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Proxy Statement
Annual Report
2019
&
Financial Highlights:
In millions, except per share amounts
As reported — GAAP
Core performance*
2019
2018
2017
2019
2018
2017
Net sales
$11,503
$11,290
$10,116
$11,656
$11,398
$10,258
Net income (loss) attributable
to Corning Incorporated
$960
$1,066
$(497)
$1,578
$1,673
$1,634
Diluted earnings (loss) per common share
attributable to Corning Incorporated
$1.07
$1.13
$(0.66)
$1.76
$1.78
$1.60
* 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 22 through 25 of our Annual Report, as well as on the Company’s website. Core
performance measures are adjusted to exclude the impact of changes in foreign exchange rates, as well as other items that do not reflect
ongoing operations of the Company. 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 contract used to
mitigate the impact of changes in currency exchange rates on our earnings and cash flows.
To Our
Shareholders:
In 2019, Corning fulfilled its commitment to you, our shareholders, as we
marked the successful completion of our Strategy and Capital Allocation
Framework. Over the last four years, we delivered strong shareholder
returns while building you a stronger, more resilient company. The path
wasn’t always smooth. But this is Corning – we do what we say we’re
going to do. Challenges arise, and when they do, we’re honest about the
problems, straightforward in our analyses, and resolute in our actions to
stay on track.
As a company that has operated during three centuries, Corning is no
stranger to holding the course through tough times, and we enter our new
Strategy & Growth Framework with the same resolve. We’re realistic about
our current environment. We have a tremendous set of opportunities
before us. We have a powerful strategy. And the structural steel is in place
to ensure the company is stronger than any challenges we face. Each
business and function within our organization has a clear understanding
of what we are working toward to reach our sales and profitability growth
goals over the next four years.
We are a company that has been innovating to solve tough technology
challenges and improve the lives of people all around the world for 169
years. We are confident that our capabilities and industry relationships will
create additional value for you as we move forward.
2019
January
Introduced the
industry’s first
AutoGrade™ Corning
Gorilla Glass solutions
February
Announced a
quarterly dividend of
$0.20 per share, an
11% increase
March
Recognized as a top global
supplier by Daimler AG for
strategic partnership on
emissions control innovation
April
Launched Amplify screen
protectors through a
collaboration with OtterBox
Received our sixth
consecutive ENERGY STAR®
Partner of the Year award
2019 Financial Performance
Before I delve into our strategy, I’d
like to share Corning’s financial
results from last year. Our core sales
were $11.7 billion, up 2% from 2018,
driven by growth in Environmental
Technologies, Specialty Materials,
and Life Sciences. Core earnings per
share were $1.76. During 2019, we
set new four-year targets for growth
and capital allocation, we increased
our dividend, and we demonstrated
our ability to generate significant
operating cash flow even with
market performance below our
expectations. Strong capital
stewardship is a cornerstone of our
management approach.
Once again, we outperformed our
underlying markets in each business
segment. We grew Environmental
Technologies sales 16% against a
backdrop of declining car sales. We
grew Specialty Materials sales 8%
while smartphone units were down.
In Life Sciences, we exceeded industry
growth rates on the strength of new
bioprocess and advanced cell culture
products. In Display Technologies, our
glass volume grew at a mid-single
digit rate even though TV unit
sales were down. And, in Optical
Communications, we outperformed
the passive optical market,
which declined.
We entered 2019 with strong
momentum following two years
of solid growth, and that growth
continued in the first half of the
year. In the second half, we felt the
impact of challenging global
market conditions, particularly
in Display Technologies and
Optical Communications.
In Display Technologies, we
experienced a temporary supply chain
adjustment. Set makers purchased
panels more conservatively, which
drove panel maker utilization
reductions in the second half. As panel
makers purchased less glass, our
volume declined accordingly.
In Optical Communications, after
sales increased 13% year over year in
the first half, they declined 16% in the
back half. Changes in spending by
two large customers accounted
for a significant portion of the
year-over-year decline.
We acted quickly to mitigate lower-
than-expected second-half demand in
both Display Technologies and
Optical Communications. While
everyone in the company relentlessly
executed by making careful program
choices, controlling spending, and
increasing operational efficiencies,
our profitability declined along
with factory utilization due to
decreased volume.
We expect to return to sales and profit
growth in the second half barring
any external disruptions that could
severely affect our ability to conduct
normal business operations. In Display,
we see indicators that the supply
chain correction has ended, and we
expect to resume volume growth in
2020, with the majority reflected in
the second half. We also plan to start
production at our next Gen 10.5 plants,
which will support faster-than-market
growth as they ramp. In Optical, we
expect year-over-year growth in the
second half, driven by projects for 5G,
fiber-to-the-home, and hyperscale
data center deployments. As volumes
in both businesses increase, so will
our factory utilization, improving the
profitability of the corporation.
Framework Execution and Results
The successful completion of our
four-year Strategy and Capital
Allocation Framework represented
a major milestone for the company.
May
Opened a gasoline particulate
filter manufacturing facility
in Hefei, China
Introduced Corning® Astra™
Glass at SID’s Display Week
June
Established the 2020-
2023 Strategy & Growth
Framework
July
Opened a manufacturing
facility in Hefei, China, for
the industry’s first large-part
AutoGrade™ Glass solutions
August
Astra Glass chosen for
Chengdu CEC Panda
Display’s Oxide-LCD line
We met or exceeded the strategic goals
we set in 2015 while returning more than
$12.5 billion to shareholders during the
four-year period, including increasing
dividends per share by 67%.
We also made significant progress in
each of our Market-Access Platforms,
with continued strong progress in the
final year of the plan despite second-half
headwinds. In 2019, we made commercial
and regulatory progress on Corning
Valor® Glass, a breakthrough glass for
the life sciences industry. We opened a
dedicated factory for our burgeoning
automotive glass business and grew
our order book significantly. We also
advanced several compelling
innovations in Corning® Gorilla® Glass
and Optical Communications.
Overall, we advanced our strategic
position in each of our markets and
continued technology investments
focused on high-impact inventions:
•
In Automotive, accelerating gasoline
particulate filter (GPF) adoption
drove more than $250 million in
2019 sales. We delivered the
industry’s first AutoGrade™ Gorilla
Glass for 2D and 3D interiors along
with our proprietary Corning®
ColdForm™ Technology. We also
commercialized these inventions
•
•
across the auto ecosystem with
industry leaders, including Visteon
Corporation, LG Electronics, BOE,
and GAC.
In Optical Communications, we
continued to transform the way the
world connects by enabling 5G and
hyperscale data center solutions
with industry leaders – exemplified
by collaborations with Intel, Verizon,
CenturyLink, and Altice Portugal.
We also earned global recognition
for products such as RocketRibbon™
extreme density cable, which
enables up to 30% faster installation
in hyperscale data centers.
In Mobile Consumer Electronics,
we increased Corning content
on – and in – mobile devices with
Amplify screen protectors, decorative
backs, and durable solutions for
wearables. Gorilla Glass has now
been used on more than 7 billion
devices worldwide thanks to the
expanded adoption of Gorilla Glass 6
and advanced glass innovations
for smartphones, wearables, and
other devices. We extended our
industry leadership with next-
generation cover glass solutions and
deepened customer commitments,
including an additional $250 million
investment from Apple’s Advanced
September
Announced Apple’s
additional $250
million investment
from its Advanced
Manufacturing Fund
October
Received FDA approval
of Corning Valor® Glass
for use as a primary
package for a marketed
drug product
Established a
co-innovation
partnership with Verizon
to create the 5G factory
of the future
Announced a 5G
in-building network
collaboration with Intel
November
Celebrated 25 billion
square feet sold of
Corning® EAGLE XG®
Glass substrates
December
Exceeded $1 billion in
2019 sales in our Life
Sciences segment
•
•
Manufacturing Fund to support Corning’s processes,
equipment, and materials integral to the delivery of
next-generation consumer devices.
In Life Sciences Vessels, we signed commercial
agreements with three major pharmaceutical
companies, building on the announcement that a
leading pharmaceutical manufacturer received FDA
approval of Valor Glass for use as a primary package for
a marketed drug product. We also exceeded $1 billion
in sales in our Life Sciences segment as adoption of our
industry-leading bioprocess and advanced cell culture
products continued, driving our organic growth.
In Display, we created richer entertainment
experiences through display glass innovation,
including the launch of Corning® Astra™ Glass,
which was selected by Chengdu CEC Panda Display
Technology Co. for use in the growing oxide display
market. We continued our leadership in Gen 10.5,
increasing output at our first Gen 10.5 plant to support
the market shift to large-size TVs.
Our businesses in each of these markets have the
potential to contribute to double-digit earnings growth
in the coming years, which means we have many horses
pulling the wagon.
Looking Ahead: Strategy & Growth Framework
As I noted earlier, Corning has successfully managed across
multiple business cycles during our 169-year history, and
this cycle will be no different. We expect 2020 to be, in
many ways, the mirror image of 2019 – with challenging
market and customer dynamics in the first half and an
expected return to growth in the second half as both
Display Technologies and Optical Communications
improve and strong growth continues in Environmental
Technologies, Specialty Materials, and Life Sciences. As this
happens, we expect the company to return to growing sales
and profitability.
Looking to the longer term, we expect to drive significant
organic growth and create additional value for shareholders
under our new Strategy & Growth Framework. Specifically,
from 2020 to 2023, we expect to deliver 6% to 8%
compound annual sales growth and 12% to 15% compound
annual earnings growth. We also expect to expand
operating margin and return on invested capital. We’ll
continue to use our cash to grow, extend our leadership,
and reward shareholders. We plan to invest between $10
billion and $12 billion with a focus on organic growth. And
we intend to return $8 billion to $10 billion to shareholders
through a combination of dividend increases and
opportunistic share repurchases.
Under our new Framework, from 2020 to 2023, we seek to
increase annual sales by $3 billion to $4 billion and improve
profitability, driven primarily by our strategy to create –
and sell into – new product categories that enhance our
customers’ offerings. That provides a path to growth –
even in challenging markets. We’re not just counting on
everybody buying more stuff; we’re putting more Corning
into the products people already buy.
Our technology and commercial progress reinforce our
position for growth and market momentum. We are excited
by the breadth and depth of the opportunities we have
created in each of our markets. Here is a closer look at the
Market-Access Platform opportunities that support our
four-year 6% to 8% sales growth CAGR target:
•
•
In Automotive, we remain on track to double sales
by the end of 2023. In emissions control, regulations
continue to increase our opportunity per car, and our
GPF technology positions us as the industry leader.
In auto glass, designers increasingly rely on interior
glass as a point of differentiation. Our proprietary
technology uniquely meets their needs. We also see
upside in glass components for head-up displays and
autonomous vehicles. Successfully ramping our new
Hefei factories is key to our success.
In Optical Communications, our technologies will
play a key role in both 5G and hyperscale data center
deployments. Our new suite of products for 5G and
preconnectorized solutions for data centers will play
a vital role in the acceleration of these key industry
trends. We are also making adjustments to how we
run the business, with operational improvements
in product development and delivery, inventory
management, and overall accountability. We will
continue to align production output and working
capital to current customer demand. That type of focus
and improvement takes hard work, but I’m encouraged
by the team’s dedication and progress.
•
In Mobile Consumer Electronics, our sales continue on
a path to doubling, driven by Gorilla Glass performance
innovations that push the state-of-the-art forward.
Acceptance of our DX and DX+ durable covers for
smartwatches is outstanding, and innovations for
foldables are making progress. We believe that 5G
could stimulate smartphone unit growth and also
increase the number of phones with our glass on the
front and the back.
In Life Sciences Vessels, our leadership continues to
drive growth at more than twice the industry rate. We
are leaders in products for cell-based medicine, which
is one of the most promising and fastest growing life
sciences segments. Additionally, Valor Glass provides a
new standard for drug packaging.
In Display, we expect to see further stabilization
as panel maker utilization increases, TV screen size
continues to increase, and our new Gen 10.5 plants
come online.
•
•
For investors, it’s important to note that the majority of
capital necessary to deliver on our Strategy & Growth
Framework goals has already been deployed. And our
technology and commercial progress position us to capture
the significant opportunities we see.
Closing Thoughts
Our sustained investments in technology and people,
and our ability to create some of the most consequential
material innovations in history, are what make Corning
a leader in the markets we serve. It’s why our cover glass
has been featured on more than 7 billion mobile devices
worldwide since the launch of Gorilla Glass. It’s why we’ve
steadily increased our competitive advantage in display
glass over the last 35 years. It’s how we’re extending 50
years of automotive leadership to keep winning in the
newest category of emissions control. It’s also why top
pharmaceutical and biotech companies are turning
to Corning for their production and protection needs.
And it’s why we’re able to utilize 50 years of Optical
Communications expertise to transform the way the world
connects. Today, few competitors can match our expertise
in any of our core capabilities, and when we combine
capabilities, we become truly formidable.
We have not only maintained our competitive advantage
over decades—we’ve increased it. And we will continue
to do so during the next four years. We have never
been satisfied with what is currently possible. We have
never been attracted to what is easiest. We have never
substituted short-term returns for long-term value, which
gives us the focus and intensity to persevere through
challenging times.
We are all deeply committed to the success of this
institution and to working every day to maintain the trust
of shareholders. We are grateful for your partnership on
our journey to bring life-changing innovations and products
to the world.
Sincerely,
Wendell P. Weeks
Chairman, Chief Executive Officer, and President
Strategy
Growth
F R A M E W O R K
Leadership Priorities 2020 through 2023
Focus Portfolio and Utilize
Financial Strength:
Grow
• Sales CAGR of 6%-8%
• EPS CAGR of 12%-15%
Invest $10B-$12B
•
Increase Returns
•
• Deliver $8B-$10B to shareholders,
Increase operating margin and ROIC
including ≥10% annual dividend increases
&
Sustainability: Innovating for Good
with our Actions and Products
Innovating for Good means we are committed to making the world a better place with our actions and our products.
By doing this, we are helping to create a sustainable future for the company and our people, the communities in which
we operate, and the planet we all share.
Protecting the Environment
We’re committed to using less energy, water, and natural resources at every step of our
operations. Last year, five more projects went online for a total of 15 solar-energy initiatives
at Corning facilities around the globe. These efforts earned us our sixth consecutive
ENERGY STAR® Partner of the Year award from the U.S. Environmental Protection Agency.
Improving Communities & Economies
Last year, we gave approximately $50 million to support nonprofits and help boost the
economies in which we operate. We supported educational programs, such as Corning
Glass Class in Mainland China and the Future Innovators Program in Taiwan, that help
prepare students for promising futures. Our employees continued to donate their time
and efforts to help improve the quality of life in our communities around the world.
Valuing Diversity & Inclusion
In 2019, we achieved 100% pay equity for men and women in Mainland China and Taiwan
and made significant progress in other locations outside the U.S., where we achieved pay
equity in 2017. Last year, Corning was named to the “Best-of-the-Best” Corporations for
Inclusion list by the National LGBT Chamber of Commerce, earned a score of 100 on the
Disability Equality Index for the second year in a row, and was recognized as a “Best Place
to Work” by the American Association of People with Disabilities and Disability:IN.
Transforming Lives with our Products
For more than four decades, our clean-air products have been removing harsh gases
and particulate matter from the exhaust of cars and trucks. Gorilla Glass for Automotive
improves safety and fuel efficiency. Corning® EAGLE XG® Slim Glass for displays is produced
with no added heavy metals. Our lab products support important medical research and
our pharmaceutical packaging enhances the storage and delivery of medicines essential to
public health. Optical fiber and cable connects communities because being connected is no
longer a privilege, but a necessity.
2019Annual Report Corning Incorporated 2019 Annual Report
Index
Business Description ..................................................................................................................................................
Risk Factors ..................................................................................................................................................................
Legal Proceedings .......................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ......................................................................................................................
Selected Financial Data (Unaudited) ......................................................................................................................
Quarterly Operating Results .....................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..........................
Quantitative and Qualitative Disclosures About Market Risks ..........................................................................
Management’s Annual Report on Internal Control over Financial Reporting ..................................................
Report of Independent Registered Public Accounting Firm ................................................................................
Consolidated Statements of Income (Loss) ............................................................................................................
Consolidated Statements of Comprehensive Income ..........................................................................................
Consolidated Balance Sheets ...................................................................................................................................
Consolidated Statements of Cash Flows ................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity ...........................................................................
Notes to Consolidated Financial Statements ........................................................................................................
1. Summary of Significant Accounting Policies ...........................................................................................................................................
2. Revenue ..........................................................................................................................................................................................................
3.
Inventories, Net of Inventory Reserves ......................................................................................................................................................
4. Leases .............................................................................................................................................................................................................
5.
Income Taxes .................................................................................................................................................................................................
6.
Investments ...................................................................................................................................................................................................
7. Acquisitions ...................................................................................................................................................................................................
8. Property, Plant and Equipment, Net of Accumulated Depreciation .....................................................................................................
9. Goodwill and Other Intangible Assets ......................................................................................................................................................
10. Other Assets and Other Liabilities .............................................................................................................................................................
11. Debt ................................................................................................................................................................................................................
12. Employee Retirement Plans ........................................................................................................................................................................
13. Commitments, Contingencies and Guarantees .......................................................................................................................................
14. Hedging Activities ........................................................................................................................................................................................
15. Fair Value Measurements ............................................................................................................................................................................
16. Shareholders’ Equity ....................................................................................................................................................................................
17. Earnings (Loss) Per Common Share ............................................................................................................................................................
1
7
11
12
13
14
15
35
36
37
39
40
41
42
43
44
44
49
50
50
51
54
56
57
57
58
60
61
67
69
71
72
75
18. Reportable Segments ...................................................................................................................................................................................
Valuation and Qualifying Accounts.........................................................................................................................
76
80
CORNING 2019 ANNUAL REPORT
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, allowing 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 and glass
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 116 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 and 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 we have launched over the
past ten years utilizing our world-class processes and capabilities
include the following:
• 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;
• The world’s first Gen 10 and Gen 10.5 glass substrates in support of
improved efficiency in manufacturing large-sized televisions; and
• Astra Glass™, an optimized glass solution to meet the emerging needs
for future high-resolution displays. These substrate glasses enable
higher-resolution oxide displays for consumers.
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 28% of Corning’s
segment net sales in 2019.
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.
2
1
CORNING 2019 ANNUAL REPORT 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, 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 including 5G networks.
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 FlexNAPTM terminal distribution system, which provides
pre-connectorized distribution and drop cable assemblies for cost-
effectively deploying fiber-to-the-home (“FTTH”) and 5G networks; and
the CentrixTM 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 microwave applications for
GPS, radars, satellites, manned and unmanned military vehicles, wireless
applications and telecommunications systems.
Our enterprise network portfolio also includes optical fiber products,
including ClearCurve® ultra-bendable multimode fiber for private and
hyperscale 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, including hyperscale data centers. 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.
During 2018, Corning acquired substantially all of the 3M Company’s
(3M) Communication Markets Division (“CMD”) for $841 million. This
transaction served to 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, Poland 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 35% of Corning’s
segment net sales in 2019.
Specialty Materials Segment
that
The Specialty Materials segment manufactures products
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 including display optics and components,
semiconductor optics components, aerospace and defense, astronomy,
ophthalmic products, telecommunications components and cover glass
optimized for display devices.
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, smartwatches 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. Corning® Gorilla® Glass 6
survives higher drop heights and more repeated drops than Corning®
Gorilla® Glass 5.
Corning® Gorilla® Glass is manufactured in Kentucky, South Korea
and Taiwan.
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CORNING 2019 ANNUAL REPORT Semiconductor optics manufactured by Corning
include 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.
Other specialty glass products
lens and window
components and assemblies 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 14% of Corning’s segment
net sales in 2019.
Environmental Technologies Segment
Corning’s
segment manufactures
Environmental Technologies
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, most recently launching gasoline
particulate filters. 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.
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 12% of Corning’s
segment net sales in 2019.
Corporate Investments
Business Description
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 drive innovation,
increase efficiencies, reduce costs and compress timelines. Using
unique expertise in the fields of materials science, polymer surface
science, cell culture and cell biology, the segment provides innovative
solutions that improve productivity and enable breakthrough research
for traditional small molecule, or chemical, drugs and for emerging cell
and gene therapies.
Life Sciences products include consumables, such as plastic vessels,
specialty surfaces, cell culture media and serum, as well as general
labware and equipment. These products are used for drug discovery
research and development, compound screening and toxicology testing,
advanced cell culture research, genomics and mass production of cells
for clinical trials and bioproduction.
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,
contract manufacturing organizations, academic institutions, hospitals,
government entities, and other facilities. Corning manufactures these
products in California, Illinois, Maine, Massachusetts, New York, North
Carolina, Utah, Virginia, 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 9% of Corning’s segment net
sales in 2019.
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.
The All Other segment represented 2% of Corning’s segment net sales
in 2019.
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 18 (Reportable Segments)
to the consolidated financial statements.
Hemlock Semiconductor Group (“HSG”)
In 2016, Corning realigned its ownership interest in Dow Corning,
exchanging its 50% interest in the joint venture between Corning
and Dow Chemical for a newly formed company that holds a 49.9%
interest in Hemlock Semiconductor LLC and a 40.25% interest in
Hemlock Semiconductor Operations LLC which are recorded as equity
method investments of Corning and are affiliated companies of HSG.
HSG manufactures polysilicon products for the semiconductor and
solar industries. HSG’s solar business primarily serves the solar power
panel industry.
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CORNING 2019 ANNUAL REPORT Business Description
In prior years, HSG’s solar and semiconductor customers entered into
long-term “take or pay” contracts which included up-front cash payments
to secure capacity. During the last few years, and more significantly
in 2019, the solar power panel industry experienced significant over-
capacity in the market, resulting in declining sales volumes and market
prices. As a result, HSG’s solar business experienced lower market
penetration, overall price declines, and settled contracts with customers
that had committed volume and fixed pricing above the current market
price. While these settlements positively impacted HSG’s cash flow in
2019, they reduced expectations for future sales in HSG’s solar business.
Due to the adverse change in HSG’s solar business, HSG was required
to assess the recoverability of its long-lived assets in the fourth quarter.
Based on this assessment, HSG determined that the carrying values
of HSG’s solar asset group significantly exceeded its fair values. HSG
engaged a third-party appraiser to assist in determining the fair value
of the assets within in the solar asset group based on the highest and
best use of the asset group. As a result of the fair value determination,
HSG recognized a pre-tax asset impairment charge of $916 million
for the year ended December 31, 2019. Corning’s share of the pre-tax
impairment was $369 million.
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, reliability of supply,
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, continually improving its proprietary fusion manufacturing
process and providing a consistent and reliable supply of high quality
products. Our 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 landscape includes industry consolidation,
price 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. The primary competing producers of the
Optical Communications segment are CommScope and Prysmian Group.
Due to the adverse changes above, the carrying values of HSG’s solar
business inventories were also affected resulting in an inventory write-
down of $257 million for the year. Corning’s pre-tax share of the provision
was $105 million.
HSG adopted the new revenue standard on January 1, 2019 and the
timing of HSG’s revenue recognition for certain remaining performance
obligations measured at January 1, 2019 was deferred for recognition.
This deferral reduced the carrying amount of Corning’s investment in
HSG by $239 million. During the fourth quarter, a significant number
of the performance obligations were satisfied and $434 million was
recognized into HSG’s net income. Corning’s share of the equity earnings
was $208 million.
In addition, HSG settled certain revenue contracts in the fourth quarter,
resulting in settlement gains of $383 million in net income. Corning’s
share of the settlement gains was $185 million.
Additional information about corporate investments is presented in
Note 6 (Investments) to the consolidated financial statements.
Specialty Materials Segment
Corning has deep capabilities in materials science, optical design,
shaping, coating, finishing, metrology and system assembly. We continue
to address the 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,
Starstedt AG and Danaher Corporation. Corning also faces increasing
competition from large distributors that have pursued backward
integration or introduced private label products.
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CORNING 2019 ANNUAL REPORT 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, appear to be adequate. From time
to time, Corning’s suppliers 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 2019, Corning was granted about 550 patents in the U.S. and over 1,575
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 2019, Corning and its wholly-
owned subsidiaries owned over 12,500 unexpired patents in various
countries of which over 4,600 were U.S. patents. Between 2020 and
2022, approximately 9% of these patents will expire, while at the same
time Corning intends to seek patents protecting its newer innovations.
Worldwide, Corning has about 10,600 patent applications in process,
with about 2,300 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.
Business Description
in the
Certain key materials and proprietary equipment used
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 sole-
sourced suppliers. 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) multimode and
single mode optical fiber products including low-loss optical fiber,
large effective area optical fiber, and other high data rate optical
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, indoor and outdoor fiber-optic
cable products and methods for making and installing optical fiber
cable; (iii) optical fiber connectors and factory-terminated assemblies,
hardware, termination and storage and associated methods of
manufacture; and (iv) optical fiber and hybrid fiber-coax wireless
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
materials and coatings, 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, equipment and processes
for cell and gene therapy research and bioproduction.
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.
Approximate number of patents granted to our reportable segments are as follows:
Display Technologies
Optical Communications
Environmental Technologies
Specialty Materials
Life Sciences
Number of
patents
worldwide
U.S. patents
Important
patents expiring
between 2020
and 2022
1,650
4,750
1,150
1,800
640
290
2,180
380
660
190
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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, CellSTACK, ClearCurve, DuraTrap, Eagle XG, Edge8, Gorilla®, HPFS,
HYPERStack, Leaf, Pyrex, Steuben, Falcon, SMF-28e, UniCam, Valor, Willow
and RocketRibbon.
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CORNING 2019 ANNUAL REPORT Business Description
Protection of the Environment
Corning has an extensive program to ensure that its facilities comply
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 $13.8 million in 2019
and are estimated to be $16.6 million in 2020.
Employees
Corning’s 2019 consolidated operating results were charged with
approximately $74 million for depreciation, maintenance, waste disposal
and other operating expenses associated with pollution control.
At December 31, 2019, Corning had approximately 49,500 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
Clark S. Kinlin Executive Vice President, Corning Optical Communications
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 glass 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 62.
Martin J. Curran Executive Vice President and Innovation 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 61.
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 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 54.
Robert P. France Senior Vice President, Human Resources
Mr. France joined Corning in 2000 as a commercial Human Resources
manager for Optical Fiber. He moved to Display Technologies in 2004
as the division Human Resources manager. He was Human Resources
director for Corning Glass Technologies and Asia from 2004 to 2016. From
2016 to 2018, Mr. France was Human Resources senior vice president for
Corning Optical Communications, responsible for leading all aspects of
the Human Resources function across several businesses and had HR
Generalist responsibility for the Corning China organization. In 2018 he
was appointed as vice president, Human Resources and was appointed
senior vice president, Human Resources in 2019. Age 54.
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 60.
Lawrence D. McRae Vice Chairman and Corporate Development Officer
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 61.
David L. Morse Executive Vice President and Chief Technology Officer
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 67.
Anne Mullins Senior Vice President & Chief Digital & Information Officer
Ms. Mullins joined Corning as senior vice president and chief digital
& information officer in August 2019. In this role, she is responsible
for leading the strategic direction of Corning’s global information
technology function and evolving the company’s digital footprint.
Prior to joining Corning, Ms. Mullins served as chief information officer
for Lockheed Martin and previously served as Lockheed Martin’s chief
information security officer. Age 57.
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CORNING 2019 ANNUAL REPORT Risk Factors
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
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 60.
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 60.
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 60.
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 accounting, financial management and reporting.
Age 52.
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 56.
Document Availability
A copy of Corning’s 2019 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 & Growth 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.
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CORNING 2019 ANNUAL REPORT Risk Factors
Compliance with laws and regulations increases our costs. We are
subject to both U.S. laws and the local laws where we operate 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.
We are also subject to a variety of other risks in managing a global
organization, including those related to:
• The economic and political conditions in each country or region and
among countries;
• 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;
• Complex, changing or competing tax regimes;
• Difficulty in collecting obligations owed to us;
• 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 or market share 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 ongoing pricing pressure 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
Number of
combined
end customers
% of total
segment net sales
in 2019
4
2
3
3
2
72%
21%
59%
74%
41%
Business disruptions could affect our operating results
A major earthquake, weather event, fire or other catastrophic event that
results in the destruction or disruption of any of our critical facilities,
or our suppliers’ or customers’ facilities, could severely affect our ability
to conduct normal business operations and, as a result, our 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.
We have been closely monitoring the outbreak of the coronavirus that
originated in Wuhan, China. We have operations in Wuhan and other
areas of China. We have taken steps to protect our employees and
operations. The coronavirus may impact the global economy, our ability,
as well as the ability of our customers and suppliers, to manufacture
products and may reduce demand in our markets which could result
in an impact to our financial results. We are taking steps to mitigate
potential financial impacts, including supplying customers from other
regions when appropriate. Currently, it is not possible for us to determine
the financial impact of the coronavirus, if any.
8
9
CORNING 2019 ANNUAL REPORT 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.
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 and social 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.
Given the geographical concentration of certain of our plants, the
highly engineered nature of our facilities and the globally dispersed
talent required to run these facilities, any event that adversely affects or
restricts movement into or out of a specific geographic area where we,
our suppliers, or our customers have a presence, could adversely impact
our results.
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 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.
Risk Factors
Information technology dependency and cyber security vulnerabilities
could lead to reduced revenue, liability claims, or competitive harm
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. 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. Any significant disruption, breakdown, intrusion,
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. 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.).
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 U.S. 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 increases or decreases significantly 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 sell in various currencies.
These factors, which are variable and generally outside of our control,
could materially impact our results of operations, anticipated future
results, financial position and cash flows.
8
9
CORNING 2019 ANNUAL REPORT Risk Factors
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.
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.
There are many transactions and calculations where the ultimate tax
treatment 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. Significant guidance has been issued with the intention of
clarifying the new tax provisions. To date, some of the regulations had
been finalized and clarified but a considerable amount of this guidance
is still in the form of proposed regulations. Due to volume and complexity
of both of final and proposed regulations, we continue to evaluate any
development and impact of the 2017 Tax Act that could have a material
adverse impact on our tax expense and cash flow. In addition to the 2017
Tax Act, other foreign countries and international organizations such
as Organisation for Economic Co-operation and Development (“OECD”)
may have law changes and issue new international tax standards that
may also impact our taxes.
Our innovation model depends on our ability to attract and retain
specialized experts in our core technologies
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. Any such substantial legal
liability or regulatory action 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.
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.
10
11
CORNING 2019 ANNUAL REPORT Legal Proceedings
Moreover, several of our key customers are domiciled in areas of the
world with laws, rules and business practices that may notably 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 13 (Commitments, Contingencies and
Guarantees) 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, 2019 and 2018, Corning had
accrued approximately $41 million (undiscounted) and $30 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.
10
11
CORNING 2019 ANNUAL REPORT 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, 2019, there were approximately 12,400 registered holders of common stock and approximately 496,000 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
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
2014
2015
2016
2017
2018
2019
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 2019:
Issuer Purchases of Equity Securities
Period
October 1-31, 2019
November 1-30, 2019
December 1-31, 2019
Total
Number of shares
purchased(1)
Average price paid
per share
Number of shares purchased as
part of publicly announced
plans or programs
Approximate dollar value of shares that
may yet be purchased under the plans
or programs
4,920,237
1,349,462
1,427,861
7,697,560
$
$
$
$
29.07
29.68
28.34
29.04
4,881,900
1,347,400
1,410,800
7,640,100
$
5,423,181,765
(1) This column reflects the following transactions during the fourth quarter of 2019: (i) the deemed surrender to us of 11,430 shares of common
stock to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units; (ii) the deemed surrender to us
of 45,929 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 101 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 7,640,100 shares of common stock under the 2018 and 2019 Repurchase Programs.
12
13
CORNING 2019 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 earnings (loss) per common share
Diluted earnings (loss) per common share
Cash dividends declared per common share
Shares used in computing per share amounts:
Basic
Diluted
Financial position
Working capital
Total assets
Long-term debt(3)
Total Corning Incorporated shareholders’ equity
Selected data
Capital expenditures
Depreciation and amortization
Number of employees
2019
2018
2017
2016
2015
Years ended December 31,
$
$
$
$
$
$
$
$
$
$
$
$
$
11,503
1,031
17
960
1.11
1.07
0.80
776
899
3,942
28,898
7,729
12,907
1,978
1,503
49,500
$
$
$
$
$
$
$
$
$
$
$
$
$
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
(1) Year ended December 31, 2017 includes the impact of the 2017 Tax Act, including a provisional toll charge ($1.1 billion) and provisional remeasurement
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.
(3) Refer to Note 11 (Debt) to the consolidated financial statements for additional information.
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.
12
13
CORNING 2019 ANNUAL REPORT Quarterly Operating Results
(unaudited) (In millions, except per share amounts)
2019
First quarter
Second quarter
Third quarter
Fourth quarter
Total year
Net sales
Gross margin
Equity in (losses) earnings of affiliated companies
(Provision) benefit for income taxes
Net income attributable to Corning Incorporated
Basic earnings per common share
Diluted earnings per common share
$
$
$
$
$
$
$
2,812
1,099
25
(76)
499
0.61
0.55
$
$
$
$
$
$
$
2,940
1,065
33
(124)
92
0.09
0.09
$
$
$
$
$
$
$
2,934
1,017
23
(71)
337
0.40
0.38
$
$
$
$
$
$
$
2,817
854
(64)
15
32
0.01
0.01
$
$
$
$
$
$
$
11,503
4,035
17
(256)
960
1.11
1.07
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
0.34
0.32
$
$
$
$
$
$
$
11,290
4,461
390
(437)
1,066
1.19
1.13
14
15
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial
Condition and Results of Operations
For discussion of 2018 results year-over-year comparison with 2017 results refer to "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
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
Strategy and Capital Allocation Framework
and recently introduced Strategy &
Growth Framework
On June 14, 2019, Corning introduced its 2020-2023 Strategy & Growth
Framework. From 2020 to 2023, the company plans to invest $10 billion to
$12 billion for growth and to return $8 billion to $10 billion to shareholders.
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 outlined our leadership priorities
and articulated the opportunities we saw 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 targeted 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. As of June 30, 2019, Corning met its goal of returning more
than $12.5 billion to shareholders. As of December 31, 2019, Corning had
invested almost $11 billion for growth and extended leadership.
Corning’s Frameworks outline the company’s leadership priorities. With
the completed Strategy and Capital Allocation Framework and new
Strategy & Growth Framework, Corning plans to focus its portfolio
and utilize its financial strength. 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 along with capital spending on a cohesive set of three core
technologies, four manufacturing and engineering platforms, and five
market-access platforms. This strategy allows us to quickly apply our
talents and repurpose our assets across the company, as needed, to
capture high-return opportunities.
2019 Results
Net sales in the year ended December 31, 2019 were $11.5 billion, an increase
of $213 million, or 2%, when compared to the year ended December 31,
2018, driven by increased sales in the Specialty Materials, Environmental
Technologies and Life Sciences segments offset by decreased sales in the
Display Technologies and Optical Communications segments.
• Environment
• Critical Accounting Estimates
• New Accounting Standards
• Forward-Looking Statements
For the year ended December 31, 2019, we generated net income
of $960 million, or $1.07 per share, compared to a net income of
$1,066 million, or $1.13 per share, for 2018. When compared to 2018, the
$106 million decrease in net income was primarily due to the following
items (amounts presented after tax):
• Lower equity earnings in affiliated companies of $284 million when
compared to the prior period, primarily driven by asset impairments
and an inventory provision, partially offset by the deferred revenue
recognition associated with adoption of the new revenue standard, as
well as one-time settlement gains from revenue contracts;
• Higher costs of $238 million, primarily driven by accelerated
depreciation and asset write-offs for our Display Technologies and
Optical Communications segments; and
• Lower segment net income of $83 million primarily driven by lower sales
in our Display Technologies and Optical Communications segments.
Partially offsetting these events were the following items:
• Translated earnings contract gains in the current period were
$287 million higher than prior year losses;
• Costs related to litigation, regulatory and other legal matters were
$109 million lower, primarily driven by the absence of a $103 million
charge related to legal matters recorded in 2018, including a ruling in
an intellectual property lawsuit and developments in civil litigation;
• A positive impact of $44 million resulting from a lower mark-to-market
loss for our defined benefit pension plans; and
• The positive impact of $42 million in tax adjustments primarily relating
to the absence of a $172 million IRS audit settlement, or approximately
$40 million of taxes payable after the utilization of tax attributes,
recorded in the first quarter of 2018, netted against changes in tax
reserves, changes in foreign valuation allowances and changes in the
estimate of 2018 tax expense due to new tax reform guidance.
14
15
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
Diluted earnings per share decreased by $0.06 per share, or 5%, when
compared to 2018, driven by the decrease in net income described above,
partially offset by the repurchase of 31.0 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 the current year,
negatively impacted Corning’s net income by approximately $44 million
in the year ended December 31, 2019, when compared to the same period
in 2018.
2020 Corporate Outlook
We have been closely monitoring the outbreak of the coronavirus
that originated in Wuhan, China. We have operations in Wuhan and
other areas of China. We have taken steps to protect our employees
and operations. The coronavirus may impact the global economy,
our ability, as well as the ability of our customers and suppliers, to
manufacture products and may reduce demand in our markets which
could result in an impact to our financial results. We are taking steps
to mitigate potential financial impacts, including supplying customers
from other regions when appropriate. Currently, it is not possible for us
to determine the financial impact of the coronavirus, if any. Our 2020
corporate outlook, outlined above, does not include any potential impact
for the coronavirus.
We believe 2020 will be another year of growth in several segments
and continued investment in innovations, consistent with our Strategy
& Growth Framework. Corning expects its display glass volume to
grow by a mid-single digit percentage, similar to the mid-single
digit percentage growth expected in the display glass market. The
company expects glass price declines to remain moderate, down a mid-
single digit percentage for the full year. The company expects Optical
Communications full-year sales to decline by 5% to 10%. We expect mid-
single digit percentage sales growth in our Environmental Technologies
and Life Sciences segments. We expect high-single digit percentage
sales growth in the Specialty Materials segment.
Results of Operations
Selected highlights from our operations follow (in millions):
2019
2018
2017
19 vs. 18
18 vs. 17
% 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 gain (loss), net
(as a % of net sales)
Income before income taxes
(as a % of net sales)
Provision for income taxes
(as a % of net sales)
Net income (loss) attributable to Corning
Incorporated
(as a % of net sales)
* Percent change not meaningful.
$
$
$
$
$
$
$
$
$
11,503
4,035
35%
1,585
14%
1,031
9%
17
248
2%
1,216
11%
(256)
(2)%
960
8%
$
$
$
$
$
$
$
$
$
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)%
2
(10)
(12)
4
(96)
*
(19)
41
(10)
12
11
22
15
8
23
(9)
80
*
16
17
CORNING 2019 ANNUAL REPORT 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
Net sales of reportable segments and All Other
Constant-currency adjustment
Consolidated net sales
Years ended December 31,
2019
3,254
4,064
1,594
1,499
1,015
230
11,656
(153)
11,503
$
$
$
2018
$
3,276
4,192
1,479
1,289
946
216
2017
$
3,137
3,545
1,403
1,106
879
188
$
$
11,398
(108)
11,290
$
$
10,258
(142)
10,116
%
change
19 vs. 18
%
change
18 vs. 17
(1)%
(3)%
8%
16%
7%
6%
2%
(42)%
2%
4%
18%
5%
17%
8%
15%
11%
24%
12%
For the year ended December 31, 2019, segment net sales increased by
$258 million, or 2%, when compared to the same period in 2018. The
primary sales drivers by segment were as follows:
• Net sales in the Display Technologies segment decreased by $22 million,
with glass volume up a mid-single digit percentage and low-single
digit percentage display glass price declines; the combination of
finished goods volume, unfinished glass sold to our equity affiliates
and a low-single-digit percentage price decline resulted in a one
percent sales decline;
• Optical Communications net sales decreased $128 million, primarily
due to lower sales in carrier products, down $199 million, partially
offset by an increase of $71 million in enterprise network sales;
• Specialty Materials segment net sales increased by $115 million,
primarily driven by strong demand for Gorilla® Glass;
• Net sales for Environmental Technologies increased $210 million,
primarily driven by sales growth of gasoline particulate filters; and
• Life Sciences net sales increased by $69 million, as sales volume
continued to outpace market growth.
Movements in foreign exchange rates negatively impacted Corning’s
consolidated net sales by $45 million in the year ended December 31,
2019, when compared to the same period in 2018.
In 2019, sales in international markets accounted for 68% of total
net sales.
Gross Margin
In the year ended December 31, 2019, gross margin dollars decreased
by $426 million, or 10%, and gross margin as a percentage of net
sales declined by 5% when compared to the same period last year.
Negative impacts to gross margin were primarily driven by accelerated
depreciation, asset write-offs and lower sales in our Display Technologies
and Optical Communications segments during 2019. As volume declined
in the second half of 2019, factory utilization was less efficient and
negatively impacted gross margin.
Movements in foreign exchange rates had a $33 million positive impact
on Corning’s consolidated gross margin in the year ended December 31,
2019, when compared to the same period in 2018.
Selling, General and Administrative Expenses
When compared to the year ended December 31, 2018, selling, general
and administrative expenses decreased by $214 million, or 12%, in the
year ended December 31, 2019. Selling, general and administrative
expenses decreased by 2% as a percentage of sales. The decrease was
primarily driven by the following items:
• The absence of a $132 million charge related to legal matters in 2018,
including a ruling in an intellectual property lawsuit and developments
in civil litigation matters; and
• Reduced variable compensation expenses of $85 million.
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.
Research, Development and Engineering
Expenses
For the year ended December 31, 2019, research, development and
engineering expenses increased by $38 million, or 4%, when compared
to the same period in prior year, driven by higher costs associated with
new product launches and our emerging businesses. As a percentage
of sales, these expenses were consistent when compared to the same
period in the previous year.
16
17
CORNING 2019 ANNUAL REPORT 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 (losses) of affiliated companies (in millions):
Hemlock Semiconductor Group
All other
Total equity earnings
In 2016, Corning realigned its ownership interest in Dow Corning,
exchanging its 50% interest in the joint venture between Corning
and Dow Chemical for a newly formed company that holds a 49.9%
interest in Hemlock Semiconductor LLC and a 40.25% interest in
Hemlock Semiconductor Operations LLC which are recorded as equity
method investments of Corning and are affiliated companies of HSG.
HSG manufactures polysilicon products for the semiconductor and
solar industries. HSG’s solar business primarily serves the solar power
panel industry.
In prior years, HSG’s solar and semiconductor customers entered into
long-term “take or pay” contracts which included up-front cash payments
to secure capacity. During the last few years, and more significantly
in 2019, the solar power panel industry experienced significant over-
capacity in the market, resulting in declining sales volumes and market
prices. As a result, HSG’s solar business experienced lower market
penetration, overall price declines, and settled contracts with customers
that had committed volume and fixed pricing above the current market
price. While these settlements positively impacted HSG’s cash flow in
2019, they reduced expectations for future sales in HSG’s solar business.
Due to the adverse change in HSG’s solar business, HSG was required
to assess the recoverability of its long-lived assets in the fourth quarter.
Based on this assessment, HSG determined that the carrying values
of HSG’s solar asset group significantly exceeded its fair values. HSG
engaged a third-party appraiser to assist in determining the fair value
of the assets within in the solar asset group based on the highest and
best use of the asset group. As a result of the fair value determination,
HSG recognized a pre-tax asset impairment charge of $916 million
for the year ended December 31, 2019. Corning’s share of the pre-tax
impairment was $369 million.
Years ended December 31,
2019
2018
2017
$
$
27
(10)
17
$
$
388
2
390
$
$
352
9
361
Due to the adverse changes above, the carrying values of HSG’s solar
business inventories were also affected resulting in an inventory write-
down of $257 million for the year. Corning’s pre-tax share of the provision
was $105 million.
HSG adopted the new revenue standard on January 1, 2019 and the
timing of HSG’s revenue recognition for certain remaining performance
obligations measured at January 1, 2019 was deferred for recognition.
This deferral reduced the carrying amount of Corning’s investment in
HSG by $239 million. During the fourth quarter, a significant number
of the performance obligations were satisfied and $434 million was
recognized into HSG’s net income. Corning’s share of the equity earnings
was $208 million.
In addition, HSG settled certain revenue contracts in the fourth quarter,
resulting in settlement gains of $383 million in net income. Corning’s
share of the settlement gains was $185 million.
Additional information about corporate investments is presented in
Note 6 (Investments) to the consolidated financial statements.
Translated earnings contracts
Included in the line item translated earnings contract gain (loss), net,
is the impact of foreign currency hedges which hedge our translation
exposure arising from movements in the Japanese yen, South Korean
won, new Taiwan dollar, euro, Chinese yuan and British pound and its
impact on our net income (loss).
The following table provides detailed information on the impact of our translated earnings contracts gains and losses for the years ended December 31,
2019, 2018 and 2017:
(in millions)
Hedges related to translated earnings:
Realized gain, net
Unrealized gain (loss)
Total translated earnings contract gain (loss), net
Hedges related to translated earnings:
Realized gain, net
Unrealized loss
Total translated earnings contract loss, net
Income (loss)
before
tax
Net
income
(loss)
Loss before
tax
Net
loss
Income before
tax
Net
Income
2019
18
230
248
2018
97
(190)
(93)
$
$
$
$
$
$
$
$
14
179
193
78
(189)
(111)
2018
97
(190)
(93)
2017
270
(391)
(121)
$
$
$
$
$
$
$
$
78
(189)
(111)
169
(247)
(78)
2019 vs. 2018
(79)
420
341
$
(64)
368
$
304
2018 vs. 2017
(173)
201
28
$
$
(91)
58
(33)
$
$
$
$
18
19
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
The gross notional value outstanding on our translated earnings contracts and foreign currency cash flow hedges were as follows (in billions):
Japanese yen-denominated translated earnings contracts
South Korean won-denominated translated earnings contracts
Euro-denominated translated earnings contracts
Other translated earnings contracts
Total gross notional value outstanding for translated earnings contracts
Japanese yen-denominated foreign currency cash flow hedges
Other foreign currency cash flow hedges
Total gross notional value for foreign currency cash flow hedges
Years ended December 31,
2019
$ 10.2
2018
$
11.6
2017
$ 13.0
0.4
1.3
0.3
12.2
1.5
0.6
2.1
0.1
1.2
0.7
13.6
0.4
0.4
0.8
0.3
0.2
14.3
0.3
0.3
Total gross notional value outstanding
$ 14.3
$ 14.0
$ 14.6
Income Before Income Taxes
The translation impact of fluctuations in foreign currency exchange rates, including the impact of hedges realized in the current year, negatively
impacted Corning’s income before income taxes by $39 million in the year ended December 31, 2019, when compared to the same period in 2018.
Provision for Income Taxes
Our provision for income taxes and the related effective income tax rates were as follows (dollars in millions):
Provision for income taxes
Effective tax rate
Years ended December 31,
2019
2018
2017
$
(256)
$
(437)
$
(2,154)
21.1%
29.1%
130.0%
For the year ended December 31, 2019, the effective income tax rate
differed from the U.S. statutory rate of 21% primarily due to the following:
• An $82 million benefit from the release of a valuation allowance on
deferred tax assets that are now considered realizable.
• Additional net provision of $102 million from changes to our tax reserves;
• A net benefit of $45 million due to releases of foreign valuation
allowances on foreign deferred tax assets that are now considered
realizable; and
• Additional net benefit, including a change in estimate from prior year,
from the 2017 Tax Act attributable to foreign intangible income (FDII)
deduction of $103 million offset by taxes for global intangible low-taxed
income (GILTI) of $15 million.
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
Generally, 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, (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, and (6) future distribution would trigger a significant federal
income inclusion to the U.S. shareholder.
During 2019, the Company distributed approximately $424 million from
foreign subsidiaries to their respective U.S. parent companies. As of
December 31, 2019, Corning has approximately $2.5 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 5 (Income Taxes) to the consolidated financial statements
for further details regarding income tax matters.
18
19
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 (Note 17)
Net income (loss) attributable to Corning Incorporated used in
diluted earnings (loss) per common share calculation (Note 17)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Weighted-average common shares outstanding - basic
Weighted-average common shares outstanding - diluted
Comprehensive Income
(In millions)
Net income (loss) attributable to Corning Incorporated
Foreign currency translation adjustments and other
Net unrealized gains (losses) on investments
Unamortized (losses) gains and prior service (costs) credits for postretirement benefit plans
Net unrealized gains (losses) on designated hedges
Other comprehensive (loss) income, net of tax (Note 16)
Comprehensive income attributable to Corning Incorporated
Years ended December 31,
2019
$
$
$
$
$
960
862
960
1.11
1.07
776
899
$
$
$
$
$
2018
1,066
968
1,066
1.19
1.13
816
941
$
$
$
$
$
2017
(497)
(595)
(595)
(0.66)
(0.66)
895
895
Years ended December 31,
2019
2018
2017
$
$
960
(143)
1
(64)
45
(161)
799
$
1,066
$
(185)
(1)
19
(1)
(168)
898
$
$
(497)
746
14
30
44
834
337
2019 vs. 2018
These losses were partially offset by the following:
For the year ended December 31, 2019, comprehensive income decreased
by $99 million, when compared to the same period in 2018, primarily due
to the following:
• A decrease in the loss on foreign currency translation adjustments in
the amount of $42 million, most significantly impacted by the Chinese
yuan, South Korean won and Japanese yen; and
• A decrease in net income of $106 million; and
• An $83 million increase in unamortized actuarial losses for post-
retirement benefit plans, $53 million of which was related to the
adoption of the new standard for reclassification of stranded tax
effects in AOCI with the remainder of the impact driven by decreases
in the discount rates used to value our post-retirement obligations.
• The impact of a change to net unrealized gains on designated hedges
of $46 million.
Refer to Note 12 (Employee Retirement Plans) and Note 16 (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 report core performance
measures. These items include gains and losses on our translated
earnings contracts, acquisition-related costs, certain discrete tax items
and other tax-related adjustments, restructuring, impairment, and other
charges or credits, 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. Corning utilizes
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. Effective January 1, 2019, Corning
also began using constant-currency reporting for our Environmental
Technologies and Life Sciences segments for the euro, Japanese yen
and Chinese yuan. 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.
20
21
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 foreign currencies 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.
Effective July 1, 2019, we replaced the term “Core Earnings” with “Core Net
Income”. The terms are interchangeable and the underlying calculations
remain the same.
For a reconciliation of non-GAAP performance measures to their most
directly comparable GAAP financial measure, please see “Reconciliation
of Non-GAAP Measures”.
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 net income
Years ended December 31,
% change
2019
2018
2017
19 vs. 18
18 vs. 17
$
$
$
11,656
237
1,578
$
$
$
11,398
241
1,673
$
$
$
10,258
211
1,634
2%
(2)%
(6)%
11%
14%
2%
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*
Years ended December 31,
% change
2019
2018
2017
19 vs. 18
18 vs. 17
$
3,254
4,064
1,594
1,499
1,015
230
$
$
3,276
4,192
1,479
1,289
946
216
3,137
3,545
1,403
1,106
879
188
$
11,656
$
11,398
$
10,258
(1)%
(3)%
8%
16%
7%
6%
2%
4%
18%
5%
17%
8%
15%
11%
* Segment net sales and variances are discussed in detail in the Reportable Segments section of our MD&A.
Core Equity in Earnings of Affiliated Companies
The following provides a summary of core equity in earnings of affiliated companies (in millions):
Hemlock Semiconductor Group
All other
Total core equity earnings
Years ended December 31,
% change
2019
2018
2017
19 vs. 18
18 vs. 17
$
$
229
8
237
$
$
236
5
241
$
$
201
10
211
(3)%
60%
(2)%
17%
(50)%
14%
20
21
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
Core Net Income
2019 vs. 2018
In the year ended December 31, 2019, we generated core net income of
$1,578 million or $1.76 per share, compared to core net income generated
in the year ended December 31, 2018 of $1,673 million, or $1.78 per
share. The decrease in core net income of $95 million was driven by the
following items:
• A decrease in the Optical Communications segment of $103 million
primarily driven by decreases in volume;
• A decrease in the Display Technologies segment of $49 million
primarily driven by decreases in volume and glass shipments during
the second half of 2019, resulting in lower factory utilization and
negatively impacting profitability; and
• A decrease of $11 million in the Specialty Materials segment, largely
driven by the absence of customer support for new product
development costs for the launch of new product innovations in 2019.
Partially offsetting these decreases
the following:
in core net
income were
• An increase in the Environmental Technologies segment of $55 million
resulting from earnings growth driven by increased sales of gas
particulate filters; and
• An increase of $33 million in the Life Sciences segment resulting from
higher volumes outpacing the underlying market.
Core earnings per share decreased in the year ended December 31, 2019
to $1.76 per share, driven by the decrease in core net income and partially
offset by the repurchase of 31.0 million shares of common stock over the
last twelve months.
Included in core net income for the years ended December 31, 2019, 2018
and 2017, is net periodic pension expense in the amount of $84 million,
$52 million and $49 million, which excludes the annual pension mark-to-
market adjustments.
Refer to Note 12 (Employee Retirement Plans) to the consolidated
financial statements for additional information.
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 net income attributable to Corning Incorporated
Less: Series A convertible preferred stock dividend
Core net income available to common stockholders - basic
Add: Series A convertible preferred stock dividend
Core net income 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
2019
$
$
$
$
1,578
98
1,480
98
1,578
776
8
115
899
1.91
1.76
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
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 consolidated
statements of income (loss) 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 consolidated statements
of income (loss) or statement of cash flows.
Core net sales, core equity in earnings of affiliated companies and core net
income 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.
22
23
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of 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, 2019
21.1%
$
As reported
Constant-currency adjustment(1)
Translation loss on Japanese
yen-denominated debt(2)
Translated earnings contract gain, 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 losses of affiliated companies(8)
Pension mark-to-market adjustment(10)
$
11,503
$
153
17
1
6
213
$
1,216
$
115
3
(245)
130
(17)
439
213
95
960
115
2
(190)
99
37
(13)
334
165
69
Core performance measures
$
11,656
$
237
$
1,949
$
1,578
19.0%
$
1.07
0.13
0.00
(0.21)
0.11
0.04
(0.01)
0.37
0.18
0.08
1.76
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
22
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CORNING 2019 ANNUAL REPORT 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(11)
$
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
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.
Items which we exclude from GAAP measures to arrive at core performance measures are as follows:
0.15
(0.01)
0.09
0.07
0.14
(0.01)
0.07
(0.11)
0.01
0.02
1.96
1.60
(1) Constant-currency adjustment: Because a significant portion of segment revenues and expenses are denominated in currencies other than the
U.S. dollar, management believes it is important to understand the impact on core net income of translating these currencies into U.S. dollars.
Our Display Technologies segment sales and net income are primarily denominated in Japanese yen, but also impacted by the South Korean
won, Chinese yuan, and new Taiwan dollar. Beginning January 1, 2019, as our Environmental Technologies and Life Science segments sales and
net income are impacted by the euro, Chinese yuan and Japanese yen, these segments will also be presented on a constant-currency basis. We
have not recast the prior periods for these two segments as the impact of fluctuations in these currencies are not material for prior periods.
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. We establish constant-currency rates based on
internally derived management estimates which are closely aligned with the currencies we have hedged.
Constant-currency rates are as follows:
Currency
Rate
Japanese yen
¥107
Korean won
₩1,175
Chinese yuan
New Taiwan dollar
Euro
¥6.7
NT$31
€.81
(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 2019, these include discrete period tax items such as changes in tax law, the impact
of tax audits, changes in judgement about the realizability of certain deferred tax assets 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,
adjustments to our estimated liability for environmental-related items and other legal matters.
(7) Restructuring, impairment and other charges or credits: This amount includes restructuring, impairment and other charges or credits, as well as
other expenses, primarily accelerated depreciation and asset write-offs, which are not related to continuing operations and are not classified as
restructuring expense.
24
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CORNING 2019 ANNUAL REPORT
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(8) Equity in (earnings) losses 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 (“CPM”) 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) 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 resulting
from the 2017 Tax Act, and adjustments for the elimination of excess foreign tax credit planning.
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, serum and reagents enabling workflow solutions for drug
discovery and bioproduction.
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.
We prepared the financial results for our reportable segments on a basis
consistent with our internal disaggregation of financial information to
assist in making internal operating decisions. We use a segment tax rate
of 21% when presenting segment information. The impact of changes in
the Japanese yen, euro, South Korean won, Chinese yuan and new Taiwan
dollar are excluded from segment sales and segment net income for the
Display Technologies, Specialty Materials, Environmental Technologies
and Life Science segments. Certain corporate income and expenses are
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 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; certain litigation, regulatory
and other legal matters; restructuring, impairment and other charges or
credits; 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 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.
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,
2019
$
$
3,254
786
2018
$
$
3,276
835
2017
$
$
3,137
888
% change
19 vs. 18
% change
18 vs. 17
(1%)
(6%)
4%
(6%)
2019 vs. 2018
Net sales in the Display Technologies segment decreased by $22 million,
or 1%, for the year ended December 31, 2019, when compared to the prior
year. Corning’s glass volume increased by a mid-single digit percentage,
higher than the overall market, driven by increased Gen 10.5 output
during the year. The combination of finished goods volume, unfinished
glass sold to our equity affiliates and a low-single-digit percentage price
decline resulted in a one percent sales decline.
Net income in the Display Technologies segment decreased by $49
million in the year ended December 31, 2019, driven by the decrease in
sales outlined above. Display Technologies shipped more glass in the first
half of 2019 than in the latter half. Due to lower glass volumes in the
second half of 2019, factory utilization declined impacting profitability.
Outlook:
For full-year 2020, Corning expects its display glass volume to grow by
a mid-single digit percentage, similar to the mid-single digit percentage
growth expected in the display glass market. The company expects
display glass price declines to remain moderate, down a mid-single
percentage for the full year.
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CORNING 2019 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,
2019
$
$
4,064
489
2018
$
$
4,192
592
2017
$
$
3,545
469
% change
19 vs. 18
% change
18 vs. 17
(3%)
(17%)
18%
26%
2019 vs. 2018
Net sales declined by $128 million, or 3%, in the year ended December
31, 2019, when compared to the same period in 2018, primarily due to
lower sales in carrier products, down $199 million, partially offset by an
increase of $71 million in enterprise network sales. Sales were lower
than expected due to weakness in the optical market, highlighted by
capital spending reductions at two of our significant customers in the
latter half of 2019.
Net income in the year ended December 31, 2019 decreased by $103
million, or 17%. Lower sales volumes in the latter half of 2019 drove less
efficient factory utilization negatively impacting profitability.
Movements in foreign currency exchange rates did not materially
impact net income in this segment in the year ended December 31, 2019
when compared to the same period in 2018.
Outlook:
Full-year 2020 Optical Communications sales are expected to decrease
by five to ten percent on a year-over-year basis.
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,
2019
$
$
1,594
302
2018
$
$
1,479
313
2017
$
$
1,403
301
% change
19 vs. 18
% change
18 vs. 17
8%
(4%)
5%
4%
2019 vs. 2018
Net sales in the Specialty Materials segment increased by $115 million, or
8%, in the year ended December 31, 2019, when compared to the same
period in 2019, primarily driven by strong demand for Gorilla® Glass.
Net income in the year ended December 31, 2019 decreased by $11 million,
or 4%, when compared to the same period in 2018. The decrease was
primarily related to the absence of customer support for new product
development costs for the launch of new product innovations in 2019.
Outlook:
The company expects high-single digit percentage growth for the
Specialty Materials segment on a year-over-year basis for full-year 2020.
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,
2019
$
$
1,499
263
2018
$
$
1,289
208
2017
$
$
1,106
165
% change
19 vs. 18
% change
18 vs. 17
16%
26%
17%
26%
2019 vs. 2018
Net sales increased $210 million, or 16% in the year ended December 31,
2019, primarily driven sales growth of gasoline particulate filters.
Net income in the year ended December 31, 2019 increased by $55
million, or 26%, driven by the sales increase outlined above and strong
operational performance and successful ramping of additional gasoline
particulate filter capacity in China.
Outlook:
We expect mid-single digit sales growth on a year-over-year basis in our
Environmental Technologies segment for full-year 2020.
26
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CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
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,
2019
$
$
1,015
150
2018
$
$
946
117
2017
$
$
879
95
% change
19 vs. 18
% change
18 vs. 17
7%
28%
8%
23%
2019 vs. 2018
Net sales in the Life Sciences segment increased by $69 million, or 7%, in
the year ended December 31, 2019, when compared to the same period
in 2018, driven by strong performance across all product categories and
sales that continued to outpace market growth.
Net income increased by $33 million, or 28%, in the year ended
December 31, 2019, driven by the reasons outlined above and improved
manufacturing efficiencies.
Outlook:
For full-year 2020, sales are expected to grow by a mid-single-digit
percentage on a year-over-year basis.
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.
The following table provides net sales and net loss for All Other (in millions):
Segment net sales
Segment net loss
Years ended December 31,
2019
$
$
230
(289)
2018
$
$
216
(281)
2017
$
$
188
(259)
% change
19 vs. 18
% change
18 vs. 17
6%
(3%)
15%
(8%)
2019 vs. 2018
Net sales of this segment increased by $14 million, or 6%, in the year ended December 31, 2019, 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 $8 million, a decline of 3%, reflects increased spending on our
development projects when compared to 2018.
Liquidity and Capital Resources
Financing and Capital Structure
The following items discuss Corning’s financing and changes in capital
structure during 2019 and 2018:
2019
In the third quarter of 2019, Corning
yen-denominated debt securities (the “Notes”), as follows:
issued two
Japanese
• ¥31.3 billion 1.153% senior unsecured notes with a maturity of
12 years; and
• ¥5.9 billion 1.513% senior unsecured notes with a maturity of 20 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 approximately $349
million and will be used for general corporate purposes. 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.
In the fourth quarter of 2019, Corning issued two U.S. dollar-denominated
debt securities (the “Notes”), as follows:
• $400 million 3.90% senior unsecured notes with a maturity of
30 years; and
• $1.1 billion 5.45% senior unsecured notes with a maturity of 60 years.
The net proceeds, after deducting offering expenses, were approximately
$1.5 billion and 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 2019, Corning redeemed $300 million of
4.25% notes due in 2020, paying a premium of $4.7 million by exercising
our make-whole call. The bond redemption resulted in an $8.4 million
loss during the same quarter.
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CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
Common Stock Dividends
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.
On February 5, 2020, Corning’s Board of Directors declared an 10.0%
increase in the Company’s quarterly common stock dividend, which
increased the quarterly dividend from $0.20 to $0.22 per share of
common stock, beginning with the dividend paid in the first quarter of
2020. This increase marks the ninth 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, 2019, the preferred stock has not been converted, and none
of the anti-dilution provisions have been triggered.
Customer Deposits
As of December 31, 2019 and 2018, Corning had customer deposits
of approximately $1.0 billion. 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. Credit memoranda of $37 million were issued in 2019;
no such memoranda were issued in 2018.
Capital Spending
Capital spending totaled $1,978 million
in 2019, a decrease of
$264 million when compared to 2018, primarily driven by lower
spending in the Optical Communications and Display Technologies
segments. We expect our 2020 capital expenditures to be approximately
$1.5 billion.
Cash Flows
Summary of cash flow data (in millions):
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
2019 vs. 2018
Net cash provided by operating activities decreased by $888 million in
the year ended December 31, 2019, when compared to the same period
last year, primarily driven by a decrease in customer deposits received
of $558 million and net unfavorable movements in working capital of
$352 million.
In the year ended December 31, 2019, net cash used in investing activities
decreased by $996 million, primarily driven by lower acquisition and
capital expenditures of $842 million and $264 million, respectively,
partially offset by the absence of cash received of $196 million for a
contingent consideration asset, when compared to the prior year.
Net cash used in financing activities decreased by $1,948 million in the
year ended December 31, 2019, when compared to the same period
last year. The primary drivers were lower share repurchases, down
$1,287 million, lower debt repayments, down $329 million and increased
borrowing, up $346 million.
Years ended December 31,
2019
$
$
$
2,031
(1,891)
(47)
2018
$
$
$
2,919
(2,887)
(1,995)
2017
$
$
$
2,004
(1,710)
(1,624)
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, 2019, this plan accounted for 76%
of our consolidated defined benefit pension plans’ projected benefit
obligation and 86% of the related plans’ assets.
In 2019, we made no voluntary contributions to our domestic defined
benefit pension plan and cash contributions of $2 million to our
international pension plans. During 2020, we anticipate making cash
contributions of $85 million to our U.S. qualified pension plan and
$54 million to our international pension plans.
Refer to Note 12 (Employee Retirement Plans) to the consolidated
financial statements for additional information.
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CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
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,
2019
2018
$
$
$
$
3,942
2.1:1
1,836
59
2,320
3.3
48
7,729
$
$
$
$
3,723
2.1:1
1,940
58
2,037
3.6
55
5,994
37%
30%
Management Assessment of Liquidity
We ended the fourth quarter of 2019 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, 2019,
approximately 51% of the consolidated amount was held outside of the
United States.
To manage interest rate exposure, the Company, from time to time,
enters into interest rate swap agreements. As of December 31, 2019,
there are no interest rate swaps outstanding.
Our Revolving Credit Agreement provides a committed $1.5 billion
unsecured multi-currency line of credit and expires August 15, 2023.
At December 31, 2019, there were no outstanding amounts under the
Revolving Credit Agreement.
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, 2019, Corning did not have outstanding commercial paper.
Share Repurchases
During 2018, Corning repurchased 74.8 million shares for approximately
$2.2 billion through open market repurchases under the 2016 and 2018
Repurchase Programs.
the year ended December 31, 2019,
the Company
During
repurchased 31.0 million shares of common stock on the open
market for approximately $0.9 billion as part of its 2018 and 2019
Repurchase Programs.
Refer to Note 16 (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.
From time to time, we factor accounts receivable. During 2019, Corning
participated in customer-initiated payment programs which resulted
in accelerated collections of $143 million in accounts receivable. We
currently have not identified any potential material impact on our
liquidity resulting from customer credit issues.
Our major source of funding for 2020 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, 2019, our leverage using this measure
was approximately 37%. As of December 31, 2019, 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 exceeding 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, 2019, 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.
28
29
CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
Translated Earnings Contracts
Corning has hedged a significant portion of
its projected yen
exposure for the period 2019 through 2023, with average rate forwards
and options. In the years ended December 31, 2019 and 2018, we
recorded pre-tax net gains of $201 million and pre-tax net losses of
$96 million, respectively, related to changes in the fair value of these
instruments. Included in these amounts are realized losses of $7 million
and realized gains of $64 million, respectively. The gross notional value
outstanding for these instruments which hedge our exposure to the
Japanese yen at December 31, 2019 and 2018, was $10.2 billion and
$11.6 billion, respectively.
We have entered into 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 years ended December 31, 2019 and
2018, we recorded a pre-tax net gain of $6 million and a pre-tax net loss
of $26 million, respectively, related to changes in the fair value of these
instruments. Included in these amounts is a realized loss of $1 million
and a realized gain of $46 million, respectively. These instruments had a
gross notional value outstanding at December 31, 2019 and 2018, of $0.4
and $0.1 billion, respectively.
We have entered into a portfolio of average rate forwards to hedge
against our euro translation exposure. In the years ended December 31,
2019 and 2018, we recorded pre-tax gains of $37 million and $43 million,
respectively. Included in these amounts are realized gains of $29 million
and realized losses of $14 million, respectively. At December 31, 2019
and 2018, the euro-denominated average rate instruments had a gross
notional amount of $1.3 billion and $1.2 billion, respectively.
These derivative instruments are not designated as accounting hedges,
and changes in fair value are recorded in earnings in the translated
earnings contract gain (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 and
indemnity 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 13 (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 financial statements.
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.
30
31
CORNING 2019 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)
Subtotal of commitment expirations per period
Purchase obligations(2)
Capital expenditure obligations(3)
Total debt(4)
Finance leases and financing obligations
Interest on long-term debt(5)
Imputed interest on finance leases and financing obligations
Operating Lease Obligations
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
$
$
$
163
43
206
554
592
7,195
600
8,948
296
755
58
$
$
$
30
31
61
190
592
11
298
27
98
$
$
$
4
8
12
199
437
30
583
53
153
$
$
$
1
3
4
75
588
160
543
43
116
5 years and
thereafter
$
$
$
128
1
129
90
6,170
399
7,524
173
388
$
$
18,998
19,204
$
$
1,216
1,277
$
$
1,455
1,467
$
$
1,525
1,529
$
$
14,744
14,873
(1) At December 31, 2019, we had stand-by letters of credit commitments of $82 million; $39 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 or 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, 2019, $58 million was included on our consolidated balance sheets 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 13 (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.
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.
30
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CORNING 2019 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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, if applicable.
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, 2019 and 2018, the carrying value of precious metals
was lower than the fair market value by $849 million and higher than
the fair market value by $719 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.
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.
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 cash flow and translation exposure
resulting from movements in the Japanese yen, South Korean won, euro,
new Taiwan dollar, Chinese yuan and British pound. Changes in the fair value
of contracts designated as cash flow hedges are recorded in accumulated
other comprehensive income in shareholders’ equity and reclassified into
income when the underlying hedged item impacts earnings. For contracts
that are not designated as accounting hedges, changes in fair value are
recorded in earnings in the translated earnings contract gain (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 15 (Fair Value Measurements) to the consolidated financial
statements for additional information.
32
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CORNING 2019 ANNUAL REPORT 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 accumulated other comprehensive
income in shareholders’ equity 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.
The following table presents our actual and expected return on assets, as well as the corresponding percentages:
(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
2019
$
576
161
39
10
21.89%
6.00%
7.99%
2.01%
December 31,
2018
$
(202)
178
1
11
(6.83)%
6.00%
(0.06)%
2.13%
2017
$
393
163
18
11
14.92%
6.00%
3.93%
3.97%
As of December 31, 2019, the Projected Benefit Obligation (PBO) for U.S. pension plans was $3.9 billion.
32
33
CORNING 2019 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 2020
pre-tax pension expense
- 3 million
+ 2 million
+ 8 million
- 8 million
Effect on
December 31, 2019 PBO
+ 110 million
- 105 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, 2019, a 25 basis point decrease in each spot
rate would decrease shareholders’ equity by $133 million before tax, and
a 25 basis point increase in each spot rate would increase shareholders’
equity by $127 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).
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
Effect on 2020
pre-tax OPEB expense
Effect on
December 31, 2019 APBO*
- 0 million
+ 0 million
+ 23 million
- 22 million
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 the new revenue standard 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 adopted the new revenue standard on
January 1, 2019. The impact of adopting the new standard to Corning’s
financial statements was a net reduction of $186 million to 2019
beginning retained earnings. Timing of revenue recognition for certain
open performance obligations as measured at January 1, 2019 under the
new standard was approximately $239 million with offsetting deferred
tax impacts of $53 million.
New Accounting Standards
Refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements.
34
35
CORNING 2019 ANNUAL REPORT 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 hedged instruments. These contracts are used to offset
economic currency risks. 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 exposures. 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, 2019,
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 $1.3 billion compared to $1.1 billion at December 31, 2018. 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 at December 31, 2019 and 2018. 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. As of December 31, 2019, there
were no interest rate derivatives agreements outstanding.
34
35
CORNING 2019 ANNUAL REPORT Management’s Annual Report on Internal Control Over
Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting for Corning.
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
Company’s 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. Based on this evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of
December 31, 2019. The effectiveness of the Company’s internal control
over financial reporting as of December 31, 2019 has been audited by
PricewaterhouseCoopers LLP, an independent registered accounting
firm, as stated in their report and is included herein.
Wendell P. Weeks
Chairman, Chief Executive Officer and President
R. Tony Tripeny
Executive Vice President and Chief Financial Officer
36
37
CORNING 2019 ANNUAL REPORT 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, 2019
and 2018, 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,
2019, including the related notes and schedule of valuation and
qualifying accounts for each of the three years in the period ended
December 31, 2019 listed in the accompanying index (collectively
referred to as the “consolidated financial statements”). We also have
audited the Company’s internal control over financial reporting as of
December 31, 2019, 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, 2019 and 2018, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 2019 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, 2019, 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.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit
committee and that (i) relate to accounts or disclosures that are material
to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
36
37
CORNING 2019 ANNUAL REPORT Report of Independent Registered Public Accounting Firm
Income Taxes - Receivables for South Korean Tax Disputes
As described in Notes 1, 5, and 10 to the consolidated financial statements,
in evaluating the tax benefits associated with the Company’s various
tax filing positions, management records 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 the liability
for unrecognized tax benefits in the period in which management
determines 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. The Company is currently
appealing certain South Korean tax assessments and tax refund claims
for tax years 2010 through 2018. 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. Management believes that it is
more likely than not that these tax positions will prevail in the appeal
process and as a result, management recorded a non-current receivable
of $415 million as of December 31, 2019 for the amount on deposit
with the South Korean government. In the fourth quarter of 2019,
the Company received a refund of $38 million from the South Korean
government related to tax years 2006 through 2009. As of December 31,
2019, management has also recorded a current receivable of $33 million
for an amount refunded in January 2020 related to the same issue for
the tax year 2015.
The principal considerations for our determination that performing
procedures relating to the receivables for South Korean tax disputes is a
critical audit matter are there was significant judgment by management
when applying the more likely than not recognition criteria to the
Company’s uncertain tax positions based on the application of the tax
law. This in turn led to a high degree of auditor judgment, subjectivity,
and effort in performing procedures and evaluating audit evidence
relating to management’s assumption that the Company will prevail
in the appeal of any tax assessments. In addition, the audit effort
involved the use of professionals with specialized skill and knowledge
to assist in performing these procedures and evaluating the audit
evidence obtained.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing
the effectiveness of controls relating to uncertain tax positions,
including management’s assessment of the South Korean tax
disputes. These procedures also included, among others, obtaining
management’s assessment and evidence supporting the more-
likely-than-not tax position on the South Korean tax disputes and
evaluating the reasonableness of the likelihood that the tax positions
will ultimately be sustained upon examination by the South Korean
tax authorities and through the appeal process. Professionals with
specialized skill and knowledge were used to assist in evaluating
management’s assessment and supporting evidence,
including
application of the tax law.
New York, New York
February 14, 2020
We have served as the Company’s auditor since 1944.
Impairment at the Equity Method Investee, Hemlock
Semiconductor Group - The Long-lived Asset Impairment of the
Solar Power Panel Asset Group (“Solar Group”)
As described in Notes 1 and 6 to the consolidated financial statements,
the Company’s 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. Hemlock Semiconductor LLC and Hemlock
Semiconductor Operations LLC, of which the Company has 49.9%
and 40.25% ownerships respectively, are recorded as equity method
investments and are affiliated companies of Hemlock Semiconductor
Group (HSG). Due to the adverse change in HSG’s solar business, HSG
was required to assess the recoverability of its long-lived assets in the
fourth quarter. Based on this assessment, HSG determined that the
carrying values of HSG’s Solar Group significantly exceeded its fair value.
HSG engaged a third-party appraiser to assist in determining the fair
value of the assets within the Solar Group based on the highest and
best use of the asset group. As a result of the fair value determination,
HSG recognized pre-tax asset impairment charges of $916 million for
the year ended December 31, 2019. The Company’s share of the pre-tax
impairment was $369 million.
The principal considerations for our determination that performing
procedures relating to HSG’s long-lived asset impairment of the Solar
Group is a critical audit matter are there was a high degree of auditor
judgment, subjectivity, and effort in performing procedures and
evaluating audit evidence relating to (i) management’s assessment of
the impairment at HSG, and (ii) the determination of the asset groups
and the fair value of the assets within HSG’s Solar Group, including the
assumptions related to the highest and best use of the assets. In addition,
the audit effort involved the use of professionals with specialized skill
and knowledge to assist in performing these procedures and evaluating
the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing
the effectiveness of controls relating to the equity method investment
accounting, including controls over management’s recording of the
Company’s share of the pre-tax impairment at HSG’s Solar Group. These
procedures also included, among others, (i) evaluating management’s
assessment of the impairment at HSG and the Company’s share of
the pre-tax impairment, and (ii) testing HSG’s process for determining
the fair value of the long-lived assets within HSG’s Solar Group.
Testing the fair value of these long-lived assets included determining
the appropriateness of the asset groups and reasonableness of the
assumptions related to the determination of the fair value of the long-
lived assets in the Solar Group based on their highest and best use.
Professionals with specialized skill and knowledge were used to assist
in evaluating the assumptions related to the highest and best use of
the long-lived assets and evaluating the consistency of the assumptions
with evidence obtained in other areas of the audit.
38
39
CORNING 2019 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
Operating income
Equity in earnings of affiliated companies (Note 6)
Interest income
Interest expense
Translated earnings contract gain (loss), net
Other expense, net
Income before income taxes
Provision for income taxes (Note 5)
Net income (loss) attributable to Corning Incorporated
Earnings (loss) per common share attributable to Corning Incorporated:
Basic (Note 17)
Diluted (Note 17)
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2019
$
$
$
$
11,503
7,468
4,035
1,585
1,031
113
1,306
17
21
(221)
248
(155)
1,216
(256)
960
1.11
1.07
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
$
$
$
$
$
$
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)
38
39
CORNING 2019 ANNUAL REPORT Consolidated Statements of Comprehensive Income
Corning Incorporated and Subsidiary Companies
(In millions)
Net income (loss) attributable to Corning Incorporated
Foreign currency translation adjustments and other
Net unrealized gains (losses) on investments
Unamortized (losses) gains and prior service (costs) credits
for postretirement benefit plans
Net unrealized gains (losses) on designated hedges
Other comprehensive (loss) income, net of tax (Note 16)
2019
$
Comprehensive income attributable to Corning Incorporated
$
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
960
(143)
1
(64)
45
(161)
799
2018
2017
$
1,066
$
(497)
(185)
(1)
19
(1)
(168)
898
$
746
14
30
44
834
337
$
40
41
CORNING 2019 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 - $81 and $64
Inventories, net of inventory reserves - $201 and $182 (Note 3)
Other current assets (Note 10 and 14)
Total current assets
Investments (Note 6)
Property, plant and equipment, net of accumulated depreciation - $12,995 and $11,932 (Note 8)
Goodwill, net (Note 9)
Other intangible assets, net (Note 9)
Deferred income taxes (Note 5)
Other assets (Note 10 and 14)
Total Assets
Liabilities and Equity
Current liabilities:
December 31,
2019
2018
$
2,434
1,836
2,320
873
7,463
334
15,337
1,935
1,185
1,157
1,487
$
2,355
1,940
2,037
702
7,034
376
14,895
1,936
1,292
951
1,021
$
28,898
$
27,505
Current portion of long-term debt and short-term borrowings (Note 11)
$
Accounts payable
Other accrued liabilities (Note 10 and 13)
Total current liabilities
Long-term debt (Note 11)
Postretirement benefits other than pensions (Note 12)
Other liabilities (Note 10 and 13)
Total liabilities
Commitments, contingencies and guarantees (Note 13)
Shareholders’ equity (Note 16):
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: 1,718 million and 1,713 million
Additional paid-in capital – common stock
Retained earnings
Treasury stock, at cost; shares held: 956 million and 925 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.
11
1,587
1,923
3,521
7,729
671
3,980
15,901
$
4
1,456
1,851
3,311
5,994
662
3,652
13,619
2,300
2,300
859
14,323
16,408
(19,812)
(1,171)
12,907
90
12,997
857
14,212
16,303
(18,870)
(1,010)
13,792
94
13,886
$
28,898
$
27,505
40
41
CORNING 2019 ANNUAL REPORT 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,
2019
2018
2017
$
960
$
1,066
$
(497)
Depreciation
Amortization of purchased intangibles
Loss on disposal of assets
Stock compensation charges
Equity in earnings of affiliated companies
Dividends received from affiliated companies
Deferred tax (benefit) provision
Customer incentives and deposits, net
Employee benefit payments less than (in excess of) expense
Translated earnings contract (gain) loss, net
Unrealized translation loss (gain) on transactions
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
Purchase of equipment for related party
Sale of equipment to related party
Realized gains on translated earnings contracts
Other, net
Net cash used in 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, net
Proceeds from 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 increase (decrease) 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.
1,390
113
118
56
(17)
106
(191)
142
78
(248)
33
48
(298)
(300)
36
5
2,031
(1,978)
(9)
78
66
(48)
(1,891)
(300)
1,831
58
(940)
(742)
46
(47)
(14)
79
2,355
$
2,434
$
1,199
94
35
51
(390)
241
(38)
700
(88)
93
55
(154)
(346)
(20)
358
63
2,919
(2,242)
(842)
196
(68)
19
108
(58)
(2,887)
(629)
1,485
81
(2,227)
(685)
(20)
(1,995)
1
(1,962)
4,317
2,355
1,083
75
80
46
(361)
201
1,796
100
24
121
(339)
(225)
(170)
(172)
169
73
2,004
(1,804)
(171)
270
(5)
(1,710)
(252)
1,445
309
(2,452)
(651)
(23)
(1,624)
356
(974)
5,291
4,317
$
42
43
CORNING 2019 ANNUAL REPORT 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
(loss) income
Total Corning
Incorporated
shareholders’
equity
Non-
controlling
interests
Total
Balance at 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
Common Dividends
($0.62 per share)
Preferred Dividends
($42,500 per share)
Other, net(1)
(497)
(556)
(98)
201
(2,462)
(2)
(17)
8
14
349
31
834
(497)
834
18
6
(479)
840
(2,448)
(2,448)
355
(556)
(98)
215
355
(556)
(98)
196
(19)
Balance at 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
Common Dividends
($0.72 per share)
Preferred Dividends
($42,500 per share)
Other, net
3
123
1,066
(590)
(98)
(5)
(2,230)
(7)
(168)
1,066
(168)
(2,230)
126
(590)
(98)
(12)
24
(1)
(1)
1,090
(169)
(2,230)
126
(590)
(98)
(13)
Balance at December 31, 2018
$ 2,300
$ 857
$
14,212 $
16,303 $ (18,870)
$ (1,010)
$ 13,792
$ 94 $ 13,886
Net income
Other comprehensive loss
Purchase of common stock
for treasury
Shares issued to benefit plans
and for option exercises
Common Dividends
($0.80 per share)
Preferred Dividends
($42,500 per share)
Other, net(2)
2
111
960
(625)
(98)
(132)
(925)
(17)
(161)
960
(161)
(925)
113
(625)
(98)
(149)
19
(23)
979
(161)
(925)
113
(625)
(98)
(172)
Balance at December 31, 2019
$ 2,300
$ 859
$ 14,323 $
16,408 $
(19,812)
$
(1,171)
$ 12,907
$ 90 $ 12,997
(1) Adjustment to retained earnings of $233 million includes the cumulative effect of the accounting change recorded upon adoption of the new
standard improving employee share-based payment accounting.
(2) Adjustments to retained earnings including the effect of Adjustments to retained earnings include the effect of the accounting change we recorded
upon adoption of the new standard for reclassification of stranded tax effects in accumulated other comprehensive income (“AOCI”) in the amount
of $53 million, and a $(186) million, net of tax, effect from an equity affiliate’s adoption of the new revenue standard.
The accompanying notes are an integral part of these consolidated financial statements.
42
43
CORNING 2019 ANNUAL REPORT 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,
and other
information display applications; carrier network and
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.
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.
Leases
Corning leases certain real estate, vehicles, and equipment from third
parties. On January 1, 2019 we adopted the new leasing standard.
Corning classifies leases as either financing or operating. Operating
leases are included in other assets with the corresponding liability in
other accrued liabilities and other liabilities on our consolidated balance
sheets. Finance leases are included in property, plant and equipment
with the corresponding liability in the current portion and long-term
debt line items on our consolidated balance sheets. Leases where we are
the lessor are not significant.
Lease expense is recognized on a straight-line basis over the lease term
for operating leases. Financing leases are recognized on the effective
interest method for interest expense and straight-line method for asset
amortization. Renewals and terminations are included in the calculation
of the Right of Use (“ROU”) assets and lease liabilities when considered to
be reasonably certain to be exercised. When the implicit rate is unknown,
we use our incremental borrowing rate based on commencement date
in determining the present value of lease payments.
Our leases do not include residual value guarantees. We are not the
primary beneficiary in or have other forms of variable interests with the
lessor of the leased assets. The impact to the balance sheet for operating
leases is a gross-up for the addition of ROU assets and liabilities relating
to the operating leases in the amount of $449 million at adoption. The
impact to the balance sheet for financing leases was not material.
Corning elected the following practical expedients and accounting
policy elections to apply the new lease accounting standard at its
effective date as of January 1, 2019:
• Leases of less than 12 months in duration to be recorded as expense only;
• Account for lease and non-lease components of a contract as a single
lease component; and
• Comparative reporting of prior periods was not restated due to
modified retrospective implementation.
At adoption, Corning recorded a nominal cumulative-effect adjustment
to beginning retained earnings.
Refer to Note 4 (Leases) to the consolidated financial statements for
additional information.
Revenue
One of Corning’s equity affiliates adopted the new revenue standard on
January 1, 2019. The impact of adopting the new standard to Corning’s
financial statements was a net reduction of $186 million to 2019
beginning retained earnings. Timing of revenue recognition for certain
open performance obligations as measured at January 1, 2019 under the
new standard was approximately $239 million with offsetting deferred
tax impacts of $53 million.
Income Taxes
In February 2018, the FASB issued a new standard for Income Statement
- Reporting Comprehensive Income, which allows for reclassification
from accumulated other comprehensive income to retained earnings
for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act.
We adopted this new standard effective January 1, 2019. The impact
of the new standard resulted in a reclassification of $53 million from
accumulated other comprehensive income (“AOCI”) to beginning
retained earnings.
44
45
CORNING 2019 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.
Research and development costs totaled $833 million, $807 million and
$689 million in 2019, 2018 and 2017, respectively.
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
to be the functional currencies. Corning’s most significant exception is
our Taiwanese subsidiary, which uses the Japanese yen as its functional
Notes to Consolidated Financial Statements
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 net losses of $19 million and $43 million for foreign
currency transaction activity for the years ended December 31, 2019
and 2018, respectively, and a net gain of $20 million for foreign currency
transaction activity for the year ended December 31, 2017. 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, 2019, there
were approximately 60 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 $56 million, $51 million
and $46 million for the years ended December 31, 2019, 2018 and
2017, respectively. The income tax benefit realized from share-based
compensation was not significant for the years ended December 31,
2019, 2018 and 2017. Refer to Note 5 (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 year 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.
44
45
CORNING 2019 ANNUAL REPORT 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
year to ten years, and generally have contractual lives of one year 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 is as 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
2019
2018
2017
29.1-29.9%
30.6-31.4%
32.4-36.1%
29.9%
31.4%
36.1%
2.36-2.95%
2.22-2.66%
1.98-2.28%
1.5-2.4%
7.4-7.4
0.6-0.6%
2.7-3.1%
7.4-7.4
0.6-0.6%
2.1-2.3%
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,
2019
2018
2017
$
$
$
592
248
474
$
$
$
412
205
567
$
$
$
584
178
405
(1) Included in this amount are approximately $54 million, $49 million and $36 million of interest costs that were capitalized as part of property, plant
and equipment, net of accumulated depreciation, in 2019, 2018 and 2017, 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
undiscounted 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.
46
47
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
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 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.
Other intangible assets include patents, trademarks, and other intangible
assets acquired from independent parties. 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.
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.
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.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis)
or market.
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 8 (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 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.
46
47
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
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 change, 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 accumulated other
comprehensive income in shareholders’ equity 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 12 (Employee Retirement Plans) to the consolidated
financial statements for additional detail.
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.
Generally, 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, (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, and (6) future distribution would
trigger a significant federal income inclusion to the U.S. shareholder.
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. Consequently, adjustments for asset recoverability
are included in equity earnings. We require our material equity method
affiliates to provide audited financial statements. 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 are measured at fair value
on a nonrecurring basis when impaired, which include long-lived assets,
goodwill, asset retirement obligations, equity method investments and
other investments that we do not have significant influence.
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 non-performance.
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.
48
49
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
All derivatives are recorded at fair value on our consolidated balance
sheets. 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 our 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 gain
(loss), net and the other expense, net lines.
New Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses (Topic 326). The ASU introduces a new accounting model, the
Current Expected Credit Losses model (CECL), which requires earlier
recognition of credit losses and additional disclosures related to credit
risk. The CECL model utilizes a lifetime expected credit loss measurement
objective for the recognition of credit losses at the time the financial
asset is originated or acquired. ASU 2016-13 is effective for annual period
beginning after December 15, 2019, including interim reporting periods
within those annual reporting periods. We expect that the impact
of adoption will not have a material impact on Corning’s financial
statements. Adoption of the new standard is effective January 1, 2020.
2. Revenue
Product Revenue (Point in Time)
Most 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. Product warranty liabilities were not
material at December 31, 2019 and 2018.
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
Total Revenue
Constant-currency adjustment(1)
Net sales of reportable segments and All Other
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 obligations. 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.
Revenue recognized in the years ended December 31, 2019 and 2018, is
presented based on ASC 606. Amounts for the year ended December 31,
2017 are presented under the ASC 605 basis of revenue recognition.
Years ended December 31,
2018
2019
$
3,180
4,064
1,594
1,440
995
230
$
$
11,503
153
11,656
$
$
$
3,168
4,192
1,479
1,289
946
216
11,290
108
11,398
2017
$
$
$
2,997
3,545
1,403
1,106
879
186
10,116
142
10,258
48
49
(1) This amount primarily represents the impact of foreign currency adjustments in the Display Technologies and Environmental Technologies segments.
CORNING 2019 ANNUAL REPORT 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.
Most 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.
Customer Deposits
As of December 31, 2019 and 2018, Corning had customer deposits of
approximately $1.0 billion. The majority of these were 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 10 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. In the year ended December 31, 2019, a credit memorandum of
$37 million was issued; no such memorandums were issued in 2018. As of
December 31, 2019 and 2018, $927 million and $922 million were recorded
as other long-term liabilities, respectively. The remaining $104 million and
$54 million, respectively, were classified as other current liabilities.
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 fulfillment costs and not as separate
performance obligations under the terms of our revenue contracts due to
the perfunctory nature of the shipping and handling obligations.
Significant Customers
For 2019, 2018 and 2017, no customer met or exceeded 10% of Corning’s
consolidated net sales.
3.
Inventories, Net of Inventory Reserves
Inventories, net of inventory reserves comprise the following (in millions):
Finished goods
Work in process
Raw materials and accessories
Supplies and packing materials
Total inventories, net of inventory reserves
4. Leases
December 31,
2019
$
973
421
481
445
2018
$
854
386
409
388
$
2,320
$
2,037
We have operating and finance
and equipment.
leases for real estate, vehicles,
We incurred lease expense in the amount of $171 million for the year
ended December 31, 2019. Operating and Financing lease costs were
$148 million and $23 million, respectively, for the year ended December 31,
2019. Short-term rental expense, for agreements less than one year in
duration, was immaterial. Financing lease cost is comprised of expenses
for depreciation of right-of-use assets and interest on lease liabilities, and
these expenses were not material for the year ended December 31, 2019.
Cash paid for amounts included in the measurement of lease liabilities
totaled $123 million for the year ended December 31, 2019. Operating
cash outflows for operating leases were $105 million. Cash payments for
finance leases were $18 million, comprised of $6 million and $12 million of
principal and interest payments, respectively.
50
51
CORNING 2019 ANNUAL REPORT Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):
Notes to Consolidated Financial Statements
Operating Leases
Operating lease right-of-use assets, net(1)
Other current liabilities
Operating lease liabilities(2)
Total operating lease liabilities
Finance Leases
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net
Current portion of long-term debt
Long-term debt
Total finance lease liabilities
(1) Included in other assets.
(2) Included in other liabilities.
December 31,
2019
$
$
$
$
$
$
$
504
62
450
512
294
(52)
242
9
271
280
The weighted average remaining lease terms for operating and financing leases are 12.5 years and 10.9 years, respectively. The weighted average
discount rates for operating and financing leases are 4.1% and 5.5%, respectively.
As of December 31, 2019, maturities of lease liabilities under the new lease standard are as follows (in millions):
2020
Operating Leases
$
Financing Leases
98
19
2021
$
81
19
2022
$
72
21
2023
$
2024
After 2024
Gross Total
Imputed Discount
Total
64
145
$
52
21
$
388
168
$
755
393
$
(243)
(113)
$
512
280
As of December 31, 2018, maturities of lease liabilities under the previous lease standard were as follows (in millions):
Capital leases and financing obligations
Imputed interest on capital leases and financing obligations
Minimum rental commitments
Total
$
393
205
581
Less than
1 year
$
4
20
82
1 to 3
years
$
11
38
133
3 to 5
years
5 years and
thereafter
$
132
$
246
37
111
110
255
Total rental expense for operating leases was $156 million and $135 million for 2018 and 2017, respectively.
As of December 31, 2019, we have additional operating leases, primarily for new production facilities and equipment, that have not yet commenced or
been recorded, of approximately $260 million on an undiscounted basis. These operating leases will commence between fiscal year 2020 and fiscal year
2021 with lease terms of 10 years to 20 years.
5.
Income Taxes
Income before income taxes follows (in millions):
U.S. companies
Non-U.S. companies
Income before income taxes
Years ended December 31,
2019
$
$
504
712
1,216
2018
$
$
472
1,031
1,503
2017
$
$
653
1,004
1,657
50
51
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
The current and deferred amounts of the provision for income taxes are as follows (in millions):
Current:
Federal
State and municipal
Foreign
Deferred:
Federal
State and municipal
Foreign
Provision for income taxes
Years ended December 31,
2019
$
(82)
(12)
(354)
64
13
115
2018
$
(256)
(22)
(196)
(34)
4
67
2017
$
(20)
(21)
(317)
(1,617)
(109)
(70)
$
(256)
$
(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 is as follows:
Statutory U.S. income tax rate
State income tax, net of federal effect
Global intangible low-taxed income(1)
Foreign derived intangible income(1)
Repatriation tax on accumulated previously untaxed foreign earnings
Remeasurement of deferred tax assets and liabilities
Impact of foreign earnings
IRS settlements & change in reserve
Valuation allowance
Tax credit(1)
Non-deductible expenses
Other items, net
Effective income tax rate
(1) Including a change in estimate from prior year.
Generally, 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, (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, and (6) future distribution would
trigger a significant federal income inclusion to the U.S. shareholder.
Years ended December 31,
2019
2018
2017
21.0%
0.6
1.2
(8.5)
(0.6)
5.4
8.5
(3.7)
(2.8)
2.1
(2.1)
21.1%
21.0%
0.9
3.6
(0.6)
(1.2)
(0.1)
(2.3)
11.5
(3.8)
(0.7)
0.8
29.1%
35.0%
0.8
67.4
21.0
(3.9)
6.8
(0.4)
3.3
130.0%
During 2019, the Company distributed approximately $424 million from
foreign subsidiaries to their respective U.S. parent companies. As of
December 31, 2019, Corning has approximately $2.5 billion of indefinitely
reinvested foreign earnings. It remains impracticable to calculate the
tax cost of repatriating our unremitted earnings which are considered
indefinitely reinvested.
52
53
CORNING 2019 ANNUAL REPORT The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities are as follows
(in millions):
Notes to Consolidated Financial Statements
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 allowances
Total deferred tax assets
Intangible and other assets
Fixed assets
Financing leases
Total deferred tax liabilities
Net deferred tax assets
The net deferred tax assets in our consolidated balance sheets are as follows (in millions):
Deferred tax assets
Other liabilities
Net deferred tax assets
December 31,
2019
$
$
388
345
30
168
218
345
1,494
(215)
1,279
(110)
(216)
(121)
(447)
832
December 31,
2019
$
$
1,157
(325)
832
2018
$
$
2018
$
$
479
45
33
162
265
289
1,273
(317)
956
(96)
(256)
(352)
604
951
(347)
604
Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2019 are as follows (in millions):
Net operating losses
Tax credits
Totals as of December 31, 2019
Expiration
Amount
2019-2023
2024-2028
2029-2038
Indefinite
$
$
340
48
388
$
$
137
137
$
$
30
24
54
$
$
28
19
47
$
$
145
5
150
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
2019
$
$
435
3
2
(378)
62
2018
$
$
252
204
(10)
(11)
435
2017
$
$
243
1
13
(5)
252
During the year, Corning finalized agreements with various tax
authorities, including the Internal Revenue Service (“IRS”) to resolve
its 2013-2014 audit (which was preliminarily agreed to in 2018). These
agreements resulted in Corning reclassifying certain reserves from
tax reserve liability to income tax payable and releasing certain tax
reserves. The net impact of these was a $378 million reduction to the
tabular roll-forward.
Included in the balance at December 31, 2019, 2018 and 2017 are
$35 million, $263 million and $97 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,
2019, 2018 and 2017 the amount recognized in interest expense and
accrued for the payment of interest and penalties were not material.
52
53
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
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. 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. As of December 31,
2019, the company is not expecting any significant movements in the
uncertain tax benefits in the next twelve months.
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, 2014, have been audited by and settled
with the IRS.
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.
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: China (2008),
Japan (2012), Taiwan (2013) and South Korea (2013).
CPM is currently appealing certain tax assessments and tax refund
claims for tax years 2010 through 2018. 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. We believe that it
is more likely than not that we will prevail in the appeal process, and
as a result we have recorded a non-current receivable of $415 million
as of December 31, 2019 for the amount on deposit with the South
Korean government. In the fourth quarter of 2019, we received a refund
of $38 million from the South Korean government related to tax years
2006 to 2009. As of December 31, 2019, we have also recorded a current
receivable of $33 million for an amount refunded in January 2020 related
to the same issue for tax year 2015.
6.
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,
2019
$
$
$
$
291
43
334
270
270
2018
$
$
354
22
376
(1) Amounts reflect Corning’s direct ownership interest in the affiliated companies at December 31, 2019 and 2018. Corning does not control
these entities.
(2) Hemlock Semiconductor LLC and Hemlock Semiconductor Operations LLC, of which Corning has 49.9% and 40.25% ownership, respectively, are
recorded as equity method investments and are affiliated companies of HSG. At December 31, 2019, the negative carrying value of Corning’s
investment in HSG was $270 million and recorded in Other Liabilities. At December 31, 2018, the carrying value of the investment in HSG was
$42 million and recorded in Investments.
Affiliated Companies at Equity Method
The results of operations and financial position of the investments accounted for under the equity method is presented below as of December 31 for
each respective year (in millions):
Statement of operations:
Net sales
Gross profit
Net (loss) income
Net income attributable to the affiliated companies
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
Intercompany sales within HSG (included in net sales)
2019
2018
2017
$
$
$
$
$
$
$
$
$
$
1,508
79
(102)
70
17
277
12
8
106
112
$
$
$
$
$
$
$
$
$
$
1,759
424
835
798
390
184
11
2
241
206
$
$
$
$
$
$
$
$
$
$
2,346
560
750
721
361
108
12
22
201
312
54
55
CORNING 2019 ANNUAL REPORT 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
Balances due to affiliated companies
Intercompany receivables and payables within HSG (included in current assets
and other current liabilities)
Notes to Consolidated Financial Statements
2019
2018
$
$
$
$
$
$
$
$
$
$
1,566
943
4
632
68
1,522
42
42
4
15
$
$
$
$
$
$
$
$
$
1,716
1,922
8
810
14
1,708
259
95
39
As of December 31, 2019 and 2018, the undistributed earnings of equity
companies included in our retained earnings were not material.
Hemlock Semiconductor Group (“HSG”)
In 2016, Corning realigned its ownership interest in Dow Corning,
exchanging its 50% interest in the joint venture between Corning and
Dow Chemical for a newly formed company that holds a 49.9% interest
in Hemlock Semiconductor LLC and a 40.25% interest in Hemlock
Semiconductor Operations LLC which are recorded as equity method
investments of Corning and are affiliated companies of HSG. HSG
manufactures polysilicon products for the semiconductor and solar
industries. HSG’s solar business primarily serves the solar power
panel industry.
In prior years, HSG’s solar and semiconductor customers entered
into long-term “take or pay” contracts which included up-front cash
payments to secure capacity. During the last few years, and more
significantly in 2019, the solar power panel industry experienced
significant over-capacity in the market, resulting in declining sales
volumes and market prices. As a result, HSG’s solar business experienced
lower market penetration, overall price declines, and settled contracts
with customers that had committed volume and fixed pricing above the
current market price. While these settlements positively impacted HSG’s
cash flow in 2019, they reduced expectations for future sales in HSG’s
solar business.
Due to the adverse change in HSG’s solar business, HSG was required
to assess the recoverability of its long-lived assets in the fourth quarter.
Based on this assessment, HSG determined that the carrying values
of HSG’s solar asset group significantly exceeded its fair values. HSG
engaged a third-party appraiser to assist in determining the fair value
of the assets within in the solar asset group based on the highest and
best use of the asset group. As a result of the fair value determination,
HSG recognized a pre-tax asset impairment charge of $916 million
for the year ended December 31, 2019. Corning’s share of the pre-tax
impairment was $369 million.
Due to the adverse changes above, the carrying values of HSG’s solar
business inventories were also affected resulting in an inventory
write-down of $257 million for the year. Corning’s pre-tax share of the
provision was $105 million.
HSG adopted the new revenue standard on January 1, 2019 and the
timing of HSG’s revenue recognition for certain remaining performance
obligations measured at January 1, 2019 was deferred for recognition.
This deferral reduced the carrying amount of Corning’s investment in
HSG by $239 million. During the fourth quarter, a significant number
of the performance obligations were satisfied and $434 million was
recognized into HSG’s net income. Corning’s share of the equity earnings
was $208 million.
In addition, HSG settled certain revenue contracts in the fourth quarter,
resulting in settlement gains of $383 million in net income. Corning’s
share of the settlement gains was $185 million.
54
55
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
HSG information is presented below as of December 31 for each respective year (in millions):
2019
2018
2017
Statement of operations:
Net sales
Gross profit
Net (loss) income
Net income attributable to HSG
Corning’s equity in earnings of affiliated companies
Related party transactions:
Dividends received from affiliated companies
Intercompany sales within HSG (included in net sales)
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:
Intercompany receivables and payables within HSG
(included in current assets and other current liabilities)
7. Acquisitions
There were no material acquisitions completed in 2019.
During 2018, Corning acquired substantially all of CMD in two cash
transactions totaling $841 million. Corning acquired a manufacturing
facility and a business, which designs, manufactures and markets high
bandwidth and optical fiber products. The acquisition was accounted for
as a business combination.
Property, plant and equipment
Other intangible assets
Other net assets
Total identified net assets
Purchase consideration
Goodwill(1)(2)
$
$
$
$
$
$
$
779
9
(117)
54
27
100
112
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,158
367
814
776
388
241
206
$
$
$
$
$
$
$
2019
2018
1,011
420
3
412
8
1,507
42
15
$
$
$
$
$
$
$
$
1,716
469
746
706
352
196
312
1,188
1,414
3
540
11
1,708
259
39
A summary of the 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):
$
$
32
525
13
570
841
271
(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.
56
PB
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
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 (loss). Supplemental pro forma information was
not provided because the acquisition was not material to Corning’s
consolidated financial statements.
There were no material acquisitions completed in 2017.
8. 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
Subtotal
Accumulated depreciation
Total
December 31,
2019
2018
$
452
$
467
6,023
19,100
2,757
28,332
(12,995)
5,924
18,078
2,358
26,827
(11,932)
$
15,337
$
14,895
Approximately $54 million, $49 million and $36 million of interest costs were capitalized as part of property, plant and equipment, net of accumulated
depreciation, in 2019, 2018 and 2017, respectively.
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. At December 31, 2019 and
2018, the recorded value of precious metals totaled $3 billion in each period. Depletion expense for precious metals in the years ended December 31,
2019, 2018 and 2017 was $16 million, $14 million and $13 million, respectively.
9. Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill for the twelve months ended December 31, 2019 and 2018, were as follows (in millions):
Display
Technologies
Optical
Communications
Specialty
Materials
Life
Sciences
All
Other
Total
$
136
$
$
150
$
623
$
114
$
1,694
Balance at December 31, 2017
Acquired goodwill(1)
Measurement period adjustment
Foreign currency translation adjustment
Balance at December 31, 2018
Measurement period adjustment
Foreign currency translation adjustment
Balance at December 31, 2019
671
257
11
(13)
$
926
3
2
$
931
$
$
150
$
2
(8)
617
(1)
150
$
616
259
11
(28)
$
1,936
3
(4)
(3)
111
(2)
109
$
1,935
$
$
(4)
132
(3)
129
$
$
(1) The Company completed the acquisition of CMD in 2018.
Corning’s gross goodwill balance and accumulated impairment losses were $8.4 billion and $6.5 billion, respectively, for the years ended
December 31, 2019 and 2018. Accumulated impairment losses were generated primarily through goodwill impairments related to the Optical
Communications segment.
PB
57
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
Other Intangible Assets
Other intangible assets follow (in millions):
Amortized intangible assets:
Patents, trademarks & trade names
Customer list and other
Total
Gross
$
$
469
1,301
1,770
2019
Accumulated
amortization
December 31,
Net
Gross
2018
Accumulated
amortization
$
$
228
357
585
$
$
241
944
1,185
$
$
465
1,308
1,773
$
$
203
278
481
Net
$
$
262
1,030
1,292
Amortized intangible assets are primarily related to the Optical
Communications and Life Sciences segments. The net carrying amount
of intangible assets decreased by $107 million during the year ended
December 31, 2019, primarily due to acquisitions of $9 million of patents
and other intangible assets, offset by amortization of $113 million and
foreign currency translation and other adjustments of $3 million.
Amortization expense related to all intangible assets is estimated to be
$113 million annually for 2020, $113 million annually for 2021, $111 million
annually for 2022, $110 million annually for 2023, and $110 million
annually for 2024.
10. Other Assets and Other Liabilities
Other assets follow (in millions):
Current assets:
Derivative instruments (Note 15)
South Korean tax deposits
Other current assets
Other current assets
Non-current assets:
Derivative instruments (Note 15)
South Korean tax deposits
Operating leases (Note 4)
Other non-current assets
Other assets
December 31,
2019
2018
$
$
$
157
33
683
873
92
415
504
476
$
$
$
103
599
702
45
425
551
$
1,487
$
1,021
South Korean tax deposits
CPM is currently appealing certain tax assessments and tax refund
claims for tax years 2010 through 2018. 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. We believe that it
is more likely than not that we will prevail in the appeal process, and
as a result we recorded a non-current receivable of $415 million as of
December 31, 2019 for the amount on deposit with the South Korean
government. In the fourth quarter of 2019, we received a refund of
$38 million from the South Korean government related to tax years
2006 to 2009. As of December 31, 2019, we have also recorded a current
receivable of $33 million for an amount refunded in January 2020 related
to the same issue for tax year 2015.
58
59
CORNING 2019 ANNUAL REPORT Other liabilities follow (in millions):
Current liabilities:
Wages and employee benefits
Income taxes
Derivative instruments (Note 15)
Asbestos and other litigation
Customer deposits (Note 2)
Short-term leases (Note 4)
Other current liabilities
Other accrued liabilities
Non-current liabilities:
Defined benefit pension plan liabilities
Derivative instruments (Note 15)
Asbestos and other litigation
Investment in Hemlock Semiconductor Group(1)
Customer deposits (Note 2)
Deferred tax liabilities
Long-term leases (Note 4)
Other non-current liabilities
Other liabilities
Notes to Consolidated Financial Statements
December 31,
2019
2018
$
$
$
565
182
100
57
104
62
853
1,923
980
165
196
270
927
325
450
667
$
$
$
642
169
56
113
54
817
1,851
831
386
279
922
347
887
$
3,980
$
3,652
(1) The negative carrying value resulted from a one-time charge to this entity in 2019 for the impairment of certain assets. Refer to Note 6 (Investments)
to the consolidated financial statements for additional information.
58
59
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
11. Debt
(In millions)
Current portion of long-term debt
Long-term debt
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
Debentures, 3.9%, due 2049
Debentures, 5.45%, due 2079
Yen-denominated Debentures, 0.698%, due 2024
Yen-denominated Debentures, 0.722%, due 2025
Yen-denominated Debentures, 0.992%, due 2027
Yen-denominated Debentures, 1.043%, due 2028
Yen-denominated Debentures, 1.153%, due 2031
Yen-denominated Debentures, 1.513%, due 2039
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
Financing Leases, average discount rate 5.47%, due through 2044
Other, average rate 4.27%, 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,
2019 and 2018.
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, 2019, there were no outstanding amounts under the
Revolving Credit Agreement.
December 31,
2019
2018
$
$
11
64
374
249
45
100
395
1,085
192
91
430
278
285
54
163
227
249
295
91
395
496
543
742
296
280
321
7,740
11
$
$
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
$
7,729
$
5,994
Based on borrowing rates currently available to us for loans with similar
terms and maturities, the fair value of long-term debt was $8.5 billion
and $6.0 billion at December 31, 2019 and 2018, respectively. The Company
measures the fair value of its long-term debt using Level 2 inputs based
primarily on current market yields for its existing debt traded in the
secondary market.
The following table shows debt maturities by year at December 31, 2019 (in millions)*:
2020
$
11
2021
$
2022
2023
2024
Thereafter
77
$
390
$
432
$
316
$
6,569
* Excludes interest rate swap gains, bond discounts and deferred expenses.
60
61
CORNING 2019 ANNUAL REPORT Debt Issuances and Retirements
2019
In the third quarter of 2019, Corning
yen-denominated debt securities (the “Notes”), as follows:
issued two
Japanese
• ¥31.3 billion 1.153% senior unsecured notes with a maturity of 12
years; and
• ¥5.9 billion 1.513% senior unsecured notes with a maturity of 20 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 approximately
$349 million and will be used for general corporate purposes. 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.
In the fourth quarter of 2019, Corning issued two U.S. dollar-denominated
debt securities (the “Notes”), as follows:
• $400 million 3.90% senior unsecured notes with a maturity of 30
years; and
• $1.1 billion 5.45% senior unsecured notes with a maturity of 60 years.
The net proceeds, after deducting offering expenses, were approximately
$1.5 billion and 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 2019, Corning redeemed $300 million of 4.25%
notes due in 2020, paying a premium of $4.7 million by exercising our
make-whole call. The bond redemption resulted in an $8.4 million loss
during the same quarter.
2018
In the second quarter of 2018, Corning issued three Japanese yen-
denominated debt securities (the “Notes”), as follows:
• ¥10 billion 0.722% senior unsecured notes with a maturity of 7 years;
12. 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 exceeding the minimum requirements in order to
achieve the Company’s long-term funding targets. In 2019, we made no
voluntary contributions to our domestic defined benefit pension plan
and cash contributions of $2 million to our international pension plans.
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. During 2020, we anticipate
making cash contributions of $85 million to our U.S. qualified pension
plan and $54 million to our international pension plans.
Notes to Consolidated Financial Statements
• ¥30.5 billion 1.043% senior unsecured notes with a maturity of
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 in 2019, paying a nominal call premium. The bond redemption
incurred an insignificant loss during the fourth quarter of 2018.
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.
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.
60
61
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
Obligations and Funded Status
The change in benefit obligation and funded status of our employee retirement plans are as follows (in millions):
December 31,
Change in benefit obligation
Total
pension benefits
Domestic
pension benefits
International
pension benefits
2019
2018
2019
2018
2019
2018
Benefit obligation at beginning of year
$
4,003
$
4,188
$
3,358
$
3,522
$
645
$
666
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 gain (loss) 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
$
$
$
$
$
$
$
$
$
101
148
1
533
6
(214)
3
4,581
3,239
615
22
1
(214)
8
3,671
3,671
(4,581)
(910)
82
(20)
(972)
(910)
338
29
367
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
$
$
$
$
$
$
$
$
$
76
133
1
462
6
(180)
3,856
2,742
576
14
1
(180)
3,153
3,153
(3,856)
(703)
(13)
(690)
(703)
306
30
336
$
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
25
15
71
(34)
3
725
497
39
8
(34)
8
518
518
(725)
(207)
82
(7)
(282)
(207)
32
(1)
31
$
$
$
$
$
$
$
$
$
25
16
1
(10)
(1)
(23)
(29)
645
535
1
17
(29)
(27)
497
497
(645)
(148)
81
(16)
(213)
(148)
14
(1)
13
The accumulated benefit obligation for defined benefit pension plans was $4.3 billion and $3.8 billion at December 31, 2019 and 2018, respectively.
62
63
CORNING 2019 ANNUAL REPORT December 31,
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Plan amendments
Actuarial loss (gain)
Other
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
Notes to Consolidated Financial Statements
Postretirement benefits
2019
2018
$
699
$
9
27
8
5
6
1
(50)
705
(705)
(705)
(34)
(671)
(705)
28
(32)
(4)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
789
10
24
8
(40)
(48)
(46)
2
699
(699)
(699)
(37)
(662)
(699)
21
(44)
(23)
The following information is presented for pension plans where the projected benefit obligation exceeded the fair value of plan assets (in millions):
Projected benefit obligation
Fair value of plan assets
December 31,
2019
2018
$
$
4,298
3,305
$
$
3,754
2,910
In 2019 and 2018, the fair value of plan assets exceeded the projected benefit obligation for the United Kingdom pension plan.
The following information is presented for pension plans where the accumulated benefit obligation exceeded the fair value of plan assets (in millions):
Accumulated benefit obligation
Fair value of plan assets
December 31,
2019
2018
$
$
3,904
3,178
$
$
3,410
2,766
In 2019, the fair value of plan assets exceeded the accumulated benefit obligation for the United Kingdom and South Korea pension plans. 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.
62
63
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
The components of net periodic benefit cost for our employee retirement plans in the following tables (in millions):
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
Special termination benefit charge
Total pension benefits
Domestic pension benefits
International pension benefits
2019
2018
2017
2019
2018
2017
2019
2018
2017
$
101
$ 103
$
92
$
132
(189)
6
145
$ 197
$
(1)
126
(174)
5
21
70
148
(171)
6
90
174
6
76
133
(161)
$
78
116
$
66
112
(178)
(163)
$
7
143
6
18
$ 166
$
39
$
$
7
66
121
6
25
15
(10)
(1)
24
53
$
$
25
16
(11)
(1)
2
31
(1)
$
$
26
14
(11)
(1)
3
31
Total expense
$ 180
$ 196
$
70
$
127
$ 166
$
39
$
53
$
30
$
31
$
88
(90)
$
1
180
(145)
20
$ (30)
$
47
$ 182
$
(21)
(66)
(143)
20
(8)
(18)
$
41
(24)
(6)
(6)
(5)
(7)
(7)
(6)
1
$
1
(2)
(2)
1
$
(22)
(3)
1
$
(8)
$
50
$ (56)
$ (26)
$
52
$
(32)
$
18
$
(2)
$ (24)
Other changes in plan assets and
benefit obligations recognized
in other comprehensive (income) loss:
Settlements
Current year actuarial loss (gain)
Amortization of actuarial loss
Current year prior service cost
Amortization of prior service
(cost) credit
Total recognized in other
comprehensive (income) loss
Service cost
Interest cost
Amortization of net gain
Amortization of prior service credit
Recognition of actuarial gain
Total net periodic benefit expense
Special termination benefit charge
Total expense
Other changes in plan assets and benefit obligations recognized in other comprehensive
loss (income):
Current year actuarial loss (gain)
Amortization of actuarial gain
Current year prior service cost (credit)
Amortization of prior service credit
Total recognized in other comprehensive loss (income)
$
19
$
(80)
Postretirement benefits
2019
$
$
$
$
9
27
(7)
(1)
28
1
29
6
1
5
7
2018
$
$
$
$
10
24
(7)
27
27
(47)
(40)
7
2017
$
$
$
$
$
10
26
(1)
(3)
32
32
17
1
3
21
The Company expects to recognize $5 million of net prior service cost as
a component of net periodic pension cost in 2020 for its defined benefit
pension plans. The Company expects to recognize $1 million of net
actuarial loss and $6 million of net prior service credit as components of
net periodic postretirement benefit cost in 2020.
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 hundreds of 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.
64
65
CORNING 2019 ANNUAL REPORT 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 at year-end 2017. As the Society
of Actuaries publishes additional mortality improvement scales (i.e.
MP-2019) and base mortality tables (i.e. Pri-2012), each year Corning has
considered these revised schedules in setting its mortality assumptions.
As of December 31, 2019, Corning decided to continue application of both
its future improvement scale to the MP-2017 scale and base mortality
assumptions to the RP-2014 tables.
Notes to Consolidated Financial Statements
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 2019.
Measurement of postretirement benefit expense
is based on
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 were as follows:
Pension benefits
Domestic
International
Postretirement benefits
2019
2018
2017
2019
2018
2017
2019
2018
2017
Discount rate
Rate of compensation increase
3.28%
3.50%
4.28%
3.50%
3.58%
3.50%
1.34%
2.96%
1.96%
2.96%
1.93%
2.81%
3.41%
4.33%
3.63%
The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 were as follows:
Pension benefits
Domestic
International
Postretirement benefits
2019
2018
2017
2019
2018
2017
2019
2018
2017
Discount rate
Expected return on plan assets
Rate of compensation increase
4.28%
6.00%
3.50%
3.58%
6.00%
3.50%
4.01%
6.00%
3.50%
1.96%
2.01%
2.96%
1.93%
2.13%
2.81%
2.29%
3.97%
2.06%
4.33%
3.63%
4.06%
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
2019
2018
6.75%
5%
2027
7.00%
5%
2027
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
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 primarily made in public securities to
ensure adequate liquidity to support benefit payments. Domestic and
international stocks 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
One-percentage-
point increase
One-percentage-
point decrease
$
$
2
42
$
$
(2)
(35)
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.
64
65
CORNING 2019 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:
December 31, 2019
December 31, 2018
Total
(Level 1)
(Level 2)
(Level 3)
Total
(Level 1)
(Level 2)
(Level 3)
(in millions)
Equity securities:
U.S. companies
International companies
Fixed income:
U.S. corporate bonds
Private equity(1)
Real estate(2)
Cash equivalents
Total
$
494
387
2,017
64
145
46
$
2
$
492
387
226
1,791
46
274
$
2,670
$
$
$
363
324
1,626
82
148
199
64
145
$
2
$
361
324
183
1,443
199
384
$
2,128
$
$
82
148
230
$
3,153
$
209
$ 2,742
$
(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.
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:
(in millions)
Fixed income:
December 31, 2019
December 31, 2018
Total
(Level 1)
(Level 2)
(Level 3)
Total
(Level 1)
(Level 2)
(Level 3)
International fixed income
$
455
$
373
$
82
$
428
$
361
$
67
Insurance contracts
Mortgages
Cash equivalents
Total
2
21
40
518
$
40
413
$
$
82
$
$
2
21
2
22
45
23
$
497
$
45
406
$
67
$
$
2
22
24
The following table sets forth a summary of changes in the fair value of the defined benefit plans Level 3 assets:
(in millions)
Balance at December 31, 2017
Actual return on plan assets relating to assets still held at the reporting date
Transfers in or out of level 3
Balance at December 31, 2018
Actual return on plan assets relating to assets still held at the reporting date
Transfers in or out of level 3
Balance at December 31, 2019
Level 3 assets – Domestic
Level 3 assets – International
Private equity
Real estate
Mortgages
Insurance
contracts
$
$
$
105
15
(38)
82
(18)
64
$
147
$
16
$
2
9
(8)
$
148
2
(5)
$
145
6
22
(1)
21
$
$
$
2
$
2
Credit Risk
Liquidity Risk
64% 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.
7% 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, 2019 and 2018, the amount of Corning common stock
included in equity securities was not significant.
66
67
CORNING 2019 ANNUAL REPORT Cash Flow Data
The following reflects the gross benefit payments that are expected to be paid for our domestic and international defined benefit pension plans and
the postretirement medical and life plans (in millions):
Notes to Consolidated Financial Statements
2020
2021
2022
2023
2024
2025-2029
Expected benefit payments
Domestic
pension benefits
International
pension benefits
Postretirement
benefits
$
$
$
$
$
$
207
214
223
233
239
1,299
$
$
$
$
$
$
25
33
30
30
34
210
$
$
$
$
$
$
34
37
37
37
37
190
Other Benefit Plans
We offer defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense
was $108 million, $67 million and $60 million for the years ended December 31, 2019, 2018 and 2017, respectively.
13. Commitments, Contingencies and Guarantees
The amounts of our obligations follow (in millions):
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
Performance bonds and guarantees
Stand-by letters of credit(1)
Subtotal of commitment expirations per period
Purchase obligations(2)
Capital expenditure obligations(3)
Total debt(4)
$
$
$
Finance leases and financing obligations
Interest on long-term debt(5)
Imputed interest on finance leases and
financing obligations
Operating Lease Obligations
Uncertain tax positions(6)
Subtotal of contractual obligation
payments due by period(6)
Total commitments and contingencies(6)
163
43
206
554
592
7,195
600
8,948
296
755
58
$
$
$
30
31
61
190
592
11
298
27
98
$
$
$
4
8
12
199
437
30
583
53
153
$
$
$
1
3
4
75
588
160
543
43
116
$
$
$
128
1
129
90
6,170
399
7,524
173
388
$
$
18,998
19,204
$
$
1,216
1,277
$
$
1,455
1,467
$
$
1,525
1,529
$
$
14,744
14,873
(1) At December 31, 2019, we had stand-by letters of credit commitments of $82 million; $39 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 or 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, 2019, $58 million was included on our consolidated balance sheets related to uncertain tax positions.
66
67
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
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.
Product warranty liability accruals at December 31, 2019 and 2018
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,
2019, 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.
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
$50 million and $35 million were made in June 2019 and June 2018,
respectively. The total amount of remaining payments due in years
2020 through 2023 is $135 million, of which $35 million will be paid in
the second quarter of 2020 and is classified as a current liability. The
remaining $100 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, 2019 and 2018, the amount of the reserve for
these non-PCC asbestos claims was estimated to be $98 million and
$146 million, respectively. The change in reserve reflects post-stay claim
experience and a reduction in expected defense costs. The reserve
balance as of December 31, 2019 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. Following the realignment, Corning
no longer owned any interest in Dow Corning. 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, subject to certain conditions and limits.
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
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, subject to certain conditions and limits. As of December 31,
2019, Dow Corning had recorded a reserve for breast implant litigation
of $165 million. As a result, Corning does not believe its indemnity
obligation for Dow Corning’s breast implant litigation liability, if any, will
be material.
Dow Corning Bankruptcy Pendency Interest Claims
As a separate matter arising from the bankruptcy proceedings, Dow
Corning has been defending claims asserted by commercial creditors who
claimed 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.
Dow Corning settled those claims as of September 30, 2019 and received
approval of the settlement from the bankruptcy court. Corning does
not believe its indemnity obligation, if any, for Dow Corning’s liability to
be material.
Dow Corning Environmental Claims
In September 2019, Dow Corning formally notified Corning of certain
environmental matters for which Dow Corning asserts that it has or will
experience losses arising from remediation and response at a number
of sites. In the event Dow Corning is liable for these claims, Corning may
be required to indemnify Dow Corning for up to 50% of that liability,
subject to certain conditions and limits. As of December 31, 2019, the
Company cannot estimate the fair value of the indemnification owed
to Dow Corning, if any.
68
69
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
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, 2019 and 2018, Corning had accrued approximately
$41 million (undiscounted) and $30 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.
14. 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.
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.
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.
Cash Flow Hedges
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
customers and purchases from suppliers. The total gross notional values
for foreign currency cash flow hedges are $2.1 billion and $0.4 billion at
December 31, 2019 and 2018, respectively. The majority of our foreign
exchange forward contracts hedge a portion of the Company’s exposure
to the Japanese yen denominated sales with maturities spanning
the years 2020-2023 and with gross notional values of $1.5 billion at
December 31, 2019.
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 is released from accumulated other
comprehensive income into earnings when the corresponding interest
expense occurs each period.
Corning uses regression analysis or critical term match method
to assess initial hedge effectiveness. Following the inception of a
hedging relationship, hedge effectiveness is assessed quarterly based
on qualitative factors. Corning defers gains and losses related to the
cash flow hedges into accumulated other comprehensive loss on the
consolidated balance sheets until the hedged item impacts earnings. At
December 31, 2019, the amount expected to be reclassified into earnings
within the next 12 months is a pre-tax net gain of $30 million.
Undesignated Hedges
Corning also uses OTC foreign exchange forward and option contracts
that are not designated as hedged instruments. These contracts are
used to offset economic currency risks. 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 2019
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 2020-2023. As of December 31, 2019, the U.S.
dollar gross notional value of the yen average rate forwards program is
$7.7 billion and $2.5 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, new
Taiwan dollar and British pound translation on the Company’s projected
net income. As of December 31, 2019, 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,
South 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 gain (loss), net
line of the consolidated statements of income (loss).
68
69
CORNING 2019 ANNUAL REPORT 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, 2019 and 2018 (in millions):
Notional amount
2019
2018
Balance sheet
location
Fair value
2019
2018
Balance sheet
location
Fair value
2019
2018
Asset derivatives
Liability derivatives
$
2,123
$
391
Other current
assets
$
Other assets
$
38
37
Other accrued
liabilities
4
$
2 Other liabilities
$
(2)
(7)
(4)
Derivatives designated as
hedging instruments
Foreign exchange
contracts
Derivatives not designated
as hedging instruments
Foreign exchange
contracts and other
1,815
900
Translated earnings
contracts
12,166
13,620
Other current
assets
Other assets
Other current
assets
Other assets
5
21
114
34
Other accrued
liabilities
5
(19)
(7)
Other accrued
liabilities
94
43 Other liabilities
(74)
(161)
(47)
(386)
(442)
Total derivatives
$
16,104
$
14,911
$
249
$
148
$
(265)
$
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
Gain (loss) recognized in other
comprehensive income (OCI)
Derivatives in hedging relationships
2019
2018
2017
Cash flow hedges
Location of gain (loss)
reclassified from
accumulated
OCI into income
effective (ineffective)
Gain (loss) reclassified from
accumulated OCI into income(1)
2019
2018
2017
Interest rate hedge
Foreign exchange contracts
Total cash flow hedges
$
$
72
72
$
$
16
(5)
11
$
$
38
38
Net sales
Cost of sales
Other expense, net
$
$
11
11
$
$
13
(1)
12
$
$
1
(12)
(2)
(13)
Undesignated derivatives
Foreign exchange and other contracts – balance
sheet, loans and other
Translated earnings contracts
Translated earnings contract gain (loss), net
Total undesignated
Other income (expense), net
$
$
21
248
269
$
$
22
(93)
(71)
$
$
(16)
(121)
(137)
Location of gain (loss)
recognized in income
Gain (loss) recognized in income
2019
2018
2017
(1) The effect of gain (loss) reclassified from accumulated OCI into income is not material to the financial statement line items in which effects of cash
flow hedges are recorded for 2019, 2018 and 2017.
70
71
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
15. 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:
Other assets(1)(2)
Current liabilities:
Other accrued liabilities(1)
Non-current liabilities:
Other liabilities(1)
December 31, 2019
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
$
$
$
$
157
92
100
165
$
$
$
$
157
71
100
165
$
21
(1) Derivative assets and liabilities include foreign exchange contracts which are measured using observable inputs for similar assets and liabilities.
(2) Other assets include one of the Company’s renewable energy derivative contracts that was measured using unobservable (Level 3) inputs, in the
amount of $21 million.
(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.
70
71
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
For the year ended December 31, 2019, assets and liabilities that were
measured using unobservable (Level 3) inputs resulted in unrealized
gains recognized in earnings of $21 million for a renewable energy
derivative contract and the reversal of a liability for contingent
consideration of $20 million.
based on the highest and best use of the asset group. As a result, HSG
recognized pre-tax asset impairment charges of $916 million for the year
ended December 31, 2019. Corning’s share of the pre-tax impairment was
$369 million. Refer to Note 6 (Investments) to the consolidated financial
statements for additional information.
At December 31, 2019, HSG, one of the Company’s equity method
affiliates, wrote down its long-lived assets to fair value on a nonrecurring
basis. HSG engaged a third-party appraiser to assist in determining the
fair value of its long-lived assets using unobservable (Level 3) inputs
There were no other significant financial assets and liabilities measured
on a nonrecurring basis during the years ended December 31, 2019
and 2018.
16. Shareholders’ Equity
Common Stock Dividends
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.
On February 5, 2020, Corning’s Board of Directors declared a 10.0%
increase in the Company’s quarterly common stock dividend, which
increased the quarterly dividend from $0.20 to $0.22 per share of
common stock, beginning with the dividend paid in the first quarter of
2020. This increase marks the ninth 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,
2019, 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
2017 Share Repurchases
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.
72
73
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
2018 Share Repurchases
2019 Share Repurchases
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 as part of its 2016 and 2018
Repurchase Programs.
On July 17, 2019, Corning’s Board of Directors authorized $5 billion
in share repurchases with no expiration date (the “2019 Repurchase
Program”). During the year ended December 31, 2019, the Company
repurchased 31.0 million shares of common stock on the open
market for approximately $0.9 billion as part of its 2018 and 2019
Repurchase Programs.
The following table presents changes in capital stock (in millions):
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
Shares issued to benefit plans and for option exercises
Shares purchased for treasury
Other, net
Balance at December 31, 2019
Common stock
Treasury stock
Shares
Par value
Shares
Cost
1,691
17
1,708
5
1,713
5
$
846
(765)
$
(14,152)
8
854
3
857
2
$
$
(84)
(1)
(850)
(75)
(2)
(2,462)
(17)
$
(16,633)
(2,230)
(7)
(925)
$
(18,870)
(31)
(925)
(17)
1,718
$
859
(956)
$
(19,812)
72
73
CORNING 2019 ANNUAL REPORT 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, 2016
Other comprehensive income
before reclassifications(4)
Amounts reclassified from accumulated
other comprehensive income(2)
Equity method affiliates(3)
Net current-period other
comprehensive income
Balance at December 31, 2017
Other comprehensive (loss) income
before reclassifications(5)
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
Other comprehensive (loss) 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, 2019
$
$
$
$
$
$
$
(1,275)
711
35
746
(529)
(180)
(5)
(185)
(714)
(129)
(14)
(143)
(857)
$
$
$
$
$
$
$
(347)
13
17
30
(317)
(84)
103
19
(298)
(79)
15
(64)
(362)
$
$
$
$
$
$
$
(17)
14
14
(3)
(1)
(1)
(4)
1
1
(3)
$
$
$
$
$
$
$
(37)
33
11
44
7
9
(10)
(1)
6
54
(9)
45
51
$
$
$
$
$
$
$
(1,676)
757
42
35
834
(842)
(256)
93
(5)
(168)
(1,010)
(153)
6
(14)
(161)
(1,171)
(1) All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.
(2) Tax effect of reclassifications are disclosed separately within this footnote.
(3) Tax effects related to equity method affiliates are not significant in the reported periods.
(4) Amounts are net of total tax expense of $97 million, including $88 million, $5 million and $4 million, related to foreign currency translation
adjustments, the hedge component and retirement plans, respectively.
(5) Amounts are net of total tax benefit of $64 million, primarily driven by $34 million and $33 million, related to foreign currency translation
adjustments and retirement plans, respectively.
(6) Amounts are net of total tax benefit of $8 million, primarily driven by $7 million related to foreign currency translation adjustments; embedded
in this number is the negative impact of $18 million related to the hedging component, offset by the positive impact of $19 million related to
retirement plans.
74
75
CORNING 2019 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 credit (cost)
Realized losses on investments
Realized gains (losses) on designated hedges
Total reclassifications for the period
Amount reclassified from AOCI
Years ended December 31,
2018
2017
2019
$
$
$
$
$
(89)
1
(88)
73
(15)
11
11
(2)
9
(6)
$
$
$
$
$
(138)
(6)
(144)
41
(103)
13
(1)
12
(2)
10
(93)
$
$
$
$
$
$
$
Affected line item
in the consolidated
statements of income (loss)
(2)
(2)
(20)
(2)
(22) Total before tax
5 Tax benefit(3)
(17) Net of tax
(3) Other expense, net
(11) Tax expense
(14) Net of tax
1 Sales
(12) Cost of sales
(2) Other expense, net
(13) Total before tax
2 Tax (expense) benefit
(11) Net of tax
(42) Net of tax
(1) Amounts in parentheses indicate debits to the statement of income.
(2) These accumulated other comprehensive income components are included in net periodic pension cost. Refer to Note 12 (Employee Retirement
Plans) to the consolidated financial statements for additional details.
(3) Includes $52 million that was recognized during the first quarter of 2019 due to adoption of the new standard related to Income Statement - Reporting
Comprehensive Income, which allows for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects.
17. 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 is as follows (in millions,
except per share amounts):
Years ended December 31,
2019
2018
2017
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
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
Total
$
$
$
$
960
98
862
98
960
776
8
115
899
1.11
1.07
2
2
$
1,066
$
98
968
98
$
1,066
$
(497)
98
(595)
(595)
895
$
$
816
10
115
941
1.19
1.13
2
2
895
(0.66)
(0.66)
$
$
115
13
128
74
(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.
75
CORNING 2019 ANNUAL REPORT Notes to Consolidated Financial Statements
18. 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, serum and reagents enabling workflow solutions for drug
discovery and bioproduction.
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.
We prepared the financial results for our reportable segments on a basis
consistent with our internal disaggregation of financial information to
assist our chief operating decision maker (“CODM”) in making internal
operating decisions. The impact of changes in the Japanese yen, South
Korean won, Chinese yuan and new Taiwan dollar are excluded from
segment sales and segment net income for the Display Technologies
and Specialty Materials segments. The impact of changes in the euro,
Chinese yuan and Japanese yen are excluded from segment sales and
segment net income for our Environmental Technologies and Life
Sciences segments. In January 2019, we began presenting results of the
Environmental Technologies and Life Sciences segments on a constant-
currency basis to mitigate the translation impact on these segments’
sales and net income. We have not recast prior periods as the impact of
fluctuations in these currencies were not material as compared to prior
periods. Certain income and expenses are 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 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; certain litigation, regulatory and other
legal matters; restructuring, impairment and other charges or credits;
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 included the earnings of equity affiliates that are closely associated
with our reportable segments in the respective segment’s net income
(loss). We have allocated certain common expenses among reportable
segments differently than we would for stand-alone financial
information. Segment net income (loss) may not be consistent with
measures used by other companies.
76
77
CORNING 2019 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, 2019
Display
Technologies
Optical
Communications
Specialty
Materials
Environmental
Technologies
Life
Sciences
All
Other
Total
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)
$
$
$
$
$
$
3,254
583
119
(206)
786
145
$ 9,022
Capital expenditures
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
872
3,276
585
106
(221)
835
131
8,794
755
3,137
534
88
(234)
888
134
$ 8,662
$
795
$ 4,064
$
$
$
237
218
(134) $
489
3
3,004
329
4,192
218
212
$
$
$
$
$
$
$
(163) $
592
3
3,042
417
3,545
193
174
$
$
$
$
$
$
$
(129) $
469
2
2,599
505
$
$
$
$
1,594
145
154
(81)
302
3
2,433
176
1,479
136
163
(83)
313
6
2,176
242
1,403
129
152
(79)
301
3
2,155
223
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,499 $
1,015
$
230 $ 11,656
128 $
49 $
50 $
1,192
118 $
21
$
237 $
(70) $
(40) $
80 $
867
(451)
263
1,912
287
$
$
$
$
150 $ (289) $
1,701
3
$
154
627
$
891 $ 17,889
80 $
155 $
1,899
1,289 $
946 $
216 $ 11,398
119 $
118 $
(55) $
208 $
$
$
$
1,633
273
50 $
38 $
1,146
20 $
231 $
850
(31) $
76 $
(477)
117
1
$
$
(281) $
1,784
171 $
312
585
$ 1,018 $ 17,248
55
$
329 $
2,071
1,106 $
879 $
188 $ 10,258
124
113
$
$
52
22
$
$
45 $
1,077
211 $
760
(44) $
(25) $
69 $
(442)
165
$
95
$ (259) $
1,659
$
140 $
279
1,402
157
$
$
538 $
824 $ 16,180
42
$
156 $
1,878
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(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 is as follows (in millions):
Net sales of reportable segments and All Other
Constant-currency adjustment(1)
Consolidated net sales
Years ended December 31,
2019
2018
2017
$ 11,656
$ 11,398
$ 10,258
(153)
(108)
(142)
$ 11,503
$ 11,290
$ 10,116
(1) This amount primarily represents the impact of foreign currency adjustments in the Display Technologies and Environmental Technologies segments.
76
77
CORNING 2019 ANNUAL REPORT 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)
Gain (loss) on foreign currency hedges related to translated earnings
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
Income tax benefit (provision)
Other corporate items
Net income (loss)
(1) Refer to Note 6 (Investments) to the consolidated financial statements for additional detail.
A reconciliation of reportable segment assets to consolidated total assets follows (in millions):
2019
$
1,990
(289)
(115)
245
(3)
17
(164)
9
(113)
(200)
(95)
195
(517)
2018
2017
$
2,065
$
(281)
(157)
(78)
(18)
(124)
(134)
390
(93)
(149)
(145)
42
(252)
1,918
(259)
(168)
(121)
(14)
12
(106)
352
(75)
(110)
(22)
(1,709)
(195)
(497)
$
960
$
1,066
$
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,
2019
2018
2017
$
16,998
$
16,230
$
15,356
891
1,018
3,301
180
1,764
5,764
3,065
64
1,928
5,200
824
5,315
61
1,628
4,310
$
28,898
$
27,505
$
27,494
(1) Includes current corporate assets, including cash, other receivables, prepaid expenses and current portion of long-term derivative assets.
(2) Represents corporate equity and cost basis investments. Asset balance does not include equity method affiliate liability balance of $270 million and
$105 million for HSG in 2019 and 2017.
(3) Represents corporate property not specifically identifiable to an operating segment.
(4) Includes non-current corporate assets, including goodwill, other intangible assets, pension assets, long-term derivative assets, operating leases and
deferred income taxes.
78
79
CORNING 2019 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
Net sales of reportable segments and All Other
Constant-currency adjustment(1)
Consolidated net sales
Years ended December 31,
2019
2018
2017
$
3,254
$
3,276
$
3,137
2,885
1,179
4,064
1,180
414
1,594
907
592
1,499
550
465
1,015
230
11,656
(153)
3,084
1,108
4,192
1,069
410
1,479
719
570
1,289
536
410
946
216
11,398
(108)
2,720
825
3,545
1,044
359
1,403
627
479
1,106
524
355
879
188
10,258
(142)
$
11,503
$
11,290
$
10,116
(1) This amount primarily represents the impact of foreign currency adjustments in the Display Technologies and Environmental Technologies segments.
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
2019
2018
2017
Net sales(2)
Long-lived
assets(1)
Net sales(2)
Long-lived
assets(1)
Net sales(2)
Long-lived
assets(1)
$
3,760
$
7,654
$
3,569
$
7,538
$
3,146
$
6,605
277
55
4,092
441
880
3,096
1,051
401
5,869
435
886
1,321
374
126
267
8,047
893
2,280
3,816
3,625
86
10,700
546
947
1,493
38
296
53
3,918
415
921
2,716
1,259
436
5,747
451
905
1,356
377
127
200
7,865
1,148
2,326
2,644
3,736
85
9,939
508
1,167
1,675
41
287
27
3,460
476
900
2,247
1,337
378
5,338
426
701
1,127
333
144
174
6,923
1,119
2,357
2,125
3,869
71
9,541
236
1,108
1,344
46
$
11,656
$
20,278
$
11,398
$
19,520
$
10,258
$
17,854
(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.
78
79
CORNING 2019 ANNUAL REPORT Valuation and Qualifying Accounts
(in millions)
Year ended December 31, 2019
Doubtful accounts and allowances
Deferred tax valuation allowance
Balance at
beginning of period
$
$
64
317
Additions
$
$
17
10
Net deductions
and other
Balance at end
of period
$
112
$
$
81
215
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
Balance at
beginning of period
$
$
$
59
270
5
Additions
$
$
1
241
Net deductions
and other
Balance at end
of period
$
$
60
456
$
$
55
5
80
81
CORNING 2019 ANNUAL REPORT Safe Harbor Statement
Annual Meeting
The annual meeting of shareholders will be held on Thursday, April 30,
2020, in Corning, New York. A formal notice of the meeting and a proxy
statement will be mailed to shareholders on or about March 20, 2020.
The proxy statement can also be accessed electronically through the
Investor Relations page of the Corning website at corning.com and
at corning. com/2020-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 2019 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, 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 2019 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:
– 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
ongoing operations and manufacturing expansions and pay
receivables when due;
–
loss of significant customers;
– changes in tax laws and regulations including the 2017 Tax Act;
– the impacts 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 furnished
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.
Corning is guided by an enduring set of Values that define our relationships with employees, customers,
and the communities in which we operate.
Corning Incorporated
One Riverfront Plaza
Corning, NY 14831-0001
U.S.A.
www.corning.com
02ARFI40120EN
© 2020 Corning Incorporated. All Rights Reserved.
FPO