Index

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20192020

OR

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  

  To  

Commission file number: 1-3247

CORNING INCORPORATED

(Exact name of registrant as specified in its charter)

`

New York

16-0393470

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One Riverfront Plaza, Corning, New York

14831

(Address of principal executive offices)

(Zip Code)

607-974-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

GLW

New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes

x

No

¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

x

No

¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated Filer

x

Accelerated filerFiler

¨

Non‑accelerated filerNon-Accelerated Filer

¨

Smaller reporting companyReporting Company

¨

Emerging growth companyGrowth Company

¨

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.

Yes

¨

No

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

¨

No

x

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

GLW

New York Stock Exchange (NYSE)

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding as of April 30, 20192020

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

784,754,231760,947,974 shares


© 20192020 Corning Incorporated. All Rights Reserved.

1


INDEX

INDEX


© 20192020 Corning Incorporated. All Rights Reserved.

2


CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF (LOSS) INCOME (LOSS)

(Unaudited; in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

Three Months Ended

Three Months Ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Net sales

 

$

2,812 

 

$

2,500 

$

2,391

$

2,812

Cost of sales

 

 

1,713 

 

 

1,545 

1,830

1,713

 

 

 

 

 

 

Gross margin

 

1,099 

 

955 

561

1,099

 

 

 

 

Operating expenses:

 

 

 

 

Selling, general and administrative expenses

 

 

401 

 

501 

395

401

Research, development and engineering expenses

 

 

249 

 

241 

261

249

Amortization of purchased intangibles

 

 

29 

 

19 

26

29

 

 

 

 

 

 

Operating income

 

420 

 

194 

Operating (loss) income

(121)

420

 

 

 

 

Equity in earnings of affiliated companies

 

25 

 

39 

14

25

Interest income

 

 

13 

6

7

Interest expense

 

(52)

 

(52)

(64)

(52)

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

 

184 

 

(622)

Translated earnings contract gain, net

68

184

Other expense, net

 

 

(9)

 

 

(37)

(11)

(9)

 

 

 

 

 

 

Income (loss) before income taxes

 

575 

 

(465)

Provision for income taxes (Note 5)

 

 

(76)

 

 

(124)

(Loss) income before income taxes

(108)

575

Benefit (provision) for income taxes (Note 5)

12

(76)

 

 

 

 

 

 

Net income (loss) attributable to Corning Incorporated

 

$

499 

 

$

(589)

Net (loss) income attributable to Corning Incorporated

$

(96)

$

499

 

 

 

 

 

 

Earnings (loss) per common share attributable to
Corning Incorporated:

 

 

 

 

(Loss) earnings per common share attributable to
Corning Incorporated:

Basic (Note 6)

 

$

0.61 

 

$

(0.72)

$

(0.16)

$

0.61

Diluted (Note 6)

 

$

0.55 

 

$

(0.72)

$

(0.16)

$

0.55

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


© 20192020 Corning Incorporated. All Rights Reserved.

3


Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)

(Unaudited; in millions)



 

 

 

 

 

 



 

 

 

 

 

 

   

 

Three Months Ended

   

 

March 31,

   

 

2019

 

2018

   

 

 

 

 

 

 

Net income (loss) attributable to Corning Incorporated

 

$

499 

 

$

(589)



 

 

 

 

 

 

Foreign currency translation adjustments and other
  (Note 12)

 

 

(110)

 

 

264 

Net unrealized gains on investments

 

 

 

 

 

Unamortized (losses) gains and prior service credits
  for postretirement benefit plans (Note 12)

 

 

(52)

 

 

Net unrealized gains on designated hedges

 

 

 

 

 

Other comprehensive (loss) income, net of tax

 

 

(156)

 

 

265 



 

 

 

 

 

 

Comprehensive income (loss) attributable to Corning Incorporated

 

$

343 

 

$

(324)

 

Three Months Ended

 

March 31,

 

2020

2019

 

Net (loss) income attributable to Corning Incorporated

$

(96)

$

499

Foreign currency translation adjustments and other

(265)

(110)

Net unrealized gains on investments

1

Unamortized losses and prior service costs
  for postretirement benefit plans

(52)

Net unrealized (losses) gains on designated hedges

(61)

5

Other comprehensive loss, net of tax (Note 12)

(326)

(156)

Comprehensive (loss) income attributable to
  Corning Incorporated

$

(422)

$

343

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


© 20192020 Corning Incorporated. All Rights Reserved.

4


Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

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

 

 

 

 

 

March 31,

 

December 31,

March 31,

December 31,

 

2019

 

2018

2020

2019

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

1,456 

 

$

2,355 

$

2,025

$

2,434

Trade accounts receivable, net of doubtful accounts and allowances - $69 and $64

 

1,974 

 

1,940 

Inventories, net of inventory reserves - $182 and $182 (Note 7)

 

2,190 

 

2,037 

Trade accounts receivable, net of doubtful accounts and allowances - $44 and $41

1,708

1,836

Inventories, net of inventory reserves - $208 and $201 (Note 7)

2,347

2,320

Other current assets

 

 

729 

 

 

702 

866

873

Total current assets

 

 

6,349 

 

 

7,034 

6,946

7,463

 

 

 

 

Investments

 

346 

 

376 

320

334

Property, plant and equipment, net of accumulated depreciation - $12,136 and $11,932

 

14,878 

 

14,895 

Property, plant and equipment, net of accumulated depreciation - $13,187 and $12,995

14,932

15,337

Goodwill, net

 

1,930 

 

1,936 

1,918

1,935

Other intangible assets, net

 

1,265 

 

1,292 

1,149

1,185

Deferred income taxes (Note 5)

 

1,051 

 

951 

1,181

1,157

Other assets

 

 

1,502 

 

 

1,021 

1,413

1,487

 

 

 

 

 

 

Total Assets

 

$

27,321 

 

$

27,505 

$

27,859

$

28,898

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

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

 

$

 

$

$

12

$

11

Accounts payable

 

1,278 

 

1,456 

1,250

1,587

Other accrued liabilities (Note 3 and Note 9)

 

 

1,774 

 

 

1,851 

1,929

1,923

Total current liabilities

 

 

3,059 

 

 

3,311 

3,191

3,521

 

 

 

 

Long-term debt

 

6,018 

 

5,994 

7,815

7,729

Postretirement benefits other than pensions (Note 8)

 

659 

 

662 

Postretirement benefits other than pensions

671

671

Other liabilities (Note 3 and Note 9)

 

 

3,879 

 

 

3,652 

3,895

3,980

Total liabilities

 

 

13,615 

 

 

13,619 

15,572

15,901

 

 

 

 

 

 

Commitments, contingencies and guarantees (Note 3)

 

 

 

 

 

 

Shareholders’ equity (Note 12):

 

 

 

 

Convertible preferred stock, Series A – Par value $100 per share;
Shares authorized 3,100; Shares issued: 2,300

 

2,300 

 

2,300 

Common stock – Par value $0.50 per share; Shares authorized 3.8 billion;
Shares issued: 1,715 million and 1,713 million

 

857 

 

857 

Convertible preferred stock, Series A – Par value $100 per share;
Shares authorized 3,100; Shares issued: 2,300

2,300

2,300

Common stock – Par value $0.50 per share; Shares authorized 3.8 billion;
Shares issued: 1,719 million and 1,718 million

859

859

Additional paid-in capital – common stock

 

14,243 

 

14,212 

14,340

14,323

Retained earnings

 

16,489 

 

16,303 

16,114

16,408

Treasury stock, at cost; Shares held: 933 million and 925 million

 

(19,116)

 

(18,870)

Treasury stock, at cost; Shares held: 960 million and 956 million

(19,918)

(19,812)

Accumulated other comprehensive loss

 

 

(1,166)

 

 

(1,010)

(1,497)

(1,171)

Total Corning Incorporated shareholders’ equity

 

 

13,607 

 

 

13,792 

12,198

12,907

Noncontrolling interests

 

 

99 

 

 

94 

89

90

Total equity

 

 

13,706 

 

 

13,886 

12,287

12,997

 

 

 

 

 

 

Total Liabilities and Equity

 

$

27,321 

 

$

27,505 

$

27,859

$

28,898

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


© 20192020 Corning Incorporated. All Rights Reserved.

5


Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

 

 

 

 

 

 

 

 

 

Three Months Ended

Three Months Ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income (loss)

 

$

499 

 

$

(589)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

Net (loss) income

$

(96)

$

499 

Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:

Depreciation

 

306 

 

304 

356 

306 

Amortization of purchased intangibles

 

29 

 

19 

26 

29 

Loss on disposal of assets

60 

Severance charges

77 

Equity in earnings of affiliated companies

 

(25)

 

(39)

(14)

(25)

Deferred tax (benefit) provision

 

(40)

 

16 

Incentives and customer deposits

 

 

276 

Translated earnings contract (gain) loss

 

(184)

 

622 

Unrealized translation losses (gains) on transactions

 

 

(63)

Deferred tax benefit

(40)

(40)

Customer deposits and incentives

125 

Translated earnings contract gain

(68)

(184)

Unrealized translation losses on transactions

33 

Tax assessment refunds

101 

Severance payments

(75)

Changes in certain working capital items:

 

 

 

 

Trade accounts receivable

 

(36)

 

94 

43 

(36)

Inventories

 

(159)

 

(98)

(67)

(159)

Other current assets

 

(97)

 

(92)

(10)

(97)

Accounts payable and other current liabilities

 

(299)

 

(162)

(207)

(299)

Other, net

 

 

(33)

 

 

32 

(33)

Net cash (used in) provided by operating activities

 

 

(29)

 

 

320 

Net cash provided by (used in) operating activities

248 

(29)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

Capital expenditures

 

(524)

 

(655)

(545)

(524)

Realized gains on translated earnings contracts

 

20 

 

13 

11 

20 

Other, net

 

 

21 

 

 

(2)

(5)

21 

Net cash used in investing activities

 

 

(483)

 

 

(644)

(539)

(483)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

Proceeds from the exercise of stock options

 

23 

 

21 

Proceeds from issuance of long-term debt, net

200 

Repurchases of common stock for treasury

 

(257)

 

(800)

(105)

(257)

Dividends paid

 

(181)

 

(177)

(192)

(181)

Other, net

 

 

22 

 

 

(3)

45 

Net cash used in financing activities

 

 

(393)

 

 

(959)

(94)

(393)

Effect of exchange rates on cash

 

 

 

 

62 

(24)

Net decrease in cash and cash equivalents

 

 

(899)

 

 

(1,221)

(409)

(899)

Cash and cash equivalents at beginning of period

 

 

2,355 

 

 

4,317 

2,434 

2,355 

Cash and cash equivalents at end of period

 

$

1,456 

 

$

3,096 

$

2,025 

$

1,456 

 

 

 

 

 

 

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


© 20192020 Corning Incorporated. All Rights Reserved.

6


Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited; in millions)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

Convertible preferred stock

 

 

Common Stock

 

 

Additional paid-in capital common

 

 

Retained Earnings

 

 

Treasury Stock

 

 

Accumulated other comprehensive loss

 

 

Total Corning Incorporated shareholders' equity

 

 

Non-controlling interests

 

 

Total

Balance, January 1, 2019

$

2,300 

 

$

857 

 

$

14,212 

 

$

16,303 

 

$

(18,870)

 

$

(1,010)

 

$

13,792 

 

$

94 

 

$

13,886 

Net income

 

 

 

 

 

 

 

 

 

 

499 

 

 

 

 

 

 

 

 

499 

 

 

 

 

505 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(156)

 

 

(156)

 

 

 

 

 

(156)

Purchase of common stock
  for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

(244)

 

 

 

 

 

(244)

 

 

 

 

 

(244)

Shares issued to benefit plans
  and for option exercises

 

 

 

 

 

 

 

31 

 

 

 

 

 

 

 

 

 

 

 

31 

 

 

 

 

 

31 

Common Dividends
  ($.20 per share)

 

 

 

 

 

 

 

 

 

 

(158)

 

 

 

 

 

 

 

 

(158)

 

 

 

 

 

(158)

Preferred Dividends
  ($10,625 per share)

 

 

 

 

 

 

 

 

 

 

(24)

 

 

 

 

 

 

 

 

(24)

 

 

 

 

 

(24)

Other, net (1)

 

 

 

 

 

 

 

 

 

 

(131)

 

 

(2)

 

 

 

 

 

(133)

 

 

(1)

 

 

(134)

Balance, March 31, 2019

$

2,300 

 

$

857 

 

$

14,243 

 

$

16,489 

 

$

(19,116)

 

$

(1,166)

 

$

13,607 

 

$

99 

 

$

13,706 

(In millions)

Convertible preferred stock

Common Stock

Additional paid-in capital common

Retained Earnings

Treasury Stock

Accumulated other comprehensive loss

Total Corning Incorporated shareholders' equity

Non-controlling interests

Total

Balance, December 31, 2019

$

2,300

$

859

$

14,323

$

16,408

$

(19,812)

$

(1,171)

$

12,907

$

90

$

12,997

Net loss

(96)

(96)

(96)

Other comprehensive loss

(326)

(326)

(1)

(327)

Purchase of common stock
  for treasury

(105)

(105)

(105)

Shares issued to benefit plans
  and for option exercises

17

17

17

Common Dividends
  ($0.22 per share)

(168)

(168)

(168)

Preferred Dividends
  ($10,625 per share)

(24)

(24)

(24)

Other, net

(6)

(1)

(7)

(7)

Balance, March 31, 2020

$

2,300

$

859

$

14,340

$

16,114

$

(19,918)

$

(1,497)

$

12,198

$

89

$

12,287

(1)

Adjustments to beginning retained earnings include the impact of an accounting change recorded upon adoption of the new standard for reclassification of stranded tax effects in accumulated other comprehensive income (“AOCI”) in the amount of $53 million and a net reduction of $186 million from an equity affiliate’s adoption of the new revenue standard.

(In millions)

Convertible preferred stock

Common Stock

Additional paid-in capital common

Retained Earnings

Treasury Stock

Accumulated other comprehensive loss

Total Corning Incorporated shareholders' equity

Non-controlling interests

Total

Balance, December 31, 2018

$

2,300

$

857

$

14,212

$

16,303

$

(18,870)

$

(1,010)

$

13,792

$

94

$

13,886

Net income

499

499

6

505

Other comprehensive loss

(156)

(156)

(156)

Purchase of common stock
  for treasury

(244)

(244)

(244)

Shares issued to benefit plans
  and for option exercises

31

31

31

Common Dividends
  ($0.20 per share)

(158)

(158)

(158)

Preferred Dividends
  ($10,625 per share)

(24)

(24)

(24)

Other, net (1)

(131)

(2)

(133)

(1)

(134)

Balance, March 31, 2019

$

2,300

$

857

$

14,243

$

16,489

$

(19,116)

$

(1,166)

$

13,607

$

99

$

13,706



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

Convertible preferred stock

 

 

Common Stock

 

 

Additional paid-in capital common

 

 

Retained Earnings

 

 

Treasury Stock

 

 

Accumulated other comprehensive loss

 

 

Total Corning Incorporated shareholders' equity

 

 

Non-controlling interests

 

 

Total

Balance, January 1, 2018

$

2,300 

 

$

854 

 

$

14,089 

 

$

15,930 

 

$

(16,633)

 

$

(842)

 

$

15,698 

 

$

72 

 

$

15,770 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

(589)

 

 

 

 

 

 

 

 

(589)

 

 

 

 

(586)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

265 

 

 

265 

 

 

 

 

 

265 

Purchase of common stock for
  treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

(814)

 

 

 

 

 

(814)

 

 

 

 

 

(814)

Shares issued to benefit plans
  and for option exercises

 

 

 

 

 

 

 

30 

 

 

 

 

 

 

 

 

 

 

 

30 

 

 

 

 

 

30 

Common Dividends
  ($.18 per share)

 

 

 

 

 

 

 

 

 

 

(153)

 

 

 

 

 

 

 

 

(153)

 

 

 

 

 

(153)

Preferred Dividends
  ($10,625 per share)

 

 

 

 

 

 

 

 

 

 

(24)

 

 

 

 

 

 

 

 

(24)

 

 

 

 

 

(24)

Other, net

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

$

2,300 

 

$

854 

 

$

14,119 

 

$

15,166 

 

$

(17,449)

 

$

(577)

 

$

14,413 

 

$

75 

 

$

14,488 

(1)Adjustments to beginning retained earnings include the effect of the accounting change we recorded upon adoption of the new standard for reclassification of stranded tax effects in accumulated other comprehensive income in the amount of $53 million, and a $(186) million, net of tax, effect from an equity affiliate’s adoption of the new revenue standard.

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


© 20192020 Corning Incorporated. All Rights Reserved.

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CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation

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

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with Corning’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 20182019 (“20182019 Form 10-K”).

The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The novel coronavirus (“COVID-19”) pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may impact future estimates including, but not limited to, our 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 our retirement benefit plans and discount rate assumptions.

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

LeasesNew Accounting Standards

Corning leases certain real estate, vehicles, and equipment from third parties. On January 1, 20192020, we adopted Accounting Standards Update (“ASU”) No. 2016-13 ASC (Topic 326), Financial Instruments - Credit Losses. The ASU introduces a new accounting model, the new leasing standard.  Corning classifies leases as either financing or operating.  Operating leases are included in other assets with the corresponding liability in other accrued liabilitiesCurrent Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and other liabilities on our 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 our consolidated balance sheets.  Leases where we are the lessor are not significant.

Lease expense is recognized onadditional disclosures related to credit risk. The CECL model utilizes 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”) asset and lease liability when considered to be reasonably certain to be exercised.  When the implicit rate is unknown, we use our incremental borrowing rate based on commencement date in determining the present value of lease payments. 

Our leases do not include residual value guarantees.  We are not the primary beneficiary in or have other forms of variable interests with the lessor of the leased assets.  The impact to the balance sheet for operating leases is a gross-uplifetime expected credit loss measurement objective for the additionrecognition of ROUcredit losses at the time the financial asset is originated or acquired. We adopted the CECL model to recognize credit losses of financial assets and liabilities relating to the operating leases in the amountusing a modified retrospective method of $449 million at adoption.  The impact to the balance sheet for financing leases was not material.

Corning has elected the following practical expedients and accounting policy elections to apply the new lease accounting standard at its effective date as of January 1, 2019:  

·

Leases of less than 12 months in duration to be recorded as expense only;

·

Account for lease and non-lease components of a contract as a single lease component; and

·

Comparative reporting of prior periods under ASC 840 not restated due to modified retrospective implementation.

At adoption, Corning recorded a nominal cumulative-effect adjustment to beginning retained earnings.

Refer to Note 4 (Leases) to the consolidated financial statements for additional information.

© 2019 Corning Incorporated. All Rights Reserved.

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Revenue

One of Corning’s equity affiliates adopted the new revenue standard on January 1, 2019.  2020. The impact of adopting the new standard to Corning’sour financial statements was a netnominal reduction of $186 million to 2019 beginning retained earnings.  Timing of revenue recognition for certain open performance obligations as measured at January 1, 2019 under the new standard was approximately $239 million with offsetting deferred tax impacts of $53 million.

Income Taxes

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income, which allows for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. We have adopted this new standard effective January 1, 2019. The impact of the new standard resulted in a reclassification of $53 million from accumulated other comprehensive income to beginning retained earnings.

Other Accounting Standards

No other accounting standards newly issued or adopted as of January 1, 2019,March 31, 2020, had a material impact on Corning’s financial statements or disclosures.

© 2020 Corning Incorporated. All Rights Reserved.

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2. Revenue

Revenue Disaggregation Table

The following table shows revenues by major product categories, similar to our 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 amount of revenue for Telecommunications products, our product category revenues are recognized at point in time when control transfers to the customer.

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

 

 

 

 

 

 

 

 

 

Three Months Ended

Three Months Ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Display products

 

$

795 

 

$

732 

$

633

$

795

 

 

 

 

Telecommunication products

 

1,064 

 

886 

791

1,064

 

 

 

 

Specialty glass products

 

309 

 

278 

352

309

 

 

 

 

Environmental substrate and filter products

 

351 

 

322 

307

351

 

 

 

 

Life science products

 

239 

 

232 

251

239

 

 

 

 

All Other

 

54 

 

50 

57

54

Total Revenue

$

2,391

$

2,812

Impact of foreign currency movements (1)

33

38

Cumulative adjustment related to customer contract

105

Net sales of reportable segments and All Other

$

2,529

$

2,850

 

$

2,812 

 

$

2,500 

 

 

 

 

(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies and Environmental Technologies segments.

© 2019At the end of 2015, Corning Incorporated. All Rights Reserved.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 ($212 million) of the commercial benefit asset related to the long-term supply agreement 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 their decision to exit its production of LCD panels by the end of 2020. Due to this announcement, Corning recorded a cumulative adjustment of $105 million as a reduction to revenue and will reflect the remaining balance as a reduction to revenue over the remainder of the current year. Due to the one-time nature of this item, we have excluded it from segment results. However, it is included in our reconciliation from segment net income (loss) to consolidated net (loss) income.

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Refer to Note 13 (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. The majorityMost 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 our products and their respective manufacturing processes.

Contract liabilities include deferred revenues, other advanced payments and customer deposits. Deferred revenue and other advanced payments are not significant to our operations and are classified as part of other currentaccrued liabilities in our financial statements. Customer deposits are predominately related to Display products and are classified as part of other currentaccrued liabilities and other long- term liabilities as appropriate, and are disclosed below.

We treat shipping and handling fees as a fulfillment cost and not as a separate performance obligation under the terms of our revenue contracts due to the perfunctory nature of the shipping and handling obligations.

© 2020 Corning Incorporated. All Rights Reserved.

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Customer Deposits

As of March 31, 20192020, and December 31, 2018,2019, Corning had customer deposits of approximately $1.1 billion and $1.0 billion.billion, respectively. The majority of these representwere 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 ten10 years. As glass is shipped to customers, Corning will recognize revenue and issue credit memoranda to reduce the amount of the customer deposit liability, which are applied against customer receivables resulting from the sale of glass. In the three months ended March 31, 2019 and 2018, no2020, a credit memorandamemorandum of $41 million was issued; 0 such memorandums were issued.  issued in the three months ended March 31, 2019. As of March 31, 20192020, and December 31, 2018,2019, $907 million and $922$927 million were recorded as other long-term liabilities, respectively. The remaining $84$192 million and $54$104 million, respectively, were classified as other current liabilities.

3. Commitments, Contingencies and Guarantees

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, 2016, the Company’s liability under the Plan was $290 million, which is required to be paid through a series of fixed payments beginningthat began in the second quarter of 2017. At March 31,Payments of $50 million and $35 million were made in June 2019 theand June 2018, respectively. The total amount of remaining payments due in years 20192020 through 2023 is $185$135 million, of which $50$35 million is duewill be paid in the second quarter of 20192020 and is classified as a current liability. The remaining $135$100 million is classified as a non-current liability.

Non-PCC Asbestos Claims

Corning is a defendant in certain cases alleging injuries from asbestos unrelated to PCC (the “non-PCC asbestos claims”) which had been stayed pending the confirmation of the Plan. The stay was lifted on August 25, 2016. At DecemberMarch 31, 20182020 and MarchDecember 31, 2019, the amount of the reserve for these non-PCC asbestos claims was estimated to be $146$98 million. The reserve balance as of March 31, 20192020 represents the undiscounted projection of claims and related legal fees for the estimated life of the litigation.

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.  With the realignment, Corning retained its indirect ownership interest in the Hemlock Semiconductor Group (“HSG”) and formed a new entity which had been capitalized by Dow Corning with $4.8 billion. Following the realignment, Corning no longer owned any interest in Dow Corning. With the realignment, Corning agreed to indemnify Dow Corning for 50% of Dow Corning’s non-ordinary course, pre-closing liabilities to the extent such liabilities exceed the amounts reserved for them by Dow Corning as of May 31, 2016, 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.

© 2019 Corning Incorporated. All Rights Reserved.

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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 funded 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.  Atliability, subject to certain conditions and limits. As of March 31, 2019,2020, Dow Corning had recorded a reserve for breast implant litigation of $263$165 million. As a result, Corning does not believe its indemnity obligation for Dow Corning’s breast implant litigation liability, if any, will be material.

© 2020 Corning Incorporated. All Rights Reserved.

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Dow Corning Bankruptcy Pendency Interest Claims

As a separate matter arising from the bankruptcy proceedings, Dow Corning ishas been defending claims asserted by 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 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 Corning formally notified Corning of certain environmental matters for which Dow Corning asserts that it has or will experience losses arising from remediation and response at a number of sites. In the event Dow Corning’sCorning incurs liability 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 March 31, 2019,2020, the Company cannot estimate the fair value of the indemnification owed to Dow Corning, had recorded a reserve for these claims of $83 million.if any.

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 March 31, 20192020 and December 31, 2018,2019, Corning had accrued approximately $28$40 million and $30$41 million, 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.

4.   Leases

We have operating and finance leases for real estate, vehicles, and equipment. 

We incurred lease expense in the amount of $42 million for the three months ended March 31, 2019.  Operating and Financing lease costs were $37 million and $5 million, respectively.  Short-term rental expense, for agreements less than one year in duration, is immaterial.  Financing lease cost was comprised of expenses for Depreciation of right-of-use assets and Interest on lease liabilities in the amounts of $2 million and $3 million, respectively.

Cash paid for amounts included in the measurement of lease liabilities totaled $29 million for the three months ended March 31, 2019.  Operating cash flows from operating and financing leases were $26 million and $3 million, respectively.  Financing cash flows from finance leases were nominal.

© 2019 Corning Incorporated. All Rights Reserved.

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Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):

As of March 31, 2019

Operating Leases

Operating lease right-of-use assets, net (1)

$

470 

Other current liabilities

$

54 

Operating lease liabilities (2)

421 

Total operating lease liabilities

$

475 

Finance Leases

Property and equipment, at cost

$

171 

Accumulated depreciation

(49)

Property and equipment, net

$

122 

Current portion of long-term debt

$

Long-term debt

174 

Total finance lease liabilities

$

179 

(1)

Included in other assets.

(2)

Included in other liabilities.

The weighted average remaining lease terms for operating and financing leases are 11.9 years and 6.4 years, respectively.  The weighted average discount rates for operating and financing leases are 3.9% and 6.0%, respectively.

As of March 31, 2019, maturities of lease liabilities under the new lease standard are as follows (in millions):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

After 2023

 

 

Gross Total

 

 

Imputed Discount

 

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Leases

 

$

69 

 

$

86 

 

$

70 

 

$

62 

 

$

55 

 

$

352 

 

$

694 

 

$

(219)

 

$

475 

Financing Leases

 

 

10 

 

 

13 

 

 

13 

 

 

14 

 

 

131 

 

 

52 

 

 

233 

 

 

(54)

 

 

179 

As of December 31, 2018, maturities of lease liabilities under the previous lease standard were as follows (in millions):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 



 

Total

 

Less than
1 year

 

1 to 3
years

 

3 to 5
years

 

5 years and
thereafter

Capital leases and financing obligations 

 

$

393 

 

$

 

$

11 

 

$

132 

 

$

246 

Imputed interest on capital leases and
  financing obligations

 

 

205 

 

 

20 

 

 

38 

 

 

37 

 

 

110 

Minimum rental commitments 

 

 

581 

 

 

82 

 

 

133 

 

 

111 

 

 

255 

As of March 31, 2019, we have additional operating leases, primarily for new production facilities and equipment, that have not yet commenced of approximately $450 million on an undiscounted basis.  These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of 10 years to 25 years.

5.   Income Taxes

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



 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018



 

 

 

 

 

 

Provision for income taxes

 

$

(76)

 

$

(124)

Effective tax rate

 

 

13.2% 

 

 

26.7% 

© 2019 Corning Incorporated. All Rights Reserved.

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Index

For the three months ended March 31, 2019, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to the following:

·

Rate differences on income (loss) of consolidated foreign companies offset by;

·

Expected benefits related to foreign derived intangible income (“FDII”); and

·

The release of foreign valuation allowances on deferred tax assets that are now considered realizable from the restructuring of certain Israeli operations.

For the three months ended March 31, 2018, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to the following:

·

Additional tax expense of $172 million related to a preliminary agreement with the Internal Revenue Service (“IRS”) to settle the income tax audit for the years 2013 and 2014; and

·

A reduction in the tax benefit from domestic losses attributable to foreign exchange and losses on translated earnings contracts due to the anticipated impacts of the base erosion and anti-deferral tax (“BEAT”).

6.   Earnings (Loss) per Common Share

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



 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Net income (loss) attributable to Corning Incorporated

 

$

499 

 

$

(589)

Less:  Series A convertible preferred stock dividend

 

 

24 

 

 

24 

Net income (loss) available to common stockholders – basic

 

 

475 

 

 

(613)

Plus:  Series A convertible preferred stock dividend 

 

 

24 

 

 

 

Net income (loss) available to common stockholders – diluted

 

$

499 

 

$

(613)



 

 

 

 

 

 

Weighted-average common shares outstanding – basic

 

 

784 

 

 

848 

Effect of dilutive securities:

 

 

 

 

 

 

Employee stock options and other dilutive securities

 

 

 

 

 

Series A convertible preferred stock 

 

 

115 

 

 

 

Weighted-average common shares outstanding – diluted

 

 

908 

 

 

848 

Basic earnings (loss) per common share

 

$

0.61 

 

$

(0.72)

Diluted earnings (loss) per common share

 

$

0.55 

 

$

(0.72)



 

 

 

 

 

 

Antidilutive potential shares excluded from
  diluted earnings per common share:

 

 

 

 

 

 

Series A convertible preferred stock (1)

 

 

 

 

 

115 

Employee stock options and awards

 

 

 

 

 

11 

Total

 

 

 

 

 

126 



 

 

 

 

 

 

(1)

For the quarter ended March 31, 2018 the Series A preferred stock was anti-dilutive and therefore excluded from the calculation of diluted loss per share.

7.   Inventories, Net of Inventory Reserves

Inventories, net of inventory reserves comprise the following (in millions):



 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018

Finished goods

 

$

959 

 

$

854 

Work in process

 

 

416 

 

 

386 

Raw materials and accessories

 

 

410 

 

 

409 

Supplies and packing materials

 

 

405 

 

 

388 

Total inventories, net of inventory reserves

 

$

2,190 

 

$

2,037 

© 2019 Corning Incorporated. All Rights Reserved.

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8. Employee Retirement Plans

We have defined benefit pension plans covering certain domestic and international employees. Our funding policy is to contribute, over time, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During 2020, we expect to make cash contributions of $54 million to our international pension plans.

The following table summarizes the components of net periodic benefit cost for Corning’s defined benefit pension and postretirement health care and life insurance plans (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension benefits

 

Postretirement benefits

Pension benefits

Postretirement benefits

 

Three months ended

 

Three months ended

Three months ended

Three months ended

 

March 31,

 

March 31,

March 31,

March 31,

 

2019

 

2018

 

2019

 

2018

2020

2019

2020

2019

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

25 

 

$

25 

 

$

 

$

$

29

$

25

$

2

$

2

Interest cost

 

 

37 

 

 

32 

 

 

 

 

31

37

5

7

Expected return on plan assets

 

 

(43)

 

 

(47)

 

 

 

 

 

 

(49)

(43)

Amortization of prior service
cost (credit)

 

 

 

 

 

 

(2)

 

 

(1)

Total pension and postretirement
benefit expense

 

$

21 

 

$

12 

 

$

 

$

Amortization of prior service
cost (credit)

1

2

(1)

(2)

Total pension and postretirement
benefit expense

$

12

$

21

$

6

$

7

The components of net periodperiodic benefit cost other than the service cost component are included in the line item “Otherother expense, net”net, in the consolidated statements of (loss) income.

© 2020 Corning Incorporated. All Rights Reserved.

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Index

5. Income Taxes

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

Three Months Ended

March 31,

2020

2019

Benefit (provision) for income taxes

$

12

$

(76)

Effective tax rate

11.1%

(13.2%)

For the three months ended March 31, 2020, the effective income tax rate differed from the United States (“U.S.”) statutory rate of 21% primarily due to an adjustment to our permanently reinvested foreign income position, foreign valuation allowances on deferred tax assets, and certain non-deductible expenses for tax purposes.

For the three months ended March 31, 2019, the effective income tax rate differed from U.S. statutory rate of 21% primarily due to rate differences on income (loss) of consolidated foreign companies offset by expected benefits related to foreign derived intangible income (“FDII”) and the release of foreign valuation allowances on deferred tax assets that are now considered realizable from the restructuring of certain Israeli operations.

Corning Precision Materials 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 we will prevail in the appeal process. During the first three months of 2020, we received refunds of $101 million related to these claims. As of March 31, 2020, we recorded a non-current receivable of $336 million related to the appeals. As of December 31, 2019, we had recorded a current and non-current receivable of $33 million and $415 million, respectively.

6. (Loss) Earnings per Common Share

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

Three Months Ended

March 31,

2020

2019

Net (loss) income attributable to Corning Incorporated

$

(96)

$

499

Less: Series A convertible preferred stock dividend

24

24

Net (loss) income available to common stockholders – basic

(120)

475

Plus: Series A convertible preferred stock dividend 

24

Net (loss) income available to common stockholders – diluted

$

(120)

$

499

Weighted-average common shares outstanding – basic

760

784

Effect of dilutive securities:

Employee stock options and other dilutive securities

9

Series A convertible preferred stock (1)

115

Weighted-average common shares outstanding – diluted

760

908

Basic (loss) earnings per common share

$

(0.16)

$

0.61

Diluted (loss) earnings per common share

$

(0.16)

$

0.55

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

Series A convertible preferred stock (1)

115

Employee stock options and awards

11

Total

126

(1)For the quarter ended March 31, 2020, the Series A preferred stock was anti-dilutive; therefore, it was excluded from the calculation of diluted loss per share.

© 2020 Corning Incorporated. All Rights Reserved.

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Index

7. Inventories, Net of Inventory Reserves

Inventories, net of inventory reserves comprise the following (in millions):

March 31,

December 31,

2020

2019

Finished goods

$

991

$

973

Work in process

432

421

Raw materials and accessories

475

481

Supplies and packing materials

449

445

Total inventories, net of inventory reserves

$

2,347

$

2,320

8. Debt

Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $8.5 billion at March 31, 2020 and December 31, 2019, compared to recorded book values of $7.8 billion and $7.7 billion at March 31, 2020 and December 31, 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 had 0 outstanding commercial paper at March 31, 2020 and December 31, 2019.

Debt Issuances

2020

In the first quarter of 2020, Corning established two unsecured variable rate loan facilities for 1,050 million Chinese yuan, or $150 million USD, and 749 million Chinese yuan, or $105 million USD, each with a maturity of 5 years.  

The draws taken on the loan facilities through the end of the first quarter totaled 1,402 million Chinese yuan, or $200 million USD. These Chinese yuan-denominated proceeds will not be converted into U.S. dollars 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 U.S. dollar equivalent.

2019

There was no material debt activity in the first quarter of 2019.

On a quarterly basis, Corning will recognize the foreign currency translation gains and losses resulting from changes in exchange rates within accumulated other comprehensive (loss) income in shareholders’ equity. Cash proceeds from loans and debt issuances are disclosed as financing activities, and cash payments for interest will be disclosed as operating activities, in the consolidated statements of cash flows.

© 2020 Corning Incorporated. All Rights Reserved.

13


Index

9. Other Liabilities

Other liabilities follow (in millions):

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

March 31,

December 31,

 

2019

 

2018

2020

2019

Current liabilities:

 

 

 

 

Wages and employee benefits

 

$

405 

 

$

642 

$

465

$

565

Income taxes

 

237 

 

169 

169

182

Derivative instruments

 

43 

 

56 

Derivative instruments (Note 11)

143

100

Asbestos and other litigation (Note 3)

 

112 

 

113 

56

57

Customer deposits (Note 2)

192

104

Short-term leases

75

62

Other current liabilities

 

977 

 

871 

829

853

Other accrued liabilities

 

$

1,774 

 

$

1,851 

$

1,929

$

1,923

 

 

 

 

Non-current liabilities:

 

 

 

 

Defined benefit pension plan liabilities

 

$

843 

 

$

831 

$

970

$

980

Derivative instruments

 

237 

 

386 

Derivative instruments (Note 11)

150

165

Asbestos and other litigation (Note 3)

 

278 

 

279 

195

196

Investment in Hemlock Semiconductor Group ("HSG") (1)

 

172 

 

 

Investment in Hemlock Semiconductor Group (1)

253

270

Customer deposits (Note 2)

 

907 

 

922 

907

927

Deferred tax liabilities

 

331 

 

347 

251

325

Long-term leases

560

450

Other non-current liabilities

 

1,111 

 

887 

609

667

Other liabilities

 

$

3,879 

 

$

3,652 

$

3,895

$

3,980

(1)

The negative carrying value resulted from a one-time charge of $239 millionto this entity in 2019 due to the adoption of the new revenue standard.  This charge was offset by deferred tax impacts of $53 million.  The charge relates to timing of revenue recognition for open performance obligations as measured at January 1, 2019.  Most of these performance obligations are expected to be recognized within the next twelve months. 

(1)The negative carrying value resulted from a one-time charge to this entity in 2019 for the impairment of certain assets.

10. Hedging Activities

Cash Flow Hedges

Our cash flow hedging activities utilize over-the-counter (“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 customers and purchases from suppliers. The total gross notional values for foreign currency cash flow hedges are $1.1 billion and $2.1 billion at March 31, 2020 and December 31, 2019, respectively, with maturities spanning the years 2020 through 2023. Corning defers gains and losses related to the cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. At March 31, 2020, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax loss of $13 million.

As of March 31, 2020, a loss of $14 million was reclassified from accumulated other comprehensive loss into other expense, net, due to the de-designation of certain cash flow hedges related to our Japanese yen-denominated sales.

The effect of cash flow hedges on Corning’s consolidated statements of (loss) income and comprehensive (loss) income is not material for the three months ended March 31, 2020 and 2019.

Undesignated Hedges

Corning also uses OTC foreign exchange forward and option contracts that are not designated as hedging instruments for accounting purposes. The undesignated hedges limit exposures to foreign functional currency fluctuations related to certain subsidiaries’ monetary assets, monetary liabilities and net earnings in foreign currencies.

© 20192020 Corning Incorporated. All Rights Reserved.

14


Index

10.  Hedging Activities

Undesignated Hedges

The table below includes a total gross notional value for translated earnings contracts of $12.6$12.1 billion and $13.6$12.2 billion at March 31, 20192020 and December 31, 2018,2019, respectively. These include gross notional value for average rate forwards of $10.1$8.4 billion and $11.0$9.7 billion, zero-cost collars and purchased put or call options of $2.5$3.7 billion and $2.6$2.5 billion at March 31, 20192020 and December 31, 2018,2019, respectively. The majority of theour average rate forward contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning the years 2019-20222020-2023 and with gross notional values of $8.5$6.5 billion and $9.1$7.7 billion at March 31, 20192020 and December 31, 2018,2019, respectively. The average rate forward contracts also partially hedge the impacts of the South Korean won, Chinese yuan, euro, new Taiwan dollar and British pound translation on the Company’s projected net income. With respect to the zero-cost collars, the gross notional amount includes the value of both the put and call options. However, due to the nature of the zero-cost collars, only the put or the call option can be exercised at maturity.

The following tables summarizetable summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for March 31, 20192020 and December 31, 20182019 (in millions):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Asset derivatives

 

Liability derivatives



Gross notional amount

 

Balance

 

Fair value

 

Balance

 

Fair value



March 31,

 

Dec. 31,

 

sheet

 

March 31,

 

Dec. 31,

 

sheet

 

March 31,

 

Dec. 31,



2019

 

2018

 

location

 

2019

 

2018

 

location

 

2019

 

2018



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives
  designated as
  hedging
  instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange
  contracts (1)

$

336 

 

$

391 

 

Other current
assets

 

$

 

$

 

Other accrued liabilities

 

 

 

 

$

(2)



 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not
  designated as
  hedging
  instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange
  contracts, other

 

937 

 

 

900 

 

Other current
assets

 

 

 

 

 

Other accrued
liabilities

 

$

(1)

 

 

(7)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translated earnings
  contracts

 

12,640 

 

 

13,620 

 

Other current
assets

 

 

116 

 

 

94 

 

Other accrued
liabilities

 

 

(42)

 

 

(47)



 

 

 

 

 

 

Other assets

 

 

38 

 

 

43 

 

Other liabilities

 

 

(237)

 

 

(386)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives

$

13,913 

 

$

14,911 

 

 

 

$

168 

 

$

148 

 

 

 

$

(280)

 

$

(442)

Asset derivatives

Liability derivatives

Notional amount

Balance

Fair value

Balance

Fair value

March 31,

Dec. 31,

sheet

March 31,

Dec. 31,

sheet

March 31,

Dec. 31,

2020

2019

location

2020

2019

location

2020

2019

Derivatives
  designated as
  hedging
  instruments

Foreign exchange
  contracts

$

1,067 

$

2,123 

Other current
assets

$

11 

$

38 

Other accrued
liabilities

$

(24)

$

(7)

Other assets

12 

37 

Other liabilities

(14)

(4)

Derivatives not
  designated as
  hedging
  instruments

Foreign exchange
  and other contracts

6,831 

1,815 

Other current
assets

36 

Other accrued
liabilities

(37)

(19)

Other assets

44 

21 

Other liabilities

(58)

Translated earnings
  contracts

12,089 

12,166 

Other current
assets

126 

114 

Other accrued
liabilities

(82)

(74)

Other assets

54 

34 

Other liabilities

(78)

(161)

Total derivatives

$

19,987 

$

16,104 

$

283 

$

249 

$

(293)

$

(265)

(1)

Cash flow hedges with a typical duration of 24 months or less.

The effect of cash flow hedges on Corning’s consolidated statements of income (loss) and other comprehensive income (loss) is not material for the three months ended March 31, 2019 and 2018.

© 20192020 Corning Incorporated. All Rights Reserved.

15


Index

The following table summarizes the effect on the consolidated financial statements relating to Corning’s undesignated derivative financial instruments (in millions):



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Gain (loss) recognized in income



 

 

Three months ended



Location of gain/(loss)

 

March 31,

Undesignated derivatives

recognized in income

 

2019

 

2018



 

 

 

 

 

 

 

Foreign exchange contracts
  – balance sheet and loans

Other expense, net

 

$

(2)

 

$

(19)

Foreign currency hedges
  related to translated earnings (1)

Translated earnings
  contract gain (loss), net

 

 

184 

 

 

(622)



 

 

 

 

 

 

 

Total undesignated

 

 

$

182 

 

$

(641)

Effect of derivative instruments on the consolidated financial statements for the three months ended March 31,

Derivatives in hedging

Gain (loss) recognized in other
comprehensive income (OCI)

Location of gain (loss) reclassified from
accumulated OCI into income

Gain (loss) reclassified from
accumulated OCI into income

relationships

2020

2019

effective (ineffective)

2020

2019

Cash flow hedges

Net sales

$

Cost of sales

$

Foreign exchange contracts

$

(89)

$

Other expense, net (1)

(14)

Total cash flow hedges

$

(89)

$

$

(8)

$

Gain (loss) recognized in income

Three months ended

Location of gains

March 31,

Undesignated derivatives

recognized in income

2020

2019

Foreign exchange and other contracts
  – balance sheet, loans and other

Other income (expense), net (1)

$

1

$

(2)

Translated earnings contracts

Translated earnings
  contract gain, net

68

184

Total undesignated

$

69

$

182

(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.

© 2020 Corning Incorporated. All Rights Reserved.

16


Index

(1)  The impact to income was primarily driven by yen-denominated hedges of translated earnings.

11. Fair Value Measurements

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.

The following tables provide fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value measurements at reporting date using

Fair value measurements at reporting date using

 

 

 

 

Quoted prices in

 

Significant other

 

Significant

Quoted prices in

Significant other

Significant

 

 

 

 

active markets for

 

observable

 

unobservable

active markets for

observable

unobservable

 

March 31,

 

identical assets

 

inputs

 

inputs

March 31,

identical assets

inputs

inputs

 

2019

 

(Level 1)

 

(Level 2)

 

(Level 3)

2020

(Level 1)

(Level 2)

(Level 3)

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Other current assets (1)

 

$

124 

 

 

 

$

124 

 

 

 

$

173

$

173

Non-current assets:

 

 

 

 

 

 

 

 

 

Other assets (1)(2)

 

$

43 

 

 

 

$

43 

 

 

 

$

110

$

91

$

19

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Other accrued liabilities (1)

 

$

43 

 

 

 

$

43 

 

 

 

$

143

$

143

Non-current liabilities:

 

 

 

 

 

 

 

 

 

Other liabilities (1)(2)

 

$

257 

 

 

 

$

237 

 

$

20 

Other liabilities (1)

$

150

$

150

(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 Company’s renewable energy derivative contracts that was measured using unobservable (Level 3) inputs, in the amount of $19 million.

Fair value measurements at reporting date using

Quoted prices in

Significant other

Significant

active markets for

observable

unobservable

December 31,

identical assets

inputs

inputs

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

(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 Company’s renewable energy derivative contracts that was measured using unobservable (Level 3) inputs, in the amount of $21 million.

For the three months ended March 31, 2020, 0 material gains and losses were recognized for assets and liabilities that were measured using unobservable (Level 3) inputs. 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 of $20 million.

(1)

Derivative assets and liabilities include foreign exchange contracts which are measured using observable inputs for similar assets and liabilities.

(2)

Other liabilities include contingent consideration that was measured using unobservable (Level 3) inputs, in the amount of $20 million.

© 20192020 Corning Incorporated. All Rights Reserved.

1617


Index



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Fair value measurements at reporting date using



 

 

 

 

Quoted prices in

 

Significant other

 

Significant



 

 

 

 

active markets for

 

observable

 

unobservable



 

December 31,

 

identical assets

 

inputs

 

inputs



 

2018

 

(Level 1)

 

(Level 2)

 

(Level 3)



 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other current assets (1)

 

$

103 

 

 

 

 

$

103 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investments (2)

 

$

16 

 

 

 

 

 

 

 

$

16 

Other assets (1)

 

$

45 

 

 

 

 

$

45 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities (1)

 

$

56 

 

 

 

 

$

56 

 

 

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities (1)(3)

 

$

406 

 

 

 

 

$

386 

 

$

20 

(1)

Derivative assets and liabilities include foreign exchange contracts which are measured using observable inputs for similar assets and liabilities.

(2)

One of the Company’s equity securities was measured using unobservable (Level 3) inputs, in the amount of $16 million.

(3)

Other liabilities include contingent consideration that was measured using unobservable (Level 3) inputs, in the amount of $20 million.

At December 31, 2019, Hemlock Semiconductor Group (“HSG”), one of the Company’s equity method affiliates, wrote down its long-lived assets to fair value on a nonrecurring basis. 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 highest and best use of the asset group. As a result, HSG recognized pre-tax asset impairment charges of $916 million for the year ended December 31, 2019. Corning’s share of the pre-tax impairment was $369 million. For the three months ended March 31, 2020, 0 material asset impairment was recognized on a nonrecurring basis by HSG.

There were no0 other significant financial assets and liabilities measured on a nonrecurring basis as of March 31, 20192020 and December 31, 2018.2019.

12. Shareholders’ Equity

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 Stock is convertible at the option of the holder and the Company upon certain events, at a conversion rate of 50,000 shares of Corning’s common stock per one share of Preferred Stock, subject to certain anti-dilution provisions. As of March 31, 2019,2020, the Preferred Stock has not been converted, and none of the anti-dilution provisions have been triggered.

Share Repurchases

In December 2016, Corning’s Board of Directors approved a $4 billion share repurchase program with no expiration (the “2016 Repurchase Program”).  On April 26, 2018, Corning’s Board of Directors approved a $2 billion share repurchase program with no expiration date (the “2018 Repurchase Program”). On July 17, 2019, Corning’s Board of Directors authorized $5 billion in share repurchases with no expiration date (the “2019 Repurchase Program”).

In the three months ended March 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, and have suspended share repurchases.

In the three months ended March 31, 2019, the Company repurchased 7.8 million shares of common stock on the open market for approximately $244 million, as part of its 2018 Repurchase Program.

Accumulated Other Comprehensive Loss

In the three months ended March 31, 2018, the Company repurchased 27.1 million shares of common stock on the open market for approximately $814 million as part of its 2016 Repurchase Program.

Accumulated Other Comprehensive Loss

In the three months ended March 31,2020 and 2019, and 2018, the change in accumulated other comprehensive loss was primarily related to the foreign currency translation adjustment and unamortized actuarialthe net unrealized (losses) gains (losses)on designated hedges components.

© 2019 Corning Incorporated. All Rights Reserved.

17


Index

A summary of changes in the foreign currency translation adjustment component of accumulated other comprehensive loss is as follows (in millions) (1):

 

 

 

 

 

 

 

 

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Beginning balance

 

$

(714)

 

$

(529)

$

(857)

$

(714)

Other comprehensive (loss) income (2)

 

(98)

 

260 

Other comprehensive loss (2)

(253)

(98)

Equity method affiliates (3)

 

(12)

 

(12)

(12)

Net current-period other comprehensive (loss) income

 

(110)

 

264 

Net current-period other comprehensive loss

(265)

(110)

Ending balance

 

$

(824)

 

$

(265)

$

(1,122)

$

(824)

(1)

All amounts are after tax.  Amounts in parentheses indicate debits to accumulated other comprehensive loss.

(2)

For the three months ended March 31, 2019 and 2018, amounts are net of total tax benefit of $13 million and tax expense of $10 million, respectively.

(1) All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss.

(2) For the three months ended March 31, 2020 and 2019, amounts are net of tax benefit of $29 million and $13 million, respectively.

(3)Tax effects are not significant.

© 2020 Corning Incorporated. All Rights Reserved.

18


A summary of changes in the unamortized actuarialnet unrealized (losses) gains (losses)on designated hedges component of accumulated other comprehensive loss is as follows (in millions) (1):

 

 

 

 

 

 

 

 

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Beginning balance

 

$

(298)

 

$

(317)

$

51

$

5

Amounts reclassified from accumulated other
comprehensive (loss) income (2)

 

(52)

 

Other comprehensive (loss) income before
reclassifications (2)

(67)

7

Amounts reclassified from accumulated other
comprehensive income (loss) (3)

6

(2)

Net current-period other comprehensive (loss) income

 

(52)

 

(61)

5

Ending balance

 

$

(350)

 

$

(316)

$

(10)

$

10

(1) All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss.

(2) For the three months ended March 31, 2020, amounts are net of tax benefit of $22 million. For the three months ended March 31, 2019, tax effects are not significant.

(3) Tax effects are not significant.

(1)

All amounts are after tax.  Amounts in parentheses indicate debits to accumulated other comprehensive loss.  For the three months ended March 31, 2019, the amount consisted of $52 million in tax loss due to reclass of stranded tax effects.  Refer to Note 1 (Significant Accounting Policies) to the consolidated financial statements for additional information.

(2)

For the three months ended March 31, 2018, tax amounts are not significant.

© 2020 Corning Incorporated. All Rights Reserved.

19


Index

13. Reportable Segments

Our reportable segments are as follows:

·

Display Technologies – manufactures glass substrates for flat panel liquid crystal displays and other high-performance display panels.

·

Optical Communications – manufactures carrier 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 and reagents enabling workflow solutions for scientific applications.

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 certain corporate investments such as Eurokera and Keraglass equity affiliates. investments.

© 2019 Corning Incorporated. All Rights Reserved.

18


Index

We prepared the financial results for our reportable segments on a basis consistent with our internal disaggregation of financial information to assist the CODMour chief operating decision maker (“CODM”) in making internal operating decisions. The 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, Chinese yuan and Japanese yen are excluded from segment sales and segment net income for our Environmental Technologies and Life Sciences segments. In January 2019, we began presenting results of the Environmental Technologies and Life Sciences segments on a constant currency basis to mitigate the translation impact on these segments’ sales and net income.  We have not recast prior periods as the impact of fluctuations in these currencies were not material as compared to prior periods.  Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net (loss) income. These include items that are not used by our chief operating decision maker (“CODM”)CODM in evaluating the results of or in allocating resources to our segments and include the following items: the impact of our translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment and other charges;charges or credits; adjustments relating to acquisitions; and other non-recurring non-operational items. Although we exclude these amounts from segment results, they are included in reported consolidated results.

We included the earnings of equity affiliates that are closely associated with our reportable segments in the respective segment’s net income.income (loss). We have allocated certain common expenses among reportable segments differently than we would for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies.


© 2020 Corning Incorporated. All Rights Reserved.

20


Reportable Segments (in millions)

Display

Optical

Specialty

Environmental

Life

All

Technologies

Communications

Materials

Technologies

Sciences

Other

Total

Three months ended

March 31, 2020

Segment net sales

$

751 

$

791 

$

352 

$

320 

$

258 

$

57 

$

2,529 

Depreciation (1)

$

133 

$

62 

$

42 

$

34 

$

12 

$

13 

$

296 

Research, development and
   engineering expenses (2)

$

30 

$

55 

$

41 

$

28 

$

$

48 

$

209 

Income tax (provision)
   benefit (3)

$

(40)

$

(8)

$

(14)

$

(9)

$

(10)

$

19 

$

(62)

Segment net income (loss) (4)

$

152 

$

29 

$

51 

$

35 

$

38 

$

(69)

$

236 

Display

Optical

Specialty

Environmental

Life

All

Technologies

Communications

Materials

Technologies

Sciences

Other

Total

Three months ended

March 31, 2019

Segment net sales

$

818 

$

1,064 

$

309 

$

362 

$

243 

$

54 

$

2,850 

Depreciation (1)

$

152 

$

59 

$

37 

$

31 

$

13 

$

11 

$

303 

Research, development and
   engineering expenses (2)

$

26 

$

56 

$

41 

$

30 

$

$

55 

$

213 

Income tax (provision)
   benefit (3)

$

(55)

$

(39)

$

(13)

$

(15)

$

(8)

$

19 

$

(111)

Segment net income (loss) (4)

$

208 

$

142 

$

49 

$

55 

$

31 

$

(72)

$

413 

(1)Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.

(2)Research, development and engineering expenses include direct project spending that is identifiable to a segment.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Display

 

Optical

 

Specialty

 

Environmental

 

Life

 

All

 

 

 



 

Technologies

 

Communications

 

Materials

 

Technologies

 

Sciences

 

Other

 

Total

Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales

 

$

818 

 

$

1,064 

 

$

309 

 

$

362 

 

$

243 

 

$

54 

 

$

2,850 

Depreciation (1)

 

$

152 

 

$

59 

 

$

37 

 

$

31 

 

$

13 

 

$

11 

 

$

303 

Research, development and
   engineering expenses (2)

 

$

26 

 

$

56 

 

$

41 

 

$

30 

 

$

 

$

55 

 

$

213 

Income tax (provision)
   benefit (3)

 

$

(55)

 

$

(39)

 

$

(13)

 

$

(15)

 

$

(8)

 

$

19 

 

$

(111)

Segment net income (loss) (4)

 

$

208 

 

$

142 

 

$

49 

 

$

55 

 

$

31 

 

$

(72)

 

$

413 

(3)Income tax (provision) benefit reflects a tax rate of 21%.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Display

 

Optical

 

Specialty

 

Environmental

 

Life

 

All

 

 

 



 

Technologies

 

Communications

 

Materials

 

Technologies

 

Sciences

 

Other

 

Total

Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales

 

$

745 

 

$

886 

 

$

278 

 

$

322 

 

$

232 

 

$

50 

 

$

2,513 

Depreciation (1)

 

$

144 

 

$

52 

 

$

33 

 

$

29 

 

$

14 

 

$

11 

 

$

283 

Research, development and
   engineering expenses (2)

 

$

23 

 

$

49 

 

$

39 

 

$

29 

 

$

 

$

57 

 

$

202 

Income tax (provision)
   benefit (3)

 

$

(49)

 

$

(30)

 

$

(12)

 

$

(14)

 

$

(7)

 

$

20 

 

$

(92)

Segment net income (loss) (4)

 

$

185 

 

$

109 

 

$

46 

 

$

52 

 

$

27 

 

$

(74)

 

$

345 

(1)

Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.

(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 to consolidated net income below.

(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 (loss) income.

A reconciliation of reportable segment and All Other net sales to consolidated net sales follows (in millions):

 

 

 

 

 

 

 

 

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Net sales of reportable segments and All Other

 

$

2,850 

 

$

2,513 

$

2,529

$

2,850

Impact of foreign currency movements (1)

 

(38)

 

(13)

(33)

(38)

Net sales

 

$

2,812 

 

$

2,500 

Cumulative adjustment related to customer contract (2)

(105)

Consolidated net sales

$

2,391

$

2,812

(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies and Environmental Technologies segments.

(2)Amount represents the negative impact of a cumulative adjustment 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 2 (Revenue) to the consolidated financial statements for additional information.


© 20192020 Corning Incorporated. All Rights Reserved.

1921


Index

A reconciliation of reportable segment net income (loss) to consolidated net (loss) income (loss) follows (in millions):

 

 

 

 

 

 

 

 

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Net income of reportable segments

 

$

485 

 

$

419 

$

305

$

485

Net loss of All Other

 

(72)

 

(74)

(69)

(72)

Unallocated amounts:

 

 

 

 

Impact of foreign currency movements

 

(37)

 

(31)

Gain (loss) on foreign currency hedges
related to translated earnings

 

184 

 

(622)

Litigation, regulatory and other legal matters

 

 

 

(136)

Impact of foreign currency movements not
included in segment net (loss) income

(19)

(37)

Gain on foreign currency hedges
related to translated earnings

58

184

Translation (loss) gain on Japanese yen-denominated debt

(14)

15

Research, development, and engineering expenses

 

(36)

 

(39)

(39)

(36)

Equity in earnings of affiliated companies (1)

 

26 

 

(37)

18

26

Amortization of intangibles

 

(29)

 

(19)

(26)

(29)

Interest expense, net

 

(45)

 

(39)

(58)

(45)

Income tax benefit (provision)

 

35 

 

(32)

Income tax benefit

74

35

Cumulative adjustment related to customer contract (2)

(105)

Loss on disposal of assets and other charges and credits

(89)

(7)

Accelerated depreciation

(59)

Severance charges

(77)

Other corporate items

 

(12)

 

21 

4

(20)

Net income (loss)

 

$

499 

 

$

(589)

Net (loss) income

$

(96)

$

499

(1)

Primarily represents the equity earnings of HSG.

(1)Primarily represents the equity earnings of HSG.

(2)Amount represents the negative impact of a cumulative adjustment 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 2 (Revenue) to the consolidated financial statements for additional information.

During the three months ended March 31, 2020 we recorded $225 million in severance charges, accelerated depreciation, loss on disposal of assets and other charges and credits. Severance charges of $77 million were primarily related to a reduction in force program implemented, and substantially paid, during the quarter to facilitate realignment of capacity in the Asia regions for our Display Technologies segment. Accelerated depreciation of $59 million was related to the on-going exit of certain facilities in Asia. Loss on disposal of assets of $60 million and $29 million of other charges and credits were related to other exit activities.


© 20192020 Corning Incorporated. All Rights Reserved.

2022


Index

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ORGANIZATION OF INFORMATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a historical and prospective narrative on the Company’s financial condition and results of operations. This interim MD&A should be read in conjunction with the MD&A in our 20182019 Form 10-K. The various sections of this MD&A contain forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “plans,” “goals,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in “Risk Factors” in Part I, Item 1A of our 20182019 Form 10-K, and as may be updated in our Forms 10-Q. Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of March 31, 2019.2020.

Our MD&A includes the following sections:

·

Overview

·

Results of Operations

·

Core Performance Measures

·

Reportable Segments

·

Capital Resources and Liquidity

·

Critical Accounting Estimates

·

Environment

·

Forward-Looking Statements

OVERVIEWOverview

Results of Operations

StrategyCore Performance Measures

Reportable Segments

Capital Resources and Capital Allocation FrameworkLiquidity

Critical Accounting Estimates

Environment

Forward-Looking Statements

OVERVIEW

In October 2015, Corning announced a strategyresponse to the COVID-19 pandemic and capital allocation framework (the “Framework”) that reflects the Company’s financialensuing economic uncertainty, including changing market conditions, the Company has and operational strengths, as well as its ongoing commitmentwill continue 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.  Under our Framework, we target generating $26 billion to $30 billion of cash through 2019, returning more than $12.5 billion to shareholders and investing $10 billion to extend our leadership positions and deliver growth.

Our probability of success increases as we invest in our world-class capabilities.  Corning is concentrating approximately 80% of its research, development and engineering investment and capital spendingfocus on a cohesive set of three core technologies, four manufacturingpriorities: preserving the financial health of the Company; protecting employees and engineering platforms,communities; and five market-access platforms.  This strategy allows us to quickly apply our talents and repurpose our assets as needed.delivering on customer commitments.

Summary of results for the three months ended March 31, 20192020

NetIn the first quarter of 2020, net sales for the three months ended March 31, 2019 were $2.8$2.4 billion, compared to $2.5$2.8 billion induring the same period in 2018.  2019. Net sales changes were as follows:

Display Technologies net sales decreased by $67 million, with volume decreases and display glass price declines in the low-single and mid-single digits in percentage terms, respectively;

The increasenegative impact of a cumulative adjustment to reduce revenue in the amount of $105 million.  The adjustment was led by the 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;

Optical Communications segment, which increased $178net sales declined $273 million, as sales volumes declined for carrier and enterprise products by $207 million and $66 million, respectively, due to higher sales of carrier network products in North America, an increase in sales of enterprise network products from growth in hyper-scale data centersgeneral market weakness and sales from our acquisition of 3M’s Communication Markets Division (“CMD”).  Net sales in the Display Technologies segment increasedcapital spending reductions by $73 million for the three months ended March 31, 2019, with volumes exceeding the display glass market’s growthseveral major customers; and more than offsetting price declines. The Specialty Materials segment net sales increased by $31 million resulting from strong demand for Gorilla Glass and Advanced Optics products.  

Net sales for Environmental Technologies increased $40decreased $42 million driven primarilyas production facilities of vehicle manufacturers were shut down in key markets.

The negative impacts to sales, outlined above, were partially offset by sales growth of gas particulate filters.increases in the Specialty Materials and Life Sciences sales increased by $11 million.segments in the amounts of $43 million and $15 million, respectively.

© 2019 Corning Incorporated. All Rights Reserved.

21


Index

In the first quarter of 2019,2020, we generated a net loss of $96 million, or $0.16 per share, compared to net income of $499 million, or $0.55 per share, compared to a net loss of $589 million, or $(0.72) per share, for the same period in 2018.2019. The increasedecrease in net income of $1.1 billion,$595 million, was primarily driven by the following items (amounts presented after-tax):

Translated earnings contract gains in the current period were $99 million lower than prior year gains;

Higher costs of $161 million, primarily driven by severance payments and asset write-offs related to capacity realignment for our Display Technologies and Optical Communications segments;

The negative impact of discrete tax items and other tax adjustments of $80 million due to adjustments to our permanently reinvested foreign income position and changes in foreign valuation allowances on deferred tax assets.

·

An increase of $675 million in translated earnings contract gains;

·

The positive impact of discrete tax and other tax-related items in the amount of $214 million, largely driven by the absence of a $172 million IRS audit settlement recorded in the first quarter of 2018;

© 2020 Corning Incorporated. All Rights Reserved.

23


·

The absence of a $103 million charge related to legal matters, including a ruling in an intellectual property lawsuit and developments in civil litigation matters recorded in the first quarter of 2018; and

·

Higher segment net income in all our business segments and All Other segment, up $68 million.

Lower segment net income of $56 million, $113 million and $20 million for the Display Technologies, Optical Communications and Environmental Technologies segments, respectively; and

The negative impact of a cumulative adjustment 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.

Diluted earnings per share increaseddecreased by $1.27$0.71 per share when compared to the first quarter of 2018,2019, driven by the increasedecrease in net income described above, coupled withoffset by the repurchase of 55.527 million shares of common stock over the last twelve months.

The translation impact of fluctuations in foreign currency exchange rates, related toincluding the impact of hedges realized in the current quarter, did not materially impact Corning’s consolidated net incomeloss in the three months ended March 31, 20192020 when compared to the same period in 2018.2019.

20192020 Corporate Outlook

Given the economic uncertainty and disruption created by COVID-19, the company has withdrawn its full-year 2020 guidance. In response to the pandemic, the company has been and will continue focusing actions on three core priorities: preserving the financial strength of the company, protecting employees and communities, and delivering on customer commitments. The Company is taking aggressive actions to mitigate the economic impact of the pandemic. In anticipation of lower sales, we are adjusting our operating plan to reduce costs and capital spending. We believe 2019 will be anotherhave no debt due this year, of strong growth and investment, consistent with our Strategy and Capital Allocation Framework.  In our Display Technologies segment, we expect full year 2019 price declines to improve furthermaintain a strong cash balance and generate positive free cash flow.  We plan to a mid-single digit percentage.maintain our dividend and have suspended share buybacks. We anticipate Corning’s display glass volume will grow faster thanare committed to preserving the expected display glass market growthfinancial strength of mid-single digits, driven by television screen size growththe company and the ramp of our Gen 10.5 facility in China.  In the Optical Communications segment, we expect sales to increase approximately ten percent, including the impact of a full year of sales from the acquisition of CMD.  We expect growth in the Specialty Materials segment, the rate of which will depend on the adoption of our innovations.  We expect approximately ten percent or slightly higher sales growthremain confident in our Environmental Technologies segment.  We anticipate low to mid-single digit percentagelong-term growth in sales for the Life Sciences segment. prospects.

© 20192020 Corning Incorporated. All Rights Reserved.

2224


Index

RESULTS OF OPERATIONS

Selected highlights for the three months ended March 31, 2019 and 2018from our operations follow (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

 

 

 

 

 

 

Net sales

 

$

2,812 

 

$

2,500 

 

12% 

$

2,391

$

2,812

(15%)

 

 

 

 

 

 

Gross margin

 

$

1,099 

 

$

955 

 

15% 

$

561

$

1,099

(49%)

(gross margin %)

 

39% 

 

38% 

 

 

23%

39%

 

 

 

 

 

 

Selling, general and
administrative expenses

 

$

401 

 

$

501 

 

(20%)

Selling, general and
administrative expenses

$

395

$

401

(1%)

(as a % of net sales)

 

14% 

 

20% 

 

 

17%

14%

 

 

 

 

 

 

Research, development and
engineering expenses

 

$

249 

 

$

241 

 

3% 

Research, development and
engineering expenses

$

261

$

249

5%

(as a % of net sales)

 

9% 

 

10% 

 

 

11%

9%

 

 

 

 

 

 

Translated earnings contract
gain (loss), net

 

$

184 

 

$

(622)

 

*

Translated earnings contract
gain, net

$

68

$

184

(63%)

(as a % of net sales)

 

7% 

 

*

 

 

3%

7%

 

 

 

 

 

 

Income (loss) before income taxes

 

$

575 

 

$

(465)

 

*

(Loss) income before income taxes

$

(108)

$

575

*

(as a % of net sales)

 

20% 

 

*

 

 

(5%)

20%

 

 

 

 

 

 

Provision for income taxes

 

$

(76)

 

$

(124)

 

*

Benefit (provision) for income taxes

$

12

$

(76)

*

(as a % of net sales)

 

*

 

*

 

 

1%

(3%)

 

 

 

 

 

 

Net income (loss) attributable to
Corning Incorporated

 

$

499 

 

$

(589)

 

*

Net (loss) income attributable to
Corning Incorporated

$

(96)

$

499

*

(as a % of net sales)

 

18% 

 

*

 

 

(4%)

18%

*Not meaningful.meaningful


© 2020 Corning Incorporated. All Rights Reserved.

25


Index

Segment Net Sales

The following table presents segment net sales by reportable segment and All Other (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

Display Technologies

 

$

818 

 

$

745 

 

10% 

$

751

$

818

(8%)

Optical Communications

 

1,064 

 

886 

 

20% 

791

1,064

(26%)

Specialty Materials

 

309 

 

278 

 

11% 

352

309

14%

Environmental Technologies

 

362 

 

322 

 

12% 

320

362

(12%)

Life Sciences

 

243 

 

232 

 

5% 

258

243

6%

All Other

 

54 

 

50 

 

8% 

57

54

6%

Total segment net sales

 

$

2,850 

 

$

2,513 

 

13% 

Constant currency adjustment

 

(38)

 

(13)

 

192% 

Net sales of reportable segments and All Other

2,529

2,850

(11%)

Impact of foreign currency movements (1)

(33)

(38)

13%

Cumulative adjustment related to customer contract (2)

(105)

*

Consolidated net sales

 

$

2,812 

 

$

2,500 

 

12% 

$

2,391

$

2,812

(15%)

 

 

 

 

 

 

(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies and Environmental Technologies segments.

(2)Amount represents the negative impact of a cumulative adjustment 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.

* Not meaningful

© 2019 Corning Incorporated. All Rights Reserved.

23


Index

For the three months ended March 31, 2019,2020, net sales of reportableoperating segments increaseddecreased by $337$321 million, or 13%11%, when compared to the same period in 2018.2019. The primary sales drivers by segment were as follows:

·

Display Technologies net sales increased $73 million compared to the prior year, with the increase in glass volume in the mid-teens in percentage terms more than offsetting moderate price declines;  

·

An increase of $178 million in the Optical Communications segment, due to higher sales of carrier and enterprise network products, up $104 million and $74 million, respectively, including the impact of sales from the acquisition of CMD;

·

An increase of $31 million in the Specialty Materials segment, driven by higher sales of Gorilla Glass and Advanced Optics products;

·

An increase of $40 million in the Environmental Technologies segment, driven primarily by sales growth of gas particulate filters; and

·

An increase of $11 million in the Life Sciences segment, driven by higher sales in all product categories.

Display Technologies net sales decreased by $67 million, with volume decreases and display glass price declines in the low-single and mid-single digits in percentage terms, respectively;

Optical Communications net sales declined $273 million, as sales volumes declined for carrier and enterprise products by $207 million and $66 million, respectively, due to general market weakness and capital spending reductions by several major customers;

Specialty Materials segment net sales increased by $43 million, primarily due to strong demand for premium glasses, other Gorilla® Glass innovations and advanced optics products;

Net sales for Environmental Technologies decreased $42 million as production facilities of vehicle manufacturers were shut down in key markets; and

Life Sciences net sales increased by $15 million, as volume grew faster than the underlying market.

Movements in foreign exchange rates increaseddid not materially impact Corning’s consolidated net sales in the amount of $25 million in the three months ended March 31, 2019,2020, when compared to the prior year.

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 three months ended March 31, 2019,2020, gross margin increaseddecreased by $144$538 million, or 15% primarily driven by an increase in sales across all operating segments.  Gross49%, and gross margin as a percentage of net sales increaseddeclined by 1%16%. Negative impacts to gross margin were primarily driven by accelerated depreciation for the Display Technologies segment, severance payments and asset write-offs in our Display Technologies and Optical Communications segments, and lower volumes in Environmental Technologies due to production shutdowns by vehicle manufacturers in key markets.

Movements in foreign exchange rates had a positive impact of $15 million on Corning’s consolidated gross margin in the three months ended March 31, 2019 due2020, when compared to the increase of sales.same period in 2019.

Selling, General and Administrative Expenses

When compared to the first quarter of 2018,2019, selling, general and administrative expenses decreaseddeclined by $100$6 million, or 20%1%, in the three months ended March 31, 2019.  The decrease was due to the following items:2020, but increased by 3% as a percentage of sales.

·

The absence of a $132 million charge related to legal matters in 2018, including a ruling in an intellectual property lawsuit and developments in civil litigation matters; partially offset by

·

An increase of $25 million in the Optical Communications segment, driven largely by the acquisition of CMD in June 2018.

© 2020 Corning Incorporated. All Rights Reserved.

26


Index

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

For the three months ended March 31, 2019,2020, research, development and engineering expenses increased by $8$12 million, or 3%5%, when compared to the same period last year, driven by higher costs associated with new product launches and our emerging businesses. As a percentage of sales, these expenses decreased by 1%were two percent higher when compared to the same period last year.

Equity in Earnings of Affiliated Companies

The following provides a summary of equity in earnings of affiliated companies (in millions):

 

 

 

 

 

 

 

 

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Hemlock Semiconductor Group

 

$

25 

 

$

39 

$

17

$

25

All other

(3)

Total equity earnings

 

$

25 

 

$

39 

$

14

$

25

Equity in earnings of affiliated companies decreased by $14 million, driven by the absence of a gain recorded in the first quarter of 2018 resulting from a legal settlement.

© 2019 Corning Incorporated. All Rights Reserved.

24


Index

Translated earnings contract gain, (loss), net

Included in the line item Translatedtranslated earnings contract gain, (loss), net, is the impact of foreign currency hedges which hedge our translation exposure arising from movements in the Japanese yen, South Korean won, new Taiwan dollar, euro, Chinese yuan and British pound and its impact on our net earnings.(loss) income. The following table provides detailed information on the impact of our translated earnings contract gains and losses:

Three Months Ended

Three Months Ended

Change

March 31, 2020

March 31, 2019

2020 vs. 2019

Income

Income

Income

before

Net

before

Net

before

Net

(in millions)

taxes

income

taxes

income

taxes

income

Hedges related to translated
  earnings:

Realized gain, net

$

3

$

3

$

7

$

6

$

(4)

$

(3)

Unrealized gain, net (1)

65

50

177

138

(112)

(88)

Total translated earnings contract
  gain, net

$

68

$

53

$

184

$

144

$

(116)

$

(91)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Three Months Ended

 

Change



 

March 31, 2019

 

March 31, 2018

 

2019 vs. 2018



 

Income

 

 

 

 

Loss

 

 

 

 

Income

 

 

 



 

before

 

 

 

 

before

 

 

 

 

before

 

 

 



 

income

 

Net

 

income

 

Net

 

income

 

Net

(in millions)

 

taxes

 

income

 

taxes

 

Loss

 

taxes

 

income

Hedges related to translated earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain, net

 

$

 

$

 

$

10 

 

$

 

$

(3)

 

$

(2)

Unrealized gain (loss), net (1)

 

 

177 

 

 

138 

 

 

(632)

 

 

(547)

 

 

809 

 

 

685 

Total translated earnings contract
  gain (loss), net

 

$

184 

 

$

144 

 

$

(622)

 

$

(539)

 

$

806 

 

$

683 

(1)The impact to income was primarily driven by yen-denominated hedges of translated earnings.

The gross notional value outstanding on our translated earnings contracts at March 31, 2019 and December 31, 2018foreign currency cash flow hedges were as follows (in billions):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,



 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

Japanese yen-denominated hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11.0 

 

$

11.6 

South Korean won-denominated hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.1 

 

 

0.1 

Euro-denominated hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.0 

 

 

1.2 

Chinese yuan-denominated hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.4 

 

 

0.6 

British pound-denominated hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.1 

 

 

0.1 

Total gross notional value
  outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

$

12.6 

 

$

13.6 

March 31,

December 31,

2020

2019

Japanese yen-denominated translated earnings contracts

$

10.2

$

10.2

South Korean won-denominated translated earnings contracts

0.6

0.4

Euro-denominated translated earnings contracts

1.1

1.3

Other translated earnings contracts

0.2

0.3

Total gross notional value outstanding for translated earnings contracts

12.1

12.2

Japanese yen-denominated foreign currency cash flow hedges

0.8

1.5

Other foreign currency cash flow hedges

0.3

0.6

Total gross notional value for foreign currency cash flow hedges

1.1

2.1

Total gross notional value outstanding

$

13.2

$

14.3

© 2020 Corning Incorporated. All Rights Reserved.

27


Index

(Loss) Income Before Income Taxes

The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current quarter, did not materially impact Corning’s consolidated (loss) income before income taxes in the three months ended March 31, 20192020 when compared to the same periodsperiod in 2018.2019.

ProvisionBenefit (Provision) for Income Taxes

Our provisionbenefit (provision) for income taxes and the related effective income tax raterates are as follows (in millions):

 

 

 

 

 

 

 

 

 

Three Months Ended

Three Months Ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

 

 

 

 

Provision for income taxes

 

$

(76)

 

$

(124)

Benefit (provision) for income taxes

$

12

$

(76)

Effective tax rate

 

13.2% 

 

26.7% 

11.1%

(13.2%)

For the three months ended March 31, 2020, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an adjustment to our permanently reinvested foreign income position, foreign valuation allowances on deferred tax assets, and certain non-deductible expenses for tax purposes.

For the three months ended March 31, 2019, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to rate differences on income (loss) of consolidated foreign companies offset by expected benefits related to FDII and the following:

·

Rate differences on income (loss) of consolidated foreign companies offset by;

·

Expected benefits related to FDII; and

·

The release of foreign valuation allowances on deferred tax assets that are now considered realizable from the restructuring of certain Israeli operations.

© 2019 Corning Incorporated. All Rights Reserved.

25


Index

For the three months ended March 31, 2018, the effective income tax rate differed from the U.S. statutory raterestructuring of 21% primarily due to the following:certain Israeli operations.

·

Additional tax expense of $172 million related to a preliminary agreement with IRS to settle the income tax audit for the years 2013 and 2014; and

·

A reduction in the tax benefit from domestic losses attributable to foreign exchange and losses on translated earnings contracts due to the anticipated impacts of the BEAT.

Refer to Note 5 (Income Taxes) to the consolidated financial statements for additional information.

Net (Loss) Income (Loss) Attributable to Corning Incorporated

Our net (loss) income (loss) and per share data is as follows (in millions, except per share amounts):



 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended



 

March 31,



 

2019

 

2018

Net income (loss) attributable to Corning Incorporated

 

$

499 

 

$

(589)

Net income (loss) attributable to Corning Incorporated used  in
  basic earnings (loss) per common share calculation (1)

 

$

475 

 

$

(613)

Net income (loss) attributable to Corning Incorporated used  in
  diluted earnings (loss) per common share calculation (1)

 

$

499 

 

$

(613)

Basic earnings (loss) per common share

 

$

0.61 

 

$

(0.72)

Diluted earnings (loss) per common share

 

$

0.55 

 

$

(0.72)



 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

 

784 

 

 

848 

Weighted-average common shares outstanding - diluted

 

 

908 

 

 

848 

Three months ended

March 31,

2020

2019

Net (loss) income attributable to Corning Incorporated

$

(96)

$

499

Net (loss) income attributable to Corning Incorporated used in
  basic (loss) earnings per common share calculation (1)

$

(120)

$

475

Net (loss) income attributable to Corning Incorporated used in
  diluted (loss) earnings per common share calculation (1)

$

(120)

$

499

Basic (loss) earnings per common share

$

(0.16)

$

0.61

Diluted (loss) earnings per common share

$

(0.16)

$

0.55

Weighted-average common shares outstanding - basic

760

784

Weighted-average common shares outstanding - diluted

760

908

(1)

Refer to Note 6 (Earnings (Loss) per Common Share) to the consolidated financial statements for additional information.

(1)Refer to Note 6 ((Loss) Earnings per Common Share) to the consolidated financial statements for additional information.

Comprehensive (Loss) Income (Loss)

For the three months ended March 31, 20192020 comprehensive income increaseddecreased by $667$765 million when compared to the same period in 2018,2019, primarily due to an increasethe following:

A decrease in net income of $1.1 billion.  The$595 million;

An increase in net income wasthe loss on foreign currency translation adjustments in the amount of $155 million, primarily driven by the Chinese yuan, South Korean won and partially offset by the Japanese yen; and

The negative impactsimpact of thea change in foreign currency translation gains andto net unrealized losses on designated hedges of $374 million, driven primarily$66 million.

These losses were partially offset by the Japanese yen and the Korean won, andabsence of $53 million prior period unamortized actuarial losses related to the adoption of the new standard for reclassification of stranded tax effects in AOCI.accumulated other comprehensive income.

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

© 2020 Corning Incorporated. All Rights Reserved.

28


Index

CORE PERFORMANCE MEASURES

In managing the Company and assessing our financial performance, we adjust certain measures provided by our consolidated financial statements to exclude specific items to report core performance measures. These items include gains and losses on our translated earnings contracts, acquisition-related costs, certain discrete tax items and other tax-related adjustments, restructuring, impairment, and restructuring-relatedother charges or 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 currencyconstant-currency reporting for our Display Technologies, andEnvironmental Technologies, Specialty Materials and Life Sciences segments for the Japanese yen, South Korean won, Chinese yuan, and new Taiwan dollar currencies.  Effective January 1, 2019, Corning also began using constant currency reporting for our Environmental Technologies and Life Sciences segments for the euro, Japanese yen and Chinese yuan.euro. 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.

© 2019 Corning Incorporated. All Rights Reserved.

26


Index

Core 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 possible to provide reconciliations for these non-GAAP measures because the Company does not forecast the movement of the Japanese yen, euro, South Korean won, Chinese yuan and the new Taiwan dollarforeign 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.

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

Core net sales

 

$

2,850 

 

$

2,513 

 

13% 

$

2,529

$

2,850

(11)%

Core equity in earnings of affiliated companies

 

$

26 

 

$

25 

 

4% 

$

14

$

26

(46)%

Core earnings

 

$

365 

 

$

299 

 

22% 

Core net income

$

177

$

365

(52)%

Core Net Sales

Core net sales are consistent with net sales by reportable segment. Net sales by reportable segment are presented below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

Display Technologies

 

$

818 

 

$

745 

 

10% 

$

751

$

818

(8%)

Optical Communications

 

1,064 

 

886 

 

20% 

791

1,064

(26%)

Specialty Materials

 

309 

 

278 

 

11% 

352

309

14%

Environmental Technologies

 

362 

 

322 

 

12% 

320

362

(12%)

Life Sciences

 

243 

 

232 

 

5% 

258

243

6%

All Other

 

54 

 

50 

 

8% 

57

54

6%

Total net sales of reportable segments

 

$

2,850 

 

$

2,513 

 

13% 

Net sales of reportable segments and All Other

2,529

2,850

(11%)

Impact of foreign currency movements (1)

(33)

(38)

13%

Cumulative adjustment related to customer contract (2)

(105)

*

Consolidated net sales

$

2,391

$

2,812

(15%)

(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies and Environmental Technologies segments.

(2)Amount represents the negative impact of a cumulative adjustment 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.

* Not meaningful

© 2020 Corning Incorporated. All Rights Reserved.

29


Index

Core Equity in Earnings of Affiliated CompaniesNet Income

The following provides a summary of core equity in earnings of affiliated companies (in millions):



 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended



 

March 31,



 

2019

 

2018



 

 

 

 

 

 

Hemlock Semiconductor Group

 

$

26 

 

$

25 

Total core equity earnings

 

$

26 

 

$

25 

Core Earnings

In the three months ended March 31, 2019,2020, we generated core earningsnet income of $365$177 million, or $0.40$0.20 per share, compared to core earningsnet income generated in the three months ended March 31, 20182019 of $299$365 million, or $0.31$0.40 per share. The increasedecrease of $66$188 million was due to increasedlower earnings across all business segments.  The Display Technologies, and Optical Communications and Environmental Technologies segments had net income increases of $23$56 million, $113 million and $33$20 million, respectively. respectively, when compared to the same period in 2019.

Included in core earningsnet income for the three months ended March 31, 20192020 and 20182019 is net periodic pension expense in the amounts of $12 million and $21 million, and $12 million, respectively.

Refer to Note 8 (Employee Retirement Plans) to the consolidated financial statements.

© 2019 Corning Incorporated. All Rights Reserved.

27


Index

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):

 

 

 

 

 

 

 

 

 

Three months ended

Three months ended

 

March 31,

March 31,

 

2019

 

2018

2020

2019

Core earnings attributable to Corning Incorporated

 

$

365 

 

$

299 

Core net income attributable to Corning Incorporated

$

177

$

365

Less: Series A convertible preferred stock dividend

 

24 

 

24 

24

24

Core earnings available to common stockholders - basic

 

341 

 

275 

Core net income available to common stockholders - basic

153

341

Add: Series A convertible preferred stock dividend

 

24 

 

24 

24

24

Core earnings available to common stockholders - diluted

 

$

365 

 

$

299 

Core net income available to common stockholders - diluted

$

177

$

365

 

 

 

 

Weighted-average common shares outstanding - basic

 

784 

 

848 

760

784

Effect of dilutive securities:

 

 

 

 

Stock options and other dilutive securities

 

 

10 

6

9

Series A convertible preferred stock

 

115 

 

115 

115

115

Weighted-average common shares outstanding - diluted

 

908 

 

973 

881

908

Core basic earnings per common share

 

$

0.43 

 

$

0.32 

$

0.20

$

0.43

Core diluted earnings per common share

 

$

0.40 

 

$

0.31 

$

0.20

$

0.40

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 (loss) 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 (loss) income or statement 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.


© 2020 Corning Incorporated. All Rights Reserved.

30


Index

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

Income

 

 

 

 

Effective

 

 

 

(Loss) income

Effective

 

Net

 

Equity

 

before income

 

Net

 

tax

 

 

Per

Net

Equity

before income

Net (loss)

tax

Per

 

sales

 

earnings

 

taxes

 

income

 

rate (a)

 

 

share

sales

earnings

taxes

income

rate (a)

share

As reported - GAAP

 

$

2,812 

 

$

25 

 

$

575 

 

$

499 

 

13.2% 

 

$

0.55 

$

2,391

$

14

$

(108)

$

(96)

11.1%

$

(0.16)

Constant-currency adjustment (1)

 

 

38 

 

 

 

 

37 

 

 

31 

 

 

 

 

0.03 

33

19

(22)

(0.03)

Translation gain on Japanese
yen-denominated debt (2)

 

 

 

 

 

 

 

 

(15)

 

 

(11)

 

 

 

 

(0.01)

Translation loss on Japanese
yen-denominated debt (2)

14

11

0.01

Translated earnings contract gain (3)

 

 

 

 

 

 

 

 

(184)

 

 

(144)

 

 

 

 

(0.16)

(58)

(45)

(0.06)

Acquisition-related costs (4)

 

 

 

 

 

 

 

 

37 

 

 

28 

 

 

 

 

0.03 

28

21

0.03

Discrete tax items and other tax-related
adjustments (5)

 

 

 

 

 

 

 

 

 

 

 

(43)

 

 

 

 

(0.05)

Restructuring, impairment and other
charges (7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.01 

Discrete tax items and other tax-related
adjustments (5)

37

0.05

Restructuring, impairment and other
charges and credits (6)

225

166

0.22

Cumulative adjustment related to customer
contract (7)

105

105

105

0.14

Core performance measures

 

$

2,850 

 

$

26 

 

$

457 

 

$

365 

 

20.1% 

 

$

0.40 

$

2,529

$

14

$

225

$

177

21.3%

$

0.20

(a)Based upon statutory tax rates in the specific jurisdiction for each event.

(a)

Based upon statutory tax rates in the specific jurisdiction for each event.

Three Months Ended March 31, 2019

Income

Effective

Net

Equity

before income

Net

tax

Per

sales

earnings

taxes

income

rate (a)

share

As reported - GAAP

$

2,812

$

25

$

575

$

499

13.2%

$

0.55

Constant-currency adjustment (1)

38

1

37

31

0.03

Translation gain on Japanese
  yen-denominated debt (2)

(15)

(11)

(0.01)

Translated earnings contract gain (3)

(184)

(144)

(0.16)

Acquisition-related costs (4)

37

28

0.03

Discrete tax items and other tax-related
  adjustments (5)

(43)

(0.05)

Restructuring, impairment and other
  charges and credits (6)

7

5

0.01

Core performance measures

$

2,850

$

26

$

457

$

365

20.1%

$

0.40

© 2019 Corning Incorporated. All Rights Reserved.(a)Based upon statutory tax rates in the specific jurisdiction for each event.

28


Index



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2018



 

 

 

 

 

 

 

(Loss) income

 

 

 

 

Effective

 

 

 



 

Net

 

Equity

 

before income

 

Net (loss)

 

tax

 

 

Per



 

sales

 

earnings

 

taxes

 

income

 

rate (a)

 

 

share

As reported - GAAP

 

$

2,500 

 

$

39 

 

$

(465)

 

$

(589)

 

26.7% 

 

$

(0.72)

Constant-currency adjustment (1)

 

 

13 

 

 

 

 

 

36 

 

 

31 

 

 

 

 

0.04 

Translation loss on Japanese
  yen-denominated debt (2)

 

 

 

 

 

 

 

 

39 

 

 

31 

 

 

 

 

0.04 

Translated earnings contract loss (3)

 

 

 

 

 

 

 

 

612 

 

 

531 

 

 

 

 

0.63 

Acquisition-related costs (4)

 

 

 

 

 

 

 

 

19 

 

 

15 

 

 

 

 

0.02 

Discrete tax items and other tax-related
  adjustments (5)

 

 

 

 

 

 

 

 

 

 

 

171 

 

 

 

 

0.20 

Litigation, regulatory and other legal
  matters (6)

 

 

 

 

 

 

 

 

132 

 

 

103 

 

 

 

 

0.12 

Restructuring, impairment and other
  charges (7)

 

 

 

 

 

 

 

 

23 

 

 

18 

 

 

 

 

0.02 

Equity in earnings of affiliated
  companies (8)

 

 

 

 

 

(14)

 

 

(14)

 

 

(12)

 

 

 

 

(0.01)

Core performance measures

 

$

2,513 

 

$

25 

 

$

382 

 

$

299 

 

21.7% 

 

$

0.31 

(a)

Based upon statutory tax rates in the specific jurisdiction for each event.

See Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Core Performance Measures, Reconciliation of Non-GAAP Measures, “Items which we exclude from GAAP measures to report core performance measures” for the descriptions of the footnoted reconciling items.


© 20192020 Corning Incorporated. All Rights Reserved.

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Index

Items which we exclude from GAAP measures to reportarrive at core performance measures are as follows:



 



 

(1)

Constant-currency adjustments:  Because a significant portion of segment revenues are denominated in currencies other than the US dollar, management believes it is important to understand the impact on core earnings of translating these currencies into U.S. dollars.  Our Display Technologies and Specialty Materials segment sales and net income are primarily denominated in Japanese yen, but also impacted by the Korean won, Chinese yuan, and new Taiwan dollar.  Beginning January 1, 2019, as our Environmental Technologies and Life Science segments sales and net income are impacted by the euro, Chinese yuan and Japanese yen, these segments will also be presented on a constant currency basis.  We have not recast the prior periods for these two segments as the impact of fluctuations in these currencies are not material for prior periods.  Presenting results on a constant-currency basis mitigates the translation impact and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts.  We establish the Constant exchange rate for the yen, won, yuan, new Taiwan dollar and euro based on internally derived management estimates which are closely aligned with the currencies we have hedged.



 



Constant currency rates are as follows:



Currency

 

Japanese yen

 

Korean won

 

Chinese yuan

 

New Taiwan dollar

 

Euro



Rate

 

¥107

 

₩1,175

 

6.7

 

31

 

1.23



 

(2)

Translation (gain) loss on Japanese yen-denominated debtWe have excluded the gain or loss on the translation of our yen-denominated debt to U.S. dollars.

(3)

Translated earnings contract (gain) loss:  We have excluded the impact of the realized and unrealized gains and losses of our Japanese yen, euro, South Korean won and Chinese yuan-denominated foreign currency hedges related to translated earnings, as well as the unrealized gains and losses of our British pound-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:  These include discrete period tax items such as changes in tax law, the impact of tax audits, changes in judgement about the realizability of certain deferred tax assets and other non-operational tax-related adjustments.

(6)

Litigation, regulatory and other legal matters:  Includes amounts that reflect developments in commercial litigation, intellectual property disputes and other legal matters.

(7)

Restructuring, impairment and other charges:  This amount includes restructuring, impairment and other charges, as well as other expenses which are not related to continuing operations and are not classified as restructuring expense.

(8)

Equity in earnings of affiliated companies:  These adjustments relate to costs not related to continuing operations of our affiliated companies, such as restructuring, impairment and other charges and settlements under “take-or-pay” contracts.

(1)

Constant-currency adjustment:  Because a significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on core net income of translating these currencies into U.S. dollars.  Our Display Technologies segment sales and net income are primarily denominated in Japanese yen, but also impacted by the South Korean won, Chinese yuan, and new Taiwan dollar.  Environmental Technologies and Life Science segments sales and net income are impacted by the euro, Chinese yuan and Japanese yen.  Presenting results on a constant-currency basis mitigates the translation impact and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts.  We establish constant-currency rates based on internally derived management estimates which are closely aligned with the currencies we have hedged.

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 loss (gain) on Japanese yen-denominated debt: We have excluded the gain or loss on the translation of our yen-denominated debt to U.S. dollars.

(3)

Translated earnings contract 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, as well as the unrealized gains and losses of our British pound-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: These include discrete period tax items such as changes in tax law, the impact of tax audits, changes in judgement about the realizability of certain deferred tax assets and other tax-related adjustments.

(6)

Restructuring, impairment and other charges or credits: This amount includes restructuring, impairment and other charges or credits, as well as other expenses, primarily accelerated depreciation and asset write-offs, which are not related to continuing operations and are not classified as restructuring expense.

(7)

Cumulative adjustment related to customer contract: The negative impact of a cumulative adjustment 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. 


© 20192020 Corning Incorporated. All Rights Reserved.

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REPORTABLE SEGMENTS

Our reportable segments are as follows:

·

Display Technologies – manufactures glass substrates primarily for flat panel displays.

·

Optical Communications – manufactures carrier 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 emission control applications. 

·

Life Sciences – manufactures glass and plastic labware, equipment, media and reagents enabling workflow solutions for scientific applications.

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 certain corporate investments such as Eurokera and Keraglass equity affiliates. investments.

We prepared the financial results for our reportable segments on a basis consistent with our internal disaggregation of financial information to assist our chief operating decision maker (“CODM”) in making internal operating decisions.  We use a segment tax rate of 21% when presenting segment information. The impact of changes in the Japanese yen, euro,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, Chinese yuan and Japanese yen are excluded from segment sales and segment net income for our Environmental Technologies and Life ScienceSciences segments. Certain corporate income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net (loss) income. These include items that are not used by our chief operating decision maker (“CODM”)CODM in evaluating the results of or in allocating resources to our segments and include the following items: the impact of our translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment and other charges;charges or credits; adjustments relating to acquisitions; and other non-recurring non-operational items. Although we exclude these amounts from segment results, they are included in reported consolidated results.

We included the earnings of equity affiliates that are closely associated with our reportable segments in the respective segment’s net income.income (loss). We have allocated certain common expenses among reportable segments differently than we would for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies.

Display Technologies

The following table provides net sales and net income for the Display Technologies segment (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

 

 

 

 

 

 

 

Segment net sales

 

$

818 

 

$

745 

 

10% 

$

751

$

818

(8%)

Segment net income

 

$

208 

 

$

185 

 

12% 

$

152

$

208

(27%)

Net sales in the Display Technologies segment increased $73decreased by $67 million compared toin the prior year, with the increase inthree months ended March 31, 2020, driven by volume decreases and display glass volumeprice declines in the mid-teenslow-single and mid-single digits in percentage terms, due to the ramp of Gen 10.5 capacity expansion in China, more than offsetting moderate display glass price declines.respectively.

Net income in the Display Technologies segment increaseddecreased by $23$56 million or 12%, in the three months ended March 31, 2019, for2020, driven by the reasonschanges in sales outlined in the above paragraph.above.

Outlook:

For the second quarter of 2019, we expect display glass market volume to increase by mid-single digits in percentage terms on a year-over-year basis, and our volume to grow faster than the market.  Second-quarter sequential display glass price declines are expected to be moderate.

© 20192020 Corning Incorporated. All Rights Reserved.

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Optical Communications

The following table provides net sales and net income for the Optical Communications segment (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

 

 

 

 

 

 

 

Segment net sales

 

$

1,064 

 

$

886 

 

20% 

$

791

$

1,064

(26%)

Segment net income

 

$

142 

 

$

109 

 

30% 

$

29

$

142

(80%)

NetOptical Communications net sales declined $273 million in the Optical Communications segment increased by $178 million, or 20%, in the first quarter of 2019.  Higherthree months ended March 31, 2020. Net sales of carrier products and enterprise products up $104were $207 million and $74$66 million lower, respectively, drove the increase.  Growth in the North American fiber-to-the-home drove the sales increase in carrier network productsdue to general market weakness and growth in hyper-scale data centers drove the increase in enterprise sales.  The acquisition of CMD, which took place during the second quarter of 2018, also contributed to sales growth.capital spending reductions by several major customers.

Net income increaseddecreased by $33$113 million or 30%, for the three months ended March 31, 2019.  The increase was2020, primarily driven by the increasechanges in sales, outlined above.

Outlook:

In the second quarter, Optical Communications sales are expected to increase by high-single digits in percentage terms on a year-over-year basis, including the impact of sales from the acquisition of CMD.

Specialty Materials

The following table provides net sales and net income for the Specialty Materials segment (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

 

 

 

 

 

 

 

Segment net sales

 

$

309 

 

$

278 

 

11% 

$

352

$

309

14%

Segment net income

 

$

49 

 

$

46 

 

7% 

$

51

$

49

4%

Net sales in the Specialty Materials segment increased by $31$43 million or 11%, for the three months ended March 31, 2019, driven primarily by increased Gorilla2020. Strong demand for premium glasses, Gorilla® Glass innovations and Advanced Optics product sales.  advanced optics products drove the increase for the first quarter of 2020.

Net income increased by $3$2 million or 7%, for the three months ended March 31, 2019, primarily driven by the increase in sales.2020, with sales growth from our innovation products, which from a profitability standpoint, start at a lower margin.

Outlook

In the second quarter of 2019, Specialty Materials sales are expected to increase by a high-single digit percentage on a year-over-year basis.

Environmental Technologies

The following table provides net sales and net income for the Environmental Technologies segment (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

 

 

 

 

 

 

 

Segment net sales

 

$

362 

 

$

322 

 

12% 

$

320

$

362

(12%)

Segment net income

 

$

55 

 

$

52 

 

6% 

$

35

$

55

(36%)

Net sales in the Environmental Technologies segment increased $40 million, or 12%, for the three months ended March 31, 2019.  Automotive product sales increased $24declined by $42 million for the three months ended March 31, 2019, due to continued sales growth2020. Sales were negatively impacted by the shutdown of gas particulate filters.  Diesel product sales increased $16manufacturing facilities by vehicle manufacturers in key markets.

Net income decreased by $20 million for the three months ended March 31, 2019, due to higher demand for heavy-duty diesel products in North America.

Net income increased by $3 million, or 6%, for the three months ended March 31, 2019.  The increase was2020, primarily driven by thedecreases in sales increase outlined above, partially offset by accelerated investments to capture growth. above. 

© 20192020 Corning Incorporated. All Rights Reserved.

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Outlook:

Second quarter sales are expected to increase approximately 10% on a year-over-year basis.

Life Sciences

The following table provides net sales and net income for the Life Sciences segment (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

%

Three months ended

%

 

March 31,

 

change

March 31,

change

 

2019

 

2018

 

19 vs. 18

2020

2019

20 vs. 19

 

 

 

 

 

 

 

Segment net sales

 

$

243 

 

$

232 

 

5% 

$

258

$

243

6%

Segment net income

 

$

31 

 

$

27 

 

15% 

$

38

$

31

23%

Net sales in the Life Sciences segment increased by $11$15 million or 5%, for the three months ended March 31, 2019. 2020, as volume grew faster than the underlying market.

Net income increased by $4$7 million or 15%, for the three months ended March 31, 2019,2020, driven by the increase in sales.higher sales volume, outlined above, and manufacturing performance optimization.

Outlook:

Second quarter sales are expected to increase by a low-to-mid single digit percentage on a year-over-year basis. 

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, businessauto glass and new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates. investments.

The following table provides net sales and other datanet loss for All Other (in millions):

Three months ended

%

March 31,

change

2020

2019

20 vs. 19

Segment net sales

$

57

$

54

6%

Segment net loss

$

(69)

$

(72)

4%



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Three months ended

 

%



 

March 31,

 

change



 

2019

 

2018

 

19 vs. 18



 

 

 

 

 

 

 

 

Segment net sales

 

$

54 

 

$

50 

 

8% 

Segment net loss

 

$

(72)

 

$

(74)

 

3% 

Net sales of this segment increased by $4$3 million or 8%, for the three months ended March 31, 2019,2020 when compared to the same period in 2018,2019, driven primarily by an increase in sales changes in our emerging businesses. Net loss decreased by $2$3 million, or 3%, primarily driven by increased sales.the change in sales when compared to the same period in 2019.

CAPITAL RESOURCES AND LIQUIDITY

Financing and Capital Resources

2020

In the first quarter of 2020, Corning established two unsecured variable rate loan facilities for 1,050 million Chinese yuan, or $150 million USD, and 749 million Chinese yuan, or $105 million USD, each with a maturity of 5 years.

The draws taken on the loan facilities through the end of the first quarter totaled 1,402 million Chinese yuan, or $200 million USD. These Chinese yuan-denominated proceeds will not be converted into U.S. dollars 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 U.S. dollar equivalent.

2019

There werewas no significant items that impacted Corning’s financing structurematerial debt activity in the three months ended March 31, 2019 and 2018.first quarter of 2019.

Share Repurchase Program

In December 2016, Corning’s Board of Directors approved a $4 billion share repurchase program with no expiration (the “2016 Repurchase Program”).  On April 26, 2018, Corning’s Board of Directors approved a $2 billion share repurchase program with no expiration date (the “2018 Repurchase Program”). On July 17, 2019, Corning’s Board of Directors authorized $5 billion in share repurchases with no expiration date (the “2019 Repurchase Program”).

In the three months ended March 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, and have suspended share repurchases.

© 2020 Corning Incorporated. All Rights Reserved.

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In the three months ended March 31, 2019, the Company repurchased 7.8 million shares of common stock on the open market for approximately $244 million, as part of its 2018 Repurchase Program.

InCapital Spending

Capital spending totaled $545 million for the three months ended March 31, 2018, the Company repurchased 27.1 million shares2020. We are reducing our planned 2020 capital expenditures below $1.5 billion.

Cash Flow

Summary of common stock on the open market for approximately $814 million as part of its 2016 Repurchase Program.cash flow data (in millions):

Three months ended

March 31,

2020

2019

Net cash provided by (used in) operating activities

$

248

$

(29)

Net cash used in investing activities

$

(539)

$

(483)

Net cash used in financing activities

$

(94)

$

(393)

Capital Spending

Capital spending totaled $524 million and $655Net cash provided by operating activities increased by $277 million in the three months ended March 31, 2019 and 2018, respectively.  We expect our 2019 capital expenditures to be slightly more than $2.0 billion.

© 2019 Corning Incorporated. All Rights Reserved.

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Index

Cash Flow

Summary of cash flow data (in millions):



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Three months ended



 

 

March 31,



 

 

2019

 

2018

Net cash (used in) provided by operating activities

 

 

$

(29)

 

$

320 

Net cash used in investing activities

 

 

$

(483)

 

$

(644)

Net cash used in financing activities

 

 

$

(393)

 

$

(959)

Net cash used by operating activities increased by $349 million in the three months ended March 31, 2019,2020, when compared to the same period in the prior year. The change was primarily driven by the changes in accounts receivable and accounts payablereceipt of a customer deposit in the amount of $130$125 million and $137the refund of $101 million respectively, andof tax assessments from the negative impact of fewer customer deposits received in the amount of $274 million.South Korean government.

Net cash used in investing activities decreasedincreased by $161$56 million in the three months ended March 31, 20192020 when compared to the same period last year, primarily driven by lower capital expenditures of $131 million.year.

Net cash used in financing activities in the three months ended March 31, 20192020 decreased by $566$299 million when compared to the same period last year, driven primarily by a decreaseyear. The primary drivers were proceeds from the issuance of $543long term debt and lower share repurchases in the amount of $200 million in share repurchases.and $152 million, respectively.

Defined Benefit Pension Plans

We have defined benefit pension plans covering certain domestic and international employees. Our funding policy is to contribute, over time, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During 2020, we expect to make cash contributions of $54 million to our international pension plans.

Key Balance Sheet Data

Balance sheet and working capital measures are provided in the following table (in millions):

 

 

 

 

 

 

 

 

 

As of

 

As of

 

March 31,

 

December 31,

March 31,

December 31,

 

2019

 

2018

2020

2019

 

 

 

 

Working capital

 

$

3,290 

 

$

3,723 

$

3,755

$

3,942

Current ratio

 

2.1:1

 

2.1:1

2.2:1

2.1:1

Trade accounts receivable, net of allowances

 

$

1,974 

 

$

1,940 

$

1,708

$

1,836

Days sales outstanding

 

63 

 

58 

64

59

Inventories

 

$

2,190 

 

$

2,037 

$

2,347

$

2,320

Inventory turns

 

3.5 

 

3.6 

3.3

3.3

Days payable outstanding (1)

 

44 

 

55 

43

48

Long-term debt (excluding current portion)

 

$

6,018 

 

$

5,994 

Long-term debt

$

7,815

$

7,729

Total debt to total capital

 

31% 

 

30% 

39%

37%

(1)

Includes trade payables only.

(1)Includes trade payables only.

Management Assessment of Liquidity

Corning is committed to strong financial stewardship. We have no debt due over the next twelve months, and we expect to maintain a strong cash balance. We expect to generate positive free cash flow for the year.

We ended the first quarter of 20192020 with approximately $1.5$2 billion of cash and cash equivalents.  Our cash and cash equivalents are held in various locations throughout the world, with approximately 86%69% held outside of the United States, and are generally unrestricted.  We utilize a variety of financing strategies to ensure that our worldwide cash is available in the locations in which it is needed.

© 2020 Corning Incorporated. All Rights Reserved.

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Corning also has a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper up to a maximum aggregate principal amount outstanding at any one time of $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. Corning had no outstanding commercial paper at March 31, 2020 and December 31, 2019.

The Company’s Revolving Credit Agreement is available to support obligations underits commercial paper program and for general corporate purposes.

The continued spread of COVID-19 has led to disruption and volatility in the global capital markets, including the commercial paper program, ifmarkets, which, depending on future developments, could impact liquidity in the future should we require access to the capital markets during a period of significant disruption. Corning’s other sources of liquidity, including its Revolving Credit Agreement, are available in case of market disruption when liquidity is needed.  At March 31, 2019 and December 31, 2018 Corning did not have outstanding commercial paper.

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 aan increased measure of increased risk. We closely monitor payments and developments which may signal possible customer credit issues. From time to time, we factor accounts receivable. During the period ended March 31, 2020, collections of accounts receivables were accelerated by $78 million.  Customer initiated accelerations accounted for $44 million, or 56%, of the collections. We currently have not identified any potential material impact on our liquidity resulting from customer credit issues.

© 2019 Corning Incorporated. All Rights Reserved.

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Index

Our major sourcesources of funding for 20192020 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 to fund operations, acquisitions, capital expenditures, scheduled debt repayments and dividend payments and share repurchase programs.payments.

Our Revolving Credit Agreement includes affirmative and negative covenants with which we must comply, including a leverage (debt to capital ratio) financial covenant. The required leverage ratio is a maximum of 60%. At March 31, 2019,2020, our leverage using this measure was approximately 31%39%. As of March 31, 2019,2020, we were in compliance with this financial covenant and no amounts were outstanding.outstanding under the 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 of 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 March 31, 2019,2020, we were in compliance with all such provisions.

ManagementOther than discussed, 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 decrease in ourinsufficient liquidity.  In addition, other than items discussed, thereThere are no known material trends, favorable or unfavorable, in our capital resources and no expectedthat would have a material changeschange in the mix and relativeoverall cost of such resources.our liquidity.

Off Balance Sheet Arrangements

There have been no material changes outside the ordinary course of business in our off-balance sheet arrangements as disclosed in our 20182019 Form 10-K under the caption “Off Balance Sheet Arrangements.”

Contractual Obligations

There have been no material changes outside the ordinary course of business in the contractual obligations disclosed in our 20182019 Form 10-K under the caption “Contractual Obligations.”

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The estimates that require management’s most difficult, subjective or complex judgments are described in our 20182019 Form 10-K and remain unchanged through the first three months of 2019.2020. For certain items, additional details are provided below.

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 in which impairment indicators are present.  In consideration of the economic risks and uncertainties associated with COVID-19, we have evaluated the fair value and recoverability of our long-lived assets and have determined that there are no impairments as of March 31, 2020.  We must exercise judgment in assessing whether an event of impairment has occurred.

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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 and have a very long useful life.  Precious metals are reviewed for impairment as part of our assessment of long-lived assets.  This review considers all 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 manufacturing operations and are not held for trading or other purposes.

At March 31, 20192020 and December 31, 2018,2019, the carrying value of precious metals was higherlower than the fair market value by $332 million$1.9 billion and $719$849 million, respectively.  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.

Impairment of Goodwill

We are required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. Goodwill is tested for impairment at the reporting unit level.  A reporting unit is equivalent to an operating segment or a component of an operating segment which constitutes a business and for which discrete financial information is regularly reviewed by segment management.  An impairment loss generally would be recognized when the carrying amount of a reporting unit’s net assets exceeds the estimated fair value of the reporting unit.

Corning has recorded goodwill in the Display Technologies, Optical Communications, Specialty Materials, Life Sciences and All Other operating segments.  Each of these operating segments is a separate reporting unit; however, Specialty Materials and All Other are each made up of two separate reporting units.  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.  Considering the economic risks and uncertainties associated with COVID-19, we have performed a quantitative assessment of goodwill during the three months ended March 31, 2020, and determined that the fair values still significantly exceed the carrying values for all our reporting units.  

The quantitative assessment is performed by assessing various factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  These factors include, but are not limited to, changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, or a sustained decrease in share price.

NEW ACCOUNTING STANDARDS

Refer to Note 1 (Significant Accounting Policies) to the consolidated financial statements.

ENVIRONMENT

© 2019 Corning Incorporated. All Rights Reserved.

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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 March 31, 20192020 and December 31, 2018,2019, Corning had accrued approximately $28$40 million and $30$41 million, 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.

© 2020 Corning Incorporated. All Rights Reserved.

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FORWARD-LOOKING STATEMENTS

The statements in this Quarterly Report on Form 10-Q, in reports subsequently filed by Corning with the Securities and Exchange Commission (“SEC”)SEC on Forms 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.

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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 Cuts and Jobs 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. 


-

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 Cuts and Jobs 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosures

As noted in our 20182019 Form 10-K, we operate and conduct business in many foreign countries and as a result are exposed to fluctuations between the U.S. dollar and other currencies. Volatility in the global financial markets could increase the volatility of foreign currency exchange rates which would, in turn, impact our sales and net income. For a discussion of our exposure to market risk and how we mitigate that risk, refer to Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q and Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risks, contained in our 20182019 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision of and with the participation of Corning’s management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of March 31, 2019,2020, the end of the period covered by this report. Based on that evaluation, we have concluded that the Company’s disclosure controls and procedures were effective as of that date. 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.

An evaluation of our internal controls over financial reporting was also performed to determine whether any changes have occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The chief executive officer and chief financial officer concluded that there was no change in Corning’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.  


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Part II – Other Information

ITEM 1. LEGAL PROCEEDINGS

Environmental Litigation. See our 20182019 Form 10-K, Part I, Item 3. For additional information and updates to estimated liabilities as of March 31, 2019,2020, see Part I, Item 1, Financial Statements, Note 3 (Commitments, Contingencies and Guarantees) of the Notes to Unaudited Consolidated Financial Statements included under Item 1 of this quarterly report, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations and supply chains, and we have experienced and expect to continue to experience unpredictable reductions in demand for certain of our products.

COVID-19 has impacted and may further impact the global economy, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, and interest rates.  We currently are unable to predict with certainty the duration and severity of the spread of the coronavirus, and responses thereto, which are highly uncertain and will, to a large degree, be a function of factors beyond our control, such as the continued spread or recurrence of contagion, the implementation of effective preventative and containment measures, the development of effective medical solutions, the extent to which governmental restrictions on travel, public gatherings, mobility and other activities remain in place or are augmented, financial and other market reactions to the foregoing, and reactions and responses of communities and societies. 

While we expect the impacts of COVID-19 to have an adverse effect on our business, financial condition and results of operations, we are unable to predict with certainty the extent or nature of these impacts. The severity of the impact will depend on our ability to adjust to this uncertainty as well as a number of other factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, disruptions and restrictions on availability of labor, as well as temporary disruptions to our supply chain, all of which are uncertain and cannot be predicted.  The Company's future results of operations and liquidity could be adversely impacted by reduced revenues, delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers.

In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 20182019 Form 10-K, which could materially impact our business, financial condition or future results. Risks disclosed in our 20182019 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact our business, financial condition or operating results. There have been no material changes to Part I, Item 1A. Risk Factors in our 20182019 Form 10-K.10-K, other than the addition of the preceding risk factor related to COVID-19.


© 20192020 Corning Incorporated. All Rights Reserved.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

This table provides information about our purchases of our common stock during the first quarter of 2019:2020:

Issuer Purchases of Equity Securities



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Number of

 

Approximate dollar



 

 

 

 

 

 

shares purchased as

 

value of shares that



 

Total number

 

Average

 

part of publicly

 

may yet be purchased



 

of shares

 

price paid

 

announced plan

 

under the plans

Period

 

purchased (1)

 

per share 

 

or program 

 

or programs 



 

 

 

 

 

 

 

 

 

 

January 1 - 31, 2019

 

5,445,794 

 

$

30.40 

 

5,408,700 

 

 

 

February 1 - 28, 2019

 

1,609,909 

 

 

33.69 

 

1,593,355 

 

 

 

March 1 - 31, 2019

 

774,684 

 

 

34.13 

 

773,592 

 

$

1,103,650,880 

Total

 

7,830,387 

 

$

31.45 

 

7,775,647 

 

$

1,103,650,880 

Number of

shares purchased as

Approximate dollar

Total number

Average

part of publicly

value of shares that

of shares

price paid

announced

may yet be purchased

Period

purchased (1)

per share 

programs 

under the programs

January 1 - 31, 2020

805,645

$

29.92

771,223

February 1 - 29, 2020

1,498,070

26.90

1,476,947

March 1 - 31, 2020

1,881,681

22.32

1,881,317

Total

4,185,396

$

25.42

4,129,487

$

5,318,357,637

(1)

This column reflects the following transactions during the first quarter of 2019:  (i) the deemed surrender to us of 41,331 shares of common stock to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units; (ii) the surrender to us of 13,409 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees; and (iii) the purchase of 7,775,647 shares of common stock under the 2016 and 2018 Repurchase Programs.

(1)This column reflects the following transactions during the first quarter of 2020: (i) the deemed surrender to us of 43,414 shares of common stock to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units; (ii) the deemed surrender to us of 12,495 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees; and (iii) the purchase of 4,129,487 shares of common stock under the 2018 Repurchase Program.


© 20192020 Corning Incorporated. All Rights Reserved.

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ITEM 6. EXHIBITS

(a)

Exhibits

Exhibit Number

Exhibit Name

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Exchange Act

31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Exchange Act

32

Certification Pursuant to 18 U.S.C. Section 1350

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


© 20192020 Corning Incorporated. All Rights Reserved.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Corning Incorporated

(Registrant)

May 3, 20195, 2020

/s/ Edward A. Schlesinger

Date

Edward A. Schlesinger

Senior Vice President and Corporate Controller

© 20192020 Corning Incorporated. All Rights Reserved.

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