Investments

12 Months Ended

Dec. 31, 2019

6.Investments

Investments are comprised of the following (in millions):



	Ownership	December 31,
	interest	2019		2018
Affiliated companies accounted for by the equity ‎ method (1)(2)	20% to 50%	$	291	$	354
Other investments			43		22
Subtotal Investment Assets		$	334	$	376

Affiliated companies accounted for by the equity ‎ method - HSG (1)(2)	50%	$	270
Subtotal Investment Liabilities		$	270

(1)Amounts reflect Corning’s direct ownership interest in the affiliated companies at December 31, 2019 and 2018. Corning does not control these entities.

(2)Hemlock Semiconductor LLC and Hemlock Semiconductor Operations LLC, of which Corning has 49.9% and 40.25% ownership, respectively, are recorded as equity method investments and are affiliated companies of HSG. At December 31, 2019, the negative carrying value of Corning’s investment in HSG was $270 million and recorded in Other Liabilities. At December 31, 2018, the carrying value of the investment in HSG was $42 million and recorded in Investments.

Affiliated Companies at Equity Method

The results of operations and financial position of the investments accounted for under the equity method is presented below as of December 31 for each respective year (in millions):



	2019		2018		2017
Statement of operations:
Net sales	$	1,508	$	1,759	$	2,346
Gross profit	$	79	$	424	$	560
Net (loss) income	$	(102)	$	835	$	750
Net income attributable to the affiliated companies	$	70	$	798	$	721
Corning’s equity in earnings of affiliated companies	$	17	$	390	$	361

Related party transactions:
Corning sales to affiliated companies	$	277	$	184	$	108
Corning purchases from affiliated companies	$	12	$	11	$	12
Corning transfers of assets, at cost, to affiliated companies	$	8	$	2	$	22
Dividends received from affiliated companies	$	106	$	241	$	201
Intercompany sales within HSG (included in net sales)	$	112	$	206	$	312

	2019		2018
Balance sheet:
Current assets	$	1,566	$	1,716
Noncurrent assets	$	943	$	1,922
Short-term borrowings, including current portion ‎ of long-term debt	$	4	$	8
Other current liabilities	$	632	$	810
Long-term debt	$	68	$	14
Other long-term liabilities	$	1,522	$	1,708
Non-controlling interest	$	42	$	259

Related party transactions:
Balances due from affiliated companies	$	42	$	95
Balances due to affiliated companies	$	4
Intercompany receivables and payables within HSG ‎ (included in current assets and other current liabilities)	$	15	$	39

6.Investments (continued)

As of December 31, 2019 and 2018, the undistributed earnings of equity companies included in our retained earnings were not material.

Hemlock Semiconductor Group (“HSG”)

In 2016, Corning realigned its ownership interest in Dow Corning, exchanging its 50% interest in the joint venture between Corning and Dow Chemical for a newly formed company that holds a 49.9% interest in Hemlock Semiconductor LLC and a 40.25% interest in Hemlock Semiconductor Operations LLC which are recorded as equity method investments of Corning and are affiliated companies of HSG. HSG manufactures polysilicon products for the semiconductor and solar industries. HSG’s solar business primarily serves the solar power panel industry.

In prior years, HSG’s solar and semiconductor customers entered into long-term “take or pay” contracts which included up-front cash payments to secure capacity. During the last few years, and more significantly in 2019, the solar power panel industry experienced significant over-capacity in the market, resulting in declining sales volumes and market prices. As a result, HSG’s solar business experienced lower market penetration, overall price declines, and settled contracts with customers that had committed volume and fixed pricing above the current market price. While these settlements positively impacted HSG’s cash flow in 2019, they reduced expectations for future sales in HSG’s solar business.

Due to the adverse change in HSG’s solar business, HSG was required to assess the recoverability of its long-lived assets in the fourth quarter. Based on this assessment, HSG determined that the carrying values of HSG’s solar asset group significantly exceeded its fair values. HSG engaged a third-party appraiser to assist in determining the fair value of the assets within in the solar asset group based on the highest and best use of the asset group. As a result of the fair value determination, HSG recognized a pre-tax asset impairment charge of $916 million for the year ended December 31, 2019. Corning’s share of the pre-tax impairment was $369 million.

Due to the adverse changes above, the carrying values of HSG’s solar business inventories were also affected resulting in an inventory write-down of $257 million for the year. Corning’s pre-tax share of the provision was $105 million.

HSG adopted the new revenue standard on January 1, 2019 and the timing of HSG’s revenue recognition for certain remaining performance obligations measured at January 1, 2019 was deferred for recognition. This deferral reduced the carrying amount of Corning’s investment in HSG by $239 million. During the fourth quarter, a significant number of the performance obligations were satisfied and $434 million was recognized into HSG’s net income. Corning’s share of the equity earnings was $208 million.

In addition, HSG settled certain revenue contracts in the fourth quarter, resulting in settlement gains of $383 million in net income. Corning’s share of the settlement gains was $185 million.

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6.Investments (continued)

HSG information is presented below as of December 31 for each respective year (in millions):



	2019		2018		2017
Statement of operations:
Net sales	$	779	$	1,158	$	1,716
Gross profit	$	9	$	367	$	469
Net (loss) income	$	(117)	$	814	$	746
Net income attributable to HSG	$	54	$	776	$	706
Corning’s equity in earnings of affiliated companies	$	27	$	388	$	352

Related party transactions:
Dividends received from affiliated companies	$	100	$	241	$	196
Intercompany sales within HSG (included in net sales)	$	112	$	206	$	312

	2019		2018
Balance sheet:
Current assets	$	1,011	$	1,188
Noncurrent assets	$	420	$	1,414
Short-term borrowings, including current portion ‎ of long-term debt	$	3	$	3
Other current liabilities	$	412	$	540
Long-term debt	$	8	$	11
Other long-term liabilities	$	1,507	$	1,708
Non-controlling interest	$	42	$	259

Related party transactions:
Intercompany receivables and payables within HSG ‎ (included in current assets and other current liabilities)	$	15	$	39