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, 2023

OR

☐ 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)

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, $0.50 par value per share	GLW	New York Stock Exchange (NYSE)

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 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, indicate 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 ☒

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 21, 2023
Corning’s Common Stock, $0.50 par value per share	850,130,495 shares

1

INDEX

PART I – FINANCIAL INFORMATION
	Page
Item 1. Financial Statements
Consolidated Statements of Income	3
Consolidated Statements of Comprehensive Income	4
Consolidated Balance Sheets	5
Consolidated Statements of Cash Flows	6
Consolidated Statements of Changes in Shareholders’ Equity	7
Notes to Consolidated Financial Statements	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	37
Item 4. Controls and Procedures	37
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6. Exhibits	40
Signatures	41

2

Consolidated Statements of Income	Corning Incorporated and Subsidiary Companies
(Unaudited; in millions, except per share amounts)

	Three months ended
	March 31,
	2023			2022
Net sales	$	3,178		$	3,680
Cost of sales		2,175			2,397
Gross margin		1,003			1,283
Operating expenses:
Selling, general and administrative expenses		421			434
Research, development and engineering expenses		254			248
Amortization of purchased intangibles		31			31
Operating income		297			570
Interest income		7			3
Interest expense		(76	)		(71	)
Translated earnings contract (loss) gain, net (Note 10)		(8	)		129
Other income, net		8			152
Income before income taxes		228			783
Provision for income taxes (Note 3)		(37	)		(180	)
Net income		191			603
Net income attributable to non-controlling interest		(15	)		(22	)
Net income attributable to Corning Incorporated	$	176		$	581
Earnings per common share available to common shareholders:
Basic (Note 4)	$	0.21		$	0.69
Diluted (Note 4)	$	0.20		$	0.68

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

‎

3

Consolidated Statements of Comprehensive Income	Corning Incorporated and Subsidiary Companies
(Unaudited; in millions)

	Three months ended
	March 31,
	2023			2022
Net income	$	191		$	603
Foreign currency translation adjustments and other		(84	)		(200	)
Unamortized losses and prior service costs for postretirement benefit plans		(4	)		(1	)
Realized and unrealized gains on derivatives		21			14
Other comprehensive loss, net of tax		(67	)		(187	)
Comprehensive income		124			416
Comprehensive income attributable to non-controlling interest		(15	)		(22	)
Comprehensive income attributable to Corning Incorporated	$	109		$	394

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

4

Consolidated Balance Sheets	Corning Incorporated and Subsidiary Companies
(Unaudited; in millions, except share and per share amounts)

	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	1,146		$	1,671
Trade accounts receivable, net of doubtful accounts - $27 and $40		1,688			1,721
Inventories (Note 5)		2,863			2,904
Other current assets		1,180			1,157
Total current assets		6,877			7,453
Property, plant and equipment, net of accumulated depreciation - $14,239 and $14,147		15,137			15,371
Goodwill, net		2,394			2,394
Other intangible assets, net		1,002			1,029
Deferred income taxes (Note 3)		1,106			1,073
Other assets		2,306			2,179
Total Assets	$	28,822		$	29,499
Liabilities and Equity
Current liabilities:
Current portion of long-term debt and short-term borrowings	$	197		$	224
Accounts payable		1,662			1,804
Other accrued liabilities (Notes 6 and 9)		2,914			3,147
Total current liabilities		4,773			5,175
Long-term debt (Note 7)		6,654			6,687
Postretirement benefits other than pensions (Note 8)		405			407
Other liabilities (Notes 6 and 9)		4,783			4,955
Total liabilities		16,615			17,224
Commitments and contingencies (Note 9)
Shareholders’ equity (Note 12):
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1.8 billion and 1.8 billion		911			910
Additional paid-in capital – common stock		16,746			16,682
Retained earnings		16,713			16,778
Treasury stock, at cost; Shares held: 977 million and 977 million		(20,548	)		(20,532	)
Accumulated other comprehensive loss		(1,897	)		(1,830	)
Total Corning Incorporated shareholders’ equity		11,925			12,008
Non-controlling interest		282			267
Total equity		12,207			12,275
Total Liabilities and Equity	$	28,822		$	29,499

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

5

Consolidated Statements of Cash Flows	Corning Incorporated and Subsidiary Companies
(Unaudited; in millions)

	Three months ended
	March 31,
	2023			2022
Cash Flows from Operating Activities:
Net income	$	191		$	603
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		310			342
Amortization of purchased intangibles		31			31
Gain on sale of business					(53	)
Share-based compensation expense		52			42
Translation gain on Japanese yen-denominated debt		(18	)		(84	)
Deferred tax (benefit) provision		(38	)		24
Translated earnings contract loss (gain)		8			(129	)
Unrealized translation loss on transactions		33			20
Changes in assets and liabilities:
Trade accounts receivable		(28	)		7
Inventories		17			(159	)
Other current assets		(62	)		(81	)
Accounts payable and other current liabilities		(369	)		77
Customer deposits and government incentives		(17	)		(9	)
Deferred income		(6	)		(25	)
Other, net		(153	)		(72	)
Net cash (used in) provided by operating activities		(49	)		534
Cash Flows from Investing Activities:
Capital expenditures		(382	)		(383	)
Proceeds from sale of equipment to related party		67
Proceeds from sale of business					74
Realized gains on translated earnings contracts		81			40
Other, net		6			(9	)
Net cash used in investing activities		(228	)		(278	)
Cash Flows from Financing Activities:
Repayments of short-term borrowings		(69	)		(11	)
Proceeds from other financing arrangements		54
Proceeds from exercise of stock options		16			18
Purchases of common stock for treasury					(149	)
Dividends paid		(239	)		(228	)
Other, net		(10	)		(5	)
Net cash used in financing activities		(248	)		(375	)
Effect of exchange rates on cash					(13	)
Net decrease in cash and cash equivalents		(525	)		(132	)
Cash and cash equivalents at beginning of period		1,671			2,148
Cash and cash equivalents at end of period	$	1,146		$	2,016

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

6

Consolidated Statements of Changes in Shareholders' Equity	Corning Incorporated and Subsidiary Companies
(Unaudited; in millions, except per share amounts)

	Common stock		Additional paid-in capital common		Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total Corning Incorporated shareholders' equity			Non-controlling interest		Total
Balance as of December 31, 2022	$	910	$	16,682	$	16,778		$	(20,532	)	$	(1,830	)	$	12,008		$	267	$	12,275
Net income						176									176			15		191
Other comprehensive loss												(67	)		(67	)				(67	)
Shares issued to benefit plans and for option exercises		1		64											65					65
Common dividends ($0.28 per share)						(241	)								(241	)				(241	)
Other, net (1)									(16	)					(16	)				(16	)
Balance as of March 31, 2023	$	911	$	16,746	$	16,713		$	(20,548	)	$	(1,897	)	$	11,925		$	282	$	12,207

	Common stock		Additional paid-in capital common		Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total Corning Incorporated shareholders' equity			Non-controlling interest		Total
Balance as of December 31, 2021	$	907	$	16,475	$	16,389		$	(20,263	)	$	(1,175	)	$	12,333		$	212	$	12,545
Net income						581									581			22		603
Other comprehensive loss												(187	)		(187	)				(187	)
Purchase of common stock for treasury									(151	)					(151	)				(151	)
Shares issued to benefit plans and for option exercises		1		56											57					57
Common dividends ($0.27 per share)						(233	)								(233	)				(233	)
Other, net (1)									(5	)					(5	)				(5	)
Balance as of March 31, 2022	$	908	$	16,531	$	16,737		$	(20,419	)	$	(1,362	)	$	12,395		$	234	$	12,629

(1) Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations.

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

7

CORNING INCORPORATED AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

The consolidated financial statements include the consolidated accounts of Corning Incorporated and its subsidiaries consolidated in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the periods presented. All intercompany accounts, transactions and profits have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The results of operations for the interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements and related notes. Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. 

The non-controlling interest as recorded in the consolidated financial statements represents amounts attributable to the minority shareholders of Hemlock Semiconductor Group (“Hemlock”) and other less-than-wholly-owned consolidated subsidiaries.

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

2. Revenue

Disaggregated Revenue

The following table presents revenues by product category (in millions):

	Three months ended
	March 31,
	2023		2022
Telecommunication products	$	1,125	$	1,198
Display products		609		906
Specialty glass products		404		493
Environmental substrate and filter products		407		401
Life science products		247		307
Polycrystalline silicon products		277		282
All other products		109		93
Total revenue	$	3,178	$	3,680

8

 

Customer Deposits

As of March 31, 2023 and December 31, 2022, Corning had customer deposits of approximately $1.2 billion and $1.3 billion, respectively.  Most of these customer deposits were non-refundable and allowed customers to secure rights to products produced by Corning under long-term supply agreements.  The duration of these long-term supply agreements ranges up to 10 years.  As products are delivered to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability.

For the three months ended March 31, 2023 and 2022, customer deposits recognized were $70 million and $83 million, respectively.

Refer to Note 6 (Other Liabilities) for additional information. 

Deferred Revenue

As of March 31, 2023 and December 31, 2022, Corning had deferred revenue of approximately $863 million and $869 million, respectively.  Deferred revenue was primarily related to the performance obligations of non-refundable consideration previously received by Hemlock from its customers under long-term supply agreements.  

Deferred revenue is tracked on a per-customer contract-unit basis. As customers take delivery of the committed volumes under the terms of the contract, a per-unit amount of deferred revenue is recognized when control of the promised goods is transferred to the customer based upon the units delivered compared to the remaining contractual units.  For the three months ended  March 31, 2023 and 2022, the amount of deferred revenue recognized in the consolidated statements of income was not material.

Refer to Note 6 (Other Liabilities) for additional information.  

3. Income Taxes

The following table presents the provision for income taxes and the related effective tax rate (in millions, except percentages):

	Three months ended
	March 31,
	2023			2022
Provision for income taxes	$	(37	)	$	(180	)
Effective tax rate		16.2	%		23.0	%

For the three months ended March 31, 2023, the effective tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to differences arising from foreign earnings and a net benefit due to foreign derived intangible income.  For the three months ended March 31, 2022, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to changes in tax reserves and the impact of changes in tax legislation, partially offset by differences arising from foreign earnings.

Corning Precision Materials, a South Korean subsidiary, is currently appealing certain tax assessments and tax refund claims for tax years 2010 through 2019. The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessments. Corning believes that it is more likely than not the Company will prevail in the appeals process. The non-current receivable balance was $358 million and $349 million as of March 31, 2023 and December 31, 2022, respectively, for the amount on deposit with the South Korean government.

9

 

4. Earnings Per Common Share

The following table presents the reconciliation of the amounts used to compute basic and diluted earnings per common share (in millions, except per share amounts):

	Three months ended
	March 31,
	2023		2022
Net income attributable to Corning Incorporated	$	176	$	581
Weighted-average common shares outstanding – basic		844		843
Effect of dilutive securities:
Stock options and other dilutive securities		15		16
Weighted-average common shares outstanding – diluted		859		859
Basic earnings per common share	$	0.21	$	0.69
Diluted earnings per common share	$	0.20	$	0.68
Anti-dilutive potential shares excluded from diluted earnings per common share:
Employee stock options and awards		5

5. Inventories

Inventories consisted of the following (in millions):

	March 31,		December 31,
	2023		2022
Finished goods	$	1,272	$	1,315
Work in process		607		571
Raw materials and accessories		518		537
Supplies and packing materials		466		481
Inventories	$	2,863	$	2,904

10

 

6. Other Liabilities

Other liabilities consisted of the following (in millions):

	March 31,		December 31,
	2023		2022
Current liabilities:
Wages and employee benefits	$	447	$	727
Income taxes		157		127
Derivative instruments (Note 10)		144		174
Deferred revenue (Note 2)		170		144
Customer deposits (Note 2)		165		132
Share repurchase liability (Note 12)		507		506
Short-term operating leases		100		111
Other current liabilities		1,224		1,226
Other accrued liabilities	$	2,914	$	3,147
Non-current liabilities:
Defined benefit pension plan liabilities	$	680	$	668
Derivative instruments (Note 10)		43		17
Deferred revenue (Note 2)		693		725
Customer deposits (Note 2)		1,038		1,137
Deferred tax liabilities		219		243
Long-term operating leases		846		795
Other non-current liabilities		1,264		1,370
Other liabilities	$	4,783	$	4,955

7. Debt

Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $6.4 billion and $6.1 billion as of March 31, 2023 and December 31, 2022, respectively, compared to the carrying value of $6.7 billion as of March 31, 2023 and December 31, 2022. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.

Corning had no outstanding commercial paper as of March 31, 2023 and December 31, 2022.

11

 

8. Employee Retirement Plans

Corning has defined benefit pension plans covering certain domestic and international employees. The Company may contribute, as necessary, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During 2023, the Company plans to make cash contributions of $28 million to international pension plans.

The following table presents the components of net periodic benefit expense for employee retirement plans, which other than the service cost component is recorded in other income, net in the consolidated statements of income (in millions):

	Pension benefits						Postretirement benefits
	Three months ended						Three months ended
	March 31,						March 31,
	2023			2022			2023			2022
Service cost	$	23		$	32		$	1		$	2
Interest cost		45			27			6			4
Expected return on plan assets		(46	)		(55	)
Amortization of actuarial net gain								(5	)
Amortization of prior service cost (credit)		2			1			(1	)		(1	)
Total pension and postretirement benefit expense	$	24		$	5		$	1		$	5

9. Commitments and Contingencies 

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.

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. Following the realignment, Corning no longer owned any interest in Dow Corning. With the realignment, Corning agreed to indemnify Dow 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, subject to certain conditions and limits.  Corning does not believe that its indemnity obligation will be material.

Dow Corning Environmental Claims

In September 2019, Dow formally notified Corning of certain environmental matters for which Dow asserts that it has, or will, experience losses arising from remediation and response at a number of sites.  In the event Dow is liable for these claims, Corning may be required to indemnify Dow for up to 50% of that liability, subject to certain conditions and limits.  As of March 31, 2023, Corning has determined a potential liability for these environmental matters is probable and the amount reserved was not material.

Environmental Litigation

Corning has been designated by federal or state governments under environmental laws, including Superfund, as a potentially responsible party that may be liable for cleanup costs associated with 19 hazardous waste sites.  It is Corning’s policy to accrue for its estimated liability related to such hazardous waste sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants.  As of  March 31, 2023 and December 31, 2022, Corning had accrued approximately $101 million and $109 million, respectively, for the estimated undiscounted 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.

12

 

10. Hedging Activities

Designated Hedges

Corning uses over-the-counter (“OTC”) foreign exchange forward contracts designated as cash flow hedges 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 $365 million and $419 million at March 31, 2023 and December 31, 2022, respectively, with maturities through 2024. Corning defers gains and losses related to cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. At March 31, 2023, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $29 million.

Corning has entered into leases of precious metals, with maturities through 2025. To offset the risk of changes in the fair value of the Company’s separate accounting pool of leased precious metals due to adverse changes in the respective market prices, Corning designated the bifurcated embedded derivatives included in these leases as fair value hedges. The gain or loss on the derivatives, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings. The amounts representing the time value component of the derivatives are excluded from the assessment of effectiveness and amortized in earnings. The impact of the excluded component on Corning’s other comprehensive income and earnings is not material. The carrying amount of the leased precious metals pool, which is included within property, plant and equipment, net of accumulated depreciation in the consolidated balance sheets, is $185 million and $278 million, respectively, as of March 31, 2023 and December 31, 2022. The carrying amount of the leased precious metals pool includes cumulative fair value losses of $188 million and $95 million as of March 31, 2023 and December 31, 2022, respectively.

Undesignated Hedges

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

A significant portion of the Company’s non-U.S. revenue and expenses are denominated in Japanese yen, South Korean won, new Taiwan dollar, Chinese yuan and euro. When this revenue and these expenses are translated to U.S. dollars, the Company is exposed to foreign exchange rate movements. To protect translated earnings against movements in these currencies, the Company has entered into a series of average rate forwards and option contracts. Most of these contracts hedge a significant portion of the Company’s exposure to the Japanese yen, with maturities through 2024, and South Korean won, with maturities through 2026.

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis as of  March 31, 2023 and December 31, 2022 (in millions):

					Asset derivatives					Liability derivatives
	Notional amount				Balance	Fair value				Balance	Fair value
	March		December		sheet	March		December		sheet	March			December
	31, 2023		31, 2022		location	31, 2023		31, 2022		location	31, 2023			31, 2022
Derivatives designated as hedging instruments (1)
Foreign exchange and precious metals lease contracts (1)	$	365	$	419	Other current assets	$	75	$	26	Other accrued liabilities				$	(1	)
					Other assets		146		78
Derivatives not designated as hedging instruments
Foreign exchange contracts		2,924		2,231	Other current assets		22		44	Other accrued liabilities	$	(18	)		(49	)
Translated earnings contracts		6,770		7,543	Other current assets		354		384	Other accrued liabilities		(126	)		(124	)
					Other assets		114		146	Other liabilities		(43	)		(17	)
Total derivatives	$	10,059	$	10,193		$	711	$	678		$	(187	)	$	(191	)

⁽¹⁾ As of  March 31, 2023, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $365 million and fair value hedges of leased precious metals with gross notional amounts of 23,152 troy ounces.  As of  December 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $419 million and fair value hedges of leased precious metals with gross notional amounts of 23,152 troy ounces. 

13

 

The following table summarizes the total gross notional value for translated earnings contracts as of  March 31, 2023 and December 31, 2022 (in billions):

	March 31,		December 31,
	2023		2022
Average rate forward contracts:
Japanese yen-denominated	$	0.2	$	0.1
South Korean won-denominated		2.0		2.1
Other foreign currencies (1)		0.8		0.7
Option contracts:
Japanese yen-denominated (2)		3.8		4.6
Total gross notional value for translated earning contracts	$	6.8	$	7.5

(1)	Denominational currencies for other average rate forward contracts include the Chinese yuan, New Taiwan dollar, euro and British pound.
(2)	Japanese yen-denominated option contracts include purchased put and call options, knock-out options, and zero-cost collars. 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.

The fair values of these derivative contracts are recorded as either assets (gain position) or liabilities (loss position) on the consolidated balance sheets. Changes in the fair value of the derivative contracts are recorded currently in earnings within translated earnings contract (loss) gain, net in the consolidated statements of income.

The following tables summarize the effect in the consolidated statements of income relating to Corning’s derivative financial instruments (in millions).  The accumulated derivative gain included in accumulated other comprehensive loss on the consolidated balance sheets as of March 31, 2023 and December 31, 2022 is $44 million and $19 million, respectively.

	Three months ended March 31,
					Location of gain (loss)
	Gain recognized				reclassified from	Gain (loss) reclassified
Derivative hedging	in other comprehensive				accumulated	from accumulated
relationships for cash	income (OCI)				OCI into income	OCI into income
flow and fair value hedges	2023		2022		effective (ineffective)	2023			2022
					Net sales				$	10
					Cost of sales	$	7			7
Foreign exchange and precious metals lease contracts	$	32	$	34	Other income, net		(1	)		(1	)
Total cash flow and fair value hedges	$	32	$	34		$	6		$	16

		Gain (loss) recognized in income
		Three months ended
	Location of gain (loss)	March 31,
Undesignated derivatives	recognized in income	2023			2022
Foreign exchange contracts	Other income, net	$	13		$	26
Translated earnings contracts	Translated earnings contract (loss) gain, net		(8	)		129
Total undesignated		$	5		$	155

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11. Fair Value Measurements

The following table provides fair value measurement information for the Company’s major categories of financial assets and liabilities measured on a recurring basis (in millions):

	March 31, 2023								December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Current assets:
Other current assets (1)	$	503	$	2	$	451	$	50	$	505	$	2	$	454	$	49
Non-current assets:
Other assets (1)	$	266	$	6	$	260			$	225			$	224	$	1
Current liabilities:
Other accrued liabilities (1)	$	144			$	144			$	174			$	174
Non-current liabilities:
Other liabilities (1)	$	60			$	60			$	34			$	34

⁽¹⁾ Derivative assets and liabilities include foreign exchange and precious metals lease contracts which were measured using observable inputs for similar assets and liabilities.

There were no significant financial assets and liabilities measured on a non-recurring basis as of March 31, 2023 and December 31, 2022.

12. Shareholders’ Equity

Fixed Rate Cumulative Convertible Preferred Stock, Series A

We had 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A (the “Preferred Stock”) as of December 31, 2020. On January 16, 2021, the Preferred Stock became convertible into 115 million common shares. On April 5, 2021, we executed the Share Repurchase Agreement (“SRA”) with Samsung Display Co., Ltd. (“SDC”) and the Preferred Stock was fully converted as of April 8, 2021. Immediately following the conversion, we repurchased and retired 35 million of the common shares held by SDC for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid in April 2022 and 2021. The remaining payment of approximately $507 million was made in April 2023.

Share Repurchase Program

In 2019, the Board authorized the repurchase of up to $5.0 billion of additional common stock upon the completion of the 2018 repurchase plan (“2019 Authorization”).

During the three months ended  March 31, 2022 the Company repurchased 3.9 million shares of common stock on the open market for approximately $151 million as part of its 2019 Authorization. No shares were purchased on the open market during the three months ended March 31, 2023.

As of March 31, 2023, approximately $3.3 billion remains available under the Company's 2019 Authorization.

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Accumulated Other Comprehensive Loss

For the three months ended March 31, 2023 and 2022, the change in accumulated other comprehensive loss was primarily related to the foreign currency translation adjustment.

The following table presents the changes in the foreign currency translation adjustment component of accumulated other comprehensive loss, including the proportionate share of equity method affiliates' accumulated other comprehensive loss (in millions) ⁽¹⁾:

	Three months ended
	March 31,
	2023			2022
Beginning balance	$	(1,712	)	$	(933	)
Loss on foreign currency translation (2)		(83	)		(198	)
Equity method affiliates (3)		(1	)		(2	)
Net current-period other comprehensive loss		(84	)		(200	)
Ending balance	$	(1,796	)	$	(1,133	)

⁽¹⁾ All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss.

⁽²⁾ For the three months ended March 31, 2023 and 2022, amounts are net of tax benefit of $16 million and $11 million, respectively.  

⁽³⁾ Tax effects are not significant.

13. Share-Based Compensation

For the three months ended March 31, 2023 and 2022, share-based compensation cost was $52 million and $42 million, respectively.  

Incentive Stock Plans

Time-Based Restricted Stock and Restricted Stock Units

The following table summarizes the changes in non-vested time-based restricted stock and restricted stock units for the  three months ended March 31, 2023:

				Weighted
	Number			average
	of shares			grant-date
	(in thousands)			fair value
Non-vested shares and share units at December 31, 2022		11,299		$	29.19
Granted		5,772			35.14
Vested		(218	)		30.33
Forfeited		(66	)		29.92
Non-vested shares and share units at March 31, 2023		16,787		$	31.22

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Performance-Based Restricted Stock Units

The following table summarizes the changes in non-vested performance-based restricted stock units for the three months ended March 31, 2023:

				Weighted
	Number			average
	of shares			grant-date
	(in thousands)			fair value
Non-vested share units at December 31, 2022		4,696		$	35.41
Granted		1,110			35.14
Vested		(719	)		33.88
Performance adjustments		107			40.95
Forfeited		(24	)		35.23
Non-vested share units at March 31, 2023		5,170		$	35.68

Stock Options

The following table summarizes information concerning stock options as of  March 31, 2023 and the related activity for the three months ended March 31, 2023:

						Weighted-
						average
				Weighted-		remaining		Aggregate
	Number			average		contractual		intrinsic
	of shares			exercise		term		value
	(in thousands)			price		(in years)		(in thousands)
Options outstanding as of December 31, 2022		9,665		$	22.92
Exercised		(833	)		19.68
Forfeited and expired		(32	)		19.65
Options outstanding as of March 31, 2023		8,800			23.24		5.72	$	105,985
Options expected to vest as of March 31, 2023		8,794			23.24		5.72		105,910
Options exercisable as of March 31, 2023		7,079			24.11		5.37		79,091

There were no stock options granted during the three months ended March 31, 2023 or 2022. 

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14. Reportable Segments

The Company has determined that it has five reportable segments for financial reporting purposes, as follows:

● Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry; the carrier network group consists primarily of products and solutions for optical-based communications infrastructure for services such as video, data and voice communications, and the enterprise network group consists primarily of optical-based communication networks sold to businesses, governments and individuals for their own use.

● Display Technologies – manufactures high quality glass substrates for flat panel displays, including liquid crystal displays and organic light-emitting diodes that are used primarily in televisions, notebook computers, desktop monitors, tablets and handheld devices.

● Specialty Materials – manufactures products that provide material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs across a wide variety of commercial and industrial markets, including materials optimized for mobile consumer electronics, semiconductor equipment optics and consumables, aerospace and defense optics, radiation shielding products, sunglasses and telecommunications components.

● Environmental Technologies – manufactures ceramic substrates and filter products for emissions control systems in mobile applications.

● Life Sciences – develops, manufactures, and supplies laboratory products, including 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 Hemlock and Emerging Growth Businesses.  The net sales for this group are primarily attributable to Hemlock, which is an operating segment that produces solar and semiconductor products.  The emerging growth businesses primarily consist of Pharmaceutical Technologies, Auto Glass Solutions and the Emerging Innovations Group.  

Financial results for the reportable segments and Hemlock and Emerging Growth Businesses 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. As 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 segment net sales and segment net income of translating these currencies into U.S. dollars.  Therefore, the Company utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments to exclude the impact on segment sales and segment net income (loss) from the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and euro, as applicable to the segment.  The most significant constant-currency adjustment relates to the Japanese yen exposure within the Display Technologies segment.  Management utilizes constant-currency reporting based on internally-derived rates, as detailed below, which are closely aligned with the currencies we have hedged. 

The Company believes that the use of constant-currency reporting allows management to understand segment results without the volatility of currency fluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts.  Further, it reflects the underlying economics of the translated earnings contracts used to mitigate the impact of changes in currency exchange rates on our earnings and cash flows.

Constant-currency rates are as follows and are applied to all periods presented:

Currency	Japanese yen	Korean won	Chinese yuan	New Taiwan dollar	Euro
Rate	¥107	₩1,175	¥6.7	NT$31	€.81

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In addition, certain income and expenses are excluded from segment net income (loss) and included in the unallocated amounts in the reconciliation of reportable segment net income to consolidated net income. These items are not used by the CODM in allocating resources or evaluating the results of the segments and include the following: the impact of translating the Japanese yen-denominated debt; the impact of the translated earnings contracts; acquisition-related costs; certain discrete tax items and other tax-related adjustments; restructuring, impairment and other charges and credits; certain litigation, regulatory and other legal matters; pension mark-to-market adjustments; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.

Corning’s administrative and staff functions are performed on a centralized basis and such costs and expenses are allocated among the segments differently than they would be for stand-alone financial reporting purposes. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. Expenses that are not allocated to the segments are included in the reconciliation of reportable segment net income to consolidated net income. Segment net income (loss) may not be consistent with measures used by other companies.

Segment Information (in millions):

																Hemlock
																and
																Emerging
	Optical			Display			Specialty			Environmental			Life			Growth
	Communications			Technologies			Materials			Technologies			Sciences			Businesses			Total
Three months ended March 31, 2023
Segment net sales	$	1,125		$	763		$	406		$	431		$	256		$	386		$	3,367
Depreciation (1)	$	66		$	123		$	35		$	33		$	17		$	33		$	307
Research, development and engineering expenses (2)	$	60		$	23		$	53		$	24		$	10		$	39		$	209
Income tax provision (3)	$	(43	)	$	(42	)	$	(10	)	$	(22	)	$	(2	)	$	(9	)	$	(128	)
Segment net income	$	159		$	160		$	39		$	82		$	9		$	16		$	465

																Hemlock
																and
																Emerging
	Optical			Display			Specialty			Environmental			Life			Growth
	Communications			Technologies			Materials			Technologies			Sciences			Businesses			Total
Three months ended March 31, 2022
Segment net sales	$	1,198		$	959		$	493		$	409		$	310		$	375		$	3,744
Depreciation (1)	$	59		$	156		$	40		$	33		$	14		$	38		$	340
Research, development and engineering expenses (2)	$	55		$	31		$	53		$	25		$	9		$	40		$	213
Income tax provision (3)	$	(45	)	$	(63	)	$	(20	)	$	(20	)	$	(11	)	$	(1	)	$	(160	)
Segment net income (loss)	$	166		$	236		$	75		$	74		$	42		$	(8	)	$	585

(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 reflects a tax rate of 21%.

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The following table presents a reconciliation of net sales of reportable segments to consolidated net sales (in millions):

	Three months ended
	March 31,
	2023			2022
Net sales of reportable segments	$	2,981		$	3,369
Net sales of Hemlock and Emerging Growth Businesses		386			375
Impact of constant currency reporting (1)		(189	)		(64	)
Consolidated net sales	$	3,178		$	3,680

⁽¹⁾ This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.

The following table presents a reconciliation of net income of reportable segments to consolidated net income (in millions):

	Three months ended
	March 31,
	2023			2022
Net income of reportable segments	$	449		$	593
Net income (loss) of Hemlock and Emerging Growth Businesses		16			(8	)
Unallocated amounts:
Impact of constant currency reporting		(149	)		(63	)
(Loss) gain on foreign currency hedges related to translated earnings		(8	)		129
Translation gain on Japanese yen-denominated debt		18			84
Research, development, and engineering expenses		(45	)		(35	)
Amortization of intangibles		(31	)		(31	)
Interest expense, net		(56	)		(61	)
Income tax benefit (provision)		91			(20	)
Restructuring, impairment and other charges and credits		(66	)		(33	)
Gain on sale of business					53
Other corporate items		(43	)		(27	)
Net income attributable to Corning Incorporated	$	176		$	581

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

Corning Incorporated and its consolidated subsidiaries are hereinafter sometimes referred to as the “Company,” the “Registrant,” “Corning,” “we,” “our,” or “us.”

This report contains forward-looking statements that involve a number of risks and uncertainties. These statements relate to plans, objectives, expectations and estimates and may contain words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” or similar expressions. Actual results could differ materially from what is expressed or forecasted in forward-looking statements. Some of the factors that could contribute to these differences include those discussed under “Forward-Looking Statements,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report.

ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) was prepared to provide a historical and prospective narrative on our financial condition and results of operations through the eyes of management and should be read in conjunction with our MD&A of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”).

Our MD&A is organized as follows:

● Overview

● Results of Operations

● Segment Analysis

● Core Performance Measures

● Liquidity and Capital Resources

● Environment

● Critical Accounting Estimates

● Forward-Looking Statements

OVERVIEW

Corning Incorporated is central to the advancement of the industries we serve and secular trends touching many facets of daily life. It all starts with our focused and cohesive portfolio. We maintain clear leadership in three core technologies and four proprietary manufacturing and engineering platforms. We apply new combinations of our assets and capabilities to solve a broad range of significant challenges and shape new industries in tandem with our customers. By reapplying and repurposing our insights and assets across multiple opportunities and markets, we increase our profitably. Importantly, as we partner closely with our customers to realize their visions and help solve their toughest technology challenges, we unlock new ways to integrate more of our content into their ecosystems. This “More Corning” approach provides a powerful value-creation lever. We’re not just relying on people buying more stuff; we’re driving more Corning content into the products they’re already buying.

Our accomplishments over the past several years illustrate the efficacy of our approach. Despite the challenging external environment, we have advanced fiber-to-the-home and data center solutions in Optical Communications, delivered on our gasoline particulate filter content opportunity in Environmental Technologies, introduced Ceramic Shield with Apple in Specialty Materials and ramped our Gen 10.5 plants to extend our leadership in Display Technologies. In addition, we made major progress on our emerging innovations; we gained significant traction in our Automotive Glass Solutions business; and our pharmaceutical packaging portfolio played a central role in combatting the global pandemic. These achievements have helped extend our leadership positions across our markets and pave the way for future growth.

At the same time, profitability and cash flow have lagged sales growth. Since 2020, the external environment has been characterized by the impact of the pandemic and its resulting effects including supply chain disruptions, large swings in consumer spending and inflation. Our core priorities throughout this period were protecting our people and delivering for our customers, and as a result, we operated with elevated staffing and higher-than-normal inventory levels during this period leading to reduced productivity. In addition, persistent inflation added to the cost of raw materials we purchased, the cost to produce and ship our products and the inventory we maintained.

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In response, we took a series of actions to improve profitability and cash generation throughout 2022 and into 2023. We took multiple additional actions, including raising prices across our businesses to more appropriately share inflationary costs with our customers; adjusting our productivity ratios closer to historical metrics without impacting our ability to supply and capture future growth; and normalizing inventory levels. We expect these actions to improve profitability and cash flow throughout 2023, and they began delivering notable results in the first quarter.

Overall, we will continue to focus on operating each of our businesses well and adjusting to meet the needs of the moment while simultaneously advancing growth initiatives and capabilities that will drive continued success as the global economy stabilizes. Our focused and cohesive portfolio provides strategic resilience that is evident in our results, even in the current environment. We remain confident in our relevance to long-term secular trends and our “More Corning” approach, and we are well positioned to capture durable, profitable growth as the global economy improves.

Summary of results for the three months ended March 31, 2023

For the three months ended March 31, 2023, net sales were $3,178 million, compared to $3,680 million for the three months ended March 31, 2022, a net decrease of $502 million, or 14%, primarily driven by decreased sales in Display Technologies of $196 million, Specialty Materials of $87 million, Optical Communications of $73 million and Life Sciences of $54 million. In addition, movements in foreign exchange rates adversely impacted Corning’s consolidated net sales by $116 million for the three months ended March 31, 2023, when compared to the same period in 2022.

For the three months ended March 31, 2023, Corning generated net income attributable to Corning Incorporated of $176 million compared to $581 million for the three months ended March 31, 2022. The decrease of $405 million was primarily driven by a decrease in segment net income in Display Technologies of $76 million, Specialty Materials of $36 million, and Life Sciences of $33 million, a $105 million decrease in translated earnings contract gains and a $50 million decrease of translation gains on our Japanese yen-denominated debt. In addition, movements in foreign exchange rates adversely impacted the results by $32 million for the three months ended March 31, 2023, when compared to the same period in 2022. As a result of the decrease in net income attributable to Corning Incorporated, diluted earnings per share for the three months ended March 31, 2023 was $0.20 per diluted share compared to $0.68 per diluted share for the three months ended March 31, 2022.

2023 Corporate Outlook

We expect core net sales of approximately $3.4 billion to $3.6 billion for the second quarter of 2023.  

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RESULTS OF OPERATIONS

The following table presents selected highlights from our operations (in millions):

	Three months ended						%
	March 31,						change
	2023			2022			23 vs. 22
Net sales	$	3,178		$	3,680			(14	%)
Gross margin	$	1,003		$	1,283			(22	%)
(gross margin %)		32	%		35	%
Selling, general and administrative expenses	$	421		$	434			(3	%)
(as a % of net sales)		13	%		12	%
Research, development and engineering expenses	$	254		$	248			2	%
(as a % of net sales)		8	%		7	%