10-Q 1 glw20210930_10q.htm FORM 10-Q glw20210930_10q.htm
0000024741 CORNING INC /NY false --12-31 Q3 2021 43 46 13,857 13,663 100 100 10,000,000 10,000,000 0 2,300 0.50 0.50 3.8 3.8 1.8 1.7 963 961 0.24 10,625 0.48 0.22 10,625 0.22 10,625 0.22 10,625 3 1.1 0 0 14 14 507 0 1 5 0 1 10 1 10 3 21 21 For the year ended December 31, 2020, assets and liabilities that were measured using unobservable (Level 3) inputs resulted in losses recognized in earnings of $21 million for a renewable energy derivative contract and $4 million for auction rate securities. Income tax (provision) benefit reflects a tax rate of 21%. The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in "All Other" as of September 9, 2020. For the nine months ended September 30, 2021 and 2020, the Preferred Stock was anti-dilutive; therefore, it was excluded from the calculation of diluted earnings per share. Derivative assets and liabilities include foreign exchange contracts which were measured using observable inputs for similar assets and liabilities. Refer to Note 2 (Restructuring, Impairment and Other Charges and Credits) to the consolidated financial statements for additional information on restructuring activities and impairment. Included in other current assets and other assets is a contingent consideration asset for a cost adjustment contract of $20 million, resulting from the HSG Transactions as of September 9, 2020, that was measured using unobservable (Level 3) inputs. Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels. Equity securities with readily available fair values of $11 million were measured using Level 1 inputs and have been included in other current assets as of September 30, 2021. An investment was sold for $84 million during the second quarter of 2021. This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment. Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels. Other liabilities include a $17 million put option pursuant to the Share Repurchase Agreement with SDC, which was measured using significant other observable (Level 2) inputs. Refer to Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information. 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. Denominational currencies for average rate forward contracts include the Chinese yuan and British pound. Refer to Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information. For the three and nine months ended September 30, 2021, amounts are net of tax benefit of $31 million and $42 million, respectively. For the three and nine months ended September 30, 2020, amounts are net of tax expense of $21 million and $10 million, respectively. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for more information. Activity reflected in cost of sales. Tax effects are not significant. The other current and non-current assets included a contingent consideration asset of $20 million at fair value for a cost adjustment contract related to the TCS Transaction. Refer to Note 13 (Fair Value Measurements) to the consolidated financial statements for additional information. The goodwill recognized is not deductible for U.S. income tax purposes. The goodwill was allocated to "All Other" within segment reporting as disclosed in Note 16 (Reportable Segments) to the consolidated financial statements. Refer to Note 6 (Earnings per Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information. Amount represents the pre-tax gain recorded on Corning's previously held equity investment in HSG. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information. The purchase price being used to measure the goodwill of the Redemption is $352 million, including the fair value of Corning's previously held equity interest and non-controlling interest, of $250 million and $102 million, respectively. At September 30, 2021, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $751 million. At December 31, 2020, derivatives designated as hedging instruments include foreign currency contracts with notional amounts of $892 million and $251 million, respectively, for cash flow hedges and net investment hedges. Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations. Japanese yen-denominated option contracts include zero-cost collars, purchased call options and put options. With respect to the zero-cost collars, the gross notional amount includes the value of both the put and call options. However, due to the nature of the zero-cost collars, only the put or the call option can be exercised at maturity. Included in investments were equity securities with readily available fair values that were measured using Level 1 inputs. A pre-tax gain of $107 million was recognized from the initial public offering of an investment for the year ended December 31, 2020. Other foreign currencies option contracts are purchased basket options that include a basket of underlying currencies, including the Japanese yen, South Korean won, Chinese yuan, euro and British pound, and each basket option will be settled against USD. Stock options were only granted during the second quarter of 2020. There have been no stock options granted since June 30, 2020. Depreciation expense for Corning's reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment. All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss. Included in other current assets and other assets is a contingent consideration asset for a cost adjustment contract of $17 million, resulting from the HSG Transactions as of September 9, 2020, that was measured using unobservable (Level 3) inputs. Primarily represents the equity earnings of HSG prior to September 9, 2020. Refer to Note 3 (HSG Transactions) 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. 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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, 2021

 

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

 

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 and posted 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 22, 2021

 
 

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

 

853,408,459 shares

 

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

INDEX

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1. Financial Statements

 
   

Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2021 and 2020

3

   

Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2021 and 2020

4

   

Consolidated Balance Sheets at September 30, 2021 (Unaudited) and December 31, 2020

5

   

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2021 and 2020

6

   

Consolidated Statements of Changes to Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, 2021 and 2020

7

   

Notes to Consolidated Financial Statements (Unaudited)

9

   

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

30

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

51

   

Item 4. Controls and Procedures

51

   

PART II – OTHER INFORMATION

 
   

Item 1. Legal Proceedings

52

   

Item 1A. Risk Factors

52

   

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

53

   

Item 6. Exhibits

54

   

Signatures

55

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

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,

 
  

2021

  

2020

  

2021

  

2020

 

Net sales

 $3,615  $3,001  $10,406  $7,953 

Cost of sales

  2,294   2,000   6,614   5,635 
                 

Gross margin

  1,321   1,001   3,792   2,318 
                 

Operating expenses:

                

Selling, general and administrative expenses

  486   480   1,351   1,276 

Research, development and engineering expenses

  251   231   715   922 

Amortization of purchased intangibles

  32   33   97   87 
                 

Operating income

  552   257   1,629   33 
                 

Equity in earnings (losses) of affiliated companies

  16   (76)  31   17 

Interest income

  3   3   8   12 

Interest expense

  (72)  (70)  (227)  (201)

Translated earnings contract (loss) gain, net (Note 12)

  (13)  (100)  262   5 

Transaction-related gain, net (Note 3)

      498       498 

Other (expense) income, net

  (6)  (62)  118   (71)
                 

Income before income taxes

  480   450   1,821   293 

Provision for income taxes (Note 5)

  (109)  (23)  (402)  (33)
                 

Net income attributable to Corning Incorporated

 $371  $427  $1,419  $260 
                 

Earnings per common share available to common shareholders:

                

Basic (Note 6)

 $0.44  $0.53  $0.72  $0.25 

Diluted (Note 6)

 $0.43  $0.48  $0.71  $0.24 
                 

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

                
                 

Net income attributable to Corning Incorporated

 $371  $427  $1,419  $260 
                 

Series A convertible preferred stock dividend

          (24)  (73)

Excess consideration paid for redemption of preferred shares (1)

          (803)    
                 

Net income available to common shareholders

 $371  $427  $592  $187 

 

(1)

Refer to Note 6 (Earnings per Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.

 

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

© 2021 Corning Incorporated. All Rights Reserved.

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in millions)

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Net income attributable to Corning Incorporated

 $371  $427  $1,419  $260 
                 

Foreign currency translation adjustments and other (Note 14)

  (192)  283   (515)  76 

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

     4   (1)  (8)

Net unrealized (losses) gains on designated hedges

  (15)  11   (3)  (31)

Other comprehensive (loss) income, net of tax

  (207)  298   (519)  37 
                 

Comprehensive income attributable to Corning Incorporated

 $164  $725  $900  $297 

 

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

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 
  (unaudited)    

Assets

        
         

Current assets:

        

Cash and cash equivalents

 $2,212  $2,672 

Trade accounts receivable, net of doubtful accounts - $43 and $46

  2,114   2,133 

Inventories, net (Note 7)

  2,463   2,438 

Other current assets

  890   761 

Total current assets

  7,679   8,004 
         

Property, plant and equipment, net of accumulated depreciation - $13,857 and $13,663

  15,383   15,742 

Goodwill, net

  2,425   2,460 

Other intangible assets, net

  1,192   1,308 

Deferred income taxes (Note 5)

  1,062   1,121 

Other assets

  1,965   2,140 
         

Total Assets

 $29,706  $30,775 
         

Liabilities and Equity

        
         

Current liabilities:

        

Current portion of long-term debt and short-term borrowings (Note 9)

 $50  $156 

Accounts payable

  1,396   1,174 

Other accrued liabilities (Note 8 and Note 11)

  2,891   2,437 

Total current liabilities

  4,337   3,767 
         

Long-term debt (Note 9)

  7,019   7,816 

Postretirement benefits other than pensions (Note 10)

  729   727 

Other liabilities (Note 8 and Note 11)

  5,266   5,017 

Total liabilities

  17,351   17,327 
         

Commitments and contingencies (Note 11)

          

Shareholders’ equity (Note 14):

        

Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 10 million; Shares issued: 0 and 2,300

     2,300 

Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1.8 billion and 1.7 billion

  907   863 

Additional paid-in capital – common stock

  16,398   14,642 

Retained earnings

  16,110   16,120 

Treasury stock, at cost; Shares held: 963 million and 961 million

  (20,011)  (19,928)

Accumulated other comprehensive loss

  (1,259)  (740)

Total Corning Incorporated shareholders’ equity

  12,145   13,257 

Non-controlling interests

  210   191 

Total equity

  12,355   13,448 
         

Total Liabilities and Equity

 $29,706  $30,775 

 

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

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

   

Nine months ended

 
   

September 30,

 
   

2021

   

2020

 

Cash Flows from Operating Activities:

               

Net income

  $ 1,419     $ 260  

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

               

Depreciation

    1,005       1,041  

Amortization of purchased intangibles

    97       87  

Loss on disposal of assets

    8       107  

Severance charges

            141  

Severance payments

    (24 )     (126 )

Share-based compensation expense

    117       127  

Equity in earnings of affiliated companies

    (31 )     (17 )

Translation (gain) loss on Japanese yen-denominated debt

    (127 )     50  

Deferred tax provision (benefit)

    68       (96 )

Pension plan contributions

            (80 )

Customer deposits and government incentives

    168       184  

Translated earnings contract gain

    (262 )     (5 )

Unrealized translation losses (gains) on transactions

    65       (54 )

Tax assessment refunds

            101  

Asset impairment

            217  

Transaction-related gain, net

            (498 )

Changes in certain working capital items:

               

Trade accounts receivable

    (146 )     (281 )

Inventories

    (72 )     240  

Other current assets

    (210 )     (19 )

Accounts payable and other current liabilities

    425       (139 )

Other, net

    (111 )     166  

Net cash provided by operating activities

    2,389       1,406  
                 

Cash Flows from Investing Activities:

               

Capital expenditures

    (1,014 )     (986 )

Proceeds from sale or disposal of assets

    17       27  

Proceeds from sale of business

    102          

Proceeds from and investment in unconsolidated entities, net

    87       (7 )

Realized gains on translated earnings contract

    30       10  

Other, net

    (25 )     24  

Net cash used in investing activities

    (803 )     (932 )
                 

Cash Flows from Financing Activities:

               

Repayments of short-term borrowings

    (144 )        

Repayments of long-term debt

    (716 )        

Proceeds from issuance of long-term debt

    19       212  

Payment for redemption of preferred stock

    (507 )        

Payments of employee withholding tax on stock awards

    (57 )     (10 )

Proceeds from exercise of stock options

    91       49  

Purchases of common stock for treasury

    (22 )     (105 )

Dividends paid

    (659 )     (587 )

Other, net

    5       26  

Net cash used in financing activities

    (1,990 )     (415 )

Effect of exchange rates on cash

    (56 )     21  

Net (decrease) increase in cash and cash equivalents

    (460 )     80  

Cash and cash equivalents at beginning of period

    2,672       2,434  

Cash and cash equivalents at end of period

  $ 2,212     $ 2,514  

 

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

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited; in millions)

 

(In millions)

 

Convertible preferred stock

  

Common stock

  

Additional paid-in capital common

  

Retained earnings

  

Treasury stock

  

Accumulated other comprehensive loss

  

Total Corning Incorporated shareholders' equity

  

Non-controlling interests

  

Total

 

Balance, December 31, 2020

 $2,300  $863  $14,642  $16,120  $(19,928) $(740) $13,257  $191  $13,448 

Net income

              599           599   2   601 

Other comprehensive loss

                      (352)  (352)  (1)  (353)

Shares issued to benefit plans and for option exercises

      1   80               81       81 

Common dividends ($0.24 per share)

              (187)          (187)      (187)

Preferred dividends ($10,625 per share)

              (24)          (24)      (24)

Other, net (1)

              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)  16   15 

Balance, September 30, 2021

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

 

 

© 2021 Corning Incorporated. All Rights Reserved.

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited; in millions)

 

(In millions)

 

Convertible preferred stock

  

Common stock

  

Additional paid-in capital common

  

Retained earnings

  

Treasury stock

  

Accumulated other comprehensive loss

  

Total Corning Incorporated shareholders' equity

  

Non-controlling interests

  

Total

 

Balance, December 31, 2019

 $2,300  $859  $14,323  $16,408  $(19,812) $(1,171) $12,907  $90  $12,997 

Net loss

             (96)          (96)      (96)

Other comprehensive loss

                      (326)  (326)  (1)  (327)

Purchase of common stock for treasury

                  (105)      (105)      (105)

Shares issued to benefit plans and for option exercises

          17               17       17 

Common dividends ($0.22 per share)

              (168)          (168)      (168)

Preferred dividends ($10,625 per share)

              (24)          (24)      (24)

Other, net

              (6)  (1)      (7)      (7)

Balance, March 31, 2020

 $2,300  $859  $14,340  $16,114  $(19,918) $(1,497) $12,198  $89  $12,287 

Net (loss) income

              (71)          (71)  6   (65)

Other comprehensive income

                      65   65       65 

Shares issued to benefit plans and for option exercises

      1   58               59       59 

Common dividends ($0.22 per share)

              (171)          (171)      (171)

Preferred dividends ($10,625 per share)

              (25)          (25)      (25)

Other, net

                  (6)      (6)  (11)  (17)

Balance, June 30, 2020

 $2,300  $860  $14,398  $15,847  $(19,924) $(1,432) $12,049  $84  $12,133 

Net income

              427           427   5   432 

Other comprehensive income

                      298   298   1   299 

Shares issued to benefit plans and for option exercises

      1   96               97       97 

Common dividends ($0.22 per share)

              (171)          (171)      (171)

Preferred dividends ($10,625 per share)

              (24)          (24)      (24)

Non-controlling interest in HSG (4)

                              102   102 

Other, net

              (14)  (2)      (16)  5   (11)

Balance, September 30, 2020

 $2,300  $861  $14,494  $16,065  $(19,926) $(1,134) $12,660  $197  $12,857 

 

(1)

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

(2) Refer to Note 6 (Earnings per Share) and Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.
(3) Refer to Note 14 (Shareholders' Equity) to the consolidated financial statements for additional information.
(4) Refer to Note 3 (HSG Transactions) to the consolidated financial statements for more information.

 

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

 

© 2021 Corning Incorporated. All Rights Reserved.

 

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Significant Accounting Policies

 

Basis of Presentation

 

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

 

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with Corning’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 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 equity method of accounting is used for investments in affiliated companies that are not controlled by Corning and in which the Company’s interest is generally between 20% and 50% and we have significant influence over the entity. 

 

On September 9, 2020, Hemlock Semiconductor Group (“HSG”) redeemed the entire ownership interest of DuPont de Nemours, Inc. (“DuPont”) in HSG with a value of $250 million ("Redemption").  Upon completion of the Redemption, the Company obtained a 100% interest in Hemlock Semiconductor LLC ("HS LLC") and an 80.5% interest in Hemlock Semiconductor Operations LLC ("HSO LLC"), which are affiliated entities within HSG.  HSG's results have been consolidated in “All Other”.  Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information.

 

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. Actual results could differ from those estimates. The novel coronavirus (“COVID-19”) pandemic and the resulting adverse impacts to global economic conditions  may impact future estimates including, but not limited to, inventory valuations, fair value measurements, goodwill and long-lived asset impairments, the effectiveness of the Company’s hedging instruments, deferred tax valuation allowances, actuarial losses on retirement benefit plans and discount rate assumptions.

 

Certain prior year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no impact on the results of operations, financial position, or changes in shareholders’ equity.

 

New Accounting Standards

 

During the first quarter of 2021, Corning early adopted ASU 2020-06. This simplifies an issuer’s accounting for convertible instruments by eliminating separate accounting for beneficial and cash conversion features under ASC 470-20. The ASU clarifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification under ASC 815-40.  Entities are required to use the if-converted method for all convertible instruments in the diluted earnings per share calculation, to include the effect of potential share settlement if the effect is more dilutive, for instruments that may be settled in cash or shares under ASC 260. The adoption of ASU 2020-06 did not have any impact on Corning’s consolidated financial statements.

 

Other Accounting Standards


No other accounting standards, newly issued or adopted as of September 30, 2021, had a material impact on Corning’s financial statements or disclosures.

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

2. Restructuring, Impairment and Other Charges and Credits 

 

2021

 

There was no material restructuring, impairment and other charges and credits activity for the first nine months of 2021.  As of September 30, 2021, Corning had unpaid severance liabilities of $17 million, and payment is expected to be complete in less than twelve months. 

 

2020

 

In the first nine months of 2020, and in response to uncertain global economic conditions, Corning undertook actions to transform the Company’s cost structure and improve operational efficiency. 

 

During the three and nine months ended September 30, 2020, $171 million and $733 million were recorded, respectively, in restructuring, impairment and other charges and credits. Severance charges of $6 million and $141 million, respectively, were primarily related to a reduction in workforce to facilitate realignment of capacity in the Asia regions for our Display Technologies segment, optimize our Optical Communications segment and certain corporate costs. Asset impairment losses of $22 million and $217 million, respectively, were incurred for an asset group related to the reassessment of research and development programs within "All Other".  Charges of $143 million and $375 million, respectively, primarily included accelerated depreciation, asset disposals and other related exit costs in our Display Technologies and Specialty Materials segments.

 

For the three and nine months ended September 30, 2020, total restructuring, impairment and other charges and credits were reflected on the consolidated statements of income as follows:

 

  

Three months ended

 
  

September 30, 2020

 
      

Selling,

  

Research,

         
      

general

  

development

         
      

and

  

and

         
  

Gross

  

administrative

  

engineering

         
  

margin (1)

  

expenses

  

expenses

  

Other

  

Total

 

Severance

 $3  $3          $6 

Asset impairment

      6  $16       22 

Capacity realignment

  95       1       96 

Other charges and credits

  26   12   1  $8   47 

Total restructuring, impairment and other charges and credits

 $124  $21  $18  $8  $171 

 

(1)

Activity reflected in cost of sales.

 

  

Nine months ended

 
  

September 30, 2020

 
      

Selling,

  

Research,

         
      

general

  

development

         
      

and

  

and

         
  

Gross

  

administrative

  

engineering

         
  

margin (1)

  

expenses

  

expenses

  

Other

  

Total

 

Severance

 $79  $34  $28      $141 

Asset impairment

      6   211       217 

Capacity realignment

  243       2       245 

Other charges and credits

  61   51   2  $16   130 

Total restructuring, impairment and other charges and credits

 $383  $91  $243  $16  $733 

 

(1)

Activity reflected in cost of sales.

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

3. HSG Transactions

 

In 2016, Corning realigned its ownership interest in Dow Corning Corporation ("Dow Corning"), exchanging its 50% interest in the joint venture between Corning and The Dow Chemical Corporation ("Dow") for a newly formed company that held a 49.9% interest in HS LLC and a 40.25% interest in HSO LLC, which were recorded as equity method investments of Corning and are affiliated companies of HSG.  DuPont subsequently undertook Dow's ownership interest in HSG. HSG manufactures polysilicon products for the semiconductor and solar industries, and is one of the world’s leading providers of ultra-pure polycrystalline silicon to the semiconductor industry.   

 

2020

 

On September 9, 2020, HSG entered into a series of agreements with DuPont resulting in a change in control and consolidation for Corning.

 

HSG acquired DuPont’s TCS manufacturing assets, which were determined to be a business and recorded as a business combination. The fair value of the purchase price was $255 million.  In conjunction with this acquisition, HSG settled the pre-existing TCS relationship (“TCS Settlement”) for a contractual amount of $175 million, which was determined to have a fair value of $200 million.  HSG is paying for the TCS Settlement over three years with equal annual payments of approximately $58 million.  Corning’s share of the pre-tax loss related to the TCS Settlement was $81 million and was recorded in equity in earnings of affiliated companies in the consolidated statements of income (loss).  

 

HSG also completed the Redemption, redeeming Dupont’s entire ownership of HSG with a value of $250 million.  The Redemption was funded with HSG’s existing cash on-hand of $75 million and its newly obtained third-party debt of $175 million, maturing on September 8, 2021.  Debt repayments have been recorded as a financing activity on Corning's consolidated statements of cash flows.   As of September 30, 2021, the third-party debt has been fully repaid.

 

Upon completion of the Redemption, Corning obtained a 100% interest in HS LLC and an 80.5% interest in HSO LLC.  Corning accounted for the Redemption under the acquisition method of accounting in accordance with business combinations without the transfer of net cash consideration.  The Redemption price of $250 million approximated the fair value of Corning’s equity interest in HSG immediately preceding the Redemption.

 

The net gain on previously owned equity was calculated as follows (in millions):

 

Fair value of previously held equity investment

 $250 

Equity investment liability balance as of acquisition date

  (248)

Corning's gain on previously held equity investment

 $498 

 

 

© 2021 Corning Incorporated. All Rights Reserved.

 

The following table summarizes the amounts of recorded assets acquired and liabilities assumed as of September 9, 2020, which includes the TCS assets and liabilities acquired by HSG immediately prior to the Redemption and the consolidation by Corning. Recognized amounts of identified assets and liabilities recorded at fair value (in millions):

 

Inventory

 $503 

Property, plant and equipment

  651 

Intangible assets

  285 

Other current and non-current assets (1)

  173 

Short-term borrowings

  (178)

Trade payables and other accrued liabilities

  (329)

Other liabilities

  (1,261)

Total identified net liabilities

  (156)

Non-controlling interests (2)

  (102)

Total fair value of Corning's previously held equity investment (2)

  (250)

Goodwill (3)

 $508 

 

(1)The other current and non-current assets included a contingent consideration asset of $20 million at fair value for a cost adjustment contract related to the TCS Transaction. Refer to Note 13 (Fair Value Measurements) to the consolidated financial statements for additional information.
(2)The purchase price being used to measure the goodwill of the Redemption is $352 million, including the fair value of Corning’s previously held equity interest and non-controlling interest, of $250 million and $102 million, respectively.
(3)The goodwill recognized is not deductible for U.S. income tax purposes. The goodwill was allocated to “All Other” within segment reporting as disclosed in Note 16 (Reportable Segments) to the consolidated financial statements.

 

Upon completion of the Redemption and resulting consolidation, Corning recorded the values of assets acquired and liabilities assumed from HSG, including a customer deposit liability and deferred revenue.  Refer to Note 4 (Revenue) to the consolidated financial statements for additional information.

 

The goodwill is primarily related to other intangibles and synergies of the acquired business which do not qualify for separate recognition.  Intangible assets consist primarily of $215 million of developed technologies and know-how, and $70 million of other intangibles that are amortized over the weighted-average useful life of approximately 20 and 15 years, respectively.

 

HSG's revenue and net income have been consolidated in “All Other” in Corning’s consolidated statements of income.  

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

4. 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

  

Nine months ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Display products

 $936  $834  $2,758  $2,211 
                 

Telecommunication products

  1,131   909   3,143   2,587 
                 

Specialty glass products

  556   570   1,490   1,339 
                 

Environmental substrate and filter products

  382   369   1,233   891 
                 

Life science products

  304   220   917   707 
                 

All Other (1)

  306   99   865   218 

Total revenue

 $3,615  $3,001  $10,406  $7,953 

Impact of foreign currency movements (2)

  24   6      66 

Cumulative adjustment related to customer contract (3)

              105 

Net sales of reportable segments and All Other

 $3,639  $3,007  $10,406  $8,124 

 

(1)The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in "All Other" as of September 9, 2020.
(2)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.
(3)Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.

 

Refer to Note 16 (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 and deferred revenue are predominately related to Display products and Corning's controlling interest in HSG, respectively. 

 

© 2021 Corning Incorporated. All Rights Reserved.

 

 

Customer Deposits

 

As of September 30, 2021 and December 31, 2020, Corning had customer deposits of approximately $1.3 billion and $1.4 billion, respectively.  Most of these customer deposits were non-refundable and allowed customers to secure rights to glass produced by Corning under long-term supply agreements.  The duration of these long-term supply agreements ranges up to 10 years.  As glass is shipped to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability.

 

Customer deposits used were $59 million and $182 million, respectively, and $34 million and $107 million, respectively, in the three and nine months ended September 30, 2021 and 2020.  As of September 30, 2021 and December 31, 2020, $1.1 billion was recorded as other long-term liabilities.  The remaining $224 million and $211 million, respectively, were classified as other current liabilities. 

 

Deferred Revenue

 

As of September 30, 2021 and December 31, 2020, Corning had deferred revenue of approximately $932 million and $1.0 billion, respectively.  The deferred revenue was related to the performance obligations of non-refundable consideration previously received by HSG 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, 2021 and December 31, 2020, $792 million and $872 million, respectively, were classified as long-term liabilities and $140 million and $152 million, respectively, were classified as current liabilities.  

 

Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information.

 

 

5. Income Taxes

 

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

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020