UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172020
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)
| 16-0393470 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 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) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒x No ☐¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐¨ No ☒x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ☒x No ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files.)
Yes ☒x No ☐¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10‑K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 |
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Non-accelerated filer |
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Smaller reporting company |
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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 provided pursuant to Section 13(a) of the Exchange Act. ☐¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐¨ No ☒x
As of June 30, 2017,2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $27$19 billion based on the $30.05$25.90 price as reported on the New York Stock Exchange.
There were 857,453,098768,367,889 shares of Corning’s common stock issued and outstanding as of January 31, 2018.2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement dated March 16, 2018,18, 2021, and filed for the Registrant’s 20182021 Annual Meeting of Shareholders are incorporated into Part III of this Annual Report on Form 10-K, as specifically set forth in Part III.
PART I
Corning Incorporated and its consolidated subsidiaries are hereinafter sometimes referred to as the “Company,” the “Registrant,” “Corning,” “we,” “our,” or “we.“us.”
This report contains forward-looking statements that involve a number of risks and uncertainties. These statements relate to our future plans, objectives, expectations and estimates and may contain words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” or similar expressions. Our actualActual results could differ materially from what is expressed or forecasted in our forward-looking statements. Some of the factors that could contribute to these differences include those discussed under “Forward-Looking Statements,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report.
Item 1. Business
General
Corning traces its origins to a glass business established in 1851. The present corporation was incorporated in the State of New York in December 1936. The Company’s name was changed from Corning Glass Works to Corning Incorporated on April 28, 1989.
Corning Incorporated is a leading innovator in materials science. For more than 165almost 170 years, Corning has combined its unparalleled expertise in glass science, ceramic science, and optical physics with deep manufacturing and engineering capabilities to develop category-defining products that transform industries and enhance people's lives. We succeed through sustained investment in research and development, a unique combination of material and process innovation, and deep, trust-based relationships with customers who are global leaders in their industries.
Corning'sCorning’s capabilities are versatile and synergistic, which allowsallowing the company to evolve to meet changing market needs, while also helping our customers capture new opportunities in dynamic industries. Today, Corning'sCorning’s markets include optical communications, mobile consumer electronics, display technology, automotive emissions control, laboratory products and life sciences vessels.other glass products. Corning's industry-leading products include damage-resistant cover glass for mobile devices; precision glass for advanced displays; optical fiber and cable, wireless technologies, and connectivity solutions for state-of-the-art communications networks; trusted products to accelerate drug discovery and delivery; and clean-air technologies for cars and trucks.
Corning operates in five reportable segments: Display Technologies, Optical Communications, Environmental Technologies, Specialty Materials and Life Sciences, and manufactures products at 105122 plants in 15 countries.
Display Technologies Segment
Corning’s Display Technologies segment manufactures glass substrates for flat panel displays, including liquid crystal displays (“LCDs”) and organic light-emitting diode (“OLEDs”) that are used primarily in LCD televisions, notebook computers, desktop monitors, tablets and flat panel desktop monitors.handheld devices. This segment develops, manufactures, and supplies high quality glass substrates using technology expertise and a proprietary fusion manufacturing process, which Corning invented and is the cornerstone of the Company’s technology leadership in the LCDdisplay glass industry. TheOur highly automated process yields glass substrates with a pristine surface and excellent thermal dimensional stability and dimensional uniformity – essential attributes forin the production of large, high performance LCDshigh-performance display panels. Corning’s fusion process is scalable and we believe it is the most cost effectivecost-effective process in producing large size substrates.
We are recognized for providing productas a world leader in precision glass innovations that enable our customers to produce larger, lighter, thinner, more flexible, and higher-resolution displays. Some of the product innovations that we have launched over the past ten years utilizing our world-class processes and capabilities include the following:
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Corning® EAGLE XG® Slim Glass, Corning’s flagship glass product enabling thinner televisions and monitors with larger-sized screens; it is trusted by the world’s leading panel makers for LCD displays with more than 25 billion square feet sold;
Corning Astra® Glass, an innovative glass solution designed to meet the emerging needs for high-resolution displays. This glass is designed for oxide backplanes, but enables a range of applications made using traditional aluminosilicate to specific low temperature polysilicon processes;
Corning Lotus™ NXT Glass, a high-performance display glass designed to withstand high-temperature processing requirements enabling highest-resolution displays in smaller and flexible devices; and
The world’s first Gen 10 and Gen 10.5 glass substrate sizes in support of improved efficiency in manufacturing large-sized displays.
Corning has LCDdisplay glass manufacturing operations in China, South Korea, Japan Taiwan and China,Taiwan, and services all specialtyits glass customers in all regions, directly, utilizing its manufacturing facilities throughout Asia.
Patent protection and proprietary trade secrets are important to the Display Technologies segment’s operations. Refer to the material under the heading “Patents and Trademarks” for information relating to patents and trademarks.
The Display Technologies segment represented 30%28% of Corning’s segment net sales in 2017.2020.
Optical Communications Segment
Corning invented the world’s first low-loss optical fiber in 1970. Since that milestone, we have continued to pioneer optical fiber, cable and connectivity solutions. As global bandwidth demand driven by video usage grows exponentially, telecommunications networks continue to migrate from copper to optical-based systems that can deliver the required cost-effective bandwidth-carrying capacity. Our experience puts us in a unique position to design and deliver optical solutions that reach every edge of the communications network.
This segment is classifieddivided into two main product groupings – carrier network and enterprise network. The carrier network group consists primarily of products and solutions for optical-based communications infrastructure for services such as video, data and voice communications. The enterprise network group consists primarily of optical-based communication networks sold to businesses, governments and individuals for their own use.
Our carrier network product portfolio encompasses an array of optical fiber products, including Vascade submarine optical fibers for use in submarine networks; LEAF optical fiber for long-haul, regional and metropolitan networks; SMF-28 ULL fiber for more scalable long-haul and regional networks; SMF-28e+ single-mode optical fiber that provides additional transmission wavelengths in metropolitan and access networks; ClearCurve ultra-bendable single-mode fiber for use in multiple-dwelling units and fiber-to-the-home applications; and Corning® SMF-28® Ultra Fiber, designed for high performance across the range of long-haul, metro, access, and fiber-to-the-home network applications, combining the benefits of industry-leading attenuation and improved macrobend performance in one fiber. A portion of our optical fiber is sold directly to end users and third-party cablers globally. Corning’s remaining fiber production is cabled internally and sold to end users as either bulk cable or as part of an integrated optical solution. Corning’s cable products support various outdoor, indoor/outdoor and indoor applications and include a broad range of loose tube, ribbon and drop cable designs with flame-retardant versions available for indoor and indoor/outdoor use.use including 5G networks.
In addition to optical fiber and cable, our carrier network product portfolio also includes hardware and equipment products, including cable assemblies, fiber opticfiber-optic hardware, fiber opticfiber-optic connectors, optical components and couplers, closures, network interface devices, and other accessories. These products may be sold as individual components or as part of integrated optical connectivity solutions designed for various carrier network applications. Examples of these solutions include our FlexNAPTM terminal distribution system, which provides pre-connectorized distribution and drop cable assemblies for cost-effectively deploying fiber-to-the-home (“FTTH”) and 5G networks; and the CentrixTM platform, which provides a high-density fiber management system with industry-leading density and innovative jumper routing that can be deployed in a wide variety of carrier switching centers.
To keep pace with surging demand for mobile bandwidth, Corning has a full complement of operator-grade distributed antenna systems (“DAS”), including the recently developed Optical Network Evolution wireless platform. The ONE™ Wireless Platform (“ONE”) is the first all-optical converged cellular and Wi-Fi® solution built on an all-optical backbone with modular service support. It provides virtually unlimited bandwidth and meets all of the wireless service needs of large-scale enterprises at a lower cost than the typical DAS solution.
In addition to our optical-based portfolio, Corning’s carrier network portfolio also contains select copper-based products including subscriber demarcation, connection and protection devices, xDSL (different variations of digital subscriber lines) passive solutions and outside plant enclosures. In addition, Corning offers coaxial RF interconnects for the cable television industry as well as for microwave applications for GPS, radars, satellites, manned and unmanned military vehicles, and wireless applications and telecommunications systems.
Our enterprise network portfolio also includes optical fiber products, including ClearCurve ultra-bendable multimode fiber for private and hyperscale data centers and other enterprise network applications; InfiniCor fibers for local area networks; and more recently ClearCurve VSDN ultra-bendable optical fiber designed to support emerging high-speed interconnects between computers and other consumer electronics devices. The remainder of Corning’s fiber production is cabled internally and sold to end users as either bulk cable or as part of an integrated optical solution. Corning’s cable products include a broad range of tight-buffered, loose tube and ribbon cable designs with flame-retardant versions available for indoor and indoor/outdoor applications that meet local building code requirements.
Corning’s hardware and equipment for enterprise network applications include cable assemblies, fiber opticfiber-optic hardware, fiber opticfiber-optic connectors, optical components and couplers, closures and other accessories. These products may be sold as individual components or as part of integrated optical connectivity solutions designed for various network applications.applications, including hyperscale data centers. Examples of enterprise network solutions include the Pretium EDGE platform, which provides high-density pre-connectorized solutions for data center applications, and continues to evolve with recent updates for upgrading to 40/100G applications and port tap modules for network monitoring; the previously mentioned ONE Wireless platform, which spans both carrier and enterprise network applications; and our recently introduced optical connectivity solutions to support customer initiatives.
In December 2017, Corning announced that it had entered into agreements with 3M to purchase substantially all of 3M’s Communication Markets Division in a cash transaction valued at approximately $900 million. The acquisition is expected to close during 2018, subject to customary closing conditions and regulatory approval. Corning believes that this transaction will augment its Optical Communications segment’s global market access and expand its broad portfolio of high-bandwidth optical connectors, assemblies, hardware, and accessories for carrier networks, enterprise LAN, and data center solutions.
Our optical fiber manufacturing facilities are located in North Carolina, China and India. Cabling operations are located in North Carolina, Germany, Poland China and smaller regional locations. Our manufacturing operations for hardware and equipment products are located in Texas, Arizona, Mexico, Brazil, Denmark, Germany, Poland, Israel, Australia and China.
Patent protection is important to the segment’s operations. The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. The segment licenses certain of its patents to third parties and generates revenue from these licenses, although the royalty income is not currently material to this segment’s operating results. Corning is licensed to use certain patents owned by others, which are considered important to the segment’s operations. Refer to the material under the heading “Patents and Trademarks” for information relating to the Company’s patents and trademarks.
The Optical Communications segment represented 35%31% of Corning’s segment net sales in 2017.2020.
Index© 2018
Specialty Materials Segment
The Specialty Materials segment manufactures products that provide more than 150 material formulations for glass, glass ceramics, and crystals, as well as precision metrology instruments and software to meet requirements for unique customer needs. Consequently, this segment operates in a wide variety of commercial and industrial markets including materials optimized for mobile consumer electronics, semiconductor equipment optics and consumables, aerospace and defense optics, radiation shielding products, sunglasses, and telecommunications components.
Our highly durable glass, known as Corning® Gorilla® Glass, is a chemically strengthened thin glass designed specifically to function as a cover, or back-enclosure glass, for mobile consumer electronic devices such as mobile phones, tablets, laptops and smartwatches. Elegant and lightweight, Corning® Gorilla® Glass is durable enough to resist many real-world events that commonly cause wear or scratch damage and glass failure, while providing optical clarity, touch sensitivity, and RF transparency, thus enabling exciting new applications in technology and design. In 2020, Corning Incorporated. All Rights Reservedunveiled its toughest Gorilla Glass yet, Corning® Gorilla® Glass Victus®, which significantly improves both drop and scratch performance, addressing consumer demand for improved durability. Corning® Gorilla® Glass is manufactured in the United States, South Korea and Taiwan.
In 2020, Corning invented the world’s first transparent, color-free glass-ceramic suitable for smartphone applications, which is featured as ‘Ceramic Shield’ on the front cover of the latest iPhone. Apple and Corning partnered to develop and scale the manufacturing of Ceramic Shield, which offers unparalleled durability and toughness.
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IndexCorning’s semiconductor optics include high-performance optical materials including Corning® HPFS® Fused Silica and Corning® ULE® Ultra-Low Expansion Glass, optical-based metrology instruments, and custom optical assemblies for applications in the global semiconductor industry. Corning’s semiconductor optics products are manufactured in New York.
Corning also manufactures ultra-flat, ultra-thin glass wafers and substrates for a variety of applications including augmented reality, advanced semiconductor packaging, 3D sensing, and more. These products are manufactured in New York, France, and China.
Other specialty glass products include tinted sunglasses and radiation shielding products that are made in France.
Patent protection is important to the segment’s operations. The segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. Brand recognition and loyalty, through well-known trademarks, are important to the segment. Refer to the material under the heading “Patents and Trademarks” for information relating to the Company’s patents and trademarks.
The Specialty Materials segment represented 16% of Corning’s segment net sales in 2020.
Environmental Technologies Segment
Corning’s Environmental Technologies segment manufactures ceramic substrates and filter products for emissions control in mobile applications around the world. In the early 1970s, Corning developed an economical, high-performance cellular ceramic substrate that is now the standard for catalytic converters in vehicles worldwide. As global emissions control regulations tighten, Corning has continued to develop more effective and durable ceramic substrate and filter products for gasoline and diesel applications. For example, in response to the growing popularity of gasoline direct injection engines, Corning introducedapplications, most recently launching low-mass Corning® FLORA® substrates and Corning® DuraTrap® GC gasoline particulate filters to help automakers reduce particulate emissions generated by these engines.filters. Corning manufactures substrate and filter products in New York, Virginia, China, Germany and South Africa. Corning sells its ceramic substrate and filter products worldwide to catalyzers and manufacturers of emission control systems who then sell to automotive and diesel vehicle or engine manufacturers. Although most sales are made to the emission control systems manufacturers, the use of Corning substrates and filters is generally required by the specifications of the automotive and diesel vehicle or engine manufacturers.
Patent protection is important to the segment’s operations. The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. Corning is licensed to use certain patents owned by others, which are also considered important to the segment’s operations. Refer to the material under the heading “Patents and Trademarks” for information relating to the Company’s patents and trademarks.
The Environmental Technologies segment represented 11%12% of Corning’s segment net sales in 2017.2020.
Specialty Materials Segment
The Specialty Materials segment manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs. Consequently, this segment operates in a wide variety of commercial and industrial markets that include display optics and components, semiconductor optics components, aerospace and defense, astronomy, ophthalmic products, telecommunications components and cover glass that is optimized for display devices.
Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass designed specifically to function as a cover glass for display devices such as mobile phones, tablets and notebook PCs. Elegant and lightweight, Corning Gorilla Glass is durable enough to resist many real-world events that commonly cause glass failure, enabling exciting new applications in technology and design. In 2016, Corning unveiled its latest Corning Gorilla Glass innovation, Corning® Gorilla® Glass 5, which is designed to provide further protection against breakage while maintaining optical clarity, touch sensitivity, and damage resistance.
Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan and Taiwan.
Semiconductor optics manufactured by Corning includes high-performance optical material products, optical-based metrology instruments, and optical assemblies for applications in the global semiconductor industry. Corning’s semiconductor optics products are manufactured in New York.
Other specialty glass products include glass lens and window components and assemblies and are made in New York, New Hampshire and France, and sourced from China.
Patent protection is important to the segment’s operations. The segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. Brand recognition and loyalty, through well-known trademarks, are important to the segment. Refer to the material under the heading “Patents and Trademarks” for information relating to the Company’s patents and trademarks.
The Specialty Materials segment represented approximately 14% of Corning’s sales in 2017.
Life Sciences Segment
As a leading developer, manufacturer and global supplier of laboratory products for over 100105 years, Corning’s Life Sciences segment works with researchers and drug manufacturers seeking to drive innovation, increase efficiencies, reduce costs and compress timelines. Using unique expertise in the fields of materials science, polymer surface science, cell culture and cell biology, the segment provides innovative solutions that improve productivity and enable breakthrough research.research for traditional small molecule, or chemical, drugs, biologics, vaccines, and emerging cell and gene therapies.
Life Sciences products include consumables, (suchsuch as plastic vessels, liquid handling plastics, specialty surfaces, cell culture media and serum),serum, as well as general labware and equipment, thatequipment. These products are used for drug discovery research and development, compound screening and toxicology testing, advanced cell culture research, bioprocessing, genomics drug discovery, microbiologyapplications and chemistry. mass production of cells for clinical trials and bioproduction.
Corning sells life sciences products under these primary brands: Corning, Falcon, Pyrex, Axygen,PYREX and Gosselin.Axygen. The products are marketed globally, primarily through distributors, to pharmaceutical and biotechnology companies, contract manufacturing organizations, central testing labs, academic institutions, hospitals, government entities, and other facilities. Corning manufactures these products in the United States inCalifornia, Illinois, Maine, Massachusetts, New York, North Carolina, Utah, and Virginia, and outside of the U.S. in China, France, Mexico and Poland.
Patent protection is important to the segment’s operations. The segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. Brand recognition and loyalty, through well-known trademarks, are important to the segment. Refer to the material under the heading “Patents and Trademarks” for more information.
The Life Sciences segment represented approximately 9% of Corning’s segment net sales in 2017.2020.
All Other
All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily comprised of the results of the pharmaceutical technologies business, andauto glass, new product lines and development projects, as well as other businesses and certain corporate investments suchinvestments. The Company obtained a controlling interest in Hemlock Semiconductor Group (“HSG”) during the third quarter of 2020 and has consolidated results in “All Other” as Eurokeraof September 9, 2020.
Refer to Note 3 (Investments) and Keraglass equity affiliates. Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information on this transaction.
In 2017, Corning’s pharmaceutical technologies business, in collaboration with two leading pharmaceutical companies, introduced Corning Valor™ Glass, a revolutionary pharmaceutical glass packaging solution that enhances the storage and delivery of today’s drug formulations and provides more reliable access to medicines essential to public health. Insights into manufacturing processes from the pharmaceutical companies, in combination with Corning’s glass science and precision forming capabilities, helped deliver a glass packaging solution for injectable drugs in vials and cartridges. Corning Valor Glass packaging offers superior chemical durability, strength and damage resistance. These qualities enable increased throughput and more reliable access to state-of-the-art medicines for patients, while maintaining a high level of quality assurance for pharmaceutical companies.
The “All Other segmentOther” represented 1%4% of Corning’s segment net sales in 2017.2020.
Additional explanation regarding Corning and its five reportable segments, as well as financial information about geographic areas, is presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 20 (Reportable Segments) to the Consolidated Financial Statements.
Corporate Investments
Dow Corning Corporation and Hemlock Semiconductor Group. Prior to May 31, 2016, Corning and The Dow Chemical Company (“Dow Chemical”) each owned half of Dow Corning Corporation (“Dow Corning”), an equity company headquartered in Michigan that manufactures silicone products worldwide. Dow Corning was the majority-owner of Hemlock Semiconductor Group (“HSG”), a market leader in the production of high purity polycrystalline silicon for the semiconductor and solar energy industries.
On May 31, 2016, Corning completed the strategic realignment of its equity investment in Dow Corning pursuant to the Transaction Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in HSG and approximately $4.8 billion in cash.
Prior to realignment, HSG, a consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the exchange, Corning now has a direct equity investment in HSG. Because our ownership percentage in HSG did not change as a result of the realignment, the investment in HSG is recorded at its carrying value, which had a negative carrying value of $383 million at the transaction date. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Excluding this charge, the entity is profitable and is expected to recover its equity in the near term. financial statements.
Pittsburgh Corning Corporation. Prior to the second quarter of 2016, Corning and PPG Industries, Inc. each owned 50% of the capital stock of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11 reorganization in 2000 and the Modified Third Amended Plan of Reorganization for PCC (the “Plan”) became effective in April 2016. In the second quarter of 2016, Corning contributed its equity interests in PCC and Pittsburgh Corning Europe N.V. as required by the Plan and recognized a gain of $56 million for the difference between the fair value of the asbestos litigation liability and carrying value of the investment. Competition
Additional information about corporate investments is presented in Note 7 (Investments) to the Consolidated Financial Statements.
Competition
Corning competes with many large and varied manufacturers, both domestic and foreign. Some of these competitors are larger than Corning, and some have broader product lines. Corning strives to maintain and improve its market position through technology and product innovation. For the foreseeable future, Corning believes its competitive advantage lies in its commitment to research and development, its commitment to reliability of supply, and product quality and technical specification of its products. There is no assurance that Corning will be able to maintain or improve its market position or competitive advantage.
Display Technologies Segment
Corning is the largest worldwide producer of glass substrates for LCD displays.flat panel display glass. The environment for LCDhigh-performance display glass substrate products is very competitive and Corning believes it has sustainedmaintained its competitive advantages by investing in new products, continually improving its proprietary fusion manufacturing process and providing a consistent and reliable supply and continually improving its proprietary fusion manufacturing process. Thisof high quality products. Our process allows us to deliver glass that is larger, thinner and lighter, with exceptional surface quality and without heavy metals. Asahi Glass Co. Ltd. and Nippon Electric Glass Co. Ltd. are Corning’s principal competitors in display glass substrates.
Optical Communications Segment
Corning believes it maintains a leadership position in the segment’s principal product groups, which include carrier and enterprise networks. The competitive landscape includes industry consolidation, price pressure and competition for the innovation of new products. These competitive conditions are likely to persist. Corning believes its large scalelarge-scale manufacturing experience, fiber process, technology leadership and intellectual property provide cost advantages relative to several of its competitors.
The primary competing producerscompetitors of the Optical Communications segment are CommscopeCommScope and Prysmian Group.
Specialty Materials Segment
Corning has deep capabilities in materials science, optical design, shaping, coating, finishing, metrology, and optical system assembly. Our products and capabilities in this segment position the company to meet the needs of a broad array of markets, including semiconductor, aerospace, defense, industrial, commercial, and telecommunications. Schott, Asahi Glass Co. Ltd., Nippon Electric Glass Co. Ltd. and Heraeus are the main competitors for this segment.
Environmental Technologies Segment
Corning believes it maintains a strong position in the worldwide market for automotive ceramic substrate and filter products, as well as in the heavy-duty and light-duty diesel vehicle markets. The Company believes its competitive advantage in automotive ceramic substrate products for catalytic converters and filter products for particulate emissions in exhaust systems is based on an advantaged product portfolio, collaborative engineering design services, customer service and support, strategic global presence and continued product innovation. Corning’s Environmental Technologies products face principal competition from NGK Insulators, Ltd. and Ibiden Co. Ltd.
Specialty Materials Segment
Corning has deep capabilities in materials science, optical design, shaping, coating, finishing, metrology, and system assembly. Additionally, we are addressing emerging needs of the consumer electronics industry with the development of chemically strengthened glass. Corning Gorilla Glass is a thin-sheet glass that is better able to survive events that most commonly cause glass failure. Its advanced composition allows a deeper layer of chemical strengthening than is possible with most other chemically strengthened glasses, making it both durable and damage resistant. Our products and capabilities in this segment position the Company to meet the needs of a broad array of markets including display, semiconductor, aerospace/defense, astronomy, vision care, industrial/commercial, and telecommunications. For this segment, Schott, Asahi Glass Co. Ltd., Nippon Electric Glass Co. Ltd. and Heraeus are the main competitors.
Life Sciences Segment
Corning seeks to maintain a competitive advantage by emphasizing product quality, global distribution, supply chain efficiency, a broad product line and superior product attributes. Our principal competitors include Thermo Fisher Scientific, Inc., Greiner Group AG, Eppendorf AG, Sarstedt AG and Sarsedt AG.Danaher Corporation. Corning also faces increasing competition from large distributors that have pursued backward integration or introduced private label products.
Raw Materials
Corning’s manufacturing processes and products require access to uninterrupted power sources, significant quantities of industrial water, certain precious metals and various batch materials. Availability of resources (ores, minerals, polymers, helium and processed chemicals) required in manufacturing operations, appearsappear to be adequate. Corning’s suppliers, fromFrom time to time, Corning’s suppliers may experience capacity limitations in their own operations or may eliminate certain product lines. Corning believes it has adequate programs to ensure a reliable supply of raw and batch materials as well as precious metals. For many of its products,materials, Corning has alternate suppliers that would allow operations to continue without interruption in the event of specific materials shortages.
Certain key materials and proprietary equipment used in the manufacturing of products are currently sole-sourced or available only from a limited number of suppliers. To minimize this risk, Corning closely monitors raw materials and equipment with limited availability or which are sourced through one supplier.sole-sourced suppliers. However, any future difficulty in obtaining sufficient and timely delivery of components and/or raw materials could result in lost sales due to delays or reductions in product shipments, or reductions in Corning’s gross margins.
Patents and Trademarks
Inventions by members of Corning’s research and engineering staff continue to be important to the Company’s growth. Patents have been granted on many of these inventions in the United States and other countries. Some of these patents have been licensed to other manufacturers. Many of our earlier patents have now expired, but Corning continues to seek and obtain patents protecting its innovations. In 2017,2020, Corning was granted about 560480 patents in the United States (“U.S.”) and over 1,2801,600 patents in countries outside the U.S.
Each business segment possesses a patent portfolio that provides certain competitive advantages in protecting Corning’s innovations. Corning has historically enforced, and will continue to enforce, its intellectual property rights. At the end of 2017,2020, Corning and its wholly-owned subsidiaries owned over 10,900about 11,500 unexpired patents in various countries of which over 4,560about 4,400 were U.S. patents. Between 20182021 and 2020,2023, approximately 7%700, or about 6%, of these worldwide patents will expire, while at the same time Corning intends to seek patents protecting its newer innovations. Worldwide, Corning has about 10,3008,700 patent applications in process, with about 2,2801,950 in process in the U.S. Corning believes that its patent portfolio will continue to provide a competitive advantage in protecting the Company’s innovation, although Corning’s competitors in each of its businesses are actively seeking patent protection as well.
While each of our reportable segments has numerous patents in various countries, no one patent is considered material to any of these segments. Important U.S.-issued patents in our reportable segments include the following:
| Display Technologies: patents relating to glass compositions and methods for the use and manufacture of glass substrates for display applications. Optical Communications: patents relating to (i) multimode and single mode optical fiber products including low-loss optical fiber, large effective area optical fiber, and other high data rate optical fiber, and processes and equipment for manufacturing optical fiber, including methods for making optical fiber preforms and methods for drawing, cooling and winding optical fiber; (ii) optical fiber ribbons and methods for making such ribbon, indoor and outdoor fiber optic cable products and methods for making and installing optical fiber cable; (iii) optical fiber connectors and factory-terminated assemblies, hardware, termination and storage and associated methods of manufacture; and (iv) optical fiber and hybrid fiber-coax wireless communication systems. Environmental Technologies: patents relating to cellular ceramic honeycomb products, together with ceramic batch and binder system compositions, honeycomb extrusion and firing processes, and honeycomb extrusion dies and equipment for the high-volume, low-cost manufacture of such products. Specialty Materials: patents relating to protective cover glass materials and coatings, ophthalmic glasses and polarizing dyes, and semiconductor/microlithography optics and blanks, metrology instrumentation and laser/precision optics, glass polarizers, specialty fiber, and refractories. Life Sciences: patents relating to methods and apparatus for the manufacture and use of scientific laboratory equipment including multiwell plates and cell culture products, as well as equipment and processes for cell and gene therapy research.
“All Other”: patents relating to |
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Products reported in All Other include development projects, new product lines, and other businesses or investments that do not meet the threshold for separate reporting.
Approximate number of patents granted to our reportable segments are as follows:
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| U.S. patents |
| Important |
| U.S. patents | Important | |||
Display Technologies |
| 1,900 |
| 40 |
| 18 | 1,075 | 152 | 10 | |||
Optical Communications |
| 4,200 |
| 1,900 |
| 34 | 4,522 | 2,169 | 34 | |||
Environmental Technologies |
| 900 |
| 350 |
| 20 | 1,013 | 363 | 7 | |||
Specialty Materials |
| 1,200 |
| 590 |
| 8 | 1,943 | 673 | 5 | |||
Life Sciences |
| 570 |
| 240 |
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| 594 | 190 | 5 |
Many of the Company’s patents are used in operations or are licensed for use by others, and Corning is licensed to use patents owned by others. Corning has entered into cross-licensing arrangements with some major competitors, but the scope of such licenses has been limited to specific product areas or technologies.
Corning’s principalprinciple trademarks include the following: Axygen, Corning, Celcor, ClearCurve, Corning, DuraTrap, Eagle XG, Edge8, Falcon, Gorilla, Guardiant, HPFS, Leaf, Pyrex,PYREX, RocketRibbon, SMF-28e, Steuben, Falcon, SMF-28e, Unicam,UniCam, Valor and Willow.Victus.
Protection of the Environment
Corning has aan extensive program to ensure that its facilities are in compliancecomply with state, federal and foreign pollution-control regulations. This program has resulted in capital and operating expenditures each year. In order toTo maintain compliance with such regulations, capital expenditures for pollution control in operations were approximately $39$12.2 million in 20172020 and are estimated to be $23$16.8 million in 2018.2021.
Corning’s 20172020 consolidated operating results were charged with approximately $43$51 million for depreciation, maintenance, waste disposal and other operating expenses associated with pollution control.
Human Capital Management Overview
At Corning, believeswe are proud of the life-changing innovations we bring to the world. Our unparalleled expertise in our core technologies along with deep manufacturing and engineering capabilities require a talent strategy focused on attracting and retaining exceptional people, fostering a culture that its compliance program does not place it at a competitive disadvantage.enables innovation and collaboration and supporting long and successful careers.
Employees
At December 31, 2017, Corning had approximately 46,200 full-time employees. From time to time, Corning also retains consultants, independent contractors, temporaryEach of our 50,110 full- and part-time workers. employees in 45 countries make an important contribution, whether in one of our manufacturing or processing facilities, research labs, offices or other facilities.
Values
Corning is guided by an enduring set of Values that defines our relationship with employees, customers, and our communities: Quality, Integrity, Performance, Leadership, Innovation, Independence and the Individual. Our Values are the key to our business success, a source of pride and excitement for our employees, and the factor that ultimately sets us apart from our competitors. In short, we believe that how we do things is as important as what we do. We measure how we live our Values through the annual Corporate Values Survey. We use the results to see what actions can be taken to improve living the Values. Corning employees all contribute to the success of the company by Living our Values-all seven, all the time, all around the world.
Diversity and Inclusion
We are focused on creating an inclusive and creative environment globally
Our workforce is comprised of 61% men and 39% women, and we have active programs, such as our UP2 (women mentoring women) initiative fostering and supporting women in their careers at Corning. In 2020, we have achieved or maintained 100% pay equity for men and women in our seven largest countries by employee population, comprising approximately 95% of our global workforce. Our 2021 pay equity review is expanding to include our entire salaried workforce across all of the countries where we operate.
We furthered our commitment to diversity and inclusion in 2020 by creating the Office of Racial Equality and Social Unity, to further our goal of a more equitable and inclusive culture at Corning and beyond. The efforts of this office will not only impact policies, practices, communications, and our corporate culture, but are intended to improve diversity and inclusion projects in the communities in which our employees live and work; and
Corning proudly sponsors over thirty different Employee Resource Groups representing vital employee constituencies, including women, African Americans, those with disabilities, the LGBTQ community, Asians, Latinos, Native Americans, and veterans, among others.
Talent Management
Each year we formally evaluate the talent implications of our strategic business plans and align our actions and objectives accordingly. As businesses grow organically or through acquisition, we create talent strategy plans to ensure we have the right people with the right skills in place to deliver that growth.
Corning strives to attract and recruit diverse qualified candidates to maintain our culture of innovation and to foster creativity. We have created a strategic talent pipeline through internships, co-ops, rotational leadership programs, and partnerships with various universities. In addition, we collaborate with organizations such as the Society of Women Engineers, The Association of Latino Professionals for America, National Society of Black Engineers, National Association of Black Accountants, Out for Undergrad, and military veterans’ groups to introduce us to qualified diverse candidates.
Businesses conduct climate surveys at least every two years, and ad hoc pulse surveys as needed, to measure engagement, satisfaction and alignment with our Values. It is important to Corning that employees develop, grow and are inspired to continue their careers at the Company over the long-term. We offer rich simulations, assessments, and experiences that are digital, classroom, and a blend of both, targeted to all levels in the organization. We provide on-the-job learning experience, mentoring, and career planning to ensure immediate application and lasting impact. Our salaried talent retention rate of 96%, for 2020, is consistently higher than the markets in which we compete for talent, aligning with our strategy of encouraging and supporting longer-term careers with Corning.
At Corning, the health and safety of our workforce is always of paramount consideration. To achieve this our three organizational expectations are a systematic approach, engaged leadership and an independent culture. Our safety standards always meet, and often exceed, local regulatory standards. We promote employee wellbeing through wellness programs which vary by region such as nutrition, mental health, and fitness related offerings, smoking cessation programs, and smoke free campuses.
Executive Officers of the Registrant
John P. Bayne, Jr. Senior Vice President & General manager, Mobile Consumer Electronics
Mr. Bayne joined Corning in 1995 as the Fallbrook plant controller, and in 1997 became an international business controller in the Optical Fiber division. From 1999 to 2003 he held a variety of management positions in Photonic Technologies. In 2003 he joined Display Technologies and in 2006, he was named president, Display Technologies, China. In 2009 he became director of strategy, Display Technologies. Beginning in 2012 he was vice president and general manager for High Performance Displays and in 2014 he assumed responsibility for the Advanced Glass Innovations group. In 2015 he was named vice president and general manager of the Gorilla Glass business. He was appointed senior vice president and general manager of Mobile Consumer Electronics in April 2020. Age 54.
Stefan Becker Senior Vice President & Operations Controller
Mr. Becker joined Corning in 2000 through Corning’s acquisition of Siemens Communication Cable Division. From 2001, he held positions as manager, Planning and Analysis and later director of Finance, Corning Cable Systems. He joined the Display Technologies division in 2005 as U.S. Controller. In 2007 he was appointed CFO, Corning Display Technologies Taiwan. In 2009 he was named director of Finance, Corning Display Technologies (“CDT”) and in 2010 was appointed division controller, CDT. Between 2012 and 2015, he served as international division vice president, Finance, Corning Glass Technologies. He was appointed as Corning’s Operations Controller in 2015 and senior vice president in 2019. Age 49.
Michael A. Bell Senior Vice President & General Manager, Optical Communications
Mr. Bell joined Corning in 1991 as a process engineer for the Telecommunications Cable Plant in Hickory, North Carolina. He has held a variety of positions in manufacturing and engineering. He was appointed to CCS Americas Cable Manufacturing Manager in 2004, which expanded to include hardware manufacturing in 2009. In 2012 he was appointed senior vice president and general manager, Optical Connectivity Solutions for Corning Optical Communications. He was appointed senior vice president and general manager, Optical Communications in April 2020. Age 56
James P. Clappin ExecutiveSecond VicePresident, Corning Glass Technologies Chairman and Strategic Advisor
Mr. Clappin joined Corning in 1980 as a process engineer. He transitioned to GTE Corporation in 1983 when the Central Falls facility was sold and returned to Corning in 1988. He began workingheld a variety of manufacturing management roles in the consumer products division, transferring to the display business in 1994. Mr. Clappin relocated to Japan in 1996, as plant manager at Corning Display Technologies Shizuoka facility. In 2002, heHe was appointed as general manager of CDT worldwide business. He served asin 2002, and was president of Corning Display TechnologiesCDT from September 2005 through July 2010. He was appointed president, Corning Precision Glass Technologies, in 2010.2010 and president Corning Glass Technologies in 2012. In 2017 he became executive vice president of Corning Glass Technologies. He was appointed to his present positionas second vice chairman and strategic advisor in 2017.April 2020. Age 60.63.
Martin J. Curran Executive Vice President and Corning Innovation Officer
Mr. Curran joined Corning in 1984 and has held a variety of roles in finance, manufacturing, and marketing. He has served as senior vice president, general manager for Corning Cable Systems Hardware and Equipment Operations in the Americas, responsible for operations in Hickory, North Carolina; Keller, Texas; Reynosa, Mexico; Shanghai, China; and the Dominican Republic. He has also servedIn 2007, he was appointed as senior vice president and general manager forof Corning Optical Fiber.Mr. Curran was appointed as Corning’s firstexecutive vice president and innovation officer in August 2012. Age 59.62.
Jeffrey W. Evenson SeniorExecutive Vice President and Chief Strategy Officer
Dr. Evenson joined Corning in June 2011 as senior vice president and operations chief of staff. In 2015, he was named Chief Strategy Officer.chief strategy officer. He serves on the Management Committeewas appointed executive vice president in 2018. He oversees corporate strategy, corporate communications, and oversees a variety of strategic programs and growth initiatives.advanced analytics. Prior to joining Corning, Dr. Evenson was a senior vice president with Sanford C. Bernstein, where he served as a senior analyst since 2004.analyst. Before that, Dr. Evenson was a partner at McKinsey & Company, where he led technology and market assessment for early-stage technologies. Age 52.55.
Li Fang President & General Manager, Corning Incorporated. All Rights ReservedGreater China
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Lisa Ferrero Senior Vice President and Chief Administrative Officer
Ms. FerreroMr. Fang joined Corning International in 19871997 as a statisticianbusiness development manager, China. In 1999 he transferred to the Environmental Products Division and held variousbecame production management positions until joining Display Technologies in 1995 as a market analyst in Tokyo. While in Japan, shemanager of CET’s China Plant - Corning (Shanghai) Company Ltd. In July 2004, he was appointed export salesoperations manager for Taiwan and Korea. In 1998, she returned to Corning, N.Y. and was named market development manager. Shein October 2004 he was appointed director of strategic marketing, planning,operations and analysis forplant manager of Corning (Shanghai) Company Ltd. In 2007, he was appointed vice president, Corning Display Technologies in 2000.China, and director of commercial operations, government affairs and supply chain. In 2002, Ms. Ferrero joined Environmental Technologies as business manager for the heavy-duty diesel business and2009 he was named director of the automotive substrates business in 2003. She was named vice president, and deputy general manager,Corning Display Technologies Asia in June 2005. She served asChina. He was appointed president and general manager of Corning Greater China in 2012. Age 58.
Robert P. France Senior Vice President, Human Resources
Mr. France joined Corning in 2000 as a commercial Human Resources manager for Optical Fiber. He moved to Display Technologies in 2004 as the division Human Resources manager. He was Human Resources director for Corning Glass Technologies and Asia from July 2010 through 2015 overseeing operations across four regions: China, Japan, Taiwan and the U.S. Ms. Ferrero became2004 to 2016. From 2016 to 2018, Mr. France was Human Resources senior vice president for Corning Optical Communications, responsible for leading all aspects of the Human Resources function across several businesses and chief administrative officerhad HR Generalist responsibility for the Corning China organization. In 2018 he was appointed as vice president, Human Resources and was appointed senior vice president, Human Resources in January 2016.2019. Age 54.55.
Clark S. Kinlin Executive Vice President
Mr. Kinlin joined Corning in 1981 in the Specialty Materials division. From 1985 to 1995 he worked in the Optical Fiber division. In 1995, he joined Corning Consumer Products. In 2000, Mr. Kinlin was named president, Corning International Corporation and, in 2003, he was appointed as general manager for Greater China. From April 2007 to March 2008, he was chief operating officer, Corning Cable Systems, (now Corning Optical Communications) with responsibility for global sales, marketing, and operations. He was named president and chief executive officer of Corning Cable Systems in April 2008. He was appointed executive vice president in 2012. Age 58.61.
Lawrence D. McRae First Vice Chairman and Corporate Development Officer
Mr. McRae joined Corning in 1985 and servedhas held a broad range of leadership positions in various financial,finance, sales, marketing, and marketing positions.general management across Corning’s businesses. In 1995 he was appointed vice president of Corning Consumer Products Company and president of Revere Ware Corporation. He then moved to Telecommunications Products, where he served as vice president, Global Development, from 1996 to 2000. He was appointed vice president Corporate Development in 2000 and progressed through a series of senior vice president Corporate Development in 2003, senior vice president Strategyleadership positions. He has led strategy and Corporate Development in October 2005, and executive vice president Strategy and Corporate Development incorporate development since 2010. He was appointed to his present positionnamed vice chairman in August 2015.2015 and first vice chairman and corporate development officer in April 2020. Age 59.62.
David L. Morse Executive Vice President and Chief Technology Officer
Dr. Morse joined Corning in 1976 in glass research and worked as a composition scientist in developingglass research. In 1985, he was named senior research associate, manager of consumer products development in 1987 and patenting several major products.director of materials research in 1990. He served in a variety of producttechnology leadership positions in organic materials and materials research and technology director roles and was appointed division vice president and technology director for photonic technology groups beginningtelecommunications before joining Corporate Research in March 1999. He became director of corporate research, science and technology in December 2001. He was appointed vice president in January 2003, becomingFrom 2006 to 2012, he served as senior vice president and director, of corporate research in 2006.Corporate Research. Dr. Morse was appointed to his current position in May 2012. HeAge 68.
Anne Mullins Senior Vice President & Chief Digital & Information Officer
Ms. Mullins joined Corning as senior vice president & chief digital & information officer in August 2019. In this role, she is a memberresponsible for leading the strategic direction of Corning’s global information technology function and evolving the National Academy of Engineeringcompany’s digital footprint. Prior to joining Corning, Ms. Mullins served as chief information officer for Lockheed Martin and the National Chemistry Board.previously served as Lockheed Martin’s chief information security officer. Age 65.58.
Eric S. Musser Executive Vice President Corning Technologies and International& Chief Operating Officer
Mr. Musser joined Corning in 1986 and served in a variety of manufacturing positions at fiber plantsand general management roles in Wilmington, N.C. and Melbourne, Australia, before becoming manufacturing strategist for theCorning’s Optical Fiber business in 1996. Mr. Musser joined Corning Lasertron in 2000 and became president later that year. He was named director, manufacturing operations for Photonic Technologies in 2002.Communications businesses. In 2003,2005, he returned to Optical Fiber as division vice president, development and engineering and was named vice president and general manager in 2005. In 2007, he was appointedof Optical Fiber. Mr. Musser served as general manager, of Corning Greater China from 2007 to 2012 and was named president of Corning International in 2012. Mr. Musserfrom 2012 to 2014. In 2014, he was appointed executive vice president, in 2014.Corning Technologies and International. In April 2020, he was appointed as president & chief operating officer. Age 58.61.
Christine M. Pambianchi
Avery H. Nelson III Senior Vice President Human Resources& General Manager, Automotive
Ms. PambianchiMr. Nelson joined Corning in 20001991 as division human resourceshift supervisor at the Harrodsburg, Kentucky plant and subsequently served in progressive roles in Corning Display Technologies. In 2007, he joined CET as general manager, Corning Optical Fiber,(Shanghai) Company Limited. In 2009, he became general manager and laterregional director of China and India, CET. In 2010 he returned to the U.S. as program director, CET. In 2011, he assumed the role of business director, AAA Corning® Gorilla® Glass, New Business Development. Later that year, he was named director, Human Resources, Corning Optical Communications. She has led the Human Resources function since January 2008 when she was namedappointed division vice president, Human Resources. Ms. PambianchiHeavy Duty Diesel (HDD). In 2013, he was appointed division vice president and business director. In 2014, he was appointed vice president and general manager for Environmental Technologies. He was appointed to senior vice president, Human Resources,his current position in 2010, and is responsible for leading Corning’s global human resource function.April 2020. Age 49.52.
Edward A. Schlesinger Senior Vice President and Corporate Controller
Mr. Schlesinger joined Corning in 2013 as senior vice president and chief financial officer of Corning Optical Communications. He led the Finance function for Corning Optical Communications and served on the Communications Leadership Team. He was namedelected vice president and corporate controller in September 2015 and appointed principal accounting officer in December 2015. He was named senior vice president in February 2019. Prior to joining Corning, Mr. Schlesinger served as Vice President, Finance and Sector Chief Financial Officer for two ofthe Climate Solutions Sector for Ingersoll Rand’s business segments.Rand. Mr. Schlesinger has a financial career that spans more than 20 years garnering extensive expertise in accounting, technical financial management and reporting. Age 50.53.
Lewis A. Steverson SeniorExecutive Vice President and General CounselChief Legal & Administrative Officer
Mr. Steverson joined Corning in June 2013 as senior vice president and general counsel. In 2018 he was named executive vice president and general counsel. Prior to joining Corning, Mr. Steverson served as senior vice president, general counsel, and corporate secretary of Motorola Solutions, Inc. During his 18 years with Motorola, he held a variety of legallaw leadership roles across the company’s numerous business units. Prior to Motorola, Mr. Steverson was in private practice at the law firm of Arnold & Porter. He was appointed Executive Vice President and Chief Legal & Administrative Officer in April 2020. Age 54. 57.
R. Tony Tripeny SeniorExecutive Vice President and Chief Financial Officer
Mr. Tripeny joined Corning Cable Systems in 1985 as the corporate accounting manager of Corning Cable Systems, and became the Keller, Texas facility’s plant controller in 1989. In 1993, he was appointed equipment division controller of Corning Cable Systems and, in 1996, corporate controller. Mr. Tripeny was appointed chief financial officer of Corning Cable Systems in July 2000. In2000 and, in 2003, he took on the additional role of Telecommunications group controller.controller, Telecommunications. He was appointed division vice president, operations controllerOperations Controller in August 2004, vice president, corporate controller in October 2005, and senior vice president and principal accounting officer in April 2009. Mr. Tripeny was then appointed to his current position as Corning’s senior vice president and chief financial officer in September 2015. He iswas appointed executive vice president in 2018. Age 61.
Ronald L. Verkleeren Senior Vice President & General Manager, Life Sciences
Mr. Verkleeren joined Corning in 2001 in the Optical Communications segment. He joined the Life Sciences segment in 2004 and has held a membervariety of progressive roles in that segment. In 2010, he was named division vice president and director of Advanced Life Sciences. In 2012 he was named division vice president and program director for Corning Pharmaceutical Technologies. In 2015, he became vice president and general manager of the board of directors of Hardinge, Inc.Pharmaceutical Technologies division. He was elected as senior vice president & general manager, Life Sciences in April 2020. Age 58.50.
Wendell P. Weeks Chairman and Chief Executive Officer and President
Mr. Weeks joined Corning in 1983.1983 in the finance group. He has held a variety of financial, business development, commercial, and general management roles. He was named vice president and general manager of the Optical Fiber business in 1996 senior vice president in 1997, senior viceand president of Opto-Electronics in 1998, executive vice president in 1999, and president, CorningCorning’s Optical Communications division in 2001. Mr. Weeks was namedHe became Corning’s president and chief operating officer of Corning in 2002, president and chief executiveoperation officer in 2005 and chairman and chief executive officer on April 26, 2007. He added the title of president in December 2010. Mr. Weeks is a director of Merck & Co. Inc. and Amazon.com, Inc.2002. Mr. Weeks has been a member of Corning’s Board of Directors since December 2000. He was named chief executive officer in April 2005 and chairman of the board in April 2007. Mr. Weeks is a director of Amazon.com, Inc. Age 58.61.
John Z. Zhang Senior Vice President & General Manager, Display
Mr. Zhang joined Corning in 2008 as director, corporate development. In 2009, he was appointed director, corporate development Asia Pacific. In 2010, he further expanded his role to lead the strategy & corporate development organization of Corning International. In 2014, he was named deputy general manager, Corning Display Technologies. In 2015, he was elected as senior vice president and general manager, Corning Display Technologies. Age 48.
Document Availability
A copy of Corning’s 20172020 Annual Report on Form 10-K filed with the Securities and Exchange Commission is available upon written request to Corporate Secretary, Corning Incorporated, One Riverfront Plaza, Corning, NY 14831. The Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 and other filings are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC, and can be accessed electronically free of charge at www.SEC.gov, or through the Investor Relations page on Corning’s website at www.corning.com. The information contained on the Company’s website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.
Other
Additional information in response to Item 1 is found in Note 20 (Reportable Segments) to the Consolidated Financial Statements and in Item 6 (Selected Financial Data).consolidated financial statements.
Item 1A. Risk Factors
We operate in rapidly changing economic, political, and technological environments that present numerous risks, many of which are driven by factors that we cannot control or predict.risks. Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, our ability to successfully execute our strategy and capital allocation framework,Strategy & Growth Framework and the trading price of our common stock or debt. The following discussion of “risk factors” identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with our MD&A and the consolidated financial statements and related notes incorporated by reference into this report. The following discussion of risks is not all inclusive but is designed to highlight what we believe are important factors to consider, as these factors could cause our future results to differ from those in our forward-looking statements and from historical trends.
As a global company, we face many risks which couldRisks Related to Our Business
The ongoing COVID-19 pandemic has, and may continue to, adversely impact the global economy and disrupt our operations and reportedsupply chains, which may have an adverse effect on our results of operations.
COVID-19 has impacted and may further impact the global economy and could have additional impacts on economic growth, the proper functioning of financial results
We are a global company and derive a substantial portioncapital markets, foreign currency exchange rates, and interest rates. The pandemic has resulted in authorities around the world implementing numerous unprecedented measures such as travel restrictions, quarantines, shelter in place orders, and facility shutdowns. These measures have impacted, and may continue to impact our workforce and operations, and those of our revenues from,customers, contract manufacturers and havesuppliers, particularly in the event of a significant operations, outsideglobal resurgence of the United States. Our international operations include manufacturing, assembly, sales, researchillness. There is considerable uncertainty regarding the duration, scope and development, customer support,severity of the pandemic and shared administrative service centers.
Compliance with laws and regulations increases our costs. We are subject to both U.S. laws and local laws which, among other things, include data privacy requirements, employment and labor laws, tax laws, anti-competition regulations, prohibitionsthe impacts on payments to governmental officials, import and trade restrictions and export requirements. Non-compliance or violations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Such violations could result in prohibitions on our ability to offer our products and services in one or more countries and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipatethe global economy from the effects of the ongoing pandemic and manage these risks.response measures.
We are also subject to a variety of other risks in managing a global organization, including those related to:
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Corning’s Display Technologies segment generates a significant amount of the Company’s profits and cash flow. Any significant decrease in LCDdisplay glass pricing or market share could have a material and negative impact on our financial results
Corning’s ability to generate profits and operating cash flow depends largely uponon the profitability of our LCDdisplay glass business, which is subject to continuous pricing pressure due to intense industry competition, potential over-capacity, and development of new technologies. If we are not able to achieve proportionate reductions in costs or sustain our current rate of cost reductionand increases in volume to offset potentialongoing pricing pressurespressure it could have a material adverse impact on our financial results.
Because we have a concentrated customer base in each of our businesses, our sales could be negatively impacted by the actions or insolvency of one or more key customers, as well as our ability to retain these customers
A relatively small number of end customers accounted for a high percentage of net sales in each of our reportable segments. This concentration subjects us to a variety of risks including:
Lower sales and cash flow that could result from the loss of one or more of our key customers;
Mergers and consolidations between customers could result in further concentration of Corning’s customer base. If further concentration occursbase;
The loss or a key customer becomes insolvent, the lossinsolvency of a key customer, could result in a substantial loss of sales and reduction in anticipated cash flows; and
Customers may possess substantial leverage in cash flows. Unforeseen events or actions on the part of Corning could also result in the loss of customers, resulting in further customer concentration.negotiating contractual obligations, including liability provisions.
The following table details the number of combined customers of our segments that accounted for a large percentage of segment net sales:
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Display Technologies |
| 3 |
| 62% | 4 | 74% | ||
Optical Communications |
| 1 |
| 19% | 1 | 11% | ||
Specialty Materials | 3 | 65% | ||||||
Environmental Technologies |
| 3 |
| 81% | 3 | 74% | ||
Specialty Materials |
| 3 |
| 58% | ||||
Life Sciences |
| 2 |
| 47% | 2 | 39% |
Business disruptions could affect our operating results
A major earthquake, fire or other catastrophic event that results in the destruction or disruption of any of our critical facilities could severely affect our ability to conduct normal business operations and, as a result, our future financial results could be materially and adversely affected. For example, certain manufacturing sites require high quality, continuous, and uninterrupted power and access to industrial water. Unplanned outages could have a material negative impact on our operations and ability to supply our customers.
Additionally, a significant amount of the specialized manufacturing capacity for our reportable segments is concentrated in single-site locations and it is reasonably possible that the operations of one or more such facilities could be disrupted. Due to the specialized nature of the assets, it may not be possible to find replacement capacity quickly or substitute production from other facilities. Accordingly, a disruption at a single-site manufacturing operation could significantly impact Corning’s ability to supply its customers and could produce a near-term severe impact on our individual businesses and the Company as a whole.
Geopolitical events, as well as other eventsEvents outside of Corning’s control, could cause a disruption to our manufacturing operations and adversely impact our customers, resulting in a negative impact to Corning’s net sales, net income, asset values and liquidity.liquidity
A natural disaster, epidemic, labor strike, war or political unrest may adversely affect Corning's ability to supply our customers and impact the value of our assets. Such events may also impact our customers’ facilities and reduce our sales to such customers. For example, a sizeable portion of Corning’s glass manufacturing capacity is located in South Korea and we generate a significant portion of our sales through two South Korean customers. Deterioration of the geopolitical climate in such a region could cause a disruptionDisruption to our manufacturing operations could significantly impact Corning’s ability to supply its customers and could produce a near-term severe impact on our individual businesses and the Company as a whole. Given the geographical concentration of certain of our plants, the highly engineered nature of our facilities and the globally dispersed talent required to run these facilities, any event that adversely affects or restricts movement into or out of a specific geographic area where we, our suppliers, or our customers have a presence, could adversely impact our customers, resultingresults. Due to the specialized nature of the assets and certain single-site manufacturing locations, in the event such a negative impactlocation experiences disruption, it may not be possible to Corning’s net sales, net income, asset values and liquidity.find replacement capacity or substitute production from other facilities.
We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others
We rely on patent and trade secret laws, copyright, trademark, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights. Despite our efforts, these protections may be limited and we may encounter difficulties in protecting our intellectual property rights or obtaining rights to additional intellectual property necessary to permit us to continue or expand our businesses. We cannot provide assurance that the patents that we hold or may obtain will provide meaningful protection against our competitors. Changes in or enforcement of laws concerning intellectual property worldwide, may affect our ability to prevent or address the misappropriation of, or the unauthorized use of, our intellectual property, potentially resulting in loss of market share. Litigation may be necessary to enforce our intellectual property rights. Litigation is inherently uncertain and outcomes are often unpredictable. If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.
The intellectual property rights of others could inhibit our ability to introduce new products. Other companies hold patents on technologies used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios. We periodically receive notices from, or have lawsuits filed against us by third parties claiming infringement, misappropriation or other misuse of their intellectual property rights and/or breach of our agreements with them. These third parties often include entities that do not have the capabilities to design, manufacture, or distribute products or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property through asserting claims of infringement and misuse. Such claims of infringement or misappropriation may result in loss of revenue, substantial costs, or lead to monetary damages or injunctive relief against us.
Information technology dependency and cyber security vulnerabilities could lead to reduced revenue, liability claims, or competitive harm
The Company is dependent on information technology (“IT”) systems and infrastructure, forincluding cloud-based services (“IT systems”) to conduct its business and manufacturing controls.business. Our IT systems may be vulnerable to disruptions from human error, outdated applications, computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions. We have measures and defenses in place against such events, but we may not be able to prevent, immediately detect, or remediate all instances of such events. Any significant disruption, breakdown, intrusion, interruption or corruption of these systems or data breaches could cause the loss of data or intellectual property, equipment damage, downtime, and/or safety related issues and could have a material adverse effect on our business. Like other global companies, we have, from time to time, experienced incidents related to our IT systems, and expect that such incidents will continue, including malware and computer virus attacks, unauthorized access, systems failures and disruptions. We have measures and defenses in place against unauthorized access, but we may not be able to prevent, immediately detect, or remediate such events. A material security breach in the securityor disruption of our IT systems could include the theft of our intellectual property or trade secrets. Such disruptions or security breaches could result in the theft, unauthorized use, or publication of our intellectual property and/or confidential business information, harm our competitive position, disrupt our manufacturing, reduce the value of our investment in research and development and other strategic initiatives, impair our ability to access vendors, suppliers and cloud-based services, or otherwise adversely affect our business.
Additionally, we believe that utilities and other operators of critical infrastructure that serve our facilities face heightened security risks, including cyber-attack. In the event of such an attack, disruption in service from our utility providers could disrupt our manufacturing operations which rely on a continuous source of power (electrical, gas, etc.).
We may not earn a positive return from our research, development and engineering investments
Developing our products through our innovation model of research and development is expensive and often involves a long investment cycle. We make significant expenditures and investments in research, and development and four process engineering platforms that may not earn an economic return. If our investments do not provide a pipeline of newproducts or technologies that our customers demand or lower costour manufacturing platforms,costs, it could negatively impact our revenuesrevenue and operating margins both near- and long-term.
If we are unable to obtain certain specialized equipment, raw and batch materials or natural resources required in our products or processes, our business will suffer
Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of equipment, parts, components and componentsraw materials from our suppliers. We may experience shortages that could adversely affect our operations. There can be no assurances that we will not encounter problems in the future. Certain manufacturing equipment, components and componentsraw materials are available only from single or limited sources, and we may not be able to find alternate sources in a timely manner. A reduction, interruption or delay of supply, or a significant increase in the price for supplies, such as manufacturing equipment, precious metals, raw materials, utilities including energy and industrial water, could have a material adverse effect on our businesses.
We use specialized raw materials from single-source suppliers (e.g., specific mines or quarries) and natural resources (e.g., helium) in certain products and processes. If a supplier is unable to provide the required raw materials or the natural resource is in scarce supply or not readily available, we may be unable to change our product composition or manufacturing process in order to prevent a disruption to our business.
We have incurred, and may in the future incur, goodwill and other intangible asset impairment charges
At December 31, 2017, Corning had goodwill and other intangible assets of approximately $2.6 billion. While we believe the estimates and judgments about future cash flows used in the goodwill impairment tests are reasonable, we cannot provide assurance that additional impairment charges in the future will not be required if the expected cash flow estimates as projected by management do not occur, especially if an economic recession occurs and continues for a lengthy period or becomes severe, or if acquisitions and investments made by the Company fail to achieve expected returns.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations
Our effective tax rate could be adversely impacted by several factors, including:
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We may have additional tax liabilities
We are subject to income taxes in the U.S. and many foreign jurisdictions and are commonly audited by various tax authorities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Significant judgment is required in determining our worldwide provision for income taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our financial statements in the period or periods for which that determination is made.
The recent 2017 Tax Act could significantly impact how U.S. global corporations are taxed. We are in the process of evaluating the impact of this new legislation and certain changes could have a material adverse impact on our tax expense and cash flow. Among other things, the 2017 Tax Act requires companies to pay a one-time mandatory tax on unrepatriated earnings of certain foreign subsidiaries that were previously tax deferred (the “toll charge”) and creates new taxes on certain foreign sourced earnings. The toll charge resulted in an additional $1.1 billion provisional tax expense. However, settlement of the toll charge will occur almost entirely through the use of existing foreign tax credit carryovers of $1.1 billion.
Our innovation model depends on our ability to attract and retain specialized experts in our core technologies
Our innovation model requires us to employ highly specialized experts in glass science, ceramic science, and optical physics to conduct our research and development and engineer our products and design our manufacturing facilities. The loss of the services of any member of our key research and development or engineering team without adequate replacement, or the inability to attract new qualified personnel, could have a material adverse effect on our operations and financial performance.
We are subject to strict environmental regulations and regulatory changes that could result in fines or restrictions that interrupt our operations
Some of our manufacturing processes generate chemical waste, waste water, other industrial waste or greenhouse gases, and we are subject to numerous laws and regulations relating to the use, storage, discharge and disposal of such substances. We have installed anti-pollution equipment for the treatment of chemical waste and waste water at our facilities. We have taken steps to control the amount of greenhouse gases created by our manufacturing operations. However, we cannot provide assurance that environmental claims will not be brought against us or that government regulators will not take steps to adopt more stringent environmental standards.
Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or imposition of fines against us, or the suspension/cessation of production or operations. In addition, environmental regulations could require us to acquire costly equipment, incur other significant compliance expenses or limit or restrict production or operations and thus materially and negatively affect our financial condition and results of operations.
Changes in regulations and the regulatory environment in the U.S. and other countries, such as those resulting from the regulation and impact of global warming and CO2 abatement, may affect our businesses and their results in adverse ways by, among other things, substantially increasing manufacturing costs, limiting availability of scarce resources, especially energy, or requiring limitations on production and sale of our products or those of our customers.
General Risk Factors
We may have additional tax liabilities
We are subject to income taxes in the U.S. and many foreign jurisdictions, and are commonly audited by various tax authorities. There are many transactions and calculations where the ultimate tax treatment is uncertain. Judgment is required in determining our worldwide provision for income taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our financial statements in the period or periods for which that determination is made.
The 2017 Tax Act significantly impacted how U.S. global corporations are taxed. Significant guidance has been issued with the intention of clarifying the new tax provisions. To date, some of the regulations had been finalized and clarified but a considerable amount of this guidance is still in the form of proposed regulations. Due to the volume and complexity of both the final and proposed regulations, we continue to evaluate any development and impact of the 2017 Tax Act that could have a material adverse impact on our tax expense and cash flow. In addition to the 2017 Tax Act, other foreign countries and international organizations, such as Organisation for Economic Co-operation and Development (“OECD”), may have law changes and issue new international tax standards that may also impact our taxes.
As a global company, we face many risks which could adversely impact our operations and financial results
We are a global company and derive a substantial portion of our revenue from, and have significant operations, outside of the United States. Our international operations include manufacturing, assembly, sales, research and development, customer support, and shared administrative service centers. Additionally, we rely on a global supply chain for key components and capabilities that are central to our ability to invent, make and sell products.
Compliance with laws and regulations increases our costs. We are subject to both U.S. laws and the local laws where we operate which, among other things, include data privacy requirements, employment and labor laws, tax laws, anti-competition regulations, prohibitions on payments to governmental officials, import and trade restrictions and export requirements. Non-compliance or violations could result in fines, criminal sanctions against us, our officers or employees, and prohibitions on the conduct of our business. Such violations could result in prohibitions on our ability to offer our products and services in one or more countries and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and operating results. Our success depends, in part, on our ability to anticipate and manage these risks.
We are also subject to a variety of other risks in managing a global organization, including those related to:
The economic and political conditions in each country or region and among countries;
Complex regulatory requirements affecting international trade and investment, including anti-dumping laws, export controls, the Foreign Corrupt Practices Act and local laws prohibiting improper payments. Our operations may be adversely affected by changes in the substance or enforcement of these regulatory requirements, and by actual or alleged violations of them;
Fluctuations in currency exchange rates, convertibility of currencies and restrictions involving the movement of funds between jurisdictions and countries;
Governmental protectionist policies and sovereign and political risks that may adversely affect Corning’s profitability and assets;
Tariffs, trade duties and other trade barriers including anti-dumping duties;
Geographical concentration of our factories and operations, and regional shifts in our customer base;
Periodic health epidemic concerns;
Political unrest, confiscation or expropriation of assets by foreign governments, terrorism and the potential for other hostilities;
Difficulty in protecting intellectual property, sensitive commercial and operations data, and information technology systems;
Differing legal systems, including protection and treatment of intellectual property and patents;
Complex, changing or competing tax regimes;
Difficulty in collecting obligations owed to us;
Natural disasters such as floods, earthquakes, tsunamis and windstorms; and
Potential loss of utilities or other disruption affecting manufacturing.
We have significant exposure to foreign currency movements
A large portion of our sales, profit and cash flows are transacted in non-U.S. dollar currencies. The Company expects to continue to experience fluctuations in the U.S. dollar value of these activities if it is not possible, cost-effective or should we not elect to hedge certain currency exposure. Additionally, gains or losses may be experienced if the underlying exposure which has been hedged increases or decreases significantly.
The ultimate realized loss or gain with respect to currency fluctuations will generally depend on the size and type of cross-currency exposure that we have, the changes in exchange rates associated with those exposures, whether we have entered into foreign currency contracts to offset these exposures and other factors.
Foreign currency movements may impact our competitive cost position relative to our largest, Japan-based competitors in the Display Technologies segment. The profitability of customers may also be impacted as they typically purchase from us in Japanese yen and sell in various currencies.
These factors, which are variable and generally outside of our control, could materially impact our results of operations, anticipated future results, financial position and cash flows.
We may have significant exposure to counterparties of our related derivatives portfolio
We maintain a significant portfolio of over the counter derivatives to hedge our projected currency and periodically may utilize interest rate derivatives, equity derivatives, and commodities. We are exposed to potential losses in the event of non-performance by our counterparties to these derivative contracts. Any failure of a counterparty to pay on such a contract when due could materially impact our results of operations, financial position, and cash flows.
Current or future litigation or regulatory investigations may harm our financial condition or results of operations
As a global technology and manufacturing company, we are engaged in various litigation and regulatory matters. Litigation and regulatory proceedings may be uncertain, and adverse rulings could occur, resulting in significant liabilities, penalties or damages. Such current or futureAny such substantial legal liabilitiesliability or regulatory actionsaction could have a material adverse effect on our business, financial condition, cash flows and reputation.
Our global operations are subject to extensive trade and anti-corruption laws and regulations
Due to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations, including U.S. regulations issued by Customs and Border Protection, the Bureau of Industry and Security, the Office of Anti-boycott Compliance, the Directorate of Defense Trade Controls and the Office of Foreign Assets Control, as well as the counterparts of these agencies in other countries. Any alleged or actual violation by an employee or the Company may subject us to government scrutiny, investigation and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in whichway existing laws might be administered or interpreted.
In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtainingto obtain or retainingretain business, or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of alleged violations. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or financial condition.
Moreover, several of our related partnerskey customers are domiciled in areas of the world with laws, rules and business practices that may notably differ from those in the United States, and we face the reputational and legal risk that our related partners may violate applicable laws, rules and business practices.
International trade policies may negatively impact our ability to sell and manufacture our products outside of the U.S.
Government policies on international trade and investment such as import quotas, tariffs, and capital controls, whether adopted by individual governments or addressed by regional trade blocs, can affect the demand for our products and services, impact the competitive position of our products or prevent us, (including our equity affiliates/affiliates or joint ventures)ventures, from being able to sell and/orand manufacture products in certain countries. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we sell large quantities of products and services could negatively impact our business, results of operations and financial condition. For example, a government’s adoption of “buy national” policies or retaliation by another government against such policies could have a negative impact on our results of operations. These policies also affect our equity companies.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Corning operates 105122 manufacturing plants and processing facilities in 15 countries, of which approximately 33%32% are located in the U.S. We own 68%approximately 60% of our executive and corporate buildings, of which 77% arewith 95% located in and around Corning, New York. The Company also owns over 65%approximately 69% of our sales and administrative office square footage, 88%83% of our research and development square footage, 74%66% of our manufacturing square footage, and over 13%8% of our warehousing square footage.
For the years ended 2017, 20162020 and 2015,2019, we invested a total of $4.2$3.4 billion, primarily in facilities outside of the U.S. in our Display Technologies segment. United States.
Manufacturing, sales and administrative, and research and development facilities have an aggregate floor space of approximately 39.564.9 million square feet. Distribution of this total area is as follows:
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(million square feet) |
| Total |
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Manufacturing |
| 32.6 |
| 7.6 |
| 25.0 | 56.5 | 21.0 | 35.5 | |||
Sales and administrative |
| 2.6 |
| 1.9 |
| 0.7 | 2.6 | 2.0 | 0.6 | |||
Research and development |
| 2.2 |
| 1.9 |
| 0.3 | 2.4 | 2.0 | 0.4 | |||
Warehouse |
| 2.1 |
| 1.6 |
| 0.5 | 3.4 | 3.0 | 0.4 | |||
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Total |
| 39.5 |
| 13.0 |
| 26.5 | 64.9 | 28.0 | 36.9 |
Total assets and capital expenditures by operating segment are included in Note 20 (Reportable Segments) to the Consolidated Financial Statements.consolidated financial statements. Information concerning lease commitments is included in Note 7 (Leases) and Note 14 (Commitments, Contingencies and Guarantees) to the consolidated financial statements.
Item 3. Legal Proceedings
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 in Note 14 (Commitments, Contingencies and Guarantees) to the Consolidated Financial Statements.consolidated financial statements. 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.
Item 3. Legal Proceedings
Environmental Litigation
Environmental Litigation.
Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 15 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At December 31, 20172020 and December 31, 2016,2019, Corning had accrued approximately $38$68 million (undiscounted) and $43$41 million (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.
Item 4. Mine Safety Disclosure
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
| (a)Corning Incorporated common stock is listed |
The following table sets forth the high and low sales price of Corning’s common stock as reported on the New York Stock Exchange Composite Tape.Exchange. In addition, it is traded on the Boston, Midwest and Philadelphia stock exchanges. Common stock options are traded on the Chicago Board Options Exchange. The ticker symbol for Corning Incorporated is “GLW”.
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| First |
| Second |
| Third |
| Fourth | ||||
2017 |
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Price range |
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High |
| $ | 28.36 |
| $ | 30.60 |
| $ | 32.17 |
| $ | 32.82 |
Low |
| $ | 24.12 |
| $ | 26.32 |
| $ | 27.71 |
| $ | 29.52 |
2016 |
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Price range |
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High |
| $ | 21.07 |
| $ | 21.30 |
| $ | 23.81 |
| $ | 25.35 |
Low |
| $ | 16.13 |
| $ | 18.21 |
| $ | 19.78 |
| $ | 22.23 |
As of December 31, 2017,2020, there were approximately 15,20512,090 registered holders of common stock and approximately 474,059515,000 beneficial shareholders.
On February 3, 2016, Corning’s Board of Directors declared a 12.5% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.12 to $0.135 per share of common stock, beginning with the dividend paid in the first quarter of 2016.
On February 1, 2017, Corning’s Board of Directors declared a 14.8% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.135 to $0.155 per share of common stock, beginning with the dividend paid in the first quarter of 2017.
On February 6, 2018, Corning’s Board of Directors declared a 16.1% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.155 to $0.18 per share of common stock, beginning with the dividend paid in the first quarter of 2018. This increase marks the seventh dividend increase since October 2011.
Performance Graph
The following graph illustrates the cumulative total shareholder return over the last five years of Corning's common stock, the S&P 500 and the S&P Communications Equipment Companies. The graph includes the capital weighted performancecapital-weighted-performance results of those companies in the communications equipment company classification that are also included in the S&P 500.
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(b)Not applicable.
(c)The following table provides information about purchases of common stock by the Company during the fiscal fourth quarter of 2020:
Issuer Purchases of Equity Securities
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Period |
| Number |
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| Number |
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October 1-31, 2017 |
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Open market and shares surrendered for |
| 4,888,629 |
| $ | 30.41 |
| 4,866,701 |
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November 1-30, 2017 |
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Open market and shares surrendered for |
| 3,971,949 |
| $ | 31.87 |
| 3,954,613 |
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December 1-31, 2017 |
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Open market and shares surrendered for |
| 3,759,076 |
| $ | 32.27 |
| 3,719,863 |
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Total at December 31, 2017 |
| 12,619,654 |
| $ | 31.42 |
| 12,541,177 |
| $ | 1,578,548,148 |
Period | Total number | Average | Number | Approximate | ||||||
October 1-31, 2020 | 28,338 | $ | 33.88 | |||||||
November 1-30, 2020 | 608 | $ | 35.66 | |||||||
December 1-31, 2020 | 16,195 | $ | 37.21 | |||||||
Total | 45,141 | $ | 35.10 | — | $ | 5,318,357,636 |
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Item 6. Selected Financial Data (Unaudited)
(In millions, except per share amounts and number(1)This column reflects the following transactions during the fourth quarter of employees)
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| Years ended December 31, | |||||||||||||
| 2017 |
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| 2015 |
| 2014 |
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Results of operations |
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Net sales | $ | 10,116 |
| $ | 9,390 |
| $ | 9,111 |
| $ | 9,715 |
| $ | 7,819 |
Research, development and engineering expenses | $ | 860 |
| $ | 742 |
| $ | 769 |
| $ | 815 |
| $ | 710 |
Equity in earnings of affiliated companies | $ | 361 |
| $ | 284 |
| $ | 299 |
| $ | 266 |
| $ | 547 |
Net (loss) income attributable to Corning Incorporated (1)(2) | $ | (497) |
| $ | 3,695 |
| $ | 1,339 |
| $ | 2,472 |
| $ | 1,961 |
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(Loss) earnings per common share attributable to |
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Basic | $ | (0.66) |
| $ | 3.53 |
| $ | 1.02 |
| $ | 1.82 |
| $ | 1.35 |
Diluted | $ | (0.66) |
| $ | 3.23 |
| $ | 1.00 |
| $ | 1.73 |
| $ | 1.34 |
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Cash dividends declared per common share | $ | 0.62 |
| $ | 0.54 |
| $ | 0.36 |
| $ | 0.52 |
| $ | 0.39 |
Shares used in computing per share amounts: |
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Basic earnings per common share |
| 895 |
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| 1,020 |
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| 1,219 |
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| 1,305 |
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| 1,452 |
Diluted earnings per common share |
| 895 |
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| 1,144 |
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| 1,343 |
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| 1,427 |
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| 1,462 |
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Financial position |
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Working capital | $ | 5,618 |
| $ | 6,297 |
| $ | 5,455 |
| $ | 7,914 |
| $ | 7,145 |
Total assets | $ | 27,494 |
| $ | 27,899 |
| $ | 28,527 |
| $ | 30,041 |
| $ | 28,455 |
Long-term debt | $ | 4,749 |
| $ | 3,646 |
| $ | 3,890 |
| $ | 3,205 |
| $ | 3,249 |
Total Corning Incorporated shareholders’ equity | $ | 15,698 |
| $ | 17,893 |
| $ | 18,788 |
| $ | 21,579 |
| $ | 21,162 |
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Selected data |
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Capital expenditures | $ | 1,804 |
| $ | 1,130 |
| $ | 1,250 |
| $ | 1,076 |
| $ | 1,019 |
Depreciation and amortization | $ | 1,158 |
| $ | 1,195 |
| $ | 1,184 |
| $ | 1,200 |
| $ | 1,002 |
Number of employees |
| 46,200 |
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| 40,700 |
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| 35,700 |
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| 34,600 |
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| 30,400 |
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Reference should be made2020: (i) the deemed surrender to us of 8,516 shares of common stock to satisfy tax withholding obligations relating to the Notesvesting of employee restricted stock units; (ii) the deemed surrender to us of 35,612 shares of common stock to satisfy tax withholding obligations relating to the Consolidated Financial Statementsvesting of restricted stock issued to employees; (iii) the deemed surrender to us of 1,013 shares of common stock to pay the exercise price and Management’s Discussion and Analysisto satisfy tax withholding obligations relating to the exercise of Financial Condition and Results of Operations.employee stock options.
(2)The Company suspended share repurchases in March 2020.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For discussion of 2019 results year-over-year comparison with 2018 results refer to "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Organization of Information
Management’s Discussion and Analysis provides a historical and prospective narrative on the Company’s financial condition and results of operations. This discussion includes the following sections:
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OVERVIEWOverview
Results of Operations
Core Performance Measures
Reportable Segments
Liquidity and Capital Resources
Environment
Critical Accounting Estimates
New Accounting Standards
Forward-Looking Statements
OVERVIEW
In response to the COVID-19 pandemic and the ensuing economic uncertainty, including changing market conditions, the Company has and will continue to focus on three core priorities: preserving the financial health of the Company; protecting employees and communities; and delivering on customer commitments.
Strategy & Growth Framework
In 2019, we successfully completed our 2016 - 2019 Strategy and Capital Allocation Framework
In October 2015, Corning announced a strategy and capital allocation framework (the “Framework”) that reflects the Company’s financial and operational strengths, as well as its ongoing commitment to increasing shareholder value. The Framework outlines our leadership priorities, and articulates the opportunities we see across our businesses. We designed the Framework to create significant value for shareholders by focusing our portfolio and leveraging our financial strength.Framework. Under the Framework, we target generating $26 billion to $30 billion of cash through 2019, returning more than $12.5 billion to shareholdersoutlined and investing $10 billion to extend our leadership positions and deliver growth.
Ourdemonstrated how Corning’s probability of success increases as we invest in our world-class capabilities. Corning is concentratingWe concentrate approximately 80% of itsour research, development and engineering investment andalong with capital spending on a cohesive set of three core technologies, four manufacturing and engineering platforms, and five market-access platforms.Market-Access Platforms. This strategy will allowallows us to quickly apply our talents and repurpose our assets across the company, as needed.needed, to capture high-return opportunities.
Performance againstBuilding on the Framework
Since introducingsuccess of the 2016 - 2019 Framework, we have distributed $9 billionannounced our 2020 - 2023 Strategy & Growth Framework, highlighting significant opportunities to shareholderssell more Corning content through share repurchases and dividends, and increased the annual dividend by 16.1% in 2018, 14.8% in 2017 and 12.5% in 2016 as parteach of our ongoing commitmentMarket-Access Platforms. Under this new Framework, our leadership priorities and our fundamental approach to returncapital allocation remain the same. We continue to focus our portfolio and utilize our financial strength. We expect to generate strong operating cash flow as we move forward. We will continue to use our cash to grow, extend our investors.leadership, and reward shareholders.
While 2020, brought unprecedented challenges to our end markets and operations, driven by the COVID-19 pandemic, economic uncertainty, and social unrest, Corning adapted rapidly and remained resilient. We also utilized ourexecuted well to preserve financial strength, while advancing major innovations with industry leaders. We effectively applied our focused and cohesive portfolio to create value and outperform our underlying markets, contributing to growth in 2017 to continue our focus on innovation, advancing key programs across our market platforms. Somethe second half of our achievements in 2017 included:this year.
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20172020 Results
Net sales in the year ended December 31, 20172020 were $10,116 million, an increase$11.3 billion, a net decrease of $726$200 million, or 8%2%, when compared to the year ended December 31, 2016. The increase was2019, driven by lower sales in the Display Technologies, Optical Communications, and the Specialty Materials segments, up $540 million and $279 million, respectively. The Environmental Technologies and Life Sciences segments also increased, up $74 million and $40 million, respectively. A decline in net sales of $241 million in the Display Technologies segment partially offset these increases, driven by price declines of approximately 10%higher sales the Specialty Materials segment and “All Other”.
For the year ended December 31, 2017,2020, we generated a net lossincome of $497$512 million, or $(0.66)$0.54 per share, compared to a net income of $3,695$960 million, or $3.23$1.07 per share, for 2016.2019. When compared to last year,2019, the $4.2 billion$448 million decrease in net income was primarily due to the following items (amounts presented after tax):
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The negative impact of mark-to-market translated earnings contract losses of $226 million;
Higher costs of $170 million for an asset impairment loss related to investments in research and development programs within “All Other”;
Higher costs for litigation and environmental reserves of $133 million;
Higher expenses of $117 million, primarily driven by severance costs for the Display Technologies segment;
The negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue in the amount of $105 million. 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 is exiting its production of LCD panels; and
Lower segment net income of $73 million mainly driven by lower volumes in the first half of 2020.
Partially offsetting these events were the following items:
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Gain on a previously held equity investment in HSG of $387 million; and
An $83 million gain recognized from the initial public offering of an investment in the fourth quarter of 2020.
Diluted earnings per share decreased in 2020 by $0.53 per share, or 50%, when compared to 2019, primarily driven by the decrease in net income described above. The impact of share repurchases did not materially impact the change in diluted earnings per share.
The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in 2017, did not materially impactthe current year, positively impacted Corning’s consolidated net income by approximately $51 million in the year ended December 30, 201731, 2020, when compared to the year ended December 31, 2016.same period in 2019.
20182021 Corporate Outlook
We believe 20182021 will be anothera year of strong growth and investment, consistent with our Strategy and Capital Allocation Framework, and anticipate that core saleswe will grow to approximately $11 billion. In our Display Technologies segment, we expect pricing to continue to improve, with year-over-year declines reaching mid-single digits, an important milestone toward our goal of stabilizing returns. We anticipate Corning’s LCD glass volume will grow faster than the expected LCD glass market growth of mid-single digits, driven by television screen size growthfocus on operational excellence, cash-flow generation and the ramp of our Gen 10.5 facility in China. In the Optical Communications segment, we expect sales to increase by about 10%, excluding any contribution from the pending acquisition of 3M’s Communications Market Division, driven by strong demand from carrier and enterprise network customers.prudent capital allocation. We expect high-single digityear-over-year sales growth in our Environmental Technologies segment, driven by continued strength in automotive product sales, on-going improvementsto accelerate in the heavy-duty diesel market and from the commercial launchfirst quarter of gas-particulate filters. We expect growth in the Specialty Materials segment, the rate2021, with approximately $3.0 - $3.2 billion of which will depend on new model launches and the adoption of our innovations, and anticipate mid-single digit growth in the Life Sciences segment.net sales.
RESULTS OF OPERATIONS
Selected highlights from our operations follow (in millions):
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| % change | Year ended December 31, | % change | ||||||||||||||
| 2017 |
| 2016 |
| 2015 |
| 17 vs. 16 |
| 16 vs. 15 | 2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
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Net sales | $ | 10,116 |
| $ | 9,390 |
| $ | 9,111 |
| 8 |
| 3 | $ | 11,303 | $ | 11,503 | $ | 11,290 | (2) | 2 | ||||
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Gross margin | $ | 4,032 |
| $ | 3,746 |
| $ | 3,653 |
| 8 |
| 3 | $ | 3,531 | $ | 4,035 | $ | 4,461 | (12) | (10) | ||||
(gross margin %) |
| 40% |
| 40% |
| 40% |
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| 31% | 35% | 40% | |||||||||||
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Selling, general and administrative expenses | $ | 1,467 |
| $ | 1,472 |
| $ | 1,508 |
| 0 |
| (2) | $ | 1,747 | $ | 1,585 | $ | 1,799 | 10 | (12) | ||||
(as a % of net sales) |
| 15% |
| 16% |
| 17% |
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| 15% | 14% | 16% | |||||||||||
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Research, development and engineering expenses | $ | 860 |
| $ | 742 |
| $ | 769 |
| 16 |
| (4) | $ | 1,154 | $ | 1,031 | $ | 993 | 12 | 4 | ||||
(as a % of net sales) |
| 9% |
| 8% |
| 8% |
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| 10% | 9% | 9% | |||||||||||
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Equity in earnings of affiliated companies | $ | 361 |
| $ | 284 |
| $ | 299 |
| 27 |
| (5) | ||||||||||||
Equity in (losses) earnings of affiliated companies | $ | (25) | $ | 17 | $ | 390 | * | (96) | ||||||||||||||||
(as a % of net sales) |
| 4% |
| 3% |
| 3% |
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| (0)% | 0% | 3% | |||||||||||
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Translated earnings contract (loss) gain, net | $ | (121) |
| $ | (448) |
| $ | 80 |
| 73 |
| * | $ | (38) | $ | 248 | $ | (93) | * | * | ||||
(as a % of net sales) |
| (1)% |
| (5)% |
| 1% |
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| (0)% | 2% | (1)% | |||||||||||
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Gain on realignment of equity investment |
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| 2,676 |
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Transaction-related gain, net | $ | 498 | * | * | ||||||||||||||||||||
(as a % of net sales) |
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| 28% |
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| 4% | |||||||||||||
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Income before income taxes | $ | 1,657 |
| $ | 3,692 |
| $ | 1,486 |
| (55) |
| 148 | $ | 623 | $ | 1,216 | $ | 1,503 | (49) | (19) | ||||
(as a % of net sales) |
| 16% |
| 39% |
| 16% |
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| 6% | 11% | 13% | |||||||||||
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(Provision) benefit for income taxes | $ | (2,154) |
| $ | 3 |
| $ | (147) |
| * |
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Provision for income taxes | $ | (111) | $ | (256) | $ | (437) | 57 | 41 | ||||||||||||||||
(as a % of net sales) |
| (21)% |
| 0% |
| (2)% |
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| (1)% | (2)% | (4)% | |||||||||||
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Net (loss) income attributable to Corning Incorporated | $ | (497) |
| $ | 3,695 |
| $ | 1,339 |
| * |
| 176 | ||||||||||||
Net income attributable to Corning Incorporated | $ | 512 | $ | 960 | $ | 1,066 | (47) | (10) | ||||||||||||||||
(as a % of net sales) |
| (5)% |
| 39% |
| 15% |
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| 5% | 8% | 9% |
* Percent change not meaningful.
Segment Net Sales
The following table presents segment net sales by reportable segment (in millions):
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| Years ended December 31, |
| Change |
| Change | Year ended December 31, | change | change | ||||||||||||||||
| 2017 |
| 2016 |
| 2015 |
| 17 vs. 16 |
| 16 vs. 15 | 2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Display Technologies | $ | 2,997 |
| $ | 3,238 |
| $ | 3,086 |
| (7)% |
| 5% | $ | 3,172 | $ | 3,254 | $ | 3,276 | (3)% | (1)% | ||||
Optical Communications |
| 3,545 |
| 3,005 |
| 2,980 |
| 18% |
| 1% | 3,563 | 4,064 | 4,192 | (12)% | (3)% | |||||||||
Specialty Materials | 1,884 | 1,594 | 1,479 | 18% | 8% | |||||||||||||||||||
Environmental Technologies |
| 1,106 |
| 1,032 |
| 1,053 |
| 7% |
| (2)% | 1,370 | 1,499 | 1,289 | (9)% | 16% | |||||||||
Specialty Materials |
| 1,403 |
| 1,124 |
| 1,107 |
| 25% |
| 2% | ||||||||||||||
Life Sciences |
| 879 |
| 839 |
| 821 |
| 5% |
| 2% | 998 | 1,015 | 946 | (2)% | 7% | |||||||||
All Other |
| 186 |
| 152 |
| 64 |
| 22% |
| 138% | 465 | 230 | 216 | 102% | 6% | |||||||||
Total net sales | $ | 10,116 |
| $ | 9,390 |
| $ | 9,111 |
| 8% |
| 3% | ||||||||||||
Net sales of reportable segments and All Other | $ | 11,452 | $ | 11,656 | $ | 11,398 | (2)% | 2% | ||||||||||||||||
Impact of foreign currency movements (1) | (44) | (153) | (108) | 71% | (42)% | |||||||||||||||||||
Cumulative adjustment related to customer contract (2) | (105) | * | ||||||||||||||||||||||
Consolidated net sales | $ | 11,303 | $ | 11,503 | $ | 11,290 | (2)% | 2% |
(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies, Environmental Technologies and Life Sciences segments.
(2)Amount represents the negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue in the amount of $105 million. 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 is exiting its production of LCD panels.
* Percent change not meaningful.
For the year ended December 31, 2017,2020, segment net sales increaseddecreased by $726$204 million, or 8%2%, when compared to the same period in 2016.2019. The primary sales drivers by segment were as follows:
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Display Technologies’ net sales decreased by $82 million, primarily driven by lower sales and production volumes in the first half of the year;
Optical Communications’ net sales declined $501 million, as sales declined for carrier products by $273 million and enterprise products by $228 million, due to general market weakness and capital spending reductions by several major customers;
Net sales for Environmental Technologies decreased $129 million, as production facilities of vehicle manufacturers were temporarily shut down during the first half of 2020 in key markets;
Net sales in the Life Sciences segment decreased by $17 million, primarily driven by lab closures due to the COVID-19 pandemic;
Net sales increased in the Specialty Materials segment in the amount of $290 million, primarily driven by strong demand for premium cover materials in support of second-half customer launches, growth in IT products due to work and study from home trends, as well as demand for semiconductor equipment products; and
Net sales for “All Other” increased by $235 million, primarily driven by the consolidation of HSG on September 9, 2020, which added sales of $194 million.
Movements in foreign exchange rates did not materially impactpositively impacted Corning’s consolidated net sales by $115 million in the year ended December 31, 2017, respectively,2020, when compared to the same period in 2016.2019.
For the year ended December 31, 2016, net sales increased by $279 million, or 3%, when compared to the same period in 2015. The following items drove the increase:
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In the year ended December 31, 2016, the translation impact of fluctuations in foreign currency exchange rates, primarily the Japanese yen, positively affected Corning’s consolidated net sales in the amount of $330 million when compared to the same period in 2015.
In 2017, 20162020 and 2015, 2019, sales in international markets accounted for 69%, 72%70% and 70%68%, respectively, of total net sales.
Cost of Sales
The types of expenses included in the cost of sales line item are: raw materials consumption, including direct and indirect materials; salaries, wages and benefits; depreciation and amortization; production utilities; production-related purchasing; warehousing (including receiving and inspection); repairs and maintenance; inter-location inventory transfer costs; production and warehousing facility property insurance; rent for production facilities; and other production overhead.
Gross Margin
In the year ended December 31, 2017,2020, gross margin dollars increaseddecreased by $286$504 million, or 8%, and gross12%. Gross margin as a percentage of net sales remained consistent at 40%,declined by 4 percentage points. Negative impacts to gross margin were primarily driven by severance charges for the Display Technologies segment and lower volumes in Display Technologies, Optical Communications and Environmental Technologies segments for the year ended December 31, 2020.
Movements in foreign exchange rates had a $91 million positive impact on Corning’s consolidated gross margin in the year ended December 31, 2020, when compared to the same period last year. The increase in gross margin dollars was primarily driven by the following items:2019.
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LCD glass price declines of approximately 10% and the negative impact of movements in the Japanese yen and South Korean won in the amount of $73 million, which primarily impacted the Display Technologies segment, partially offset the increase.
In the year ended December 31, 2016, gross margin dollars increased $93 million, and gross margin as a percentage of net sales remained consistent at 40% when compared to the same period last year. The increase in gross margin dollars was primarily driven by the positive impact from the strengthening of the Japanese yen in the amount of $266 million, an increase in manufacturing efficiency and cost reductions in our Display Technologies and Optical Communications segments which added approximately $160 million, a more favorable mix of products sold in the Optical Communications segment and an increase in volume in the mid-single digit percentage in the Display Technologies segment. Display Technologies segment price declines slightly above 10% partially offset the increase.
Selling, General and Administrative Expenses
When compared to the year ended December 31, 2016,2019, selling, general and administrative expenses decreasedincreased by $5$162 million, or 10%, in the year ended December 31, 2017. The decrease was due to the following items:
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Offsetting these events were the following items:
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In the year ended December 31, 2016, selling,2020. Selling, general and administrative expenses decreasedincreased by $36 million when compared to the same period in 2015, driven primarily by the following items:
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Partially offsetting these events were:
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When compared to the same period in 2015,1% as a percentage of net sales, selling, generalsales. The increase was primarily driven by higher litigation, restructuring and administrative expenses decreasedshare-based compensation costs, partially offset by 1%. salary and cost reductions across the Company.
The types of expenses included in the selling, general and administrative expenses line item are: salaries, wages and benefits; stock-based compensation expense; travel; sales commissions; professional fees; and depreciation and amortization, utilities and rent for administrative facilities.
Research, Development and Engineering Expenses
InFor the year ended December 31, 2017,2020, research, development and engineering expenses increased by $118$123 million, or 16%12%, when compared to the same period lastin the prior year, primarily driven by a pre-tax asset impairment loss of $211 million related to the absencereassessment and reprioritization of research and development programs within “All Other”. Given the impact of a 2016 jointcurrent economic environment and market opportunities, Corning has rescoped and significantly reduced its investment in these research and development agreement in the Display Technologies segment, as well as higher costs associated with new product launches in the Optical Communications, Specialty Materials and Environmental Technologies segments, up $20 million, $11 million and $7 million, respectively.programs. As a percentage of sales, these expenses increased one percentwere 1% higher when compared to the same period last year.
InRestructuring, Impairment, and Other Charges and Credits
For the year ended December 31, 2016, research, development2020, and engineering expenses declined $27 million when comparedin response to uncertain global economic conditions, Corning undertook actions to transform the same period in 2015 driven byCompany’s cost structure and improve operational efficiency. During the impact of a joint development agreement with a Display Technologies customer, offset partially by project development spending in the Optical Communications, Environmental Technologies and Specialty Materials segments. As a percentage of net sales, research, development and engineering expenses remained consistent with the same period in 2015.
Restructuring, Impairment, and Other Charges
year ended December 31, 2020, Corning recorded restructuring, impairment, and other charges and credits of $827 million.
In the second quarter of 2020, the Company implemented a corporate-wide workforce reduction program. Severance charges were primarily incurred to facilitate realignment of capacity in 2016the Asia regions for the Display Technologies segment, optimize the Optical Communications segment and 2015. Additional information on restructuringcontain corporate costs. For the year ended December 31, 2020, severance charges were $148 million. As of December 31, 2020, the unpaid severance liabilities of $45 million are expected to be substantially completed within the next twelve months.
For the year ended December 31, 2020, Corning incurred a long-lived asset impairment and disposal loss for an asset group related to the reassessment of research and development programs within “All Other”. Given the economic environment and market opportunities, Corning discontinued its investment in these research and development programs. The impairment analysis and disposition of certain assets resulted in a total pre-tax charge of $217 million, primarily recorded in research, development and engineering expenses, as noted above, which was substantially all the carrying value, inclusive of an insignificant amount of goodwill.
Capacity realignment costs of $304 million for the year ended December 31, 2020, primarily include accelerated depreciation and asset impairment is founddisposals associated with the exit of certain facilities and other exit activities in the Display Technologies and Specialty Materials business segments. Other charges and credits of $158 million, were related to other exit activities.
Refer to Note 2 (Restructuring, Impairment and Other Charges)Charges and Credits) to the Consolidated Financial Statements. A description of those charges and credits follows:
2017 Activity
For the year ended December 31, 2017, we did not record significant restructuring, impairment and other charges or reversals. Cash expendituresconsolidated financial statements for additional information on restructuring activities were $4 million. and impairment.
2015 Activity
For the year ended December 31, 2015, we did not record significant restructuring, impairment and other charges or reversals. Cash expenditures for restructuring activities were $40 million.
Equity in (Losses) Earnings of Affiliated Companies
The following provides a summary of equity in (losses) earnings of affiliated companies (in millions):
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| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
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Dow Corning Corporation (1) |
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| $ | 82 |
| $ | 281 |
Hemlock Semiconductor Group (2) | $ | 352 |
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| 212 |
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All other |
| 9 |
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| (10) |
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| 18 |
Total equity earnings | $ | 361 |
| $ | 284 |
| $ | 299 |
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Hemlock Semiconductor Group (1) | $ | 22 | $ | 27 | $ | 388 | ||
All other (2) | (47) | (10) | 2 | |||||
Total equity (losses) earnings | $ | (25) | $ | 17 | $ | 390 |
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On May(1)The year ended December 31, 2016,2020, includes HSG’s results of operations through September 8, 2020. Corning completedbegan consolidating HSG on September 9, 2020.
(2)Includes the strategic realignmentCompany’s share of its equity investment in Dow Corning Corporation (“Dow Corning”) pursuanta loss related to the Transaction Agreement announced on December 10, 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stocksale of a newly formed entity, which holds an equity interest in Hemlock Semiconductor Group and approximately $4.8 billion in cash.
The equity in earnings line on our income statementbusiness for the year ended December 31, 2016 reflects both the equity earnings from the silicones2020.
HSG acquired DuPont’s Trichlorosilane (“TCS”) manufacturing assets, which was determined to be a business and polysilicones (Hemlock Semiconductor) businesses of Dow Corning from January 1, 2016 through May 31, 2016, the closing daterecorded as a business combination. The fair value of the Transaction Agreement, and seven months of equity earnings from Hemlock Semiconductor Group. Prior to the realignment of Dow Corning, equity earnings from the Hemlock Semiconductor business were reported on the equity in earnings line in Corning’s income statement, net of Dow Corning’s 35% U.S. tax. Additionally, Corning reportedpurchase price was $255 million. In conjunction with this acquisition, HSG settled its tax on equity earnings from Dow Corning on the tax provision line on its income statement at a U.S. tax provision rate of 7%. As part of the realignment, Hemlock Semiconductor Group was convertedpre-existing contract dispute related to a partnership. Eachlong-term supply agreement with DuPont (“TCS Settlement”) for a contractual amount of the partners is responsible for the taxes on their portion$175 million, which was determined to have a fair value of equity earnings. Therefore, post-realignment, Hemlock Semiconductor Group’s equity earnings is reported before tax on the equity in earnings line and Corning’s tax is reported on the tax provision line.
Refer to$200 million. See Note 14 (Commitments, Contingencies and Guarantees)4 (HSG Transactions) to the consolidated financial statements for additionalmore information.
HSG’s net income for the period ended September 8, 2020, included a pre-tax gain recorded in the second quarter of 2020, related to the settlement of a long-term supply agreement of approximately $165 million, partially offset by an inventory provision of approximately $44 million associated with the settlement of the agreement. Prior to the Redemption, in the third quarter of 2020, HSG recorded a pre-tax loss of $200 million resulting from the settlement of a pre-existing contract dispute related to a long-term supply agreement with DuPont (“TCS Settlement”). Corning’s share of the pre-tax loss was $81 million. Accordingly, Corning’s share of the net impact was an equity loss of $19 million.
Since September 9, 2020, HSG’s revenue of $194 million has been consolidated in “All Other” in Corning’s consolidated statements of income for the year ended December 31, 2020. The amount of net income is not material to Corning’s consolidated financial statements for the current year.
Additional information about corporate investments is presented in Note 3 (Investments) and Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements.
Translated earnings contractscontract (loss) gain, net
Included in the line item Translatedtranslated earnings contract (loss) gain, net, is the impact of foreign currency hedgescontracts which hedge our translation exposure arising from movements in the Japanese yen, South Korean won, euro, Newnew Taiwan dollar, andeuro, Chinese yuan against the U.S. dollarand British pound and its impact on our net (loss) income.
The following table provides detailed information on the impact of our translated earnings contractcontracts gains and losses and gains:
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| Year ended |
| Year ended |
| Change | ||||||||||||
| December 31, 2017 |
| December 31, 2016 |
| 2017 vs. 2016 | ||||||||||||
(in millions) | Income |
| Net |
| Income |
| Net |
| Income |
| Net | ||||||
Hedges related to translated earnings: |
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Realized gain, net | $ | 270 |
| $ | 169 |
| $ | 201 |
| $ | 127 |
| $ | 69 |
| $ | 42 |
Unrealized (loss) gain |
| (391) |
|
| (247) |
|
| (649) |
|
| (409) |
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| 258 |
|
| 162 |
Total translated earnings contract (loss) gain | $ | (121) |
| $ | (78) |
| $ | (448) |
| $ | (282) |
| $ | 327 |
| $ | 204 |
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| Year ended |
| Year ended |
| Change | ||||||||||||
| December 31, 2016 |
| December 31, 2015 |
| 2016 vs. 2015 | ||||||||||||
(in millions) | Income |
| Net |
| Income |
| Net |
| Income |
| Net | ||||||
Hedges related to translated earnings: |
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Realized gain, net | $ | 201 |
| $ | 127 |
| $ | 653 |
| $ | 410 |
| $ | (452) |
| $ | (283) |
Unrealized (loss) gain |
| (649) |
|
| (409) |
|
| (573) |
|
| (362) |
|
| (76) |
|
| (47) |
Total translated earnings contract gain (loss) | $ | (448) |
| $ | (282) |
| $ | 80 |
| $ | 48 |
| $ | (528) |
| $ | (330) |
The gross notional value outstanding for our translated earnings contracts atthe years ended December 31, 2017, 20162020, 2019 and 2015 were as follows (in billions):2018:
(in millions) | (Loss) | Net | Income | Net | Income | Net | |||||||||||
2020 | 2019 | 2020 vs. 2019 | |||||||||||||||
Hedges related to translated earnings: | |||||||||||||||||
Realized (loss) gain, net (1) | $ | (8) | $ | (5) | $ | 18 | $ | 14 | $ | (26) | $ | (19) | |||||
Unrealized (loss) gain, net (1) (2) | (30) | (24) | 230 | 179 | (260) | (203) | |||||||||||
Total translated earnings contract (loss) gain, net | $ | (38) | $ | (29) | $ | 248 | $ | 193 | $ | (286) | $ | (222) | |||||
2019 | 2018 | 2019 vs. 2018 | |||||||||||||||
Hedges related to translated earnings: | |||||||||||||||||
Realized gain, net (1) | $ | 18 | $ | 14 | $ | 97 | $ | 78 | $ | (79) | $ | (64) | |||||
Unrealized gain (loss), net (1) (2) | 230 | 179 | (190) | (189) | 420 | 368 | |||||||||||
Total translated earnings contract gain (loss), net | $ | 248 | $ | 193 | $ | (93) | $ | (111) | $ | 341 | $ | 304 | |||||
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| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Japanese yen-denominated hedges | $ | 13.0 |
| $ | 14.9 |
| $ | 8.3 |
South Korean won-denominated hedges |
| 0.8 |
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| 1.2 |
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| 3.3 |
Euro-denominated hedges |
| 0.3 |
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| 0.3 |
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| 0.3 |
Chinese yuan-denominated hedges |
| 0.2 |
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| 0.3 |
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Total gross notional value outstanding | $ | 14.3 |
| $ | 16.7 |
| $ | 11.9 |
(1)Includes pre-tax realized losses related to the expiration of option contracts for the year ended 2020, 2019, 2018 of $20 million, $37 million and $11 million, respectively, and was reflected in operating activities in the consolidated statements of cash flows.
(2)The impact to income was primarily driven by Japanese yen, South Korean won, and euro-denominated hedges of translated earnings.
Income Before Income Taxes
The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in 2017, did not impactthe current year, positively impacted Corning’s income before income taxes by $60 million in the year ended December 31, 20172020, when compared to the same period in 2016.2019.
The translation impact of fluctuations in foreign currency exchange rates positively affected Corning’s income before income taxes in the year ended December 31, 2016 in the amount of $304 million when compared to 2015. This impact was partially offset by the decrease in the realized gain from our foreign currency translation hedges related to translated earnings of $452 million.
(Provision) BenefitProvision for Income Taxes
Our (provision) benefitprovision for income taxes and the related effective income tax rates were as follows (dollars in millions):
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Provision for income taxes | $ | (111) | $ | (256) | $ | (437) | ||
Effective tax rate | 17.8% | 21.1% | 29.1% |
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| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
(Provision) benefit for income taxes | $ | (2,154) |
| $ | 3 |
| $ | (147) |
Effective tax rate (benefit) |
| 130% |
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| (0.1)% |
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| 9.9% |
For the year ended December 31, 2017,2020, the effective income tax rate differed from the U.S. statutory rate of 35%21% primarily due to the following benefits:following:
Additional net provision of $73 million from changes to our tax reserves; A net provision of $45 million due primarily to stronger foreign earnings relative to U.S. earnings in the current year, as well as U.S. income inclusion under the Internal Revenue Code (“Subpart F income”); and A net benefit of $116 million due to a net operating loss carryback allowed under the CARES Act.
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For the year ended December 31, 2019, the |
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The effective income tax rate for 2016 differed from the U.S. statutory rate of 35%21% primarily due to the following items:following:
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© 2018 Corning Incorporated. All Rights ReservedAdditional net provision of $102 million from changes to our tax reserves;
A net benefit of $45 million due to releases of foreign valuation allowances on foreign deferred tax assets that are now considered realizable; and
29
Corning’s results for theAdditional net benefit, including a change in estimate from prior year, ending December 31, 2017 included a total $2.2 billion worldwide tax provision, inclusive of tax on normal operations and the impacts of the 2017 Tax Act. Given the significant complexity offrom the 2017 Tax Act and anticipated future guidance from the U. S. Treasury, the Securities and Exchange Commission and the Financial Accounting Standards Board (“FASB”) relatedattributable to the 2017 Tax Act, the Securities Exchange Commission has issued its Staff Accounting Bulletin 118 (“SAB 118”) to provide registrants additional time to analyze and report the effectsforeign intangible income (FDII) deduction of tax reform during the “measurement period”. Under SAB 118, the registrant is required to record those items where ASC 740 analysis is complete; include reasonable estimates and label them as provisional where ASC 740 analysis is incomplete; and if reasonable estimates cannot be made, record items under the previous tax law. The measurement period ends on the date the entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740 and is not to exceed 1 year.
In addition to SAB 118, the FASB has issued guidance regarding how to account$103 million offset by taxes for tax reform as well as a proposal to reclassify stranded tax costs from AOCI to retained earnings. Furthermore, to date, the U.S. Treasury has issued Notice 2018-07 on December 29, 2017 and Notice 2018-13 on January 19, 2018 with additional guidance on how to compute the toll charges.
At December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the 2017 Tax Act; however, we have made a reasonable estimate of the effects on our U.S. deferred tax balances in the amount of $347 million, the one-time toll charge of $1.1 billion and the impact on our state valuation allowances and recorded these as provisional amounts. The initial accounting is incomplete as we need additional time and information to analyze all aspects of the newly enacted law and how it impacts our worldwide operations. The additional information that needs to be obtained, prepared or analyzed in order to complete the accounting requirements includes receiving further guidance from the tax authorities; additional time to prepare basis calculations; post-enactment impacts, and further time to validate our assumptions.
We re-measured the U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the 2017 Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our deferred tax balances was $347 million.
The one-time toll charge is based on our unrepatriated earnings of certain foreign subsidiaries that were previously deferred. This charge resulted in an additional provisional tax expense amount of $1.1 billion. We have not yet completed our calculation of the toll charge. This amount may change when we finalize the calculation of unrepatriated earnings that were previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. Settlement of the toll charge will occur almost entirely through the use of existing foreign tax credit carryovers.
Corning has not made sufficient progress on estimating the impact of tax reform on its assertion regarding its indefinitely reinvested foreign earnings so the Company will continue to follow its historic position while it continues to analyze this issue. As of December 31, 2017, Corning estimates that its unremitted foreign earnings were $16.9 billion. While Corning is not changing its assertion at this time, the Company has distributed approximately $2 billion in January 2018 from two of its foreign subsidiaries to the U.S. parent of those subsidiaries. There are no incremental taxes beyond the toll charge due with respect to this distribution of cash.
Under its historic policy, Corning will continue to indefinitely reinvest substantially all of its foreign earnings, with the exception of an immaterial amount of current earnings that have very low or no tax cost associated with their repatriation. Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash.
Corning’s accounting for the impact of the global intangible low-taxed income (GILTI) provisions of $15 million.
Generally, Corning will indefinitely reinvest the 2017 Tax Actforeign earnings of: (1) any of its subsidiaries located in jurisdictions where Corning lacks the ability to repatriate its earnings, (2) any of its subsidiaries where Corning’s intention is incompleteto reinvest those earnings in operations, (3) legal entities for which Corning holds a non-controlling interest, (4) any subsidiaries with an accumulated deficit in earnings and asprofits, (5) any subsidiaries which have a result, itpositive earnings and profits balance but for which the entity lacks sufficient local statutory earnings or stock basis from which to make a distribution, or (6) any of its subsidiaries where a future distribution would trigger a significant net cost to the U.S. shareholder.
During 2020, the Company distributed approximately $914 million from foreign subsidiaries to their respective U.S. parent companies. As of December 31, 2020, Corning has not yet elected a policyapproximately $2 billion of indefinitely reinvested foreign earnings. It remains impracticable to account forcalculate the GILTI provisions.tax cost of repatriating our unremitted earnings which are considered indefinitely reinvested.
We will continue to monitor future guidance and to assess the impacts of the 2017 Tax Act.
It is reasonably possible that the amount of unrecognized tax benefits will change due to one or more of the following events during the next twelve months: audit activity, tax payments, or final decisions in matters that are the subject of controversy in various jurisdictions within which we operate. We believe we have provided adequate contingent reserves for these events. However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than our current reserves, our overall tax expense and effective tax rate could be materially impacted in the period of adjustment.
Refer to Note 68 (Income Taxes) to the Consolidated Financial Statementsconsolidated financial statements for further details regarding income tax matters.
Net (Loss) Income Attributable to Corning Incorporated
As a result of the items discussed above, net (loss) income and per share data was as follows (in millions, except per share amounts):
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| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
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Net (loss) income attributable to Corning Incorporated | $ | (497) |
| $ | 3,695 |
| $ | 1,339 |
Net (loss) income attributable to Corning Incorporated used in | $ | (595) |
| $ | 3,597 |
| $ | 1,241 |
Net (loss) income attributable to Corning Incorporated used in | $ | (595) |
| $ | 3,695 |
| $ | 1,339 |
Basic (loss) earnings per common share | $ | (0.66) |
| $ | 3.53 |
| $ | 1.02 |
Diluted (loss) earnings per common share | $ | (0.66) |
| $ | 3.23 |
| $ | 1.00 |
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Weighted-average common shares outstanding - basic |
| 895 |
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| 1,020 |
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| 1,219 |
Weighted-average common shares outstanding - diluted |
| 895 |
|
| 1,144 |
|
| 1,343 |
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Net income attributable to Corning Incorporated | $ | 512 | $ | 960 | $ | 1,066 | ||
Net income attributable to Corning Incorporated used in | $ | 414 | $ | 862 | $ | 968 | ||
Net income attributable to Corning Incorporated used in | $ | 414 | $ | 960 | $ | 1,066 | ||
Basic earnings per common share | $ | 0.54 | $ | 1.11 | $ | 1.19 | ||
Diluted earnings per common share | $ | 0.54 | $ | 1.07 | $ | 1.13 | ||
Weighted-average common shares outstanding - basic | 761 | 776 | 816 | |||||
Weighted-average common shares outstanding - diluted | 772 | 899 | 941 |
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(1)Referto Note 18 (Earnings per Common Share) to the consolidated financial statements for additional information.
Comprehensive Income
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| Years ended December 31, | Year ended December 31, | ||||||||||||||
(In millions) | 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
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Net (loss) income attributable to Corning Incorporated | $ | (497) |
| $ | 3,695 |
| $ | 1,339 | ||||||||
Net income attributable to Corning Incorporated | $ | 512 | $ | 960 | $ | 1,066 | ||||||||||
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Foreign currency translation adjustments and other |
| 746 |
| (104) |
| (590) | 528 | (143) | (185) | |||||||
Net unrealized gains (losses) on investments |
| 14 |
| (3) |
| 1 | 1 | (1) | ||||||||
Unamortized gains (losses) and prior service credits (costs) for |
| 30 |
| 241 |
| 121 | ||||||||||
Net unrealized gains (losses) on designated hedges |
| 44 |
| 1 |
| (36) | ||||||||||
Other comprehensive income (loss), net of tax |
| 834 |
| 135 |
| (504) | ||||||||||
Unamortized (losses) gains and prior service (costs) credits for | ||||||||||||||||
postretirement benefit plans | (88) | (64) | 19 | |||||||||||||
Net unrealized (losses) gains on designated hedges | (9) | 45 | (1) | |||||||||||||
Other comprehensive income (loss), net of tax (Note 17) | 431 | (161) | (168) | |||||||||||||
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Comprehensive income attributable to Corning Incorporated | $ | 337 |
| $ | 3,830 |
| $ | 835 | $ | 943 | $ | 799 | $ | 898 | ||
2017 vs. 2016
For the year ended December 31, 2017,2020, comprehensive income decreasedincreased by $3.5 billion,$144 million, when compared to the same period in 2016, driven by a decrease in net income of $4.2 billion and a decrease in unamortized actuarial gains for postretirement benefit plans. The significant decrease in net income was largely driven by2019, primarily due to the absence of a $2.7 billion non-taxable gain and a $105 million positive tax adjustment on the strategic realignment of our ownership interest in Dow Corning recorded in the second quarter of 2016, combined with the impact of the passage of the 2017 Tax Act, which included a provisional toll charge of $1.1 billion and a provisional charge of $347 million as a result of the remeasurement of U.S. deferred tax assets and liabilities. Our unamortized actuarial gains decreased driven by a decrease in the discount rates used to value our postretirement benefit obligations.following:
Partially offsetting these decreases was anAn increase in the gain on foreign currency translation adjustments in the amount of $850 million (after-tax), largely driven by the weakening of foreign currencies, most significantly the South Korean won, Japanese
yen and the euro, which impacted comprehensive income in the amounts of $420 million, $164 million and $115 million, respectively.
2016 vs. 2015
For the year ended December 31, 2016, comprehensive income increased by $2,995 million when compared to the same period in 2015, driven by an increase of $2,356 million in net income, the positive impact of the change in foreign currency translation adjustments and an increase in unamortized actuarial gains for postretirement benefit plans.
The decrease in the loss on foreign currency translation adjustments for the year ended December 31, 2016 in the amount of $486 million (after-tax) was driven by the following items: 1) the decrease in the loss on the translation of Corning’s consolidated subsidiaries in the amount of $398$671 million, largely driven by the strengthening ofJapanese yen, South Korean won and Chinese yuan.
This gain was partially offset by the Japanese yen; and 2) thefollowing:
A decrease in the loss in the translationnet income of Corning’s equity method investments in the amount$448 million; and
The negative impact of $88 million, driven by the realignmenta change to net unrealized losses on designated hedges of our ownership interests in Dow Corning.$54 million.
The increase in unamortized actuarial gains for postretirement benefit plans in the amount of $120 million (after-tax) is dueRefer to the following: 1) the decrease of $65 million related to the reclassification of actuarial gains to the income statement, largely due to higher pension asset returns; 2) an increase in actuarial losses of $3 million; and 3) a decrease of $188 million in unamortized losses related to our equity companies. The significant change was driven by the release of Dow Corning’s unamortized actuarial loss, which was included in the gain on the realignment of our ownership interests in Dow Corning.
See Note 13 (Employee Retirement Plans) and Note 17 (Shareholders’ Equity) to the Consolidated Financial Statementsconsolidated financial statements for additional details.
CORE PERFORMANCE MEASURES
In managing the Company and assessing our financial performance, we supplementadjust certain measures provided by our consolidated financial statements with measures adjusted to exclude certainspecific items to arrive atreport core performance measures. We believe thatThese items include gains and losses on our translated earnings contracts, acquisition-related costs, certain discrete tax items and other tax-related adjustments, restructuring, impairment losses, and other charges and credits, certain litigation-related expenses, pension mark-to-market adjustments and other items which do not reflect on-going operating results of the Company or our equity affiliates. Corning utilizes constant-currency reporting core performance measures provides investors greater transparency to the information used byfor our management team to make financialDisplay Technologies, Environmental Technologies, Specialty Materials and operational decisions. Corning has adopted the use of constant currency reportingLife Sciences segments for the Japanese yen, and South Korean won, Chinese yuan, new Taiwan dollar and uses an internally derived yen-to-dollar management rate of ¥99the euro. Effective January 1, 2019, Corning began using constant-currency reporting for our Environmental Technologies and won-to-dollar management rate of ₩1,100.Life Sciences segments. The Company believes that the use of constant currencyconstant-currency reporting allows investors to understand our results without the volatility of currency fluctuations and reflects the underlying economics of the translated earnings contracts used to mitigate the impact of changes in currency exchange rates on our earnings and cash flows. Corning also believes that reporting core performance measures provides investors greater transparency to the information used by our management team to make financial and operational decisions.
Net sales, equity in earnings of affiliated companies and net income are adjusted to exclude the impacts of changes in the Japanese yen and the South Korean won, gains and losses on our translated earnings contracts, acquisition-related costs, certain discrete tax items, restructuring and restructuring-related charges, certain litigation-related expenses, pension mark-to-market adjustments and other items which do not reflect on-going operating results of the Company or our equity affiliates. Management’s discussion and analysis on our reportable segments has also been adjusted for these items, as appropriate. TheseCore performance measures are not prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). We believe investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our core operating performance and how management evaluates our operational results and trends. These measures are not, and should not be viewed as a substitute for, GAAP reporting measures. With respect to the Company’s outlooksoutlook for future periods, it is not ablepossible to provide reconciliations for these non-GAAP measures because the Company does not forecast the movement of the Japanese yen and South Korean wonforeign currencies against the U.S. dollar, or other items that do not reflect ongoing operations, nor does it forecast items that have not yet occurred or are out of the Company’s control. As a result, the Company is unable to provide outlook information on a GAAP basis.
See “Use of Non-GAAP Financial Measures” for details on core performance measures.
Effective July 1, 2019, we replaced the term “Core Earnings” with “Core Net Income”. The terms are interchangeable and the underlying calculations remain the same.
For a reconciliation of non-GAAP performance measures to their most directly comparable GAAP financial measure, please see “Reconciliation of Non-GAAP Measures” below..
RESULTS OF OPERATIONS – CORE PERFORMANCE MEASURES
Selected highlights from our continuing operations, excluding certain items, follow (in millions):
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| 2017 |
| 2016 |
| 2015 |
| 17 vs. 16 |
| 16 vs. 15 | Year ended December 31, | % change | |||||||||||||
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| 2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | |||||||
Core net sales | $ | 10,514 |
| $ | 9,710 |
| $ | 9,800 |
| 8% |
| (1)% | $ | 11,452 | $ | 11,656 | $ | 11,398 | (2)% | 2% | ||||
Core equity in earnings of affiliated companies | $ | 212 |
| $ | 250 |
| $ | 269 |
| (15)% |
| (7)% | $ | 86 | $ | 237 | $ | 241 | (64)% | (2)% | ||||
Core earnings | $ | 1,756 |
| $ | 1,774 |
| $ | 1,882 |
| (1)% |
| (6)% | ||||||||||||
Core net income | $ | 1,237 | $ | 1,578 | $ | 1,673 | (22)% | (6)% |
Core Net Sales
Core net sales are consistent with net sales by reportable segment. The following table presents coresegment net sales by reportable segment (in millions):
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| Years ended December 31, |
| % Change | Year ended December 31, | % change | |||||||||||||||||||
| 2017 |
| 2016 |
| 2015 |
| 17 vs. 16 |
| 16 vs. 15 | 2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Display Technologies | $ | 3,394 |
| $ | 3,556 |
| $ | 3,774 |
| (5)% |
| (6)% | $ | 3,172 | $ | 3,254 | $ | 3,276 | (3)% | (1)% | ||||
Optical Communications |
| 3,545 |
| 3,005 |
| 2,980 |
| 18% |
| 1% | 3,563 | 4,064 | 4,192 | (12)% | (3)% | |||||||||
Specialty Materials | 1,884 | 1,594 | 1,479 | 18% | 8% | |||||||||||||||||||
Environmental Technologies |
| 1,106 |
| 1,032 |
| 1,053 |
| 7% |
| (2)% | 1,370 | 1,499 | 1,289 | (9)% | 16% | |||||||||
Specialty Materials |
| 1,403 |
| 1,124 |
| 1,107 |
| 25% |
| 2% | ||||||||||||||
Life Sciences |
| 879 |
| 839 |
| 821 |
| 5% |
| 2% | 998 | 1,015 | 946 | (2)% | 7% | |||||||||
All Other |
| 187 |
| 154 |
| 65 |
| 21% |
| 137% | 465 | 230 | 216 | 102% | 6% | |||||||||
Total core net sales | $ | 10,514 |
| $ | 9,710 |
| $ | 9,800 |
| 8% |
| (1)% | ||||||||||||
Net sales of reportable segments and All Other | 11,452 | 11,656 | 11,398 | (2)% | 2% | |||||||||||||||||||
Impact of foreign currency movements (1) | (44) | (153) | (108) | 71% | (42)% | |||||||||||||||||||
Cumulative adjustment related to customer contract (2) | (105) | * | ||||||||||||||||||||||
Consolidated net sales | $ | 11,303 | $ | 11,503 | $ | 11,290 | (2)% | 2% |
In all segments except Display Technologies, core net sales are consistent with GAAP net sales. Because a significant portion(1)This amount primarily represents the impact of revenuesforeign currency adjustments in the Display Technologies, segment are denominated in Japanese yen, this segment’s net sales are adjusted to removeEnvironmental Technologies and Life Sciences segments.
(2)Amount represents the negative impact of translating yen into dollars. Asa cumulative adjustment recorded during the first quarter of January 1, 2015, we use an internally derived management rate of ¥99, which is closely aligned2020 to our current yen-denominated hedges related to translated earnings.
Core net sales increased by $804 million, or 8%, in the year ended December 31, 2017 when compared to the same period in 2016, driven by increases in the Optical Communications and Specialty Materials segments. Lower core net sales in the Display Technologies segment partially offset the increase, down $162 million, or 5%, driven by LCD glass price declines of approximately 10%, partially offset by an increase in volume in the mid-single digits in percentage terms.
Core net sales decreased by $90 million in the year ended December 31, 2016 when compared to the same period in 2015. Core net sales in the Display Technologies segment decreased by $218 million, or 6%, in the year ended December 31, 2016, driven by LCD glass price declines slightly higher than 10%, partially offset by an increase in volume of a mid-single digit percentage.
The translation impact from movements in foreign currency exchange rates, excluding the Japanese yen and South Korean won, in the year ended December 31, 2017 positively impacted core net salesreduce revenue in the amount of $12 million,$105 million. 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 is exiting its production of LCD panels.
* Percentage change not meaningful
Segment net sales and variances are discussed in detail in the year ended December 31, 2016, negatively impacted core net sales in the amountReportable Segments section of $39 million.our MD&A.
Core Equity in Earnings of Affiliated Companies
The following provides a summary of core equity in earnings of affiliated companies (in millions):
Year ended December 31, | % change | |||||||||||
2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||
Hemlock Semiconductor Group (1) | $ | 82 | $ | 229 | $ | 236 | (64)% | (3)% | ||||
All other | 4 | 8 | 5 | (50)% | 60% | |||||||
Total core equity earnings | $ | 86 | $ | 237 | $ | 241 | (64)% | (2)% |
(1)The year ended December 31, 2020, includes HSG’s results of operations through September 8, 2020. Corning began consolidating HSG on September 9, 2020.
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| 2016 |
| 2015 |
| 17 vs. 16 |
| 16 vs. 15 | |||
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Dow Corning Corporation (1) |
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| $ | 98 |
| $ | 245 |
| (100)% |
| (60)% |
Hemlock Semiconductor Group (2) | $ | 201 |
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| 154 |
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All other |
| 11 |
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| 24 |
| 650% |
| (108)% |
Total core equity earnings | $ | 212 |
| $ | 250 |
| $ | 269 |
| (15)% |
| (7)% |
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Core EarningsNet Income
2017 vs. 2016
In the year ended December 31, 2017,2020, we generated core earningsnet income of $1,756$1,237 million or $1.72$1.39 per share, compared to core earningsnet income generated in the year ended December 31, 20162019 of $1,774$1,578 million, or $1.55$1.76 per share. The decrease in core earningsnet income of $18$341 million was driven by the following items:
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The decline was offsetLower segment net income of $73 million mainly driven by an increase in core earnings in the Optical Communications segment of $99 million, due to higher sales of carrier and enterprise network products, combined with the absence of the production issueslower volumes in the first half of 2016 related to the implementation2020; and
Lower equity earnings of new software and an increase in the Specialty Materials segment of $61 million, driven by an increase in Corning Gorilla Glass and advanced optics products.$151 million.
Although core netCore earnings per share decreased in the year ended December 31, 2017, core earnings per share increased $0.172020 to $1.39 per share, driven by lower weighted average shares outstanding due tothe decrease in core net income. The impact of share repurchases of our common stockdid not materially impact the change in 2017.diluted earnings per share.
2016 vs. 2015
In the year ended December 31, 2016, we generated core earnings of $1,774 million, or $1.55 per share, compared to $1,882 million, or $1.40 per share, in the year ended December 31, 2015. The decrease was due to declines in the Display Technologies and Environmental Technologies segments. Slightly offsetting the decline was higher core earnings in the Optical Communications segment, up $16 million, driven by higher sales volume in carrier network products, the favorable translation impact from movements in foreign currency exchange rates, excluding the Japanese yen and South Korean won, of $13 million and manufacturing efficiencies gained through cost reductions.
Included in core earningsnet income for the years ended December 31, 2017, 20162020, 2019, and 20152018, is net periodic pension expense in the amount of $49$50 million, $51$84 million and $62$52 million, respectively, which excludes the annual pension mark-to-market adjustments. In the years ended December 31, 2017, 2016 and 2015, the mark-to-market adjustments were a pre-tax loss of $21 million, $67 million and $165 million, respectively. .
Refer to Note 13 (Employee Retirement Plans) to the Consolidated Financial Statementsconsolidated financial statements for additional information.
Core Earnings per Common Share
The following table sets forth the computation of core basic and core diluted earnings per common share (in millions, except per share amounts):
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| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
Core earnings attributable to Corning Incorporated | $ | 1,756 |
| $ | 1,774 |
| $ | 1,882 | ||||||||
Core net income attributable to Corning Incorporated | $ | 1,237 | $ | 1,578 | $ | 1,673 | ||||||||||
Less: Series A convertible preferred stock dividend |
| 98 |
| 98 |
| 98 | 98 | 98 | 98 | |||||||
Core earnings available to common stockholders - basic |
| 1,658 |
| 1,676 |
| 1,784 | ||||||||||
Core net income available to common stockholders - basic | 1,139 | 1,480 | 1,575 | |||||||||||||
Add: Series A convertible preferred stock dividend |
| 98 |
| 98 |
| 98 | 98 | 98 | 98 | |||||||
Core earnings available to common stockholders - diluted | $ | 1,756 |
| $ | 1,774 |
| $ | 1,882 | ||||||||
Core net income available to common stockholders - diluted | $ | 1,237 | $ | 1,578 | $ | 1,673 | ||||||||||
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Weighted-average common shares outstanding - basic |
| 895 |
| 1,020 |
| 1,219 | 761 | 776 | 816 | |||||||
Effect of dilutive securities: |
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Stock options and other dilutive securities |
| 11 |
| 9 |
| 9 | 11 | 8 | 10 | |||||||
Series A convertible preferred stock |
| 115 |
| 115 |
| 115 | 115 | 115 | 115 | |||||||
Weighted-average common shares outstanding - diluted |
| 1,021 |
| 1,144 |
| 1,343 | 887 | 899 | 941 | |||||||
Core basic earnings per common share | $ | 1.85 |
| $ | 1.64 |
| $ | 1.46 | $ | 1.50 | $ | 1.91 | $ | 1.93 | ||
Core diluted earnings per common share | $ | 1.72 |
| $ | 1.55 |
| $ | 1.40 | $ | 1.39 | $ | 1.76 | $ | 1.78 |
Reconciliation of Non-GAAP Measures
We utilize certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statementconsolidated statements of income or statement of cash flows, or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure as calculated and presented in accordance with GAAP in the statementconsolidated statements of income or statementstatements of cash flows.
Core net sales, core equity in earnings of affiliated companies and core earningsnet income are non-GAAP financial measures utilized by our management to analyze financial performance without the impact of items that are driven by general economic conditions and events that do not reflect the underlying fundamentals and trends in the Company’s operations.
The following tables reconcile our non-GAAP financial measures to their most directly comparable GAAP financial measure (amounts in millions except percentages and per share amounts):
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| Year ended December 31, 2017 | |||||||||||||||
| Net |
| Equity |
| Income |
| Net (loss) |
| Effective |
| (Loss) | |||||
As reported | $ | 10,116 |
| $ | 361 |
| $ | 1,657 |
| $ | (497) |
| 130.0% |
| $ | (0.66) |
Constant-yen (1) |
| 396 |
|
| 3 |
|
| 354 |
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| 276 |
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| 0.31 |
Constant-won (1) |
| 2 |
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| (21) |
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| (16) |
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| (0.02) |
Translation gain on Japanese yen-denominated debt (2) |
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| (14) |
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| (9) |
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| (0.01) |
Translated earnings contract loss (3) |
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| 125 |
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| 78 |
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| 0.09 |
Acquisition-related costs (4) |
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| 84 |
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| 59 |
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| 0.07 |
Discrete tax items and other tax-related |
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| 127 |
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| 0.14 |
Litigation, regulatory and other legal matters (6) |
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| (12) |
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| (9) |
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| (0.01) |
Restructuring, impairment and other charges (7) |
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| 72 |
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| 62 |
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| 0.07 |
Equity in earnings of affiliated companies (8) |
|
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| (152) |
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| (152) |
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| (97) |
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| (0.11) |
Adjustments related to acquisitions (9) |
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| 10 |
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| 13 |
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| 0.01 |
Pension mark-to-market adjustment (10) |
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| 22 |
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| 14 |
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| 0.02 |
Adjustments to remove the impacts of the Tax Cuts |
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| 1,755 |
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| 1.96 |
Core performance measures | $ | 10,514 |
| $ | 212 |
| $ | 2,125 |
| $ | 1,756 |
| 17.4% |
| $ | 1.72 |
Year ended December 31, 2020 | ||||||||||||||||
Net | Equity (losses) | Income | Net | Effective |
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As reported | $ | 11,303 | $ | (25) | $ | 623 | $ | 512 | 17.8% | $ | 0.54 | |||||
Constant-currency adjustment (1) | 44 | 22 | 17 | 0.02 | ||||||||||||
Translation loss on Japanese | 86 | 67 | 0.09 | |||||||||||||
Translated earnings contract loss, net (3) | 46 | 36 | 0.05 | |||||||||||||
Acquisition-related costs (4) | 156 | 114 | 0.15 | |||||||||||||
Discrete tax items and other tax-related | (24) | (0.03) | ||||||||||||||
Litigation, regulatory and other legal | 144 | 120 | 0.16 | |||||||||||||
Restructuring, impairment and other | 827 | 621 | 0.80 | |||||||||||||
Cumulative adjustment related to customer | 105 | 105 | 105 | 0.14 | ||||||||||||
Equity in losses of affiliated companies (9) | 111 | 111 | 98 | 0.13 | ||||||||||||
Pension mark-to-market adjustment (10) | 31 | 24 | 0.03 | |||||||||||||
Transaction-related gain, net (11) | (498) | (387) | (0.50) | |||||||||||||
Bond redemption loss (12) | 22 | 17 | 0.02 | |||||||||||||
Gain on investment (13) | (107) | (83) | (0.11) | |||||||||||||
Core performance measures | $ | 11,452 | $ | 86 | $ | 1,568 | $ | 1,237 | 21.1% | $ | 1.39 |
(a)Based upon statutory tax rates in the specific jurisdiction for each event.
See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.
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| Year ended December 31, 2016 | |||||||||||||||
| Net |
| Equity |
| Income |
| Net |
| Effective |
| Earnings | |||||
As reported | $ | 9,390 |
| $ | 284 |
| $ | 3,692 |
| $ | 3,695 |
| 0% |
| $ | 3.23 |
Constant-yen (1) |
| 316 |
|
| 4 |
|
| 300 |
|
| 222 |
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| 0.19 |
Constant-won (1) |
| 4 |
|
| (1) |
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| (47) |
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| (34) |
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|
| (0.03) |
Translated earnings contract loss (3) |
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| 448 |
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| 282 |
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| 0.25 |
Acquisition-related costs (4) |
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| 127 |
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| 107 |
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| 0.09 |
Discrete tax items and other tax-related |
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| (27) |
|
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| (0.02) |
Litigation, regulatory and other legal matters (6) |
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| 55 |
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| 70 |
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| 0.06 |
Restructuring, impairment and other charges (7) |
|
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| 199 |
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| 138 |
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| 0.12 |
Equity in earnings of affiliated companies (8) |
|
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| (37) |
|
| (37) |
|
| (18) |
|
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| (0.02) |
Adjustments related to acquisitions (9) |
|
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| (49) |
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| (42) |
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| (0.04) |
Pension mark-to-market adjustment (10) |
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| 67 |
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| 44 |
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| 0.04 |
Gain on realignment of equity investment (11) |
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| (2,676) |
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| (2,676) |
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| (2.34) |
Taiwan power outage (12) |
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| 17 |
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| 13 |
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| 0.01 |
Core performance measures | $ | 9,710 |
| $ | 250 |
| $ | 2,096 |
| $ | 1,774 |
| 15.4% |
| $ | 1.55 |
Year ended December 31, 2019 | ||||||||||||||||
Net | Equity | Income | Net | Effective | Earnings | |||||||||||
As reported | $ | 11,503 | $ | 17 | $ | 1,216 | $ | 960 | 21.1% | $ | 1.07 | |||||
Constant-currency adjustment (1) | 153 | 1 | 115 | 115 | 0.13 | |||||||||||
Translation loss on Japanese | 3 | 2 | 0.00 | |||||||||||||
Translated earnings contract gain, net (3) | (245) | (190) | (0.21) | |||||||||||||
Acquisition-related costs (4) | 130 | 99 | 0.11 | |||||||||||||
Discrete tax items and other tax-related | 37 | 0.04 | ||||||||||||||
Litigation, regulatory and other legal | (17) | (13) | (0.01) | |||||||||||||
Restructuring, impairment and other | 6 | 439 | 334 | 0.37 | ||||||||||||
Equity in losses of affiliated companies (9) | 213 | 213 | 165 | 0.18 | ||||||||||||
Pension mark-to-market adjustment (10) | 95 | 69 | 0.08 | |||||||||||||
Core performance measures | $ | 11,656 | $ | 237 | $ | 1,949 | $ | 1,578 | 19.0% | $ | 1.76 |
Year ended December 31, 2018 | ||||||||||||||||
Net | Equity | Income | Net | Effective | Earnings | |||||||||||
As reported | $ | 11,290 | $ | 390 | $ | 1,503 | $ | 1,066 | 29.1% | $ | 1.13 | |||||
Constant-currency adjustment (1) | 108 | 2 | 156 | 127 | 0.13 | |||||||||||
Translation loss on Japanese | 18 | 15 | 0.02 | |||||||||||||
Translated earnings contract loss, net (3) | 73 | 97 | 0.10 | |||||||||||||
Acquisition-related costs (4) | 132 | 103 | 0.11 | |||||||||||||
Discrete tax items and other tax-related | 79 | 0.08 | ||||||||||||||
Litigation, regulatory and other legal | 124 | 96 | 0.10 | |||||||||||||
Restructuring, impairment and other | 130 | 96 | 0.10 | |||||||||||||
Equity in earnings of affiliated companies (9) | (151) | (151) | (119) | (0.13) | ||||||||||||
Pension mark-to-market adjustment (10) | 145 | 113 | 0.12 | |||||||||||||
Core performance measures | $ | 11,398 | $ | 241 | $ | 2,130 | $ | 1,673 | 21.5% | $ | 1.78 |
(a)Based upon statutory tax rates in the specific jurisdiction for each event.
See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.
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| Year ended December 31, 2015 | |||||||||||||||
| Net |
| Equity |
| Income |
| Net |
| Effective |
| Earnings | |||||
As reported | $ | 9,111 |
| $ | 299 |
| $ | 1,486 |
| $ | 1,339 |
| 9.9% |
| $ | 1.00 |
Constant-yen (1) |
| 687 |
|
| 6 |
|
| 567 |
|
| 423 |
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| 0.31 |
Constant-won (1) |
| 2 |
|
| (2) |
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| (25) |
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| (19) |
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| (0.01) |
Translated earnings contract loss (3) |
|
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|
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| (80) |
|
| (48) |
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| (0.04) |
Acquisition-related costs (4) |
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| 55 |
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| 36 |
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| 0.03 |
Discrete tax items and other tax-related |
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| 36 |
|
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| 0.03 |
Litigation, regulatory and other legal matters (6) |
|
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| 5 |
|
| 3 |
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|
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Restructuring, impairment and other charges (7) |
|
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| 46 |
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| 42 |
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| 0.03 |
Equity in earnings of affiliated companies (8) |
|
|
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| (34) |
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| (34) |
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| (33) |
|
|
|
| (0.02) |
Adjustments related to acquisitions (9) |
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| 5 |
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| (2) |
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Pension mark-to-market adjustment (10) |
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| 165 |
|
| 105 |
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| 0.08 |
Core performance measures | $ | 9,800 |
| $ | 269 |
| $ | 2,190 |
| $ | 1,882 |
| 14.1% |
| $ | 1.40 |
(a)Based upon statutory tax rates in the specific jurisdiction for each event.
See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.
Items Excluded from GAAP Measures
Items which we exclude from GAAP measures to arrive at Corecore performance measures are as follows:
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(1) |
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| Constant-currency rates are as follows: | ||||||||||
Currency | Japanese yen | Korean won | Chinese yuan | New Taiwan dollar | Euro | ||||||
Rate | ¥107 | ₩1,175 | ¥6.7 | NT$31 | €.81 | ||||||
(2) | Translation | ||||||||||
(3) | Translated earnings contract loss (gain): We have excluded the impact of the realized and unrealized gains and losses of our Japanese yen, South Korean won, Chinese yuan, euro and new Taiwan dollar-denominated foreign currency hedges related to translated earnings, | ||||||||||
(4) | Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs. | ||||||||||
(5) | Discrete tax items and other tax-related adjustments: | ||||||||||
(6) | Litigation, regulatory and other legal matters: Includes amounts | ||||||||||
(7) | Restructuring, impairment and other charges and credits: This amount includes restructuring, impairment losses and other charges | ||||||||||
(8) | Cumulative adjustment related to customer contract: The negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue in the amount of $105 million. 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 is exiting its production of LCD panels. | ||||||||||
(9) | Equity in | ||||||||||
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| Pension mark-to-market adjustment: | ||||||||||
(11) |
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(12) |
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(13) |
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REPORTABLE SEGMENTS
Our reportableReportable segments are as follows:
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Display Technologies – manufactures glass substrates for flat panel liquid crystal displays and other high-performance display panels.
Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry.
Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.
Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.
Life Sciences – manufactures glass and plastic labware, equipment, media, serum and reagents enabling workflow solutions for drug discovery and bioproduction.
All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily comprised of the results of the pharmaceutical technologies, businessauto glass and new product lines and development projects, as well as other businesses and certain corporate investments suchinvestments.
The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as Eurokeraof September 9, 2020. Refer to Note 4 (HSG Transactions and Keraglass equity affiliates. Acquisitions) to the consolidated financial statements for additional information on this transaction.
We prepared the financialFinancial results for ourthe reportable segments are prepared on a basis that is consistent with the manner in which we internally disaggregateinternal disaggregation of financial information to assist the CODM in making internal operating decisions. WeThe impact of changes in the Japanese yen, South Korean won, Chinese yuan and new Taiwan dollar are excluded from segment sales and segment net income for the Display Technologies and Specialty Materials segments. The impact of changes in the euro and Chinese yuan are excluded from segment sales and segment net income for the Environment Technologies segment. The impact of changes in the euro, Chinese yuan and Japanese yen are excluded from segment sales and segment net income for the Life Sciences segment. Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in evaluating the results of or in allocating resources to the segments and include the following items: the impact of the translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; adjustments relating to acquisitions; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.
Earnings of equity affiliates that are closely associated with ourthe reportable segments are included in the respective segment’s net income. We have allocated certainincome (loss). Certain common expenses among our reportable segments have been allocated differently than wethey would for stand-alone financial information prepared in accordance with GAAP. Our reportable segments include non-GAAP measures which are not prepared in accordance with GAAP. We believe investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our core operating performance and how management evaluates our operational results and trends. These measures are not, and should not be viewed as a substitute for GAAP reporting measures. For a reconciliation of non-GAAP performance measures to their most directly comparable GAAP financial measure, please see “Reconciliation of Non-GAAP Measures” above.information. Segment net income (loss) may not be consistent with measures used by other companies. The accounting policies of our reportable segments are the same as those applied in the consolidated financial statements.
Display Technologies
The following table provides net sales and net income for the Display Technologies segment and reconciles the non-GAAP financial measures for the Display Technologies segment with our financial statements presented in accordance with GAAP (in millions):segment:
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| Year ended |
| Year ended |
| Year ended | ||||||||||||
| December 31, 2017 |
| December 31, 2016 |
| December 31, 2015 | ||||||||||||
(in millions) | Sales |
| Net |
| Sales |
| Net |
| Sales |
| Net | ||||||
As reported | $ | 2,997 |
| $ | 831 |
| $ | 3,238 |
| $ | 935 |
| $ | 3,086 |
| $ | 1,095 |
Constant-yen (1) |
| 395 |
|
| 260 |
|
| 316 |
|
| 222 |
|
| 686 |
|
| 419 |
Constant-won (1) |
| 2 |
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| (12) |
|
| 2 |
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| (33) |
|
| 2 |
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| (17) |
Translated earnings contract gain (3) |
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| (169) |
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| (127) |
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| (416) |
Discrete tax items and other tax- |
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| 38 |
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Litigation, regulatory and other legal matters (6) |
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| (9) |
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Restructuring, impairment and other charges (7) |
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| 13 |
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| 44 |
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Adjustments related to acquisitions (9) |
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| (8) |
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| (42) |
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| (10) |
Pension mark-to-market adjustment (10) |
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| 1 |
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| 4 |
Taiwan power outage (12) |
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| 6 |
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Core performance measures | $ | 3,394 |
| $ | 944 |
| $ | 3,556 |
| $ | 1,006 |
| $ | 3,774 |
| $ | 1,075 |
Year ended December 31, | % change | % change | ||||||||||||
2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Segment net sales | $ | 3,172 | $ | 3,254 | $ | 3,276 | (3%) | (1%) | ||||||
Segment net income | $ | 717 | $ | 786 | $ | 835 | (9%) | (6%) |
See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted reconciling items.
As Reported
2017 vs. 2016
Net sales decreased by $241 million, or 7%, in the year ended December 31, 2017, when compared to the same period in 2016, driven by price declines of approximately 10% and the negative impact from the weakening of the Japanese yen in the amount of $79 million, partially offset by an increase in volume in the mid-single digits in percentage terms.
Net income decreased by $104 million, or 11%, driven by the following items:
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The decrease in net income was partially offset by the following items:
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The translation impact of fluctuations in foreign currency exchange rates negatively impacted Display Technologies net income in the year ended December 31, 2017 in the amount of $59 million when compared to the same period in 2016. This impact was partially offset by the increase in the realized gain from our translated earnings contracts in the amount of $42 million.
2016 vs. 2015
Net sales increased by $152 million, or 5%, in the year ended December 31, 2016 when compared to the same period in 2015, driven by the positive impact from the strengthening of the Japanese yen in the amount of $370 million and a mid-single digit percentage volume increase driven by growth in television screen size. This increase was partially offset by LCD glass price declines slightly higher than 10%.
Net income decreased by $160 million, or 15%, in the year ended December 31, 2016 when compared to the same period in 2015. This decrease was driven by the following items:
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The decrease in net income was partially offset by the following items:
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The translation impact of fluctuations in foreign currency exchange rates positively impacted Display Technologies net income in the year ended December 31, 2016 in the amount of $213 million when compared to the same period in 2015. This impact was more than offset by the decrease in the realized gain from our translated earnings contracts in the amount of $289 million.
Core Performance
2017 vs. 2016
When compared to the same period in 2016, core net sales in the Display Technologies segment decreased by $162$82 million or 5%,for the year ended December 31, 2020, when compared to the prior year, primarily driven by lower sales and production volumes in the first half of the year.
Net income in the Display Technologies segment decreased by $69 million in the year ended December 31, 2017,2020, primarily driven by the price declines described above, partially offset by the increasechanges in volume. Core earnings also decreased in this period, down $62 million, or 6%, driven by price declines, offset somewhat by the increase in volume.sales outlined above.
2016 vs. 2015
Core net sales decreased by $218 million, or 6%, in the year ended December 31, 2016 when compared to the same period in 2015, driven by LCD glass price declines slightly higher than 10%, partially offset by a mid-single digit percentage volume increase. Core earnings also decreased in this period, down $69 million, or 6%, driven by LCD glass price declines slightly higher than 10%, partially offset by a mid-single digit percentage volume increase, improvements in manufacturing efficiency and a decline in operating expenses.
The Display Technologies segment has a concentrated customer base comprised of LCD panel and color filter makers primarily located in Japan, South Korea, China and Taiwan. In 2017, 2016 and 2015, three customers of the Display Technologies segment, which individually accounted for more than 10% of segment net sales, accounted for a combined 62%, 65% and 62% of total segment sales in those years. Our near-term sales and profitability would be impacted if any of these significant customers were unable to continue to purchase our products.
Corning has invested to expand capacity to meet the projected demand for LCD glass substrates. In 2017, 2016 and 2015, capital spending in this segment was $795 million, $464 million and $594 million, respectively.
Outlook:
For full-year 2018, Corning expects LCD glass market growth to be in the mid-single digit percentages, similar to 2017. The company expects Corning’s volume to grow faster than the market as Corning ramps up the world’s first Gen 10.5 fab in Hefei, China. We expect LCD glass pricing to continue to improve, with year-over-year declines reaching mid-single digits on a percentage basis, an important milestone toward our goal of stabilizing returns in this segment.
Optical Communications
The following table provides net sales and net income for the Optical Communications segment and reconciles the non-GAAP financial measures for the Optical Communications segment with our financial statements presented in accordance with GAAP (in millions):segment:
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(in millions) | Sales |
| Net |
| Sales |
| Net |
| Sales |
| Net | ||||||
As reported | $ | 3,545 |
| $ | 341 |
| $ | 3,005 |
| $ | 245 |
| $ | 2,980 |
| $ | 237 |
Acquisition-related costs (4) |
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| 39 |
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| 23 |
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| 16 |
Litigation, regulatory and other legal matters (6) |
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| 13 |
Restructuring, impairment and other charges (7) |
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| 14 |
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| 24 |
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Adjustments related to acquisitions (9) |
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| 16 |
Pension mark-to-market adjustment (10) |
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Core performance measures | $ | 3,545 |
| $ | 396 |
| $ | 3,005 |
| $ | 297 |
| $ | 2,980 |
| $ | 281 |
Year ended December 31, | % change | % change | ||||||||||||
2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Segment net sales | $ | 3,563 | $ | 4,064 | $ | 4,192 | (12%) | (3%) | ||||||
Segment net income | $ | 366 | $ | 489 | $ | 592 | (25%) | (17%) |
See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items.
As Reported
2017 vs. 2016
Net sales increaseddeclined by $540$501 million, or 18%12%, in the year ended December 31, 2017,2020, when compared to the same period in 2016,2019, primarily due to higherlower sales ofin carrier products and enterprise network products, combined with the absence of production issues related to the implementation of new manufacturing software in the first half of 2016down $273 million and the impact of$228 million, respectively, driven by general market weakness and capital spending reductions by several small acquisitions completed in the 2017. Strong growth in the North American fiber-to-the-home market drove the increase in carrier network products. major customers.
Net income in the year ended December 31, 2017 increased2020 decreased by $96$123 million, or 39%25%, primarily driven by the increasechanges in sales, described aboveoutlined above. Profitability was impacted by lower sales and a decrease of $10 million in restructuring and asset write-off expenses, partially offset by capacity expansion spending and an increase in acquisition-related expenses. production volumes.
Movements in foreign currency exchange rates did not materially impact net sales or net income in this segment in the year ended December 31, 20172020 when compared to the same period in 2016.2019.
Specialty Materials
The following table provides net sales and net income for the Specialty Materials segment:
Year ended December 31, | % change | % change | ||||||||||||
2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Segment net sales | $ | 1,884 | $ | 1,594 | $ | 1,479 | 18% | 8% | ||||||
Segment net income | $ | 423 | $ | 302 | $ | 313 | 40% | (4%) |
© 2018 Corning Incorporated. All Rights Reserved
40
2016 vs. 2015
InNet sales in the Specialty Materials segment increased by $290 million, or 18%, in the year ended December 31, 2016, net sales of2020, when compared to the Optical Communications segmentsame period in 2019. Results were driven by demand for our premium cover materials, strength in the IT market, and demand for semiconductor related materials.
Net income in the year ended December 31, 2020 increased $25by $121 million, or 1%40%, when compared to the same period in 2015, driven by an increase in carrier network sales. The sales increase was driven by fiber-to-the-home products in North America, higher sales of optical fiber and the impact of an acquisition completed in the second quarter of 2016. These increases were partially offset by production issues related to the implementation of new manufacturing software, which constrained our ability to manufacture product in the first half of 2016. Production returned to normal levels at the end of the second quarter. The translation impact from movements in foreign currency exchange rates in 2016 negatively impacted Optical Communications net sales in the amount of $8 million, when compared to the same period in 2015.
Net income in the Optical Communications segment increased $8 million, or 3%, in the year ended December 31, 2016 when compared to the same period in 2015. The increase was driven by cost reductions and the continuation of the favorable shift toward sales of our solutions products, partially offset by the impact of the production issues described above, costs incurred related to a small acquisition completed in the second quarter of 2016 and restructuring and asset write-off expenses. Movements in foreign exchange rates positively impacted net income in the amount of $12 million when compared to 2015.
Core Performance
2017 vs. 2016
Core earnings increased in the year ended December 31, 2017 by $99 million, or 33%,2019, primarily driven by the increase in sales describedincreases, outlined above, partially offset by capacity expansion spending.and good cost performance.
2016 vs. 2015
Core earnings increased $16 million, or 6%, in the year ended December 31, 2016, driven by higher sales of our solutions products and cost reductions, partially offset by the impact of the production issues described above. Movements in foreign exchange rates positively impacted core earnings in the amounts of $12 million when compared to 2015.
The Optical Communications segment has a concentrated customer base. In the year ended December 31, 2017, one customer that individually accounted for more than 10% of segment net sales, accounted for 19% of total segment net sales. In the year ended December 31, 2016, one customer that individually accounted for more than 10% of segment net sales, accounted for 15% of total segment net sales. In the year ended December 31, 2015, two customers that individually accounted for more than 10% of segment net sales, accounted for 22% of total segment net sales.
Outlook:
Full-year 2018 Optical Communications sales are expected to increase by about 10% year over year, excluding any contribution from the pending acquisition of 3M’s Communications Markets Division.
Environmental Technologies
The following table provides net sales and net income for the Environmental Technologies segment and reconciles the non-GAAP financial measures for the Environmental Technologies segment with our financial statements presented in accordance with GAAP (in millions):segment:
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(in millions) | Sales |
| Net |
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| Net |
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| Net | ||||||
As reported | $ | 1,106 |
| $ | 127 |
| $ | 1,032 |
| $ | 133 |
| $ | 1,053 |
| $ | 161 |
Restructuring, impairment and other charges (7) |
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Core performance measures | $ | 1,106 |
| $ | 139 |
| $ | 1,032 |
| $ | 136 |
| $ | 1,053 |
| $ | 161 |
Year ended December 31, | % change | % change | ||||||||||||
2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Segment net sales | $ | 1,370 | $ | 1,499 | $ | 1,289 | (9%) | 16% | ||||||
Segment net income | $ | 197 | $ | 263 | $ | 208 | (25%) | 26% |
See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items.
As Reported
2017 vs. 2016
Net sales increased $74decreased $129 million, or 7%9% in the year ended December 31, 2017. Automotive product sales increased2020, primarily driven by $42 million, due to market strengththe temporary shutdown of vehicle manufacturing facilities in Europe, Chinakey markets that began in the first quarter and Asia, and initial commercial salescontinued for much of gas particulate filters. Diesel product sales increased $32 million with higher demand for heavy-duty diesel products in North America and Asia. the second quarter.
Net income in the year ended December 31, 20172020 decreased by $6 million, or 5%, driven by expenses in support of new product launches and charges related to the disinvestment of an equity company.
Movements in foreign currency exchange rates did not materially impact net sales or net income in this segment in the year ended December 31, 2017 when compared to the same period in 2016.
2016 vs. 2015
Net sales in the Environmental Technologies segment decreased by $21 million, or 2%, in the year ended December 31, 2016 when compared to the same period in 2015, driven by a decrease of $78 million in sales of diesel products due to the weakening of the heavy-duty diesel truck market in North America, offset partially by an increase of $57 million in light-duty substrates sales, driven by strength in the North American, European and Chinese markets.
Net income decreased by $28 million, or 17%, driven by lower sales of heavy-duty diesel products and our investment in capacity for our gas particulate filters. Movements in foreign exchange rates versus the U.S. dollar negatively impacted net sales and net income in this segment in the amounts of $22 million and $8 million, respectively, in the year ended December 31, 2016, when compared to the same period in 2015.
Core Performance
2017 vs. 2016
In the year ended December 31, 2017, core earnings increased by $3 million, or 2%, when compared to the same period in 2016, driven by higher volume in both automotive and diesel products, offset by expenses in support of new product launches and a decline in manufacturing efficiency due to the use of higher-cost manufacturing facilities and sales of lower margin products.
2016 vs. 2015
Core earnings decreased by $25 million, or 16%, in the year ended December 31, 2016, driven by the items impacting our “As Reported” results described above.
The Environmental Technologies segment sells to a concentrated customer base of catalyzer and emission control systems manufacturers, who then sell to automotive and diesel engine manufacturers. Although our sales are to the emission control systems manufacturers, the use of our substrates and filters is generally required by the specifications of the automotive and diesel vehicle or engine manufacturers. For 2017, 2016 and 2015, net sales to three customers, which individually accounted for more than 10% of segment sales, accounted for 81%, 85% and 86%, respectively, of total segment sales. While we are not aware of any significant customer credit issues with our direct customers, our near-term sales and profitability would be impacted if any individual customers were unable to continue to purchase our products.
Outlook:
For 2018, Environmental Technologies sales are expected to increase by a high-single digit percentage.
Specialty Materials
The following table provides net sales and net income for the Specialty Materials segment and reconciles the non-GAAP financial measures for the Specialty Materials segment with our financial statements presented in accordance with GAAP (in millions):
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(in millions) | Sales |
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| Sales |
| Net |
| Sales |
| Net | ||||||
As reported | $ | 1,403 |
| $ | 249 |
| $ | 1,124 |
| $ | 174 |
| $ | 1,107 |
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Constant-yen (1) |
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Constant-won (1) |
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Translated earnings contract gain (3) |
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| 5 |
Restructuring, impairment and other charges (7) |
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| 15 |
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| 14 |
Taiwan power outage (12) |
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Core performance measures | $ | 1,403 |
| $ | 250 |
| $ | 1,124 |
| $ | 189 |
| $ | 1,107 |
| $ | 178 |
See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items.
As Reported
2017 vs. 2016
Net sales in the Specialty Materials segment increased by $279$66 million, or 25%, in the year ended December 31, 2017, when compared to the same period in 2016, driven by an increase inthe sales of Gorilla Glass products in support of new product launches, combined with an increase in advanced optics products.
Net income in year ended December 31, 2017 increaseddecline outlined above. Profitability was impacted by $75 million, or 43%, when compared to the same period in 2016, primarily due to the significant increase in net sales, lower restructuring charges and the absence of the costs associated with a power outage in Taiwan.
Movements in foreign currency exchange rates did not materially impact net sales or net income in this segment in the year ended December 31, 2017 when compared to the same period in 2016.
2016 vs. 2015
Net sales in the Specialty Materials segment increased by $17 million, or 2%, in the year ended December 31, 2016 when compared to the same period in 2015, driven by an increase in sales of Corning Gorilla Glass 5 and advanced optics products. Although Corning Gorilla Glass sales were lower in the first three quarters of 2016, sales in the fourth quarter of 2016 increased approximately 22% over the same period last year, led by the rapid adoption of Corning Gorilla Glass 5. Net income increased by $7 million, or 4%, driven by manufacturing cost reductions, higher advanced optics sales and the impact of Gorilla Glass 5, offset slightly by higher research and development costs. Movements in foreign exchange rates did not materially impact net sales and net income in the Specialty Materials segment in the twelve months ended December 31, 2016 when compared to the same period in 2015.production volumes.
Life Sciences
The following table provides net sales and net income for the Life Sciences segment and reconciles the non-GAAP financial measures for the Life Sciences segment with our financial statements presented in accordance with GAAP (in millions):segment:
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(in millions) | Sales |
| Net |
| Sales |
| Net |
| Sales |
| Net | ||||||
As reported | $ | 879 |
| $ | 64 |
| $ | 839 |
| $ | 58 |
| $ | 821 |
| $ | 61 |
Acquisition-related costs (4) |
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| 13 |
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| 12 |
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| 12 |
Restructuring, impairment and other charges (7) |
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| 2 |
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| 7 |
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| 1 |
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Core performance measures | $ | 879 |
| $ | 80 |
| $ | 839 |
| $ | 77 |
| $ | 821 |
| $ | 73 |
Year ended December 31, | % change | % change | ||||||||||||
2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Segment net sales | $ | 998 | $ | 1,015 | $ | 946 | (2%) | 7% | ||||||
Segment net income | $ | 139 | $ | 150 | $ | 117 | (7%) | 28% |
See “Items Excluded from GAAP Measures” above for the descriptions of the footnoted items.
As Reported
2017 vs. 2016
Net sales in the Life Sciences segment increaseddecreased by $40$17 million, primarily driven by lab closures during the first half of 2020 due to the COVID-19 pandemic.
Net income decreased by $11 million, or 5%7%, in the year ended December 31, 2017, when compared to the same period in 2016,2020, primarily driven by strong performance in North Americasales and China, combined withvolume declines.
All Other
“All Other” is a small acquisition completed in 2017.
Net income increased by $6 million,group of segments primarily comprised of the results of pharmaceutical technologies, auto glass, new product lines and development projects, and other businesses or 10%, in the year ended December 31, 2017, driven by an increase in volume and lower asset write-offs and exit costs, offset somewhat by higher raw materials costs. Movements in foreign exchange rates did not materially impact net sales or net income in this period when compared to the same period in the prior year.
2016 vs. 2015
Net sales in the Life Sciences segment increased by $18 million, or 2%, in the year ended December 31, 2016 when compared to the same period in 2015, driven by volume growth in North America, China and Europe, slightly offset by the impact of movements in foreign exchange rates in the amount of $11 million. Net income declined by $3 million, or 5%, driven by asset write-offs and exit costs and the impact of movements in foreign exchange rates of $7 million, offset slightly by higher volume.
Core Performance
2017 vs. 2016
In the year ended December 31, 2017, core earnings increased by $3 million, or 4%, when compared to the same period last year, driven by higher volume, offset somewhat by higher raw materials costs.
2016 vs. 2015
In the year ended December 31, 2016, core earnings increased by $4 million, or 5%, when compared to the same period last year, with higher volume more than offsetting the negative impact from movements in foreign exchange rates.
For 2017, 2016 and 2015, two customers in the Life Sciences segment, which individually accounted for more than 10% of total segment net sales, collectively accounted for 47%, 46% and 46%, respectively, of total segment sales.
Outlook:
For full-year 2018, sales are expected to grow by a mid-single-digit percentage year over year.
All Other
All other segmentsinvestments that do not meet the quantitative threshold for separate reporting have been groupedreporting.
The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as “All Other.” This group is primarily comprised of September 9, 2020. Refer to Note 4 (HSG Transactions and Acquisitions) to the results of the pharmaceutical technologies business and new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates. consolidated financial statements for additional information on this transaction.
The following table provides net sales and other datanet loss for All Other“All Other” (in millions):
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As Reported | 2017 |
| 2016 |
| 2015 | |||
Net sales | $ | 186 |
| $ | 152 |
| $ | 64 |
Research, development and engineering expenses | $ | 211 |
| $ | 191 |
| $ | 186 |
Net loss | $ | (229) |
| $ | (240) |
| $ | (202) |
Year ended December 31, | % change | % change | ||||||||||||
2020 | 2019 | 2018 | 20 vs. 19 | 19 vs. 18 | ||||||||||
Segment net sales | $ | 465 | $ | 230 | $ | 216 | 102% | 6% | ||||||
Segment net loss | $ | (214) | $ | (289) | $ | (281) | 26% | (3%) |
2017 vs. 2016
Net sales of this segment increased by $34$235 million, or 22%102%, in the year ended December 31, 2017, respectively,2020, when compared to the same period in 2016,2019, driven primarily by an increaseconsolidation of HSG on September 9, 2020, which added sales of $194 million in sales in our emerging businesses. the current year.
The decrease in the net loss in the year ended December 31, 2017 reflects an increase of $14$75 million in equity earnings and the absence of asset write-offs in emerging businesses recorded in the first quarter of 2016.
2016 vs. 2015
The increase in net sales of this segment in the year ended December 31, 2016 reflects the impact of an acquisition in the pharmaceutical technologies business completed in the fourth quarter of 2015 and an increase in sales in our emerging businesses. The increase in the net loss of this segment wasis primarily driven by asset write-offs in emerging businesses, offset slightly by the addition of the pharmaceutical technologies business net income.increased sales and lowered spending on development projects.
LIQUIDITY AND CAPITAL RESOURCES
Financing and Capital Structure
The following items discuss Corning’s financing and changes in capital structure during 20172020 and 2016:2019:
20172020
During the fourth quarter of 2020, Corning redeemed $100 million of 7.0% debentures due in 2024 with a carrying amount of $99 million, paying a $21 million make-whole call premium. The total payment of $121 million is disclosed in financing activities in the consolidated statements of cash flows. The redemption resulted in a loss of $22 million.
In conjunction with the change in control of HSG on September 9, 2020, a variable interest rate loan of $175 million U.S. dollars (“USD”), maturing on September 8, 2021, was made to DC HSC Holdings, LLC, now a consolidated subsidiary of Corning. In December 2020, DC HSC Holdings, LLC repaid $100 million of the loan. The remaining balance of $75 million is reflected in the current portion of long-term debt and short-term borrowings in Corning’s consolidated balance sheets as of December 31, 2020. Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information.
During the second quarter of 2020, Corning established an incremental liquidity facility for 25 billion Japanese yen, approximately equivalent to $232 million with a maturity of three years. As of December 31, 2020, the facility has not been drawn upon.
In the thirdfirst quarter of 2017,2020, Corning issued ¥78 billion Japanese yen-denominated debt securities in tranchesestablished two unsecured variable rate loan facilities for 1,050 million Chinese yuan, equivalent to $150 million, and 749 million Chinese yuan, equivalent to $105 million, each with a maturity of 7, 10five years. In the fourth quarter of 2020, Corning established a third unsecured variable rate loan facility for 546 million Chinese yuan, equivalent to $84 million, with a maturity of five years. Borrowings under these loan facilities for the year ended December 31, 2020, totaled 1,691 million Chinese yuan, or approximately $243 million. These Chinese yuan-denominated proceeds will not be converted into USD and 20 years. The proceeds from these notes were received in Japanese yen and immediately converted to U.S. dollars on the date of issuance. The net proceeds received in U.S. dollars, after deducting offering expenses, was approximately $700 million.will be used for capital projects. Payments of principal and interest on the notesNotes will be in Japanese yen,Chinese yuan, or should yenyuan be unavailable due to circumstances beyond Corning’s control, a U.S. dollarUSD equivalent. These loans are the sole obligations of the subsidiary borrowers and are not guaranteed by any other Corning entity.
2019
In the fourth quarter of 2017,2019, Corning issued $750two USD-denominated debt securities (the “Notes”), as follows:
$400 million of 4.375%3.90% senior unsecured notes that mature on November 15, 2057. with a maturity of 30 years; and
$1.1 billion 5.45% senior unsecured notes with a maturity of 60 years.
The net proceeds, of $743 millionafter deducting offering expenses, were approximately $1.5 billion and will be used for general corporate purposes. We can redeem these notes at any time, subject to certain terms and conditions.
2016In the fourth quarter of 2019, Corning redeemed $300 million of 4.25% notes due in 2020, paying a premium of $4.7 million by exercising our make-whole call. The bond redemption resulted in an $8.4 million loss during the same quarter.
In the third quarter of 2016,2019, Corning issued two Japanese yen-denominated debt securities (the “Notes”), as follows:
¥31.3 billion 1.153% senior unsecured notes with a maturity of 12 years; and
¥5.9 billion 1.513% senior unsecured notes with a maturity of 20 years.
The proceeds from the Notes were received in Japanese yen and converted to USD on the date of issuance. The net proceeds received in USD, after deducting offering expenses, were approximately $349 million and will be used for general corporate purposes. Payments of principal and interest on the Notes will be in Japanese yen, or should yen be unavailable due to circumstances beyond Corning’s Board of Directors approvedcontrol, a $1 billion increase to our commercial paper program, raising it to $2 billion. If needed, this program is supported by our $2 billion revolving credit facility that expires in 2019. Corning did not have outstanding commercial paper at December 31, 2016.USD equivalent.
Common Stock Dividends
On February 3, 2016,2021, Corning’s Board of Directors declared a 12.5%9% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.12$0.22 to $0.135$0.24 per share of common stock, beginning with the dividend to be paid in the first quarter of 2016. The Company paid four quarterly dividends of $0.135 during2021. This increase marks the year ended December 31, 2016 and paid four quarterly dividends of $0.12 during the year ended December 31, 2015.tenth dividend increase since October 2011.
On February 1, 2017,5, 2020, Corning’s Board of Directors declared a 14.8%10% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.135$0.20 to $0.155$0.22 per share of common stock, beginning with the dividend to be paid in the first quarter of 2017. 2020.
On February 6, 2018,2019, Corning’s Board of Directors declared a 16.1%an 11% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.155$0.18 to $0.18$0.20 per share of common stock, beginning with the dividend to be paid in the first quarter of 2018. This increase marks the seventh dividend increase since October 2011. 2019.
Fixed Rate Cumulative Convertible Preferred Stock, Series A
Corning has 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A. The Preferred Stockpreferred stock is convertible at the option of the holder, and by the Company upon certain events, at a conversion rate of 50,000 shares of Corning’s common stock per one share of Preferred Stock,preferred stock, subject to certain anti-dilution provisions. As of December 31, 2017,2020, the Preferred Stock haspreferred stock had not been converted, and none of the anti-dilution provisions havehad been triggered.
Customer Deposits
In December 2015, Corning announced that withOn January 16, 2021, the supportpreferred stock became convertible, in whole or in part, at the option of the Hefei government it will locate a Gen 10.5 glass manufacturing facility in the Hefei XinZhan General Pilot Zone in Anhui Province, China. Glass substrate production from the new facility is expected to support mass productionholder.
Customer Deposits
As of LCD panels for large-size televisions beginning in 2018.
As partDecember 31, 2020 and 2019, Corning had customer deposits of this investment, Corningapproximately $1.4 billion and a Chinese customer have entered into a long-term supply agreement that commits the customer to the purchase$1.0 billion. The majority of Gen 10.5 glass substrates from the Corning manufacturing facility in Hefei. This agreement stipulates that the customer will provide athese were non-refundable cash deposit in the amount of approximately $400 million to Corningdeposits for customers to secure rights to an amount of glass that is produced by Corning over the nextunder long-term supply agreements. The duration of these long-term supply agreements ranges up to 10 years. Corning has collected the full amount of this deposit, adjusted for foreign exchange movements, receiving $185 million of this deposit in 2016 and $197 million in 2015. As glass is shipped to the customer,customers, Corning will recognize revenue and issue credit memoranda to reduce the amount of the customer deposit liability. The increase in the balance, when compared to the prior period, was primarily driven by a customer deposit liability which are applied againstof $264 million recorded at the fair value of refundable payments that HSG received from a customer receivables resultingunder a long-term supply agreement.
In the years ended December 31, 2020 and 2019, customer deposits used were $140 million and $37 million, respectively. As of December 31, 2020 and 2019, $1,148 million and $927 million were recorded as other long-term liabilities, respectively. The remaining $211 million and $104 million, respectively, were classified as other current liabilities.
Deferred Revenue
During the third quarter of 2020, Corning obtained a controlling interest in HSG and recorded deferred revenue of $1,070 million at fair value 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 salecommitted volumes under the terms of glass. In 2017, 2016the 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 compared to the remaining contractual units.
As of December 31, 2020, $872 million was classified as a long-term liability and 2015, no credit memoranda were issued. $152 million remaining was classified as a current liability. These balances reflect reductions in deferred revenue since September 9, 2020.
Capital Spending
Capital spending totaled $1.8was approximately $1.4 billion in 2017, an increase2020, a decrease of approximately $700$601 million when compared to 2016, driven by expansions related to the Gen 10.5 glass manufacturing facility in China, the addition of capacity to support the new gas-particulate filters business in the Environmental Technologies segment, fiber and cable capacity in the Optical Communications segment and general business growth in the Specialty Materials segment.2019. We expect our 20182021 capital expenditures to be slightly more than $2approximately $1.4 billion.
Cash Flows
Summary of cash flow data (in millions):
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| Years ended December 31, | Year ended December 31, | ||||||||||||||
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
Net cash provided by operating activities | $ | 2,004 |
| $ | 2,537 |
| $ | 2,829 | $ | 2,180 | $ | 2,031 | $ | 2,919 | ||
Net cash (used in) provided by investing activities | $ | (1,710) |
| $ | 3,662 |
| $ | (685) | ||||||||
Net cash used in investing activities | $ | (1,310) | $ | (1,891) | $ | (2,887) | ||||||||||
Net cash used in financing activities | $ | (1,624) |
| $ | (5,322) |
| $ | (2,623) | $ | (729) | $ | (47) | $ | (1,995) |
2017 vs. 2016
Net cash provided by operating activities decreasedincreased by $533$149 million in the year ended December 31, 20172020, when compared to the same period in the prior year. The change was primarily driven by net favorable movements in working capital and the refund of tax assessments from the South Korean government, of $730 million and $101 million, respectively, partially offset by increased pension contributions, increased severance payments, lower dividends received from affiliated companies, and higher asbestos claim payments of $219 million, $119 million, $105 million and $80 million, respectively.
Net cash used in investing activities decreased by $581 million in the year ended December 31, 2020, when compared to the same period last year,year. The decrease was primarily driven by $501 million of unfavorable movementsa reduction in working capital. The negative impact of working capital changes was largely driven by an increase of $143 million in VAT receivables in Asia, a payment of $70 million related to our obligation under the plan of reorganization for PCC (refer to Note 2 (Commitments, Contingencies and Guarantees) to the consolidated financial statements for additional information), an increase in accounts receivable and inventory to support growth in the Optical Communications, Environmental Technologies and Specialty Materials segments.expenditures.
Net cash used in investingfinancing activities increased by $5.4 billion$682 million in the year ended December 31, 2017,2020, when compared to the same period last year,year. The increase was primarily driven by the absence of $4.8 billion of cash received in the second quarter of 2016 on the realignment of Dow Corning, coupled with an increase of $674 million in capital expenditures largely due to capacity expansions and a decline of $92 million in liquidations of short-term investments. A decline of $162 million in acquisition spending partially offset these events.
Net cash used in financing activities in the year ended December 31, 2017 decreased by $3.7 billion when compared to the same period last year, driven by lower share repurchases, down $1.8 billion, proceeds from the issuance of long-term debt of $1.4 billion, the absence of $481$1,588 million, of commercial paper repayments made in 2016 and an increase of $171 million in proceeds from the exercise of stock options.
2016 vs. 2015
Net cash provided by operating activities decreased $292 million in the year ended December 31, 2016 when compared to 2015, driven largely by a decrease in net income excluding non-cash gains, an increase in accounts receivable in the Optical Communications and Specialty Materials segments, up $81 and $70 respectively, partially offset by an increase in accounts payable and other current liabilities. A decrease of $58 million in dividends received from equity affiliates, driven by the strategic realignment of our ownership interest in Dow Corning, also negatively impacted cash flow from operations.
Net cash provided by investing activities increased substantially, up $4.3 billion, in the year ended December 31, 2016 when compared to 2015, driven by $4.8 billion in cash received upon the realignment of Dow Corning, a decrease of $120 million in capital expenditures and a decrease of $399 million in acquisition spending, partially offset by a decreasereduction in repurchases of $452treasury stock and debt repayments of $835 million in realized gains on our translated earnings contracts.and $79 million, respectively.
Net cash used in financing activities in the year ended December 31, 2016 increased $2.7 billion when compared to 2015, driven by an increase of $999 million in share repurchases, the repayment of $481 million of commercial paper outstanding in 2015 and the absence of cash received from the issuance of long-term debt in the amount of $745 million in the third quarter of 2015.
Defined Benefit Pension Plans
We have defined benefit pension plans covering certain domestic and international employees. Our largest single pension plan is Corning’s U.S. qualified plan. At December 31, 2017,2020, this plan accounted for 77% of our consolidated defined benefit pension plans’ projected benefit obligation and 85%86% of the related plans’ assets.
In 2017, we2020, Corning made no$180 million in voluntary cash contributions to our domestic defined benefit pension plan and $29cash contributions of $41 million to our international pension plans. In 2016, we made voluntaryDuring 2021, the Company anticipates making cash contributions of $73$31 million to our domestic defined benefit pension plan and $16 million to ourthe international pension plans. Although we are not subject to any mandatory contributions in 2018, we anticipate making voluntary cash contributions of $105 million to our U.S. qualified pension plan and up to $27 million to our international pension plans in 2018.
Refer to Note 13 (Employee Retirement Plans) to the Consolidated Financial Statementsconsolidated financial statements for additional information.
Restructuring
For the year ended December 31, 2017, we did not record significant restructuring, impairment and other charges or reversals. Cash expenditures for restructuring activities were approximately $4 million.
For the year ended December 31, 2016, we recorded charges of $77 million for employee related costs, asset disposals, and exit costs associated with some minor restructuring activities in all of the segments with total cash expenditures of approximately $12 million.
For the year ended December 31, 2015, we did not record significant restructuring, impairment and other charges or reversals. Cash expenditures for restructuring activities were approximately $40 million.
Refer to Note 2 (Restructuring, Impairment and Other Charges) to the Consolidated Financial Statements for additional information.
Key Balance Sheet Data
Balance sheet and working capital measures are provided in the following table (in millions):
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| December 31, | |||||||||
| 2017 |
| 2016 | December 31, | ||||||
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| 2020 | 2019 | |||
Working capital | $ | 5,618 |
| $ | 6,297 | $ | 4,237 | $ | 3,942 | |
Current ratio |
| 2.8:1 |
| 3.3:1 | 2.1:1 | 2.1:1 | ||||
Trade accounts receivable, net of allowances | $ | 1,807 |
| $ | 1,481 | |||||
Trade accounts receivable, net of doubtful accounts | $ | 2,133 | $ | 1,836 | ||||||
Days sales outstanding |
| 62 |
| 54 | 57 | 59 | ||||
Inventories | $ | 1,712 |
| $ | 1,471 | $ | 2,438 | $ | 2,320 | |
Inventory turns |
| 3.7 |
| 3.8 | 3.2 | 3.3 | ||||
Days payable outstanding (1) |
| 51 |
| 45 | 44 | 48 | ||||
Long-term debt | $ | 4,749 |
| $ | 3,646 | $ | 7,816 | $ | 7,729 | |
Total debt | $ | 7,972 | $ | 7,740 | ||||||
Total debt to total capital |
| 25% |
| 18% | 37% | 37% |
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Credit Ratings(1)Includes trade payables only.
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Management Assessment of Liquidity
We ended the fourth quarter of 20172020 with approximately $4.3$2.7 billion of cash and cash equivalents. Our cash and cash equivalents are held in various locations throughout the world and are generally unrestricted. We utilize a variety of strategies to ensure that our worldwide cash is available in the locations in which it is needed. At December 31, 2017,2020, approximately 79%82% of the consolidated amount was held outside of the United States. In January 2018, the Company distributed approximately $2 billion from two of its foreign subsidiaries to the U.S. parent of those subsidiaries. There are no incremental taxes beyond the toll charge due with respect to this distribution of cash.
To manage interest rate exposure, the Company, from time to time, enters into interest rate swap agreements. We are currently party to two interest rate swaps that are designated as fair value hedges and economically exchange a notional amount of $550 million of previously issued fixed rate long-term debt to floating rate debt. Under the terms of the swap agreements, we pay the counterparty a floating rate that is indexed to the one-month LIBOR rate.
Corning also has a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes. In the third quarter of 2016, Corning’s Board of Directors approved an increasenotes up to the allowablea maximum aggregate principal amount outstanding at any one time from $1 billion to $2of $1.5 billion. Under this program, the Company may issue the paper from time to time and will use the proceeds for general corporate purposes. The Company’s $2 billion revolving credit facilityRevolving Credit Agreement is available to support obligations under the commercial paper program, if needed. At December 31, 2020, Corning did not have outstanding commercial paper.
The Company’s $1.5 billion Revolving Credit Agreement is available to support its commercial paper atprogram and for general corporate purposes.
Share Repurchases
During the years ended December 31, 2017.
Share Repurchases
During 2015, Corning2020 and 2019, the Company repurchased 1674.1 million and 31.0 million shares of common stock, respectively, on the open market for approximately $3.25 billion through an accelerated share repurchase agreement$105 million and open market repurchases$925 million as part of a repurchase program authorized by Corning’s Boardits 2018 Repurchase Program. The Company suspended share buybacks during the first quarter of Directors in December 2014 (the “December 2014 Repurchase Program”)2020 and repurchase programs authorized by Corning’s Board of Directors in July 2015 and October 2015 (the “2015 Repurchase Programs”).
During 2016, Corning repurchased 197.1 million sharesmade no share repurchases for approximately $4.2 billion through an accelerated share repurchase agreement and open market repurchases as partthe remainder of the 2015 Repurchase Programs. In December 2016, Corning’s Board of Directors approved a $4 billion share repurchase program with no expiration (the “2016 Repurchase Program”). year.
During 2017, Corning repurchased 84.4 million shares for approximately $2.4 billion through accelerated share repurchase agreements and open market repurchases under the 2016 Repurchase Program.
Refer to Note 17 (Shareholders’ Equity) to the Consolidated Financial Statementsconsolidated financial statements for additional information.
Other
We complete comprehensive reviews of our significant customers and their creditworthiness by analyzing their financial strength at least annually or more frequently for customers where we have identified a measure of increased risk. We closely monitor payments and developments which may signal possibleto identify potential customer credit issues. From time to time, we factor or sell accounts receivable. Sales of accounts receivable during 2020 were $402 million, which we believe would have been collected during the normal course of business this year. During 2019, Corning participated in customer-initiated payment programs which resulted in accelerated collections of $143 million in accounts receivable. We currently have not identified any potential material impact on our liquidity resulting from customer credit issues.
Our major source of funding for 20172021 and beyond will be our operating cash flow, our existing balances of cash and cash equivalents and proceeds from any issuances of debt. We believe we have sufficient liquidity for the next several years to fund operations, acquisitions, the asbestos litigation, capital expenditures, scheduled debt repayments, dividend payments and share repurchase programs.
Corning also has access to a $2 billion unsecured committed revolving credit facility. This credit facilityOur Revolving Credit Agreement includes affirmative and negative covenants with which we must comply, including a leverage ratio(debt to capital ratio) financial covenant. The required leverage ratio which measures debt to total capital, is a maximum of 50%60%. At December 31, 2017,2020, our leverage using this measure was 25% and we areapproximately 37%. As of December 31, 2020, Corning was in compliance withand no amounts were outstanding under the financial covenant.Company’s Revolving Credit Agreement.
Our debt instruments contain customary event of default provisions, which allow the lenders the option of accelerating all obligations upon the occurrence of certain events. In addition, some of our debt instruments contain a cross default provision, whereby an uncured default in excess ofexceeding a specified amount on one debt obligation of the Company, also would be considered a default under the terms of another debt instrument. As of December 31, 2017,2020, we were in compliance with all such provisions.
Management is not aware of any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material increase or decrease in our liquidity. In addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resources and no expected material changes in the mix and relative cost of such resources.
Translated Earnings Contracts
In the second quarter of 2013 and continuing throughout 2015, Corning entered into a series of zero cost average rate collars and average rate forwards to hedge the translation impact of Japanese yen on Corning’s projected 2015, 2016 and 2017 net income. Additionally, Corning extended its foreign exchange hedging program to hedgehas hedged a significant portion of its projected yen exposure for the period 20182020 through 2022,2024, with average rate forwards collars and puts.options. In the years ended December 31, 20172020 and 2016, we recorded pre-tax net losses of $201 million and $459 million, and in the year ended December 31, 2015,2019, we recorded a pre-tax net loss of $38 million and a pre-tax net gain of $113$201 million, respectively, related to changes in the fair value of these instruments. Included in these amounts are realized gainslosses of $268 million, $207$31 million and $686$7 million, respectively. The gross notional value outstanding for these instruments which hedge our exposure to the Japanese yen at December 31, 2017, 20162020 and 20152019, was $13 billion, $14.9$6.5 billion and $8.3$10.2 billion, respectively.
We have entered into zero-cost collars and average rate forwards to hedge our translation exposure resulting from movements in the South Korean won and its impact on our net income. In the years ended December 31, 20172020 and 2016, we recorded pre-tax net gains of $95 million and $7 million, respectively, and the year ended December 31, 2015,2019, we recorded a pre-tax net lossgain of $36$24 million and $6 million, respectively, related to changes in the fair value of these instruments. Included in these amounts areis a realized lossesgain of $1 million $7 million and $33a realized loss of $1 million, respectively. These instruments had a gross notional value outstanding at December 31, 2017, 20162020 and 20152019, of $0.8 billion, $1.2 billion and $3.3 billion, respectively.$0.4 billion.
We have entered into a portfolio of zero-cost collars and average rate forwards to hedge against our euro translation exposure. In the fourth quarter of 2016, the zero-cost collars expired. In the year ended December 31 2017 we recorded a net pre-tax loss of $40 million, and in the years ended December 31, 20162020 and 2015,2019, we recorded net pre-tax loss of $21 million and a pre-tax gain of $37 million, respectively. Included in these amounts are realized gains of $15$20 million and $3realized gain of $29 million, respectively. At December 31, 2017, 20162020 and 2015,2019, the euro-denominated average rate instruments had a gross notional amount of $0.3 billion.
In 2016, we entered into a portfolio of average rate forwards to hedge against our translation exposure resulting from movements in the Chinese yuan. In the year ended December 31 2017, we recorded a net pre-tax gain of $27 million, and in the year ended December 31, 2016, we recorded a net pre-tax loss of $11 million related to changes in the fair value of these instruments. At December 31, 2017 and 2016, the yuan-denominated average rate forwards had a gross notional amount of $0.2$0.5 billion and $0.3$1.3 billion, respectively.
These derivative instruments are not designated as accounting hedges, and changes in their fair value are recorded in earnings in the translated earnings contract (loss) gain, net line of the Consolidated Statementsconsolidated statements of (Loss) Income. income.
Off Balance Sheet Arrangements
Off balance sheet arrangements are transactions, agreements, or other contractual arrangements with an unconsolidated entity for which Corning has an obligation to the entity that is not recorded in our consolidated financial statements.
Corning’s off balance sheet arrangements include guarantee and indemnity contracts. At the time a guarantee is issued, the Company is required to recognize a liability for the fair value or market value of the obligation it assumes. In the normal course of our business, we do not routinely provide significant third-party guarantees. Generally, third-party guarantees provided by Corning are limited to certain financial guarantees, including stand-by letters of credit and performance bonds, and the incurrence of contingent liabilities in the form of purchase price adjustments related to attainment of milestones. These guarantees have various terms, and none of these guarantees are individually significant.
Refer to Note 14 (Commitments, Contingencies and Guarantees) to the Consolidated Financial Statementsconsolidated financial statements for additional information.
For variable interest entities, we assess the terms of our interest in each entity to determine if we are the primary beneficiary. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result ofdue to holding variable interests. Variable interests which are the ownership, contractual, or other pecuniary interests in an entity, that change with changes in the fair value, of the entity’s net assets excluding variable interests.interest entities.
Corning has identified tennine entities that qualify as a variable interest entity.entities and are not consolidated. These entities are not considered to be significant to Corning’s consolidated statements of position.financial statements.
Corning does not have retained interestsinterest in assets transferred to an unconsolidated entity that serve as credit, liquidity or market risk support to that entity.
Contractual ObligationsENVIRONMENT
The amounts of our obligations follow (in millions):Refer to Item 3. Legal Proceedings or Note 14 (Commitments, Contingencies and Guarantees) to the consolidated financial statements for information.
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| Amount of commitment and contingency expiration per period | ||||||||||
| Total |
| Less than |
| 1 to 3 |
| 3 to 5 |
| 5 years and | |||||
Performance bonds and guarantees | $ | 198 |
| $ | 88 |
| $ | 3 |
| $ | 1 |
| $ | 106 |
Stand-by letters of credit (1) |
| 75 |
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| 62 |
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| 9 |
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| 4 |
Credit facility to equity company |
| 10 |
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| 10 |
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Subtotal of commitment expirations per period | $ | 283 |
| $ | 160 |
| $ | 12 |
| $ | 1 |
| $ | 110 |
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Purchase obligations (2) | $ | 265 |
| $ | 142 |
| $ | 72 |
| $ | 21 |
| $ | 30 |
Capital expenditure obligations (3) |
| 583 |
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| 583 |
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Total debt (4) |
| 4,749 |
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| 375 |
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| 550 |
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| 437 |
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| 3,387 |
Interest on long-term debt (5) |
| 3,437 |
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| 195 |
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| 359 |
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| 314 |
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| 2,569 |
Capital leases and financing obligations |
| 406 |
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| 4 |
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| 9 |
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| 11 |
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| 382 |
Imputed interest on capital leases and |
| 233 |
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| 19 |
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| 40 |
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| 39 |
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| 135 |
Minimum rental commitments |
| 563 |
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| 74 |
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| 122 |
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| 91 |
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| 276 |
Amended PCC Plan |
| 220 |
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| 35 |
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| 85 |
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| 100 |
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Uncertain tax positions (6) |
| 54 |
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Subtotal of contractual obligation payments due | $ | 10,510 |
| $ | 1,427 |
| $ | 1,237 |
| $ | 1,013 |
| $ | 6,779 |
Total commitments and contingencies (6) | $ | 10,793 |
| $ | 1,587 |
| $ | 1,249 |
| $ | 1,014 |
| $ | 6,889 |
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We believe a significant majority of these guarantees and contingent liabilities will expire without being funded.
ENVIRONMENT
Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 15 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At December 31, 2017 and December 31, 2016, Corning had accrued approximately $38 million (undiscounted) and $43 million (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements requires us to make estimates and assumptions that affect amounts reported therein. The estimates that required us to make difficult, subjective or complex judgments, including future projections of performance and relevant discount rates, are set forth below.
Valuation of the Previously Held Equity Interest from the Consolidation of HSG
We account for the change in controlling interest using the acquisition method of accounting, which requires us to estimate the fair values of the assets and liabilities recorded. Assets recorded include intangible assets such as developed technologies and know-how, tradenames and customer-related intangibles, fixed assets and inventories. Liabilities recorded include contract liabilities such as customer deposits and deferred revenue, debt, and other liabilities. These assets and liabilities recorded are assessed at the time of the change in control and require judgment in ascertaining the fair values. In this business combination, achieved in stages, we also remeasure the previously held equity interest in HSG at the time of the change in control at fair value and recognize the resulting gain in earnings. Independent appraisals assisted the company in the determination of the fair value of certain assets and liabilities. Such appraisals are based on acceptable valuation models as well as inputs and assumptions provided by us. Additional information related to the fair value of the assets and liabilities recorded during the allocation period, not to exceed one year, may result in changes to the recorded values of assets and liabilities, resulting in an offsetting adjustment to the goodwill associated with the business combination. Changes in assumptions and estimates after completing the allocation of the purchase price to the assets and liabilities acquired, as well as differences in actual and estimated results could result in impacts to Corning’s financial results.
In September 2020, HSG redeemed DuPont’s entire ownership interest in HSG for $250 million. Upon completion of the Redemption, Corning recognized a pre-tax gain of $498 million on its previously held equity investment in HSG as a result of the consolidation resulting from the Redemption. The gain was calculated based on the difference between fair value and carrying value of the equity method investment immediately preceding the Redemption. The fair value of Corning’s equity interest in HSG was estimated by applying the income approach, which was based on significant assumptions such as projected revenue and discount rate. The company used a discount rate of 16.5% and terminal growth rate of zero.
Upon completion of the Redemption, we recognized intangible assets consisting 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. The developed technologies and know-how intangible assets were valued using two appropriate valuation methods. The developed technologies and know-how intangibles asset valued at $125 million utilized the relief from royalty method, which was based on significant inputs such as projected revenue and key assumptions, including a discount rate of 21.0% and a royalty rate of 7.0%. The developed technologies and know-how intangibles asset valued at $90 million utilized the multi-period excess earnings method under the income approach, which was based on significant inputs such as projected revenue and the key assumption of a discount rate of 19.0%.
Valuation of Deferred Revenue and Customer Deposits from the consolidation of HSG
Upon completion of the Redemption and resulting consolidation, we recorded a customer deposit liability and deferred revenue.
Corning recorded a customer deposit of $264 million, at the fair value, of refundable payments that HSG received from a customer under a long-term supply agreement. The discount rates used to calculate the present value of the customer deposit range from 2.54% to 3.23%. The deposits will be repaid from 2029 to 2034 provided that all purchase obligations of this customer under the supply agreement have been satisfied.
We recorded deferred revenue of $1,070 million at fair value related to the performance obligations of non-refundable consideration previously received by HSG from its customers under long term supply agreements. The fair values of deferred revenue were estimated by applying a bottoms-up cost buildup method of the cost approach based on significant inputs such as the cost to fulfill the obligations as well as key assumptions including a normal profit margin.
Refer to Note 3 (Investments) and Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information.
Impairment of assets held for use
We are required to assess the recoverability of the carrying value of long-lived assets when an indicator of impairment has been identified. We review our long-lived assets in each quarter to assess whetherin which impairment indicators are present. We must exercise judgment in assessing whether an event of impairment has occurred.
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals, primarily platinum and rhodium. These metals are not depreciated because they have very low physical losses and are repeatedly reclaimed and reused in our manufacturing process over a very long useful life. Precious metals are reviewed for impairment as part of our assessment of long-lived assets. This review considers all of the Company’s precious metals that are either in place in the production process; in reclamation, fabrication, or refinement in anticipation of re-use; or awaiting use to support increased capacity. Precious metals are only acquired to support our operations and are not held for trading or other non-manufacturing related purposes.
Examples of events or circumstances that may be indicative of impairments include, but are not limited to:
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A significant decrease in the market price of an asset;
A significant change in the use of a long-lived or its physical condition;
A significant adverse change in legal factors or in the business climate that could affect the value of the asset, including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset;
A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of an asset; and
A current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. We must exercise judgment in assessing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Our assessment is performed at the reportable segment level. For the majority of our reportable segments, we concluded that locations or businesses within these segments which share production along the supply chain must be combined in order to appropriately identify cash flows that are largely independent of the cash flows of other assets and liabilities.
For long-lived assets, when impairment indicators are present, we compare estimated undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the assets’ carrying value to determine if the asset group is recoverable. This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived from the assets to be held and used. Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing this capacity back into production. If there is an impairment, a loss is recorded to reflect the difference between the assets’ fair value and carrying value. This may require judgment in estimating future cash flows and relevant discount rates and residual values in estimating the current fair value of the impaired assets to be held and used.
For an asset group that fails the test of recoverability, the estimated fair value of long-lived assets is determined using an “income approach” that starts with the forecast of all the expected future net cash flows including the eventual disposition at market value of long-lived assets, and also considers the fair market value of all precious metals.metals, if applicable. We assess the recoverability of the carrying value of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If there is an impairment, a loss is recorded to reflect the difference between the assets’ fair value and carrying value. Our estimates are based upon our historical experience, our commercial relationships, and available external information about future trends. We believe fair value assessments are most sensitive to market growth and the corresponding impact on volume and selling prices and that these are also more subjective than manufacturing cost and other assumptions. The Company believes its current assumptions and estimates are reasonable and appropriate.
At December 31, 20172020 and December 31, 2016,2019, the carrying value of precious metals was higher$3.4 billion and $3.3 billion, respectively, and significantly lower than the fair market value by $711 million and $890 million, respectively. The majorityvalue. Most of these precious metals are utilized by the Display Technologies and Specialty Materials segments. Corning believes these precious metal assets to be recoverable due to the significant positive cash flow in both segments. The potential for impairment exists in the future if negative events significantly decrease the cash flow of these segments. Such events include, but are not limited to, a significant decrease in demand for products or a significant decrease in profitability in our Display Technologies or Specialty Materials segments.
ImpairmentFor the year ended December 31, 2020, Corning incurred a long-lived asset impairment and disposal loss for an asset group related to the reassessment and reprioritization of Goodwill
We are required to makeresearch and development programs within “All Other”. Given the economic environment and market opportunities, Corning discontinued its investment in these research and development programs. The impairment analysis and disposition of certain subjective and complex judgmentsassets resulted in assessing whether an eventa total pre-tax charge of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. We test for goodwill impairment at the reporting unit level and our reporting units are the operating segments or the components of operating segments$217 million, which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management.
Corning adopted ASU 2017-04, Intangibles – Goodwill and Other, on January 1, 2017, which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.
Corning has recorded goodwill in the Display Technologies, Optical Communications, Specialty Materials, Life Sciences and All Other operating segments. On a quarterly basis, or if an event occurs or circumstances change that indicate the carrying amount may be impaired, management performs a qualitative assessment of factors in each reporting unit within these operating segments to determine if there have been any triggering events. We also perform a detailed quantitative impairment test every three years if no indicators suggest a test should be performed in the interim. We use this calculation as quantitative validation of the qualitative process; this process does not represent an election to perform the quantitative impairment test in place of the qualitative review.
The following events and circumstances are considered when evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount:
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The examples noted above are not all-inclusive, and the Company will consider other relevant events and circumstances that affect the fair value of a reporting unit in determining whether to perform the quantitative goodwill impairment test.
Our goodwill recoverability assessment is based on our annual strategic planning process. This process includes an extensive review of expectations for the long-term growth of our businesses and forecasted future cash flows. Our valuation method is an “income approach” using a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return. Our estimates are based upon our historical experience, our current knowledge from our commercial relationships, and available external information about future trends. If the fair value is less thanwas substantially all the carrying value, a loss is recorded to reflect the difference between the fair value and carrying value.
Display Technologies
Goodwill for the Display Technologies segment is tested at the reporting unit level, which is also the operating segment level consistinginclusive of two components. For the purposesan insignificant amount of the annual goodwill impairment assessment, we have aggregated these two components into one reporting unit based upon their similar economic characteristics. On a quarterly basis in 2017, management performed a qualitative assessment of factors and determined there had not been any triggering events which would indicate that the Display Technologies reporting unit’s fair value is less than its carrying amount.
In addition to assessing qualitative factors each quarter, we performed a quantitative goodwill recoverability test in 2015 for this reporting unit. A discount rate of 5.8% and a growth rate of 1% were used in 2015.goodwill. The results of our impairment test indicated that the fair value of the reporting unit exceeded its book value by a significant amount, and as such, further goodwill impairment testing was not necessary. We determined a range of discount rates between 3.8% and 7.8% and growth rates between 0% and 3% would not have affected our conclusion.
Optical Communications
Goodwillasset group for the Optical Communications segment is tested at the reporting unit level, which is also the operating segment level consisting of two components. For the purposes of the annual goodwill impairment assessment, we have aggregated these two components into one reporting unit based upon their similar economic characteristics. On a quarterly basis in 2017, management performed a qualitative assessment of factors and determined there had not been any triggering events which would indicate that the Optical Communications reporting unit’s fair value is less than its carrying amount.
In addition to assessing qualitative factors each quarter, we performed a quantitative goodwill recoverability test in 2015 for this reporting unit. A discount rate of 5.6% and a growth rate of 3% were used in 2015. The results of our impairment test indicated that the fair value of the reporting unit exceeded its book value by a significant amount, and as such, further goodwill impairment testing was not necessary. We determined a range of discount rates between 3.6% and 7.6% and growth rates between 0% and 3% would not have affected our conclusion.
Specialty Materials
Goodwill for the Specialty Materials segment is tested at the reporting unit level, which is one level below an operating segment, as the goodwill is the result of transactions associated with a certain business within this operating segment. On a quarterly basis in 2017, management performed a qualitative assessment of factors and determined there had not been any triggering events which would indicate that the Specialty Materials reporting unit’s fair value is less than its carrying amount.
In addition to assessing qualitative factors each quarter, we performed a quantitative goodwill recoverability test in 2015 for this reporting unit. A discount rate of 5.8% and a growth rate of 3% were used in 2015. The results of our impairment test indicated that the fair value of the reporting unit exceeded its book value by a significant amount, and as such, further goodwill impairment testing was not necessary. We determined a range of discount rates between 3.8% and 7.8% and growth rates between 0% and 3% would not have affected our conclusion.
Life Sciences
Goodwill for the Life Sciences segment is tested at the reporting unit level, which is also the operating segment level. On a quarterly basis in 2017, management performed a qualitative assessment of factors and determined there had not been any triggering events which would indicate that the Life Sciences reporting unit’s fair value is less than its carrying amount.
In addition to assessing qualitative factors each quarter, we performed a quantitative goodwill recoverability test in 2015 for this reporting unit. A discount rate of 6% and a growth rate of 3% were used in 2015. The results of our impairment test indicated that the fair value of the reporting unit exceeded its book value by a significant amount, and as such, further goodwill impairment testing was not necessary. We determined a range of discount rates between 4% and 8% and growth rates between 0% and 3% would not have affected our conclusion.
All Other
All Other segment is comprised of various operating segments and corporate investments that do not meet the quantitative threshold for separate reporting. Goodwill for the All Other segment is tested at the reporting unit level, which is also the operating segment level. For the purposes of the annual goodwill impairment assessment, we have identified two reporting units in this segment that require an assessment of their goodwill. On a quarterly basis in 2017, management performed a qualitative assessment of factors and determined there had not been any triggering events which would indicate that the reporting units’ fair value is less than the carrying amount.
In addition to assessing qualitative factors each quarter, we performed a quantitative goodwill recoverability tests in 2015. A discount rate of 7.4% and a growth rate of 3% were used in 2015. The results of our impairment test indicated that the book value of one of the reporting units exceeded its fair value by 80%. We determined a range of discount rates between 5.4% and 9.4% and growth rates between 0% and 3% would not have affected our conclusion. Corning concluded that a Step 2 analysis was requiredmeasured using unobservable (Level 3) inputs.
Refer to measure the impairment loss for this reporting unit.
Our StepNote 2 test consisted of identifying the underlying net assets in the reporting unit, allocating the implied purchase price(Restructuring, Impairment and Other Charges and Credits) to the assetconsolidated financial statements for additional information on restructuring activities and liabilities of the reporting unit and the calculation of the implied fair value of goodwill and the resulting impairment loss. In December 2015, we recorded a goodwill impairment loss of $29 million related to this reporting unit. impairment.
Restructuring charges and impairments resulting from restructuring actions
We are required to assess whether and when a restructuring event has occurred and in which periods charges related to such events should be recognized. We must estimate costs of plans to restructure including, for example, employee termination costs. Restructuring charges require us to exercise judgment about the expected future of our businesses, of portions thereof, their profitability, cash flows and in certain instances eventual outcome. The judgment involved can be difficult, subjective and complex in a number of areas, including assumptions and estimates used in estimating the future profitability and cash flows of our businesses.
Restructuring events often give rise to decisions to dispose of or abandon certain assets or asset groups which, as a result, require impairment. We are required to carry assets to be sold or abandoned at the lower of cost or fair value. We must exercise judgment in assessing the fair value of the assets to be sold or abandoned.
Income taxes
We are required to exercise judgment about our future results in assessing the realizability of our deferred tax assets. Inherent in this estimation process is the requirement for us to estimate future book and taxable income and possible tax planning strategies. These estimates require us to exercise judgment about our future results, the prudence and feasibility of possible tax planning strategies, and the economic environments in which we do business. It is possible that actual results will differ from assumptions and require adjustments to allowances.
Corning accounts for uncertain tax positions in accordance with ASC Topic 740, Income Taxes, which requires that companies only record tax benefits for technical positions that are believed to have a greater than 50% likelihood of being sustained on their technical merits and then only to the extent of the amount of tax benefit that is greater than 50% likely of being realized upon settlement. In estimating these amounts, we must exercise judgment around factors such as the weighting of the tax law in our favor, the willingness of a tax authority to aggressively pursue a particularan opposing position, or alternatively, consider a negotiated compromise, and our willingness to dispute a tax authoritiesauthorities’ assertion to the level of appeal we believe is required to sustain our position. As a result, it is possible that our estimate of the benefits we will realize for uncertain tax positions may change when we become aware of new information affecting these judgments and estimates.
At December 31, 2017, Corning has not completed its accounting for the tax effects of the enactment of the 2017 Tax Act. Pursuant to SAB 118, the Company has made a reasonable estimate of the effects on its U.S. deferred tax balances, the one-time toll charge and the impact on its state valuation allowances. In addition, Corning has not made sufficient progress on estimating the impact of tax reform on its assertion regarding its indefinitely reinvested foreign earnings so the Company will continue to follow its historic position while it continues to analyze this issue. In addition, Corning’s accounting for the impact of the global intangible low-taxed income (GILTI) provisions of the 2017 Tax Act is incomplete and, as a result, it has not yet elected a policy to account for the GILTI provisions.
The equity in earnings line on our income statement for the year ended December 31, 2016 reflects the equity earnings from the silicones and polysilicones (Hemlock Semiconductor) businesses of Dow Corning from January 1, 2016 through May 31, 2016, the closing date of the Transaction Agreement, and seven months of equity earnings from Hemlock Semiconductor Group. Prior to the realignment of Dow Corning, equity earnings from the Hemlock Semiconductor business were reported on the equity in earnings line in Corning’s income statement, net of Dow Corning’s 35% U.S. tax. Additionally, Corning reported its tax on equity earnings from Dow Corning on the tax provision line on its income statement at a U.S. tax provision rate of 7%. As part of the realignment, Hemlock Semiconductor Group was converted to a partnership. Each of the partners is responsible for the taxes on their portion of equity earnings. Therefore, post-realignment, Hemlock Semiconductor Group’s equity earnings is reported before tax on the equity in earnings line and Corning’s tax is reported on the tax provision line.
At December 31, 2017 and 2016, the carrying value of our equity method investment assets was $280 million and $269 million, respectively. In addition, we also have an equity investment (HSG) with a negative carrying value of $105 million. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. We review our equity method investments for indicators of impairment on a periodic basis or if events or circumstances change to indicate the carrying amount may be other-than-temporarily impaired. When such indicators are present, we then perform an in-depth review for impairment. An impairment assessment requires the exercise of judgment related to key assumptions such as forecasted revenue and profitability, forecasted tax rates, foreign currency exchange rate movements, terminal value assumptions, historical experience, our current knowledge from our commercial relationships, and available external information about future trends. As of December 31, 2017 and 2016, we have not identified any instances where the carrying values of our equity method investments were not recoverable.
Fair value measures
As required, Corning uses two kinds of inputs to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources, while unobservable inputs are based on the Company’s own market assumptions. Once inputs have been characterized, we prioritize the inputs used to measure fair value into one of three broad levels. Characterization of fair value inputs is required for those accounting pronouncements that prescribe or permit fair value measurement. In addition, observable market data must be used when available and the highest-and-best-use measure should be applied to non-financial assets. Corning’s major categories of financial assets and liabilities required to be measured at fair value are short-term and long-term investments, certain pension asset investments and derivatives. These categories use observable inputs only and are measured using a market approach based on quoted prices in markets considered active or in markets in which there are few transactions.
Derivative assets and liabilities may include interest rate swaps and forward exchange contracts that are measured using observable quoted prices for similar assets and liabilities. Included in our forward exchange contracts are foreign currency hedges that hedge our cash flow and translation exposure resulting from movements in the Japanese yen, South Korean won, euro, Newnew Taiwan dollar, Chinese yuan and Chinese yuan. TheseBritish pound. Changes in the fair value of contracts designated as cash flow hedges are recorded in accumulated other comprehensive loss in shareholders’ equity and reclassified into income when the underlying hedged item impacts earnings. For contracts that are not designated as accounting hedges, and changes in their fair value are recorded in earnings in the translated earnings contract (loss) gain, net line of the Consolidated Statementsconsolidated statements of (Loss) Income.income. In arriving at the fair value of Corning’s derivative assets and liabilities, we have considered the appropriate valuation and risk criteria, including such factors as credit risk of the relevant party to the transaction. Amounts related to credit risk are not material.
Refer to Note 16 (Fair Value Measurements) to the Consolidated Financial Statementsconsolidated financial statements for additional information.
Probability of litigation outcomes
We areCorning is required to make judgments about future events that are inherently uncertain. In making determinations of likely outcomes of litigation matters, we consider the evaluation of legal counsel knowledgeable about each matter, case law, and other case-specific issues. See Part II – Item 3. Legal Proceedings for a discussion of Corning’s material litigation matters.
Other possible liabilities
We areThe Company is required to make judgments about future events that are inherently uncertain. In making determinations of likely outcomes of certain matters, including certain tax planning and environmental matters, these judgments require us to consider events and actions that are outside our control in determining whether probable or possible liabilities require accrual or disclosure. It is possible that actual results will differ from assumptions and require adjustments to accruals.
Pension and other postretirement employee benefits (OPEB)
Corning offers employee retirement plans consisting of defined benefit pension plans covering certain domestic and international employees and postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. The costs and obligations related to these benefits reflect the Company’s assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, rate of compensation increase for employees and health care trend rates. The cost of providing plan benefits depends on demographic assumptions including retirements, mortality, turnover and plan participation. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Corning’s employee pension and other postretirement obligations, and current and future expense.
Costs for our defined benefit pension plans consist of two elements: 1) on-going costs recognized quarterly, which are comprised of service and interest costs, expected return on plan assets and amortization of prior service costs; and 2) mark-to-market gains and losses outside of the corridor, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, which are recognized annually in the fourth quarter of each year. These gains and losses result from changes in actuarial assumptions for discount rates and the differences between actual and expected return on plan assets. Any interim remeasurements triggered by a curtailment, settlement orremeasurement, such as curtailments, settlements, significant plan changes, as well as any true-upor adjustments to the annual valuation, areis recognized as a mark-to-market adjustment in the quarter in which such an event occurs.
Costs for our OPEB plans consist of on-going costs recognized quarterly, and are comprised of service and interest costs, amortization of prior service costs and amortization of actuarial gains and losses. We recognize the actuarial gains and losses resulting from changes in actuarial assumptions for discount rates as a component of Stockholders’ Equity on our consolidated balance sheetsaccumulated other comprehensive loss in shareholders’ equity on an annual basis and amortize them into our operating results over the average remaining service period of employees expected to receive benefits under the plans, to the extent such gains and losses are outside of the corridor.
Prior to the December 31, 2015 valuation of its defined benefit pension and OPEB plans, Corning used the traditional, single weighted-average discount rate approach to develop the obligation, interest cost and service cost components of net periodic benefit cost for its defined benefit pension and OPEB plans. The individual spot rates from the yield curve are used in measuring the pension plan projected benefit obligation (PBO) or OPEB plan accumulated postretirement benefit obligation (APBO) at the measurement date. The benefit obligation is effectively calculated as the aggregate present value at the measurement date of each future benefit payment related to past service, with each payment discounted using a spot rate from a high-quality corporate bond yield curve that matches the duration of the benefit payment. Under Corning’s traditional, single weighted-average discount rate approach, a single weighted-average rate is developed from the approach described above and rounded to the nearest 25 basis points. Traditionally, the weighted-average discount rate is determined at the plan measurement date, based on the same projected future benefit payments used in developing the benefit obligation. The traditional single weighted-average discount rate represents the constant annual rate that would be required to discount all future benefit payments related to past service from the date of expected future payment to the measurement date such that the aggregate present value equals the benefit obligation.
Beginning with the December 31, 2015 valuation of its defined benefit pension and OPEB plans, Corning changed its methodology of determining the service and interest cost components of net periodic pension and other postretirement benefit costs to a more granular approach. Under the new approach, the cash flows from each applicable pension and OPEB plan are used to directly calculate the benefit obligation, service cost and interest cost using the spot rates from the applicable yield curve.
Moving to a more granular approach has a limited impact on the determination of the respective benefit obligations. The only impacts are as a result of the elimination of the rounding of the discount rate that occurred in the traditional approach and the use of specific cash flows for Corning’s non-qualified pension plans, while separately applying the yield curve to each separate OPEB plan instead of aggregating the OPEB plan cash flows. For Corning’s pension plans, this change will increase the immediate recognition of actuarial losses (or decrease the immediate recognition of actuarial gains), due to Corning’s previous election to immediately recognize actuarial gains and losses outside of the corridor. For Corning’s OPEB plans, this change will increase the accumulated other comprehensive income (AOCI) account balance due to the accumulation of lower actuarial gains or higher actuarial losses. Over time, the amortization of the actuarial losses from AOCI will begin to reduce the savings from the lower interest cost and service cost.
This change was a change in accounting estimate and therefore was applied prospectively beginning with the measurement date of December 31, 2015. No restatement of prior periods is required.
The following table presents our actual and expected return on assets, as well as the corresponding percentage, for the years ended 2017, 2016 and 2015:percentages:
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| December 31, | December 31, | ||||||||||||||
(In millions) | 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
Actual return on plan assets – Domestic plans | $ | 393 |
| $ | 235 |
| $ | (111) | $ | 420 | $ | 576 | $ | (202) | ||
Expected return on plan assets – Domestic plans |
| 163 |
| 153 |
| 166 | 186 | 161 | 178 | |||||||
Actual return on plan assets – International plans |
| 18 |
| 75 |
| 3 | 49 | 39 | 1 | |||||||
Expected return on plan assets – International plans |
| 11 |
| 12 |
| 12 | 9 | 10 | 11 | |||||||
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| December 31, | |||||||||||||||
| 2017 |
| 2016 |
| 2015 | |||||||||||
Weighted-average actual and expected return on assets: |
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Actual return on plan assets – Domestic plans |
| 14.92% |
| 9.62% |
| (4.23)% | 13.90% | 21.89% | (6.83)% | |||||||
Expected return on plan assets – Domestic plans |
| 6.00% |
| 6.00% |
| 6.00% | 6.00% | 6.00% | 6.00% | |||||||
Actual return on plan assets – International plans |
| 3.93% |
| 19.06% |
| 0.59% | 10.00% | 7.99% | (0.06)% | |||||||
Expected return on plan assets – International plans |
| 3.97% |
| 3.92% |
| 2.97% | 1.71% | 2.01% | 2.13% |
As of December 31, 2017,2020, the Projected Benefit Obligation (PBO) for U.S. pension plans was $3,519 million.$4.2 billion.
The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans:
Change in assumption | Effect on | Effect on | |
25 basis point decrease in each spot rate | - | + | |
25 basis point increase in each spot rate | + | - | |
25 basis point decrease in expected return on assets | + | ||
25 basis point increase in expected return on assets | - |
The above sensitivities reflect the impact of changing one assumption at a time. Note that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. These changes in assumptions would have no effect on Corning’s funding requirements.
In addition, at December 31, 2017,2020, a 25 basis point decrease in each spot rate would decrease stockholders’shareholders’ equity by $128$148 million before tax, and a 25 basis point increase in each spot rate would increase stockholders’shareholders’ equity by $123$140 million. In addition, the impact of greater than a 25 basis point decrease in each spot rate would not be proportional to the first 25 basis point decrease in each spot rate.
The following table illustrates the sensitivity to a change in each spot rate assumption related to Corning’s U.S. OPEB plans:
Change in assumption | Effect on | Effect on | |
25 basis point decrease in each spot rate |
| + 26 million | |
25 basis point increase in each spot rate |
| - |
* Accumulated Postretirement Benefit Obligation (APBO).
The above sensitivities reflect the impact of changing one assumption at a time. Note that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear.
Revenue recognition
The Company recognizes revenue when all performance obligations under the terms of a contract with our customer are satisfied, and control of the product has been transferred to the customer. If customer acceptance clauses are present and it cannot be objectively determined that control has been transferred, revenue is realized only recorded when customer acceptance is received and all performance obligations have been satisfied. Sales of goods typically do not include multiple product and/or realizable and earned. In certain instances, revenue recognition is based on estimates of fair value of deliverables as well as estimates of product returns, allowances, discounts, and other factors. These estimates are supported by historical data.service elements. Corning also has contractual arrangements with certain customers in which we recognize revenue onover time. The performance obligations under these contracts generally require services to be performed over time, resulting in either a completed contract basis. Revenues under the completed-contractstraight-line amortization method are recognized upon substantial completion, defined as acceptance by the customeror an input method using incurred and compliance with performance specifications as agreed upon in the contract,forecasted expense to predict revenue recognition patterns which in certain instances requires estimates and judgments in determining the timing of substantial completionfollows satisfaction of the contract. While management believes that the estimates used are appropriate, differences in actual experience or changes in estimates may affect Corning’s future results. performance obligation.
Share-Based Compensation
Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating expected dividends. In addition, judgment is also required in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, share-based compensation expense and our results of operations could be impacted.
NEW ACCOUNTING STANDARDS
Refer to Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements.consolidated financial statements.
FORWARD-LOOKING STATEMENTS
The statements in this Annual Report on Form 10-K, in reports subsequently filed by Corning with the Securities and Exchange Commission (SEC) on Form 10-Q and Form 8-K, and related comments by management that are not historical facts or information and contain words such as “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “seek,” “see,” “would,” and “target” and similar expressions are forward-looking statements. Such statements relate to future events that by their nature address matters that are, to different degrees, uncertain. These forward-looking statements relate to, among other things, the company’sCompany’s future operating performance, the company'sCompany’s share of new and existing markets, the company'sCompany’s revenue and earnings growth rates, the company’sCompany’s ability to innovate and commercialize new products, and the company’sCompany’s implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the company’sCompany’s manufacturing capacity.
Although the companyCompany believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, current estimates and forecasts, general economic conditions, its knowledge of its business, and key performance indicators that impact the company,Company, actual results could differ materially. The companyCompany does not undertake to update forward-looking statements. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:
the duration and severity of the recent COVID-19 pandemic, and its ultimate impact across our businesses on demand, operations and our global supply chains; the effects of acquisitions, dispositions and other similar transactions; global business, financial, economic and political conditions; tariffs and import duties; currency fluctuations between the U.S. dollar and other currencies, primarily the Japanese yen, new Taiwan dollar, euro, Chinese yuan and South Korean won; product demand and industry capacity; competitive products and pricing; availability and costs of critical components and materials; new product development and commercialization; order activity and demand from major customers; the amount and timing of our cash flows and earnings and other conditions, which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels; possible disruption in commercial activities due to terrorist activity, cyber-attack, armed conflict, political or financial instability, natural disasters, or major health concerns; loss of intellectual property due to theft, cyber-attack, or disruption to our information technology infrastructure; unanticipated disruption to equipment, facilities, IT systems or operations; effect of regulatory and legal developments; ability to pace capital spending to anticipated levels of customer demand; rate of technology change; ability to enforce patents and protect intellectual property and trade secrets; adverse litigation; product and components performance issues; retention of key personnel; customer ability, most notably in the Display Technologies segment, to maintain profitable operations and obtain financing to fund ongoing operations and manufacturing expansions and pay receivables when due; loss of significant customers; changes in tax laws and regulations including the 2017 Tax Act; the impacts of audits by taxing authorities; the potential impact of legislation, government regulations, and other government action and investigations; and other risks detailed in Corning’s SEC filings. |
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Item 7A. Quantitative and Qualitative Disclosures About Market Risks
We operate and conduct business in many foreign countries and as a result are exposed to movements in foreign currency exchange rates. Our exposure to exchange rates has the following effects:
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Exchange rate movements on financial instruments and transactions denominated in foreign currencies that impact earnings; and
Exchange rate movements upon conversion of net assets and net income of foreign subsidiaries for which the functional currency is not the U.S. dollar.
Our most significant foreign currency exposures relateexposure relates to the Japanese yen, South Korean won, Newnew Taiwan dollar, Chinese yuan, and the euro. We seek to mitigate the impact of exchange rate movements in our income statement by using over-the-counter (OTC) derivative instruments including foreign exchange forward and option contracts. In general, these hedges expire coincident with the timing of the underlying foreign currency commitments and transactions.
We are exposed to potential losses in the event of non-performance by our counterparties to these derivative contracts. However, we minimize this risk by maintaining a diverse group of highly-rated major international financial institutions as our counterparties. We do not expect to record any losses as a result of such counterparty default. Neither we nor our counterparties are required to post collateral for these financial instruments.
Our cash flow hedging activities utilize OTC foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to foreign customers and purchases from foreign suppliers. In our net investment hedging activity, we use OTC foreign exchange forward contracts to hedge a portion of our net investment in certain foreign operations against movements in exchange rates. We also use OTC foreign exchange forward and option contracts that are not designated as hedging instruments for accounting purposes.hedged instruments. These contracts are used to offset economic currency risks. The undesignated hedges limit exposuresexposure to foreign functional currency fluctuations related to certain subsidiaries’ monetary assets, monetary liabilities and net earnings in foreign currencies. A significant portion of the Company’s non-U.S. revenuesrevenue are denominated in Japanese yen. When these revenues arethis revenue is translated back to U.S. dollars, the Company is exposed to foreign exchange rate movements in the Japanese yen. To protect translated earnings against movements in the Japanese yen, the Company has entered into a series of average rate forwards and other derivative instruments.
We use a sensitivity analysis to assess the market risk associated with our foreign currency exchange risk.exposure. Market risk is defined as the potential change in fair value of assets and liabilities resulting from an adverse movement in foreign currency exchange rates. At December 31, 2017,2020, with respect to open foreign exchange forward and option contracts, and foreign denominated debt with values exposed to exchange rate movements, a 10% adverse movement in quoted foreign currency exchange rates could result in a loss in fair value of these instruments of $1.4$1.0 billion compared to $1.6$1.3 billion at December 31, 2016.2019. Specific to the Japanese yen, a 10% adverse movement in quoted yen exchange rates could result in a loss in fair value of these instruments of $1,266 million compared to $1,458 million$0.8 billion and $1.0 billion at December 31, 2016. Specific to the South Korean won, a 10% adverse movement in quoted South Korean won exchange rates could result in a loss in fair value of these instruments of $88 million compared to $79 million at December 31, 2016.2020 and 2019, respectively. The Company expects that these hypothetical losses from a 10% adverse movement in quoted foreign currency exchange rates on the derivative financial instruments should largely offset gains and losses on the assets, liabilities and future transactions being hedged.
Because we derive approximately 69% of our net sales from outside the U.S., our sales and net income could be affected if the U.S. dollar significantly strengthens or weakens against foreign currencies, most notably the Japanese yen, South Korean won, and euro. As an example of the impact that changes in foreign currency exchange rates could have on our financial results, we compare 2017 actual sales in yen, won and euro transaction currencies at an average currency exchange rate during the year to a 10% change in the currency exchange rate. A plus or minus 10% movement in the U.S. dollar – Japanese yen exchange rate would result in a change to 2017 net sales of approximately $300 million. A plus or minus 10% movement in the U.S. dollar – South Korean won and U.S. dollar – euro exchange rates would result in a change to 2017 net sales of approximately $6 million and $96 million, respectively. We estimate that a plus or minus 10% movement in the U.S. dollar – Japanese yen exchange rate would result in a change to 2017 net income attributable to Corning Incorporated of approximately $187 million. A plus or minus 10% movement in the U.S. dollar – South Korean won and U.S. dollar – euro exchange rates would result in a change to 2017 net income attributable to Corning Incorporated of approximately $63 million and $5 million, respectively.
Interest Rate Risk Management
To manage interest rate exposure, the Company, from time to time, enters into interest rate swap agreements. We are currently party to two interest rate swaps that are designated as fair value hedges and economically exchange a notional amount of $550 million of previously issued fixed rate long-term debt to floating rate debt. Under the terms of the swap agreements, we pay the counterparty a floating rate that is indexed to the one-month LIBOR rate.
Item 8. Financial Statements and Supplementary Data
See Item 15 (a) 1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
OurThe Company’s principal executive and principal financial officers, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this report, have concluded that based on the evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that ourCorning’s disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate disclosure controls and procedures and adequate internal control over financial reporting for Corning. Management is also responsible for the assessment of the effectiveness of disclosure controls and procedures and the effectiveness of internal control over financial reporting.
Disclosure controls and procedures mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Corning’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by Corning in the reports that it files or submits under the Exchange Act is accumulated and communicated to Corning’s management, including Corning’s principal executive and principal financial officers, or other persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
(a)Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for Corning.
Corning’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Corning’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Corning’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that Corning’s receipts and expenditures are being made only in accordance with authorizations of Corning’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Corning’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the system ofCompany’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s
Management excluded HSG from its assessment of the effectiveness of the Company’s internal control over financial reporting includes controls over recognitionas of December 31, 2020, as it was previously an equity earnings and equity investmentsmethod investee that is now consolidated by Corning. Internalthe Company due to a change in control during 2020. HSG’s internal control over financial reporting is associated with approximately 4% of total assets and 2% of net sales included in the consolidated financial statements of the Company and its subsidiaries as of and for Hemlock Semiconductor Group is the responsibility of its management.year ended December 31, 2020.
Based on this evaluation, management concluded that Corning’sthe Company’s internal control over financial reporting was effective as of December 31, 2017.2020. The effectiveness of Corning’sthe Company’s internal control over financial reporting as of December 31, 2017,2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report whichand is included herein.
(b)Attestation Report of the Independent Registered Public Accounting Firm
Refer to Part IV, Item 15.
(c) Changes in Internal Control Over Financial Reporting
There were no changes in ourthe Company’s internal control over financial reporting identified in connection withby the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during ourthe last fiscal quarteryear that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The sections entitled “Proposal 1 Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance and the Board of Directors-Committees” in our Definitive Proxy Statement relating to our Annual Meeting of Shareholders to be held on April 26, 2018,29, 2021, are incorporated by reference in this Annual Report on Form 10-K. Information regarding executive officers is presented in Item I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant.”
Code of Ethics
Our Board of Directors adopted (i) the Code of Ethics for the Chief Executive Officer and Financial Executives (Code of Ethics) and (ii) the Code of Conduct for Directors and Executive Officers, which supplement our Code of Conduct that governs all employees and directors. These Codes have been in existence for more than ten years. The Code of Ethics applies to our Chief Executive Officer, Chief Financial Officer, Controller and other financial executives. During 2017,2020, no amendments to or waivers of the provisions of the Code of Ethics were made with respect to any of our directors or executive officers. A copy of the Code of Ethics is available on our website at http://www.corning.com/worldwide/en/about-us/investor-relations/codes-of-conduct-ethics.html. We will also provide a copy of the Code of Ethics to shareholders without charge upon written request to Corporate Secretary, Corning Incorporated, Corning, NY 14831. We will disclose future amendments to, or waivers from, the Code of Ethics on our website within four business days following the date of such amendment or waiver.
Item 11. Executive Compensation
The sections entitled “Compensation Discussion and Analysis” and “Director Compensation” in our Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 26, 2018,29, 2021, are incorporated by reference in this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The sectionssection entitled “Beneficial Ownership of Directors and Officers” and “Beneficial Ownership of Corning’s Largest Shareholders”Table” in our Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 26, 2018,29, 2021, are incorporated by reference in this Annual Report on Form 10-K.
Equity Compensation Plan Information
The following table shows the total number of outstanding stock options and shares available for other future issuances of options under our existing equity compensation plans as of December 31, 2017,2020, including the 20102019 Equity Plan for Non-Employee Directors and 2012 Long-Term Incentive Plan:
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| Number of securities | |
Equity compensation plans approved by security | 23,066,982 |
| $ | 14.61 |
| 65,280,083 |
Equity compensation plans not approved by |
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Total | 23,066,982 |
| $ | 14.61 |
| 65,280,083 |
A | B | C | ||||
Number of | Weighted-average | Number of securities | ||||
Equity compensation plans approved by security | 32,800,570 | $ | 12.94 | 35,909,926 | ||
Equity compensation plans not approved by | ||||||
Total | 32,800,570 | $ | 12.94 | 35,909,926 |
(1)Shares indicated are total grants under the most recent shareholder approved plans as well as any shares remaining outstanding from any prior shareholder approved plans.
Item 13. Certain Relationships and Related Transactions and Director Independence
The sections entitled “Policy on Transactions with Related Persons”, “Director Independence” and “Corporate Governance and the Board of Directors-Committees” in our Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 26, 2018,29, 2021, are incorporated by reference in this Annual Report on Form 10-K.
Item 14. Principal Accounting Fees and Services
The sections entitled “Fees Paid to Independent Registered Public Accounting Firm” and “Policy Regarding Audit Committee Pre-Approval of Audit and Permitted Non-Audit Services of Independent Registered Public Accounting Firm” in our Definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 26, 2018,29, 2021, are incorporated by reference in this Annual Report on Form 10-K.
In April 2017,2020, PricewaterhouseCoopers LLP (PwC) issued its annual Public Company Accounting Oversight Board Rule 3526 independence letter to the Audit Committee of our Board of Directors and therein reported that it is independent under applicable standards in connection with its audit opinion for the financial statements contained in this report. The Audit Committee has discussed with PwC its independence from Corning and concurred with PwC.
PART IV
Item 15. Exhibits, Financial Statement SchedulesSchedule
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(a) | Documents filed as part of this report: |
| Documents filed as part of this report: | |||||||
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| 1. | 76 | 1. | 70 | ||||||
| 2. | Financial statement schedule: |
| 2. | Financial statement schedule: | |||||
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| (i) | 131 | (i) | 131 | ||||
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| See separate index to financial statements and financial statement schedules |
| See separate index to financial statements and financial statement schedule | |||||
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(b) | Exhibits filed as part of this report: |
| Exhibits filed as part of this report: |
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Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | ||
Powers of Attorney (included on the Signatures page of this Annual Report on Form 10-K). | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Definition Document |
Item 16. Form 10-K Summary.
None.
Signatures
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused his report to be signed on its behalf by the undersigned, thereunto duly authorized.
Corning Incorporated | ||||
Date: February | By: | /s/ Wendell P. Weeks | ||
Wendell P. Weeks | ||||
Chairman of the Board of Directors, | ||||
Chief Executive Officer, |
KNOW ALL MENPERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints R. Tony Tripeny, Lewis A. Steverson and Edward A. Schlesinger, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the fifteenthtwelfth day of February, 2018.2021.
Signature | Capacity | |||
/s/ Wendell P. Weeks | Chairman of the Board of Directors, | |||
Wendell P. Weeks | (Principal Executive Officer) | |||
/s/ R. Tony Tripeny |
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R. Tony Tripeny | ||||
/s/ Edward A. Schlesinger | Senior Vice President – Corporate Controller | |||
Edward A. Schlesinger | ||||
/s/ Donald W. Blair | Director | |||
Donald W. Blair | ||||
/s/ Leslie A. Brun | Director | |||
Leslie A. Brun | ||||
/s/ Stephanie A. Burns | Director | |||
Stephanie A. Burns | ||||
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/s/ Richard T. Clark | Director | |||
Richard T. Clark | ||||
/s/ Robert F. Cummings, Jr. | Director | |||
Robert F. Cummings, Jr. | ||||
Signature | Capacity | ||||
/s/ Deborah A. Henretta | Director | ||||
Deborah A. Henretta | |||||
/s/Daniel P. Huttenlocher | Director | ||||
Daniel P. Huttenlocher | |||||
/s/ Kurt M. Landgraf | Director | ||||
Kurt M. Landgraf | |||||
/s/ Kevin J. Martin | Director | ||||
Kevin J. Martin | |||||
/s/ Deborah D. Rieman | Director | ||||
Deborah D. Rieman | |||||
/s/ Hansel E. Tookes II | Director | ||||
Hansel E. Tookes II | |||||
/s/ Mark S. Wrighton | Director | ||||
Mark S. Wrighton |
2017Corning Incorporated
2020 Annual Report
Index to Financial Statements and Financial Statement SchedulesSchedule
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| 2. | 88 | ||||
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| 2. | 81 | |
| 3. | 88 | ||||
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| 3. | 84 | |
| 4. | 89 | ||||
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| 4. | 86 | |
| 5. | 89 | ||||
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| 6. | 89 | ||||
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| 7. | 93 | ||||
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| 7. | 92 | |
| 8. | 96 | ||||
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| 8. | 93 | |
| 9. | Property, Plant and Equipment, Net of Accumulated Depreciation | 98 | |||
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| 9. | Property, Plant and Equipment, Net of Accumulated Depreciation | 97 |
| 10. | 98 | ||||
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| 10. | 97 | |
| 11. | 99 | ||||
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| 11. | 99 | |
| 12 | 101 | ||||
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| 13. | 102 | ||||
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| 14. | 110 | ||||
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| 14. | 111 | |
| 15. | 113 | ||||
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| 16. | 116 | ||||
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| 17. | 118 | ||||
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| 18. | 123 | ||||
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| 20. | 126 | ||||
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| II. | 131 | ||||
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132 | ||||||
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Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Shareholders of Corning Incorporated:Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Corning Incorporated and its subsidiaries (the “Company”) as of December 31, 20172020 and 2016,2019, and the related consolidatedstatements of (loss) income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2020 including the related notes and schedule of valuation accounts and reservesqualifying accounts for each of the three years in the period ended December 31, 2017 appearing under Item 15 (a)(2)2020 listed in the accompanying index (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 2020 and 20162019, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 20172020in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,, included in Management's Annual Report on Internal Control overOver Financial Reporting appearing under Item 9A.9A. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits inin accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management's Annual Report on Internal Control Over Financial Reporting, management has excluded Hemlock Semiconductor LLC and Hemlock Semiconductor Operations LLC, (collectively referred to as Hemlock Semiconductor Group) from its assessment of internal control over financial reporting as of December 31, 2020 becauseit was previously an equity method investee that is now consolidated by the Company due to a change in control during 2020. We have also excluded Hemlock Semiconductor Group from our audit of internal control over financial reporting. Hemlock Semiconductor Group is a substantially owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 4% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Income Taxes - Receivables for South Korean Tax Disputes
As described in Notes 1, 8, and 11 to the consolidated financial statements, in evaluating the tax benefits associated with the Company’s various tax filing positions, management records a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to the liability for unrecognized tax benefits in the period in which the Company files the return containing the tax position or when new information becomes available. The Company is currently appealing certain South Korean tax assessments and tax refund claims for tax years 2010 through 2018. The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessments. Management believes that it is more likely than not that these tax positions will prevail in the appeal process and as a result, management recorded a non-current receivable of $365 million as of December 31, 2020.
The principal considerations for our determination that performing procedures relating to the receivables for South Korean tax disputes is a critical audit matter are (i) the significant judgment by management when applying the more likely than not recognition criteria to the Company’s uncertain tax positions based on the application of the tax law; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s assumption that the Company will prevail in the appeal of any tax assessments; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to uncertain tax positions, including management’s assessment of the South Korean tax disputes. These procedures also included, among others, obtaining management’s assessment and evidence supporting the more-likely-than-not tax position on the South Korean tax disputes and evaluating the reasonableness of the likelihood that the tax positions will ultimately be sustained upon examination by the South Korean tax authorities and through the appeal process. Professionals with specialized skill and knowledge were used to assist in evaluating management’s assessment and supporting evidence related to the application of the tax law.
Hemlock Semiconductor Group (HSG) Transactions - Valuation of the Previously Held Equity Interest and Deferred Revenue Resulting from the Consolidation of HSG
As described in Notes 1, 3 and 4 to the consolidated financial statements, management uses the equity method of accounting for investments in affiliated companies that are not controlled by the Company and in which the Company’s interest is generally between 20% and 50% and the Company has significant influence over the entity. Hemlock Semiconductor LLC and Hemlock Semiconductor Operations LLC, of which the Company previously held 49.9% and 40.25% ownership interest, respectively, were recorded as equity method investments and are affiliated companies of Hemlock Semiconductor Group (HSG). On September 9, 2020, HSG redeemed DuPont de Nemours, Inc.’s entire ownership interest in HSG with a fair value of $250 million (“Redemption”). Upon completion of the Redemption, the Company obtained a controlling interest of 100% in Hemlock Semiconductor LLC and 80.5% interest in Hemlock Semiconductor Operations LLC and began consolidating HSG. Management recognized a pre-tax gain of $498 million on the Company’s previously held equity investment in HSG as a result of the consolidation resulting from the Redemption. The gain was calculated based on the difference between fair value and carrying value of the equity method investment immediately preceding the Redemption and is included in the transaction-related gain, net in the Company’s consolidated statements of income for the year ended December 31, 2020. As disclosed, management estimated the fair value of the Company’s equity interest in HSG by applying the income approach, which was based on significant assumptions such as projected revenues and discount rate. Upon completion of the Redemption and resulting consolidation, management recorded, at fair value, the assets acquired and liabilities assumed from HSG, including deferred revenues of $1,070 million related to the performance obligations of non-refundable consideration previously received by HSG from its customers under long term supply agreements. The fair values of deferred revenue were estimated by applying a bottom-up cost buildup method of the cost approach based on significant inputs such as the cost to fulfill the obligations as well as key assumptions including a normal profit margin.
The principal considerations for our determination that performing procedures relating to the HSG transactions, specifically the valuation of the previously held equity interest and deferred revenue resulting from the consolidation of HSG, is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the fair value measurement of the previously held equity interest and deferred revenue resulting from the consolidation of HSG due to the significant judgment by management when developing the estimates; (ii) significant audit effort in evaluating management’s significant assumptions relating to the estimates, such as the projected revenues and discount rate applied when developing the fair value measurement of the previously held equity interest, and a market participant’s cost to fulfill the obligations and the normal profit margin used when developing the fair value measurement of deferred revenue; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the HSG transactions, including controls over the significant assumptions in management’s valuation of the previously held equity interest and deferred revenue from the HSG transactions. These procedures also included, among others (i) testing management’s process for estimating the fair value of the previously held equity interest and deferred revenue resulting from the consolidation of HSG; (ii) evaluating the appropriateness of the income and cost approaches; (iii) testing the completeness and accuracy of underlying data used in the income and cost approaches; and (iv) evaluating the reasonableness of significant assumptions related to projected revenues and the discount rate for the previously held equity interest; and a market participant’s cost to fulfill the obligations and the normal profit margin for deferred revenue. Evaluating management’s assumptions related to projected revenues for the previously held equity interest, a market participant’s cost to fulfill the obligations and the normal profit margin for deferred revenue, involved evaluating whether the assumptions used were reasonable considering current and past performance of HSG. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of management’s income and cost approaches and management’s significant assumptions related to the discount rate and the normal profit margin.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 14, 201812, 2021
We have served as the Company’s auditor since1944. 1944.
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|
| ||||||||||
| Years ended December 31, | Year ended December 31, | ||||||||||||||
(In millions, except per share amounts) | 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Net sales | $ | 10,116 |
| $ | 9,390 |
| $ | 9,111 | $ | 11,303 | $ | 11,503 | $ | 11,290 | ||
Cost of sales |
| 6,084 |
| 5,644 |
| 5,458 | 7,772 | 7,468 | 6,829 | |||||||
|
|
|
|
|
|
| ||||||||||
Gross margin |
| 4,032 |
| 3,746 |
| 3,653 | 3,531 | 4,035 | 4,461 | |||||||
|
|
|
|
|
|
| ||||||||||
Operating expenses: |
|
|
|
|
|
| ||||||||||
Selling, general and administrative expenses |
| 1,467 |
| 1,472 |
| 1,508 | 1,747 | 1,585 | 1,799 | |||||||
Research, development and engineering expenses |
| 860 |
| 742 |
| 769 | 1,154 | 1,031 | 993 | |||||||
Amortization of purchased intangibles |
| 75 |
| 64 |
| 54 | 121 | 113 | 94 | |||||||
Restructuring, impairment and other charges (Note 2) |
|
|
| 77 |
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
Operating income |
| 1,630 |
| 1,391 |
| 1,322 | 509 | 1,306 | 1,575 | |||||||
|
|
|
|
|
|
| ||||||||||
Equity in earnings of affiliated companies (Note 7) |
| 361 |
| 284 |
| 299 | ||||||||||
Equity in (losses) earnings of affiliated companies (Note 3) | (25) | 17 | 390 | |||||||||||||
Interest income |
| 45 |
| 32 |
| 21 | 15 | 21 | 38 | |||||||
Interest expense |
| (155) |
| (159) |
| (140) | (276) | (221) | (191) | |||||||
Translated earnings contract (loss) gain, net |
| (121) |
| (448) |
| 80 | ||||||||||
Gain on realignment of equity investment |
|
|
| 2,676 |
|
| ||||||||||
Translated earnings contract (loss) gain, net (Note 15) | (38) | 248 | (93) | |||||||||||||
Transaction-related gain, net (Note 4) | 498 | |||||||||||||||
Other expense, net |
| (103) |
| (84) |
| (96) | (60) | (155) | (216) | |||||||
|
|
|
|
|
|
| ||||||||||
Income before income taxes |
| 1,657 |
| 3,692 |
| 1,486 | 623 | 1,216 | 1,503 | |||||||
(Provision) benefit for income taxes (Note 6) |
| (2,154) |
| 3 |
| (147) | ||||||||||
Provision for income taxes (Note 8) | (111) | (256) | (437) | |||||||||||||
|
|
|
|
|
|
| ||||||||||
Net (loss) income attributable to Corning Incorporated | $ | (497) |
| $ | 3,695 |
| $ | 1,339 | ||||||||
Net income attributable to Corning Incorporated | $ | 512 | $ | 960 | $ | 1,066 | ||||||||||
|
|
|
|
|
|
| ||||||||||
(Loss) earnings per common share attributable to Corning Incorporated: |
|
|
|
|
|
| ||||||||||
Earnings per common share attributable to | ||||||||||||||||
Basic (Note 18) | $ | (0.66) |
| $ | 3.53 |
| $ | 1.02 | $ | 0.54 | $ | 1.11 | $ | 1.19 | ||
Diluted (Note 18) | $ | (0.66) |
| $ | 3.23 |
| $ | 1.00 | $ | 0.54 | $ | 1.07 | $ | 1.13 | ||
|
|
|
|
|
|
| ||||||||||
Dividends declared per common share (1) | $ | 0.62 |
| $ | 0.54 |
| $ | 0.36 |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
| Years ended December 31, | Year ended December 31, | ||||||||||||||
(In millions) | 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Net (loss) income attributable to Corning Incorporated | $ | (497) |
| $ | 3,695 |
| $ | 1,339 | ||||||||
Net income attributable to Corning Incorporated | $ | 512 | $ | 960 | $ | 1,066 | ||||||||||
|
|
|
|
|
|
| ||||||||||
Foreign currency translation adjustments and other |
| 746 |
| (104) |
| (590) | 528 | (143) | (185) | |||||||
Net unrealized gains (losses) on investments |
| 14 |
| (3) |
| 1 | 1 | (1) | ||||||||
Unamortized gains (losses) and prior service credits (costs) for |
|
|
|
|
|
| ||||||||||
Unamortized (losses) gains and prior service (costs) credits for | ||||||||||||||||
postretirement benefit plans |
| 30 |
| 241 |
| 121 | (88) | (64) | 19 | |||||||
Net unrealized gains (losses) on designated hedges |
| 44 |
| 1 |
| (36) | ||||||||||
Net unrealized (losses) gains on designated hedges | (9) | 45 | (1) | |||||||||||||
Other comprehensive income (loss), net of tax (Note 17) |
| 834 |
| 135 |
| (504) | 431 | (161) | (168) | |||||||
|
|
|
|
|
|
| ||||||||||
Comprehensive income attributable to Corning Incorporated | $ | 337 |
| $ | 3,830 |
| $ | 835 | $ | 943 | $ | 799 | $ | 898 | ||
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
|
| ||||||
|
|
|
|
| ||||||
| December 31, | December 31, | ||||||||
(In millions, except share and per share amounts) | 2017 |
| 2016 | 2020 | 2019 | |||||
|
|
|
|
|
| |||||
Assets |
|
|
|
| ||||||
|
|
|
|
| ||||||
Current assets: |
|
|
|
| ||||||
Cash and cash equivalents | $ | 4,317 |
| $ | 5,291 | $ | 2,672 | $ | 2,434 | |
Trade accounts receivable, net of doubtful accounts and allowances - $60 and $59 |
| 1,807 |
| 1,481 | ||||||
Inventories, net of inventory reserves - $169 and $151 (Note 5) |
| 1,712 |
| 1,471 | ||||||
Trade accounts receivable, net of doubtful accounts - $46 and $41 | 2,133 | 1,836 | ||||||||
Inventories, net (Note 6) | 2,438 | 2,320 | ||||||||
Other current assets (Note 11 and 15) |
| 991 |
| 805 | 761 | 873 | ||||
Total current assets |
| 8,827 |
| 9,048 | 8,004 | 7,463 | ||||
|
|
|
|
| ||||||
Investments (Note 7) |
| 340 |
| 336 | ||||||
Property, plant and equipment, net of accumulated depreciation - $10,809 and $9,884 (Note 9) |
| 14,017 |
| 12,546 | ||||||
Property, plant and equipment, net of accumulated depreciation - | 15,742 | 15,337 | ||||||||
Goodwill, net (Note 10) |
| 1,694 |
| 1,577 | 2,460 | 1,935 | ||||
Other intangible assets, net (Note 10) |
| 869 |
| 796 | 1,308 | 1,185 | ||||
Deferred income taxes (Note 6) |
| 813 |
| 2,325 | ||||||
Deferred income taxes (Note 8) | 1,121 | 1,157 | ||||||||
Other assets (Note 11 and 15) |
| 934 |
| 1,271 | 2,140 | 1,821 | ||||
|
|
|
|
| ||||||
Total Assets | $ | 27,494 |
| $ | 27,899 | $ | 30,775 | $ | 28,898 | |
|
|
|
|
| ||||||
Liabilities and Equity |
|
|
|
| ||||||
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
| ||||||
Current portion of long-term debt and short-term borrowings (Note 12) | $ | 379 |
| $ | 256 | $ | 156 | $ | 11 | |
Accounts payable |
| 1,439 |
| 1,079 | 1,174 | 1,587 | ||||
Other accrued liabilities (Note 11 and 14) |
| 1,391 |
| 1,416 | 2,437 | 1,923 | ||||
Total current liabilities |
| 3,209 |
| 2,751 | 3,767 | 3,521 | ||||
|
|
|
|
| ||||||
Long-term debt (Note 12) |
| 4,749 |
| 3,646 | 7,816 | 7,729 | ||||
Postretirement benefits other than pensions (Note 13) |
| 749 |
| 737 | 727 | 671 | ||||
Other liabilities (Note 11 and 14) |
| 3,017 |
| 2,805 | 5,017 | 3,980 | ||||
Total liabilities |
| 11,724 |
| 9,939 | 17,327 | 15,901 | ||||
|
|
|
|
| ||||||
Commitments and contingencies (Note 14) |
|
|
|
| ||||||
Commitments, contingencies and guarantees (Note 14) |
|
| ||||||||
Shareholders’ equity (Note 17): |
|
|
|
| ||||||
Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 3,100; |
| 2,300 |
| 2,300 | ||||||
Common stock – Par value $0.50 per share; Shares authorized: 3.8 billion; Shares |
| 854 |
| 846 | ||||||
Convertible preferred stock, Series A – Par value $100 per share; | 2,300 | 2,300 | ||||||||
Common stock – Par value $0.50 per share; Shares authorized: 3.8 billion; | 863 | 859 | ||||||||
Additional paid-in capital – common stock |
| 14,089 |
| 13,695 | 14,642 | 14,323 | ||||
Retained earnings |
| 15,930 |
| 16,880 | 16,120 | 16,408 | ||||
Treasury stock, at cost; shares held: 850 million and 765 million |
| (16,633) |
| (14,152) | ||||||
Treasury stock, at cost; shares held: 961 million and 956 million | (19,928) | (19,812) | ||||||||
Accumulated other comprehensive loss |
| (842) |
| (1,676) | (740) | (1,171) | ||||
Total Corning Incorporated shareholders’ equity |
| 15,698 |
| 17,893 | 13,257 | 12,907 | ||||
Noncontrolling interests |
| 72 |
| 67 | 191 | 90 | ||||
Total equity |
| 15,770 |
| 17,960 | 13,448 | 12,997 | ||||
|
|
|
|
| ||||||
Total Liabilities and Equity | $ | 27,494 |
| $ | 27,899 | $ | 30,775 | $ | 28,898 |
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
| Years ended December 31, | Year ended December 31, | ||||||||||||||
(In millions) | 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
Cash Flows from Operating Activities: |
|
|
|
|
|
| ||||||||||
Net (loss) income | $ | (497) |
| $ | 3,695 |
| $ | 1,339 | ||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Net income | $ | 512 | $ | 960 | $ | 1,066 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation |
| 1,083 |
| 1,131 |
| 1,130 | 1,399 | 1,390 | 1,199 | |||||||
Amortization of purchased intangibles |
| 75 |
| 64 |
| 54 | 121 | 113 | 94 | |||||||
Restructuring, impairment and other charges |
|
|
| 77 |
|
| ||||||||||
Equity in earnings of affiliated companies |
| (361) |
| (284) |
| (299) | ||||||||||
Loss on disposal of assets | 138 | 123 | 43 | |||||||||||||
Severance charges | 148 | 63 | 16 | |||||||||||||
Severance payments | (147) | (28) | (3) | |||||||||||||
Share-based compensation expense | 207 | 56 | 51 | |||||||||||||
Equity in losses (earnings) of affiliated companies | 25 | (17) | (390) | |||||||||||||
Dividends received from affiliated companies |
| 201 |
| 85 |
| 143 | 1 | 106 | 241 | |||||||
Deferred tax provision (benefit) |
| 1,796 |
| (308) |
| 54 | ||||||||||
Deferred tax benefit | (20) | (191) | (38) | |||||||||||||
Customer incentives and deposits, net |
| 100 |
| 185 |
| 197 | 221 | 142 | 700 | |||||||
Pension plan contributions | (221) | (2) | (117) | |||||||||||||
Translated earnings contract loss (gain) |
| 121 |
| 448 |
| (80) | 38 | (248) | 93 | |||||||
Unrealized translation losses on transactions |
| (339) |
| 1 |
| 268 | ||||||||||
Gain on realignment of equity investment |
|
|
| (2,676) |
|
| ||||||||||
Unrealized translation (gain) loss on transactions | (133) | 33 | 55 | |||||||||||||
Asbestos claim payments | (130) | (50) | (35) | |||||||||||||
Tax assessment refunds | 101 | |||||||||||||||
Asset impairment | 217 | |||||||||||||||
Transaction-related gain, net | (498) | |||||||||||||||
Gain on investment | (107) | |||||||||||||||
Changes in certain working capital items: |
|
|
|
|
|
| ||||||||||
Trade accounts receivable |
| (225) |
| (106) |
| 162 | (274) | 48 | (154) | |||||||
Inventories |
| (170) |
| (68) |
| (77) | 423 | (298) | (346) | |||||||
Other current assets |
| (172) |
| 18 |
| (57) | (25) | (300) | (20) | |||||||
Accounts payable and other current liabilities |
| 169 |
| 259 |
| (126) | 57 | 1 | 345 | |||||||
Other, net |
| 223 |
| 16 |
| 121 | 127 | 130 | 119 | |||||||
Net cash provided by operating activities |
| 2,004 |
| 2,537 |
| 2,829 | 2,180 | 2,031 | 2,919 | |||||||
Cash Flows from Investing Activities: |
|
|
|
|
|
| ||||||||||
Capital expenditures |
| (1,804) |
| (1,130) |
| (1,250) | (1,377) | (1,978) | (2,242) | |||||||
Acquisitions of businesses, net of cash paid |
| (171) |
| (333) |
| (732) | ||||||||||
Proceeds from sale of a business |
| 14 |
|
|
| 12 | ||||||||||
Cash received on realignment of equity investment |
|
|
| 4,818 |
|
| ||||||||||
Proceeds from sale of assets to related party |
|
|
| 42 |
|
| ||||||||||
Short-term investments – acquisitions |
|
|
| (20) |
| (969) | ||||||||||
Short-term investments – liquidations |
| 29 |
| 121 |
| 1,629 | ||||||||||
Acquisitions of businesses, net of cash received | 4 | (842) | ||||||||||||||
Proceeds from settlement of initial contingent consideration asset | 196 | |||||||||||||||
Proceeds from sale or disposal of assets | 37 | |||||||||||||||
Purchase of equipment for related party | (9) | (68) | ||||||||||||||
Sale of equipment for related party | 78 | 19 | ||||||||||||||
Realized gains on translated earnings contracts |
| 270 |
| 201 |
| 653 | 12 | 55 | 108 | |||||||
Other, net |
| (48) |
| (37) |
| (28) | 14 | (37) | (58) | |||||||
Net cash (used in) provided by investing activities |
| (1,710) |
| 3,662 |
| (685) | ||||||||||
Net cash used in investing activities | (1,310) | (1,891) | (2,887) | |||||||||||||
Cash Flows from Financing Activities: |
|
|
|
|
|
| ||||||||||
Net repayments of short-term borrowings and current portion of long-term debt |
| (252) |
| (85) |
| (12) | (100) | (300) | (629) | |||||||
Proceeds from issuance of long-term debt |
| 1,445 |
|
|
| 745 | ||||||||||
Proceeds from issuance of short-term debt, net |
|
|
|
|
| 3 | ||||||||||
(Payments) proceeds from issuance of commercial paper |
|
|
| (481) |
| 481 | ||||||||||
Payments from the settlement of interest rate swap agreements |
|
|
|
|
| (10) | ||||||||||
Principal payments under capital lease obligations |
| (7) |
| (7) |
| (6) | ||||||||||
Proceeds received for asset financing and related incentives, net |
|
|
| 1 |
| 1 | ||||||||||
Payments of employee withholding tax on stock award |
| (16) |
| (16) |
| (20) | ||||||||||
Proceeds from the exercise of stock options |
| 309 |
| 138 |
| 102 | ||||||||||
Repayments of long-term debt | (121) | |||||||||||||||
Proceeds from issuance of long-term debt, net | 243 | 1,831 | 1,485 | |||||||||||||
Proceeds from exercise of stock options | 124 | 58 | 81 | |||||||||||||
Repurchases of common stock for treasury |
| (2,452) |
| (4,227) |
| (3,228) | (105) | (940) | (2,227) | |||||||
Dividends paid |
| (651) |
| (645) |
| (679) | (787) | (742) | (685) | |||||||
Other, net | 17 | 46 | (20) | |||||||||||||
Net cash used in financing activities |
| (1,624) |
| (5,322) |
| (2,623) | (729) | (47) | (1,995) | |||||||
Effect of exchange rates on cash |
| 356 |
| (86) |
| (330) | 97 | (14) | 1 | |||||||
Net increase (decrease) in cash and cash equivalents |
| (974) |
| 791 |
| (809) | 238 | 79 | (1,962) | |||||||
Cash and cash equivalents at beginning of year |
| 5,291 |
| 4,500 |
| 5,309 | 2,434 | 2,355 | 4,317 | |||||||
Cash and cash equivalents at end of year | $ | 4,317 |
| $ | 5,291 |
| $ | 4,500 | $ | 2,672 | $ | 2,434 | $ | 2,355 |
The accompanying notes are an integral part of these consolidated financial statements.
Corning Incorporated and Subsidiary Companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
| Additional |
|
|
|
|
|
| Accumulated |
| Total Corning |
|
|
|
|
| Additional | Accumulated | Total Corning | ||||||||||||||||||||||||||||||
| Convertible |
|
|
|
| paid-in |
|
|
|
|
|
|
| other |
| Incorporated |
| Non- |
|
|
| Convertible | paid-in | other | Incorporated | Non- | ||||||||||||||||||||||||||
| preferred |
| Common |
| capital |
| Retained |
| Treasury |
| comprehensive |
| shareholders’ |
| controlling |
|
|
| preferred | Common | capital | Retained | Treasury | comprehensive | shareholders’ | controlling | ||||||||||||||||||||||||||
(In millions) | stock |
| stock |
| common |
| earnings |
| stock |
| income (loss) |
| equity |
| interests |
| Total | stock | stock | common | earnings | stock | income (loss) | equity | interests | Total | ||||||||||||||||||||||||||
Balance, December 31, 2014 | $ | 2,300 |
| $ | 836 |
| $ | 13,456 |
| $ | 13,021 |
| $ | (6,727) |
| $ | (1,307) |
| $ | 21,579 |
| $ | 73 |
| $ | 21,652 | ||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 2,300 | $ | 854 | $ | 14,089 | $ | 15,930 | $ | (16,633) | $ | (842) | $ | 15,698 | $ | 72 | $ | 15,770 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
| 1,339 |
|
|
|
|
|
|
|
| 1,339 |
|
| 9 |
|
| 1,348 | 1,066 | 1,066 | 24 | 1,090 | ||||||||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (504) |
|
| (504) |
|
| (1) |
|
| (505) | (168) | (168) | (1) | (169) | ||||||||||||||||||||||
Purchase of common stock for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
treasury |
|
|
|
|
|
|
| (250) |
|
|
|
|
| (2,978) |
|
|
|
|
| (3,228) |
|
|
|
|
| (3,228) | (2,230) | (2,230) | (2,230) | |||||||||||||||||||||||
Shares issued to benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
and for option exercises |
|
|
|
| 4 |
|
| 146 |
|
|
|
|
| (1) |
|
|
|
|
| 149 |
|
|
|
|
| 149 | 3 | 123 | 126 | 126 | ||||||||||||||||||||||
Dividends on shares |
|
|
|
|
|
|
|
|
|
| (528) |
|
|
|
|
|
|
|
| (528) |
|
|
|
|
| (528) | ||||||||||||||||||||||||||
Common dividends | (590) | (590) | (590) | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends | (98) | (98) | (98) | |||||||||||||||||||||||||||||||||||||||||||||||||
Other, net |
|
|
|
|
|
|
|
|
|
|
|
|
| (19) |
|
|
|
|
| (19) |
|
| (6) |
|
| (25) | (5) | (7) | (12) | (1) | (13) | |||||||||||||||||||||
Balance, December 31, 2015 | $ | 2,300 |
| $ | 840 |
| $ | 13,352 |
| $ | 13,832 |
| $ | (9,725) |
| $ | (1,811) |
| $ | 18,788 |
| $ | 75 |
| $ | 18,863 | ||||||||||||||||||||||||||
Balance at December 31, 2018 | $ | 2,300 | $ | 857 | $ | 14,212 | $ | 16,303 | $ | (18,870) | $ | (1,010) | $ | 13,792 | $ | 94 | $ | 13,886 | ||||||||||||||||||||||||||||||||||
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Net income |
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| 3,695 |
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| 3,695 |
|
| 10 |
|
| 3,705 | 960 | 960 | 19 | 979 | ||||||||||||||||||||||
Other comprehensive |
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income (loss) |
|
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|
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|
|
|
|
| 135 |
|
| 135 |
|
| (6) |
|
| 129 | ||||||||||||||||||||||||||
Other comprehensive loss | (161) | (161) | (161) | |||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for |
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| ||||||||||||||||||||||||||
treasury |
|
|
|
|
|
|
| 165 |
|
|
|
|
| (4,409) |
|
|
|
|
| (4,244) |
|
|
|
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| (4,244) | (925) | (925) | (925) | |||||||||||||||||||||||
Shares issued to benefit plans |
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| ||||||||||||||||||||||||||
and for option exercises |
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| 6 |
|
| 178 |
|
|
|
|
| (2) |
|
|
|
|
| 182 |
|
|
|
|
| 182 | 2 | 111 | 113 | 113 | ||||||||||||||||||||||
Dividends on shares |
|
|
|
|
|
|
|
|
|
| (647) |
|
|
|
|
|
|
|
| (647) |
|
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|
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| (647) | ||||||||||||||||||||||||||
Other, net |
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|
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|
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| (16) |
|
|
|
|
| (16) |
|
| (12) |
|
| (28) | ||||||||||||||||||||||||||
Balance, December 31, 2016 | $ | 2,300 |
| $ | 846 |
| $ | 13,695 |
| $ | 16,880 |
| $ | (14,152) |
| $ | (1,676) |
| $ | 17,893 |
| $ | 67 |
| $ | 17,960 | ||||||||||||||||||||||||||
Common dividends | (625) | (625) | (625) | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends | (98) | (98) | (98) | |||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | (132) | (17) | (149) | (23) | (172) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | $ | 2,300 | $ | 859 | $ | 14,323 | $ | 16,408 | $ | (19,812) | $ | (1,171) | $ | 12,907 | $ | 90 | $ | 12,997 | ||||||||||||||||||||||||||||||||||
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Net (loss) income |
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|
|
|
|
|
|
|
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| (497) |
|
|
|
|
|
|
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| (497) |
|
| 18 |
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| (479) | ||||||||||||||||||||||||||
Other comprehensive |
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income (loss) |
|
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|
|
|
|
|
|
|
|
| 834 |
|
| 834 |
|
| 6 |
|
| 840 | ||||||||||||||||||||||||||
Net income | 512 | 512 | 11 | 523 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 431 | 431 | 1 | 432 | ||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for |
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| ||||||||||||||||||||||||||
treasury |
|
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|
|
|
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| 14 |
|
|
|
|
| (2,462) |
|
|
|
|
| (2,448) |
|
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|
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| (2,448) | (105) | (105) | (105) | |||||||||||||||||||||||
Shares issued to benefit plans |
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| ||||||||||||||||||||||||||
and for option exercises |
|
|
|
| 8 |
|
| 349 |
|
|
|
|
| (2) |
|
|
|
|
| 355 |
|
|
|
|
| 355 | 4 | 319 | 323 | 323 | ||||||||||||||||||||||
Dividends on shares |
|
|
|
|
|
|
|
|
|
| (654) |
|
|
|
|
|
|
|
| (654) |
|
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| (654) | ||||||||||||||||||||||||||
Other, net (1) |
|
|
|
|
|
|
| 31 |
|
| 201 |
|
| (17) |
|
|
|
|
| 215 |
|
| (19) |
|
| 196 | ||||||||||||||||||||||||||
Balance, December 31, 2017 | $ | 2,300 |
| $ | 854 |
| $ | 14,089 |
| $ | 15,930 |
| $ | (16,633) |
| $ | (842) |
| $ | 15,698 |
| $ | 72 |
| $ | 15,770 | ||||||||||||||||||||||||||
Common dividends | (681) | (681) | (681) | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends | (98) | (98) | (98) | |||||||||||||||||||||||||||||||||||||||||||||||||
Non-controlling interest in HSG (2) | 102 | 102 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net | (21) | (11) | (32) | (13) | (45) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 2,300 | $ | 863 | $ | 14,642 | $ | 16,120 | $ | (19,928) | $ | (740) | $ | 13,257 | $ | 191 | $ | 13,448 |
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(1)Adjustments to retained earnings include the effect of the accounting changes recorded for the adoption of the new standard for reclassification of stranded tax effects in accumulated other comprehensive income in the amount of $53 million and the impact of an equity affiliate’s adoption of the new revenue standard in January 2019. A net reduction of $186 million net of tax was recorded to beginning retained earnings for performance obligations of which a significant amount settled by the end of 2019.
(2)Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information.
The accompanying notes are an integral part of these consolidated financial statements.
Corning Incorporated and Subsidiary Companies
Notes to Consolidated Financial Statements
1.Summary of Significant Accounting Policies
Organization
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Corning Incorporated is a provider of high-performance glass for notebook computers, flat panel desktop monitors, LCDdisplay televisions, and other information display applications; carrier network and enterprise network products for the telecommunications industry; ceramic substrates for gasoline and diesel engines in automotive and heavy duty vehicle markets; laboratory products for the scientific community and specialized polymer products for biotechnology applications; advanced optical materials for the semiconductor industry and the scientific community; polycrystalline silicon products and other technologies. In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and subsidiary companies.
Basis of Presentation and Principles of Consolidation
OurCorning’s consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S. and include the assets, liabilities, revenuesrevenue and expenses of all majority-owned subsidiaries over which Corning exercises control.
The equity method of accounting is used for investments in affiliated companies that are not controlled by Corning and in which our interest is generally between 20% and 50% and we have significant influence over the entity. Our share of earnings or losses of affiliated companies, in which at least 20% of the voting securities isare owned and we have significant influence but not control over the entity, is included in consolidated operating results.
We use the cost method to account forFor our investments in companies that we do not control and for which we do not have the ability to exercise significant influence over operating and financial policies. In accordance withpolicies, we use the costfair value method theseto account for the investments if readily determinable fair values are recordedavailable. For the investments without readily determinable fair values, we measure them at cost minus impairment, if any, plus or fair value, as appropriate.minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
On September 9, 2020, upon completion of the Redemption, the Company obtained a 100% interest in Hemlock Semiconductor LLC and 80.5% interest in Hemlock Semiconductor Operations LLC and began consolidating HSG, which are affiliated entities within the Hemlock Semiconductor Group (“HSG”).
Refer to Note 3 (Investments) and Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information.
All material intercompany accounts, transactions and profits are eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current-yearcurrent year’s presentation. These reclassifications had no impact on ourthe results of operations, financial position, or changes in shareholders’ equity.
1.Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affectaffecting reported amounts reportedof assets, liabilities, revenue, 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 include estimates of fair value associated with revenue recognition, restructuring charges, goodwill and long-lived asset impairment tests, estimates of acquired assets and liabilities, estimates of fair value of investments, equity interests, environmental and legal liabilities, income taxes and deferred tax valuation allowances, assumptions used in calculating pension and other postretirement employee benefit expenses and the fair value of share-based compensation. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.
The COVID-19 pandemic and the resulting adverse impacts to global economic conditions, as well as to Corning’s operations, 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.
Revenue Recognition
Revenue for salesMost of goodsthe Company’s revenue is generated by delivery of products to customers and recognized at a point in time based on evaluation of when the customer obtains control of the products. Revenue is recognized when all performance obligations under the terms of a firm sales agreement is in place, deliverycontract are satisfied, and control of the product has occurred and sales price is fixed or determinable and collection is reasonably assured.been transferred to the customer. If customer acceptance of productsclauses are present and it cannot be objectively determined that control has been transferred, revenue is not reasonably assured, sales areonly recorded only upon formalwhen customer acceptance.acceptance is received and all performance obligations have been satisfied. Sales of goods typically do not include multiple product and/or service elements.
Revenue is measured as the amount of consideration expected in exchange for transferring goods or providing services. Sales tax, value-added tax, and other taxes are collected concurrently with revenue-producing activities are excluded from revenue. Incidental contract costs that are not material in the context of the delivery of goods and services are recognized as expense.
At the time revenue is recognized, allowances are recorded, with the related reduction to revenue, for estimated product returns, allowances and price discounts based upon historical experience and related terms of customer arrangements. Where we have offered product warranties we also establishare offered, liabilities are established for estimated warranty costs based upon historical experience and specific warranty provisions. Warranty liabilities are adjusted when experience indicates the expected outcome will differ from initial estimates of the liability.
In addition, Corning also has contractual arrangements with certain customers in which we recognize revenue onis recognized over time. The performance obligations under these contracts generally require services to be performed over time, resulting in either a completed contract basis. Revenues under the completed-contractstraight-line amortization method are recognized upon substantial completion, defined as acceptance by the customeror an input method using incurred and compliance with performance specifications as agreed upon in the contract. The Company acts as a principal under the contracts, and recognizes revenues with corresponding cost of revenues on a gross basis for the full amountforecasted expense to predict revenue recognition patterns which follows satisfaction of the contract.performance obligation.
Research and Development Costs
Research and development costs are charged to expense as incurred. Research and development costs totaled $689$1.0 billion, $833 million and $807 million in 2017, $637 million in 20162020, 2019 and $638 million in 2015.2018, respectively.
Foreign Currency Translation and Transactions
The determination of the functional currency for Corning’s foreign subsidiaries is made based on the appropriate economic factors. For most foreign operations, the local currencies are generally considered to be the functional currencies. Corning’s most significant exception is oura Taiwanese subsidiary, which uses the Japanese yen as its functional currency. For all transactions denominated in a currency other than a subsidiary’s functional currency, exchange rate gains and losses are included in income for the period in which the exchange rates changed. WeNet losses of $37 million, $19 million and $43 million were recorded for foreign currency transaction gains of $20 million and $21 millionactivity for the years ended December 31, 20172020, 2019 and 2016, respectively, and foreign currency transaction losses of $22 million for the year ended December 31, 2015. These amounts were recorded in the line item Other expense, net in the Consolidated Statements of (Loss) Income.
2018, respectively. Foreign subsidiary functional currency balance sheet accounts are translated at current exchange rates, and statement of operations accounts are translated at average exchange rates for the year. Translation gains and losses are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity. The effects of remeasuring non-functional currency assets and liabilities into the functional currency are included in current earnings, except for those related to intra-entity foreign currency transactions of a long-term investment nature, which are recorded together with translation gains and losses in accumulated other comprehensive income (loss)loss in shareholders’ equity. Upon sale or substantially complete liquidation of an investment in a foreign entity, the amount of net translation gains or losses that have been accumulated in other comprehensive income attributable to that investment are reported as a gain or loss for the period in which the sale or liquidation occurs.
1.Summary of Significant Accounting Policies (continued)
Share-Based Compensation
Corning’s share-based compensation programs include employee stock option grants, time-based restricted stock awards and time-based restricted stock units, as more fully described in Note 19 (Share-based(Share-Based Compensation) to the Consolidated Financial Statements.consolidated financial statements.
The cost of share-based compensation awards is equal to the fair value of the award at the date of grant and compensation expense is recognized for those awards earned over the vesting period. Corning estimates the fair value of share-based awards using a multiple-point Black-Scholes option valuation model, which incorporates assumptions including expected volatility, dividend yield, risk-free rate, expected term and departure rates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider securitiesSecurities with contractual maturities of three months or less, when purchased, to beare considered cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments.
Supplemental disclosure of cash flow information is as follows (in millions):
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| Years ended December 31, | Year ended December 31, | ||||||||||||||
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
Non-cash transactions: |
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|
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|
|
| ||||||||||
Accruals for capital expenditures | $ | 584 |
| $ | 381 |
| $ | 298 | $ | 231 | $ | 592 | $ | 412 | ||
Cash paid for interest and income taxes: |
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| ||||||||||
Interest (1) | $ | 178 |
| $ | 184 |
| $ | 178 | $ | 298 | $ | 248 | $ | 205 | ||
Income taxes, net of refunds received | $ | 405 |
| $ | 293 |
| $ | 253 | $ | 220 | $ | 474 | $ | 567 |
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(1)Included in this amount are approximately $58 million, $54 million and $49 million of interest costs that were capitalized as part of property, plant and equipment, net of accumulated depreciation, in 2020, 2019 and 2018, respectively.
Allowance for Doubtful Accounts
The Company’s allowance for doubtful accounts is determined based on a variety of factors that affect the potential collectabilitybest estimate of the related receivables, including lengthamount of time receivables are past due, customerprobable lifetime credit ratings, financial stability of customers, specific one-time eventslosses in existing accounts receivable. The Company determines the allowances based on historical write-off experience and past customer history.expected future default rate by industry. In addition, in circumstances where the Company is made aware of a specific customer’s inability to meet its financial obligations, a specific allowance is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate based on the above criteria. Company does not have any significant off-balance-sheet credit exposure related to its customers.
Environmental Liabilities
The Company accrues for its environmental investigation, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. For environmental matters, the most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, current laws and regulations and prior remediation experience. For sites with multiple potentially responsible parties, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Where no amount within a range of estimates is more likely to occur than another, the minimum undiscounted amount is accrued. When future liabilities are determined to be reimbursable by insurance coverage, an accrual is recorded for the potential liability and a receivable is recorded related to the insurance reimbursement when reimbursement is virtually certain.
The uncertain nature inherent in such remediation and the possibility that initial estimates may not reflect the final outcome could result in additional costs being recognized by the Company in future periods.
Inventories, net
1.Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost (first-in,or net realizable value (“NRV”), which is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Cost is determined on a first-in, first-out basis) or market.basis.
Property, Plant and Equipment, Net of Accumulated Depreciation
Land, buildings, and equipment, including precious metals, are recorded at cost. Depreciation is based on estimated useful lives of properties using the straight-line method. Except as described in Note 9 (Property, Plant and Equipment, Net of Accumulated Depreciation) to the Consolidated Financial Statementsconsolidated financial statements related to the depletion of precious metals, the estimated useful lives range from 10 to 40 years for buildings and 2 to 20 years for equipment.
Included in the subcategory of equipment are the following types of assets (excluding precious metals):
Asset type | Range of useful life |
Computer hardware and software | 3 to 7 |
Manufacturing equipment | 2 to 15 |
Furniture and fixtures | 5 to 10 |
Transportation equipment | 3 to 20 |
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. These assets are not depreciated because they have very low physical losses and are repeatedly reclaimed and reused in ourthe Company’s manufacturing processprocesses over a very long useful life. We treat theThe physical loss of precious metals in the manufacturing and reclamation process is treated as depletion and account for these losses are accounted for as a period expense based on actual units lost. Precious metals are integral to many of our glass production processes. Theyprocesses and are only acquired to support our operations andoperations. These metals are not held for trading or other purposes.
Leases
Corning leases certain real estate, vehicles, and equipment from third parties. Corning classifies leases as either financing or operating. Operating leases are included in other assets, with the corresponding liability in other accrued liabilities and other liabilities, on the consolidated balance sheets. Finance leases are included in property, plant and equipment, with the corresponding liability in the current portion and long-term debt line items on the consolidated balance sheets. As a practical expedient, lease and non-lease components of a contract are accounted for as a single lease component across all underlying asset classes. Corning does not have any significant agreements as a lessor.
Lease expense is recognized on a straight-line basis over the lease term for operating leases. Financing leases are recognized on the effective interest method for interest expense and straight-line method for asset amortization. Renewals and terminations are included in the calculation of the Right of Use (“ROU”) assets and lease liabilities when considered to be reasonably certain to be exercised. When the implicit rate is unknown, the incremental borrowing rate, based on commencement date, is used in determining the present value of lease payments.
Corning’s leases do not include residual value guarantees. The Company is not the primary beneficiary in and does not have other forms of variable interests with the lessor of the leased assets.
Refer to Note 7 (Leases) to the consolidated financial statements for additional information.
Impairment of Long-Lived Assets
The recoverability of long-lived assets, such as plant and equipment and intangible assets, is reviewed when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. When impairment indicators are present, the estimated undiscounted future cash flows, including the eventual disposition of the asset group at market value, is compared to the assets’ carrying value to determine if the asset group is recoverable. For an asset group that fails the test of recoverability, the estimated fair value of long-lived assets is determined using an “income approach” that starts with the forecast of all the expected future net cash flows including the eventual disposition at market value of long-lived assets, and considers the fair market value of all precious metals. The recoverability of the carrying value of long-lived assets was assessed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If there is an impairment, a loss is recorded to reflect the difference between the assets’ fair value and carrying value.
We are required to assess the recoverability of the carrying value of long-lived assets when an indicator of impairment has been identified. We review long-lived assets in each quarter in which impairment indicators are present. We must exercise judgment in assessing whether an event of impairment has occurred. For the year ended December 31, 2020, Corning incurred a long-lived asset impairment and disposal loss for an asset group related to the reassessment of research and development programs within “All Other”. Given the economic environment and market opportunities, Corning discontinued its investment in these research and development programs. The impairment analysis and disposition of certain assets resulted in a total pre-tax charge of $217 million, which was substantially all the carrying value, inclusive of an insignificant amount of goodwill. The fair value of the asset group for the impairment analysis was measured using unobservable (Level 3) inputs.
Employee Retirement Plans
Corning offers employee retirement plans consisting of defined benefit pension plans covering certain domestic and international employees and postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. The costs and obligations related to these benefits reflect the Company’s assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, rate of compensation increase for employees and health care trend rates. The cost of providing plan benefits depends on demographic assumptions including retirements, mortality, turnover and plan participation.
Costs for defined benefit pension plans consist of two elements: 1) on-going costs recognized quarterly, which are comprised of service and interest costs, expected return on plan assets and amortization of prior service costs; and 2) mark-to-market gains and losses outside of the corridor, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, which are recognized annually in the fourth quarter of each year. These gains and losses result from changes in actuarial assumptions and the differences between actual and expected return on plan assets. Any interim remeasurement, triggered by a curtailment, settlement or significant plan change, as well as any true-up to the annual valuation, is recognized as a mark-to-market adjustment in the quarter in which such event occurs.
Costs for postretirement benefit plans consist of on-going costs recognized quarterly, and are comprised of service and interest costs, amortization of prior service costs and amortization of actuarial gains and losses. Actuarial gains and losses resulting from changes in actuarial assumptions are recognized as a component of accumulated other comprehensive income in shareholders’ equity on an annual basis and amortized into operating results over the average remaining service period of employees expected to receive benefits under the plans, to the extent such gains and losses are outside the corridor.
Refer to Note 13 (Employee Retirement Plans) to the consolidated financial statements for additional detail.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.
The effective income tax rate reflects the assessment of the ultimate outcome of tax audits. In evaluating the tax benefits associated with our various tax filing positions, we record a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to our liability for unrecognized tax benefits in the period in which we file the return containing the tax position or when new information becomes available. The liability for unrecognized tax benefits, including accrued penalties and interest, is included in other accrued liabilities and other long-term liabilities on the consolidated balance sheets and in income tax expense in the consolidated statements of income.
Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized.
Generally, Corning will indefinitely reinvest the foreign earnings of: (1) any of its subsidiaries located in jurisdictions where Corning lacks the ability to repatriate its earnings, (2) any of its subsidiaries where Corning’s intention is to reinvest those earnings in operations, (3) legal entities for which Corning holds a non-controlling interest, (4) any subsidiaries with an accumulated deficit in earnings and profits, (5) any subsidiaries which have a positive earnings and profits balance but for which the entity lacks sufficient local statutory earnings or stock basis from which to make a distribution, and (6) any of its subsidiaries where future distribution would trigger a significant net cost to the U.S. shareholder.
Equity Method Investments
Equity method investments are reviewed for impairment on a periodic basis, or if an event occurs or circumstances change that indicate the carrying amount may be impaired. This assessment is based on a review of the equity investments’ performance and a review of indicators of impairment to determine if there is evidence of a loss in value.
For an equity investment with impairment indicators, the fair value is measured based on discounted cash flows, or other appropriate valuation methods, depending on the nature of the company involved. If it is probable that the carrying amount of the investment cannot be recovered, the impairment is considered other-than-temporary and recorded in earnings, and the equity investment balance is reduced to its fair value.
All equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value with changes therein reflected in net income. The Company utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments at cost less impairment plus or minus observable price changes in orderly transactions. The balance of these investments is disclosed in Note 3 (Investments) to the consolidated financial statements.
Fair Value Measurements
Major categories of financial assets and liabilities, including short-term investments, other assets and derivatives are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis when impaired, which include long-lived assets, goodwill, asset retirement obligations, equity method investments and other investments that Corning cannot significantly influence.
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the principal or most advantageous market in which we would transact is analyzed. Assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance, are considered.
Derivative Instruments
The Company enters into a variety of foreign exchange forward contracts and foreign exchange option contracts to manage the exposure to fluctuations in foreign exchange rates. Interest rate swaps are utilized to reduce the risk of changes in a benchmark interest rate from the probable forecasted issuance of debt and manage the mix of fixed and floating rate debt. Financial exposure is managed in accordance with corporate policies and procedures.
All derivatives are recorded at fair value on the consolidated balance sheets. Changes in the fair value of derivatives designated as cash flow hedges and hedges of net investments in foreign operations are not recognized in current operating results but are recorded in accumulated other comprehensive income. Amounts related to cash flow hedges are reclassified from accumulated other comprehensive income when the underlying hedged item impacts earnings. This reclassification is recorded in the same line item of the consolidated statements of income as where the effects of the hedged item are recorded, typically sales, cost of sales or other expense, net. Changes in the fair value of derivatives not designated as hedging instruments are recorded in the consolidated statements of income in the translated earnings contract (loss) gain, net and the other expense, net lines.
New Accounting Standards
On January 1, 2020, Corning adopted Accounting Standards Update (“ASU”) No. 2016-13 ASC (Topic 326), Financial Instruments - Credit Losses. The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The CECL model was adopted to recognize credit losses of financial assets using a modified retrospective method of accounting as of January 1, 2020. The impact of adopting the new standard to the financial statements was a nominal reduction to beginning retained earnings.
As of December 31, 2020, there are no other newly issued accounting standards expected to have a material impact on Corning’s financial statements or disclosures.
2.Restructuring, Impairment and Other Charges and Credits
In 2020, and in response to uncertain global economic conditions, Corning undertook actions to transform the Company’s cost structure and improve operational efficiency. These actions included a corporate-wide workforce reduction program, disposals of certain assets and accelerated depreciation associated with the capacity realignment of certain manufacturing facilities as well as other exit charges and credits.
During the years ended December 31, 2020, 2019 and 2018, the following restructuring, impairment and other charges and credits were recorded (in millions):
``` | |||||||||
Year ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Severance | $ | 148 | $ | 63 | $ | 16 | |||
Asset impairment | 217 | ||||||||
Capacity realignment | 304 | 312 | 80 | ||||||
Other charges and credits | 158 | 64 | 34 | ||||||
Total restructuring, impairment and other charges and credits | $ | 827 | $ | 439 | $ | 130 | |||
Severance
In the second quarter of 2020, the Company implemented a corporate-wide workforce reduction program. Severance charges were primarily incurred to facilitate realignment of capacity in the Asia regions for the Display Technologies segment, optimize the Optical Communications segment and contain corporate costs. For the years ended December 31, 2020, 2019 and 2018, severance charges were $148 million, $63 million and $16 million, respectively. As of December 31, 2020, the unpaid severance liabilities of $45 million are expected to be substantially completed within the next twelve months.
Asset Impairment
For the year ended December 31, 2020, Corning incurred a long-lived asset impairment and disposal loss for an asset group related to the reassessment of research and development programs within “All Other”. Given the economic environment and market opportunities, Corning discontinued its investment in these research and development programs. The impairment analysis and disposition of certain assets resulted in a total pre-tax charge of $217 million, which was substantially all the carrying value, inclusive of an insignificant amount of goodwill.
Capacity Realignment
Capacity realignment for the year ended December 31, 2020, primarily includes accelerated depreciation and asset disposals associated with the exit of certain facilities and other exit activities in the Display Technologies and Specialty Materials business segments. Capacity realignment for the year ended December 31, 2019, is primarily comprised of accelerated depreciation associated with the exit of certain facilities in the Display Technologies segment. Capacity realignment for the year ended December 31, 2018, primarily includes accelerated depreciation and asset disposals in the Specialty Materials business and “All Other”.
The following tables present the impact and respective location of total restructuring, impairment, and other charges and credits on the consolidated statements of income (in millions):
Year ended December 31, 2020 | |||||||||||||||
Selling, | Research, | ||||||||||||||
general | development | ||||||||||||||
and | and | ||||||||||||||
Gross | admin. | engineering | |||||||||||||
margin (1) | expenses | expenses | Other | Total | |||||||||||
Severance | $ | 83 | $ | 34 | $ | 31 | $ | 148 | |||||||
Asset impairment | 6 | 211 | 217 | ||||||||||||
Capacity realignment | 288 | 16 | 304 | ||||||||||||
Other charges and credits | 72 | 60 | 5 | $ | 21 | 158 | |||||||||
Total restructuring, | $ | 443 | $ | 116 | $ | 247 | $ | 21 | $ | 827 | |||||
Year ended December 31, 2019 | |||||||||||||||
Selling, | Research, | ||||||||||||||
general | development | ||||||||||||||
and | and | ||||||||||||||
Gross | admin. | engineering | |||||||||||||
margin (1) | expenses | expenses | Other | Total | |||||||||||
Severance | $ | 30 | $ | 20 | $ | 13 | $ | 63 | |||||||
Capacity realignment | 298 | 14 | 312 | ||||||||||||
Other charges and credits | 60 | 8 | 3 | $ | (7) | 64 | |||||||||
Total restructuring, | $ | 388 | $ | 28 | $ | 30 | $ | (7) | $ | 439 | |||||
Year ended December 31, 2018 | |||||||||||||||
Selling, | Research, | ||||||||||||||
general | development | ||||||||||||||
and | and | ||||||||||||||
Gross | admin. | engineering | |||||||||||||
margin (1) | expenses | expenses | Other | Total | |||||||||||
Severance | $ | 1 | $ | 15 | $ | 16 | |||||||||
Capacity realignment | 76 | $ | 4 | 80 | |||||||||||
Other charges and credits | 20 | 5 | 2 | $ | 7 | 34 | |||||||||
Total restructuring, | $ | 97 | $ | 20 | $ | 6 | $ | 7 | $ | 130 |
(1)Activity reflected in cost of sales.
3.Investments
Investments are comprised of the following (in millions):
Ownership | December 31, | |||||||
interest | 2020 | 2019 | ||||||
Affiliated companies accounted for by the equity method (1) | 20% to 50% | $ | 258 | $ | 291 | |||
Other investments (2) | 177 | 43 | ||||||
Subtotal investment assets | $ | 435 | $ | 334 | ||||
Affiliated companies accounted for by the equity method HSG (3) | 50% | $ | — | $ | 270 | |||
Subtotal investment liabilities | $ | — | $ | 270 |
(1)Amounts reflect Corning’s direct ownership interest in the affiliated companies at December 31, 2020 and 2019.
(3)Included in other investments were equity securities with readily available fair values that were measured using Level 1 inputs, in the amount of $137 million as of December 31, 2020. The increase in the investment balance is primarily driven by a recognized gain of $107 million from the initial public offering of an investment in the fourth quarter of 2020. Refer to Note 16 (Fair Value Measurements) for additional information.
(3)Corning began consolidating HSG on September 9, 2020. At December 31, 2019, the negative carrying value of Corning’s investment in HSG was $270 million and recorded in other liabilities.
Affiliated Companies at Equity Method
The results of operations and financial position of the investments accounted for under the equity method is presented below as of December 31 for each respective year (in millions):
2020 | 2019 | 2018 | |||||||
Statement of operations (1): | |||||||||
Net sales | $ | 1,201 | $ | 1,508 | $ | 1,759 | |||
Gross profit | $ | 136 | $ | 79 | $ | 424 | |||
Net (loss) income | $ | (48) | $ | (102) | $ | 835 | |||
Net (loss) income attributable to the affiliated companies | $ | (15) | $ | 70 | $ | 798 | |||
Corning’s equity in (losses) earnings of affiliated companies | $ | (25) | $ | 17 | $ | 390 | |||
Related party transactions: | |||||||||
Corning sales to affiliated companies | $ | 253 | $ | 277 | $ | 184 | |||
Corning purchases from affiliated companies | $ | 8 | $ | 12 | $ | 11 | |||
Corning transfers of assets, at cost, to affiliated companies | $ | 9 | $ | 8 | $ | 2 | |||
Dividends received from affiliated companies | $ | 1 | $ | 106 | $ | 241 | |||
Intercompany sales within HSG (included in net sales) | $ | 55 | $ | 112 | $ | 206 | |||
2020 | 2019 | ||||||||
Balance sheet: | |||||||||
Current assets | $ | 534 | $ | 1,566 | |||||
Noncurrent assets | $ | 466 | $ | 943 | |||||
Short-term borrowings, including current portion | $ | 2 | $ | 4 | |||||
Other current liabilities | $ | 164 | $ | 632 | |||||
Long-term debt | $ | 60 | $ | 68 | |||||
Other long-term liabilities | $ | 11 | $ | 1,522 | |||||
Non-controlling interest | $ | $ | 42 | ||||||
Related party transactions: | |||||||||
Balances due from affiliated companies | $ | 36 | $ | 42 | |||||
Balances due to affiliated companies | $ | 1 | $ | 4 | |||||
Intercompany receivables and payables within HSG | $ | 15 | |||||||
(1)The year ended December 31, 2020, only include HSG’s results of operations through September 8, 2020. Immediately following the Redemption, Corning began consolidating HSG on September 9, 2020.
As of December 31, 2020 and 2019, the undistributed earnings of equity companies included in retained earnings were not material.
Hemlock Semiconductor Group (“HSG”)
In 2016, Corning realigned its ownership interest in Dow Corning, exchanging its 50% interest in the joint venture between Corning and Dow Chemical for a newly formed company that held a 49.9% interest in Hemlock Semiconductor LLC and a 40.25% interest in Hemlock Semiconductor Operations LLC which were recorded as equity method investments of Corning and are affiliated companies of HSG. DuPont de Nemours, Inc. (“DuPont”) subsequently undertook Dow Chemical Company’s ownership interest in HSG. HSG manufactures polysilicon products for the semiconductor and solar industries, and it 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 was 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 TCS Settlement for a contractual amount of $175 million, which was determined to have a fair value of $200 million. Corning’s share of the pre-tax loss was $81 million and recorded in equity in (losses) earnings of affiliated companies in the consolidated statements of income. See Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information.
Hemlock Semiconductor LLC and Hemlock Semiconductor Operations LLC, of which Corning previously held 49.9% and 40.25% ownership interest, respectively, were recorded as equity method investments and are affiliates of Hemlock Semiconductor Group (HSG). On September 9, 2020, HSG redeemed DuPont’s entire ownership interest in HSG with a fair value of $250 million (“Redemption”). Upon completion of the Redemption, Corning obtained a controlling interest of 100% in Hemlock Semiconductor LLC and 80.5% in Hemlock Semiconductor Operations LLC and began consolidating HSG.
Since September 9, 2020, HSG’s revenue of $194 million has been consolidated in “All Other” in Corning’s consolidated statements of income for the year ended December 31, 2020. The amount of net income is not material to Corning’s consolidated financial statements for the current year.
See Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information.
2019
In prior years, HSG’s solar and semiconductor customers entered into long-term “take or pay” contracts which included up-front cash payments to secure capacity. During the last few years, and more significantly in 2019, the solar power panel industry experienced significant over-capacity in the market, resulting in declining sales volumes and market prices. As a result, HSG’s solar business experienced lower market penetration, overall price declines, and settled contracts with customers that had committed volume and fixed pricing above the current market price. While these settlements positively impacted HSG’s cash flow in 2019, they reduced expectations for future sales in HSG’s solar business.
Due to the adverse change in HSG’s solar business, HSG was required to assess the recoverability of its long-lived assets in the fourth quarter of 2019. Based on this assessment, HSG determined that the carrying values of HSG’s solar asset group significantly exceeded its fair values. HSG engaged a third-party appraiser to assist in determining the fair value of the assets within in the solar asset group based on the highest and best use of the asset group. As a result of the fair value determination, HSG recognized a pre-tax asset impairment charge of $916 million for the year ended December 31, 2019. Corning’s share of the pre-tax impairment was $369 million.
Due to the adverse changes above, the carrying values of HSG’s solar business inventories were also affected resulting in an inventory write-down of $257 million for the year. Corning’s pre-tax share of the provision was $105 million.
In addition, HSG settled certain revenue contracts in the fourth quarter of 2019, resulting in settlement gains of $383 million in net income. Corning’s share of the settlement gains was $185 million.
HSG’s results of operations and balance sheet through September 8, 2020 were as follows (in millions):
Year ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Statement of operations (1): | |||||||||
Net sales | $ | 423 | $ | 779 | $ | 1,158 | |||
Gross profit | $ | 87 | $ | 9 | $ | 367 | |||
Net income (loss) (2) | $ | 11 | $ | (117) | $ | 814 | |||
Net income attributable to HSG | $ | 44 | $ | 54 | $ | 776 | |||
Corning’s equity in earnings of affiliated companies | $ | 22 | $ | 27 | $ | 388 | |||
Related party transactions: | |||||||||
Dividends received from affiliated companies | $ | 100 | $ | 241 | |||||
Intercompany sales within HSG (included in net sales) | $ | 55 | $ | 112 | $ | 206 | |||
2020 | 2019 | ||||||||
Balance sheet (3): | |||||||||
Current assets | $ | 853 | $ | 1,011 | |||||
Noncurrent assets | $ | 725 | $ | 420 | |||||
Short-term borrowings, including current portion | $ | 178 | $ | 3 | |||||
Other current liabilities | $ | 337 | $ | 412 | |||||
Long-term debt | $ | 6 | $ | 8 | |||||
Other long-term liabilities | $ | 1,499 | $ | 1,507 | |||||
Non-controlling interest | $ | 9 | $ | 42 | |||||
Related party transactions: | |||||||||
Intercompany receivables and payables within HSG | $ | 8 | $ | 15 | |||||
(1)The year ended December 31, 2020, only include HSG’s results of operations through September 8, 2020. Immediately following the Redemption, Corning began consolidating HSG on September 9, 2020.
(2)HSG’s net income for the period ended September 8, 2020, included a pre-tax gain recorded in the second quarter of 2020, related to the settlement of a long-term supply agreement of approximately $165 million, partially offset by an inventory provision of approximately $44 million associated with the settlement of the agreement. Prior to the Redemption, in the third quarter of 2020, HSG recorded a pre-tax loss of $200 million resulting from the TCS Settlement, of which Corning’s share of the pre-tax loss was $81 million. Accordingly, Corning’s share of the net impact was an equity loss of $19 million.
(3)HSG’s balance sheet were presented as of September 8, 2020 and December 31, 2019, respectively.
4.HSG Transactions and Acquisitions
HSG Transactions
On September 9, 2020, HSG acquired DuPont’s TCS manufacturing assets, which was 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 resolved the TCS Settlement for a contractual amount of $175 million, which was determined to have a fair value of $200 million. HSG will pay for the TCS Settlement over three years with equal annual payments of approximately $58 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. The third-party debt was recorded as a non-cash financing activity on Corning’s consolidated statements of cash flows. In December 2020, HSG repaid $100 million on the third-party debt. Refer to Note 3 (Investments) and Note 12 (Debt) to the consolidated financial statements for additional information.
Hemlock Semiconductor LLC and Hemlock Semiconductor Operations LLC, of which Corning previously held 49.9% and 40.25% ownership interest, respectively, were recorded as equity method investments and are affiliates of Hemlock Semiconductor Group (HSG). As of September 9, 2020, HSG redeemed Dupont’s entire ownership of HSG with a value of $250 million (Redemption), Upon completion of the redemption, Corning obtained a 100% interest in HS LLC and 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 fair value of Corning’s equity interest in HSG was estimated by applying the income approach, which was based on significant assumptions such as projected revenue and discount rate. The Company used a discount rate of 16.5% and terminal growth rate of 0. As no net-cash consideration was transferred, the fair value of Corning’s previously held equity interest in HSG was used to measure the goodwill resulting from the Redemption and the Company’s controlling interest after the Redemption.
Corning recognized a pre-tax gain of $498 million on its previously held equity investment in HSG as a result of the consolidation resulting from the Redemption. The gain was calculated based on the difference between the fair value and carrying value of the equity method investment immediately preceding the Redemption and included in the transaction-related gain, net in Corning’s consolidated statements of income for the year ended December 31, 2020.
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 |
The following table summarizes the amounts of recorded assets acquired and liabilities assumed as of September 9, 2020, which include 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 3 (Investments) and Note 16 (Fair Value Measurements) to the consolidated financial statements for additional information.
(2)The purchase price 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, in the amount 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 20 (Reportable Segments) to the consolidated financial statements for more information.
Upon completion of the Redemption and resulting consolidation, Corning recorded preliminary values of assets acquired and liabilities assumed from HSG, including a customer deposit liability and deferred revenue.
Corning recorded a customer deposit liability of $264 million at the fair value of refundable payments that HSG received from a customer under a long-term supply agreement. The discount rates used to calculate the present value of the customer deposit range from 2.54% to 3.23%. The deposits will be repaid from 2029 to 2034 provided that all purchase obligations of this customer under the supply agreement have been satisfied.
Corning also recorded deferred revenue of $1,070 million at fair value related to the performance obligations of non-refundable consideration previously received by HSG from its customers under long term supply agreements. The fair values of deferred revenue were estimated by applying a bottoms-up cost buildup method of the cost approach based on significant inputs such as the cost to fulfill the obligations as well as key inputs including a normal profit margin.
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. Acquisition-related costs of $12 million for the year ended December 31, 2020, included costs for legal and other professional services and were included in selling, general and administrative expense in the consolidated statements of income.
The fair value of the non-controlling interest in HSG was estimated to be $102 million by applying the income approach, using the same key assumptions as the estimate of fair value for Corning’s equity interest in HSG.
Since September 9, 2020, HSG’s revenue of $194 million has been consolidated in “All Other” in Corning’s consolidated statements of income for the year ended December 31, 2020. The amount of net income is not material to Corning’s consolidated financial statements for the current year.
Acquisitions
There were no material acquisitions completed in 2020 or 2019.
During 2018, Corning acquired substantially all of 3M Company’s (3M) Communication Markets Division in two cash transactions totaling $841 million. Corning acquired a manufacturing facility and a business, which designs, manufactures and markets high bandwidth and optical fiber products. The acquisition was accounted for as a business combination.
A summary of the allocation of the total purchase price to the net tangible and other intangible assets acquired, with the remainder recorded as goodwill based on fair value is as follows(in millions):
Property, plant and equipment | $ | 32 |
Other intangible assets | 525 | |
Other net assets | 13 | |
Total identified net assets | 570 | |
Purchase consideration | 841 | |
Goodwill (1)(2) | $ | 271 |
(1)Amounts reflect measurement period adjustments.
(2)The goodwill recognized is deductible for U.S. income tax purposes. The goodwill was allocated to the Optical Communications segment.
Goodwill is related to the value of CMD’s product and customer portfolio and its combination with Corning’s existing optical communications platform, as well as synergies and other intangibles that do not qualify for separate recognition. Other intangible assets consist primarily of $434 million of customer relationships and $91 million of other intangibles that are amortized over the weighted average useful life of approximately 14 and 11 years, respectively. Acquisition-related costs of $18 million for the year ended December 31, 2018, included costs for legal, accounting, valuation and other professional services and were included in selling, general and administrative expense in the consolidated statements of income. Supplemental pro forma information was not provided because the acquisition was not material to Corning’s consolidated financial statements.
5.Revenue
Product Revenue (Point in Time)
Most of the Company’s revenue is generated by delivery of products to customers and recognized at a point in time based on evaluation of when the customer obtains control of the products. Revenue is recognized when all performance obligations under the terms of a contract are satisfied, and control of the product has been transferred to the customer. If customer acceptance clauses are present and it cannot be objectively determined that control has been transferred, revenue is only recorded when customer acceptance is received and all performance obligations have been satisfied. Sales of goods typically do not include multiple product and/or service elements.
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales tax, value-added tax, and other taxes are collected concurrently with revenue-producing activities are excluded from revenue. Incidental contract costs that are not material in the context of the delivery of goods and services are recognized as expense.
At the time revenue is recognized, allowances are recorded, with the related reduction to revenue, for estimated product returns, allowances and price discounts based upon historical experience and related terms of customer arrangements. Where product warranties are offered, liabilities are established for estimated warranty costs based upon historical experience and specific warranty provisions. Warranty liabilities are adjusted when experience indicates the expected outcome will differ from initial estimates of the liability. Product warranty liabilities were not material at December 31, 2020 and 2019.
Other Revenue (Over Time)
Corning’s revenue over time is mainly related to Telecommunications products, and comprised of design, installation, training and software maintenance services.The performance obligations under these contracts generally require services to be performed over time, resulting in either a straight-line amortization method or an input method using incurred and forecasted expense to predict revenue recognition patterns which follows satisfaction of the performance obligations. Corning’s other revenue is inconsequential to consolidated results.
Revenue Disaggregation Table
The following table shows revenue by major product categories, similar to the reportable segment disclosure. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty around revenue recognition and cash flows are substantially similar. The commercial markets and selling channels are also similar. Except for an inconsequential number of Telecommunications products, product category revenue is recognized at point in time when control transfers to the customer.
Revenue by product category is as follows (in millions):
Year ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Display products | $ | 3,077 | $ | 3,180 | $ | 3,168 | |||
Telecommunication products | 3,563 | 4,064 | 4,192 | ||||||
Specialty glass products | 1,884 | 1,594 | 1,479 | ||||||
Environmental substrate and filter products | 1,333 | 1,440 | 1,289 | ||||||
Life science products | 981 | 995 | 946 | ||||||
All Other | 465 | 230 | 216 | ||||||
Total Revenue | $ | 11,303 | $ | 11,503 | $ | 11,290 | |||
Impact of foreign currency movements (1) | 44 | 153 | 108 | ||||||
Cumulative adjustment related to customer contract | 105 | ||||||||
Net sales of reportable segments and All Other | $ | 11,452 | $ | 11,656 | $ | 11,398 | |||
(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies, Environmental Technologies and Life Sciences segments.
At the end of 2015, Corning entered into an agreement with a customer pursuant to which Corning exchanged contingent consideration, for the incremental fair value associated with several commercial agreements, including the amendment of the customer’s long-term supply agreement. The net present fair value of the commercial benefit asset related to the long-term supply agreement of $212 million was reclassified to the other asset line of the consolidated balance sheets and amortized over the term of agreement as a reduction in revenue. During March 2020, this customer announced its decision to exit its production of LCD panels by the end of 2020. Based on this announcement, Corning recorded a cumulative adjustment of $105 million during the first quarter of 2020 and recognized the remaining balance as a reduction to revenue over the remainder of the current year. Due to the one-time nature of this cumulative adjustment, it has been excluded from segment results. However, it is included in the reconciliation from segment net income (loss) to consolidated net income.
Refer to Note 20 (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 cost of fulfillment as a manufacturer of products is classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of the products and their respective manufacturing processes.
Contract liabilities include deferred revenue, other advanced payments and customer deposits. Other advanced payments are not significant to operations and are classified as part of other accrued liabilities in the financial statements. Customer deposits are predominately related to Display products and deferred revenue is predominately related to obtaining a controlling interest in HSG. Both are classified as part of other accrued liabilities and other liabilities, as appropriate, and are disclosed below. Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information.
Customer Deposits
As of December 31, 2020 and 2019, Corning had customer deposits of approximately $1.4 billion and $1.0 billion. The majority of these were non-refundable cash deposits for customers to secure rights to an amount of 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. The increase in the balance, when compared to the prior period, was primarily driven by a customer deposit liability of $264 million recorded at the fair value of refundable payments that HSG received from a customer under a long-term supply agreement.
In the years ended December 31, 2020 and 2019, customer deposits used were $140 million and $37 million, respectively. As of December 31, 2020 and 2019, $1,148 million and $927 million were recorded as other long-term liabilities, respectively. The remaining $211 million and $104 million, respectively, were classified as other current liabilities.
Deferred Revenue
During the third quarter of 2020, Corning obtained a controlling interest in HSG and recorded deferred revenue of $1,070 million at fair value 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 compared to the remaining contractual units.
As of December 31, 2020, $872 million was classified as a long-term liability and $152 million remaining was classified as a current liability. These balances reflect reductions in deferred revenue since September 9, 2020.
Practical Expedients and Exemptions
The value of unsatisfied performance obligations is not disclosed for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue has been recognized at an amount for which the right exists to invoice for services performed.
Shipping and handling fees are treated as fulfillment costs and not as separate performance obligations under the terms of revenue contracts due to the perfunctory nature of the shipping and handling obligations.
Significant Customers
For 2020, 2019 and 2018, no customer met or exceeded 10% of Corning’s consolidated net sales.
6.Inventories, Net
Inventories, net, are comprised of the following (in millions) (1):
December 31, | |||||
2020 | 2019 | ||||
Finished goods | $ | 1,236 | $ | 973 | |
Work in process | 357 | 421 | |||
Raw materials and accessories | 370 | 481 | |||
Supplies and packing materials | 475 | 445 | |||
Total inventories, net | $ | 2,438 | $ | 2,320 |
(1)Corning obtained a controlling interest in HSG as of September 9, 2020. Consolidated inventories as of December 31, 2020, included $461 million of inventories from HSG. Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information.
7.Leases
Corning has operating and finance leases for real estate, vehicles, and equipment.
The following table shows components of lease expense (in millions):
Year ended December 31, | |||||
2020 | 2019 | ||||
Financing: | |||||
Depreciation of right-of-use assets | $ | 15 | $ | 11 | |
Interest on lease liabilities | 7 | 12 | |||
Total financing lease expense | $ | 22 | $ | 23 | |
Operating lease expense | $ | 133 | $ | 110 | |
Variable lease expense | 41 | 38 | |||
Short-term lease expense | 4 | 5 | |||
Total lease expense | $ | 200 | $ | 176 | |
Total rental expense for operating leases of $156 million was recorded in the year ended 2018 and accounted for under the previous leasing standard.
The following table shows components of cash paid for amounts included in the measurement of lease liabilities (in millions):
December 31, | |||||
2020 | 2019 | ||||
Financing: | |||||
Principal | $ | 10 | $ | 6 | |
Interest | 7 | 12 | |||
Total financing lease payments | $ | 17 | $ | 18 | |
Operating lease payments | $ | 121 | $ | 105 | |
Total lease payments | $ | 138 | $ | 123 | |
Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):
December 31, | ||||||
2020 | 2019 | |||||
Operating Leases: | ||||||
Operating lease right-of-use assets, net (1) | $ | 680 | $ | 504 | ||
Other current liabilities | $ | 96 | $ | 62 | ||
Operating lease liabilities (2) | 633 | 450 | ||||
Total operating lease liabilities | $ | 729 | $ | 512 | ||
Finance Leases: | ||||||
Property and equipment, at cost | $ | 184 | $ | 294 | ||
Accumulated depreciation | (27) | (52) | ||||
Property and equipment, net | $ | 157 | $ | 242 | ||
Current portion of long-term debt | $ | 10 | $ | 9 | ||
Long-term debt | 163 | 271 | ||||
Total finance lease liabilities | $ | 173 | $ | 280 | ||
(1)Included in other assets.
(2)Included in other liabilities.
The weighted average remaining lease terms for operating and financing leases are 12.5 years and 15.5 years, respectively. The weighted average discount rates for operating and financing leases are 3.9% and 4.7%, respectively.
As of December 31, 2020, maturities of lease liabilities are as follows (in millions):
2021 | 2022 | 2023 | 2024 | 2025 | After 2025 | Gross Total | Imputed Discount | Total | |||||||||||||||||||
Operating leases | $ | 141 | $ | 125 | $ | 114 | $ | 102 | $ | 92 | $ | 733 | $ | 1,307 | $ | (578) | $ | 729 | |||||||||
Financing leases | 13 | 16 | 21 | 24 | 12 | 169 | 255 | (82) | 173 |
As of December 31, 2020, Corning had additional operating leases, primarily for new production facilities, that have not yet commenced or been recorded, of approximately $138 million on an undiscounted basis. These operating leases will commence in fiscal year 2021 with lease terms of 20 years.
8.Income Taxes
Income before income taxes follows (in millions):
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
U.S. companies | $ | (71) | $ | 504 | $ | 472 | ||
Non-U.S. companies | 694 | 712 | 1,031 | |||||
Income before income taxes | $ | 623 | $ | 1,216 | $ | 1,503 |
The current and deferred amounts of the provision for income taxes are as follows (in millions):
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Current: | ||||||||
Federal | $ | 88 | $ | (82) | $ | (256) | ||
State and municipal | (16) | (12) | (22) | |||||
Foreign | (203) | (354) | (196) | |||||
Deferred: | ||||||||
Federal | 7 | 64 | (34) | |||||
State and municipal | 3 | 13 | 4 | |||||
Foreign | 10 | 115 | 67 | |||||
Provision for income taxes | $ | (111) | $ | (256) | $ | (437) |
Amounts are reflected in the preceding tables based on the location of the taxing authorities.
Reconciliation of the U.S. statutory income tax rate to the effective tax rate for operations is as follows:
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Statutory U.S. income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||
State income tax, net of federal effect | 1.4 | 0.6 | 0.9 | |||||
Global intangible low-taxed income | (0.5) | 1.2 | 3.6 | |||||
Foreign derived intangible income | (8.5) | (0.6) | ||||||
Repatriation tax on accumulated previously untaxed | 9.1 | (1.2) | ||||||
Remeasurement of deferred tax assets and liabilities | (13.4) | (0.6) | (0.1) | |||||
Rate difference on foreign earnings (1) | 7.3 | 5.4 | (2.3) | |||||
IRS settlements & change in reserve | 12.1 | 8.5 | 11.5 | |||||
Valuation allowance | 2.5 | (3.7) | (3.8) | |||||
Tax credits (2) | (29.7) | (2.8) | (0.7) | |||||
Stock compensation | (1.7) | (0.6) | (0.5) | |||||
Legal entity rationalization | (2.2) | |||||||
Intercompany loan adjustment | 6.2 | (0.5) | ||||||
Non-deductible expenses | 5.8 | 2.1 | ||||||
Other items, net | (0.1) | (1.0) | 1.3 | |||||
Effective income tax rate | 17.8 | % | 21.1 | % | 29.1 | % |
(1)The net provision for the year ended December 31, 2020, was primarily due to stronger foreign earnings relative to U.S. earnings and net Subpart F income.
(2)The net benefit for the year ended December 31, 2020, was primarily due to a net operating loss carryback allowed under the CARES Act, as well as a change in estimate from the prior year attributable to research and development credits.
On September 9, 2020, Corning obtained a 100% controlling interest in HS LLC and an 80.5% controlling interest in HSO LLC. As a result, the deferred tax liability on the outside basis difference between book and tax basis for Corning’s investment in HS LLC and HSO LLC was adjusted by approximately $116 million.
Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information.
Generally, Corning will indefinitely reinvest the foreign earnings of: (1) any of its subsidiaries located in jurisdictions where Corning lacks the ability to repatriate its earnings, (2) any of its subsidiaries where Corning’s intention is to reinvest those earnings in operations, (3) legal entities for which Corning holds a non-controlling interest, (4) any subsidiaries with an accumulated deficit in earnings and profits, (5) any subsidiaries which have a positive earnings and profits balance but for which the entity lacks sufficient local statutory earnings or stock basis from which to make a distribution, or (6) future distribution would trigger a significant net cost to the U.S. shareholder.
During 2020, the Company distributed approximately $914 million from foreign subsidiaries to their respective U.S. parent companies. As of December 31, 2020, Corning has approximately $2 billion of indefinitely reinvested foreign earnings. It remains impracticable to calculate the tax cost of repatriating unremitted earnings which are considered indefinitely reinvested.
The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities are as follows (in millions):
December 31, | |||||
2020 | 2019 | ||||
Loss and tax credit carryforwards | $ | 637 | $ | 388 | |
Other assets | 269 | 345 | |||
Asset impairments and restructuring reserves | 29 | 30 | |||
Postretirement medical and life benefits | 171 | 168 | |||
Other accrued liabilities | 162 | 218 | |||
Other employee benefits | 337 | 345 | |||
Gross deferred tax assets | 1,605 | 1,494 | |||
Valuation allowances | (167) | (215) | |||
Total deferred tax assets | 1,438 | 1,279 | |||
Intangible and other assets | (95) | (110) | |||
Fixed assets | (375) | (216) | |||
Financing leases | (160) | (121) | |||
Total deferred tax liabilities | (630) | (447) | |||
Net deferred tax assets | $ | 808 | $ | 832 |
The net deferred tax assets in the consolidated balance sheets are as follows (in millions):
December 31, | |||||
2020 | 2019 | ||||
Deferred tax assets | $ | 1,121 | $ | 1,157 | |
Other liabilities | (313) | (325) | |||
Net deferred tax assets | $ | 808 | $ | 832 | |
Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2020 are as follows (in millions):
Expiration | ||||||||||||||
Amount | 2021-2025 | 2026-2030 | 2031-2040 | Indefinite | ||||||||||
Net operating losses | $ | 334 | $ | 129 | $ | 22 | $ | 36 | $ | 147 | ||||
Tax credits | 303 | 5 | 188 | 104 | 6 | |||||||||
Totals as of December 31, 2020 | $ | 637 | $ | 134 | $ | 210 | $ | 140 | $ | 153 |
The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):
2020 | 2019 | 2018 | ||||||
Balance at January 1 | $ | 62 | $ | 435 | $ | 252 | ||
Additions based on tax positions related to the current year | 19 | 3 | 204 | |||||
Additions for tax positions of prior years | 53 | 2 | ||||||
Reductions for tax positions of prior years | (10) | |||||||
Settlements and lapse of statute of limitations | (3) | (378) | (11) | |||||
Balance at December 31 | $ | 131 | $ | 62 | $ | 435 |
During 2020, the Internal Revenue Service (“IRS”) opened an audit for tax years 2015-2018. We do not expect additional material exposure for the tax years under audit. However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than our current position, our overall tax expense and effective tax rate could be materially impacted in the period of adjustment.
The additions for tax positions of prior years were primarily due to tax audits, development of tax court cases, and tax law changes in various jurisdictions.
Included in the balance at December 31, 2020, 2019 and 2018 are $102 million, $35 million and $263 million, respectively, of unrecognized tax benefits that would impact the Company’s effective tax rate if recognized.
Accrued interest and penalties associated with uncertain tax positions are recognized as part of tax expense. For the years ended December 31, 2020, 2019 and 2018 the amount recognized in interest expense and accrued for the payment of interest and penalties were not material.
It is possible that the amount of unrecognized tax benefits will change due to one or more of the following events during the next twelve months: audit activity, tax payments, or final decisions in matters that are the subject of controversy in various jurisdictions. Corning believes that adequate tax reserves are provided for these matters. However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than the current reserves, the Company’s overall tax expense and effective tax rate could be materially impacted in the period of adjustment. As of December 31, 2020, the company is not expecting any significant movements in the uncertain tax benefits in the next twelve months.
Corning Incorporated, as the common parent company, and all 80%-or-more-owned of its U.S. subsidiaries join in the filing of consolidated U.S. federal income tax returns. The statute of limitations is closed for all periods ending through December 31, 2012. All returns for periods ended through December 31, 2014, have been audited by and settled with the IRS.
Corning Incorporated and its U.S. subsidiaries file income tax returns on a combined, unitary or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 5 years. Various state income tax returns are currently in the process of examination or administrative appeal. The Company does not expect any material proposed adjustments from any of these audits.
Corning’s foreign subsidiaries file income tax returns in the countries where their operations are located. Generally, these countries have statutes of limitations ranging from 3 to 10 years. The statute of limitations is closed through the following years in these major jurisdictions: China (2008), Japan (2012), Taiwan (2014) and South Korea (2013).
CPM (“Corning Precision Materials”), a South Korean subsidiary, is currently appealing certain tax assessments and tax refund claims for tax years 2010 through 2018. The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessments. We believe that it is more likely than not that we will prevail in the appeal process, and as a result we have recorded a non-current receivable of $365 million as of December 31, 2020 compared to a $415 million non-current receivable and $33 million current receivable as of December 31, 2019 for the amount on deposit with the South Korean government. The reduction of the net receivable balance is due primarily to refunds received upon the successful defense of one of our tax positions with the South Korean government.
9.Property, Plant and Equipment, Net of Accumulated Depreciation
Property, plant and equipment, net of accumulated depreciation follow (in millions):
December 31, | |||||
2020 | 2019 | ||||
Land | $ | 471 | $ | 452 | |
Buildings | 6,453 | 6,023 | |||
Equipment | 20,563 | 19,100 | |||
Construction in progress | 1,918 | 2,757 | |||
Subtotal | 29,405 | 28,332 | |||
Accumulated depreciation | (13,663) | (12,995) | |||
Total | $ | 15,742 | $ | 15,337 |
Approximately $58 million, $54 million and $49 million of interest costs were capitalized as part of property, plant and equipment, net of accumulated depreciation, in 2020, 2019 and 2018, respectively.
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. At December 31, 2020 and 2019, the recorded value of precious metals totaled $3.4 billion and $3.3 billion, respectively. Depletion expense for precious metals in the years ended December 31, 2020, 2019 and 2018 was $24 million, $16 million and $14 million, respectively.
10.Goodwill and Other Intangible Assets
Goodwill
Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill relates to and is assigned directly to a specific reporting unit. Reporting units are either operating segments or one level below the operating segment. Impairment testing for goodwill is done at a reporting unit level. Goodwill is reviewed for indicators of impairment quarterly or if an event occurs or circumstances change that indicate that the carrying amount may be impaired. Corning also performs a detailed quantitative impairment test every three years if no indicators suggest a test should be performed in the interim. We use this calculation as quantitative validation of the qualitative process; this process does not represent an election to perform the quantitative impairment test in place of the qualitative review.
The qualitative process includes an extensive review of expectations for the long-term growth of our businesses and forecasting future cash flows. If we are required to perform the quantitative impairment analysis, our valuation method is an “income approach” using a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return. Our estimates are based upon our historical experience, our current knowledge from our commercial relationships, and available external information about future trends. If the fair value is less than the carrying value, a loss is recorded to reflect the difference between the fair value and carrying value.
1.Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
We review the recoverability of our long-lived assets, such as plant and equipment and intangible assets, when events or changesChanges in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. When impairment indicators are present, we compare estimated undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the assets’ carrying value to determine if the asset group is recoverable. For an asset group that fails the test of recoverability, the estimated fair value of long-lived assets is determined using an “income approach” that starts with the forecast of all the expected future net cash flows including the eventual disposition at market value of long-lived assets, and also considers the fair market value of all precious metals. We assess the recoverability of the carrying value of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If there is an impairment, a loss is recorded to reflect the difference between the assets’ fair value and carrying value. Refer to Note 2 (Restructuring, Impairment and Other Charges) to the Consolidated Financial Statements for more detail.
Employee Retirement Plans
Corning offers employee retirement plans consisting of defined benefit pension plans covering certain domestic and international employees and postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. The costs and obligations related to these benefits reflect the Company’s assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, rate of compensation increase for employees and health care trend rates. The cost of providing plan benefits depends on demographic assumptions including retirements, mortality, turnover and plan participation.
Costs for our defined benefit pension plans consist of two elements: 1) on-going costs recognized quarterly, which are comprised of service and interest costs, expected return on plan assets and amortization of prior service costs; and 2) mark-to-market gains and losses outside of the corridor, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, which are recognized annually in the fourth quarter of each year. These gains and losses result from changes in actuarial assumptions for discount rates and the differences between actual and expected return on plan assets. Any interim remeasurements triggered by a curtailment, settlement or significant plan changes, as well as any true-up to the annual valuation, are recognized as a mark-to-market adjustment in the quarter in which such event occurs.
Costs for our postretirement benefit plans consist of on-going costs recognized quarterly, and are comprised of service and interest costs, amortization of prior service costs and amortization of actuarial gains and losses. We recognize the actuarial gains and losses resulting from changes in actuarial assumptions for discount rates as a component of Shareholders’ Equity on our consolidated balance sheets on an annual basis and amortize them into our operating results over the average remaining service period of employees expected to receive benefits under the plans, to the extent such gains and losses are outside of the corridor.
Refer to Note 13 (Employee Retirement Plans) to the Consolidated Financial Statements for additional detail.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.
The effective income tax rate reflects our assessment of the ultimate outcome of tax audits. In evaluating the tax benefits associated with our various tax filing positions, we record a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to our liability for unrecognized tax benefits in the period in which we determine the issue is effectively settled with the tax authorities, the statute of limitations expires for the return containing the tax position or when new information becomes available. Our liability for unrecognized tax benefits, including accrued penalties and interest, is included in other accrued liabilities and other long-term liabilities on our consolidated balance sheets and in income tax expense in our Consolidated Statements of (Loss) Income.
Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized.
1.Summary of Significant Accounting Policies (continued)
At December 31, 2017, Corning has not completed its accounting for the tax effects of the enactment of the 2017 Tax Act. Pursuant to SAB 118, the Company has made a reasonable estimate of the effects on its U.S. deferred tax balances, the one-time toll charge and the impact on its state valuation allowances. In addition, Corning has not made sufficient progress on estimating the impact of tax reform on its assertion regarding its indefinitely reinvested foreign earnings so the Company will continue to follow its historic position while it continues to analyze this issue. In addition, Corning’s accounting for the impact of the global intangible low-taxed income (GILTI) provisions of the 2017 Tax Act is incomplete and, as a result, it has not yet elected a policy to account for the GILTI provisions. The initial accounting is incomplete as we need additional time and information to analyze all aspects of the newly enacted law and how it impacts our worldwide operations. The additional information that needs to be obtained, prepared or analyzed in order to complete the accounting requirements includes receiving further guidance from the tax authorities; additional time to prepare basis calculations; post enactment impacts and further time to validate of our assumptions.
Equity Method Investments
Our equity method investments are reviewed for impairment on a periodic basis or if an event occurs or circumstances change that indicate the carrying amount may be impaired. This assessment is based on a review of the equity investments’ performance and a review of indicators of impairment to determine if there is evidence of a loss in value of an equity investment. Factors we consider include:
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For an equity investment with impairment indicators, we measure fair value on the basis of discounted cash flows or other appropriate valuation methods, depending on the nature of the company involved. If it is probable that we will not recover the carrying amount of our investment,goodwill for the impairment is considered other-than-temporarytwelve months ended December 31, 2020 and recorded2019, were as follows (in millions):
Display | Optical | Specialty | Life | All | Total | ||||||||||||
Balance at December 31, 2018 | $ | 132 | $ | 926 | $ | 150 | $ | 617 | $ | 111 | $ | 1,936 | |||||
Foreign currency translation | (3) | 5 | (1) | (2) | (1) | ||||||||||||
Balance at December 31, 2019 | $ | 129 | $ | 931 | $ | 150 | $ | 616 | $ | 109 | $ | 1,935 | |||||
Acquired goodwill (1) | 495 | 495 | |||||||||||||||
Foreign currency translation | 3 | 12 | 2 | 13 | 30 | ||||||||||||
Balance at December 31, 2020 | $ | 132 | $ | 943 | $ | 150 | $ | 618 | $ | 617 | $ | 2,460 |
(1)The Company obtained a controlling interest in earnings,HSG during the third quarter of 2020. Refer to Note 4 (HSG Transactions and Acquisitions) to the equity investment balance is reduced to its fair value accordingly. We require our material equity method affiliates to provide audited financial statements. Consequently, adjustments for asset recoverability are included in equity earnings. We also utilize theseconsolidated financial statements in our recoverability assessment.
Fair Value of Financial Instruments
Major categories of financial assets and liabilities, including short-term investments, other assets and derivatives are measured at fair value on a recurring basis. Certain assets and liabilities including long-lived assets, goodwill, asset retirement obligations, and cost and equity investments are measured at fair value on a nonrecurring basis.
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
Derivative Instruments
We participate in a variety of foreign exchange forward contracts and foreign exchange option contracts entered into in connection with the management of our exposure to fluctuations in foreign exchange rates. We utilize interest rate swaps to reduce the risk of changes in a benchmark interest rate from the probable forecasted issuance of debt and to swap fixed rate interest payments into floating rate interest payments. These financial exposures are managed in accordance with corporate policies and procedures.
1.Summary of Significant Accounting Policies (continued)
All derivatives are recorded at fair value on the balance sheet. Changes in the fair value of derivatives designated as cash flow hedges and hedges of net investments in foreign operations are not recognized in current operating results but are recorded in accumulated other comprehensive income. Amounts related to cash flow hedges are reclassified from accumulated other comprehensive income when the underlying hedged item impacts earnings. This reclassification is recorded in the same line item of the Consolidated Statements of (Loss) Income as where the effects of the hedged item are recorded, typically sales, cost of sales or other (expense) income, net. Changes in the fair value of derivatives not designated as hedging instruments are recorded in the Consolidated Statements of (Loss) Income in the Translated earnings contract (loss) gain, net and the Other expense, net lines.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The new revenue recognition standard relates to revenue from contracts with customers, which, along with amendments issued in 2015 and 2016, will supersede nearly all current U.S. GAAP guidanceadditional information on this topictransaction.
Corning’s gross goodwill balance and eliminate industry-specific guidance. The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be receivedaccumulated impairment losses were $9.0 billion and $6.5 billion, respectively, for those goods or services. Corning has evaluated its material contracts, and has concluded that the impact of adopting the standard on its financial statements and related disclosure will not be material. The standard, as amended, will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. We will adopt the standard on a modified retrospective basis in 2018.
One of Corning’s equity affiliates is currently assessing the potential impact of adopting ASU 2014-09 on its financial statements and will adopt the standard on January 1, 2019. Preliminary analysis indicates that the impact of adoption will not have a material impact on Corning’s financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. We are currently assessing the potential impact of adopting ASU 2016-02 on our financial statements and related disclosures.
One of Corning’s equity affiliates is currently assessing the potential impact of adopting ASU 2016-02 on its financial statements and elected to adopt the standard on January 1, 2020.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 refines how companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and for interim periods within those fiscal years. We have determined that the impact of this standard will not be material. We will adopt this standard in 2018.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. We have determined that the impact of this standard will not be material. We will adopt this standard in 2018.
1.Summary of Significant Accounting Policies (continued)
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). ASU 2017-04 simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendment should be applied on a prospective basis. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the ASU on January 1, 2017.
In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. In addition, the ASU requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The amendment should be applied retrospectively for the presentation of the service cost component and prospectively for the capitalization of the service cost component. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted at the beginning of any annual period for which an entity’s financial statements have not been issued or made available for issuance. We have determined that the impact of this standard will not be material. We will adopt this standard in 2018.
2.Restructuring, Impairment and Other Charges
2017 Activity
For the year ended December 31, 2017, we did not record significant restructuring,2020. Corning’s gross goodwill balance and accumulated impairment losses were $8.4 billion and other charges or reversals. Cash expenditures$6.5 billion, respectively, for restructuring activities were approximately $4 million.
2016 Activity
For the year ended December 31, 2016, we recorded charges of $77 million, pre-tax, for employee related costs of $14 million, asset disposals of $62 million, and exit costs associated with some minor restructuring activities in all of our segments of $1 million, with total cash expenditures of approximately $12 million.
Cash payments for employee-related and exit activity2019. Accumulated impairment losses were generated primarily through goodwill impairments related to the 2016 restructuring activities were substantially completed in 2016. Optical Communications segment.
2015 ActivityOther Intangible Assets
ForOther intangible assets follow (in millions):
December 31, | |||||||||||||||||
2020 | 2019 | ||||||||||||||||
Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||
Amortized intangible assets: | |||||||||||||||||
Patents, trademarks & trade | $ | 500 | $ | 255 | $ | 245 | $ | 469 | $ | 228 | $ | 241 | |||||
Customer lists and other (1) | 1,517 | 454 | 1,063 | 1,301 | 357 | 944 | |||||||||||
Total | $ | 2,017 | $ | 709 | $ | 1,308 | $ | 1,770 | $ | 585 | $ | 1,185 |
(1)Other is comprised of intangible assets related to developed technologies and intellectual know-how.
Corning’s amortized intangible assets are primarily related to the Optical Communications and Life Sciences segments and “All Other”. The net carrying amount of intangible assets increased during the year, ended December 31, 2015, we did not record significant restructuring, impairmentprimarily driven by the consolidation of HSG and foreign currency translation and other charges or reversals. Cash expenditures for restructuring activities were approximately $40 million.
Restructuring reserves asadjustments of December 31, 2017, 2016 and 2015 were not significant.
3.Available-for-Sale Investments
At December 31, 2016 and 2015, the Company held long-term investments$14 million; offset by amortization of $29 million and $33 million, respectively. The Company’s investments in available-for-sale securities were held at fair value with amortized cost of $32 million and $37 million at December 31, 2016 and 2015, respectively.
At December 31, 2017, Corning did not hold long-term investments or available-for-sale securities.
Proceeds from sales and maturities of short-term investments totaled $29 million, $121 million and $1.6 billion in 2017, 2016an impairment of $55 million. Intangible assets obtained from HSG consist primarily of $215 million of developed technologies and 2015,know-how, and $70 million of other intangibles that are amortized over the weighted average useful life of approximately 20 and 15 years, respectively.
Amortization expense related to all intangible assets is expected to be approximately $130 million annually for years 2021 through 2025.
Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information.
11.Other Assets and Other Liabilities
For 2017, no customers met or exceeded 10% of Corning’s consolidated net sales. For 2016 and 2015, Corning’s sales to Samsung Display Co. Ltd., a customer of our Display Technologies and Specialty Materials segments, represented 11% of the Company’s consolidated net sales.
5.Inventories, Net of Inventory Reserves
Inventories, net of inventory reserves comprise the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||
| 2017 |
| 2016 | ||
Finished goods | $ | 739 |
| $ | 606 |
Work in process |
| 322 |
|
| 303 |
Raw materials and accessories |
| 306 |
|
| 270 |
Supplies and packing materials |
| 345 |
|
| 292 |
Total inventories, net of inventory reserves | $ | 1,712 |
| $ | 1,471 |
Income before income taxes follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
U.S. companies | $ | 653 |
| $ | 2,658 |
| $ | 426 |
Non-U.S. companies |
| 1,004 |
|
| 1,034 |
|
| 1,060 |
Income before income taxes | $ | 1,657 |
| $ | 3,692 |
| $ | 1,486 |
The current and deferred amounts of the (provision) benefit for income taxesOther assets follow (in millions):
December 31, | |||||
2020 | 2019 | ||||
Current assets: | |||||
Derivative instruments (Note 15) | $ | 148 | $ | 157 | |
South Korean tax deposits | 33 | ||||
Other current assets | 613 | 683 | |||
Other current assets | $ | 761 | $ | 873 | |
Non-current assets: | |||||
Derivative instruments (Note 15) | $ | 123 | $ | 92 | |
South Korean tax deposits | 365 | 415 | |||
Operating leases (Note 7) | 680 | 504 | |||
Investments (Note 3) | 435 | 334 | |||
Other non-current assets | 537 | 476 | |||
Other assets | $ | 2,140 | $ | 1,821 |
|
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|
| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Current: |
|
|
|
|
|
|
|
|
Federal | $ | (20) |
| $ | (1) |
| $ | (40) |
State and municipal |
| (21) |
|
| (17) |
|
| (20) |
Foreign |
| (317) |
|
| (287) |
|
| (33) |
Deferred: |
|
|
|
|
|
|
|
|
Federal |
| (1,617) |
|
| 310 |
|
| (144) |
State and municipal |
| (109) |
|
| 48 |
|
| (30) |
Foreign |
| (70) |
|
| (50) |
|
| 120 |
(Provision) benefit for income taxes | $ | (2,154) |
| $ | 3 |
| $ | (147) |
South Korean tax deposits
Amounts are reflected in the preceding tables based on the location of the taxing authorities.
6.Income Taxes (continued)
Reconciliation of the U.S. statutory income tax rate to our effective tax rate for operations follows:
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|
| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Statutory U.S. income tax rate | 35.0 | % |
| 35.0 | % |
| 35.0 | % |
State income tax (benefit), net of federal effect | 0.8 |
|
| (0.3) |
|
| 0.1 |
|
Repatriation tax on accumulated previously untaxed foreign earnings | 67.4 |
|
|
|
|
|
|
|
Remeasurement of deferred tax assets and liabilities | 21.0 |
|
|
|
|
|
|
|
Rate difference on foreign earnings | (3.9) |
|
| (9.2) |
|
| (19.8) |
|
Uncertain tax positions | 0.6 |
|
| (0.1) |
|
| 4.3 |
|
Equity earnings impact | 0.1 |
|
| (0.4) |
|
| (5.4) |
|
Valuation allowances | 6.8 |
|
| 1.2 |
|
| (4.2) |
|
Realignment of Dow Corning interest |
|
|
| (28.2) |
|
|
|
|
Other items, net | 2.2 |
|
| 1.9 |
|
| (0.1) |
|
Effective income tax rate (benefit) | 130.0 | % |
| (0.1) | % |
| 9.9 | % |
Corning’s results for the year ending December 31, 2017 included a total $2.2 billion worldwide tax provision, inclusive of tax on normal operations and the impacts of the 2017 Tax Act. Given the significant complexity of the 2017 Tax Act and anticipated future guidance from the U. S. Treasury, the Securities and Exchange Commission and the Financial Accounting Standards Board (“FASB”) related to the 2017 Tax Act, the Securities Exchange Commission has issued its Staff Accounting Bulletin 118 (“SAB 118”) to provide registrants additional time to analyze and report the effects of tax reform during the “measurement period”. Under SAB 118, the registrant is required to record those items where ASC 740 analysis is complete; include reasonable estimates and label them as provisional where ASC 740 analysis is incomplete; and if reasonable estimates cannot be made, record items under the previous tax law. The measurement period ends on the date the entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740 and is not to exceed 1 year.
In addition to SAB 118, the FASB has issued some guidance regarding how to account for tax reform as well as a proposal to reclassify stranded tax costs from AOCI to retained earnings. Furthermore, to date, the U.S. Treasury has issued Notice 2018-07 on December 29, 2017 and Notice 2018-13 on January 19, 2018 with additional guidance on how to compute the toll charges.
At December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the 2017 Tax Act; however, we have made a reasonable estimate of the effects on our U.S. deferred tax balances, the one-time toll charge and the impact on our state valuation allowances. We recognized provisional amounts which are included as a component of income tax expense from continuing operations. The initial accounting is incomplete as we need additional time and information to analyze all aspects of the newly enacted law and how it impacts our worldwide operations. The additional information that needs to be obtained, prepared or analyzed in order to complete the accounting requirements includes receiving further guidance from the tax authorities; additional time to prepare basis calculations; post-enactment impacts, and further time to validate our assumptions.
We re-measured the U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the 2017 Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our deferred tax balances was $347 million.
The one-time toll charge is based on our unrepatriated earnings of certain foreign subsidiaries that were previously deferred. This charge resulted in an additional provisional tax expense amount of $1.1 billion. We have not yet completed our calculation of the toll charge. This amount may change when we finalize the calculation of unrepatriated earnings that were previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. Settlement of the toll charge will occur almost entirely through the use of existing foreign tax credit carryovers.
6.Income Taxes (continued)
Corning has not made sufficient progress on estimating the impact of tax reform on its assertion regarding its indefinitely reinvested foreign earnings so the Company will continue to follow its historic position while it continues to analyze this item. As of December 31, 2017, Corning estimates that its unremitted foreign earnings were $16.9 billion. While Corning is not changing its assertion at this time, the Company has distributed approximately $2 billion in January 2018 from two of its foreign subsidiaries to the U.S. parent of those subsidiaries. There are no incremental taxes beyond the toll charge due with respect to this distribution of cash.
Under its historic policy, Corning will continue to indefinitely reinvest substantially all of its foreign earnings, with the exception of an immaterial amount of current earnings that have very low or no tax cost associated with their repatriation. Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash.
Corning’s accounting for the impact of the global intangible low-taxed income (GILTI) provisions of the 2017 Tax Act is incomplete and, as a result, it has not yet elected a policy to account for the GILTI provisions.
We will continue to monitor for future guidance and to assess the impacts of the 2017 Tax Act.
Tax benefit associated with rate differences on foreign earnings is primarily the income of subsidiaries with lower statutory rates than the U.S. for 2017 and for 2016 and 2015 includes the benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income.
During 2016, a realignment of Dow Corning interest took place. Refer to Note 7 (Investments) of the Consolidated Financial Statements for additional detail.
The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||
| 2017 |
| 2016 | ||
|
|
|
|
|
|
Loss and tax credit carryforwards | $ | 652 |
| $ | 1,465 |
Other assets |
| 43 |
|
| 62 |
Asset impairments and restructuring reserves |
| 94 |
|
| 154 |
Postretirement medical and life benefits |
| 191 |
|
| 283 |
Other accrued liabilities |
|
|
|
| 190 |
Other employee benefits |
| 278 |
|
| 462 |
Gross deferred tax assets |
| 1,258 |
|
| 2,616 |
Valuation allowance |
| (456) |
|
| (270) |
Total deferred tax assets |
| 802 |
|
| 2,346 |
Intangible and other assets |
| (101) |
|
| (104) |
Other accrued liabilities |
| (94) |
|
|
|
Fixed assets |
| (245) |
|
| (234) |
Total deferred tax liabilities |
| (440) |
|
| (338) |
Net deferred tax assets | $ | 362 |
| $ | 2,008 |
6.Income Taxes (continued)
The net deferred tax assets are classified in our consolidated balance sheets as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||
| 2017 |
| 2016 | ||
|
|
|
|
|
|
Deferred tax assets | $ | 813 |
| $ | 2,325 |
Deferred tax liabilities |
| (451) |
|
| (317) |
Net deferred tax assets | $ | 362 |
| $ | 2,008 |
Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2017 follow (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expiration | ||||||||||
| Amount |
| 2017-2021 |
| 2022-2026 |
| 2027-2036 |
| Indefinite | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating losses | $ | 497 |
| $ | 137 |
| $ | 72 |
| $ | 45 |
| $ | 243 |
Tax credits |
| 155 |
|
|
|
|
| 4 |
|
| 135 |
|
| 16 |
Totals as of December 31, 2017 | $ | 652 |
| $ | 137 |
| $ | 76 |
| $ | 180 |
| $ | 259 |
Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not (a likelihood of greater than 50 percent) that some portion or all of the deferred tax assets will not be realized. Corning has valuation allowances on certain shorter-lived deferred tax assets such as those represented by capital loss and state tax net operating loss carryforwards, as well as other foreign net operating loss carryforwards, because we cannot conclude that it is more likely than not that we will earn income of the character required to utilize these assets before they expire. The amount of U.S. and foreign deferred tax assets that have remaining valuation allowances at December 31, 2017 and 2016 was $456 million and $270 million, respectively.
The 2017 Tax Act makes the following key changes to U.S. tax law which will potentially impact Corning’s deferred tax assets. Corporate alternative minimum tax (“AMT”) has been eliminated. Taxpayers with AMT credit carryovers can use credits to offset regular tax liability for any tax year or such credits will be fully refundable by year 2022. Corning has $28 million of AMT carryover. Net operating losses (“NOL’s”) generated prior to the 2017 Tax Act may still be carried back two years and forward 20 years. Corning has $34 million of Federal NOL’s that are subject to these provisions. The 2017 Tax Act limits and in some cases eliminates foreign tax credits. Corning has $49 million of foreign tax credit carryforwards that may be subject to these restrictions.
In 2017, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. As a result, cumulative tax benefits totaling $233 million were recorded as an adjustment to beginning retained earnings.
The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 | ||
Balance at January 1 | $ | 243 |
| $ | 253 |
Additions based on tax positions related to the current year |
| 1 |
|
| 10 |
Additions for tax positions of prior years |
| 13 |
|
| 4 |
Reductions for tax positions of prior years |
|
|
|
| (18) |
Settlements and lapse of statute of limitations |
| (5) |
|
| (6) |
Balance at December 31 | $ | 252 |
| $ | 243 |
Included in the balance at December 31, 2017 and 2016 are $97 million and $92 million, respectively, of unrecognized tax benefits that would impact our effective tax rate if recognized.
We recognize accrued interest and penalties associated with uncertain tax positions as part of tax expense. For the years ended December 31, 2017 and 2016 the amount recognized in interest expense is not material. The amounts accrued at December 31, 2017 and 2016 for the payment of interest and penalties were also not material.
6.Income Taxes (continued)
It is possible that the amount of unrecognized tax benefits will change due to one or more of the following events during the next twelve months: audit activity, tax payments, or final decisions in matters that are the subject of controversy in various jurisdictions within which we operate. The majority of the potential change relates to tax litigation in Korea as well as our ongoing U.S. tax audit. We believe we have provided adequate contingent reserves for these matters. However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than our current reserves, our overall tax expense and effective tax rate could be materially impacted in the period of adjustment.
Corning Incorporated, as the common parent company, and all 80%-or-more-owned of its U.S. subsidiaries join in the filing of consolidated U.S. federal income tax returns. The statute of limitations is closed for all periods ending through December 31, 2012. All returns for periods ended through December 31, 2004, have been audited by and settled with the Internal Revenue Service (IRS).
Corning Incorporated and its U.S. subsidiaries file income tax returns on a combined, unitary or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 5 years. Various state income tax returns are currently in the process of examination or administrative appeal.
Our foreign subsidiaries file income tax returns in the countries in which they have operations. Generally, these countries have statutes of limitations ranging from 3 to 7 years. Years still open to examination by foreign tax authorities in major jurisdictions include Japan (2009, 2015 onward), Taiwan (2015 onward) and South Korea (2015 onward). CorningCPM is currently appealing certain tax assessments resulting from audits performed by the South Koreanand tax authorities covering periods 2006refund claims for tax years 2010 through 2015.2018. The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of theseany tax assessments. Because we believe that it is more likely than not that we will prevail in the appeals process, we have recorded a non-current receivable of $319 million for the amount on deposit with the South Korean government.
Investments are comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ownership |
| December 31, | ||||
|
| interest |
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
|
|
Affiliated companies accounted for by the equity method (1) |
| 20% to 50% |
| $ | 280 |
| $ | 269 |
Other investments |
|
|
|
| 60 |
|
| 67 |
Subtotal Investment Assets |
|
|
| $ | 340 |
| $ | 336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliated companies accounted for by the equity method - HSG (1)(2) |
| 50% |
| $ | 105 |
| $ | 241 |
Subtotal Investment Liabilities |
|
|
| $ | 105 |
| $ | 241 |
|
|
|
|
7.Investments (continued)
Affiliated Companies at Equity
The results of operations and financial position of the investments accounted for under the equity method follow (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Statement of operations: |
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 2,346 |
| $ | 4,024 |
| $ | 6,461 |
Gross profit |
| $ | 560 |
| $ | 1,006 |
| $ | 1,606 |
Net income |
| $ | 721 |
| $ | 565 |
| $ | 586 |
Corning’s equity in earnings of affiliated companies |
| $ | 361 |
| $ | 284 |
| $ | 299 |
|
|
|
|
|
|
|
|
|
|
Related party transactions: |
|
|
|
|
|
|
|
|
|
Corning sales to affiliated companies |
| $ | 108 |
| $ | 95 |
| $ | 75 |
Corning purchases from affiliated companies |
| $ | 12 |
| $ | 12 |
| $ | 19 |
Corning transfers of assets, at cost, to affiliated companies |
| $ | 22 |
| $ | 44 |
| $ |
|
Dividends received from affiliated companies |
| $ | 201 |
| $ | 85 |
| $ | 143 |
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
|
|
| ||||
|
| 2017 |
| 2016 |
|
|
| ||
Balance sheet: |
|
|
|
|
|
|
|
|
|
Current assets |
| $ | 1,593 |
| $ | 1,522 |
|
|
|
Noncurrent assets |
| $ | 1,999 |
| $ | 2,112 |
|
|
|
Short-term borrowings, including current portion of long-term debt |
| $ | 3 |
| $ | 3 |
|
|
|
Other current liabilities |
| $ | 700 |
| $ | 715 |
|
|
|
Long-term debt |
| $ | 16 |
| $ | 23 |
|
|
|
Other long-term liabilities |
| $ | 2,128 |
| $ | 2,523 |
|
|
|
Non-controlling interest |
| $ | 313 |
| $ | 267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party transactions: |
|
|
|
|
|
|
|
|
|
Balances due from affiliated companies |
| $ | 47 |
| $ | 33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
We have contractual agreements with several of our equity affiliates which include sales, purchasing, licensing and technology agreements.
As of December 31, 2017 and 2016, the undistributed earnings of equity companies included in our retained earnings are not material.
HSG and Dow Corning
On May 31, 2016, Corning completed the strategic realignment of its equity investment in Dow Corning Corporation (”Dow Corning”) pursuant to the Transaction Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in Hemlock Semiconductor Group (“HSG”) and approximately $4.8 billion in cash.
Prior to realignment, HSG, a consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the exchange, Corning now has a direct equity investment in HSG. Because our ownership percentage in HSG did not change as a result of the realignment, the investment in HSG is recorded at its carrying value, which had a negative carrying value of $383 million at the transaction date. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Excluding this charge, the entity is profitable and is expected to recover its equity in the near term.
7.Investments (continued)
Corning’s financial statements as of December 31, 2016 include the positive impact of the release of a deferred tax liability of $105 million related to Corning’s tax on Dow Corning’s earnings that were not distributed as of the date of the transaction and a non-taxable gain of $2,676 million on the realignment. Details of the gain are illustrated below (in millions):
|
| |
| ||
| ||
| ||
|
|
|
|
Corning began reporting HSG equity earnings and dividends on June 1, 2016. HSG information presented below is shown for the year ended December 31, 2017 and seven months ended December 31, 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ended December 31, | ||||
|
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Statement of operations: |
|
|
|
|
|
|
Net sales |
| $ | 1,716 |
| $ | 1,119 |
Gross profit |
| $ | 469 |
| $ | 361 |
Net income |
| $ | 706 |
| $ | 421 |
Corning’s equity in earnings of affiliated companies |
| $ | 352 |
| $ | 212 |
|
|
|
|
|
|
|
Related party transactions: |
|
|
|
|
|
|
Dividends received from affiliated companies |
| $ | 196 |
| $ | 65 |
|
|
|
|
|
|
|
|
| December 31, | ||||
|
| 2017 |
| 2016 | ||
Balance sheet: |
|
|
|
|
|
|
Current assets |
| $ | 1,206 |
| $ | 1,130 |
Noncurrent assets |
| $ | 1,522 |
| $ | 1,745 |
Short-term borrowings, including current portion of long-term debt |
| $ | 3 |
| $ | 3 |
Other current liabilities |
| $ | 484 |
| $ | 555 |
Long-term debt |
| $ | 15 |
| $ | 17 |
Other long-term liabilities |
| $ | 2,126 |
| $ | 2,518 |
Non-controlling interest |
| $ | 313 |
| $ | 267 |
|
|
|
|
|
|
|
7.Investments (continued)
For the period ended December 31, 2016, Corning reported Dow Corning equity earnings and dividends through May 31, 2016, the transaction date. Dow Corning information presented below is shown for the five months ended May 31, 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ended December 31, | ||||
|
| 2016 |
| 2015 | ||
Statement of operations: |
|
|
|
|
|
|
Net sales |
| $ | 2,215 |
| $ | 5,649 |
Gross profit (1) |
| $ | 588 |
| $ | 1,472 |
Net income attributable to Dow Corning |
| $ | 163 |
| $ | 563 |
Corning’s equity in earnings of Dow Corning |
| $ | 82 |
| $ | 281 |
|
|
|
|
|
|
|
Related party transactions: |
|
|
|
|
|
|
Corning purchases from Dow Corning |
| $ | 7 |
| $ | 15 |
Dividends received from Dow Corning |
| $ | 20 |
| $ | 143 |
|
|
|
|
|
|
|
|
|
Years ended December 31, 2017 and 2016
There were no material acquisitions completed in 2017 or 2016. See Note 10 (Goodwill and Other Intangible Assets) for further information on goodwill and intangibles acquired in 2017 and 2016.
Year ended December 31, 2015
Corning completed five acquisitions in 2015. There were minor adjustments during 2015 made to the preliminary allocation of the total purchase consideration related to working capital adjustments and true-up of the fair value of assets acquired for the acquisitions. Corning has completed the purchase accounting for all of these acquisitions. A summary of the allocation of the total purchase consideration for the five acquisitions is as follows (in millions):
|
| |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
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|
|
The goodwill generated from these acquisitions is primarily related to the value of the product portfolio and customer/distribution networks acquired, combined with Corning’s existing business segments, as well as market participant synergies and other intangibles that do not qualify for separate recognition.
The acquired amortizable intangible assets have a weighted-average useful life of approximately 10 years.
Acquisition-related costs of $11 million included in selling, general and administrative expense in the Consolidated Statements of (Loss) Income for the year ended December 31, 2015 included costs for legal, accounting, valuation and other professional services. The Consolidated Financial Statements include the operating results of each business combination from the date of acquisition. Pro forma results of operations have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to Corning’s financial results.
9.Property, Plant and Equipment, Net of Accumulated Depreciation
Property, plant and equipment, net of accumulated depreciation follow (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||
| 2017 |
| 2016 | ||
Land | $ | 482 |
| $ | 435 |
Buildings |
| 5,864 |
|
| 5,540 |
Equipment |
| 16,648 |
|
| 14,973 |
Construction in progress |
| 1,832 |
|
| 1,482 |
|
| 24,826 |
|
| 22,430 |
Accumulated depreciation |
| (10,809) |
|
| (9,884) |
Total | $ | 14,017 |
| $ | 12,546 |
Approximately $36 million, $23 million and $35 million of interest costs were capitalized as part of property, plant and equipment, net of accumulated depreciation, in 2017, 2016 and 2015, respectively.
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. At December 31, 2017 and 2016, the recorded value of precious metals totaled $3 billion in each period. Depletion expense for precious metals in the years ended December 31, 2017, 2016 and 2015 was $13 million, $20 million and $19 million, respectively.
10.Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill for the twelve months ended December 31, 2017 and 2016 were as follows (in millions):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Display |
| Optical |
| Specialty |
| Life |
| All |
| Total | ||||||
Balance at December 31, 2015 | $ | 128 |
| $ | 439 |
| $ | 150 |
| $ | 562 |
| $ | 101 |
| $ | 1,380 |
Acquired goodwill (1) |
|
|
|
| 205 |
|
|
|
|
|
|
|
|
|
|
| 205 |
Measurement period adjustment |
|
|
|
| (4) |
|
|
|
|
|
|
|
|
|
|
| (4) |
Foreign currency translation |
| (2) |
|
| 5 |
|
|
|
|
| (4) |
|
| (3) |
|
| (4) |
Balance at December 31, 2016 | $ | 126 |
| $ | 645 |
| $ | 150 |
| $ | 558 |
| $ | 98 |
| $ | 1,577 |
Acquired goodwill (2) |
|
|
|
| 22 |
|
|
|
|
| 43 |
|
| 34 |
|
| 99 |
Measurement period adjustment (3) |
|
|
|
| (1) |
|
|
|
|
| 1 |
|
| (28) |
|
| (28) |
Foreign currency translation |
| 10 |
|
| 5 |
|
|
|
|
| 21 |
|
| 10 |
|
| 46 |
Balance at December 31, 2017 | $ | 136 |
| $ | 671 |
| $ | 150 |
| $ | 623 |
| $ | 114 |
| $ | 1,694 |
|
|
|
|
|
|
Corning’s gross goodwill balance for the fiscal years ended December 31, 2017 and 2016 were $8.2 billion and $8.1 billion, respectively. Accumulated impairment losses were $6.5 billion for the fiscal years ended December 31, 2017 and 2016, respectively, and were generated primarily through goodwill impairments related to the Optical Communications segment.
10.Goodwill and Other Intangible Assets (continued)
Other Intangible Assets
Other intangible assets follow (in millions):
|
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|
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|
|
| December 31, | ||||||||||||||||
| 2017 |
| 2016 | ||||||||||||||
| Gross |
| Accumulated |
| Net |
| Gross |
| Accumulated |
| Net | ||||||
|
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|
|
Amortized intangible assets: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, trademarks & trade | $ | 382 |
| $ | 188 |
| $ | 194 |
| $ | 360 |
| $ | 176 |
| $ | 184 |
Customer list and other |
| 884 |
|
| 209 |
|
| 675 |
|
| 761 |
|
| 149 |
|
| 612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | $ | 1,266 |
| $ | 397 |
| $ | 869 |
| $ | 1,121 |
| $ | 325 |
| $ | 796 |
Amortized intangible assets are primarily related to the Optical Communications and Life Sciences segments. The net carrying amount of intangible assets increased by $73 million during the year ended December 31, 2017, primarily due to acquisitions of $131 million and foreign currency translation adjustments of $17 million offset by amortization of $75 million.
Amortization expense related to these intangible assets is estimated to be $72 million annually from 2018 to 2019, $71 million annually from 2020 through 2022.
11.Other Assets and Other Liabilities
Other assets follow (in millions):
|
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|
|
|
|
|
|
|
| December 31, | ||||
| 2017 |
| 2016 | ||
Current assets: |
|
|
|
|
|
Contingent consideration asset | $ | 300 |
|
|
|
Derivative instruments |
| 197 |
| $ | 435 |
Other current assets |
| 494 |
|
| 370 |
Other current assets | $ | 991 |
| $ | 805 |
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
Derivative instruments | $ | 68 |
| $ | 146 |
Contingent consideration asset |
|
|
|
| 289 |
South Korean tax deposits |
| 319 |
|
| 274 |
Other non-current assets |
| 547 |
|
| 562 |
Other assets | $ | 934 |
| $ | 1,271 |
South Korean tax deposits
Corning is currently appealing certain tax assessments resulting from audits performed by the South Korean tax authorities. The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of these assessments. Because we believebelieves that it is more likely than not that we will prevail in the appeal process, we have recorded a non-current receivable for the amount on deposit with the South Korean government. process.
11.Other Assets and Other Liabilities (continued)
Other liabilities follow (in millions):
|
|
|
|
| ||||||
|
|
|
|
| ||||||
| December 31, | December 31, | ||||||||
| 2017 |
| 2016 | 2020 | 2019 | |||||
Current liabilities: |
|
|
|
| ||||||
Wages and employee benefits | $ | 620 |
| $ | 487 | $ | 572 | $ | 565 | |
Income taxes |
| 148 |
| 150 | 173 | 182 | ||||
Derivative instruments |
| 42 |
| 88 | ||||||
Asbestos and other litigation |
| 41 |
| 75 | ||||||
Derivative instruments (Note 15) | 189 | 100 | ||||||||
Asbestos and other litigation (Note 14) | 13 | 57 | ||||||||
Deferred revenue (Note 5) | 152 | |||||||||
Settlement liability (Note 4) | 58 | |||||||||
Customer deposits (Note 5) | 211 | 104 | ||||||||
Short-term leases (Note 7) | 96 | 62 | ||||||||
Other current liabilities |
| 540 |
| 616 | 973 | 853 | ||||
Other accrued liabilities | $ | 1,391 |
| $ | 1,416 | $ | 2,437 | $ | 1,923 | |
|
|
|
|
| ||||||
Non-current liabilities: |
|
|
|
| ||||||
Defined benefit pension plan liabilities | $ | 713 |
| $ | 692 | $ | 887 | $ | 980 | |
Derivative instruments |
| 333 |
| 282 | ||||||
Asbestos and other litigation |
| 338 |
| 388 | ||||||
Derivative instruments (Note 15) | 155 | 165 | ||||||||
Asbestos and other litigation (Note 14) | 94 | 196 | ||||||||
Deferred revenue (Note 5) | 872 | |||||||||
Settlement liability (Note 4) | 117 | |||||||||
Investment in Hemlock Semiconductor Group (1) |
| 105 |
| 241 | 270 | |||||
Customer deposits |
| 382 |
| 382 | ||||||
Customer deposits (Note 5) | 1,148 | 927 | ||||||||
Deferred tax liabilities | 313 | 325 | ||||||||
Long-term leases (Note 7) | 633 | 450 | ||||||||
Other non-current liabilities |
| 1,146 |
| 820 | 798 | 667 | ||||
Other liabilities | $ | 3,017 |
| $ | 2,805 | $ | 5,017 | $ | 3,980 |
| (1)The negative carrying value resulted from a one-time charge to this entity in 2019 for the impairment of certain assets. |
Asbestos Litigation
Corning and PPG each owned 50% of the capital stock of PCC. Over a period of more than two decades, PCC and several other defendants were named in numerous lawsuits involving claims alleging personal injury from exposure to asbestos. Refer to Note 14 (Commitments, Contingencies3 (Investments) and Guarantees)Note 4 (HSG Transactions and Acquisitions) to the Consolidated Financial Statementsconsolidated financial statements for additional information on the asbestos litigation.information.
12.Debt
(In millions)
|
|
|
|
| ||||||
|
|
|
|
| ||||||
| December 31, | December 31, | ||||||||
| 2017 |
| 2016 | 2020 | 2019 | |||||
|
|
|
|
|
| |||||
Current portion of long-term debt | $ | 379 |
| $ | 256 | $ | 81 | $ | 11 | |
Short-term borrowings | 75 | |||||||||
Current portion of long-term debt and short-term borrowings | $ | 156 | $ | 11 | ||||||
|
|
|
|
| ||||||
Long-term debt |
|
|
|
| ||||||
Debentures, 1.45%, due 2017 |
|
|
| $ | 250 | |||||
Debentures, 1.5%, due 2018 | $ | 375 |
| 374 | ||||||
Debentures, 6.625%, due 2019 |
| 245 |
| 245 | ||||||
Debentures, 4.25%, due 2020 |
| 288 |
| 290 | ||||||
Debentures, 8.875%, due 2021 |
| 66 |
| 67 | $ | 63 | $ | 64 | ||
Debentures, 2.9%, due 2022 |
| 373 |
| 372 | ||||||
Debentures, 2.90%, due 2022 | 374 | 374 | ||||||||
Debentures, 3.70%, due 2023 |
| 249 |
| 248 | 249 | 249 | ||||
Medium-term notes, average rate 7.66%, due through 2023 |
| 45 |
| 45 | 45 | 45 | ||||
Debentures, 7.00%, due 2024 |
| 99 |
| 99 | 100 | |||||
Yen-denominated debentures, .698%, due 2024 |
| 185 |
|
| ||||||
Yen-denominated debentures, .992%, due 2027 |
| 414 |
|
| ||||||
Debentures, 3.90%, due 2049 | 394 | 395 | ||||||||
Debentures, 5.45%, due 2079 | 1,084 | 1,085 | ||||||||
Yen-denominated debentures, 0.698%, due 2024 | 203 | 192 | ||||||||
Yen-denominated debentures, 0.722%, due 2025 | 96 | 91 | ||||||||
Yen-denominated debentures, 0.992%, due 2027 | 453 | 430 | ||||||||
Yen-denominated debentures, 1.043%, due 2028 | 293 | 278 | ||||||||
Yen-denominated debentures, 1.153%, due 2031 | 301 | 285 | ||||||||
Yen-denominated debentures, 1.513%, due 2039 | 56 | 54 | ||||||||
Debentures, 6.85%, due 2029 |
| 166 |
| 167 | 161 | 163 | ||||
Yen-denominated debentures, 1.219%, due 2030 | 239 | 227 | ||||||||
Debentures, callable, 7.25%, due 2036 |
| 248 |
| 248 | 249 | 249 | ||||
Debentures, 4.70%, due 2037 |
| 248 |
| 248 | 296 | 295 | ||||
Yen-denominated debentures, 1.583%, due 2037 |
| 85 |
|
| 96 | 91 | ||||
Debentures, 5.75%, due 2040 |
| 397 |
| 395 | 396 | 395 | ||||
Debentures, 4.75%, due 2042 |
| 496 |
| 495 | 496 | 496 | ||||
Debentures, 5.35%, due 2048 | 543 | 543 | ||||||||
Debentures, 4.375%, due 2057 |
| 743 |
|
| 743 | 742 | ||||
Other, average rate 5.05%, due through 2042 |
| 406 |
| 359 | ||||||
Debentures, 5.85%, due 2068 | 296 | 296 | ||||||||
Financing Leases, average discount rate 4.7%, due through 2044 | 173 | 280 | ||||||||
Other, average rate 4.54%, due through 2043 | 598 | 321 | ||||||||
Total long-term debt |
| 5,128 |
| 3,902 | 7,897 | 7,740 | ||||
Less current portion of long-term debt |
| 379 |
| 256 | 81 | 11 | ||||
Long-term debt | $ | 4,749 |
| $ | 3,646 | $ | 7,816 | $ | 7,729 |
At December 31, 2017 and 2016, the weighted-average interest rate on current portion of long-term debt was 1.5%. Corning did not have outstanding commercial paper at December 31, 2017 and 2016.
Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $5.1$9.4 billion and $8.5 billion at December 31, 20172020 and $3.9 billion at December 31, 2016.2019, respectively. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.
Corning did 0t have outstanding commercial paper at December 31, 2020 and 2019.
Corning maintains a revolving credit agreement (the “Revolving Credit Agreement”) which provides a committed $1.5 billion unsecured multi-currency line of credit and expires August 15, 2023. At December 31, 2020, there were 0 outstanding amounts under the Revolving Credit Agreement.
The following table shows debt maturities by year at December 31, 20172020 (in millions)*(1):
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|
|
|
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|
|
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|
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|
|
|
|
|
|
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Thereafter | ||||||
| $ | 379 |
| $ | 254 |
| $ | 305 |
| $ | 67 |
| $ | 381 |
| $ | 3,769 |
2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||
$ | 156 | $ | 422 | $ | 382 | $ | 317 | $ | 171 | $ | 6,580 |
*(1)Excludes interest rate swap gains, bond discounts and bond discounts.deferred expenses.
12. Debt (continued)
Debt Issuances and RetirementsRepayments
20172020
During the fourth quarter of 2020, Corning redeemed $100 million of 7.0% debentures due in 2024 with a carrying amount of $99 million, paying a $21 million make-whole call premium. The total payment of $121 million is disclosed in financing activities in the consolidated statements of cash flows. The redemption resulted in a loss of $22 million.
In conjunction with the change in control of HSG on September 9, 2020, a variable interest rate loan of $175 million USD, maturing on September 8, 2021, was made to DC HSC Holdings, LLC, now a consolidated subsidiary of Corning. In December 2020, DC HSC Holdings, LLC repaid $100 million of the loan. The remaining balance of $75 million is reflected in the current portion of long-term debt and short-term borrowings in Corning’s consolidated balance sheets as of December 31, 2020. Refer to Note 4 (HSG Transactions) to the consolidated financial statements for additional information.
During the second quarter of 2020, Corning established an incremental liquidity facility for 25 billion Japanese yen, equivalent to $232 million with a maturity of three years. As of December 31, 2020, the facility has 0t been drawn upon.
In the first quarter of 2020, Corning established two unsecured variable rate loan facilities for 1,050 million Chinese yuan, equivalent to $150 million, and 749 million Chinese yuan, equivalent to $105 million, each with a maturity of five years. In the fourth quarter of 2020, Corning established a third unsecured variable rate loan facility for 546 million Chinese yuan, equivalent to $84 million, with a maturity of five years. Borrowings under these loan facilities for the year ended December 31, 2020, totaled 1,691 million Chinese yuan, or approximately $243 million. These Chinese yuan-denominated proceeds will not be converted into USD and will be used for capital projects. Payments of principal and interest on the Notes will be in Chinese yuan, or should yuan be unavailable due to circumstances beyond Corning’s control, a USD equivalent. These loans are the sole obligations of the subsidiary borrowers and are not guaranteed by any other Corning entity.
2019
In the fourth quarter of 2019, Corning issued two USD-denominated debt securities (the “Notes”), as follows:
$400 million 3.90% senior unsecured notes with a maturity of 30 years; and
$1.1 billion 5.45% senior unsecured notes with a maturity of 60 years.
The net proceeds, after deducting offering expenses, were approximately $1.5 billion and will be used for general corporate purposes. These notes can be redeemed at any time, subject to certain terms and conditions.
In the fourth quarter of 2019, Corning redeemed $300 million of 4.25% notes due in 2020, paying a premium of $4.7 million by exercising a make-whole call. The bond redemption resulted in an $8.4 million loss during the same quarter.
In the third quarter of 2017,2019, Corning issued threetwo Japanese yen-denominated debt securities (the “Notes”), as follows:
¥31.3 billion 1.153% senior unsecured notes with a maturity of 12 years; and ¥5.9 billion 1.513% senior unsecured notes with a maturity of 20 years. |
|
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|
|
The proceeds from thesethe Notes were received in Japanese yen and converted to U.S. dollarsUSD on the date of issuance. The net proceeds received in U.S. dollars,USD, after deducting offering expenses, waswere approximately $700 million.$349 million and will be used for general corporate purposes. Payments of principal and interest on the Notes will be in Japanese yen, or should yen be unavailable due to circumstances beyond Corning’s control, a U.S. dollarUSD equivalent.
On a quarterly basis, Corning will recognize the transactionforeign currency translation gains and losses resulting from changes in the JPY/USD exchange rateexchanges rates within accumulated other comprehensive income (loss) in the Other expense, net line of the Consolidated Statements of (Loss) Income.shareholders’ equity. Cash proceeds from the offeringsloans and payments for debt issuance costsissuances are disclosed as financing activities, and cash payments to bondholders for interest will beare disclosed as operating activities, in the Consolidated Statementsconsolidated statements of Cash Flows.cash flows.
In the fourth quarter of 2017, Corning issued $750 million of 4.375% senior unsecured notes that mature on November 15, 2057. The net proceeds of $743 million will be used for general corporate purposes. We can redeem these notes at any time, subject to certain terms and conditions.13.Employee Retirement Plans
2016
In the third quarter of 2016, Corning’s Board of Directors approved a $1 billion increase to our commercial paper program, raising it to $2 billion. If needed, this program is supported by our $2 billion revolving credit facility that expires in 2019.
Defined Benefit Plans
We haveCorning has defined benefit pension plans covering certain domestic and international employees. OurThe Company’s funding policy has been to contribute, as necessary, an amount in excess ofexceeding the minimum requirements in order to achieve the Company’s long-term funding targets. In 2017, we made no2020, voluntary cash contributions were made to our domestic defined benefit pension planplans and $29 million to our international pension plans.plans in the amount of $180 million and $41 million, respectively. In 2016, we2019, 0 voluntary contributions were made voluntary cash contributions of $73 million to our domestic defined benefit pension plan and $16plans. Voluntary cash contributions of $2 million were made to our international pension plans. We are not subjectDuring 2021, the Company plans to any mandatory contributions in 2018, and anticipate making voluntarymake cash contributions of up to $105$31 million to our U.S. qualified pension plan. We anticipate contributing up to $27 million to our international pension plans in 2018. The amount recognized in accumulated other comprehensive loss and not yet reflected in periodic benefit cost expected to be amortized in next year’s periodic benefit cost is a net actuarial loss of $5.9 million.plans.
Corning offers postretirement plans that provide health care and life insurance benefits for retirees and eligible dependents. Certain employees may become eligible for such postretirement benefits upon reaching retirement age and service requirements. In 2020, voluntary cash contributions were made to domestic postretirement plans in the amount of $30 million. For current retirees (including surviving spouses) and active employees eligible for the salaried retiree medical program, we haveCorning has placed a “cap” on the amount we will contributeto be contributed toward retiree medical coverage in the future. The cap is equal to 120% of ourthe 2005 contributions toward retiree medical benefits. Once our contributions toward salaried retiree medical costs reach this cap, impacted retirees will have to pay the excess amount in addition to their regular contributions for coverage. This cap was attained for post-65 retirees in 2008 and attained for pre-65 retirees in 2010. Furthermore, employees hired or rehired on or after January 1, 2007 will be eligible for Corning retiree medical benefits upon retirement; however, these employees will pay 100% of the cost.
13.Employee Retirement Plans (continued)
Obligations and Funded Status
The change in benefit obligation and funded status of our employee retirementdefined benefit pension plans are as follows (in millions):
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| |||||||||||||||||||
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| |||||||||||||||||||
| Total |
| Domestic |
| International | Total | Domestic | International | ||||||||||||||||||||||||||
December 31, | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
|
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|
|
| |||||||||||||||||
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Benefit obligation at beginning of year | $ | 3,887 |
| $ | 3,715 |
| $ | 3,289 |
| $ | 3,161 |
| $ | 598 |
| $ | 554 | $ | 4,581 | $ | 4,003 | $ | 3,856 | $ | 3,358 | $ | 725 | $ | 645 | |||||
Service cost |
| 92 |
|
| 85 |
| 66 |
|
| 61 |
| 26 |
|
| 24 | 118 | 101 | 92 | 76 | 26 | 25 | |||||||||||||
Interest cost |
| 126 |
|
| 124 |
| 112 |
|
| 111 |
| 14 |
|
| 13 | 122 | 148 | 110 | 133 | 12 | 15 | |||||||||||||
Plan participants’ contributions |
| 2 |
|
| 1 |
| 1 |
|
| 1 |
| 1 |
|
|
| 1 | 1 | 1 | 1 | |||||||||||||||
Actuarial loss (gain) |
| 208 |
|
| 229 |
| 222 |
|
| 145 |
| (14) |
|
| 84 | |||||||||||||||||||
Plan amendments | 1 | 1 | ||||||||||||||||||||||||||||||||
Actuarial loss | 358 | 533 | 329 | 462 | 29 | 71 | ||||||||||||||||||||||||||||
Other |
| 3 |
|
| (3) |
| 3 |
|
| 1 |
|
|
|
| (4) | (29) | 6 | 8 | 6 | (37) | ||||||||||||||
Benefits paid |
| (195) |
|
| (210) |
| (171) |
|
| (191) |
| (24) |
|
| (19) | (213) | (214) | (194) | (180) | (19) | (34) | |||||||||||||
Foreign currency translation |
| 65 |
|
| (54) |
|
|
|
|
|
| 65 |
|
| (54) | 42 | 3 | 42 | 3 | |||||||||||||||
Benefit obligation at end of year | $ | 4,188 |
| $ | 3,887 |
| $ | 3,522 |
| $ | 3,289 |
| $ | 666 |
| $ | 598 | $ | 4,981 | $ | 4,581 | $ | 4,203 | $ | 3,856 | $ | 778 | $ | 725 | |||||
|
|
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|
|
|
|
|
|
| |||||||||||||||||||
Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 3,225 |
| $ | 3,058 |
| $ | 2,765 |
| $ | 2,616 |
| $ | 460 |
| $ | 442 | $ | 3,671 | $ | 3,239 | $ | 3,153 | $ | 2,742 | $ | 518 | $ | 497 | |||||
Actual return on plan assets |
| 413 |
|
| 310 |
| 395 |
|
| 235 |
| 18 |
|
| 75 | |||||||||||||||||||
Actual gain on plan assets | 469 | 615 | 420 | 576 | 49 | 39 | ||||||||||||||||||||||||||||
Employer contributions |
| 46 |
|
| 125 |
| 14 |
|
| 104 |
| 32 |
|
| 21 | 245 | 22 | 195 | 14 | 50 | 8 | |||||||||||||
Plan participants’ contributions |
| 1 |
|
| 1 |
| 1 |
|
| 1 |
|
|
|
|
| 1 | 1 | 1 | 1 | |||||||||||||||
Benefits paid |
| (195) |
|
| (210) |
| (171) |
|
| (191) |
| (24) |
|
| (19) | (238) | (214) | (194) | (180) | (44) | (34) | |||||||||||||
Foreign currency translation |
| 49 |
|
| (59) |
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| 49 |
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| (59) | 25 | 8 | 25 | 8 | |||||||||||||||
Fair value of plan assets at end of year | $ | 3,539 |
| $ | 3,225 |
| $ | 3,004 |
| $ | 2,765 |
| $ | 535 |
| $ | 460 | $ | 4,173 | $ | 3,671 | $ | 3,575 | $ | 3,153 | $ | 598 | $ | 518 | |||||
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Funded status at end of year |
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Fair value of plan assets | $ | 3,539 |
| $ | 3,225 |
| $ | 3,004 |
| $ | 2,765 |
| $ | 535 |
| $ | 460 | $ | 4,173 | $ | 3,671 | $ | 3,575 | $ | 3,153 | $ | 598 | $ | 518 | |||||
Benefit obligations |
| (4,188) |
|
| (3,887) |
| (3,522) |
|
| (3,289) |
| (666) |
|
| (598) | (4,981) | (4,581) | (4,203) | (3,856) | (778) | (725) | |||||||||||||
Funded status of plans | $ | (649) |
| $ | (662) |
| $ | (518) |
| $ | (524) |
| $ | (131) |
| $ | (138) | $ | (808) | $ | (910) | $ | (628) | $ | (703) | $ | (180) | $ | (207) | |||||
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Amounts recognized in the consolidated |
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Amounts recognized in the consolidated | ||||||||||||||||||||||||||||||||||
Noncurrent asset | $ | 76 |
| $ | 35 |
|
|
|
|
|
| $ | 76 |
| $ | 35 | $ | 99 | $ | 82 | $ | 99 | $ | 82 | ||||||||||
Current liability |
| (20) |
|
| (18) |
| $ | (12) |
| $ | (13) |
| (8) |
|
| (5) | (20) | (20) | $ | (13) | $ | (13) | (7) | (7) | ||||||||||
Noncurrent liability |
| (705) |
|
| (679) |
| (506) |
|
| (511) |
| (199) |
|
| (168) | (887) | (972) | (615) | (690) | (272) | (282) | |||||||||||||
Recognized liability | $ | (649) |
| $ | (662) |
| $ | (518) |
| $ | (524) |
| $ | (131) |
| $ | (138) | $ | (808) | $ | (910) | $ | (628) | $ | (703) | $ | (180) | $ | (207) | |||||
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Amounts recognized in accumulated other |
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Amounts recognized in accumulated other | ||||||||||||||||||||||||||||||||||
Net actuarial loss | $ | 300 |
| $ | 348 |
| $ | 285 |
| $ | 311 |
| $ | 15 |
| $ | 37 | $ | 394 | $ | 338 | $ | 387 | $ | 306 | $ | 7 | $ | 32 | |||||
Prior service cost (credit) |
| 22 |
|
| 30 |
| 25 |
|
| 31 |
| (3) |
|
| (1) | 27 | 29 | 26 | 30 | 1 | (1) | |||||||||||||
Amount recognized at end of year | $ | 322 |
| $ | 378 |
| $ | 310 |
| $ | 342 |
| $ | 12 |
| $ | 36 | $ | 421 | $ | 367 | $ | 413 | $ | 336 | $ | 8 | $ | 31 | |||||
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An actuarial loss of $358 million was recognized in 2020 primarily due to decreases in bond yields during the year, leading to a domestic plan weighted-average discount rate that was 78 basis points lower than the prior year. In 2019, an actuarial loss of $533 million was recognized primarily due to decreases in bond yields during the year, leading to a domestic plan weighted-average discount rate that was 100 basis points lower than the prior year. The accumulated benefit obligation for defined benefit pension plans was $3.9$4.7 billion and $3.6$4.3 billion at December 31, 20172020 and 2016,2019, respectively.
13.Employee Retirement Plans (continued)
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| Postretirement benefits | ||||
December 31, | 2017 |
| 2016 | ||
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Change in benefit obligation |
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|
Benefit obligation at beginning of year | $ | 776 |
| $ | 763 |
Service cost |
| 10 |
|
| 9 |
Interest cost |
| 26 |
|
| 26 |
Plan participants’ contributions |
| 8 |
|
| 8 |
Actuarial loss |
| 17 |
|
| 16 |
Other |
|
|
|
| 2 |
Benefits paid |
| (50) |
|
| (50) |
Medicare subsidy received |
| 2 |
|
| 2 |
Benefit obligation at end of year | $ | 789 |
| $ | 776 |
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Funded status at end of year |
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Fair value of plan assets |
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Benefit obligations | $ | (789) |
| $ | (776) |
Funded status of plans | $ | (789) |
| $ | (776) |
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Amounts recognized in the consolidated balance sheets consist of: |
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Current liability | $ | (40) |
| $ | (39) |
Noncurrent liability |
| (749) |
|
| (737) |
Recognized liability | $ | (789) |
| $ | (776) |
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Amounts recognized in accumulated other comprehensive income consist of: |
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Net actuarial loss | $ | 68 |
| $ | 50 |
Prior service credit |
| (12) |
|
| (15) |
Amount recognized at end of year | $ | 56 |
| $ | 35 |
The following information is presented for pension plans where the projected benefit obligation as of December 31, 2017 and 2016 exceeded the fair value of plan assets (in millions):
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| December 31, | |||||||||
| 2017 |
| 2016 | December 31, | ||||||
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| 2020 | 2019 | |||
Projected benefit obligation | $ | 3,843 |
| $ | 3,607 | $ | 4,665 | $ | 4,298 | |
Fair value of plan assets | $ | 3,173 |
| $ | 2,787 | $ | 3,758 | $ | 3,305 |
In 2017,2020 and 2019, the fair value of plan assets exceeded the projected benefit obligation for the United Kingdom and one of the South Korea pension plans.plan.
The following information is presented for pension plans where the accumulated benefit obligation as of December 31, 2017 and 2016 exceeded the fair value of plan assets (in millions):
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| December 31, | |||||||||
| 2017 |
| 2016 | December 31, | ||||||
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| 2020 | 2019 | |||
Accumulated benefit obligation | $ | 3,555 |
| $ | 3,285 | $ | 4,247 | $ | 3,904 | |
Fair value of plan assets | $ | 3,025 |
| $ | 2,786 | $ | 3,603 | $ | 3,178 |
In 2017,2020 and 2019, the fair value of plan assets exceeded the accumulated benefit obligation for one of the Taiwan, the United Kingdom and the South Korea pension plans.
The change in benefit obligation and funded status of our postretirement plans are as follows (in millions):
Postretirement benefits | |||||
December 31, | 2020 | 2019 | |||
Change in benefit obligation | |||||
Benefit obligation at beginning of year | $ | 705 | $ | 699 | |
Service cost | 9 | 9 | |||
Interest cost | 20 | 27 | |||
Plan participants’ contributions | 8 | 8 | |||
Plan amendments | 5 | ||||
Actuarial loss (gain) | 58 | 6 | |||
Other | 2 | 1 | |||
Benefits paid | (38) | (50) | |||
Benefit obligation at end of year | $ | 764 | $ | 705 | |
Change in plan asset | |||||
Fair value of plan assets at beginning of year | $ | — | |||
Employer contributions | 60 | ||||
Plan participants' contributions | 8 | ||||
Gross benefits paid | (38) | ||||
Fair value of plan assets at end of year | $ | 30 | |||
Funded status at end of year | |||||
Fair value of plan assets | $ | 30 | |||
Benefit obligations | (764) | $ | (705) | ||
Funded status of plans | $ | (734) | $ | (705) | |
Amounts recognized in the consolidated balance sheets consist of: | |||||
Current liability | $ | (7) | $ | (34) | |
Noncurrent liability | (727) | (671) | |||
Recognized liability | $ | (734) | $ | (705) | |
Amounts recognized in accumulated other comprehensive income consist of: | |||||
Net actuarial loss | $ | 86 | $ | 28 | |
Prior service credit | (26) | (32) | |||
Amount recognized at end of year | $ | 60 | $ | (4) |
An actuarial loss of $58 million was recognized in 2020 due to current year decreases in bond yields, leading to a weighted-average discount rate that was 72 basis points lower than the prior year. In 2019, an actuarial loss of $6 million was recognized due to decreases in bond yields during the year, leading to a weighted-average discount rate that was 92 basis points lower than the prior year.
13.Employee Retirement Plans (continued)
The components of net periodic benefit cost for our employee retirement plans followare presented in the following tables (in millions):
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| ||||||||||||||||||||||||||
| Total pension benefits |
| Domestic pension benefits |
| International pension benefits | Total pension benefits | Domestic pension benefits | International pension benefits | ||||||||||||||||||||||||||||||||||||||||||||
December 31, | 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||
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Service cost | $ | 92 |
| $ | 85 |
| $ | 90 |
| $ | 66 |
| $ | 61 |
| $ | 64 |
| $ | 26 |
| $ | 24 |
| $ | 26 | $ | 118 | $ | 101 | $ | 103 | $ | 92 | $ | 76 | $ | 78 | $ | 26 | $ | 25 | $ | 25 | ||||||||
Interest cost |
| 126 |
|
| 124 |
|
| 144 |
|
| 112 |
|
| 111 |
|
| 126 |
|
| 14 |
|
| 13 |
|
| 18 | 122 | 148 | 132 | 110 | 133 | 116 | 12 | 15 | 16 | |||||||||||||||||
Expected return on plan assets |
| (174) |
|
| (165) |
|
| (178) |
|
| (163) |
|
| (153) |
|
| (166) |
|
| (11) |
|
| (12) |
|
| (12) | (195) | (171) | (189) | (186) | (161) | (178) | (9) | (10) | (11) | |||||||||||||||||
Amortization of prior service |
| 5 |
|
| 6 |
|
| 6 |
|
| 6 |
|
| 6 |
|
| 7 |
|
| (1) |
|
|
|
|
| (1) | ||||||||||||||||||||||||||
Amortization of prior service | 5 | 6 | 6 | 6 | 7 | 7 | (1) | (1) | (1) | |||||||||||||||||||||||||||||||||||||||||||
Recognition of actuarial loss |
| 21 |
|
| 67 |
|
| 165 |
|
| 18 |
|
| 55 |
|
| 162 |
|
| 3 |
|
| 12 |
|
| 3 | 22 | 90 | 145 | 12 | 66 | 143 | 10 | 24 | 2 | |||||||||||||||||
Total net periodic benefit expense | $ | 72 | $ | 174 | $ | 197 | $ | 34 | $ | 121 | $ | 166 | $ | 38 | $ | 53 | $ | 31 | ||||||||||||||||||||||||||||||||||
Settlement charge |
|
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| 1 |
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|
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| 1 |
|
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|
|
|
|
|
| (1) | (1) | ||||||||||||||||||||||||
Total net periodic benefit cost | $ | 70 |
| $ | 118 |
| $ | 227 |
| $ | 39 |
| $ | 81 |
| $ | 193 |
| $ | 31 |
| $ | 37 |
| $ | 34 | ||||||||||||||||||||||||||
Special termination benefit charge | 8 | 6 | 8 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total expense | $ | 80 | $ | 180 | $ | 196 | $ | 42 | $ | 127 | $ | 166 | $ | 38 | $ | 53 | $ | 30 | ||||||||||||||||||||||||||||||||||
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Other changes in plan assets and |
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Other changes in plan assets and | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Curtailment effects | $ | (4) | $ | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||
Settlements |
|
|
| $ | (2) |
| $ | (1) |
|
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| $ | (2) |
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| $ | (1) | $ | 1 | $ | 1 | ||||||||||||||||||||||
Current year actuarial (gain) loss | $ | (30) |
|
| 84 |
|
| 191 |
| $ | (8) |
|
| 63 |
| $ | 189 |
| $ | (22) |
| $ | 21 |
|
| 2 | ||||||||||||||||||||||||||
Current year actuarial loss (gain) | 83 | $ | 88 | 180 | $ | 94 | $ | 47 | $ | 182 | (11) | $ | 41 | (2) | ||||||||||||||||||||||||||||||||||||||
Recognition of actuarial loss |
| (21) |
|
| (64) |
|
| (165) |
|
| (18) |
|
| (55) |
|
| (162) |
|
| (3) |
|
| (9) |
|
| (3) | (22) | (90) | (145) | (12) | (66) | (143) | (10) | (24) | (2) | |||||||||||||||||
Amortization of prior service |
| (5) |
|
| (6) |
|
| (6) |
|
| (6) |
|
| (6) |
|
| (7) |
|
| 1 |
|
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|
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| 1 | ||||||||||||||||||||||||||
Total recognized in other | $ | (56) |
| $ | 12 |
| $ | 19 |
| $ | (32) |
| $ |
|
| $ | 20 |
| $ | (24) |
| $ | 12 |
| $ | (1) | ||||||||||||||||||||||||||
Current year prior service cost | 1 | 20 | 1 | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service | (5) | (6) | (6) | (6) | (7) | (7) | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||
Total recognized in other | $ | 53 | $ | (8) | $ | 50 | $ | 77 | $ | (26) | $ | 52 | $ | (24) | $ | 18 | $ | (2) | ||||||||||||||||||||||||||||||||||
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| Postretirement benefits | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 | Postretirement benefits | |||||||||||
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| 2020 | 2019 | 2018 | ||||||
Service cost |
| $ | 10 |
| $ | 9 |
| $ | 13 | $ | 9 | $ | 9 | $ | 10 | |||
Interest cost |
|
| 26 |
| 26 |
| 33 | 20 | 27 | 24 | ||||||||
Amortization of net (loss) gain |
|
| (1) |
| (1) |
| 3 | |||||||||||
Amortization of prior service credit |
|
| (3) |
| (4) |
| (7) | (5) | (7) | (7) | ||||||||
Amortization of actuarial loss (gain) | 1 | (1) | ||||||||||||||||
Total net periodic benefit expense |
| $ | 32 |
| $ | 30 |
| $ | 42 | $ | 25 | $ | 28 | $ | 27 | |||
Special termination benefit charge | 1 | 1 | ||||||||||||||||
Total expense | $ | 26 | $ | 29 | $ | 27 | ||||||||||||
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Other changes in plan assets and benefit obligations recognized in |
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Other changes in plan assets and benefit obligations | ||||||||||||||||||
Current year actuarial loss (gain) |
| $ | 17 |
| $ | 15 |
| $ | (96) | $ | 58 | $ | 6 | $ | (47) | |||
Amortization of actuarial gain (loss) |
|
| 1 |
| 1 |
| (3) | |||||||||||
Amortization of actuarial (loss) gain | (1) | 1 | ||||||||||||||||
Current year prior service cost (credit) | 5 | (40) | ||||||||||||||||
Amortization of prior service credit |
|
| 3 |
| 5 |
| 7 | 5 | 7 | 7 | ||||||||
Total recognized in other comprehensive loss (income) |
| $ | 21 |
| $ | 21 |
| $ | (92) | $ | 62 | $ | 19 | $ | (80) | |||
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| |||||||||||
Total recognized in net periodic benefit cost and other comprehensive |
| $ | 53 |
| $ | 51 |
| $ | (50) |
13.Employee Retirement Plans (continued)
The Company expects to recognize $6 million of net prior service cost as a component of net periodic pension cost in 2018 for its defined benefit pension plans. The Company expects to recognize no net actuarial gain and $3 million of net prior service credit as components of net periodic postretirement benefit cost other than the service cost component are included in 2018.the line item other expense, net, in the consolidated statements of income.
Corning uses a hypothetical yield curve and associated spot rate curve to discount the plan’s projected benefit payments. Once the present value of projected benefit payments is calculated, the suggested discount rate is equal to the level rate that results in the same present value. The yield curve is based on actual high-quality corporate bonds across the full maturity spectrum, which also includes private placements as well as Eurobondsand eurobonds that are denominated in U.S. currency. The curve is developed from yields on approximately 350-375hundreds of bonds from four grading sources, Moody’s, S&P, Fitch and the Dominion Bond Rating Service. A bond will be included if at least half of the grades from these sources are Aa, non-callable bonds. The very highest 10% yields and the lowest 40% yields are excluded from the curve to eliminate outliers in the bond population.
Mortality is one of the key assumptions used in valuing liabilities of retirement plans. It is used to assign a probability of payment for future plan benefits that are contingent upon participants’ survival. To make this assumption, benefit plan sponsors typically use a base mortality table and an improvement scale that adjusts theto mortality rates of mortality for future anticipated changes to historical death rates.
As of December 31, 2020, Corning last revised its mortality assumption for its U.S. benefits plans at year-end 2014 subsequent to the Society of Actuaries publication of the RP-2014 base mortality tables and MP-2014 mortality improvement scales. At that time, a review of Corning’s actual mortality experience for its retiree population was undertaken and consideration given to Corning’s view of future mortality improvements. As a result of that study, Corning adopted the RP-2014 base mortality tables (white collar table for its non-union population and blue collar table for its union population) with adjustments to those tables that would calibrate for Corning’s experience to the extent credible. Based on Corning’s view of future mortality experience, it adopted the BB-2D mortality improvement scale as it felt that scale represented the best available data to predict future improvement experience.
In 2017, Corning refreshed its analysis of its own retiree mortality experience. As a result of that review, Corning decided to updateupdated the adjustment factors applied to its base mortality assumption (RP-2014(PRI-2012 white collar table and RP-2014PRI-2012 blue collar table for non-union and union participants, respectively) to value its U.S. benefit plan obligations as of December 31, 2017.2020. In addition, asCorning also updated to the MP-2020 projection scale at year-end 2020. As the Society of Actuaries has publishedpublishes additional mortality improvement scales (MP-2015, MP-2016(i.e. MP-2020) and MP-2017)base mortality tables (i.e. PRI-2012), each year Corning has consideredconsiders these revised improvement scalesschedules in setting its future mortality improvement assumption. As of December 31, 2017, Corning decided to update its future improvement scale to the MP-2017 scale.
assumptions. Furthermore, Corning has updated for the year ended 2020 the mortality assumption applied to disabled participants to be the RP-2014PRI-2012 disabled mortality base table with future improvements using MP-2017. MP-2020.
Beginning with the December 31, 2015 valuation of its defined benefit pension and OPEB plans, Corning changed its methodology of determining the service and interest cost components of net periodic pension and other postretirement benefit costs to a more granular approach. Under the new approach the cash flows from each applicable pension and OPEB plan will be used to directly calculate the benefit obligation, service cost and interest cost using the spot rates from the applicable yield curve.
Moving to a more granular approach has a limited impact on the determination of the respective benefit obligations. The only impacts will be as a result of the elimination of the rounding of the discount rate that occurred in the traditional approach and the use of specific cash flows for Corning’s non-qualified pension plans, while separately applying the yield curve to each separate OPEB plan instead of aggregating the OPEB plan cash flows. This change will result in a decrease in the interest cost and service cost components of net periodic pension and OPEB costs. For the year ended December 31, 2017, net periodic pension and OPEB costs will be lower by approximately $23 million and $5 million, respectively, due to this change. For Corning’s pension plans, this change will increase the immediate recognition of actuarial losses (or decrease the immediate recognition of actuarial gains), due to Corning’s previous election to immediately recognize actuarial gains and losses outside of the corridor. For Corning’s OPEB plans, this change will increase the accumulated other comprehensive income (AOCI) account balance due to the accumulation of lower actuarial gains or higher actuarial losses. Over time, the amortization of the actuarial losses from AOCI will begin to reduce the savings from the lower interest cost and service cost.
This change is a change in accounting estimate and therefore applied prospectively (beginning with the next measurement date of December 31, 2015). No restatement of prior periods is required.
13.Employee Retirement Plans (continued)
Measurement of postretirement benefit expense is based on assumptions used to value the postretirement benefit obligation at the beginning of the year.
The weighted-average assumptions used to determine benefit obligations at December 31, follow:2020 were as follows:
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| Pension benefits |
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| Pension benefits | |||||||||||||||||||||||||||||||||||||||||
| Domestic |
| International |
| Postretirement benefits | Domestic | International | Postretirement benefits | ||||||||||||||||||||||||||||||||||||||||||||
| 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||
Discount rate | 3.58 | % |
| 4.01 | % |
| 4.24 | % |
| 1.93 | % |
| 2.29 | % |
| 3.23 | % |
| 3.63 | % |
| 4.07 | % |
| 4.31 | % | 2.50 | % | 3.28 | % | 4.28 | % | 1.02 | % | 1.34 | % | 1.96 | % | 2.69 | % | 3.41 | % | 4.33 | % | ||||||||
Rate of compensation increase | 3.50 | % |
| 3.50 | % |
| 3.50 | % |
| 2.81 | % |
| 3.97 | % |
| 3.92 | % |
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| 4.16 | % | 3.50 | % | 3.50 | % | 3.55 | % | 2.96 | % | 2.96 | % | ||||||||||||||
Cash balance crediting rate | 3.84 | % | 3.94 | % | 3.94 | % | 0.94 | % | 0.97 | % | 0.97 | % | ||||||||||||||||||||||||||||||||||||||||
Employee contributions crediting rate | 0.62 | % | 2.03 | % | 3.47 | % |
The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 follow:were as follows:
Pension benefits | ||||||||||||||||||||||||||
Domestic | International | Postretirement benefits | ||||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||||
Discount rate | 3.28 | % | 4.28 | % | 3.58 | % | 1.34 | % | 1.96 | % | 1.93 | % | 3.41 | % | 4.33 | % | 3.63 | % | ||||||||
Expected return on plan assets | 6.00 | % | 6.00 | % | 6.00 | % | 1.71 | % | 2.01 | % | 2.13 | % | ||||||||||||||
Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | 2.96 | % | 2.96 | % | 2.81 | % | ||||||||||||||
Cash balance crediting rate | 3.94 | % | 3.94 | % | 3.94 | % | 0.97 | % | 0.97 | % | 1.00 | % | ||||||||||||||
Employee contributions crediting rate | 2.03 | % | 3.47 | % | 2.62 | % |
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| Pension benefits |
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| Domestic |
| International |
| Postretirement benefits | |||||||||||||||||||||
| 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 |
| 2017 |
| 2016 |
| 2015 | |||||||||
Discount rate | 4.01 | % |
| 4.24 | % |
| 4.00 | % |
| 2.29 | % |
| 3.23 | % |
| 3.21 | % |
| 4.06 | % |
| 4.31 | % |
| 4.00 | % |
Expected return on plan assets | 6.00 | % |
| 6.00 | % |
| 6.00 | % |
| 3.97 | % |
| 3.92 | % |
| 2.97 | % |
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Rate of compensation increase | 3.50 | % |
| 3.50 | % |
| 3.50 | % |
| 2.06 | % |
| 2.89 | % |
| 3.88 | % |
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The assumed rate of return was determinedExpected long-term returns on plan assets is based on long-term expectations for future returns informed by historical data in conjunction with the current interest rate environment and historical market premiums relative to fixed income rates of equities and other asset classes.investment policies further described within “Plan Assets” below. Reasonableness of the results is tested using models provided by the plan actuaries.
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Assumed health care trend rates at December 31 | 2017 |
| 2016 | 2020 | 2019 | |
Health care cost trend rate assumed for next year | 6.50% |
| 6.75% | 6.50% | 6.75% | |
Rate that the cost trend rate gradually declines to | 5% |
| 5% | 5% | 5% | |
Year that the rate reaches the ultimate trend rate | 2024 |
| 2024 | 2027 | 2027 |
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions):
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| One-percentage-point |
| One-percentage-point | ||
Effect on annual total of service and interest cost (credit) | $ | 3 |
| $ | (3) |
Effect on postretirement benefit obligation | $ | 57 |
| $ | (47) |
Plan Assets
Corning’s expected long-term rates ofThe Company’s primary objective is to ensure the plan has sufficient return on plan assets reflectto fund the average rates of earnings expected on the funds invested to provide for the benefits included in our domesticplan’s current and international projected benefit obligations. We based these rates on asset/liability forecast modeling, which is based on our current asset allocation, the return and standard deviation for each asset class, current market conditions and transitions from current conditions to long-term returns.
The Company’s overall investment strategy is to obtain sufficient return to offset or exceed inflation and provide adequate liquidity to meet the benefitfuture obligations of the pension plan.as they become due. Investments are primarily made in public securities to ensure adequate liquidity to support benefit payments. Domestic and international stocks and bonds provide diversification to the portfolio. The target allocation range for global equity investment is 20%-25%40% which includes large, mid and small capsmall-cap companies and investments in both developed and emerging markets. The target allocation for bond investments is 60%, which predominately includes corporate bonds. Long durationLong-duration fixed income assets are utilized to mitigate the sensitivity of funding ratios to changes in interest rates. The target allocation range for non-public investments in private equity and real estate is 5%-15%, and is used to enhance returns and offer additional asset diversification. The target allocation range for commodities is 0%-5%, which provides some inflation protection to the portfolio.
13.Employee Retirement Plans (continued)
The following tables provide fair value measurement information for the Company’s major categories; Level 1 (quoted market prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of our domestic defined benefit plan assets:
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| December 31, 2017 |
| December 31, 2016 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
(in millions) | Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equity securities: |
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U.S. companies | $ | 374 |
| $ | 57 |
| $ | 317 |
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| $ | 318 |
| $ | 47 |
| $ | 271 |
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| $ | 781 | $ | 1 | $ | 780 | $ | 494 | $ | 2 | $ | 492 | |||||||||||
International companies |
| 420 |
|
| 117 |
|
| 303 |
|
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| 340 |
|
| 90 |
|
| 250 |
|
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| 441 | 441 | 387 | 387 | ||||||||||||||||||||
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Fixed income: |
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U.S. treasury bonds | 147 | 147 | ||||||||||||||||||||||||||||||||||||||||||||
U.S. corporate bonds |
| 1,815 |
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| 197 |
|
| 1,618 |
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| 1,608 |
|
| 175 |
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| 1,433 |
|
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| 1,951 | 1,951 | 2,017 | 226 | 1,791 | |||||||||||||||||||
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Preferred securities | 11 | 11 | ||||||||||||||||||||||||||||||||||||||||||||
Private equity (1) |
| 105 |
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| $ | 105 |
| 137 |
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| $ | 137 | 51 | $ | 51 | 64 | $ | 64 | ||||||||||||||||||
Real estate (2) |
| 147 |
|
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| 147 |
| 150 |
|
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| 150 | 140 | 140 | 145 | 145 | ||||||||||||||||||||
Cash equivalents |
| 21 |
|
| 21 |
|
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| 100 |
|
| 100 |
|
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| 83 | 83 | 46 | 46 | ||||||||||||||||||||
Commodities (3) |
| 122 |
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| 122 |
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| 112 |
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| 112 |
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Total | $ | 3,004 |
| $ | 392 |
| $ | 2,360 |
| $ | 252 |
| $ | 2,765 |
| $ | 412 |
| $ | 2,066 |
| $ | 287 | $ | 3,605 | $ | 231 | $ | 3,183 | $ | 191 | $ | 3,153 | $ | 274 | $ | 2,670 | $ | 209 |
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(1)This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in U.S. companies. The inputs are valued by discounted cash flow analysis and comparable sale analysis.
(2)This category includes industrial, office, apartments, hotels, infrastructure and retail investments which are limited partnerships predominately in the U.S. The inputs are valued by discounted cash flow analysis; comparable sale analysis and periodic external appraisals.
The following tables provide fair value measurement information for the Company’s major categories; Level 1 (quoted market prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of our international defined benefit plan assets:
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| December 31, 2017 |
| December 31, 2016 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
(in millions) | Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equity securities: |
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U.S. companies | $ | 8 |
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| $ | 8 |
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| $ | 7 |
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| $ | 7 |
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International companies |
| 29 |
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| 29 |
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| 26 |
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| 26 |
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Fixed income: |
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International fixed income |
| 440 |
| $ | 367 |
|
| 73 |
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| 385 |
| $ | 321 |
|
| 64 |
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| $ | 519 | $ | 426 | $ | 93 | $ | 455 | $ | 373 | $ | 82 | ||||||||||||
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Insurance contracts |
| 2 |
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| $ | 2 |
| 2 |
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| $ | 2 | 3 | $ | 3 | 2 | $ | 2 | ||||||||||||||||||
Mortgages |
| 16 |
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| 16 |
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| 20 | 20 | 21 | 21 | ||||||||||||||||||||
Cash equivalents |
| 40 |
|
| 40 |
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| 40 |
|
| 40 |
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| 56 | 56 | 40 | 40 | ||||||||||||||||||||
Total | $ | 535 |
| $ | 407 |
| $ | 110 |
| $ | 18 |
| $ | 460 |
| $ | 361 |
| $ | 97 |
| $ | 2 | $ | 598 | $ | 482 | $ | 93 | $ | 23 | $ | 518 | $ | 413 | $ | 82 | $ | 23 |
13.Employee Retirement Plans (continued)
The tables below setfollowing table sets forth a summary of changes in the fair value of the defined benefit plans Level 3 assets for the years ended December 31, 2017 and 2016:assets:
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| Level 3 assets – Domestic |
| Level 3 assets – International | ||||||||
| Year ended December 2017 |
| Year ended December 2017 | ||||||||
(in millions) | Private |
| Real |
| Mortgages |
| Insurance | ||||
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Beginning balance at December 31, 2016 | $ | 137 |
| $ | 150 |
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| $ | 2 |
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Actual return on plan assets relating to assets still held |
| 7 |
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| 6 |
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Transfers in and/or out of level 3 |
| (39) |
|
| (9) |
| $ | 16 |
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Ending balance at December 31, 2017 | $ | 105 |
| $ | 147 |
| $ | 16 |
| $ | 2 |
Level 3 assets – domestic | Level 3 assets – international | ||||||||||
(in millions) | Private | Real | Mortgages | Insurance | |||||||
Balance at December 31, 2018 | $ | 82 | $ | 148 | $ | 22 | $ | 2 | |||
Actual return on plan assets relating to assets | 2 | ||||||||||
Transfers in or out of level 3 | (18) | (5) | (1) | ||||||||
Balance at December 31, 2019 | $ | 64 | $ | 145 | $ | 21 | $ | 2 | |||
Actual return on plan assets relating to assets | 4 | ||||||||||
Transfers in or out of level 3 | (17) | (5) | (1) | 1 | |||||||
Balance at December 31, 2020 | $ | 51 | $ | 140 | $ | 20 | $ | 3 |
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| Level 3 assets – Domestic |
| Level 3 assets – International | ||||||||
| Year ended December 2016 |
| Year ended December 2016 | ||||||||
(in millions) | Private |
| Real |
| Mortgages |
| Insurance | ||||
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Beginning balance at December 31, 2015 | $ | 163 |
| $ | 61 |
| $ | 2 |
| $ | 3 |
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Actual return on plan assets relating to assets still held |
| 14 |
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| (7) |
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Transfers in and/or out of level 3 |
| (40) |
|
| 96 |
|
| (2) |
|
| (1) |
Ending balance at December 31, 2016 | $ | 137 |
| $ | 150 |
| $ |
|
| $ | 2 |
Credit Risk
60%58% of domestic plan assets are invested in long duration bonds. The average rating for these bonds is A.A-. These bonds are subject to both credit and default risk such that a declineand changes in credit ratings for the underlying companies, countries or assets (for asset-backed securities) would result inrisk could lead to a decline in the value of thethese bonds. These bonds are also subject to default risk.
Currency Risk
14%12% of domestic assets are valued in non-U.S. dollar denominated investments that are subject to currency fluctuations. The value of these securities will decline if the U.S. dollar increases in value relative to the value of the currencies in which these investments are denominated.
Liquidity Risk
8%5% of the domestic securities are invested in Level 3 securities. These are long-term investments in private equity and private real estate investments that may not mature or be sellable in the near-term without significant loss.
At December 31, 20172020 and 2016,2019, the amount of Corning common stock included in equity securities was not significant.
Cash Flow Data
In 2018, we expect to make voluntary cash contributions of approximately $106 million to our domestic defined benefit plan and expect to make voluntary contributions of approximately $27 million to our international defined benefit plans.
13.Employee Retirement Plans (continued)
The following reflects the gross benefit payments that are expected to be paid for our domestic and international defined benefit pension plans and the postretirement medical and life plans and the gross amount of annual Medicare Part D federal subsidy expected to be received (in millions):
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| Expected benefit payments |
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| |||||||
| Domestic |
| International |
| Postretirement |
| Expected federal | ||||
2018 | $ | 191 |
| $ | 23 |
| $ | 41 |
| $ | 3 |
2019 | $ | 195 |
| $ | 28 |
| $ | 41 |
| $ | 3 |
2020 | $ | 201 |
| $ | 30 |
| $ | 41 |
| $ | 3 |
2021 | $ | 210 |
| $ | 30 |
| $ | 41 |
| $ | 3 |
2022 | $ | 215 |
| $ | 33 |
| $ | 42 |
| $ | 3 |
2023-2027 | $ | 1,180 |
| $ | 192 |
| $ | 209 |
| $ | 16 |
Expected benefit payments | ||||||||
Domestic | International | Postretirement | ||||||
2021 | $ | 216 | $ | 25 | $ | 37 | ||
2022 | $ | 221 | $ | 31 | $ | 37 | ||
2023 | $ | 231 | $ | 30 | $ | 37 | ||
2024 | $ | 238 | $ | 32 | $ | 37 | ||
2025 | $ | 247 | $ | 35 | $ | 37 | ||
2026-2030 | $ | 1,312 | $ | 219 | $ | 188 |
Other Benefit Plans
We offerCorning offers defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense was $60 $76million, $53$108 million and $62$67 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
14.Commitments, Contingencies and Guarantees
The amounts of our obligations follow (in millions):
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| Amount of commitment and contingency expiration per period | ||||||||||
| Total |
| Less than |
| 1 to 3 |
| 3 to 5 |
| 5 years and | |||||
Performance bonds and guarantees | $ | 198 |
| $ | 88 |
| $ | 3 |
| $ | 1 |
| $ | 106 |
Stand-by letters of credit (1) |
| 75 |
|
| 62 |
|
| 9 |
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|
| 4 |
Credit facility to equity company |
| 10 |
|
| 10 |
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Subtotal of commitment expirations per period | $ | 283 |
| $ | 160 |
| $ | 12 |
| $ | 1 |
| $ | 110 |
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Purchase obligations (2) | $ | 265 |
| $ | 142 |
| $ | 72 |
| $ | 21 |
| $ | 30 |
Capital expenditure obligations (3) |
| 583 |
|
| 583 |
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Total debt (4) |
| 4,749 |
|
| 375 |
|
| 550 |
|
| 437 |
|
| 3,387 |
Interest on long-term debt (5) |
| 3,437 |
|
| 195 |
|
| 359 |
|
| 314 |
|
| 2,569 |
Capital leases and financing obligations |
| 406 |
|
| 4 |
|
| 9 |
|
| 11 |
|
| 382 |
Imputed interest on capital leases and |
| 233 |
|
| 19 |
|
| 40 |
|
| 39 |
|
| 135 |
Minimum rental commitments |
| 563 |
|
| 74 |
|
| 122 |
|
| 91 |
|
| 276 |
Amended PCC Plan |
| 220 |
|
| 35 |
|
| 85 |
|
| 100 |
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|
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Uncertain tax positions (6) |
| 54 |
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Subtotal of contractual obligation payments due | $ | 10,510 |
| $ | 1,427 |
| $ | 1,237 |
| $ | 1,013 |
| $ | 6,779 |
Total commitments and contingencies (6) | $ | 10,793 |
| $ | 1,587 |
| $ | 1,249 |
| $ | 1,014 |
| $ | 6,889 |
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14.Commitments, Contingencies and Guarantees (continued)
WeThe amounts of obligations are as follows (in millions):
Amount of commitment and contingency expiration per period | ||||||||||||||
Total | Less than | 1 to 3 | 3 to 5 | 5 Years and | ||||||||||
Performance bonds and guarantees | $ | 152 | $ | 5 | $ | 30 | $ | 2 | $ | 115 | ||||
Stand-by letters of credit (1) | 82 | 51 | 28 | 2 | 1 | |||||||||
Subtotal of commitment expirations | $ | 234 | $ | 56 | $ | 58 | $ | 4 | $ | 116 | ||||
Purchase obligations (2) | $ | 966 | $ | 180 | $ | 223 | $ | 120 | $ | 443 | ||||
Capital expenditure obligations (3) | 231 | 231 | ||||||||||||
Debentures (4) | 7,182 | 62 | 670 | 300 | 6,150 | |||||||||
Finance leases and financing obligations | 846 | 94 | 134 | 188 | 430 | |||||||||
Interest on debentures (5) | 8,634 | 290 | 553 | 524 | 7,267 | |||||||||
Imputed interest on finance leases and | 287 | 31 | 58 | 42 | 156 | |||||||||
Operating lease obligations | 1,307 | 141 | 239 | 194 | 733 | |||||||||
Uncertain tax positions (6) | 35 | 35 | ||||||||||||
Subtotal of contractual obligation | $ | 19,488 | $ | 1,064 | $ | 1,877 | $ | 1,368 | $ | 15,179 | ||||
Total commitments and contingencies | $ | 19,722 | $ | 1,120 | $ | 1,935 | $ | 1,372 | $ | 15,295 |
(1)At December 31, 2020, the Company had stand-by letters of credit commitments of $121 million; $39 million was included in other accrued liabilities on the consolidated balance sheets.
(2)Purchase obligations are enforceable and legally binding obligations which primarily consist of raw material and energy-related take-or-pay contracts.
(3)Capital expenditure obligations primarily reflect amounts associated with capital expansion activities.
(4)Debentures are stated at maturity value and excludes interest rate swap gains or losses and bond discounts.
(5)The estimate of interest payments assumes interest is paid through the date of maturity or expiration of the related debt, based upon stated rates in the respective debt instruments.
(6)At December 31, 2020, $35 million was included on the consolidated balance sheets related to uncertain tax positions.
The Company is required, at the time a guarantee is issued, to recognize a liability for the fair value or market value of the obligation it assumes. In the normal course of our business, we dothe Company does not routinely provide significant third-party guarantees. Generally, third-party guarantees provided by Corning are limited to certain financial guarantees, including stand-by letters of credit and performance bonds, and the incurrence of contingent liabilities in the form of purchase price adjustments related to attainment of milestones. These guarantees have various terms, and none of these guarantees are individually significant.
We believe The Company believes a significant majority of these guarantees and contingent liabilities will expire without being funded.
Minimum rental commitments under leases outstanding at December 31, 2017 follow (in millions):
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| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023 and | ||||||
| $ | 74 |
| $ | 65 |
| $ | 57 |
| $ | 49 |
| $ | 42 |
| $ | 276 |
Total rental expense was $135 million for 2017, $105 million for 2016 and $94 million for 2015.
Product warranty liability accruals at December 31, 20172020 and 2016 are2019 were insignificant.
The ability of certain subsidiaries and affiliated companies to transfer funds is limited by provisions of foreign government regulations, affiliate agreements and certain loan agreements. At December 31, 2017,2020, the amount of equity subject to such restrictions for consolidated subsidiaries and affiliated companies was not significant. While this amount is legally restricted, it does not result in operational difficulties since we havethe Company has generally permitted subsidiaries to retain a majority of equity to support their growth programs.
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.
Asbestos Claims
Corning and PPG Industries, Inc. each owned 50% of the capital stock of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11 reorganization in 2000 and the Modified Third Amended Plan of Reorganization for PCC (the “Plan”) became effective in April 2016. At December 31, 2015,2016, the Company’s liability under the Plan was estimated$290 million, which was required to be $528 million. At December 31, 2016, this estimated liability was $290 million, due to the Company’s contribution,paid through a series of fixed payments beginning in the second quarter of 2016,2017. Payments of its equity interests in PCC$130 million and Pittsburgh Corning Europe N.V.$50 million were made in the total amount of $238 million, as required by the Plan. Corning recognized a gain of $56 million in the second quarter of 2016 in the selling, general and administrative expenses line of the Company’s Consolidated Statements of (Loss) Income for the difference between the fair value of the asbestos litigation liability and carrying value of the investment. This gain includes the release of foreign translation losses in the amount of $25 million reclassified from accumulated other comprehensive income. The remaining $290 million liability is for the series of fixed payments required by the Plan. Atyears ended December 31, 2017, the liability was reduced to $220 million due to a cash payment2020 and 2019, respectively. As of $70 million in the second quarter of 2017, as required by the Plan. The total amount of the payments due in years 2019 through 2022 is $185 million and is classified as a non-current liability at December 31, 2017. The remaining $35 million payment2020, there is due in the second quarter of 2018 and is classified as a current liability. 0 further liability associated with this plan.
Non-PCC Asbestos LitigationClaims
Corning is a defendant in certain cases alleging personal injuries from exposureasbestos unrelated to asbestos. Corning hasPCC (the “non-PCC asbestos claims”) which had been defendingstayed pending the claims in these cases, which are covered in part by insurance, without material impact to Corning to date. Corning previously established a $150 millionconfirmation of the Plan. The stay was lifted on August 25, 2016. At December 31, 2020 and 2019, the amount of the reserve for these non-PCC asbestos claims.claims was estimated to be $96 million and $98 million, respectively. The estimated reserve balance as of December 31, 2020 and 2019 represents the undiscounted projection of claims and related legal fees. The amount may need to be adjusted in future periods as more data becomes available; however, we cannot estimate any lesser or greater liabilities at this time.
14.Commitments, Contingencies and Guarantees (continued)
Asbestos Claims Insurance Litigation
Several of Corning’s insurers have commenced litigation in state courtsfees for a declarationthe estimated life of the rights and obligations of the parties under insurance policies related to asbestos claims. Corning has resolved these issues with all of its solvent insurers and some of its insolvent insurers. Corning continues to seek resolution with the remaining insolvent insurers. Management is unable to predict the outcome of the litigation with these remaining insolvent insurers.litigation.
A summary of changes of the estimated litigation liability is as follows (in millions):
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| Equity |
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Fair Value of Asbestos Litigation Liability | $ | 238 |
| $ | 290 |
| $ | 150 |
| $ | 678 |
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Contribution of PCC & PCE Equity Interest - Carrying Value |
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Gain on Contribution of Equity Interests |
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Other adjustments |
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Fair Value of Asbestos Litigation Liability | $ | 0 |
| $ | 290 |
| $ | 149 |
| $ | 439 |
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Fixed payment |
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Other adjustments |
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Asbestos Litigation Liability as of | $ | 0 |
| $ | 220 |
| $ | 147 |
| $ | 367 |
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. In connection with the realignment, Corning retained its indirect ownership interest in the Hemlock Semiconductor Group and acquired HS Upstate, Inc. (now known as Corning Research & Development Corporation) which had been capitalized by Dow Corning with $4.8 billion. Following the realignment, Corning no longer ownsowned any interest in Dow Corning. In connection withWith the realignment, Corning agreed to indemnify Dow Corning for 50% of Dow Corning’s non-ordinary course, pre-closing liabilities to the extent such liabilities exceed the amounts reserved for them by Dow Corning as of May 31, 2016, including two legacy Dow Corning matters: the subject to certain conditions and limits.
Dow Corning Breast Implant Litigation and the Dow Corning Bankruptcy Pendency Interest Claims.
Dow Corning Breast Implant Litigation
In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from many thousands of breast implant product lawsuits. On June 1, 2004, Dow Corning emerged from Chapter 11 with a Plan of Reorganization (the “Plan”) which provided for the settlement or other resolution of implant claims. The Plan also includes releases for Corning and Dow as shareholders in exchange for contributions to the Plan.
Under the terms of the Plan, Dow Corning has established and is fundingfunded a Settlement Trust and a Litigation Facility, referred to above, to provide a means for tort claimants to settle or litigate their claims. Inclusive of insurance, Dow Corning has paid approximately $1.8 billion to the Settlement Trust. As of May 31, 2016, Dow Corning had recorded a reserve for breast implant litigation of $290 million. In the event Dow Corning’s total liability for these claims exceeds such amount, Corning may be required to indemnify Dow Corning for up to 50% of the excess liability.liability, subject to certain conditions and limits. As of December 31, 2020, Dow Corning had recorded a reserve for breast implant litigation of $160 million. As a result, Corning does not believe its indemnity obligation for Dow Corning’s breast implant litigation liability, if any, will be material.
14.Commitments, Contingencies and Guarantees (continued)
Dow Corning Bankruptcy Pendency Interest Claims
As a separate matter arising from the bankruptcy proceedings, Dow Corning ishas been defending claims asserted by a number of commercial creditors who claimclaimed additional compounded interest at default and state statutory judgment rates as well as attorneys’ fees and other enforcement costs, during the period from May 1995 through June 2004. As of December 31, 2017, Dow Corning has estimated the liability to commercial creditors to be within the range of $77 million to $260 million. As of May 31, 2016, Dow Corning had recorded a reserve for these claims of $107 million. Dow Corning settled those claims as of September 30, 2019 and received approval of the settlement from the bankruptcy court. Corning does not believe its indemnity obligation, if any, for Dow Corning’s liability to be material.
Dow Corning Environmental Claims
In September 2019, Dow formally notified Corning of certain environmental matters for which Dow asserts that it has or will experience losses arising from remediation and response at a number of sites. In the event Dow Corning’s liabilityis liable for these claims, exceeds such amount, Corning may be required to indemnify Dow Corning for up to 50% of the excessthat liability, subject to certain conditions and limits. As of December 31, 2020, Corning has determined a potential liability for these environmental matters is probable, and the amount recorded was not material.
Environmental Litigation
Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act, or by state governments
under similar state laws, as a potentially responsible party for 15 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At December 31, 20172020 and December 31, 2016,2019, Corning had accrued approximately $38$68 million (undiscounted) and $43$41 million, (undiscounted), respectively, for the undiscounted estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.
15.Hedging ActivitiesActivities
Corning is exposed to interest rate and foreign currency risks due to the movement of these rates.
The areas in which exchange rate fluctuations affect usthe Company include:
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OurFinancial instruments and transactions denominated in foreign currencies, which impact earnings; and
The translation of net assets in foreign subsidiaries for which the functional currency is not the U.S. dollar.
The most significant foreign currency exposures relateexposure relates to the Japanese yen, South Korean won, Newnew Taiwan dollar, Chinese yuan, the euro and the euro. We seekBritish pound. Corning seeks to mitigate the impact of exchange rate movements in our income statement by using over-the-counter (OTC) derivative instruments including foreign exchange forward and option contracts. In general, these hedges expire coincidenthedge expirations coincide with the timing of the underlying foreign currency commitments and transactions.
15.Hedging Activities (continued)
We areis exposed to potential losses in the event of non-performance by our counterparties to these derivative contracts. However, we minimize this risk is minimized by maintaining oura portfolio with a diverse group of highly-rated major international financial institutions. We doThe Company does not expect to record any losses as a result of suchdue to counterparty default. Neither wethe company nor ourits counterparties are required to post collateral for these financial instruments. The Company qualified for and elected the end-user exception to the mandatory swap clearing requirement of the Dodd-Frank Act.
Cash Flow Hedges
OurCorning’s cash flow hedging activities utilize OTC foreign exchange forward contracts and options to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to foreign customers and purchases from suppliers. The total gross notional values for foreign suppliers. Our cash flow hedging activity also uses interest rate swaps to reduce the risk of increases in benchmark interest rates on the probable issuance of debt and associated interest payments. In the fourth quarter of 2014, the Company entered into interest rate swap agreements to hedge against the variability in cash flows due to changes in the benchmark interest rate related to an anticipated issuance. The instruments were designated as cash flow hedges. In the first quarter of 2015, these interest rate swaps were settled prior to the issuance of the anticipated debt. Because the Company continued to anticipate that the debt issuance would occur, it entered into two interest rate swap agreements in the first quarter of 2015 to hedge against the variability in cash flows due to changes in the benchmark interest rate related to an anticipated issuance. The instruments were designated ascurrency cash flow hedges are $1.1 billion, including net investment hedges of $251 million, and were settled on May 5, 2015. Concurrent$2.1 billion at December 31, 2020 and 2019, respectively, with maturities spanning the settlement of the interest rate swap agreements, Corning issued $375 million of 1.50% senior unsecured notes that mature on May 8, 2018 and $375 million of 2.90% senior unsecured notes that mature on May 15, 2022. years 2021 through 2023.
Corning uses a regression analysis or critical term match method to monitorassess initial hedge effectiveness. Following the inception of a hedging relationship, hedge effectiveness of its cash flow hedges both prospectively and retrospectively. Through December 31, 2017, the hedge ineffectiveness related to these instruments was not material.is assessed quarterly based on qualitative factors. Corning defers net gains and losses related to effective portion ofthe cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheetsheets until such time as the hedged item impacts earnings. At December 31, 2017,2020, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax net gain of $20$35 million.
In Octoberthe first quarter of 2012, we entered2020, a loss of $14 million was reclassified from accumulated other comprehensive loss into two interest rate swaps that are designated as fair value hedges and economically exchange a notional amount of $550 million of previously issued fixed rate long-term debt to floating rate debt. Under the terms of the swap agreements, we pay the counterparty a floating rate that is indexedother expense, net, due to the one-month LIBOR rate.de-designation of certain cash flow hedges related to Japanese yen-denominated sales.
Corning utilizes the long haul method for effectiveness analysis, both retrospectivelyThe effect of cash flow hedges on Coring’s consolidated statements of income and prospectively. The analysis excludes the impact of credit risk from the assessment of hedge effectiveness. The amount recorded in current period earnings in the other (expense)comprehensive income net component, relative to ineffectiveness, is nominalwas not material for the year ended December 31, 2017.2020, 2019 and 2018.
Net gains and losses from fair value hedges and the effects of the corresponding hedged item are recorded on the same line item in the Consolidated Statements of (Loss) Income.
Undesignated Hedges
Corning also uses OTC foreign exchange forward and option contracts that are not designated as hedginghedged instruments for accounting purposes. These contracts are used to offset economic currency risks. The undesignated hedges limit exposuresexposure to foreign functional currency fluctuations related to certain subsidiaries’ monetary assets, monetary liabilities and net earnings in foreign currencies.
A significant portion of the Company’s non-U.S. revenuesrevenue and expenses are denominated in Japanese yen, South Korean won, Newnew Taiwan dollar, Chinese yuan and euro. When this revenue and these revenues and expenses are translated back to U.S. dollars, the Company is exposed to foreign exchange rate movements. To protect translated earnings against movements in these currencies, the Company has entered into a series of average rate forwards and other derivative instruments.
The Company continued to extend its foreign exchange hedge program in 2017table below includes a total gross notional value for translated earnings contracts of $7.5 billion and entered into a series$12.2 billion at December 31, 2020 and 2019, respectively. These include gross notional value for average rate forward contracts of $5.4 billion and $9.7 billion, zero-cost collars and purchased put or call options of $2.0 billion and $2.5 billion at December 31, 2020 and 2019, respectively. The majority of average rate forwards. These willforward contracts hedge a significant portion of its projectedthe Company’s exposure to the Japanese yen exposure forwith maturities spanning the periodyears 2021-2024 and with gross notional values of 2018-2022. As of$4.5 billion and $7.7 billion at December 31, 2017, the U.S. dollar net notional value of the yen average rate forwards program is $12 billion.2020 and 2019, respectively. The average rate forward program wascontracts also expanded to partially hedge the impactimpacts of the South Korean won, NewChinese yuan, euro, new Taiwan dollar Chinese yuan and euroBritish pound translation on the Company’s projected net income. As of December 31, 2017 these average rate forwards have a total notional value of $1 billion. The entire average rate forward program will settle net without obligation to deliver Japanese yen, Korean won, New Taiwan dollar, Chinese yuan and euro.
15.Hedging Activities (continued)
The fair valuevalues of these derivative contracts are recorded as either assets (gain position) or liabilities (loss position) on the Consolidated Balance Sheet.consolidated balance sheets. Changes in the fair value of the derivative contracts are recorded currently in earnings in the Translatedtranslated earnings contract (loss) gain, net line of the Consolidated Statementconsolidated statements of Income.income.
The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for December 31, 20172020 and 2019 (in millions):
Asset derivatives | Liability derivatives | ||||||||||||||||||||
Notional amount | Fair value | Fair value | |||||||||||||||||||
2020 | 2019 | Balance sheet | 2020 | 2019 | Balance sheet | 2020 | 2019 | ||||||||||||||
Derivatives | |||||||||||||||||||||
Foreign exchange | $ | 1,143 | $ | 2,123 | Other current | $ | 37 | $ | 38 | Other accrued | $ | (3) | $ | (7) | |||||||
Other assets | 21 | 37 | Other liabilities | (1) | (4) | ||||||||||||||||
Derivatives not | |||||||||||||||||||||
Foreign exchange | 6,144 | 1,815 | Other current | 45 | 5 | Other accrued | (76) | (19) | |||||||||||||
Other assets | 41 | 21 | Other liabilities | (59) | |||||||||||||||||
Translated earnings | 7,453 | 12,166 | Other current | 66 | 114 | Other accrued | (110) | (74) | |||||||||||||
Other assets | 61 | 34 | Other liabilities | (95) | (161) | ||||||||||||||||
Total derivatives | $ | 14,740 | $ | 16,104 | $ | 271 | $ | 249 | $ | (344) | $ | (265) |
(1)At December 31, 2016 (in millions):2020, the foreign exchange contracts that are designated as hedging instruments include the notional amount $892 million of cash flow hedges and $251 million of net investment hedges.
15.Hedging Activities (continued)
The following tables summarize the effect on the consolidated financial statements relating to Corning’s derivative financial instruments (in millions):
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| Effect of derivative instruments on the consolidated financial statements for the years ended December 31 | ||||||||||||||||||
Derivatives in hedging |
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Cash flow hedges |
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Interest rate hedge |
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Foreign exchange contracts |
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Total cash flow hedges |
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Effect of derivative instruments on the consolidated financial statements for the year ended December 31 | ||||||||||||||||||||
Derivatives in hedging relationships | (Loss) gain recognized in other | Location of (loss) gain reclassified from | (Loss) Gain reclassified from | |||||||||||||||||
for designated hedges | 2020 | 2019 | 2018 | effective (ineffective) | 2020 | 2019 | 2018 | |||||||||||||
Net sales | $ | (6) | ||||||||||||||||||
Interest rate hedge | $ | 16 | Cost of sales | 13 | $ | 11 | $ | 13 | ||||||||||||
Foreign exchange contracts | $ | (19) | $ | 72 | (5) | Other expense, net (1) | (14) | (1) | ||||||||||||
Total designated hedges | $ | (19) | $ | 72 | $ | 11 | $ | (7) | $ | 11 | $ | 12 |
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Undesignated | Location of gain/(loss) |
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Foreign exchange contracts – balance sheet | Translated earnings contract gain (loss), net |
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Foreign exchange contracts – loans | Translated earnings contract (loss) gain, net |
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Translated earnings contracts | Translated earnings contract (loss) gain, net |
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(Loss) Gain recognized in income | ||||||||||
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Foreign exchange and other contracts – | Other (expense) income, net (1) | $ | (93) | $ | 21 | $ | 22 | |||
Translated earnings contracts | Translated earnings contract (loss) gain, net | (38) | 248 | (93) | ||||||
Total undesignated | $ | (131) | $ | 269 | $ | (71) |
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(1)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.
16.Fair Value MeasurementsMeasurements
Fair value standards under U.S. GAAP define fair value, establish a framework for measuring fair value in applying generally accepted accounting principles, and require disclosures about fair value measurements. The standards also identify two kinds of inputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources while unobservable inputs are based on the Company’s own market assumptions. Once inputs have been characterized, the inputs are prioritized into one of three broad levels (provided in the table below) used to measure fair value. Fair value standards apply whenever an entity is measuring fair value under other accounting pronouncements that require or permit fair value measurement and require the use of observable market data when available.
16.Fair Value Measurements (continued)
The following tables provide fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis:
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(1)Derivative assets and liabilities include foreign exchange contracts which are measured using observable inputs for similar assets and liabilities. (2)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 were measured using unobservable (Level 3) inputs. (3)Included in the 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. |
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|
|
|
Other assets (1)(2) | $ | 464 |
|
|
|
| $ | 175 |
| $ | 289 |
Current liabilities: |
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|
|
|
|
|
|
|
|
|
|
Other accrued liabilities (1) | $ | 88 |
|
|
|
| $ | 88 |
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Other liabilities (1)(2) | $ | 282 |
|
|
|
| $ | 282 |
|
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| Level 3 Roll-Forward – Other Assets | ||||
(in millions) |
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Beginning balance |
| $ | 289 |
| $ | 246 |
Unrealized gains |
|
| 11 |
|
| 43 |
Ending balance |
| $ | 300 |
| $ | 289 |
16.Fair Value Measurements (continued)
Fair value measurements at reporting date using | ||||||||||||||
December 31, | Quoted prices in | Significant other | Significant | |||||||||||
(in millions) | 2019 | (Level 1) | (Level 2) | (Level 3) | ||||||||||
Current assets: | ||||||||||||||
Other current assets (1) | $ | 157 | $ | 157 | ||||||||||
Non-current assets: | ||||||||||||||
Other assets (1)(2) | $ | 92 | $ | 71 | $ | 21 | ||||||||
Current liabilities: | ||||||||||||||
Other accrued liabilities (1) | $ | 100 | $ | 100 | ||||||||||
Non-current liabilities: | ||||||||||||||
Other liabilities (1) | $ | 165 | $ | 165 |
As a result(1)Derivative assets and liabilities include foreign exchange contracts which are measured using observable inputs for similar assets and liabilities.
(2)Other assets include one of the acquisition of Samsung Corning Precision Materials in January 2014, the Company has contingent considerationCompany’s renewable energy derivative contracts that was measured using unobservable (Level 3) inputs. Thisinputs, in the amount of $21 million.
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, respectively. For the year ended December 31, 2019, assets and liabilities that were measured using unobservable (Level 3) inputs resulted in unrealized gains recognized in earnings of $21 million for a renewable energy derivative contract and the reversal of a liability for contingent consideration arrangement requires additional consideration to be paid betweenof $20 million.
Assets and Liabilities Measured on a Non-Recurring Basis
For the parties in 2018: one based on projections of future revenues generated by the business of Corning Precision Materials for the period between the acquisition date andyear ended December 31, 2017, which is subject2020, Corning incurred a long-lived asset impairment and disposal loss for an asset group related to a capthe reassessment of $665 million;research and another based ondevelopment programs within “All Other”. Given the volumeseconomic environment and market opportunities, Corning discontinued its investment in these research and development programs. The impairment analysis and disposition of certain sales duringassets resulted in a total pre-tax charge of $217 million, which was substantially all the same period, which is subject to a separate capcarrying value, inclusive of $100 million.an insignificant amount of goodwill. The fair value of the contingent consideration in 2018 inasset group for the amountimpairment analysis was measured using unobservable (Level 3) inputs.
Refer to Note 2 (Restructuring, Impairment and Other Charges and Credits) to the consolidated financial statements for additional information this impairment.
At December 31, 2019, HSG, one of $196 million recognized on the acquisition date was estimated by applying an option pricing model using the Company’s projectionequity method affiliates, recorded an impairment of future revenues generated by Corning Precision Materials. Changesits long-lived assets. HSG engaged a third-party appraiser to assist in determining the fair value of its long-lived assets using unobservable (Level 3) inputs based on the contingent consideration in future periods are valued using an option pricing modelhighest and are recorded in Corning’s results in the periodbest use of the change.
On December 29, 2015, Corning and Samsung Display entered into an agreement pursuant to which Corning exchanged the amountasset group. As a result, HSG recognized pre-tax asset impairment charges of contingent consideration in excess of $300$916 million (net present fair value: $246 million), as consideration for the incremental fair value associated with a number of commercial agreements, including the amendment of its long-term supply agreement with Samsung Display. As ofyear ended December 29, 2015, the net present fair value31, 2019. Corning’s share of the contingent consideration receivablepre-tax impairment was $458$369 million. The net present fair value ofFor the commercial benefit associated with the amended long-term supply agreement exceeds the value exchangedyear ended December 31, 2020, no material asset impairment losses were recognized on a nonrecurring basis by Corning pursuantHSG. Refer to this agreement (net present fair value: $212 million). Consequently, Corning reclassified this amountNote 3 (Investments) to the other asset line ofconsolidated financial statements for additional information.
Fair value measurements (Level 3) related to the Consolidated Balance SheetRedemption are disclosed in Note 4 (HSG Transactions and will amortizeAcquisitions) to the amount over the remaining term of the long-term supply agreement as a reduction in revenue.
As of December 31, 2017, the fair value of the contingent consideration in 2018 was $300 million.
consolidated financial statements. There were no other significant financial assets and liabilities measured on a nonrecurring basis during the years endedas of December 31, 20172020 and 2016.2019.
17.Shareholders’Shareholders’ Equity
Common Stock Dividends
On February 3, 2021, Corning’s Board of Directors declared a 9% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.22 to $0.24 per share of common stock, beginning with the dividend paid in the first quarter of 2021. This increase marks the tenth dividend increase since October 2011.
On February 5, 2020, Corning’s Board of Directors declared a 10% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.20 to $0.22 per share of common stock, beginning with the dividend paid in the first quarter of 2020.
On February 6, 2019, Corning’s Board of Directors declared an 11% increase in the Company’s quarterly common stock dividend, which increased the quarterly dividend from $0.18 to $0.20 per share of common stock, beginning with the dividend paid in the first quarter of 2019.
Fixed Rate Cumulative Convertible Preferred Stock, Series A
On January 15, 2014, Corning designated a new series of its preferred stock as Fixed Rate Cumulative Convertible Preferred Stock, Series A, par value $100 per share, and issued 1,900 shares of Preferred Stockpreferred stock at an issue price of $1$1 million per share, for an aggregate issue price of $1.9 billion, to Samsung Display in connection with the acquisition of its equity interestsinterest in Samsung Corning Precision Materials. Corning also issued to Samsung Display an additional amount of Preferred Stockpreferred stock at closing, for an aggregate issue price of $400 million in cash.
Dividends on the Preferred Stockpreferred stock are cumulative and accrue at the annual rate of 4.25% on the per share issue price of $1$1 million. The dividends are payable quarterly as and when declared by the Company’s Board of Directors. The Preferred Stockpreferred stock ranks senior to our common stock with respect to payment of dividends and rights upon liquidation. The Preferred Stockpreferred stock is not redeemable except in the case of a certain deemed liquidation event, the occurrence of which is under the control of the Company. The Preferred Stockpreferred stock is convertible at the option of the holder, and by the Company upon certain events, at a conversion rate of 50,000 shares of Corning’s common stock per one share of Preferred Stock,preferred stock, subject to certain anti-dilution provisions. As of December 31, 2017,2020, the Preferred Stock haspreferred stock had not been converted, and none of the anti-dilution provisions havehad been triggered. FollowingOn January 16, 2021, the seventh anniversary of the closing of the acquisition of Samsung Corning Precision Materials, the Preferred Stock will bepreferred stock became convertible, in whole or in part, at the option of the holder. The Company has the right, at its option, to cause some or all of the shares of Preferred Stockpreferred stock to be converted into Common Stock,common stock, if, for 25 trading days (whether or not consecutive) within any period of 40 consecutive trading days, the closing price of Common Stockcommon stock exceeds $35 per share. If the aforementioned right becomes exercisable before the seventh anniversary of the closing, the Company must first obtain the written approval of the holders of a majority of the Preferred Stock before exercising its conversion right. The Preferred Stockpreferred stock does not have any voting rights except as may be required by law.
17.Shareholders’ Equity (continued)
Share Repurchases
20152020 Share Repurchases
The Company suspended share buybacks during the first quarter of 2020 and made no share repurchases for the remainder of the year. For the year ended December 31, 2020, the Company repurchased 4.1 million shares of common stock on the open market for approximately $105 million, as part of its 2018 Repurchase Program.
2019 Share Repurchases
On July 15, 2015,17, 2019, Corning’s Board of Directors authorized $5 billion in share repurchases with no expiration date (the “2019 Repurchase Program”). During the year ended December 31, 2019, the Company repurchased 31.0 million shares of common stock on the open market for approximately $925 million as part of its 2018 Repurchase Program.
2018 Share Repurchases
On April 26, 2018, Corning’s Board of Directors approved a $2 billion share repurchase program with no expiration (the “July 2015“2018 Repurchase Program”) and on October 26, 2015 the Board of Directors authorized an additional $4 billion share repurchase program (together with the July 2015 Repurchase Program, the “2015 Repurchase Programs”). The 2015 Repurchase Programs permit Corning to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, advance repurchase agreements and/or other arrangements.
On October 28, 2015, Corning entered into an ASR to repurchase $1.25 billion of Corning’s common stock (the “2015 ASR agreement”). The 2015 ASR was executed under the July 2015 Repurchase Program. Under the 2015 ASR agreement, Corning made a $1.25 billion payment on October 29, 2015 and received an initial delivery of approximately 53.1 million shares of Corning common stock on the same day. On January 19, 2016, the 2015 ASR agreement was completed. Corning received an additional 15.9 million shares on January 22, 2016 to settle the 2015 ASR agreement. In total, Corning purchased 69 million shares based on the average daily volume weighted-average price of Corning’s common stock during the term of the 2015 ASR agreement, less a discount.
In addition to the shares repurchased through the 2015 ASR agreement, we repurchased 98 million shares of common stock on the open market for approximately $2 billion, as part of the December 2014 Repurchase Program and the July 2015 Repurchase Program, resulting in a total of 167 million shares repurchased for $3.25 billion during 2015.
2016 Share Repurchases
In July 2016, Corning entered into an accelerated share repurchase agreement (the “2016 ASR agreement”) under the 2015 Repurchase Program to repurchase Corning’s common stock. Under the 2016 ASR agreement, Corning made a $2.0 billion payment in July and received an initial delivery of approximately 74.4 million shares of Corning common stock on the same day. The transaction was structured with two tranches resulting in a total of 12.3 million shares being delivered to Corning in the fourth quarter of 2016, for a total of 86.7 million shares repurchased under the 2016 ASR agreement.
In addition to the 2016 ASR agreement, duringDuring the year ended December 31, 2016,2018, the Company repurchased 11074.8 million shares of common stock on the open market for approximately $2.2 billion as part of its 20152016 and 2018 Repurchase Programs, resulting in a total of 197.1 million shares repurchased for $4.2 billion during 2016.Programs.
2017 Share Repurchases
17.Shareholders’ Equity (continued)
The following table presents changes in capital stock for the period from January 1, 2015 to December 31, 2017 (in millions):
|
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|
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| ||||||||||||
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|
|
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|
|
| ||||||||||||
|
| Common stock |
| Treasury stock | Common stock | Treasury stock | ||||||||||||||
|
| Shares |
| Par value |
| Shares | Cost | Shares | Par value | Shares | Cost | |||||||||
Balance at December 31, 2017 | 1,708 | $ | 854 | (850) | $ | (16,633) | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at December 31, 2014 |
| 1,672 |
| $ | 836 |
| (398) |
| $ | (6,727) | ||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Shares issued to benefit plans and for option exercises |
| 9 |
| 4 |
|
|
| (1) | ||||||||||||
Shares issued to benefit plans and for | 5 | 3 | ||||||||||||||||||
Shares purchased for treasury |
|
|
|
|
| (151) |
| (2,978) | (75) | (2,230) | ||||||||||
Other, net |
|
|
|
|
| (2) |
| (19) | (7) | |||||||||||
Balance at December 31, 2015 |
| 1,681 |
| $ | 840 |
| (551) |
| $ | (9,725) | ||||||||||
Balance at December 31, 2018 | 1,713 | $ | 857 | (925) | $ | (18,870) | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Shares issued to benefit plans and for option exercises |
| 10 |
| 6 |
|
|
| (2) | ||||||||||||
Shares issued to benefit plans and for | 5 | 2 | ||||||||||||||||||
Shares purchased for treasury |
|
|
|
|
| (214) |
| (4,409) | (31) | (925) | ||||||||||
Other, net |
|
|
|
|
|
|
| (16) | (17) | |||||||||||
Balance at December 31, 2016 |
| 1,691 |
| $ | 846 |
| (765) |
| $ | (14,152) | ||||||||||
Balance at December 31, 2019 | 1,718 | $ | 859 | (956) | $ | (19,812) | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Shares issued to benefit plans and for option exercises |
| 17 |
| 8 |
|
|
| (2) | ||||||||||||
Shares issued to benefit plans and for | 8 | 4 | ||||||||||||||||||
Shares purchased for treasury |
|
|
|
|
| (84) |
| (2,462) | (4) | (105) | ||||||||||
Other, net |
|
|
|
|
| (1) |
| (17) | (1) | (11) | ||||||||||
Balance at December 31, 2017 |
| 1,708 |
| $ | 854 |
| (850) |
| $ | (16,633) | ||||||||||
Balance at December 31, 2020 | 1,726 | $ | 863 | (961) | $ | (19,928) |
17.Shareholders’ Equity (continued)
Accumulated Other Comprehensive Income (Loss)Loss
A summary of changes in the components of accumulated other comprehensive income (loss),loss, including ourthe proportionate share of equity method investee’s accumulated other comprehensive income (loss),loss, is as follows (in millions) (1):
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|
|
|
|
|
|
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|
|
| Foreign |
| Unamortized |
| Net |
| Net |
| Accumulated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
| $ | (581) |
| $ | (709) |
| $ | (15) |
| $ | (2) |
| $ | (1,307) |
Other comprehensive (loss) income before |
|
| (487) |
|
| (59) |
|
|
|
|
| (18) |
|
| (564) |
Amounts reclassified from accumulated other |
|
|
|
|
| 105 |
|
| 1 |
|
| (20) |
|
| 86 |
Equity method affiliates (3) |
|
| (103) |
|
| 75 |
|
|
|
|
| 2 |
|
| (26) |
Net current-period other comprehensive (loss) income |
|
| (590) |
|
| 121 |
|
| 1 |
|
| (36) |
|
| (504) |
Balance at December 31, 2015 |
| $ | (1,171) |
| $ | (588) |
| $ | (14) |
| $ | (38) |
| $ | (1,811) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before |
| $ | (89) |
| $ | (63) |
| $ | (2) |
| $ | (21) |
| $ | (175) |
Amounts reclassified from accumulated other |
|
|
|
|
| 40 |
|
|
|
|
| 22 |
|
| 62 |
Equity method affiliates (3)(7) |
|
| (15) |
|
| 264 |
|
| (1) |
|
|
|
|
| 248 |
Net current-period other comprehensive (loss) income |
|
| (104) |
|
| 241 |
|
| (3) |
|
| 1 |
|
| 135 |
Balance at December 31, 2016 |
| $ | (1,275) |
| $ | (347) |
| $ | (17) |
| $ | (37) |
| $ | (1,676) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before |
| $ | 711 |
| $ | 13 |
|
|
|
| $ | 33 |
| $ | 757 |
Amounts reclassified from accumulated other |
|
|
|
|
| 17 |
| $ | 14 |
|
| 11 |
|
| 42 |
Equity method affiliates (3) |
|
| 35 |
|
|
|
|
|
|
|
|
|
|
| 35 |
Net current-period other comprehensive (loss) income |
|
| 746 |
|
| 30 |
|
| 14 |
|
| 44 |
|
| 834 |
Balance at December 31, 2017 |
| $ | (529) |
| $ | (317) |
| $ | (3) |
| $ | 7 |
| $ | (842) |
Foreign | Unamortized | Net | Net | Accumulated | |||||||||||
Balance at December 31, 2017 | $ | (529) | $ | (317) | $ | (3) | $ | 7 | $ | (842) | |||||
Other comprehensive (loss) income before | $ | (180) | $ | (84) | $ | (1) | $ | 9 | $ | (256) | |||||
Amounts reclassified from accumulated other | 103 | (10) | 93 | ||||||||||||
Equity method affiliates (6) | (5) | (5) | |||||||||||||
Net current-period other comprehensive income | (185) | 19 | (1) | (1) | (168) | ||||||||||
Balance at December 31, 2018 | $ | (714) | $ | (298) | $ | (4) | $ | 6 | $ | (1,010) | |||||
Other comprehensive (loss) income before | $ | (129) | $ | (79) | $ | 1 | $ | 54 | $ | (153) | |||||
Amounts reclassified from accumulated other | 15 | (9) | 6 | ||||||||||||
Equity method affiliates (6) | (14) | (14) | |||||||||||||
Net current-period other comprehensive (loss) income | (143) | (64) | 1 | 45 | (161) | ||||||||||
Balance at December 31, 2019 | $ | (857) | $ | (362) | $ | (3) | $ | 51 | $ | (1,171) | |||||
Other comprehensive income (loss) before | $ | 511 | $ | (106) | $ | (14) | $ | 391 | |||||||
Amounts reclassified from accumulated other | 18 | 5 | 23 | ||||||||||||
Equity method affiliates (6) | 17 | 17 | |||||||||||||
Net current-period other comprehensive income (loss) | 528 | (88) | — | (9) | 431 | ||||||||||
Balance at December 31, 2020 | $ | (329) | $ | (450) | $ | (3) | $ | 42 | $ | (740) |
(1)All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive income. (2)Amounts are net of total tax benefit of $64 million, primarily driven by $34 million and $33 million, related to foreign currency translation adjustments and retirement plans, respectively. (3)Amounts are net of total tax benefit of $8 million, primarily driven by $7 million related to foreign currency translation adjustments; embedded in this number is the negative impact of $18 million related to the hedging component, offset by the positive impact of $19 million related to retirement plans. (4)Amounts are net of total tax expense of $22 million, primarily driven by $55 million related to foreign currency translation adjustments; embedded in this number are the positive impacts of $5 million related to the hedging component and $28 million related to retirement plans. (5)Tax effect of reclassifications are disclosed separately within this footnote. (6)Tax effects related to equity method affiliates are not significant in the reported periods.
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17.Shareholders’ Equity (continued)
(In millions)
|
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| ||||||||||||
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| ||||||||||||
Reclassifications Out of Accumulated Other Comprehensive Income (AOCI) by Component (1) | ||||||||||||||||||||
Reclassifications Out of Accumulated Other Comprehensive Income ("AOCI") by Component (1) | Reclassifications Out of Accumulated Other Comprehensive Income ("AOCI") by Component (1) | |||||||||||||||||||
| Amount reclassified from AOCI |
| Affected line item | Amount reclassified from AOCI | Affected line item | |||||||||||||||
| Years ended December 31, |
| in the consolidated | Year ended December 31, | in the consolidated | |||||||||||||||
Details about AOCI Components | 2017 |
| 2016 |
| 2015 |
| statements of income | 2020 | 2019 | 2018 | statements of income | |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Amortization of net actuarial loss | $ | (20) |
| $ | (62) |
| $ | (168) |
| (2) | $ | (23) | $ | (89) | $ | (138) | (2) | |||
Amortization of prior service (cost) credit |
| (2) |
|
| (1) |
|
| 1 |
| (2) | ||||||||||
Amortization of prior service credit (cost) | 1 | (6) | (2) | |||||||||||||||||
|
| (22) |
|
| (63) |
|
| (167) |
| Total before tax | (23) | (88) | (144) | Total before tax | ||||||
|
| 5 |
|
| 23 |
|
| 62 |
| Tax benefit | ||||||||||
| $ | (17) |
| $ | (40) |
| $ | (105) |
| Net of tax | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Realized gains (losses) on investments | $ | (3) |
|
|
| $ | (1) |
| Other income (expense), net | |||||||||||
|
| (11) |
|
|
|
|
|
| Tax expense | 5 | 73 | 41 | Tax benefit (3) | |||||||
| $ | (14) |
|
|
| $ | (1) |
| Net of tax | $ | (18) | $ | (15) | $ | (103) | Net of tax | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Realized (losses) gains on designated hedges | $ | 1 |
| $ | 4 |
| $ | 20 |
| Sales | $ | (6) | Sales | |||||||
|
| (12) |
| (36) |
| 6 |
| Cost of sales | 13 | $ | 11 | $ | 13 | Cost of sales | ||||||
|
| (2) |
|
| (2) |
|
|
|
| Other expense (income), net | (14) | (1) | Other expense, net | |||||||
|
| (13) |
|
| (34) |
|
| 26 |
| Total before tax | (7) | 11 | 12 | Total before tax | ||||||
|
| 2 |
|
| 12 |
|
| (6) |
| Tax benefit (expense) | 2 | (2) | (2) | Tax benefit (expense) | ||||||
| $ | (11) |
| $ | (22) |
| $ | 20 |
| Net of tax | $ | (5) | $ | 9 | $ | 10 | Net of tax | |||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total reclassifications for the period | $ | (42) |
| $ | (62) |
| $ | (86) |
| Net of tax | $ | (23) | $ | (6) | $ | (93) | Net of tax |
(1)Amounts in parentheses indicate debits to the statement of income. (2)These accumulated other comprehensive income components are included in net periodic pension cost. Refer to Note 13 (Employee Retirement Plans) to the consolidated financial statements for additional details. (3)Includes $52 million that was recognized during the first quarter of 2019 due to adoption of the new standard related to Income Statement - Reporting Comprehensive Income, which allows for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects.
|
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|
|
18.(Loss) Earnings Per CommonCommon Share
Basic (loss) earnings per common share are computed by dividing income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted (loss) earnings per common share assumes the issuance of common shares for all potentially dilutive securities outstanding.
The reconciliation of the amounts used to compute basic and diluted (loss) earnings per common share from operations is as follows (in millions, except per share amounts):
|
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|
|
|
|
|
| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Net (loss) income attributable to Corning Incorporated | $ | (497) |
| $ | 3,695 |
| $ | 1,339 |
Less: Series A convertible preferred stock dividend |
| 98 |
|
| 98 |
|
| 98 |
Net (loss) income available to common stockholders - basic |
| (595) |
|
| 3,597 |
|
| 1,241 |
Plus: Series A convertible preferred stock dividend |
|
|
|
| 98 |
|
| 98 |
Net (loss) income available to common stockholders - diluted | $ | (595) |
| $ | 3,695 |
| $ | 1,339 |
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic |
| 895 |
|
| 1,020 |
|
| 1,219 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options and other dilutive securities |
|
|
|
| 9 |
|
| 9 |
Series A convertible preferred stock (1) |
|
|
|
| 115 |
|
| 115 |
Weighted-average common shares outstanding - diluted |
| 895 |
|
| 1,144 |
|
| 1,343 |
Basic (loss) earnings per common share | $ | (0.66) |
| $ | 3.53 |
| $ | 1.02 |
Diluted (loss) earnings per common share | $ | (0.66) |
| $ | 3.23 |
| $ | 1.00 |
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Anti-dilutive potential shares excluded from diluted (loss) |
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|
|
Series A convertible preferred stock dividend (1) |
| 115 |
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|
Employee stock options and awards |
| 13 |
|
| 15 |
|
| 22 |
Accelerated share repurchase forward contract |
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|
|
| 15 |
Total |
| 128 |
|
| 15 |
|
| 37 |
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Net income attributable to Corning Incorporated | $ | 512 | $ | 960 | $ | 1,066 | ||
Less: Series A convertible preferred stock dividend | 98 | 98 | 98 | |||||
Net income available to common stockholders - basic | 414 | 862 | 968 | |||||
Plus: Series A convertible preferred stock dividend | 98 | 98 | ||||||
Net income available to common stockholders - diluted | $ | 414 | $ | 960 | $ | 1,066 | ||
Weighted-average common shares outstanding - basic | 761 | 776 | 816 | |||||
Effect of dilutive securities: | ||||||||
Stock options and other dilutive securities | 11 | 8 | 10 | |||||
Series A convertible preferred stock (1) | 115 | 115 | ||||||
Weighted-average common shares outstanding - diluted | 772 | 899 | 941 | |||||
Basic earnings per common share | $ | 0.54 | $ | 1.11 | $ | 1.19 | ||
Diluted earnings per common share | $ | 0.54 | $ | 1.07 | $ | 1.13 | ||
Anti-dilutive potential shares excluded from diluted | ||||||||
Series A convertible preferred stock dividend (1) | 115 | |||||||
Employee stock options and awards | 2 | 2 | 2 | |||||
Total | 117 | 2 | 2 |
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19.Share-based Compensation(1)For the year ended December 31, 2020, the Series A preferred stock was anti-dilutive and therefore excluded from the calculation of diluted earnings per share.
Stock19.Share-Based Compensation Plans
Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of ourits Board of Directors. The Plans allow us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At December 31, 2017,2020, there were approximately 6536 million unissued common shares available for future grants authorized under the Plans.
Beginning in 2020, Corning increased the equity component in its Long-Term Incentive (“LTI”) Plan from 40% to 75% of an executive’s annual targeted compensation opportunity.
Share-based compensation cost is allocated to the selling, general and administrative, research, development and engineering, and cost of sales expenses lines in the consolidated statements of income.
Stock Compensation Plans
The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.
The fair value of awards granted that are expected to ultimately vest is recognized as expense over the requisite service periods. The number of options expected to vest equals the total options granted less an estimation of the number of forfeitures expected to occur prior to vesting. The forfeiture rate is calculated based on 15 years of historical data and is adjusted if actual forfeitures differ significantly from the original estimates. The effect of any change in estimated forfeitures would be recognized through a cumulative adjustment that would be included in compensation cost in the period of the change in estimate.
Total share-based compensation cost of $46was approximately $207 million, $42$56 million and $46$51 million, was disclosed in operating activities on the Company’s Consolidated Statements of Cash Flowsrespectively, for the years ended December 31, 2017, 20162020, 2019 and 2015, respectively. 2018. The incremental change in expense of $151 million for the year ended December 31, 2020, was driven primarily by a larger equity component for Director and Executive compensation, issuance of employee share-based compensation awards and the acceleration of vesting of options on December 3, 2020.
The income tax benefit realized from share-based compensation was not significant$12 million, $9 million and $8 million, respectively, for the years ended December 31, 2017, 20162020, 2019 and 2015.2018. Refer to Note 68 (Income Taxes). to the consolidated financial statements for additional information.
19.Share-based Compensation (continued)
Stock Options
Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued common shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from one year to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 years from the grant date. An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”).
The following table summarizes information concerning stock options outstanding, including the related transactions under the stock option plans for the year ended December 31, 2017:2020:
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| Number of |
| Weighted- |
| Weighted- |
| Aggregate | ||
Options Outstanding as of December 31, 2016 | 31,507 |
| $ | 19.40 |
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Granted | 1,507 |
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| 27.01 |
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Exercised | (14,615) |
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| 21.13 |
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Forfeited and expired | (265) |
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| 23.22 |
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Options outstanding as of December 31, 2017 | 18,134 |
|
| 18.59 |
| 4.63 |
| $ | 243,055 |
Options expected to vest as of December 31, 2017 | 18,098 |
|
| 18.58 |
| 4.62 |
|
| 242,773 |
Options exercisable as of December 31, 2017 | 13,487 |
|
| 17.14 |
| 3.38 |
|
| 200,246 |
Number of | Weighted- | Weighted- | Aggregate | ||||||
Options Outstanding as of December 31, 2019 | 13,172 | $ | 21.94 | ||||||
Granted | 10,653 | 19.65 | |||||||
Exercised | (6,502) | 19.16 | |||||||
Forfeited and expired | (228) | 19.96 | |||||||
Options outstanding as of December 31, 2020 | 17,095 | 21.60 | 7.18 | $ | 246,236 | ||||
Options expected to vest as of December 31, 2020 | 16,903 | 21.61 | 7.15 | 243,277 | |||||
Options exercisable as of December 31, 2020 | 8,646 | 19.57 | 5.66 | 142,076 |
The aggregate intrinsic value (market value of stock less option exercise price) in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price on December 29, 2017,31, 2020, which would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date. The total number of “in-the-money” options exercisable on December 31, 2017,2020, was approximately 139 million.
The weighted-average grant-date fair value for options granted for the years ended December 31, 2017, 20162020, 2019 and 20152018 was $8.40, $6.31$3.67, $8.78 and $7.99,$7.17, respectively. The total fair value of options that vested during the years ended December 31, 2017, 20162020, 2019 and 20152018 was approximately $13$31 million, $22$10 million and $36$12 million, respectively. Compensation cost related to stock options for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, was approximately $23 million, $13 million and $12 million, $11 million and $14 million, respectively.
As of December 31, 2017,2020, there was approximately $6$21 million of unrecognized compensation cost related to stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.82.2 years.
Proceeds received from the exercise of stock options were $309$124 million for the year ended December 31, 2017, which were included in financing activities on the Company’s Consolidated Statements of Cash Flows.2020. The total intrinsic value of options exercised for the years ended December 31, 2017, 20162020, 2019 and 20152018 was approximately $103$99 million, $53$47 million and $48$66 million, respectively.
An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”). Awards to retirement eligible employees are fully vested at the date of grant, and the related compensation expense is recognized immediately upon grant or over the period from the grant date to the date of retirement eligibility for employees that become age 55 during the vesting period.
Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term assumption is the period of time the options are expected to be outstanding and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. The ranges given below reflect results from separate groups of employees exhibiting different exercise behavior.
19.Share-based Compensation (continued)
The following inputs were used for the valuation of option grants under our Stock Option Plans:the stock option plans:
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| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||
Expected volatility | 32.4 |
| - |
| 36.1 | % |
| 37.1 |
| - |
| 43.1 | % |
| 43.6 |
| - |
| 44.9 | % | 32.9 | % | 29.5 | - | 29.9 | % | 30.6 | - | 31.4 | % | ||||||
Weighted-average volatility | 36.1% |
| 41.0% |
| 44.6% | 32.9 | % | 29.5 | - | 29.9 | % | 30.6 | - | 31.4 | % | |||||||||||||||||||||
Expected dividends | 1.98 |
| - |
| 2.28 | % |
| 2.28 |
| - |
| 2.94 | % |
| 1.92 |
| - |
| 2.68 | % | 4.48 | % | 2.36 | - | 2.95 | % | 2.22 | - | 2.66 | % | ||||||
Risk-free rate | 2.1 |
| - |
| 2.3 | % |
| 1.4 |
| - |
| 2.1 | % |
| 1.9 |
| - |
| 2.1 | % | 0.5 | % | 1.5 | - | 2.4 | % | 2.7 | - | 3.1 | % | ||||||
Average risk-free rate | 0.5 | % | 1.5 | - | 2.4 | % | 2.7 | - | 3.1 | % | ||||||||||||||||||||||||||
Expected term (in years) | 7.4 |
| - |
| 7.4 |
|
| 7.4 |
| - |
| 7.4 |
|
| 7.2 |
| - |
| 7.2 |
| 7.4 | 7.4 | 7.4 | |||||||||||||
Pre-vesting departure rate | 0.6 |
| - |
| 0.6 | % |
| 0.6 |
| - |
| 0.6 | % |
| 0.6 |
| - |
| 0.6 | % | ||||||||||||||||
Pre-vesting executive departure rate | 0.6 | % | 0.6 | % | 0.6 | % | ||||||||||||||||||||||||||||||
Pre-vesting non-executive departure rate | 2.5 | % |
Incentive Stock Plans
The Corning Incentive Stock Plan permits restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plan are granted at the closing market price on the grant date, contingently vest over a period of generally one year to ten years, and generally have contractual lives of one year to ten years. The fair value of each restricted stock grant or restricted stock unit awarded under the Incentive Stock Plan is based on the grant date closing price of the Company’s stock.
Time-Based Restricted Stock and Restricted Stock Units:Units
Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company’s common stock upon vesting. The fair value is based on the closing market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.
The following table represents a summary of the status of the Company’s non-vested time-based restricted stock and restricted stock units as of December 31, 2016,2019 and changes which occurred during the year ended December 31, 2017:2020:
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| |||||
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| |||||
| Shares |
| Weighted- | Number of | Weighted- | |||
Non-vested shares and share units at December 31, 2016 | 4,640 |
| $ | 20.15 | ||||
Non-vested shares and share units at December 31, 2019 | 5,189 | $ | 27.58 | |||||
Granted | 1,859 |
| 28.16 | 9,400 | 20.90 | |||
Vested | (1,457) |
| 20.48 | (1,408) | 26.97 | |||
Forfeited | (109) |
| 22.72 | (238) | 23.72 | |||
Non-vested shares and share units at December 31, 2017 | 4,933 |
| $ | 23.02 | ||||
Non-vested shares and share units at December 31, 2020 | 12,943 | $ | 22.87 |
As of December 31, 2017,2020, there was approximately $41$149 million of unrecognized compensation cost related to non-vested time-based restricted stock and restricted stock units compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.62.4 years. The total fair value of time-based restricted stock that vested during the years ended December 31, 2017, 20162020, 2019 and 20152018 was approximately $30$38 million, $27$33 million and $32$31 million, respectively. Compensation cost related to time-based restricted stock and restricted stock units was approximately $34$95 million, $31$43 million and $32$39 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Performance-Based Restricted Stock Units
Performance-based restricted stock units are earned upon the achievement of certain targets, and are payable in shares of the Company’s common stock upon vesting typically over a three year period. The weighted-average grant date fair value is based on the market price of the Company’s stock on the grant date and assumes that the target payout level will be achieved. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting. During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.
The following table summarizes information concerning the Company’s non-vested performance-based restricted stock units, including the related transactions under the performance-based restricted stock units plan for the year ended December 31, 2020:
Number of | Weighted- | |||
Non-vested share units at December 31, 2019 | — | $ | — | |
Granted | 2,784 | 20.13 | ||
Vested |
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| ||
Forfeited | (41) | 19.11 | ||
Non-vested share units at December 31, 2020 | 2,743 | $ | 20.14 | |
As of December 31, 2020, there was approximately $32 million of unrecognized compensation cost related to non-vested performance-based restricted stock units compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.0 years. Compensation cost related to performance-based restricted stock units for the year ended December 31, 2020, was approximately $81 million, largely driven by retirement-eligible employees.
20.Reportable Segments
Our reportable segments are as follows:
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Display Technologies – manufactures glass substrates for flat panel liquid crystal displays and other high-performance display panels.
Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry.
Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.
Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.
Life Sciences – manufactures glass and plastic labware, equipment, media, serum and reagents enabling workflow solutions for drug discovery and bioproduction.
All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily comprised of the results of the pharmaceutical technologies, businessauto glass and new product lines and development projects, as well as other businesses and certain corporate investments suchinvestments.
The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as Eurokeraof September 9, 2020. Refer to Note 4 (HSG Transactions and Keraglass equity affiliates. Acquisitions) to the consolidated financial statements for additional information on this transaction.
We prepared the financialFinancial results for ourthe reportable segments are prepared on a basis that is consistent with the manner in which we internally disaggregateinternal disaggregation of financial information to assist the CODM in making internal operating decisions. WeThe impact of changes in the Japanese yen, South Korean won, Chinese yuan and new Taiwan dollar are excluded from segment sales and segment net income for the Display Technologies and Specialty Materials segments. The impact of changes in the euro and Chinese yuan are excluded from segment sales and segment net income for the Environment Technologies segment. The impact of changes in the euro, Chinese yuan and Japanese yen are excluded from segment sales and segment net income for the Life Sciences segment. Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in evaluating the results of or in allocating resources to the segments and include the following items: the impact of the translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; adjustments relating to acquisitions; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.
Earnings of equity affiliates that are closely associated with ourthe reportable segments are included in the respective segment’s net income. We have allocated certainincome (loss). Certain common expenses among reportable segments have been allocated differently than wethey would for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies. The accounting policies of our reportable segments are the same as those applied in the Consolidated Financial Statements.
20.Reportable Segments (continued)
The following provides historical segment information as described above:
Segment Information (in millions)
Display | Optical | Specialty | Environmental | Life | All | Total | ||||||||||||||
For the year ended December 31, 2020 | ||||||||||||||||||||
Segment net sales | $ | 3,172 | $ | 3,563 | $ | 1,884 | $ | 1,370 | $ | 998 | $ | 465 | $ | 11,452 | ||||||
Depreciation (1) | $ | 548 | $ | 242 | $ | 162 | $ | 132 | $ | 50 | $ | 81 | $ | 1,215 | ||||||
Research, development | $ | 99 | $ | 204 | $ | 155 | $ | 100 | $ | 26 | $ | 170 | $ | 754 | ||||||
Income tax (provision) benefit (3) | $ | (190) | $ | (101) | $ | (113) | $ | (52) | $ | (37) | $ | 58 | $ | (435) | ||||||
Net income (loss) (4) | $ | 717 | $ | 366 | $ | 423 | $ | 197 | $ | 139 | $ | (214) | $ | 1,628 | ||||||
Investment in affiliated companies, at equity | $ | 107 | $ | 3 | $ | 4 | $ | — | $ | 2 | $ | 142 | $ | 258 | ||||||
Segment assets (5) | $ | 8,777 | $ | 2,868 | $ | 2,551 | $ | 1,986 | $ | 683 | $ | 2,157 | $ | 19,022 | ||||||
Capital expenditures | $ | 311 | $ | 127 | $ | 125 | $ | 159 | $ | 83 | $ | 123 | $ | 928 | ||||||
For the year ended December 31, 2019 | ||||||||||||||||||||
Segment net sales | $ | 3,254 | $ | 4,064 | $ | 1,594 | $ | 1,499 | $ | 1,015 | $ | 230 | $ | 11,656 | ||||||
Depreciation (1) | $ | 583 | $ | 237 | $ | 145 | $ | 128 | $ | 49 | $ | 50 | $ | 1,192 | ||||||
Research, development | $ | 119 | $ | 218 | $ | 154 | $ | 118 | $ | 21 | $ | 237 | $ | 867 | ||||||
Income tax (provision) benefit (3) | $ | (206) | $ | (134) | $ | (81) | $ | (70) | $ | (40) | $ | 80 | $ | (451) | ||||||
Net income (loss) (4) | $ | 786 | $ | 489 | $ | 302 | $ | 263 | $ | 150 | $ | (289) | $ | 1,701 | ||||||
Investment in affiliated companies, at equity | $ | 145 | $ | 3 | $ | 3 | $ | — | $ | 3 | $ | 137 | $ | 291 | ||||||
Segment assets (5) | $ | 9,022 | $ | 3,004 | $ | 2,433 | $ | 1,912 | $ | 627 | $ | 1,028 | $ | 18,026 | ||||||
Capital expenditures | $ | 872 | $ | 329 | $ | 176 | $ | 287 | $ | 80 | $ | 155 | $ | 1,899 | ||||||
For the year ended December 31, 2018 | ||||||||||||||||||||
Segment net sales | $ | 3,276 | $ | 4,192 | $ | 1,479 | $ | 1,289 | $ | 946 | $ | 216 | $ | 11,398 | ||||||
Depreciation (1) | $ | 585 | $ | 218 | $ | 136 | $ | 119 | $ | 50 | $ | 38 | $ | 1,146 | ||||||
Research, development | $ | 106 | $ | 212 | $ | 163 | $ | 118 | $ | 20 | $ | 231 | $ | 850 | ||||||
Income tax (provision) benefit (3) | $ | (221) | $ | (163) | $ | (83) | $ | (55) | $ | (31) | $ | 76 | $ | (477) | ||||||
Net income (loss) (4) | $ | 835 | $ | 592 | $ | 313 | $ | 208 | $ | 117 | $ | (281) | $ | 1,784 | ||||||
Investment in affiliated companies, at equity | $ | 131 | $ | 3 | $ | 6 | $ | — | $ | 1 | $ | 171 | $ | 312 | ||||||
Segment assets (5) | $ | 8,794 | $ | 3,042 | $ | 2,176 | $ | 1,633 | $ | 585 | $ | 1,018 | $ | 17,248 | ||||||
Capital expenditures | $ | 755 | $ | 417 | $ | 242 | $ | 273 | $ | 55 | $ | 329 | $ | 2,071 |
(1)Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.
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| Display |
| Optical |
| Environmental |
| Specialty |
| Life |
| All |
| Total | |||||||
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For the year ended December 31, 2017 |
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Net sales | $ | 2,997 |
| $ | 3,545 |
| $ | 1,106 |
| $ | 1,403 |
| $ | 879 |
| $ | 186 |
| $ | 10,116 |
Depreciation (1) | $ | 534 |
| $ | 193 |
| $ | 124 |
| $ | 129 |
| $ | 52 |
| $ | 45 |
| $ | 1,077 |
Amortization of purchased intangibles |
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| $ | 48 |
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| $ | 22 |
| $ | 5 |
| $ | 75 |
Research, development | $ | 88 |
| $ | 174 |
| $ | 113 |
| $ | 152 |
| $ | 22 |
| $ | 211 |
| $ | 760 |
Income tax (provision) benefit | $ | (394) |
| $ | (188) |
| $ | (69) |
| $ | (124) |
| $ | (31) |
| $ | 114 |
| $ | (692) |
Net income (loss) (3) | $ | 831 |
| $ | 341 |
| $ | 127 |
| $ | 249 |
| $ | 64 |
| $ | (229) |
| $ | 1,383 |
Investment in affiliated companies, at equity | $ | 134 |
| $ | 2 |
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| $ | 3 |
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| $ | 140 |
| $ | 279 |
Segment assets (4) | $ | 8,662 |
| $ | 2,599 |
| $ | 1,402 |
| $ | 2,155 |
| $ | 538 |
| $ | 824 |
| $ | 16,180 |
Capital expenditures | $ | 795 |
| $ | 505 |
| $ | 157 |
| $ | 223 |
| $ | 42 |
| $ | 156 |
| $ | 1,878 |
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For the year ended December 31, 2016 |
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Net sales | $ | 3,238 |
| $ | 3,005 |
| $ | 1,032 |
| $ | 1,124 |
| $ | 839 |
| $ | 152 |
| $ | 9,390 |
Depreciation (1) | $ | 598 |
| $ | 175 |
| $ | 129 |
| $ | 109 |
| $ | 58 |
| $ | 50 |
| $ | 1,119 |
Amortization of purchased intangibles |
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| $ | 35 |
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| $ | 20 |
| $ | 8 |
| $ | 63 |
Research, development | $ | 45 |
| $ | 147 |
| $ | 102 |
| $ | 126 |
| $ | 24 |
| $ | 191 |
| $ | 635 |
Income tax (provision) benefit | $ | (372) |
| $ | (129) |
| $ | (65) |
| $ | (85) |
| $ | (28) |
| $ | 114 |
| $ | (565) |
Net income (loss) (3) | $ | 935 |
| $ | 245 |
| $ | 133 |
| $ | 174 |
| $ | 58 |
| $ | (240) |
| $ | 1,305 |
Investment in affiliated companies, at equity | $ | 41 |
| $ | (1) |
| $ | 32 |
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| $ | 252 |
| $ | 324 |
Segment assets (4) | $ | 8,032 |
| $ | 2,010 |
| $ | 1,267 |
| $ | 1,604 |
| $ | 504 |
| $ | 750 |
| $ | 14,167 |
Capital expenditures | $ | 464 |
| $ | 245 |
| $ | 97 |
| $ | 120 |
| $ | 39 |
| $ | 56 |
| $ | 1,021 |
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For the year ended December 31, 2015 |
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Net sales | $ | 3,086 |
| $ | 2,980 |
| $ | 1,053 |
| $ | 1,107 |
| $ | 821 |
| $ | 64 |
| $ | 9,111 |
Depreciation (1) | $ | 605 |
| $ | 163 |
| $ | 125 |
| $ | 112 |
| $ | 60 |
| $ | 43 |
| $ | 1,108 |
Amortization of purchased intangibles |
|
|
| $ | 32 |
|
|
|
|
|
|
| $ | 20 |
| $ | 1 |
| $ | 53 |
Research, development | $ | 105 |
| $ | 138 |
| $ | 93 |
| $ | 113 |
| $ | 23 |
| $ | 186 |
| $ | 658 |
Income tax (provision) benefit | $ | (499) |
| $ | (115) |
| $ | (78) |
| $ | (85) |
| $ | (30) |
| $ | 89 |
| $ | (718) |
Net income (loss) (3) | $ | 1,095 |
| $ | 237 |
| $ | 161 |
| $ | 167 |
| $ | 61 |
| $ | (202) |
| $ | 1,519 |
Investment in affiliated companies, at equity | $ | 43 |
| $ | 1 |
| $ | 32 |
|
|
|
|
|
|
| $ | 261 |
| $ | 337 |
Segment assets (4) | $ | 8,344 |
| $ | 1,783 |
| $ | 1,288 |
| $ | 1,407 |
| $ | 514 |
| $ | 738 |
| $ | 14,074 |
Capital expenditures | $ | 594 |
| $ | 171 |
| $ | 117 |
| $ | 88 |
| $ | 32 |
| $ | 57 |
| $ | 1,059 |
(2)Research, development and engineering expenses include direct project spending that is identifiable to a segment.
(3)Income tax (provision) benefit reflects a tax rate of 21%. (4)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. (5)Segment assets include inventory, accounts receivable, property, plant and equipment, net of accumulated depreciation, and associated equity companies. HSG assets are included as of December 31, 2020. |
|
|
|
|
|
|
|
|
A reconciliation of reportable segments and “All Other” net sales to consolidated net sales is as follows (in millions):
Year ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Net sales of reportable segments and All Other | $ | 11,452 | $ | 11,656 | $ | 11,398 | |||
Impact of foreign currency movements (1) | (44) | (153) | (108) | ||||||
Cumulative adjustment related to customer contract (2) | (105) | ||||||||
Consolidated net sales | $ | 11,303 | $ | 11,503 | $ | 11,290 |
20.Reportable Segments (continued)(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies, Environmental Technologies and Life Sciences segments.
(2)Amount represents the negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue in the amount of $105 million. 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 is exiting its production of LCD panels. Refer to Note 5 (Revenue) to the consolidated financial statements for additional information.
A reconciliation of reportable segment net income (loss) to consolidated net income follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Net income of reportable segments | $ | 1,612 |
| $ | 1,545 |
| $ | 1,721 |
Net loss of All Other |
| (229) |
|
| (240) |
|
| (202) |
Unallocated amounts: |
|
|
|
|
|
|
|
|
Net financing costs (1) |
| (110) |
|
| (107) |
|
| (111) |
Share-based compensation expense |
| (46) |
|
| (42) |
|
| (46) |
Exploratory research |
| (98) |
|
| (107) |
|
| (109) |
Corporate contributions |
| (36) |
|
| (49) |
|
| (52) |
Gain on realignment of equity investment |
|
|
|
| 2,676 |
|
|
|
Equity in earnings of affiliated companies, net of impairments (2) |
| 353 |
|
| 292 |
|
| 291 |
Unrealized loss on translated earnings contracts |
| (391) |
|
| (649) |
|
| (573) |
Resolution of Department of Justice investigation |
|
|
|
| (98) |
|
|
|
Income tax (provision) benefit |
| (1,462) |
|
| 568 |
|
| 571 |
Other corporate items |
| (90) |
|
| (94) |
|
| (151) |
Net (loss) income | $ | (497) |
| $ | 3,695 |
| $ | 1,339 |
Year ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Net income of reportable segments | $ | 1,842 | $ | 1,990 | $ | 2,065 | ||
Net loss of All Other (1) | (214) | (289) | (281) | |||||
Unallocated amounts: | ||||||||
Impact of foreign currency movements not | (22) | (115) | (157) | |||||
Gain (loss) on foreign currency hedges | (46) | 245 | (78) | |||||
Translation loss on Japanese yen-denominated debt | (86) | (3) | (18) | |||||
Litigation, regulatory and other legal matters | (144) | 17 | (124) | |||||
Research, development, and engineering expense (2)(6) | (153) | (134) | (137) | |||||
Transaction-related gain, net (3) | 498 | |||||||
Equity in (losses) earnings of affiliated companies (4) | (24) | 15 | 390 | |||||
Amortization of intangibles | (121) | (113) | (93) | |||||
Interest expense, net | (261) | (200) | (149) | |||||
Income tax benefit (provision) | 324 | 195 | 42 | |||||
Pension mark-to-market | (31) | (95) | (145) | |||||
Cumulative adjustment related to customer contract (5) | (105) | |||||||
Severance charges (6) | (148) | (63) | (16) | |||||
Asset impairment (6) | (217) | |||||||
Capacity realignment and other charges and credits (6) | (462) | (376) | (114) | |||||
Bond redemption loss (7) | (22) | |||||||
Gain on investment (8) | 107 | |||||||
Other corporate items | (203) | (114) | (119) | |||||
Net income | $ | 512 | $ | 960 | $ | 1,066 |
(1)Net financing costsThe 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)Amount does not include interest income, interestresearch, development, and engineering expense related to restructuring, impairment and interest costsother charges and credits.
(3)Amount represents the pre-tax gain recorded on Corning’s previously held equity investment gainsin HSG. Refer to Note 4 (HSG Transactions and losses associated with benefit plans.Acquisitions) to the consolidated financial statements for additional information on this transaction.
(2)(4)Primarily represents the equity earnings of Hemlock Semiconductor GroupHSG prior to September 9, 2020. Refer to Note 3 (Investments) and Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information.
(5)Amount represents the negative impact of a cumulative adjustment to reduce revenue in 2017the amount of $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 is exiting its production of LCD panels. Refer to Note 5 (Revenue) to the consolidated financial statements for additional information.
(6)Refer to Note 2 (Restructuring, Impairment and 2016,Other Charges and Dow CorningCredits) to the consolidated financial statements for additional information on restructuring activities and impairment.
(7)Refer to Note 12 (Debt) to the consolidated financial statements for additional information on the bond redemption loss.
(8)Amount represents the gain recognized from the initial public offering of an investment in 2015.the fourth quarter of 2020.
A reconciliation of reportable segment assets to consolidated total assets follows (in millions):
|
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|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
| December 31, | December 31, | ||||||||||||||
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||
Total assets of reportable segments | $ | 15,356 |
| $ | 13,417 |
| $ | 13,336 | $ | 16,865 | $ | 16,998 | $ | 16,230 | ||
Non-reportable segments |
| 824 |
| 750 |
| 738 | 2,157 | 1,028 | 1,018 | |||||||
Unallocated amounts: |
|
|
|
|
|
| ||||||||||
Current assets (1) |
| 5,315 |
| 6,070 |
| 5,488 | 3,434 | 3,301 | 3,065 | |||||||
Investments (2) |
| 61 |
| 12 |
| 1,638 | 177 | 43 | 64 | |||||||
Property, plant and equipment, net (3) |
| 1,628 |
| 1,681 |
| 1,692 | 1,548 | 1,764 | 1,928 | |||||||
Other non-current assets (4) |
| 4,310 |
| 5,969 |
| 5,635 | 6,594 | 5,764 | 5,200 | |||||||
Total assets | $ | 27,494 |
| $ | 27,899 |
| $ | 28,527 | $ | 30,775 | $ | 28,898 | $ | 27,505 |
(1)Includes current corporate assets, including cash, other receivables, prepaid expenses and current portion of long-term derivative assets. (2)Represents other corporate investments. Asset balance does not include equity method affiliate liability balance of $270 million for HSG in 2019. HSG became a fully consolidated subsidiary of Corning on September 9, 2020. (3)Represents corporate property not specifically identifiable to an operating segment. (4)Includes non-current corporate assets, including goodwill, other intangible assets, pension assets, long-term derivative assets, operating leases and deferred income taxes. |
|
|
|
|
|
|
|
|
For the year ended December 31, 2017, the following number of customers, which individually accounted for 10% or more of each segment’s sales, represented the following concentration of segment sales:
|
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|
|
|
|
|
|
|
|
20.Reportable Segments (continued)
Selected financial information concerning the Company’s product lines and reportable segments follow (in millions):
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
| Years Ended December 31, | Year ended December 31, | ||||||||||||||
Revenues from External Customers | 2017 |
| 2016 |
| 2015 | |||||||||||
Revenue from external customers | 2020 | 2019 | 2018 | |||||||||||||
Display Technologies | $ | 2,997 |
| $ | 3,238 |
| $ | 3,086 | $ | 3,172 | $ | 3,254 | $ | 3,276 | ||
|
|
|
|
|
|
| ||||||||||
Optical Communications |
|
|
|
|
|
| ||||||||||
Carrier network |
| 2,720 |
| 2,274 |
| 2,194 | 2,612 | 2,885 | 3,084 | |||||||
Enterprise network |
| 825 |
| 731 |
| 786 | 951 | 1,179 | 1,108 | |||||||
Total Optical Communications | 3,563 | 4,064 | 4,192 | |||||||||||||
|
|
|
|
|
|
| ||||||||||
Total Optical Communications |
| 3,545 |
| 3,005 |
| 2,980 | ||||||||||
Specialty Materials | ||||||||||||||||
Corning® Gorilla® Glass | 1,420 | 1,180 | 1,069 | |||||||||||||
Advanced optics and other specialty glass | 464 | 414 | 410 | |||||||||||||
Total Specialty Materials | 1,884 | 1,594 | 1,479 | |||||||||||||
|
|
|
|
|
|
| ||||||||||
Environmental Technologies |
|
|
|
|
|
| ||||||||||
Automotive and other |
| 627 |
| 585 |
| 528 | 883 | 907 | 719 | |||||||
Diesel |
| 479 |
| 447 |
| 525 | 487 | 592 | 570 | |||||||
|
|
|
|
|
|
| ||||||||||
Total Environmental Technologies |
| 1,106 |
| 1,032 |
| 1,053 | 1,370 | 1,499 | 1,289 | |||||||
|
|
|
|
|
|
| ||||||||||
Specialty Materials |
|
|
|
|
|
| ||||||||||
Corning Gorilla Glass |
| 1,044 |
| 807 |
| 810 | ||||||||||
Advanced optics and other specialty glass |
| 359 |
| 317 |
| 297 | ||||||||||
|
|
|
|
|
|
| ||||||||||
Total Specialty Materials |
| 1,403 |
| 1,124 |
| 1,107 | ||||||||||
|
|
|
|
|
|
| ||||||||||
Life Sciences |
|
|
|
|
|
| ||||||||||
Labware |
| 524 |
| 512 |
| 512 | 552 | 550 | 536 | |||||||
Cell culture products |
| 355 |
| 327 |
| 309 | 446 | 465 | 410 | |||||||
|
|
|
|
|
|
| ||||||||||
Total Life Science |
| 879 |
| 839 |
| 821 | 998 | 1,015 | 946 | |||||||
|
|
|
|
|
|
| ||||||||||
All Other |
| 186 |
| 152 |
| 64 | ||||||||||
All Other | 271 | 230 | 216 | |||||||||||||
Polycrystalline silicon | 194 | |||||||||||||||
Total All Other | 465 | 230 | 216 | |||||||||||||
| $ | 10,116 |
| $ | 9,390 |
| $ | 9,111 | ||||||||
Net sales of reportable segments and All Other | 11,452 | 11,656 | 11,398 | |||||||||||||
Impact of foreign currency movements (1) | (44) | (153) | (108) | |||||||||||||
Cumulative adjustment related to customer contract (2) | (105) | |||||||||||||||
Consolidated net sales | $ | 11,303 | $ | 11,503 | $ | 11,290 |
(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies, Environmental Technologies and Life Sciences segments.
(2)Amount represents the negative impact of a cumulative adjustment recorded during the first quarter of 2020 to reduce revenue in the amount of $105 million. 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 is exiting its production of LCD panels. Refer to Note 5 (Revenue) to the consolidated financial statements for additional information.
20.Reportable Segments (continued)
Information concerning principal geographic areas was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||
| Net |
| Long-lived |
| Net |
| Long-lived |
| Net |
| Long-lived | Net | Long-lived | Net | Long-lived | Net | Long-lived | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
North America: | ||||||||||||||||||||||||||||||||||
United States | $ | 3,146 |
| $ | 6,402 |
| $ | 2,625 |
| $ | 6,473 |
| $ | 2,719 |
| $ | 8,241 | $ | 3,412 | $ | 8,718 | $ | 3,760 | $ | 7,654 | $ | 3,569 | $ | 7,538 | |||||
Canada |
| 287 |
|
| 138 |
| 282 |
|
| 142 |
| 244 |
|
| 144 | 274 | 121 | 277 | 126 | 296 | 127 | |||||||||||||
Mexico |
| 27 |
|
| 174 |
| 50 |
|
| 134 |
| 37 |
|
| 135 | 75 | 239 | 55 | 267 | 53 | 200 | |||||||||||||
Total North America |
| 3,460 |
|
| 6,714 |
| 2,957 |
|
| 6,749 |
| 3,000 |
|
| 8,520 | 3,761 | 9,078 | 4,092 | 8,047 | 3,918 | 7,865 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Asia Pacific: | ||||||||||||||||||||||||||||||||||
Japan |
| 455 |
|
| 1,015 |
| 450 |
|
| 1,008 |
| 440 |
|
| 1,160 | 505 | 583 | 441 | 893 | 415 | 1,148 | |||||||||||||
Taiwan |
| 846 |
|
| 2,357 |
| 840 |
|
| 2,347 |
| 841 |
|
| 2,301 | 887 | 2,247 | 880 | 2,280 | 921 | 2,326 | |||||||||||||
China |
| 2,230 |
|
| 1,955 |
| 2,083 |
|
| 1,140 |
| 1,869 |
|
| 1,036 | 3,734 | 4,469 | 3,096 | 3,816 | 2,716 | 2,644 | |||||||||||||
Korea |
| 1,286 |
|
| 3,858 |
| 1,444 |
|
| 3,413 |
| 1,501 |
|
| 3,552 | 748 | 3,597 | 1,051 | 3,625 | 1,259 | 3,736 | |||||||||||||
Other |
| 378 |
|
| 160 |
| 363 |
|
| 167 |
| 331 |
|
| 98 | 340 | 83 | 401 | 86 | 436 | 85 | |||||||||||||
Total Asia Pacific |
| 5,195 |
|
| 9,345 |
| 5,180 |
|
| 8,075 |
| 4,982 |
|
| 8,147 | 6,214 | 10,979 | 5,869 | 10,700 | 5,747 | 9,939 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Europe: | ||||||||||||||||||||||||||||||||||
Germany |
| 426 |
|
| 201 |
| 363 |
|
| 154 |
| 326 |
|
| 189 | 378 | 579 | 435 | 546 | 451 | 508 | |||||||||||||
Other |
| 701 |
|
| 1,548 |
| 617 |
|
| 1,354 |
| 565 |
|
| 1,297 | 838 | 931 | 886 | 914 | 905 | 1,147 | |||||||||||||
Total Europe |
| 1,127 |
|
| 1,749 |
| 980 |
|
| 1,508 |
| 891 |
|
| 1,486 | 1,216 | 1,510 | 1,321 | 1,460 | 1,356 | 1,655 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
All Other |
| 334 |
|
| 46 |
| 273 |
|
| 44 |
| 238 |
|
| 36 | 261 | 83 | 374 | 71 | 377 | 61 | |||||||||||||
Total | $ | 10,116 |
| $ | 17,854 |
| $ | 9,390 |
| $ | 16,376 |
| $ | 9,111 |
| $ | 18,189 | $ | 11,452 | $ | 21,650 | $ | 11,656 | $ | 20,278 | $ | 11,398 | $ | 19,520 |
(1)Net sales are attributed to countries based on location of customer. (2)Long-lived assets primarily include investments, plant and equipment, goodwill and other intangible assets. (3)Includes HSG’s net sales and long-lived assets as of December 31, 2020. Refer to Note 3 (Investments) and Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for more information.
|
|
|
|
|
Corning Incorporated and Subsidiary Companies
Schedule II – Valuation Accounts and ReservesQualifying Accounts
(in millions)
|
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Year ended December 31, 2017 |
| Balance at |
| Additions |
| Net |
| Balance at | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and allowances |
| $ | 59 |
| $ | 1 |
|
|
|
| $ | 60 |
Deferred tax valuation allowance |
| $ | 270 |
| $ | 241 |
| $ | 55 |
| $ | 456 |
Accumulated amortization of purchased intangible assets |
| $ | 325 |
| $ | 75 |
| $ | 3 |
| $ | 397 |
Reserves for accrued costs of business restructuring |
| $ | 5 |
|
|
|
| $ | 5 |
|
|
|
Year ended December 31, 2020 | Balance at | Additions | Net | Balance at | ||||||||
Doubtful accounts | $ | 41 | $ | 5 | $ | 46 | ||||||
Deferred tax valuation allowance | $ | 215 | $ | 27 | $ | 75 | $ | 167 |
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|
|
Year ended December 31, 2016 |
| Balance at |
| Additions |
| Net |
| Balance at | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and allowances |
| $ | 48 |
| $ | 11 |
|
|
|
| $ | 59 |
Deferred tax valuation allowance |
| $ | 238 |
| $ | 55 |
| $ | 23 |
| $ | 270 |
Accumulated amortization of purchased intangible assets |
| $ | 265 |
| $ | 64 |
| $ | 4 |
| $ | 325 |
Reserves for accrued costs of business restructuring |
| $ | 3 |
| $ | 15 |
| $ | 13 |
| $ | 5 |
Year ended December 31, 2019 | Balance at | Additions | Net | Balance at | ||||||||
Doubtful accounts | $ | 35 | $ | 6 | $ | 41 | ||||||
Deferred tax valuation allowance | $ | 317 | $ | 10 | $ | 112 | $ | 215 |
|
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|
|
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|
|
Year ended December 31, 2015 |
| Balance at |
| Additions |
| Net |
| Balance at | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and allowances |
| $ | 47 |
| $ | 1 |
|
|
|
| $ | 48 |
Deferred tax valuation allowance |
| $ | 298 |
| $ | 30 |
| $ | 90 |
| $ | 238 |
Accumulated amortization of purchased intangible assets |
| $ | 216 |
| $ | 49 |
|
|
|
| $ | 265 |
Reserves for accrued costs of business restructuring |
| $ | 44 |
|
|
|
| $ | 41 |
| $ | 3 |
Year ended December 31, 2018 | Balance at | Additions | Net | Balance at | ||||||||
Doubtful accounts | $ | 32 | $ | 3 | $ | 35 | ||||||
Deferred tax valuation allowance | $ | 456 | $ | 17 | $ | 156 | $ | 317 |
(unaudited)
(In millions, except per share amounts)
|
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2017 | First |
| Second |
| Third |
| Fourth |
| Total | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 2,375 |
| $ | 2,497 |
| $ | 2,607 |
| $ | 2,637 |
| $ | 10,116 |
Gross margin | $ | 957 |
| $ | 985 |
| $ | 1,056 |
| $ | 1,034 |
| $ | 4,032 |
Equity in earnings of affiliated companies | $ | 80 |
| $ | 37 |
| $ | 31 |
| $ | 213 |
| $ | 361 |
Benefit (provision) for income taxes | $ | 66 |
| $ | (153) |
| $ | (89) |
| $ | (1,978) |
| $ | (2,154) |
Net income (loss) attributable to Corning | $ | 86 |
| $ | 439 |
| $ | 390 |
| $ | (1,412) |
| $ | (497) |
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Basic earnings (loss) per common share | $ | 0.07 |
| $ | 0.46 |
| $ | 0.41 |
| $ | (1.66) |
| $ | (0.66) |
Diluted earnings (loss) per common share | $ | 0.07 |
| $ | 0.42 |
| $ | 0.39 |
| $ | (1.66) |
| $ | (0.66) |
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2016 | First |
| Second |
| Third |
| Fourth |
| Total | |||||
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Net sales | $ | 2,047 |
| $ | 2,360 |
| $ | 2,507 |
| $ | 2,476 |
| $ | 9,390 |
Gross margin | $ | 764 |
| $ | 951 |
| $ | 1,041 |
| $ | 990 |
| $ | 3,746 |
Equity in earnings of affiliated companies | $ | 59 |
| $ | 41 |
| $ | 19 |
| $ | 165 |
| $ | 284 |
Benefit (provision) for income taxes | $ | 304 |
| $ | 504 |
| $ | 27 |
| $ | (832) |
| $ | 3 |
Net income attributable to Corning Incorporated | $ | (368) |
| $ | 2,207 |
| $ | 284 |
| $ | 1,572 |
| $ | 3,695 |
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Basic (loss) earnings per common share | $ | (0.36) |
| $ | 2.06 |
| $ | 0.27 |
| $ | 1.64 |
| $ | 3.53 |
Diluted (loss) earnings per common share | $ | (0.36) |
| $ | 1.87 |
| $ | 0.26 |
| $ | 1.47 |
| $ | 3.23 |