| Summary of Significant Accounting Policies | 1. Summary of Signif icant Accounting Policies Organization Corning Incorporated is a provider of high-performance glass for notebook computers, flat panel desktop monitors, display televisions, and other information display applications; carrier network and enterprise network products for the telecommunications industry; ceramic substrates for gasoline and diesel engines in automotive and heavy duty vehicle markets; laboratory products for the scientific community and specialized polymer products for biotechnology applications; advanced optical materials for the semiconductor industry and the scientific community; and other technologies. In these notes, the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning Incorporated and subsidiary companies. Basis of Presentation and Principles of Consolidation Our consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S. and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which Corning exercises control. The equity method of accounting is used for investments in affiliated companies that are not controlled by Corning and in which our interest is generally between 20 % and 50 % and we have significant influence over the entity. Our share of earnings or losses of affiliated companies, in which at least 20 % of the voting securities is owned and we have significant influence but not control over the entity, is included in consolidated operating results. For our investments in companies that we do not control and for which we do not have the ability to exercise significant influence over operating and financial policies, we use the fair value method to account for the investments if readily determinable fair values are available. For the investments without readily determinable fair values, we measure them at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. All material intercompany accounts, transactions and profits are eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on our results of operations, financial position, or changes in shareholders’ equity. Leases Corning leases certain real estate, vehicles, and equipment from third parties. On January 1, 2019 we adopted the new leasing standard. Corning classifies leases as either financing or operating. Operating leases are included in other assets with the corresponding liability in other accrued liabilities and other liabilities on our consolidated balance sheets. Finance leases are included in property, plant and equipment with the corresponding liability in the current portion and long-term debt line items on our consolidated balance sheets. Leases where we are the lessor are not significant. Lease expense is recognized on a straight-line basis over the lease term for operating leases. Financing leases are recognized on the effective interest method for interest expense and straight-line method for asset amortization. Renewals and terminations are included in the calculation of the Right of Use (“ROU”) assets and lease liabilities when considered to be reasonably certain to be exercised. When the implicit rate is unknown, we use our incremental borrowing rate based on commencement date in determining the present value of lease payments. 1. Summary of Significant Accounting Policies (continued) Our leases do not include residual value guarantees. We are not the primary beneficiary in or have other forms of variable interests with the lessor of the leased assets. The impact to the balance sheet for operating leases is a gross-up for the addition of ROU assets and liabilities relating to the operating leases in the amount of $ 449 million at adoption. The impact to the balance sheet for financing leases was not material. Corning elected the following practical expedients and accounting policy elections to apply the new lease accounting standard at its effective date as of January 1, 2019 : Leases of less than 12 months in duration to be recorded as expense only ; Account for lease and non-lease components of a contract as a single lease component; and Comparative reporting of prior periods was not restated due to modified retrospective implementation. At adoption, Corning recorded a nominal cumulative-effect adjustment to beginning retained earnings. Refer to Note 4 (Leases) to the consolidated financial statements for additional information. Revenue One of Corning’s equity affiliates adopted the new revenue standard on January 1, 2019. The impact of adopting the new standard to Corning’s financial statements was a net reduction of $ 186 million to 2019 beginning retained earnings. Timing of revenue recognition for certain open performance obligations as measured at January 1, 2019 under the new standard was approximately $ 239 million with offsetting deferred tax impacts of $ 53 million. Income Taxes In February 2018, the FASB issued a new standard for Income Statement - Reporting Comprehensive Income, which allows for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. We adopted this new standard effective January 1, 2019. The impact of the new standard resulted in a reclassification of $ 53 million from accumulated other comprehensive income (“AOCI”) to beginning retained earnings. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and related notes. Significant estimates and assumptions in these consolidated financial statements include estimates associated with revenue recognition, restructuring charges, goodwill and long-lived asset impairment tests, estimates of acquired assets and liabilities, estimates of fair value of investments, equity interests, environmental and legal liabilities, income taxes and deferred tax valuation allowances, assumptions used in calculating pension and other postretirement employee benefit expenses and the fair value of share-based compensation. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. Revenue Recognition The majority of our revenues are generated by delivery of products to our customers and recognized at a point in time based on our evaluation of when the customer obtains control of the products. Revenue is recognized when all performance obligations under the terms of a contract with our customer are satisfied, and control of the product has been transferred to the customer. If customer acceptance clauses are present and it cannot be objectively determined that control has been transferred, revenue is only recorded when customer acceptance is received and all performance obligations have been satisfied. Sales of goods typically do not include multiple product and/or service elements. 1. Summary of Significant Accounting Policies (continued) Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales tax, value-added tax, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental contract costs that are not material in the context of the delivery of goods and services are recognized as expense. At the time revenue is recognized, allowances are recorded, with the related reduction to revenue, for estimated product returns, allowances and price discounts based upon historical experience and related terms of customer arrangements. Where we have offered product warranties, we also establish liabilities for estimated warranty costs based upon historical experience and specific warranty provisions. Warranty liabilities are adjusted when experience indicates the expected outcome will differ from initial estimates of the liability. In addition, Corning also has contractual arrangements with certain customers in which we recognize revenue over time. The performance obligations under these contracts generally require services to be performed over time, resulting in either a straight-line amortization method or an input method using incurred and forecasted expense to predict revenue recognition patterns which follows satisfaction of the performance obligation. Research and Development Costs Research and development costs are charged to expense as incurred. Research and development costs totaled $ 833 million, $ 807 million and $ 689 million in 2019, 2018 and 2017, respectively. Foreign Currency Translation and Transactions The determination of the functional currency for Corning’s foreign subsidiaries is made based on the appropriate economic factors. For most foreign operations, the local currencies are generally considered to be the functional currencies. Corning’s most significant exception is our Taiwanese subsidiary, which uses the Japanese yen as its functional currency. For all transactions denominated in a currency other than a subsidiary’s functional currency, exchange rate gains and losses are included in income for the period in which the exchange rates changed. We recorded net losses of $ 19 million and $ 43 million for foreign currency transaction activity for the years ended December 31, 2019 and 2018, respectively, and a net gain of $ 20 million for foreign currency transaction activity for the year ended December 31, 2017. These amounts were recorded in the line item Other expense, net in the consolidated statements of income (loss). Foreign subsidiary functional currency balance sheet accounts are translated at current exchange rates, and statement of operations accounts are translated at average exchange rates for the year. Translation gains and losses are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity. The effects of remeasuring non-functional currency assets and liabilities into the functional currency are included in current earnings, except for those related to intra-entity foreign currency transactions of a long-term investment nature, which are recorded together with translation gains and losses in accumulated other comprehensive loss in shareholders’ equity. Upon sale or substantially complete liquidation of an investment in a foreign entity, the amount of net translation gains or losses that have been accumulated in other comprehensive income attributable to that investment are reported as a gain or loss for the period in which the sale or liquidation occurs. Share-Based Compensation Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of our Board of Directors. The Plans allow us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At December 31, 2019, there were approximately 60 million unissued common shares available for future grants authorized under the Plans. 1. Summary of Significant Accounting Policies (continued) The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values. Total share-based compensation expense was $ 56 million, $ 51 million and $ 46 million for the years ended December 31, 2019, 2018 and 2017, respectively. The income tax benefit realized from share-based compensation was not significant for the years ended December 31, 2019, 2018 and 2017. Refer to Note 5 (Income Taxes) to the consolidated financial statements for additional information. 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 year s 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”). Awards to retirement eligible employees are fully vested at the date of grant, and the related compensation expense is recognized immediately upon grant or over the period from the grant date to the date of retirement eligibility for employees that become age 55 during the vesting period. Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15 -year historical volatility. The expected term assumption is the period of time the options are expected to be outstanding, and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. The ranges given below reflect results from separate groups of employees exhibiting different exercise behavior. The following inputs were used for the valuation of option grants under our stock option plans: 2019 2018 2017 Expected volatility 29.1 - 29.9 % 30.6 - 31.4 % 32.4 - 36.1 % Weighted-average volatility 29.9 % 31.4 % 36.1 % Expected dividends 2.36 - 2.95 % 2.22 - 2.66 % 1.98 - 2.28 % Risk-free rate 1.5 - 2.4 % 2.7 - 3.1 % 2.1 - 2.3 % Expected term (in years) 7.4 - 7.4 7.4 - 7.4 7.4 - 7.4 Pre-vesting departure rate 0.6 - 0.6 % 0.6 - 0.6 % 0.6 - 0.6 % Incentive Stock Plans The Corning Incentive Stock Plan permits restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plan are granted at the closing market price on the grant date, contingently vest over a period of generally one year to ten year s, and generally have contractual lives of one year to ten year s. The fair value of each restricted stock grant or restricted stock unit awarded under the Incentive Stock Plan is based on the grant date closing price of the Company’s stock. 1. Summary of Significant Accounting Policies (continued) Cash and Cash Equivalents Cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider securities with contractual maturities of three months or less , when purchased, to be cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments. Supplemental disclosure of cash flow information is as follows (in millions): Years ended December 31, 2019 2018 2017 Non-cash transactions: Accruals for capital expenditures $ 592 $ 412 $ 584 Cash paid for interest and income taxes: Interest (1) $ 248 $ 205 $ 178 Income taxes, net of refunds received $ 474 $ 567 $ 405 (1) Included in this amount are approximately $ 54 million, $ 49 million and $ 36 million of interest costs that were capitalized as part of property, plant and equipment , net of accumulated depreciation, in 2019, 2018 and 2017, respectively . Allowance for Doubtful Accounts The Company’s allowance for doubtful accounts is determined based on a variety of factors that affect the potential collectability of the related receivables, including length of time receivables are past due, customer credit ratings, financial stability of customers, specific one-time events and past customer history. In addition, in circumstances where the Company is made aware of a specific customer’s inability to meet its financial obligations, a specific allowance is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate based on the above criteria. Environmental Liabilities The Company accrues for its environmental investigation, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. For environmental matters, the most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, current laws and regulations and prior remediation experience. For sites with multiple potentially responsible parties, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill obligations in establishing a provision for those costs. Where no amount within a range of estimates is more likely to occur than another, the minimum undiscounted amount is accrued. When future liabilities are determined to be reimbursable by insurance coverage, an accrual is recorded for the potential liability and a receivable is recorded related to the insurance reimbursement when reimbursement is virtually certain. The uncertain nature inherent in such remediation and the possibility that initial estimates may not reflect the outcome could result in additional costs being recognized by the Company in future periods. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market. Property, Plant and Equipment, Net of Accumulated Depreciation Land, buildings, and equipment, including precious metals, are recorded at cost. Depreciation is based on estimated useful lives of properties using the straight-line method. Except as described in Note 8 (Property, Plant and Equipment, Net of Accumulated Depreciation) to the consolidated financial statements related to the depletion of precious metals, the estimated useful lives range from 10 to 40 year s for buildings and 2 to 20 year s for equipment. 1. Summary of Significant Accounting Policies (continued) Included in the subcategory of equipment are the following types of assets (excluding precious metals): Asset type Range of useful life Computer hardware and software 3 to 7 years Manufacturing equipment 2 to 15 years Furniture and fixtures 5 to 10 years Transportation equipment 3 to 20 years Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. These assets are not depreciated because they have very low physical losses and are repeatedly reclaimed and reused in our manufacturing process over a very long useful life. We treat the physical loss of precious metals in the manufacturing and reclamation process as depletion and account for these losses as a period expense based on actual units lost. Precious metals are integral to many of our glass production processes. They are only acquired to support our operations and are not held for trading or other purposes. Goodwill and Other Intangible Assets Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill relates to and is assigned directly to a specific reporting unit. Reporting units are either operating segments or one level below the operating segment. Impairment testing for goodwill is done at a reporting unit level. Goodwill is reviewed for indicators of impairment quarterly or if an event occurs or circumstances change that indicate that the carrying amount may be impaired. Corning also performs a detailed quantitative impairment test every three years if no indicators suggest a test should be performed in the interim. We use this calculation as quantitative validation of the qualitative process; this process does not represent an election to perform the quantitative impairment test in place of the qualitative review. The qualitative assessment is performed by assessing various factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These factors include, but are not limited to, changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, or a sustained decrease in share price. In 2018, we performed a quantitative goodwill impairment assessment in addition to assessing the qualitative factors each quarter. Our assessment is based on our annual strategic planning process. This process includes an extensive review of expectations for the long-term growth of our businesses and forecasted future cash flows. Our valuation method is an “income approach” using a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to present value using an appropriate discount rate. Our estimates are based upon our historical experience, our current knowledge from our commercial relationships, and available external information about future trends. The quantitative assessment requires the exercise of significant judgment, including judgment about appropriate discount rates, growth rates and the timing of expected future cash flows of the respective reporting unit. The quantitative assessment of goodwill resulted in fair values significantly exceeding the carrying values for all our reporting units. We also performed a sensitivity analysis, using a range between 7 - 10 % for the discount rate and 0 %- 3 % for the growth rate, which had no material impact on our results. Based on the quantitative test performed in 2018, no goodwill impairment was required. Other intangible assets include patents, trademarks, and other intangible assets acquired from independent parties. Such intangible assets have a definite life and are amortized on a straight-line basis over estimated useful lives ranging from 4 to 50 years. 1. Summary of Significant Accounting Policies (continued) Impairment of Long-Lived Assets We review the recoverability of our long-lived assets, such as plant and equipment and intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. When impairment indicators are present, we compare estimated undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the assets’ carrying value to determine if the asset group is recoverable. For an asset group that fails the test of recoverability, the estimated fair value of long-lived assets is determined using an “income approach” that starts with the forecast of all the expected future net cash flows including the eventual disposition at market value of long-lived assets, and considers the fair market value of all precious metals. We assess the recoverability of the carrying value of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If there is an impairment, a loss is recorded to reflect the difference between the assets’ fair value and carrying value. Employee Retirement Plans Corning offers employee retirement plans consisting of defined benefit pension plans covering certain domestic and international employees and postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. The costs and obligations related to these benefits reflect the Company’s assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, rate of compensation increase for employees and health care trend rates. The cost of providing plan benefits depends on demographic assumptions including retirements, mortality, turnover and plan participation. Costs for our defined benefit pension plans consist of two elements: 1) on-going costs recognized quarterly, which are comprised of service and interest costs, expected return on plan assets and amortization of prior service costs; and 2) mark-to-market gains and losses outside of the corridor, where the corridor is equal to 10 % of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, which are recognized annually in the fourth quarter of each year. These gains and losses result from changes in actuarial assumptions and the differences between actual and expected return on plan assets. Any interim remeasurements triggered by a curtailment, settlement or significant plan change, as well as any true-up to the annual valuation, are recognized as a mark-to-market adjustment in the quarter in which such event occurs. Costs for our postretirement benefit plans consist of on-going costs recognized quarterly, and are comprised of service and interest costs, amortization of prior service costs and amortization of actuarial gains and losses. We recognize the actuarial gains and losses resulting from changes in actuarial assumptions as a component of accumulated other comprehensive income in shareholders’ equity on an annual basis and amortize them into our operating results over the average remaining service period of employees expected to receive benefits under the plans, to the extent such gains and losses are outside of the corridor. Refer to Note 12 (Employee Retirement Plans) to the consolidated financial statements for additional detail. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases. 1. Summary of Significant Accounting Policies (continued) The effective income tax rate reflects our assessment of the ultimate outcome of tax audits. In evaluating the tax benefits associated with our various tax filing positions, we record a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to our liability for unrecognized tax benefits in the period in which we determine the issue is effectively settled with the tax authorities, the statute of limitations expires for the return containing the tax position or when new information becomes available. Our liability for unrecognized tax benefits, including accrued penalties and interest, is included in other accrued liabilities and other long-term liabilities on our consolidated balance sheets and in income tax expense in our consolidated statements of income (loss). Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. Generally, Corning will indefinitely reinvest the foreign earnings of: (1) any of its subsidiaries located in jurisdictions where Corning lacks the ability to repatriate its earnings, (2) any of its subsidiaries where Corning’s intention is to reinvest those earnings in operations, (3) legal entities for which Corning holds a non-controlling interest, (4) any subsidiaries with an accumulated deficit in earnings and profits, (5) any subsidiaries which have a positive earnings and profits balance but for which the entity lacks sufficient local statutory earnings or stock basis from which to make a distribution, and (6) future distribution would trigger a significant federal income inclusion to the U.S. shareholder. A company can make a policy election to account for the tax on GILTI as a period cost or to recognize deferred tax assets and liabilities when basis differences exist that are expected to affect the amount of GILTI inclusion upon reversal. Corning has elected to account for the GILTI provisions as a period cost. Equity Method Investments Our equity method investments are reviewed for impairment on a periodic basis or if an event occurs or circumstances change that indicate the carrying amount may be impaired. This assessment is based on a review of the equity investments’ performance and a review of indicators of impairment to determine if there is evidence of a loss in value of an equity investment. Factors we consider include: Absence of our ability to recover the carrying amount; Inability of the equity affiliate to sustain an earnings capacity which would justify the carrying amount of the investment; and Significant litigation, bankruptcy or other events that could impact recoverability. For an equity investment with impairment indicators, we measure fair value on the basis of discounted cash flows or other appropriate valuation methods, depending on the nature of the company involved. If it is probable that we will not recover the carrying amount of our investment, the impairment is considered other-than-temporary and recorded in earnings, and the equity investment balance is reduced to its fair value accordingly. Consequently, adjustments for asset recoverability are included in equity earnings. We require our material equity method affiliates to provide audited financial statements. We also utilize these financial statements in our recoverability assessment. Fair Value of Financial Instruments Major categories of financial assets and liabilities, including short-term investments, other assets and derivatives are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis when impaired, which include long-lived assets, goodwill, asset retirement obligations, equity method investments and other investments that we do not have significant influence. 1. Summary of Significant Accounting Policies (continued) Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. Derivative Instruments We participate in a variety of foreign exchange forward contracts and foreign exchange option contracts entered into in connection with the management of our exposure to fluctuations in foreign exchange rates. We utilize interest rate swaps to reduce the risk of changes in a benchmark interest rate from the probable forecasted issuance of debt and manage the mix of fixed and floating rate debt. These financial exposures are managed in accordance with corporate policies and procedures. All derivatives are recorded at fair value on our consolidated balance sheets. Changes in the fair value of derivatives designated as cash flow hedges and hedges of net investments in foreign operations are not recognized in current operating results but are recorded in accumulated other comprehensive income. Amounts related to cash flow hedges are reclassified from accumulated other comprehensive income when the underlying hedged item impacts earnings. This reclassification is recorded in the same line item of our consolidated statements of income (loss) as where the effects of the hedged item are recorded, typically sales, cost of sales or other expense, net. Changes in the fair value of derivatives not designated as hedging instruments are recorded in the consolidated statements of income (loss) in the translated earnings contract gain (loss), net and the other expense, net lines. New Accounting Standards In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The ASU |
