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 June 30, 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 cash flow generation in the three and six months endedJune 30, 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. 24
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Table of Contents
Summary of results for the three and six months ended
In the second quarter of 2022, net sales were$3,615 million , compared to$3,501 million during the same period in 2021, a net increase of$114 million , or 3%, and net sales for the six months endedJune 30, 2022 were$7,295 million , compared to$6,791 million during the same period in 2021, a net increase of$504 million , or 7%. Increased sales inOptical Communications andHemlock and Emerging Growth Businesses drove the increase for both periods presented.
In the second quarter of 2022,
? Higher segment net income in
million, respectively;
? Translated earnings contract gains in the current period were
higher than prior year; and
? Higher translation gains of
The increases in net income, outlined above, were partially offset by:
? Segment net income declines in Display Technologies, Environmental
Technologies and Life Sciences, of
respectively; ? Regulatory and litigation costs were$32 million higher than the prior period; ? The absence of a$32 million gain on the sale of a business; and ? Higher facility repairs and non-operational costs of$34 million . The increase in diluted earnings per share for the three months endedJune 30, 2022 , was primarily driven by the changes in net income, outlined above, as well as the impact of the immediate repurchase and retirement of 35 million common shares, which resulted in an$803 million one-time reduction to net income available to common shareholders, and negative earnings per share in the second quarter of 2021. Refer to Note 4 (Earnings (Loss) per Common Share) and Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information. In the first half of 2022,Corning generated net income of$1,144 million , or$1.33 per diluted share, compared to net income of$1,048 million , or$0.27 per diluted share, for the same period in 2021. The increase in net income of$96 million and increase in diluted earnings per share of$1.06 , was primarily driven by the following items (amounts presented after-tax):
? Higher segment net income in
Growth Businesses, of
higher than prior year.
The increases in net income, outlined above, were partially offset by:
? Segment net income declines in Environmental Technologies and Life Sciences,
of$19 million and$21 million , respectively; and ? Higher facility repairs and non-operational costs of$58 million . The increase in diluted earnings per share for the six months endedJune 30, 2022 , was primarily driven by the changes in net income, outlined above, as well as the impact of the immediate repurchase and retirement of 35 million common shares, which resulted in an$803 million one-time reduction to net income available to common shareholders, and negative earnings per share in the second quarter of 2021. Refer to Note 4 (Earnings (Loss) per Common Share) and Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.
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 % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21
Net sales $ 3,615 $ 3,501 3 $ 7,295 $ 6,791 7
Gross margin $ 1,246 $ 1,315 (5 ) $ 2,529 $ 2,471 2
(gross margin %) 34 % 38 % 35 % 36 %
Selling, general and
administrative expenses $ 486 $ 465 5 $ 920 $ 865 6
(as a % of net sales) 13 % 13 % 13 % 13 %
Research, development and
engineering expenses $ 240 $ 242 (1 ) $ 488 $ 464 5
(as a % of net sales) 7 % 7 % 7 % 7 %
Translated earnings contract
gain, net $ 196 $ 3 * $ 325 $ 275 18
(as a % of net sales) 5 % 0 % 4 % 4 %
Provision for income taxes $ (166 ) $ (67 ) 148 $ (346 ) $ (293 ) 18
(as a % of net sales) (5 %) (2 %) (5 %) (4 %)
Net income attributable to
Corning Incorporated $ 563 $ 449 25 $ 1,144 $ 1,048 9
(as a % of net sales) 16 % 13 % 16 % 15 %
* Not Meaningful
Segment Net Sales
The following table presents segment net sales by reportable segment and
Three months ended % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21
Optical
Communications $ 1,313 $ 1,075 22 % $ 2,511 $ 2,012 25 %
Display Technologies 878 939 (6% ) 1,837 1,802 2 %
Specialty Materials 485 483 - 978 934 5 %
Environmental
Technologies 356 407 (13% ) 765 848 (10% )
Life Sciences 312 312 - 622 612 2 %
Net sales of
reportable segments $ 3,344 $ 3,216 4 % $ 6,713 $ 6,208 8 %
Hemlock and Emerging
Growth Businesses 418 288 45 % 793 559 42 %
Impact of foreign
currency movements
(1) (147 ) (3 ) * (211 ) 24 *
Consolidated net
sales $ 3,615 $ 3,501 3 % $ 7,295 $ 6,791 7 %
* Not Meaningful
(1) This amount primarily represents the impact of foreign currency adjustments in
the Display Technologies segment.
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Table of Contents
In the second quarter of 2022, net sales of reportable segments andHemlock and Emerging Growth Businesses were$3,762 million , compared to$3,504 million during the same period in 2021, a net increase of$258 million , or 7%. Changes in net sales were as follows:
?
primarily driven by higher sales of carrier and enterprise products for 5G,
broadband, and the cloud;
? Display Technologies' net sales decreased by
to lower volumes in the mid-single digits in percentage terms;
? Specialty Materials' net sales increased by
? Net sales for Environmental Technologies decreased by
primarily driven by sales declines of automotive products as automotive
producers continued to experience constraints due to prolonged semiconductor
chip shortages, theRussia -Ukraine war, and COVID-19 lockdowns inChina ; ? Net sales for Life Sciences were flat; and ? Net sales forHemlock and Emerging Growth Businesses increased by
solar products remained strong, with AGS and CPT contributing to year-over-year growth.
In the six months ended
?
primarily driven by higher sales of carrier and enterprise products for 5G,
broadband, and the cloud;
? Display Technologies' net sales increased by
to volume growth in the low single-digits in percentage terms;
? 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 automotive products as automotive
producers continued to experience constraints due to prolonged semiconductor
chip shortages, theRussia -Ukraine war, and COVID-19 lockdowns inChina ; ? Net sales for Life Sciences increased by$10 million , or 2%; and ? Net sales forHemlock and Emerging Growth Businesses increased by
solar products remained strong, with AGS and CPT contributing to year-over-year growth. Movements in foreign exchange rates adversely impactedCorning's consolidated net sales by$154 million and$252 million , respectively, in the three and six months endedJune 30, 2022 , when compared to the same periods 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 and six months ended
The translation impact of fluctuations in foreign currency exchange rates
adversely impacted
© 2022 Corning Incorporated . All Rights Reserved.
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Table of Contents
Selling, General and Administrative Expenses
In the three and six months endedJune 30, 2022 , selling, general and administrative expenses increased by$21 million , or 5%, and$55 million , or 6%, and was consistent as a percentage of sales, when compared to the prior periods. Increases in these costs were primarily driven by higher compensation and benefit expenses when compared to the same periods 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 and rent for administrative facilities.
Research, Development and Engineering Expenses
In the three and six months ended
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 those impacts on net income.
The following tables provide detailed information on the impact of translated earnings contract gains and losses (in millions):
Three months ended Three months ended Change
June 30, 2022 June 30, 2021 2022 vs. 2021
Income Income Income
before Net before Net before Net
taxes income taxes income taxes income
Hedges
related to
translated
earnings:
Realized
gain, net
(1) $ 85 $ 65 $ 11 $ 8 $ 74 $ 57
Unrealized
gain
(loss),
net (2) 111 85 (8 ) (6 ) 119 91
Total
translated
earnings
contract
gain, net $ 196 $ 150 $ 3 $ 2 $ 193 $ 148
Six months ended Six months ended Change
June 30, 2022 June 30, 2021 2022 vs. 2021
Income Income Income
before Net before Net before Net
taxes income taxes income taxes income
Hedges related to
translated earnings:
Realized gain (loss),
net (1) $ 118 $ 90 $ (1 ) $ (1 ) $ 119 $ 91
Unrealized gain, net
(2) 207 159 276 212 (69 ) (53 )
Total translated
earnings contract
gain, net $ 325 $ 249 $ 275 $ 211 $ 50 $ 38 (1) Includes before tax realized losses related to the expiration of option
contracts for the three and six months ended
2021 of
reflected in operating 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 Corning's consolidated income before income taxes by $30 million and
$59 million for the three and six months ended June 30, 2022 , respectively when
compared to the same periods in 2021.
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Provision for Income Taxes
The provision for income taxes and the related effective income tax rates are as
follows (in millions):
Three months ended Six months ended
June 30, June 30,
2022 2021 2022 2021
Provision for income taxes $ (166 ) $ (67 ) $ (346 ) $ (293 )
Effective tax rate 22.1 % 12.9 % 22.6 % 21.7 %
For the three months ended June 30, 2022 , the effective income tax rate differed
from the U.S. statutory rate of 21%, primarily due to differences arising from
foreign earnings and changes in tax reserves, partially offset by the impact of
changes in tax legislation and adjustments to share-based compensation. For the
six months ended June 30, 2022 , the effective income tax rate differed from the
U.S. statutory rate of 21%, primarily due to differences arising from foreign
earnings and changes in tax reserves, partially offset by the impact of changes
in tax legislation and adjustments to share-based compensation.
For the three months ended June 30, 2021 , the effective income tax rate differed
from the U.S. statutory rate of 21%, primarily due to excess tax benefits
related to share-based compensation payments, foreign-rate differential and tax
reform items. For the six months ended June 30, 2021 , the effective income tax
rate differed from the U.S. statutory rate of 21% primarily due to our
permanently reinvested foreign income position, excess tax benefit related to
share-based compensation payments, foreign rate differential and tax reform
items.
Refer to Note 3 (Income Taxes) to the consolidated financial statements for additional information.
Net Income Attributable to
Net income and per share data are as follows (in millions, except per share
amounts):
Three months ended Six months ended
June 30, June 30,
2022 2021 2022 2021
Net income attributable to Corning
Incorporated $ 563 $ 449 $ 1,144 $ 1,048
Less: Series A convertible preferred
stock dividend (24 )
Less: Excess consideration paid for
redemption of preferred shares (1) (803 ) (803 )
Net income available to common
shareholders used in basic earnings
(loss) per common share calculation $ 563 $ (354 ) $
1,144
Net income available to common shareholders used in diluted earnings (loss) per common share calculation$ 563 $ (354 ) $
1,144
Basic earnings (loss) per common share
1.36 $ 0.27
Diluted earnings (loss) per common share $ 0.66 $ (0.42 ) $
1.33
Weighted-average common shares outstanding - basic 843 844 843 805 Weighted-average common shares outstanding - diluted 856 844 857 822
(1) Refer to Note 4 (Earnings (Loss) per Common Share) to the consolidated
financial statements for additional information.
© 2022 Corning Incorporated . All Rights Reserved.
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Table of Contents Comprehensive (Loss) Income For the three months endedJune 30, 2022 , comprehensive income decreased by$658 million when compared to the same period in 2021, primarily due to a net loss on foreign currency translation adjustments of$690 million , largely driven by the Japanese yen, Chinese yuan and South Korean won. For the six months endedJune 30, 2022 , comprehensive income decreased by$511 million when compared to the same period in 2021, primarily due to a net gain on foreign currency translation adjustments of$527 million , largely driven by the Japanese yen, Chinese yuan 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".
RESULTS OF OPERATIONS - CORE PERFORMANCE MEASURES
Selected highlights from continuing operations, excluding certain items, follow
(in millions):
Three months ended % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21Core net sales$ 3,762 $ 3,504 7 %$ 7,506 $ 6,767 11 % Core net income$ 489 $ 459 7 %$ 954 $ 861 11 % © 2022 Corning Incorporated. All Rights Reserved. 30
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Table of Contents CoreNet Sales Core net sales are consistent with net sales by reportable segment andHemlock and Emerging Growth Businesses. Core net sales are presented below (in millions): Three months ended % Six months ended % June 30, change June 30, change 2022 2021 22 vs. 21 2022 2021 22 vs. 21 Optical Communications$ 1,313 $ 1,075 22 %$ 2,511 $ 2,012 25 % Display Technologies 878 939 (6 )% 1,837 1,802 2 % Specialty Materials 485 483 - 978 934 5 % Environmental Technologies 356 407 (13 )% 765 848 (10 )% Life Sciences 312 312 - 622 612 2 % Net sales of reportable segments$ 3,344 $ 3,216 4 %$ 6,713 $ 6,208 8 % Net sales ofHemlock and Emerging Growth Businesses 418 288 45 % 793 559 42 % Total core net sales$ 3,762 $ 3,504 7 %$ 7,506 $ 6,767 11 % Core Net Income
In the three months ended
The increases to segment net income were partially offset by declines in net income of$20 million ,$19 million , and$15 million for Display Technologies, Environmental Technologies and Life Sciences, respectively. The change in core diluted earnings per share was primarily driven by changes in core net income, outlined above, and the repurchase of 12.7 million common shares over the last twelve months. Refer to Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information. In the six months endedJune 30, 2022 , we generated core net income of$954 million , or$1.11 per core diluted share, compared to core net income generated in the six months endedJune 30, 2021 of$861 million , or$0.97 per core diluted share. The increase of$93 million , or$0.14 per core diluted share, was primarily due to higher core net income as follows:
?
strong volume and price increases; and
?
primarily driven by higher demand for solar products.
The increases to segment net income were partially offset by declines in net
income of
The change in core diluted earnings per share was primarily driven by changes in
core net income, outlined above, and the repurchase of 12.7 million common
shares over the last twelve months. Refer to Note 12 (Shareholders' Equity) to
the consolidated financial statements for additional information.
© 2022 Corning Incorporated . All Rights Reserved.
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Table of Contents
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 Six months ended
June 30, June 30,
2022 2021 2022 2021
Core net income $ 489 $ 459 $ 954 $ 861
Less: Series A convertible
preferred stock dividend 24
Core net income available to
common shareholders - basic 489 459 954 837
Plus: Series A convertible
preferred stock dividend 24
Core net income available to
common shareholders - diluted
Weighted-average common shares outstanding - basic 843 844 843 805 Effect of dilutive securities: Stock options and other dilutive securities 13 16 14 17 Series A convertible preferred stock 9 62 Weighted-average common shares outstanding - diluted 856 869 857 884 Core basic earnings per common share$ 0.58 $ 0.54 $ 1.13 $ 1.04 Core diluted earnings per common share$ 0.57 $ 0.53 $ 1.11 $ 0.97
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 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. 32
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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 June 30, 2022
Net income
attributable
Net Income before to Corning Effective tax Per
sales income taxes Incorporated rate (a)(b) share
As reported - GAAP $ 3,615 $ 750 $ 563 22.1 % $ 0.66 Constant-currency
adjustment (1) 147 120 93 0.11 Translation gain on Japanese yen-denominated debt (2) (153 ) (118 ) (0.14 ) Translated earnings contract gain (3) (196 ) (150 ) (0.18 )
Acquisition-related
costs (4) 35 27 0.03 Discrete tax items and other tax-related adjustments (5) 5 0.01 Restructuring, impairment and other charges and credits (6) 46 36 0.04
Contingent
consideration (7) (6 ) (5 ) (0.01 )
Litigation,
regulatory and other legal matters (8) 42 32 0.04 Loss on investments (9) 8 6 0.01 Core performance measures$ 3,762 $ 646 $ 489 21.1 %$ 0.57 (a) Based upon statutory tax rates in the specific jurisdiction for each event. (b) The calculation of the effective tax rate ("ETR") excludes net income attributable to non-controlling interests ("NCI") of$21 million . Three months ended June 30, 2021 Net income attributable Net Income before to Corning Effective tax Per sales income taxes Incorporated rate (a)(b) share As reported - GAAP$ 3,501 $ 521 $ 449 12.9 %$ (0.42 ) Preferred stock redemption (c) 0.94 Subtotal 3,501 521 449 12.9 % 0.52 Constant-currency adjustment (1) 3 20 1 0.00 Translation gain on Japanese yen-denominated debt (2) (5 ) (4 ) (0.00 ) Translated earnings contract gain (3) (3 ) (3 ) (0.00 ) Acquisition-related costs (4) 38 30 0.04 Discrete tax items and other tax-related adjustments (5) (31 ) (0.04 ) Restructuring, impairment and other charges and credits (6) 2 2 0.00 Loss on investments (9) 4 3 0.00 Pension mark-to-market adjustment (10) 19 15 0.02 Gain on sale of business (11) (40 ) (32 ) (0.04 ) Preferred stock conversion (12) 21 21 0.02 Bond redemption loss (13) 11 8 0.01 Core performance measures$ 3,504 $ 588 $ 459 21.1 %$ 0.53
(a) Based upon statutory tax rates in the specific jurisdiction for each event.
(b) The calculation of the ETR excludes NCI of
Common Shares.
Common Shares and excluded them from the weighted-average common shares
outstanding for the calculation of the Company's basic and diluted earnings
per share. The redemption of these Common Shares resulted in an
reduction of retained earnings which reduced the net income available to
common shareholders and resulted in negative earnings per share in the second
quarter of 2021.
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.
© 2022 Corning Incorporated . All Rights Reserved.
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Six months ended June 30, 2022
Net income
attributable
Net Income before to Corning Effective tax Per
sales income taxes Incorporated rate (a)(b) share
As reported - GAAP $ 7,295 $ 1,533 $ 1,144 22.6 % $ 1.33
Constant-currency adjustment
(1) 211 183 142 0.17
Translation gain on Japanese
yen-denominated debt (2) (237 ) (182 ) (0.21 )
Translated earnings contract
gain (3) (325 ) (249 ) (0.29 )
Acquisition-related costs (4) 74 59 0.07
Discrete tax items and other
tax-related adjustments (5) 16 0.02
Restructuring, impairment and
other charges and credits (6) 79 60 0.07
Contingent consideration (7) (32 ) (25 ) (0.03 )
Litigation, regulatory and
other legal matters (8) 42 32 0.04
Loss on investments (9) 8 6 0.01
Pension mark-to-market
adjustment (10) (10 ) (8 ) (0.01 )
Gain on sale of business (11) (53 ) (41 ) (0.05 )
Core performance measures
954 21.0 %$ 1.11
(a) Based upon statutory tax rates in the specific jurisdiction for each event.
(b) The calculation of the ETR excludes NCI of
Six months ended June 30, 2021
Net income
attributable
Net Income before to Corning Effective tax Per
sales income taxes Incorporated rate (a)(b) share
As reported - GAAP $ 6,791 $ 1,348 $ 1,048 21.7 % $ 0.27
Preferred stock redemption (c) 0.92
Subtotal 6,791 1,348 1,048 21.7 % 1.19
Constant-currency adjustment
(1) (24 ) 14 6 0.01
Translation gain on Japanese
yen-denominated debt (2) (123 ) (94 ) (0.11 )
Translated earnings contract
gain (3) (275 ) (212 ) (0.26 )
Acquisition-related costs (4) 85 65 0.08
Discrete tax items and other
tax-related adjustments (5) 6 0.01
Restructuring, impairment and
other charges and credits (6) 2 2 0.00
Litigation, regulatory and
other legal matters (8) 8 8 0.01
Loss on investments (9) 39 30 0.04
Pension mark-to-market
adjustment (10) 24 19 0.02
Gain on sale of business (11) (54 ) (46 ) (0.06 )
Preferred stock conversion (12) 21 21 0.03
Bond redemption loss (13) 11 8 0.01
Core performance measures $ 6,767 $ 1,100 $ 861 21.1 % $ 0.97 (a) Based upon statutory tax rates in the specific jurisdiction for each event.
(b) The calculation of the ETR excludes NCI of
Common Shares.
Common Shares and excluded them from the weighted-average common shares
outstanding for the calculation of the Company's basic and diluted earnings
per share. The redemption of these Common Shares resulted in an
reduction of retained earnings which reduced the net income available to
common shareholders and resulted in negative earnings per share in the second
quarter of 2021.
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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Table of Contents
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) Restructuring, impairment and other charges and credits: This amount primarily includes
asset write offs and other charges and credits. Other charges primarily related to
miscellaneous nonoperational costs and facility repairs resulting from the impact of the
third quarter 2021 power outages. The Company is pursuing recoveries under its applicable
property insurance policies. (7) 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. (8) 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. (9) 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. (10) Pension mark-to-market adjustment: Defined benefit pension mark-to-market gains and losses,
which arise from changes in actuarial assumptions and the difference between actual and
expected returns on plan assets and discount rates. (11) Gain on sale of business: Amount represents the gain recognized for the sale of a certain
business.
(12) Preferred stock conversion: This amount includes the fair value of the put option from the
Share Repurchase Agreement with
2.9% debentures due in 2022, paying a premium of
loss of $11 million .
© 2022 Corning Incorporated . All Rights Reserved.
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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 % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21Segment net sales$ 1,313 $ 1,075 22 %$ 2,511 $ 2,012 25 % Segment net income$ 182 $ 148 23 %$ 348 $ 259 34 %Optical Communications' net sales increased by$238 million and$499 million , respectively, in the three and six months endedJune 30, 2022 , primarily driven by higher sales volumes of carrier and enterprise products for 5G, broadband, and the cloud. Net income increased by$34 million and$89 million for the three and six months endedJune 30, 2022 , respectively, primarily driven by the changes in sales, outlined above, and price increases.
Movements in foreign currency exchange rates did not materially impact net
income in this segment in the three and six months ended
© 2022 Corning Incorporated . All Rights Reserved.
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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 % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21
Segment net sales $ 878 $ 939 (6 %) $ 1,837 $ 1,802 2 %
Segment net income $ 228 $ 248 (8 %) $ 464 $ 461 1 %
Net sales in the Display Technologies segment decreased by
Net income in the Display Technologies segment decreased by
Specialty Materials
The following table provides net sales and net income for the Specialty Materials segment (in millions):
Three months ended % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21 Segment net sales$ 485 $ 483 0 %$ 978 $ 934 5 % Segment net income$ 91 $ 81 12 %$ 166 $ 172 (3 %) Net sales in the Specialty Materials segment increased by$2 million and$44 million for the three and six months endedJune 30, 2022 , respectively, primarily due to strong demand of premium cover materials and advanced optics products. Net income increased by$10 million for the three months endedJune 30, 2022 , primarily driven by adoption of our premium cover materials, and decreased$6 million for the six months endedJune 30, 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 % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21
Segment net sales $ 356 $ 407 (13 %) $ 765 $ 848 (10 %)
Segment net income $ 62 $ 81 (23 %) $ 136 $ 155 (12 %)
Net sales in the Environmental Technologies segment decreased by $51 million and
$83 million for the three and six months ended June 30, 2022 , respectively.
Sales of diesel products decreased $10 million , or 6%, and $18 million , or 5%,
respectively, and automotive sales declined $41 million , or 17%,
and $65 million , or 13%, respectively, primarily driven by sales declines of
automotive products as automotive producers continued to experience constraints
due to prolonged semiconductor chip shortages, the Russia -Ukraine war, and
COVID-19 lockdowns in China .
Net income decreased
© 2022 Corning Incorporated . All Rights Reserved.
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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 % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21
Segment net sales $ 312 $ 312 - $ 622 $ 612 2 %
Segment net income $ 37 $ 52 (29 %) $ 79 $ 100 (21 %)
Net sales in the Life Sciences segment were flat and increased by $10 million
in the three and six months ended June 30, 2022 , respectively, and net income
decreased by $15 million and $21 million for the three and six months ended June
30, 2022 , respectively. The changes in sales and net income were due to lower
demand for COVID-related products, offset by growth in research and
bioproduction products. COVID-19 lockdowns in China and supply chain
disruptions also impacted sales and profitability.
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 income (loss) for
Three months ended % Six months ended %
June 30, change June 30, change
2022 2021 22 vs. 21 2022 2021 22 vs. 21
Net sales $ 418 $ 288 45 % $ 793 $ 559 42 %
Net income (loss) $ 25 $ (15 ) * $ 17 $ (39 ) *
* Not meaningful
Net sales of this segment increased by
CAPITAL RESOURCES AND LIQUIDITY
Financing and Capital Resources
In the second quarter of 2022,Corning amended and restated its existing revolving credit agreement, which provides a committed$1.5 billion unsecured multi-currency line of credit, primarily to extend the term to 2027. Additionally,Corning amended and restated its25 billion Japanese yen liquidity facility, equivalent to approximately$184 million , primarily to extend the term to 2025. As ofJune 30, 2022 andDecember 31, 2021 , there were no outstanding amounts under either the amended and restated or the existing facilities, respectively.Corning had no outstanding commercial paper as ofJune 30, 2022 andDecember 31, 2021 . © 2022Corning Incorporated . All Rights Reserved. 38
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Table of Contents Share Repurchase Program
On
On
For the three and six months endedJune 30, 2022 , the Company repurchased 1.6 million shares and 5.5 million shares, respectively of common stock on the open market for approximately$53 million and$204 million , respectively as part of its 2019 Repurchase Program.
For the three and six months ended
Refer Note 12 (Shareholders' Equity) to the consolidated financial statements for additional information.
Capital Spending
Capital spending totaled
Cash Flow
Summary of cash flow data (in millions):
Six months ended
June 30,
2022 2021
Net cash provided by operating activities
Net cash provided by operating activities decreased by$202 million in the six months endedJune 30, 2022 , when compared to the same period in the prior year primarily driven by higher inventories, partially offset by increased net income. Net cash used in investing activities increased by$152 million in the six months endedJune 30, 2022 , when compared to the same period last year. Increased outflows for capital expenditures of$123 million and lower proceeds from unconsolidated entities of$91 million , were partially offset by higher realized gains on translated earnings contracts of$119 million .
Net cash used in financing activities decreased by
Defined Benefit Pension Plans
© 2022 Corning Incorporated . All Rights Reserved.
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Table of Contents
Key Balance Sheet Data
Balance sheet and working capital measures are provided in the following table
(in millions):
June 30, December 31,
2022 2021
Working capital $ 2,353 $ 2,853
Current ratio 1.4:1 1.6:1
Trade accounts receivable, net of doubtful accounts
2,004 Days sales outstanding 44 49 Inventories, net$ 2,835 $ 2,481 Inventory turns 3.6 3.7 Days payable outstanding (1) 59 50 Long-term debt$ 6,677 $ 6,989 Total debt$ 6,798 $ 7,044 Total debt to total capital 36 % 36 %
(1) Includes trade payables only.
Management Assessment of Liquidity
We ended the second quarter of 2022 with approximately$1.6 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. AtJune 30, 2022 , approximately 64% of the consolidated amount was held outside theU.S.
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 endedJune 30, 2022 andMarch 31, 2022 ,Corning sold accounts receivable and accelerated collections for the periods by$350 million and$381 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%. AtJune 30, 2022 , the leverage using this measure was approximately 36%. As ofJune 30, 2022 , we were in compliance and no amounts were outstanding under the Company's Revolving Credit Agreement. © 2022Corning Incorporated . All Rights Reserved. 40
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Table of Contents 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 ofJune 30, 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". 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 six 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. AtJune 30, 2022 andDecember 31, 2021 , the carrying value of precious metals was$3.6 billion , and$3.5 billion , respectively, 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. © 2022Corning Incorporated . All Rights Reserved. 41
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Table of Contents ENVIRONMENTCorning has been designated by federal or state governments under environmental laws, including Superfund, as a potentially responsible party that may be liable for cleanup costs associated with 17 hazardous waste sites. It isCorning's policy to accrue for its estimated liability related to such hazardous waste sites and other environmental liabilities related to property owned byCorning based on expert analysis and continual monitoring by both internal and external consultants. As ofJune 30, 2022 andDecember 31, 2021 ,Corning had accrued approximately$86 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.
© 2022 Corning Incorporated . All Rights Reserved.
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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.
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