UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | To |
Commission file number: 1-3247
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
New York | 16-0393470 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
One Riverfront Plaza, Corning, New York | 14831 | |||
(Address of principal executive offices) | (Zip Code) |
607-974-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.50 par value per share | GLW | New York Stock Exchange | ||
3.875% Notes due 2026 | GLW26 | New York Stock Exchange | ||
4.125% Notes due 2031 | GLW31 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | |||
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | |||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
| ☐ |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | ☐ | No | ☒ |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding as of October | |||
Corning’s Common Stock, $0.50 par value per share |
|
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in millions, except per share amounts)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net sales | $ | 3,488 | $ | 3,615 | $ | 10,783 | $ | 10,406 | ||||||||
Cost of sales | 2,426 | 2,294 | 7,192 | 6,614 | ||||||||||||
Gross margin | 1,062 | 1,321 | 3,591 | 3,792 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative expenses | 461 | 486 | 1,381 | 1,351 | ||||||||||||
Research, development and engineering expenses | 278 | 251 | 766 | 715 | ||||||||||||
Amortization of purchased intangibles | 31 | 32 | 92 | 97 | ||||||||||||
Operating income | 292 | 552 | 1,352 | 1,629 | ||||||||||||
Interest income | 3 | 3 | 9 | 8 | ||||||||||||
Interest expense | (73 | ) | (72 | ) | (216 | ) | (227 | ) | ||||||||
Translated earnings contract (loss) gain, net (Note 11) | (68 | ) | (13 | ) | 257 | 262 | ||||||||||
Other income, net | 106 | 23 | 391 | 169 | ||||||||||||
Income before income taxes | 260 | 493 | 1,793 | 1,841 | ||||||||||||
Provision for income taxes (Note 4) | (34 | ) | (109 | ) | (380 | ) | (402 | ) | ||||||||
Net income | 226 | 384 | 1,413 | 1,439 | ||||||||||||
Net income attributable to non-controlling interests | (18 | ) | (13 | ) | (61 | ) | (20 | ) | ||||||||
Net income attributable to Corning Incorporated | $ | 208 | $ | 371 | $ | 1,352 | $ | 1,419 | ||||||||
Earnings per common share available to common shareholders: | ||||||||||||||||
Basic (Note 5) | $ | 0.25 | $ | 0.44 | $ | 1.60 | $ | 0.72 | ||||||||
Diluted (Note 5) | $ | 0.24 | $ | 0.43 | $ | 1.58 | $ | 0.71 | ||||||||
Reconciliation of net income attributable to Corning Incorporated versus net income available to common shareholders: | ||||||||||||||||
Net income attributable to Corning Incorporated | $ | 208 | $ | 371 | $ | 1,352 | $ | 1,419 | ||||||||
Series A convertible preferred stock dividend | (24 | ) | ||||||||||||||
Excess consideration paid for redemption of preferred shares (1) | (803 | ) | ||||||||||||||
Net income available to common shareholders | $ | 208 | $ | 371 | $ | 1,352 | $ | 592 |
|
|
(Unaudited; in millions, except per |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net sales | $ | 3,173 | $ | 3,488 | $ | 9,594 | $ | 10,783 | ||||||||
Cost of sales | 2,169 | 2,426 | 6,574 | 7,192 | ||||||||||||
Gross margin | 1,004 | 1,062 | 3,020 | 3,591 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative expenses | 468 | 461 | 1,329 | 1,381 | ||||||||||||
Research, development and engineering expenses | 270 | 278 | 787 | 766 | ||||||||||||
Amortization of purchased intangibles | 30 | 31 | 92 | 92 | ||||||||||||
Operating income | 236 | 292 | 812 | 1,352 | ||||||||||||
Interest income | 10 | 3 | 25 | 9 | ||||||||||||
Interest expense | (82 | ) | (73 | ) | (239 | ) | (216 | ) | ||||||||
Translated earnings contract gain (loss), net (Note 10) | 20 | (68 | ) | 128 | 257 | |||||||||||
Other income, net | 33 | 106 | 128 | 391 | ||||||||||||
Income before income taxes | 217 | 260 | 854 | 1,793 | ||||||||||||
Provision for income taxes (Note 3) | (35 | ) | (34 | ) | (178 | ) | (380 | ) | ||||||||
Net income | 182 | 226 | 676 | 1,413 | ||||||||||||
Net income attributable to non-controlling interest | (18 | ) | (18 | ) | (55 | ) | (61 | ) | ||||||||
Net income attributable to Corning Incorporated | $ | 164 | $ | 208 | $ | 621 | $ | 1,352 | ||||||||
Earnings per common share available to common shareholders: | ||||||||||||||||
Basic (Note 4) | $ | 0.19 | $ | 0.25 | $ | 0.73 | $ | 1.60 | ||||||||
Diluted (Note 4) | $ | 0.19 | $ | 0.24 | $ | 0.72 | $ | 1.58 |
The accompanying notes are an integral part of these consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited; in millions)
Consolidated Statements of Comprehensive (Loss) Income | Corning Incorporated and Subsidiary Companies |
(Unaudited; in millions) |
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Net income | $ | 226 | $ | 384 | $ | 1,413 | $ | 1,439 | $ | 182 | $ | 226 | $ | 676 | $ | 1,413 | ||||||||||||||||
Foreign currency translation adjustments and other | (685 | ) | (192 | ) | (1,535 | ) | (515 | ) | (191 | ) | (685 | ) | (593 | ) | (1,535 | ) | ||||||||||||||||
Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans | 3 | (49 | ) | (1 | ) | |||||||||||||||||||||||||||
Net unrealized losses on designated hedges | (15 | ) | (15 | ) | (32 | ) | (3 | ) | ||||||||||||||||||||||||
Unamortized (losses) gains and prior service costs for postretirement benefit plans | (1 | ) | 3 | (9 | ) | (49 | ) | |||||||||||||||||||||||||
Realized and unrealized (losses) gains on derivatives | (11 | ) | (15 | ) | 30 | (32 | ) | |||||||||||||||||||||||||
Other comprehensive loss, net of tax | (697 | ) | (207 | ) | (1,616 | ) | (519 | ) | (203 | ) | (697 | ) | (572 | ) | (1,616 | ) | ||||||||||||||||
Comprehensive (loss) income | (471 | ) | 177 | (203 | ) | 920 | (21 | ) | (471 | ) | 104 | (203 | ) | |||||||||||||||||||
Comprehensive income attributable to non-controlling interests | (18 | ) | (13 | ) | (61 | ) | (20 | ) | ||||||||||||||||||||||||
Comprehensive income attributable to non-controlling interest | (18 | ) | (18 | ) | (55 | ) | (61 | ) | ||||||||||||||||||||||||
Comprehensive (loss) income attributable to Corning Incorporated | $ | (489 | ) | $ | 164 | $ | (264 | ) | $ | 900 | $ | (39 | ) | $ | (489 | ) | $ | 49 | $ | (264 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Balance Sheets | Corning Incorporated and Subsidiary Companies |
(Unaudited; in millions, except share and per share amounts) |
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share and per share amounts)
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,630 | $ | 2,148 | $ | 1,639 | $ | 1,671 | ||||||||
Trade accounts receivable, net of doubtful accounts - $39 and $42 | 1,620 | 2,004 | ||||||||||||||
Inventories, net (Note 6) | 2,951 | 2,481 | ||||||||||||||
Trade accounts receivable, net of doubtful accounts - $30 and $40 | 1,725 | 1,721 | ||||||||||||||
Inventories (Note 5) | 2,655 | 2,904 | ||||||||||||||
Other current assets | 1,603 | 1,026 | 1,279 | 1,157 | ||||||||||||
Total current assets | 7,804 | 7,659 | 7,298 | 7,453 | ||||||||||||
Property, plant and equipment, net of accumulated depreciation - $13,348 and $13,969 | 14,645 | 15,804 | ||||||||||||||
Property, plant and equipment, net of accumulated depreciation - $14,257 and $14,147 | 14,407 | 15,371 | ||||||||||||||
Goodwill, net | 2,368 | 2,421 | 2,372 | 2,394 | ||||||||||||
Other intangible assets, net | 1,049 | 1,148 | 938 | 1,029 | ||||||||||||
Deferred income taxes (Note 4) | 998 | 1,066 | ||||||||||||||
Deferred income taxes (Note 3) | 1,037 | 1,073 | ||||||||||||||
Other assets | 1,871 | 2,056 | 2,226 | 2,179 | ||||||||||||
Total Assets | $ | 28,735 | $ | 30,154 | $ | 28,278 | $ | 29,499 | ||||||||
Liabilities and Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt and short-term borrowings (Note 8) | $ | 208 | $ | 55 | ||||||||||||
Current portion of long-term debt and short-term borrowings | $ | 297 | $ | 224 | ||||||||||||
Accounts payable | 1,808 | 1,612 | 1,459 | 1,804 | ||||||||||||
Other accrued liabilities (Note 7 and Note 10) | 3,151 | 3,139 | ||||||||||||||
Other accrued liabilities (Notes 6 and 9) | 2,529 | 3,147 | ||||||||||||||
Total current liabilities | 5,167 | 4,806 | 4,285 | 5,175 | ||||||||||||
Long-term debt (Note 8) | 6,525 | 6,989 | ||||||||||||||
Postretirement benefits other than pensions (Note 9) | 585 | 622 | ||||||||||||||
Other liabilities (Note 7 and Note 10) | 4,910 | 5,192 | ||||||||||||||
Long-term debt (Note 7) | 7,210 | 6,687 | ||||||||||||||
Postretirement benefits other than pensions (Note 8) | 406 | 407 | ||||||||||||||
Other liabilities (Notes 6 and 9) | 4,633 | 4,955 | ||||||||||||||
Total liabilities | 17,187 | 17,609 | 16,534 | 17,224 | ||||||||||||
Commitments and contingencies (Note 10) | ||||||||||||||||
Shareholders’ equity (Note 13): | ||||||||||||||||
Commitments and contingencies (Note 9) | ||||||||||||||||
Shareholders’ equity (Note 12): | ||||||||||||||||
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1.8 billion and 1.8 billion | 910 | 907 | 915 | 910 | ||||||||||||
Additional paid-in capital – common stock | 16,649 | 16,475 | 16,877 | 16,682 | ||||||||||||
Retained earnings | 17,044 | 16,389 | 16,673 | 16,778 | ||||||||||||
Treasury stock, at cost; Shares held: 977 million and 970 million | (20,528 | ) | (20,263 | ) | ||||||||||||
Treasury stock, at cost; Shares held: 980 million and 977 million | (20,633 | ) | (20,532 | ) | ||||||||||||
Accumulated other comprehensive loss | (2,791 | ) | (1,175 | ) | (2,402 | ) | (1,830 | ) | ||||||||
Total Corning Incorporated shareholders’ equity | 11,284 | 12,333 | 11,430 | 12,008 | ||||||||||||
Non-controlling interests | 264 | 212 | ||||||||||||||
Non-controlling interest | 314 | 267 | ||||||||||||||
Total equity | 11,548 | 12,545 | 11,744 | 12,275 | ||||||||||||
Total Liabilities and Equity | $ | 28,735 | $ | 30,154 | $ | 28,278 | $ | 29,499 |
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows | Corning Incorporated and Subsidiary Companies |
(Unaudited; in millions) |
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Nine months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net income | $ | 1,413 | $ | 1,439 | $ | 676 | $ | 1,413 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 1,014 | 1,005 | 932 | 1,014 | ||||||||||||
Amortization of purchased intangibles | 92 | 97 | 92 | 92 | ||||||||||||
Loss on disposal of assets | 110 | 8 | ||||||||||||||
Loss on disposal of assets, net | 72 | 110 | ||||||||||||||
Severance charges | 86 | 8 | ||||||||||||||
Severance payments | (82 | ) | (5 | ) | ||||||||||||
Gain on sale of business | (53 | ) | (54 | ) | (53 | ) | ||||||||||
Share-based compensation expense | 145 | 117 | 168 | 145 | ||||||||||||
Translation gain on Japanese yen-denominated debt | (321 | ) | (127 | ) | (162 | ) | (321 | ) | ||||||||
Deferred tax provision | 58 | 68 | 37 | 58 | ||||||||||||
Translated earnings contract gain | (257 | ) | (262 | ) | ||||||||||||
Unrealized translation losses on transactions | 140 | 65 | ||||||||||||||
Translated earnings contract gain, net | (128 | ) | (257 | ) | ||||||||||||
Unrealized translation loss on transactions | 58 | 140 | ||||||||||||||
Tax deposit refund | 99 | |||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Trade accounts receivable | 161 | (146 | ) | (137 | ) | 161 | ||||||||||
Inventories | (637 | ) | (72 | ) | 131 | (637 | ) | |||||||||
Other current assets | (5 | ) | (210 | ) | (58 | ) | (5 | ) | ||||||||
Accounts payable and other current liabilities | 25 | 471 | (263 | ) | 25 | |||||||||||
Customer deposits and government incentives | 144 | 62 | (17 | ) | 144 | |||||||||||
Deferred income | (15 | ) | (92 | ) | (11 | ) | (15 | ) | ||||||||
Other, net | (16 | ) | 20 | (201 | ) | (19 | ) | |||||||||
Net cash provided by operating activities | 1,998 | 2,389 | 1,292 | 1,998 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Capital expenditures | (1,201 | ) | (1,014 | ) | (1,111 | ) | (1,201 | ) | ||||||||
Proceeds from sale of equipment to related party | 67 | |||||||||||||||
Proceeds from sale of business | 77 | 102 | 77 | |||||||||||||
Investment in and proceeds from unconsolidated entities, net | (10 | ) | 87 | |||||||||||||
Realized gains on translated earnings contract | 209 | 30 | ||||||||||||||
Realized gains on translated earnings contracts and other | 270 | 209 | ||||||||||||||
Other, net | (44 | ) | (8 | ) | 4 | (54 | ) | |||||||||
Net cash used in investing activities | (969 | ) | (803 | ) | (770 | ) | (969 | ) | ||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Repayments of short-term borrowings | (87 | ) | (144 | ) | ||||||||||||
Repayments of long-term debt | (716 | ) | ||||||||||||||
Proceeds from issuance of short-term debt | 70 | |||||||||||||||
Proceeds from issuance of long-term debt | 37 | 19 | ||||||||||||||
Repayments of short-term borrowings and other long-term debt | (180 | ) | (87 | ) | ||||||||||||
Proceeds from issuance of short-term borrowings | 30 | 70 | ||||||||||||||
Proceeds from issuance of euro bonds and other long-term debt | 968 | 37 | ||||||||||||||
Proceeds from other financing arrangements | 54 | |||||||||||||||
Repayment of other financing arrangements | (54 | ) | ||||||||||||||
Payment for redemption of preferred stock | (507 | ) | (507 | ) | (507 | ) | (507 | ) | ||||||||
Payments of employee withholding tax on stock awards | (44 | ) | (57 | ) | (103 | ) | (44 | ) | ||||||||
Proceeds from exercise of stock options | 35 | 91 | 39 | 35 | ||||||||||||
Purchases of common stock for treasury | (221 | ) | (22 | ) | (221 | ) | ||||||||||
Dividends paid | (696 | ) | (659 | ) | (741 | ) | (696 | ) | ||||||||
Other, net | (17 | ) | 5 | (26 | ) | (17 | ) | |||||||||
Net cash used in financing activities | (1,430 | ) | (1,990 | ) | (520 | ) | (1,430 | ) | ||||||||
Effect of exchange rates on cash | (117 | ) | (56 | ) | (34 | ) | (117 | ) | ||||||||
Net decrease in cash and cash equivalents | (518 | ) | (460 | ) | (32 | ) | (518 | ) | ||||||||
Cash and cash equivalents at beginning of period | 2,148 | 2,672 | 1,671 | 2,148 | ||||||||||||
Cash and cash equivalents at end of period | $ | 1,630 | $ | 2,212 | $ | 1,639 | $ | 1,630 |
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Changes in Shareholders’ Equity | Corning Incorporated and Subsidiary Companies |
(Unaudited; in millions, except per share amounts) |
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited; in millions, except per share amounts)
Common stock | Additional paid-in capital common | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total Corning Incorporated shareholders' equity | Non-controlling interests | Total | Common stock | Additional paid-in capital common | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total Corning Incorporated shareholders' equity | Non-controlling interest | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | 907 | $ | 16,475 | $ | 16,389 | $ | (20,263 | ) | $ | (1,175 | ) | $ | 12,333 | $ | 212 | $ | 12,545 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2022 | $ | 910 | $ | 16,682 | $ | 16,778 | $ | (20,532 | ) | $ | (1,830 | ) | $ | 12,008 | $ | 267 | $ | 12,275 | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | 581 | 581 | 22 | 603 | 176 | 176 | 15 | 191 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (187 | ) | (187 | ) | (187 | ) | (67 | ) | (67 | ) | (67 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for treasury | (151 | ) | (151 | ) | (151 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to benefit plans and for option exercises | 1 | 56 | 57 | 57 | 1 | 64 | 65 | 65 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.27 per share) | (233 | ) | (233 | ) | (233 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.28 per share) | (241 | ) | (241 | ) | (241 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | (5 | ) | (5 | ) | (5 | ) | (16 | ) | (16 | ) | (16 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | 908 | $ | 16,531 | $ | 16,737 | $ | (20,419 | ) | $ | (1,362 | ) | $ | 12,395 | $ | 234 | $ | 12,629 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2023 | $ | 911 | $ | 16,746 | $ | 16,713 | $ | (20,548 | ) | $ | (1,897 | ) | $ | 11,925 | $ | 282 | $ | 12,207 | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | 563 | 563 | 21 | 584 | 281 | 281 | 22 | 303 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (732 | ) | (732 | ) | (2 | ) | (734 | ) | (302 | ) | (302 | ) | (1 | ) | (303 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for treasury | (53 | ) | (53 | ) | (53 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to benefit plans and for option exercises | 2 | 59 | 61 | 61 | 4 | 71 | 75 | 75 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.54 per share) | (463 | ) | (463 | ) | (463 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.56 per share) | (485 | ) | (485 | ) | (485 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | (37 | ) | (37 | ) | (5 | ) | (42 | ) | (82 | ) | (82 | ) | (5 | ) | (87 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | $ | 910 | $ | 16,590 | $ | 16,837 | $ | (20,509 | ) | $ | (2,094 | ) | $ | 11,734 | $ | 248 | $ | 11,982 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2023 | $ | 915 | $ | 16,817 | $ | 16,509 | $ | (20,630 | ) | $ | (2,199 | ) | $ | 11,412 | $ | 298 | $ | 11,710 | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | 208 | 208 | 18 | 226 | 164 | 164 | 18 | 182 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (697 | ) | (697 | ) | (2 | ) | (699 | ) | (203 | ) | (203 | ) | (1 | ) | (204 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for treasury | (17 | ) | (17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to benefit plans and for option exercises | 59 | 59 | 59 | 60 | 60 | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | (1 | ) | (2 | ) | (3 | ) | (3 | ) | (3 | ) | (3 | ) | (1 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | $ | 910 | $ | 16,649 | $ | 17,044 | $ | (20,528 | ) | $ | (2,791 | ) | $ | 11,284 | $ | 264 | $ | 11,548 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2023 | $ | 915 | $ | 16,877 | $ | 16,673 | $ | (20,633 | ) | $ | (2,402 | ) | $ | 11,430 | $ | 314 | $ | 11,744 |
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 | Common stock | Additional paid-in capital common | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total Corning Incorporated shareholders' equity | Non-controlling interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | 2,300 | $ | 863 | $ | 14,642 | $ | 16,120 | $ | (19,928 | ) | $ | (740 | ) | $ | 13,257 | $ | 191 | $ | 13,448 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2021 | $ | 907 | $ | 16,475 | $ | 16,389 | $ | (20,263 | ) | $ | (1,175 | ) | $ | 12,333 | $ | 212 | $ | 12,545 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 599 | 599 | 2 | 601 | 581 | 581 | 22 | 603 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (352 | ) | (352 | ) | (1 | ) | (353 | ) | (187 | ) | (187 | ) | (187 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to benefit plans and for option exercises | 1 | 80 | 81 | 81 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.24 per share) | (187 | ) | (187 | ) | (187 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends ($10,625 per share) | (24 | ) | (24 | ) | (24 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | 1 | (6 | ) | (5 | ) | (3 | ) | (8 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | 2,300 | $ | 864 | $ | 14,722 | $ | 16,509 | $ | (19,934 | ) | $ | (1,092 | ) | $ | 13,369 | $ | 189 | $ | 13,558 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 449 | 449 | 5 | 454 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 40 | 40 | 1 | 41 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of preferred stock (2) | (700 | ) | (803 | ) | (1,503 | ) | (1,503 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock (3) | (1,600 | ) | 40 | 1,560 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for treasury | (1 | ) | (1 | ) | (1 | ) | (151 | ) | (151 | ) | (151 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to benefit plans and for option exercises | 3 | 70 | 73 | 73 | 1 | 56 | 57 | 57 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.48 per share) | (416 | ) | (416 | ) | (416 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.27 per share) | (233 | ) | (233 | ) | (233 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | (51 | ) | (51 | ) | (13 | ) | (64 | ) | (5 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | — | $ | 907 | $ | 16,352 | $ | 15,739 | $ | (19,986 | ) | $ | (1,052 | ) | $ | 11,960 | $ | 182 | $ | 12,142 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2022 | $ | 908 | $ | 16,531 | $ | 16,737 | $ | (20,419 | ) | $ | (1,362 | ) | $ | 12,395 | $ | 234 | $ | 12,629 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 563 | 563 | 21 | 584 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (732 | ) | (732 | ) | (2 | ) | (734 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for treasury | (53 | ) | (53 | ) | (53 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to benefit plans and for option exercises | 2 | 59 | 61 | 61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($0.54 per share) | (463 | ) | (463 | ) | (463 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | (37 | ) | (37 | ) | (5 | ) | (42 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2022 | $ | 910 | $ | 16,590 | $ | 16,837 | $ | (20,509 | ) | $ | (2,094 | ) | $ | 11,734 | $ | 248 | $ | 11,982 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 371 | 371 | 13 | 384 | 208 | 208 | 18 | 226 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (207 | ) | (207 | ) | (1 | ) | (208 | ) | (697 | ) | (697 | ) | (2 | ) | (699 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock for treasury | (24 | ) | (24 | ) | (24 | ) | (17 | ) | (17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to benefit plans and for option exercises | 46 | 46 | 46 | 59 | 59 | 59 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net (1) | (1 | ) | (1 | ) | 16 | 15 | (1 | ) | (2 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | $ | — | $ | 907 | $ | 16,398 | $ | 16,110 | $ | (20,011 | ) | $ | (1,259 | ) | $ | 12,145 | $ | 210 | $ | 12,355 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | $ | 910 | $ | 16,649 | $ | 17,044 | $ | (20,528 | ) | $ | (2,791 | ) | $ | 11,284 | $ | 264 | $ | 11,548 |
(1) | Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations. |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and its subsidiary companies.
The consolidated financial statements include the consolidated accounts of Corning Incorporated and its subsidiaries consolidated in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the periods presented. All intercompany accounts, transactions and profits have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).eliminated. Certain information and notefootnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed.pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These interim consolidated financial statements should be read in conjunction with Corning’s consolidatedthe audited financial statements and notes thereto included in itsthe Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 (“20212022 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. liabilities in the consolidated financial statements and related notes. Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.
The non-controlling interestsinterest as recorded in the consolidated financial statements representrepresents amounts attributable to the minority shareholders of Hemlock Semiconductor Group (“Hemlock”) and other less-than-wholly-owned consolidated subsidiaries.
Certain prior year amounts have been reclassified to conform to the current-yearcurrent year presentation. These reclassifications had no material impact on the results of operations, financial position or changes in shareholders’ equity.
New Accounting Standards
In November 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, effective for financial statements issued for annual periods beginning after December 15, 2021. ASU 2021-10 requires business entities to disclose information in the notes to the financial statements about certain types of government assistance. The annual disclosure requirements apply to transactions with a government that are accounted for by analogizing to either a grant model or a contribution model. We plan to adopt ASU 2020-10 when we issue our annual financial statements. We do not expect it to have a material impact on our financial position or results of operations.
2. Restructuring, Impairment, and Other Charges and CreditsRevenue
During the three and nine months ended September 30, 2022, we recorded $138 million and $217 million, respectively, in accelerated depreciation, asset write-offs and other related charges, of which $125 million and $193 million, respectively, were reflected in cost of sales in the consolidated statements of income. The activity primarily related to capacity optimization of an emerging growth business.Disaggregated Revenue
There were no material restructuring, impairment and other charges and credits for the three and nine months ended September 30, 2021.The following table presents revenues by product category (in millions):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Telecommunication products | $ | 918 | $ | 1,317 | $ | 3,109 | $ | 3,828 | ||||||||
Display products | 727 | 558 | 2,061 | 2,223 | ||||||||||||
Specialty glass products | 560 | 516 | 1,384 | 1,494 | ||||||||||||
Environmental substrate and filter products | 420 | 393 | 1,260 | 1,130 | ||||||||||||
Life science products | 221 | 297 | 690 | 908 | ||||||||||||
Polycrystalline silicon products | 230 | 288 | 765 | 877 | ||||||||||||
All other products | 97 | 119 | 325 | 323 | ||||||||||||
Total revenue | $ | 3,173 | $ | 3,488 | $ | 9,594 | $ | 10,783 |
3. Revenue
Revenue Disaggregation Table
The following table shows revenues by major product categories, similar to the Company’s reportable segment disclosure. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty of revenue recognition and cash flows are substantially similar. Commercial markets and selling channels are also similar. Except for an inconsequential amount of revenue for Telecommunications products, product category revenues are recognized at the point in time when control transfers to the customer.
Revenues by product category were as follows (in millions):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Telecommunication products | $ | 1,317 | $ | 1,131 | $ | 3,828 | $ | 3,143 | ||||||||
Display products | 558 | 936 | 2,223 | 2,758 | ||||||||||||
Specialty glass products | 516 | 556 | 1,494 | 1,490 | ||||||||||||
Environmental substrate and filter products | 393 | 382 | 1,130 | 1,233 | ||||||||||||
Life science products | 297 | 304 | 908 | 917 | ||||||||||||
Polycrystalline silicon and all other products | 407 | 306 | 1,200 | 865 | ||||||||||||
Total net sales | $ | 3,488 | $ | 3,615 | $ | 10,783 | $ | 10,406 | ||||||||
Impact of constant currency reporting (1) | 178 | 24 | 389 | |||||||||||||
Net sales of reportable segments and Hemlock and Emerging Growth Businesses | $ | 3,666 | $ | 3,639 | $ | 11,172 | $ | 10,406 |
Contract Assets and Liabilities
Contract assets, such as incremental costs to obtain or fulfill contracts, are an insignificant component of Corning’s revenue recognition process. Most of Corning’s fulfillment costs as a manufacturer of products are classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other contract fulfillment costs are immaterial due to the nature of the products and their respective manufacturing processes.
Contract liabilities include customer deposits, deferred revenue and other advance payments. Customer deposits are predominately related to Display products and deferred revenue is predominately related to Hemlock. Other advance payments are not significant to operations and are classified as part of other accrued liabilities in the consolidated financial statements.
Customer Deposits
As of September 30, 20222023 and December 31, 20212022, Corning had customer deposits of approximately $1.2 billion and $1.3 billion.billion, respectively. Most of these customer deposits were non-refundable and allowed customers to secure rights to products produced by Corning under long-term supply agreements. The duration of these long-term supply agreements ranges up to 10 years. As products are shippeddelivered to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability.
Customer deposits used were $24 million and $155 million forFor the three months ended September 30, 2023 and2022, customer deposits recognized were $6 million and $24 million, respectively. For the nine months ended September 30, 2022,2023 respectively, and $592022, customer deposits recognized were $88 million and $182$155 million, respectively.
Refer to Note 6 (Other Liabilities) for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022 and December 31, 2021, $1.1 billion were classified as other long-term liabilities. The remaining $166 million and $223 million as of September 30, 2022 and December 31, 2021, respectively, were classified as other accrued liabilities.additional information.
Deferred Revenue
As of September 30, 20222023 and December 31, 2021, 2022, Corning had deferred revenue of approximately $902$854 million and $912$869 million, respectively. The deferredDeferred revenue was primarily related to the performance obligations of non-refundable consideration previously received by Hemlock from its customers under long-term supply agreements. The deferred
Deferred revenue is tracked on a per-customer contract-unit basis. As customers take delivery of the committed volumes under the terms of the contract, a per-unit amount of deferred revenue is recognized when control of the promised goods is transferred to the customer based upon the units shipped. delivered compared to the remaining contractual units. For the three and nine months ended September 30, 2023 and 2022, the amount of deferred revenue recognized in the consolidated statements of income was not material.
As ofRefer to Note September 30, 20226 and December 31, 2021, $732 million and $764 million, respectively, were classified as other long-term liabilities and $170 million and $148 million, respectively, were classified as other accrued liabilities.(Other Liabilities) for additional information.
4.3. Income Taxes
The following table presents the provision for income taxes and the related effective income tax rates were as followsrate (in millions)millions, except percentages):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Provision for income taxes | $ | (34 | ) | $ | (109 | ) | $ | (380 | ) | $ | (402 | ) | $ | (35 | ) | $ | (34 | ) | $ | (178 | ) | $ | (380 | ) | ||||||||
Effective tax rate | 13.1 | % | 22.1 | % | 21.2 | % | 21.8 | % | 16.1 | % | 13.1 | % | 20.8 | % | 21.2 | % |
For the three months ended September 30, 2023, the effective tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to differences arising from foreign earnings partially offset by changes in estimates based on the final 2022 U.S. Federal Income Tax Return. For the nine months ended September 30, 2023, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings, changes in estimates based on the final 2022 U.S. Federal Income Tax Return and adjustments related to share-based compensation, partially offset by changes in valuation allowance assessments.
For the three months ended September 30, 2022, the effective income tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to the net impact of changes in tax legislation and changes in estimates based on the final 2021 U.S. Federal Income Tax Return, partially offset by changes in tax reserves. For the nine months ended September 30, 2022, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings and changes in tax reserves, partially offset by the net impact of changes in tax legislation, changes in estimates based on the final 2021 U.S. Federal Income Tax Return and adjustments related to share-based compensation.
For the three months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to non-deductible expenses for tax purposes, foreign rate differential, and tax reform items. For the nine months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an adjustment to the permanently reinvested foreign income position, excess tax benefit related to share-based compensation payments, foreign rate differential, and tax reform items related to The Tax Cuts and Jobs Act of 2017.
Corning Precision Materials, a South Korean subsidiary, is currently appealing certain tax assessments and tax refund claims in South Korea for tax years 2010 through 2018.2019. The Company was required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessments.assessment. During the second quarter of 2023, $99 million was no longer under dispute and was refunded to the Company. The non-current receivable balance was $255 million and $349 million as of September 30, 2023 and December 31, 2022, respectively, for the amount on deposit with the South Korean government. Corning believes that it is more likely than not the Company will prevail in the appeals process. As of September 30, 2022 and December 31, 2021, non-current receivables of $322 million and $350 million, respectively, were recorded relatedprocess relating to these appeals.matters.
4. Earnings Per Common Share
The following table presents the reconciliation of the amounts used to compute basic and diluted earnings per common share (in millions, except per share amounts):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income attributable to Corning Incorporated | $ | 164 | $ | 208 | $ | 621 | $ | 1,352 | ||||||||
Weighted-average common shares outstanding – basic | 850 | 843 | 848 | 843 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and other awards | 9 | 12 | 10 | 14 | ||||||||||||
Weighted-average common shares outstanding – diluted | 859 | 855 | 858 | 857 | ||||||||||||
Basic earnings per common share | $ | 0.19 | $ | 0.25 | $ | 0.73 | $ | 1.60 | ||||||||
Diluted earnings per common share | $ | 0.19 | $ | 0.24 | $ | 0.72 | $ | 1.58 | ||||||||
Anti-dilutive potential shares excluded from diluted earnings | ||||||||||||||||
Stock options and other awards | 3 | 3 | 3 | 2 |
5. Inventories
Inventories consisted of the following (in millions):
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Finished goods | $ | 1,226 | $ | 1,315 | ||||
Work in process | 513 | 571 | ||||||
Raw materials and accessories | 479 | 537 | ||||||
Supplies and packing materials | 437 | 481 | ||||||
Inventories | $ | 2,655 | $ | 2,904 |
5. Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (in millions, except per share amounts):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net income attributable to Corning Incorporated | $ | 208 | $ | 371 | $ | 1,352 | $ | 1,419 | ||||||||
Less: Series A convertible preferred stock dividend | 24 | |||||||||||||||
Less: Excess consideration paid for redemption of preferred shares | 803 | |||||||||||||||
Net income available to common shareholders – basic | 208 | 371 | 1,352 | 592 | ||||||||||||
Net income available to common shareholders – diluted | $ | 208 | $ | 371 | $ | 1,352 | $ | 592 | ||||||||
Weighted-average common shares outstanding – basic | 843 | 852 | 843 | 821 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee stock options and other dilutive securities | 12 | 14 | 14 | 16 | ||||||||||||
Weighted-average common shares outstanding – diluted | 855 | 866 | 857 | 837 | ||||||||||||
Basic earnings per common share | $ | 0.25 | $ | 0.44 | $ | 1.60 | $ | 0.72 | ||||||||
Diluted earnings per common share | $ | 0.24 | $ | 0.43 | $ | 1.58 | $ | 0.71 | ||||||||
Anti-dilutive potential shares excluded from diluted earnings per common share: | ||||||||||||||||
Series A convertible preferred stock (1) | 41 | |||||||||||||||
Employee stock options and awards | 3 | 2 | ||||||||||||||
Total | 3 | — | 2 | 41 |
Fixed Rate Cumulative Convertible Preferred Stock, Series A
As of December 31, 2020, Corning had 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A (the “Preferred Stock”). On January 16, 2021, the Preferred Stock became convertible into 115 million common shares, in whole or in part, at the option of the holder, Samsung Display Co., Ltd. (“SDC”). On April 5, 2021, Corning and SDC executed the Share Repurchase Agreement (“SRA”).
Pursuant to the SRA, on April 8, 2021, the Preferred Stock was fully converted into 115 million common shares. The preferred shares were removed from the calculation of diluted earnings per share. The Company repurchased 35 million of the converted common shares pursuant to the SRA and excluded them from the weighted average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share. The redemption of these common shares resulted in a reduction of retained earnings of $803 million which reduced the net income available to common shareholders. The remaining 80 million common shares are outstanding and are included in the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share.
Refer to Note 13 (Shareholders’ Equity) to the consolidated financial statements for more information.
6. Inventories, Net
Inventories, net were as follows (in millions):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Finished goods | $ | 1,394 | $ | 1,215 | ||||
Work in process | 507 | 358 | ||||||
Raw materials and accessories | 571 | 427 | ||||||
Supplies and packing materials | 479 | 481 | ||||||
Total inventories, net | $ | 2,951 | $ | 2,481 |
7. Other Liabilities
Other liabilities were as followsconsisted of the following (in millions):
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Current liabilities: | ||||||||||||||||
Wages and employee benefits | $ | 595 | $ | 824 | $ | 505 | $ | 727 | ||||||||
Income taxes | 99 | 196 | 125 | 127 | ||||||||||||
Derivative instruments (Note 11) | 494 | 144 | ||||||||||||||
Deferred revenue (Note 3) | 170 | 148 | ||||||||||||||
Customer deposits (Note 3) | 166 | 223 | ||||||||||||||
Share repurchase liability (Note 13) | 504 | 506 | ||||||||||||||
Derivative instruments (Note 10) | 150 | 174 | ||||||||||||||
Deferred revenue (Note 2) | 185 | 144 | ||||||||||||||
Customer deposits (Note 2) | 162 | 132 | ||||||||||||||
Share repurchase liability (Note 12) | 506 | |||||||||||||||
Short-term operating leases | 97 | 94 | 108 | 111 | ||||||||||||
Other current liabilities | 1,026 | 1,004 | 1,294 | 1,226 | ||||||||||||
Other accrued liabilities | $ | 3,151 | $ | 3,139 | $ | 2,529 | $ | 3,147 | ||||||||
Non-current liabilities: | ||||||||||||||||
Defined benefit pension plan liabilities | $ | 698 | $ | 707 | $ | 685 | $ | 668 | ||||||||
Derivative instruments (Note 11) | 238 | 49 | ||||||||||||||
Deferred revenue (Note 3) | 732 | 764 | ||||||||||||||
Customer deposits (Note 3) | 1,115 | 1,072 | ||||||||||||||
Share repurchase liability (Note 13) | 18 | 517 | ||||||||||||||
Derivative instruments (Note 10) | 65 | 17 | ||||||||||||||
Deferred revenue (Note 2) | 669 | 725 | ||||||||||||||
Customer deposits (Note 2) | 1,044 | 1,137 | ||||||||||||||
Deferred tax liabilities | 136 | 258 | 201 | 243 | ||||||||||||
Long-term operating leases | 648 | 691 | 842 | 795 | ||||||||||||
Other non-current liabilities | 1,325 | 1,134 | 1,127 | 1,370 | ||||||||||||
Other liabilities | $ | 4,910 | $ | 5,192 | $ | 4,633 | $ | 4,955 |
8.7. Debt
Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $5.9$6.5 billion and $8.3$6.1 billion atas of September 30, 20222023 and December 31, 20212022, , respectively, compared to recorded book valuesthe carrying value of $6.5$7.2 billion and $7.0$6.7 billion atas of September 30, 20222023 and December 31, 20212022, , respectively. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.
Debt IssuancesOn May 15, 2023, the Company issued €300 million 3.875% Notes due 2026 (“2026 Notes”) and Redemptions
In€550 million 4.125% Notes due 2031 (“2031 Notes”). The proceeds from the second2026 quarterNotes and 2031 Notes were received in euros and converted to U.S. dollars on the date of 2022, Corning amendedissuance. The net proceeds received were approximately $918 million and restated its existing revolving credit agreement, which provides a committed $1.5 billion unsecured multi-currency line of credit, primarily to extend the term to 2027. Additionally, Corning amended and restated its 25 billion Japanese yen liquidity facility, equivalent to approximately $173 million, primarily to extend the term to 2025.will be used for general corporate purposes. As of September 30, 2022 2023, the U.S. dollar equivalent carrying value of the euro-denominated long-term debt was $892 million.
The full amounts of the 2026 Notes and December 31, 2021, there were no outstanding amounts under either the amended and restated or the existing facilities.
In the second2031 quarter ofNotes have been designated as net investment hedges against our investments in certain European subsidiaries with euro functional currencies. Refer to Note 2021,10 Corning redeemed $375 million of 2.9% debentures due in 2022, paying a premium of $10 million by exercising our make-whole call. The bond redemption resulted in an $11 million loss during the same quarter. In the third quarter of 2021, Corning redeemed $250 million of 3.7% debentures due in 2023, paying a premium of $19 million by exercising our make-whole call. The bond redemption resulted in a $20 million loss during the same quarter.(Hedging Activities) for additional information.
Corning had no outstanding commercial paper as of September 30, 20222023 andor December 31, 20212022..
9.8. Employee Retirement Plans
Corning has defined benefit pension plans covering certain domestic and international employees. The Company’s funding policy is to Company may contribute, over time,as necessary, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During 2023,the nine months ended September 30, 2022, Company made cash contributions of $25 million to ourits international pension plans were not material.plans. The Company does not expect to make additional contributions in the fourth quarter of 2022.2023.
The following table summarizespresents the components of net periodic benefit expense (income) for Corning’s defined benefit pension and postretirement health care and life insuranceemployee retirement plans, (in millions):
Pension benefits | Postretirement benefits | |||||||||||||||||||||||||||||||
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Service cost | $ | 32 | $ | 32 | $ | 96 | $ | 96 | $ | 3 | $ | 3 | $ | 7 | $ | 8 | ||||||||||||||||
Interest cost | 28 | 22 | 82 | 65 | 3 | 3 | 11 | 11 | ||||||||||||||||||||||||
Expected return on plan assets | (55 | ) | (54 | ) | (164 | ) | (162 | ) | ||||||||||||||||||||||||
Amortization of prior service cost (credit) | 1 | 1 | 4 | 3 | (2 | ) | (1 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||
Recognition of actuarial loss (gain) | 22 | 10 | (2 | ) | (3 | ) | 1 | |||||||||||||||||||||||||
Total pension and postretirement benefit expense | $ | 6 | $ | 1 | $ | 40 | $ | 12 | $ | 2 | $ | 5 | $ | 11 | $ | 16 |
The components of net periodic benefit expense,which other than the service cost component are includedis recorded in the line item other income, net in the consolidated statements of income.income (in millions):
Pension benefits | Postretirement benefits | |||||||||||||||||||||||||||||||
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Service cost | $ | 25 | $ | 32 | $ | 75 | $ | 96 | $ | 1 | $ | 3 | $ | 4 | $ | 7 | ||||||||||||||||
Interest cost | 45 | 28 | 133 | 82 | 6 | 3 | 17 | 11 | ||||||||||||||||||||||||
Expected return on plan assets | (46 | ) | (55 | ) | (138 | ) | (164 | ) | ||||||||||||||||||||||||
Amortization of actuarial net gain | (6 | ) | (17 | ) | ||||||||||||||||||||||||||||
Amortization of prior service cost (credit) | 2 | 1 | 5 | 4 | (2 | ) | (2 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||
Recognition of actuarial loss (gain) | 12 | (16 | ) | 22 | (2 | ) | (3 | ) | ||||||||||||||||||||||||
Special termination benefit charge | 5 | |||||||||||||||||||||||||||||||
Total pension and postretirement benefit expense (income) | $ | 38 | $ | 6 | $ | 64 | $ | 40 | $ | (1 | ) | $ | 2 | $ | — | $ | 11 |
10.9. Commitments and Contingencies
Corning is a defendant in various lawsuits and is subject to various claims that arise in the normal course of business, the most significant of which are summarized below. In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse effect on Corning’s consolidated financial position, liquidity or results of operations, is remote.
Dow Corning Chapter 11 Related Matters
Until June 1, 2016, Corning and The Dow Chemical Company (“Dow”) each owned 50% of the common stock of Dow Corning.Corning Corporation (“Dow Corning”). On May 31, 2016, Corning and Dow realigned their ownership interest in Dow Corning. Following the realignment, Corning no longer owned any interest in Dow Corning. With the realignment, Corning agreed to indemnify Dow 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, subject to certain conditions and limits.
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 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, 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 for up to 50% of the excess liability, subject to certain conditions and limits. As of September 30, 2022 and December 31, 2021, Dow Corning had recorded a reserve for breast implant litigation of $87 million and $130 million, respectively. As a result, Corning does not believe that its indemnity obligation for Dow Corning’s breast implant litigation liability, if any, will be material.
Dow Corning Bankruptcy Pendency Interest Claims
As a separate matter arising from the bankruptcy proceedings, Dow Corning had been defending claims asserted by commercial creditors who claimed 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 formally notified Corning of certain environmental matters for which Dow asserts that it has, or will, experience losses arising from remediation and response at a number of sites. In the event Dow is liable for these claims, Corning may be required to indemnify Dow for up to 50% of that liability, subject to certain conditions and limits. As of September 30, 20222023, Corning has determined a potential liability for these environmental matters is probable and the amount reserved was not material.
Environmental Litigation
Corning has been designated by federal or state governments under environmental laws, including Superfund, as a potentially responsible party that may be liable for cleanup costs associated with 19 hazardous waste sites. It is Corning’s policy to accrue for its estimated liability related to such hazardous waste sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. As of September 30, 20222023 and December 31, 20212022, Corning had accrued approximately $111$90 million and $55$109 million, respectively, for the estimated undiscounted liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.liability.
11.10. Hedging Activities
Designated Hedges
Corning uses over-the-counter (“OTC”) foreign exchange forward contracts designated as cash flow hedges to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to customers and purchases from suppliers. The total gross notional valuesamounts for foreign currency cash flow hedges are $578$301 million and $780$419 million atas of September 30, 20222023 and December 31, 20212022, , respectively, with maturities through 2024. 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. AtAs of September 30, 20222023, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $30$43 million.
Corning has entered into leases of precious metals, with maturities through 2025. To offset the risk of changes in the fair value of the Company’s separate accounting pool of leased precious metals due to adverse changes in the respective market prices, Corning designated the bifurcated embedded derivatives included in these leases as fair value hedges. The gain or loss on the derivatives, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings. The amounts representing the time value component of the derivatives are excluded from the assessment of effectiveness and amortized in earnings. The impact of the excluded component on Corning’s other comprehensive incomeloss and earnings is not material. The carrying amount of the leased precious metals pool, which is included in thewithin property, plant and equipment, net of accumulated depreciation line ofin the consolidated balance sheets, is $324$89 million and $107$278 million, atrespectively, as of September 30, 20222023 and December 31, 2021,2022. The carrying amount of the leased precious metals pool includes cumulative fair value losses of $261 million and $95 million as of September 30, 2023 and December 31, 2022, respectively. These losses are offset by changes in the fair value of the derivatives.
Net Investment Hedges
In May 2023, the Company designated the full amount of its 2026 Notes and 2031 Notes with a total notional amount of €850 million, which are non-derivative financial instruments, as net investment hedges against our investments in certain European subsidiaries with euro functional currencies. Changes in the value of these hedging instruments due to foreign currency gains or losses are deferred in other comprehensive loss on the consolidated statements of comprehensive (loss) income, within the foreign currency translation adjustments and other line, and will remain in accumulated other comprehensive loss until the hedged investment is sold or substantially liquidated. We evaluate the effectiveness of the net investment hedges each quarter using the critical terms match method. As of September 30, 2023, the net investment hedges are deemed to be effective. During the three and nine months ended September 30, 2023, foreign currency gains of $29 million and $36 million, respectively, associated with these net investment hedges were recognized in other comprehensive loss.
Refer to Note 7 (Debt) for additional information.
Undesignated Hedges
Corning uses OTC foreign exchange forward and option contracts to offset economic currency risks. These contracts are not designated as hedging instruments for accounting purposes to offset economic currency risks.purposes. The undesignated hedges limit exposure to foreign functional currency fluctuations related to certain subsidiaries’ monetary assets, monetary liabilities and net earnings in foreign currencies.
A significant portion of the Company’s non-U.S. revenue and expenses are denominated in Japanese yen, South Korean won, new Taiwan dollar, Chinese yuan and euro. When this revenue and these expenses are translated back to U.S. dollars, the Company is exposed to foreign exchange rate movements. To protect translated earnings against movements in these currencies, the Company has entered into a series of average rate forwards and option contracts. Most of these contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturitiesand South Korean won. The Company has contracts through 2024 for the Japanese yen and2026 for the South Korean won, with maturities through won.
The fair values of these derivative contracts are recorded as either assets (gain position) or liabilities (loss position) on the consolidated balance sheets. Changes in the fair value of the derivative contracts are recorded in earnings within translated earnings contract gain (loss), net in the consolidated statements of income.
The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis as of September 30, 2023 and December 31, 2022 (in millions):
Asset derivatives | Liability derivatives | |||||||||||||||||||||||||
Notional amount | Balance | Fair value | Balance | Fair value | ||||||||||||||||||||||
September | December | sheet | September | December | sheet | September | December | |||||||||||||||||||
30, 2023 | 31, 2022 | location | 30, 2023 | 31, 2022 | location | 30, 2023 | 31, 2022 | |||||||||||||||||||
Derivatives designated as hedging instruments (1) | ||||||||||||||||||||||||||
Foreign exchange and precious metals lease contracts (2) | $ | 301 | $ | 419 | Other current assets | $ | 165 | $ | 26 | Other accrued liabilities | $ | (1 | ) | |||||||||||||
Other assets | 139 | 78 | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||
Foreign exchange contracts | 1,486 | 2,231 | Other current assets | 18 | 44 | Other accrued liabilities | $ | (23 | ) | (49 | ) | |||||||||||||||
Translated earnings contracts | 5,128 | 7,543 | Other current assets | 380 | 384 | Other accrued liabilities | (127 | ) | (124 | ) | ||||||||||||||||
Other assets | 71 | 146 | Other liabilities | (65 | ) | (17 | ) | |||||||||||||||||||
Total derivatives | $ | 6,915 | $ | 10,193 | $ | 773 | $ | 678 | $ | (215 | ) | $ | (191 | ) |
(1) | The amounts above do not include €850 million of euro-denominated debt ($892 million equivalent as of September 30, 2023), which is a non-derivative financial instrument designated as a net investment hedge. |
(2) | As of September 30, 2023 and December 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with total notional amounts of $301 million and $419 million, respectively, and fair value hedges of leased precious metals with total notional amounts of 21,652 troy ounces and 23,152 troy ounces, respectively. |
The following table summarizes the total gross notional valueamounts for translated earnings contracts atas of September 30, 20222023 and December 31, 20212022 (in billions):
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Average rate forward contracts: | ||||||||||||||||
Japanese yen-denominated | $ | 0.8 | $ | 2.9 | $ | 0.2 | $ | 0.1 | ||||||||
South Korean won-denominated | 2.3 | 1.2 | 1.7 | 2.1 | ||||||||||||
Euro-denominated | 0.1 | 0.2 | ||||||||||||||
Other foreign currencies (1) | 0.6 | 0.1 | 1.1 | 0.7 | ||||||||||||
Option contracts: | ||||||||||||||||
Japanese yen-denominated (2) | 4.5 | 3.6 | 2.1 | 4.6 | ||||||||||||
Other foreign currencies (3) | 0.9 | |||||||||||||||
Total gross notional value for translated earning contracts | $ | 8.3 | $ | 8.9 | ||||||||||||
Total notional amount for translated earning contracts | $ | 5.1 | $ | 7.5 |
(1) | Denominational currencies for other average rate forward contracts include the Chinese yuan, New Taiwan dollar, euro and British pound. |
(2) | Japanese yen-denominated option contracts include purchased put and call options, knock-out options and zero-cost collars. With respect to the zero-cost collars, the |
|
The following tables summarize the effect in the consolidated statements of income relating to Corning’s derivative financial instruments (in millions). The accumulated derivative gain included in accumulated other comprehensive loss on the consolidated balance sheets as of September 30, 2023 and December 31, 2022 is $91 million and $19 million, respectively.
Three months ended September 30, | |||||||||||||||||
Location of gain (loss) | |||||||||||||||||
Gain recognized | reclassified from | Gain (loss) reclassified | |||||||||||||||
Derivative hedging | in other comprehensive | accumulated | from accumulated | ||||||||||||||
relationships for cash | loss (OCL) | OCL into income | OCL into income | ||||||||||||||
flow and fair value hedges | 2023 | 2022 | effective (ineffective) | 2023 | 2022 | ||||||||||||
Net sales | $ | 15 | |||||||||||||||
Cost of sales | $ | 14 | 6 | ||||||||||||||
Foreign exchange contracts and other | $ | 28 | $ | 4 | Other income, net | (1 | ) | (1 | ) | ||||||||
Total cash flow and fair value hedges | $ | 28 | $ | 4 | $ | 13 | $ | 20 |
Nine months ended September 30, | |||||||||||||||||
Location of gain (loss) | |||||||||||||||||
Gain recognized | reclassified from | Gain (loss) reclassified | |||||||||||||||
Derivative hedging | in other comprehensive | accumulated | from accumulated | ||||||||||||||
relationships for cash | loss (OCL) | OCL into income | OCL into income | ||||||||||||||
flow and fair value hedges | 2023 | 2022 | effective (ineffective) | 2023 | 2022 | ||||||||||||
Net sales | $ | 38 | |||||||||||||||
Cost of sales | $ | 32 | 19 | ||||||||||||||
Foreign exchange contracts and other | $ | 102 | $ | 24 | Other income, net | (3 | ) | (3 | ) | ||||||||
Total cash flow and fair value hedges | $ | 102 | $ | 24 | $ | 29 | $ | 54 |
Gain (loss) recognized in income | |||||||||||||||||
Three months ended | Nine months ended | ||||||||||||||||
Location of gain (loss) | September 30, | September 30, | |||||||||||||||
Undesignated derivatives | recognized in income | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Foreign exchange contracts | Other income, net | $ | (5 | ) | $ | 11 | $ | 23 | $ | 70 | |||||||
Translated earnings contracts | Translated earnings contract gain (loss), net | 20 | (68 | ) | 128 | 257 | |||||||||||
Total undesignated | $ | 15 | $ | (57 | ) | $ | 151 | $ | 327 |
The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for September 30, 2022 and December 31, 2021 (in millions):
Asset derivatives | Liability derivatives | |||||||||||||||||||||||||
Notional amount | Balance | Fair value | Balance | Fair value | ||||||||||||||||||||||
September 30, | December 31, | sheet | September 30, | December 31, | sheet | September 30, | December 31, | |||||||||||||||||||
2022 | 2021 | location | 2022 | 2021 | location | 2022 | 2021 | |||||||||||||||||||
Derivatives designated as hedging | ||||||||||||||||||||||||||
Foreign exchange contracts and other | $ | 578 | $ | 780 | Other current assets | $ | 36 | $ | 49 | Other accrued liabilities | $ | (6 | ) | $ | (2 | ) | ||||||||||
Other assets | 40 | 10 | Other liabilities | (15 | ) | (9 | ) | |||||||||||||||||||
Derivatives not designated as hedging | ||||||||||||||||||||||||||
Foreign exchange contracts | 3,130 | 3,864 | Other current assets | 147 | 91 | Other accrued liabilities | (161 | ) | (95 | ) | ||||||||||||||||
Translated earnings contracts | 8,296 | 8,899 | Other current assets | 697 | 196 | Other accrued liabilities | (327 | ) | (47 | ) | ||||||||||||||||
Other assets | 191 | 154 | Other liabilities | (223 | ) | (40 | ) | |||||||||||||||||||
Total derivatives | $ | 12,004 | $ | 13,543 | $ | 1,111 | $ | 500 | $ | (732 | ) | $ | (193 | ) |
|
The following tables summarize the effect of Corning’s derivative financial instruments on the consolidated financial statements (in millions):
Three months ended September 30, | |||||||||||||||||
Gain (loss) recognized | Location of gain | Gain reclassified | |||||||||||||||
Derivative hedging | in other comprehensive | reclassified from accumulated | from accumulated | ||||||||||||||
relationships for cash | income (OCI) | OCI into income | OCI into income | ||||||||||||||
flow and fair value hedges | 2022 | 2021 | effective (ineffective) | 2022 | 2021 | ||||||||||||
Net sales | $ | 15 | $ | 3 | |||||||||||||
Foreign exchange contracts and other | $ | 4 | $ | (5 | ) | Cost of sales | 6 | 11 | |||||||||
Total cash flow and fair value hedges | $ | 4 | $ | (5 | ) | $ | 21 | $ | 14 |
Nine months ended September 30, | |||||||||||||||||
Gain recognized | Location of gain | Gain reclassified | |||||||||||||||
Derivative hedging | in other comprehensive | reclassified from accumulated | from accumulated | ||||||||||||||
relationships for cash | income (OCI) | OCI into income | OCI into income | ||||||||||||||
flow and fair value hedges | 2022 | 2021 | effective (ineffective) | 2022 | 2021 | ||||||||||||
Net sales | $ | 38 | $ | 9 | |||||||||||||
Foreign exchange contracts and other | $ | 24 | $ | 36 | Cost of sales | 19 | 28 | ||||||||||
Total cash flow and fair value hedges | $ | 24 | $ | 36 | $ | 57 | $ | 37 |
Gain (loss) gain recognized in income | |||||||||||||||||
Three months ended | Nine months ended | ||||||||||||||||
Location of gain (loss) | September 30, | September 30, | |||||||||||||||
Undesignated derivatives | recognized in income | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Foreign exchange contracts | Other income, net | $ | 11 | $ | (9 | ) | $ | 70 | $ | 26 | |||||||
Translated earnings contracts | Translated earnings contract (loss) gain, net | (68 | ) | (13 | ) | 257 | 262 | ||||||||||
Total undesignated | $ | (57 | ) | $ | (22 | ) | $ | 327 | $ | 288 |
12.11. Fair Value Measurements
Fair value standards under 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 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 table provides fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis; Level 1 (“L1”), quoted market prices in active markets for identical assets, Level 2 (“L2”), significant other observable inputs, and Level 3 (“L3”), significant unobservable inputs as of our reportable datesbasis (in millions):
September 30, 2022 | December 31, 2021 | September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
L1 | L2 | L3 | Total | L1 | L2 | L3 | Total | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other current assets (1) | $ | 2 | $ | 880 | $ | 46 | $ | 928 | $ | 10 | $ | 336 | $ | 6 | $ | 352 | $ | 617 | $ | 4 | $ | 563 | $ | 50 | $ | 505 | $ | 2 | $ | 454 | $ | 49 | ||||||||||||||||||||||||||||||||
Non-current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets (1) | $ | 231 | $ | 3 | $ | 234 | $ | 164 | $ | 11 | $ | 175 | $ | 212 | $ | 2 | $ | 210 | $ | 225 | $ | 224 | $ | 1 | ||||||||||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other accrued liabilities (1) | $ | 494 | $ | 494 | $ | 144 | $ | 144 | $ | 150 | $ | 150 | $ | 174 | $ | 174 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other liabilities (1) | $ | 255 | $ | 255 | $ | 66 | $ | 66 | $ | 82 | $ | 82 | $ | 34 | $ | 34 |
(1) | Derivative assets and liabilities |
Assets and Liabilities Measured on a Non-Recurring Basis
There were no significant financial assets and liabilities measured on a non-recurring basis as of September 30, 20222023 and December 31, 2021.2022.
13.12. Shareholders’ Equity
Fixed Rate Cumulative Convertible Preferred Stock, Series A
We had 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A
(the “Preferred Stock”) as of December 31, 2020. On January 16, 2021, the Preferred Stock became convertible into 115 million common shares. On April 5, 2021, Corning and SDCwe executed the SRA,a Share Repurchase Agreement (“SRA”) with Samsung Display Co., Ltd. (“SDC”) and the Preferred Stock was fully converted as of April 8, 2021. Immediately following the conversion, Corningwe repurchased and retired 35 million of the common shares held by SDC for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid onin April 8,2022 2022and 2021,2021. respectively. The remaining payment of approximately $507 million will be paid onwas made in April 8, 2023.
The remaining 80 million common shares were accounted for as a conversion of Preferred Stock and resulted in an increase of common stock and additional paid-in-capital based on the carrying value of the Preferred Stock. These common shares were included in the weighted-average common shares outstanding for the calculation of the Company’s basic and diluted earnings per share. SDC has the option to sell 22 million common shares to Corning subject to certain conditions beginning in 2024-2027. The remaining 58 million common shares are subject to a seven-year lock-up period expiring in 2027.
Share RepurchasesRepurchase Program
OnIn April 26, 2018, 2019,Corning’s the Board authorized the repurchase of Directors approved a $2up to $5.0 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 common stock (“2019 Repurchase Program”Authorization”).
ForDuring the three and nine months ended September 30, 2022, the Company repurchased 0.5 million shares and 6.0 million shares, respectively, of common stock on the open market for approximately $17 million and $221 million, respectively, as part of its 2019 Repurchase Program.Authorization. No shares were purchased on the open market during the three and nine months ended September 30, 2023.
Common Stock Dividends
On October 4, 2023, Corning’s Board of Directors declared a dividend of $0.28 per share of common stock. The dividend will be payable on December 15, 2023.
Accumulated Other Comprehensive Loss
For the three and nine months ended September 30, 2021, the Company repurchased 1 million and 36 million shares of common stock, respectively, for approximately $24 million and $1.5 billion, respectively, as part of the 2018 and 2019 Repurchase Programs. Most of these shares were repurchased immediately following the conversion of the preferred shares, as discussed above.
Accumulated Other Comprehensive (Loss)
In the three and nine months ended September 30, 20222023 and 20212022, the change in accumulated other comprehensive (loss)loss was primarily related to the foreign currency translation adjustment.adjustments.
The following table summarizespresents the changes in the foreign currency translation adjustment component of accumulated other comprehensive (loss)loss, including the proportionate share of equity method affiliates’ accumulated other comprehensive loss (in millions) (1):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Beginning balance | $ | (1,783 | ) | $ | (652 | ) | $ | (933 | ) | $ | (329 | ) | $ | (2,114 | ) | $ | (1,783 | ) | $ | (1,712 | ) | $ | (933 | ) | ||||||||
Loss on foreign currency translation (2) | (664 | ) | (185 | ) | (1,497 | ) | (501 | ) | (195 | ) | (664 | ) | (588 | ) | (1,497 | ) | ||||||||||||||||
Equity method affiliates (3) | (21 | ) | (7 | ) | (38 | ) | (14 | ) | 4 | (21 | ) | (5 | ) | (38 | ) | |||||||||||||||||
Net current-period other comprehensive loss | (685 | ) | (192 | ) | (1,535 | ) | (515 | ) | (191 | ) | (685 | ) | (593 | ) | (1,535 | ) | ||||||||||||||||
Ending balance | $ | (2,468 | ) | $ | (844 | ) | $ | (2,468 | ) | $ | (844 | ) | $ | (2,305 | ) | $ | (2,468 | ) | $ | (2,305 | ) | $ | (2,468 | ) |
(1) | All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss. |
(2) | For the three and nine months ended September 30, 2023, amounts are net of tax benefit of $14 million and $33 million, respectively. For the three and nine months ended September 30, 2022, amounts are net of tax benefit of $49 million and $87 million, respectively. |
(3) | Tax effects are not significant. |
14.13. Share-Based Compensation
Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of its Board of Directors. The Plans allow Corning to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, “share-based awards”). At September 30, 2022, there were approximately 33 million unissued common shares available for future grants authorized under the Plans.
Share-based compensation cost is allocated to the cost of sales, selling, general and administrative, and research, development and engineering expense lines in the consolidated statements of income.
The Company measures and recognizes compensation cost for all share-based awards made to employees and directors based on estimated fair values.
Total share-based compensation cost was $57 million and $168 million for the three and nine months ended September 30, 2023, respectively, and $52 million and $145 million for the three and nine months ended September 30, 2022, respectively,respectively.
Incentive Stock Plans
Time-Based Restricted Stock and $39 millionRestricted Stock Units
The following table summarizes the changes in non-vested time-based restricted stock and $117 millionrestricted stock units for the three and the nine months ended September 30, 20212023, respectively. :
Weighted | ||||||||
Number | average | |||||||
of shares | grant-date | |||||||
(in thousands) | fair value | |||||||
Non-vested shares and share units as of December 31, 2022 | 11,299 | $ | 29.19 | |||||
Granted | 7,221 | 35.06 | ||||||
Vested | (4,462 | ) | 23.71 | |||||
Forfeited | (534 | ) | 33.97 | |||||
Non-vested shares and share units as of September 30, 2023 | 13,524 | $ | 33.94 |
Performance-Based Restricted Stock Units
The income tax benefit realized from share-based compensationfollowing table summarizes the changes in non-vested performance-based restricted stock units for the nine months ended September 30, 2022 2023and 2021 was $15 million and $31 million, respectively. :
Weighted | ||||||||
Number | average | |||||||
of shares | grant-date | |||||||
(in thousands) | fair value | |||||||
Non-vested share units as of December 31, 2022 | 4,696 | $ | 35.41 | |||||
Granted | 1,674 | 35.08 | ||||||
Vested | (3,586 | ) | 33.37 | |||||
Performance adjustments | (406 | ) | 36.40 | |||||
Forfeited | (37 | ) | 36.08 | |||||
Non-vested share units as of September 30, 2023 | 2,341 | $ | 38.62 |
Stock Options
Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued common shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from one year to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 years from the grant date. An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”).
The following table summarizes information regardingconcerning stock options outstanding, includingas of September 30, 2023 and the related transactions under the stock option plans,activity for the nine months ended September 30, 20222023:
Weighted- | ||||||||||||||||
average | ||||||||||||||||
Weighted- | remaining | Aggregate | ||||||||||||||
Number | average | contractual | intrinsic | |||||||||||||
of shares | exercise | term | value | |||||||||||||
(in thousands) | price | (in years) | (in thousands) | |||||||||||||
Options outstanding as of December 31, 2021 | 11,904 | $ | 22.31 | |||||||||||||
Exercised | (1,765 | ) | 19.91 | |||||||||||||
Forfeited and expired | (193 | ) | 18.47 | |||||||||||||
Options outstanding as of September 30, 2022 | 9,946 | 22.81 | 6.03 | $ | 68,676 | |||||||||||
Options expected to vest as of September 30, 2022 | 9,921 | 22.82 | 6.03 | 68,440 | ||||||||||||
Options exercisable as of September 30, 2022 | 8,139 | 23.51 | 5.68 | 51,740 |
Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term is the period the options are expected to be outstanding and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rate used in the multiple-point Black-Scholes valuation model is the implied rate for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. Ranges used reflect results from separate groups of employees exhibiting different exercise behavior.
Weighted- | ||||||||||||||||
average | ||||||||||||||||
Weighted- | remaining | Aggregate | ||||||||||||||
Number | average | contractual | intrinsic | |||||||||||||
of shares | exercise | term | value | |||||||||||||
(in thousands) | price | (in years) | (in thousands) | |||||||||||||
Options outstanding as of December 31, 2022 | 9,665 | $ | 22.92 | |||||||||||||
Exercised | (1,981 | ) | 19.74 | |||||||||||||
Forfeited and expired | (48 | ) | 19.65 | |||||||||||||
Options outstanding as of September 30, 2023 | 7,636 | 23.76 | 5.20 | $ | 55,832 | |||||||||||
Options vested and exercisable as of September 30, 2023 | 7,636 | 23.76 | 5.20 | 55,832 |
There have been were no stock options granted for the nine months ended September 30, 2022 or September 30, 2021.
Incentive Stock Plans
The Corning Incentive Stock Plans permit restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plans are granted at the closing market price on the grant date, contingently vest over a period of generally one year to ten years and is aligned to the contractual terms. The fair value is based on the grant date closing price of the Company’s stock.
Time-Based Restricted Stock and Restricted Stock Units
Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis and are payable in shares of the Company’s common stock upon vesting. The fair value for awards that receive dividends on the underlying shares while unvested or dividends accumulated and paid upon vesting is based on the closing market price of the Company’s stock on the grant date. Awards that do not receive dividends on the underlying shares while unvested or dividends accumulated and paid upon vesting fair value is calculated by reducing the closing market price of the Company’s stock on the grant date by the present value of the dividends expected to be paid on the underlying shares during the requisite service period, discounted at the appropriate risk-free interest rate. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.
Weighted | ||||||||
Number | average | |||||||
of shares | grant-date | |||||||
(in thousands) | fair value | |||||||
Non-vested shares and share units at December 31, 2021 | 10,594 | $ | 25.83 | |||||
Granted | 4,288 | 34.01 | ||||||
Vested | (3,238 | ) | 24.77 | |||||
Forfeited | (275 | ) | 28.08 | |||||
Non-vested shares and share units at September 30, 2022 | 11,369 | $ | 29.16 |
Performance-Based Restricted Stock Units
Performance-based restricted stock units are earned upon the achievement of certain targets and are payable in shares of the Company’s common stock upon vesting, typically over a three-year period. The fair value is based on the closing market price of the Company’s stock on the grant date and assumes that the target payout level will be achieved. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting. During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.
The following table summarizes the Company’s non-vested performance-based restricted stock units and changes which occurred during the nine2023 months endedor September 30, 20222022.:
Weighted | ||||||||
Number | average | |||||||
of shares | grant-date | |||||||
(in thousands) | fair value | |||||||
Non-vested share units at December 31, 2021 | 3,684 | $ | 34.17 | |||||
Granted | 1,761 | 40.76 | ||||||
Vested | (139 | ) | 32.18 | |||||
Performance adjustments | 366 | 34.46 | ||||||
Forfeited | (76 | ) | 32.39 | |||||
Non-vested share units at September 30, 2022 | 5,596 | $ | 36.28 |
15.14. Reportable Segments
The Company’sCompany has determined that it has five reportable segments arefor financial reporting purposes, as follows:
● | Optical Communications – manufactures carrier network and enterprise network components for the telecommunications |
● | Display Technologies – manufactures high quality glass substrates for flat panel displays, including liquid crystal displays and |
● | Specialty Materials – manufactures products that provide |
● | Environmental Technologies – manufactures ceramic substrates and |
● | Life Sciences – develops, manufactures, |
All other businesses that do not meet the quantitative threshold for separate reporting have been grouped as “HemlockHemlock and Emerging Growth Businesses”.Businesses. The net sales for this group are primarily attributable to Hemlock, which is an operating segment that produces solar and semiconductor products. The emerging growth businesses primarily consist of Pharmaceutical Technologies, (“CPT”), Auto Glass Solutions (“AGS”) and the Emerging Innovations Group (“EIG”), which are also operating segments.Group.
Financial results for the reportable segments and Hemlock and Emerging Growth Businesses are prepared on a basis consistent with the internal disaggregation of financial information to assist the chief operating decision maker (“CODM”) in making internal operating decisions. AAs a significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar. Managementdollar, management believes it is important to understand the impact on coresegment net sales and segment net income of translating these currencies into U.S. dollars. For segment sales and net income,Therefore, the Company utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments forto exclude the impact on segment sales and segment net income from the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and euro, as applicable to the euro. Certainsegment. The most significant constant-currency adjustment relates to the Japanese yen exposure within the Display Technologies segment. Management utilizes constant-currency reporting based on internally-derived rates, as detailed below, which are closely aligned with the currencies we have hedged.
The Company believes that the use of constant-currency reporting allows management to understand segment results without the volatility of currency fluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts. Further, it 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.
Constant-currency rates are as follows and are applied to all periods presented:
Currency | Japanese yen | Korean won | Chinese yuan | New Taiwan dollar | Euro | ||||||
Rate | ¥107 | ₩1,175 | ¥6.7 | NT$31 | €.81 |
In addition, certain income and expenses are excluded from segment net income and included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in allocating resources or evaluating the results of or in allocating resources to, the segments and include the following: the impact of translating the Japanese yen-denominated debt; the impact of the translated earnings contracts; acquisition-related costs; certain discrete tax items and other tax-related adjustments; restructuring, impairment and other charges and credits; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits;pension mark-to-market adjustments; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.
Corning’s administrative and staff functions are performed on a centralized basis and such costs and expenses are allocated among the segments differently than they would be for stand-alone financial reporting purposes. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. Expenses that are not allocated to the segments are included in the reconciliation of reportable segment net income to consolidated net income. Segment net income (loss) may not be consistent with measures used by other companies.
Reportable Segments and Hemlock and Emerging Growth BusinessesSegment Information (in millions):
Hemlock | Hemlock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
and | and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Emerging | Emerging | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Optical | Display | Specialty | Environmental | Life | Growth | Optical | Display | Specialty | Environmental | Life | Growth | |||||||||||||||||||||||||||||||||||||||||||||
Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | |||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment net sales | $ | 1,317 | $ | 686 | $ | 519 | $ | 425 | $ | 312 | $ | 407 | $ | 3,666 | $ | 918 | $ | 972 | $ | 563 | $ | 449 | $ | 230 | $ | 327 | $ | 3,459 | ||||||||||||||||||||||||||||
Depreciation (1) | $ | 96 | $ | 151 | $ | 56 | $ | 44 | $ | 23 | $ | 38 | $ | 408 | $ | 65 | $ | 119 | $ | 37 | $ | 32 | $ | 18 | $ | 37 | $ | 308 | ||||||||||||||||||||||||||||
Research, development and engineering expenses (2) | $ | 60 | $ | 31 | $ | 66 | $ | 25 | $ | 10 | $ | 43 | $ | 235 | $ | 60 | $ | 26 | $ | 62 | $ | 26 | $ | 7 | $ | 41 | $ | 222 | ||||||||||||||||||||||||||||
Income tax provision (3) | $ | (50 | ) | $ | (35 | ) | $ | (26 | ) | $ | (23 | ) | $ | (11 | ) | $ | (8 | ) | $ | (153 | ) | $ | (24 | ) | $ | (64 | ) | $ | (19 | ) | $ | (27 | ) | $ | (4 | ) | $ | (2 | ) | $ | (140 | ) | ||||||||||||||
Segment net income (4) | $ | 183 | $ | 134 | $ | 96 | $ | 87 | $ | 43 | $ | 18 | $ | 561 | ||||||||||||||||||||||||||||||||||||||||||
Segment net income (loss) | $ | 91 | $ | 242 | $ | 72 | $ | 99 | $ | 13 | $ | (8 | ) | $ | 509 |
Hemlock | Hemlock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
and | and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Emerging | Emerging | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Optical | Display | Specialty | Environmental | Life | Growth | Optical | Display | Specialty | Environmental | Life | Growth | |||||||||||||||||||||||||||||||||||||||||||||
Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | |||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment net sales | $ | 1,131 | $ | 956 | $ | 556 | $ | 385 | $ | 305 | $ | 306 | $ | 3,639 | $ | 1,317 | $ | 686 | $ | 519 | $ | 425 | $ | 312 | $ | 407 | $ | 3,666 | ||||||||||||||||||||||||||||
Depreciation (1) | $ | 58 | $ | 153 | $ | 42 | $ | 34 | $ | 14 | $ | 38 | $ | 339 | $ | 58 | $ | 124 | $ | 36 | $ | 31 | $ | 14 | $ | 38 | $ | 301 | ||||||||||||||||||||||||||||
Research, development and engineering expenses (2) | $ | 57 | $ | 31 | $ | 49 | $ | 28 | $ | 9 | $ | 44 | $ | 218 | $ | 60 | $ | 31 | $ | 66 | $ | 25 | $ | 10 | $ | 43 | $ | 235 | ||||||||||||||||||||||||||||
Income tax provision (3) | $ | (38 | ) | $ | (64 | ) | $ | (28 | ) | $ | (16 | ) | $ | (12 | ) | $ | (1 | ) | $ | (159 | ) | $ | (50 | ) | $ | (35 | ) | $ | (26 | ) | $ | (23 | ) | $ | (11 | ) | $ | (8 | ) | $ | (153 | ) | ||||||||||||||
Segment net income (loss) (4) | $ | 139 | $ | 247 | $ | 107 | $ | 60 | $ | 45 | $ | (5 | ) | $ | 593 | |||||||||||||||||||||||||||||||||||||||||
Segment net income | $ | 183 | $ | 134 | $ | 96 | $ | 87 | $ | 43 | $ | 18 | $ | 561 |
Hemlock | Hemlock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
and | and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Emerging | Emerging | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Optical | Display | Specialty | Environmental | Life | Growth | Optical | Display | Specialty | Environmental | Life | Growth | |||||||||||||||||||||||||||||||||||||||||||||
Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | |||||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment net sales | $ | 3,828 | $ | 2,523 | $ | 1,497 | $ | 1,190 | $ | 934 | $ | 1,200 | $ | 11,172 | $ | 3,109 | $ | 2,663 | $ | 1,392 | $ | 1,337 | $ | 717 | $ | 1,090 | $ | 10,308 | ||||||||||||||||||||||||||||
Depreciation (1) | $ | 223 | $ | 453 | $ | 138 | $ | 111 | $ | 53 | $ | 111 | $ | 1,089 | $ | 195 | $ | 362 | $ | 111 | $ | 97 | $ | 52 | $ | 105 | $ | 922 | ||||||||||||||||||||||||||||
Research, development and engineering expenses (2) | $ | 173 | $ | 92 | $ | 163 | $ | 74 | $ | 28 | $ | 121 | $ | 651 | $ | 176 | $ | 73 | $ | 172 | $ | 73 | $ | 25 | $ | 121 | $ | 640 | ||||||||||||||||||||||||||||
Income tax provision (3) | $ | (146 | ) | $ | (157 | ) | $ | (70 | ) | $ | (59 | ) | $ | (32 | ) | $ | (19 | ) | $ | (483 | ) | $ | (105 | ) | $ | (161 | ) | $ | (38 | ) | $ | (77 | ) | $ | (9 | ) | $ | (22 | ) | $ | (412 | ) | ||||||||||||||
Segment net income | $ | 531 | $ | 598 | $ | 262 | $ | 223 | $ | 122 | $ | 35 | $ | 1,771 | $ | 390 | $ | 610 | $ | 144 | $ | 288 | $ | 33 | $ | 34 | $ | 1,499 |
Hemlock | Hemlock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
and | and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Emerging | Emerging | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Optical | Display | Specialty | Environmental | Life | Growth | Optical | Display | Specialty | Environmental | Life | Growth | |||||||||||||||||||||||||||||||||||||||||||||
Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | Communications | Technologies | Materials | Technologies | Sciences | Businesses | Total | |||||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment net sales | $ | 3,143 | $ | 2,758 | $ | 1,490 | $ | 1,233 | $ | 917 | $ | 865 | $ | 10,406 | $ | 3,828 | $ | 2,523 | $ | 1,497 | $ | 1,190 | $ | 934 | $ | 1,200 | $ | 11,172 | ||||||||||||||||||||||||||||
Depreciation (1) | $ | 174 | $ | 450 | $ | 125 | $ | 105 | $ | 40 | $ | 104 | $ | 998 | $ | 185 | $ | 426 | $ | 118 | $ | 98 | $ | 44 | $ | 111 | $ | 982 | ||||||||||||||||||||||||||||
Research, development and engineering expenses (2) | $ | 160 | $ | 79 | $ | 143 | $ | 84 | $ | 25 | $ | 114 | $ | 605 | $ | 173 | $ | 92 | $ | 163 | $ | 74 | $ | 28 | $ | 121 | $ | 651 | ||||||||||||||||||||||||||||
Income tax (provision) benefit (3) | $ | (109 | ) | $ | (184 | ) | $ | (74 | ) | $ | (57 | ) | $ | (39 | ) | $ | 10 | $ | (453 | ) | ||||||||||||||||||||||||||||||||||||
Segment net income (loss) (4) | $ | 398 | $ | 708 | $ | 279 | $ | 215 | $ | 145 | $ | (44 | ) | $ | 1,701 | |||||||||||||||||||||||||||||||||||||||||
Income tax provision (3) | $ | (146 | ) | $ | (157 | ) | $ | (70 | ) | $ | (59 | ) | $ | (32 | ) | $ | (19 | ) | $ | (483 | ) | |||||||||||||||||||||||||||||||||||
Segment net income | $ | 531 | $ | 598 | $ | 262 | $ | 223 | $ | 122 | $ | 35 | $ | 1,771 |
(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 |
|
The following table ispresents a reconciliation of net sales of reportable segments to consolidated net sales (in millions):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Net sales of reportable segments | $ | 3,259 | $ | 3,333 | $ | 9,972 | $ | 9,541 | $ | 3,132 | $ | 3,259 | $ | 9,218 | $ | 9,972 | ||||||||||||||||
Net sales of Hemlock and Emerging Growth Businesses | 407 | 306 | 1,200 | 865 | 327 | 407 | 1,090 | 1,200 | ||||||||||||||||||||||||
Impact of constant currency reporting (1) | (178 | ) | (24 | ) | (389 | ) | (286 | ) | (178 | ) | (714 | ) | (389 | ) | ||||||||||||||||||
Consolidated net sales | $ | 3,488 | $ | 3,615 | $ | 10,783 | $ | 10,406 | $ | 3,173 | $ | 3,488 | $ | 9,594 | $ | 10,783 |
(1) | This amount primarily represents the impact of foreign currency adjustments |
The following table ispresents a reconciliation of net income of reportable segments to consolidated net income attributable to Corning Incorporated (in millions):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Net income of reportable segments | $ | 543 | $ | 598 | $ | 1,736 | $ | 1,745 | $ | 517 | $ | 543 | $ | 1,465 | $ | 1,736 | ||||||||||||||||
Net income (loss) of Hemlock and Emerging Growth Businesses | 18 | (5 | ) | 35 | (44 | ) | ||||||||||||||||||||||||||
Net (loss) income of Hemlock and Emerging Growth Businesses | (8 | ) | 18 | 34 | 35 | |||||||||||||||||||||||||||
Unallocated amounts: | ||||||||||||||||||||||||||||||||
Impact of constant currency reporting not included in segment net income (loss) (1) | (136 | ) | (33 | ) | (319 | ) | (47 | ) | ||||||||||||||||||||||||
(Loss) gain on foreign currency hedges related to translated earnings | (68 | ) | (13 | ) | 257 | 262 | ||||||||||||||||||||||||||
Impact of constant currency reporting | (212 | ) | (136 | ) | (535 | ) | (319 | ) | ||||||||||||||||||||||||
Gain (loss) on foreign currency hedges related to translated earnings | 20 | (68 | ) | 128 | 257 | |||||||||||||||||||||||||||
Translation gain on Japanese yen-denominated debt | 84 | 4 | 321 | 127 | 35 | 84 | 162 | 321 | ||||||||||||||||||||||||
Litigation, regulatory and other legal matters | (23 | ) | (3 | ) | (65 | ) | (11 | ) | (32 | ) | (23 | ) | (44 | ) | (65 | ) | ||||||||||||||||
Research, development, and engineering expenses | (43 | ) | (34 | ) | (115 | ) | (107 | ) | (40 | ) | (43 | ) | (127 | ) | (115 | ) | ||||||||||||||||
Amortization of intangibles | (31 | ) | (32 | ) | (92 | ) | (97 | ) | (30 | ) | (31 | ) | (92 | ) | (92 | ) | ||||||||||||||||
Interest expense, net | (59 | ) | (64 | ) | (180 | ) | (205 | ) | (62 | ) | (59 | ) | (179 | ) | (180 | ) | ||||||||||||||||
Income tax benefit | 119 | 50 | 103 | 51 | 105 | 119 | 234 | 103 | ||||||||||||||||||||||||
Restructuring, impairment and other charges and credits (3) | (138 | ) | (40 | ) | (217 | ) | (42 | ) | ||||||||||||||||||||||||
Gain on sale of a business | 53 | 54 | ||||||||||||||||||||||||||||||
Severance charges (2) | (13 | ) | (8 | ) | (86 | ) | (8 | ) | ||||||||||||||||||||||||
Disposal of assets and other charges and credits (3) | (59 | ) | (130 | ) | (184 | ) | (209 | ) | ||||||||||||||||||||||||
Gain on sale of business | 53 | |||||||||||||||||||||||||||||||
Other corporate items | (58 | ) | (57 | ) | (165 | ) | (267 | ) | (57 | ) | (58 | ) | (155 | ) | (165 | ) | ||||||||||||||||
Net income attributable to Corning Incorporated | $ | 208 | $ | 371 | $ | 1,352 | $ | 1,419 | $ | 164 | $ | 208 | $ | 621 | $ | 1,352 |
(1) | |
Amount does not include research, development and engineering expense related to | |
(2) | For the three and nine months ended September 30, 2023, the amount recorded in cost of sales in the consolidated statements of income was $10 million and $51 million, respectively. For the three and nine months ended September 30, 2022, the amount recorded in cost of sales in the consolidated statements was not material. |
(3) |
ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Corning Incorporated and its consolidated subsidiaries are hereinafter sometimes referred to as the “Company,” the “Registrant,” “Corning,” “we,” “our,” or “us.”
This report contains forward-looking statements that involve a number of risks and uncertainties. These statements relate to plans, objectives, expectations and estimates and may contain words such as “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “seek,” “see,” “would,” “target,” “estimate,” “forecast,” or similar expressions. Actual results could differ materially from what is expressed or forecasted in forward-looking statements. Some of the factors that could contribute to these differences include those discussed under “Forward-Looking Statements,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report.
ORGANIZATION OF INFORMATION
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provideswas prepared to provide a historical and prospective narrative on the Company’sour financial condition and results of operations. This interim MD&Aoperations through the eyes of management and should be read in conjunction with theour MD&A in Corning’s 2021 Form 10-K. The various sections of this MD&A contain forward-looking statements that involve 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 the Company’s future financial performance, anticipated growth and trends in the businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are basedour Annual Report on 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 Corning’s 2021 Form 10-K and as may be updated infor the Forms 10-Q. 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 September 30, 2022.year ended December 31, 2022 (“2022 Form 10-K”).
Our MD&A includes the following sections:is organized as follows:
● | Overview |
● | Results of Operations |
● | Segment Analysis |
● | Core Performance Measures |
● | |
● | |
● | Critical Accounting Estimates |
● | Forward-Looking Statements |
OVERVIEW
The Company has and will continueCorning Incorporated is central to focus on three core priorities: preserving the financial healthadvancement of the Company; protecting employeesindustries we serve and communities; and delivering on customer commitments. We are continuing to build a stronger, more resilient company that is committed to rewarding shareholders and supportingsecular trends touching many facets of daily life. It all global stakeholders.
Corning continues to act rapidly and remain resilient in the face of global uncertainty. We have preserved our financial strength by executing well and advancing major innovationsstarts with industry leaders. We have continued to effectively leverage our focused and cohesive portfolioportfolio. We maintain clear leadership in three core technologies and four proprietary manufacturing and engineering platforms. We apply new combinations of our assets and capabilities to create valuesolve a broad range of significant challenges and outperformshape new industries in tandem with our underlyingcustomers. By reapplying and repurposing our insights and assets across multiple opportunities and markets, contributingwe increase our profitably. Importantly, as we partner closely with our customers to sales growthrealize their visions and healthy cash flow generation in 2022.
Corning announced the Strategy & Growth Framework in 2019, highlighting significant opportunitieshelp solve their toughest technology challenges, we unlock new ways to sellintegrate more of our content into their ecosystems. This “More Corning” approach provides a powerful value-creation lever. We’re not just relying on people buying more stuff; we’re driving more Corning content through eachinto the products they’re already buying.
Our accomplishments over the past several years illustrate the efficacy of our Market-Access Platforms. The Company is focusedapproach. Despite the challenging external environment, we have advanced fiber-to-the-home and data center solutions in Optical Communications, delivered on our cohesivegasoline particulate filter content opportunity in Environmental Technologies, introduced Ceramic Shield with Apple in Specialty Materials and ramped our Gen 10.5 plants to extend our leadership in Display Technologies. In addition, we made major progress on our emerging innovations; we gained significant traction in our Automotive Glass Solutions business; and our pharmaceutical packaging portfolio played a central role in combatting the global pandemic. These achievements have helped extend our leadership positions across our markets and pave the way for future growth.
At the same time, profitability and cash flow have lagged sales growth. Since 2020, the external environment has been characterized by the impact of the pandemic and its resulting effects including supply chain disruptions, large swings in consumer spending and inflation. Our core priorities throughout this period were protecting our people and delivering for our customers, and as a result, we operated with elevated staffing and higher-than-normal inventory levels during this period leading to reduced productivity. In addition, persistent inflation added to the cost of raw materials we purchased, the cost to produce and ship our products and the utilization of our financial strength, supported by strong operating cash flow generation, whichinventory we expect to continue. Corning has and will continue to use its cash to grow, extend its leadership and reward shareholders. Our key growth drivers remain intact, and some are accelerating as key secular trends converge around Corning’s capabilities.
Corning will continue to advance the objectives of the Strategy & Growth Framework, which sets its leadership priorities and articulates opportunities across its businesses. 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 along with capital spending on a cohesive set of three core technologies, four manufacturing and engineering platforms, and five market-access platforms. This strategy allows us to quickly apply our talents and repurpose our assets across the Company, as needed, to capture high-return opportunities.maintained.
SummaryIn response, we took a series of results for the threeactions to improve profitability and nine months ended September 30,cash generation throughout 2022 and 2023. These actions included raising prices across our businesses to more appropriately share inflationary costs with our customers; restoring our productivity to pre-pandemic levels without impacting our ability to supply and capture future growth; and normalizing inventory levels. As expected, these actions delivered improved profitability and cash flow as we progressed through 2023.
InOverall, we will continue to focus on operating each of our businesses well and adjusting to meet the third quarterneeds of 2022, net sales were $3,488 million, compared to $3,615 million during the same period in 2021, a net decrease of $127 million, or 4%, primarily driven by decreased sales in Display Technologies partially offset by increased sales in Optical Communicationsmoment while simultaneously advancing growth initiatives and Hemlock and Emerging Growth Businesses. Net sales for the nine months ended September 30, 2022 were $10,783 million, compared to $10,406 million during the same period in 2021, a net increase of $377 million, or 4%, primarily driven by increased sales in Optical Communications and Hemlock and Emerging Growth Businesses.
In the third quarter of 2022, Corning generated net income attributable to Corning Incorporated of $208 million, or $0.24 per diluted share, compared to $371 million, or $0.43 per diluted share, for the same period in 2021. The decrease of $163 million was primarily driven by the following items (amounts presented after-tax):
The increases outlined above were more than offset by:
In the nine months ended September 30, 2022, Corning generated net income attributable to Corning Incorporated of $1,352 million, or $1.58 per diluted share, compared to $1,419 million, or $0.71 per diluted share, for the same period in 2021. The decrease of $67 million and increase in diluted earnings per share of $0.87, was primarily driven by the following items (amounts presented after-tax):
The increases outlined above were more than offset by:
The increase in diluted earnings per share for the nine months ended September 30, 2022, was primarily driven by the changes in net income attributable to Corning Incorporated, outlined above, as wellcapabilities that will drive continued success as the impact of the immediate repurchaseglobal economy stabilizes. Our focused and retirement of 35 million common shares, which resultedcohesive portfolio provides strategic resilience that is evident in an $803 million one-time reduction to net income available to common shareholders during the second quarter of 2021. Refer to Note 5 (Earnings per Common Share) and Note 13 (Shareholders' Equity) to the consolidated financial statements for additional information.
The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized during the respective periods, adversely impacted Corning’s consolidated net incomeour results, even in the threecurrent environment. We remain confident in our relevance to long-term secular trends and nine months ended September 30, 2022 by $20 millionour “More Corning” approach, and $71 million, respectively, when comparedwe are well positioned to capture durable, profitable growth as the same periods in 2021. During the three and nine months ended September 30, 2022, the impact of hedges realized during the periods were $76 million and $166 million, respectively, compared to $9 million and $9 million, respectively, for the same periods in 2021. global economy improves.
2022Fourth-Quarter 2023 Corporate Outlook
We expect core net sales of approximately $3.45 billion to $3.65$3.25 billion for the fourth quarter of 2022.2023.
RESULTS OF OPERATIONS
Selected highlights from operations were as follows (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Net sales | $ | 3,488 | $ | 3,615 | (4 | %) | $ | 10,783 | $ | 10,406 | 4 | % | ||||||||||||
Gross margin | $ | 1,062 | $ | 1,321 | (20 | %) | $ | 3,591 | $ | 3,792 | (5 | %) | ||||||||||||
(gross margin %) | 30 | % | 37 | % | 33 | % | 36 | % | ||||||||||||||||
Selling, general and administrative expenses | $ | 461 | $ | 486 | (5 | %) | $ | 1,381 | $ | 1,351 | 2 | % | ||||||||||||
(as a % of net sales) | 13 | % | 13 | % | 13 | % | 13 | % | ||||||||||||||||
Research, development and engineering expenses | $ | 278 | $ | 251 | 11 | % | $ | 766 | $ | 715 | 7 | % | ||||||||||||
(as a % of net sales) | 8 | % | 7 | % | 7 | % | 7 | % | ||||||||||||||||
Translated earnings contract (loss) gain, net | $ | (68 | ) | $ | (13 | ) | * | $ | 257 | $ | 262 | (2 | %) | |||||||||||
(as a % of net sales) | (2 | %) | — | 2 | % | 3 | % | |||||||||||||||||
Provision for income taxes | $ | (34 | ) | $ | (109 | ) | (69 | %) | $ | (380 | ) | $ | (402 | ) | (5 | %) | ||||||||
(as a % of net sales) | (1 | %) | (3 | %) | (4 | %) | (4 | %) | ||||||||||||||||
Net income attributable to Corning Incorporated | $ | 208 | $ | 371 | (44 | %) | $ | 1,352 | $ | 1,419 | (5 | %) | ||||||||||||
(as a % of net sales) | 6 | % | 10 | % | 13 | % | 14 | % |
* Not Meaningful
Segment Net Sales
The following table presents segment net sales by reportable segment and Hemlock and Emerging Growth Businessesselected highlights from our operations (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Optical Communications | $ | 1,317 | $ | 1,131 | 16 | % | $ | 3,828 | $ | 3,143 | 22 | % | ||||||||||||
Display Technologies | 686 | 956 | (28 | %) | 2,523 | 2,758 | (9 | %) | ||||||||||||||||
Specialty Materials | 519 | 556 | (7 | %) | 1,497 | 1,490 | — | |||||||||||||||||
Environmental Technologies | 425 | 385 | 10 | % | 1,190 | 1,233 | (3 | %) | ||||||||||||||||
Life Sciences | 312 | 305 | 2 | % | 934 | 917 | 2 | % | ||||||||||||||||
Net sales of reportable segments | 3,259 | 3,333 | (2 | %) | 9,972 | 9,541 | 5 | % | ||||||||||||||||
Hemlock and Emerging Growth Businesses | 407 | 306 | 33 | % | 1,200 | 865 | 39 | % | ||||||||||||||||
Impact of constant currency reporting (1) | (178 | ) | (24 | ) | * | (389 | ) | — | * | |||||||||||||||
Consolidated net sales | $ | 3,488 | $ | 3,615 | (4 | %) | $ | 10,783 | $ | 10,406 | 4 | % |
* Not Meaningful
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | |||||||||||||||||||
Net sales | $ | 3,173 | $ | 3,488 | (9 | %) | $ | 9,594 | $ | 10,783 | (11 | %) | ||||||||||||
Gross margin | $ | 1,004 | $ | 1,062 | (5 | %) | $ | 3,020 | $ | 3,591 | (16 | %) | ||||||||||||
(gross margin %) | 32 | % | 30 | % | 31 | % | 33 | % | ||||||||||||||||
Selling, general and administrative expenses | $ | 468 | $ | 461 | 2 | % | $ | 1,329 | $ | 1,381 | (4 | %) | ||||||||||||
(as a % of net sales) | 15 | % | 13 | % | 14 | % | 13 | % | ||||||||||||||||
Research, development and engineering expenses | $ | 270 | $ | 278 | (3 | %) | $ | 787 | $ | 766 | 3 | % | ||||||||||||
(as a % of net sales) | 9 | % | 8 | % | 8 | % | 7 | % | ||||||||||||||||
Translated earnings contract gain (loss), net | $ | 20 | $ | (68 | ) | (129 | %) | $ | 128 | $ | 257 | (50 | %) | |||||||||||
Income before income taxes | $ | 217 | $ | 260 | (17 | %) | $ | 854 | $ | 1,793 | (52 | %) | ||||||||||||
Provision for income taxes | $ | (35 | ) | $ | (34 | ) | 3 | % | $ | (178 | ) | $ | (380 | ) | (53 | %) | ||||||||
Effective tax rate | 16 | % | 13 | % | 21 | % | 21 | % | ||||||||||||||||
Net income attributable to Corning Incorporated | $ | 164 | $ | 208 | (21 | %) | $ | 621 | $ | 1,352 | (54 | %) | ||||||||||||
Comprehensive (loss) income attributable to Corning Incorporated | $ | (39 | ) | $ | (489 | ) | (92 | %) | $ | 49 | $ | (264 | ) | (119 | %) |
InNet Sales
Net sales for the third quarter of 2022, netthree months ended September 30, 2023 decreased $315 million, or 9%, when compared to the same period in 2022. The decrease was primarily driven by decreased segment sales of reportable segments$399 million in Optical Communications, $82 million in Life Sciences and $80 million in Hemlock and Emerging Growth Businesses, were $3,666partially offset by increased segment sales in Display Technologies of $286 million, compared to $3,639Specialty Materials of $44 million during the same period in 2021, a net increaseand Environmental Technologies of $27 million, or 1%. Changes in net sales were as follows:
$24 million. In the nine months ended September 30, 2022, net sales of reportable segments and Hemlock and Emerging Growth Businesses were $11,172 million, compared to $10,406 million during the same period in 2021, a net increase of $766 million, or 7%. Changes in net sales were as follows:
Movementsaddition, movements in foreign exchange rates adversely impacted Corning’s consolidated net sales by $166$92 million and $418 million infor the three andmonths ended September 30, 2023, when compared to the same period in 2022.
Net sales for the nine months ended September 30, 2022, respectively,2023 decreased $1,189 million, or 11%, when compared to the same periodsperiod in 2021.2022. The decrease was primarily driven by decreased segment sales of $719 million in Optical Communications, $217 million in Life Sciences, $110 million in Hemlock and Emerging Businesses and $105 million in Specialty Materials, partially offset by increased segment sales in Environmental Technologies of $147 million and Display Technologies of $140 million. In addition, movements in foreign exchange rates adversely impacted Corning’s consolidated net sales by $287 million for the nine months ended September 30, 2023, when compared to the same period in 2022.
Refer to the “Segment Analysis” section of our MD&A below for a discussion of net sales by segment.
Cost of Sales / Gross Margin
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; freight and logistics costs; and other production overhead.
Gross MarginFor the three months ended September 30, 2023, gross margin decreased by $58 million, or 5%, and improved as a percentage of sales by 2 percentage points when compared to the same period in 2022. The increase in gross margin as a percentage of sales was primarily driven by the actions taken by management to improve profitability, including raising prices, restoring our productivity levels and normalizing inventory levels. These improvements were partially offset by movements in foreign exchange rates which adversely impacted Corning’s consolidated gross margin by $58 million for the three months ended September 30, 2023 when compared to the same period in 2022.
InFor the three and nine months ended September 30, 2022,2023, gross margin decreased by $259$571 million, or 20%16%, and decreased by $201 million, or 5%, respectively, and declined as a percentage of sales by 72 percentage points and 3 percentage points, respectively.when compared to the same period in 2022. The decline in gross margin as a percentage of sales was primarily driven by higher inflationary and production material and freight costs, as well as accelerated depreciation, asset write-offs and other related charges mostly duepartially offset by the benefits from the actions taken by management to capacity optimization of an emerging growth business in the third quarter of 2022.
The translation impact of fluctuationsimprove profitability. In addition, movements in foreign currency exchange rates adversely impacted Corning’s consolidated gross margin by $112$175 million and $294 million infor the three and nine months ended September 30, 2022, respectively,2023 when compared to the same periodsperiod in 2021.2022.
Selling, General and Administrative Expenses
In the three and nine months ended September 30, 2022, selling, general and administrative expenses decreased by $25 million, or 5%, and increased $30 million, or 2%, respectively, and was consistent as a percentage of sales, when compared to the same periods in 2021.
The types of expenses included in the selling, general and administrative expenses line item are salaries, wages and benefits; share-based compensation expense; travel; sales commissions; professional fees; and depreciation and amortization, utilities and rent for administrative facilities.
Research, Development and Engineering Expenses
InFor the three and nine months ended September 30, 2022, research, development2023, selling, general and engineeringadministrative expenses increased by $27$7 million and decreased $52 million, or 11%,2% and increased by $51 million, or 7%4%, respectively, and were fairly consistent as a percentage of sales when compared to the same periods in 2021.2022.
Research, Development and Engineering Expenses
For the three and nine months ended September 30, 2023, research, development and engineering expenses decreased by $8 million and increased $21 million, or 3% and 3%, respectively, and were fairly consistent as a percentage of sales when compared to the same periods in 2022.
Translated earnings contract gain (loss) gain,, net
Included in the line item translated earnings contract gain (loss) gain,, net, is the impact of foreign currency contracts which economically hedge ourthe translation exposure arising from movements in the Japanese yen, South Korean won, new Taiwan dollar, euro, Chinese yuan and British pound and those impactsits impact on net income.
The following tables providetable provides detailed information on the impact of translated earnings contract gain (loss) gain,, net (in millions):
Three months ended | Three months ended | Change | Three months ended | Three months ended | Change | |||||||||||||||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | 2022 vs. 2021 | September 30, 2023 | September 30, 2022 | 2023 vs. 2022 | |||||||||||||||||||||||||||||||||||||||||||
Income | Income | Income | Income | Income | Income | |||||||||||||||||||||||||||||||||||||||||||
before | Net | before | Net | before | Net | before | Net | before | Net | before | Net | |||||||||||||||||||||||||||||||||||||
taxes | income | taxes | income | taxes | income | tax | income | tax | income | tax | income | |||||||||||||||||||||||||||||||||||||
Hedges related to translated earnings: | ||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain, net (1) | $ | 100 | $ | 76 | $ | 12 | $ | 9 | $ | 88 | $ | 67 | ||||||||||||||||||||||||||||||||||||
Realized gain, net (1) (2) | $ | 73 | $ | 59 | $ | 100 | $ | 76 | $ | (27 | ) | $ | (17 | ) | ||||||||||||||||||||||||||||||||||
Unrealized loss, net | (168 | ) | (128 | ) | (25 | ) | (19 | ) | (143 | ) | (109 | ) | (53 | ) | (43 | ) | (168 | ) | (128 | ) | 115 | 85 | ||||||||||||||||||||||||||
Total translated earnings contract loss, net | $ | (68 | ) | $ | (52 | ) | $ | (13 | ) | $ | (10 | ) | $ | (55 | ) | $ | (42 | ) | ||||||||||||||||||||||||||||||
Total translated earnings contract gain (loss), net | $ | 20 | $ | 16 | $ | (68 | ) | $ | (52 | ) | $ | 88 | $ | 68 |
Nine months ended | Nine months ended | Change | Nine months ended | Nine months ended | Change | |||||||||||||||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | 2022 vs. 2021 | September 30, 2023 | September 30, 2022 | 2023 vs. 2022 | |||||||||||||||||||||||||||||||||||||||||||
Income | Income | Income | Income | Income | Income | |||||||||||||||||||||||||||||||||||||||||||
before | Net | before | Net | before | Net | before | Net | before | Net | before | Net | |||||||||||||||||||||||||||||||||||||
taxes | income | taxes | income | taxes | income | tax | income | tax | income | tax | income | |||||||||||||||||||||||||||||||||||||
Hedges related to translated earnings: | ||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain, net (1) | $ | 218 | $ | 166 | $ | 11 | $ | 9 | $ | 207 | $ | 157 | ||||||||||||||||||||||||||||||||||||
Unrealized gain, net (2) | 39 | 31 | 251 | 193 | (212 | ) | (162 | ) | ||||||||||||||||||||||||||||||||||||||||
Realized gain, net (1) (2) | $ | 211 | $ | 168 | $ | 218 | $ | 166 | $ | (7 | ) | $ | 2 | |||||||||||||||||||||||||||||||||||
Unrealized (loss) gain, net (4) | (83 | ) | (65 | ) | 39 | 31 | (122 | ) | (96 | ) | ||||||||||||||||||||||||||||||||||||||
Total translated earnings contract gain, net | $ | 257 | $ | 197 | $ | 262 | $ | 202 | $ | (5 | ) | $ | (5 | ) | $ | 128 | $ | 103 | $ | 257 | $ | 197 | $ | (129 | ) | $ | (94 | ) |
(1) |
|
(2) | For the nine months ended September 30, 2023, amount excludes $11 million related to a forward contract designated as a net investment hedge, which was reflected within investing activities in the consolidated statements of cash flows. |
(3) | The impact to income for the three months ended September 30, 2023 was primarily driven by unrealized losses from our South Korean won and Japanese yen-denominated hedges. The impact to income for the three months ended September 30, 2022 was primarily driven by unrealized losses |
(4) | The impact to income for the nine months ended September 30, 2023 was primarily driven by unrealized losses from our South Korean won and Chinese yuan-denominated hedges partially offset by unrealized gains from our Japanese yen-denominated hedges. The impact to income for the nine months ended September 30, 2022 was primarily driven by unrealized gains |
Income Before Income Taxes
The translation impact of fluctuations in foreign currency exchange rates includingoffset by the impact of hedges realized in the current quarter,period, adversely impacted Corning’s consolidated income before income taxes by $21$87 million and $80$182 million for the three and nine months ended September 30, 2022,2023, respectively, when compared to the same periods in 2021.2022.
Provision for Income Taxes
The provision for income taxesFor the three months ended September 30, 2023, the effective tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to differences arising from foreign earnings partially offset by changes in estimates based on the final 2022 U.S. Federal Income Tax Return. For the nine months ended September 30, 2023, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings, changes in estimates based on the final 2022 U.S. Federal Income Tax Return and theadjustments related effective income tax rates were as follows (in millions):to share-based compensation, partially offset by changes in valuation allowance assessments.
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Provision for income taxes | $ | (34 | ) | $ | (109 | ) | $ | (380 | ) | $ | (402 | ) | ||||
Effective tax rate | 13.1 | % | 22.1 | % | 21.2 | % | 21.8 | % |
For the three months ended September 30, 2022, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to the net impact of changes in tax legislation and changes in estimates based on the final 2021 U.S. Federal Income Tax Return, partially offset by changes in tax reserves. For the nine months ended September 30, 2022, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings and changes in tax reserves, partially offset by the net impact of changes in tax legislation, changes in estimates based on the final 2021 U.S. Federal Income Tax Return and adjustments related to share-based compensation.
For the three months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21%, primarily due to non-deductible expenses for tax purposes, foreign rate differential, and tax reform items. For the nine months ended September 30, 2021, the effective income tax rate differed from the U.S. statutory rate of 21% primarily due to an adjustment to the permanently reinvested foreign income position, excess tax benefit related to share-based compensation payments, foreign rate differential, and tax reform items related to The Tax Cuts and Jobs Act of 2017.
Refer to Note 4 (Income Taxes) to the consolidated financial statements for additional information.
Net Income Attributable to Corning Incorporated
NetAs a result of the items discussed above, net income attributable to Corning Incorporated and per share data were as follows (in millions, except per share amounts):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net income attributable to Corning Incorporated | $ | 208 | $ | 371 | $ | 1,352 | $ | 1,419 | ||||||||
Less: Series A convertible preferred stock dividend | (24 | ) | ||||||||||||||
Less: Excess consideration paid for redemption of preferred shares (1) | (803 | ) | ||||||||||||||
Net income available to common shareholders used in basic earnings per common share calculation | $ | 208 | $ | 371 | $ | 1,352 | $ | 592 | ||||||||
Net income available to common shareholders used in diluted earnings per common share calculation | $ | 208 | $ | 371 | $ | 1,352 | $ | 592 | ||||||||
Basic earnings per common share | $ | 0.25 | $ | 0.44 | $ | 1.60 | $ | 0.72 | ||||||||
Diluted earnings per common share | $ | 0.24 | $ | 0.43 | $ | 1.58 | $ | 0.71 | ||||||||
Weighted-average common shares outstanding - basic | 843 | 852 | 843 | 821 | ||||||||||||
Weighted-average common shares outstanding - diluted | 855 | 866 | 857 | 837 |
|
|
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income attributable to Corning Incorporated | $ | 164 | $ | 208 | $ | 621 | $ | 1,352 | ||||||||
Basic earnings per common share | $ | 0.19 | $ | 0.25 | $ | 0.73 | $ | 1.60 | ||||||||
Diluted earnings per common share | $ | 0.19 | $ | 0.24 | $ | 0.72 | $ | 1.58 | ||||||||
Weighted-average common shares outstanding - basic | 850 | 843 | 848 | 843 | ||||||||||||
Weighted-average common shares outstanding - diluted | 859 | 855 | 858 | 857 |
Comprehensive (Loss) Income attributable to Corning Incorporated
Comprehensive loss attributable to Corning Incorporated for the three and nine months ended September 30, 20222023 was $39 million compared to $489 million and $264for the three months ended September 30, 2022. This movement is primarily due to the $44 million respectively, compared to comprehensivedecrease in net income attributable to Corning Incorporated for the three and nine months ended September 30, 2021 of $164 million and $900 million, respectively. This movement in the three and nine month periods is primarily due to an increasea decrease in net losses on foreign currency translation adjustments of $493$494 million, and $1,020 million, respectively,primarily driven by the Japanese yen, South Korean won, Chinese yuan and South Korean won.euro.
ReferComprehensive income attributable to Corning Incorporated for the nine months ended September 30, 2023 was $49 million compared to comprehensive loss attributable to Corning Incorporated of $264 million for the nine months ended September 30, 2022. This movement is primarily due to the $731 million decrease in net income attributable to Corning Incorporated and a decrease in net losses on foreign currency translation adjustments of $942 million, primarily driven by the Japanese yen, South Korean won, Chinese yuan and euro.
SEGMENT ANALYSIS
Financial results for the reportable segments and Hemlock and Emerging Growth Businesses are prepared on a basis consistent with the internal disaggregation of financial information to assist the Chief Operating Decision Maker (“CODM”) in making internal operating decisions, which is more fully discussed within Note 13 (Shareholders’ Equity)14 (Reportable Segments) in the accompanying notes to the consolidated financial statements and includes a reconciliation of our segment information to the corresponding amounts in our consolidated statements of income.
Segment net income may not be consistent with measures used by other companies.
The following table presents segment net sales by reportable segment and Hemlock and Emerging Growth Businesses (in millions):
Three months ended | $ | % | Nine months ended | $ | % | |||||||||||||||||||||||||||
September 30, | change | change | September 30, | change | change | |||||||||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | 23 vs. 22 | |||||||||||||||||||||||||
Optical Communications | $ | 918 | $ | 1,317 | $ | (399 | ) | (30 | )% | $ | 3,109 | $ | 3,828 | $ | (719 | ) | (19 | )% | ||||||||||||||
Display Technologies | 972 | 686 | 286 | 42 | % | 2,663 | 2,523 | 140 | 6 | % | ||||||||||||||||||||||
Specialty Materials | 563 | 519 | 44 | 8 | % | 1,392 | 1,497 | (105 | ) | (7 | )% | |||||||||||||||||||||
Environmental Technologies | 449 | 425 | 24 | 6 | % | 1,337 | 1,190 | 147 | 12 | % | ||||||||||||||||||||||
Life Sciences | 230 | 312 | (82 | ) | (26 | )% | 717 | 934 | (217 | ) | (23 | )% | ||||||||||||||||||||
Net sales of reportable segments | 3,132 | 3,259 | (127 | ) | (4 | )% | 9,218 | 9,972 | (754 | ) | (8 | )% | ||||||||||||||||||||
Hemlock and Emerging Growth Businesses | 327 | 407 | (80 | ) | (20 | )% | 1,090 | 1,200 | (110 | ) | (9 | )% | ||||||||||||||||||||
Net sales of reportable segments and Hemlock and Emerging Growth Businesses (1) | $ | 3,459 | $ | 3,666 | $ | (207 | ) | (6 | )% | $ | 10,308 | $ | 11,172 | $ | (864 | ) | (8 | )% |
(1) | Refer to Note 14 (Reportable Segments) in the accompanying notes to the consolidated financial statements for the reconciliation to consolidated net sales. |
Optical Communications
The decrease in segment net sales for additional information.both the three and nine month periods was primarily driven by a decline in volume due to lower order rates from carriers as they continue to draw down inventory.
Display Technologies
The increase in segment net sales during the three and nine month periods is due to higher volumes, primarily attributable to the recovery of panel maker utilization to normal ranges.
Specialty Materials
The increase in segment net sales for the three month period was primarily driven by higher volumes due to customer product launches and continued demand for semiconductor materials. The decrease in segment net sales for the nine month period was primarily driven by lower demand in the smartphone, tablet and notebook markets, partially offset by continued demand for semiconductor materials.
Environmental Technologies
The increase in segment net sales for both the three and nine month periods was primarily driven by increased demand of automotive products, including gasoline particulate filter adoption in China, partially offset by softness in heavy-duty markets in North America.
Life Sciences
The decrease in segment net sales for both the three and nine month periods was impacted by the lower demand for COVID-related products in China and the impact of customers drawing down inventory.
Hemlock and Emerging Growth Businesses
The decrease for both the three and nine month periods was primarily driven by a decrease in our Hemlock business due to declines in solar-grade polysilicon prices and lower sales in our Pharmaceutical Technologies business as the last of the volume commitments for COVID-related products were completed in the second quarter.
The following table presents segment net income by reportable segment and Hemlock and Emerging Growth Businesses (in millions):
Three months ended | $ | % | Nine months ended | $ | % | |||||||||||||||||||||||||||
September 30, | change | change | September 30, | change | change | |||||||||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | 23 vs. 22 | |||||||||||||||||||||||||
Optical Communications | $ | 91 | $ | 183 | $ | (92 | ) | (50 | )% | $ | 390 | $ | 531 | $ | (141 | ) | (27 | )% | ||||||||||||||
Display Technologies | 242 | 134 | 108 | 81 | % | 610 | 598 | 12 | 2 | % | ||||||||||||||||||||||
Specialty Materials | 72 | 96 | (24 | ) | (25 | )% | 144 | 262 | (118 | ) | (45 | )% | ||||||||||||||||||||
Environmental Technologies | 99 | 87 | 12 | 14 | % | 288 | 223 | 65 | 29 | % | ||||||||||||||||||||||
Life Sciences | 13 | 43 | (30 | ) | (70 | )% | 33 | 122 | (89 | ) | (73 | )% | ||||||||||||||||||||
Net income of reportable segments | 517 | 543 | (26 | ) | (5 | )% | 1,465 | 1,736 | (271 | ) | (16 | )% | ||||||||||||||||||||
Hemlock and Emerging Growth Businesses | (8 | ) | 18 | (26 | ) | * | 34 | 35 | (1 | ) | (3 | )% | ||||||||||||||||||||
Net income of reportable segments and Hemlock and Emerging Growth Businesses (1) | $ | 509 | $ | 561 | $ | (52 | ) | (9 | )% | $ | 1,499 | $ | 1,771 | $ | (272 | ) | (15 | )% |
* Not meaningful
(1) | Refer to Note 14 (Reportable Segments) in the accompanying notes to the consolidated financial statements for the reconciliation to consolidated net income. |
Optical Communications
The decrease in segment net income for both the three and nine month periods was primarily driven by a decline in sales volume, as outlined above, partially offset by improvements from pricing and productivity actions.
Display Technologies
The increase in segment net income for the three and nine month periods was primarily driven by the increase in sales, as outlined above.
Specialty Materials
The decrease in segment net income for the three month period was primarily driven by higher production costs, partially offset by the increase in sales volume, as outlined above. The decrease in segment net income for the nine month period was primarily driven by the decline in sales volume, as outlined above, and impacted by continued development costs for new product launches.
Environmental Technologies
The increase in segment net income for both the three and nine month periods was primarily driven by the increase in sales, as outlined above, and as a result of productivity-improvement actions.
Life Sciences
The decrease in segment net income for both the three and nine month periods was primarily driven by lower sales volume, as outlined above.
Hemlock and Emerging Growth Businesses
The decrease for the three month period was primarily driven by our Hemlock business due to lower sales, as outlined above.
CORE PERFORMANCE MEASURES
In managing the Company and assessing our financial performance, we adjust certain measures provided by our consolidated financial statements are adjusted to exclude specific items to arrive at our core performance measures. These items include gains and losses onthe impact of translating the Japanese yen-denominated debt, the impact of the translated earnings contracts, acquisition-related costs, certain discrete tax items and other tax-related adjustments, restructuring, impairment losses, and other charges and credits, certain litigation-related expenses,litigation, regulatory and other legal matters, pension mark-to-market adjustments and other items which do not reflect on-goingthe ongoing operating results of the Company orCompany.
In addition, because a significant portion of our equity affiliates. Corningrevenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on sales and net income of translating these currencies into U.S. dollars. Therefore, management utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments forto exclude the impact from the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and euro, as applicable to the euro.segment. The Company believesmost significant constant-currency adjustment relates to the Japanese yen exposure within the Display Technologies segment. We establish constant-currency rates based on internally derived management estimates, which are closely aligned with the currencies we have hedged. For details of the rates used, please see the footnotes to the “Reconciliation of Non-GAAP Measures” section.
We believe that the use of constant-currency reporting allows investorsmanagement to understand our results without the volatility of currency fluctuationsfluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts. Further, we believe it 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 the management team to make financial and operational decisions.
Core performance measures are not prepared in accordance with GAAP.GAAP, but management believes that reporting core performance measures provides investors with greater transparency to the information used by our management team to make financial and operational decisions. We believe investors should consider these non-GAAP measures in evaluating results as they are more indicative of our core operating performance and how management evaluates 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 outlook for future periods, it is not possible to provide reconciliations for these non-GAAP measures because the Companymanagement does not forecast the movement of foreign 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’smanagement’s control. As a result, the Companymanagement 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, refer toplease see “Reconciliation of Non-GAAP Measures.”
RESULTS OF OPERATIONSResults of Operations – CORE PERFORMANCE MEASURESCore Performance Measures
SelectedThe following table presents selected highlights from continuingour operations, excluding certain items were as follows (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Core net sales | $ | 3,666 | $ | 3,639 | 1 | % | $ | 11,172 | $ | 10,406 | 7 | % | ||||||||||||
Core net income | $ | 438 | $ | 485 | (10 | )% | $ | 1,392 | $ | 1,346 | 3 | % |
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | |||||||||||||||||||
Core net sales | $ | 3,459 | $ | 3,666 | (6 | )% | $ | 10,308 | $ | 11,172 | (8 | )% | ||||||||||||
Core net income | $ | 386 | $ | 438 | (12 | )% | $ | 1,124 | $ | 1,392 | (19 | )% |
Core Net Sales
Core net sales are consistent with net sales by reportable segment and Hemlock and Emerging Growth Businesses. CoreSegment and Hemlock and Emerging Growth Businesses net sales were as follows (in millions):and variances are discussed in detail in the “Segment Analysis” section of our MD&A.
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Optical Communications | $ | 1,317 | $ | 1,131 | 16 | % | $ | 3,828 | $ | 3,143 | 22 | % | ||||||||||||
Display Technologies | 686 | 956 | (28 | %) | 2,523 | 2,758 | (9 | %) | ||||||||||||||||
Specialty Materials | 519 | 556 | (7 | %) | 1,497 | 1,490 | — | |||||||||||||||||
Environmental Technologies | 425 | 385 | 10 | % | 1,190 | 1,233 | (3 | %) | ||||||||||||||||
Life Sciences | 312 | 305 | 2 | % | 934 | 917 | 2 | % | ||||||||||||||||
Net sales of reportable segments | $ | 3,259 | $ | 3,333 | (2 | %) | $ | 9,972 | $ | 9,541 | 5 | % | ||||||||||||
Net sales of Hemlock and Emerging Growth Businesses | 407 | 306 | 33 | % | 1,200 | 865 | 39 | % | ||||||||||||||||
Total core net sales | $ | 3,666 | $ | 3,639 | 1 | % | $ | 11,172 | $ | 10,406 | 7 | % |
Core Net Income
InFor the three months ended September 30, 2022,2023, we generated core net income of $438$386 million, or $0.51$0.45 per core diluted share, compared to core net income generated infor the three months ended September 30, 20212022 of $485$438 million, or $0.56$0.51 per core diluted share. The decrease of $47$52 million, or $0.05$0.06 per core diluted share, was primarily due to lower coresegment net income for Optical Communications of $113$92 million, for Display Technologies driven by lower volumes attributable to decreased panel maker utilization.Life Sciences of $30 million and Specialty Materials of $24 million. This was partially offset by higher coresegment net income for Optical CommunicationsDisplay Technologies of $44 million driven by strong volume$108 million. Segment and price increases.Hemlock and Emerging Growth Businesses net income and variances are discussed in detail in the “Segment Analysis” section of our MD&A.
InFor the nine months ended September 30, 2022,2023, we generated core net income of $1,392$1,124 million, or $1.62$1.31 per core diluted share, compared to core net income generated infor the nine months ended September 30, 20212022 of $1,346$1,392 million, or $1.53$1.62 per core diluted share. The increasedecrease of $46$268 million, or $0.09$0.31 per core diluted share, was primarily due to higher corelower segment net income of $133 million for Optical Communications largely drivenof $141 million, Specialty Materials of $118 million and Life Sciences of $89 million. This was partially offset by strong volume and price increases, and higher coresegment net income for Environmental Technologies of $79 million for$65 million. Segment and Hemlock and Emerging Growth Businesses driven by higher demand for solar products. This was partially offset by lower core net income and variances are discussed in detail in the “Segment Analysis” section of $110 million for Display Technologies driven by lower volumes attributable to decreased panel maker utilization.
The change in core diluted earnings per share was primarily driven by changes in core net income, outlined above.our MD&A.
Optical Communications
The decrease in segment net sales for both the three and nine month periods was primarily driven by a decline in volume due to lower order rates from carriers as they continue to draw down inventory.
Display Technologies
The increase in segment net sales during the three and nine month periods is due to higher volumes, primarily attributable to the recovery of panel maker utilization to normal ranges.
Specialty Materials
The increase in segment net sales for the three month period was primarily driven by higher volumes due to customer product launches and continued demand for semiconductor materials. The decrease in segment net sales for the nine month period was primarily driven by lower demand in the smartphone, tablet and notebook markets, partially offset by continued demand for semiconductor materials.
Environmental Technologies
The increase in segment net sales for both the three and nine month periods was primarily driven by increased demand of automotive products, including gasoline particulate filter adoption in China, partially offset by softness in heavy-duty markets in North America.
Life Sciences
The decrease in segment net sales for both the three and nine month periods was impacted by the lower demand for COVID-related products in China and the impact of customers drawing down inventory.
Hemlock and Emerging Growth Businesses
The decrease for both the three and nine month periods was primarily driven by a decrease in our Hemlock business due to declines in solar-grade polysilicon prices and lower sales in our Pharmaceutical Technologies business as the last of the volume commitments for COVID-related products were completed in the second quarter.
The following table presents segment net income by reportable segment and Hemlock and Emerging Growth Businesses (in millions):
Three months ended | $ | % | Nine months ended | $ | % | |||||||||||||||||||||||||||
September 30, | change | change | September 30, | change | change | |||||||||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | 23 vs. 22 | |||||||||||||||||||||||||
Optical Communications | $ | 91 | $ | 183 | $ | (92 | ) | (50 | )% | $ | 390 | $ | 531 | $ | (141 | ) | (27 | )% | ||||||||||||||
Display Technologies | 242 | 134 | 108 | 81 | % | 610 | 598 | 12 | 2 | % | ||||||||||||||||||||||
Specialty Materials | 72 | 96 | (24 | ) | (25 | )% | 144 | 262 | (118 | ) | (45 | )% | ||||||||||||||||||||
Environmental Technologies | 99 | 87 | 12 | 14 | % | 288 | 223 | 65 | 29 | % | ||||||||||||||||||||||
Life Sciences | 13 | 43 | (30 | ) | (70 | )% | 33 | 122 | (89 | ) | (73 | )% | ||||||||||||||||||||
Net income of reportable segments | 517 | 543 | (26 | ) | (5 | )% | 1,465 | 1,736 | (271 | ) | (16 | )% | ||||||||||||||||||||
Hemlock and Emerging Growth Businesses | (8 | ) | 18 | (26 | ) | * | 34 | 35 | (1 | ) | (3 | )% | ||||||||||||||||||||
Net income of reportable segments and Hemlock and Emerging Growth Businesses (1) | $ | 509 | $ | 561 | $ | (52 | ) | (9 | )% | $ | 1,499 | $ | 1,771 | $ | (272 | ) | (15 | )% |
* Not meaningful
(1) | Refer to Note 14 (Reportable Segments) in the accompanying notes to the consolidated financial statements for the reconciliation to consolidated net income. |
Optical Communications
The decrease in segment net income for both the three and nine month periods was primarily driven by a decline in sales volume, as outlined above, partially offset by improvements from pricing and productivity actions.
Display Technologies
The increase in segment net income for the three and nine month periods was primarily driven by the increase in sales, as outlined above.
Specialty Materials
The decrease in segment net income for the three month period was primarily driven by higher production costs, partially offset by the increase in sales volume, as outlined above. The decrease in segment net income for the nine month period was primarily driven by the decline in sales volume, as outlined above, and impacted by continued development costs for new product launches.
Environmental Technologies
The increase in segment net income for both the three and nine month periods was primarily driven by the increase in sales, as outlined above, and as a result of productivity-improvement actions.
Life Sciences
The decrease in segment net income for both the three and nine month periods was primarily driven by lower sales volume, as outlined above.
Hemlock and Emerging Growth Businesses
The decrease for the three month period was primarily driven by our Hemlock business due to lower sales, as outlined above.
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 arrive at our core performance measures. These items include the impact of translating the Japanese yen-denominated debt, the impact of the translated earnings contracts, acquisition-related costs, certain discrete tax items and other tax-related adjustments, restructuring, impairment and other charges and credits, certain litigation, regulatory and other legal matters, pension mark-to-market adjustments and other items which do not reflect the ongoing operating results of the Company.
In addition, because a significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on sales and net income of translating these currencies into U.S. dollars. Therefore, management utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments to exclude the impact from the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and euro, as applicable to the segment. The most significant constant-currency adjustment relates to the Japanese yen exposure within the Display Technologies segment. We establish constant-currency rates based on internally derived management estimates, which are closely aligned with the currencies we have hedged. For details of the rates used, please see the footnotes to the “Reconciliation of Non-GAAP Measures” section.
We believe that the use of constant-currency reporting allows management to understand our results without the volatility of currency fluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts. Further, we believe it 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.
Core Earnings per Common Shareperformance measures are not prepared in accordance with GAAP, but management believes that reporting core performance measures provides investors with greater transparency to the information used by our management team to make financial and operational decisions. We believe investors should consider these non-GAAP measures in evaluating results as they are more indicative of our core operating performance and how management evaluates operational results and trends. These measures are not, and should not be viewed as a substitute for, GAAP reporting measures. With respect to the outlook for future periods, it is not possible to provide reconciliations for these non-GAAP measures because management does not forecast the movement of foreign 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 management’s control. As a result, management 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.”
Results of Operations – Core Performance Measures
The following table sets forth the computation of core basic and core diluted earnings per common sharepresents selected highlights from our operations, excluding certain items (in millions, except per share amounts)millions):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Core net income | $ | 438 | $ | 485 | $ | 1,392 | $ | 1,346 | ||||||||
Less: Series A convertible preferred stock dividend | 24 | |||||||||||||||
Core net income available to common shareholders - basic | 438 | 485 | 1,392 | 1,322 | ||||||||||||
Plus: Series A convertible preferred stock dividend | 24 | |||||||||||||||
Core net income available to common shareholders - diluted | $ | 438 | $ | 485 | $ | 1,392 | $ | 1,346 | ||||||||
Weighted-average common shares outstanding - basic | 843 | 852 | 843 | 821 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and other dilutive securities | 12 | 14 | 14 | 16 | ||||||||||||
Series A convertible preferred stock | 41 | |||||||||||||||
Weighted-average common shares outstanding - diluted | 855 | 866 | 857 | 878 | ||||||||||||
Core basic earnings per common share | $ | 0.52 | $ | 0.57 | $ | 1.65 | $ | 1.61 | ||||||||
Core diluted earnings per common share | $ | 0.51 | $ | 0.56 | $ | 1.62 | $ | 1.53 |
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | |||||||||||||||||||
Core net sales | $ | 3,459 | $ | 3,666 | (6 | )% | $ | 10,308 | $ | 11,172 | (8 | )% | ||||||||||||
Core net income | $ | 386 | $ | 438 | (12 | )% | $ | 1,124 | $ | 1,392 | (19 | )% |
Core Net Sales
Core net sales are consistent with net sales by reportable segment and Hemlock and Emerging Growth Businesses. Segment and Hemlock and Emerging Growth Businesses net sales and variances are discussed in detail in the “Segment Analysis” section of our MD&A.
Reconciliation of Non-GAAP MeasuresCore Net Income
Corning utilizes certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess 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 consolidated statements of income or statements 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 consolidated statements of income or statements of cash flows.
Core net sales and core net income are non-GAAP financial measures utilized by management to analyze financial performance withoutFor the impact of items that are driven by general economic conditions and events that do not reflect the underlying fundamentals and trends in the Company’s operations.
The following tables reconcile the non-GAAP financial measures to their most directly comparable GAAP financial measure (amounts in millions, except per share amounts):
Three months ended September 30, 2022 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported – GAAP | $ | 3,488 | $ | 260 | $ | 208 | 13.1 | % | $ | 0.24 | ||||||||||
Constant-currency adjustment (1) | 178 | 136 | 79 | 0.09 | ||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (84 | ) | (64 | ) | (0.07 | ) | ||||||||||||||
Translated earnings contract loss (3) | 68 | 52 | 0.06 | |||||||||||||||||
Acquisition-related costs (4) | 33 | 25 | 0.03 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | 22 | 0.03 | ||||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 138 | 106 | 0.12 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 23 | 17 | 0.02 | |||||||||||||||||
Pension mark-to-market adjustment (8) | (9 | ) | (7 | ) | (0.01 | ) | ||||||||||||||
Core performance measures | $ | 3,666 | $ | 565 | $ | 438 | 19.3 | % | $ | 0.51 |
|
|
Three months ended September 30, 2021 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported - GAAP | $ | 3,615 | $ | 493 | $ | 371 | 22.1 | % | $ | 0.43 | ||||||||||
Constant-currency adjustment (1) | 24 | 33 | 23 | 0.03 | ||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (4 | ) | (4 | ) | (0.00 | ) | ||||||||||||||
Translated earnings contract loss (3) | 13 | 10 | 0.01 | |||||||||||||||||
Acquisition-related costs (4) | 38 | 30 | 0.03 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | (1 | ) | (0.00 | ) | ||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 40 | 31 | 0.04 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 3 | 15 | 0.02 | |||||||||||||||||
Pension mark-to-market adjustment (8) | (1 | ) | (1 | ) | (0.00 | ) | ||||||||||||||
Preferred stock conversion (12) | (4 | ) | (4 | ) | (0.00 | ) | ||||||||||||||
Bond redemption loss (13) | 20 | 15 | 0.02 | |||||||||||||||||
Core performance measures | $ | 3,639 | $ | 631 | $ | 485 | 21.1 | % | $ | 0.56 |
|
|
Refer to 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 whichthree months ended September 30, 2023, we exclude from GAAP measures to report core performance measures” for the descriptions of the footnoted reconciling items.
Nine months ended September 30, 2022 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported – GAAP | $ | 10,783 | $ | 1,793 | $ | 1,352 | 21.2 | % | $ | 1.58 | ||||||||||
Constant-currency adjustment (1) | 389 | 319 | 221 | 0.26 | ||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (321 | ) | (246 | ) | (0.29 | ) | ||||||||||||||
Translated earnings contract gain (3) | (257 | ) | (197 | ) | (0.23 | ) | ||||||||||||||
Acquisition-related costs (4) | 107 | 84 | 0.10 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | 38 | 0.04 | ||||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 217 | 166 | 0.19 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 65 | 49 | 0.06 | |||||||||||||||||
Pension mark-to-market adjustment (8) | (19 | ) | (15 | ) | (0.02 | ) | ||||||||||||||
Contingent consideration (9) | (32 | ) | (25 | ) | (0.03 | ) | ||||||||||||||
Loss on investments (10) | 8 | 6 | 0.01 | |||||||||||||||||
Gain on sale of business (11) | (53 | ) | (41 | ) | (0.05 | ) | ||||||||||||||
Core performance measures | $ | 11,172 | $ | 1,827 | $ | 1,392 | 20.5 | % | $ | 1.62 |
|
|
Nine months ended September 30, 2021 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported - GAAP | $ | 10,406 | $ | 1,841 | $ | 1,419 | 21.8 | % | $ | 0.71 | ||||||||||
Preferred stock redemption (c) | 0.91 | |||||||||||||||||||
Subtotal | 10,406 | 1,841 | 1,419 | 21.8 | % | 1.62 | ||||||||||||||
Constant-currency adjustment (1) | 47 | 29 | 0.03 | |||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (127 | ) | (98 | ) | (0.12 | ) | ||||||||||||||
Translated earnings contract gain (3) | (262 | ) | (202 | ) | (0.24 | ) | ||||||||||||||
Acquisition-related costs (4) | 123 | 95 | 0.11 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | 5 | 0.01 | ||||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 42 | 33 | 0.04 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 11 | 23 | 0.03 | |||||||||||||||||
Pension mark-to-market adjustment (8) | 23 | 18 | 0.02 | |||||||||||||||||
Loss on investments (10) | 39 | 30 | 0.04 | |||||||||||||||||
Gain on sale of business (11) | (54 | ) | (46 | ) | (0.05 | ) | ||||||||||||||
Preferred stock conversion (12) | 17 | 17 | 0.02 | |||||||||||||||||
Bond redemption loss (13) | 31 | 23 | 0.03 | |||||||||||||||||
Core performance measures | $ | 10,406 | $ | 1,731 | $ | 1,346 | 21.1 | % | $ | 1.53 |
|
|
Refer to 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.
Items which we exclude from GAAP measures to arrive at core performance measures were as follows:
| |||||||||||
|
|
|
|
|
| ||||||
|
|
|
|
|
| ||||||
|
| ||||||||||
|
| ||||||||||
| |||||||||||
|
| ||||||||||
REPORTABLE SEGMENTS
Reportable segments are as follows:
All other businesses that do not meet the quantitative threshold for separate reporting have been grouped as “Hemlock and Emerging Growth Businesses”. The net sales for this group are primarily attributable to Hemlock, which is an operating segment that produces solar and semiconductor products. The emerging growth businesses primarily consist of CPT, AGS and the EIG, which are also operating segments.
Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the CODM in making internal operating decisions. 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 ongenerated core net income of translating these currencies into U.S. dollars. For segment sales and$386 million, or $0.45 per core diluted share, compared to core net income generated for the Company utilizes constant-currency reportingthree months ended September 30, 2022 of $438 million, or $0.51 per core diluted share. The decrease of $52 million, or $0.06 per core diluted share, was primarily due to lower segment net income for Optical Communications of $92 million, Life Sciences of $30 million and Specialty Materials of $24 million. This was partially offset by higher segment net income for Display Technologies of $108 million. Segment and Hemlock and Emerging Growth Businesses net income and variances are discussed in detail in the “Segment Analysis” section of our MD&A.
For the nine months ended September 30, 2023, we generated core net income of $1,124 million, or $1.31 per core diluted share, compared to core net income generated for the nine months ended September 30, 2022 of $1,392 million, or $1.62 per core diluted share. The decrease of $268 million, or $0.31 per core diluted share, was primarily due to lower segment net income for Optical Communications of $141 million, Specialty Materials Environmental Technologiesof $118 million and Life Sciences segments for the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and the euro. Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable$89 million. This was partially offset by higher segment net income (loss) to consolidatedfor Environmental Technologies of $65 million. Segment and Hemlock and Emerging Growth Businesses net income. These include items thatincome and variances are not used bydiscussed in detail in the CODM in evaluating the results“Segment Analysis” section of or in allocating resources to, the segments and include the following: the impact of translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.our MD&A.
Optical Communications
The decrease in segment net sales for both the three and nine month periods was primarily driven by a decline in volume due to lower order rates from carriers as they continue to draw down inventory.
Display Technologies
The increase in segment net sales during the three and nine month periods is due to higher volumes, primarily attributable to the recovery of panel maker utilization to normal ranges.
Specialty Materials
The increase in segment net sales for the three month period was primarily driven by higher volumes due to customer product launches and continued demand for semiconductor materials. The decrease in segment net sales for the nine month period was primarily driven by lower demand in the smartphone, tablet and notebook markets, partially offset by continued demand for semiconductor materials.
Environmental Technologies
The increase in segment net sales for both the three and nine month periods was primarily driven by increased demand of automotive products, including gasoline particulate filter adoption in China, partially offset by softness in heavy-duty markets in North America.
Life Sciences
The decrease in segment net sales for both the three and nine month periods was impacted by the lower demand for COVID-related products in China and the impact of customers drawing down inventory.
Hemlock and Emerging Growth Businesses
The decrease for both the three and nine month periods was primarily driven by a decrease in our Hemlock business due to declines in solar-grade polysilicon prices and lower sales in our Pharmaceutical Technologies business as the last of the volume commitments for COVID-related products were completed in the second quarter.
The following table presents segment net income by reportable segment and Hemlock and Emerging Growth Businesses (in millions):
Three months ended | $ | % | Nine months ended | $ | % | |||||||||||||||||||||||||||
September 30, | change | change | September 30, | change | change | |||||||||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | 23 vs. 22 | |||||||||||||||||||||||||
Optical Communications | $ | 91 | $ | 183 | $ | (92 | ) | (50 | )% | $ | 390 | $ | 531 | $ | (141 | ) | (27 | )% | ||||||||||||||
Display Technologies | 242 | 134 | 108 | 81 | % | 610 | 598 | 12 | 2 | % | ||||||||||||||||||||||
Specialty Materials | 72 | 96 | (24 | ) | (25 | )% | 144 | 262 | (118 | ) | (45 | )% | ||||||||||||||||||||
Environmental Technologies | 99 | 87 | 12 | 14 | % | 288 | 223 | 65 | 29 | % | ||||||||||||||||||||||
Life Sciences | 13 | 43 | (30 | ) | (70 | )% | 33 | 122 | (89 | ) | (73 | )% | ||||||||||||||||||||
Net income of reportable segments | 517 | 543 | (26 | ) | (5 | )% | 1,465 | 1,736 | (271 | ) | (16 | )% | ||||||||||||||||||||
Hemlock and Emerging Growth Businesses | (8 | ) | 18 | (26 | ) | * | 34 | 35 | (1 | ) | (3 | )% | ||||||||||||||||||||
Net income of reportable segments and Hemlock and Emerging Growth Businesses (1) | $ | 509 | $ | 561 | $ | (52 | ) | (9 | )% | $ | 1,499 | $ | 1,771 | $ | (272 | ) | (15 | )% |
* Not meaningful
(1) | Refer to Note 14 (Reportable Segments) in the accompanying notes to the consolidated financial statements for the reconciliation to consolidated net income. |
Optical Communications
The decrease in segment net income for both the three and nine month periods was primarily driven by a decline in sales volume, as outlined above, partially offset by improvements from pricing and productivity actions.
Display Technologies
The increase in segment net income for the three and nine month periods was primarily driven by the increase in sales, as outlined above.
Specialty Materials
The decrease in segment net income for the three month period was primarily driven by higher production costs, partially offset by the increase in sales volume, as outlined above. The decrease in segment net income for the nine month period was primarily driven by the decline in sales volume, as outlined above, and impacted by continued development costs for new product launches.
Environmental Technologies
The increase in segment net income for both the three and nine month periods was primarily driven by the increase in sales, as outlined above, and as a result of productivity-improvement actions.
Life Sciences
The decrease in segment net income for both the three and nine month periods was primarily driven by lower sales volume, as outlined above.
Hemlock and Emerging Growth Businesses
The decrease for the three month period was primarily driven by our Hemlock business due to lower sales, as outlined above.
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 arrive at our core performance measures. These items include the impact of translating the Japanese yen-denominated debt, the impact of the translated earnings contracts, acquisition-related costs, certain discrete tax items and other tax-related adjustments, restructuring, impairment and other charges and credits, certain litigation, regulatory and other legal matters, pension mark-to-market adjustments and other items which do not reflect the ongoing operating results of the Company.
In addition, because a significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on sales and net income of translating these currencies into U.S. dollars. Therefore, management utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments to exclude the impact from the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and euro, as applicable to the segment. The most significant constant-currency adjustment relates to the Japanese yen exposure within the Display Technologies segment. We establish constant-currency rates based on internally derived management estimates, which are closely aligned with the currencies we have hedged. For details of the rates used, please see the footnotes to the “Reconciliation of Non-GAAP Measures” section.
We believe that the use of constant-currency reporting allows management to understand our results without the volatility of currency fluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts. Further, we believe it 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.
Core performance measures are not prepared in accordance with GAAP, but management believes that reporting core performance measures provides investors with greater transparency to the information used by our management team to make financial and operational decisions. We believe investors should consider these non-GAAP measures in evaluating results as they are more indicative of our core operating performance and how management evaluates operational results and trends. These measures are not, and should not be viewed as a substitute for, GAAP reporting measures. With respect to the outlook for future periods, it is not possible to provide reconciliations for these non-GAAP measures because management does not forecast the movement of foreign 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 management’s control. As a result, management 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.”
Results of Operations – Core Performance Measures
The following table provides net sales and net income for the Optical Communications segmentpresents selected highlights from our operations, excluding certain items (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Segment net sales | $ | 1,317 | $ | 1,131 | 16 | % | $ | 3,828 | $ | 3,143 | 22 | % | ||||||||||||
Segment net income | $ | 183 | $ | 139 | 32 | % | $ | 531 | $ | 398 | 33 | % |
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2023 | 2022 | 23 vs. 22 | 2023 | 2022 | 23 vs. 22 | |||||||||||||||||||
Core net sales | $ | 3,459 | $ | 3,666 | (6 | )% | $ | 10,308 | $ | 11,172 | (8 | )% | ||||||||||||
Core net income | $ | 386 | $ | 438 | (12 | )% | $ | 1,124 | $ | 1,392 | (19 | )% |
Optical Communications’Core Net Sales
Core net sales increasedare consistent with net sales by $186reportable segment and Hemlock and Emerging Growth Businesses. Segment and Hemlock and Emerging Growth Businesses net sales and variances are discussed in detail in the “Segment Analysis” section of our MD&A.
Core Net Income
For the three months ended September 30, 2023, we generated core net income of $386 million, or $0.45 per core diluted share, compared to core net income generated for the three months ended September 30, 2022 of $438 million, or $0.51 per core diluted share. The decrease of $52 million, or $0.06 per core diluted share, was primarily due to lower segment net income for Optical Communications of $92 million, Life Sciences of $30 million and $685 millionSpecialty Materials of $24 million. This was partially offset by higher segment net income for Display Technologies of $108 million. Segment and Hemlock and Emerging Growth Businesses net income and variances are discussed in detail in the three and“Segment Analysis” section of our MD&A.
For the nine months ended September 30, 2023, we generated core net income of $1,124 million, or $1.31 per core diluted share, compared to core net income generated for the nine months ended September 30, 2022 respectively,of $1,392 million, or $1.62 per core diluted share. The decrease of $268 million, or $0.31 per core diluted share, was primarily drivendue to lower segment net income for Optical Communications of $141 million, Specialty Materials of $118 million and Life Sciences of $89 million. This was partially offset by higher sales volumessegment net income for Environmental Technologies of carrier$65 million. Segment and enterprise products for 5G, broadband,Hemlock and Emerging Growth Businesses net income and variances are discussed in detail in the cloud.“Segment Analysis” section of our MD&A.
Net income increased by $44 million and $133 millionCore Earnings per Common Share
Core earnings per share decreased for the three and nine months ended September 30, 2022,2023 to $0.45 and $1.31 per share, respectively, primarily driven byas a result of the changes in sales,core net income, outlined above, partially offset by higher costsabove.
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 | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Core net income | $ | 386 | $ | 438 | $ | 1,124 | $ | 1,392 | ||||||||
Weighted-average common shares outstanding - basic | 850 | 843 | 848 | 843 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and other awards | 9 | 12 | 10 | 14 | ||||||||||||
Weighted-average common shares outstanding - diluted | 859 | 855 | 858 | 857 | ||||||||||||
Core basic earnings per common share | $ | 0.45 | $ | 0.52 | $ | 1.33 | $ | 1.65 | ||||||||
Core diluted earnings per common share | $ | 0.45 | $ | 0.51 | $ | 1.31 | $ | 1.62 |
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 consolidated statements of income or statements 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 consolidated statements of income or statements of cash flows.
Core net sales and core net income and the related per share numbers are non-GAAP financial measures utilized by 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 our operations.
See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items.
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 September 30, 2023 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported – GAAP | $ | 3,173 | $ | 217 | $ | 164 | 16.1 | % | $ | 0.19 | ||||||||||
Constant-currency adjustment (1) | 286 | 212 | 164 | 0.19 | ||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (35 | ) | (29 | ) | (0.03 | ) | ||||||||||||||
Translated earnings contract gain (3) | (20 | ) | (16 | ) | (0.02 | ) | ||||||||||||||
Acquisition-related costs (4) | 33 | 25 | 0.03 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | (3 | ) | (0.00 | ) | ||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 72 | 58 | 0.07 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 32 | 25 | 0.03 | |||||||||||||||||
Pension mark-to-market adjustment (8) | 7 | 6 | 0.01 | |||||||||||||||||
Gain on investments (9) | (8 | ) | (8 | ) | (0.01 | ) | ||||||||||||||
Core performance measures | $ | 3,459 | $ | 510 | $ | 386 | 20.5 | % | $ | 0.45 |
(a) | Based upon statutory tax rates in the specific jurisdiction for each event. |
(b) | The calculation of the effective tax rate (“ETR”) excludes net income attributable to non-controlling interests (“NCI”). |
Three months ended September 30, 2022 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported - GAAP | $ | 3,488 | $ | 260 | $ | 208 | 13.1 | % | $ | 0.24 | ||||||||||
Constant-currency adjustment (1) | 178 | 136 | 79 | 0.09 | ||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (84 | ) | (64 | ) | (0.07 | ) | ||||||||||||||
Translated earnings contract loss (3) | 68 | 52 | 0.06 | |||||||||||||||||
Acquisition-related costs (4) | 33 | 25 | 0.03 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | 22 | 0.03 | ||||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 138 | 106 | 0.12 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 23 | 17 | 0.02 | |||||||||||||||||
Pension mark-to-market adjustment (8) | (9 | ) | (7 | ) | (0.01 | ) | ||||||||||||||
Core performance measures | $ | 3,666 | $ | 565 | $ | 438 | 19.3 | % | $ | 0.51 |
(a) | Based upon statutory tax rates in the specific jurisdiction for each event. |
(b) | The calculation of the ETR excludes net income attributable to NCI. |
See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items.
Nine months ended September 30, 2023 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported – GAAP | $ | 9,594 | $ | 854 | $ | 621 | 20.8 | % | $ | 0.72 | ||||||||||
Constant-currency adjustment (1) | 714 | 535 | 403 | 0.47 | ||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (162 | ) | (131 | ) | (0.15 | ) | ||||||||||||||
Translated earnings contract gain (3) | (128 | ) | (103 | ) | (0.12 | ) | ||||||||||||||
Acquisition-related costs (4) | 99 | 70 | 0.08 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | 26 | 0.03 | ||||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 270 | 216 | 0.25 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 44 | 35 | 0.04 | |||||||||||||||||
Pension mark-to-market adjustment (8) | 1 | 1 | 0.00 | |||||||||||||||||
Loss on investments (9) | 1 | 1 | 0.00 | |||||||||||||||||
Gain on sale of assets (10) | (20 | ) | (15 | ) | (0.02 | ) | ||||||||||||||
Core performance measures | $ | 10,308 | $ | 1,494 | $ | 1,124 | 20.5 | % | $ | 1.31 |
(a) | Based upon statutory tax rates in the specific jurisdiction for each event. |
(b) | The calculation of the ETR excludes net income attributable to NCI. |
Nine months ended September 30, 2022 | ||||||||||||||||||||
Net income | ||||||||||||||||||||
attributable | ||||||||||||||||||||
Net | Income before | to Corning | Effective tax | Per | ||||||||||||||||
sales | income taxes | Incorporated | rate (a)(b) | share | ||||||||||||||||
As reported - GAAP | $ | 10,783 | $ | 1,793 | $ | 1,352 | 21.2 | % | $ | 1.58 | ||||||||||
Constant-currency adjustment (1) | 389 | 319 | 221 | 0.26 | ||||||||||||||||
Translation gain on Japanese yen-denominated debt (2) | (321 | ) | (246 | ) | (0.29 | ) | ||||||||||||||
Translated earnings contract gain (3) | (257 | ) | (197 | ) | (0.23 | ) | ||||||||||||||
Acquisition-related costs (4) | 107 | 84 | 0.10 | |||||||||||||||||
Discrete tax items and other tax-related adjustments (5) | 38 | 0.04 | ||||||||||||||||||
Restructuring, impairment and other charges and credits (6) | 217 | 166 | 0.19 | |||||||||||||||||
Litigation, regulatory and other legal matters (7) | 65 | 49 | 0.06 | |||||||||||||||||
Pension mark-to-market adjustment (8) | (19 | ) | (15 | ) | (0.02 | ) | ||||||||||||||
Loss on investments (9) | 8 | 6 | 0.01 | |||||||||||||||||
Contingent consideration (11) | (32 | ) | (25 | ) | (0.03 | ) | ||||||||||||||
Gain on sale of business (12) | (53 | ) | (41 | ) | (0.05 | ) | ||||||||||||||
Core performance measures | $ | 11,172 | $ | 1,827 | $ | 1,392 | 20.5 | % | $ | 1.62 |
(a) | Based upon statutory tax rates in the specific jurisdiction for each event. |
(b) | The calculation of the ETR excludes net income attributable to NCI. |
See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items.
Items Excluded from GAAP Measures
Items which we exclude from GAAP measures to arrive at core performance measures were as follows:
(1) | Constant-currency adjustment: As a significant portion of revenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on sales and net income of translating these currencies into U.S. dollars. The Company utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments for the Japanese yen, South Korean won, Chinese yuan, New Taiwan dollar and euro, as applicable to the segment. We establish constant-currency rates based on internally derived management estimates, which are closely aligned with the currencies we have hedged. We believe that the use of constant-currency reporting allows management to understand our results without the volatility of currency fluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts. Further, we believe it 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. Constant currency rates used 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 of Japanese yen-denominated debt: Amount reflects the gain or loss on the translation of our yen-denominated debt to U.S. dollars. | ||||||||||
(3) | Translated earnings contract: Amount reflects the impact of the realized and unrealized gains and losses from the 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: Amount reflects intangible amortization, inventory valuation adjustments and external acquisition-related deal costs, as well as other transaction related costs. | ||||||||||
(5) | Discrete tax items and other tax-related adjustments: Amount reflects certain discrete period tax items such as changes in tax law, the impact of tax audits, changes in tax reserves and changes in deferred tax asset valuation allowances, as well as other tax-related adjustments. | ||||||||||
(6) | Restructuring, impairment and other charges and credits: Amount reflects certain restructuring, impairment losses and other charges and credits, as well as other expenses, including accelerated depreciation, asset write-offs and facility repairs resulting from power outages, which are not related to ongoing operations. The activity during 2023 primarily relates to severance charges and asset write-offs. The activity during the third quarter of 2022 primarily relates to capacity optimization of an emerging growth business. | ||||||||||
(7) | Litigation, regulatory and other legal matters: Amount reflects developments in commercial litigation, intellectual property disputes, adjustments to our estimated liability for environmental-related items and other legal matters. | ||||||||||
(8) | Pension mark-to-market adjustment: Amount primarily reflects defined benefit pension mark-to-market gains and losses, which arise from changes in actuarial assumptions and the difference between actual and expected returns on plan assets and discount rates. | ||||||||||
(9) | (Gain) loss on investments: Amount primarily reflects the gain or loss recognized on investment due to mark-to-mark adjustments for the change in fair value or the disposition of the investment. | ||||||||||
(10) | Gain on sale of assets: Amount represents the gain recognized for the sale assets. | ||||||||||
(11) | Contingent consideration: Amount reflects the fair value mark-to-market cost adjustment of contingent consideration resulting from the Hemlock Semiconductor Group transaction on September 9, 2020. | ||||||||||
(12) | Gain on sale of business: Amount represents the gain recognized for the sale of a business. |
LIQUIDITY AND CAPITAL RESOURCES
Our financial condition and liquidity are strong. We are not aware of any known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material decrease in our liquidity. In addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resources and no expected material changes in the mix of such resources.
Our major source of funding for 2023 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 and meet our obligations for the foreseeable future. Such obligations include requirements for acquisitions, capital expenditures, debt repayments, dividend payments and share repurchase programs. We will continue to generate cash from operations and maintain access to our revolving credit facilities and commercial paper programs as discussed in more detail below.
Key Balance Sheet Data
We fund our working capital with cash from operations and short-term borrowings, including commercial paper, when necessary. In addition, we receive upfront cash from customers relating to long-term supply agreements, as well as cash incentives from government entities generally for capital expansion and related expenses.
MovementsThe following table presents balance sheet and working capital measures (in millions):
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Working capital | $ | 3,013 | $ | 2,278 | ||||
Current ratio | 1.7:1 | 1.4:1 | ||||||
Trade accounts receivable, net of doubtful accounts | $ | 1,725 | $ | 1,721 | ||||
Days sales outstanding | 49 | 45 | ||||||
Inventories | $ | 2,655 | $ | 2,904 | ||||
Inventory turns | 3.2 | 3.4 | ||||||
Days payable outstanding (1) | 48 | 52 | ||||||
Long-term debt | $ | 7,210 | $ | 6,687 | ||||
Total debt | $ | 7,507 | $ | 6,911 | ||||
Total debt to total capital | 39 | % | 36 | % |
(1) | Includes trade payables only. |
We perform comprehensive reviews of our significant customers and their creditworthiness by analyzing their financial strength at least annually or more frequently for customers where we have identified a measure of increased risk. We closely monitor payments and developments to identify potential customer credit issues. We are not aware of any customer credit issues that could have a material impact on our liquidity.
We participate in foreign currency exchange rates did not materially impact net income in this segmentaccounts receivable management programs, including factoring arrangements to sell certain accounts receivable to third-party financial institutions or accelerate collections through our customer’s supply chain financing arrangements. Sales of accounts receivable are reflected as a reduction of accounts receivable in the threeconsolidated balance sheets and ninethe proceeds are included in cash flows from operating activities in the consolidated statements of cash flows. By utilizing these types of programs, we have accelerated the collection of $435 million, $423 million, and $350 million of accounts receivable during the three months ended March 31, 2023, June 30, 2023 and September 30, 2022, when compared to2023, respectively. We believe these accounts receivables would have been collected during the same periodsnormal course of business in 2021.the following quarter.
Display Technologies Cash Flows
The following table provides net sales and net income for the Display Technologies segmentpresents a summary of cash flow data (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Segment net sales | $ | 686 | $ | 956 | (28 | %) | $ | 2,523 | $ | 2,758 | (9 | %) | ||||||||||||
Segment net income | $ | 134 | $ | 247 | (46 | %) | $ | 598 | $ | 708 | (16 | %) |
Nine months ended | ||||||||
September 30, | ||||||||
2023 | 2022 | |||||||
Net cash provided by operating activities | $ | 1,292 | $ | 1,998 | ||||
Net cash used in investing activities | $ | (770 | ) | $ | (969 | ) | ||
Net cash used in financing activities | $ | (520 | ) | $ | (1,430 | ) |
Net salescash provided by operating activities decreased by $706 million in the Display Technologies segment decreased by $270 million and $235 million for the three and nine months ended September 30, 2022, respectively, due2023, when compared to lower volumes,the same period in the prior year primarily attributable to decreased panel maker utilization, while price remained consistent with the comparative periods.driven by a decrease in net income of $737 million.
Net incomecash used in the Display Technologies segment decreased by $113 million and $110 million in the three and nine months ended September 30, 2022, respectively, primarily driven by the changes in sales, outlined above.
Specialty Materials
The following table provides net sales and net income for the Specialty Materials segment (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Segment net sales | $ | 519 | $ | 556 | (7 | %) | $ | 1,497 | $ | 1,490 | — | |||||||||||||
Segment net income | $ | 96 | $ | 107 | (10 | %) | $ | 262 | $ | 279 | (6 | %) |
Net sales in the Specialty Materials segment decreased by $37 million for the three months ended September 30, 2022, primarily driven by softening demand in the smartphone, tablet and notebook markets. Net salesinvesting activities for the nine months ended September 30, 2022 remained relatively flat2023 improved by $199 million when compared to the priorsame period last year, as a resultprimarily driven by lower capital expenditures of strong demand for premium cover materials$90 million and advanced optics products offset by softening demand in the smartphone, tablet and notebook markets.higher realized gains on translated earnings contracts of $61 million.
Net income decreased by $11 million and $17 millioncash used in financing activities for the three and nine months ended September 30, 2022, respectively, primarily driven by the changes in sales, outlined above, and impacted by continued development spending related to next-generation products.
Environmental Technologies
The following table provides net sales and net income for the Environmental Technologies segment (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Segment net sales | $ | 425 | $ | 385 | 10 | % | $ | 1,190 | $ | 1,233 | (3 | %) | ||||||||||||
Segment net income | $ | 87 | $ | 60 | 45 | % | $ | 223 | $ | 215 | 4 | % |
Net sales in the Environmental Technologies segment increased by $40 million for the three months ended September 30, 2022, primarily driven by an increase in automotive sales of $38 million, or 17%, as the China market improved. For the nine months ended September 30, 2022, net sales decreased2023 improved by $43$910 million primarily driven by a decline in automotive sales of $27 million, or 4% as automotive producers experienced constraints inwhen compared to the market, including prolonged component shortage, partially offset by improvements in the China market during the third quarter of 2022.
Net income increased by $27 million and $8 million for the three and nine months ended September 30, 2022, respectively,same period last year, primarily driven by the changes$918 million proceeds received from the issuance of euro-denominated notes in sales, outlined above.May 2023.
Sources of Liquidity
As of September 30, 2023, our cash and cash equivalents and available credit capacity included (in millions):
September 30, | ||||
2023 | ||||
Cash and cash equivalents | $ | 1,639 | ||
Available credit capacity: | ||||
U.S. dollar revolving credit facility | $ | 1,500 | ||
Japanese yen liquidity facility | $ | 167 | ||
Chinese yuan facilities | $ | 404 |
Cash and Cash Equivalents
As of September 30, 2023, we had $1.6 billion of cash and cash equivalents. Our cash and cash equivalents are held in various locations throughout the world and are generally unrestricted. We utilize a variety of strategies to ensure that our worldwide cash is available in the locations in which it is needed. As of September 30, 2023, approximately 54% of the consolidated cash and cash equivalents were held outside the U.S.
If we distribute our foreign cash balances to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay withholding taxes. We do not foresee a need to repatriate any earnings for which we asserted permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not permanently reinvested.
Debt Facilities and Other Sources of Liquidity
We have a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding at any one time of $1.5 billion. Under this program, we may issue paper from time to time and will use the proceeds for general corporate purposes. As of September 30, 2023, we did not have outstanding commercial paper.
Our $1.5 billion Revolving Credit Agreement is available to support obligations under the commercial paper program and for general corporate purposes, if needed. In addition, we have a 25 billion Japanese yen liquidity facility, equivalent to approximately $167 million. As of September 30, 2023, there were no amounts outstanding under these facilities.
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%. As of September 30, 2023, our leverage using this measure was approximately 39%. As of September 30, 2023, we were in compliance.
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 exceeding a specified amount on one debt obligation, also would be considered a default under the terms of another debt instrument. As of September 30, 2023, we were in compliance with all such provisions.
We have access to certain unsecured variable rate loan facilities, with an aggregate capacity of 5,045 million Chinese yuan, equivalent to approximately $691 million, whose proceeds are used for capital investment and general corporate purposes. As of September 30, 2023, borrowings totaled $287 million.
As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the SEC on December 4, 2020. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred stock, depositary shares and warrants. We plan to file a new shelf registration statement in the fourth quarter of 2023, prior to the expiration of the shelf registration statement currently in effect.
On May 15, 2023, the Company issued €300 million 3.875% Notes due 2026 (“2026 Notes”) and €550 million 4.125% Notes due 2031 (“2031 Notes”). The proceeds from the 2026 Notes and 2031 Notes were received in euros and converted to U.S. dollars on the date of issuance. The net proceeds received were approximately $918 million and will be used for general corporate purposes. As of September 30, 2023, the U.S. dollar equivalent carrying value of the euro-denominated long-term debt was $892 million.
Uses of Cash
Life Sciences Fixed Rate Cumulative Convertible Preferred Stock, Series A
We had 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A (the “Preferred Stock”) as of December 31, 2020. On January 16, 2021, the Preferred Stock became convertible into 115 million common shares. On April 5, 2021, we executed a Share Repurchase Agreement (“SRA”) with Samsung Display Co., Ltd. (“SDC”) and the Preferred Stock was fully converted as of April 8, 2021. Immediately following the conversion, we repurchased and retired 35 million of the common shares held by SDC for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid in April 2022 and 2021. The following table provides net salesremaining payment of approximately $507 million was made in April 2023.
Stock Repurchases
In 2019, the Board authorized the repurchase of up to $5.0 billion of common stock (“2019 Authorization”). As of September 30, 2023, approximately $3.3 billion remains available under our 2019 Authorization, which does not have an expiration date and net incomemay be amended or terminated by the Board of Directors at any time without prior notice.
Common Stock Dividends
On October 4, 2023, Corning’s Board of Directors declared a dividend of $0.28 per share of common stock. The dividend will be payable on December 15, 2023.
Capital Expenditures
Capital expenditures were $1.1 billion for the Life Sciences segment (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Segment net sales | $ | 312 | $ | 305 | 2 | % | $ | 934 | $ | 917 | 2 | % | ||||||||||||
Segment net income | $ | 43 | $ | 45 | (4 | %) | $ | 122 | $ | 145 | (16 | %) |
Net sales in the Life Sciences segment increased by $7 million and $17 million in the three and nine months ended September 30, 2022, respectively, and net income decreased by $2 million and $23 million for the three and nine months ended September 30, 2022, respectively. The changes in sales and net income were due2023. We expect our 2023 full year capital expenditures to growth in research and bioproduction products, offset bybe slightly lower demand for COVID-related products. Supply chain disruptions and higher manufacturing costs also impacted sales and profitability.
Hemlock and Emerging Growth Businesses
The following table provides net sales and net income (loss) for Hemlock and Emerging Growth Businesses (in millions):
Three months ended | % | Nine months ended | % | |||||||||||||||||||||
September 30, | change | September 30, | change | |||||||||||||||||||||
2022 | 2021 | 22 vs. 21 | 2022 | 2021 | 22 vs. 21 | |||||||||||||||||||
Net sales | $ | 407 | $ | 306 | 33 | % | $ | 1,200 | $ | 865 | 39 | % | ||||||||||||
Net income (loss) | $ | 18 | $ | (5 | ) | * | $ | 35 | $ | (44 | ) | * |
* Not meaningful
Net sales of this group increased by $101 million and $335 million in the three and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021. Net income for the three and nine months ended September 30, 2022 were $18 million and $35 million, respectively, compared to net loss for the three and nine months ended September 30, 2021 of $5 million and $44 million, respectively. The growth in sales and net income was primarily driven by Hemlock as demand for solar products remained strong, and year-over-year growth from CPT and AGS.
CAPITAL RESOURCES AND LIQUIDITY
Financing and Capital Resources
In the second quarter of 2022, Corning amended and restated its existing revolving credit agreement, which provides a committed $1.5 billion unsecured multi-currency line of credit, primarily to extend the term to 2027. Additionally, Corning amended and restated its 25 billion Japanese yen liquidity facility, equivalent to approximately $173 million, primarily to extend the term to 2025. As of September 30, 2022 and December 31, 2021, there were no outstanding amounts under either the amended and restated or the existing facilities.
Corning had no outstanding commercial paper as of September 30, 2022 and December 31, 2021.than 2022.
Share 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”).
For the three and nine months ended September 30, 2022, the Company repurchased 0.5 million shares and 6.0 million shares, respectively, of common stock on the open market for approximately $17 million and $221 million, respectively, as part of its 2019 Repurchase Program.
For the three and nine months ended September 30, 2021, the Company repurchased 1 million and 36 million shares of common stock, respectively, for approximately $24 million and $1.5 billion, respectively, as part of the 2018 and 2019 Repurchase Programs. Most of these shares were repurchased immediately following the conversion of the preferred shares.
Refer to Note 13 (Shareholders’ Equity) to the consolidated financial statements for additional information.
Capital Spending
Capital spending totaled $1.2 billion for the nine months ended September 30, 2022. We expect our 2022 capital expenditures to be slightly lower than 2021.
Cash Flow
Summary of cash flow data (in millions):
Nine months ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Net cash provided by operating activities | $ | 1,998 | $ | 2,389 | ||||
Net cash used in investing activities | $ | (969 | ) | $ | (803 | ) | ||
Net cash used in financing activities | $ | (1,430 | ) | $ | (1,990 | ) |
Net cash provided by operating activities decreased by $391 million in the nine months ended September 30, 2022, when compared to the same period in the prior year primarily driven by increased inventory levels.
Net cash used in investing activities increased by $166 million in the nine months ended September 30, 2022, when compared to the same period last year. Increased outflows for capital expenditures of $187 million and lower proceeds from unconsolidated entities of $97 million, were partially offset by higher realized gains on translated earnings contracts of $179 million.
Net cash used in financing activities decreased by $560 million in the nine months ended September 30, 2022, when compared to the same period last year, primarily driven by lower repayments of long-term debt of $716 million, partially offset by increased purchases of treasury stock of $199 million.
Defined Benefit Pension Plans
Corning hasOur global pension plans, including our unfunded and non-qualified plans, were 82% funded as of December 31, 2022. Our largest single pension plan is our U.S. qualified plan, which accounted for 77% of our consolidated defined benefit pension plans’ projected benefit obligation, was 93% funded as of December 31, 2022.
The funded status of our pension plans covering certain domesticis dependent upon multiple factors including actuarial assumptions, interest rates at year-end, prior investment returns and international employees. The Company’s funding policy iscontributions made to contribute, over time, an amount exceeding the minimum requirementsplans. During 2023, the Company made cash contributions of $25 million to achieve the Company’s long-term funding targets. During the nine months ended September 30, 2022, contributions to ourits international pension plans were not material.plans. The Company does not expect to make additional contributions in the fourth quarter of 2022.2023.
Key Balance Sheet DataCommitments, Contingencies and Guarantees
Balance sheet and working capital measuresThere were as follows (in millions):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Working capital | $ | 2,637 | $ | 2,853 | ||||
Current ratio | 1.5:1 | 1.6:1 | ||||||
Trade accounts receivable, net of doubtful accounts | $ | 1,620 | $ | 2,004 | ||||
Days sales outstanding | 42 | 49 | ||||||
Inventories, net | $ | 2,951 | $ | 2,481 | ||||
Inventory turns | 3.5 | 3.7 | ||||||
Days payable outstanding (1) | 54 | 50 | ||||||
Long-term debt | $ | 6,525 | $ | 6,989 | ||||
Total debt | $ | 6,733 | $ | 7,044 | ||||
Total debt to total capital | 37 | % | 36 | % |
|
|
Management Assessment of Liquidity
Corning is committed to strong financial stewardship and expects to maintain a strong cash balance and generate positive free cash flow for the year. We believe we have sufficient liquidity to fund operations, acquisitions, capital expenditures, scheduled debt repayments and dividend payments.
We ended the third quarter of 2022 with approximately $1.6 billion of cash and cash equivalents. Our cash and cash equivalents are held in various locations throughout the world and are generally unrestricted. We utilize a variety of strategies to ensure that our worldwide cash is available in the locations in which it is needed. At September 30, 2022, approximately 59% of the consolidated amount was heldno material changes outside the U.S.
Corning also has a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes 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. As of September 30, 2022, Corning had no outstanding commercial paper.
The Company’s $1.5 billion Revolving Credit Agreement is available to support obligations under the commercial paper program and for general corporate purposes, if needed. At September 30, 2022, Corning did not have any amounts outstanding under the Revolving Credit Agreement.
Other
Comprehensive reviews of significant customers and their creditworthiness are completed by analyzing their financial strength, at least annually or more frequently, for customers where Corning has identified an increased measure of risk. The Company closely monitors payments and developments which may signal possible customer credit issues. There are no customer credit issues that could have a material impact on our liquidity.
From time to time, the Company factors or sells its accounts receivable. During the three months ended September 30, 2022, the Company sold $417 million of accounts receivable and accelerated collections for the period. Sales of accounts receivable during the first and second quarter of 2022 were $381 million and $350 million, respectively, which the Company believes would have been collected during the normalordinary course of business in the quarter followingobligations disclosed in the respective sales.
The 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 September 30, 2022 the leverage using this measure was approximately 37%. As of September 30, 2022, we were in compliance and no amounts were outstandingForm 10-K under the Company’s Revolving Credit Agreement.
The Company’s 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 the debt instruments contain a cross default provision, whereby an uncured default of a specified amount on one debt obligation of the Company, would be considered a default under the terms of another debt instrument. As of September 30, 2022, we were in compliance with all such provisions.
Management is not aware of any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in insufficient liquidity. In addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resourcescaption “Commitments, Contingencies and no expected material changes in the mix and relative cost of such resources.Guarantees.”
Off Balance Sheet Arrangements
There have beenwere no material changes outside the ordinary course of business in off balance sheet arrangements as disclosed in the 20212022 Form 10-K under the caption “Off Balance Sheet Arrangements.”
Contractual ObligationsENVIRONMENT
There have been no material changes outside the ordinary course of businessRefer to Item 1. Legal Proceedings or Note 9 (Commitments and Contingencies) in the contractual obligations disclosed inaccompanying notes to the 2021 Form 10-K under the caption “Contractual Obligations.” consolidated financial statements for information.
CRITICAL ACCOUNTING ESTIMATES
The preparation ofOur consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. This requires managementus to make estimates and assumptions that affect reported amounts reported therein.and related disclosures. Actual results could differ from those estimates. The estimates that are considered by management to be the most critical to the understanding of the consolidated financial statements as they require management’s most difficult, subjective or complexsignificant judgments that could materially impact our results of operations, financial position and cash flows are discussed within Part II, Item 7described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
NEW ACCOUNTING STANDARDS
Refer to Note 1 (Significant Accounting Policies) to2022. Since the consolidated financial statements.
ENVIRONMENT
Corning has been designated by federal or state governments under environmental laws, including Superfund, as a potentially responsible party that may be liable for cleanup costs associated with 19 hazardous waste sites. It is Corning’s policy to accrue for its estimated liability related to such hazardous waste sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. As of September 30, 2022 and December 31, 2021, Corning had accrued approximately $111 million and $55 million, respectively, for the estimated undiscounted liability for environmental cleanup and related litigation. Based upon the information developed to date management believes that the accrued reserve is a reasonable estimate of the Company’s liability and thatmost recent Annual Report, there were no material changes in the risk of an additional loss in an amount materially higher than that accrued is remote.Company’s critical accounting estimates or assumptions.
FORWARD-LOOKING STATEMENTS
The statements in this Quarterly Report on Form 10-Q, in reports subsequently filed by Corning with the SECSecurities and Exchange Commission (“SEC”) on Forms 10-Q and 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“target,” “estimate,” “forecast” or 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’s future operating performance, the Company’s share of new and existing markets, the Company'sCompany’s revenue and earnings growth rates, the Company’s ability to innovate and commercialize new products, the Company’s expected capital expenditure and the Company’s implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the Company’s manufacturing capacity.
Although the Company 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, there can be no assurance that these forward-looking statements will prove to be accurate, as actual results and future events could differ materially.materially from those anticipated in such statements. The Company does not undertakeundertakes no obligation to update forward-looking statements. statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws.
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:
- | global economic trends, competition and geopolitical risks, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our businesses’ global supply chains and strategies; |
- | changes in macroeconomic and market conditions and market volatility, including developments and volatility arising from the COVID-19 pandemic, inflation, interest rates, the value of securities and other financial assets, precious metals, oil, natural gas and other commodity prices and exchange rates (particularly between the U.S. dollar and the Japanese yen, new Taiwan dollar, euro, Chinese yuan and South Korean won), the availability of government incentives, decreases or sudden increases of consumer demand, and the impact of such changes and volatility on our financial position and businesses; |
- | the duration and severity of the COVID-19 pandemic, and its impact across our businesses on demand, personnel, operations, our global supply chains and stock price; |
- |
|
- | loss of intellectual property due to theft, cyber-attack, or disruption to our information technology infrastructure; |
| ability to enforce patents and |
- | unanticipated disruption to Corning’s, our suppliers’ and |
- | product demand and industry capacity; |
- | competitive products and pricing; |
- | availability and costs of critical components, materials, equipment, natural resources and utilities; |
- | 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; |
- | the amount and timing of any future dividends; |
- |
|
|
the effects of acquisitions, dispositions and other similar transactions; |
- | the effect of regulatory and legal developments; |
- | ability to pace capital spending to anticipated levels of customer demand; |
- | our ability to increase margins through implementation of operational changes, pricing actions and cost reduction |
- | rate of technology change; |
|
|
- | adverse litigation; |
- | product and |
- |
|
- | customer ability 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, regulations and international tax standards; |
- | the impacts of audits by taxing authorities; and |
- | the potential impact of legislation, government regulations, and other government action and investigations. |
ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk Disclosures
As noted in the 20212022 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. Volatilitymovements in the global financial markets could increase the volatility of foreign currency exchange rates. Our exposure to exchange rates which would, in turn, impact sales and net income. has the following effects:
● | Exchange rate movements on financial instruments and transactions denominated in foreign currencies that impact earnings; and |
● | Exchange rate movements upon conversion of net assets and net income of foreign subsidiaries for which the functional currency is not the U.S. dollar. |
For a discussion of the Company’s 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 the 20212022 Form 10-K.
ITEMItem 4. CONTROLS AND PROCEDURESControls and Procedures
Disclosure Controls and Procedures
Under the supervision of and with the participation of Corning’s management, including the chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of the Company’s 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 September 30, 2022,2023, 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.
Internal Control Over Financial Reporting
An evaluation of internal controls over financial reporting was 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, the 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.
PartPART II – Other Information
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
Environmental Litigation. SeeCorning is a defendant in various lawsuits and is subject to various claims that arise in the 2021 Form 10-K, Part I, Item 3. For additional information and updates to estimated liabilities asnormal course of September 30, 2022, see Part I, Item 1, Financial Statements,business, the most significant of which are summarized in Note 109 (Commitments and Contingencies) ofin the accompanying notes to the consolidated financial statements included under Item 1statements. In the opinion of this Quarterly Report, whichmanagement, the likelihood that the ultimate disposition of these matters will have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations, is incorporated herein by reference.remote.
ITEMItem 1A. RISK FACTORSRisk Factors
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 Corning’s 20212022 Form 10-K, which could materially impact the Company’s business, financial condition or future results. Risks disclosed in the 20212022 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact Corning’s business, financial condition or operating results. There have been no material changes to Part I, Item 1A. Risk Factors in the 2021 Form 10-K.
ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
This table provides information about purchases of common stock during the third quarter of 2022:2023:
Issuer Purchases of Equity Securities
Approximate | ||||||||||||||||
Number of | dollar value of | |||||||||||||||
shares purchased | shares that may | |||||||||||||||
Total number | Average | as part of publicly | yet be purchased | |||||||||||||
of shares | price paid | announced | under the | |||||||||||||
Period | purchased (1) | per share (2) | programs | programs | ||||||||||||
July 1 - 31, 2022 | 601,587 | $ | 32.43 | 543,186 | ||||||||||||
August 1 - 31, 2022 | 2,566 | 35.83 | ||||||||||||||
September 1 - 30, 2022 | 3,057 | 30.79 | ||||||||||||||
Total | 607,210 | $ | 32.43 | 543,186 | $ | 3,301,085,426 |
Approximate | ||||||||||||||||
Number of | dollar value of | |||||||||||||||
shares purchased | shares that may | |||||||||||||||
Total number | Average | as part of publicly | yet be purchased | |||||||||||||
of shares | price paid | announced | under the | |||||||||||||
Period | purchased (1) | per share (2) | programs | programs | ||||||||||||
July 1 - 31, 2023 | 90,395 | $ | 33.99 | |||||||||||||
August 1 - 31, 2023 | 6,308 | 32.81 | ||||||||||||||
September 1 - 30, 2023 | 3,590 | 30.78 | ||||||||||||||
Total | 100,293 | $ | 33.80 | — | $ | 3,301,085,426 |
(1) | This column reflects: (i) |
(2) | Represents the stock price at the time of surrender. |
During the three months ended September 30, 2023, none of our officers or directors adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
(a) | Exhibits | ||
Exhibit Number | Exhibit Name | ||
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Exchange Act | |||
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Exchange Act | |||
101.INS | Inline XBRL Instance Document | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | ||
101.LAB | Inline XBRL Taxonomy Label Linkbase Document | ||
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | ||
101.DEF | Inline XBRL Taxonomy Definition Document | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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) | ||||
October | /s/ Stefan Becker | |||
Date | Stefan Becker | |||
Senior Vice President, Finance & Corporate Controller |