CORNING INCORPORATED ORGANIZATION OF INFORMATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") provides a historical and prospective narrative on the
Company's financial condition and results of operations. This interim MD&A
should be read in conjunction with the MD&A in Corning's 2021 Form 10-K. The
various sections of this MD&A contain forward-looking statements that involve
risks and uncertainties. Words such as "anticipates," "expects," "intends,"
"plans," "goals," "believes," "seeks," "estimates," "continues," "may," "will,"
"should," and variations of such words and similar expressions are intended to
identify such forward-looking statements. In addition, any statements that refer
to projections of the Company's future financial performance, anticipated growth
and trends in the businesses, uncertain events or assumptions, and other
characterizations of future events or circumstances are forward-looking
statements. Such statements are based on current expectations and could be
affected by the uncertainties and risk factors described throughout this filing
and particularly in "Risk Factors" in Part I, Item 1A of Corning's 2021 Form
10-K, and as may be updated in the Forms 10-Q. Actual results may differ
materially, and these forward-looking statements do not reflect the potential
impact of any divestitures, mergers, acquisitions, or other business
combinations that had not been completed as of March 31, 2022 .
MD&A includes the following sections:
? Overview ? Results of Operations ? Core Performance Measures ? Reportable Segments ? Capital Resources and Liquidity ? Critical Accounting Estimates ? Environment ? Forward-Looking Statements OVERVIEW The Company has and will continue to focus on three core priorities: preserving the financial health of the Company; protecting employees and communities; and delivering on customer commitments. We are continuing to build a stronger, more resilient company that is committed to rewarding shareholders and supporting all global stakeholders.Corning continues to act rapidly and remain resilient in the face of global uncertainty. We have preserved our financial strength by executing well and advancing major innovations with industry leaders. We have continued to effectively leverage our focused and cohesive portfolio to create value and outperform our underlying markets, contributing to sales and earnings growth and strong free cash flow generation in the three months endedMarch 31, 2022 .Corning announced the Strategy & Growth Framework in 2019, highlighting significant opportunities to sell moreCorning content through each of our Market-Access Platforms. The Company is focused on our cohesive portfolio and the utilization of our financial strength, supported by strong operating cash flow generation, which we expect to continue.Corning has and will continue to use its cash to grow, extend its leadership and reward shareholders. Our key growth drivers remain intact, and some are accelerating as key trends converge aroundCorning's capabilities.Corning will continue to advance the objectives of the Strategy & Growth Framework, which sets its leadership priorities and articulates opportunities across its businesses. 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. © 2022Corning Incorporated . All Rights Reserved. 23
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Summary of results for the three months ended
In the first quarter of 2022, net sales were
In the first quarter of 2022,Corning generated net income of$581 million , or$0.68 per diluted share, compared to net income of$599 million , or$0.67 per diluted share, for the same period in 2021. The decrease in net income of$18 million was primarily driven by lower translated earnings contract gains of$110 million (amount presented after-tax), partially offset by higher net income of reportable segments andHemlock and Emerging Growth Businesses of$72 million and a gain on the sale of a business of$41 million . The change in diluted earnings per share for the three months endedMarch 31, 2022 , was primarily driven by the changes in net income, outlined above, and impacted by share repurchases of 47.6 million over the last twelve months.
The translation impact of fluctuations in foreign currency exchange rates,
including the impact of hedges realized in the current quarter, adversely
impacted
2022 Corporate Outlook
We expect core net sales of approximately
© 2022 Corning Incorporated . All Rights Reserved.
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Table of Contents RESULTS OF OPERATIONS
Selected highlights from operations are as follows (in millions):
Three months ended %
March 31, change
2022 2021 22 vs. 21
Net sales $ 3,680 $ 3,290 12 %
Gross margin $ 1,283 $ 1,156 11 %
(gross margin %) 35 % 35 %
Selling, general and administrative expenses
400 9 % (as a % of net sales) 12 %
12 %
Research, development and engineering expenses
222 12 % (as a % of net sales) 7 %
7 %
Translated earnings contract gain, net$ 129 $ 272 (53 %) (as a % of net sales) 4 % 8 % Provision for income taxes$ (180 ) $ (226 ) (20 %) (as a % of net sales) (5 %) (7 %)
Net income attributable to
599 (3 %) (as a % of net sales) 16 % 18 % Segment Net Sales
The following table presents segment net sales by reportable segment and
Three months ended %
March 31, change
2022 2021 22 vs. 21
Optical Communications $ 1,198 $ 937 28 %
Display Technologies 959 863 11 %
Specialty Materials 493 451 9 %
Environmental Technologies 409 441 (7 %)
Life Sciences 310 300 3 %
Net sales of reportable segments $ 3,744 $ 3,263 15 %
Hemlock and Emerging Growth Businesses 375 271 38 %
Impact of foreign currency movements (1) (64 ) 27 (337 %)
Consolidated net sales $ 3,680 $ 3,290 12 %
(1) This amount primarily represents the impact of foreign currency adjustments in
the Display Technologies segment.
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In the first quarter of 2022, net sales of reportable segments andHemlock and Emerging Growth Businesses were$3,744 million , compared to$3,263 million during the same period in 2021, a net increase of$481 million , or 15%. Changes in net sales were as follows:
?
primarily driven by higher sales of carrier products as network operators
increased capital spending to address demand for 5G, broadband, and the
cloud;
? Display Technologies' net sales increased by
to volume growth of approximately 10 percent and slightly higher pricing;
? Specialty Materials' net sales increased by
to strong demand for premium cover materials and advanced optics products;
? Net sales for Environmental Technologies decreased by
primarily driven by sales declines of heavy-duty diesel products of
million, or 5%, and automotive products, of
shortages limited automotive production; ? Net sales for Life Sciences increased by$10 million , or 3%; and ? Net sales forHemlock and Emerging Growth Businesses increased by
CPT contributing to year-over-year growth. Movements in foreign exchange rates adversely impactedCorning's consolidated net sales by$98 million in the three months endedMarch 31, 2022 , when compared to the same period in 2021. 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; freight and logistics costs; and other production overhead. Gross Margin In the three months endedMarch 31, 2022 , gross margin increased by$127 million , or 11%, and was consistent as a percentage of sales when compared to the prior period. The increase in gross margin was primarily driven by higher sales and the benefit of pricing actions across all businesses.
The translation impact of fluctuations in foreign currency exchange rates,
including the impact of hedges realized in the current quarter, adversely
impacted
Selling, General and Administrative Expenses
In the three months endedMarch 31, 2022 , selling, general and administrative expenses increased by$34 million , or 9%, and was consistent as a percentage of sales, when compared to the prior period. Increases in these costs were primarily driven by higher compensation and benefit expenses when compared to the same period in 2021. The types of expenses included in the selling, general and administrative expenses line item are: salaries, wages and benefits; share-based compensation expense; travel; sales commissions; professional fees; and depreciation and amortization, utilities, rent for administrative facilities and restructuring, impairment and other charges and credits.
Research, Development and Engineering Expenses
In the three months endedMarch 31, 2022 , research, development and engineering expenses increased by$26 million , or 12%, was consistent as a percentage of sales when compared to the prior period.
Translated earnings contract gain, net
Included in the line item translated earnings contract gain, net, is the impact of foreign currency contracts which hedge our translation exposure arising from movements in the Japanese yen, South Korean won, newTaiwan dollar, euro, Chinese yuan and British pound and the impact on net income. © 2022Corning Incorporated . All Rights Reserved. 26
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The following table provides detailed information on the impact of translated earnings contract gains and losses (in millions):
Three months ended Three months ended Change
March 31, 2022 March 31, 2021 2022 vs. 2021
Income Income Income
before Net before Net before Net
taxes income taxes income taxes incomeHedges related to translated earnings: Realized gain (loss), net (1)$ 33 $ 25 $ (12 ) $ (9 ) $ 45 $ 34 Unrealized gain, net (2) 96 74 284 218 (188 ) (144 ) Total translated earnings contract gain, net$ 129 $ 99 $ 272 $ 209
$ (143 ) $ (110 )
(1) Includes before tax realized losses related to the expiration of option
contracts for the three months ended
and
activities in the consolidated statements of cash flows.
(2) The impact to income was primarily driven by yen-denominated hedges of
translated earnings.
Income Before Income Taxes
The translation impact of fluctuations in foreign currency exchange rates,
including the impact of hedges realized in the current quarter, adversely
impacted
Provision for Income Taxes
The provision for income taxes and the related effective income tax rates are as
follows (in millions):
Three months ended
March 31,
2022 2021
Provision for income taxes $ (180 ) $ (226 )
Effective tax rate 23.7 % 27.4 %
For the three months ended March 31, 2022 , the effective income tax rate
differed from the U.S. statutory rate of 21%, primarily due to changes in tax
reserves and the impact of changes in tax legislation, partially offset by
differences arising from foreign earnings. For the three months ended March 31,
2021 , the effective income tax rate differed from the U.S. statutory rate of
21%, primarily due to adjustments to our permanently reinvested foreign income
position and tax reform items.
Refer to Note 3 (Income Taxes) to the consolidated financial statements for additional information.
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Net Income Attributable to
Net income and per share data is as follows (in millions, except per share
amounts):
Three months ended
March 31,
2022 2021
Net income attributable to Corning Incorporated $ 581 $ 581
Net income available to common shareholders used in diluted earnings per common share calculation
$ 581
Basic earnings per common share$ 0.69 $ 0.75 Diluted earnings per common share$ 0.68
Weighted-average common shares outstanding - basic 843 766 Weighted-average common shares outstanding - diluted 859 898 Comprehensive Income For the three months endedMarch 31, 2022 , comprehensive income increased by$147 million when compared to the same period in 2021, primarily due to a net gain on foreign currency translation adjustments of$163 million , largely driven by the Japanese yen and South Korean won.
Refer to Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.
CORE PERFORMANCE MEASURES In managing the Company and assessing our financial performance, certain measures provided by our consolidated financial statements are adjusted to exclude specific items to arrive at core performance measures. These items include gains and losses on translated earnings contracts, acquisition-related costs, certain discrete tax items and other tax-related adjustments, restructuring, impairment losses, and other charges and 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, Environmental Technologies, Specialty Materials and Life Sciences segments for the Japanese yen, South Korean won, Chinese yuan, newTaiwan dollar and the euro. 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 earnings and cash flows.Corning also believes that reporting core performance measures provides investors greater transparency to the information used by the management team to make financial and operational decisions. Core performance measures are not prepared in accordance with GAAP. We believe investors should consider these non-GAAP measures in evaluating results as they are more indicative of our core operating performance and how management evaluates 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 theU.S. dollar, or other items that do not reflect ongoing operations, nor does it forecast items that have not yet occurred or are out of the Company's control. As a result, the Company is unable to provide outlook information on a GAAP basis.
For a reconciliation of non-GAAP performance measures to their most directly comparable GAAP financial measure, please see "Reconciliation of Non-GAAP Measures".
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RESULTS OF OPERATIONS - CORE PERFORMANCE MEASURES
Selected highlights from continuing operations, excluding certain items, follow
(in millions):
Three months ended %
March 31, change
2022 2021 22 vs. 21
Core net sales $ 3,744 $ 3,263 15 %
Core net income $ 465 $ 402 16 %
Core Net Sales
Core net sales are consistent with net sales by reportable segment and Hemlock
and Emerging Growth Businesses. Core net sales are presented below (in
millions):
Three months ended %
March 31, change
2022 2021 22 vs. 21
Optical Communications $ 1,198 $ 937 28 %
Display Technologies 959 863 11 %
Specialty Materials 493 451 9 %
Environmental Technologies 409 441 (7 )%
Life Sciences 310 300 3 %
Net sales of reportable segments $ 3,369 $ 2,992 13 %
Net sales of Hemlock and Emerging
Growth Businesses 375 271 38 %
Total core net sales $ 3,744 $ 3,263 15 %
Core Net Income
In the three months ended March 31, 2022 , we generated core net income of
$465 million , or $0.54 per diluted share, compared to core net income generated
in the three months ended March 31, 2021 of $402 million , or $0.45 per diluted
share. The increase of $63 million , or $0.09 per diluted share, was
primarily due to higher net income of reportable segments and Hemlock and
Emerging Growth Businesses when compared to the same period in 2021. Changes in
net income are as follows:
?
higher volume and price;
? Display Technologies' net income increased
increased volume and slightly higher pricing; and
?
The increases to segment net income were partially offset by declines in net income of$16 million and$6 million for Specialty Materials and Life Sciences, respectively.
The change in diluted earnings per share was primarily driven by changes in net income, outlined above, and share repurchases of 47.6 million over the last twelve months. Refer to Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.
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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):
Three months ended
March 31,
2022 2021
Core net income attributable to
$ 402 Less: Series A convertible preferred stock dividend
24
Core net income available to common shareholders - basic 465
378
Plus: Series A convertible preferred stock dividend
24
Core net income available to common shareholders - diluted
Weighted-average common shares outstanding - basic 843
766
Effect of dilutive securities: Stock options and other dilutive securities 16
17
Series A convertible preferred stock
115
Weighted-average common shares outstanding - diluted 859
898
Core basic earnings per common share$ 0.55 $ 0.49 Core diluted earnings per common share$ 0.54 $ 0.45
Reconciliation of Non-GAAP Measures
Corning utilizes certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess 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 or statements 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 or statements of cash flows. Core net sales, core equity in earnings of affiliated companies and core net income are non-GAAP financial measures utilized by 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. © 2022Corning Incorporated . All Rights Reserved. 30
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The following tables reconcile the non-GAAP financial measures to their most directly comparable GAAP financial measure (amounts in millions except percentages and per share amounts):
Three months ended March 31, 2022
Income
Equity before Effective
Net (losses) income Net tax Per
sales earnings taxes income rate (a) share
As reported - GAAP $ 3,680 $ (1 ) $ 761 $ 581 23.7 % $ 0.68
Constant-currency adjustment (1) 64 1 63 49 0.06
Translation gain on Japanese
yen-denominated debt (2) (84 ) (64 ) (0.07 )
Translated earnings contract
gain (3) (129 ) (99 ) (0.12 )
Acquisition-related costs (4) 39 32 0.04
Discrete tax items and other
tax-related adjustments (5) 11 0.01
Pension mark-to-market
adjustment (6) (10 ) (8 ) (0.01 )
Restructuring, impairment and
other charges and credits (7) 33 24 0.03
Gain on sale of business (8) (53 ) (41 ) (0.05 )
Contingent consideration (9) (26 ) (20 ) (0.02 )
Core performance measures $ 3,744 $ - $ 594 $ 465 21.7 % $ 0.54
(a) Based upon statutory tax rates in the specific jurisdiction for each event.
Three months ended March 31, 2021
Income
before Effective
Net Equity income Net tax Per
sales earnings taxes income rate (a) share
As reported - GAAP $ 3,290 $ 8 $ 825 $ 599 27.4 % $ 0.67
Constant-currency adjustment (1) (27 ) (6 ) 5 0.01
Translation gain on Japanese
yen-denominated debt (2) (118 ) (90 ) (0.10 )
Translated earnings contract
gain (3) (272 ) (209 ) (0.23 )
Acquisition-related costs (4) 47 35 0.04
Discrete tax items and other
tax-related adjustments (5) 37 0.04
Pension mark-to-market
adjustment (6) 5 4 0.00
Gain on sale of business (8) (14 ) (14 ) (0.02 )
Litigation, regulatory and other
legal matters (10) 8 8 0.01
Loss on investments (11) 35 27 0.03
Core performance measures
21.2 % $ 0.45 (a) Based upon statutory tax rates in the specific jurisdiction for each event.
See Part 1, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Results of Operations - Core Performance Measures,
Reconciliation of Non-GAAP Measures, "Items which we exclude from GAAP measures
to report core performance measures" for the descriptions of the footnoted
reconciling items.
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Items which we exclude from GAAP measures to arrive at core performance measures are as follows:
(1) Constant-currency adjustment: Because a significant portion of segment revenues and
expenses are denominated in currencies other than the
is important to understand the impact on core net income of translating these currencies
into
denominated in Japanese yen, but also impacted by the South Korean won, Chinese yuan, and
new
income are primarily impacted by the euro and Chinese yuan. Presenting results on a
constant-currency basis mitigates the translation impact and allows management to evaluate
performance period over period, analyze underlying trends in the 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 Japanese yen Korean won Chinese yuan New Taiwan dollar Euro
Rate ¥107 ?1,175 ¥6.7 NT$31 €.81
(2) Translation gain on Japanese yen-denominated debt: We have excluded the gain or loss on the
translation of the yen-denominated debt to
unrealized gains and losses of the Japanese yen, South Korean won, Chinese yuan, euro and
new
well as the unrealized gains and losses of the British pound-denominated foreign currency
hedges related to translated earnings. (4) Acquisition-related costs: These expenses include intangible amortization, inventory
valuation adjustments, external acquisition-related deal costs, and other transaction
related costs. (5) Discrete tax items and other tax-related adjustments: These include discrete period tax
items such as changes of tax reserves and changes in our permanently reinvested foreign
income position. (6) 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. (7) Restructuring, impairment and other charges and credits: This amount primarily includes
other charges and credits. A portion of the charge during the first quarter of 2022,
related to facility repairs resulting from the impact of the third quarter 2021 power
outages. The Company is pursuing recoveries under its applicable property insurance
policies.
(8) Gain on sale of business: Amount represents the gain recognized for the sale of a certain
business.
(9) Contingent consideration: This amount represents the fair value mark-to-market cost
adjustment of contingent consideration resulting from the Hemlock Transaction on September
9, 2020. (10) Litigation, regulatory and other legal matters: Includes amounts that reflect developments
in commercial litigation, intellectual property disputes, adjustments to the estimated
liability for environmental-related items and other legal matters. (11) Loss on investments: Amount represents the loss recognized due to mark-to-mark adjustments
capturing the change in fair value based on the closing stock market price.
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Table of Contents REPORTABLE SEGMENTS
Reportable segments are as follows:
?
components for the telecommunications industry. ? Display Technologies - manufactures glass substrates for flat panel liquid
crystal displays and other high-performance display panels. ? 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 businesses that do not meet the quantitative threshold for separate reporting have been grouped as "Hemlock and Emerging Growth Businesses". The net sales for this group are primarily attributable toHemlock , which is an operating segment that produces solar and semiconductor products. The emerging growth businesses primarily consist of CPT, AGS and the EIG, which are also operating segments. Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the CODM in making internal operating decisions. A significant portion of segment revenues and expenses are denominated in currencies other than theU.S. dollar. Management believes it is important to understand the impact on core net income of translating these currencies intoU.S. dollars. The Company uses constant currency reporting for Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences.Corning excludes the impact of these currencies from segment sales and net income. The adjustment for constant currency is primarily related to the Display Technologies' segment and excludes the impact of the fluctuation of the Japanese yen, South Korean won, Chinese yuan, and newTaiwan dollar. Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to consolidated net income. These include items that are not used by the CODM in evaluating the results of or in allocating resources to the segments and include the following items: the impact of translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment losses and other charges and credits; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results. Earnings of equity affiliates that are closely associated with the reportable segments are included in the respective segment's net income (loss). Certain common expenses among reportable segments have been allocated differently than they would for stand-alone financial information. Segment net income (loss) may not be consistent with measures used by other companies.Optical Communications
The following table provides net sales and net income for the
Three months ended %
March 31, change
2022 2021 22 vs. 21
Segment net sales $ 1,198 $ 937 28 %
Segment net income $ 166 $ 111 50 %
Optical Communications' net sales increased by $261 million in the three months
ended March 31, 2022 , primarily driven by higher sales volumes of carrier
products as network operators increased capital spending to address demand for
5G, broadband, and the cloud.
Net income increased by
Movements in foreign currency exchange rates did not materially impact net
income in this segment in the three months ended
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Table of Contents Display Technologies
The following table provides net sales and net income for the Display Technologies segment (in millions):
Three months ended %
March 31, change
2022 2021 22 vs. 21
Segment net sales $ 959 $ 863 11 %
Segment net income $ 236 $ 213 11 %
Net sales in the Display Technologies segment increased by $96 million in the
three months ended March 31, 2022 , and were largely due to volume growth of
approximately 10 percent and slightly higher pricing. Net income in the Display
Technologies segment increased by $23 million in the three months ended March
31, 2022 , primarily driven by the increases in sales outlined above.
Specialty Materials
The following table provides net sales and net income for the Specialty Materials segment (in millions):
Three months ended %
March 31, change
2022 2021 22 vs. 21
Segment net sales $ 493 $ 451 9 %
Segment net income $ 75 $ 91 (18 %)
Net sales in the Specialty Materials segment increased by $42 million for the
three months ended March 31, 2022 , primarily due to strong demand for premium
cover materials and advanced optics products for the three months ended March
31, 2022 .
Net income decreased by $16 million for the three months ended March 31, 2022 ,
primarily driven by increased investments in innovation programs that are moving
towards commercialization.
Environmental Technologies
The following table provides net sales and net income for the Environmental Technologies segment (in millions):
Three months ended %
March 31, change
2022 2021 22 vs. 21
Segment net sales $ 409 $ 441 (7 %)
Segment net income $ 74 $ 74 -
Net sales in the Environmental Technologies segment decreased by $32 million for
the three months ended March 31, 2022 . Sales of heavy-duty diesel products
decreased $8 million , or 5%, and automotive sales declined $24 million , or 9%,
as component shortages limited automotive production. Net income was flat when
compared to the prior period.
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Table of Contents Life Sciences
The following table provides net sales and net income for the Life Sciences segment (in millions):
Three months ended %
March 31, change
2022 2021 22 vs. 21
Segment net sales $ 310 $ 300 3 %
Segment net income $ 42 $ 48 (13 %)
Net sales in the Life Sciences segment increased by $10 million in the three
months ended March 31, 2022 , and net income decreased by $6 million for the
three months ended March 31, 2022 , primarily due to COVID-related operational
challenges in the first half of the quarter, which impacted output.
All other businesses that do not meet the quantitative threshold for separate reporting have been grouped as "Hemlock and Emerging Growth Businesses". The net sales for this group are primarily attributable toHemlock , which is an operating segment that produces solar and semiconductor products. The emerging growth businesses primarily consist of CPT, AGS and the EIG, which are also operating segments.
The following table provides net sales and net loss for
Three months ended %
March 31, change
2022 2021 22 vs. 21
Net sales $ 375 $ 271 38 %
Net loss $ (8 ) $ (24 ) 67 %
Net sales of this segment increased by $104 million in the three months ended
March 31, 2022 , when compared to the same period in 2021. Net loss decreased by
$16 million primarily driven by Hemlock's increased sales, with AGS and CPT
contributing to year-over-year growth, partially offset by increased spending on
development projects.
CAPITAL RESOURCES AND LIQUIDITY
Financing and Capital Resources
There was no material debt activity in the first quarter of 2022 or 2021.
Share Repurchase Program For the three months endedMarch 31, 2022 , the Company repurchased 3.9 million shares of common stock on the open market for approximately$151 million as part of its 2019 Repurchase Program.
The Company made no open market share repurchases for the three months ended
Refer Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.
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Table of Contents Capital Spending
Capital spending totaled
Cash Flow
Summary of cash flow data (in millions):
Three months ended
March 31,
2022 2021
Net cash provided by operating activities
Net cash provided by operating activities decreased by$189 million in the three months endedMarch 31, 2022 , when compared to the same period in the prior year, primarily driven by higher cash payments for variable compensation. Net cash used in investing activities decreased by$10 million in the three months endedMarch 31, 2022 , when compared to the same period last year. The decrease was primarily driven by higher proceeds from the sale of businesses and realized gains on translated earnings contracts, of$50 million and$43 million , respectively, partially offset by increased capital expenditures of$94 million .
Net cash used in financing activities increased by
Defined Benefit Pension Plans
Key Balance Sheet Data
Balance sheet and working capital measures are provided in the following table
(in millions):
March 31, December 31,
2022 2021
Working capital $ 2,800 $ 2,853
Current ratio 1.6:1 1.6:1
Trade accounts receivable, net of doubtful accounts
2,004 Days sales outstanding 47 49 Inventories, net$ 2,618 $ 2,481 Inventory turns 3.7 3.7 Days payable outstanding (1) 58 50 Long-term debt$ 6,839 $ 6,989 Total debt$ 6,959 $ 7,044 Total debt to total capital 36 % 36 %
(1) Includes trade payables only.
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Management Assessment of Liquidity
We ended the first quarter of 2022 with approximately$2.0 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. AtMarch 31, 2022 , approximately 70% of the consolidated amount was held outside theU.S. Corning 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. As ofMarch 31, 2022 ,Corning had no outstanding commercial paper.
The Company's
Other Comprehensive reviews of significant customers and their creditworthiness are completed by analyzing their financial strength, at least annually or more frequently, for customers whereCorning has identified an increased measure of risk. The Company closely monitors payments and developments which may signal possible customer credit issues. During the three months endedMarch 31, 2022 andDecember 31, 2021 ,Corning sold accounts receivable and accelerated collections for the periods by$381 million and$197 million , respectively. The Company believes the accelerated collections will be, or would have been, collected during the normal course of business in the quarter following the respective sales.Corning has not currently identified any potential material impact on our liquidity resulting from customer credit issues.
We believe we have sufficient liquidity to fund operations, acquisitions, capital expenditures, scheduled debt repayments and dividend payments
The 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%. AtMarch 31, 2022 , the leverage using this measure was approximately 36%. As ofMarch 31, 2022 , we were in compliance and no amounts were outstanding under the Company's Revolving Credit Agreement. The Company's 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 the debt instruments contain a cross default provision, whereby an uncured default of a specified amount on one debt obligation of the Company, would be considered a default under the terms of another debt instrument. As ofMarch 31, 2022 , we were in compliance with all such provisions. Other than discussed, management is not aware of any known trends or any known demands, commitments, events or uncertainties that will, or are reasonably likely to, result in insufficient liquidity. There are no known trends, favorable or unfavorable, that would have a material change in the overall cost of liquidity.
Off Balance Sheet Arrangements
There have been no material changes outside the ordinary course of business in off balance sheet arrangements as disclosed in the 2021 Form 10-K under the caption "Off Balance Sheet Arrangements."
Contractual Obligations
There have been no material changes outside the ordinary course of business in
the contractual obligations disclosed in the 2021 Form 10-K under the caption
"Contractual Obligations".
© 2022 Corning Incorporated . All Rights Reserved.
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Table of Contents CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The estimates that require management's most difficult, subjective or complex judgments are described in the 2021 Form 10-K and remain unchanged through the first three months of 2022. For certain items, additional details are provided 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 long-lived assets in each quarter in which 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 the manufacturing process and have a very long useful life. Precious metals are reviewed for impairment as part of the 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 acquired to support the manufacturing operations and are not held for trading or other purposes. AtMarch 31, 2022 andDecember 31, 2021 , the carrying value of precious metals was$3.5 billion , and significantly lower than the fair market value. Most of these precious metals are utilized by the Display Technologies and Specialty Materials 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. NEW ACCOUNTING STANDARDS
Refer to Note 1 (Significant Accounting Policies) to the consolidated financial statements.
ENVIRONMENTCorning has been named by theEnvironmental 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 isCorning's policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned byCorning based on expert analysis and continual monitoring by both internal and external consultants. AtMarch 31, 2022 andDecember 31, 2021 ,Corning had accrued approximately$50 million and$55 million , respectively, for the estimated undiscounted liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company's liability and that the risk of an additional loss in an amount materially higher than that accrued is remote. © 2022Corning Incorporated . All Rights Reserved. 38
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Table of Contents FORWARD-LOOKING STATEMENTS The statements in this Quarterly Report on Form 10-Q, in reports subsequently filed byCorning with theSEC on Forms 8-K, and related comments by management that are not historical facts or information and contain words such as "will," "believe," "anticipate," "expect," "intend," "plan," "seek," "see," "would," and "target" and similar expressions are forward-looking statements. Such statements relate to future events that by their nature address matters that are, to different degrees, uncertain. These forward-looking statements relate to, among other things, the Company's future operating performance, the Company's share of new and existing markets, the Company's revenue and earnings growth rates, the Company's ability to innovate and commercialize new products, and the Company's implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the Company's manufacturing capacity. Although the Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, current estimates and forecasts, general economic conditions, its knowledge of its business, and key performance indicators that impact the Company, actual results could differ materially. The Company does not undertake to update forward-looking statements. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:
- the duration and severity of the COVID-19 pandemic, and its impact across our
businesses on demand, personnel, operations, our global supply chains and
stock price;
- global economic trends, competition and geopolitical risks, or an escalation
of sanctions, tariffs or other trade tensions, and related impacts on our
businesses' global supply chains and strategies;
- changes in macroeconomic and market conditions, market volatility, interest
rates, capital markets, the value of securities and other financial assets,
precious metals, oil, natural gas and other commodities and exchange rates
(particularly between the
euro, Chinese yuan and South Korean won), consumer demand, and the impact of
such changes and volatility on our financial position and businesses;
- product demand and industry capacity;
- competitive products and pricing;
- availability and costs of critical components, materials, equipment, natural
resources and utilities;
- 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;
- disruption to
logistics, equipment, facilities, IT systems, operations or commercial
activities due to terrorist activity, cyber-attack, armed conflict, political
or financial instability, natural disasters, international trade disputes or
major health concerns;
- loss of intellectual property due to theft, cyber-attack, or disruption to our
information technology infrastructure; - effects of acquisitions, dispositions and other similar transactions;
- effect of regulatory and legal developments;
- ability to pace capital spending to anticipated levels of customer demand;
- our ability to increase margins through implementation of operational changes,
pricing actions and cost reduction measures without negatively impacting
revenues;
- rate of technology change;
- ability to enforce patents and protect intellectual property and trade secrets;
- adverse litigation;
- product and components performance issues;
- attraction and retention of key personnel;
- customer ability 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, regulations and international tax standards;
- the impacts of audits by taxing authorities; and
- the potential impact of legislation, government regulations, and other
government action and investigations.
© 2022 Corning Incorporated . All Rights Reserved.
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