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 September 30, 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
3.875% Notes due 2026	GLW26	New York Stock Exchange
4.125% Notes due 2031	GLW31	New York Stock Exchange

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.        ☐

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 October 26, 2023
Corning’s Common Stock, $0.50 par value per share	853,174,879 shares

1

INDEX

PART I – FINANCIAL INFORMATION
	Page
Item 1. Financial Statements
Consolidated Statements of Income	3
Consolidated Statements of Comprehensive (Loss) 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	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	39
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	40
Item 1A. Risk Factors	40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 5. Other Information	41
Item 6. Exhibits	42
Signatures	43

2

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
Net sales	$	3,173		$	3,488		$	9,594		$	10,783
Cost of sales		2,169			2,426			6,574			7,192
Gross margin		1,004			1,062			3,020			3,591
Operating expenses:
Selling, general and administrative expenses		468			461			1,329			1,381
Research, development and engineering expenses		270			278			787			766
Amortization of purchased intangibles		30			31			92			92
Operating income		236			292			812			1,352
Interest income		10			3			25			9
Interest expense		(82	)		(73	)		(239	)		(216	)
Translated earnings contract gain (loss), net (Note 10)		20			(68	)		128			257
Other income, net		33			106			128			391
Income before income taxes		217			260			854			1,793
Provision for income taxes (Note 3)		(35	)		(34	)		(178	)		(380	)
Net income		182			226			676			1,413
Net income attributable to non-controlling interest		(18	)		(18	)		(55	)		(61	)
Net income attributable to Corning Incorporated	$	164		$	208		$	621		$	1,352
Earnings per common share available to common shareholders:
Basic (Note 4)	$	0.19		$	0.25		$	0.73		$	1.60
Diluted (Note 4)	$	0.19		$	0.24		$	0.72		$	1.58

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

‎

3

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
Net income	$	182		$	226		$	676		$	1,413
Foreign currency translation adjustments and other		(191	)		(685	)		(593	)		(1,535	)
Unamortized (losses) gains and prior service costs for postretirement benefit plans		(1	)		3			(9	)		(49	)
Realized and unrealized (losses) gains on derivatives		(11	)		(15	)		30			(32	)
Other comprehensive loss, net of tax		(203	)		(697	)		(572	)		(1,616	)
Comprehensive (loss) income		(21	)		(471	)		104			(203	)
Comprehensive income attributable to non-controlling interest		(18	)		(18	)		(55	)		(61	)
Comprehensive (loss) income attributable to Corning Incorporated	$	(39	)	$	(489	)	$	49		$	(264	)

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)

	September 30,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	1,639		$	1,671
Trade accounts receivable, net of doubtful accounts - $30 and $40		1,725			1,721
Inventories (Note 5)		2,655			2,904
Other current assets		1,279			1,157
Total current assets		7,298			7,453
Property, plant and equipment, net of accumulated depreciation - $14,257 and $14,147		14,407			15,371
Goodwill, net		2,372			2,394
Other intangible assets, net		938			1,029
Deferred income taxes (Note 3)		1,037			1,073
Other assets		2,226			2,179
Total Assets	$	28,278		$	29,499
Liabilities and Equity
Current liabilities:
Current portion of long-term debt and short-term borrowings	$	297		$	224
Accounts payable		1,459			1,804
Other accrued liabilities (Notes 6 and 9)		2,529			3,147
Total current liabilities		4,285			5,175
Long-term debt (Note 7)		7,210			6,687
Postretirement benefits other than pensions (Note 8)		406			407
Other liabilities (Notes 6 and 9)		4,633			4,955
Total liabilities		16,534			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		915			910
Additional paid-in capital – common stock		16,877			16,682
Retained earnings		16,673			16,778
Treasury stock, at cost; Shares held: 980 million and 977 million		(20,633	)		(20,532	)
Accumulated other comprehensive loss		(2,402	)		(1,830	)
Total Corning Incorporated shareholders’ equity		11,430			12,008
Non-controlling interest		314			267
Total equity		11,744			12,275
Total Liabilities and Equity	$	28,278		$	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)

	Nine months ended
	September 30,
	2023			2022
Cash Flows from Operating Activities:
Net income	$	676		$	1,413
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		932			1,014
Amortization of purchased intangibles		92			92
Loss on disposal of assets, net		72			110
Severance charges		86			8
Severance payments		(82	)		(5	)
Gain on sale of business					(53	)
Share-based compensation expense		168			145
Translation gain on Japanese yen-denominated debt		(162	)		(321	)
Deferred tax provision		37			58
Translated earnings contract gain, net		(128	)		(257	)
Unrealized translation loss on transactions		58			140
Tax deposit refund		99
Changes in assets and liabilities:
Trade accounts receivable		(137	)		161
Inventories		131			(637	)
Other current assets		(58	)		(5	)
Accounts payable and other current liabilities		(263	)		25
Customer deposits and government incentives		(17	)		144
Deferred income		(11	)		(15	)
Other, net		(201	)		(19	)
Net cash provided by operating activities		1,292			1,998
Cash Flows from Investing Activities:
Capital expenditures		(1,111	)		(1,201	)
Proceeds from sale of equipment to related party		67
Proceeds from sale of business					77
Realized gains on translated earnings contracts and other		270			209
Other, net		4			(54	)
Net cash used in investing activities		(770	)		(969	)
Cash Flows from Financing Activities:
Repayments of short-term borrowings and other long-term debt		(180	)		(87	)
Proceeds from issuance of short-term borrowings		30			70
Proceeds from issuance of euro bonds and other long-term debt		968			37
Proceeds from other financing arrangements		54
Repayment of other financing arrangements		(54	)
Payment for redemption of preferred stock		(507	)		(507	)
Payments of employee withholding tax on stock awards		(103	)		(44	)
Proceeds from exercise of stock options		39			35
Purchases of common stock for treasury					(221	)
Dividends paid		(741	)		(696	)
Other, net		(26	)		(17	)
Net cash used in financing activities		(520	)		(1,430	)
Effect of exchange rates on cash		(34	)		(117	)
Net decrease in cash and cash equivalents		(32	)		(518	)
Cash and cash equivalents at beginning of period		1,671			2,148
Cash and cash equivalents at end of period	$	1,639		$	1,630

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
Net income						281									281			22			303
Other comprehensive loss												(302	)		(302	)		(1	)		(303	)
Shares issued to benefit plans and for option exercises		4		71											75						75
Common dividends ($0.56 per share)						(485	)								(485	)					(485	)
Other, net (1)									(82	)					(82	)		(5	)		(87	)
Balance as of June 30, 2023	$	915	$	16,817	$	16,509		$	(20,630	)	$	(2,199	)	$	11,412		$	298		$	11,710
Net income						164									164			18			182
Other comprehensive loss												(203	)		(203	)		(1	)		(204	)
Shares issued to benefit plans and for option exercises				60											60						60
Other, net (1)									(3	)					(3	)		(1	)		(4	)
Balance, September 30, 2023	$	915	$	16,877	$	16,673		$	(20,633	)	$	(2,402	)	$	11,430		$	314		$	11,744

	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
Net income						563									563			21			584
Other comprehensive loss												(732	)		(732	)		(2	)		(734	)
Purchase of common stock for treasury									(53	)					(53	)					(53	)
Shares issued to benefit plans and for option exercises		2		59											61						61
Common dividends ($0.54 per share)						(463	)								(463	)					(463	)
Other, net (1)									(37	)					(37	)		(5	)		(42	)
Balance as of June 30, 2022	$	910	$	16,590	$	16,837		$	(20,509	)	$	(2,094	)	$	11,734		$	248		$	11,982
Net income						208									208			18			226
Other comprehensive loss												(697	)		(697	)		(2	)		(699	)
Purchase of common stock for treasury									(17	)					(17	)					(17	)
Shares issued to benefit plans and for option exercises				59											59						59
Other, net (1)						(1	)		(2	)					(3	)					(3	)
Balance, September 30, 2022	$	910	$	16,649	$	17,044		$	(20,528	)	$	(2,791	)	$	11,284		$	264		$	11,548

(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				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Telecommunication products	$	918	$	1,317	$	3,109	$	3,828
Display products		727		558		2,061		2,223
Specialty glass products		560		516		1,384		1,494
Environmental substrate and filter products		420		393		1,260		1,130
Life science products		221		297		690		908
Polycrystalline silicon products		230		288		765		877
All other products		97		119		325		323
Total revenue	$	3,173	$	3,488	$	9,594	$	10,783

8

 

Customer Deposits

As of September 30, 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  September 30, 2023 and 2022, customer deposits recognized were $6 million and $24 million, respectively.  For the nine months ended September 30, 2023 and 2022, customer deposits recognized were $88 million and $155 million, respectively.

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

Deferred Revenue

As of September 30, 2023 and December 31, 2022, Corning had deferred revenue of approximately $854 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 and nine months ended  September 30, 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						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
Provision for income taxes	$	(35	)	$	(34	)	$	(178	)	$	(380	)
Effective tax rate		16.1	%		13.1	%		20.8	%		21.2	%

For the three months ended  September 30, 2023, the effective tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to differences arising from foreign earnings partially offset by changes in estimates based on the final 2022 U.S. Federal Income Tax Return.  For the nine months ended September 30, 2023, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings, changes in estimates based on the final 2022 U.S. Federal Income Tax Return and adjustments related to share-based compensation, partially offset by changes in valuation allowance assessments.

For the three months ended September 30, 2022, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to the net impact of changes in tax legislation and changes in estimates based on the final 2021 U.S. Federal Income Tax Return, partially offset by changes in tax reserves.  For the nine months ended September 30, 2022, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings and changes in tax reserves, partially offset by the net impact of changes in tax legislation, changes in estimates based on the final 2021 U.S. Federal Income Tax Return and adjustments related to share-based compensation.

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 was required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessment. During the second quarter of 2023, $99 million was no longer under dispute and was refunded to the Company. The non-current receivable balance was $255 million and $349 million as of September 30, 2023 and December 31, 2022, respectively, for the amount on deposit with the South Korean government.  Corning believes that it is more likely than not the Company will prevail in the appeals process relating to these matters.

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				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income attributable to Corning Incorporated	$	164	$	208	$	621	$	1,352
Weighted-average common shares outstanding – basic		850		843		848		843
Effect of dilutive securities:
Stock options and other awards		9		12		10		14
Weighted-average common shares outstanding – diluted		859		855		858		857
Basic earnings per common share	$	0.19	$	0.25	$	0.73	$	1.60
Diluted earnings per common share	$	0.19	$	0.24	$	0.72	$	1.58
Anti-dilutive potential shares excluded from diluted earnings per common share:
Stock options and other awards		3		3		3		2

5. Inventories

Inventories consisted of the following (in millions):

	September 30,		December 31,
	2023		2022
Finished goods	$	1,226	$	1,315
Work in process		513		571
Raw materials and accessories		479		537
Supplies and packing materials		437		481
Inventories	$	2,655	$	2,904

10

 

6. Other Liabilities

Other liabilities consisted of the following (in millions):

	September 30,		December 31,
	2023		2022
Current liabilities:
Wages and employee benefits	$	505	$	727
Income taxes		125		127
Derivative instruments (Note 10)		150		174
Deferred revenue (Note 2)		185		144
Customer deposits (Note 2)		162		132
Share repurchase liability (Note 12)				506
Short-term operating leases		108		111
Other current liabilities		1,294		1,226
Other accrued liabilities	$	2,529	$	3,147
Non-current liabilities:
Defined benefit pension plan liabilities	$	685	$	668
Derivative instruments (Note 10)		65		17
Deferred revenue (Note 2)		669		725
Customer deposits (Note 2)		1,044		1,137
Deferred tax liabilities		201		243
Long-term operating leases		842		795
Other non-current liabilities		1,127		1,370
Other liabilities	$	4,633	$	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 $6.5 billion and $6.1 billion as of  September 30, 2023 and December 31, 2022, respectively, compared to the carrying value of $7.2 billion and $6.7 billion as of  September 30, 2023 and December 31, 2022, respectively. 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.

On May 15, 2023, the Company issued €300 million 3.875% Notes due 2026 (“2026 Notes”) and €550 million 4.125% Notes due 2031 (“2031 Notes”). The proceeds from the 2026 Notes and 2031 Notes were received in euros and converted to U.S. dollars on the date of issuance.  The net proceeds received were approximately $918 million and will be used for general corporate purposes. As of September 30, 2023, the U.S. dollar equivalent carrying value of the euro-denominated long-term debt was $892 million.

The full amounts of the 2026 Notes and 2031 Notes have been designated as net investment hedges against our investments in certain European subsidiaries with euro functional currencies.  Refer to Note 10 (Hedging Activities) for additional information.

Corning had no outstanding commercial paper as of September 30, 2023 or 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 made cash contributions of $25 million to its international pension plans.  The Company does not expect to make additional contributions in the fourth quarter of 2023.

The following table presents the components of net periodic benefit expense (income) 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						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
	2023			2022			2023			2022			2023			2022			2023			2022
Service cost	$	25		$	32		$	75		$	96		$	1		$	3		$	4		$	7
Interest cost		45			28			133			82			6			3			17			11
Expected return on plan assets		(46	)		(55	)		(138	)		(164	)
Amortization of actuarial net gain														(6	)					(17	)
Amortization of prior service cost (credit)		2			1			5			4			(2	)		(2	)		(4	)		(4	)
Recognition of actuarial loss (gain)		12						(16	)		22						(2	)					(3	)
Special termination benefit charge								5
Total pension and postretirement benefit expense (income)	$	38		$	6		$	64		$	40		$	(1	)	$	2		$	—		$	11

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 September 30, 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  September 30, 2023 and December 31, 2022, Corning had accrued approximately $90 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 notional amounts for foreign currency cash flow hedges are $301 million and $419 million as of  September 30, 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. As of  September 30, 2023, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $43 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 loss 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 $89 million and $278 million, respectively, as of  September 30, 2023 and December 31, 2022. The carrying amount of the leased precious metals pool includes cumulative fair value losses of $261 million and $95 million as of  September 30, 2023 and December 31, 2022, respectively. These losses are offset by changes in the fair value of the derivatives.

Net Investment Hedges

In May 2023, the Company designated the full amount of its 2026 Notes and 2031 Notes with a total notional amount of €850 million, which are non-derivative financial instruments, as net investment hedges against our investments in certain European subsidiaries with euro functional currencies. Changes in the value of these hedging instruments due to foreign currency gains or losses are deferred in other comprehensive loss on the consolidated statements of comprehensive (loss) income, within the foreign currency translation adjustments and other line, and will remain in accumulated other comprehensive loss until the hedged investment is sold or substantially liquidated. We evaluate the effectiveness of the net investment hedges each quarter using the critical terms match method.  As of  September 30, 2023, the net investment hedges are deemed to be effective.  During the three and nine months ended September 30, 2023, foreign currency gains of $29 million and $36 million, respectively, associated with these net investment hedges were recognized in other comprehensive loss.

Refer to Note 7 (Debt) for additional information.

Undesignated Hedges

Corning uses OTC foreign exchange forward and option contracts to offset economic currency risks. These contracts are not designated as hedging instruments for accounting purposes. The undesignated hedges limit exposure to foreign 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 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 and South Korean won. The Company has contracts through 2024 for the Japanese yen and 2026 for the South Korean won.

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 in earnings within translated earnings contract gain (loss), net in the consolidated statements of income.

13

 

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis as of  September 30, 2023 and December 31, 2022 (in millions):

					Asset derivatives					Liability derivatives
	Notional amount				Balance	Fair value				Balance	Fair value
	September		December		sheet	September		December		sheet	September			December
	30, 2023		31, 2022		location	30, 2023		31, 2022		location	30, 2023			31, 2022
Derivatives designated as hedging instruments (1)
Foreign exchange and precious metals lease contracts (2)	$	301	$	419	Other current assets	$	165	$	26	Other accrued liabilities				$	(1	)
					Other assets		139		78
Derivatives not designated as hedging instruments
Foreign exchange contracts		1,486		2,231	Other current assets		18		44	Other accrued liabilities	$	(23	)		(49	)
Translated earnings contracts		5,128		7,543	Other current assets		380		384	Other accrued liabilities		(127	)		(124	)
					Other assets		71		146	Other liabilities		(65	)		(17	)
Total derivatives	$	6,915	$	10,193		$	773	$	678		$	(215	)	$	(191	)

(1)	The amounts above do not include €850 million of euro-denominated debt ($892 million equivalent as of September 30, 2023), which is a non-derivative financial instrument designated as a net investment hedge.
(2)	As of  September 30, 2023 and December 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with total notional amounts of $301 million and $419 million, respectively, and fair value hedges of leased precious metals with total notional amounts of 21,652 troy ounces and 23,152 troy ounces, respectively.

The following table summarizes the total notional amounts for translated earnings contracts as of  September 30, 2023 and December 31, 2022 (in billions):

	September 30,		December 31,
	2023		2022
Average rate forward contracts:
Japanese yen-denominated	$	0.2	$	0.1
South Korean won-denominated		1.7		2.1
Other foreign currencies (1)		1.1		0.7
Option contracts:
Japanese yen-denominated (2)		2.1		4.6
Total notional amount for translated earning contracts	$	5.1	$	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 total 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.

14

 

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 September 30, 2023 and December 31, 2022 is $91