0000024741 CORNING INC /NY false --12-31 Q1 2024 29 30 14,439 14,553 0.50 0.50 3.8 3.8 1.8 1.8 981 980 0.28 0.28 10 5 850 850 0 0 23 16 5 0 107 107 1,175 1,175 6.7 6.7 31 31 0.81 0.81 20 20 21 21 false Denominational currencies for average rate forward contracts include the New Taiwan dollar, British pound and euro. As of March 31, 2024 and December 31, 2023, derivatives designated as hedging instruments include foreign exchange cash flow hedges with total notional amounts of $236 million and $241 million, respectively, and fair value hedges of leased precious metals with total notional amounts of 16,862 troy ounces and 20,160 troy ounces, respectively. Fair value assets include designated derivatives pertaining to precious metals lease contracts in the amounts of $184 million and $229 million as of March 31, 2024 and December 31, 2023, respectively. All of the Company’s derivative contracts are measured at fair value and are classified as Level 2 within the fair value hierarchy. Derivative assets are presented in Other current assets or Other assets. Derivative liabilities are presented in Other current liabilities or Other liabilities. Japanese yen-denominated option contracts include purchased put and call 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 zero-cost collars, only the put or the call option can be exercised at maturity. This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment. The amounts above do not include €850 million of euro-denominated debt ($911 million equivalent as of March 31, 2024), which is a non-derivative financial instrument designated as a net investment hedge. Income tax (provision) benefit reflects a tax rate of 21%. Research, development and engineering expenses include direct project spending that is identifiable to a segment. Amount does not include research, development, and engineering expense related to restructuring, impairment and other charges and credits. Corning obtained a controlling interest in HSG during the third quarter of 2020 and has consolidated results in Hemlock and Emerging Growth Businesses beginning on September 9, 2020. Refer to Note 3 (HSG Transactions and Acquisitions) in the notes to the consolidated financial statements for additional information. Treasury stock includes the deemed surrender to the Company of common stock to satisfy employee tax withholding obligations. 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 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, 2024

 

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.        ☐

 

If securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.        ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).        ☐

 

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 25, 2024

 
 

Corning’s Common Stock, $0.50 par value per share

 

856,619,222 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

20

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

   

Item 4. Controls and Procedures

35

   

PART II – OTHER INFORMATION

 
   

Item 1. Legal Proceedings

36

   

Item 1A. Risk Factors

36

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

37

   
Item 5. Other Information 37
   

Item 6. Exhibits

38

   

Signatures

39

 

2

 

 

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

 

   

Three months ended

 
   

March 31,

 
   

2024

   

2023

 

Net sales

  $ 2,975     $ 3,178  

Cost of sales

    1,982       2,175  
                 

Gross margin

    993       1,003  
                 

Operating expenses:

               

Selling, general and administrative expenses

    451       421  

Research, development and engineering expenses

    258       254  

Amortization of purchased intangibles

    30       31  
                 

Operating income

    254       297  
                 

Interest income

    12       7  

Interest expense

    (83 )     (76 )

Translated earnings contract gain (loss), net (Note 11)

    39       (8 )

Other income, net

    74       8  
                 

Income before income taxes

    296       228  

Provision for income taxes (Note 3)

    (71 )     (37 )
                 

Net income

    225       191  
                 

Net income attributable to non-controlling interest

    (16 )     (15 )
                 

Net income attributable to Corning Incorporated

  $ 209     $ 176  
                 

Earnings per common share available to common shareholders:

               

Basic (Note 4)

  $ 0.25     $ 0.21  

Diluted (Note 4)

  $ 0.24     $ 0.20  

 

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

 
   

March 31,

 
   

2024

   

2023

 

Net income

  $ 225     $ 191  
                 

Foreign currency translation adjustments and other

    (330 )     (84 )

Unamortized gain (losses) and prior service costs for postretirement benefit plans

    2       (4 )

Realized and unrealized gains on derivatives

    1       21  

Other comprehensive loss, net of tax

    (327 )     (67 )
                 

Comprehensive (loss) income

    (102 )     124  
                 

Comprehensive income attributable to non-controlling interest

    (16 )     (15 )
                 

Comprehensive (loss) income attributable to Corning Incorporated

  $ (118 )   $ 109  

 

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,

 
  2024  2023 

Assets

        
         

Current assets:

        

Cash and cash equivalents

 $1,365  $1,779 

Trade accounts receivable, net of doubtful accounts - $29 and $30

  1,621   1,572 

Inventories (Note 5)

  2,713   2,666 

Other current assets

  1,272   1,195 

Total current assets

  6,971   7,212 
         

Property, plant and equipment, net of accumulated depreciation - $14,439 and $14,553

  14,199   14,630 

Goodwill

  2,370   2,380 

Other intangible assets, net

  871   905 

Deferred income taxes (Note 3)

  1,132   1,153 

Other assets

  2,075   2,220 
         

Total Assets

 $27,618  $28,500 
         

Liabilities and Equity

        
         

Current liabilities:

        

Current portion of long-term debt and short-term borrowings

 $318  $320 

Accounts payable

  1,476   1,466 

Other accrued liabilities (Notes 6 and 10)

  2,381   2,533 

Total current liabilities

  4,175   4,319 
         

Long-term debt (Note 7)

  7,050   7,206 

Postretirement benefits other than pensions (Note 8)

  399   398 

Other liabilities (Notes 6 and 10)

  4,435   4,709 

Total liabilities

  16,059   16,632 
         

Commitments and contingencies (Note 10)

          

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

  917   916 

Additional paid-in capital – common stock

  16,998   16,929 

Retained earnings

  16,358   16,391 

Treasury stock, at cost; Shares held: 981 million and 980 million

  (20,672)  (20,637)

Accumulated other comprehensive loss

  (2,375)  (2,048)

Total Corning Incorporated shareholders’ equity

  11,226   11,551 

Non-controlling interest

  333   317 

Total equity

  11,559   11,868 
         

Total Liabilities and Equity

 $27,618  $28,500 

 

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,

 
   

2024

   

2023

 

Cash Flows from Operating Activities:

               

Net income

  $ 225     $ 191  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Depreciation

    307       310  

Amortization of purchased intangibles

    30       31  

Severance payments

    (41 )     (20 )

Share-based compensation expense

    60       52  

Translation gain on Japanese yen-denominated debt

    (81 )     (18 )

Deferred tax provision (benefit)

    10       (38 )

Translated earnings contract (gain) loss, net

    (39 )     8  

Changes in assets and liabilities:

               

Trade accounts receivable

    (161 )     (28 )

Inventories

    (86 )     17  

Other current assets

    2       (62 )

Accounts payable and other current liabilities

    (73 )     (369 )

Customer deposits and government incentives

    (25 )     (17 )

Deferred income

    (34 )     (6 )

Other, net

    2       (100 )

Net cash provided by (used in) operating activities

    96       (49 )
                 

Cash Flows from Investing Activities:

               

Capital expenditures

    (252 )     (382 )

Proceeds from sale of equipment to related party

          67  

Realized gains on translated earnings contracts and other

    94       81  

Other, net

    (26 )     6  

Net cash used in investing activities

    (184 )     (228 )
                 

Cash Flows from Financing Activities:

               

Repayments of debt

    (37 )     (69 )

Proceeds from other financing arrangements

          54  

Payments of employee withholding tax on stock awards

    (34 )     (16 )

Proceeds from exercise of stock options

    13       16  

Dividends paid

    (243 )     (239 )

Other, net

    (7 )     6  

Net cash used in financing activities

    (308 )     (248 )

Effect of exchange rates on cash

    (18 )      

Net decrease in cash and cash equivalents

    (414 )     (525 )

Cash and cash equivalents at beginning of period

    1,779       1,671  

Cash and cash equivalents at end of period

  $ 1,365     $ 1,146  

 

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, 2023

 $916  $16,929  $16,391  $(20,637) $(2,048) $11,551  $317  $11,868 

Net income

          209           209   16   225 

Other comprehensive loss

                  (327)  (327)  (1)  (328)

Shares issued to benefit plans and for option exercises

  1   69               70       70 

Common dividends ($0.28 per share)

          (242)          (242)      (242)

Other, net (1)

              (35)      (35)  1   (34)

Balance as of March 31, 2024

 $917  $16,998  $16,358  $(20,672) $(2,375) $11,226  $333  $11,559 

 

  

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 

 

(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, 2023 (“2023 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 (“HSG”) 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,

 
  

2024

  

2023

 

Telecommunication products

 $930  $1,125 

Display products

  632   609 

Specialty glass products

  450   404 

Environmental substrate and filter products

  427   407 

Life science products

  225   247 

Polycrystalline silicon products

  216   277 

All other products

  95   109 

Total revenue

 $2,975  $3,178 

 

8

 

Customer Deposits

 

As of March 31, 2024 and December 31, 2023, Corning had customer deposits of approximately $1.1 billion and $1.2 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, generally over a period of up to ten 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, 2024 and 2023, customer deposits recognized were $80 million and $70 million, respectively.

 

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

 

Deferred Revenue

 

As of March 31, 2024 and December 31, 2023, Corning had deferred revenue of approximately $826 million and $860 million, respectively.  Deferred revenue was primarily related to the performance obligations of non-refundable consideration previously received by HSG 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, 2024 and 2023, 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,

 
  

2024

  

2023

 

Provision for income taxes

 $(71) $(37)

Effective tax rate

  24.0%  16.2%

 

For the three months ended  March 31, 2024, the effective tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to changes in tax reserves, partially offset by a net benefit due to foreign derived intangible income. For the three months ended  March 31, 2023, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings and a net benefit due to foreign derived intangible income.

 

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. The non-current receivable balance was $258 million and $261 million as of March 31, 2024 and December 31, 2023, 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

 
  

March 31,

 
  

2024

  

2023

 

Net income attributable to Corning Incorporated

 $209  $176 
         

Weighted-average common shares outstanding – basic

  852   844 

Effect of dilutive securities:

        

Stock options and other awards

  10   15 

Weighted-average common shares outstanding – diluted

  862   859 

Basic earnings per common share

 $0.25  $0.21 

Diluted earnings per common share

 $0.24  $0.20 
         

Anti-dilutive potential shares excluded from diluted earnings per common share:

        

Stock options and other awards

  3   5 

 

 

5. Inventories

 

Inventories consisted of the following (in millions):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Finished goods

 $1,287  $1,242 

Work in process

  555   551 

Raw materials and accessories

  446   445 

Supplies and packing materials

  425   428 

Inventories

 $2,713  $2,666 

 

10

 
 

6. Other Liabilities

 

Other liabilities consisted of the following (in millions):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Current liabilities:

        

Wages and employee benefits

 $430  $609 

Income taxes

  116   69 

Derivative instruments (Note 11)

  122   66 

Deferred revenue (Note 2)

  188   181 

Customer deposits (Note 2)

  164   148 

Short-term operating leases

  103   112 

Other current liabilities

  1,258   1,348 

Other accrued liabilities

 $2,381  $2,533 
         

Non-current liabilities:

        

Defined benefit pension plan liabilities

 $725  $721 

Derivative instruments (Note 11)

  62   31 

Deferred revenue (Note 2)

  638   679 

Customer deposits (Note 2)

  977   1,083 

Deferred tax liabilities

  193   218 

Long-term operating leases

  820   846 

Other non-current liabilities

  1,020   1,131 

Other liabilities

 $4,435  $4,709 

 

 

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 $6.7 billion and $7.0 billion as of  March 31, 2024 and December 31, 2023, respectively, compared to the carrying value of $7.1 billion and $7.2 billion as of  March 31, 2024 and December 31, 2023, 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.

 

 

8. Employee Retirement Plans

 

The following table presents the components of net periodic pension and postretirement 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

  

Three months ended

 
  

March 31,

  

March 31,

 
  

2024

  

2023

  

2024

  

2023

 

Service cost

 $23  $23  $1  $1 

Interest cost

  46   45   5   6 

Expected return on plan assets

  (48)  (46)        

Amortization of actuarial net gain

          (5)  (5)

Amortization of prior service cost (credit)

  1   2   (2)  (1)

Total pension and postretirement benefit expense (income)

 $22  $24  $(1) $1 

 

11

 
 

9. Leases

 

On March 12, 2024, Corning entered into a synthetic lease for a solar manufacturing facility in Hemlock, Michigan (the “Facility”), for which we are the construction agent on behalf of the lessor, with an estimated construction cost of approximately $835 million.

 

The lease will commence upon completion of construction of the Facility, which is expected to be in the later part of 2025, and has a lease term of five years with options to renew the lease or purchase the facility. The lease is expected to be classified as a finance lease and the amount of right-of-use asset and lease liability will be determined and recorded upon lease commencement. The estimated undiscounted lease payments, inclusive of a residual value guarantee, are approximately $1.1 billion, of which $35 million, $103 million, $99 million and $96 million is to be paid in 2025, 2026, 2027 and 2028, respectively, and $780 million is to be paid thereafter. The transaction agreements contain covenants that are consistent with our Revolving Credit Agreement as disclosed in the 2023 Form 10-K.

     

 

10. 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. In January 2024, we entered into an agreement to settle the Dow Corning Chapter 11 Related Matters and the settlement amount was not material.

 

Dow Corning Environmental Claims

 

Beginning 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.  Subject to certain conditions and limits, Corning may be required to indemnify Dow for up to 50% of such losses.  As of March 31, 2024, 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, 2024 and December 31, 2023, Corning had accrued approximately $86 million and $88 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

 
 

11. Financial Instruments

 

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis (in millions):

 

  

March 31, 2024

  

December 31, 2023

 
  

Notional
amount

  

Fair value
asset (1)

  

Fair value
liability (1)

  

Notional
amount

  

Fair value
asset (1)

  

Fair value
liability (1)

 

Derivatives designated as hedging
instruments (2):

                        

  Foreign exchange and precious metals
lease contracts (3)

 $236  $245      $241  $287     
                         

Derivatives not designated as hedging
instruments:

                        

  Foreign exchange contracts

  2,780   20  $(34)  1,988   20  $(17)

  Translated earnings contracts

  5,390   360   (150)  5,042   324   (80)

Total derivatives

 $8,406  $625  $(184) $7,271  $631  $(97)
                         

Current

     $521  $(122)     $501  $(66)

Non-current

      104   (62)      130   (31)

Total derivatives

     $625  $(184)     $631  $(97)

 

(1)All of the Company’s derivative contracts are measured at fair value and are classified as Level 2 within the fair value hierarchy. Derivative assets are presented in Other current assets or Other assets. Derivative liabilities are presented in Other current liabilities or Other liabilities.
(2)The amounts above do not include €850 million of euro-denominated debt ($911 million equivalent as of March 31, 2024), which is a non-derivative financial instrument designated as a net investment hedge.
(3)As of  March 31, 2024 and December 31, 2023, derivatives designated as hedging instruments include foreign exchange cash flow hedges with total notional amounts of $236 million and $241 million, respectively, and fair value hedges of leased precious metals with total notional amounts of 16,862 troy ounces and 20,160 troy ounces, respectively. Fair value assets include designated derivatives pertaining to precious metals lease contracts in the amounts of $184 million and $229 million as of  March 31, 2024 and December 31, 2023, respectively.

 

The following table summarizes the total gross notional values for translated earnings contracts (in millions):

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Average rate forward contracts:

        

Chinese yuan-denominated

 $793  $684 

Japanese yen-denominated

  408   463 

South Korean won-denominated

  1,417   1,609 

Other foreign currencies (1)

  487   198 

Option contracts:

        

Japanese yen-denominated (2)

  2,285   2,088 

Total notional amount for translated earnings contracts

 $5,390  $5,042 

 

(1)Denominational currencies for other average rate forward contracts include the New Taiwan dollar and euro.
(2)Japanese yen-denominated option contracts include purchased put 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 the call option can be exercised at maturity.

 

13

 

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, 2024 and December 31, 2023 is $81 million and $54 million, respectively.

 

  

Three months ended March 31,

 
         

Location of gain (loss)

        
  

Gain recognized

 

reclassified from

 

Gain (loss) reclassified

 
  

in other comprehensive

 

accumulated

 

from accumulated

 
  

income (OCI)

 

OCI into income

 

OCI into income

 
  

2024

  

2023

 

effective (ineffective)

 

2024

  

2023

 

Derivative hedging relationships for cash flow and fair value hedges:

                 

Foreign exchange and precious metals lease contracts

 $33  $32 

Cost of sales

 $6  $7 
         

Other income, net

      (1)

Total cash flow and fair value hedges

 $33  $32   $6  $6 

 

  

(Loss) gain recognized in income

  
  

Three months ended

  
  

March 31,

  

Undesignated derivatives

 

2024

  

2023

 

Location of gain (loss) recognized in income

Foreign exchange contracts

 $(22) $13 

Other income, net

Translated earnings contracts

  39   (8)

Translated earnings contract gain (loss), net

Total undesignated

 $17  $5  

 

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. As of March 31, 2024, the net investment hedges are deemed to be effective. During the three months ended March 31, 2024, foreign currency gain of $22 million associated with these net investment hedges were recognized in other comprehensive loss.

 

Leased Precious Metals Contracts

 

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 $80 million and $90 million, respectively, as of  March 31, 2024 and December 31, 2023. The carrying amount of the leased precious metals pool includes cumulative fair value loss of $191 million and $239 million as of  March 31, 2024 and December 31, 2023, respectively. These losses are offset by changes in the fair value of the hedges.

 

14

 
 

12. Shareholders Equity

 

On May 2, 2024, Corning's Board of Directors declared a $0.28 per share common stock dividend.

 

Share Repurchase Program

 

In 2019, the Board authorized the repurchase of up to $5.0 billion of common stock (“2019 Authorization”). As of March 31, 2024, approximately $3.3 billion remains available under the Company’s 2019 Authorization.

 

No shares were repurchased under our 2019 Authorization during the three months ended March 31, 2024 and 2023.

 

Accumulated Other Comprehensive Loss

 

For the three months ended March 31, 2024 and 2023, the change in accumulated other comprehensive loss was primarily related to the foreign currency translation adjustments.

 

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):

 

  

Three months ended

 
  

March 31,

 
  

2024

  

2023

 

Beginning balance

 $(1,942) $(1,712)

Loss on foreign currency translation, net of tax benefit - $23 and $16

  (331)  (83)

Equity method affiliates

  1   (1)

Net current-period other comprehensive loss, net of tax

  (330)  (84)

Ending balance

 $(2,272) $(1,796)

 

 

13. Share-Based Compensation

 

Total share-based compensation expense was $60 million and $52 million for the three months ended March 31, 2024 and 2023, 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, 2024:

 

      

Weighted

 
  

Number

  

average

 
  

of shares

  

grant-date

 
  

(in thousands)

  

fair value

 

Non-vested shares and share units as of December 31, 2023

  13,321  $33.89 

Granted

  146   31.84 

Vested

  (2,662)  35.38 

Forfeited

  (257)  34.73 

Non-vested shares and share units as of March 31, 2024

  10,548  $33.46 

 

15


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, 2024:

 

      

Weighted

 
  

Number

  

average

 
  

of shares

  

grant-date

 
  

(in thousands)

  

fair value

 

Non-vested share units as of December 31, 2023

  2,026  $38.89 

Granted

  1,102   32.71 

Vested

  (287)  40.69 

Performance adjustments

  562   32.90 

Forfeited

  (52)  33.09 

Non-vested share units as of March 31, 2024

  3,351  $35.55 

 

Stock Options

 

The following table summarizes information concerning stock options as of  March 31, 2024 and the related activity for the three months ended March 31, 2024:

 

          

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, 2023

  7,499  $23.82         

Exercised

  (582)  21.43         

Expired

  (1)  19.65         

Options outstanding as of March 31, 2024

  6,916   24.03   4.79  $63,071 

Options vested and exercisable as of March 31, 2024

  6,916   24.03   4.79   63,071 

 

16

 
 

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. Net sales for this group are mainly attributable to HSG, 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 (loss) 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 from the Japanese yen, South Korean won, Chinese yuan, New Taiwan dollar and euro, as applicable to the segment.  In addition, effective January 1, 2024, the Company began utilizing constant-currency reporting for the Optical Communications segment to exclude the impact from the Mexican peso on segment results. Prior periods were not recasted as the impact was not material. The most significant constant-currency adjustment relates to the Japanese yen exposure within the Display Technologies segment. 

 

The constant-currency rates established for our core performance measures are internally derived long-term management estimates, which are closely aligned with our hedging instrument rates. These hedging instruments may include, but are not limited to, foreign exchange forward or option contracts and foreign-denominated debt. 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.

 

Constant-currency rates used are as follows and are applied to all periods presented and to all foreign exchange exposures during the period, even though we may be less than 100% hedged:

 

 

Currency

 

Japanese yen

 

Korean won

 

Chinese yuan

 

New Taiwan dollar

 

Euro

 Mexican peso
 

Rate

 

¥107

 

₩1,175

 

¥6.7

 

NT$31

 

€.81

 MX$20

 

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 (loss) to net income attributable to Corning Incorporated. 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.

 

17

 

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 (loss) to net income attributable to Corning Incorporated. Segment net income (loss) may not be consistent with measures used by other companies.

 

The following provides selected segment information as described above:

 

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, 2024

                            

Segment net sales

 $930  $872  $454  $455  $236  $311  $3,258 

Depreciation (1)

 $66  $116  $36  $32  $17  $38  $305 

Research, development and engineering expenses (2)

 $65  $26  $60  $23  $6  $36  $216 

Income tax provision (3)

 $(28) $(53) $(11) $(28) $(4) $(1) $(125)

Segment net income (loss)

 $100  $201  $44  $105  $13  $(10) $453 

 

                      

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 

 

(1)Depreciation expense for Corning’s reportable segments and Hemlock and Emerging Growth Businesses 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%.

 

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

 

  

Three months ended

 
  

March 31,

 
  

2024

  

2023

 

Net sales of reportable segments

 $2,947  $2,981 

Net sales of Hemlock and Emerging Growth Businesses

  311   386 

Impact of constant-currency reporting (1)

  (283)  (189)

Consolidated net sales

 $2,975  $3,178 

 

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

 

18

 

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

 

  

Three months ended

 
  

March 31,

 
  

2024

  

2023

 

Net income of reportable segments

 $463  $449 

Net (loss) income of Hemlock and Emerging Growth Businesses

  (10)  16 

Unallocated amounts:

        

Impact of constant-currency reporting

  (226)  (149)

Translated earnings contract gain (loss), net

  39   (8)

Translation gain on Japanese yen-denominated debt

  81   18 

Research, development, and engineering expenses

  (42)  (45)

Amortization of intangibles

  (30)  (31)

Interest expense, net

  (61)  (56)

Income tax benefit

  54   91 

Restructuring, impairment and other charges and credits

  9   (66)

Other corporate items

  (68)  (43)

Net income attributable to Corning Incorporated

 $209  $176 

 

19

 
 

 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 “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “seek,” “see,” “would,” “target,” “estimate,” “forecast,” 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, 2023 (“2023 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 is vital to progress – in the industries we help advance and in the world we share. For more than 170 years, Corning has combined its unparalleled expertise in glass science, ceramic science and optical physics with deep manufacturing and engineering capabilities to develop category-defining products that transform industries and enhance people’s lives. Our materials science and manufacturing expertise, boundless curiosity and commitment to purposeful invention place us at the center of the way the world works, learns and lives. In addition, our sustained investment in research, development and engineering capabilities means we are always ready to solve the toughest challenges – alongside our customers.

 

Our capabilities are versatile and synergistic, allowing Corning to evolve to meet changing market needs, while also helping customers capture new opportunities in dynamic industries. Corning strives to be a catalyst for positive change and to help move the world forward. The Company drives profitable multiyear growth by inventing, making and selling life-changing products – all of which is based on a set of vital capabilities that are increasingly relevant to profound transformations that touch many facets of daily life. Today, Corning's markets include optical communications, mobile consumer electronics, display, automotive, solar, semiconductor and life sciences.

 

In 2023, we introduced plans to improve profitability and cash flow and we took action to increase price and improve productivity ratios. Since then, our results demonstrated that we made solid progress advancing market leadership, strengthening our profitability and improving our cash flow generation even in the lower-demand environment. Further, we entered 2024 operationally strong and our first-quarter results show encouraging signs of improving market conditions.

 

20

 

We remain confident that key industry growth drivers are intact: specifically, wireless, broadband, 5G, cloud computing and advanced artificial intelligence in Optical Communications, increased screen sizes in Display Technologies, tighter emission regulations that drive more and better filtration in Environmental Technologies and the need for advanced cover materials in Mobile Consumer Electronics. Additionally, we have built competitively-advantaged positions in the markets in which we participate and we believe we are the technology leader in these markets. We believe we are well-positioned with existing production capacity and technical capabilities necessary to capture this growth and deliver strong incremental profit and cash to our shareholders.

 

2024 Corporate Outlook

 

We expect core net sales of approximately $3.4 billion for the second quarter of 2024. 

 

 

RESULTS OF OPERATIONS

 

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

 

   

Three months ended

   

%

 
   

March 31,

   

change

 
   

2024

   

2023

   

24 vs. 23

 
                         

Net sales

  $ 2,975     $ 3,178       (6 %)
                         

Cost of sales

  $