Note 16 - Reportable Segments

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

16. Reportable Segments

The Company’s reportable segments are as follows:

● Display Technologies – manufactures glass substrates for flat panel liquid crystal displays and other high-performance display panels.

● Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry.

● Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.

● Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.

● Life Sciences – manufactures glass and plastic labware, equipment, media, serum and reagents enabling workflow solutions for drug discovery and bioproduction.

All other businesses that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily comprised of the results of the pharmaceutical technologies, auto glass, new product lines, development projects, and certain corporate investments.‎

The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as of September 9, 2020.  Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information on this transaction.

Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the chief operating decision maker (“CODM”) in making internal operating decisions. A significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar. Management believes it is important to understand the impact on core net income of translating these currencies into U.S. dollars.  The Company uses constant currency reporting for Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences.  Corning excludes the impact of these currencies from segment sales and net income.  The adjustment for constant currency is primarily related to the Display Technologies’ segment and excludes the impact of the fluctuation of the Japanese yen, South Korean won, Chinese yuan, and new Taiwan dollar.   Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in evaluating the results of, or in allocating resources to, the segments and include the following:  the impact of translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; adjustments relating to acquisitions; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.

Earnings of equity affiliates that are closely associated with the reportable segments are included in the respective segment’s net income (loss). Certain common expenses among reportable segments have been allocated differently than they would be for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies.

Reportable Segments (in millions):

	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Three months ended
September 30, 2021
Segment net sales	$	956		$	1,131		$	556		$	385		$	305		$	306		$	3,639
Depreciation (1)	$	153		$	58		$	42		$	34		$	14		$	38		$	339
Research, development and engineering expenses (2)	$	31		$	57		$	49		$	28		$	9		$	44		$	218
Income tax (provision) benefit (3)	$	(64	)	$	(38	)	$	(28	)	$	(16	)	$	(12	)	$	(1	)	$	(159	)
Segment net income (loss) (4)	$	247		$	139		$	107		$	60		$	45		$	(5	)	$	593

	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Three months ended
September 30, 2020
Segment net sales	$	827		$	909		$	570		$	379		$	223		$	99		$	3,007
Depreciation (1)	$	134		$	59		$	40		$	32		$	12		$	16		$	293
Research, development and engineering expenses (2)	$	22		$	50		$	39		$	24		$	7		$	35		$	177
Income tax (provision) benefit (3)	$	(52	)	$	(32	)	$	(38	)	$	(18	)	$	(8	)	$	12		$	(136	)
Segment net income (loss) (4)	$	196		$	115		$	146		$	69		$	28		$	(50	)	$	504

	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Nine months ended
September 30, 2021
Segment net sales	$	2,758		$	3,143		$	1,490		$	1,233		$	917		$	865		$	10,406
Depreciation (1)	$	450		$	174		$	125		$	105		$	40		$	104		$	998
Research, development and engineering expenses (2)	$	79		$	160		$	143		$	84		$	25		$	114		$	605
Income tax (provision) benefit (3)	$	(184	)	$	(109	)	$	(74	)	$	(57	)	$	(39	)	$	10		$	(453	)
Segment net income (loss) (4)	$	708		$	398		$	279		$	215		$	145		$	(44	)	$	1,701

	Display			Optical			Specialty			Environmental			Life			All
	Technologies			Communications			Materials			Technologies			Sciences			Other			Total
Nine months ended
September 30, 2020
Segment net sales	$	2,331		$	2,587		$	1,339		$	925		$	724		$	218		$	8,124
Depreciation (1)	$	400		$	183		$	120		$	99		$	37		$	43		$	882
Research, development and engineering expenses (2)	$	77		$	157		$	113		$	74		$	20		$	126		$	567
Income tax (provision) benefit (3)	$	(133	)	$	(63	)	$	(76	)	$	(27	)	$	(26	)	$	50		$	(275	)
Segment net income (loss) (4)	$	500		$	225		$	287		$	104		$	97		$	(185	)	$	1,028

(1)	Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.
(2)	Research, development and engineering expenses include direct project spending that is identifiable to a segment.
(3)	Income tax (provision) benefit reflects a tax rate of 21%.
(4)	Many of Corning’s administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal, are allocated to segments, primarily as a percentage of sales. Expenses that are not allocated to the segments are included in the reconciliation of reportable segment net income (loss) to consolidated net income.

A reconciliation of reportable segment and All Other net sales to consolidated net sales follows (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021		2020
Net sales of reportable segments and All Other	$	3,639		$	3,007		$	10,406	$	8,124
Impact of foreign currency movements (1)		(24	)		(6	)				(66	)
Cumulative adjustment related to customer contract (2)										(105	)
Consolidated net sales	$	3,615		$	3,001		$	10,406	$	7,953

(1)	This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.
(2)	Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.

A reconciliation of reportable segment net income (loss) to consolidated net income follows (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Net income of reportable segments	$	598		$	554		$	1,745		$	1,213
Net loss of All Other (1)		(5	)		(50	)		(44	)		(185	)
Unallocated amounts:
Impact of foreign currency movements not included in segment net income (loss)		(33	)					(47	)		(25	)
(Loss) gain on foreign currency hedges related to translated earnings		(13	)		(99	)		262			(6	)
Translation gain (loss) on Japanese yen-denominated debt		4			(39	)		127			(50	)
Litigation, regulatory and other legal matters		(3	)		(83	)		(11	)		(108	)
Research, development, and engineering expenses (2)(3)		(34	)		(35	)		(103	)		(111	)
Transaction-related gain, net (4)					498						498
Equity in earnings (losses) of affiliated companies (5)		10			(79	)		9			20
Amortization of intangibles		(32	)		(33	)		(97	)		(87	)
Interest expense, net		(64	)		(67	)		(205	)		(189	)
Income tax benefit		50			113			51			242
Cumulative adjustment related to customer contract (6)											(105	)
Severance charges (3)		1			(6	)					(141	)
Asset impairment (3)					(22	)					(217	)
Capacity realignment and other charges and credits (3)		(41	)		(143	)		(42	)		(375	)
Gain on sale of a business								54
Other corporate items		(67	)		(82	)		(280	)		(114	)
Net income	$	371		$	427		$	1,419		$	260

⁽¹⁾ The Company obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in “All Other” as of September 9, 2020.

(2)	Amount does not include research, development, and engineering expense related to restructuring, impairment and other charges and credits.
(3)	Refer to Note 2 (Restructuring, Impairment and Other Charges and Credits) to the consolidated financial statements for additional information on restructuring activities and impairment.

⁽⁴⁾ Amount represents the pre-tax gain recorded on Corning's previously held equity investment in HSG. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information.

(5)	Primarily represents the equity earnings of HSG prior to September 9, 2020. Refer to Note 3 (HSG Transactions) to the consolidated financial statements for additional information.
(6)	Amount represents the negative impact of a cumulative adjustment to reduce revenue by $105 million recorded during the first quarter of 2020. The adjustment was associated with a previously recorded commercial benefit asset, reflected as a prepayment, to a customer with a long-term supply agreement that substantially exited its production of LCD panels.