Note 12 - Hedging Activities

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

12. Hedging Activities

Cash Flow Hedges

Corning uses 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 $751 million and $1.1 billion at September 30, 2021 and December 31, 2020, respectively, with maturities spanning the years 2021 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, 2021, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $41 million.

Undesignated Hedges

Corning 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 majority of average rate forward and option contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning years 2021 through 2024.  The following table summarizes the total gross notional value for translated earnings contracts at September 30, 2021 and December 31, 2020 (in billions):

	September 30,		December 31,
	2021		2020
Average rate forward contracts:
Japanese yen-denominated	$	3.5	$	4.5
South Korean won-denominated		0.7		0.4
Euro-denominated		0.3		0.5
Other foreign currencies (1)		0.1		0.1
Option contracts:
Japanese yen-denominated (2)		1.9		2.0
Other foreign currencies (3)		1.4
Total gross notional value for translated earning contracts	$	7.9	$	7.5

(1)	Denominational currencies for average rate forward contracts include the Chinese yuan and British pound.
(2)	Japanese yen-denominated option contracts include zero-cost collars, purchased put and call options. With respect to the zero-cost collars, the gross notional amount includes the value of the put and call options. However, due to the nature of the zero-cost collars, only the put or call option can be exercised at maturity.
(3)	Other foreign currencies option contracts are purchased basket options that include a basket of underlying currencies, including the Japanese yen, South Korean won, Chinese yuan, euro and British pound, and each basket option will be settled against USD.

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for September 30, 2021 and December 31, 2020 (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,
	2021		2020		location	2021		2020		location	2021			2020
Derivatives designated as hedging instruments
Foreign exchange contracts and other (1)	$	751	$	1,143	Other current assets	$	43	$	37	Other accrued liabilities	$	(1	)	$	(3	)
					Other assets		19		21	Other liabilities		(2	)		(1	)
Derivatives not designated as hedging instruments
Foreign exchange contracts		5,278		6,144	Other current assets		43		45	Other accrued liabilities		(49	)		(76	)
					Other assets		10		41	Other liabilities		(19	)		(59	)
Translated earnings contracts		7,909		7,453	Other current assets		90		66	Other accrued liabilities		(22	)		(110	)
					Other assets		126		61	Other liabilities		(8	)		(95	)
Total derivatives	$	13,938	$	14,740		$	331	$	271		$	(101	)	$	(344	)

⁽¹⁾ At September 30, 2021, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $751 million. At December 31, 2020, derivatives designated as hedging instruments include foreign currency contracts with notional amounts of $892 million and $251 million, respectively, for cash flow hedges and net investment hedges. 

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

	Three months ended September 30,
Derivatives in hedging	(Loss) gain 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	2021			2020			effective (ineffective)	2021		2020
							Net sales	$	3	$	(2	)
Foreign exchange contracts and other	$	(5	)	$	16		Cost of sales		11		3
Total cash flow hedges	$	(5	)	$	16			$	14	$	1
	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	2021			2020			effective (ineffective)	2021		2020
							Net sales	$	9	$	(4	)
							Cost of sales		28		7
Foreign exchange contracts and other	$	36		$	(51	)	Other expense, net (1)				(14	)
Total cash flow hedges	$	36		$	(51	)		$	37	$	(11	)

⁽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.

		(Loss) gain recognized in income
		Three months ended						Nine months ended
	Location of (loss) gain	September 30,						September 30,
Undesignated derivatives	recognized in income	2021			2020			2021		2020
Foreign exchange contracts	Other income (expense), net	$	(9	)	$	(48	)	$	26	$	(62	)
Translated earnings contracts	Translated earnings contract (loss) gain, net		(13	)		(100	)		262		5
Total undesignated		$	(22	)	$	(148	)	$	288	$	(57	)