Hedging Activities

9 Months Ended

Sep. 30, 2020

14. Hedging Activities

Cash Flow Hedges

Corning’s cash flow hedging activities utilize over-the-counter (“OTC”) foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to customers and purchases from suppliers. The total gross notional values for foreign currency cash flow hedges are $0.8 billion and $2.1 billion at September 30, 2020 and December 31, 2019, respectively, with maturities spanning the years 2020 through 2023. Corning defers gains and losses related to the cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. At September 30, 2020, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $11 million.

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

The effect of cash flow hedges on Corning’s consolidated statements of income and comprehensive income is not material for the three and nine months ended September 30, 2020 and 2019.

Undesignated Hedges

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

The table below includes a total gross notional value for translated earnings contracts of $8.9 billion and $12.2 billion at September 30, 2020 and December 31, 2019, respectively. These include gross notional value for average rate forward contracts of $6.6 billion and $9.7 billion, zero-cost collars and purchased put or call options of $2.3 billion and $2.5 billion at September 30, 2020 and December 31, 2019, 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 2020-2023 and with gross notional values of $5.4 billion and $7.7 billion at September 30, 2020 and December 31, 2019, respectively. The average rate forward contracts also partially hedge the impacts of the South Korean won, Chinese yuan, euro, new Taiwan dollar and British pound translation on the Company’s projected net income. With respect to the zero-cost collars, the gross notional amount includes the value of both the put and call options. However, due to the nature of the zero-cost collars, only the put or the call option can be exercised at maturity.

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for September 30, 2020 and December 31, 2019 (in millions):



					Asset derivatives					Liability derivatives
	Notional amount				Balance	Fair value				Balance	Fair value
	Sept. 30,		Dec. 31,		sheet	Sept. 30,		Dec. 31,		sheet	Sept. 30,		Dec. 31,
	2020		2019		location	2020		2019		location	2020		2019

Derivatives ‎ designated as ‎ hedging ‎ instruments

Foreign exchange ‎ contracts	$	826	$	2,123	Other current ‎assets	$	18	$	38	Other accrued ‎liabilities	$	(7)	$	(7)
					Other assets		14		37	Other liabilities		(1)		(4)

Derivatives not ‎ designated as ‎ hedging ‎ instruments

Foreign exchange ‎ and other contracts		6,816		1,815	Other current ‎assets		28		5	Other accrued ‎liabilities		(61)		(19)
					Other assets		32		21	Other liabilities		(58)
Translated earnings ‎ contracts		8,906		12,166	Other current ‎assets		58		114	Other accrued ‎liabilities		(75)		(74)
					Other assets		33		34	Other liabilities		(72)		(161)
Total derivatives	$	16,548	$	16,104		$	183	$	249		$	(274)	$	(265)

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



	Effect of derivative instruments on the consolidated financial statements for the three months ended September 30,
Derivatives in hedging	Gain (loss) recognized in other				Location of gain (loss) reclassified from	Gain (loss) reclassified from
relationships for	comprehensive income (OCI)				accumulated OCI into income	accumulated OCI into income
cash flow hedges	2020		2019		effective (ineffective)	2020		2019

					Net sales	$	(2)
Foreign exchange contracts	$	16	$	(26)	Cost of sales		3	$	2
Total cash flow hedges	$	16	$	(26)		$	1	$	2

	Effect of derivative instruments on the consolidated financial statements for the nine months ended September 30,
Derivatives in hedging	Gain (loss) recognized in other				Location of gain (loss) reclassified from	Gain (loss) reclassified from
relationships for	comprehensive income (OCI)				accumulated OCI into income	accumulated OCI into income
cash flow hedges	2020		2019		effective (ineffective)	2020		2019

					Net sales	$	(4)
					Cost of sales		7	$	7
Foreign exchange contracts	$	(51)	$	(19)	Other expense, net (1)		(14)
Total cash flow hedges	$	(51)	$	(19)		$	(11)	$	7



		Gains recognized in income
		Three months ended				Nine months ended
	Location of gains	September 30,				September 30,
Undesignated derivatives	recognized in income	2020		2019		2020		2019

Foreign exchange and other ‎ contracts ‎ – balance sheet, loans and other	Other (expense) income, ‎ net (1)	$	(48)	$	19	$	(62)	$	38
Translated earnings contracts	Translated earnings ‎ contract (loss) gain, net		(100)		86		5		163

Total undesignated		$	(148)	$	105	$	(57)	$	201

(1)A loss of $14 million was reclassified from accumulated other comprehensive loss into other expense, net, resulting from the de-designation of certain cash flow hedges.