $ 1.58  

 

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

 

 

Consolidated Statements of Comprehensive (Loss) Income Corning Incorporated and Subsidiary Companies
(Unaudited; in millions)  

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net income

  $ 182     $ 226     $ 676     $ 1,413  
                                 

Foreign currency translation adjustments and other

    (191 )     (685 )     (593 )     (1,535 )

Unamortized (losses) gains and prior service costs for postretirement benefit plans

    (1 )     3       (9 )     (49 )

Realized and unrealized (losses) gains on derivatives

    (11 )     (15 )     30       (32 )

Other comprehensive loss, net of tax

    (203 )     (697 )     (572 )     (1,616 )
                                 

Comprehensive (loss) income

    (21 )     (471 )     104       (203 )
                                 

Comprehensive income attributable to non-controlling interest

    (18 )     (18 )     (55 )     (61 )
                                 

Comprehensive (loss) income attributable to Corning Incorporated

  $ (39 )   $ (489 )   $ 49     $ (264 )

 

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

 

 

 

Consolidated Balance Sheets Corning Incorporated and Subsidiary Companies
(Unaudited; in millions, except share and per share amounts)  

 

  

September 30,

  

December 31,

 
  2023  2022 

Assets

        
         

Current assets:

        

Cash and cash equivalents

 $1,639  $1,671 

Trade accounts receivable, net of doubtful accounts - $30 and $40

  1,725   1,721 

Inventories (Note 5)

  2,655   2,904 

Other current assets

  1,279   1,157 

Total current assets

  7,298   7,453 
         

Property, plant and equipment, net of accumulated depreciation - $14,257 and $14,147

  14,407   15,371 

Goodwill, net

  2,372   2,394 

Other intangible assets, net

  938   1,029 

Deferred income taxes (Note 3)

  1,037   1,073 

Other assets

  2,226   2,179 
         

Total Assets

 $28,278  $29,499 
         

Liabilities and Equity

        
         

Current liabilities:

        

Current portion of long-term debt and short-term borrowings

 $297  $224 

Accounts payable

  1,459   1,804 

Other accrued liabilities (Notes 6 and 9)

  2,529   3,147 

Total current liabilities

  4,285   5,175 
         

Long-term debt (Note 7)

  7,210   6,687 

Postretirement benefits other than pensions (Note 8)

  406   407 

Other liabilities (Notes 6 and 9)

  4,633   4,955 

Total liabilities

  16,534   17,224 
         

Commitments and contingencies (Note 9)

          

Shareholders’ equity (Note 12):

        

Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1.8 billion and 1.8 billion

  915   910 

Additional paid-in capital – common stock

  16,877   16,682 

Retained earnings

  16,673   16,778 

Treasury stock, at cost; Shares held: 980 million and 977 million

  (20,633)  (20,532)

Accumulated other comprehensive loss

  (2,402)  (1,830)

Total Corning Incorporated shareholders’ equity

  11,430   12,008 

Non-controlling interest

  314   267 

Total equity

  11,744   12,275 
         

Total Liabilities and Equity

 $28,278  $29,499 

 

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

 

 

 

Consolidated Statements of Cash Flows Corning Incorporated and Subsidiary Companies
(Unaudited; in millions)  

 

  

Nine months ended

 
  

September 30,

 
  

2023

  

2022

 

Cash Flows from Operating Activities:

        

Net income

 $676  $1,413 

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

        

Depreciation

  932   1,014 

Amortization of purchased intangibles

  92   92 

Loss on disposal of assets, net

  72   110 

Severance charges

  86   8 

Severance payments

  (82)  (5)

Gain on sale of business

     (53)

Share-based compensation expense

  168   145 

Translation gain on Japanese yen-denominated debt

  (162)  (321)

Deferred tax provision

  37   58 

Translated earnings contract gain, net

  (128)  (257)

Unrealized translation loss on transactions

  58   140 

Tax deposit refund

  99    

Changes in assets and liabilities:

        

Trade accounts receivable

  (137)  161 

Inventories

  131   (637)

Other current assets

  (58)  (5)

Accounts payable and other current liabilities

  (263)  25 

Customer deposits and government incentives

  (17)  144 

Deferred income

  (11)  (15)

Other, net

  (201)  (19)

Net cash provided by operating activities

  1,292   1,998 
         

Cash Flows from Investing Activities:

        

Capital expenditures

  (1,111)  (1,201)

Proceeds from sale of equipment to related party

  67    

Proceeds from sale of business

     77 

Realized gains on translated earnings contracts and other

  270   209 

Other, net

  4   (54)

Net cash used in investing activities

  (770)  (969)
         

Cash Flows from Financing Activities:

        

Repayments of short-term borrowings and other long-term debt

  (180)  (87)

Proceeds from issuance of short-term borrowings

  30   70 

Proceeds from issuance of euro bonds and other long-term debt

  968   37 

Proceeds from other financing arrangements

  54    

Repayment of other financing arrangements

  (54)   

Payment for redemption of preferred stock

  (507)  (507)

Payments of employee withholding tax on stock awards

  (103)  (44)

Proceeds from exercise of stock options

  39   35 

Purchases of common stock for treasury

     (221)

Dividends paid

  (741)  (696)

Other, net

  (26)  (17)

Net cash used in financing activities

  (520)  (1,430)

Effect of exchange rates on cash

  (34)  (117)

Net decrease in cash and cash equivalents

  (32)  (518)

Cash and cash equivalents at beginning of period

  1,671   2,148 

Cash and cash equivalents at end of period

 $1,639  $1,630 

 

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

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity Corning Incorporated and Subsidiary Companies
(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 interest

  

Total

 

Balance as of December 31, 2022

 $910  $16,682  $16,778  $(20,532) $(1,830) $12,008  $267  $12,275 

Net income

          176           176   15   191 

Other comprehensive loss

                  (67)  (67)      (67)

Shares issued to benefit plans and for option exercises

  1   64               65       65 

Common dividends ($0.28 per share)

          (241)          (241)      (241)

Other, net (1)

              (16)      (16)      (16)

Balance as of March 31, 2023

 $911  $16,746  $16,713  $(20,548) $(1,897) $11,925  $282  $12,207 

Net income

        281         281   22   303 

Other comprehensive loss

              (302)  (302)  (1)  (303)

Shares issued to benefit plans and for option exercises

  4   71            75      75 

Common dividends ($0.56 per share)

        (485)        (485)     (485)

Other, net (1)

           (82)     (82)  (5)  (87)

Balance as of June 30, 2023

 $915  $16,817  $16,509  $(20,630) $(2,199) $11,412  $298  $11,710 

Net income

        164         164   18   182 

Other comprehensive loss

              (203)  (203)  (1)  (204)

Shares issued to benefit plans and for option exercises

     60            60      60 

Other, net (1)

           (3)     (3)  (1)  (4)

Balance, September 30, 2023

 $915  $16,877  $16,673  $(20,633) $(2,402) $11,430  $314  $11,744 

 

  

Common stock

  

Additional paid-in capital common

  

Retained earnings

  

Treasury stock

  

Accumulated other comprehensive loss

  

Total Corning Incorporated shareholders' equity

  

Non-controlling interest

  

Total

 

Balance as of 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 as of 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 as of June 30, 2022

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

Net income

        208         208   18   226 

Other comprehensive loss

              (697)  (697)  (2)  (699)

Purchase of common stock for treasury

           (17)     (17)     (17)

Shares issued to benefit plans and for option exercises

     59            59      59 

Other, net (1)

        (1)  (2)     (3)     (3)

Balance, September 30, 2022

 $910  $16,649  $17,044  $(20,528) $(2,791) $11,284  $264  $11,548 

 

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

 

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

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and its subsidiary companies.

 

The consolidated financial statements include the consolidated accounts of Corning Incorporated and its subsidiaries consolidated in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the periods presented. All intercompany accounts, transactions and profits have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The results of operations for the 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 in the consolidated financial statements and related notes. Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. 

 

The non-controlling interest as recorded in the consolidated financial statements represents amounts attributable to the minority shareholders of Hemlock Semiconductor Group (“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.

 

 

2. Revenue

 

Disaggregated Revenue

 

The following table presents revenues by product category (in millions):

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Telecommunication products

  $ 918     $ 1,317     $ 3,109     $ 3,828  

Display products

    727       558       2,061       2,223  

Specialty glass products

    560       516       1,384       1,494  

Environmental substrate and filter products

    420       393       1,260       1,130  

Life science products

    221       297       690       908  

Polycrystalline silicon products

    230       288       765       877  

All other products

    97       119       325       323  

Total revenue

  $ 3,173     $ 3,488     $ 9,594     $ 10,783  

 

8

 

Customer Deposits

 

As of September 30, 2023 and December 31, 2022, 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 delivered to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability.

 

For the three months ended  September 30, 2023 and 2022, customer deposits recognized were $6 million and $24 million, respectively.  For the nine months ended September 30, 2023 and 2022, customer deposits recognized were $88 million and $155 million, respectively.

 

Refer to Note 6 (Other Liabilities) for additional information. 

 

Deferred Revenue

 

As of September 30, 2023 and December 31, 2022, Corning had deferred revenue of approximately $854 million and $869 million, respectively.  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.  

 

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 delivered compared to the remaining contractual units.  For the three and nine months ended  September 30, 2023 and 2022, the amount of deferred revenue recognized in the consolidated statements of income was not material.

 

Refer to Note 6 (Other Liabilities) for additional information.  

  

 

3. Income Taxes

 

The following table presents the provision for income taxes and the related effective tax rate (in millions, except percentages):

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Provision for income taxes

  $ (35 )   $ (34 )   $ (178 )   $ (380 )

Effective tax rate

    16.1 %     13.1 %     20.8 %     21.2 %

 

For the three months ended  September 30, 2023, the effective tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to differences arising from foreign earnings partially offset by changes in estimates based on the final 2022 U.S. Federal Income Tax Return.  For the nine months ended September 30, 2023, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings, changes in estimates based on the final 2022 U.S. Federal Income Tax Return and adjustments related to share-based compensation, partially offset by changes in valuation allowance assessments.

 

For the three months ended September 30, 2022, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to the net impact of changes in tax legislation and changes in estimates based on the final 2021 U.S. Federal Income Tax Return, partially offset by changes in tax reserves.  For the nine months ended September 30, 2022, the effective 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 net impact of changes in tax legislation, changes in estimates based on the final 2021 U.S. Federal Income Tax Return and adjustments related to share-based compensation.

 

Corning Precision Materials, a South Korean subsidiary, is currently appealing certain tax assessments and tax refund claims for tax years 2010 through 2019. The Company was required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessment. During the second quarter of 2023, $99 million was no longer under dispute and was refunded to the Company. The non-current receivable balance was $255 million and $349 million as of September 30, 2023 and December 31, 2022, respectively, for the amount on deposit with the South Korean government.  Corning believes that it is more likely than not the Company will prevail in the appeals process relating to these matters.

 

9

 
 

4. Earnings Per Common Share

 

The following table presents the reconciliation of the amounts used to compute basic and diluted earnings per common share (in millions, except per share amounts):

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Net income attributable to Corning Incorporated

 $164  $208  $621  $1,352 
                 

Weighted-average common shares outstanding – basic

  850   843   848   843 

Effect of dilutive securities:

                

Stock options and other awards

  9   12   10   14 

Weighted-average common shares outstanding – diluted

  859   855   858   857 

Basic earnings per common share

 $0.19  $0.25  $0.73  $1.60 

Diluted earnings per common share

 $0.19  $0.24  $0.72  $1.58 
                 

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

                

Stock options and other awards

  3   3   3   2 

 

 

5. Inventories

 

Inventories consisted of the following (in millions):

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Finished goods

  $ 1,226     $ 1,315  

Work in process

    513       571  

Raw materials and accessories

    479       537  

Supplies and packing materials

    437       481  

Inventories

  $ 2,655     $ 2,904  

 

10

 
 

6. Other Liabilities

 

Other liabilities consisted of the following (in millions):

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Current liabilities:

               

Wages and employee benefits

  $ 505     $ 727  

Income taxes

    125       127  

Derivative instruments (Note 10)

    150       174  

Deferred revenue (Note 2)

    185       144  

Customer deposits (Note 2)

    162       132  

Share repurchase liability (Note 12)

          506  

Short-term operating leases

    108       111  

Other current liabilities

    1,294       1,226  

Other accrued liabilities

  $ 2,529     $ 3,147  
                 

Non-current liabilities:

               

Defined benefit pension plan liabilities

  $ 685     $ 668  

Derivative instruments (Note 10)

    65       17  

Deferred revenue (Note 2)

    669       725  

Customer deposits (Note 2)

    1,044       1,137  

Deferred tax liabilities

    201       243  

Long-term operating leases

    842       795  

Other non-current liabilities

    1,127       1,370  

Other liabilities

  $ 4,633     $ 4,955  

 

 

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 $6.5 billion and $6.1 billion as of  September 30, 2023 and December 31, 2022, respectively, compared to the carrying value of $7.2 billion and $6.7 billion as of  September 30, 2023 and December 31, 2022, 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.

 

On May 15, 2023, the Company issued €300 million 3.875% Notes due 2026 (“2026 Notes”) and €550 million 4.125% Notes due 2031 (“2031 Notes”). The proceeds from the 2026 Notes and 2031 Notes were received in euros and converted to U.S. dollars on the date of issuance.  The net proceeds received were approximately $918 million and will be used for general corporate purposes. As of September 30, 2023, the U.S. dollar equivalent carrying value of the euro-denominated long-term debt was $892 million.


The full amounts of the 2026 Notes and 2031 Notes have been designated as net investment hedges against our investments in certain European subsidiaries with euro functional currencies.  Refer to Note 10 (Hedging Activities) for additional information.

 

Corning had no outstanding commercial paper as of September 30, 2023 or December 31, 2022.

 

11

 
 

8. Employee Retirement Plans

 

Corning has defined benefit pension plans covering certain domestic and international employees. The Company may contribute, as necessary, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During 2023, the Company made cash contributions of $25 million to its international pension plans.  The Company does not expect to make additional contributions in the fourth quarter of 2023.

 

The following table presents the components of net periodic benefit expense (income) for employee retirement plans, which other than the service cost component is recorded in other income, net in the consolidated statements of income (in millions):

 

   

Pension benefits

   

Postretirement benefits

 
   

Three months ended

   

Nine months ended

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

   

2023

   

2022

   

2023

   

2022

 

Service cost

  $ 25     $ 32     $ 75     $ 96     $ 1     $ 3     $ 4     $ 7  

Interest cost

    45       28       133       82       6       3       17       11  

Expected return on plan assets

    (46 )     (55 )     (138 )     (164 )                        

Amortization of actuarial net gain

                            (6 )           (17 )      

Amortization of prior service cost (credit)

    2       1       5       4       (2 )     (2 )     (4 )     (4 )

Recognition of actuarial loss (gain)

    12             (16 )     22             (2 )           (3 )

Special termination benefit charge

                5                                

Total pension and postretirement benefit expense (income)

  $ 38     $ 6     $ 64     $ 40     $ (1 )   $ 2     $     $ 11  

 

 

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 The Dow Chemical Company (“Dow”) each owned 50% of the common stock of Dow Corning Corporation (“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 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. Corning does not believe that its indemnity obligation will 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 September 30, 2023, 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 19 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  September 30, 2023 and December 31, 2022, Corning had accrued approximately $90 million and $109 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.

 

12

 
 

10. Hedging Activities

 

Designated Hedges

 

Corning uses over-the-counter (“OTC”) foreign exchange forward contracts designated 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 notional amounts for foreign currency cash flow hedges are $301 million and $419 million as of  September 30, 2023 and December 31, 2022, respectively, with maturities through 2024. Corning defers gains and losses related to cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. As of  September 30, 2023, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $43 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 loss and earnings is not material. The carrying amount of the leased precious metals pool, which is included within property, plant and equipment, net of accumulated depreciation in the consolidated balance sheets, is $89 million and $278 million, respectively, as of  September 30, 2023 and December 31, 2022. The carrying amount of the leased precious metals pool includes cumulative fair value losses of $261 million and $95 million as of  September 30, 2023 and December 31, 2022, respectively. These losses are offset by changes in the fair value of the derivatives.

 

Net Investment Hedges

 

In May 2023, the Company designated the full amount of its 2026 Notes and 2031 Notes with a total notional amount of €850 million, which are non-derivative financial instruments, as net investment hedges against our investments in certain European subsidiaries with euro functional currencies. Changes in the value of these hedging instruments due to foreign currency gains or losses are deferred in other comprehensive loss on the consolidated statements of comprehensive (loss) income, within the foreign currency translation adjustments and other line, and will remain in accumulated other comprehensive loss until the hedged investment is sold or substantially liquidated. We evaluate the effectiveness of the net investment hedges each quarter using the critical terms match method.  As of  September 30, 2023, the net investment hedges are deemed to be effective.  During the three and nine months ended September 30, 2023, foreign currency gains of $29 million and $36 million, respectively, associated with these net investment hedges were recognized in other comprehensive loss.

 

Refer to Note 7 (Debt) for additional information.

 

Undesignated Hedges

 

Corning uses OTC foreign exchange forward and option contracts to offset economic currency risks. These contracts are not designated as hedging instruments for accounting purposes. The undesignated hedges limit exposure to foreign 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 expenses are translated 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 and South Korean won. The Company has contracts through 2024 for the Japanese yen and 2026 for the South Korean won.

 

The fair values of these derivative contracts are recorded as either assets (gain position) or liabilities (loss position) on the consolidated balance sheets. Changes in the fair value of the derivative contracts are recorded in earnings within translated earnings contract gain (loss), net in the consolidated statements of income.

 

13

 

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis as of  September 30, 2023 and December 31, 2022 (in millions):

 

                 

Asset derivatives

 

Liability derivatives

 
   

Notional amount

 

Balance

 

Fair value

 

Balance

 

Fair value

 
   

September

   

December

 

sheet

 

September

   

December

 

sheet

 

September

   

December

 
    30, 2023     31, 2022  

location

  30, 2023     31, 2022  

location

  30, 2023     31, 2022  

Derivatives designated as hedging instruments (1)

                                                   

Foreign exchange and precious metals lease contracts (2)

  $ 301     $ 419  

Other current assets

  $ 165     $ 26  

Other accrued liabilities

        $ (1 )
                 

Other assets

    139       78                    
                                                     

Derivatives not designated as hedging instruments

                                                   

Foreign exchange contracts

    1,486       2,231  

Other current assets

    18       44  

Other accrued liabilities

  $ (23 )     (49 )

Translated earnings contracts

    5,128       7,543  

Other current assets

    380       384  

Other accrued liabilities

    (127 )     (124 )
                 

Other assets

    71       146  

Other liabilities

    (65 )     (17 )

Total derivatives

  $ 6,915     $ 10,193       $ 773     $ 678       $ (215 )   $ (191 )