10-Q 1 glw20220930_10q.htm FORM 10-Q glw20220930_10q.htm
0000024741 CORNING INC /NY false --12-31 Q3 2022 39 42 13,348 13,969 0.50 0.50 3.8 3.8 1.8 1.8 977 970 0.27 0.54 0.24 10,625 0.48 0 1.3 1.1 0 0 0 507 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. Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations. For the three and nine months ended September 30, 2022, amounts are net of tax benefit of $49 million and $87 million, respectively. For the three and nine months ended September 30, 2021, amounts are net of tax benefit of $31 million and $42 million, respectively. 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. For the nine months ended September 30, 2021, the Preferred Stock was anti-dilutive; therefore, it was excluded from the calculation of diluted earnings per share. 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. Denominational currencies for other average rate forward contracts include the Chinese yuan, New Taiwan dollar, and British pound. At September 30, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $578 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. Research, development and engineering expenses include direct project spending that is identifiable to a segment. Amount does not include research, development, and engineering expense related to restructuring, impairment and other charges and credits. Refer to Note 2 (Restructuring, Impairment and Other Charges and Credits) to the consolidated financial statements for additional information on activities. 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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, 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 October 21, 2022

 
 

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

 

845,811,376 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

23

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

41

   

Item 4. Controls and Procedures

41

   

PART II – OTHER INFORMATION

 
   

Item 1. Legal Proceedings

42

   

Item 1A. Risk Factors

42

   

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

43

   

Item 6. Exhibits

44

   

Signatures

45

 

 

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in millions, except per share amounts)

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Net sales

 $3,488  $3,615  $10,783  $10,406 

Cost of sales

  2,426   2,294   7,192   6,614 
                 

Gross margin

  1,062   1,321   3,591   3,792 
                 

Operating expenses:

                

Selling, general and administrative expenses

  461   486   1,381   1,351 

Research, development and engineering expenses

  278   251   766   715 

Amortization of purchased intangibles

  31   32   92   97 
                 

Operating income

  292   552   1,352   1,629 
                 

Interest income

  3   3   9   8 

Interest expense

  (73)  (72)  (216)  (227)

Translated earnings contract (loss) gain, net (Note 11)

  (68)  (13)  257   262 

Other income, net

  106   23   391   169 
                 

Income before income taxes

  260   493   1,793   1,841 

Provision for income taxes (Note 4)

  (34)  (109)  (380)  (402)
                 

Net income

  226   384   1,413   1,439 
                 

Net income attributable to non-controlling interests

  (18)  (13)  (61)  (20)
                 

Net income attributable to Corning Incorporated

 $208  $371  $1,352  $1,419 
                 

Earnings per common share available to common shareholders:

                

Basic (Note 5)

 $0.25  $0.44  $1.60  $0.72 

Diluted (Note 5)

 $0.24  $0.43  $1.58  $0.71 
                 

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

                
                 

Net income attributable to Corning Incorporated

 $208  $371  $1,352  $1,419 
                 

Series A convertible preferred stock dividend

             (24)

Excess consideration paid for redemption of preferred shares (1)

             (803)
                 

Net income available to common shareholders

 $208  $371  $1,352  $592 

 

(1)

Refer to Note 5 (Earnings per Common Share) and Note 13 (Shareholders’ Equity) to the consolidated financial statements for additional information.

 

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

 

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited; in millions)

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net income

  $ 226     $ 384     $ 1,413     $ 1,439  
                                 

Foreign currency translation adjustments and other

    (685 )     (192 )     (1,535 )     (515 )

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

    3             (49 )     (1 )

Net unrealized losses on designated hedges

    (15 )     (15 )     (32 )     (3 )

Other comprehensive loss, net of tax

    (697 )     (207 )     (1,616 )     (519 )
                                 

Comprehensive (loss) income

    (471 )     177       (203 )     920  
                                 

Comprehensive income attributable to non-controlling interests

    (18 )     (13 )     (61 )     (20 )
                                 

Comprehensive (loss) income attributable to Corning Incorporated

  $ (489 )   $ 164     $ (264 )   $ 900  

 

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

 

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

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

 

  

September 30,

  

December 31,

 
  

2022

  

2021

 

Assets

        
         

Current assets:

        

Cash and cash equivalents

 $1,630  $2,148 

Trade accounts receivable, net of doubtful accounts - $39 and $42

  1,620   2,004 

Inventories, net (Note 6)

  2,951   2,481 

Other current assets

  1,603   1,026 

Total current assets

  7,804   7,659 
         

Property, plant and equipment, net of accumulated depreciation - $13,348 and $13,969

  14,645   15,804 

Goodwill, net

  2,368   2,421 

Other intangible assets, net

  1,049   1,148 

Deferred income taxes (Note 4)

  998   1,066 

Other assets

  1,871   2,056 
         

Total Assets

 $28,735  $30,154 
         

Liabilities and Equity

        
         

Current liabilities:

        

Current portion of long-term debt and short-term borrowings (Note 8)

 $208  $55 

Accounts payable

  1,808   1,612 

Other accrued liabilities (Note 7 and Note 10)

  3,151   3,139 

Total current liabilities

  5,167   4,806 
         

Long-term debt (Note 8)

  6,525   6,989 

Postretirement benefits other than pensions (Note 9)

  585   622 

Other liabilities (Note 7 and Note 10)

  4,910   5,192 

Total liabilities

  17,187   17,609 
         

Commitments and contingencies (Note 10)

          

Shareholders’ equity (Note 13):

        

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

  16,649   16,475 

Retained earnings

  17,044   16,389 

Treasury stock, at cost; Shares held: 977 million and 970 million

  (20,528)  (20,263)

Accumulated other comprehensive loss

  (2,791)  (1,175)

Total Corning Incorporated shareholders’ equity

  11,284   12,333 

Non-controlling interests

  264   212 

Total equity

  11,548   12,545 
         

Total Liabilities and Equity

 $28,735  $30,154 

 

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

 

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

  

Nine months ended

 
  

September 30,

 
  

2022

  

2021

 

Cash Flows from Operating Activities:

        

Net income

 $1,413  $1,439 

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

        

Depreciation

  1,014   1,005 

Amortization of purchased intangibles

  92   97 

Loss on disposal of assets

  110   8 

Gain on sale of business

  (53)  (54)

Share-based compensation expense

  145   117 

Translation gain on Japanese yen-denominated debt

  (321)  (127)

Deferred tax provision

  58   68 

Translated earnings contract gain

  (257)  (262)

Unrealized translation losses on transactions

  140   65 

Changes in assets and liabilities:

        

Trade accounts receivable

  161   (146)

Inventories

  (637)  (72)

Other current assets

  (5)  (210)

Accounts payable and other current liabilities

  25   471 

Customer deposits and government incentives

  144   62 

Deferred income

  (15)  (92)

Other, net

  (16)  20 

Net cash provided by operating activities

  1,998   2,389 
         

Cash Flows from Investing Activities:

        

Capital expenditures

  (1,201)  (1,014)

Proceeds from sale of business

  77   102 

Investment in and proceeds from unconsolidated entities, net

  (10)  87 

Realized gains on translated earnings contract

  209   30 

Other, net

  (44)  (8)

Net cash used in investing activities

  (969)  (803)
         

Cash Flows from Financing Activities:

        

Repayments of short-term borrowings

  (87)  (144)

Repayments of long-term debt

     (716)

Proceeds from issuance of short-term debt

  70    

Proceeds from issuance of long-term debt

  37   19 

Payment for redemption of preferred stock

  (507)  (507)

Payments of employee withholding tax on stock awards

  (44)  (57)

Proceeds from exercise of stock options

  35   91 

Purchases of common stock for treasury

  (221)  (22)

Dividends paid

  (696)  (659)

Other, net

  (17)  5 

Net cash used in financing activities

  (1,430)  (1,990)

Effect of exchange rates on cash

  (117)  (56)

Net decrease in cash and cash equivalents

  (518)  (460)

Cash and cash equivalents at beginning of period

  2,148   2,672 

Cash and cash equivalents at end of period

 $1,630  $2,212 

 

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

 

 

 

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 

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 

 

  

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 

Net income

           371         371   13   384 

Other comprehensive loss

                 (207)  (207)  (1)  (208)

Purchase of common stock for treasury

              (24)     (24)     (24)

Shares issued to benefit plans and for option exercises

        46            46      46 

Other, net (1)

              (1)     (1)  16   15 

Balance, September 30, 2021

 $  $907  $16,398  $16,110  $(20,011) $(1,259) $12,145  $210  $12,355 

 

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

(2)

Refer to Note 5 (Earnings per Common Share) and Note 13 (Shareholders’ Equity) to the consolidated financial statements for additional information.

(3) Refer to Note 13 (Shareholders’ Equity) to the consolidated financial statements for additional information.

 

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

 

 

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 interests as recorded in the consolidated financial statements represent 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.

 

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 financial position or results of operations.

 

 

2. Restructuring, Impairment, and Other Charges and Credits

 

During the three and nine months ended  September 30, 2022, we recorded $138 million and $217 million, respectively, in accelerated depreciation, asset write-offs and other related charges, of which $125 million and $193 million, respectively, were reflected in cost of sales in the consolidated statements of income.  The activity primarily related to capacity optimization of an emerging growth business.

 

There were no material restructuring, impairment and other charges and credits for the three and nine months ended September 30, 2021.

 

8

 
 

3. 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 the point in time when control transfers to the customer.

 

Revenues by product category were as follows (in millions):

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Telecommunication products

 $1,317  $1,131  $3,828  $3,143 
                 

Display products

  558   936   2,223   2,758 
                 

Specialty glass products

  516   556   1,494   1,490 
                 

Environmental substrate and filter products

  393   382   1,130   1,233 
                 

Life science products

  297   304   908   917 
                 

Polycrystalline silicon and all other products

  407   306   1,200   865 

Total net sales

 $3,488  $3,615  $10,783  $10,406 

Impact of constant currency reporting (1)

  178   24   389    

Net sales of reportable segments and Hemlock and Emerging Growth Businesses

 $3,666  $3,639  $11,172  $10,406 

 

(1)This amount represents the impact of foreign currency adjustments primarily in the Display Technologies segment. Refer to Note 15 (Reportable Segments) 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 customer deposits, deferred revenue and other advance payments. Customer deposits are predominately related to Display products and deferred revenue is predominately related to Hemlock. Other advance payments are not significant to operations and are classified as part of other accrued liabilities in the consolidated financial statements. 

 

9

 

Customer Deposits

 

As of September 30, 2022 and December 31, 2021, Corning had customer deposits of approximately $1.3 billion.  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 $24 million and $155 million for the three and nine months ended September 30, 2022, respectively, and $59 million and $182 million for the three and nine months ended September 30, 2021, respectively.  As of September 30, 2022 and December 31, 2021, $1.1 billion were classified as other long-term liabilities.  The remaining $166 million and $223 million as of September 30, 2022 and December 31, 2021, respectively, were classified as other accrued liabilities. 

 

Deferred Revenue

 

As of September 30, 2022 and December 31, 2021, Corning had deferred revenue of approximately $902 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 September 30, 2022 and December 31, 2021, $732 million and $764 million, respectively, were classified as other long-term liabilities and $170 million and $148 million, respectively, were classified as other accrued liabilities.  

 

 

4. Income Taxes

 

The provision for income taxes and the related effective income tax rates were as follows (in millions):

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Provision for income taxes

  $ (34 )   $ (109 )   $ (380 )   $ (402 )

Effective tax rate

    13.1 %     22.1 %     21.2 %     21.8 %

 

For the three months ended September 30, 2022, the effective income tax rate differed from the United States (“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 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 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.

 

For the three months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to non-deductible expenses for tax purposes, foreign rate differential, and tax reform items.  For the nine months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an adjustment to the permanently reinvested foreign income position, excess tax benefit related to share-based compensation payments, foreign rate differential, and tax reform items related to The Tax Cuts and Jobs Act of 2017.

 

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 September 30, 2022 and December 31, 2021, non-current receivables of $322 million and $350 million, respectively, were recorded related to these appeals.

 

10

 
 

5. 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

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net income attributable to Corning Incorporated

  $ 208     $ 371     $ 1,352     $ 1,419  

Less: Series A convertible preferred stock dividend

                            24  

Less: Excess consideration paid for redemption of preferred shares

                            803  

Net income available to common shareholders – basic

    208       371       1,352       592  

Net income available to common shareholders – diluted

  $ 208     $ 371     $ 1,352     $ 592  
                                 

Weighted-average common shares outstanding – basic

    843       852       843       821  

Effect of dilutive securities:

                               

Employee stock options and other dilutive securities

    12       14       14       16  

Weighted-average common shares outstanding – diluted

    855       866       857       837  

Basic earnings per common share

  $ 0.25     $ 0.44     $ 1.60     $ 0.72  

Diluted earnings per common share

  $ 0.24     $ 0.43     $ 1.58     $ 0.71  
                                 

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

                               

Series A convertible preferred stock (1)

                            41  

Employee stock options and awards

    3               2          

Total

    3             2       41  

 

(1) For the nine months ended September 30, 2021, the Preferred Stock was anti-dilutive; therefore, it was excluded from the calculation of diluted earnings 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. 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 13 (Shareholders’ Equity) to the consolidated financial statements for more information.

 

11

 
 

6. Inventories, Net

 

Inventories, net were as follows (in millions):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Finished goods

  $ 1,394     $ 1,215  

Work in process

    507       358  

Raw materials and accessories

    571       427  

Supplies and packing materials

    479       481  

Total inventories, net

  $ 2,951     $ 2,481  

 

 

7. Other Liabilities

 

Other liabilities were as follows (in millions):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Current liabilities:

               

Wages and employee benefits

  $ 595     $ 824  

Income taxes

    99       196  

Derivative instruments (Note 11)

    494       144  

Deferred revenue (Note 3)

    170       148  

Customer deposits (Note 3)

    166       223  

Share repurchase liability (Note 13)

    504       506  

Short-term operating leases

    97       94  

Other current liabilities

    1,026       1,004  

Other accrued liabilities

  $ 3,151     $ 3,139  
                 

Non-current liabilities:

               

Defined benefit pension plan liabilities

  $ 698     $ 707  

Derivative instruments (Note 11)

    238       49  

Deferred revenue (Note 3)

    732       764  

Customer deposits (Note 3)

    1,115       1,072  

Share repurchase liability (Note 13)

    18       517  

Deferred tax liabilities

    136       258  

Long-term operating leases

    648       691  

Other non-current liabilities

    1,325       1,134  

Other liabilities

  $ 4,910     $ 5,192  

 

12

 
 

8. Debt 

 

Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $5.9 billion and $8.3 billion at September 30, 2022 and December 31, 2021, respectively, compared to recorded book values of $6.5 billion and $7.0 billion at September 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 $173 million, primarily to extend the term to 2025.  As of September 30, 2022 and December 31, 2021, there were no outstanding amounts under either the amended and restated or the existing facilities.

 

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. In the third quarter of 2021, Corning redeemed $250 million of 3.7% debentures due in 2023, paying a premium of $19 million by exercising our make-whole call. The bond redemption resulted in a $20 million loss during the same quarter.

 

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

 

 

9. 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 the nine months ended September 30, 2022, contributions to our international pension plans were not material. The Company does not expect to make additional contributions in the fourth quarter of 2022.

 

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

   

Nine months ended

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

   

2022

   

2021

   

2022