Annual Report
Corning Incorporated
One Riverfront Plaza
Corning, NY 14831-0001
U.S.A.
www.corning.com
02AR40018EN
© 2019 Corning Incorporated. All Rights Reserved.
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“We are not only building a bigger company,
we are also building a stronger, more resilient one.”
— Wendell P. Weeks
Board of Directors
Management Committee
Donald W. Blair
James P. Clappin
Retired Executive Vice President
& Chief Financial Officer
Executive Vice President,
Corning Glass Technologies
NIKE, Inc.
(1) (4)
Leslie A. Brun
Chairman
& Chief Executive Officer
Sarr Group LLC
(1) (2)
Stephanie A. Burns
Retired Chairman
& Chief Executive Officer
Dow Corning Corporation
(1) (3)
John A. Canning Jr.
Co-Founder & Chairman
Madison Dearborn Partners, LLC
(4) (5) (6)
Richard T. Clark
Retired Chairman, President
& Chief Executive Officer
Merck & Co., Inc.
(2) (5) (6)
Robert F. Cummings Jr.
Retired Vice Chairman
of Investment Banking
JPMorgan Chase & Co.
(4) (5) (6)
Deborah A. Henretta
Retired Group President
E-Business
Procter & Gamble
(1) (3)
Daniel P. Huttenlocher
Dean & Vice Provost
Cornell University
New York City Tech Campus
(1) (4)
Kurt M. Landgraf
President
Washington College
(1) (2) (6)
Kevin J. Martin
Vice President
Facebook, Inc.
(3) (5)
Deborah D. Rieman
Retired Executive Chairman
MetaMarkets Group
(1) (2)
Hansel E. Tookes II
Retired Chairman
& Chief Executive Officer
Raytheon Aircraft Company
(2) (5) (6)
Wendell P. Weeks
Chairman of the Board,
Chief Executive Officer
& President
Corning Incorporated
(6)
Mark S. Wrighton
Chancellor
& Professor of Chemistry
Washington University
in St. Louis
(1) (4)
Martin J. Curran
Executive Vice President
& Innovation Officer
Jeffrey W. Evenson
Executive Vice President
& Chief Strategy Officer
Clark S. Kinlin
Executive Vice President,
Corning Optical Communications
Lawrence D. McRae
Vice Chairman & Corporate
Development Officer
David L. Morse
Executive Vice President
& Chief Technology Officer
Eric S. Musser
Executive Vice President,
Corning Technologies
& International
Christine M. Pambianchi
Executive Vice President,
People & Digital
Lewis A. Steverson
Executive Vice President
& General Counsel
R. Tony Tripeny
Executive Vice President
& Chief Financial Officer
Wendell P. Weeks
Chairman of the Board, Chief
Executive Officer & President
Other Officers
Jaymin Amin
Vice President, Technology
& Product Development,
Specialty Materials
Thomas Appelt
President & General Manager,
Corning International
Madapusi K. Badrinarayan
Vice President
& Technology Executive,
Science & Technology
John P. Bayne Jr.
Senior Vice President
& General Manager,
Corning® Gorilla® Glass
Specialty Materials
Thomas R. Beall
Vice President & Chief
Intellectual Property Counsel
Stefan Becker
Senior Vice President
& Operations Controller
Michael A. Bell
Senior Vice President
& General Manager,
Optical Connectivity Solutions,
Corning Optical Communications
Gary S. Calabrese
Senior Vice President
& Director,
Global Research
Thomas G. Capek
Senior Vice President
& Chief Engineer,
Manufacturing Technology
& Engineering
Cheryl C. Capps
Senior Vice President,
Global Supply Chain
Mark S. Clark
Vice President
& Chief Information Officer
Laura J. Coleman
Vice President,
Litigation
Kevin G. Corliss
Vice President,
Corporate Compliance &
Employment Law
Charles R. Craig
Senior Vice President,
Science & Technology,
Administration & Operations
Bernhard Deutsch
Vice President
& General Manager,
Optical Fiber & Cable
Michael W. Donnelly
Vice President,
Business Services
John D. Duke
Vice President
Richard M. Eglen
Vice President
& General Manager,
Life Sciences
Li Fang
President & General Manager,
Corning Greater China
Robert P. France
Vice President,
Human Resources
Vaughn M. Hall Jr.
International Vice President
of Operations,
Corning Glass Technologies
Kimberly S. Hartwell
Senior Vice President
& Chief Commercial Officer,
Corning Optical Communications
Stuart Hoiness
Senior Vice President,
Data Center & OEM,
Corning Optical Communications
Timothy L. Hunt
Senior Vice President & Director,
Corporate Product
& Process Development
Linda E. Jolly
Vice President
& Corporate Secretary
William L. Juan
Vice President,
Commercial & International Law
Wilfred M. Kenan Jr.
Vice President
& Manufacturing Manager,
Environmental Technologies
Michael P. Kunigonis Jr.
Vice President
& General Manager,
Automotive Glass Solutions
Judith A. Lemke
Vice President,
Tax
Thomas H. Lynch
Vice President
& Commercial Director,
Environmental Technologies
John P. MacMahon
Senior Vice President,
Global Compensation & Benefits
Stephen P. Miller
Vice President, Strategy,
Corning Optical Communications
& Corporate Development
Avery H. Nelson III
Senior Vice President
& General Manager,
Environmental Technologies
Kevin B. Parker
Vice President
& General Manager,
OCS Integration,
Stephen C. Propper
Vice President
& Treasurer
Timothy J. Regan
Senior Vice President,
Global Government Affairs
Edward A. Schlesinger
Senior Vice President
& Corporate Controller
Andrew E. Tometich
Senior Vice President
& General Manager,
Specialty Materials
Ronald L. Verkleeren
Vice President
& General Manager,
Corning Pharmaceutical
Technologies
Lydia Kenton Walsh
Vice President,
Commercial Operations,
Life Sciences
John Z. Zhang
Senior Vice President
& General Manager,
Corning Display Technologies
& General Manager,
Corning Glass Microsystems
Corning Optical Communications
Board Committees
(1) Audit; (2) Compensation; (3) Corporate Relations; (4) Finance; (5) Nominating & Corporate Governance; (6) Executive
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To Our
Shareholders:
2018 was a terrific year for Corning. We grew core sales
and earnings per share. We returned cash to shareholders
through stock buybacks and a double-digit dividend increase.
We won new customers. And we launched new products that
continue our track record of innovation. Most importantly,
we have positioned the company for sustainable, long-term
growth by delivering on our Strategy and Capital Allocation
Framework.
Since introducing the Framework in October 2015, we have
been investing for growth through a combination of capacity
expansions, strategic acquisitions, and innovation programs.
In 2018, the benefits of our investments became apparent
as we improved our financial performance and extended
our leadership in all businesses. Our execution has been
strong, and we expect our momentum to continue in 2019
and beyond.
Wendell P. Weeks
Chairman, Chief Executive Officer,
and President
Financial Performance
Before I review our execution against the Framework
in more detail, here are some highlights from Corning’s 2018
financial results.
Core sales were $11.4 billion and core earnings per
share were $1.78, both up 11 percent year over year. From my
perspective as CEO, two observations are particularly worth
noting. First, our performance improved significantly in the
second half of the year as we introduced new innovations,
extended our cost leadership, and increased our capacity.
We went from a $10 billion run rate at the beginning of
the year to a $12 billion run rate with expanded margins
in the second half. This step change in performance
illustrates the benefits of our investments and strategy.
Second, all of Corning's major businesses produced year-
over-year sales increases in 2018. That means we are not
only building a bigger company, we are also building a
stronger, more resilient one.
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January
Opened new manufacturing
plant in Newton, North Carolina,
to meet growing worldwide
demand for optical fiber
and cable
February
Increased quarterly dividend by 16.1%
March
Introduced optical communica-
tions innovations, including
Corning® RocketRibbon™
extreme-density cable and
TXF™ optical fiber
April
Announced plans to build
high-volume manufacturing
facility in Durham County,
North Carolina, for Corning
Valor® Glass
Strategy and Capital Allocation Framework
Framework Execution and Results
If you follow Corning closely, you are probably familiar
with our Strategy and Capital Allocation Framework. But
we believe it is worth reviewing, because we want to ensure
you understand Corning’s priorities and our plan for achieving
our goals.
The Framework articulates our strategy for leveraging
Corning’s financial strength and focusing our portfolio to
deliver value for our stakeholders. Under the Framework,
we target generating $26 to $30 billion in cash between
2016 and 2019. We plan to return more than $12.5 billion to
our shareholders through repurchases and dividends, and
invest $10 billion to extend our leadership and deliver growth.
To advance our innovation effectiveness, the Framework
focuses our portfolio on a set of reinforcing capabilities with
strong interconnections. Our best-in-the-world capabilities
include three core technologies (glass science, ceramic
science, and optical physics), four manufacturing and
engineering platforms (vapor deposition, fusion, precision
forming, and extrusion), and five market-access platforms
(optical communications, display, mobile consumer
electronics, automotive, and life sciences vessels). We direct
80 percent or more of our resources to opportunities that
draw from at least two of these categories. We believe this
approach increases our likelihood of success, reduces the cost
of innovation, and creates stronger competitive advantages.
So how are we doing? Our stakeholders are the ultimate
judges of our performance, but we are extremely pleased
with our execution.
Since introducing the Framework more than three years
ago, our cash generation is on target. Through the end of 2018,
we have distributed $11.8 billion to shareholders through
share repurchases and quarterly dividends. Repurchases have
reduced outstanding shares by approximately 36 percent. We
increased the annual dividend by 11.1 percent in February 2019,
16.1 percent in February 2018, 14.8 percent in 2017, and 12.5
percent in 2016, for a combined increase of 67 percent.
Investments in RD&E, capital expenditures, and
acquisitions also remain on track, totaling $8.2 billion through
the end of 2018. As previously noted, these investments are
already having a positive impact on our financial results. For
example, our new Gen 10.5 LCD plant was one of the factors
in Display Technologies’ year-over-year sales improvement,
while gasoline particulate filters (GPFs) contributed more
than $50 million last year to Environmental Technologies'
sales. Our strategic acquisitions and capital expansion
projects helped drive Optical Communications sales up
by nearly $400 million from the first half of the year to
the second half.
We are also making good progress extending our leadership
across our market-access platforms.
n
In Optical Communications, we passed 45 million
homes globally with Corning’s fiber-to-the-home solutions.
We launched new products that reduce network costs
and increase the speed of installation, such as an extreme-
density cable for next-generation hyperscale data centers and
a fiber that offers significant advantages for high-throughput
transmission.
n
In Display, we achieved a substantial increase in
profitability in the second half of 2018 as price declines
moderated year-over-year to mid-single-digit percentages.
We also extended our global leadership by successfully
ramping the world’s first Gen 10.5 LCD glass plant.
n
In Mobile Consumer Electronics, we made significant
progress toward our goal of doubling sales over the next
several years by capturing more value per device and winning
in new device categories. We extended our leadership in the
cover-glass market with the launch of Corning® Gorilla® Glass
6. We benefited from stronger demand for glass on the back
of smartphones, which enables wireless charging and higher
data rates. And we launched Corning® Gorilla® Glass DX and
DX plus, which provide enhanced anti-reflective optics and
scratch resistance for wearable technology.
n
In Automotive, we exceeded $50 million in GPF sales
in 2018, as new emissions regulations took effect in Europe.
We began ramping dedicated capacity in China to support
upcoming Chinese regulations and committed demand from
customers, such as Changan Automobile. We also experienced
strong customer pull for Gorilla Glass for Automotive. To date,
we have been awarded more than 55 platforms globally, as
customers value our ability to deliver 3D shapes, superior
readability, and enhanced durability at a competitive cost.
n
In Life Sciences Vessels, we continued to grow faster
than the market, driven by our innovative products for
bioprocess and cell therapy. We made strong progress with
Corning Valor® Glass, our revolutionary pharmaceutical
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March
Introduced optical communica-
tions innovations, including
Corning® RocketRibbon™
extreme-density cable and
TXF™ optical fiber
April
Announced plans to build
high-volume manufacturing
facility in Durham County,
North Carolina, for Corning
Valor® Glass
May
Opened Gen 10.5 LCD glass
substrate facility in Hefei, China
June
Completed the acquisition
of 3M’s Communication
Markets Division
Produced one-millionth
Corning® DuraTrap®
gasoline particulate filter
Framework Execution and Results
So how are we doing? Our stakeholders are the ultimate
judges of our performance, but we are extremely pleased
with our execution.
Since introducing the Framework more than three years
ago, our cash generation is on target. Through the end of 2018,
we have distributed $11.8 billion to shareholders through
share repurchases and quarterly dividends. Repurchases have
reduced outstanding shares by approximately 36 percent. We
increased the annual dividend by 11.1 percent in February 2019,
16.1 percent in February 2018, 14.8 percent in 2017, and 12.5
percent in 2016, for a combined increase of 67 percent.
Investments in RD&E, capital expenditures, and
acquisitions also remain on track, totaling $8.2 billion through
the end of 2018. As previously noted, these investments are
already having a positive impact on our financial results. For
example, our new Gen 10.5 LCD plant was one of the factors
in Display Technologies’ year-over-year sales improvement,
while gasoline particulate filters (GPFs) contributed more
than $50 million last year to Environmental Technologies'
sales. Our strategic acquisitions and capital expansion
projects helped drive Optical Communications sales up
by nearly $400 million from the first half of the year to
the second half.
We are also making good progress extending our leadership
across our market-access platforms.
n
In Optical Communications, we passed 45 million
homes globally with Corning’s fiber-to-the-home solutions.
We launched new products that reduce network costs
and increase the speed of installation, such as an extreme-
density cable for next-generation hyperscale data centers and
a fiber that offers significant advantages for high-throughput
transmission.
n
In Display, we achieved a substantial increase in
profitability in the second half of 2018 as price declines
moderated year-over-year to mid-single-digit percentages.
We also extended our global leadership by successfully
ramping the world’s first Gen 10.5 LCD glass plant.
n
In Mobile Consumer Electronics, we made significant
progress toward our goal of doubling sales over the next
several years by capturing more value per device and winning
in new device categories. We extended our leadership in the
cover-glass market with the launch of Corning® Gorilla® Glass
6. We benefited from stronger demand for glass on the back
of smartphones, which enables wireless charging and higher
data rates. And we launched Corning® Gorilla® Glass DX and
DX plus, which provide enhanced anti-reflective optics and
scratch resistance for wearable technology.
n
In Automotive, we exceeded $50 million in GPF sales
in 2018, as new emissions regulations took effect in Europe.
We began ramping dedicated capacity in China to support
upcoming Chinese regulations and committed demand from
customers, such as Changan Automobile. We also experienced
strong customer pull for Gorilla Glass for Automotive. To date,
we have been awarded more than 55 platforms globally, as
customers value our ability to deliver 3D shapes, superior
readability, and enhanced durability at a competitive cost.
n
In Life Sciences Vessels, we continued to grow faster
than the market, driven by our innovative products for
bioprocess and cell therapy. We made strong progress with
Corning Valor® Glass, our revolutionary pharmaceutical
packaging solution, which helps protect patients and improve
manufacturing throughput. Valor shipments increased
fourfold from 2017 as we continue to support customers
preparing for regulatory filings. We have also been scaling
up production capabilities and announced our plans to
construct a high-volume manufacturing facility for Valor
in North Carolina.
Looking Ahead
As proud as we are of our progress in 2018, we’re even
more excited about what’s ahead. We are on track to fully
deliver the goals of our Strategy and Capital Allocation
Framework, and we expect 2019 to be another growth
year. Longer term, important trends such as 5G, smart cars,
connected homes, and augmented reality are converging
around Corning’s capabilities. Bringing these trends to life
requires technologies that have been our fundamental
strengths for decades. Moreover, they are making us a vital
participant in complex, interconnected ecosystems that
continue to unlock new opportunities.
Here’s more detail on what we expect in each of our
market-access platforms:
In Optical Communications, we are enabling the network
n
densification and integrated passive optical solutions
necessary for 5G, while continuing to innovate for rapidly
evolving applications, such as fiber to the home, hyperscale
data centers, and in-building networks. We expect to continue
growing at more than twice the rate of the communications
infrastructure market, and we are confident in our ability
to exceed our goal of $5 billion in annual sales by 2020, with
further growth in the years ahead.
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July
Launched new Gorilla® Glass
innovations, including
Corning® Gorilla® Glass 6
October
Chosen by Changan
Automobile as supplier
of gasoline particulate filters
to meet China 6 emissions
standards
December
Signed long-term supply
agreement with WaveOptics
for high-performance
augmented reality optics
n
In Display, we look forward to a full year of stable returns.
This will come not only from continued improvements in the
pricing environment, but also volume growth driven by larger
TV screen sizes and increasing shipments of Gen 10.5 LCD
glass. Simultaneously, we continue to build on our industry
leadership to support the next round of display innovations
– e.g., higher resolution, expanding color gamut, and next-
generation displays.
n
In Mobile Consumer Electronics, we continue to innovate
for customers and secure more Corning content in leading
mobile devices. We are also winning in new device categories,
such as augmented reality. For example, we signed a long-
term agreement with WaveOptics in December to supply
high-performance augmented reality optics.
n
In Automotive, our materials expertise is helping to
propel the auto industry into a new era of cleaner vehicles
with enhanced cockpit functionality, connectivity, and design.
We expect sales of GPFs to continue ramping in 2019 and
beyond, driven by regulations in Europe, with additional
growth from the China market when new regulations take
effect. We are also investing in Gorilla Glass for Automotive,
and expect to bring new manufacturing capacity online
in the second half of 2019.
n Finally, in Life Sciences Vessels, we expect to increase our
cell-culture leadership position, driven by the industry’s move
to cell therapies. Longer term, we continue to believe that
Corning Valor® Glass has the potential to power Corning’s
growth for the next decade and beyond. Key customers are
advancing toward the FDA certification required for the use
of Valor with each drug, and our development partners Merck
and Pfizer are at the forefront.
Closing Thoughts
When we introduced our Strategy and Capital Allocation
Framework in 2015, we knew it would take time and relentless
execution to deliver our goals. We asked for your confidence,
and I believe we have earned it. But we never take that
confidence for granted. We are committed to continuing
to earn it every day with our performance, our innovations,
and our actions.
I truly believe that Corning’s future has never been
brighter. We have multiple businesses driving our growth.
We have unique capabilities that are becoming increasingly
vital. We are helping enable trends that matter. We have
relationships with industry-leading customers that continue
to unlock new opportunities. We have a proven track record
of delivering results. And we have more than 50,000 employees
around the globe committed to doing their part to make the
company stronger and the world better.
We look forward to delivering the Framework’s goals
this year, unleashing new capabilities in the years ahead,
and sharing milestones along the way. Thank you for being
on this journey with us.
Sincerely,
Wendell P. Weeks
Chairman, Chief Executive Officer, and President
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Making a Difference with More Than Our Products
At Corning, we believe how we do things is as important as what we achieve. We are committed to making
the world a better place, not only with our innovations, but also with our actions.
Here are some of the ways we are helping to create a sustainable future for the company, the communities where
we operate, and the planet we all share.
Corning is doing its part to help protect the environment
through the ongoing improvement of processes, products,
and services. Since 2006, we have increased our energy
efficiency by 35 percent, and we continue to identify new ways
to use less energy. Last year, we expanded the use of solar
panels at our facilities, launched an Employee Community Solar
Program, and made our first investment in the China Clean
Energy Fund. We also earned accolades for our environmental
initiatives. In 2018, Corning won the Horizon 2020 Materials
for Clean Air Award from the European Commission for our
innovative air-purification technology. Corning also received its
fifth consecutive ENERGY STAR® Partner of the Year award and
third consecutive Sustained Excellence designation from the
U.S. Environmental Protection Agency.
Corning invests to strengthen the economy and enhance
the quality of life in the communities where we live and
work. Our investments include support for libraries, daycare
centers, schools, arts and cultural organizations, economic
development initiatives, and infrastructure improvements.
In 2018, we participated in the United Way Day of Action to
promote hands-on volunteer efforts in our communities. We
promoted literacy through initiatives such as the Corning
Valley Read-In Program. We helped underprivileged children
in China’s Sichuan Province gain better access to scientific
education through programs such as “Corning Glass Class.”
And we financed a new elementary school in Pune, India.
Corning is committed to ensuring an inclusive environment
for its employees around the world. In 2018, we celebrated
the 50th anniversary of Corning's formal diversity initiative.
What began in 1968 as a U.S.-centered, compliance-focused
effort has grown into a global celebration of diversity and
inclusion. Corning has received a score of 100 on the Corporate
Equality Index for 14 consecutive years. Corning also earned
a score of 100 on the 2018 Disability Equality Index and
was recognized as a “Best Place to Work” by the American
Association of People with Disabilities. In addition, Corning
was named a "Best of the Best Corporation for Inclusion"
by the National Gay & Lesbian Chamber of Commerce for
the third year in a row.
In 2018, Corning’s commitment to positive environmental,
social, and governance-related business practices resulted
in receiving an “AA” rating by MSCI ESG Research, Inc., placing
Corning among the top quartile of companies in our industry.
We are proud of Corning’s achievements, but we know our
sustainability efforts are a work in progress. In 2018, we
appointed our first sustainability director, and we look
forward to evolving our practices to continue making
Corning a better version of itself.
For more information about sustainability at Corning,
visit www.corning.com/sustainability
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Financial Highlights:
In millions, except per share amounts
As reported — GAAP Core performance*
2018
2017
2016
2018
2017
2016
Net Sales
$ 11,290
$ 10,116 $ 9,390
$ 11,398
$ 10,258
$ 9,440
Net income (loss) attributable
to Corning Incorporated
$ 1,066
$ (497)
$ 3,695
$ 1,673
$ 1,634
$ 1,651
Diluted earnings (loss) per common share
attributable to Corning Incorporated
$ 1.13
$ (0.66)
$ 3.23
$
1.78
$ 1.60
$ 1.44
* Core performance measures are non-GAAP financial measures. The reconciliation between these non-GAAP measures and their most
directly comparable GAAP measure is provided on pages 23 through 25 of this Annual Report, as well as on the Company’s website.
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Corning Incorporated 2018 Annual Report
Index
1
7
11
Business Description ...................................................................................................................................................
Risk Factors ...................................................................................................................................................................
Legal Proceedings ........................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and
12
Issuer Purchases of Equity Securities .......................................................................................................................
13
Selected Financial Data (Unaudited) .......................................................................................................................
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...........................
38
Quantitative and Qualitative Disclosures About Market Risks ...........................................................................
Management’s Annual Report on Internal Control over Financial Reporting ...................................................
39
Report of Independent Registered Public Accounting Firm ................................................................................. 40
41
Consolidated Statements of Income (Loss) .............................................................................................................
Consolidated Statements of Comprehensive Income ........................................................................................... 42
Consolidated Balance Sheets .................................................................................................................................... 43
Consolidated Statements of Cash Flows ................................................................................................................. 44
Consolidated Statements of Changes in Shareholders’ Equity ............................................................................ 45
Notes to Consolidated Financial Statements ......................................................................................................... 46
46
1. Summary of Significant Accounting Policies ............................................................................................................................................
2. Revenue ...........................................................................................................................................................................................................
3.
Inventories, Net of Inventory Reserves .......................................................................................................................................................
4.
Income Taxes ..................................................................................................................................................................................................
5.
Investments ....................................................................................................................................................................................................
6. Acquisitions ....................................................................................................................................................................................................
7. Property, Plant and Equipment, Net of Accumulated Depreciation ......................................................................................................
8. Goodwill and Other Intangible Assets .......................................................................................................................................................
9. Other Assets and Other Liabilities ..............................................................................................................................................................
10. Debt .................................................................................................................................................................................................................
11. Employee Retirement Plans .........................................................................................................................................................................
12. Commitments, Contingencies and Guarantees ........................................................................................................................................
13. Hedging Activities .........................................................................................................................................................................................
14. Fair Value Measurements .............................................................................................................................................................................
15. Shareholders’ Equity .....................................................................................................................................................................................
16. Earnings (Loss) Per Common Share .............................................................................................................................................................
51
52
52
56
58
58
59
60
61
62
69
70
73
74
77
17. Reportable Segments ....................................................................................................................................................................................
78
Valuation and Qualifying Accounts.......................................................................................................................... 82
Quarterly Operating Results ...................................................................................................................................... 83
Corning Incorporated and its consolidated subsidiaries are hereinafter sometimes referred to as the “Company,” the “Registrant,” “Corning,” or “we.”
This report contains forward-looking statements that involve a number of risks and uncertainties. These statements relate to our future plans,
objectives, expectations and estimates and may contain words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” or similar expressions.
Our actual results could differ materially from what is expressed or forecasted in our 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.
Business Description
General
Corning traces its origins to a glass business established in 1851. The
present corporation was incorporated in the State of New York in
December 1936. The Company’s name was changed from Corning Glass
Works to Corning Incorporated on April 28, 1989.
Corning Incorporated is a leading innovator in materials science. For more
than 165 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. We succeed
through sustained investment in research and development, a unique
combination of material and process innovation, and deep, trust-based
relationships with customers who are global leaders in their industries.
Corning’s capabilities are versatile and synergistic, which allows the
company to evolve to meet changing market needs, while also helping
our customers capture new opportunities in dynamic industries. Today,
Corning’s markets include optical communications, mobile consumer
electronics, display technology, automotive emissions control products,
and life sciences vessels. Corning’s industry-leading products include
damage-resistant cover glass for mobile devices; precision glass for
advanced displays; optical fiber, wireless technologies, and connectivity
solutions for state-of-the-art communications networks; trusted products
to accelerate drug discovery and delivery; and clean-air technologies for
cars and trucks.
Corning operates in five reportable segments: Display Technologies,
Optical Communications, Environmental Technologies, Specialty
Materials and Life Sciences, and manufactures products at 108 plants in
15 countries.
Display Technologies Segment
Corning’s Display Technologies segment manufactures glass substrates
for high performance displays, including organic light-emitting diode
(“OLEDs”) and liquid crystal displays (“LCDs”) that are used primarily
in televisions, notebook computers and flat panel desktop monitors.
This segment develops, manufactures and supplies high quality
glass substrates using technology expertise and a proprietary fusion
manufacturing process, which Corning invented and is the cornerstone
of the Company’s technology leadership in the display glass industry.
Our highly automated process yields glass substrates with a pristine
surface and excellent thermal dimensional stability and uniformity –
essential attributes in the production of large, high performance display
panels. Corning’s fusion process is scalable and we believe it is the most
cost-effective process in producing large size substrates.
We are recognized for providing product innovations that enable our
customers to produce larger, lighter, thinner and higher-resolution
displays. Some of the product innovations that we have launched over
the past ten years utilizing our world-class processes and capabilities
include the following:
• Corning® EAGLE XG® Glass, the industry’s first LCD glass substrate that
is free of heavy metals;
• Corning® EAGLE XG® Slim Glass, a line of thin glass substrates which
enables lighter-weight portable devices and thinner televisions
and monitors;
• Corning IRIS™ Glass, a light-guide plate solution which enables
televisions and monitors to be less the 5-mm thick;
• The family of Corning LOTUS™ Glass, high-performance display glass
developed to enable cutting-edge technologies, OLEDs and next
generation LCDs. These substrate glasses provide industry-leading
levels of low total pitch variation, resulting in brighter, more
energy-efficient displays with higher resolutions for consumers and
better yields for panel makers; and
• The world’s first Gen 10 and Gen 10.5 glass substrates in support of
improved efficiency in manufacturing large-sized televisions.
Corning has display glass manufacturing operations in South Korea,
Japan, Taiwan and China, and services all its glass customers in all
regions directly, utilizing its manufacturing facilities throughout Asia.
Patent protection and proprietary trade secrets are important to the
Display Technologies segment’s operations. Refer to the material under
the heading “Patents and Trademarks” for information relating to
patents and trademarks.
The Display Technologies segment represented 29% of Corning’s segment
net sales in 2018.
Optical Communications Segment
Corning invented the world’s first low-loss optical fiber in 1970. Since
that milestone, we have continued to pioneer optical fiber, cable and
connectivity solutions. As global bandwidth demand driven by video
usage grows exponentially, telecommunications networks continue
to migrate from copper to optical-based systems that can deliver the
required cost-effective bandwidth-carrying capacity. Our experience
puts us in a unique position to design and deliver optical solutions that
reach every edge of the communications network.
CORNING INCORPORATED - 2018 Annual Report
1
Business Description
This segment is classified into two main product groupings – carrier
network and enterprise network. The carrier network group consists
primarily of products and solutions for optical-based communications
infrastructure for services such as video, data and voice communications.
The enterprise network group consists primarily of optical-based
communication networks sold to businesses, governments and
individuals for their own use.
Our carrier network product portfolio encompasses an array of optical
fiber products, including Vascade® submarine optical fibers for use in
submarine networks; LEAF® optical fiber for long-haul, regional and
metropolitan networks; SMF-28® ULL fiber for more scalable long-haul
and regional networks; SMF-28e+™ single-mode optical fiber that
provides additional transmission wavelengths in metropolitan and
access networks; ClearCurve® ultra-bendable single-mode fiber for use
in multiple-dwelling units and fiber-to-the-home applications; and
Corning® SMF-28® Ultra Fiber, designed for high performance across
the range of long-haul, metro, access, and fiber-to-the-home network
applications, combining the benefits of industry-leading attenuation
and improved macrobend performance in one fiber. A portion of our
optical fiber is sold directly to end users and third-party cablers globally.
Corning’s remaining fiber production is cabled internally and sold to end
users as either bulk cable or as part of an integrated optical solution.
Corning’s cable products support various outdoor, indoor/outdoor and
indoor applications and include a broad range of loose tube, ribbon and
drop cable designs with flame-retardant versions available for indoor
and indoor/outdoor use.
In addition to optical fiber and cable, our carrier network product
portfolio also includes hardware and equipment products, including
cable assemblies, fiber optic hardware, fiber optic connectors, optical
components and couplers, closures, network interface devices, and other
accessories. These products may be sold as individual components or as
part of integrated optical connectivity solutions designed for various
carrier network applications. Examples of these solutions include our
FlexNAP™ terminal distribution system, which provides pre-connectorized
distribution and drop cable assemblies for cost-effectively deploying
fiber-to-the-home (“FTTH”) networks; and the Centrix™ platform, which
provides a high-density fiber management system with industry-leading
density and innovative jumper routing that can be deployed in a wide
variety of carrier switching centers.
To keep pace with surging demand for mobile bandwidth, Corning has a
full complement of operator-grade distributed antenna systems (“DAS”),
including the recently developed Optical Network Evolution wireless
platform. The ONE™ Wireless Platform (“ONE”) is the first all-optical
converged cellular and Wi-Fi® solution built on an all-optical backbone
with modular service support. It provides virtually unlimited bandwidth,
and meets all wireless service needs of large-scale enterprises at a lower
cost than the typical DAS solution.
In addition to our optical-based portfolio, Corning’s carrier network
portfolio also contains select copper-based products including subscriber
demarcation, connection and protection devices, xDSL (different
variations of digital subscriber lines) passive solutions and outside plant
enclosures. In addition, Corning offers coaxial RF interconnects for the
cable television industry as well as for microwave applications for GPS,
radars, satellites, manned and unmanned military vehicles, and wireless
and telecommunications systems.
Our enterprise network portfolio also includes optical fiber products,
including ClearCurve® ultra-bendable multimode fiber for data centers
and other enterprise network applications; InfiniCor® fibers for local
area networks; and more recently ClearCurve® VSDN® ultra-bendable
optical fiber designed to support emerging high-speed interconnects
between computers and other consumer electronics devices. The
remainder of Corning’s fiber production is cabled internally and sold to
end users as either bulk cable or as part of an integrated optical solution.
Corning’s cable products include a broad range of tight-buffered, loose
tube and ribbon cable designs with flame-retardant versions available
for indoor and indoor/outdoor applications that meet local building
code requirements.
Corning’s hardware and equipment for enterprise network applications
include cable assemblies, fiber optic hardware, fiber optic connectors,
optical components and couplers, closures and other accessories. These
products may be sold as individual components or as part of integrated
optical connectivity solutions designed for various network applications.
Examples of enterprise network solutions include the Pretium EDGE®
platform, which provides high-density pre-connectorized solutions for
data center applications, and continues to evolve with recent updates for
upgrading to 40/100G applications and port tap modules for network
monitoring; the previously mentioned ONE Wireless platform, which
spans both carrier and enterprise network applications; and our recently
introduced optical connectivity solutions to support customer initiatives.
In December 2017, Corning announced that it had entered into
agreements with the 3M Company (3M) to purchase substantially all its
Communication Markets Division (“CMD”) in a cash transaction. During
2018, Corning acquired substantially all of CMD for $841 million.
Corning believes that this transaction will augment its Optical
Communications segment’s global market access and expand its
broad portfolio of high-bandwidth optical connectors, assemblies,
hardware, and accessories for carrier networks, enterprise LAN, and data
center solutions.
Our optical fiber manufacturing facilities are in North Carolina, China
and India. Cabling operations are in North Carolina, Germany, Poland,
China and smaller regional locations. Our manufacturing operations for
hardware and equipment products are in Texas, Arizona, Mexico, Brazil,
Denmark, Germany, Poland, Israel, Australia and China.
Patent protection is important to the segment’s operations. The
segment has an extensive portfolio of patents relating to its products,
technologies and manufacturing processes. The segment licenses certain
of its patents to third parties and generates revenue from these licenses,
although the royalty income is not currently material to this segment’s
operating results. Corning is licensed to use certain patents owned by
others, which are considered important to the segment’s operations.
Refer to the material under the heading “Patents and Trademarks” for
information relating to the Company’s patents and trademarks.
The Optical Communications segment represented 37% of Corning’s
segment net sales in 2018.
Specialty Materials Segment
The Specialty Materials segment manufactures products that provide
more than 150 material formulations for glass, glass ceramics and fluoride
crystals to meet demand for unique customer needs. Consequently, this
segment operates in a wide variety of commercial and industrial markets
that include display optics and components, semiconductor optics
components, aerospace and defense, astronomy, ophthalmic products,
telecommunications components and cover glass that is optimized for
display devices.
2 CORNING INCORPORATED - 2018 Annual Report
Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass
designed specifically to function as a cover glass for display devices such
as mobile phones, tablets and notebook PCs. Elegant and lightweight,
Corning Gorilla Glass is durable enough to resist many real-world
events that commonly cause glass failure, while maintaining optical
clarity, touch sensitivity, and damage resistance, enabling exciting new
applications in technology and design. In 2018, Corning unveiled its
latest Corning Gorilla Glass innovation, Corning® Gorilla® Glass 6, which
is designed to be stronger than previous formulas and provide further
protection against breakage. Gorilla Glass 6 survives higher drop heights
than Gorilla Glass 5, and survives repeated drops.
Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan
and Taiwan.
Semiconductor optics manufactured by Corning
includes high-
performance optical material products, optical-based metrology
instruments, and optical assemblies for applications in the global
semiconductor industry. Corning’s semiconductor optics products are
manufactured in New York.
lens and window
Other specialty glass products
components and assemblies and are made in New York, New Hampshire
and France, and sourced from China.
include glass
Patent protection is important to the segment’s operations. The segment
has a growing portfolio of patents relating to its products, technologies
and manufacturing processes. Brand recognition and loyalty, through
well-known trademarks, are important to the segment. Refer to the
material under the heading “Patents and Trademarks” for information
relating to the Company’s patents and trademarks.
The Specialty Materials segment represented approximately 13% of
Corning’s segment net sales in 2018.
Environmental Technologies Segment
Corning’s Environmental Technologies segment manufactures ceramic
substrates and filter products for emissions control in mobile applications
around the world. In the early 1970s, Corning developed an economical,
high-performance cellular ceramic substrate that is now the standard
for catalytic converters in vehicles worldwide. As global emissions control
regulations tighten, Corning has continued to develop more effective
and durable ceramic substrate and filter products for gasoline and
diesel applications. For example, in response to the growing popularity
of gasoline direct injection engines, Corning introduced gasoline
particulate filters to help automakers reduce particulate emissions
generated by these engines. Corning manufactures substrate and filter
products in New York, Virginia, China, Germany and South Africa. Corning
sells its ceramic substrate and filter products worldwide to catalyzers
and manufacturers of emission control systems who then sell to
automotive and diesel vehicle or engine manufacturers. Although most
sales are made to the emission control systems manufacturers, the use of
Corning substrates and filters is generally required by the specifications
of the automotive and diesel vehicle or engine manufacturers.
Business Description
Patent protection is important to the segment’s operations. The
segment has an extensive portfolio of patents relating to its products,
technologies and manufacturing processes. Corning is licensed to use
certain patents owned by others, which are also considered important
to the segment’s operations. Refer to the material under the heading
“Patents and Trademarks” for information relating to the Company’s
patents and trademarks.
The Environmental Technologies segment represented 11% of Corning’s
segment net sales in 2018.
Life Sciences Segment
As a leading developer, manufacturer and global supplier of laboratory
products for over 100 years, Corning’s Life Sciences segment works with
researchers and drug manufacturers seeking to increase efficiencies,
reduce costs and compress timelines. Using unique expertise in the fields
of materials science, polymer surface science, cell culture and biology,
the segment provides innovative solutions that improve productivity
and enable breakthrough research.
Life Sciences products include consumables (such as plastic vessels,
specialty surfaces, cell culture media and serum), as well as general
labware and equipment, that are used for advanced cell culture research,
bioprocessing, genomics, drug discovery, microbiology and chemistry.
Corning sells life sciences products under these primary brands: Corning,
Falcon, Pyrex and Axygen. The products are marketed globally, primarily
through distributors, to pharmaceutical and biotechnology companies,
academic
institutions, hospitals, government entities, and other
facilities. Corning manufactures these products in the United States in
California, Illinois, Maine, Massachusetts, New York, North Carolina, Utah
and Virginia and outside of the U.S. in China, France, Mexico and Poland.
Patent protection is important to the segment’s operations. The
segment has a growing portfolio of patents relating to its products,
technologies and manufacturing processes. Brand recognition and
loyalty, through well-known trademarks, are important to the segment.
Refer to the material under the heading “Patents and Trademarks” for
more information.
The Life Sciences segment represented 8% of Corning’s segment net
sales in 2018.
All Other
All other segments that do not meet the quantitative threshold for
separate reporting have been grouped as “All Other.” This group is primarily
comprised of the results of the pharmaceutical technologies business
and new product lines and development projects, as well as certain
corporate investments such as Eurokera and Keraglass equity affiliates.
The All Other segment represented 2% of Corning’s segment net sales
in 2018.
Additional explanation regarding Corning and its five reportable
segments, as well as financial information about geographic areas,
is presented in Management’s Discussion and Analysis of Financial
Condition and Results of Operations and Note 17 (Reportable Segments)
to the Consolidated Financial Statements.
CORNING INCORPORATED - 2018 Annual Report
3
Business Description
Corporate Investments
Dow Corning Corporation and Hemlock Semiconductor Group (“HSG”).
Prior to May 31, 2016, Corning and The Dow Chemical Company
(“Dow Chemical”) each owned half of Dow Corning Corporation
(“Dow Corning”), an equity company headquartered in Michigan that
manufactures silicone products worldwide. Dow Corning was the
majority-owner of HSG, a market leader in the production of high purity
polycrystalline silicon for the semiconductor and solar energy industries.
On May 31, 2016, Corning completed the strategic realignment of
its equity investment in Dow Corning pursuant to the Transaction
Agreement announced in December 2015. Under the terms of the
Transaction Agreement, Corning exchanged with Dow Corning its
50% stock interest in Dow Corning for 100% of the stock of a newly
formed entity, which held an equity interest in HSG and approximately
$4.8 billion in cash.
Prior to realignment, HSG, a consolidated subsidiary of Dow Corning,
was an indirect equity investment of Corning. Upon completion of the
exchange, Corning now has a direct equity investment in HSG. Because
our ownership percentage in HSG did not change as a result of the
realignment, the investment in HSG is recorded at its carrying value,
which had a negative carrying value of $383 million at the transaction
date. The negative carrying value resulted from a one-time charge to
this entity in 2014 for the permanent abandonment of certain assets.
Excluding this charge, the entity is profitable and recovered its equity
during 2018.
Pittsburgh Corning Corporation. Prior to the second quarter of 2016,
Corning and PPG Industries, Inc. each owned 50% of the capital stock
of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11
reorganization in 2000 and the Modified Third Amended Plan of
Reorganization for PCC (the “Plan”) became effective in April 2016. In
the second quarter of 2016, Corning contributed its equity interests
in PCC and Pittsburgh Corning Europe N.V. as required by the Plan and
recognized a gain of $56 million for the difference between the fair value
of the asbestos litigation liability and carrying value of the investment.
Additional information about corporate investments is presented in
Note 5 (Investments) to the Consolidated Financial Statements.
Competition
Corning competes with many large and varied manufacturers, both
domestic and foreign. Some of these competitors are larger than Corning,
and some have broader product lines. Corning strives to maintain and
improve its market position through technology and product innovation.
For the foreseeable future, Corning believes its competitive advantage
lies in its commitment to research and development, its commitment
to reliability of supply and product quality and technical specification of
its products. There is no assurance that Corning will be able to maintain
or improve its market position or competitive advantage.
Display Technologies Segment
Corning is the largest worldwide producer of glass substrates for high
performance display glass. The environment for high performance display
glass substrate products is very competitive and Corning believes it has
maintained its competitive advantages by investing in new products,
providing a consistent and reliable supply, and continually improving
its proprietary fusion manufacturing process. This process allows us to
deliver glass that is larger, thinner and lighter, with exceptional surface
quality and without heavy metals. Asahi Glass Co. Ltd. and Nippon
Electric Glass Co. Ltd. are Corning’s principal competitors in display
glass substrates.
Optical Communications Segment
Corning believes it maintains a leadership position in the segment’s
principal product groups, which include carrier and enterprise networks.
The competitive
industry consolidation, price
includes
pressure and competition for the innovation of new products. These
competitive conditions are likely to persist. Corning believes its large-
scale manufacturing experience, fiber process, technology leadership
and intellectual property provide cost advantages relative to several of
its competitors.
landscape
The primary competing producers of the Optical Communications
segment are CommScope and Prysmian Group.
4 CORNING INCORPORATED - 2018 Annual Report
Specialty Materials Segment
Corning has deep capabilities in materials science, optical design,
shaping, coating, finishing, metrology, and system assembly. Additionally,
we are addressing emerging needs of the consumer electronics industry
with the development of chemically strengthened glass. Corning
Gorilla Glass is a thin-sheet glass that is better able to survive events
that most commonly cause glass failure. Its advanced composition
allows a deeper layer of chemical strengthening than is possible with
most other chemically strengthened glasses, making it both durable
and damage resistant. Our products and capabilities in this segment
position the Company to meet the needs of a broad array of markets
including display, semiconductor, aerospace/defense, astronomy, vision
care, industrial/commercial, and telecommunications. For this segment,
Schott, Asahi Glass Co. Ltd., Nippon Electric Glass Co. Ltd. and Heraeus are
the main competitors.
Environmental Technologies Segment
Corning believes it maintains a strong position in the worldwide market
for automotive ceramic substrate and filter products, as well as in the
heavy-duty and light-duty diesel vehicle markets. The Company believes
its competitive advantage in automotive ceramic substrate products
for catalytic converters and filter products for particulate emissions
in exhaust systems is based on an advantaged product portfolio,
collaborative engineering design services, customer service and support,
strategic global presence and continued product innovation. Corning’s
Environmental Technologies products face principal competition from
NGK Insulators, Ltd. and Ibiden Co. Ltd.
Life Sciences Segment
Corning seeks to maintain a competitive advantage by emphasizing
product quality, global distribution, supply chain efficiency, a broad
product line and superior product attributes. Our principal competitors
include Thermo Fisher Scientific, Inc., Greiner Group AG, Eppendorf AG
and Starstedt AG. Corning also faces increasing competition from large
distributors that have pursued backward integration or introduced
private label products.
Raw Materials
Corning’s manufacturing processes and products require access to
uninterrupted power sources, significant quantities of industrial water,
certain precious metals, and various batch materials. Availability of
resources (ores, minerals, polymers, helium and processed chemicals)
required in manufacturing operations, appears to be adequate. Corning’s
suppliers, from time to time, may experience capacity limitations in
their own operations, or may eliminate certain product lines. Corning
believes it has adequate programs to ensure a reliable supply of raw and
batch materials as well as precious metals. For many of its materials,
Corning has alternate suppliers that would allow operations to continue
without interruption in the event of specific materials shortages.
Patents and Trademarks
Inventions by members of Corning’s research and engineering staff
continue to be important to the Company’s growth. Patents have
been granted on many of these inventions in the United States and
other countries. Some of these patents have been licensed to other
manufacturers. Many of our earlier patents have now expired, but
Corning continues to seek and obtain patents protecting its innovations.
In 2018, Corning was granted about 520 patents in the U.S. and over
1,430 patents in countries outside the U.S.
Each business segment possesses a patent portfolio that provides
certain competitive advantages in protecting Corning’s innovations.
Corning has historically enforced, and will continue to enforce, its
intellectual property rights. At the end of 2018, Corning and its wholly-
owned subsidiaries owned over 11,600 unexpired patents in various
countries of which over 4,400 were U.S. patents. Between 2019 and
2021, approximately 11% of these patents will expire, while at the same
time Corning intends to seek patents protecting its newer innovations.
Worldwide, Corning has about 10,300 patent applications in process,
with about 2,500 in process in the U.S. Corning believes that its patent
portfolio will continue to provide a competitive advantage in protecting
the Company’s innovation, although Corning’s competitors in each of its
businesses are actively seeking patent protection as well.
While each of our reportable segments has numerous patents in
various countries, no one patent is considered material to any of these
segments. Important U.S.-issued patents in our reportable segments
include the following:
• Display Technologies: patents relating to glass compositions and
methods for the use and manufacture of glass substrates for
display applications.
Approximate number of patents granted to our reportable segments follows:
Display Technologies
Optical Communications
Environmental Technologies
Specialty Materials
Life Sciences
Business Description
Certain key materials and proprietary equipment used
in the
manufacturing of products are currently sole-sourced or available only
from a limited number of suppliers. To minimize this risk, Corning closely
monitors raw materials and equipment with limited availability or
which are sourced through one supplier. However, any future difficulty
in obtaining sufficient and timely delivery of components and/or raw
materials could result in lost sales due to delays or reductions in product
shipments, or reductions in Corning’s gross margins.
• Optical Communications: patents relating to (i) optical fiber products
including low-loss optical fiber, high data rate optical fiber, and
dispersion compensating fiber, and processes and equipment for
manufacturing optical fiber, including methods for making optical
fiber preforms and methods for drawing, cooling and winding
optical fiber; (ii) optical fiber ribbons and methods for making such
ribbon, fiber optic cable designs and methods for installing optical
fiber cable; (iii) optical fiber connectors, hardware, termination and
storage and associated methods of manufacture; and (iv) distributed
communication systems.
• Environmental Technologies: patents relating to cellular ceramic
honeycomb products, together with ceramic batch and binder
system compositions, honeycomb extrusion and firing processes,
and honeycomb extrusion dies and equipment for the high-volume,
low-cost manufacture of such products.
• Specialty Materials: patents relating to protective cover glass, ophthalmic
glasses and polarizing dyes, and semiconductor/microlithography
optics and blanks, metrology instrumentation and laser/precision
optics, glass polarizers, specialty fiber, and refractories.
• Life Sciences: patents relating to methods and apparatus for the
manufacture and use of scientific laboratory equipment including
multiwell plates and cell culture products, as well as equipment and
processes for label independent drug discovery.
Products reported in All Other include development projects, new
product lines, and other businesses or investments that do not meet the
threshold for separate reporting.
Number of
patents
worldwide
U.S. patents
Important
patents expiring
between 2019
and 2021
1,700
5,060
1,100
1,600
560
340
2,340
380
680
240
6
27
14
7
1
Many of the Company’s patents are used in operations or are licensed for
use by others, and Corning is licensed to use patents owned by others.
Corning has entered into cross-licensing arrangements with some major
competitors, but the scope of such licenses has been limited to specific
product areas or technologies.
Corning’s principal trademarks include the following: Axygen, Corning,
Celcor, ClearCurve, DuraTrap, Eagle XG, EDGE8, Gorilla, HPFS, LEAF, PYREX,
Steuben, Falcon, SMF-28e, UniCam, Valor, Willow, LOTUS and IRIS.
CORNING INCORPORATED - 2018 Annual Report
5
Business Description
Protection of the Environment
Corning has an extensive program to ensure that its facilities are in
compliance with state, federal and foreign pollution-control regulations.
This program has resulted in capital and operating expenditures each
year. To maintain compliance with such regulations, capital expenditures
for pollution control in operations were approximately $11.3 million in
2018 and are estimated to be $21.1 million in 2019.
Corning’s 2018 consolidated operating results were charged with
approximately $47 million for depreciation, maintenance, waste disposal
and other operating expenses associated with pollution control.
Corning believes that its compliance program does not place it at a
competitive disadvantage.
Employees
At December 31, 2018, Corning had approximately 51,500 full-time employees. From time to time, Corning also retains consultants, independent
contractors, temporary and part-time workers.
Executive Officers
James P. Clappin Executive Vice President, Corning Glass Technologies
Lawrence D. McRae Vice Chairman and Corporate Development Officer
Mr. Clappin joined Corning in 1980 as a process engineer. He transitioned
to GTE Corporation in 1983 and returned to Corning in 1988. He held a
variety of manufacturing management roles in the consumer products
division, transferring to the display business in 1994. He was appointed
as general manager of Corning Display Technologies (CDT) in 2002,
and was president of CDT from September 2005 to July 2010. He was
appointed president, Corning Glass Technologies, in 2010. He was
appointed to his present position in 2017. Age 61.
Mr. McRae joined Corning in 1985 and has held a broad range of leadership
positions in various finance, sales, marketing, and general management
across Corning’s businesses. He was appointed vice president Corporate
Development in 2000, senior vice president Corporate Development
in 2003, senior vice president Strategy and Corporate Development in
2005, and executive vice president Strategy and Corporate Development
in 2010. Mr. McRae has served on Corning’s management committee
since 2002 and was named vice chairman in 2015. Age 60.
Martin J. Curran Executive Vice President and Corning Innovation Officer
David L. Morse Executive Vice President and Chief Technology Officer
Mr. Curran joined Corning in 1984 and has held a variety of roles in
finance, manufacturing, and marketing. He has served as senior vice
president, general manager for Corning Cable Systems Hardware and
Equipment Operations in the Americas, responsible for operations in
Hickory, North Carolina; Keller, Texas; Reynosa, Mexico; Shanghai, China;
and the Dominican Republic. He has also served as senior vice president
and general manager for Corning Optical Fiber. Mr. Curran was appointed
as Corning’s first innovation officer in August 2012. Age 60.
Jeffrey W. Evenson Executive Vice President and Chief Strategy Officer
Dr. Evenson joined Corning in 2011 as senior vice president and operations
chief of staff. In 2015, he was named Chief Strategy Officer. He serves on
the Management Committee and oversees corporate strategy, corporate
communications, and advanced analytics. Prior to joining Corning,
Dr. Evenson was a senior vice president with Sanford C. Bernstein, where
he served as a senior analyst. Before that, Dr. Evenson was a partner at
McKinsey & Company, where he led technology and market assessment
for early-stage technologies. He was appointed executive vice president
in 2018. Age 53.
Clark S. Kinlin Executive Vice President
Mr. Kinlin joined Corning in 1981 in the Specialty Materials division. From
1985 to 1995 he worked in the Optical Fiber division. In 1995, he joined
Corning Consumer Products. In 2000, Mr. Kinlin was named president,
Corning International Corporation and, in 2003, he was appointed as
general manager for Greater China. From April 2007 to March 2008,
he was chief operating officer, Corning Cable Systems, (now Corning
Optical Communications) with responsibility for global sales, marketing,
and operations. He was named president and chief executive officer of
Corning Cable Systems in April 2008. He was appointed executive vice
president in 2012. Age 59.
Dr. Morse joined Corning in 1976 as a composition scientist in glass
research. In 1985, he was named senior research associate, manager
of consumer products development in 1987 and director of materials
research in 1990. He served in a variety of technology leadership
positions in organic materials and telecommunications before joining
corporate research in 2001. Prior to his current role, he served as senior
vice president and director, corporate research. Dr. Morse was appointed
to his current position in 2012. He is a member of the National Academy
of Engineering. Age 66.
Eric S. Musser Executive Vice President, Corning Technologies and
International
Mr. Musser joined Corning in 1986 and served in a variety of
manufacturing and general management roles in Corning’s optical
communications businesses. In 2005, he was named vice president and
general manager of Optical Fiber. Mr. Musser served as general manager,
Corning Greater China 2007-2012 and president of Corning International
2012-2014. He was appointed executive vice president in 2014. Age 59.
Christine M. Pambianchi Executive Vice President, People and Digital
Ms. Pambianchi joined Corning in 2000 as division human resource
manager, Corning Optical Fiber, and later was named director, Human
Resources, Corning Optical Communications. She was named division
vice president, Business Human Resource in 2004. She has led the
Human Resources function since January 2008 when she was named
vice president, Human Resources. Ms. Pambianchi was appointed as
senior vice president, Human Resources, in 2010 and to her current role
in 2018. Age 50.
6 CORNING INCORPORATED - 2018 Annual Report
Risk Factors
controller and, in 1996, corporate controller. Mr. Tripeny was appointed
chief financial officer of Corning Cable Systems in July 2000 and, in 2003,
he took on the additional role of group controller, Telecommunications.
He was appointed division vice president, operations controller in
August 2004, vice president, corporate controller in October 2005, and
senior vice president and principal accounting officer in April 2009. Mr.
Tripeny was then appointed as Corning’s senior vice president and chief
financial officer in September 2015. He was appointed executive vice
president in 2018. Age 59.
Wendell P. Weeks Chairman, Chief Executive Officer and President
Mr. Weeks joined Corning in 1983 in the finance group. He has held a
variety of financial, business development, commercial, and general
management roles. In 1993 he was named general manager of external
development in Corning’s telecommunications business. He was named
vice president and general manager of the Optical Fiber business in 1996
and president, Corning Optical Communications in 2001. Mr. Weeks has
been a member of Corning’s Board of Directors since December 2000. He
became Corning’s president and chief operating officer in 2002. He was
named chief executive officer in April 2005 and chairman of the board in
April 2007. He added the title of president in 2010. Mr. Weeks is a director
of Merck & Co. Inc. and Amazon.com, Inc. Age 59.
Edward A. Schlesinger Senior Vice President and Corporate Controller
Mr. Schlesinger joined Corning in 2013 as senior vice president and
chief financial officer of Corning Optical Communications. He was
elected vice president and corporate controller in September 2015 and
principal accounting officer in December 2015. He was named senior
vice president in February 2019. Prior to joining Corning, Mr. Schlesinger
served as Vice President, Finance and Sector Chief Financial Officer for
the Climate Solutions Sector for Ingersoll Rand. Mr. Schlesinger has a
financial career that spans more than 20 years garnering extensive
expertise in technical financial management and reporting. Age 51.
Lewis A. Steverson Executive Vice President and General Counsel
Mr. Steverson joined Corning in 2013 as senior vice president and
general counsel. Prior to joining Corning, Mr. Steverson served as senior
vice president, general counsel, and corporate secretary of Motorola
Solutions, Inc. During his 18 years with Motorola, he held a variety of law
leadership roles across the company’s numerous business units. Prior to
Motorola, Mr. Steverson was in private practice at the law firm of Arnold
& Porter. He was appointed executive vice president in 2018. Age 55.
R. Tony Tripeny Executive Vice President and Chief Financial Officer
Mr. Tripeny joined Corning Cable Systems in 1985 as the corporate
accounting manager and became the Keller, Texas facility’s plant
controller in 1989. In 1993, he was appointed equipment division
Document Availability
A copy of Corning’s 2018 Annual Report on Form 10-K filed with
the Securities and Exchange Commission is available upon written
request to Corporate Secretary, Corning Incorporated, One Riverfront
Plaza, Corning, NY 14831. The Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments
pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 and
other filings are available as soon as reasonably practicable after such
material is electronically filed or furnished to the SEC, and can be
accessed electronically free of charge at www.SEC.gov, or through the
Investor Relations page on Corning’s website at www.corning.com. The
information contained on the Company’s website is not included in, or
incorporated by reference into, this Annual Report on Form 10-K.
Risk Factors
We operate in rapidly changing economic, political, and technological
environments that present numerous risks. Our operations and financial
results are subject to risks and uncertainties, including those described
below, that could adversely affect our business, financial condition,
results of operations, cash flows, our ability to successfully execute our
strategy and capital allocation framework, and the trading price of our
common stock or debt. The following discussion identifies the most
significant factors that may adversely affect our business, operations,
financial position or future financial performance. This information
should be read in conjunction with our MD&A and the consolidated
financial statements and related notes incorporated by reference into
this report. The following discussion of risks is not all inclusive but is
designed to highlight what we believe are important factors to consider,
as these factors could cause our future results to differ from those in our
forward-looking statements and from historical trends.
As a global company, we face many risks which could adversely impact
our operations and financial results
We are a global company and derive a substantial portion of our
revenues from, and have significant operations, outside of the United
States. Our international operations include manufacturing, assembly,
sales, research and development, customer support, and shared
administrative service centers. Additionally, we rely on a global supply
chain for key components and capabilities that are central to our ability
to invent, make and sell products.
Compliance with laws and regulations increases our costs. We are subject
to both U.S. laws and local laws which, among other things, include
data privacy requirements, employment and labor laws, tax laws, anti-
competition regulations, prohibitions on payments to governmental
officials, import and trade restrictions and export requirements.
Non-compliance or violations could result in fines, criminal sanctions
against us, our officers or employees, and prohibitions on the conduct of
our business. Such violations could result in prohibitions on our ability
to offer our products and services in one or more countries and could
also materially damage our reputation, our brand, our international
expansion efforts, our ability to attract and retain employees, our
business and operating results. Our success depends, in part, on our
ability to anticipate and manage these risks.
CORNING INCORPORATED - 2018 Annual Report
7
Risk Factors
We are also subject to a variety of other risks in managing a global
organization, including those related to:
• Complex, or competing tax regimes;
• Difficulty in collecting obligations owed to us;
• The economic and political conditions in each country or region;
• Complex regulatory requirements affecting international trade and
investment, including anti-dumping laws, export controls, the Foreign
Corrupt Practices Act and local laws prohibiting improper payments.
Our operations may be adversely affected by changes in the substance
or enforcement of these regulatory requirements, and by actual or
alleged violations of them;
• Fluctuations in currency exchange rates, convertibility of currencies and
restrictions involving the movement of funds between jurisdictions
and countries;
• Governmental protectionist policies and sovereign and political risks
that may adversely affect Corning’s profitability and assets;
• Tariffs,
trade duties and other
trade barriers
including
anti-dumping duties;
• Geographical concentration of our factories and operations, and
regional shifts in our customer base;
• Periodic health epidemic concerns;
• Political unrest, confiscation or expropriation of assets by foreign
governments, terrorism and the potential for other hostilities;
• Difficulty in protecting intellectual property, sensitive commercial and
operations data, and information technology systems;
• Differing legal systems, including protection and treatment of
intellectual property and patents;
• Natural disasters such as floods, earthquakes, tsunamis and
windstorms; and
• Potential loss of utilities or other disruption affecting manufacturing.
Corning’s Display Technologies segment generates a significant amount
of the Company’s profits and cash flow. Any significant decrease in
display glass pricing could have a material and negative impact on our
financial results
Corning’s ability to generate profits and operating cash flow depends
largely on the profitability of our display glass business, which is subject
to continuous pricing pressure due to industry competition, potential
over-capacity, and development of new technologies. If we are not able
to achieve proportionate reductions in costs and increases in volume
to offset potential pricing pressures it could have a material adverse
impact on our financial results.
Because we have a concentrated customer base in each of our
businesses, our sales could be negatively impacted by the actions or
insolvency of one or more key customers, as well as our ability to retain
these customers
A relatively small number of end-customers accounted for a high
percentage of net sales in each of our reportable segments. Mergers and
consolidations between customers could result in further concentration
of Corning’s customer base. Further concentration, or the loss or
insolvency of a key customer, could result in a substantial loss of sales
and reduction in anticipated in cash flows.
The following table details the number of combined customers of our segments that accounted for a large percentage of segment net sales:
Display Technologies
Optical Communications
Specialty Materials
Environmental Technologies
Life Sciences
Business disruptions could affect our operating results
A major earthquake, fire or other catastrophic event that results in the
destruction or disruption of any of our critical facilities could severely
affect our ability to conduct normal business operations and, as a result,
our future financial results could be materially and adversely affected. For
example, certain manufacturing sites require high quality, continuous,
and uninterrupted power and access to industrial water. Unplanned
outages could have a material negative impact on our operations and
ability to supply our customers.
Additionally, a significant amount of the specialized manufacturing
capacity for our reportable segments is concentrated in single-site
locations. Due to the specialized nature of the assets, in the event
such a location experiences disruption, it may not be possible to find
replacement capacity quickly or substitute production from other
facilities. Accordingly, disruption at a single-site manufacturing operation
could significantly impact Corning’s ability to supply its customers and
could produce a near-term severe impact on our individual businesses
and the Company as a whole.
Number of
combined
customers
% of total
segment net sales
in 2018
4
1
3
3
2
70%
18%
58%
78%
44%
Geopolitical events, as well as other events outside of Corning’s control,
could cause a disruption to our manufacturing operations and adversely
impact our customers, resulting in a negative impact to Corning’s net
sales, net income, asset values and liquidity
A natural disaster, epidemic, labor strike, war or political unrest in
regions where we operate could adversely affect Corning’s ability
to supply our customers and impact the value of our assets. Such
events may also impact our customers’ facilities and reduce our sales
to such customers. For example, a sizeable portion of Corning’s glass
manufacturing capacity is in South Korea and we generate a significant
portion of our sales through two South Korean customers. Deterioration
of the geopolitical climate in such a region could cause a disruption to
our manufacturing operations and adversely impact our customers,
resulting in a negative impact to Corning’s net sales, net income, asset
values and liquidity.
8 CORNING INCORPORATED - 2018 Annual Report
We may experience difficulties in enforcing our intellectual property
rights, which could result in loss of market share, and we may be subject
to claims of infringement of the intellectual property rights of others
We rely on patent and trade secret laws, copyright, trademark,
confidentiality procedures, controls and contractual commitments
to protect our intellectual property rights. Despite our efforts, these
protections may be limited and we may encounter difficulties in
protecting our intellectual property rights or obtaining rights to
additional intellectual property necessary to permit us to continue or
expand our businesses. We cannot provide assurance that the patents
that we hold or may obtain will provide meaningful protection against
our competitors. Changes in or enforcement of laws concerning
intellectual property may affect our ability to prevent or address the
misappropriation of, or the unauthorized use of, our intellectual property,
potentially resulting in loss of market share. Litigation may be necessary
to enforce our intellectual property rights. Litigation is inherently
uncertain and outcomes are often unpredictable. If we cannot protect
our intellectual property rights against unauthorized copying or use, or
other misappropriation, we may not remain competitive.
The intellectual property rights of others could inhibit our ability to
introduce new products. Other companies hold patents on technologies
used in our industries and are aggressively seeking to expand, enforce
and license their patent portfolios. We periodically receive notices from,
or have lawsuits filed against us by third parties claiming infringement,
misappropriation or other misuse of their intellectual property rights
and/or breach of our agreements with them. These third parties often
include entities that do not have the capabilities to design, manufacture,
or distribute products or that acquire intellectual property like patents
for the sole purpose of monetizing their acquired intellectual property
through asserting claims of infringement and misuse. Such claims
of infringement or misappropriation may result in loss of revenue,
substantial costs, or lead to monetary damages or injunctive relief
against us.
Information technology dependency and cyber security vulnerabilities
could lead to reduced revenue, liability claims, or competitive harm
intrusion,
The Company is dependent on information technology systems and
infrastructure, including cloud-based services, (“IT systems”) to conduct
its business. Our IT systems may be vulnerable to disruptions from
human error, outdated applications, computer viruses, natural disasters,
unauthorized access, cyber-attack and other similar disruptions.
Any significant disruption, breakdown,
interruption or
corruption of these systems or data breaches could cause the loss
of data or intellectual property, equipment damage, downtime, and/
or safety related issues and could have a material adverse effect on
our business. Like other global companies, we have, from time to
time, experienced incidents related to our IT systems, and expect that
such incidents will continue, including malware and computer virus
outbreaks, unauthorized access, systems failures and disruptions. We
have measures and defenses in place against such events, but we may
not be able to prevent, immediately detect, or remediate all instances
of such events. A material security breach or disruption of our IT
systems could result in theft, unauthorized use, or publication of our
intellectual property and/or confidential business information, harm our
competitive position, disrupt our manufacturing, reduce the value of our
investment in research and development and other strategic initiatives,
impair our ability to access vendors, suppliers and cloud-based services,
or otherwise adversely affect our business.
Additionally, we believe that utilities and other operators of critical
infrastructure that serve our facilities face heightened security risks,
including cyber-attack. In the event of such an attack, disruption in
service from our utility providers could disrupt our manufacturing
operations which rely on a continuous source of power (electrical,
gas, etc.).
Risk Factors
We may not earn a positive return from our research, development and
engineering investments
Developing our products through our innovation model of research and
development is expensive and often involves a long investment cycle. We
make significant expenditures and investments in research, development
and engineering that may not earn an economic return. If our investments
do not provide a pipeline of products or technologies that our customers
demand or lower our manufacturing costs, it could negatively impact our
revenues and operating margins both near- and long-term.
We have significant exposure to foreign currency movements
A large portion of our sales, profit and cash flows are transacted in non-
U.S. dollar currencies and we expect that we will continue to experience
fluctuations in the US Dollar value of these activities if it is not possible
or cost effective to hedge our currency exposures or should we elect not
to hedge certain currency exposures. Alternatively, we may experience
gains or losses if the underlying exposure which we have hedged
changes (increases or decreases) and we are unable to reverse, unwind,
or terminate the hedges concurrent with changes in the underlying
notional exposure.
Our ultimate realized loss or gain with respect to currency fluctuations
will generally depend on the size and type of cross-currency exposures
that we have, the exchange rates associated with these exposures and
changes in those rates, whether we have entered into foreign currency
contracts to offset these exposures and other factors.
Our hedge portfolio may reduce our ability to respond to price moves
by our Display Technologies segment competitors. Foreign currency
movements may impact our competitive cost position relative to our
largest, Japan-based competitors in the Display Technologies segment.
The profitability of customers may also be impacted as they typically
purchase from us in Japanese yen and they sell in various currencies.
These factors could materially impact our results of operations,
anticipated future results, financial position and cash flows, the timing
of which is variable and generally outside of our control.
We may have significant exposure to counterparties of our related
derivatives portfolio
We maintain a significant portfolio of over the counter derivatives to
hedge our projected currency exposure to the Japanese yen, New Taiwan
dollar, South Korean won, Chinese yuan and euro. We are exposed to
potential losses in the event of non-performance by our counterparties
to these derivative contracts. Any failure of a counterparty to pay on such
a contract when due could materially impact our results of operations,
financial position, and cash flows.
If we are unable to obtain certain specialized equipment, raw and batch
materials or natural resources required in our products or processes, our
business will suffer
Our ability to meet customer demand depends, in part, on our ability to
obtain timely and adequate delivery of equipment, parts, components
and raw materials from our suppliers. We may experience shortages
that could adversely affect our operations. Certain manufacturing
equipment, components and raw materials are available only from
single or limited sources, and we may not be able to find alternate
sources in a timely manner. A reduction, interruption or delay of supply,
or a significant increase in the price for supplies, such as manufacturing
equipment, precious metals, raw materials, utilities including energy and
industrial water, could have a material adverse effect on our businesses.
We use specialized raw materials from single-source suppliers (e.g.,
specific mines or quarries) and natural resources (e.g., helium) in certain
products and processes. If a supplier is unable to provide the required
raw materials or the natural resource is in scarce supply or not readily
available, we may be unable to change our product composition or
manufacturing process to prevent disruption to our business.
CORNING INCORPORATED - 2018 Annual Report
9
Risk Factors
We have incurred, and may in the future incur, goodwill and other
intangible asset impairment charges
Our innovation model depends on our ability to attract and retain
specialized experts in our core technologies
At December 31, 2018, Corning had goodwill and other intangible assets
of approximately $3.2 billion. While we believe the estimates and
judgments about future cash flows used in the goodwill impairment
tests are reasonable, we cannot provide assurance that additional
impairment charges in the future will not be required if the expected
cash flow as projected by management do not occur, especially if
an economic downturn occurs and continues for a lengthy period or
becomes severe, or if the Company’s acquisitions and investments fail to
achieve expected returns.
Changes in our effective tax rate or tax liability may have an adverse
effect on our results of operations
Our effective tax rate could be adversely
factors, including:
impacted by several
• Changes in the relative amounts of income before taxes in the various
jurisdictions in which we operate;
• Changes in tax laws, tax treaties and regulations or the interpretation
of them, including the impact of the Tax Cuts and Jobs Act (the “2017
Tax Act”) which was passed by the U.S. Congress and signed into law
on December 22, 2017;
• Changes to our assessment about the realizability of our deferred tax
assets that are based on estimates of our future results, the prudence
and feasibility of possible tax planning strategies, and the economic
and political environments in which we do business;
• The outcome of current and future tax audits, examinations, or
administrative appeals;
• Changes in generally accepted accounting principles that affect the
accounting for taxes; and
• Limitations or adverse findings regarding our ability to do business in
some jurisdictions.
We may have additional tax liabilities
We are subject to income taxes in the U.S. and many foreign jurisdictions,
and are commonly audited by various tax authorities. In the ordinary
course of our business, there are many transactions and calculations
where the ultimate tax determination
is uncertain. Significant
judgment is required in determining our worldwide provision for
income taxes. Although we believe our tax estimates are reasonable,
the final determination of tax audits and any related litigation could
be materially different from our historical income tax provisions and
accruals. The results of an audit or litigation could have a material effect
on our financial statements in the period or periods for which that
determination is made.
The 2017 Tax Act significantly impacted how U.S. global corporations
are taxed. Among other things, the 2017 Tax Act required companies
to pay a one-time mandatory tax on unrepatriated earnings of certain
foreign subsidiaries that were previously tax deferred (the “toll charge”)
and created new taxes on certain foreign sourced earnings. Significant
guidance has been issued with the intention of clarifying the new tax
provisions. To date, a considerable amount of this guidance has been
issued in the form of proposed regulations. The volume and complexity
of the proposed regulations as well as the impact of final regulations
which were recently issued, has resulted in many questions regarding
how the effect of such regulations should be considered. We continue to
evaluate the impact of this legislation and certain changes could have a
material adverse impact on our tax expense and cash flow.
Our innovation model requires us to employ highly specialized experts
in glass science, ceramic science, and optical physics to conduct our
research and development and engineer our products and design our
manufacturing facilities. The loss of the services of any member of our
key research and development or engineering team without adequate
replacement, or the inability to attract new qualified personnel, could have
a material adverse effect on our operations and financial performance.
We are subject to strict environmental regulations and regulatory
changes that could result in fines or restrictions that interrupt
our operations
Some of our manufacturing processes generate chemical waste, waste
water, other industrial waste or greenhouse gases, and we are subject to
numerous laws and regulations relating to the use, storage, discharge
and disposal of such substances. We have installed anti-pollution
equipment for the treatment of chemical waste and waste water at
our facilities. We have taken steps to control the amount of greenhouse
gases created by our manufacturing operations. However, we cannot
provide assurance that environmental claims will not be brought
against us or that government regulators will not take steps to adopt
more stringent environmental standards.
Any failure on our part to comply with any present or future
environmental regulations could result in the assessment of damages or
imposition of fines against us, or the suspension/cessation of production
or operations. In addition, environmental regulations could require us to
acquire costly equipment, incur other significant compliance expenses
or limit or restrict production or operations and thus materially and
negatively affect our financial condition and results of operations.
Changes in regulations and the regulatory environment in the U.S. and
other countries, such as those resulting from the regulation and impact
of global warming and CO2 abatement, may affect our businesses
and their results in adverse ways by, among other things, substantially
increasing manufacturing costs, limiting availability of scarce resources,
especially energy, or requiring limitations on production and sale of our
products or those of our customers.
Current or future litigation or regulatory investigations may harm our
financial condition or results of operations
As a global technology and manufacturing company, we are engaged
in various litigation and regulatory matters. Litigation and regulatory
proceedings may be uncertain, and adverse rulings could occur,
resulting in significant liabilities, penalties or damages. Such current
or future substantial legal liabilities or regulatory actions could have a
material adverse effect on our business, financial condition, cash flows
and reputation.
Our global operations are subject to extensive trade and anti-corruption
laws and regulations
Due to the international scope of our operations, we are subject to a
complex system of import- and export-related laws and regulations,
including U.S. regulations issued by Customs and Border Protection, the
Bureau of Industry and Security, the Office of Anti-boycott Compliance,
the Directorate of Defense Trade Controls and the Office of Foreign
Assets Control, as well as the counterparts of these agencies in other
countries. Any alleged or actual violation by an employee or the
Company may subject us to government scrutiny, investigation and civil
and criminal penalties, and may limit our ability to import or export our
products or to provide services outside the United States. We cannot
predict the nature, scope or effect of future regulatory requirements to
which our operations might be subject or the way existing laws might
be administered or interpreted.
10 CORNING INCORPORATED - 2018 Annual Report
Legal Proceedings
In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-
corruption laws generally prohibit companies and their intermediaries
from making improper payments or providing anything of value to
improperly influence foreign government officials for the purpose
of obtaining or retaining business, or obtaining an unfair advantage.
Recent years have seen a substantial increase in the global enforcement
of anti-corruption laws. Our continued operation and expansion outside
the United States, including in developing countries, could increase the
risk of alleged violations. Violations of these laws may result in severe
criminal or civil sanctions, could disrupt our business, and result in an
adverse effect on our reputation, business and results of operations or
financial condition.
Moreover, several of our related partners are domiciled in areas of the
world with laws, rules and business practices that differ from those in
the United States, and we face the reputational and legal risk that our
related partners may violate applicable laws, rules and business practices.
International trade policies may negatively impact our ability to sell and
manufacture our products outside of the U.S.
Government policies on international trade and investment such
as import quotas, tariffs, and capital controls, whether adopted by
individual governments or addressed by regional trade blocs, can affect
the demand for our products and services, impact the competitive
position of our products or prevent us (including our equity affiliates/
joint ventures) from being able to sell and/or manufacture products
in certain countries. The implementation of more restrictive trade
policies, such as higher tariffs or new barriers to entry, in countries in
which we sell large quantities of products and services could negatively
impact our business, results of operations and financial condition.
For example, a government’s adoption of “buy national” policies or
retaliation by another government against such policies could have a
negative impact on our results of operations. These policies also affect
our equity companies.
Legal Proceedings
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 in Note 12 (Commitments and Contingencies) to
the Consolidated Financial Statements. 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.
Environmental Litigation. Corning has been named by the Environmental
Protection Agency (the Agency) under the Superfund Act, or by state
governments under similar state laws, as a potentially responsible
party for 15 active hazardous waste sites. Under the Superfund Act, all
parties who may have contributed any waste to a hazardous waste site,
identified by the Agency, are jointly and severally liable for the cost of
cleanup unless the Agency agrees otherwise. It is Corning’s policy to
accrue for its estimated liability related to Superfund sites and other
environmental liabilities related to property owned by Corning based on
expert analysis and continual monitoring by both internal and external
consultants. At December 31, 2018 and December 31, 2017, Corning had
accrued approximately $30 million (undiscounted) and $38 million
(undiscounted), respectively, for the estimated 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 and that the risk of an additional loss
in an amount materially higher than that accrued is remote.
CORNING INCORPORATED - 2018 Annual Report
11
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of
Equity Securities
(a) Corning Incorporated common stock is listed on the New York Stock Exchange. In addition, it is traded on the Boston, Midwest and Philadelphia
stock exchanges. Common stock options are traded on the Chicago Board Options Exchange. The ticker symbol for Corning Incorporated is “GLW”.
As of December 31, 2018, there were approximately 14,599 registered holders of common stock and approximately 468,550 beneficial shareholders.
Performance Graph
The following graph illustrates the cumulative total shareholder return over the last five years of Corning’s common stock, the S&P 500 and the S&P
Communications Equipment Companies. The graph includes the capital weighted performance results of those companies in the communications
equipment company classification that are also included in the S&P 500.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CORNING INCORPORATED, S&P 500 AND S&P COMMUNICATIONS EQUIPMENT
(Fiscal Years Ended December 31)
Indexed to 100
$250
$200
$150
$100
$50
$0
2013
2014
2015
2016
2017
2018
Corning Incorporated
S&P Communications Equipment
S&P 500
(b) Not applicable.
(c) The following table provides information about our purchases of our common stock during the fiscal fourth quarter of 2018:
Issuer Purchases of Equity Securities
Period
October 1-31, 2018
November 1-30, 2018
December 1-31, 2018
Total
Number of shares
purchased
Average price paid
per share
Number of shares purchased as
part of publicly announced
plans or programs(1)
Approximate dollar value of shares that
may yet be purchased under the plans
or programs(1)
3,383,124
3,676,736
4,398,326
11,458,186
$
$
$
$
31.95
32.10
30.64
31.49
3,338,983
3,658,311
4,378,063
11,375,357
$
1,348,213,211
(1) This column reflects the following transactions during the year ended December 31, 2018: (i) the deemed surrender to us of 31,702 shares of common
stock to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units; (ii) the surrender to us of 50,575
shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees; (iii) the
deemed surrender to us of 552 shares of common stock to pay the exercise price and to satisfy tax withholding obligations in connection with the
exercise of employee stock options; and (iv) the purchase of 11,375,357 shares of common stock under the 2018 Repurchase Programs.
12 CORNING INCORPORATED - 2018 Annual Report
Selected Financial Data (Unaudited)
(In millions, except per share amounts and number
of employees)
Results of operations
Net sales
Research, development and engineering expenses
Equity in earnings of affiliated companies
Net income (loss) attributable to Corning
Incorporated(1)(2)
Earnings (loss) per common share attributable to
Corning Incorporated:
Basic
Diluted
Cash dividends declared per common share
Shares used in computing per share amounts:
Basic earnings per common share
Diluted earnings per common share
Financial position
Working capital
Total assets
Long-term debt
Total Corning Incorporated shareholders’ equity
Selected data
Capital expenditures
Depreciation and amortization
Number of employees
2018
2017
2016
2015
2014
Years ended December 31,
$
$
$
$
$
$
$
$
$
$
$
$
$
11,290
993
390
1,066
1.19
1.13
0.72
816
941
3,723
27,505
5,994
13,792
2,242
1,293
51,500
$
$
$
$
$
$
$
$
$
$
$
$
$
10,116
864
361
(497)
(0.66)
(0.66)
0.62
895
895
5,618
27,494
4,749
15,698
1,804
1,158
46,200
$
$
$
$
$
$
$
$
$
$
$
$
$
9,390
736
284
3,695
3.53
3.23
0.54
1,020
1,144
6,297
27,899
3,646
17,893
1,130
1,195
40,700
$
$
$
$
$
$
$
$
$
$
$
$
$
9,111
745
299
1,339
1.02
1.00
0.36
1,219
1,343
5,455
28,527
3,890
18,788
1,250
1,184
35,700
$
$
$
$
$
$
$
9,715
811
266
2,472
1.82
1.73
0.52
1,305
1,427
$
7,914
$ 30,041
$
$
$
$
3,205
21,579
1,076
1,200
34,600
(1) Year ended December 31, 2017 includes the impact of the 2017 Tax Act, including a provisional toll charge ($1.1 billion) and provisional re-measurement
of deferred tax balances due to the reduction in Corning’s tax rate ($347 million).
(2) Year ended December 31, 2016 includes a $2.7 billion non-taxable gain on the strategic realignment of our ownership interest in Dow Corning.
Reference should be made to the Notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
CORNING INCORPORATED - 2018 Annual Report
13
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Organization of Information
Management’s Discussion and Analysis provides a historical and prospective narrative on the Company’s financial condition and results of operations.
This discussion includes the following sections:
• Overview
• Results of Operations
• Core Performance Measures
• Reportable Segments
• Liquidity and Capital Resources
Overview
• Environment
• Critical Accounting Estimates
• New Accounting Standards
• Forward-Looking Statements
Strategy and Capital Allocation Framework
In October 2015, Corning announced a strategy and capital allocation
framework (the “Framework”) that reflects the Company’s financial and
operational strengths, as well as its ongoing commitment to increasing
shareholder value. The Framework outlines our leadership priorities, and
articulates the opportunities we see across our businesses. We designed
the Framework to create significant value for shareholders by focusing
our portfolio and leveraging our financial strength. Under the Framework
we target generating $26 billion to $30 billion of cash through 2019,
returning more than $12.5 billion to shareholders and investing
$10 billion to extend our leadership positions and deliver growth.
Our probability of success increases as we invest in our world-class
capabilities. Corning is concentrating approximately 80% of its research,
development and engineering investment and capital spending on
a cohesive set of three core technologies, four manufacturing and
engineering platforms, and five market-access platforms. This strategy
will allow us to quickly apply our talents and repurpose our assets
as needed.
Performance against the Framework
Since introducing the Framework, we have distributed $11.8 billion to
shareholders through share repurchases and dividends, and increased
the annual dividend by 11.1% in 2019, 16.1% in 2018, 14.8% in 2017 and
12.5% in 2016 as part of our ongoing commitment to return cash to
our investors.
Highlights of progress in Corning’s market-access platforms include:
• Securing contracts with industry leaders in the carrier and data center
segments that will add significant sales in 2019 and beyond, and
completing the acquisition of CMD in Optical Communications;
• Extending the company’s leadership in mobile consumer electronics
with the launch and adoption of Gorilla Glass 6 as well as other cover
glass and sensing technology innovations;
• Gaining significant new sales and platforms for gasoline particulate
filters and strong pull for Gorilla Glass for Automotive solutions,
particularly the
industry’s first AutoGrade Glass Solutions for
automotive interiors, reaching more than 55 platforms to date;
14 CORNING INCORPORATED - 2018 Annual Report
• Increasing our shipments of Valor Glass by four times year-over-year,
indicating progress toward certification across more pharmaceutical
companies in Life Sciences Vessels; and
• Reaching stable returns in Display Technologies as the glass pricing
environment continued to improve and Corning extended global
leadership by successfully ramping the world’s first Gen 10.5 LCD
glass plant.
2018 Results
Net sales in the year ended December 31, 2018 were $11.3 billion, an
increase of $1.2 billion, or 12%, when compared to the year ended
December 31, 2017, driven by sales increases across all segments.
For the year ended December 31, 2018, we generated net income of $1.1
billion, or $1.13 per share, compared to a net loss of $0.5 billion, or $(0.66)
per share, for 2017. When compared to 2017, the $1.6 billion increase
in net income was primarily due to the following items (amounts
presented after tax):
• The absence of $1.5 billion in tax reform adjustments related to the
2017 Tax Act;
• Higher segment net
in our Optical Communications,
Environmental Technologies, Specialty Materials and Life Sciences
segments, up $123 million, $43 million, $12 million and $22 million,
respectively; and
income
• The positive impact of $48 million in tax adjustments, primarily related
to changes in the valuation allowances on deferred tax assets offset by
the preliminary 2013-2014 IRS audit settlement.
Partially offsetting these events were the following items:
• An increase of $105 million in legal expenses, driven by a ruling
in civil
lawsuit and developments
intellectual property
in an
litigation matters;
• An impact of $99 million resulting from an increase of mark-to-market
loss for our defined benefit pension plans; and
• Lower segment net income in our Display Technologies and All Other
segments in the amount of $53 million and $22 million, respectively.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
to improve further to a mid-single digit percentage. We anticipate
Corning’s display glass volume will grow faster than the expected
display glass market growth of mid-single digits, driven by television
screen size growth and the ramp of our Gen 10.5 facility in China. In the
Optical Communications segment, we expect sales to increase by low-
teens in percentage terms, including the impact of a full year of sales
from the acquisition of 3M’s Communication Markets Division. We
expect high-single digit sales growth in our Environmental Technologies
segment. We expect growth in the Specialty Materials segment, the
rate of which will depend on the adoption of our innovations. We
anticipate low to mid-single digit percentage growth in sales for the Life
Sciences segment.
Diluted earnings per share increased by $1.79 per share, or 271%, when
compared to 2017, driven by the increase in net income described above,
coupled with the repurchase of 74.8 million shares of common stock
over the last twelve months.
The translation impact of fluctuations in foreign currency exchange
rates, including the impact of hedges realized in 2018, did not
materially impact Corning’s consolidated net income in the year ended
December 31, 2018 when compared to the year ended December 31, 2017.
2019 Corporate Outlook
We believe 2019 will be another year of strong growth and investment,
consistent with our Strategy and Capital Allocation Framework. In our
Display Technologies segment, we expect full year 2019 price declines
Results of Operations
Selected highlights from our operations follow (in millions):
2018
2017
2016
18 vs. 17
17 vs. 16
% change
Net sales
Gross margin
(gross margin %)
Selling, general and administrative expenses
(as a % of net sales)
Research, development and engineering
expenses
(as a % of net sales)
Equity in earnings of affiliated companies
(as a % of net sales)
Translated earnings contract loss, net
(as a % of net sales)
Gain on realignment of equity investment
(as a % of net sales)
Income before income taxes
(as a % of net sales)
(Provision) benefit for income taxes
(as a % of net sales)
Net income (loss) attributable to Corning
Incorporated
(as a % of net sales)
* Percent change not meaningful.
$
$
$
$
$
$
$
$
$
11,290
4,461
40%
1,799
16%
993
9%
390
3%
(93)
(1)%
1,503
13%
(437)
(4)%
1,066
9%
$
$
$
$
$
$
$
$
$
10,116
4,020
40%
1,473
15%
864
9%
361
4%
(121)
(1)%
1,657
16%
(2,154)
(21)%
(497)
(5)%
$
$
$
$
$
$
$
$
$
$
9,390
3,763
40%
1,462
16%
736
8%
284
3%
(448)
(5)%
2,676
28%
3,692
39%
3
*
3,695
39%
12
11
22
15
8
23
*
(9)
80
*
8
7
1
17
27
73
*
(55)
*
*
CORNING INCORPORATED - 2018 Annual Report
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Segment Net Sales
The following table presents segment net sales by reportable segment (in millions):
Display Technologies
Optical Communications
Specialty Materials
Environmental Technologies
Life Sciences
All Other
Years ended December 31,
$
2018
3,276
4,192
1,479
1,289
946
216
2017
$
3,137
3,545
1,403
1,106
879
188
2016
$
3,288
3,005
1,124
1,032
839
152
Total segment net sales
$
11,398
$
10,258
$
9,440
%
change
18 vs. 17
%
change
17 vs. 16
4%
18%
5%
17%
8%
15%
11%
(5)%
18%
25%
7%
5%
24%
9%
For the year ended December 31, 2018, segment net sales increased
by $1.1 billion, or 11%, when compared to the same period in 2017. The
primary sales drivers by segment were as follows:
• Display Technologies segment net sales increased $139 million
compared to the prior year. Total display glass market volume was up in
2018. Our volume growth in this market more than offset price declines
on a year-over-year basis. 2018 was the best pricing environment in
more than a decade, achieving the important milestone of mid-single
digit year-over-year declines during the second half of the year;
• An increase of $647 million in the Optical Communications segment,
due to higher sales of carrier and enterprise network products, up $364
million and $283 million, respectively. The acquisition of CMD driving
$200 million of the increase in sales;
• An increase of $76 million in the Specialty Materials segment driven by
higher net sales of Gorilla Glass products, advanced optics and other
specialty glass;
• An increase of $183 million in the Environmental Technologies
segment, driven by sales growth in all categories including sales of gas
particulate filters; and
• An increase of $67 million in the Life Sciences segment, as the business
continued to outpace the market.
Movements in foreign exchange rates did not materially impact
Corning’s consolidated net sales in the year ended December 31, 2018,
respectively, when compared to the same period in 2017.
For the year ended December 31, 2017, net sales increased by $818 million,
or 9%, when compared to the same period in 2016. The primary sales
drivers by segment were as follows:
• A decrease of $151 million in the Display Technologies segment, driven
by price declines of approximately 10%, partially offset by an increase
in volume in the mid-single digits in percentage terms;
• An increase of $540 million in the Optical Communications segment,
due to higher sales of carrier and enterprise network products,
up $446 million and $94 million, respectively, combined with the
absence of production issues related to the implementation of
new manufacturing software in the first quarter of 2016. Strong
growth in the North American market drove the increase in carrier
network products;
• An increase of $279 million in the Specialty Materials segment, driven
by strong growth in segment net sales of Corning Gorilla Glass
products, combined with an increase of $42 million in advanced
optics products;
• An increase of $74 million in the Environmental Technologies segment,
driven by higher net sales of automotive products, up $42 million, due to
market strength in Europe, China and Asia, and initial commercial sales
of gas particulate filters. Diesel product sales increased $32 million
with higher demand for heavy-duty diesel products in North America
and Asia;
• An increase of $40 million in the Life Sciences segment, driven by
higher sales in North America and China; and
• An increase of $36 million in the All Other segment, driven by an
increase in sales in our emerging businesses.
Movements in foreign exchange rates did not materially impact
Corning’s consolidated net sales in the year ended December 31, 2017,
respectively, when compared to the same period in 2016.
In 2018, 2017 and 2016, sales in international markets accounted for 69%,
69% and 72%, respectively, of total net sales.
Cost of Sales
The types of expenses included in the cost of sales line item are: raw
materials consumption, including direct and indirect materials; salaries,
wages and benefits; depreciation and amortization; production utilities;
production-related purchasing; warehousing (including receiving and
inspection); repairs and maintenance; inter-location inventory transfer
costs; production and warehousing facility property insurance; rent for
production facilities; and other production overhead.
Gross Margin
In the year ended December 31, 2018, gross margin dollars increased by
$441 million, or 11%, and gross margin as a percentage of net sales was
consistent when compared to the same period last year. The increase in
gross margin dollars was primarily driven by the following items:
• Higher sales in the Optical Communications segment, driven by
growth in Carrier and Enterprise products, resulting in increased gross
margin of $291 million;
• An increase in Gorilla Glass and advanced optics product volume
which contributed $48 million to gross margin; and
• Higher sales in the Environmental technologies segment drove an $85
million increase.
Gross margin increases were partially offset by higher costs related to
capacity expansions across multiple business segments and display
glass price declines.
16 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Movements in foreign exchange rates did not materially impact
Corning’s consolidated gross margin in the year ended December 31,
2018, respectively, when compared to the same period in 2017.
When compared to the year ended December 31, 2016, selling, general
and administrative expenses increased by $11 million in the year ended
December 31, 2017. The increase was due to the following items:
In the year ended December 31, 2017, gross margin dollars increased
by $257 million, or 7%, and gross margin as a percentage of net sales
remained consistent at 40%, when compared to the same period last
year. The increase in gross margin dollars was primarily driven by the
following items:
• Higher volume in the Display Technologies segment, offset by higher
costs related to capacity expansion;
• Higher volume in the Optical Communications segment, driven
by growth in North America and Europe, partially offset by higher
manufacturing expenses related to capacity expansion;
• An increase in Gorilla Glass and advanced optics product volume,
slightly offset by higher raw materials costs; and
• Higher light-duty substrate demand in Europe, China and Asia, offset
somewhat by lower North America demand, as well as an increase
in demand for heavy-duty diesel products in North America and
Asia. Partially offsetting the increase in demand was a decline in
manufacturing efficiency due to the use of higher-cost manufacturing
facilities and sales of lower margin products.
Display glass price declines of approximately 10% and the negative
impact of movements in the Japanese yen and South Korean won
in the amount of $73 million, which primarily impacted the Display
Technologies segment, partially offset the increase.
Movements in foreign exchange rates did not materially impact
Corning’s consolidated net sales in the year ended December 31, 2017,
respectively, when compared to the same period in 2016.
Selling, General and Administrative Expenses
When compared to the year ended December 31, 2017, selling, general
and administrative expenses increased by $326 million, or 22%, in the
year ended December 31, 2018. Selling, general and administrative
expenses increased by 1% as a percentage of sales. The increase was
primarily driven by the following items:
• An increase of $137 million in litigation and other legal expenses, driven
by a ruling in an intellectual property lawsuit and developments in
commercial litigation matters;
• An increase in the Optical Communications segment, up $65 million,
largely driven by the acquisition of CMD;
• Increased corporate expenses of $55 million;
• Increased acquisition related costs of $25 million; and
• Increased costs in our emerging businesses, up $20 million, driven by
investments in new customers and new business growth.
• A decrease of $52 million in acquisition-related costs, driven by the
absence of costs related to the realignment of our equity interests in
Dow Corning completed in the second quarter of 2016, offset slightly
by several small acquisitions occurring in 2017;
• A decrease of $64 million in litigation, regulatory and other legal
costs, primarily driven by the absence of events occurring in the
second quarter of 2016. In this period, we recorded litigation and
other expenses related to the resolution of an investigation by the U.S.
Department of Justice and an environmental matter in the amount of
$98 million, offset somewhat by the gain on the contribution of our
equity interests in PCC and PCE as partial settlement of the asbestos
litigation in the amount of $56 million; and
• A decrease of $46 million in the mark-to-market of our defined benefit
pension plans.
Offsetting these events were the following items:
• A decrease of $32 million in gains from the contingent consideration
fair value adjustment;
• An increase of $51 million in the Optical Communications segment due
to costs associated with acquisitions and growth initiatives; and
• An increase of $24 million in the Specialty Materials segment in
support of new product launches.
The types of expenses included in the selling, general and administrative
expenses line item are: salaries, wages and benefits; travel; professional
fees; and depreciation and amortization, utilities, and rent for
administrative facilities.
Research, Development and Engineering
Expenses
For year ended December 31, 2018, research, development and
engineering expenses increased by $129 million, or 15%, when compared
to 2017, driven by higher costs associated with new product launches
and our emerging businesses. As a percentage of sales, these expenses
were flat when compared to the same period last year.
In the year ended December 31, 2017, research, development and
engineering expenses increased by $128 million, or 17%, when compared
to the same period last year, driven by the absence of the impact of a 2016
joint development agreement in the Display Technologies segment, as
well as higher costs associated with new product launches in the Optical
Communications, Specialty Materials and Environmental Technologies
segments, up $20 million, $11 million and $7 million, respectively. As
a percentage of sales, these expenses decreased one percent when
compared to the same period last year.
CORNING INCORPORATED - 2018 Annual Report
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Equity in Earnings of Affiliated Companies
The following provides a summary of equity earnings of affiliated companies (in millions):
Dow Corning Corporation(1)
Hemlock Semiconductor Group(2)
All other
Total equity earnings
Years ended December 31,
2018
2017
2016
$
$
388
2
390
$
$
352
9
361
$
$
82
212
(10)
284
(1) Results include equity earnings for Dow Corning, which includes the silicones business and Hemlock Semiconductor business, through
May 31, 2016, the date of the realignment of our ownership interest in Dow Corning.
(2) Results include equity earnings for HSG beginning on June 1, 2016.
On May 31, 2016, Corning completed the strategic realignment of
its equity investment in Dow Corning Corporation (“Dow Corning”)
pursuant to the Transaction Agreement announced on December 10,
2015. Under the terms of the Transaction Agreement, Corning exchanged
with Dow Corning its 50% stock interest in Dow Corning for 100% of the
stock of a newly formed entity, which held an equity interest in Hemlock
Semiconductor Group (HSG) and approximately $4.8 billion in cash.
The equity in earnings line on our income statement for the year ended
December 31, 2016 reflects both the equity earnings from the silicones
and polysilicones (HSG) businesses of Dow Corning from January 1,
2016 through May 31, 2016. Prior to the realignment of Dow Corning,
equity earnings from the HSG business were reported on the equity
in earnings line in Corning’s income statement, net of Dow Corning’s
35% U.S. tax. Additionally, Corning reported its tax on equity earnings
from Dow Corning on the tax provision line on its income statement
at a U.S. tax provision rate of 7%. As part of the realignment, HSG was
converted to a partnership. Each of the partners is responsible for the
taxes on their portion of equity earnings. Therefore, post-realignment,
HSG’s equity earnings is reported before tax on the equity in earnings
line and Corning’s tax is reported on the tax provision line.
Refer to Note 12 (Commitments, Contingencies and Guarantees) to the
consolidated financial statements for additional information.
Translated earnings contracts
Included in the line item Translated earnings contract loss, net, is the impact of foreign currency hedges which hedge our translation exposure arising
from movements in the Japanese yen, South Korean won, euro, Chinese yuan and British pound against the U.S. dollar and its impact on our net income
(loss). The following table provides detailed information on the gains and losses associated with our translated earnings contracts:
(in millions)
Hedges related to translated earnings:
Realized gain, net
Unrealized loss
Total translated earnings contract loss, net
(in millions)
Hedges related to translated earnings:
Realized gain, net
Unrealized loss
Total translated earnings contract loss, net
Year ended
December 31, 2018
Year ended
December 31, 2017
Change
2018 vs. 2017
Income before
income taxes
Net
income
Income before
income taxes
Net
income
Income before
income taxes
Net
income
$
$
97
(190)
(93)
$
$
78
(189)
(111)
$
$
270
(391)
(121)
$
169
(247)
$
(78)
$
$
(173)
201
28
$
$
(91)
58
(33)
Year ended
December 31, 2017
Year ended
December 31, 2016
Change
2017 vs. 2016
Income before
income taxes
Net
income
Income before
income taxes
Net
income
Income before
income taxes
Net
income
$
$
270
(391)
(121)
$
169
$
201
$
127
(247)
(649)
(409)
$
(78)
$
(448)
$ (282)
$
$
69
258
327
$
42
162
$ 204
18 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The gross notional value outstanding for our translated earnings contracts at December 31, 2018, 2017 and 2016 were as follows (in billions):
Japanese yen-denominated hedges
South Korean won-denominated hedges
Euro-denominated hedges
Chinese yuan-denominated hedges
British pound-denominated hedges
Total gross notional value outstanding
Years ended December 31,
2017
$ 13.0
0.8
0.3
0.2
2016
$ 14.9
1.2
0.3
0.3
2018
$ 11.6
0.1
1.2
0.6
0.1
$ 13.6
$ 14.3
$ 16.7
Income Before Income Taxes
The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in 2018, did not impact Corning’s
income before income taxes in the years ended December 31, 2018 and 2017, respectively, when compared to the same period in the prior year.
(Provision) Benefit for Income Taxes
Our (provision) benefit for income taxes and the related effective income tax rates were as follows (dollars in millions):
Years ended December 31,
2018
$ (437)
29.1%
2017
$
(2,154)
130.0%
2016
$
3
(0.1)%
In December 2017, the U.S. enacted the 2017 Tax Act which resulted in
significant changes for our financial results, including, but not limited
to, (1) reducing the U.S. federal corporate income tax rate to 21%, and (2)
imposing a one-time toll charge tax on certain unrepatriated earnings
of foreign subsidiaries of U.S. companies that had not been previously
taxed in the U.S.
Given the significant complexity of the 2017 Tax Act and the lack of
clear tax and accounting regulatory guidance for this new law, the
Securities Exchange Commission issued its Staff Accounting Bulletin 118
(“SAB 118”) to provide registrants additional time to analyze and report
the effects of tax reform during the “measurement period”. Under SAB
118, the registrant was required to record those items where ASC 740
analysis was complete; include reasonable estimates and label them as
provisional where ASC 740 analysis was incomplete; and if reasonable
estimates could not be made, record items under the previous tax law.
The measurement period, not to exceed one year, ended on the date the
entity had obtained, prepared, and analyzed the information that was
needed to complete the accounting requirements under ASC Topic 740.
The 2017 Tax Act also established new tax provisions affecting our 2018
results, including, but not limited to: (1) Creating a new provision to tax
global intangible low-taxed income (GILTI); (2) generally eliminating U.S.
federal taxes on dividends from foreign subsidiaries; (3) eliminating
the corporate alternative minimum tax (“AMT”); (4) creating the base
erosion anti-abuse tax (“BEAT”); (5) establishing a deduction for foreign
derived intangible income (“FDII”); (6) establishing new limitations on
deductible interest expense; and (7) establishing new limitations on the
deductibility of certain executive compensation.
(Provision) benefit for income taxes
Effective tax rate (benefit)
For the year ended December 31, 2018, the effective income tax rate
differed from the U.S. statutory rate of 21% primarily due to the following:
• Additional taxes of $55 million related primarily to the global intangible
low-taxed income (“GILTI”) provisions of the 2017 Tax Act; and
• Incremental tax expense of $172 million related to a preliminary
agreement with the IRS for the income tax audit of years 2013 and 2014.
These items were partially offset by the following:
• A benefit of $35 million related to the finalization of the one-time toll
charge recorded in 2017; and
• An $82 million benefit from the release of a valuation allowance on
deferred tax assets that are now considered realizable.
For the year ended December 31, 2017, the effective income tax rate
differed from the U.S. statutory rate of 35% primarily due to the following:
• As a result of the 2017 Tax Act, a provisional tax expense of $1.1 billion
for the one-time toll charge on unrepatriated earnings of certain
foreign subsidiaries that were previously deferred;
• The result of a provisional tax expense of $347 million recorded for the
U.S. deferred tax assets and liabilities re-measured at the reduced rate
of 21%; and
• Rate differences on income (loss) of consolidated foreign companies.
The effective income tax rate for 2016 differed from the U.S. statutory
rate of 35% primarily due to the following items:
• Rate differences on income (loss) of consolidated foreign companies,
including the benefit of excess foreign tax credits resulting from the
inclusion of foreign earnings in U.S. income; and
• The tax-free nature of the realignment of our equity interest in Dow
Corning during the period, as well as the release of the deferred tax
liability related to Corning’s tax on Dow Corning’s undistributed
earnings as of the date of the transaction.
CORNING INCORPORATED - 2018 Annual Report
19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2018, Corning’s results included a
worldwide tax provision of $437 million, inclusive of tax on ongoing
operations of $412 million and the impacts of the 2017 Tax Act of $25
million. The impacts of the 2017 Tax Act include: GILTI tax of $55 million,
FDII benefit of $10 million, and a $20 million benefit related to truing up
the toll charge and our measurement of U.S. deferred taxes, offset by
the recording of a provision related to lifting our assertion of indefinite
reinvestment on certain foreign earnings. As of December 31, 2018,
Corning has completed its analysis of the impact of the 2017 Tax Act as
required by SAB 118. The GILTI tax of $55 million was largely driven by the
receipt of customer deposits. See Note 2 (Revenue) to these Consolidated
Financial Statements for more information.
Corning has completed its analysis on the impact of the 2017 Tax Act
on its assertion regarding its indefinitely reinvested foreign earnings.
Corning has determined that it will no longer assert indefinite
asset reinvestment on $15.4 billion of unremitted foreign earnings
accumulated prior to 2018. This represents approximately 94% of
Corning’s unremitted foreign earnings as of the end of 2017. Corning will
continue to indefinitely reinvest the remaining 6% of historic foreign
earnings as of December 31, 2017.
Beginning in 2018, Corning will indefinitely reinvest the foreign earnings
of: (1) any of its subsidiaries located in jurisdictions where Corning lacks
the ability to repatriate its earnings, (2) any of its subsidiaries where
Corning’s intention is to reinvest those earnings in operations, (3) legal
entities for which Corning holds a non-controlling interest, (4) any
subsidiaries with an accumulated deficit in earnings and profits and
(5) any subsidiaries which have a positive earnings and profits balance
but for which the entity lacks sufficient local statutory earnings or stock
basis from which to make a distribution.
During 2018, the Company distributed approximately $4.2 billion from
foreign subsidiaries to their respective U.S. parent companies. There
are no incremental taxes beyond the toll charge due with respect to
these distributions. As of December 31, 2018, Corning has approximately
$1.5 billion of indefinitely reinvested foreign earnings. It remains
impracticable to calculate the tax cost of repatriating our unremitted
earnings which are considered indefinitely reinvested.
Refer to Note 4 (Income Taxes) to the Consolidated Financial Statements
for further details regarding income tax matters.
Net Income (Loss) Attributable to Corning Incorporated
As a result of the items discussed above, net income (loss) and per share data was as follows (in millions, except per share amounts):
Net income (loss) attributable to Corning Incorporated
Net income (loss) attributable to Corning Incorporated used in basic earnings
per common share calculation(1)
Net income (loss) attributable to Corning Incorporated used in diluted earnings
per common share calculation(1)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Weighted-average common shares outstanding - basic
Weighted-average common shares outstanding - diluted
Years ended December 31,
2018
$ 1,066
2017
2016
$ (497)
$ 3,695
$ 968
$ (595)
$ 3,597
$ 1,066
$
$
1.19
1.13
816
941
$ (595)
$ (0.66)
$ (0.66)
895
895
$ 3,695
$ 3.53
$ 3.23
1,020
1,144
(1) Refer to Note 16 (Earnings per Common Share) to the Consolidated Financial Statements for additional information.
Comprehensive Income
(in millions)
Net income (loss) attributable to Corning Incorporated
Foreign currency translation adjustments and other
Net unrealized (loss) gain on investments
Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans
Net unrealized (loss) gain on designated hedges
Other comprehensive (loss) income, net of tax
Years ended December 31,
2018
2017
2016
$ 1,066
$ (497)
$ 3,695
(185)
(1)
19
(1)
(168)
746
14
30
44
834
(104)
(3)
241
1
135
Comprehensive income attributable to Corning Incorporated
$
898
$
337
$ 3,830
2018 vs. 2017
For the year ended December 31, 2018, comprehensive income increased
by $0.6 billion, when compared to the same period in 2017, driven by an
increase in net income of $1.6 billion largely driven by the absence of $1.5
billion in tax reform adjustments related to the 2017 Tax Act.
Partially offsetting this increase was a decrease in the gain on foreign
currency translation adjustments in the amount of $0.9 billion
(after-tax), largely driven by the strengthening of foreign currencies,
most significantly the South Korean won, euro and the Chinese yuan,
which impacted comprehensive income in the amounts of $556 million,
$156 million and $114 million, respectively.
20 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2017 vs. 2016
For the year ended December 31, 2017, comprehensive income decreased
by $3.5 billion, when compared to the same period in 2016, driven by a
decrease in net income of $4.2 billion and a decrease in unamortized
actuarial gains for postretirement benefit plans. The significant decrease
in net income was largely driven by the absence of a $2.7 billion non-
taxable gain and a $105 million positive tax adjustment on the strategic
realignment of our ownership interest in Dow Corning recorded in the
second quarter of 2016, combined with the impact of the passage of the
2017 Tax Act, which included a provisional toll charge of $1.1 billion and
a provisional charge of $347 million as a result of the remeasurement of
U.S. deferred tax assets and liabilities. Our unamortized actuarial gains
decreased driven by a decrease in the discount rates used to value our
postretirement benefit obligations.
Partially offsetting these decreases was an increase in the gain on
foreign currency translation adjustments in the amount of $850 million
(after-tax), largely driven by the weakening of foreign currencies, most
significantly the South Korean won, Japanese yen and the euro, which
impacted comprehensive income in the amounts of $420 million, $164
million and $115 million, respectively.
See Note 11 (Employee Retirement Plans) and Note 15 (Shareholders’
Equity) to the Consolidated Financial Statements for additional details.
Core Performance Measures
In managing the Company and assessing our financial performance,
we adjust certain measures provided by our consolidated financial
statements to exclude specific items to arrive at core performance
measures. These items include gains and losses on our translated
earnings contracts, acquisition-related costs, certain discrete tax items,
restructuring and restructuring-related charges, certain litigation-
related expenses, pension mark-to-market adjustments and other items
which do not reflect on-going operating results of the Company or our
equity affiliates. Additionally, Corning has adopted the use of constant
currency reporting for our Display Technologies and Specialty Materials
segments for the Japanese yen, South Korean won, Chinese yuan and
New Taiwan dollar currencies. The Company believes that the use of
constant currency reporting allows investors to understand our results
without the volatility of currency fluctuations, and 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. Corning also believes that reporting core performance measures
provides investors greater transparency to the information used by our
management team to make financial and operational decisions.
Core performance measures are not prepared in accordance with
Generally Accepted Accounting Principles in the United States (“GAAP”).
We believe investors should consider these non-GAAP measures in
evaluating our results as they are more indicative of our core operating
performance and how management evaluates our operational results
and trends. These measures are not, and should not be viewed as a
substitute for, GAAP reporting measures. With respect to the Company’s
outlook for future periods, it is not possible to provide reconciliations
for these non-GAAP measures because the Company does not forecast
the movement of the Japanese yen, South Korean won, Chinese yuan
or New Taiwan dollar against the U.S. dollar, or other items that do not
reflect ongoing operations, nor does it forecast items that have not yet
occurred or are out of the Company’s control. As a result, the Company is
unable to provide outlook information on a GAAP basis.
For a reconciliation of non-GAAP performance measures to their most
directly comparable GAAP financial measure, please see “Reconciliation
of Non-GAAP Measures” below.
Results of Operations – Core Performance Measures
Selected highlights from our continuing operations, excluding certain items, follow (in millions):
Core net sales
Core equity in earnings of affiliated companies
Core earnings
Years ended December 31,
% change
2018
2017
2016
18 vs. 17
17 vs. 16
$
$
$
11,398
241
1,673
$
$
$
10,258
211
1,634
$
$
$
9,440
249
1,651
11%
14%
2%
9%
(15)%
(1)%
Core Net Sales
Core net sales are consistent with net sales by reportable segment. The following table presents segment net sales by reportable segment (in millions):
Display Technologies
Optical Communications
Specialty Materials
Environmental Technologies
Life Sciences
All Other
Total segment net sales(1)
Years ended December 31,
2018
$
3,276
4,192
1,479
1,289
946
216
2017
$
3,137
3,545
1,403
1,106
879
188
2016
$
3,288
3,005
1,124
1,032
839
152
$
11,398
$
10,258
$
9,440
% change
18 vs. 17
17 vs. 16
4%
18%
5%
17%
8%
15%
11%
(5)%
18%
25%
7%
5%
24%
9%
(1) Segment net sales and variances are discussed in detail in the Reportable Segments section of our MD&A.
CORNING INCORPORATED - 2018 Annual Report
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Core Equity in Earnings of Affiliated Companies
The following provides a summary of core equity in earnings of affiliated companies (in millions):
Dow Corning Corporation(1)
Hemlock Semiconductor Group(2)
All other
Total core equity earnings
Years ended December 31,
% change
2018
2017
2016
18 vs. 17
17 vs. 16
$
$
236
5
241
$
$
201
10
211
$
$
98
154
(3)
249
17%
(50)%
14%
(100)%
31%
433%
(15)%
(1) Results include equity earnings for Dow Corning, which includes the silicones business and Hemlock Semiconductor business, through May 31, 2016,
the date of the realignment of our ownership interest in Dow Corning.
(2) Results include equity earnings for HSG beginning on June 1, 2016.
Core Earnings
2018 vs. 2017
2017 vs. 2016
In the year ended December 31, 2018, we generated core earnings of
$1,673 million or $1.78 per share, compared to core earnings generated
in the year ended December 31, 2017 of $1,634 million, or $1.60 per
share. The increase in core earnings of $39 million was driven by the
following items:
In the year ended December 31, 2017, we generated core earnings of
$1,634 million or $1.60 per share, compared to core earnings generated
in the year ended December 31, 2016 of $1,651 million, or $1.44 per
share. The decrease in core earnings of $17 million was driven by the
following items:
• An increase in the Optical Communications segment of $123 million,
driven by higher sales of carrier and enterprise network products;
• An increase in the Environmental Technologies segment of $43 million
resulting from sales growth across all product lines;
• An increase of $22 million in the Life Sciences segment resulting from
higher sales, as well as improved manufacturing efficiencies; and
• An increase of $12 million in the Specialty Materials segment driven by
higher sales of Gorilla Glass, advanced optics and other specialty glass.
Partially offsetting these increases in earnings were the following:
• A decrease in the Display Technologies segment of $53 million, with
the costs of expanding Gen 10.5 capacity, ramping production and
rebuilding tanks for fleet optimization during the first half of the year
more than offsetting increased sales;
• A decrease of $22 million in the All Other segment resulting from
increased investment in development projects;
• Increased financing expenses of $30 million; and
• Increased corporate project expenses $39 million.
Core earnings per share increased in the year ended December 31, 2018 to
$1.78 per share, driven by the increase in core income and lower weighted
average shares outstanding due to repurchases of our common stock
during 2018.
• The absence of equity earnings of $98 million from Dow Corning’s
silicones business due to our 2016 realignment of our ownership
interest in Dow Corning;
• A decrease of $65 million in the Display Technologies segment, driven
by display glass price declines of approximately 10%, partially offset by
an increase in volume in the mid-single digits in percentage terms; and
• An increase in corporate project expenses and variable compensation
of $29 million and $25 million, respectively.
The decline was offset by an increase in core earnings in the Optical
Communications segment of $118 million, due to higher sales of carrier
and enterprise network products, combined with the absence of the
production issues in the first half of 2016 related to the implementation
of new software and an increase in the Specialty Materials segment of
$73 million, driven by an increase in Corning Gorilla Glass and advanced
optics products.
Although core net earnings decreased in the year ended December 31,
2017, core earnings per share increased $0.16 per share, driven by
lower weighted average shares outstanding due to repurchases of our
common stock in 2017.
Included in core earnings for the years ended December 31, 2018, 2017
and 2016 is net periodic pension expense in the amount of $52 million,
$49 million and $51 million, respectively, which excludes the annual
pension mark-to-market adjustments. In the years ended December 31,
2018, 2017 and 2016, the mark-to-market adjustments pre-tax losses of
$145 million, $21 million and $67 million, respectively.
Refer to Note 11 (Employee Retirement Plans) to the Consolidated
Financial Statements for additional information.
22 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Core Earnings per Common Share
The following table sets forth the computation of core basic and core diluted earnings per common share (in millions, except per share amounts):
Core earnings attributable to Corning Incorporated
Less: Series A convertible preferred stock dividend
Core earnings available to common stockholders - basic
Add: Series A convertible preferred stock dividend
Core earnings available to common stockholders - diluted
Weighted-average common shares outstanding - basic
Effect of dilutive securities:
Stock options and other dilutive securities
Series A convertible preferred stock
Weighted-average common shares outstanding - diluted
Core basic earnings per common share
Core diluted earnings per common share
2018
$
$
$
$
1,673
98
1,575
98
1,673
816
10
115
941
1.93
1.78
2017
$
$
$
$
1,634
98
1,536
98
1,634
895
11
115
1,021
1.72
1.60
2016
$
$
$
$
1,651
98
1,553
98
1,651
1,020
9
115
1,144
1.52
1.44
Reconciliation of Non-GAAP Measures
We utilize certain financial measures and key performance indicators
that are not calculated in accordance with GAAP to assess our financial
and operating performance. A non-GAAP financial measure is defined
as a numerical measure of a company’s financial performance that
(i) excludes amounts, or is subject to adjustments that have the effect
of excluding amounts, that are included in the comparable measure
calculated and presented in accordance with GAAP in the statement
of income or statement of cash flows, or (ii) includes amounts, or is
subject to adjustments that have the effect of including amounts, that
are excluded from the comparable measure as calculated and presented
in accordance with GAAP in the statement of income or statement of
cash flows.
Core net sales, core equity in earnings of affiliated companies and core
earnings are non-GAAP financial measures utilized by our management
to analyze financial performance without the impact of items that are
driven by general economic conditions and events that do not reflect
the underlying fundamentals and trends in the Company’s operations.
The following tables reconcile our non-GAAP financial measures to their most directly comparable GAAP financial measure (amounts in millions
except percentages and per share amounts):
Net Sales
Equity
earnings
Income before
income taxes
Net
income
Effective
tax rate(a)
Earnings per
share
Year ended December 31, 2018
As reported
Constant-currency adjustment(1)
Translation loss on Japanese
yen-denominated debt(2)
Translated earnings contract loss, net(3)
Acquisition-related costs(4)
Discrete tax items and other
tax-related adjustments(5)
Litigation, regulatory and
other legal matters(6)
Restructuring, impairment and
other charges(7)
Equity in earnings of
affiliated companies(8)
Pension mark-to-market adjustment(10)
$
11,290
$
390
$
1,503
$
1,066
29.1%
$
108
2
(151)
156
18
73
132
124
130
(151)
145
127
15
97
103
79
96
96
(119)
113
Core performance measures
$
11,398
$
241
$
2,130
$
1,673
21.5%
$
(a) Based upon statutory tax rates in the specific jurisdiction for each event.
See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.
1.13
0.13
0.02
0.10
0.11
0.08
0.10
0.10
(0.13)
0.12
1.78
CORNING INCORPORATED - 2018 Annual Report
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net sales
Equity
earnings
Income before
income taxes
Net (loss)
income
Effective
tax rate(a)
(Loss) earnings
per share
Year ended December 31, 2017
$
1,657
$
(497)
130.0%
$
(0.66)
As reported
Constant-currency adjustment(1)
Translation gain on Japanese
yen-denominated debt(2)
Translated earnings contract loss, net(3)
Acquisition-related costs(4)
Discrete tax items and
other tax-related adjustments(5)
Litigation, regulatory and
other legal matters(6)
Restructuring, impairment and
other charges(7)
Equity in earnings of
affiliated companies(8)
Adjustments related to acquisitions(9)
Pension mark-to-market adjustment(10)
Adjustments resulting from the
2017 Tax Act(13)
$
10,116
$
142
361
2
(152)
168
(14)
125
84
(12)
72
(152)
10
22
138
(9)
78
59
127
(9)
62
(97)
13
14
1,755
0.15
(0.01)
0.09
0.07
0.14
(0.01)
0.07
(0.11)
0.01
0.02
1.96
1.60
Core performance measures
$
10,258
$
211
$
1,960
$
1,634
16.6%
$
(a) Based upon statutory tax rates in the specific jurisdiction for each event.
See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.
Net sales
Equity
earnings
Income before
income taxes
Net
income
Effective
tax rate(a)
Earnings
per share
Year ended December 31, 2016
As reported
Constant-currency adjustment(1)
Translated earnings contract loss, net(3)
Acquisition-related costs(4)
Discrete tax items and other
tax-related adjustments(5)
Litigation, regulatory and
other legal matters(6)
Restructuring, impairment and
other charges(7)
Equity in earnings of affiliated
companies(8)
Adjustments related to acquisitions(9)
Pension mark-to-market adjustment(10)
Gain on realignment of
equity investment(11)
Taiwan power outage(12)
$
9,390
$
284
$
3,692
$
3,695
0%
$
50
1
(37)
85
448
127
55
199
(37)
(49)
67
65
282
107
(27)
70
138
(18)
(42)
44
(2,676)
17
(2,676)
13
Core performance measures
$
9,440
$
248
$
1,928
$
1,651
14.4%
$
(a) Based upon statutory tax rates in the specific jurisdiction for each event.
See “Items Excluded from GAAP Measures” below for the descriptions of the footnoted reconciling items.
3.23
0.06
0.25
0.09
(0.02)
0.06
0.12
(0.02)
(0.04)
0.04
(2.34)
0.01
1.44
24 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Items which we exclude from GAAP measures to arrive at core performance measures are as follows:
(1) Constant-currency adjustments: Because a significant portion of Display Technologies segment revenues are denominated in Japanese yen, and
a significant portion of Display Technologies and Specialty Materials segment manufacturing costs are denominated in Japanese Yen, Korean
won, New Taiwan dollar and Chinese yuan, management believes it is important to understand the impact on earnings of translating these
currencies into U.S. dollars. Presenting results on a constant-currency basis mitigates the translation impact and allows management to evaluate
performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts.
Constant-yen: As of January 1, 2018, we use an internally derived management rate of ¥107, which is closely aligned to our current yen portfolio of
foreign currency hedges, and have recast all periods presented based on this rate to effectively remove the impact of changes in the Japanese yen.
Constant-won: As of January 1, 2018, we use an internally derived management rate of ₩1,175, which is closely aligned to our current won portfolio
of foreign currency hedges, and have recast all periods presented based on this rate.
Constant-yuan: In January 2018, we began presenting results of the Display Technologies and Specialty Materials segments on a constant-yuan
basis to mitigate the translation impact of this currency on these segments. We use an internally derived management rate of yuan 6.7, which is
closely aligned to our current yuan portfolio of foreign currency hedges and consistent with historical prior period averages.
Constant-Taiwan dollar: In January 2018, we began presenting results of the Display Technologies and Specialty Materials segments on a constant-
Taiwan dollar basis to mitigate the translation impact of this currency on these segments. We use an internally derived management rate of
New Taiwan dollar 31, which is closely aligned to our current New Taiwan dollar portfolio of cash flow hedges, and approximates the 10-year
historical average of the currency.
(2) Translation (gain) loss on Japanese yen-denominated debt: We have excluded the gain or loss on the translation of our yen-denominated
debt to U.S. dollars.
(3) Translated earnings contract (gain) loss: We have excluded the impact of the realized and unrealized gains and losses of our Japanese yen,
South Korean won, Chinese yuan and New Taiwan dollar-denominated foreign currency hedges related to translated earnings, as well as the
unrealized gains and losses of our euro and British pound-denominated foreign currency hedges related to translated earnings.
(4) Acquisition-related costs: These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related
deal costs.
(5) Discrete tax items and other tax-related adjustments: For 2018, this amount primarily relates to the preliminary IRS audit settlement offset by
changes in judgment about the realizability of certain deferred tax assets. For 2017, this amount represents the removal of discrete adjustments
(e.g., changes in tax law, other than those of the 2017 Tax Act which are set forth separately, and changes in judgment about the realizability of
certain deferred tax assets) as well as other non-operational tax-related adjustments.
(6) Litigation, regulatory and other legal matters: Includes amounts that reflect developments in commercial litigation, intellectual property disputes
and other legal matters.
(7) Restructuring, impairment and other charges: This amount includes restructuring, impairment and other charges, as well as other expenses which
are not related to continuing operations and are not classified as restructuring expense.
(8) Equity in earnings of affiliated companies: These adjustments relate to costs not related to continuing operations of our affiliated companies, such
as restructuring, impairment and other charges and settlements, or modifications, under “take-or-pay” contracts.
(9) Adjustments related to acquisitions: Includes fair value adjustments to the Corning Precision Materials indemnity asset related to contingent
consideration, post-combination expenses and other acquisition and disposal adjustments.
(10) Pension mark-to-market adjustment: Defined benefit pension mark-to-market gains and losses, which arise from changes in actuarial assumptions
and the difference between actual and expected returns on plan assets and discount rates.
(11) Gain on realignment of equity investment: Gain recorded upon the completion of the strategic realignment of our ownership interest in
Dow Corning.
(12) Taiwan power outage: Impact of the power outage that temporarily halted production at our Tainan, Taiwan manufacturing location in the second
quarter of 2016. The impact includes asset write-offs and charges for facility repairs, offset somewhat by partial reimbursement through our
insurance program.
(13) Adjustments resulting from the 2017 Tax Act: Includes a provisional amount related to the one-time mandatory tax on unrepatriated foreign
earnings, a provisional amount related to the remeasurement of U.S. deferred tax assets and liabilities, changes in valuation allowances as a result
of the 2017 Tax Act, and adjustments for the elimination of excess foreign tax credit planning.
CORNING INCORPORATED - 2018 Annual Report
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reportable Segments
Our reportable segments are as follows:
• Display Technologies – manufactures glass substrates primarily for flat
panel liquid crystal displays.
• Optical Communications – manufactures carrier and enterprise
network components for the telecommunications industry.
• Environmental Technologies – manufactures ceramic substrates and
filters for automotive and diesel emission control applications.
• Specialty Materials – manufactures products that provide more than
150 material formulations for glass, glass ceramics and fluoride crystals
to meet demand for unique customer needs.
• Life Sciences – manufactures glass and plastic labware, equipment,
media and reagents enabling workflow solutions for scientific
applications.
All other segments that do not meet the quantitative threshold for
separate reporting have been grouped as “All Other.” This group is
primarily comprised of the results of pharmaceutical technologies, auto
glass, new product lines and development projects, as well as certain
corporate investments such as Eurokera and Keraglass equity affiliates.
We prepared the financial results for our reportable segments on a basis
that is consistent with the manner in which we internally disaggregate
financial information to assist in making internal operating decisions.
We included the earnings of equity affiliates that are closely associated
with our reportable segments in the respective segment’s net income.
We have allocated certain common expenses among our reportable
segments differently than we would for stand-alone financial
information prepared in accordance with GAAP. Our reportable segments
include non-GAAP measures which are not prepared in accordance with
GAAP. We believe investors should consider these non-GAAP measures in
evaluating our results as they are more indicative of our core operating
performance and how management evaluates our operational results
and trends. These measures are not, and should not be viewed as a
substitute for GAAP reporting measures. For a reconciliation of non-
GAAP performance measures to their most directly comparable GAAP
financial measure, please see “Reconciliation of Non-GAAP Measures”
above. Segment net income may not be consistent with measures used
by other companies. The accounting policies of our reportable segments
are the same as those applied in the consolidated financial statements.
Display Technologies
The following table provides net sales and net income for the Display Technologies segment:
Segment net sales
Segment net income
Years ended December 31,
2018
$
$
3,276
835
2017
$
$
3,137
888
2016
$
$
3,288
953
% change
18 vs. 17
% change
17 vs. 16
4%
(6%)
(5%)
(7%)
2018 vs. 2017
Display Technologies segment net sales increased $139 million compared
to the prior year. Total display glass market volume was up in 2018. Our
volume growth in this market more than offset price declines on a year-
over-year basis. 2018 was the best pricing environment in more than a
decade, achieving the important milestone of mid-single digit year-over-
year declines during the second half of the year.
Net income decreased by $53 million, or 6%, mainly driven by the costs of
expanding Gen 10.5 capacity, ramping production and rebuilding tanks
for fleet optimization during the first half of the year.
2017 vs. 2016
Net sales decreased by $151 million, or 5%, in the year ended December 31,
2017, when compared to the same period in 2016, driven by price declines
of approximately 10%, partially offset by an increase in volume in the
mid-single digits in percentage terms.
Net income decreased by $65 million, or 7%, driven by the following items:
• The impact of price declines of approximately 10%; and
• An increase of $40 million in research, development and engineering
expenses, primarily driven by the absence of the impact of a 2016 joint
development agreement.
The decrease in net income was partially offset by the following items:
• A mid-single digit percentage increase in volume; and
• Improvements in manufacturing efficiency, which added $68 million.
Outlook:
For full-year 2019, Corning expects the display glass market to grow by a
mid-single digit percentage, consistent with 2018. The Company expects
Corning’s volume to grow faster than the market due to expansion of
our Gen 10.5 manufacturing capacity in China. 2018 was the best pricing
environment in more than a decade achieving the important milestone
of mid-single digit year-over-year declines in the second half of the year.
We expect our full year 2019 price declines to improve further to a mid-
single digit percentage and to be even better than they were in 2018.
26 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Optical Communications
The following table provides net sales and net income for the Optical Communications segment:
Segment net sales
Segment net income
Years ended December 31,
2018
$
$
4,192
592
2017
$
$
3,545
469
2016
$
$
3,005
351
% change
18 vs. 17
% change
17 vs. 16
18%
26%
18%
34%
2018 vs. 2017
Net sales increased by $647 million, or 18%, in the year ended December 31,
2018, when compared to the same period in 2017, due to higher sales of
carrier and enterprise network products. The acquisition of CMD drove
$200 million of increased sales.
Net income in the year ended December 31, 2018 increased by
$123 million, or 26%, driven by the increase in sales described above,
partially offset by capacity expansion spending.
Movements in foreign currency exchange rates did not materially impact
net sales or net income in this segment in the year ended December 31,
2018 when compared to the same period in 2017.
2017 vs. 2016
Net sales increased by $540 million, or 18%, in the year ended
December 31, 2017, when compared to the same period in 2016, due to
higher sales of carrier and enterprise network products, combined with
the absence of production issues related to the implementation of
new manufacturing software in the first half of 2016 and the impact of
several small acquisitions completed in the 2017. Strong growth in the
North American fiber-to-the-home market drove the increase in carrier
network products.
Net income in the year ended December 31, 2017 increased by $118 million,
or 34%, driven by the increase in sales described above, partially offset by
capacity expansion spending.
Movements in foreign currency exchange rates did not materially impact
net sales or net income in this segment in the year ended December 31,
2017 when compared to the same period in 2016.
Outlook:
Full-year 2019 Optical Communications sales are expected to increase by
a low-teens percentage on a year-over-year basis, including the impact
of a full year of sales from the acquisition of CMD.
Specialty Materials
The following table provides net sales and net income for the Specialty Materials segment:
Segment net sales
Segment net income
Years ended December 31,
2018
$
$
1,479
313
2017
$
$
1,403
301
2016
$
$
1,124
228
% change
18 vs. 17
% change
17 vs. 16
5%
4%
25%
32%
2018 vs. 2017
Net sales in the Specialty Materials segment increased by $76 million, or
5%, in the year ended December 31, 2018, when compared to the same
period in 2017, driven by an increase in sales of Gorilla Glass products,
combined with an increase in sales of advanced optics products.
Net income in year ended December 31, 2018 increased by $12 million,
or 4%, when compared to the same period in 2017, primarily due to the
increase in net sales outlined above.
Movements in foreign currency exchange rates did not materially impact
net sales or net income in this segment in the year ended December 31,
2018 when compared to the same period in 2017.
2017 vs. 2016
Net sales in the Specialty Materials segment increased by $279 million,
or 25%, in the year ended December 31, 2017, when compared to the same
period in 2016, driven by an increase in sales of Gorilla Glass products
in support of new product launches, combined with an increase in
advanced optics products.
Net income in year ended December 31, 2017 increased by $73 million, or
32%, when compared to the same period in 2016, primarily due to the
increase in net sales.
Movements in foreign currency exchange rates did not materially impact
net sales or net income in this segment in the year ended December 31,
2017 when compared to the same period in 2016.
Outlook:
The company expects year-over-year sales growth for Specialty
Materials in 2019, with the rate dependent upon customer adoptions of
our innovations.
CORNING INCORPORATED - 2018 Annual Report
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Environmental Technologies
The following table provides net sales and net income for the Environmental Technologies segment:
Segment net sales
Segment net income
Years ended December 31,
2018
$
$
1,289
208
2017
$
$
1,106
165
2016
$
$
1,032
159
% change
18 vs. 17
% change
17 vs. 16
17%
26%
7%
4%
2018 vs. 2017
Net sales increased $183 million, or 17% in the year ended December 31,
2018 driven by growth in all product categories, including more than $50
million in sales of gasoline particulate filters.
Net income in the year ended December 31, 2018 increased by
$43 million, or 26%, driven by the reasons outlined above and improved
manufacturing efficiencies.
Movements in foreign currency exchange rates did not materially impact
net sales or net income in this segment for the year ended December 31,
2018 when compared to the same period in 2017.
2017 vs. 2016
Net sales increased $74 million, or 7% in the year ended December 31,
2017. Automotive product sales increased by $42 million, due to market
strength in Europe, China and Asia, and initial commercial sales of gas
particulate filters. Diesel product sales increased $32 million with higher
demand for heavy-duty diesel products in North America and Asia.
Net income in the year ended December 31, 2017 increased by
$6 million, or 4%, with offsets driven by expenses in support of new
product launches.
Movements in foreign currency exchange rates did not materially impact
net sales or net income in this segment in the year ended December 31,
2017 when compared to the same period in 2016.
Outlook:
We expect high-single digit sales growth on a year-over-year basis in our
Environmental Technologies segment in 2019.
Life Sciences
The following table provides net sales and net income for the Life Sciences segment:
Segment net sales
Segment net income
Years ended December 31,
2018
$
$
946
117
2017
$
$
879
95
2016
$
$
839
90
% change
18 vs. 17
% change
17 vs. 16
8%
23%
5%
6%
2018 vs. 2017
Net sales in the Life Sciences segment increased by $67 million, or 8%, in
the year ended December 31, 2018, when compared to the same period in
2017, driven by strong performance across all product categories.
Net income increased by $5 million, or 6%, in the year ended December 31,
2017, driven by an increase in volume, offset somewhat by higher raw
materials costs. Movements in foreign exchange rates did not materially
impact net sales or net income in this period when compared to the
same period in the prior year.
Net income increased by $22 million, or 23%, in the year ended
December 31, 2018, driven by the reasons outlined above and improved
manufacturing efficiencies.
Outlook:
Movements in foreign exchange rates did not materially impact net
sales or net income in this period when compared to the same period
in the prior year.
2017 vs. 2016
Net sales in the Life Sciences segment increased by $40 million, or 5%, in
the year ended December 31, 2017, when compared to the same period
in 2016, driven by strong performance in North America and China,
combined with a small acquisition completed in 2017.
For full-year 2019, sales are expected to grow by a low to mid-single-digit
percentage on a year-over-year basis.
28 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
All Other
All other segments that do not meet the quantitative threshold for separate reporting have been grouped as “All Other.” This group is primarily
comprised of the results of the pharmaceutical technologies business, auto glass, new product lines and development projects, as well as certain
corporate investments such as Eurokera and Keraglass equity affiliates.
The following table provides net sales and net income for All Other (in millions):
Segment net sales
Segment net income
Years ended December 31,
2018
$
$
216
(281)
2017
$
$
188
(259)
2016
$
$
152
(220)
% change
18 vs. 17
% change
17 vs. 16
15%
(8%)
24%
(18%)
2018 vs. 2017
Net sales of this segment increased by $28 million, or 15%, in the
year ended December 31, 2018, respectively, when compared to the
same period in 2018, driven by an increase in sales in our emerging
businesses. The increase in the net loss of $22 million, a decline of 8%,
in the year ended December 31, 2017 reflects increased spending on our
development projects when compared to 2017.
2017 vs. 2016
Net sales of this segment increased by $36 million, or 24%, in the year
ended December 31, 2017, respectively, when compared to the same
period in 2016, driven by an increase in sales in our emerging businesses.
The increase in the net loss in the year ended December 31, 2017 reflects
increased spending on our development projects versus the prior year.
Liquidity and Capital Resources
Financing and Capital Structure
The following items discuss Corning’s financing and changes in capital
structure during 2018 and 2017:
2018
In the second quarter of 2018, Corning issued ¥65.5 billion Japanese
yen-denominated debt securities in tranches of 7, 10 and 12 years.
The proceeds from these notes were received in Japanese yen and
immediately converted to U.S. dollars on the date of issuance. The net
proceeds received in U.S. dollars, after deducting offering expenses,
was $596 million. Payments of principal and interest on the notes will
be in Japanese yen, or should yen be unavailable due to circumstances
beyond Corning’s control, a U.S. dollar equivalent. The net proceeds of
$596 million will be used for general corporate purposes.
2017
In the third quarter of 2017, Corning issued ¥78 billion Japanese
yen-denominated debt securities in tranches of 7, 10 and 20 years.
The proceeds from these notes were received in Japanese yen and
immediately converted to U.S. dollars on the date of issuance. The net
proceeds received in U.S. dollars, after deducting offering expenses,
was approximately $700 million. Payments of principal and interest
on the notes will be in Japanese yen, or should yen be unavailable due
to circumstances beyond Corning’s control, a U.S. dollar equivalent.
The net proceeds of $700 million were made available for general
corporate purposes.
In the fourth quarter of 2017, Corning issued $750 million of 4.375% senior
unsecured notes that mature on November 15, 2057. The net proceeds of
$743 million will be used for general corporate purposes. We can redeem
these notes at any time, subject to certain terms and conditions.
In the third quarter of 2018, Corning amended and restated its revolving
credit agreement (the “Revolving Credit Agreement”). The Revolving
Credit Agreement provides a $1.5 billion unsecured multi-currency line
of credit and expires August 15, 2023. The Revolving Credit Agreement
includes affirmative and negative covenants with which Corning must
comply, including a leverage (debt to capital ratio) financial covenant.
The required leverage ratio is a maximum of 60%.
On a quarterly basis, Corning will recognize the transaction gains and
losses resulting from changes in the JPY/USD exchange rate in the
Other expense, net line of the Consolidated Statements of Income. Cash
proceeds from the offerings and payments for debt issuance costs are
disclosed as financing activities, and cash payments to bondholders
for interest will be disclosed as operating activities, in the Consolidated
Statements of Cash Flows.
In the fourth quarter of 2018, Corning issued $900 million U.S. dollar-
denominated unsecured long-term notes in tranches of 19, 30, and 50
years. The net proceeds of $889 million will be used for general corporate
purposes. We can redeem these notes at any time, subject to certain
terms and conditions.
In the fourth quarter of 2018, Corning redeemed $250 million of 6.625%
Notes due 2019, paying a nominal call premium. The bond redemption
incurred an insignificant loss during the fourth quarter of 2018.
Common Stock Dividends
On February 1, 2017, Corning’s Board of Directors declared a 14.8% increase
in the Company’s quarterly common stock dividend, which increased
the quarterly dividend from $0.135 to $0.155 per share of common stock,
beginning with the dividend to be paid in the first quarter of 2017.
CORNING INCORPORATED - 2018 Annual Report
29
Management’s Discussion and Analysis of Financial Condition and Results of Operations
On February 6, 2018, Corning’s Board of Directors declared a 16.1% increase
in the Company’s quarterly common stock dividend, which increased
the quarterly dividend from $0.155 to $0.18 per share of common stock,
beginning with the dividend to be paid in the first quarter of 2018.
On February 6, 2019, Corning’s Board of Directors declared an 11.1%
increase in the Company’s quarterly common stock dividend, which
increased the quarterly dividend from $0.18 to $0.20 per share of common
stock, beginning with the dividend paid in the first quarter of 2019. This
increase marks the eighth dividend increase since October 2011.
Fixed Rate Cumulative Convertible Preferred
Stock, Series A
Corning has 2,300 outstanding shares of Fixed Rate Cumulative
Convertible Preferred Stock, Series A. The preferred stock is convertible
at the option of the holder and the Company upon certain events, at
a conversion rate of 50,000 shares of Corning’s common stock per one
share of preferred stock, subject to certain anti-dilution provisions. As of
December 31, 2018, the preferred stock has not been converted, and none
of the anti-dilution provisions have been triggered.
Customer Deposits
As of December 31, 2018 and 2017, Corning had customer deposits of
approximately $1.0 billion and $0.4 billion, respectively. The majority of
these represent non-refundable cash deposits for customers to secure
rights to an amount of glass produced by Corning under long-term
supply agreements. The duration of these long-term supply agreements
ranges up to ten years. As glass is shipped to customers, Corning will
recognize revenue and issue credit memoranda to reduce the amount
of the customer deposit liability, which are applied against customer
receivables resulting from the sale of glass. No credit memoranda were
issued in 2018 and 2017.
Capital Spending
Capital spending totaled $2.2 billion in 2018, an increase of approximately
$0.4 billion when compared to 2017, driven by expansions related to
the Gen 10.5 glass manufacturing facilities in China, the addition of
capacity to support the new gas particulate filters business in the
Environmental Technologies segment, fiber and cable capacity in the
Optical Communications segment and general business growth in the
Specialty Materials segment. We expect our 2019 capital expenditures to
be slightly more than $2.0 billion.
Cash Flows
Summary of cash flow data (in millions):
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
2018 vs. 2017
Net cash provided by operating activities increased by $915 million in the
year ended December 31, 2018 when compared to the same period last
year, primarily driven by an increase in customer incentives and deposits
of $600 million. Favorable movements of $189 million in accounts
payable and other current liabilities were driven largely by an increase in
accounts payable in the Optical Communications segment and higher
current liabilities in the Specialty Materials segment. Cash received
of $104 million, which represents the excess of the fair value of the
contingent consideration asset related to the acquisition of Samsung
Corning Precision Materials (refer to Note 14 (Fair Value Measurements)
to the Consolidated Financial Statements for additional information),
also increased cash provided by operating activities.
Net cash used in investing activities increased by $1,177 million in the year
ended December 31, 2018, when compared to the same period last year,
driven by increased capital expenditures of $438 million due to capacity
expansions, increased acquisition spending of $671 million and lower
gains realized on translated earnings contracts of $162 million. Cash
received of $196 million, which represents the original fair value of the
contingent consideration asset related to the acquisition of Samsung
Corning Precision Materials (refer to Note 14 (Fair Value Measurements)
to the Consolidated Financial Statements for additional information),
partially offset the net cash used in investing activities.
Years ended December 31,
2018
$
$
$
2,919
(2,887)
(1,995)
2017
$
$
$
2,004
(1,710)
(1,624)
2016
$
$
$
2,537
3,662
(5,322)
Net cash used in financing activities in the year ended December 31,
2018 increased by $371 million when compared to the same period last
year, driven by higher debt repayments, up $377 million and a decrease of
$228 million for proceeds from the exercise of stock options. A decrease
of $225 million in share repurchases partially offset the negative cash
impact of these items.
2017 vs. 2016
Net cash provided by operating activities decreased by $533 million in
the year ended December 31, 2017 when compared to the same period
last year, driven by $501 million of unfavorable movements in working
capital. The negative impact of working capital changes was largely
driven by an increase of $143 million in VAT receivables in Asia, a payment
of $70 million related to our obligation under the plan of reorganization
for PCC (refer to Note 12 (Commitments, Contingencies and Guarantees)
to the Consolidated Financial Statements for additional information),
an increase in accounts receivable and inventory to support growth in
the Optical Communications, Environmental Technologies and Specialty
Materials segments.
30 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net cash used in investing activities increased by $5.4 billion in the
year ended December 31, 2017, when compared to the same period last
year, driven by the absence of $4.8 billion of cash received in the second
quarter of 2016 on the realignment of Dow Corning, coupled with an
increase of $674 million in capital expenditures largely due to capacity
expansions and a decline of $92 million in liquidations of short-term
investments. A decline of $162 million in acquisition spending partially
offset these events.
Net cash used in financing activities in the year ended December 31, 2017
decreased by $3.7 billion when compared to the same period last year,
driven by lower share repurchases, down $1.8 billion, proceeds from the
issuance of long-term debt of $1.4 billion, the absence of $481 million
of commercial paper repayments made in 2016 and an increase of $171
million in proceeds from the exercise of stock options.
Defined Benefit Pension Plans
We have defined benefit pension plans covering certain domestic and
international employees. Our largest single pension plan is Corning’s
U.S. qualified plan. At December 31, 2018, this plan accounted for 76%
of our consolidated defined benefit pension plans’ projected benefit
obligation and 85% of the related plans’ assets.
In 2018, we made voluntary cash contributions of $105 million to
our domestic defined benefit pension plan and $12 million to our
international pension plans. In 2017, we made no voluntary cash
contributions to our domestic defined benefit pension plan and
$29 million to our international pension plans. During 2019, we
anticipate making cash contributions of $75 million to our U.S. qualified
pension plan and $31 million to our international pension plans.
Refer to Note 11 (Employee Retirement Plans) to the Consolidated
Financial Statements for additional information.
Key Balance Sheet Data
Balance sheet and working capital measures are provided in the following table (in millions):
Working capital
Current ratio
Trade accounts receivable, net of allowances
Days sales outstanding
Inventories
Inventory turns
Days payable outstanding(1)
Long-term debt
Total debt to total capital
(1) Includes trade payables only.
December 31,
2018
2017
$
$
$
$
3,723
2.1:1
1,940
58
2,037
3.6
55
5,994
$
$
$
$
5,618
2.8:1
1,807
62
1,712
3.7
51
4,749
30%
25%
Management Assessment of Liquidity
We ended the fourth quarter of 2018 with approximately $2.4 billion of
cash and cash equivalents. Our cash and cash equivalents are held in
various locations throughout the world and are generally unrestricted.
We utilize a variety of strategies to ensure that our worldwide cash is
available in the locations in which it is needed. At December 31, 2018,
approximately 56% of the consolidated amount was held outside of
the United States. During 2018, the Company distributed approximately
$2.2 billion in cash from foreign subsidiaries to the U.S. parent. There
were no incremental taxes beyond the toll charge due with respect to
this distribution of cash.
To manage interest rate exposure, the Company, from time to time,
enters into interest rate swap agreements. As of December 31, 2018,
there are no interest rate swaps outstanding.
Corning also has a commercial paper program pursuant to which we
may issue short-term, unsecured commercial paper notes up to a
maximum aggregate principal amount outstanding at any one time
of $1.5 billion. Under this program, the Company may issue the paper
from time to time and will use the proceeds for general corporate
purposes. The Company’s Revolving Credit Agreement is available to
support obligations under the commercial paper program, if needed. At
December 31, 2018 Corning did not have outstanding commercial paper.
Share Repurchases
During 2016, Corning repurchased 197.1 million shares for approximately
$4.2 billion through an accelerated share repurchase agreement and
open market repurchases as part of the 2015 Repurchase Programs. In
December 2016, Corning’s Board of Directors approved a $4 billion share
repurchase program with no expiration (the “2016 Repurchase Program”).
During 2017, Corning repurchased 84.4 million shares for approximately
$2.4 billion through accelerated share repurchase agreements and open
market repurchases under the 2016 Repurchase Program.
CORNING INCORPORATED - 2018 Annual Report
31
Management’s Discussion and Analysis of Financial Condition and Results of Operations
During 2018, Corning repurchased 74.8 million shares for approximately
$2.2 billion through open market repurchases under the 2016 and 2018
Repurchase Programs.
Refer to Note 15 (Shareholders’ Equity) to the Consolidated Financial
Statements for additional information.
Other
We complete comprehensive reviews of our significant customers
and their creditworthiness by analyzing their financial strength
at least annually or more frequently for customers where we have
identified a measure of increased risk. We closely monitor payments
and developments which may signal possible customer credit issues.
We currently have not identified any potential material impact on our
liquidity resulting from customer credit issues.
Our major source of funding for 2019 and beyond will be our operating
cash flow, our existing balances of cash and cash equivalents and
proceeds from any issuances of debt. We believe we have sufficient
liquidity to fund operations, acquisitions, capital expenditures, scheduled
debt repayments, dividend payments and share repurchase programs.
Our Revolving Credit Agreement includes affirmative and negative
covenants with which we must comply, including a leverage (debt
to capital ratio) financial covenant. The required leverage ratio is a
maximum of 60%. At December 31, 2018, our leverage using this measure
was approximately 30%. As of December 31, 2018, we were in compliance
with this financial covenant.
Our debt instruments contain customary event of default provisions,
which allow the lenders the option of accelerating all obligations
upon the occurrence of certain events. In addition, some of our debt
instruments contain a cross default provision, whereby an uncured
default in excess of a specified amount on one debt obligation of the
Company, also would be considered a default under the terms of another
debt instrument. As of December 31, 2018, we were in compliance with
all such provisions.
Management is not aware of any known trends or any known demands,
commitments, events or uncertainties that will result in or that are
reasonably likely to result in a material decrease in our liquidity. In
addition, other than items discussed, there are no known material
trends, favorable or unfavorable, in our capital resources and no expected
material changes in the mix and relative cost of such resources.
Translated Earnings Contracts
Corning has hedged a significant portion of its projected yen exposure
for the period 2018 through 2022, with average rate forwards, collars and
puts. In the years ended December 31, 2018, 2017 and 2016, we recorded
pre-tax net losses of $96 million, $201 million and $459 million related
to changes in the fair value of these instruments. Included in these
amounts are realized gains of $64 million, $268 million and $207 million,
respectively. The gross notional value outstanding for these instruments
which hedge our exposure to the Japanese yen at December 31, 2018,
2017 and 2016 was $11.6 billion, $13 billion and $14.9 billion, respectively.
We have entered into zero-cost collars and average rate forwards to
hedge our translation exposure resulting from movements in the
South Korean won and its impact on our net income. In the year ended
December 31, 2018, we recorded a pre-tax net loss of $26 million, and in
the years ended December 31, 2017 and 2016, we recorded pre-tax net
gains of $95 million and $7 million, respectively, related to changes in the
fair value of these instruments. Included in these amounts is a realized
gain of $46 million, and realized losses of $1 million and $7 million,
respectively. These instruments had a gross notional value outstanding
at December 31, 2018, 2017 and 2016 of $0.1 billion, $0.8 billion and
$1.2 billion, respectively.
We have entered into a portfolio average rate forwards to hedge against
our euro translation exposure. In the years ended December 31, 2018, 2017
and 2016, we recorded a pre-tax gain of $43 million, a net pre-tax loss of
$40 million, and a net pre-tax gain of $15 million, respectively. Included
in these amounts are realized losses of $14 million and $2 million, and a
realized gain of $1 million, respectively. At December 31, 2018, the euro-
denominated average rate instruments had a gross notional amount of
$1.2 billion, and at 2017 and 2016, a gross notional amount of $0.3 billion.
These derivative instruments are not designated as accounting hedges,
and changes in fair value are recorded in earnings in the translated
earnings contract loss, net line of the Consolidated Statements of
Income (Loss).
Off Balance Sheet Arrangements
Off balance sheet arrangements are transactions, agreements, or other
contractual arrangements with an unconsolidated entity for which
Corning has an obligation to the entity that is not recorded in our
consolidated financial statements.
Corning’s off balance sheet arrangements include guarantee contracts.
At the time a guarantee is issued, the Company is required to recognize
a liability for the fair value or market value of the obligation it assumes.
In the normal course of our business, we do not routinely provide
significant third-party guarantees. Generally, third-party guarantees
provided by Corning are limited to certain financial guarantees, including
stand-by letters of credit and performance bonds, and the incurrence of
contingent liabilities in the form of purchase price adjustments related
to attainment of milestones. These guarantees have various terms, and
none of these guarantees are individually significant.
Refer to Note 12 (Commitments, Contingencies and Guarantees) to the
Consolidated Financial Statements for additional information.
For variable interest entities, we assess the terms of our interest in
each entity to determine if we are the primary beneficiary. The primary
beneficiary of a variable interest entity is the party that absorbs a
majority of the entity’s expected losses, receives a majority of its expected
residual returns, or both, as a result of holding variable interests, which
are the ownership, contractual, or other pecuniary interests in an entity
that change with changes in the fair value of the entity’s net assets
excluding variable interests.
Corning has identified ten entities that qualify as a variable interest
entity and are not consolidated. These entities are not considered to be
significant to Corning’s consolidated statements of position.
Corning does not have retained interests in assets transferred to an
unconsolidated entity that serve as credit, liquidity or market risk
support to that entity.
32 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Contractual Obligations
The amounts of our obligations follow (in millions):
Performance bonds and guarantees
Stand-by letters of credit(1)
Credit facility to equity company
Subtotal of commitment expirations per period
Purchase obligations(2)
Capital expenditure obligations(3)
Total debt(4)
Interest on long-term debt(5)
Capital leases and financing obligations
Imputed interest on capital leases and financing obligations
Minimum rental commitments
Amended PCC Plan
Uncertain tax positions(6)
Subtotal of contractual obligation payments due by period(6)
Total commitments and contingencies(6)
Amount of commitment and contingency expiration per period
Total
Less than 1 year
1 to 3 years
3 to 5 years
$
$
$
152
84
4
240
339
412
5,642
5,117
393
205
581
185
95
$
$
$
23
71
4
98
214
412
231
4
20
82
50
$
$
$
4
8
12
56
362
450
11
38
133
85
$
$
$
2
2
28
670
408
132
37
111
50
5 years and
thereafter
$
$
$
123
5
128
41
4,610
4,028
246
110
255
$
$
12,969
13,209
$
$
1,013
1,111
$
$
1,135
1,147
$
$
1,436
1,438
$
$
9,290
9,418
(1) At December 31, 2018, $39 million of the $84 million was included in other accrued liabilities on our consolidated balance sheets.
(2) Purchase obligations are enforceable and legally binding obligations which primarily consist of raw material and energy-related take-or-
pay contracts.
(3) Capital expenditure obligations primarily reflect amounts associated with our capital expansion activities.
(4) Total debt above is stated at maturity value, and excludes interest rate swap gains/losses and bond discounts.
(5) The estimate of interest payments assumes interest is paid through the date of maturity or expiration of the related debt, based upon stated rates
in the respective debt instruments.
(6) At December 31, 2018, $95 million was included on our balance sheet related to uncertain tax positions.
We believe a significant majority of these guarantees and contingent liabilities will expire without being funded.
Environment
Refer to Item 3. Legal Proceedings or Note 12 (Commitments, Contingencies and Guarantees) to the Consolidated Financial Statements for information.
Critical Accounting Estimates
The preparation of financial statements requires us to make estimates
and assumptions that affect amounts reported therein. The estimates
that required us to make difficult, subjective or complex judgments,
including future projections of performance and relevant discount rates,
are set forth below.
Acquired assets and liabilities
We account for the acquisition of a business using the purchase
method of accounting, which requires us to estimate the fair values
of the assets acquired and liabilities assumed. This includes acquired
intangible assets such as customer-related intangibles and patents,
fixed assets and inventories. Liabilities assumed may include litigation
and other contingency reserves existing at the time of acquisition and
require judgment in ascertaining the related fair values. Independent
appraisals may be used to assist in the determination of the fair value
of certain assets and liabilities. Such appraisals are based on significant
estimates provided by us, such as forecasted revenues and profits
utilized in determining the fair value of contract-related acquired
intangible assets or liabilities. Significant changes in assumptions and
estimates subsequent to completing the allocation of the purchase
price to the assets and liabilities acquired, as well as differences in
actual and estimated results could result in impacts to our financial
results. Additional information related to the acquisition date fair value
of acquired assets and liabilities obtained during the allocation period,
not to exceed one year, may result in changes to the recorded values of
acquired assets and liabilities, resulting in an offsetting adjustment to
the goodwill associated with the business acquired.
CORNING INCORPORATED - 2018 Annual Report
33
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In 2018 we acquired CMD from 3M in a business combination. Included
in the acquisition were other intangible assets consisting primarily
of $434 million of customer relationships and $91 million of other
intangibles that are amortized over the weighted average useful life of
approximately 14 and 11 years, respectively. The customer relationship
intangible asset was valued using the Multi-Period Excess Earnings
Valuation Method, which is an income approach method that estimates
fair value of revenue based upon the present value of cash flows that
are expected to be generated from the acquired customer base. Key
assumptions used in this valuation include a discount rate of 12.5%,
revenue growth rates in the range of 0% to 3% and a customer attrition
rate of 6%.
Impairment of assets held for use
We are required to assess the recoverability of the carrying value of
long-lived assets when an indicator of impairment has been identified.
We review our long-lived assets in each quarter to assess whether
impairment indicators are present. We must exercise judgment in
assessing whether an event of impairment has occurred.
Manufacturing equipment includes certain components of production
equipment that are constructed of precious metals, primarily platinum
and rhodium. These metals are not depreciated because they have
very low physical losses and are repeatedly reclaimed and reused in
our manufacturing process over a very long useful life. Precious metals
are reviewed for impairment as part of our assessment of long-lived
assets. This review considers all the Company’s precious metals that
are either in place in the production process; in reclamation, fabrication,
or refinement in anticipation of re-use; or awaiting use to support
increased capacity. Precious metals are only acquired to support our
operations and are not held for trading or other non-manufacturing
related purposes.
Examples of events or circumstances that may be indicative of
impairments include, but are not limited to:
• A significant decrease in the market price of an asset;
• A significant change in the extent or manner in which a long-lived
asset is being used or in its physical condition;
• A significant adverse change in legal factors or in the business climate
that could affect the value of the asset, including an adverse action or
assessment by a regulator;
• An accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of an asset;
• A current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or forecast
that demonstrates continuing losses associated with the use of an
asset; and
• A current expectation that, more likely than not, an asset will be sold
or otherwise disposed of significantly before the end of its previously
estimated useful life.
For purposes of recognition and measurement of an impairment loss, a
long-lived asset or assets is grouped with other assets and liabilities at
the lowest level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities. We must exercise
judgment in assessing the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and liabilities.
Our assessment is performed at the reportable segment level. For the
majority of our reportable segments, we concluded that locations or
businesses within these segments which share production along the
supply chain must be combined to appropriately identify cash flows that
are largely independent of the cash flows of other assets and liabilities.
For long-lived assets, when impairment indicators are present, we
compare estimated undiscounted future cash flows, including the
eventual disposition of the asset group at market value, to the assets’
carrying value to determine if the asset group is recoverable. This
assessment requires the exercise of judgment in assessing the future
use of and projected value to be derived from the assets to be held and
used. Assessments also consider changes in asset utilization, including
the temporary idling of capacity and the expected timing for placing
this capacity back into production. If there is an impairment, a loss is
recorded to reflect the difference between the assets’ fair value and
carrying value. This may require judgment in estimating future cash
flows and relevant discount rates and residual values in estimating the
current fair value of the impaired assets to be held and used.
For an asset group that fails the test of recoverability, the estimated fair
value of long-lived assets is determined using an “income approach”
that starts with the forecast of all the expected future net cash flows
including the eventual disposition at market value of long-lived assets,
and considers the fair market value of all precious metals. We assess the
recoverability of the carrying value of long-lived assets at the lowest
level for which identifiable cash flows are largely independent of the
cash flows of other assets and liabilities. If there is an impairment, a loss
is recorded to reflect the difference between the assets’ fair value and
carrying value. Our estimates are based upon our historical experience,
our commercial relationships, and available external information about
future trends. We believe fair value assessments are most sensitive to
market growth and the corresponding impact on volume and selling
prices and that these are also more subjective than manufacturing cost
and other assumptions. The Company believes its current assumptions
and estimates are reasonable and appropriate.
At December 31, 2018 and December 31, 2017, the carrying value of
precious metals was higher than the fair market value by $719 million
and $711 million, respectively. The majority of these precious metals are
utilized by the Display Technologies and Specialty Materials segments.
Corning believes these precious metal assets to be recoverable due to
the significant positive cash flow in both segments. The potential for
impairment exists in the future if negative events significantly decrease
the cash flow of these segments. Such events include, but are not
limited to, a significant decrease in demand for products or a significant
decrease in profitability in our Display Technologies or Specialty
Materials segments.
Impairment of Goodwill
We are required to make certain subjective and complex judgments in
assessing whether an event of impairment of goodwill has occurred,
including assumptions and estimates used to determine the fair value
of our reporting units. Goodwill is tested for impairment at the reporting
unit level. A reporting unit is equivalent to an operating segment or
a component of an operating segment which constitutes a business
and for which discrete financial information is regularly reviewed
by segment management. An impairment loss generally would be
recognized when the carrying amount of a reporting unit’s net assets
exceeds the estimated fair value of the reporting unit.
34 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Corning has recorded goodwill in the Display Technologies, Optical
Communications, Specialty Materials, Life Sciences and All Other
operating segments. Each of these operating segments is a separate
reporting unit; however, Specialty Materials and All Other are each made
up of two separate reporting units. On a quarterly basis, or if an event
occurs or circumstances change that indicate the carrying amount may
be impaired, management performs a qualitative assessment of factors
in each reporting unit within these operating segments to determine
if there have been any triggering events. We also perform a detailed
quantitative impairment test every three years if no indicators suggest
a test should be performed in the interim. We use this calculation as a
quantitative validation of the qualitative process; this process does not
represent an election to perform the quantitative impairment test in
place of the qualitative review.
The qualitative assessment is performed by assessing various factors
to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. These factors include, but
are not limited to, changes in macroeconomic conditions, industry and
market considerations, cost factors, overall financial performance, other
relevant entity-specific events, or a sustained decrease in share price.
In 2018, we performed a quantitative goodwill impairment assessment
in addition to assessing the qualitative factors each quarter. Our
assessment is based on our annual strategic planning process. This
process includes an extensive review of expectations for the long-term
growth of our businesses and forecasted future cash flows. Our valuation
method is an “income approach” using a discounted cash flow model in
which cash flows anticipated over several periods, plus a terminal value
at the end of that time horizon, are discounted to present value using an
appropriate discount rate. Our estimates are based upon our historical
experience, our current knowledge from our commercial relationships,
and available external information about future trends. The quantitative
assessment requires the exercise of significant judgment, including
judgment about appropriate discount rates, growth rates and the
timing of expected future cash flows of the respective reporting unit.
The quantitative assessment of goodwill resulted in fair values
significantly exceeding the carrying values for all of our reporting units.
We also performed a sensitivity analysis, using a range between 7-10% for
the discount rate and 0%-3% for the growth rate, which had no material
impact on our results. Based on the quantitative test performed in 2018,
no goodwill impairment was required.
Income taxes
We are required to exercise judgment about our future results in
assessing the realizability of our deferred tax assets. Inherent in this
estimation process is the requirement for us to estimate future book and
taxable income and possible tax planning strategies. These estimates
require us to exercise judgment about our future results, the prudence
and feasibility of possible tax planning strategies, and the economic
environments in which we do business. It is possible that actual results
will differ from assumptions and require adjustments to allowances.
Corning accounts for uncertain tax positions in accordance with ASC
Topic 740, Income Taxes, which requires that companies only record tax
benefits for technical positions that are believed to have a greater than
50% likelihood of being sustained on their technical merits and then
only to the extent of the amount of tax benefit that is greater than 50%
likely of being realized upon settlement. In estimating these amounts,
we must exercise judgment around factors such as the weighting of the
tax law in our favor, the willingness of a tax authority to aggressively
pursue a particular position, or alternatively, consider a negotiated
compromise, and our willingness to dispute a tax authorities’ assertion
to the level of appeal we believe is required to sustain our position. As
a result, it is possible that our estimate of the benefits we will realize
for uncertain tax positions may change when we become aware of new
information affecting these judgments and estimates.
As of December 31, 2018, Corning has completed its analysis of the
impact of the 2017 Tax Act as required by SAB 118.
Beginning in 2018, Corning will indefinitely reinvest the foreign earnings
of: (1) any of its subsidiaries located in jurisdictions where Corning lacks
the ability to repatriate its earnings, (2) any of its subsidiaries where
Corning’s intention is to reinvest those earnings in operations, (3) legal
entities for which Corning holds a non-controlling interest, (4) any
subsidiaries with an accumulated deficit in earnings and profits and
(5) any subsidiaries which have a positive earnings and profits balance
but for which the entity lacks sufficient local statutory earnings or stock
basis from which to make a distribution.
Under the 2017 Tax Act, a company can make a policy election to account
for the tax on GILTI as a period cost or to recognize deferred tax assets
and liabilities when basis differences exist that are expected to affect
the amount of GILTI inclusion upon reversal. Corning has elected to
account for the GILTI provisions as a period cost.
Fair value measures
As required, Corning uses two kinds of inputs to determine the fair value
of assets and liabilities: observable and unobservable. Observable inputs
are based on market data or independent sources, while unobservable
inputs are based on the Company’s own market assumptions. Once
inputs have been characterized, we prioritize the inputs used to
measure fair value into one of three broad levels. Characterization of
fair value inputs is required for those accounting pronouncements that
prescribe or permit fair value measurement. In addition, observable
market data must be used when available and the highest-and-best-
use measure should be applied to non-financial assets. Corning’s major
categories of financial assets and liabilities required to be measured at
fair value are short-term and long-term investments, certain pension
asset investments and derivatives. These categories use observable
inputs only and are measured using a market approach based on quoted
prices in markets considered active or in markets in which there are
few transactions.
Derivative assets and liabilities may include interest rate swaps and
forward exchange contracts that are measured using observable quoted
prices for similar assets and liabilities. Included in our forward exchange
contracts are foreign currency hedges that hedge our translation
exposure resulting from movements in the Japanese yen, South Korean
won, euro, New Taiwan dollar, Chinese yuan and British pound. These
contracts are not designated as accounting hedges, and changes in fair
value are recorded in earnings in the translated earnings contract loss,
net line of the Consolidated Statements of Income (Loss). In arriving
at the fair value of Corning’s derivative assets and liabilities, we have
considered the appropriate valuation and risk criteria, including such
factors as credit risk of the relevant party to the transaction. Amounts
related to credit risk are not material.
Refer to Note 14 (Fair Value Measurements) to the Consolidated Financial
Statements for additional information.
CORNING INCORPORATED - 2018 Annual Report
35
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Probability of litigation outcomes
We are required to make judgments about future events that are
inherently uncertain. In making determinations of likely outcomes
of litigation matters, we consider the evaluation of legal counsel
knowledgeable about each matter, case law, and other case-specific
issues. See Part II – Item 3. Legal Proceedings for a discussion of Corning’s
material litigation matters.
Other possible liabilities
We are required to make judgments about future events that are
inherently uncertain. In making determinations of likely outcomes of
certain matters, including certain tax planning and environmental
matters, these judgments require us to consider events and actions that
are outside our control in determining whether probable or possible
liabilities require accrual or disclosure. It is possible that actual results
will differ from assumptions and require adjustments to accruals.
Pension and other postretirement employee
benefits (OPEB)
Corning offers employee retirement plans consisting of defined benefit
pension plans covering certain domestic and international employees
and postretirement plans that provide health care and life insurance
benefits for eligible retirees and dependents. The costs and obligations
related to these benefits reflect the Company’s assumptions related
to general economic conditions (particularly interest rates), expected
return on plan assets, rate of compensation increase for employees and
health care trend rates. The cost of providing plan benefits depends
on demographic assumptions
retirements, mortality,
turnover and plan participation. While management believes that the
assumptions used are appropriate, differences in actual experience or
changes in assumptions may affect Corning’s employee pension and
other postretirement obligations, and current and future expense.
including
Costs for our defined benefit pension plans consist of two elements:
1) on-going costs recognized quarterly, which are comprised of service
and interest costs, expected return on plan assets and amortization of
prior service costs; and 2) mark-to-market gains and losses outside of the
corridor, where the corridor is equal to 10% of the greater of the benefit
obligation or the market-related value of plan assets at the beginning of
the year, which are recognized annually in the fourth quarter of each year.
These gains and losses result from changes in actuarial assumptions
and the differences between actual and expected return on plan assets.
Any interim remeasurements triggered by a curtailment, settlement or
significant plan changes, as well as any true-up to the annual valuation,
are recognized as a mark-to-market adjustment in the quarter in which
such event occurs.
Costs for our OPEB plans consist of on-going costs recognized quarterly,
and are comprised of service and interest costs, amortization of prior
service costs and amortization of actuarial gains and losses. We
recognize the actuarial gains and losses resulting from changes in
actuarial assumptions as a component of Stockholders’ Equity on our
consolidated balance sheets on an annual basis and amortize them
into our operating results over the average remaining service period of
employees expected to receive benefits under the plans, to the extent
such gains and losses are outside of the corridor.
On January 1, 2018, Corning adopted ASU No. 2017-07, Compensation
Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Post-Retirement Benefit
Cost, which presents the service cost component with other current
compensation costs in operating income. The remaining components
are included in the line item Other expense, net, in the Consolidated
Statements of
the practical
expedient as the estimation basis for applying the retrospective
presentation requirements.
(Loss). Corning applied
Income
The following tables present our actual and expected return on assets, as well as the corresponding percentage, for the years ended 2018, 2017 and 2016:
(In millions)
Actual return on plan assets – Domestic plans
Expected return on plan assets – Domestic plans
Actual return on plan assets – International plans
Expected return on plan assets – International plans
Weighted-average actual and expected return on assets:
Actual return on plan assets – Domestic plans
Expected return on plan assets – Domestic plans
Actual return on plan assets – International plans
Expected return on plan assets – International plans
2018
$
(202)
178
1
11
December 31,
2017
$
393
163
18
11
2016
$
235
153
75
12
2018
December 31,
2017
2016
(6.83)%
6.00%
(0.06)%
2.13%
14.92%
6.00%
3.93%
3.97%
9.62%
6.00%
19.06%
3.92%
As of December 31, 2018, the Projected Benefit Obligation (PBO) for U.S. pension plans was $3.4 billion.
36 CORNING INCORPORATED - 2018 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans:
Change in assumption
25 basis point decrease in each spot rate
25 basis point increase in each spot rate
25 basis point decrease in expected return on assets
25 basis point increase in expected return on assets
Effect on 2019
pre-tax pension expense
- 2 million
+ 2 million
+ 7 million
- 7 million
Effect on
December 31, 2018 PBO
+ 91 million
- 87 million
The above sensitivities reflect the impact of changing one assumption
at a time. Note that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear. These changes in assumptions
would have no effect on Corning’s funding requirements.
In addition, at December 31, 2018, a 25 basis point decrease in each spot
rate would decrease stockholders’ equity by $112 million before tax, and
a 25 basis point increase in each spot rate would increase stockholders’
equity by $107 million. In addition, the impact of greater than a 25 basis
point decrease in each spot rate would not be proportional to the first 25
basis point decrease in each spot rate.
The following table illustrates the sensitivity to a change in each spot rate assumption related to Corning’s U.S. OPEB plans:
Change in assumption
25 basis point decrease in each spot rate
25 basis point increase in each spot rate
* Accumulated Postretirement Benefit Obligation (APBO).
Effect on 2019
pre-tax OPEB expense
Effect on
December 31, 2018 APBO*
- 0 million
+ 0 million
+ 21 million
- 20 million
The above sensitivities reflect the impact of changing one assumption at a time. Note that economic factors and conditions often affect multiple
assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear.
Revenue recognition
The Company recognizes revenue when all performance obligations
under the terms of a contract with our customer are satisfied, and
control of the product has been transferred to the customer. If customer
acceptance clauses are present and it cannot be objectively determined
that control has been transferred, revenue is only recorded when
customer acceptance is received and all performance obligations have
been satisfied. Sales of goods typically do not include multiple product
and/or service elements. Corning also has contractual arrangements
with certain customers in which we recognize revenue over time.
The performance obligations under these contracts generally require
services to be performed over time, resulting in either a straight-line
amortization method or an input method using incurred and forecasted
expense to predict revenue recognition patterns which follows
satisfaction of the performance obligation.
On January 1, 2018, we adopted Accounting Standards Update (“ASU”)
No. 2014-09 ASC (Topic 606), Revenue from Contracts with Customers,
and applied the modified retrospective method of accounting to those
contracts which were not completed as of January 1, 2018. Results for
reporting periods beginning after January 1, 2018 are presented under
Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with our historic accounting under ASC
Topic 605 “Revenue Recognition”. Because the impact of adopting the
standard on Corning’s financial statements was immaterial, we have not
made an adjustment to opening retained earnings.
New Accounting Standards
Refer to Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements.
CORNING INCORPORATED - 2018 Annual Report
37
Quantitative and Qualitative Disclosures About
Market Risks
We operate and conduct business in many foreign countries and as a
result are exposed to movements in foreign currency exchange rates.
Our exposure to exchange rates has the following effects:
• Exchange rate movements on financial instruments and transactions
denominated in foreign currencies that impact earnings; and
• Exchange rate movements upon conversion of net assets and net
income of foreign subsidiaries for which the functional currency is not
the U.S. dollar, which impact our net equity.
Our most significant foreign currency exposures relate to the Japanese
yen, South Korean won, New Taiwan dollar, Chinese yuan, and the
euro. We seek to mitigate the impact of exchange rate movements
in our income statement by using over-the-counter (OTC) derivative
instruments including foreign exchange forward and option contracts.
In general, these hedges expire coincident with the timing of the
underlying foreign currency commitments and transactions.
We are exposed to potential losses in the event of non-performance
by our counterparties to these derivative contracts. However, we
minimize this risk by maintaining a diverse group of highly-rated
major financial institutions as our counterparties. We do not expect
to record any losses as a result of such counterparty default. Neither
we nor our counterparties are required to post collateral for these
financial instruments.
Our cash flow hedging activities utilize OTC foreign exchange forward
contracts to reduce the risk that movements in exchange rates will
adversely affect the net cash flows resulting from the sale of products
to foreign customers and purchases from foreign suppliers. We also
use OTC foreign exchange forward and option contracts that are not
designated as hedging instruments for accounting purposes. The
undesignated hedges limit exposures 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. revenues are denominated in Japanese yen.
When these revenues are translated back to U.S. dollars, the Company
is exposed to foreign exchange rate movements in the Japanese yen. To
protect translated earnings against movements in the Japanese yen, the
Company has entered into a series of average rate forwards and other
derivative instruments.
We use a sensitivity analysis to assess the market risk associated
with our foreign currency exchange risk. Market risk is defined as the
potential change in fair value of assets and liabilities resulting from an
adverse movement in foreign currency exchange rates. At December 31,
2018, with respect to open foreign exchange forward and option
contracts, and foreign denominated debt with values exposed to
exchange rate movements, a 10% adverse movement in quoted foreign
currency exchange rates could result in a loss in fair value of these
instruments of $1.1 billion compared to $1.4 billion at December 31, 2017.
Specific to the Japanese yen, a 10% adverse movement in quoted yen
exchange rates could result in a loss in fair value of these instruments of
$1.0 billion compared to $1.3 billion at December 31, 2017. The Company
expects that these hypothetical losses from a 10% adverse movement
in quoted foreign currency exchange rates on the derivative financial
instruments should largely offset gains on the assets, liabilities and
future transactions being hedged.
Interest Rate Risk Management
To manage interest rate exposure, the Company, from time to time,
enters into interest rate derivatives agreements. In the second quarter
of 2018, the Company entered into Treasury rate lock agreements with
notional amounts of $300 million to hedge against the variability in
cash flows due to changes in the benchmark interest rate related to an
anticipated debt issuance. The instruments were designated as cash
flow hedges, and were settled with $16 million received on October 31,
2018 concurrent with the debt issuance.
38 CORNING INCORPORATED - 2018 Annual Report
Management’s Annual Report on Internal Control Over
Financial Reporting
Management is responsible for establishing and maintaining adequate
disclosure controls and procedures and adequate internal control over
financial reporting for Corning. Management is also responsible for the
assessment of the effectiveness of disclosure controls and procedures
and the effectiveness of internal control over financial reporting.
Disclosure controls and procedures mean controls and other procedures
of an issuer that are designed to ensure that information required to
be disclosed by the issuer in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized, and reported,
within the time periods specified in the SEC’s rules and forms. Corning’s
disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to
be disclosed by Corning in the reports that it files or submits under
the Exchange Act is accumulated and communicated to Corning’s
management, including Corning’s principal executive and principal
financial officers, or other persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
Corning’s internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted
in the United States of America. Corning’s internal control over financial
reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of Corning’s assets;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America, and that Corning’s receipts and expenditures are being made
only in accordance with authorizations of Corning’s management and
directors; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition
of Corning’s assets that could have a material effect on the financial
statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies
and procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the
system of internal control over financial reporting based on the
framework in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Management’s assessment of internal control over
financial reporting includes controls over recognition of equity earnings
and equity investments by Corning. Internal control over financial
reporting for Hemlock Semiconductor Group is the responsibility of
its management.
Corning acquired substantially all of CMD during 2018, and management
excluded CMD from its assessment of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2018. CMD’s
internal control over financial reporting is associated with less than 1%
of total assets and 2% of net sales included in the consolidated financial
statements of the Company and its subsidiaries as of and for the year
ended December 31, 2018.
Based on this evaluation, management concluded that Corning’s internal
control over financial reporting was effective as of December 31, 2018.
The effectiveness of Corning’s internal control over financial reporting
as of December 31, 2018, has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
Wendell P. Weeks
Chairman, Chief Executive Officer and President
R. Tony Tripeny
Executive Vice President and Chief Financial Officer
CORNING INCORPORATED - 2018 Annual Report
39
Report of Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
To the Board of Directors and Shareholders of Corning Incorporated:
Opinions on the Financial Statements and Internal Control over
Financial Reporting
We have audited the accompanying consolidated balance sheets of
Corning Incorporated and its subsidiaries as of December 31, 2018
and 2017, and the related consolidated statements of income (loss),
comprehensive income, changes in shareholders’ equity and cash
flows for each of the three years in the period ended December 31, 2018,
including the related notes and schedule of valuation and qualifying
accounts for each of the three years
in the period ended
Item 15 (a)(2) (collectively
December 31, 2018 appearing under
referred to as the “consolidated financial statements”). We also have
audited the Company’s internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 2018 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by
the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated
financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in Management’s
Annual Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company’s
internal control over financial reporting based on our audits. We are a
public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements
included
performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control
over Financial Reporting, management has excluded CMD from
its assessment of internal control over financial reporting as of
December 31, 2018 because it was acquired by the Company in a
purchase business combination during 2018. We have also excluded
CMD from our audit of internal control over financial reporting. CMD
is a wholly-owned business whose total assets and net sales excluded
from management’s assessment and our audit of internal control over
financial reporting represent less than 1% and 2%, respectively, of the
related consolidated financial statement amounts as of and for the year
ended December 31, 2018.
Definition and Limitations of Internal Control over
Financial Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
New York, New York
February 12, 2019
We have served as the Company’s auditor since 1944.
40 CORNING INCORPORATED - 2018 Annual Report
Consolidated Statements of Income (Loss)
Corning Incorporated and Subsidiary Companies
(In millions, except per share amounts)
Net sales
Cost of sales
Gross margin
Operating expenses:
Selling, general and administrative expenses
Research, development and engineering expenses
Amortization of purchased intangibles
Restructuring, impairment and other charges
Operating income
Equity in earnings of affiliated companies (Note 5)
Interest income
Interest expense
Translated earnings contract loss, net
Gain on realignment of equity investment
Other expense, net
Income before income taxes
(Provision) benefit for income taxes (Note 4)
Net income (loss) attributable to Corning Incorporated
Earnings (loss) per common share attributable to Corning Incorporated:
Basic (Note 16)
Diluted (Note 16)
Dividends declared per common share
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2018
$
11,290
2017
$
6,829
4,461
1,799
993
94
1,575
390
38
(191)
(93)
(216)
1,503
(437)
1,066
1.19
1.13
0.72
$
$
$
$
$
$
$
$
10,116
6,096
4,020
1,473
864
75
1,608
361
45
(155)
(121)
(81)
1,657
(2,154)
(497)
(0.66)
(0.66)
0.62
2016
$
9,390
5,627
3,763
1,462
736
64
77
1,424
284
32
(159)
(448)
2,676
(117)
3,692
3
3,695
3.53
3.23
0.54
$
$
$
$
CORNING INCORPORATED - 2018 Annual Report
41
Consolidated Statements of Comprehensive Income
Corning Incorporated and Subsidiary Companies
(In millions)
Years ended December 31,
2018
2017
2016
Net income (loss) attributable to Corning Incorporated
$
1,066
$
(497)
$
3,695
Foreign currency translation adjustments and other
Net unrealized (loss) gain on investments
Unamortized gains (losses) and prior service credits (costs) for
postretirement benefit plans
Net unrealized (loss) gain on designated hedges
Other comprehensive (loss) income, net of tax (Note 15)
Comprehensive income attributable to Corning Incorporated
$
The accompanying notes are an integral part of these consolidated financial statements.
(185)
(1)
19
(1)
(168)
898
746
14
30
44
834
337
$
(104)
(3)
241
1
135
$
3,830
42 CORNING INCORPORATED - 2018 Annual Report
Consolidated Balance Sheets
Corning Incorporated and Subsidiary Companies
(In millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Trade accounts receivable, net of doubtful accounts and allowances - $64 and $60
Inventories, net of inventory reserves - $182 and $169 (Note 3)
Other current assets (Note 9 and 13)
Total current assets
Investments (Note 5)
Property, plant and equipment, net of accumulated depreciation - $11,932 and $10,809 (Note 7)
Goodwill, net (Note 8)
Other intangible assets, net (Note 8)
Deferred income taxes (Note 4)
Other assets (Note 9 and 13)
Total Assets
Liabilities and Equity
Current liabilities:
December 31,
2018
2017
$
2,355
$
1,940
2,037
702
7,034
376
14,895
1,936
1,292
951
1,021
4,317
1,807
1,712
991
8,827
340
14,017
1,694
869
813
934
$
27,505
$
27,494
Current portion of long-term debt and short-term borrowings (Note 10)
$
Accounts payable
Other accrued liabilities (Note 9 and 12)
Total current liabilities
Long-term debt (Note 10)
Postretirement benefits other than pensions (Note 11)
Other liabilities (Note 9 and 12)
Total liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity (Note 15):
Convertible preferred stock, Series A – Par value $100 per share;
Shares authorized 3,100; Shares issued: 2,300
Common stock – Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,713 million and 1,708 million
Additional paid-in capital – common stock
Retained earnings
Treasury stock, at cost; shares held: 925 million and 850 million
Accumulated other comprehensive loss
Total Corning Incorporated shareholders’ equity
Noncontrolling interests
Total equity
Total Liabilities and Equity
The accompanying notes are an integral part of these consolidated financial statements.
4
1,456
1,851
3,311
5,994
662
3,652
13,619
$
379
1,439
1,391
3,209
4,749
749
3,017
11,724
2,300
2,300
857
14,212
16,303
(18,870)
(1,010)
13,792
94
13,886
854
14,089
15,930
(16,633)
(842)
15,698
72
15,770
$
27,505
$
27,494
CORNING INCORPORATED - 2018 Annual Report
43
Consolidated Statements of Cash Flows
Corning Incorporated and Subsidiary Companies
(In millions)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Years ended December 31,
2018
2017
2016
$
1,066
$
(497)
$
3,695
Depreciation
Amortization of purchased intangibles
Restructuring, impairment and other charges
Equity in earnings of affiliated companies
Dividends received from affiliated companies
Deferred tax (benefit) provision
Customer incentives and deposits, net
Translated earnings contract loss, net
Unrealized translation loss (gain) on transactions
Gain on realignment of equity investment
Changes in certain working capital items:
Trade accounts receivable
Inventories
Other current assets
Accounts payable and other current liabilities
Other, net
Net cash provided by operating activities
Cash Flows from Investing Activities:
Capital expenditures
Acquisitions of businesses, net of cash received
Proceeds from settlement of initial contingent consideration asset
Proceeds from sale of a business
Cash received on realignment of equity investment
Purchase of equipment for related party
Short-term investments – acquisitions
Short-term investments – liquidations
Realized gains on translated earnings contracts
Other, net
Net cash (used in) provided by investing activities
Cash Flows from Financing Activities:
Net repayments of short-term borrowings and current portion of long-term debt
Proceeds from issuance of long-term debt
Payments from issuance of commercial paper
Payments of employee withholding tax on stock award
Proceeds from the exercise of stock options
Repurchases of common stock for treasury
Dividends paid
Other, net
Net cash used in financing activities
Effect of exchange rates on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part of these consolidated financial statements.
44 CORNING INCORPORATED - 2018 Annual Report
1,199
94
(390)
241
(38)
700
93
55
(154)
(346)
(20)
358
61
2,919
(2,242)
(842)
196
(68)
108
(39)
(2,887)
(629)
1,485
(14)
81
(2,227)
(685)
(6)
(1,995)
1
(1,962)
4,317
1,083
75
(361)
201
1,796
100
121
(339)
(225)
(170)
(172)
169
223
2,004
(1,804)
(171)
14
29
270
(48)
(1,710)
(252)
1,445
(16)
309
(2,452)
(651)
(7)
(1,624)
356
(974)
5,291
1,131
64
77
(284)
85
(308)
185
448
1
(2,676)
(106)
(68)
18
259
16
2,537
(1,130)
(333)
4,818
(20)
121
201
5
3,662
(85)
(481)
(16)
138
(4,227)
(645)
(6)
(5,322)
(86)
791
4,500
$
2,355
$
4,317
$
5,291
Consolidated Statements of Changes in Shareholders’ Equity
Corning Incorporated and Subsidiary Companies
(In millions)
Convertible
preferred
stock
Common
stock
Additional
paid-in
capital
common
Retained
earnings
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Corning
Incorporated
shareholders’
equity
Non-
controlling
interests
Total
Balance, December 31, 2015
$
2,300
$
840
$
13,352
$ 13,832 $
(9,725)
$
(1,811)
$ 18,788
$
75 $ 18,863
Net income
Other comprehensive
income (loss)
Purchase of common stock
for treasury
Shares issued to
benefit plans and for
option exercises
Dividends on shares
Other, net
165
178
6
3,695
(647)
(4,409)
(2)
(16)
135
3,695
135
(4,244)
182
(647)
(16)
10
(6)
(12)
3,705
129
(4,244)
182
(647)
(28)
Balance, December 31, 2016
$
2,300
$
846
$ 13,695
$ 16,880 $ (14,152)
$
(1,676)
$ 17,893
$
67 $ 17,960
Net (loss) income
Other comprehensive
income
Purchase of common stock
for treasury
Shares issued to
benefit plans and for
option exercises
Dividends on shares
Other, net (1)
(497)
(497)
834
18
6
(479)
840
834
14
(2,462)
(2,448)
(2,448)
8
349
(654)
201
31
(2)
(17)
355
(654)
215
355
(654)
196
(19)
Balance, December 31, 2017
$
2,300
$
854
$ 14,089
$ 15,930 $ (16,633)
$
(842)
$ 15,698
$
72 $
15,770
Net income
Other comprehensive loss
Purchase of common stock
for treasury
Shares issued to
benefit plans and for
option exercises
Dividends on shares
Other, net
1,066
(168)
(2,230)
3
123
(688)
(5)
(7)
1,066
(168)
(2,230)
126
(688)
(12)
24
(1)
(1)
1,090
(169)
(2,230)
126
(688)
(13)
Balance, December 31, 2018
$
2,300
$
857
$
14,212
$ 16,303 $ (18,870)
$
(1,010)
$ 13,792
$
94 $ 13,886
(1) Adjustment to retained earnings includes the cumulative effect of the accounting change we recorded upon adoption of ASU 2016-09 in 2017 in the
amount of $233 million.
The accompanying notes are an integral part of these consolidated financial statements.
CORNING INCORPORATED - 2018 Annual Report
45
Notes to Consolidated Financial Statements
Corning Incorporated and Subsidiary Companies
1. Summary of Significant Accounting Policies
Organization
Corning Incorporated is a provider of high-performance glass for
notebook computers, flat panel desktop monitors, display televisions,
information display applications; carrier network and
and other
enterprise network products for the telecommunications industry;
ceramic substrates for gasoline and diesel engines in automotive
and heavy duty vehicle markets; laboratory products for the scientific
community and specialized polymer products for biotechnology
applications; advanced optical materials for the semiconductor industry
and the scientific community; and other technologies. In these notes,
the terms “Corning,” “Company,” “we,” “us,” or “our” mean Corning
Incorporated and subsidiary companies.
Basis of Presentation and Principles
of Consolidation
Our consolidated financial statements were prepared in conformity
with generally accepted accounting principles in the U.S. and include
the assets, liabilities, revenues and expenses of all majority-owned
subsidiaries over which Corning exercises control.
The equity method of accounting is used for investments in affiliated
companies that are not controlled by Corning and in which our interest
is generally between 20% and 50% and we have significant influence
over the entity. Our share of earnings or losses of affiliated companies,
in which at least 20% of the voting securities is owned and we have
significant influence but not control over the entity, is included in
consolidated operating results.
For our investments in companies that we do not control and for
which we do not have the ability to exercise significant influence over
operating and financial policies, we use the fair value method to account
for the investments if readily determinable fair values are available. For
the investments without readily determinable fair values, we measure
them at cost minus impairment, if any, plus or minus changes resulting
from observable price changes in orderly transactions for the identical
or a similar investment.
All material intercompany accounts, transactions and profits are
eliminated in consolidation.
On January 1, 2018, we adopted Accounting Standards Update (“ASU”)
No. 2014-09 ASC (Topic 606), Revenue from Contracts with Customers,
and applied the modified retrospective method of accounting to those
contracts which were not completed as of January 1, 2018. Results for
reporting periods beginning after January 1, 2018 are presented under
Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with our historic accounting under ASC
Topic 605 “Revenue Recognition”. Because the impact of adopting the
standard on Corning’s financial statements was immaterial, we have not
made an adjustment to opening retained earnings.
One of Corning’s equity affiliates is currently assessing the potential
impact of adopting ASU 2014-09 on its financial statements and will
adopt the standard on January 1, 2019. The current assessment indicates
that the impact of adoption to Corning’s financial statements will be
an adjustment to 2019 beginning retained earnings of approximately
$230 million relating to timing of revenue recognition for open
performance obligations as measured at January 1, 2019 under the
new standard.
On January 1, 2018, Corning adopted ASU 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, which refines the classification of certain aspects of the
cash flow statement in regards to debt prepayment, settlement of
debt instruments, contingent consideration payments, proceeds from
insurance claims and life insurance policies, distribution from equity
method investees, beneficial interests in securitization transactions and
separately identifiable cash flows. The impact of adopting the standard
on Corning’s financial statements was not material.
On January 1, 2018, we adopted ASU No. 2017-07, Compensation—
Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The
service cost component of net periodic pension and postretirement
benefit cost is presented with other current compensation costs in
operating income. The remaining components are included in the line
item Other expense, net, in the consolidated statements of income
(loss). Corning has applied the practical expedient which permits it
to use the amounts disclosed in its pension and other postretirement
benefit plan note for the prior comparative periods as the estimation
basis for applying the retrospective presentation requirements. The
impact of adopting the standard on Corning’s financial statements was
not material.
Certain prior year amounts have been reclassified to conform to
the current year’s presentation. These reclassifications had no
impact on our results of operations, financial position, or changes in
shareholders’ equity.
Dow Corning
Prior to May 31, 2016, Corning and Dow Chemical each owned half
of Dow Corning, an equity company headquartered in Michigan
that manufactures silicone products worldwide. Dow Corning was
the majority-owner of HSG, a market leader in the production of
high purity polycrystalline silicon for the semiconductor and solar
energy industries. On May 31, 2016, Corning completed the strategic
realignment of its equity investment in Dow Corning pursuant to the
Transaction Agreement announced in December 2015. Under the terms
of the Transaction Agreement, Corning exchanged with Dow Corning
its 50% stock interest in Dow Corning for 100% of the stock of a newly
formed entity, which held an equity interest in HSG and approximately
$4.8 billion in cash. Prior to realignment, HSG, a consolidated subsidiary
of Dow Corning, was an indirect equity investment of Corning. Upon
completion of the exchange, Corning now has a direct equity investment
in HSG.
Refer to Note 5 (Investments) to the Consolidated Financial Statements
for additional information.
46 CORNING INCORPORATED - 2018 Annual Report
Use of Estimates
The preparation of financial statements requires management to
make estimates and assumptions that affect amounts reported in
the consolidated financial statements and related notes. Significant
estimates and assumptions in these consolidated financial statements
include estimates associated with revenue recognition, restructuring
charges, goodwill and long-lived asset impairment tests, estimates of
acquired assets and liabilities, estimates of fair value of investments,
equity interests, environmental and legal liabilities, income taxes and
deferred tax valuation allowances, assumptions used in calculating
pension and other postretirement employee benefit expenses and the
fair value of share-based compensation. Due to the inherent uncertainty
involved in making estimates, actual results reported in future periods
may be different from these estimates.
Revenue Recognition
The majority of our revenues are generated by delivery of products to
our customers and recognized at a point in time based on our evaluation
of when the customer obtains control of the products. Revenue is
recognized when all performance obligations under the terms of a
contract with our customer are satisfied, and control of the product
has been transferred to the customer. If customer acceptance clauses
are present and it cannot be objectively determined that control has
been transferred, revenue is only recorded when customer acceptance
is received and all performance obligations have been satisfied. Sales of
goods typically do not include multiple product and/or service elements.
Revenue is measured as the amount of consideration we expect to
receive in exchange for transferring goods or providing services. Sales
tax, value-added tax, and other taxes we collect concurrent with revenue-
producing activities are excluded from revenue. Incidental contract costs
that are not material in the context of the delivery of goods and services
are recognized as expense.
At the time revenue is recognized, allowances are recorded, with the
related reduction to revenue, for estimated product returns, allowances
and price discounts based upon historical experience and related terms
of customer arrangements. Where we have offered product warranties,
we also establish liabilities for estimated warranty costs based upon
historical experience and specific warranty provisions. Warranty
liabilities are adjusted when experience indicates the expected outcome
will differ from initial estimates of the liability.
In addition, Corning also has contractual arrangements with certain
customers in which we recognize revenue over time. The performance
obligations under these contracts generally require services to be
performed over time, resulting in either a straight-line amortization
method or an input method using incurred and forecasted expense to
predict revenue recognition patterns which follows satisfaction of the
performance obligation.
Research and Development Costs
Research and development costs are charged to expense as incurred.
in 2018,
Research and development costs totaled $807 million
$689 million in 2017 and $637 million in 2016.
Foreign Currency Translation and Transactions
The determination of the functional currency for Corning’s foreign
subsidiaries is made based on the appropriate economic factors. For
most foreign operations, the local currencies are generally considered
Notes to Consolidated Financial Statements
to be the functional currencies. Corning’s most significant exception is
our Taiwanese subsidiary, which uses the Japanese yen as its functional
currency. For all transactions denominated in a currency other than a
subsidiary’s functional currency, exchange rate gains and losses are
included in income for the period in which the exchange rates changed.
We recorded a net loss of $43 million and a net gain of $20 million for
foreign currency transaction activity for the years ended December 31,
2018 and 2017, respectively. These amounts were recorded in the line item
Other expense, net in the Consolidated Statements of Income (Loss).
Foreign subsidiary functional currency balance sheet accounts are
translated at current exchange rates, and statement of operations
accounts are translated at average exchange rates for the year.
Translation gains and losses are recorded as a separate component of
accumulated other comprehensive income in shareholders’ equity. The
effects of remeasuring non-functional currency assets and liabilities
into the functional currency are included in current earnings, except for
those related to intra-entity foreign currency transactions of a long-term
investment nature, which are recorded together with translation gains
and losses in accumulated other comprehensive loss in shareholders’
equity. Upon sale or substantially complete liquidation of an investment
in a foreign entity, the amount of net translation gains or losses that
have been accumulated in other comprehensive income attributable to
that investment are reported as a gain or loss for the period in which the
sale or liquidation occurs.
Share-Based Compensation
Corning maintains long-term incentive plans (the “Plans”) for key
employees and non-employee members of our Board of Directors. The
Plans allow us to grant equity-based compensation awards, including
stock options, stock appreciation rights, performance share units,
restricted stock units, restricted stock awards or a combination of
awards (collectively, share-based awards). At December 31, 2018, there
were approximately 62 million unissued common shares available for
future grants authorized under the Plans.
The Company measures and recognizes compensation cost for all share-
based payment awards made to employees and directors based on
estimated fair values.
Total share-based compensation expense was $51 million, $46 million
and $42 million for the years ended December 31, 2018, 2017 and
2016, respectively. The income tax benefit realized from share-based
compensation was not significant for the years ended December 31,
2018, 2017 and 2016. Refer to Note 4 (Income Taxes) to the Consolidated
Financial Statements for additional information.
Stock Options
Corning’s stock option plans provide non-qualified and incentive stock
options to purchase authorized but unissued common shares, or
treasury shares, at the market price on the grant date and generally
become exercisable in installments from one to five years from the grant
date. The maximum term of non-qualified and incentive stock options is
10 years from the grant date.
An award is considered vested when the employee’s retention of the
award is no longer contingent on providing subsequent service (the
“non-substantive vesting period approach”). Awards to retirement
eligible employees are fully vested at the date of grant, and the related
compensation expense is recognized immediately upon grant or over
the period from the grant date to the date of retirement eligibility for
employees that become age 55 during the vesting period.
CORNING INCORPORATED - 2018 Annual Report
47
Notes to Consolidated Financial Statements
Corning uses a multiple-point Black-Scholes valuation model to
estimate the fair value of stock option grants. Corning utilizes a
blended approach for calculating the volatility assumption used in the
multiple-point Black-Scholes valuation model defined as the weighted
average of the short-term implied volatility, the most recent volatility
for the period equal to the expected term, and the most recent 15-year
historical volatility. The expected term assumption is the period of time
the options are expected to be outstanding, and is calculated using a
combination of historical exercise experience adjusted to reflect the
current vesting period of options being valued, and partial life cycles
of outstanding options. The risk-free rates used in the multiple-point
Black-Scholes valuation model are the implied rates for a zero-coupon
U.S. Treasury bond with a term equal to the option’s expected term. The
ranges given below reflect results from separate groups of employees
exhibiting different exercise behavior.
The following inputs were used for the valuation of option grants under our stock option plans:
Expected volatility
Weighted-average volatility
Expected dividends
Risk-free rate
Expected term (in years)
Pre-vesting departure rate
Incentive Stock Plans
The Corning Incentive Stock Plan permits restricted stock and restricted
stock unit grants, either determined by specific performance goals or
issued directly, in most instances, subject to the possibility of forfeiture
and without cash consideration. Restricted stock and restricted stock
units under the Incentive Stock Plan are granted at the closing market
price on the grant date, contingently vest over a period of generally one
to ten years, and generally have contractual lives of one to ten years. The
fair value of each restricted stock grant or restricted stock unit awarded
under the Incentive Stock Plan is based on the grant date closing price
of the Company’s stock.
Supplemental disclosure of cash flow information follows (in millions):
Non-cash transactions:
Accruals for capital expenditures
Cash paid for interest and income taxes:
Interest(1)
Income taxes, net of refunds received
2018
2017
2016
30.6-31.4%
32.4-36.1%
37.1-43.1%
31.4%
36.1%
41.0%
2.22-2.66%
1.98-2.28%
2.28-2.94%
2.7-3.1%
7.4-7.4
0.6-0.6%
2.1-2.3%
7.4-7.4
0.6-0.6%
1.4-2.1%
7.4-7.4
0.6-0.6%
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments that are readily
convertible into cash. We consider securities with contractual maturities
of three months or less, when purchased, to be cash equivalents. The
carrying amount of these securities approximates fair value because of
the short-term maturity of these instruments.
Years ended December 31,
2018
2017
2016
$
$
$
412
205
567
$
$
$
584
178
405
$
$
$
381
184
293
(1) Included in this amount are approximately $49 million, $36 million, and $23 million of interest costs that were capitalized as part of property, plant
and equipment, net of accumulated depreciation, in 2018, 2017 and 2016, respectively.
Allowance for Doubtful Accounts
The Company’s allowance for doubtful accounts is determined based on
a variety of factors that affect the potential collectability of the related
receivables, including length of time receivables are past due, customer
credit ratings, financial stability of customers, specific one-time events and
past customer history. In addition, in circumstances where the Company
is made aware of a specific customer’s inability to meet its financial
obligations, a specific allowance is established. The majority of accounts
are individually evaluated on a regular basis and appropriate reserves are
established as deemed appropriate based on the above criteria.
Environmental Liabilities
The Company accrues for its environmental investigation, remediation,
operating and maintenance costs when it is probable that a liability
has been incurred and the amount can be reasonably estimated. For
environmental matters, the most likely cost to be incurred is accrued
based on an evaluation of currently available facts with respect to each
individual site, current laws and regulations and prior remediation
experience. For sites with multiple potentially responsible parties, the
Company considers its likely proportionate share of the anticipated
remediation costs and the ability of the other parties to fulfill
obligations in establishing a provision for those costs. Where no amount
within a range of estimates is more likely to occur than another, the
minimum amount is accrued. When future liabilities are determined to
be reimbursable by insurance coverage, an accrual is recorded for the
potential liability and a receivable is recorded related to the insurance
reimbursement when reimbursement is virtually certain.
The uncertain nature inherent in such remediation and the possibility
that initial estimates may not reflect the outcome could result in
additional costs being recognized by the Company in future periods.
48 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis)
or market.
intangible assets
Other
include patents, trademarks, and other
intangible assets acquired from an independent party. Such intangible
assets have a definite life and are amortized on a straight-line basis over
estimated useful lives ranging from 4 to 50 years.
Property, Plant and Equipment, Net of
Accumulated Depreciation
Land, buildings, and equipment, including precious metals, are recorded
at cost. Depreciation is based on estimated useful lives of properties
using the straight-line method. Except as described in Note 7 (Property,
Plant and Equipment, Net of Accumulated Depreciation) to the
Consolidated Financial Statements related to the depletion of precious
metals, the estimated useful lives range from 10 to 40 years for buildings
and 2 to 20 years for equipment.
Included in the subcategory of equipment are the following types of
assets (excluding precious metals):
Asset type
Range of useful life
Computer hardware and software
Manufacturing equipment
Furniture and fixtures
Transportation equipment
3 to 7 years
2 to 15 years
5 to 10 years
3 to 20 years
Manufacturing equipment includes certain components of production
equipment that are constructed of precious metals. These assets are
not depreciated because they have very low physical losses and are
repeatedly reclaimed and reused in our manufacturing process over a
very long useful life. We treat the physical loss of precious metals in the
manufacturing and reclamation process as depletion and account for
these losses as a period expense based on actual units lost. Precious
metals are integral to many of our glass production processes. They are
only acquired to support our operations and are not held for trading or
other purposes.
Goodwill and Other Intangible Assets
Goodwill is the excess of cost of an acquired entity over the amounts
assigned to assets acquired and liabilities assumed in a business
combination. Goodwill relates to and is assigned directly to a specific
reporting unit. Reporting units are either operating segments or one
level below the operating segment. Impairment testing for goodwill
is done at a reporting unit level. Goodwill is reviewed for indicators of
impairment quarterly or if an event occurs or circumstances change
that indicate that the carrying amount may be impaired. Corning also
performs a detailed quantitative impairment test every three years if no
indicators suggest a test should be performed in the interim. We use
this calculation as quantitative validation of the qualitative process;
this process does not represent an election to perform the quantitative
impairment test in place of the qualitative review.
The qualitative process includes an extensive review of expectations
for the long-term growth of our businesses and forecasting future cash
flows. If we are required to perform the quantitative impairment analysis,
our valuation method is an “income approach” using a discounted cash
flow model in which cash flows anticipated over several periods, plus a
terminal value at the end of that time horizon, are discounted to present
value using an appropriate rate of return. Our estimates are based upon
our historical experience, our current knowledge from our commercial
relationships, and available external information about future trends. If
the fair value is less than the carrying value, a loss is recorded to reflect
the difference between the fair value and carrying value.
Impairment of Long-Lived Assets
We review the recoverability of our long-lived assets, such as plant
and equipment and intangible assets, when events or changes in
circumstances occur that indicate the carrying value of the asset or asset
group may not be recoverable. When impairment indicators are present,
we compare estimated undiscounted future cash flows, including the
eventual disposition of the asset group at market value, to the assets’
carrying value to determine if the asset group is recoverable. For an asset
group that fails the test of recoverability, the estimated fair value of
long-lived assets is determined using an “income approach” that starts
with the forecast of all the expected future net cash flows including the
eventual disposition at market value of long-lived assets, and considers
the fair market value of all precious metals. We assess the recoverability
of the carrying value of long-lived assets at the lowest level for which
identifiable cash flows are largely independent of the cash flows of
other assets and liabilities. If there is an impairment, a loss is recorded to
reflect the difference between the assets’ fair value and carrying value.
Employee Retirement Plans
Corning offers employee retirement plans consisting of defined benefit
pension plans covering certain domestic and international employees
and postretirement plans that provide health care and life insurance
benefits for eligible retirees and dependents. The costs and obligations
related to these benefits reflect the Company’s assumptions related
to general economic conditions (particularly interest rates), expected
return on plan assets, rate of compensation increase for employees and
health care trend rates. The cost of providing plan benefits depends on
demographic assumptions including retirements, mortality, turnover
and plan participation.
Costs for our defined benefit pension plans consist of two elements:
1) on-going costs recognized quarterly, which are comprised of service
and interest costs, expected return on plan assets and amortization of
prior service costs; and 2) mark-to-market gains and losses outside of the
corridor, where the corridor is equal to 10% of the greater of the benefit
obligation or the market-related value of plan assets at the beginning of
the year, which are recognized annually in the fourth quarter of each year.
These gains and losses result from changes in actuarial assumptions
and the differences between actual and expected return on plan assets.
Any interim remeasurements triggered by a curtailment, settlement or
significant plan changes, as well as any true-up to the annual valuation,
are recognized as a mark-to-market adjustment in the quarter in which
such event occurs.
Costs for our postretirement benefit plans consist of on-going costs
recognized quarterly, and are comprised of service and interest costs,
amortization of prior service costs and amortization of actuarial gains
and losses. We recognize the actuarial gains and losses resulting from
changes in actuarial assumptions as a component of Shareholders’
Equity on our consolidated balance sheets on an annual basis and
amortize them into our operating results over the average remaining
service period of employees expected to receive benefits under the
plans, to the extent such gains and losses are outside of the corridor.
Refer to Note 11 (Employee Retirement Plans) to the Consolidated
Financial Statements for additional detail.
CORNING INCORPORATED - 2018 Annual Report
49
Notes to Consolidated Financial Statements
Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to operating
loss and tax credit carryforwards and for differences between the
carrying amounts of existing assets and liabilities and their respective
tax bases.
The effective income tax rate reflects our assessment of the ultimate
outcome of tax audits. In evaluating the tax benefits associated with
our various tax filing positions, we record a tax benefit for uncertain tax
positions using the highest cumulative tax benefit that is more likely than
not to be realized. Adjustments are made to our liability for unrecognized
tax benefits in the period in which we determine the issue is effectively
settled with the tax authorities, the statute of limitations expires for the
return containing the tax position or when new information becomes
available. Our liability for unrecognized tax benefits, including accrued
penalties and interest, is included in other accrued liabilities and other
long-term liabilities on our consolidated balance sheets and in income
tax expense in our Consolidated Statements of Income (Loss).
Discrete events such as audit settlements or changes in tax laws are
recognized in the period in which they occur. Valuation allowances are
established when management is unable to conclude that it is more
likely than not that some portion, or all, of the deferred tax asset will
ultimately be realized.
Beginning in 2018, Corning will indefinitely reinvest the foreign earnings
of: (1) any of its subsidiaries located in jurisdictions where Corning lacks
the ability to repatriate its earnings, (2) any of its subsidiaries where
Corning’s intention is to reinvest those earnings in operations, (3) legal
entities for which Corning holds a non-controlling interest, (4) any
subsidiaries with an accumulated deficit in earnings and profits and
(5) any subsidiaries which have a positive earnings and profits balance
but for which the entity lacks sufficient local statutory earnings or stock
basis from which to make a distribution.
A company can make a policy election to account for the tax on GILTI
as a period cost or to recognize deferred tax assets and liabilities when
basis differences exist that are expected to affect the amount of GILTI
inclusion upon reversal. Corning has elected to account for the GILTI
provisions as a period cost.
Equity Method Investments
Our equity method investments are reviewed for impairment on a
periodic basis or if an event occurs or circumstances change that
indicate the carrying amount may be impaired. This assessment is
based on a review of the equity investments’ performance and a review
of indicators of impairment to determine if there is evidence of a loss in
value of an equity investment. Factors we consider include:
• Absence of our ability to recover the carrying amount;
• Inability of the equity affiliate to sustain an earnings capacity which
would justify the carrying amount of the investment; and
• Significant
litigation, bankruptcy or other events that could
impact recoverability.
For an equity investment with impairment indicators, we measure
fair value on the basis of discounted cash flows or other appropriate
valuation methods, depending on the nature of the company involved.
If it is probable that we will not recover the carrying amount of our
investment, the impairment is considered other-than-temporary and
recorded in earnings, and the equity investment balance is reduced to its
fair value accordingly. We require our material equity method affiliates
to provide audited financial statements. Consequently, adjustments for
asset recoverability are included in equity earnings. We also utilize these
financial statements in our recoverability assessment.
Fair Value of Financial Instruments
Major categories of financial assets and liabilities, including short-term
investments, other assets and derivatives are measured at fair value on a
recurring basis. Certain assets and liabilities including long-lived assets,
goodwill, asset retirement obligations, and cost and equity investments
are measured at fair value on a nonrecurring basis.
Fair value is the price that would be received from selling an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities required to be recorded at fair
value, we consider the principal or most advantageous market in which
we would transact and consider assumptions that market participants
would use when pricing the asset or liability, such as inherent risk,
transfer restrictions, and risk of nonperformance.
Derivative Instruments
We participate in a variety of foreign exchange forward contracts and
foreign exchange option contracts entered into in connection with
the management of our exposure to fluctuations in foreign exchange
rates. We utilize interest rate swaps to reduce the risk of changes in
a benchmark interest rate from the probable forecasted issuance
of debt and manage the mix of fixed and floating rate debt. These
financial exposures are managed in accordance with corporate policies
and procedures.
All derivatives are recorded at fair value on the balance sheet. Changes in
the fair value of derivatives designated as cash flow hedges and hedges
of net investments in foreign operations are not recognized in current
operating results but are recorded in accumulated other comprehensive
income. Amounts related to cash flow hedges are reclassified from
accumulated other comprehensive
income when the underlying
hedged item impacts earnings. This reclassification is recorded in the
same line item of the Consolidated Statements of Income (Loss) as
where the effects of the hedged item are recorded, typically sales, cost of
sales or other expense, net. Changes in the fair value of derivatives not
designated as hedging instruments are recorded in the Consolidated
Statements of Income (Loss) in the Translated earnings contract loss, net
and the Other expense, net lines.
New Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which
supersedes all existing guidance on accounting for leases in ASC Topic
840. ASU 2016-02 will continue to classify leases as either finance
or operating, with classification affecting the pattern of expense
recognition in the statement of income. ASU 2016-02 is effective for
fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. ASU 2016-02 may be applied with a modified
retrospective approach with various practical expedients. The adoption
of ASU 2016-02 will have no impact to retained earnings or income.
Upon adoption of ASU 2016-02, we anticipate recording a right-of-use
asset and an offsetting lease liability of approximately $450 million.
Adoption of the new standard is effective January 1, 2019.
50 CORNING INCORPORATED - 2018 Annual Report
In February 2018, the FASB issued ASU 2018-02, Income Statement -
Reporting Comprehensive Income, which allows for reclassification
from accumulated other comprehensive income to retained earnings
for stranded tax effects resulting from the Tax Cuts and Jobs Act.
ASU 2018-02 is effective for annual reporting periods beginning after
December 15, 2018, and interim periods within those annual periods. We
have determined that the impact of this standard will not be material.
Adoption of the new standard is effective January 1, 2019.
Notes to Consolidated Financial Statements
2. Revenue
On January 1, 2018, we adopted ASC Topic 606 “Revenue from Contracts
with Customer”, and all related amendments, using the modified
retrospective method applied to those contracts which were not
completed as of January 1, 2018. Results for reporting periods beginning
after January 1, 2018 are presented under Topic 606, while prior period
amounts are not adjusted and continue to be reported in accordance
with our historic accounting under ASC Topic 605 “Revenue Recognition”.
We have determined that the impact of transition to the new standard
is immaterial to our revenue recognition model since the majority of our
recognition is based on point in time transfer of control. Accordingly, we
have not made any adjustment to opening retained earnings.
Product Revenue (Point in Time)
The majority of our revenues are generated by delivery of products to
our customers and recognized at a point in time based on our evaluation
of when the customer obtains control of the products. Revenue is
recognized when all performance obligations under the terms of a
contract with our customer are satisfied, and control of the product
has been transferred to the customer. If customer acceptance clauses
are present and it cannot be objectively determined that control has
been transferred, revenue is only recorded when customer acceptance
is received and all performance obligations have been satisfied. Sales of
goods typically do not include multiple product and/or service elements.
Revenue is measured as the amount of consideration we expect to
receive in exchange for transferring goods or providing services. Sales
tax, value-added tax, and other taxes we collect concurrent with revenue-
producing activities are excluded from revenue. Incidental contract costs
that are not material in the context of the delivery of goods and services
are recognized as expense.
Our revenues by product category are as follows (in millions):
Display products
Telecommunication products
Specialty glass products
Environmental substrate and filter products
Life science products
All Other
At the time revenue is recognized, allowances are recorded, with the
related reduction to revenue, for estimated product returns, allowances
and price discounts based upon historical experience and related terms
of customer arrangements. Where we have offered product warranties,
we also establish liabilities for estimated warranty costs based upon
historical experience and specific warranty provisions. Warranty
liabilities are adjusted when experience indicates the expected outcome
will differ from initial estimates of the liability. Product warranty
liabilities were not material at December 31, 2018 and December 31, 2017.
Other Revenue (Over Time)
Corning’s over time revenues are mainly related to Telecommunications
products, and are comprised of design, installation, training and software
maintenance services. The performance obligations under these
contracts generally require services to be performed over time, resulting
in either a straight-line amortization method or an input method using
incurred and forecasted expense to predict revenue recognition patterns
which follows satisfaction of the performance obligation. Corning’s
other revenue is inconsequential to our results.
Revenue Disaggregation Table
The following table shows revenues by major product categories,
similar to our reportable segment disclosure. Within each product
category, contract terms, conditions and economic factors affecting the
nature, amount, timing and uncertainty around revenue recognition
and cash flows are substantially similar. The commercial markets
and selling channels are also similar. Except for an inconsequential
number of Telecommunications products, our product category
revenues are recognized at point in time when control transfers to the
customer. Prior year amounts are presented under the ASC 605 basis of
revenue recognition.
December 31,
2018
$
3,168
4,192
1,479
1,289
946
216
2017
$
2016
$
3,238
3,005
1,124
1,032
839
152
2,997
3,545
1,403
1,106
879
186
$
11,290
$
10,116
$
9,390
CORNING INCORPORATED - 2018 Annual Report
51
Notes to Consolidated Financial Statements
Contract Assets and Liabilities
Contract assets, such as incremental costs to obtain or fulfill contracts,
are an insignificant component of Corning’s revenue recognition
process. The majority of Corning’s cost of fulfillment as a manufacturer
of products is classified as inventory, fixed assets and intangible assets,
which are accounted for under the respective guidance for those asset
types. Other costs of contract fulfillment are immaterial due to the
nature of our products and their respective manufacturing processes.
Contract liabilities include deferred revenues, other advanced payments
and customer deposits. Deferred revenue and other advanced payments
are not significant to our operations and are classified as part of other
accrued liabilities in our financial statements. Customer deposits are
predominately related to Display products and are classified as part
of other accrued liabilities and other liabilities as appropriate, and are
disclosed below.
ranges up to ten years. As glass is shipped to customers, Corning will
recognize revenue and issue credit memoranda to reduce the amount
of the customer deposit liability, which are applied against customer
receivables resulting from the sale of glass. No credit memoranda were
issued in 2018 and 2017.
Practical Expedients and Exemptions
We do not disclose the value of unsatisfied performance obligations for
(i) contracts with an original expected length of one year or less and (ii)
contracts for which we recognize revenue at the amount to which we
have the right to invoice for services performed.
We treat shipping and handling fees as a fulfillment cost and
not as a separate performance obligation under the terms of our
revenue contracts due to the perfunctory nature of the shipping and
handling obligations.
Customer Deposits
As of December 31, 2018 and 2017, Corning had customer deposits of
approximately $1.0 billion and $0.4 billion, respectively. The majority of
these represent non-refundable cash deposits for customers to secure
rights to an amount of glass produced by Corning under long-term
supply agreements. The duration of these long-term supply agreements
Significant Customers
For 2018 and 2017, no customers met or exceeded 10% of Corning’s
consolidated net sales. For 2016, Corning’s sales to Samsung Display
Co. Ltd., a customer of our Display Technologies and Specialty Materials
segments, represented 11% of the Company’s consolidated net sales.
3.
Inventories, Net of Inventory Reserves
Inventories, net of inventory reserves comprise the following (in millions):
2017
$
December 31,
2018
$
854
386
409
388
$
2,037
$
739
322
306
345
1,712
Years ended December 31,
2018
$
$
472
1,031
1,503
2017
$
$
653
1,004
1,657
2016
$
$
2,658
1,034
3,692
Finished goods
Work in process
Raw materials and accessories
Supplies and packing materials
Total inventories, net of inventory reserves
4.
Income Taxes
Income before income taxes follows (in millions):
U.S. companies
Non-U.S. companies
Income before income taxes
52 CORNING INCORPORATED - 2018 Annual Report
(1)
(17)
(287)
310
48
(50)
3
35.0%
(0.3)
(9.2)
(0.4)
1.2
(28.2)
1.8
The current and deferred amounts of the (provision) benefit for income taxes follow (in millions):
Notes to Consolidated Financial Statements
Current:
Federal
State and municipal
Foreign
Deferred:
Federal
State and municipal
Foreign
2016
$
Years ended December 31,
2018
$
(256)
(22)
(196)
(34)
4
67
2017
$
(20)
(21)
(317)
(1,617)
(109)
(70)
(Provision) benefit for income taxes
$
(437)
$
(2,154)
$
Amounts are reflected in the preceding tables based on the location of the taxing authorities.
Reconciliation of the U.S. statutory income tax rate to our effective tax rate for operations follows:
Years ended December 31,
2018
2017
2016
Statutory U.S. income tax rate
State income tax (benefit), net of federal effect
Global intangible low-taxed income
Repatriation tax on accumulated previously untaxed foreign earnings
Remeasurement of deferred tax assets and liabilities
Rate difference on foreign earnings
Preliminary IRS settlement of 2013-2014 tax years
Equity earnings impact
Valuation allowance
Realignment of Dow Corning interest
Other items, net
Effective income tax rate (benefit)
In December 2017, the U.S. enacted the 2017 Tax Act which resulted in
significant changes for our financial results, including, but not limited
to, (1) reducing the U.S. federal corporate income tax rate to 21%, and
(2) imposing a one-time toll charge on certain unrepatriated earnings
of foreign subsidiaries of U.S. companies that had not been previously
taxed in the U.S.
The 2017 Tax Act also established new tax provisions affecting our 2018
results, including, but not limited to, (1) creating a new provision designed
to tax GILTI; (2) generally eliminating U.S. federal taxes on dividends
from foreign subsidiaries; (3) eliminating the corporate AMT; (4) creating
the BEAT; (5) establishing a deduction for FDII; (6) establishing new
limitations on deductible interest expense; and (7) establishing new
limitations on deductibility of certain executive compensation.
Given the significant complexity of the 2017 Tax Act and the lack of
clear tax and accounting regulatory guidance for this new law, the
Securities Exchange Commission issued SAB 118 to provide registrants
additional time to analyze and report the effects of tax reform during
the “measurement period.” Under SAB 118, the registrant was required
to record those items where ASC 740 analysis was complete; include
reasonable estimates and label them as provisional where ASC 740
analysis was incomplete; and if reasonable estimates could not be made,
record items under the previous tax law. The measurement period, not
to exceed one year, ended on the date the entity obtained, prepared, and
analyzed the information that was needed to complete the accounting
requirements under ASC Topic 740.
21.0%
0.9
3.6
(1.2)
(0.1)
(2.3)
11.5
(3.8)
(0.5)
29.1%
35.0%
0.8
67.4
21.0
(3.9)
0.1
6.8
2.8
130.0%
(0.1)%
For the year ended December 31, 2018, Corning’s results included a
worldwide tax provision of $437 million, inclusive of tax on ongoing
operations of $412 million and the impacts of the 2017 Tax Act of
$25 million. The impacts of the 2017 Tax Act include: GILTI tax of
$55 million, FDII benefit of $10 million, and a $20 million benefit related
to truing up the toll charge and our measurement of U.S. deferred
taxes, offset by the recording of a provision related to lifting our
assertion of indefinite reinvestment on certain foreign earnings. As of
December 31, 2018, Corning has completed its analysis of the impact of
the 2017 Tax Act as required by SAB 118. The GILTI tax of $55 million was
largely driven by the receipt of customer deposits. See Note 2 (Revenue)
to these Consolidated Financial Statements for more information.
In response to the reduction of the U.S. Federal Corporate Tax Rate, the
Company re-measured the U.S. deferred tax assets and liabilities based
on the rates at which they are expected to reverse in the future, which is
generally 21%. We recorded a provisional estimate of $347 million during
2017. This was adjusted by an immaterial amount upon completion of
our analysis for the year ended December 31, 2018.
We recorded a provisional expense of $1.1 billion for the Toll Charge at
year end 2017 on unrepatriated earnings of certain foreign subsidiaries
that were previously deferred. This charge was reduced by $35 million
upon completion of our analysis.
CORNING INCORPORATED - 2018 Annual Report
53
Notes to Consolidated Financial Statements
Corning has completed its analysis on the impact of the 2017 Tax Act
on its assertion regarding its indefinitely reinvested foreign earnings.
Corning has determined that it will no longer assert indefinite
asset reinvestment on $15.4 billion of unremitted foreign earnings
accumulated prior to 2018. This represents approximately 94% of
Corning’s unremitted foreign earnings as of the end of 2017. Corning will
continue to indefinitely reinvest the remaining 6% of historic foreign
earnings as of December 31, 2017.
Beginning in 2018, Corning will indefinitely reinvest the foreign earnings
of: (1) any of its subsidiaries located in jurisdictions where Corning lacks
the ability to repatriate its earnings, (2) any of its subsidiaries where
Corning’s intention is to reinvest those earnings in operations, (3) legal
entities for which Corning holds a non-controlling interest, (4) any
subsidiaries with an accumulated deficit in earnings and profits and
(5) any subsidiaries which have a positive earnings and profits balance
but for which the entity lacks sufficient local statutory earnings or stock
basis from which to make a distribution.
During 2018, the Company distributed approximately $4.2 billion from
foreign subsidiaries to their respective U.S. parent companies. There
are no incremental taxes beyond the toll charge due with respect to
these distributions. As of December 31, 2018, Corning has approximately
$1.5 billion of indefinitely reinvested foreign earnings. It remains
impracticable to calculate the tax cost of repatriating our unremitted
earnings which are considered indefinitely reinvested.
Under new guidance, a company can make a policy election to account
for the tax on GILTI as a period cost or to recognize deferred tax assets
and liabilities when basis differences exist that are expected to affect
the amount of GILTI inclusion upon reversal. Corning’s has elected to
account for the GILTI provisions as a period cost.
The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities follows
(in millions):
Loss and tax credit carryforwards
Other assets
Asset impairments and restructuring reserves
Postretirement medical and life benefits
Other accrued liabilities
Other employee benefits
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Intangible and other assets
Other accrued liabilities
Fixed assets
Total deferred tax liabilities
Net deferred tax assets
The net deferred tax assets are classified in our consolidated balance sheets as follows (in millions):
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
December 31,
2018
$
$
479
45
33
162
265
289
1,273
(317)
956
(96)
(256)
(352)
604
December 31,
2018
$
$
951
(347)
604
2017
$
$
2017
$
$
652
43
94
191
278
1,258
(456)
802
(101)
(94)
(245)
(440)
362
813
(451)
362
Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2018 follow (in millions):
Net operating losses
Tax credits
Totals as of December 31, 2018
Expiration
Amount
2018-2022
2023-2027
2028-2037
Indefinite
$
$
449
30
479
$
$
121
121
$
$
60
60
$
$
25
25
50
$
$
243
5
248
54 CORNING INCORPORATED - 2018 Annual Report
Deferred tax assets are to be reduced by a valuation allowance if,
based on the weight of available positive and negative evidence, it
is more likely than not (a likelihood of greater than 50 percent) that
some portion or all deferred tax assets will not be realized. Corning has
valuation allowances on certain shorter-lived deferred tax assets such
as those represented by capital loss and state tax net operating loss
carryforwards, as well as other foreign net operating loss carryforwards,
because we cannot conclude that it is more likely than not that we will
earn income of the character required to utilize these assets before
they expire. The change in the other accrued liabilities is largely driven
by the payment of certain withholding taxes and reclassification of a
portion of our deferred tax liability to deferred tax payable. Also, during
2018, a benefit was recorded upon the release of valuation allowances
on deferred tax that are now considered realizable outside of the U.S.
The amount of U.S. and foreign deferred tax assets that have remaining
valuation allowances at December 31, 2018 and 2017 was $317 million
and $456 million, respectively.
Notes to Consolidated Financial Statements
The 2017 Tax Act makes the following key changes to U.S. tax law which
will potentially impact Corning’s deferred tax assets. AMT has been
eliminated. Net operating losses (“NOL’s”) generated prior to the 2017
Tax Act may still be carried back two years and forward 20 years. Corning
has $35 million of Federal NOL’s that are subject to these provisions. The
2017 Tax Act limits and, in some cases, eliminates foreign tax credits.
Corning has $22 million of foreign tax credit carryforwards that may be
subject to these restrictions.
In 2018, we adopted ASU 2016-16, Improvements to Intra-Entity Transfers
of Assets Other Than Inventory. As a result, cumulative tax benefits
totaling $5 million were recorded as an adjustment to beginning
retained earnings.
The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):
Balance at January 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements and lapse of statute of limitations
Balance at December 31
The additions for 2018 were primarily due to a preliminary agreement
with the IRS to resolve its 2013-2014 audit. Included in the balance at
December 31, 2018, 2017 and 2016 are $263 million, $97 million and
$92 million, respectively, of unrecognized tax benefits that would impact
our effective tax rate if recognized.
We recognize accrued
interest and penalties associated with
uncertain tax positions as part of tax expense. For the years ended
December 31, 2018, 2017 and 2016 the amount recognized in interest
expense and accrued for the payment of interest and penalties were
not material.
It is possible that the amount of unrecognized tax benefits will change
due to one or more of the following events during the next twelve
months: audit activity, tax payments, or final decisions in matters that
are the subject of controversy in various jurisdictions within which we
operate. The majority of the potential change relates to our ongoing U.S.
tax audit. We believe we have provided adequate contingent reserves
for these matters. However, if upon conclusion of these matters, the
ultimate determination of taxes owed is for an amount materially
different than our current reserves, our overall tax expense and effective
tax rate could be materially impacted in the period of adjustment.
Corning Incorporated, as the common parent company, and all 80%-or-
more-owned of its U.S. subsidiaries join in the filing of consolidated U.S.
federal income tax returns. The statute of limitations is closed for all
periods ending through December 31, 2012. All returns for periods ended
through December 31, 2004, have been audited by and settled with the
Internal Revenue Service (IRS).
2018
$
$
252
204
(10)
(11)
435
2017
$
$
243
1
13
(5)
252
2016
$
$
253
10
4
(18)
(6)
243
Corning Incorporated and its U.S. subsidiaries file income tax returns
on a combined, unitary or stand-alone basis in multiple state and local
jurisdictions, which generally have statutes of limitations ranging from
3 to 5 years. Various state income tax returns are currently in the process
of examination or administrative appeal. We do not expect any material
proposed adjustments from any of these audits.
Corning has reached a preliminary agreement with the IRS to resolve its
2013-2014 audit. This preliminary agreement resulted in $172 million of
additional tax expense in the first quarter of 2018, of which $12 million
relates to interest expense, net of tax benefit. Corning will use tax
attributes to cover most of the tax expense. We expect to finalize this
agreement during 2019.
Our foreign subsidiaries file income tax returns in the countries in
which they have operations. Generally, these countries have statutes of
limitations ranging from 3 to 10 years. The statute of limitations is closed
through the following years in these major jurisdictions: Japan (2011),
Taiwan (2012) and South Korea (2012).
CPM is currently appealing certain tax assessments and tax refund
claims for tax years 2006 through 2017. 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. Because we believe that
it is more likely than not that we will prevail in the appeals process, we
have recorded a non-current receivable of $425 million for the amount
on deposit with the South Korean government.
CORNING INCORPORATED - 2018 Annual Report
55
Notes to Consolidated Financial Statements
5.
Investments
Investments are comprised of the following (in millions):
Affiliated companies accounted for by the equity method(1)(2)
Other investments
Subtotal Investment Assets
Affiliated companies accounted for by the equity method - HSG(1)(2)
Subtotal Investment Liabilities
Ownership
interest
20% to 50%
50%
December 31,
2018
2017
354
22
376
$
$
$
$
$
$
$
$
280
60
340
105
105
(1) Amount reflects Corning’s direct ownership interests in the affiliated companies at December 31, 2018 and December 31, 2017. Corning does not
control any of such entities.
(2) HSG indirectly holds an 80.5% interest in a HSG operating partnership. At December 31, 2018, the carrying value of the investment in HSG was
$42 million and recorded in Investments. At December 31, 2017, the negative carrying value of the investment in HSG was $105 million and recorded
in Other Liabilities.
Affiliated Companies at Equity
The results of operations and financial position of the investments accounted for under the equity method follow (in millions):
Years ended December 31,
2018
2017
2016
Statement of operations:
Net sales
Gross profit
Net income
Corning’s equity in earnings of affiliated companies
Related party transactions:
Corning sales to affiliated companies
Corning purchases from affiliated companies
Corning transfers of assets, at cost, to affiliated companies
Dividends received from affiliated companies
$
$
$
$
$
$
$
$
1,759
424
835
390
184
11
2
241
Balance sheet:
Current assets
Noncurrent assets
Short-term borrowings, including current portion of long-term debt
Other current liabilities
Long-term debt
Other long-term liabilities
Non-controlling interest
Related party transactions:
Balances due from affiliated companies
$
$
$
$
$
$
$
$
2,346
560
721
361
108
12
22
201
$
$
$
$
$
$
$
$
Years ended December 31,
2018
2017
$
$
$
$
$
$
$
$
1,716
1,922
8
810
14
1,708
259
95
$
$
$
$
$
$
$
$
4,024
1,006
565
284
95
12
44
85
1,593
1,999
3
700
16
2,128
313
47
We have contractual agreements with several of our equity affiliates which include sales, purchasing, licensing and technology agreements.
As of December 31, 2018 and 2017, the undistributed earnings of equity companies included in our retained earnings were not material.
56 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
HSG and Dow Corning
On May 31, 2016, Corning completed the strategic realignment of
its equity investment in Dow Corning Corporation (“Dow Corning”)
pursuant to the Transaction Agreement announced in December 2015.
Under the terms of the Transaction Agreement, Corning exchanged
with Dow Corning its 50% stock interest in Dow Corning for 100% of the
stock of a newly formed entity, which held an equity interest in Hemlock
Semiconductor Group (“HSG”) and approximately $4.8 billion in cash.
Prior to realignment, HSG, a consolidated subsidiary of Dow Corning,
was an indirect equity investment of Corning. Upon completion of the
exchange, Corning received a direct equity investment in HSG. Because
our ownership percentage in HSG did not change as a result of the
realignment, the investment in HSG is recorded at its carrying value,
which had a negative carrying value of $383 million at the transaction
date. The negative carrying value resulted from a one-time charge to
this entity in 2014 for the permanent abandonment of certain assets.
Excluding this charge, the entity has been profitable and recovered its
equity as of December 31, 2018. The carrying value of the investment in
HSG as of December 31, 2018 was $42 million and recorded in Investments.
Corning’s financial statements as of December 31, 2016 include the
positive impact of the release of a deferred tax liability of $105 million
related to Corning’s tax on Dow Corning’s earnings that were not
distributed as of the date of the transaction and a non-taxable gain
of $2,676 million on the realignment. Details of the gain are illustrated
below (in millions):
Cash
Carrying Value of Dow Corning Equity Investment
Carrying Value of HSG Equity Investment
Other(1)
Gain
$ 4,818
(1,560)
(383)
(199)
$ 2,676
(1) Primarily consists of the release of accumulated other comprehensive income items related to unamortized actuarial losses related to Dow
Corning’s pension plan and foreign currency translation gains in the amounts of $260 million and $45 million, respectively.
Corning began reporting HSG equity earnings and dividends on June 1, 2016. HSG information presented below is shown for the years ended
December 31, 2018 and 2017 and the seven months ended December 31, 2016 (in millions):
Years ended December 31,
2018
2017
2016
Statement of operations:
Net sales
Gross profit
Net income
Corning’s equity in earnings of affiliated companies
Related party transactions:
Dividends received from affiliated companies
$
$
$
$
$
1,158
367
814
388
241
Balance sheet:
Current assets
Noncurrent assets
Short-term borrowings, including current portion of long-term debt
Other current liabilities
Long-term debt
Other long-term liabilities
Non-controlling interest
$
$
$
$
$
$
$
$
$
$
$
$
1,716
469
706
352
196
$
$
$
$
$
Years ended December 31,
2018
2017
1,188
1,414
3
540
11
1,708
259
$
$
$
$
$
$
$
1,119
361
421
212
65
1,206
1,522
3
484
15
2,126
313
CORNING INCORPORATED - 2018 Annual Report
57
Notes to Consolidated Financial Statements
6. Acquisitions
During 2018, Corning acquired substantially all of CMD in two cash
transactions totaling $841 million. On June 1, 2018, Corning acquired a
manufacturing facility and certain other assets (collectively referred
to as “Purchased Assets”) for $801 million. The Purchased Assets
constitute a business, which designs, manufactures and markets high
bandwidth and optical fiber products. On December 3, 2018, as part of
the acquisition of CMD, Corning acquired 100% of the German services
company for $40 million. The acquisition was accounted for as a
business combination.
A summary of the preliminary allocation of the total purchase price to
the net tangible and other intangible assets acquired, with the remainder
recorded as goodwill based on fair value is as follows (in millions):
Property, plant and equipment
Other intangible assets
Other net assets
Total identified net assets
Purchase consideration
Goodwill(1)(2)
$
$
32
525
16
573
841
268
(1) Amounts reflect measurement period adjustments.
(2) The goodwill recognized is deductible for U.S. income tax purposes. The goodwill was allocated to the Optical Communications segment.
Goodwill is related to the value of CMD’s product and customer portfolio
and its combination with Corning’s existing optical communications
platform, as well as synergies and other intangibles that do not qualify
for separate recognition. Other intangible assets consist primarily
of $434 million of customer relationships and $91 million of other
intangibles that are amortized over the weighted average useful life of
approximately 14 and 11 years, respectively. Acquisition-related costs of
$18 million for the year ended December 31, 2018, included costs for legal,
accounting, valuation and other professional services and were included
in selling, general and administrative expense in the Consolidated
Statements of Income. Supplemental pro forma information was not
provided because the Purchased Assets are not material to Corning’s
consolidated financial statements.
There were no material acquisitions completed in 2017 or 2016. See Note
8 (Goodwill and Other Intangible Assets) to the Consolidated Financial
Statements for further information on goodwill and intangibles
acquired in 2017 and 2016.
7. Property, Plant and Equipment, Net of Accumulated Depreciation
Property, plant and equipment, net of accumulated depreciation follow (in millions):
Land
Buildings
Equipment
Construction in progress
Accumulated depreciation
Total
December 31,
2018
2017
$
467
5,924
18,218
2,218
26,827
(11,932)
$
482
5,864
16,648
1,832
24,826
(10,809)
$
14,895
$
14,017
Approximately $49 million, $36 million and $23 million of interest costs were capitalized as part of property, plant and equipment, net of accumulated
depreciation, in 2018, 2017 and 2016, respectively.
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. At December 31, 2018 and
2017, the recorded value of precious metals totaled $3 billion in each period. Depletion expense for precious metals in the years ended December 31,
2018, 2017 and 2016 was $14 million, $13 million and $20 million, respectively.
58 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
8. Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill for the twelve months ended December 31, 2018 and 2017 were as follows (in millions):
Balance at December 31, 2016
Acquired goodwill(1)
Measurement period adjustment(2)
Foreign currency translation adjustment
Balance at December 31, 2017
Acquired goodwill(3)
Measurement period adjustment
Foreign currency translation adjustment
Balance at December 31, 2018
Display
Technologies
Optical
Communications
Specialty
Materials
Life
Sciences
All
Other
$
$
$
126
$
10
136
(4)
132
$
$
645
22
(1)
5
671
257
11
(13)
926
$
150
$
558
43
1
21
$
150
$
623
2
(8)
617
$
150
$
$
$
$
98
34
(28)
10
114
(3)
111
Total
$
1,577
99
(28)
46
$
1,694
259
11
(28)
$
1,936
(1) The Company completed two small acquisitions in the third quarter of 2017 which are reported in the Optical Communications and Life Sciences
segment and one small acquisition in the first quarter of 2017 which is reported in All Other.
(2) In the second quarter of 2017, the Company recorded measurement period adjustments of $28 million related to an acquisition completed in a
previous period.
(3) The Company completed the acquisition of CMD during the second quarter and the fourth quarter of 2018.
Corning’s gross goodwill balance for the years ended December 31, 2018 and 2017 were $8.4 billion and $8.2 billion, respectively. Accumulated impairment
losses were $6.5 billion for the years ended December 31, 2018 and 2017, respectively, and were generated primarily through goodwill impairments
related to the Optical Communications segment.
Other Intangible Assets
Other intangible assets follow (in millions):
Amortized intangible assets:
Patents, trademarks & trade names
Customer list and other
Total
Gross
$
$
465
1,308
1,773
2018
Accumulated
amortization
December 31,
Net
Gross
2017
Accumulated
amortization
Net
$
$
203
278
481
$
$
262
1,030
1,292
$
$
382
884
1,266
$
$
188
209
397
$
$
194
675
869
Amortized intangible assets are primarily related to the Optical
Communications and Life Sciences segments. The net carrying amount
of intangible assets increased by $423 million during the year ended
December 31, 2018, primarily due to the acquisition of CMD of $525 million
and other acquisition of $9 million of other intangible assets, offset by
amortization of $94 million and foreign currency translation and other
adjustments of $17 million.
Amortization expense related to all intangible assets is estimated to be
$115 million annually for 2019, $114 million annually for 2020, $113 million
annually for 2021, $111 million annually for 2022, and $110 million annually
for 2023.
CORNING INCORPORATED - 2018 Annual Report
59
Notes to Consolidated Financial Statements
9. Other Assets and Other Liabilities
Other assets follow (in millions):
Current assets:
Contingent consideration asset
Derivative instruments
Other current assets
Other current assets
Non-current assets:
Derivative instruments
South Korean tax deposits
Other non-current assets
Other assets
December 31,
2018
2017
$
$
$
$
103
599
702
45
425
551
1,021
$
$
$
$
300
197
494
991
68
319
547
934
South Korean tax deposits
Corning is currently appealing certain tax assessments resulting from audits performed by the South Korean tax authorities. The Company is required
to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of these assessments. Because we believe that it
is more likely than not that we will prevail in the appeal process, we have recorded a non-current receivable for the amount on deposit with the South
Korean government.
Other liabilities follow (in millions):
Current liabilities:
Wages and employee benefits
Income taxes
Derivative instruments
Asbestos and other litigation (Note 12)
Other current liabilities
Other accrued liabilities
Non-current liabilities:
Defined benefit pension plan liabilities
Derivative instruments
Asbestos and other litigation (Note 12)
Investment in Hemlock Semiconductor Group(1)
Customer deposits (Note 2)
Deferred tax liabilities
Other non-current liabilities
Other liabilities
December 31,
2018
2017
$
$
$
642
169
56
113
871
1,851
831
386
279
922
347
887
$
$
$
620
148
42
41
540
1,391
713
333
338
105
382
451
695
$
3,652
$
3,017
(1) The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Refer to
Note 5 (Investments) to the Consolidated Financial Statements for additional information.
60 CORNING INCORPORATED - 2018 Annual Report
10. Debt
(In millions)
Current portion of long-term debt
Long-term debt
Debentures, 1.5%, due 2018
Debentures, 6.625%, due 2019
Debentures, 4.25%, due 2020
Debentures, 8.875%, due 2021
Debentures, 2.90%, due 2022
Debentures, 3.70%, due 2023
Medium-term notes, average rate 7.66%, due through 2023
Debentures, 7.00%, due 2024
Yen-denominated Debentures, .698%, due 2024
Yen-denominated Debentures, .722%, due 2025
Yen-denominated Debentures, .992%, due 2027
Yen-denominated Debentures, 1.043%, due 2028
Debentures, 6.85%, due 2029
Yen-Denominated Debentures, 1.219%, due 2030
Debentures, callable, 7.25%, due 2036
Debentures, 4.70%, due 2037
Yen-denominated Debentures, 1.583%, due 2037
Debentures, 5.75%, due 2040
Debentures, 4.75%, due 2042
Debentures, 5.35%, due 2048
Debentures, 4.375%, due 2057
Debentures, 5.85%, due 2068
Other, average rate 5.08%, due through 2043
Total long-term debt
Less current portion of long-term debt
Long-term debt
Corning did not have outstanding commercial paper at December 31,
2018 and 2017.
In the third quarter of 2018, Corning amended and restated its revolving
credit agreement (the “Revolving Credit Agreement”). The Revolving Credit
Agreement provides a committed $1.5 billion unsecured multi-currency
line of credit and expires August 15, 2023. At December 31, 2018, there were
no outstanding amounts under the Revolving Credit Agreement.
Notes to Consolidated Financial Statements
December 31,
2018
2017
$
$
4
291
65
373
249
45
100
191
90
426
276
164
226
248
295
91
395
496
543
742
296
396
5,998
4
$
$
379
375
245
288
66
373
249
45
99
185
414
166
248
248
85
397
496
743
406
5,128
379
$
5,994
$
4,749
Based on borrowing rates currently available to us for loans with similar
terms and maturities, the fair value of long-term debt was $6.0 billion
at December 31, 2018 and $5.1 billion at December 31, 2017. 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.
The following table shows debt maturities by year at December 31, 2018 (in millions)*:
2019
$
2020
4
$
305
2021
$
2022
2023
Thereafter
68
$
381
$
420
$
4,856
* Excludes interest rate swap gains and bond discounts.
CORNING INCORPORATED - 2018 Annual Report
61
Notes to Consolidated Financial Statements
Debt Issuances and Retirements
2017
2018
In the third quarter of 2017, Corning
yen-denominated debt securities (the “Notes”), as follows:
issued three
Japanese
In the second quarter of 2018, Corning
yen-denominated debt securities (the “Notes”), as follows:
issued three Japanese
• ¥21 billion 0.698% senior unsecured notes with a maturity of 7 years;
• ¥47 billion 0.992% senior unsecured notes with a maturity of
• ¥10 billion 0.722% senior unsecured notes with a maturity of 7 years;
10 years; and
• ¥30.5 billion 1.043% senior unsecured notes with a maturity of
• ¥10 billion 1.583% senior unsecured notes with a maturity of 20 years.
The proceeds from these Notes were received in Japanese yen and
converted to U.S. dollars on the date of issuance. The net proceeds received
in U.S. dollars, after deducting offering expenses, was approximately
$700 million. Payments of principal and interest on the Notes will be in
Japanese yen, or should yen be unavailable due to circumstances beyond
Corning’s control, a U.S. dollar equivalent. The net proceeds of $700 million
were made available for general corporate purposes.
In the fourth quarter of 2017, Corning issued $750 million of 4.375% senior
unsecured notes that mature on November 15, 2057. The net proceeds of
$743 million will be used for general corporate purposes. We can redeem
these notes at any time, subject to certain terms and conditions.
On a quarterly basis, Corning will recognize the transaction gains and
losses resulting from changes in the JPY/USD exchange rate in the Other
expense, net line of the Consolidated Statements of Income (Loss). Cash
proceeds from the offerings and payments for debt issuance costs are
disclosed as financing activities, and cash payments to bondholders
for interest will be disclosed as operating activities, in the Consolidated
Statements of Cash Flows.
10 years; and
• ¥25 billion 1.219% senior unsecured notes with a maturity of 12 years.
The proceeds from the Notes were received in Japanese yen and converted
to U.S. dollars on the date of issuance. The net proceeds received in U.S.
dollars, after deducting offering expenses, were $596 million. Payments
of principle and interest on the Notes will be in Japanese yen, or should
yen be unavailable due to circumstances beyond Corning’s control, a
U.S. dollar equivalent. The net proceeds of $596 million will be used for
general corporate purposes.
In the fourth quarter of 2018, Corning issued three unsecured long-term
notes as follows:
• $50 million 4.70% senior unsecured notes with a maturity of 19 years;
• $550 million 5.35% senior unsecured notes with a maturity of
30 years; and
• $300 million 5.85% senior unsecured notes with a maturity of 50 years.
The net proceeds of $889 million will be used for general corporate
purposes. We can redeem these notes at any time, subject to certain
terms and conditions.
In the fourth quarter of 2018, Corning redeemed $250 million of 6.625%
Notes due 2019, paying a nominal call premium. The bond redemption
incurred an insignificant loss during the fourth quarter of 2018.
11. Employee Retirement Plans
Defined Benefit Plans
We have defined benefit pension plans covering certain domestic and
international employees. Our funding policy has been to contribute,
as necessary, an amount in excess of the minimum requirements in
order to achieve the Company’s long-term funding targets. In 2018, we
made voluntary cash contributions to our domestic defined benefit
pension plan and our international pension plans in the amount of
$105 million and $12 million, respectively. In 2017, we made no voluntary
cash contributions to our domestic defined benefit pension plan and
$29 million to our international pension plans. During 2019, we anticipate
making cash contributions of $75 million to our U.S. qualified pension
plan and $31 million to our international pension plans.
Corning offers postretirement plans that provide health care and
life insurance benefits for retirees and eligible dependents. Certain
employees may become eligible for such postretirement benefits upon
reaching retirement age and service requirements. For current retirees
(including surviving spouses) and active employees eligible for the
salaried retiree medical program, we have placed a “cap” on the amount
we will contribute toward retiree medical coverage in the future. The
cap is equal to 120% of our 2005 contributions toward retiree medical
benefits. Once our contributions toward salaried retiree medical costs
reach this cap, impacted retirees will have to pay the excess amount
in addition to their regular contributions for coverage. This cap was
attained for post-65 retirees in 2008 and attained for pre-65 retirees in
2010. Furthermore, employees hired or rehired on or after January 1, 2007
will be eligible for Corning retiree medical benefits upon retirement;
however, these employees will pay 100% of the cost.
62 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
Obligations and Funded Status
The change in benefit obligation and funded status of our employee retirement plans follows (in millions):
December 31,
Change in benefit obligation
Total
pension benefits
Domestic
pension benefits
International
pension benefits
2018
2017
2018
2017
2018
2017
Benefit obligation at beginning of year
$
4,188
$
3,887
$
3,522
$
3,289
$
666
$
598
Service cost
Interest cost
Plan participants’ contributions
Plan amendments
Actuarial loss (gain)
Other
Benefits paid
Foreign currency translation
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning
of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Foreign currency translation
Fair value of plan assets at end of year
Funded status at end of year
Fair value of plan assets
Benefit obligations
Funded status of plans
Amounts recognized in the consolidated
balance sheets consist of:
Noncurrent asset
Current liability
Noncurrent liability
Recognized liability
Amounts recognized in
accumulated other
comprehensive income consist of:
Net actuarial loss
Prior service cost (credit)
Amount recognized at end of year
$
$
$
$
$
$
$
$
$
103
132
1
21
(210)
(1)
(202)
(29)
4,003
3,539
(201)
135
1
(208)
(27)
3,239
3,239
(4,003)
(764)
81
(29)
(816)
(764)
338
36
374
$
$
$
$
$
$
$
$
$
92
126
2
208
3
(195)
65
4,188
3,225
413
46
1
(195)
49
3,539
3,539
(4,188)
(649)
76
(20)
(705)
(649)
300
22
322
78
116
1
20
(200)
(179)
3,358
3,004
(202)
118
1
(179)
2,742
2,742
(3,358)
(616)
(13)
(603)
(616)
324
37
361
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
66
112
1
222
3
(171)
3,522
2,765
395
14
1
(171)
3,004
3,004
(3,522)
(518)
(12)
(506)
(518)
285
25
310
$
$
$
$
$
$
$
$
$
25
16
1
(10)
(1)
(23)
(29)
645
535
1
17
(29)
(27)
497
497
(645)
(148)
81
(16)
(213)
(148)
14
(1)
13
$
$
$
$
$
$
$
$
$
26
14
1
(14)
(24)
65
666
460
18
32
(24)
49
535
535
(666)
(131)
76
(8)
(199)
(131)
15
(3)
12
The accumulated benefit obligation for defined benefit pension plans was $3.8 billion and $3.9 billion at December 31, 2018 and 2017, respectively.
CORNING INCORPORATED - 2018 Annual Report
63
Notes to Consolidated Financial Statements
December 31,
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Plan amendments
Actuarial loss (gain)
Benefits paid
Medicare subsidy received
Benefit obligation at end of year
Funded status at end of year
Fair value of plan assets
Benefit obligations
Funded status of plans
Amounts recognized in the consolidated balance sheets consist of:
Current liability
Noncurrent liability
Recognized liability
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss
Prior service credit
Amount recognized at end of year
Postretirement benefits
2018
2017
$
789
$
10
24
8
(40)
(48)
(46)
2
699
(699)
(699)
(37)
(662)
(699)
21
(44)
(23)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
776
10
26
8
17
(50)
2
789
(789)
(789)
(40)
(749)
(789)
68
(12)
56
The following information is presented for pension plans where the projected benefit obligation as of December 31, 2018 and 2017 exceeded the fair
value of plan assets (in millions):
Projected benefit obligation
Fair value of plan assets
December 31,
2018
2017
$
$
3,754
2,910
$
$
3,843
3,173
In 2018, the fair value of plan assets exceeded the projected benefit obligation for the United Kingdom pension plan. In 2017, the fair value of plan assets
exceeded the projected benefit obligation for the United Kingdom and one of the South Korean pension plans.
The following information is presented for pension plans where the accumulated benefit obligation as of December 31, 2018 and 2017 exceeded the
fair value of plan assets (in millions):
Accumulated benefit obligation
Fair value of plan assets
December 31,
2018
2017
$
$
3,410
2,766
$
$
3,555
3,025
In 2018, the fair value of plan assets exceeded the accumulated benefit obligation for the United Kingdom, South Korea and one of the Taiwan
pension plans. In 2017, the fair value of plan assets exceeded the accumulated benefit obligation for one of the Taiwan, the United Kingdom and the
South Korea pension plans.
64 CORNING INCORPORATED - 2018 Annual Report
The components of net periodic benefit cost for our employee retirement plans follow (in millions):
Notes to Consolidated Financial Statements
Total pension benefits
Domestic pension benefits
International pension benefits
2018
2017
2016
2018
2017
2016
2018
2017
2016
December 31,
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service
cost (credit)
Recognition of actuarial loss
Total net periodic benefit expense
Settlement charge
Total expense
Other changes in plan assets and
benefit obligations recognized
in other comprehensive income:
Settlements
Current year actuarial loss (gain)
Recognition of actuarial loss
Current year prior service cost
Amortization of prior service
(cost) credit
Total recognized in other
comprehensive loss (income)
Service cost
Interest cost
Amortization of actuarial net gain
Amortization of prior service credit
Total net periodic benefit expense
$
78
116
$
66
112
$
61
111
(178)
(163)
(153)
$ 103
$
92
$
126
(174)
5
21
70
$
85
124
(165)
6
67
117
1
132
(189)
6
145
$ 197
(1)
$ 196
$
$
7
143
$ 166
6
18
39
39
$
$
70
$
118
$ 166
$
1
180
(145)
20
$ (30)
(21)
$
(2)
84
(64)
$ 182
$
(143)
20
(8)
(18)
(6)
(5)
(6)
(7)
(6)
(6)
$
50
$ (56)
$
12
$
52
$
(32)
$
0
$
(2)
$ (24)
$
12
$
$
$
6
55
80
1
81
(2)
63
(55)
$
$
$
$
25
16
(11)
(1)
2
31
(1)
30
1
(2)
(2)
1
24
13
(12)
12
37
37
21
(9)
$
$
$
26
14
(11)
(1)
3
31
31
$
$
$
$
(22)
$
(3)
1
Postretirement benefits
2018
$
$
$
$
$
10
24
(7)
27
(47)
(40)
7
(80)
(53)
2017
$
$
$
$
$
10
26
(1)
(3)
32
17
1
3
21
53
2016
$
$
$
$
$
9
26
(1)
(4)
30
15
1
5
21
51
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Current year actuarial (gain) loss
Amortization of actuarial net gain
Current year prior service credit
Amortization of prior service credit
Total recognized in other comprehensive income (loss)
Total recognized in net periodic benefit cost and other comprehensive income
The Company expects to recognize $7 million of net prior service cost as
a component of net periodic pension cost in 2019 for its defined benefit
pension plans. The Company expects to recognize $1 million of net
actuarial gain and $7 million of net prior service credit as components of
net periodic postretirement benefit cost in 2019.
Corning uses a hypothetical yield curve and associated spot rate curve to
discount the plan’s projected benefit payments. Once the present value
of projected benefit payments is calculated, the suggested discount rate
is equal to the level rate that results in the same present value. The yield
curve is based on actual high-quality corporate bonds across the full
maturity spectrum, which also includes private placements as well as
Eurobonds that are denominated in U.S. currency. The curve is developed
from yields on approximately 350-375 bonds from four grading sources,
Moody’s, S&P, Fitch and the Dominion Bond Rating Service. A bond will
be included if at least half of the grades from these sources are Aa, non-
callable bonds. The very highest 10% yields and the lowest 40% yields are
excluded from the curve to eliminate outliers in the bond population.
Mortality is one of the key assumptions used in valuing liabilities of
retirement plans. It is used to assign a probability of payment for future
plan benefits that are contingent upon participants’ survival. To make
this assumption, benefit plan sponsors typically use a base mortality
table and an improvement scale that adjusts the rates of mortality for
future anticipated changes to historical death rates.
CORNING INCORPORATED - 2018 Annual Report
65
Notes to Consolidated Financial Statements
Corning last updated the adjustment factors applied to its base
mortality assumption (RP-2014 white collar table and RP-2014 blue collar
table for non-union and union participants, respectively) to value its U.S.
benefit plan obligations as of December 31, 2017. In addition, Corning
also updated to the MP-2017 projection scale for the year ended 2017.
As the Society of Actuaries publishes additional mortality improvement
scales (MP-2018), Corning has considered these revised improvement
scales in setting its future mortality improvement assumption. As of
December 31, 2018, Corning decided to continue application of its future
improvement scale to the MP-2017 scale.
Furthermore, Corning updated for the year ended 2017 the mortality
assumption applied to disabled participants to be the RP-2014 disabled
mortality base table with future improvements using MP-2017. These
assumptions were unchanged for the year ended 2018.
is based on
Measurement of postretirement benefit expense
assumptions used to value the postretirement benefit obligation at the
beginning of the year.
The weighted-average assumptions used to determine benefit obligations at December 31 follow:
Pension benefits
Domestic
International
Postretirement benefits
2018
2017
2016
2018
2017
2016
2018
2017
2016
Discount rate
Rate of compensation increase
4.28%
3.50%
3.58%
3.50%
4.01%
3.50%
1.96%
2.96%
1.93%
2.81%
2.29%
3.97%
4.33%
3.63%
4.07%
The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 follow:
Pension benefits
Domestic
International
Postretirement benefits
2018
2017
2016
2018
2017
2016
2018
2017
2016
Discount rate
Expected return on plan assets
Rate of compensation increase
3.58%
6.00%
3.50%
4.01%
6.00%
3.50%
4.24%
6.00%
3.50%
1.93%
2.13%
2.81%
2.29%
3.97%
2.06%
3.23%
3.92%
2.89%
3.63%
4.06%
4.31%
Expected long-term returns on plan assets is based on long-term expectations for future returns informed by historical data in conjunction with the
investment policies further described within “Plan Assets” below. Reasonableness of the results is tested using models provided by the plan actuaries.
Assumed health care trend rates at December 31
Health care cost trend rate assumed for next year
Rate that the cost trend rate gradually declines to
Year that the rate reaches the ultimate trend rate
2018
2017
7.00%
5%
2027
6.50%
5%
2024
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in millions):
Effect on annual total of service and interest cost (credit)
Effect on postretirement benefit obligation
One-percentage-
point increase
One-percentage-
point decrease
$
$
3
45
$
$
(2)
(37)
Plan Assets
The Company’s primary objective is to ensure the plan has sufficient
return on assets to fund the plan’s current and future obligations
as they become due. Investments are made in public securities to
ensure adequate liquidity to support benefit payments. Domestic and
international stocks and bonds provide diversification to the portfolio.
The target allocation range for global equity investment is 20%-25%
which includes large, mid and small cap companies and investments in
both developed and emerging markets. The target allocation for bond
investments is 60%, which predominately includes corporate bonds.
Long duration fixed income assets are utilized to mitigate the sensitivity
of funding ratios to changes in interest rates. The target allocation range
for non-public investments in private equity and real estate is 5%-15%,
and is used to enhance returns and offer additional asset diversification.
The target allocation range for commodities is 0%-5%, which provides
some inflation protection to the portfolio.
66 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
The following tables provide fair value measurement information for the Company’s major categories; Level 1 (quoted market prices in active markets for
identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of our domestic defined benefit plan assets:
(in millions)
Equity securities:
U.S. companies
International companies
Fixed income:
U.S. corporate bonds
Private equity(1)
Real estate(2)
Cash equivalents
Commodities(3)
Total
December 31, 2018
December 31, 2017
Total
(Level 1)
(Level 2)
(Level 3)
Total
(Level 1)
(Level 2)
(Level 3)
$
363
324
1,626
82
148
199
$
2
$
361
324
$
374
420
$
183
1,443
199
$
82
148
1,815
105
147
21
122
57
117
197
21
$
317
303
1,618
122
$
105
147
$ 2,742
$
384
$
2,128
$
230
$ 3,004
$
392
$
2,360
$
252
(1) This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in U.S. companies. The inputs
are valued by discounted cash flow analysis and comparable sale analysis.
(2) This category includes industrial, office, apartments, hotels, infrastructure and retail investments which are limited partnerships predominately in
the U.S. The inputs are valued by discounted cash flow analysis; comparable sale analysis and periodic external appraisals.
(3) This category includes investments in energy, industrial metals, precious metals, agricultural and livestock primarily through futures, options, swaps
and exchange traded funds.
The following tables provide fair value measurement information for the Company’s major categories; Level 1 (quoted market prices in active markets
for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of our international defined benefit
plan assets:
December 31, 2018
December 31, 2017
Total
(Level 1)
(Level 2)
(Level 3)
Total
(Level 1)
(Level 2)
(Level 3)
$
8
29
$
428
$
361
$
67
440
$
367
$
8
29
73
(in millions)
Equity securities:
U.S. companies
International companies
Fixed income:
International
fixed income
Insurance contracts
Mortgages
Cash equivalents
2
22
45
Total
$
497
$
45
406
$
67
$
$
2
22
24
2
16
40
$
535
$
40
407
$
110
$
$
2
16
18
CORNING INCORPORATED - 2018 Annual Report
67
Notes to Consolidated Financial Statements
The tables below set forth a summary of changes in the fair value of the defined benefit plans Level 3 assets for the years ended December 31, 2018
and 2017:
(in millions)
Beginning balance at December 31, 2017
Actual return on plan assets relating to assets still held at the reporting date
Transfers in and/or out of level 3
Ending balance at December 31, 2018
(in millions)
Beginning balance at December 31, 2016
Actual return on plan assets relating to assets still held at the reporting date
Transfers in and/or out of level 3
Ending balance at December 31, 2017
Level 3 assets – Domestic
Level 3 assets – International
Year ended December 2018
Year ended December 2018
Private equity
Real estate
Mortgages
$
$
105
15
(38)
82
$
147
$
16
9
(8)
$
148
$
6
22
Insurance
contracts
$
$
2
2
Level 3 assets – Domestic
Level 3 assets – International
Year ended December 2017
Year ended December 2017
Private equity
Real estate
Mortgages
$
$
137
7
(39)
105
$
$
150
6
(9)
147
$
$
16
16
Insurance
contracts
$
$
2
2
Credit Risk
Liquidity Risk
59% of domestic plan assets are invested in long duration bonds. The
average rating for these bonds is A. These bonds are subject to credit
risk, such that a decline in credit ratings for the underlying companies,
countries or assets (for asset-backed securities) would result in a decline
in the value of the bonds. These bonds are also subject to default risk.
Currency Risk
12% of domestic assets are valued in non-U.S. dollar denominated
investments that are subject to currency fluctuations. The value of these
securities will decline if the U.S. dollar increases in value relative to the
value of the currencies in which these investments are denominated.
Cash Flow Data
8% of the domestic securities are invested in Level 3 securities. These
are long-term investments in private equity and private real estate
investments that may not mature or be sellable in the near-term
without significant loss.
At December 31, 2018 and 2017, the amount of Corning common stock
included in equity securities was not significant.
The following reflects the gross benefit payments that are expected to be paid for our domestic and international defined benefit pension plans, the
postretirement medical and life plans and the gross amount of annual Medicare Part D federal subsidy expected to be received (in millions):
2019
2020
2021
2022
2023
2024-2028
Expected benefit payments
Domestic
pension benefits
International
pension benefits
Postretirement
benefits
$
$
$
$
$
$
199
203
212
220
229
1,242
$
$
$
$
$
$
23
30
28
31
30
196
$
$
$
$
$
$
37
40
40
42
42
213
Other Benefit Plans
We offer defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense
was $67 million, $60 million and $53 million for the years ended December 31, 2018, 2017 and 2016, respectively.
68 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
12. Commitments, Contingencies and Guarantees
The amounts of our obligations follow (in millions):
Performance bonds and guarantees
Stand-by letters of credit(1)
Credit facility to equity company
Subtotal of commitment expirations per period
Purchase obligations(2)
Capital expenditure obligations(3)
Total debt(4)
Interest on long-term debt(5)
Capital leases and financing obligations
Imputed interest on capital leases and
financing obligations
Minimum rental commitments
Amended PCC Plan
Uncertain tax positions(6)
Subtotal of contractual obligation
payments due by period(6)
Total commitments and contingencies(6)
Amount of commitment and contingency expiration per period
Total
Less than 1 year
1 to 3 years
3 to 5 years
5 years and
thereafter
$
$
$
152
84
4
240
339
412
5,642
5,117
393
205
581
185
95
$
$
$
23
71
4
98
214
412
231
4
20
82
50
$
$
$
4
8
12
56
362
450
11
38
133
85
$
$
$
2
2
28
670
408
132
37
111
50
$
$
$
123
5
128
41
4,610
4,028
246
110
255
$
$
12,969
13,209
$
$
1,013
1,111
$
$
1,135
1,147
$
$
1,436
1,438
$
$
9,290
9,418
(1) At December 31, 2018, $39 million of the $84 million was included in other accrued liabilities on our consolidated balance sheets.
(2) Purchase obligations are enforceable and legally binding obligations which primarily consist of raw material and energy-related take-or-pay contracts.
(3) Capital expenditure obligations primarily reflect amounts associated with our capital expansion activities.
(4) Total debt above is stated at maturity value, and excludes interest rate swap gains/losses and bond discounts.
(5) The estimate of interest payments assumes interest is paid through the date of maturity or expiration of the related debt, based upon stated rates
in the respective debt instruments.
(6) At December 31, 2018, $95 million was included on our balance sheet related to uncertain tax positions.
We are required, at the time a guarantee is issued, to recognize a liability
for the fair value or market value of the obligation it assumes. In the
normal course of our business, we do not routinely provide significant
third-party guarantees. Generally, third-party guarantees provided by
Corning are limited to certain financial guarantees, including stand-
by letters of credit and performance bonds, and the incurrence of
contingent liabilities in the form of purchase price adjustments related
to attainment of milestones. These guarantees have various terms,
and none of these guarantees are individually significant. We believe a
significant majority of these guarantees and contingent liabilities will
expire without being funded.
Minimum rental commitments under leases outstanding at December 31, 2018 follow (in millions):
2019
$
82
2020
$
72
2021
$
61
2022
$
53
2023
$
58
2024 and
thereafter
$
255
Total rental expense was $156 million, $135 million and $105 million for
2018, 2017 and 2016, respectively.
Product warranty liability accruals at December 31, 2018 and 2017
were insignificant.
The ability of certain subsidiaries and affiliated companies to transfer
funds is limited by provisions of foreign government regulations,
affiliate agreements and certain loan agreements. At December 31,
2018, the amount of equity subject to such restrictions for consolidated
subsidiaries and affiliated companies was not significant. While this
amount is legally restricted, it does not result in operational difficulties
since we have generally permitted subsidiaries to retain a majority of
equity to support growth programs.
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.
CORNING INCORPORATED - 2018 Annual Report
69
Notes to Consolidated Financial Statements
Asbestos Claims
Corning and PPG Industries, Inc. each owned 50% of the capital stock
of Pittsburgh Corning Corporation (“PCC”). PCC filed for Chapter 11
reorganization in 2000 and the Modified Third Amended Plan of
Reorganization for PCC (the “Plan”) became effective in April 2016.
At December 31, 2016, the Company’s liability under the Plan was
$290 million, which is required to be paid through a series of fixed
payments beginning in the second quarter of 2017. Payments of
$35 million and $70 million were made in June 2018 and June 2017,
respectively. At December 31, 2018, the total amount of payments due
in years 2019 through 2022 is $185 million, of which $50 million is due
in the second quarter of 2019 and is classified as a current liability. The
remaining $135 million is classified as a non-current liability.
Non-PCC Asbestos Claims
Corning is a defendant in certain cases alleging injuries from asbestos
unrelated to PCC (the “non-PCC asbestos claims”) which had been
stayed pending the confirmation of the Plan. The stay was lifted on
August 25, 2016. At December 31, 2018 and December 31, 2017, the
amount of the reserve for these non-PCC asbestos claims was estimated
to be $146 million and $147 million, respectively. The reserve balance as
of December 31, 2018 represents the undiscounted projection of claims
and related legal fees for the estimated life of the litigation.
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. In connection with the realignment, Corning
retained its indirect ownership interest in the Hemlock Semiconductor
Group (HSG) and formed a new entity which had been capitalized by
Dow Corning with $4.8 billion. Following the realignment, Corning no
longer owned any interest in Dow Corning. In connection with the
realignment, Corning agreed to indemnify Dow Corning 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, including two legacy Dow Corning matters: the Dow
Corning Breast Implant Litigation, and the Dow Corning Bankruptcy
Pendency Interest Claims.
Dow Corning Breast Implant Litigation
In May 1995, Dow Corning filed for bankruptcy protection to address
pending and claimed liabilities arising from many thousands of breast
implant product lawsuits. On June 1, 2004, Dow Corning emerged from
13. Hedging Activities
Corning is exposed to interest rate and foreign currency risks due to the
movement of these rates.
The areas in which exchange rate fluctuations affect us include:
• Financial instruments and transactions denominated in foreign
currencies, which impact earnings; and
• The translation of net assets in foreign subsidiaries for which the
functional currency is not the U.S. dollar, which impacts our net equity.
Chapter 11 with a Plan of Reorganization (the “Plan”) which provided
for the settlement or other resolution of implant claims. The Plan also
includes releases for Corning and Dow as shareholders in exchange for
contributions to the Plan.
Under the terms of the Plan, Dow Corning has established and funded
a Settlement Trust and a Litigation Facility, referred to above, to provide
a means for tort claimants to settle or litigate their claims. Inclusive
of insurance, Dow Corning has paid approximately $1.8 billion to the
Settlement Trust. As of May 31, 2016, Dow Corning had recorded a
reserve for breast implant litigation of $290 million. In the event Dow
Corning’s total liability for these claims exceeds such amount, Corning
may be required to indemnify Dow Corning for up to 50% of the excess
liability. At December 31, 2018, Dow Corning had recorded a reserve for
breast implant litigation of $263 million.
Dow Corning Bankruptcy Pendency Interest Claims
As a separate matter arising from the bankruptcy proceedings, Dow
Corning is defending claims asserted by a number of commercial
creditors who claim additional compounded interest at default and
state statutory judgment rates as well as attorneys’ fees and other
enforcement costs, during the period from May 1995 through June 2004.
As of May 31, 2016, Dow Corning had recorded a reserve for these claims
of $107 million. In the event Dow Corning’s liability for these claims
exceeds such amount, Corning may be required to indemnify Dow
Corning for up to 50% of the excess liability, subject to certain conditions
and limits. At December 31, 2018, Dow Corning estimated the liability to
commercial creditors to be $82 million.
Environmental Litigation
Corning has been named by the Environmental Protection Agency (the
Agency) under the Superfund Act, or by state governments under similar
state laws, as a potentially responsible party for 15 active hazardous waste
sites. Under the Superfund Act, all parties who may have contributed
any waste to a hazardous waste site, identified by the Agency, are jointly
and severally liable for the cost of cleanup unless the Agency agrees
otherwise. It is Corning’s policy to accrue for its estimated liability related
to Superfund sites and other environmental liabilities related to property
owned by Corning based on expert analysis and continual monitoring
by both internal and external consultants. At December 31, 2018 and
December 31, 2017, Corning had accrued approximately $30 million
(undiscounted) and $38 million (undiscounted), respectively, for the
estimated 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 and that the risk of an additional loss in an amount materially
higher than that accrued is remote.
Our most significant foreign currency exposures relate to the Japanese
yen, South Korean won, New Taiwan dollar, Chinese yuan, the euro
and British pound. We seek to mitigate the impact of exchange rate
movements in our income statement by using over-the-counter (OTC)
derivative instruments including foreign exchange forward and option
contracts. In general, these hedge expirations coincide with the timing
of the underlying foreign currency commitments and transactions.
70 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
We are exposed to potential losses in the event of non-performance by
our counterparties to these derivative contracts. However, we minimize
this risk by maintaining our portfolio with a diverse group of highly-rated
major financial institutions. We do not expect to record any losses as a
result of such counterparty default. Neither we nor our counterparties
are required to post collateral for these financial instruments. The
Company qualified for and elected the end-user exception to the
mandatory swap clearing requirement of the Dodd-Frank Act.
Corning utilizes the long haul method for effectiveness analysis, both
retrospectively and prospectively. The analysis excludes the impact of
credit risk from the assessment of hedge effectiveness. The amount
recorded in current period earnings is in other expense, net, relative to
ineffectiveness, and is not material for the year ended December 31, 2018.
Net gains and losses from fair value hedges and the effects of the
corresponding hedged item are recorded on the same line item in the
Consolidated Statements of Income (Loss).
Cash Flow Hedges
Our cash flow hedging activities utilize OTC foreign exchange forward
contracts and options 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. Our cash flow
hedging activity also uses interest rate derivatives including Treasury rate
lock agreements to reduce the risk of increases in benchmark interest
rates on the probable issuance of debt. In the second quarter of 2018, the
Company entered into Treasury rate lock agreements to hedge against
the variability in cash flows due to changes in the benchmark interest
rate related to an anticipated debt issuance. The instruments were
designated as cash flow hedges, and were settled on October 31, 2018
concurrent with the debt issuance. The settlement amount of $16 million
received will be released from other comprehensive income into
earnings when the corresponding interest expense occurs each period.
Corning uses a regression analysis to monitor the effectiveness of
its cash flow hedges both prospectively and retrospectively. Through
December 31, 2018, the hedge
ineffectiveness related to these
instruments was not material. Corning defers net gains and losses
related to the effective portion of cash flow hedges into accumulated
other comprehensive loss on the consolidated balance sheet until
the hedged item impacts earnings. At December 31, 2018, the amount
expected to be reclassified into earnings within the next 12 months is a
pre-tax net gain of $2 million.
Fair Value Hedges
In October of 2012, we entered into two interest rate swaps that are
designated as fair value hedges and economically exchange a notional
amount of $550 million of previously issued fixed rate long-term debt to
floating rate debt. Under the terms of the swap agreements, we pay the
counterparty a floating rate that is indexed to the one-month LIBOR rate.
In the fourth quarter of 2018, Corning unwound the two interest rate
swaps and discontinued the fair value hedge relationship accordingly.
The net losses recorded in current period earnings were not material in
the Consolidated Statements of Income (Loss).
Undesignated Hedges
Corning also uses OTC foreign exchange forward and option contracts
that are not designated as hedging instruments for accounting purposes.
The undesignated hedges limit exposures 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. revenues and expenses
are denominated in Japanese yen, South Korean won, New Taiwan
dollar, Chinese yuan and euro. When these revenues and expenses
are translated back 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 other derivative instruments.
The Company continued its foreign exchange hedge program in 2018
and entered into a series of average rate forwards, and purchased put
or call options. These will hedge a significant portion of its projected yen
exposure for the period of 2019-2022. As of December 31, 2018, the U.S.
dollar gross notional value of the yen average rate forwards program is
$9.1 billion and $2.6 billion for zero-cost collars and purchased put or
call options. The average rate forward program was also expanded to
partially hedge the impact of the South Korean won, Chinese yuan, euro
and British pound translation on the Company’s projected net income. As
of December 31, 2018, these average rate forwards have a total notional
value of $2.0 billion. The entire average rate forward program will settle
net without obligation to deliver Japanese yen, Korean won, Chinese
yuan, euro and British pound. With respect to the zero-cost collars, the
gross notional amount includes the value of both 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.
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 in the Translated earnings contract loss, net line of
the Consolidated Statement of Income (Loss).
CORNING INCORPORATED - 2018 Annual Report
71
Notes to Consolidated Financial Statements
The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for
December 31, 2018 and December 31, 2017 (in millions):
Notional amount
2018
2017
Balance sheet
location
Fair value
2018
2017
Balance sheet
location
Fair value
2018
2017
Asset derivatives
Liability derivatives
$
391
$
294
Other current
assets
$
Other assets
$
4
2
20
1
Other accrued
liabilities
$
(2)
550
Other liabilities
$
(8)
900
599
13,620
14,275
Other current
assets
Other current
assets
Other assets
5
94
43
Other accrued
liabilities
2
Other accrued
liabilities
176
66 Other liabilities
(7)
(7)
(47)
(386)
(34)
(325)
(374)
Total derivatives
$
14,911
$
15,718
$
148
$
265
$
(442)
$
(1) Cash flow hedges with a typical duration of 24 months or less.
The following tables summarize the effect on the consolidated financial statements relating to Corning’s derivative financial instruments (in millions):
Effect of derivative instruments on the consolidated financial statements for the years ended December 31
Derivatives in hedging relationships
2018
2017
2016
(Loss)/gain recognized in other
comprehensive income (OCI)
Location of gain/
(loss) reclassified from
accumulated OCI into
income effective/
ineffective
Gain/(loss) reclassified from
accumulated OCI into income
ineffective/effective(1)
2018
2017
2016
$
$
16
(5)
11
$
$
38
38
$
$
(33)
(33)
Net sales
Cost of sales
Other (expense)
income, net
$
$
13
(1)
12
1
(12)
(2)
(13)
$
$
4
(36)
(2)
(34)
$
$
Derivatives designated as
hedging instruments
Foreign exchange
contracts(1)
Interest rate contracts
Derivatives not designated
as hedging instruments
Foreign exchange
contracts, other
Translated earnings
contracts
Cash flow hedges
Interest rate hedge
Foreign exchange contracts
Total cash flow hedges
Undesignated derivatives
Gain (loss) recognized in income
2018
2017
2016
$
$
27
(5)
(93)
(71)
$
$
(11)
(5)
(121)
(137)
$
$
4
(31)
(448)
(475)
Location of gain/(loss)
recognized in income
Foreign exchange contracts – balance sheet
Translated earnings contract gain (loss), net
Foreign exchange contracts – loans
Translated earnings contract (loss) gain, net
Translated earnings contracts
Translated earnings contract (loss) gain, net
Total undesignated
(1) There were no material amounts of ineffectiveness for 2018, 2017 and 2016.
72 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
14. Fair Value Measurements
Fair value standards under U.S. GAAP define fair value, establish a
framework for measuring fair value in applying generally accepted
accounting principles, and require disclosures about fair value
measurements. The standards also identify two kinds of inputs
that are used to determine the fair value of assets and liabilities:
observable and unobservable. Observable inputs are based on market
data or independent sources while unobservable inputs are based
on the Company’s own market assumptions. Once inputs have been
characterized, the inputs are prioritized into one of three broad
levels (provided in the table below) used to measure fair value. Fair
value standards apply whenever an entity is measuring fair value
under other accounting pronouncements that require or permit fair
value measurement and require the use of observable market data
when available.
The following tables provide fair value measurement information for the Company’s major categories of financial assets and liabilities measured on
a recurring basis:
(in millions)
Current assets:
Other current assets(1)
Non-current assets:
Investments(2)
Other assets(1)
Current liabilities:
Other accrued liabilities(1)
Non-current liabilities:
Other liabilities(1)(3)
December 31, 2018
Quoted prices in
active markets for
identical assets (Level 1)
Significant other observable
inputs (Level 2)
Significant unobservable
inputs (Level 3)
Fair value measurements at reporting date using
$
$
$
$
$
103
16
45
56
406
$
$
$
$
103
45
56
386
$
16
$
20
(1) Derivative assets and liabilities include foreign exchange contracts which are measured using observable inputs for similar assets and liabilities.
(2) One of the Company’s equity securities was measured using unobservable (Level 3) inputs, in the amount of $16 million.
(3) Other liabilities include contingent consideration that was measured using unobservable (Level 3) inputs, in the amount of $20 million.
(in millions)
Current assets:
Short-term investments
Other current assets(1)
Non-current assets:
Other assets(1)(2)
Current liabilities:
Other accrued liabilities(1)
Non-current liabilities:
Other liabilities(1)(2)
December 31, 2017
Quoted prices in
active markets for
identical assets (Level 1)
Significant other observable
inputs (Level 2)
Significant unobservable
inputs (Level 3)
Fair value measurements at reporting date using
$
$
$
$
497
68
44
353
$
$
$
$
197
68
42
333
$
$
$
300
2
20
(1) Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets
and liabilities.
(2) At December 31, 2017, other current assets, other accrued liabilities and other liabilities include contingent consideration that was measured using
unobservable (level 3) inputs, in the amounts of $300 million, $2 million and $20 million, respectively.
CORNING INCORPORATED - 2018 Annual Report
73
Notes to Consolidated Financial Statements
As a result of the acquisition of Samsung Corning Precision Materials
in January 2014, the Company had contingent consideration that was
measured using unobservable (Level 3) inputs in an option pricing
model. The fair value of the contingent consideration was calculated to
be $300 million as of December 31, 2017. This amount was settled in cash
and received in June 2018.
15. Shareholders’ Equity
There were no significant financial assets and liabilities measured on a
nonrecurring basis during the years ended December 31, 2018 and 2017.
Common Stock Dividends
On February 1, 2017, Corning’s Board of Directors declared a 14.8%
increase in the Company’s quarterly common stock dividend, which
increased the quarterly dividend from $0.135 to $0.155 per share of
common stock, beginning with the dividend paid in the first quarter
of 2017.
On February 6, 2018, Corning’s Board of Directors declared a 16.1%
increase in the Company’s quarterly common stock dividend, which
increased the quarterly dividend from $0.155 to $0.18 per share of
common stock, beginning with the dividend paid in the first quarter
of 2018.
On February 6, 2019, Corning’s Board of Directors declared an 11.1%
increase in the Company’s quarterly common stock dividend, which
increased the quarterly dividend from $0.18 to $0.20 per share of
common stock, beginning with the dividend paid in the first quarter
of 2019. This increase marks the eighth dividend increase since
October 2011.
Fixed Rate Cumulative Convertible Preferred
Stock, Series A
On January 15, 2014, Corning designated a new series of its preferred
stock as Fixed Rate Cumulative Convertible Preferred Stock, Series A,
par value $100 per share, and issued 1,900 shares of preferred stock
at an issue price of $1 million per share, for an aggregate issue price
of $1.9 billion, to Samsung Display with the acquisition of its equity
interest in Samsung Corning Precision Materials. Corning also issued to
Samsung Display an additional amount of preferred stock at closing, for
an aggregate issue price of $400 million in cash.
Dividends on the preferred stock are cumulative and accrue at the
annual rate of 4.25% on the per share issue price of $1 million. The
dividends are payable quarterly as and when declared by the Company’s
Board of Directors. The preferred stock ranks senior to our common stock
with respect to payment of dividends and rights upon liquidation. The
preferred stock is not redeemable except in the case of a certain deemed
liquidation event, the occurrence of which is under the control of the
Company. The preferred stock is convertible at the option of the holder
and the Company upon certain events, at a conversion rate of 50,000
shares of Corning’s common stock per one share of preferred stock,
subject to certain anti-dilution provisions. As of December 31, 2018, the
preferred stock has not been converted, and none of the anti-dilution
provisions have been triggered. Following the seventh anniversary of the
closing of the acquisition of Samsung Corning Precision Materials, the
preferred stock will be convertible, in whole or in part, at the option of
the holder. The Company has the right, at its option, to cause some or
all the shares of preferred stock to be converted into common stock, if,
for 25 trading days (whether or not consecutive) within any period of
40 consecutive trading days, the closing price of common stock exceeds
$35 per share. If the right becomes exercisable before the seventh
anniversary of the closing, the Company must first obtain the written
approval of the holders of a majority of the preferred stock before
exercising its conversion right. The preferred stock does not have any
voting rights except as may be required by law.
Share Repurchases
2016 Share Repurchases
In July 2016, Corning entered into an accelerated share repurchase
agreement (the “2016 ASR agreement”) under the 2015 Repurchase
Program to repurchase Corning’s common stock. Under the 2016 ASR
agreement, Corning made a $2.0 billion payment in July and received an
initial delivery of approximately 74.4 million shares of Corning common
stock on the same day. The transaction was structured with two tranches
resulting in a total of 12.3 million shares being delivered to Corning in
the fourth quarter of 2016, for a total of 86.7 million shares repurchased
under the 2016 ASR agreement.
In addition to the 2016 ASR agreement, during the year ended
December 31, 2016, the Company repurchased 110 million shares of
common stock on the open market for approximately $2.2 billion as
part of its 2015 Repurchase Programs, resulting in a total of 197.1 million
shares repurchased for $4.2 billion during 2016.
74 CORNING INCORPORATED - 2018 Annual Report
2017 Share Repurchases
2018 Share Repurchases
Notes to Consolidated Financial Statements
In December 2016, Corning’s Board of Directors approved a $4 billion
share repurchase program with no expiration (the “2016 Repurchase
Program”). In the second quarter of 2017, Corning entered into and
finalized an accelerated share repurchase agreement under which we
paid $500 million for a total of 17.1 million shares. In the third quarter of
2017, Corning entered into and finalized an additional accelerated share
repurchase agreement under which we paid $500 million for a total of
17.2 million shares. Collectively, these two agreements represent the “2017
ASR agreements”.
In addition to the 2017 ASR agreements, during the year ended
December 31, 2017, the Company repurchased 50.1 million shares of
common stock on the open market for approximately $1.4 billion,
resulting in a total of 84.4 million shares repurchased for approximately
$2.4 billion during 2017.
On April 26, 2018, Corning’s Board of Directors approved a $2 billion
share repurchase program with no expiration (the “2018 Repurchase
Program”). During the year ended December 31, 2018, the Company
repurchased 74.8 million shares of common stock on the open market
for approximately $2.2 billion, respectively, as part of its 2016 and 2018
Repurchase Programs.
The following table presents changes in capital stock for the period from January 1, 2016 to December 31, 2018 (in millions):
Balance at December 31, 2015
Shares issued to benefit plans and for option exercises
Shares purchased for treasury
Other, net
Balance at December 31, 2016
Shares issued to benefit plans and for option exercises
Shares purchased for treasury
Other, net
Balance at December 31, 2017
Shares issued to benefit plans and for option exercises
Shares purchased for treasury
Other, net
Balance at December 31, 2018
Common stock
Treasury stock
Shares
Par value
Shares
Cost
1,681
10
1,691
17
1,708
5
$
840
(551)
$
(9,725)
6
(214)
(2)
(4,409)
(16)
$
846
(765)
$
(14,152)
8
$
854
3
(84)
(1)
(850)
(75)
(2)
(2,462)
(17)
$
(16,633)
(2,230)
(7)
1,713
$
857
(925)
$
(18,870)
CORNING INCORPORATED - 2018 Annual Report
75
Notes to Consolidated Financial Statements
Accumulated Other Comprehensive Loss
A summary of changes in the components of accumulated other comprehensive loss, including our proportionate share of equity method investee’s
accumulated other comprehensive loss, is as follows (in millions)(1):
Foreign currency
translation
adjustments
and other
Unamortized
actuarial gains
(losses) and
prior service
(costs) credits
Net unrealized
gains (losses) on
investments
Net unrealized
gains (losses) on
designated hedges
Accumulated other
comprehensive loss
Balance at December 31, 2015
Other comprehensive income
before reclassifications(4)
Amounts reclassified from accumulated
other comprehensive income (loss)(2)
Equity method affiliates(3)(7)
Net current-period other comprehensive
(loss) income
Balance at December 31, 2016
Other comprehensive income
before reclassifications(5)
Amounts reclassified from accumulated
other comprehensive income (loss)(2)
Equity method affiliates(3)
Net current-period other
comprehensive income
Balance at December 31, 2017
Other comprehensive income
before reclassifications(6)
Amounts reclassified from accumulated
other comprehensive income (loss)(2)
Equity method affiliates(3)
Net current-period other comprehensive
(loss) income
Balance at December 31, 2018
$
$
$
$
$
$
$
(1,171)
(89)
(15)
(104)
(1,275)
711
35
746
(529)
(180)
(5)
(185)
(714)
$
$
$
$
$
$
$
$
$
$
$
$
(588)
(63)
40
264
241
(347)
13
17
30
(317)
(84)
103
19
$
(298)
$
(14)
(2)
(1)
(3)
(17)
14
14
(3)
(1)
(1)
(4)
$
$
$
$
$
$
$
(38)
(21)
22
1
(37)
33
11
44
7
9
(10)
(1)
6
$
$
$
$
$
$
$
(1,811)
(175)
62
248
135
(1,676)
757
42
35
834
(842)
(256)
93
(5)
(168)
(1,010)
(1) All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.
(2) Tax effects of reclassifications are disclosed separately in this Note 15.
(3) Tax effects related to equity method affiliates are not significant in the reported periods except for the tax expense of $20 million related to the
pension component in 2016.
(4) Amounts are net of total tax benefit of $52 million, including $36 million related to the retirement plans component, $12 million related to the
hedges component, $3 million related to the foreign currency translation adjustments and $1 million related to the investments component.
(5) Amounts are net of total tax expense of $97 million, including $88 million related to the foreign currency translation adjustments, $5 million related
to the hedges component and $4 million related to the retirement plans component.
(6) Amounts are net of total tax benefit of $64 million, including $34 million related to the foreign currency translation adjustments, $33 million related
to the retirement plans component and $(3) million related to the hedges component.
(7) Most of the changes in equity method affiliate accumulated other comprehensive income components in 2016 relate to disposal transactions with
amounts reclassified to the income statement.
76 CORNING INCORPORATED - 2018 Annual Report
(In millions)
Reclassifications Out of Accumulated Other Comprehensive Income (AOCI) by Component(1)
Notes to Consolidated Financial Statements
Details about AOCI Components
Amortization of net actuarial loss
Amortization of prior service cost
Realized losses on investments
Realized gains (losses) on designated hedges
Total reclassifications for the period
(1) Amounts in parentheses indicate debits to the statement of income.
Amount reclassified from AOCI
Years ended December 31,
2017
2016
2018
$
$
$
$
$
(138)
(6)
(144)
41
(103)
13
(1)
12
(2)
10
(93)
$
$
$
$
$
$
$
(20)
(2)
(22)
5
(17)
(3)
(11)
(14)
1
(12)
(2)
(13)
2
(11)
(42)
$
$
$
$
$
Affected line item
in the consolidated
statements of income (loss)
(2)
(2)
(62)
(1)
(63) Total before tax
23 Tax benefit
(40) Net of tax
Other expense, net
Tax expense
Net of tax
4 Sales
(36) Cost of sales
(2) Other expense, net
(34) Total before tax
12 Tax (expense) benefit
(22) Net of tax
(62) Net of tax
(2) These accumulated other comprehensive income components are included in net periodic pension cost. See Note 11 (Employee Retirement Plans) to
the Consolidated Financial Statements for additional details.
16. Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed by dividing income attributable to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings (loss) per common share assumes the issuance of common shares for all potentially
dilutive securities outstanding.
The reconciliation of the amounts used to compute basic and diluted earnings (loss) per common share from operations follows (in millions, except
per share amounts):
Years ended December 31,
2018
2017
2016
$
1,066
$
(497)
$
98
968
98
98
(595)
(595)
895
Net income (loss) attributable to Corning Incorporated
Less: Series A convertible preferred stock dividend
Net income (loss) available to common stockholders - basic
Plus: Series A convertible preferred stock dividend
Net income (loss) available to common stockholders - diluted
$
1,066
$
Weighted-average common shares outstanding - basic
Effect of dilutive securities:
Stock options and other dilutive securities
Series A convertible preferred stock(1)
Weighted-average common shares outstanding - diluted
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Anti-dilutive potential shares excluded from diluted earnings (loss) per common share:
Series A convertible preferred stock dividend(1)
Employee stock options and awards
Accelerated share repurchase forward contract
Total
$
$
816
10
115
941
1.19
1.13
2
2
895
(0.66)
(0.66)
$
$
115
13
128
$
$
$
3,695
98
3,597
98
3,695
1,020
9
115
1,144
3.53
3.23
15
15
(1) For the year ended December 31, 2017, the Series A preferred stock was anti-dilutive and therefore excluded from the calculation of diluted earnings
(loss) per share.
CORNING INCORPORATED - 2018 Annual Report
77
Notes to Consolidated Financial Statements
17. Reportable Segments
Our reportable segments are as follows:
• Display Technologies – manufactures glass substrates for flat panel
liquid crystal displays and other high performance display panels.
• Optical Communications – manufactures carrier network and
enterprise network components for the telecommunications industry.
• Specialty Materials – manufactures products that provide more than
150 material formulations for glass, glass ceramics and fluoride crystals
to meet demand for unique customer needs.
• Environmental Technologies – manufactures ceramic substrates and
filters for automotive and diesel applications.
• Life Sciences – manufactures glass and plastic
labware,
equipment, media and reagents to provide workflow solutions for
scientific applications.
All other segments that do not meet the quantitative threshold for
separate reporting have been grouped as “All Other.” This group is
primarily comprised of the results of the pharmaceutical technologies,
auto glass and new product lines and development projects, as well
as certain corporate investments such as Eurokera and Keraglass
equity affiliates.
Effective beginning in the first quarter of 2018, the Company has
changed its measurement of segment sales and segment net income,
and has recast prior periods presented based on the new methodology.
Included in this new measurement is a change in our segment tax rate
to 21% to better reflect the new corporate tax rate under the 2017 Tax
Act. Additionally, the impact of changes in the Japanese yen, Korean
won, Chinese yuan and New Taiwan dollar will be excluded from
segment sales and segment net income for the Display Technologies
and Specialty Materials segments, and certain income and expenses
that were previously allocated to our segments are now included in
the unallocated amounts in the reconciliation of reportable segment
net income to consolidated net income. These include items that
are not used by our chief operating decision maker (“CODM”) in
evaluating the results of or in allocating resources to our segments
and include the following items: the impact of our translated earnings
contracts; acquisition-related costs; discrete tax items and other tax-
related adjustments; litigation, regulatory and other legal matters;
restructuring, impairment and other charges; adjustments relating to
acquisitions; and other non-recurring non-operational items. Although
we exclude these amounts from segment results, they are included in
reported consolidated results.
We prepared the financial results for our reportable segments on a basis
that is consistent with the manner in which we internally disaggregate
financial information to assist in making internal operating decisions. We
included the earnings of equity affiliates that are closely associated with
our reportable segments in the respective segment’s net income. We
have allocated certain common expenses among reportable segments
differently than we would for stand-alone financial information.
Segment net income may not be consistent with measures used by
other companies. The accounting policies of our reportable segments
are the same as those applied in the Consolidated Financial Statements.
78 CORNING INCORPORATED - 2018 Annual Report
Notes to Consolidated Financial Statements
The following provides historical segment information as described above:
SEGMENT INFORMATION
(in millions)
For the year ended
December 31, 2018
Segment net sales
Depreciation(1)
Research, development and engineering expenses(2)
Income tax (provision) benefit
Net income (loss)(3)
Investment in affiliated companies, at equity
Segment assets(4)
Capital expenditures
For the year ended
December 31, 2017
Segment net sales
Depreciation(1)
Research, development and engineering expenses(2)
Income tax (provision) benefit
Net income (loss)(3)
Investment in affiliated companies, at equity
Segment assets(4)
Capital expenditures
For the year ended
December 31, 2016
Segment net sales
Depreciation(1)
Research, development and engineering expenses(2)
Income tax (provision) benefit
Net income (loss)(3)
Investment in affiliated companies, at equity
Segment assets(4)
Capital expenditures
Display
Technologies
Optical
Communications
Specialty
Materials
Environmental
Technologies
Life
Sciences
All
Other
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,276
585
106
(221)
835
131
8,794
755
3,137
534
88
(234)
888
134
8,662
795
3,288
598
45
(253)
953
41
8,032
464
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,192
218
212
(163)
592
3
3,042
417
3,545
193
174
(129)
469
2
2,599
505
3,005
175
147
(96)
351
(1)
2,010
245
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,479
136
163
(83)
313
6
2,176
242
1,403
129
152
(79)
301
3
2,155
223
1,124
109
126
(61)
228
1,604
120
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,289
$ 946 $
216 $ 11,398
119
118
(55)
208
1,633
273
$
$
$
$
$
$
$
50 $
38 $
1,146
20 $
231 $
850
(31) $
76 $
(477)
117 $
(281) $
1,784
1 $
171 $
312
585 $ 1,018 $ 17,248
55 $
329 $
2,071
1,106
$ 879 $
188 $ 10,258
124
113
(44)
165
$
$
$
$
52 $
22 $
45 $
1,077
211 $
760
(25) $
69 $
(442)
95 $
(259) $
1,659
$
140 $
279
1,402
$ 538 $
824 $ 16,180
157
$
42 $
156 $
1,878
1,032
$ 839 $
152 $ 9,440
129
102
(42)
159
32
$
$
$
$
58 $
50 $
1,119
24 $
191 $
635
(24) $
55 $
(421)
90 $ (220) $
1,561
$
252 $
324
1,267
$ 504 $
750 $ 14,167
97
$
39 $
56 $
1,021
(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) Many of Corning’s administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses
to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human
resources and legal are allocated to segments, primarily as a percentage of sales.
(4) Segment assets include inventory, accounts receivable, property, plant and equipment, net of accumulated depreciation, and associated equity
companies and cost investments.
A reconciliation of reportable segments and All Other net sales to consolidated net sales follows (in millions):
Net sales of reportable segments and All Other
Impact of foreign currency movements(1)
Net sales
Years ended December 31,
2018
2017
2016
$
11,398
$ 10,258
$ 9,440
(108)
(142)
(50)
$ 11,290
$ 10,116
$ 9,390
(1) This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.
CORNING INCORPORATED - 2018 Annual Report
79
Notes to Consolidated Financial Statements
A reconciliation of reportable segment net income (loss) to consolidated net income follows (in millions):
Years ended December 31,
Net income of reportable segments
Net loss of All Other
Unallocated amounts:
Impact of foreign currency movements not included in segment net income (loss)
Loss on foreign currency hedges
Translation loss on Japanese yen-denominated debt
Litigation, regulatory and other legal matters
Research, development, and engineering expense
Equity in earnings of affiliated companies(1)
Amortization of intangibles
Interest expense, net
Pension mark to market
Gain on realignment of equity investment
Income tax benefit (provision)
Other corporate items
Net income (loss)
(1) Primarily represents the equity earnings of HSG in 2018 and 2017, and Dow Corning in 2016.
A reconciliation of reportable segment assets to consolidated total assets follows (in millions):
2018
2017
$
2,065
$
(281)
(157)
(78)
(18)
(124)
(134)
390
(93)
(149)
(145)
42
(252)
$
1,066
$
1,918
(259)
(168)
(121)
(14)
12
(106)
352
(75)
(110)
(22)
(1,709)
(195)
(497)
2016
$
1,781
(220)
(85)
(448)
(153)
(107)
288
(64)
(127)
(67)
2,676
424
(203)
$
3,695
Total assets of reportable segments
Non-reportable segments
Unallocated amounts:
Current assets(1)
Investments(2)
Property, plant and equipment, net(3)
Other non-current assets(4)
Total assets
December 31,
2018
2017
2016
$
16,230
$
15,356
$
13,417
1,018
3,065
64
1,928
5,200
824
5,315
61
1,628
4,310
750
6,070
12
1,681
5,969
$
27,505
$
27,494
$
27,899
(1) Includes current corporate assets, primarily cash, short-term investments, current portion of long-term derivative assets and deferred taxes.
(2) Primarily represents corporate equity and cost basis investments. Asset balance does not include equity method affiliate liability balance of $105
and $241 for HSG in 2017 and 2016, respectively.
(3) Represents corporate property not specifically identifiable to an operating segment.
(4) Includes non-current corporate assets, pension assets, long-term derivative assets and deferred taxes.
80 CORNING INCORPORATED - 2018 Annual Report
Selected financial information concerning the Company’s product lines and reportable segments follow (in millions):
Notes to Consolidated Financial Statements
Revenues from External Customers
Display Technologies
Optical Communications
Carrier network
Enterprise network
Total Optical Communications
Specialty Materials
Corning Gorilla Glass
Advanced optics and other specialty glass
Total Specialty Materials
Environmental Technologies
Automotive and other
Diesel
Total Environmental Technologies
Life Sciences
Labware
Cell culture products
Total Life Science
All Other
Years Ended December 31,
2018
2017
2016
$
3,276
$
3,137
$
3,288
3,084
1,108
4,192
1,069
410
1,479
719
570
1,289
536
410
946
216
2,720
825
3,545
1,044
359
1,403
627
479
1,106
524
355
879
188
2,274
731
3,005
807
317
1,124
585
447
1,032
512
327
839
152
$
11,398
$
10,258
$
9,440
Information concerning principal geographic areas was as follows (in millions):
North America
United States
Canada
Mexico
Total North America
Asia Pacific
Japan
Taiwan
China
Korea
Other
Total Asia Pacific
Europe
Germany
Other
Total Europe
All Other
Total
2018
2017
2016
Net sales(2)
Long-lived
assets(1)
Net sales(2)
Long-lived
assets(1)
Net sales(2)
Long-lived
assets(1)
$
3,569
$
7,383
$
3,146
$
6,605
$
2,625
$
6,318
296
53
3,918
415
921
2,716
1,259
436
5,747
451
905
1,356
377
127
200
7,710
1,148
2,326
2,811
3,736
85
10,106
508
1,155
1,663
40
287
27
144
174
3,460
6,923
476
900
2,247
1,337
378
5,338
426
701
1,127
333
1,119
2,357
2,125
3,869
71
9,541
236
1,108
1,344
46
282
50
2,957
455
857
2,092
1,464
363
5,231
363
617
980
272
142
134
6,594
1,008
2,347
1,524
3,413
167
8,459
154
1,125
1,279
44
$
11,398
$
19,519
$
10,258
$
17,854
$
9,440
$
16,376
(1) Long-lived assets primarily include investments, plant and equipment, goodwill and other intangible assets.
(2) Net sales are attributed to countries based on location of customer.
CORNING INCORPORATED - 2018 Annual Report
81
Valuation and Qualifying Accounts
(in millions)
Year ended December 31, 2018
Doubtful accounts and allowances
Deferred tax valuation allowance
Balance at
beginning of period
$
$
60
456
Additions
$
$
4
17
Net deductions
and other
Balance at end
of period
$
156
$
$
64
317
Year ended December 31, 2017
Doubtful accounts and allowances
Deferred tax valuation allowance
Reserves for accrued costs of business restructuring
Year ended December 31, 2016
Doubtful accounts and allowances
Deferred tax valuation allowance
Reserves for accrued costs of business restructuring
Balance at
beginning of period
$
$
$
59
270
5
Balance at
beginning of period
$
$
$
48
238
3
Additions
$
$
1
241
Net deductions
and other
Balance at end
of period
$
$
60
456
$
$
55
5
Additions
$
$
$
11
55
15
Net deductions
and other
Balance at end
of period
$
$
23
13
$
$
$
59
270
5
82 CORNING INCORPORATED - 2018 Annual Report
Quarterly Operating Results
(unaudited) (In millions, except per share amounts)
2018
First quarter
Second quarter
Third quarter
Fourth quarter
Total year
Net sales
Gross margin
Equity in earnings of affiliated companies
Provision for income taxes
Net (loss) income attributable to Corning
Incorporated
Basic (loss) earnings per common share
Diluted (loss) earnings per common share
$
$
$
$
$
$
$
2,500
955
39
(124)
(589)
(0.72)
(0.72)
$
$
$
$
$
$
$
2,747
1,072
31
(126)
738
0.87
0.78
$
$
$
$
$
$
$
3,008
1,232
32
(133)
625
0.75
0.67
$
$
$
$
$
$
$
3,035
1,202
288
(54)
292
0.27
0.26
$
$
$
$
$
$
$
11,290
4,461
390
(437)
1,066
1.19
1.13
2017
First quarter
Second quarter
Third quarter
Fourth quarter
Total year
Net sales
Gross margin
Equity in earnings of affiliated companies
Benefit (provision) for income taxes(1)
Net income (loss) attributable to Corning
Incorporated
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
$
$
$
$
$
$
$
2,375
951
80
66
86
0.07
0.07
$
$
$
$
$
$
$
2,497
987
37
(153)
439
0.46
0.42
$
$
$
$
$
$
$
2,607
1,050
31
(89)
390
0.41
0.39
$
$
$
$
$
$
$
2,637
1,032
213
(1,978)
(1,412)
(1.66)
(1.66)
$
$
$
$
$
$
$
10,116
4,020
361
(2,154)
(497)
(0.66)
(0.66)
(1) In December 2017, the U.S. enacted the 2017 Tax Act which resulted in significant changes to our provision for income taxes during the fourth
quarter of 2017. Refer to Note 4 (Income Taxes) to the Consolidated Financial Statements for additional information.
CORNING INCORPORATED - 2018 Annual Report
83
Annual Meeting
The annual meeting of shareholders will be held on Thursday,
May 2, 2019, in Corning, New York. A formal notice of the meet-
ing and a proxy statement will be mailed to shareholders on or
about March 22, 2019. The proxy statement can also be accessed
electronically through the Investor Relations page of the Corning
website at corning.com and at corning. com/2019-proxy. A summary
report of the proceedings at the annual meeting will be available
without charge upon written request to Linda E. Jolly, Corporate
Secretary, Corning Incorporated, One Riverfront Plaza, Corning,
NY 14831.
Additional Information
A copy of Corning’s 2018 Annual Report on Form 10-K filed with
the Securities and Exchange Commission (SEC) is available
without charge to shareholders upon written request to
Corporate Secretary, Corning Incorporated, One Riverfront Plaza,
Corning, NY 14831. The annual report, proxy statement, Form 10-K,
and other information can also be accessed electronically
through the Investor Relations page of the Corning website
at corning.com.
Investor Information
Investment analysts and investors who need additional
information may contact Ann Nicholson, Division Vice President,
Investor Relations, Corning Incorporated, One Riverfront Plaza,
Corning, NY 14831. Telephone: 607.974.9000.
Common Stock
Corning Incorporated common stock is listed on the New York
Stock Exchange (NYSE). In addition, it is traded on the Boston,
Midwest, Pacific, and Philadelphia stock exchanges. Common
stock options are traded on the Chicago Board Options Exchange.
The ticker symbol for Corning Incorporated is “GLW.”
Transfer Agent & Registrar
Computershare Trust Company
P.O. Box 505000
Louisville, KY 40233-5000
Telephone: 800.255.0461
Website: www.computershare.com/contactus
Independent Auditors
PricewaterhouseCoopers LLP
300 Madison Ave., New York, NY 10017
Executive Certifications
Corning submitted its 2018 Annual CEO Certification to the NYSE
in compliance with NYSE corporate governance listing standards,
and filed with the SEC its Sarbanes Oxley Act 301 Certifications as
exhibits to its most recent Form 10-K.
Corning is an equal opportunity employer.
Printed in the U.S.A.
“Safe Harbor” Statement
Under the Private Securities Litigation Reform Act of 1995
Under the Private Securities Litigation Reform Act of 1995, the
statements in this Annual Report that are not historical facts
or information are forward-looking statements. These forward-
looking statements involve risks and uncertainties that may
cause the outcome to be materially different. Such risks and
uncertainties include, but are not limited to:
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
the effects of acquisitions, dispositions and other similar
transactions;
global business, financial, economic, and political conditions;
tariffs and import duties;
currency fluctuations between the U.S. dollar and other
currencies, primarily the Japanese yen, New Taiwan dollar,
euro, Chinese yuan, and South Korean won;
product demand and industry capacity;
competitive products and pricing;
availability and costs of critical components and materials;
new product development and commercialization;
order activity and demand from major customers;
the amount and timing of our cash flows and earnings
and other conditions, which may affect our ability to pay
our quarterly dividend at the planned level or to repurchase
shares at planned levels;
possible disruption in commercial activities due to terrorist
activity, cyber-attack, armed conflict, political or financial
instability, natural disasters, or major health concerns;
loss of intellectual property due to theft, cyber-attack,
or disruption to our information technology infrastructure;
unanticipated disruption to equipment, facilities, IT
systems, or operations;
effect of regulatory and legal developments;
ability to pace capital spending to anticipated levels
of customer demand;
rate of technology change;
ability to enforce patents and protect intellectual property
and trade secrets;
adverse litigation;
product and components performance issues;
retention of key personnel;
customer ability, most notably in the Display
Technologies segment, to maintain profitable operations and
obtain financing to fund their ongoing operations
and manufacturing expansions and pay their receivables
when due;
loss of significant customers;
changes in tax laws and regulations including
the Tax Cuts and Jobs Act of 2017;
the impact of audits by taxing authorities;
the potential impact of legislation, government regulations,
and other government action and investigations; and
other risks detailed in Corning’s SEC filings.
Neither this report nor any statement contained herein is fur-
nished in connection with any offering of securities or for
the purpose of promoting or influencing the sale of securities.
Trademarks
A number of Corning trademarks appear throughout this annual
report. For a complete listing of Corning’s registered trademarks,
visit corning.com/worldwide/en/legal-notices.html.
“We are not only building a bigger company,
we are also building a stronger, more resilient one.”
— Wendell P. Weeks
Board of Directors
Management Committee
Donald W. Blair
Retired Executive Vice President
& Chief Financial Officer
NIKE, Inc.
(1) (4)
Leslie A. Brun
Chairman
& Chief Executive Officer
Sarr Group LLC
(1) (2)
Stephanie A. Burns
Retired Chairman
& Chief Executive Officer
Dow Corning Corporation
(1) (3)
John A. Canning Jr.
Co-Founder & Chairman
Madison Dearborn Partners, LLC
(4) (5) (6)
Richard T. Clark
Retired Chairman, President
& Chief Executive Officer
Merck & Co., Inc.
(2) (5) (6)
Robert F. Cummings Jr.
Retired Vice Chairman
of Investment Banking
JPMorgan Chase & Co.
(4) (5) (6)
Deborah A. Henretta
Retired Group President
E-Business
Procter & Gamble
(1) (3)
Daniel P. Huttenlocher
Dean & Vice Provost
Cornell University
New York City Tech Campus
(1) (4)
Kurt M. Landgraf
President
Washington College
(1) (2) (6)
Kevin J. Martin
Vice President
Facebook, Inc.
(3) (5)
Deborah D. Rieman
Retired Executive Chairman
MetaMarkets Group
(1) (2)
Hansel E. Tookes II
Retired Chairman
& Chief Executive Officer
Raytheon Aircraft Company
(2) (5) (6)
Wendell P. Weeks
Chairman of the Board,
Chief Executive Officer
& President
Corning Incorporated
(6)
Mark S. Wrighton
Chancellor
& Professor of Chemistry
Washington University
in St. Louis
(1) (4)
James P. Clappin
Executive Vice President,
Corning Glass Technologies
Martin J. Curran
Executive Vice President
& Innovation Officer
Jeffrey W. Evenson
Executive Vice President
& Chief Strategy Officer
Clark S. Kinlin
Executive Vice President,
Corning Optical Communications
Lawrence D. McRae
Vice Chairman & Corporate
Development Officer
David L. Morse
Executive Vice President
& Chief Technology Officer
Eric S. Musser
Executive Vice President,
Corning Technologies
& International
Christine M. Pambianchi
Executive Vice President,
People & Digital
Lewis A. Steverson
Executive Vice President
& General Counsel
R. Tony Tripeny
Executive Vice President
& Chief Financial Officer
Wendell P. Weeks
Chairman of the Board, Chief
Executive Officer & President
Other Officers
Jaymin Amin
Vice President, Technology
& Product Development,
Specialty Materials
Thomas Appelt
President & General Manager,
Corning International
Madapusi K. Badrinarayan
Vice President
& Technology Executive,
Science & Technology
John P. Bayne Jr.
Senior Vice President
& General Manager,
Corning® Gorilla® Glass
Specialty Materials
Thomas R. Beall
Vice President & Chief
Intellectual Property Counsel
Stefan Becker
Senior Vice President
& Operations Controller
Michael A. Bell
Senior Vice President
& General Manager,
Optical Connectivity Solutions,
Corning Optical Communications
Gary S. Calabrese
Senior Vice President
& Director,
Global Research
Thomas G. Capek
Senior Vice President
& Chief Engineer,
Manufacturing Technology
& Engineering
Cheryl C. Capps
Senior Vice President,
Global Supply Chain
Mark S. Clark
Vice President
& Chief Information Officer
Laura J. Coleman
Vice President,
Litigation
Kevin G. Corliss
Vice President,
Corporate Compliance &
Employment Law
Charles R. Craig
Senior Vice President,
Science & Technology,
Administration & Operations
Bernhard Deutsch
Vice President
& General Manager,
Optical Fiber & Cable
Michael W. Donnelly
Vice President,
Business Services
John D. Duke
Vice President
& General Manager,
Corning Glass Microsystems
Richard M. Eglen
Vice President
& General Manager,
Life Sciences
Li Fang
President & General Manager,
Corning Greater China
Robert P. France
Vice President,
Human Resources
Vaughn M. Hall Jr.
International Vice President
of Operations,
Corning Glass Technologies
Kimberly S. Hartwell
Senior Vice President
& Chief Commercial Officer,
Corning Optical Communications
Stuart Hoiness
Senior Vice President,
Data Center & OEM,
Corning Optical Communications
Timothy L. Hunt
Senior Vice President & Director,
Corporate Product
& Process Development
Linda E. Jolly
Vice President
& Corporate Secretary
William L. Juan
Vice President,
Commercial & International Law
Wilfred M. Kenan Jr.
Vice President
& Manufacturing Manager,
Environmental Technologies
Michael P. Kunigonis Jr.
Vice President
& General Manager,
Automotive Glass Solutions
Judith A. Lemke
Vice President,
Tax
Thomas H. Lynch
Vice President
& Commercial Director,
Environmental Technologies
John P. MacMahon
Senior Vice President,
Global Compensation & Benefits
Stephen P. Miller
Vice President, Strategy,
Corning Optical Communications
& Corporate Development
Avery H. Nelson III
Senior Vice President
& General Manager,
Environmental Technologies
Kevin B. Parker
Vice President
& General Manager,
OCS Integration,
Corning Optical Communications
Stephen C. Propper
Vice President
& Treasurer
Timothy J. Regan
Senior Vice President,
Global Government Affairs
Edward A. Schlesinger
Senior Vice President
& Corporate Controller
Andrew E. Tometich
Senior Vice President
& General Manager,
Specialty Materials
Ronald L. Verkleeren
Vice President
& General Manager,
Corning Pharmaceutical
Technologies
Lydia Kenton Walsh
Vice President,
Commercial Operations,
Life Sciences
John Z. Zhang
Senior Vice President
& General Manager,
Corning Display Technologies
Board Committees
(1) Audit; (2) Compensation; (3) Corporate Relations; (4) Finance; (5) Nominating & Corporate Governance; (6) Executive
349271_2018AnnualReport022519G2G_CVR.indd 4-6
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Annual Report
Corning Incorporated
One Riverfront Plaza
Corning, NY 14831-0001
U.S.A.
www.corning.com
02AR40018EN
© 2019 Corning Incorporated. All Rights Reserved.
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