Q1 2019 10Q_Taxonomy2019

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 March 31, 2019

☐ 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)

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


	Yes	☒		No	☐

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


	Yes	☒		No	☐

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


Large accelerated filer	☒	Accelerated filer	☐
Non‑accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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


	Yes	☐		No	☐

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


	Yes	☐		No	☒

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	GLW	New York Stock Exchange (NYSE)

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


	Class		Outstanding as of April 30, 2019
	Corning’s Common Stock, $0.50 par value per share		784,754,231 shares

Index

INDEX


PART I – FINANCIAL INFORMATION
		Page
Item 1. Financial Statements

Consolidated Statements of Income (Loss) (Unaudited) for the three months ended March 31, 2019 and 2018		3

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 2019 and 2018		4

Consolidated Balance Sheets (Unaudited) at March 31, 2019 and December 31, 2018		5

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2019 and 2018		6

Consolidated Statements of Changes to Shareholders’ Equity (Unaudited) for the three months ended March 31, 2019 and 2018		7

Notes to Consolidated Financial Statements (Unaudited)		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk		38

Item 4. Controls and Procedures		38

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		39

Item 1A. Risk Factors		39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40

Item 6. Exhibits		41

Signatures		42

Index

COR NING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited; in millions, except per share amounts)



	Three Months Ended
	March 31,
	2019		2018
Net sales	$	2,812	$	2,500
Cost of sales		1,713		1,545

Gross margin		1,099		955

Operating expenses:
Selling, general and administrative expenses		401		501
Research, development and engineering expenses		249		241
Amortization of purchased intangibles		29		19

Operating income		420		194

Equity in earnings of affiliated companies		25		39
Interest income		7		13
Interest expense		(52)		(52)
Translated earnings contract gain (loss), net (Note 10)		184		(622)
Other expense, net		(9)		(37)

Income (loss) before income taxes		575		(465)
Provision for income taxes (Note 5)		(76)		(124)

Net income (loss) attributable to Corning Incorporated	$	499	$	(589)

Earnings (loss) per common share attributable to Corning Incorporated:
Basic (Note 6)	$	0.61	$	(0.72)
Diluted (Note 6)	$	0.55	$	(0.72)

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

Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; in millions)



	Three Months Ended
	March 31,
	2019		2018

Net income (loss) attributable to Corning Incorporated	$	499	$	(589)

Foreign currency translation adjustments and other (Note 12)		(110)		264
Net unrealized gains on investments		1
Unamortized (losses) gains and prior service credits for postretirement benefit plans (Note 12)		(52)		1
Net unrealized gains on designated hedges		5
Other comprehensive (loss) income, net of tax		(156)		265

Comprehensive income (loss) attributable to Corning Incorporated	$	343	$	(324)

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

Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

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


	March 31,		December 31,
	2019		2018
Assets

Current assets:
Cash and cash equivalents	$	1,456	$	2,355
Trade accounts receivable, net of doubtful accounts and allowances - $69 and $64		1,974		1,940
Inventories, net of inventory reserves - $182 and $182 (Note 7)		2,190		2,037
Other current assets		729		702
Total current assets		6,349		7,034

Investments		346		376
Property, plant and equipment, net of accumulated depreciation - $12,136 and $11,932		14,878		14,895
Goodwill, net		1,930		1,936
Other intangible assets, net		1,265		1,292
Deferred income taxes (Note 5)		1,051		951
Other assets		1,502		1,021

Total Assets	$	27,321	$	27,505

Liabilities and Equity

Current liabilities:
Current portion of long-term debt and short-term borrowings	$	7	$	4
Accounts payable		1,278		1,456
Other accrued liabilities (Note 3 and Note 9)		1,774		1,851
Total current liabilities		3,059		3,311

Long-term debt		6,018		5,994
Postretirement benefits other than pensions (Note 8)		659		662
Other liabilities (Note 3 and Note 9)		3,879		3,652
Total liabilities		13,615		13,619

Commitments, contingencies and guarantees (Note 3)
Shareholders’ equity (Note 12):
Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 3,100; Shares issued: 2,300		2,300		2,300
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1,715 million and 1,713 million		857		857
Additional paid-in capital – common stock		14,243		14,212
Retained earnings		16,489		16,303
Treasury stock, at cost; Shares held: 933 million and 925 million		(19,116)		(18,870)
Accumulated other comprehensive loss		(1,166)		(1,010)
Total Corning Incorporated shareholders’ equity		13,607		13,792
Noncontrolling interests		99		94
Total equity		13,706		13,886

Total Liabilities and Equity	$	27,321	$	27,505

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

Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)



	Three Months Ended
	March 31,
	2019		2018
Cash Flows from Operating Activities:
Net income (loss)	$	499	$	(589)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		306		304
Amortization of purchased intangibles		29		19
Equity in earnings of affiliated companies		(25)		(39)
Deferred tax (benefit) provision		(40)		16
Incentives and customer deposits		2		276
Translated earnings contract (gain) loss		(184)		622
Unrealized translation losses (gains) on transactions		8		(63)
Changes in certain working capital items:
Trade accounts receivable		(36)		94
Inventories		(159)		(98)
Other current assets		(97)		(92)
Accounts payable and other current liabilities		(299)		(162)
Other, net		(33)		32
Net cash (used in) provided by operating activities		(29)		320

Cash Flows from Investing Activities:
Capital expenditures		(524)		(655)
Realized gains on translated earnings contracts		20		13
Other, net		21		(2)
Net cash used in investing activities		(483)		(644)

Cash Flows from Financing Activities:
Proceeds from the exercise of stock options		23		21
Repurchases of common stock for treasury		(257)		(800)
Dividends paid		(181)		(177)
Other, net		22		(3)
Net cash used in financing activities		(393)		(959)
Effect of exchange rates on cash		6		62
Net decrease in cash and cash equivalents		(899)		(1,221)
Cash and cash equivalents at beginning of period		2,355		4,317
Cash and cash equivalents at end of period	$	1,456	$	3,096

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

Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited; in millions)



(In millions)		Convertible preferred stock		Common Stock		Additional paid-in capital common		Retained Earnings		Treasury Stock		Accumulated other comprehensive loss		Total Corning Incorporated shareholders' equity		Non-controlling interests		Total
Balance, January 1, 2019	$	2,300	$	857	$	14,212	$	16,303	$	(18,870)	$	(1,010)	$	13,792	$	94	$	13,886
Net income								499						499		6		505
Other comprehensive loss												(156)		(156)				(156)
Purchase of common stock for treasury										(244)				(244)				(244)
Shares issued to benefit plans and for option exercises						31								31				31
Common Dividends ($.20 per share)								(158)						(158)				(158)
Preferred Dividends ($10,625 per share)								(24)						(24)				(24)
Other, net (1)								(131)		(2)				(133)		(1)		(134)
Balance, March 31, 2019	$	2,300	$	857	$	14,243	$	16,489	$	(19,116)	$	(1,166)	$	13,607	$	99	$	13,706

(1)

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



(In millions)		Convertible preferred stock		Common Stock		Additional paid-in capital common		Retained Earnings		Treasury Stock		Accumulated other comprehensive loss		Total Corning Incorporated shareholders' equity		Non-controlling interests		Total
Balance, January 1, 2018	$	2,300	$	854	$	14,089	$	15,930	$	(16,633)	$	(842)	$	15,698	$	72	$	15,770
Net (loss) income								(589)						(589)		3		(586)
Other comprehensive income												265		265				265
Purchase of common stock for treasury										(814)				(814)				(814)
Shares issued to benefit plans and for option exercises						30								30				30
Common Dividends ($.18 per share)								(153)						(153)				(153)
Preferred Dividends ($10,625 per share)								(24)						(24)				(24)
Other, net								2		(2)
Balance, March 31, 2018	$	2,300	$	854	$	14,119	$	15,166	$	(17,449)	$	(577)	$	14,413	$	75	$	14,488

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

Index

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation

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

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with Corning’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 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.

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

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”) asset and lease liability when considered to be reasonably certain to be exercised. When the implicit rate is unknown, we use our incremental borrowing rate based on commencement date in determining the present value of lease payments.

Our leases do not include residual value guarantees. We are not the primary beneficiary in or have other forms of variable interests with the lessor of the leased assets. The impact to the balance sheet for operating leases is a gross-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 has elected the following practical expedients and accounting policy elections to apply the new lease accounting standard at its effective date as of January 1, 2019:

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

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

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

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

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

Index

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

Other Accounting Standards

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

2. Revenue

Revenue Disaggregation Table

The following table shows revenues by major product categories, similar to our reportable segment disclosure. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty around revenue recognition and cash flows are substantially similar. The commercial markets and selling channels are also similar. Except for an inconsequential amount of revenue for Telecommunications products, our product category revenues are recognized at point in time when control transfers to the customer.

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



	Three Months Ended
	March 31,
	2019		2018
Display products	$	795	$	732

Telecommunication products		1,064		886

Specialty glass products		309		278

Environmental substrate and filter products		351		322

Life science products		239		232

All Other		54		50
	$	2,812	$	2,500

Index

Contract Assets and Liabilities

Contract assets, such as costs to obtain or fulfill contracts, are an insignificant component of Corning’s revenue recognition process. The majority of Corning’s cost of fulfillment as a manufacturer of products is classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of our products and their respective manufacturing processes.

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

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

Customer Deposits

As of March 31, 2019 and December 31, 2018, Corning had customer deposits of approximately $1.0 billion. The majority of these represent non-refundable cash deposits for customers to secure rights to an amount of glass produced by Corning under long-term supply agreements. The duration of these long-term supply agreements ranges up to ten years. As glass is shipped to customers, Corning will recognize revenue and issue credit memoranda to reduce the amount of the customer deposit liability, which are applied against customer receivables resulting from the sale of glass. In the three months ended March 31, 2019 and 2018, no credit memoranda were issued. As of March 31, 2019 and December 31, 2018, $907 million and $922 million were recorded as other long-term liabilities, respectively. The remaining $84 million and $54 million, respectively, were classified as other current liabilities.

3. Commitments, Contingencies and Guarantees

Corning is a defendant in various lawsuits and is subject to various claims that arise in the normal course of business, the most significant of which are summarized below. In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse effect on Corning’s consolidated financial position, liquidity, or results of operations, is remote.

Asbestos Claims

Corning and PPG Industries, Inc. each owned 50% of the capital stock of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11 reorganization in 2000, and the Modified Third Amended Plan of Reorganization for PCC (the “Plan”) became effective in April 2016. At December 31, 2016, the Company’s liability under the Plan was $290 million, which is required to be paid through a series of fixed payments beginning in the second quarter of 2017. At March 31, 2019, the total amount of payments due in years 2019 through 2023 is $185 million, of which $50 million is due in the second quarter of 2019 and is classified as a current liability. The remaining $135 million is classified as a non-current liability.

Non-PCC Asbestos Claims

Corning is a defendant in certain cases alleging injuries from asbestos unrelated to PCC (the “non-PCC asbestos claims”) which had been stayed pending the confirmation of the Plan. The stay was lifted on August 25, 2016. At December 31, 2018 and March 31, 2019, the amount of the reserve for these non-PCC asbestos claims was estimated to be $146 million. The reserve balance as of March 31, 2019 represents the undiscounted projection of claims and related legal fees for the estimated life of the litigation.

Dow Corning Chapter 11 Related Matters

Until June 1, 2016, Corning and The Dow Chemical Company (“Dow”) each owned 50% of the common stock of Dow Corning Corporation (“Dow Corning”). On May 31, 2016, Corning and Dow realigned their ownership interest in Dow Corning. With the realignment, Corning retained its indirect ownership interest in the Hemlock Semiconductor Group (“HSG”) and formed a new entity which had been capitalized by Dow Corning with $4.8 billion. Following the realignment, Corning no longer owned any interest in Dow Corning. With the realignment, Corning agreed to indemnify Dow Corning for 50% of Dow Corning’s non-ordinary course, pre-closing liabilities to the extent such liabilities exceed the amounts reserved for them by Dow Corning as of May 31, 2016, including two legacy Dow Corning matters: the Dow Corning Breast Implant Litigation, and the Dow Corning Bankruptcy Pendency Interest Claims.

Index

Dow Corning Breast Implant Litigation

In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from many thousands of breast implant product lawsuits. On June 1, 2004, Dow Corning emerged from Chapter 11 with a Plan of Reorganization (the “Plan”) which provided for the settlement or other resolution of implant claims. The Plan also includes releases for Corning and Dow as shareholders in exchange for contributions to the Plan.

Under the terms of the Plan, Dow Corning has established and funded a Settlement Trust and a Litigation Facility, referred to above, to provide a means for tort claimants to settle or litigate their claims. Inclusive of insurance, Dow Corning has paid approximately $1.8 billion to the Settlement Trust. As of May 31, 2016, Dow Corning had recorded a reserve for breast implant litigation of $290 million. In the event Dow Corning’s total liability for these claims exceeds such amount, Corning may be required to indemnify Dow Corning for up to 50% of the excess liability. At March 31, 2019, Dow Corning had recorded a reserve for breast implant litigation of $263 million.

Dow Corning Bankruptcy Pendency Interest Claims

As a separate matter arising from the bankruptcy proceedings, Dow Corning is defending claims asserted by commercial creditors who claim 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. In the event Dow Corning’s liability for these claims exceeds such amount, Corning may be required to indemnify Dow Corning for up to 50% of the excess liability, subject to certain conditions and limits. As of March 31, 2019, Dow Corning had recorded a reserve for these claims of $83 million.

Environmental Litigation

Corning has been named by the Environmental Protection Agency (“the Agency”) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 15 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning’s policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At March 31, 2019 and December 31, 2018, Corning had accrued approximately $28 million and $30 million, respectively, for the undiscounted estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company’s liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

4. Leases

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

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

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

Index

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



	As of March 31, 2019
Operating Leases
Operating lease right-of-use assets, net (1)	$	470

Other current liabilities	$	54
Operating lease liabilities (2)		421
Total operating lease liabilities	$	475

Finance Leases
Property and equipment, at cost	$	171
Accumulated depreciation		(49)
Property and equipment, net	$	122

Current portion of long-term debt	$	5
Long-term debt		174
Total finance lease liabilities	$	179

(1)

Included in other assets.

(2)

Included in other liabilities.

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

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



		2019		2020		2021		2022		2023		After 2023		Gross Total		Imputed Discount		Total

Operating Leases	$	69	$	86	$	70	$	62	$	55	$	352	$	694	$	(219)	$	475
Financing Leases		10		13		13		14		131		52		233		(54)		179

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



	Total		Less than 1 year		1 to 3 years		3 to 5 years		5 years and thereafter
Capital leases and financing obligations	$	393	$	4	$	11	$	132	$	246
Imputed interest on capital leases and financing obligations		205		20		38		37		110
Minimum rental commitments		581		82		133		111		255

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

5. Income Taxes

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



	Three Months Ended
	March 31,
	2019		2018

Provision for income taxes	$	(76)	$	(124)
Effective tax rate		13.2%		26.7%

Index

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

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

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

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

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

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

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

6. Earnings (Loss) per Common Share

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



	Three Months Ended
	March 31,
	2019		2018
Net income (loss) attributable to Corning Incorporated	$	499	$	(589)
Less: Series A convertible preferred stock dividend		24		24
Net income (loss) available to common stockholders – basic		475		(613)
Plus: Series A convertible preferred stock dividend		24
Net income (loss) available to common stockholders – diluted	$	499	$	(613)

Weighted-average common shares outstanding – basic		784		848
Effect of dilutive securities:
Employee stock options and other dilutive securities		9
Series A convertible preferred stock		115
Weighted-average common shares outstanding – diluted		908		848
Basic earnings (loss) per common share	$	0.61	$	(0.72)
Diluted earnings (loss) per common share	$	0.55	$	(0.72)

Antidilutive potential shares excluded from diluted earnings per common share:
Series A convertible preferred stock (1)				115
Employee stock options and awards				11
Total				126

(1)

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

7. Inventories, Net of Inventory Reserves

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



	March 31,		December 31,
	2019		2018
Finished goods	$	959	$	854
Work in process		416		386
Raw materials and accessories		410		409
Supplies and packing materials		405		388
Total inventories, net of inventory reserves	$	2,190	$	2,037

Index

8. Employee Retirement Plans

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



	Pension benefits				Postretirement benefits
	Three months ended				Three months ended
	March 31,				March 31,
	2019		2018		2019		2018

Service cost	$	25	$	25	$	2	$	3
Interest cost		37		32		7		6
Expected return on plan assets		(43)		(47)
Amortization of prior service cost (credit)		2		2		(2)		(1)
Total pension and postretirement benefit expense	$	21	$	12	$	7	$	8

The components of net period benefit cost other than the service cost component are included in the line item “Other expense, net” in the consolidated statements of income.

9. Other Liabilities

Other liabilities follow (in millions):



	March 31,		December 31,
	2019		2018
Current liabilities:
Wages and employee benefits	$	405	$	642
Income taxes		237		169
Derivative instruments		43		56
Asbestos and other litigation (Note 3)		112		113
Other current liabilities		977		871
Other accrued liabilities	$	1,774	$	1,851

Non-current liabilities:
Defined benefit pension plan liabilities	$	843	$	831
Derivative instruments		237		386
Asbestos and other litigation (Note 3)		278		279
Investment in Hemlock Semiconductor Group ("HSG") (1)		172
Customer deposits (Note 2)		907		922
Deferred tax liabilities		331		347
Other non-current liabilities		1,111		887
Other liabilities	$	3,879	$	3,652

(1)

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

Index

10. Hedging Activities

Undesignated Hedges

The table below includes a total gross notional value for translated earnings contracts of $12.6 billion and $13.6 billion at March 31, 2019 and December 31, 2018, respectively. These include gross notional value for average rate forwards of $10.1 billion and $11.0 billion, zero-cost collars and purchased put or call options of $2.5 billion and $2.6 billion at March 31, 2019 and December 31, 2018, respectively. The majority of the average rate forward contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning the years 2019-2022 and with gross notional values of $8.5 billion and $9.1 billion at March 31, 2019 and December 31, 2018, respectively. The average rate forward contracts also partially hedge the impacts of the South Korean won, Chinese yuan, euro and British pound translation on the Company’s projected net income. With respect to the zero-cost collars, the gross notional amount includes the value of both the put and call options. However, due to the nature of the zero-cost collars, only the put or the call option can be exercised at maturity.

The following tables summarize the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for March 31, 2019 and December 31, 2018 (in millions):