Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of June 30, 2016, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $21 billion based on the $20.48 price as reported on the New York Stock Exchange.
There were 928,093,508 shares of Corning's common stock issued and outstanding as of January 31, 2017.
Portions of the Registrant's Definitive Proxy Statement dated March 17, 2017, and filed for the Registrant's 2017 Annual Meeting of Shareholders are incorporated into Part III of this Annual Report on Form 10-K, as specifically set forth in Part III.
PART I
Corning Incorporated and its consolidated subsidiaries are hereinafter sometimes referred to as the "Company," the "Registrant," "Corning," or "we."
This report contains forward-looking statements that involve a number of risks and uncertainties. These statements relate to our future plans, objectives, expectations and estimates and may contain words such as "believes," "expects," "anticipates," "estimates," "forecasts," or similar expressions. Our actual results could differ materially from what is expressed or forecasted in our forward-looking statements. Some of the factors that could contribute to these differences include those discussed under "Forward-Looking Statements," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report.
Item 1. Business
General
Corning traces its origins to a glass business established in 1851. The present corporation was incorporated in the State of New York in December 1936. The Company's name was changed from Corning Glass Works to Corning Incorporated on April 28, 1989.
Corning Incorporated is a leading innovator in materials science. For more than 165 years, Corning has applied its unparalleled expertise in specialty glass, ceramics, and optical physics to develop products that have created new industries and transformed people's lives. We succeed through sustained investment in research and development, a unique combination of material and process innovation, and close collaboration with customers to solve tough technology challenges. Corning operates in five reportable segments: Display Technologies, Optical Communications, Environmental Technologies, Specialty Materials and Life Sciences, and manufactures products at 98 plants in 17 countries.
Display Technologies Segment
Corning's Display Technologies segment manufactures glass substrates for liquid crystal displays ("LCDs") that are used primarily in LCD televisions, notebook computers and flat panel desktop monitors. This segment develops, manufactures and supplies high quality glass substrates using technology expertise and a proprietary fusion manufacturing process, which Corning invented and is the cornerstone of the Company's technology leadership in the LCD industry. The highly automated process yields glass substrates with a pristine surface and excellent thermal dimensional stability and uniformity – essential attributes for the production of large, high performance LCDs panels. Corning's fusion process is scalable and we believe it is the most cost effective process in producing large size substrates.
We are recognized for providing product innovations that enable our customers to produce larger, lighter, thinner and higher-resolution displays more affordably. Some of the product innovations that we have launched over the past ten years utilizing our world-class processes and capabilities include the following:
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EAGLE XG®, the industry's first LCD glass substrate that is free of heavy metals;
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EAGLE XG® Slim glass, a line of thin glass substrates which enables lighter-weight portable devices and thinner televisions and monitors;
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Corning® Willow™ Glass, our ultra-thin flexible glass for use in next-generation consumer electronic technologies, including curved displays for immersive viewing or mounting on non-flat surfaces. This glass is also used in a variety of non-display applications, such as decorative laminates for interior architecture and advanced semiconductor packaging; and
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The family of Corning Lotus™ Glass, high-performance display glass developed to enable cutting-edge technologies, including organic light-emitting diode ("OLED") displays and next generation LCDs. These substrate glasses provide industry-leading levels of low total pitch variation, resulting in brighter, more energy-efficient displays with higher resolutions for consumers and better yields for panel makers.
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Through the end of 2013, the Display Technologies segment also included the equity affiliate Samsung Corning Precision Materials Co., Ltd. ("Samsung Corning Precision Materials"), of which Corning owned 57.5% and Samsung Display Co., Ltd. ("Samsung Display") owned 42.5%. As described more fully in Note 8 (Acquisitions) to the Consolidated Financial Statements, to extend Corning's leadership in specialty glass and drive earnings growth, Corning entered into a series of strategic and financial agreements with Samsung Display intended to strengthen product and technology collaborations between the two companies. Corning completed the acquisition of Samsung Corning Precision Materials on January 15, 2014.
Corning has LCD glass manufacturing operations in South Korea, Japan, Taiwan and China. Following the acquisition of Samsung Corning Precision Materials, Corning services all specialty glass customers in all regions directly, utilizing its manufacturing facilities throughout Asia.
Patent protection and proprietary trade secrets are important to the Display Technologies segment's operations. Refer to the material under the heading "Patents and Trademarks" for information relating to patents and trademarks.
The Display Technologies segment represented 34% of Corning's sales in 2016.
Optical Communications Segment
Corning invented the world's first low-loss optical fiber in 1970. Since that milestone, we have continued to pioneer optical fiber, cable and connectivity solutions. As global bandwidth demand driven by video usage grows exponentially, telecommunications networks continue to migrate from copper to optical-based systems that can deliver the required cost-effective bandwidth-carrying capacity. Our experience puts us in a unique position to design and deliver optical solutions that reach every edge of the communications network.
This segment is classified into two main product groupings – carrier network and enterprise network. The carrier network group consists primarily of products and solutions for optical-based communications infrastructure for services such as video, data and voice communications. The enterprise network group consists primarily of optical-based communication networks sold to businesses, governments and individuals for their own use.
Our carrier network product portfolio encompassed an array of optical fiber products, including Vascade
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submarine optical fibers for use in submarine networks; LEAF
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optical fiber for long-haul, regional and metropolitan networks; SMF-28
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ULL fiber for more scalable long-haul and regional networks; SMF-28e+
Ô
single-mode optical fiber that provides additional transmission wavelengths in metropolitan and access networks; ClearCurve
Ò
ultra-bendable single-mode fiber for use in multiple-dwelling units and fiber-to-the-home applications; and Corning® SMF-28® Ultra Fiber, designed for high performance across the range of long-haul, metro, access, and fiber-to-the-home network applications, combining the benefits of industry-leading attenuation and improved macrobend performance in one fiber. A portion of our optical fiber is sold directly to end users and third-party cablers globally. Corning's remaining fiber production is cabled internally and sold to end users as either bulk cable or as part of an integrated optical solution. Corning's cable products support various outdoor, indoor/outdoor and indoor applications and include a broad range of loose tube, ribbon and drop cable designs with flame-retardant versions available for indoor and indoor/outdoor use.
In addition to optical fiber and cable, our carrier network product portfolio also includes hardware and equipment products, including cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures, network interface devices, and other accessories. These products may be sold as individual components or as part of integrated optical connectivity solutions designed for various carrier network applications. Examples of these solutions include our FlexNAP
TM
terminal distribution system, which provides pre-connectorized distribution and drop cable assemblies for cost-effectively deploying Fiber-to-the-Home ("FTTH") networks; and the Centrix
TM
platform, which provides a high-density fiber management system with industry-leading density and innovative jumper routing that can be deployed in a wide variety of carrier switching centers.
To keep pace with surging demand for mobile bandwidth, Corning has a full complement of operator-grade distributed antenna systems ("DAS"), including the recently developed Optical Network Evolution wireless platform. The ONE™ Wireless Platform ("ONE") is the first all-optical converged cellular and Wi-Fi® solution built on an all-optical backbone with modular service support. It provides virtually unlimited bandwidth, and meets all of the wireless service needs of large-scale enterprises at a lower cost than the typical DAS solution.
In addition to our optical-based portfolio, Corning's carrier network portfolio also contains select copper-based products including subscriber demarcation, connection and protection devices, xDSL (different variations of digital subscriber lines) passive solutions and outside plant enclosures. In addition, Corning offers coaxial RF interconnects for the cable television industry as well as for microwave applications for GPS, radars, satellites, manned and unmanned military vehicles, and wireless and telecommunications systems.
Our enterprise network portfolio also includes optical fiber products, including ClearCurve
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ultra-bendable multimode fiber for data centers and other enterprise network applications; InfiniCor
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fibers for local area networks; and more recently ClearCurve
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VSDN
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ultra-bendable optical fiber designed to support emerging high-speed interconnects between computers and other consumer electronics devices. The remainder of Corning's fiber production is cabled internally and sold to end users as either bulk cable or as part of an integrated optical solution. Corning's cable products include a broad range of tight-buffered, loose tube and ribbon cable designs with flame-retardant versions available for indoor and indoor/outdoor applications that meet local building code requirements.
Corning's hardware and equipment for enterprise network applications include cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and other accessories. These products may be sold as individual components or as part of integrated optical connectivity solutions designed for various network applications. Examples of enterprise network solutions include the Pretium EDGE
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platform, which provides high-density pre-connectorized solutions for data center applications, and continues to evolve with recent updates for upgrading to 40/100G applications and port tap modules for network monitoring; the previously mentioned ONE Wireless platform, which spans both carrier and enterprise network applications; and our recently introduced optical connectivity solutions to support customer initiatives.
Our optical fiber manufacturing facilities are located in North Carolina, China and India. Cabling operations are located in North Carolina, Germany, Poland, China and smaller regional locations. Our manufacturing operations for hardware and equipment products are located in Texas, Arizona, Mexico, Brazil, Denmark, Germany, Poland, Israel, Australia and China.
Patent protection is important to the segment's operations. The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. The segment licenses certain of its patents to third parties and generates revenue from these licenses, although the royalty income is not currently material to this segment's operating results. Corning is licensed to use certain patents owned by others, which are considered important to the segment's operations. Refer to the material under the heading "Patents and Trademarks" for information relating to the Company's patents and trademarks.
The Optical Communications segment represented 32% of Corning's sales in 2016.
Environmental Technologies Segment
Corning's Environmental Technologies segment manufactures ceramic substrates and filter products for emissions control in mobile and stationary applications around the world. In the early 1970s, Corning developed an economical, high-performance cellular ceramic substrate that is now the standard for catalytic converters in vehicles worldwide. As global emissions control regulations tighten, Corning has continued to develop more effective and durable ceramic substrate and filter products for gasoline and diesel applications. Corning manufactures substrate and filter products in New York, Virginia, China, Germany and South Africa. Corning sells its ceramic substrate and filter products worldwide to catalyzers and manufacturers of emission control systems who then sell to automotive and diesel vehicle or engine manufacturers. Although most sales are made to the emission control systems manufacturers, the use of Corning substrates and filters is generally required by the specifications of the automotive and diesel vehicle or engine manufacturers.
Patent protection is important to the segment's operations. The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. Corning is licensed to use certain patents owned by others, which are also considered important to the segment's operations. Refer to the material under the heading "Patents and Trademarks" for information relating to the Company's patents and trademarks.
The Environmental Technologies segment represented 11% of Corning's sales in 2016.
Specialty Materials Segment
The Specialty Materials segment manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs. Consequently, this segment operates in a wide variety of commercial and industrial markets that include display optics and components, semiconductor optics components, aerospace and defense, astronomy, ophthalmic products, telecommunications components and cover glass that is optimized for portable display devices.
Our cover glass, known as Corning® Gorilla® Glass, is a thin sheet glass designed specifically to function as a cover glass for display devices such as mobile phones, tablets and notebook PCs. Elegant and lightweight, Corning Gorilla Glass is durable enough to resist many real-world events that commonly cause glass failure, enabling exciting new applications in technology and design. In 2016, Corning unveiled its latest Corning Gorilla Glass innovation, Corning® Gorilla® Glass 5, which is designed to provide further protection against breakage while maintaining optical clarity, touch sensitivity, and damage resistance.
Corning Gorilla Glass is manufactured in Kentucky, South Korea, Japan and Taiwan.
Semiconductor optics manufactured by Corning includes high-performance optical material products, optical-based metrology instruments, and optical assemblies for applications in the global semiconductor industry. Corning's semiconductor optics products are manufactured in New York.
Other specialty glass products include glass lens and window components and assemblies and are made in New York, New Hampshire, Kentucky and France, and sourced from China.
Patent protection is important to the segment's operations. The segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. Brand recognition and loyalty, through well-known trademarks, are important to the segment. Refer to the material under the heading "Patents and Trademarks" for information relating to the Company's patents and trademarks.
The Specialty Materials segment represented approximately 12% of Corning's sales in 2016.
Life Sciences Segment
As a leading developer, manufacturer and global supplier of scientific laboratory products for 100 years, Corning's Life Sciences segment collaborates with researchers and drug manufacturers seeking new approaches to increase efficiencies, reduce costs and compress timelines. Using unique expertise in the fields of materials science, surface science, biochemistry and biology, the segment provides innovative solutions that improve productivity and enable breakthrough discoveries.
Life Sciences laboratory products include consumables (plastic vessels, specialty surfaces and media), as well as general labware and equipment, that are used for advanced cell culture research, bioprocessing, genomics, drug discovery, microbiology and chemistry. Corning sells life science products under these primary brands: Corning, Falcon, PYREX, Axygen, and Gosselin. The products are marketed worldwide, primarily through distributors to pharmaceutical and biotechnology companies, academic institutions, hospitals, government entities, and other facilities. Corning manufactures these products in the United States in Maine, New York, New Jersey, California, Utah, Virginia, Massachusetts and North Carolina, and outside of the U.S. in Mexico, France, Poland and China.
In addition to being a global leader in laboratory consumables for life science research, Corning continues to develop and produce innovative technologies aimed at the growing biologic drug production markets.
Patent protection is important to the segment's operations. The segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. Brand recognition and loyalty, through well-known trademarks, are important to the segment. Refer to the material under the heading "Patents and Trademarks" for more information.
The Life Sciences segment represented approximately 9% of Corning's sales in 2016.
All Other
All other segments that do not meet the quantitative threshold for separate reporting have been grouped as "All Other." This group is primarily comprised of the results of Corning's Pharmaceutical Technologies business, our non-LCD glass business, new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates.
The All Other segment represented 2% of Corning's sales in 2016.
Additional explanation regarding Corning and its five reportable segments, as well as financial information about geographic areas, is presented in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 20 (Reportable Segments) to the Consolidated Financial Statements.
Corporate Investments
Dow Corning Corporation.
Prior to May 31, 2016, Corning and The Dow Chemical Company ("Dow Chemical") each owned half of Dow Corning Corporation ("Dow Corning"), an equity company headquartered in Michigan that manufactures silicone products worldwide. Dow Corning was the majority-owner of Hemlock Semiconductor Group ("HSG"), a market leader in the production of high purity polycrystalline silicon for the semiconductor and solar energy industries.
On May 31, 2016, Corning completed the strategic realignment of its equity investment in Dow Corning pursuant to the Transaction Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in HSG and approximately $4.8 billion in cash.
Prior to realignment, HSG, a consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the exchange, Corning now has a direct equity investment in HSG. Because our ownership percentage in HSG did not change as a result of the realignment, the investment in HSG is recorded at its carrying value, which had a negative carrying value of $383 million at the transaction date. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Excluding this charge, the entity is profitable and is expected to recover its equity in the near term.
Pittsburgh Corning Corporation.
Prior to the second quarter of 2016, Corning and PPG Industries, Inc. each owned 50% of the capital stock of Pittsburgh Corning Corporation ("PCC"). PCC filed for Chapter 11 reorganization in 2000 and the Modified Third Amended Plan of Reorganization for PCC (the "Plan") became effective in April 2016. In the second quarter of 2016, Corning contributed its equity interests in PCC and Pittsburgh Corning Europe N.V. as required by the Plan and recognized a gain of $56 million for the difference between the fair value of the asbestos litigation liability and carrying value of the investment.
Additional information about corporate investments is presented in Note 7 (Investments) to the Consolidated Financial Statements.
Competition
Corning competes with many large and varied manufacturers, both domestic and foreign. Some of these competitors are larger than Corning, and some have broader product lines. Corning strives to maintain and improve its market position through technology and product innovation. For the future, Corning believes its competitive advantage lies in its commitment to research and development, its commitment to reliability of supply and product quality and technical specification of its products. There is no assurance that Corning will be able to maintain or improve its market position or competitive advantage.
Display Technologies Segment
We believe Corning is the largest worldwide producer of glass substrates for LCD displays. The environment for LCD glass substrate products is very competitive and Corning believes it has sustained its competitive advantages by investing in new products, providing a consistent and reliable supply, and continually improving its proprietary fusion manufacturing process. This process allows us to deliver glass that is larger, thinner and lighter, with exceptional surface quality and without heavy metals. Asahi Glass Co. Ltd. and Nippon Electric Glass Co. Ltd. are Corning's principal competitors in display glass substrates.
Optical Communications Segment
Corning believes it maintains a leadership position in the segment's principal product groups, which include carrier and enterprise networks. The competitive landscape includes industry consolidation, price pressure and competition for the innovation of new products. These competitive conditions are likely to persist. Corning believes its large scale manufacturing experience, fiber process, technology leadership and intellectual property provide cost advantages relative to several of its competitors.
The primary competing producers of the Optical Communications segment are Commscope and Prysmian Group.
Environmental Technologies Segment
Corning believes it maintains a leadership position in the worldwide automotive ceramic substrate products, and a strong presence in the heavy-duty and light-duty diesel vehicle market. The Company believes its competitive advantage in automotive ceramic substrate products for catalytic converters and diesel filter products for exhaust systems is based upon global presence, customer service, engineering design services and product innovation. Corning's Environmental Technologies products face principal competition from NGK Insulators, Ltd. and Ibiden Co. Ltd.
Specialty Materials Segment
Corning has deep capabilities in materials science, optical design, shaping, coating, finishing, metrology, and system assembly. Additionally, we are addressing emerging needs of the consumer electronics industry with the development of chemically strengthened glass. Corning Gorilla Glass is a thin-sheet glass that is better able to survive events that most commonly cause glass failure. Its advanced composition allows a deeper layer of chemical strengthening than is possible with most other chemically strengthened glasses, making it both durable and damage resistant. Our products and capabilities in this segment position the Company to meet the needs of a broad array of markets including display, semiconductor, aerospace/defense, astronomy, vision care, industrial/commercial, and telecommunications. For this segment, Schott, Asahi Glass Co. Ltd., Nippon Electric Glass Co. Ltd. and Heraeus are the main competitors.
Life Sciences Segment
Corning seeks to maintain a competitive advantage by emphasizing product quality, global distribution, supply chain efficiency, a broad product line and superior product attributes. Our principle worldwide competitors include Thermo Fisher Scientific, Inc., Greiner Group AG, Eppendorf AG and Sarsedt AG. Corning also faces increasing competition from large distributors that have pursued backward integration or introduced private label products.
Raw Materials
Corning's manufacturing processes and products require access to uninterrupted power sources, significant quantities of industrial water, certain precious metals, and various batch materials. Availability of resources (ores, minerals, polymers, helium and processed chemicals) required in manufacturing operations, appears to be adequate. Corning's suppliers, from time to time, may experience capacity limitations in their own operations, or may eliminate certain product lines. Corning believes it has adequate programs to ensure a reliable supply of raw and batch materials as well as precious metals. For many products, Corning has alternate suppliers that would allow operations to continue without interruption in the event of specific materials shortages.
Certain key materials and proprietary equipment used in the manufacturing of products are currently sole-sourced or available only from a limited number of suppliers. To minimize this risk, Corning closely monitors raw materials and equipment with limited availability or which are sourced through one supplier. However, any future difficulty in obtaining sufficient and timely delivery of components and/or raw materials could result in lost sales due to delays or reductions in product shipments, or reductions in Corning's gross margins.
Patents and Trademarks
Inventions by members of Corning's research and engineering staff continue to be important to the Company's growth. Patents have been granted on many of these inventions in the United States and other countries. Some of these patents have been licensed to other manufacturers, including companies in which Corning has equity investments. Many of our earlier patents have now expired, but Corning continues to seek and obtain patents protecting its innovations. In 2016, Corning was granted about 460 patents in the U.S. and over 1,100 patents in countries outside the U.S.
Each business segment possesses a patent portfolio that provides certain competitive advantages in protecting Corning's innovations. Corning has historically enforced, and will continue to enforce, its intellectual property rights. At the end of 2016, Corning and its wholly-owned subsidiaries owned over 9,660 unexpired patents in various countries of which over 3,840 were U.S. patents. Between 2017 and 2019, approximately 6% of these patents will expire, while at the same time Corning intends to seek patents protecting its newer innovations. Worldwide, Corning has about 10,500 patent applications in process, with about 2,500 in process in the U.S. Corning believes that its patent portfolio will continue to provide a competitive advantage in protecting the Company's innovation, although Corning's competitors in each of its businesses are actively seeking patent protection as well.
While each of our reportable segments has numerous patents in various countries, no one patent is considered material to any of these segments. Important U.S.-issued patents in our reportable segments include the following:
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Display Technologies: patents relating to glass compositions and methods for the use and manufacture of glass substrates for display applications.
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Optical Communications: patents relating to (i) optical fiber products including low-loss optical fiber, high data rate optical fiber, and dispersion compensating fiber, and processes and equipment for manufacturing optical fiber, including methods for making optical fiber preforms and methods for drawing, cooling and winding optical fiber; (ii) optical fiber ribbons and methods for making such ribbon, fiber optic cable designs and methods for installing optical fiber cable; (iii) optical fiber connectors, termination and storage and associated methods of manufacture; and (iv) distributed communication systems.
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Environmental Technologies: patents relating to cellular ceramic honeycomb products, together with ceramic batch and binder system compositions, honeycomb extrusion and firing processes, and honeycomb extrusion dies and equipment for the high-volume, low-cost manufacture of such products.
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Specialty Materials: patents relating to protective cover glass, ophthalmic glasses and polarizing dyes, and semiconductor/microlithography optics and blanks, metrology instrumentation and laser/precision optics, glass polarizers, specialty fiber, and refractories.
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Life Sciences: patents relating to methods and apparatus for the manufacture and use of scientific laboratory equipment including multiwell plates and cell culture products, as well as equipment and processes for label independent drug discovery.
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Products reported in All Other include development projects, new product lines, and other businesses or investments that do not meet the threshold for separate reporting.
Approximate number of patents granted to our reportable segments follows:
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Total
number of
patents
worldwide
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U.S. patents
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Important
patents expiring
between 2017
and 2019
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Display Technologies
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1,700
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370
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11
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Optical Communications
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3,500
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1,600
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10
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Environmental Technologies
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800
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320
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36
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Specialty Materials
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920
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430
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8
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Life Sciences
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600
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240
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16
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Many of the Company's patents are used in operations or are licensed for use by others, and Corning is licensed to use patents owned by others. Corning has entered into cross-licensing arrangements with some major competitors, but the scope of such licenses has been limited to specific product areas or technologies.
Corning's principal trademarks include the following: Axygen, Corning, Celcor, ClearCurve, DuraTrap, Eagle XG, Edge8, Gorilla, Gosselin, HPFS, Leaf, Pyrex, Steuben, Falcon, SMF-28e, Unicam, and Willow.
Protection of the Environment
Corning has a program to ensure that its facilities are in compliance with state, federal and foreign pollution-control regulations. This program has resulted in capital and operating expenditures each year. In order to maintain compliance with such regulations, capital expenditures for pollution control in operations were approximately $14 million in 2016 and are estimated to be $31 million in 2017.
Corning's 2016 consolidated operating results were charged with approximately $43 million for depreciation, maintenance, waste disposal and other operating expenses associated with pollution control. Corning believes that its compliance program will not place it at a competitive disadvantage.
Employees
At December 31, 2016, Corning had approximately 40,700 full-time employees. From time to time, Corning also retains consultants, independent contractors, temporary and part-time workers.
Executive Officers of the Registrant
James P. Clappin
President, Corning Glass Technologies
Mr. Clappin joined Corning in 1980 as a process engineer. He transitioned to GTE Corporation in 1983 when the Central Falls facility was sold and returned to Corning in 1988. He began working in the display business in 1994. Mr. Clappin relocated to Japan in 1996, as plant manager at Corning Display Technologies Shizuoka facility. In 2002, he was appointed as general manager of CDT worldwide business. He served as president of Corning Display Technologies from September 2005 through July 2010. He was appointed president, Corning Glass Technologies, in 2010. Age 59.
Martin J. Curran
Executive Vice President and Corning Innovation Officer
Mr. Curran joined Corning in 1984 and has held a variety of roles in finance, manufacturing, and marketing. He has served as senior vice president, general manager for Corning Cable Systems Hardware and Equipment Operations in the Americas, responsible for operations in Hickory, North Carolina; Keller, Texas; Reynosa, Mexico; Shanghai, China; and the Dominican
Republic. He has also served as senior vice president and general manager for Corning Optical Fiber.
Mr. Curran was appointed as
Corning's first innovation officer in August 2012. Age 58.
Jeffrey W. Evenson
Senior Vice President and Chief Strategy Officer
Dr. Evenson joined Corning in June 2011 as senior vice president and operations chief of staff. In 2015, he was named Chief Strategy Officer. He serves on the Management Committee and oversees a variety of strategic programs and growth initiatives. Prior to joining Corning, Dr. Evenson was a senior vice president with Sanford C. Bernstein, where he served as a senior analyst since 2004. Before that, Dr. Evenson was a partner at McKinsey & Company, where he led technology and market assessment for early-stage technologies. Age 51.
Lisa Ferrero
Senior Vice President and Chief Administrative Officer
Ms. Ferrero joined Corning in 1987 as a statistician and held various production management positions until joining Display Technologies in 1995 as a market analyst in Tokyo. While in Japan, she was appointed export sales manager for Taiwan and Korea. In 1998, she returned to Corning, N.Y. and was named market development manager. She was appointed director of strategic marketing, planning, and analysis for Display Technologies in 2000. In 2002, Ms. Ferrero joined Environmental Technologies as business manager for the heavy-duty diesel business and was named director of the automotive substrates business in 2003. She was named vice president and deputy general manager, Display Technologies Asia in June 2005. She served as general manager of Corning Display Technologies from July 2010 through 2015 overseeing operations across four regions: China, Japan, Taiwan and the U.S. Ms. Ferrero became senior vice president and chief administrative officer in January 2016. Age 53.
Clark S. Kinlin
Executive Vice President
Mr. Kinlin joined Corning in 1981 in the Specialty Materials division. From 1985 to 1995 he worked in the Optical Fiber division. In 1995, he joined Corning Consumer Products. In 2000, Mr. Kinlin was named president, Corning International Corporation and, in 2003, he was appointed as general manager for Greater China. From April 2007 to March 2008, he was chief operating officer, Corning Cable Systems (now Corning Optical Communications) and was named president and chief executive officer in 2008. He was appointed executive vice president in 2012. Age 57.
Lawrence D. McRae
Vice Chairman and Corporate Development Officer
Mr. McRae joined Corning in 1985 and served in various financial, sales and marketing positions. He was appointed vice president Corporate Development in 2000, senior vice president Corporate Development in 2003, senior vice president Strategy and Corporate Development in October 2005, and executive vice president Strategy and Corporate Development in 2010. He was appointed to his present position in August 2015. Age 58.
David L. Morse
Executive Vice President and Chief Technology Officer
Dr. Morse joined Corning in 1976 in glass research and worked as a composition scientist in developing and patenting several major products. He served in a variety of product and materials research and technology director roles and was appointed division vice president and technology director for photonic technology groups beginning in March 1999. He became director of corporate research, science and technology in December 2001. He was appointed vice president in January 2003, becoming senior vice president and director of corporate research in 2006. Dr. Morse was appointed to his current position in May 2012. He is a member of the National Academy of Engineering and the National Chemistry Board. Age 64.
Eric S. Musser
Executive Vice President, Corning Technologies and International
Mr. Musser joined Corning in 1986 and served in a variety of manufacturing positions at fiber plants in Wilmington, N.C. and Melbourne, Australia, before becoming manufacturing strategist for the Optical Fiber business in 1996. Mr. Musser joined Corning Lasertron in 2000 and became president later that year. He was named director, manufacturing operations for Photonic Technologies in 2002. In 2003, he returned to Optical Fiber as division vice president, development and engineering and was named vice president and general manager in 2005. In 2007, he was appointed general manager of Corning Greater China and was named president of Corning International in 2012. Mr. Musser was appointed executive vice president in 2014. Age 57.
Christine M. Pambianchi
Senior Vice President, Human Resources
Ms. Pambianchi joined Corning in 2000 as division human resource manager, Corning Optical Fiber, and later was named director, Human Resources, Corning Optical Communications. She has led the Human Resources function since January 2008 when she was named vice president, Human Resources. Ms. Pambianchi was appointed to senior vice president, Human Resources, in 2010, and is responsible for leading Corning's global human resource function. Age 48.
Mark S. Rogus
Senior Vice President and Treasurer
Mr. Rogus joined Corning in 1996 as manager, Corporate Finance. In 1999 he was appointed assistant treasurer. He was appointed as vice president and treasurer in December 2000, responsible for Corning's worldwide treasury functions, including corporate finance, treasury operations, risk management, investment and pension plans. He has served as senior vice president and treasurer of Finance since January 2004. Prior to joining Corning, Mr. Rogus was a senior vice president at Wachovia Bank where he managed the bank's business development activities in the U.S mid-Atlantic region and Canada for both investment and non-investment grade clients. Age 57.
Edward A. Schlesinger
Vice President
and
Corporate Controller
Mr. Schlesinger joined Corning in 2013 as senior vice president and chief financial officer of Corning Optical Communications. He led the Finance function for Corning Optical Communications and served on the Communications Leadership Team. He was named vice president and corporate controller in September 2015, and appointed principal accounting officer in December 2015. Prior to joining Corning, Mr. Schlesinger served as Vice President, Finance and Sector Chief Financial Officer for two of Ingersoll Rand's business segments. Mr. Schlesinger has a financial career that spans more than 20 years garnering extensive expertise in technical financial management and reporting. Age 49.
Lewis A. Steverson
Senior Vice President and General Counsel
Mr. Steverson joined Corning in June 2013 as senior vice president and general counsel. Prior to joining Corning, Mr. Steverson served as senior vice president, general counsel, and secretary of Motorola Solutions, Inc. During his 18 years with Motorola, he held a variety of legal leadership roles across the company's numerous business units. Prior to Motorola, Mr. Steverson was in private practice at the law firm of Arnold & Porter. Age 53.
R. Tony Tripeny
Senior Vice President and Chief Financial Officer
Mr. Tripeny joined Corning in 1985 as the corporate accounting manager of Corning Cable Systems, and became the Keller, Texas facility's plant controller in 1989. In 1993, he was appointed equipment division controller of Corning Cable Systems and, in 1996 corporate controller. Mr. Tripeny was appointed chief financial officer of Corning Cable Systems in July 2000. In 2003, he took on the additional role of Telecommunications group controller. He was appointed division vice president, operations controller in August 2004, vice president, corporate controller in October 2005, and senior vice president and principal accounting officer in April 2009. Mr. Tripeny was appointed to his current position as senior vice president and chief financial officer in September 2015. He is a member of the board of directors of Hardinge, Inc. Age 57.
Wendell P. Weeks
Chairman, Chief Executive Officer and President
Mr. Weeks joined Corning in 1983. He was named vice president and general manager of the Optical Fiber business in 1996, senior vice president in 1997, senior vice president of Opto-Electronics in 1998, executive vice president in 1999, and president, Corning Optical Communications in 2001. Mr. Weeks was named president and chief operating officer of Corning in 2002, president and chief executive officer in 2005 and chairman and chief executive officer on April 26, 2007. He added the title of president in December 2010. Mr. Weeks is a director of Merck & Co. Inc. and Amazon.com, Inc. Mr. Weeks has been a member of Corning's Board of Directors since 2000. Age 57.
Document Availability
A copy of Corning's 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission is available upon written request to Corporate Secretary, Corning Incorporated, One Riverfront Plaza, Corning, NY 14831. The Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 and other filings are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC, and can be accessed electronically free of charge, through the Investor Relations page on Corning's website at
www.corning.com
. The information contained on the Company's website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.
Other
Additional information in response to Item 1 is found in Note 20 (Reportable Segments) to the Consolidated Financial Statements and in Item 6 (Selected Financial Data).
Item 1A. Risk Factors
We operate in rapidly changing economic, political, and technological environments that present numerous risks, many of which are driven by factors that we cannot control or predict. Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, our ability to successfully execute our strategy and capital allocation framework, and the trading price of our common stock or debt. The following discussion of "risk factors" identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with MD&A and the consolidated financial statements and related notes incorporated by reference into this report. The following discussion of risks is not all inclusive but is designed to highlight what we believe are important factors to consider, as these factors could cause our future results to differ from those in the forward-looking statements and from historical trends.
As a global company, we face many risks which could adversely impact our operations and reported financial results
We are a global company and derive a substantial portion of our revenues from, and have significant operations, outside of the United States. Our international operations include manufacturing, assembly, sales, research and development, customer support, and shared administrative service centers.
Compliance with laws and regulations increases our costs. We are subject to both U.S. laws and local laws which, among other things, include data privacy requirements, employment and labor laws, tax laws, anti-competition regulations, prohibitions on payments to governmental officials, import and trade restrictions and export requirements. Non-compliance or violations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Such violations could result in prohibitions on our ability to offer our products and services in one or more countries and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate and manage these risks.
We are also subject to a variety of other risks in managing a global organization, including those related to:
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The economic and political conditions in each country or region;
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·
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Complex regulatory requirements affecting international trade and investment, including anti-dumping laws, export controls, the Foreign Corrupt Practices Act and local laws prohibiting improper payments. Our operations may be adversely affected by changes in the substance or enforcement of these regulatory requirements, and by actual or alleged violations of them;
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·
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Fluctuations in currency exchange rates, convertibility of currencies and restrictions involving the movement of funds between jurisdictions and countries;
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·
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Sovereign and political risks that may adversely affect Corning's profitability and assets;
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·
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Geographical concentration of our factories and operations, and regional shifts in our customer base;
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Periodic health epidemic concerns;
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·
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Political unrest, confiscation or expropriation of our assets by foreign governments, terrorism and the potential for other hostilities;
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Difficulty in protecting intellectual property, sensitive commercial and operations data, and information technology systems;
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·
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Differing legal systems, including protection and treatment of intellectual property and patents;
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·
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Complex, or competing tax regimes;
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·
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Tariffs, trade duties and other trade barriers including anti-dumping duties;
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·
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Difficulty in collecting obligations owed to us;
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·
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Natural disasters such as floods, earthquakes, tsunamis and windstorms; and
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Potential loss of utilities or other disruption affecting manufacturing.
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Corning's Display Technologies segment generates a significant amount of the Company's profits and cash flow. Any significant decrease in LCD glass pricing could have a material and negative impact on our financial results
Corning's ability to generate profits and operating cash flow depends largely upon the profitability of our LCD glass business, which is subject to continuous pricing pressure due to intense industry competition, potential over-capacity, and development of new technologies. If we are not able to achieve proportionate reductions in costs or sustain our current rate of cost reduction to offset potential pricing pressures it could have a material adverse impact on our financial results.
Because we have a concentrated customer base in each of our businesses, our sales could be negatively impacted by the actions or insolvency of one or more key customers, as well as our ability to retain these customers
A relatively small number of customers accounted for a high percentage of net sales in our reportable segments. Mergers and consolidations between customers could result in further concentration of Corning's customer base. If further concentration occurs or a key customer becomes insolvent, the loss of a key customer could result in a substantial loss of sales and reduction in anticipated in cash flows. Unforeseen events or actions on the part of Corning could also result in the loss of customers, resulting in further customer concentration.
The following table details the number of combined customers of our segments that accounted for a large percentage of segment net sales:
|
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Number of
combined
customers
|
|
% of total
segment net sales
in 2016
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Display Technologies
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3
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65%
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|
Optical Communications
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1
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15%
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Environmental Technologies
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3
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85%
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Specialty Materials
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3
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56%
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Life Sciences
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2
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46%
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Business disruptions could affect our operating results
A significant portion of our manufacturing, research and development activities, and certain other critical business operations are concentrated in a few geographic areas. A major earthquake, fire or other catastrophic event that results in the destruction or disruption of any of our critical facilities could severely affect our ability to conduct normal business operations and, as a result, our future financial results could be materially and adversely affected. For example, certain manufacturing sites require high quality, continuous, and uninterrupted power and access to industrial water. Unplanned outages could have a material negative impact on our operations and ability to supply our customers.
Additionally, a significant amount of the specialized manufacturing capacity for our reportable segments is concentrated in single-site locations and it is reasonably possible that the operations of one or more such facilities could be disrupted. Due to the specialized nature of the assets, it may not be possible to find replacement capacity quickly or substitute production from other facilities. Accordingly, a disruption at a single-site manufacturing operation could significantly impact Corning's ability to supply its customers and could produce a near-term severe impact on our individual businesses and the Company as a whole.
We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others
We rely on patent and trade secret laws, copyright, trademark, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights. Despite our efforts, these protections may be limited and we may encounter difficulties in protecting our intellectual property rights or obtaining rights to additional intellectual property necessary to permit us to continue or expand our businesses. We cannot provide assurance that the patents that we hold or may obtain will provide meaningful protection against our competitors. Changes in or enforcement of laws concerning intellectual property, worldwide, may affect our ability to prevent or address the misappropriation of, or the unauthorized use of, our intellectual property, potentially resulting in loss of market share. Litigation may be necessary to enforce our intellectual property rights. Litigation is inherently uncertain and outcomes are often unpredictable. If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.
The intellectual property rights of others could inhibit our ability to introduce new products. Other companies hold patents on technologies used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios. We periodically receive notices from, or have lawsuits filed against us by third parties claiming infringement, misappropriation or other misuse of their intellectual property rights and/or breach of our agreements with them. These third parties often include entities that do not have the capabilities to design, manufacture, or distribute products or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property through asserting claims of infringement and misuse. Such claims of infringement or misappropriation may result in loss of revenue, substantial costs, or lead to monetary damages or injunctive relief against us.
Information technology dependency and security vulnerabilities could lead to reduced revenue, liability claims, or competitive harm
The Company is dependent on information technology ("IT") systems and infrastructure for its business and manufacturing controls. Our IT systems may be vulnerable to disruptions from human error, outdated applications, computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions. Any significant disruption, breakdown, intrusion, interruption or corruption of these systems or data breaches could cause the loss of data, equipment damage, downtime, and/or safety related issues and could have a material adverse effect on our business. Like other global companies, we have, from time to time, experienced incidents related to our IT systems, and expect that such incidents will continue, including malware and computer virus attacks, unauthorized access, systems failures and disruptions. We have measures and defenses in place against unauthorized access, but we may not be able to prevent, immediately detect, or remediate such events. A material breach in the security of our IT systems could include the theft of our intellectual property or trade secrets. Such disruptions or security breaches could result in the theft, unauthorized use or publication of our intellectual property and/or confidential business information, harm our competitive position, disrupt our manufacturing, reduce the value of our investment in research and development and other strategic initiatives, or otherwise adversely affect our business.
Additionally, we believe that utilities and other operators of critical infrastructure that serve our facilities face heightened security risks, including cyber-attack. In the event of such an attack, disruption in service from our utility providers could disrupt our manufacturing operations which rely on a continuous source of power (electrical, gas, etc.).
We may not earn a positive return from our research, development and engineering investments
Developing our products through our innovation model of research and development is expensive and often involves a long investment cycle. We make significant expenditures and investments in research and development and four process engineering platforms that may earn an economic return. If our investments do not provide a pipeline of new technologies that our customers demand or lower cost manufacturing platforms, it could negatively impact our revenues and operating margins both near- and long-term.
We have significant exposure to foreign currency movements and to counterparties of our related derivatives portfolio
A large portion of our sales, profit and cash flows are transacted in non-U.S. dollar currencies and we expect that we will continue to realize gains or losses with respect to these exposures. We also maintain a significant portfolio of over the counter derivatives to hedge our projected currency exposure to the Japanese yen, New Taiwan dollar, South Korean won, Chinese yuan and euro. We are exposed to potential losses in the event of non-performance by our counterparties to these derivative contracts. Any failure of a counterparty to pay on such a contract when due could materially impact our results of operations, financial position, and cash flows.
For example, we will experience foreign currency gains and losses in certain instances if it is not possible or cost effective to hedge our currency exposures or should we elect not to hedge certain currency exposures. Alternatively, we may experience gains or losses if the underlying exposure which we have hedged change (increases or decreases) and we are unable to reverse, unwind, or terminate the hedges concurrent with the change in the underlying notional exposure.
Our ultimate realized loss or gain with respect to currency fluctuations will generally depend on the size and type of cross-currency exposures that we enter into, the exchange rates associated with these exposures and changes in those rates, whether we have entered into foreign currency contracts to offset these exposures and other factors. Our hedge portfolio may reduce our flexibility to respond to price moves by our Display Technologies segment competitors.
All of these factors could materially impact our results of operations, anticipated future results, financial position and cash flows, the timing of which is variable and generally outside of our control.
If we are unable to obtain certain specialized equipment, raw and batch materials or natural resources required in our products or processes, our business will suffer
Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of equipment, parts and components from our suppliers. We may experience shortages that could adversely affect our operations. There can be no assurances that we will not encounter problems in the future. Certain manufacturing equipment and components are available only from single or limited sources, and we may not be able to find alternate sources in a timely manner. A reduction, interruption or delay of supply, or a significant increase in the price for supplies, such as manufacturing equipment, precious metals, raw materials, utilities including energy and industrial water, could have a material adverse effect on our businesses.
We use specialized raw materials from single-source suppliers (e.g., specific mines or quarries) and natural resources (e.g., helium) in certain products and processes. If a supplier is unable to provide the required raw materials or the natural resource is in scarce supply or not readily available, we may be unable to change our product composition or manufacturing process in order to prevent a disruption to our business.
We have incurred, and may in the future incur, goodwill and other intangible asset impairment charges
At December 31, 2016, Corning had goodwill and other intangible assets of $2.4 billion. While we believe the estimates and judgments about future cash flows used in the goodwill impairment tests are reasonable, we cannot provide assurance that additional impairment charges in the future will not be required if the expected cash flow estimates as projected by management do not occur, especially if an economic recession occurs and continues for a lengthy period or becomes severe, or if acquisitions and investments made by the Company fail to achieve expected returns.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations
Our effective tax rate could be adversely impacted by several factors, including:
|
·
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Changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
|
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·
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Changes in tax laws, tax treaties and regulations or the interpretation of them;
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·
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Changes to our assessment about the realizability of our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
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·
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The outcome of current and future tax audits, examinations, or administrative appeals;
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·
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Changes in generally accepted accounting principles that affect the accounting for taxes; and
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·
|
Limitations or adverse findings regarding our ability to do business in some jurisdictions.
|
We may have additional tax liabilities
We are subject to income taxes in the U.S. and many foreign jurisdictions and are commonly audited by various tax authorities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Significant judgment is required in determining our worldwide provision for income taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our financial statements in the period or periods for which that determination is made.
A significant amount of our net profits and cash flows are generated from outside the U.S., and certain repatriation of funds currently held in foreign jurisdictions may result in higher effective tax rates for the Company. In addition, there have been proposals to change U.S. tax laws that could significantly impact how U.S. global corporations are taxed. Although we cannot predict whether or in what form proposed legislation may pass, if enacted certain proposals could have a material adverse impact on our tax expense and cash flow.
Our innovation model depends on our ability to attract and retain specialized experts in our core technologies
Our innovation model requires us to employ highly specialized experts in glass science, ceramic science, and optical physics to conduct our research and development and engineer our products and design our manufacturing facilities. The loss of the services of any member of our key research and development or engineering team without adequate replacement, or the inability to attract new qualified personnel, could have a material adverse effect on our operations and financial performance.
We are subject to strict environmental regulations and regulatory changes that could result in fines or restrictions that interrupt our operations
Some of our manufacturing processes generate chemical waste, waste water, other industrial waste or greenhouse gases, and we are subject to numerous laws and regulations relating to the use, storage, discharge and disposal of such substances. We have installed anti-pollution equipment for the treatment of chemical waste and waste water at our facilities. We have taken steps to control the amount of greenhouse gases created by our manufacturing operations. However, we cannot provide assurance that environmental claims will not be brought against us or that government regulators will not take steps to adopt more stringent environmental standards.
Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or imposition of fines against us, or the suspension/cessation of production or operations. In addition, environmental regulations could require us to acquire costly equipment, incur other significant compliance expenses or limit or restrict production or operations and thus materially and negatively affect our financial condition and results of operations.
Changes in regulations and the regulatory environment in the U.S. and other countries, such as those resulting from the regulation and impact of global warming and CO
2
abatement, may affect our businesses and their results in adverse ways by, among other things, substantially increasing manufacturing costs, limiting availability of scarce resources, especially energy, or requiring limitations on production and sale of our products or those of our customers.
Current or future litigation or regulatory investigations may harm our financial condition or results of operations
As described in Legal Proceedings in this Form 10-K, we are engaged in litigation and regulatory matters. Litigation and regulatory proceedings may be uncertain, and adverse rulings could occur, resulting in significant liabilities, penalties or damages. Such current or future substantial legal liabilities or regulatory actions could have a material adverse effect on our business, financial condition, cash flows and reputation.
Our global operations are subject to extensive trade and anti-corruption laws and regulations
Due to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations, including U.S. regulations issued by Customs and Border Protection, the Bureau of Industry and Security, the Office of Anti-boycott Compliance, the Directorate of Defense Trade Controls and the Office of Foreign Assets Control, as well as the counterparts of these agencies in other countries. Any alleged or actual violation by an employee or the Company may subject us to government scrutiny, investigation and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.
In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business, or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of alleged violations. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or financial condition.
Moreover, several of our related partners are domiciled in areas of the world with laws, rules and business practices that differ from those in the United States, and we face the reputational and legal risk that our related partners may violate applicable laws, rules and business practices.
International trade policies may negatively impact our ability to sell and manufacture our products outside of the U.S.
Government policies on international trade and investment such as import quotas, tariffs, and capital controls, whether adopted by individual governments or addressed by regional trade blocs, can affect the demand for our products and services, impact the competitive position of our products or prevent us (including our equity affiliates/joint ventures) from being able to sell and/or manufacture products in certain countries. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we sell large quantities of products and services could negatively impact our business, results of operations and financial condition. For example, a government's adoption of "buy national" policies or retaliation by another government against such policies could have a negative impact on our results of operations. These policies also affect our equity companies.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We operate 98 manufacturing plants and processing facilities in 17 countries, of which approximately 30% are located in the U.S. We own 71% of our executive and corporate buildings, which are mainly located in and around Corning, New York. We also own approximately 92% of our research and development facilities and the majority of our manufacturing facilities. We own approximately 66% of our sales and administrative facilities. The remaining facilities are leased.
For the years ended 2016, 2015 and 2014, we invested a total of $3.5 billion, primarily in facilities outside of the U.S. in our Display Technologies segment. Of the $1.1 billion spent in 2016, over $714 million were for facilities outside the U.S.
Manufacturing, sales and administrative, and research and development facilities have an aggregate floor space of approximately 38.8 million square feet. Distribution of this total area follows:
|
(million square feet)
|
Total
|
|
Domestic
|
|
Foreign
|
|
|
|
|
|
|
|
|
Manufacturing
|
31.6
|
|
7.3
|
|
24.3
|
|
Sales and administrative
|
2.6
|
|
1.9
|
|
0.7
|
|
Research and development
|
2.2
|
|
1.9
|
|
0.3
|
|
Warehouse
|
2.4
|
|
1.7
|
|
0.7
|
|
|
|
|
|
|
|
|
Total
|
38.8
|
|
12.8
|
|
26.0
|
Total assets and capital expenditures by operating segment are included in Note 20 (Reportable Segments) to the Consolidated Financial Statements. Information concerning lease commitments is included in Note 14 (Commitments, Contingencies and Guarantees) to the Consolidated Financial Statements.
Item 3. Legal Proceedings
Non-PCC Asbestos Litigation.
Corning is a defendant in cases alleging injuries from asbestos which had been stayed pending the confirmation of the PCC Plan. The stay was lifted on August 25, 2016. For additional information and updates to estimated liabilities as of December 31, 2016, see Note 7 (Investments) to the Consolidated Financial Statements.
Environmental Litigation.
Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 17 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning's policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At December 31, 2016 and December 31, 2015, Corning had accrued approximately $43 million (undiscounted) and $37 million (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company's liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.
Item 4.
Mine Safety Disclosure
None.
Signatures
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused his report to be signed on its behalf by the undersigned, thereunto duly authorized.
Corning Incorporated
|
By
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/s/ Wendell P. Weeks
|
|
Chairman of the Board of Directors, Chief
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February 6, 2017
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(Wendell P. Weeks)
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Executive Officer and President
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
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Capacity
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Date
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/s/ Wendell P. Weeks
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Chairman of the Board of Directors, Chief Executive Officer and President
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February 6, 2017
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(Wendell P. Weeks)
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(Principal Executive Officer)
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/s/ R. Tony Tripeny
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Senior Vice President and Chief Financial Officer
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February 6, 2017
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(R. Tony Tripeny)
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(Principal Financial Officer)
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/s/ Edward A. Schlesinger
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Vice President and Corporate Controller
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February 6, 2017
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(Edward A. Schlesinger)
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(Principal Accounting Officer)
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*
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Director
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February 6, 2017
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(Donald W. Blair)
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*
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Director
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February 6, 2017
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(Stephanie A. Burns)
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*
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Director
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February 6, 2017
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(John A. Canning, Jr.)
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*
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Director
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February 6, 2017
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(Richard T. Clark)
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*
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Director
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February 6, 2017
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(Robert F. Cummings, Jr.)
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*
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Director
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February 6, 2017
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(Deborah A. Henretta)
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*
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Director
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February 6, 2017
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(Daniel P. Huttenlocher)
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Director
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February 6, 2017
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(Kurt M. Landgraf)
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Director
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February 6, 2017
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(Kevin J. Martin)
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*
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Director
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February 6, 2017
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(Deborah D. Rieman)
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*
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Director
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February 6, 2017
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(Hansel E. Tookes II)
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*
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Director
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February 6, 2017
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(Mark S. Wrighton)
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*By
|
|
/s/ Lewis A. Steverson
|
|
|
|
|
(Lewis A. Steverson, Attorney-in-fact)
|
|
Corning Incorporated
2016 Annual Report
Index to Financial Statements and Financial Statement Schedules
|
|
|
|
Page
|
|
|
76
|
|
|
|
|
|
77
|
|
|
|
|
|
78
|
|
|
|
|
|
79
|
|
|
|
|
|
80
|
|
|
|
|
|
81
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
1.
|
|
82
|
|
|
|
|
|
|
|
2.
|
|
89
|
|
|
|
|
|
|
|
3.
|
|
89
|
|
|
|
|
|
|
|
4.
|
|
89
|
|
|
|
|
|
|
|
5.
|
|
89
|
|
|
|
|
|
|
|
6.
|
|
90
|
|
|
|
|
|
|
|
7.
|
|
93
|
|
|
|
|
|
|
|
8.
|
|
96
|
|
|
|
|
|
|
|
9.
|
|
100
|
|
|
|
|
|
|
|
10.
|
|
100
|
|
|
|
|
|
|
|
11.
|
|
101
|
|
|
|
|
|
|
|
12
|
|
103
|
|
|
|
|
|
|
|
13.
|
|
104
|
|
|
|
|
|
|
|
14.
|
|
112
|
|
|
|
|
|
|
|
15.
|
|
113
|
|
|
|
|
|
|
|
16.
|
|
116
|
|
|
|
|
|
|
|
17.
|
|
118
|
|
|
|
|
|
|
|
18.
|
|
123
|
|
|
|
|
|
|
|
19.
|
|
123
|
|
|
|
|
|
|
|
20.
|
|
126
|
|
|
|
|
|
|
Financial Statement Schedule
|
|
|
|
II.
|
|
131
|
|
|
|
|
|
132
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Corning Incorporated:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Corning Incorporated and its subsidiaries at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in "Management's Annual Report on Internal Control Over Financial Reporting," appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 6, 2017
|
Consolidated Statements of Income
|
Corning Incorporated and Subsidiary Companies
|
|
|
Years ended December 31,
|
|
(In millions, except per share amounts)
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
9,390
|
|
$
|
9,111
|
|
$
|
9,715
|
|
Cost of sales
|
|
5,644
|
|
|
5,458
|
|
|
5,663
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
3,746
|
|
|
3,653
|
|
|
4,052
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
1,472
|
|
|
1,508
|
|
|
1,202
|
|
Research, development and engineering expenses
|
|
742
|
|
|
769
|
|
|
815
|
|
Amortization of purchased intangibles
|
|
64
|
|
|
54
|
|
|
33
|
|
Restructuring, impairment and other charges (Note 2)
|
|
77
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
1,391
|
|
|
1,322
|
|
|
1,931
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliated companies (Note 7)
|
|
284
|
|
|
299
|
|
|
266
|
|
Interest income
|
|
32
|
|
|
21
|
|
|
26
|
|
Interest expense
|
|
(159)
|
|
|
(140)
|
|
|
(123)
|
|
Transaction-related gain, net (Note 8)
|
|
|
|
|
|
|
|
74
|
|
Translated earnings contract (loss) gain, net
|
|
(448)
|
|
|
80
|
|
|
1,369
|
|
Gain on realignment of equity investment
|
|
2,676
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
(84)
|
|
|
(96)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
3,692
|
|
|
1,486
|
|
|
3,568
|
|
Benefit (provision) for income taxes (Note 6)
|
|
3
|
|
|
(147)
|
|
|
(1,096)
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Corning Incorporated
|
$
|
3,695
|
|
$
|
1,339
|
|
$
|
2,472
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share attributable to Corning Incorporated:
|
|
|
|
|
|
|
|
|
|
Basic (Note 18)
|
$
|
3.53
|
|
$
|
1.02
|
|
$
|
1.82
|
|
Diluted (Note 18)
|
$
|
3.23
|
|
$
|
1.00
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
(1)
|
$
|
0.54
|
|
$
|
0.36
|
|
$
|
0.52
|
|
(1)
|
The first quarter 2015 dividend was declared on December 3, 2014.
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Consolidated Statements of Comprehensive Income
|
Corning Incorporated and Subsidiary Companies
|
|
|
Years ended December 31,
|
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Corning Incorporated
|
$
|
3,695
|
|
$
|
1,339
|
|
$
|
2,472
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments and other
|
|
(104)
|
|
|
(590)
|
|
|
(1,073)
|
|
Net unrealized (losses) gains on investments
|
|
(3)
|
|
|
1
|
|
|
(1)
|
|
Unamortized gains (losses) and prior service credits (costs) for postretirement benefit plans
|
|
241
|
|
|
121
|
|
|
(281)
|
|
Net unrealized gains (losses) on designated hedges
|
|
1
|
|
|
(36)
|
|
|
4
|
|
Other comprehensive income (loss), net of tax (Note 17)
|
|
135
|
|
|
(504)
|
|
|
(1,351)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Corning Incorporated
|
$
|
3,830
|
|
$
|
835
|
|
$
|
1,121
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Consolidated Balance Sheets
|
Corning Incorporated and Subsidiary Companies
|
|
|
December 31,
|
|
(In millions, except share and per share amounts)
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
5,291
|
|
$
|
4,500
|
|
Short-term investments, at fair value (Note 3)
|
|
|
|
|
100
|
|
Trade accounts receivable, net of doubtful accounts and allowances - $59 and $48
|
|
1,481
|
|
|
1,372
|
|
Inventories, net of inventory reserves - $151 and $146 (Note 5)
|
|
1,471
|
|
|
1,385
|
|
Other current assets (Note 8, 11 and 15)
|
|
805
|
|
|
912
|
|
Total current assets
|
|
9,048
|
|
|
8,269
|
|
|
|
|
|
|
|
|
Investments (Note 7)
|
|
336
|
|
|
1,975
|
|
Property, plant and equipment, net of accumulated depreciation - $9,884 and $9,188 (Note 9)
|
|
12,546
|
|
|
12,648
|
|
Goodwill, net (Note 10)
|
|
1,577
|
|
|
1,380
|
|
Other intangible assets, net (Note 10)
|
|
796
|
|
|
706
|
|
Deferred income taxes (Note 6)
|
|
2,325
|
|
|
2,056
|
|
Other assets (Note 8, 11 and 15)
|
|
1,271
|
|
|
1,493
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
27,899
|
|
$
|
28,527
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Current portion of long-term debt and short-term borrowings (Note 12)
|
$
|
256
|
|
$
|
572
|
|
Accounts payable
|
|
1,079
|
|
|
934
|
|
Other accrued liabilities (Note 11 and 14)
|
|
1,416
|
|
|
1,308
|
|
Total current liabilities
|
|
2,751
|
|
|
2,814
|
|
|
|
|
|
|
|
|
Long-term debt (Note 12)
|
|
3,646
|
|
|
3,890
|
|
Postretirement benefits other than pensions (Note 13)
|
|
737
|
|
|
718
|
|
Other liabilities (Note 11 and 14)
|
|
2,805
|
|
|
2,242
|
|
Total liabilities
|
|
9,939
|
|
|
9,664
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
Shareholders' equity (Note 17):
|
|
|
|
|
|
|
Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 3,100; Shares issued: 2,300
|
|
2,300
|
|
|
2,300
|
|
Common stock – Par value $0.50 per share; Shares authorized: 3.8 billion; Shares issued: 1,691 million and 1,681 million
|
|
846
|
|
|
840
|
|
Additional paid-in capital – common stock
|
|
13,695
|
|
|
13,352
|
|
Retained earnings
|
|
16,880
|
|
|
13,832
|
|
Treasury stock, at cost; shares held: 765 million and 551 million
|
|
(14,152)
|
|
|
(9,725)
|
|
Accumulated other comprehensive loss
|
|
(1,676)
|
|
|
(1,811)
|
|
Total Corning Incorporated shareholders' equity
|
|
17,893
|
|
|
18,788
|
|
Noncontrolling interests
|
|
67
|
|
|
75
|
|
Total equity
|
|
17,960
|
|
|
18,863
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
$
|
27,899
|
|
$
|
28,527
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Consolidated Statements of Cash Flows
|
Corning Incorporated and Subsidiary Companies
|
|
|
Years ended December 31,
|
|
(In millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
3,695
|
|
$
|
1,339
|
|
$
|
2,472
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
1,131
|
|
|
1,130
|
|
|
1,167
|
|
Amortization of purchased intangibles
|
|
64
|
|
|
54
|
|
|
33
|
|
Restructuring, impairment and other charges
|
|
77
|
|
|
|
|
|
71
|
|
Stock compensation charges
|
|
42
|
|
|
46
|
|
|
58
|
|
Equity in earnings of affiliated companies
|
|
(284)
|
|
|
(299)
|
|
|
(266)
|
|
Dividends received from affiliated companies
|
|
85
|
|
|
143
|
|
|
1,704
|
|
Deferred tax (benefit) provision
|
|
(308)
|
|
|
54
|
|
|
612
|
|
Restructuring payments
|
|
(12)
|
|
|
(40)
|
|
|
(39)
|
|
Customer deposits
|
|
185
|
|
|
197
|
|
|
|
|
Employee benefit payments in excess of expense
|
|
(92)
|
|
|
(52)
|
|
|
(52)
|
|
Translated earnings contract loss (gain)
|
|
448
|
|
|
(80)
|
|
|
(1,369)
|
|
Unrealized translation losses on transactions
|
|
1
|
|
|
268
|
|
|
431
|
|
Contingent consideration fair value adjustment
|
|
(43)
|
|
|
(13)
|
|
|
(249)
|
|
Gain on realignment of equity investment
|
|
(2,676)
|
|
|
|
|
|
|
|
Changes in certain working capital items:
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
(106)
|
|
|
162
|
|
|
(16)
|
|
Inventories
|
|
(68)
|
|
|
(77)
|
|
|
2
|
|
Other current assets
|
|
18
|
|
|
(57)
|
|
|
(16)
|
|
Accounts payable and other current liabilities
|
|
243
|
|
|
(146)
|
|
|
(3)
|
|
Other, net
|
|
121
|
|
|
180
|
|
|
169
|
|
Net cash provided by operating activities
|
|
2,521
|
|
|
2,809
|
|
|
4,709
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(1,130)
|
|
|
(1,250)
|
|
|
(1,076)
|
|
Acquisitions of businesses, net of cash (paid) received
|
|
(333)
|
|
|
(732)
|
|
|
66
|
|
Proceeds from sale of a business
|
|
|
|
|
12
|
|
|
|
|
Investment in unconsolidated entities
|
|
(24)
|
|
|
(33)
|
|
|
(109)
|
|
Cash received on realignment of equity investment
|
|
4,818
|
|
|
|
|
|
|
|
Proceeds from sale of assets to related party
|
|
42
|
|
|
|
|
|
|
|
(Payments) repayments of loans to unconsolidated entities
|
|
(23)
|
|
|
6
|
|
|
23
|
|
Short-term investments – acquisitions
|
|
(20)
|
|
|
(969)
|
|
|
(1,398)
|
|
Short-term investments – liquidations
|
|
121
|
|
|
1,629
|
|
|
1,167
|
|
Realized gains on translated earnings contracts
|
|
201
|
|
|
653
|
|
|
361
|
|
Other, net
|
|
10
|
|
|
(1)
|
|
|
4
|
|
Net cash provided by (used in) investing activities
|
|
3,662
|
|
|
(685)
|
|
|
(962)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
Net repayments of short-term borrowings and current portion of long-term debt
|
|
(85)
|
|
|
(12)
|
|
|
(52)
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
745
|
|
|
|
|
Proceeds from issuance of short-term debt, net
|
|
|
|
|
3
|
|
|
29
|
|
(Payments) proceeds from issuance of commercial paper
|
|
(481)
|
|
|
481
|
|
|
|
|
Payments from the settlement of interest rate swap agreements
|
|
|
|
|
(10)
|
|
|
|
|
Principal payments under capital lease obligations
|
|
(7)
|
|
|
(6)
|
|
|
(6)
|
|
Proceeds from issuance of preferred stock
(1)
|
|
|
|
|
|
|
|
400
|
|
Proceeds received for asset financing and related incentives, net
|
|
1
|
|
|
1
|
|
|
1
|
|
Proceeds from the exercise of stock options
|
|
138
|
|
|
102
|
|
|
116
|
|
Repurchases of common stock for treasury
|
|
(4,227)
|
|
|
(3,228)
|
|
|
(2,483)
|
|
Dividends paid
|
|
(645)
|
|
|
(679)
|
|
|
(591)
|
|
Net cash used in financing activities
|
|
(5,306)
|
|
|
(2,603)
|
|
|
(2,586)
|
|
Effect of exchange rates on cash
|
|
(86)
|
|
|
(330)
|
|
|
(556)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
791
|
|
|
(809)
|
|
|
605
|
|
Cash and cash equivalents at beginning of year
|
|
4,500
|
|
|
5,309
|
|
|
4,704
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
$
|
5,291
|
|
$
|
4,500
|
|
$
|
5,309
|
|
(1)
|
In the first quarter of 2014, Corning issued 1,900 shares of Preferred Stock to Samsung Display Co., Ltd. in connection with the acquisition of their equity interests in Samsung Corning Precision Materials Co., Ltd. (Note 8). Corning also issued to Samsung Display an additional 400 shares of Preferred Stock at closing, for an issue price of $400 million in cash (Note 17).
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Consolidated Statements of Changes in Shareholders' Equity
|
Corning Incorporated and Subsidiary Companies
|
|
(In millions)
|
Convertible
preferred
stock
|
Common
stock
|
Additional
paid-in
capital-common
|
Retained
earnings
|
Treasury
stock
|
Accumulated
other
comprehensive
income (loss)
|
Total Corning
Incorporated
shareholders'
equity
|
Non-
controlling
interests
|
Total
|
|
Balance, December 31, 2013
|
|
|
$
|
831
|
$
|
13,066
|
$
|
11,320
|
$
|
(4,099)
|
$
|
44
|
$
|
21,162
|
$
|
49
|
$
|
21,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
2,472
|
|
|
|
|
|
2,472
|
|
3
|
|
2,475
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(1,351)
|
|
(1,351)
|
|
(1)
|
|
(1,352)
|
|
Shares issued for acquisition of equity investment company
|
$
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
1,900
|
|
15
|
|
1,915
|
|
Shares issued for cash
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
400
|
|
Purchase of common stock for treasury
|
|
|
|
|
|
129
|
|
|
|
(2,612)
|
|
|
|
(2,483)
|
|
|
|
(2,483)
|
|
Shares issued to benefit plans and for option exercises
|
|
|
|
5
|
|
261
|
|
|
|
(2)
|
|
|
|
264
|
|
|
|
264
|
|
Dividends on shares
|
|
|
|
|
|
|
|
(771)
|
|
|
|
|
|
(771)
|
|
|
|
(771)
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
(14)
|
|
|
|
(14)
|
|
7
|
|
(7)
|
|
Balance, December 31, 2014
|
$
|
2,300
|
$
|
836
|
$
|
13,456
|
$
|
13,021
|
$
|
(6,727)
|
$
|
(1,307)
|
$
|
21,579
|
$
|
73
|
$
|
21,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
1,339
|
|
|
|
|
|
1,339
|
|
9
|
|
1,348
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(504)
|
|
(504)
|
|
(1)
|
|
(505)
|
|
Purchase of common stock for treasury
|
|
|
|
|
|
(250)
|
|
|
|
(2,978)
|
|
|
|
(3,228)
|
|
|
|
(3,228)
|
|
Shares issued to benefit plans and for option exercises
|
|
|
|
4
|
|
146
|
|
|
|
(1)
|
|
|
|
149
|
|
|
|
149
|
|
Dividends on shares
|
|
|
|
|
|
|
|
(528)
|
|
|
|
|
|
(528)
|
|
|
|
(528)
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
(19)
|
|
|
|
(19)
|
|
(6)
|
|
(25)
|
|
Balance, December 31, 2015
|
$
|
2,300
|
$
|
840
|
$
|
13,352
|
$
|
13,832
|
$
|
(9,725)
|
$
|
(1,811)
|
$
|
18,788
|
$
|
75
|
$
|
18,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
3,695
|
|
|
|
|
|
3,695
|
|
10
|
|
3,705
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
135
|
|
(6)
|
|
129
|
|
Purchase of common stock for treasury
|
|
|
|
|
|
165
|
|
|
|
(4,409)
|
|
|
|
(4.244)
|
|
|
|
(4,244)
|
|
Shares issued to benefit plans and for option exercises
|
|
|
|
6
|
|
178
|
|
|
|
(2)
|
|
|
|
182
|
|
|
|
182
|
|
Dividends on shares
|
|
|
|
|
|
|
|
(647)
|
|
|
|
|
|
(647)
|
|
|
|
(647)
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
(16)
|
|
|
|
(16)
|
|
(12)
|
|
(28)
|
|
Balance, December 31, 2016
|
$
|
2,300
|
$
|
846
|
$
|
13,695
|
$
|
16,880
|
$
|
(14,152)
|
$
|
(1,676)
|
$
|
17,893
|
$
|
67
|
$
|
17,960
|
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
|
Corning Incorporated and Subsidiary Companies
|
1.
Summary of Significant Accounting Policies
Organization
Corning Incorporated is a provider of high-performance glass for notebook computers, flat panel desktop monitors, LCD televisions, and other information display applications; carrier network and enterprise network products for the telecommunications industry; ceramic substrates for gasoline and diesel engines in automotive and heavy duty vehicle markets; laboratory products for the scientific community and specialized polymer products for biotechnology applications; advanced optical materials for the semiconductor industry and the scientific community; and other technologies. In these notes, the terms "Corning," "Company," "we," "us," or "our" mean Corning Incorporated and subsidiary companies.
Basis of Presentation and Principles of Consolidation
Our consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S. and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which Corning exercises control.
The equity method of accounting is used for investments in affiliated companies that are not controlled by Corning and in which our interest is generally between 20% and 50% and we have significant influence over the entity. Our share of earnings or losses of affiliated companies, in which at least 20% of the voting securities is owned and we have significant influence but not control over the entity, is included in consolidated operating results.
We use the cost method to account for our investments in companies that we do not control and for which we do not have the ability to exercise significant influence over operating and financial policies. In accordance with the cost method, these investments are recorded at cost or fair value, as appropriate.
All material intercompany accounts, transactions and profits are eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no impact on our results of operations, financial position, or changes in shareholders' equity.
Samsung Corning Precision Materials Co., Ltd. ("Samsung Corning Precision Materials")
On January 15, 2014, Corning completed a series of strategic and financial agreements to acquire the common shares of Samsung Corning Precision Materials previously held by Samsung Display Co., Ltd. ("Samsung Display"). As a result of these transactions, Corning became the owner of 100% of the common shares of Samsung Corning Precision Materials, which we consolidated into our results beginning in the first quarter of 2014. Operating under the name of Corning Precision Materials Co., Ltd. ("Corning Precision Materials"), the former Samsung Corning Precision Materials organization and operations were integrated into the Display Technologies segment in the first quarter of 2014.
Refer to Note 8 (Acquisitions) to the Consolidated Financial Statements for additional information.
Dow Corning
Prior to May 31, 2016, Corning and Dow Chemical each owned half of Dow Corning, an equity company headquartered in Michigan that manufactures silicone products worldwide. Dow Corning was the majority-owner of HSG, a market leader in the production of high purity polycrystalline silicon for the semiconductor and solar energy industries. On May 31, 2016, Corning completed the strategic realignment of its equity investment in Dow Corning pursuant to the Transaction Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in HSG and approximately $4.8 billion in cash. Prior to realignment, HSG, a consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the exchange, Corning now has a direct equity investment in HSG.
Refer to Note 7 (Investments) to the Consolidated Financial Statements for additional information.
1.
Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and related notes. Significant estimates and assumptions in these consolidated financial statements include estimates of fair value associated with revenue recognition, restructuring charges, goodwill and long-lived asset impairment tests, estimates of acquired assets and liabilities, estimates of fair value of investments, equity interests, environmental and legal liabilities, income taxes and deferred tax valuation allowances, assumptions used in calculating pension and other postretirement employee benefit expenses and the fair value of share-based compensation. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.
Revenue Recognition
Revenue for sales of goods is recognized when a firm sales agreement is in place, delivery has occurred and sales price is fixed or determinable and collection is reasonably assured. If customer acceptance of products is not reasonably assured, sales are recorded only upon formal customer acceptance. Sales of goods typically do not include multiple product and/or service elements.
At the time revenue is recognized, allowances are recorded, with the related reduction to revenue, for estimated product returns, allowances and price discounts based upon historical experience and related terms of customer arrangements. Where we have offered product warranties, we also establish liabilities for estimated warranty costs based upon historical experience and specific warranty provisions. Warranty liabilities are adjusted when experience indicates the expected outcome will differ from initial estimates of the liability.
In addition, Corning also has contractual arrangements with certain customers in which we recognize revenue on a completed contract basis. Revenues under the completed-contract method are recognized upon substantial completion, defined as acceptance by the customer and compliance with performance specifications as agreed upon in the contract. The Company acts as a principal under the contracts, and recognizes revenues with corresponding cost of revenues on a gross basis for the full amount of the contract.
Research and Development Costs
Research and development costs are charged to expense as incurred. Research and development costs totaled $637 million in 2016, $638 million in 2015 and $701 million in 2014.
Foreign Currency Translation and Transactions
The determination of the functional currency for Corning's foreign subsidiaries is made based on the appropriate economic factors. For most foreign operations, the local currencies are generally considered to be the functional currencies. Corning's most significant exception is our Taiwanese subsidiary, which uses the Japanese yen as its functional currency. For all transactions denominated in a currency other than a subsidiary's functional currency, exchange rate gains and losses are included in income for the period in which the exchange rates changed. We recorded foreign currency transaction gains of $21 million for the year ended December 31, 2016, and foreign currency transaction losses of $22 million and $60 million for the years ended December 31, 2015 and 2014, respectively. These amounts were recorded in the line item Other (expense) income, net in the consolidated statements of income.
Foreign subsidiary functional currency balance sheet accounts are translated at current exchange rates, and statement of operations accounts are translated at average exchange rates for the year. Translation gains and losses are recorded as a separate component of accumulated other comprehensive income in shareholders' equity. The effects of remeasuring non-functional currency assets and liabilities into the functional currency are included in current earnings, except for those related to intra-entity foreign currency transactions of a long-term investment nature, which are recorded together with translation gains and losses in accumulated other comprehensive income (loss) in shareholders' equity. Upon sale or substantially complete liquidation of an investment in a foreign entity, the amount of net translation gains or losses that have been accumulated in other comprehensive income attributable to that investment are reported as a gain or loss for the period in which the sale or liquidation occurs.
1.
Summary of Significant Accounting Policies (continued)
Share-Based Compensation
Corning's share-based compensation programs include employee stock option grants, time-based restricted stock awards and time-based restricted stock units, as more fully described in Note 19 (Share-based Compensation) to the Consolidated Financial Statements.
The cost of share-based compensation awards is equal to the fair value of the award at the date of grant and compensation expense is recognized for those awards earned over the vesting period. Corning estimates the fair value of share-based awards using a multiple-point Black-Scholes option valuation model, which incorporates assumptions including expected volatility, dividend yield, risk-free rate, expected term and departure rates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider securities with contractual maturities of three months or less, when purchased, to be cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments.
Supplemental disclosure of cash flow information follows (in millions):
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
Accruals for capital expenditures
|
$
|
381
|
|
$
|
298
|
|
$
|
358
|
|
Cash paid for interest and income taxes:
|
|
|
|
|
|
|
|
|
|
Interest
(1)
|
$
|
184
|
|
$
|
178
|
|
$
|
171
|
|
Income taxes, net of refunds received
|
$
|
293
|
|
$
|
253
|
|
$
|
577
|
|
(1)
|
Included in this amount are approximately $23 million, $35 million and $40 million of interest costs that were capitalized as part of property, plant and equipment, net of accumulated depreciation, in 2016, 2015 and 2014, respectively.
|
Allowance for Doubtful Accounts
The Company's allowance for doubtful accounts is determined based on a variety of factors that affect the potential collectability of the related receivables, including length of time receivables are past due, customer credit ratings, financial stability of customers, specific one-time events and past customer history. In addition, in circumstances where the Company is made aware of a specific customer's inability to meet its financial obligations, a specific allowance is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate based on the above criteria.
Environmental Liabilities
The Company accrues for its environmental investigation, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. For environmental matters, the most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, current laws and regulations and prior remediation experience. For sites with multiple potential responsible parties, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Where no amount within a range of estimates is more likely to occur than another, the minimum amount is accrued. When future liabilities are determined to be reimbursable by insurance coverage, an accrual is recorded for the potential liability and a receivable is recorded related to the insurance reimbursement when reimbursement is virtually certain.
The uncertain nature inherent in such remediation and the possibility that initial estimates may not reflect the final outcome could result in additional costs being recognized by the Company in future periods.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or market.
1.
Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment, Net of Accumulated Depreciation
Land, buildings, and equipment, including precious metals, are recorded at cost. Depreciation is based on estimated useful lives of properties using the straight-line method. Except as described in Note 2 (Restructuring, Impairment and Other Charges) to the Consolidated Financial Statements related to accelerated depreciation arising from restructuring programs and Note 9 (Property, Plant and Equipment, Net of Accumulated Depreciation) to the Consolidated Financial Statements related to the depletion of precious metals, the estimated useful lives range from 10 to 40 years for buildings and 2 to 20 years for equipment.
Included in the subcategory of equipment are the following types of assets (excluding precious metals):
|
Asset type
|
Range of useful life
|
|
|
|
|
|
|
|
Computer hardware and software
|
3
|
to
|
7
|
years
|
|
Manufacturing equipment
|
2
|
to
|
15
|
years
|
|
Furniture and fixtures
|
5
|
to
|
10
|
years
|
|
Transportation equipment
|
3
|
to
|
20
|
years
|
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. These assets are not depreciated because they have very low physical losses and are repeatedly reclaimed and reused in our manufacturing process over a very long useful life. We treat the physical loss of precious metals in the manufacturing and reclamation process as depletion and account for these losses as a period expense based on actual units lost. Precious metals are integral to many of our glass production processes. They are only acquired to support our operations and are not held for trading or other purposes.
Goodwill and Other Intangible Assets
Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill relates to and is assigned directly to a specific reporting unit. Reporting units are either operating segments or one level below the operating segment. Impairment testing for goodwill is done at a reporting unit level. Goodwill is reviewed for indicators of impairment quarterly or if an event occurs or circumstances change that indicate the carrying amount may be impaired. Corning also performs a detailed, two-step process every three years if no indicators suggest a test should be performed in the interim. We use this calculation as quantitative validation of the step-zero qualitative process; this process does not represent an election to perform the two-step process in place of the step-zero review.
The qualitative process includes an extensive review of expectations for the long-term growth of our businesses and forecasting future cash flows. If we are required to perform the two-step impairment analysis, our valuation method is an "income approach" using a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return. Our estimates are based upon our historical experience, our current knowledge from our commercial relationships, and available external information about future trends. If the fair value is less than the carrying value, a loss is recorded to reflect the difference between the fair value and carrying value.
Other intangible assets include patents, trademarks, and other intangible assets acquired from an independent party. Such intangible assets have a definite life and are amortized on a straight-line basis over estimated useful lives ranging from 4 to 50 years.
Impairment of Long-Lived Assets
We review the recoverability of our long-lived assets, such as plant and equipment and intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. When impairment indicators are present, we compare estimated undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the assets' carrying value to determine if the asset group is recoverable. For an asset group that fails the test of recoverability, the estimated fair value of long-lived assets is determined using an "income approach" that starts with the forecast of all the expected future net cash flows including the eventual disposition at market value of long-lived assets, and also considers the fair market value of all precious metals. We assess the recoverability of the carrying value of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If there is an impairment, a loss is recorded to reflect the difference between the assets' fair value and carrying value. Refer to Note 2 (Restructuring, Impairment and Other Charges) to the Consolidated Financial Statements for more detail.
1.
Summary of Significant Accounting Policies (continued)
Employee Retirement Plans
Corning offers employee retirement plans consisting of defined benefit pension plans covering certain domestic and international employees and postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. The costs and obligations related to these benefits reflect the Company's assumptions related to general economic conditions (particularly interest rates), expected return on plan assets, rate of compensation increase for employees and health care trend rates. The cost of providing plan benefits depends on demographic assumptions including retirements, mortality, turnover and plan participation.
Costs for our defined benefit pension plans consist of two elements: 1) on-going costs recognized quarterly, which are comprised of service and interest costs, expected return on plan assets and amortization of prior service costs; and 2) mark-to-market gains and losses outside of the corridor, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year, which are recognized annually in the fourth quarter of each year. These gains and losses result from changes in actuarial assumptions for discount rates and the differences between actual and expected return on plan assets. Any interim remeasurements triggered by a curtailment, settlement or significant plan changes, as well as any true-up to the annual valuation, are recognized as a mark-to-market adjustment in the quarter in which such event occurs.
Costs for our postretirement benefit plans consist of on-going costs recognized quarterly, and are comprised of service and interest costs, amortization of prior service costs and amortization of actuarial gains and losses. We recognize the actuarial gains and losses resulting from changes in actuarial assumptions for discount rates as a component of Shareholders' Equity on our consolidated balance sheets on an annual basis and amortize them into our operating results over the average remaining service period of employees expected to receive benefits under the plans, to the extent such gains and losses are outside of the corridor.
Refer to Note 13 (Employee Retirement Plans) to the Consolidated Financial Statements for additional detail.
Treasury Stock
Shares of common stock repurchased by us are recorded at cost as treasury stock and result in a reduction of Shareholders' Equity in the consolidated balance sheets. From time to time, treasury shares may be reissued as contributions to our employee benefit plans. When shares are reissued, we use an average cost method for determining cost. The difference between the cost of the shares and the reissuance price is added to or deducted from additional paid-in capital.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.
The effective income tax rate reflects our assessment of the ultimate outcome of tax audits. In evaluating the tax benefits associated with our various tax filing positions, we record a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to our liability for unrecognized tax benefits in the period in which we determine the issue is effectively settled with the tax authorities, the statute of limitations expires for the return containing the tax position or when new information becomes available. Our liability for unrecognized tax benefits, including accrued penalties and interest, is included in other accrued liabilities and other long-term liabilities on our consolidated balance sheets and in income tax expense in our consolidated statements of income.
Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized.
The Company is subject to income taxes in the United States and in numerous foreign jurisdictions. With minor exceptions, no provision is made for U.S. income taxes on the undistributed earnings of wholly-owned foreign subsidiaries because substantially all such earnings are indefinitely reinvested in those companies. Provision for the tax consequences of distributions, if any, from consolidated foreign subsidiaries is recorded in the year in which the earnings are no longer indefinitely reinvested in those subsidiaries.
1.
Summary of Significant Accounting Policies (continued)
Equity Method Investments
Our equity method investments are reviewed for impairment on a periodic basis or if an event occurs or circumstances change that indicate the carrying amount may be impaired. This assessment is based on a review of the equity investments' performance and a review of indicators of impairment to determine if there is evidence of a loss in value of an equity investment. Factors we consider include:
|
·
|
Absence of our ability to recover the carrying amount;
|
|
·
|
Inability of the equity affiliate to sustain an earnings capacity which would justify the carrying amount of the investment; and
|
|
·
|
Significant litigation, bankruptcy or other events that could impact recoverability.
|
For an equity investment with impairment indicators, we measure fair value on the basis of discounted cash flows or other appropriate valuation methods, depending on the nature of the company involved. If it is probable that we will not recover the carrying amount of our investment, the impairment is considered other-than-temporary and recorded in earnings, and the equity investment balance is reduced to its fair value accordingly. We require our material equity method affiliates to provide audited financial statements. Consequently, adjustments for asset recoverability are included in equity earnings. We also utilize these financial statements in our recoverability assessment.
Fair Value of Financial Instruments
Major categories of financial assets and liabilities, including short-term investments, other assets and derivatives are measured at fair value on a recurring basis. Certain assets and liabilities including long-lived assets, goodwill, asset retirement obligations, and cost and equity investments are measured at fair value on a nonrecurring basis.
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
Derivative Instruments
We participate in a variety of foreign exchange forward contracts and foreign exchange option contracts entered into in connection with the management of our exposure to fluctuations in foreign exchange rates. We utilize interest rate swaps to reduce the risk of changes in a benchmark interest rate from the probable forecasted issuance of debt and to swap fixed rate interest payments into floating rate interest payments.
These financial exposures are managed in accordance with corporate policies and procedures.
All derivatives are recorded at fair value on the balance sheet. Changes in the fair value of derivatives designated as cash flow hedges and hedges of net investments in foreign operations are not recognized in current operating results but are recorded in accumulated other comprehensive income. Amounts related to cash flow hedges are reclassified from accumulated other comprehensive income when the underlying hedged item impacts earnings. This reclassification is recorded in the same line item of the consolidated statements of income as where the effects of the hedged item are recorded, typically sales, cost of sales or other (expense) income, net. Changes in the fair value of derivatives not designated as hedging instruments are recorded in the Consolidated Statements of Income in the Translated earnings contract (loss) gain, net and the Other (expense) income, net lines.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification ("ASC") Topic 606. The new revenue recognition standard relates to revenue from contracts with customers, which, along with amendments issued in 2015 and 2016, will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Corning has evaluated its material contracts, and has concluded that the impact of adopting the standard on its financial statements and related disclosure will not be material. The standard, as amended, will be effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. We expect to adopt the standard on a modified retrospective basis in 2018.
1.
Summary of Significant Accounting Policies (continued)
Corning's equity affiliates are currently evaluating their material contracts, and have not concluded on the potential impact of adopting ASU 2014-09 on their financial statements and related disclosure.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. We are currently assessing the potential impact of adopting ASU 2016-02 on our financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period and the entity must adopt all of the amendments from ASU 2016-09 in the same period. We have determined that the impact of this standard will not be material. We will adopt this standard in 2017.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 refines how companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. No early adoption is permitted. We are currently assessing the potential impact of adopting ASU 2016-15 on our financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. We are currently evaluating the impact of ASU 2016-16 on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). ASU 2017-04 simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendment should be applied on a prospective basis. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company intends to early adopt the ASU in 2017.
2.
Restructuring, Impairment and Other Charges
2016 Activity
For the year ended December 31, 2016, we recorded charges of $77 million, pre-tax, for employee related costs of $14 million, asset disposals of $62 million, and exit costs associated with some minor restructuring activities in all of our segments of $1 million, with total cash expenditures of approximately $12 million.
Cash payments for employee-related and exit activity related to the 2016 restructuring activities were substantially completed in 2016. Restructuring reserves as of December 31, 2016, 2015 and 2014 were not significant.
2015 Activity
For the year ended December 31, 2015, we did not record significant restructuring, impairment and other charges or reversals. Cash expenditures for restructuring activities were $40 million.
2014 Activity
For the year ended December 31, 2014, we recorded charges of $71 million for workforce reductions of $48 million, asset disposals and write-offs of $22 million, and exit costs for restructuring activities of $1 million with total cash expenditures of approximately $39 million.
Cash payments for employee-related and exit activity related to the 2014 restructuring actions were substantially completed in 2015.
3.
Available-for-Sale Investments
At December 31, 2015, the Company held $100 million of short-term investments (U.S. government and agency securities). At December 31, 2016 and 2015, the Company held long-term investments of $29 million and $33 million in asset-backed securities, respectively. The Company's investments in available-for-sale securities are held at fair value with amortized cost of $32 million and $37 million at December 31, 2016 and 2015, respectively.
We have no plans to sell, nor do we believe it is more likely than not that we would be required to sell, the long-term investment asset-backed securities (which are collateralized by mortgages) before recovery of their amortized cost basis. It is possible that a significant degradation in the delinquency or foreclosure rates in the underlying assets could cause further temporary or other-than-temporary impairments in the future.
Proceeds from sales and maturities of short-term investments totaled $121 million, $1.6 billion and $1.2 billion in 2016, 2015 and 2014, respectively.
For 2016 and 2015, Corning's sales to Samsung Display Co. Ltd., a customer of our Display Technologies and Specialty Materials segments, represented 11% of the Company's consolidated net sales. For 2014, Corning's sales to Samsung Display Co. Ltd., a customer of our Display Technologies segment, represented 14% of the Company's consolidated net sales.
5.
Inventories, Net of Inventory Reserves
Inventories, net of inventory reserves comprise the following (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Finished goods
|
$
|
606
|
|
$
|
633
|
|
Work in process
|
|
303
|
|
|
264
|
|
Raw materials and accessories
|
|
270
|
|
|
200
|
|
Supplies and packing materials
|
|
292
|
|
|
288
|
|
Total inventories, net of inventory reserves
|
$
|
1,471
|
|
$
|
1,385
|
Income before income taxes follows (in millions):
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
$
|
2,658
|
|
$
|
426
|
|
$
|
2,384
|
|
Non-U.S. companies
|
|
1,034
|
|
|
1,060
|
|
|
1,184
|
|
Income before income taxes
|
$
|
3,692
|
|
$
|
1,486
|
|
$
|
3,568
|
The current and deferred amounts of the benefit (provision) for income taxes follow (in millions):
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
$
|
(1)
|
|
$
|
(40)
|
|
$
|
(38)
|
|
State and municipal
|
|
(17)
|
|
|
(20)
|
|
|
(32)
|
|
Foreign
|
|
(287)
|
|
|
(33)
|
|
|
(414)
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
310
|
|
|
(144)
|
|
|
(411)
|
|
State and municipal
|
|
48
|
|
|
(30)
|
|
|
9
|
|
Foreign
|
|
(50)
|
|
|
120
|
|
|
(210)
|
|
Benefit (provision) for income taxes
|
$
|
3
|
|
$
|
(147)
|
|
$
|
(1,096)
|
Amounts are reflected in the preceding tables based on the location of the taxing authorities.
Reconciliation of the U.S. statutory income tax rate to our effective tax rate for operations follows:
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Statutory U.S. income tax rate
|
35.0%
|
|
35.0%
|
|
35.0%
|
|
State income tax (benefit), net of federal effect
|
(0.3)
|
|
0.1
|
|
4.9
|
|
Rate difference on foreign earnings
(1)
|
(9.2)
|
|
(19.8)
|
|
(8.3)
|
|
Uncertain tax positions
|
(0.1)
|
|
4.3
|
|
(0.1)
|
|
Equity earnings impact
|
(0.4)
|
|
(5.4)
|
|
(2.0)
|
|
Valuation allowances
|
1.2
|
|
(4.2)
|
|
0.8
|
|
Realignment of Dow Corning interest
(2)
|
(28.2)
|
|
|
|
|
|
Other items, net
|
1.9
|
|
(0.1)
|
|
0.4
|
|
Effective income tax (benefit) rate
|
(0.1)%
|
|
9.9%
|
|
30.7%
|
|
(1)
|
Tax benefit is primarily for excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income and the income of subsidiaries with lower statutory rates than the U.S.
|
|
(2)
|
Refer to Note 7 (Investments) of the Consolidated Financial Statements for additional detail.
|
6.
Income Taxes (continued)
The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities follows (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Loss and tax credit carryforwards
|
$
|
1,465
|
|
$
|
1,151
|
|
Other assets
|
|
62
|
|
|
69
|
|
Asset impairments and restructuring reserves
|
|
154
|
|
|
153
|
|
Postretirement medical and life benefits
|
|
283
|
|
|
276
|
|
Other accrued liabilities
|
|
190
|
|
|
265
|
|
Other employee benefits
|
|
462
|
|
|
505
|
|
Gross deferred tax assets
|
|
2,616
|
|
|
2,419
|
|
Valuation allowance
|
|
(270)
|
|
|
(238)
|
|
Total deferred tax assets
|
|
2,346
|
|
|
2,181
|
|
Intangible and other assets
|
|
(104)
|
|
|
(181)
|
|
Fixed assets
|
|
(234)
|
|
|
(284)
|
|
Total deferred tax liabilities
|
|
(338)
|
|
|
(465)
|
|
Net deferred tax assets
|
$
|
2,008
|
|
$
|
1,716
|
The net deferred tax assets are classified in our consolidated balance sheets as follows (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
$
|
2,325
|
|
$
|
2,056
|
|
Deferred tax liabilities
|
|
(317)
|
|
|
(340)
|
|
Net deferred tax assets
|
$
|
2,008
|
|
$
|
1,716
|
Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2016 follow (in millions):
|
|
|
|
Expiration
|
|
|
Amount
|
|
2017-2021
|
|
2022-2026
|
|
2027-2036
|
|
Indefinite
|
|
Net operating losses
|
$
|
416
|
|
$
|
144
|
|
$
|
46
|
|
$
|
8
|
|
$
|
218
|
|
Tax credits
|
|
1,049
|
|
|
420
|
|
|
70
|
|
|
523
|
|
|
36
|
|
Totals as of December 31, 2016
|
$
|
1,465
|
|
$
|
564
|
|
$
|
116
|
|
$
|
531
|
|
$
|
254
|
Currently, the recognition of windfall tax benefits from stock-based compensation deducted on the tax return is prohibited until realized through a reduction of income tax payable. In 2017, we will adopt ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. At that time, the cumulative tax benefits totaling $233 million will be recorded in beginning retained earnings.
Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not (a likelihood of greater than 50 percent) that some portion or all of the deferred tax assets will not be realized. Corning has valuation allowances on certain shorter-lived deferred tax assets such as those represented by capital loss and state tax net operating loss carryforwards, as well as other foreign net operating loss carryforwards, because we cannot conclude that it is more likely than not that we will earn income of the character required to utilize these assets before they expire. U.S. profits of approximately $5.6 billion will be required to fully realize the U.S. deferred tax assets as of December 31, 2016, of which $116 million will be required over the next 20 years to realize the deferred tax assets related to general business credits and $2.8 billion of foreign sourced income will be required over the next 10 years to fully realize the deferred tax assets associated with foreign tax credits. The amount of U.S. and foreign deferred tax assets that have remaining valuation allowances at December 31, 2016 and 2015 was $270 million and $238 million, respectively.
6.
Income Taxes (continued)
The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):
|
|
2016
|
|
2015
|
|
Balance at January 1
|
$
|
253
|
|
$
|
10
|
|
Additions based on tax positions related to the current year
|
|
10
|
|
|
|
|
Additions for tax positions of prior years
|
|
4
|
|
|
245
|
|
Reductions for tax positions of prior years
|
|
(18)
|
|
|
(1)
|
|
Settlements and lapse of statute of limitations
|
|
(6)
|
|
|
(1)
|
|
Balance at December 31
|
$
|
243
|
|
$
|
253
|
The 2015 additions for tax positions of prior years include $221 million for unrecognized tax benefits related to gross transfer pricing adjustments,
of
which $31 million tax expense is related to out of period adjustments. The impact of these corrections is not material to any individual period previously presented. Since the Company operates in a number of countries with income tax treaties, an offsetting benefit was recorded where it believes it is more-likely-than-not to receive competent authority relief. Included in the balance at December 31, 2016 and 2015 are $92 million and $102 million, respectively, of unrecognized tax benefits that would impact our effective tax rate if recognized.
We recognize accrued interest and penalties associated with uncertain tax positions as part of tax expense. For the years ended December 31, 2016 and 2015 the amount recognized in interest expense is not material. The amounts accrued at December 31, 2016 and 2015 for the payment of interest and penalties were also not material.
We do not expect a material change to the amount of unrecognized tax benefits in the next 12 months.
Corning Incorporated, as the common parent company, and all 80%-or-more-owned of its U.S. subsidiaries join in the filing of consolidated U.S. federal income tax returns. The statute of limitations is closed for all periods ending through December 31, 2012. All returns for periods ended through December 31, 2004, have been audited by and settled with the Internal Revenue Service (IRS).
Corning Incorporated and its U.S. subsidiaries file income tax returns on a combined, unitary or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 5 years. Various state income tax returns are currently in the process of examination or administrative appeal.
Our foreign subsidiaries file income tax returns in the countries in which they have operations. Generally, these countries have statutes of limitations ranging from 3 to 7 years. Years still open to examination by foreign tax authorities in major jurisdictions include Japan (2009, 2015 onward), Taiwan (2015 onward) and South Korea (2015 onward).
Corning continues to indefinitely reinvest substantially all of its foreign earnings, with the exception of an immaterial amount of current earnings that have very low or no tax cost associated with their repatriation. Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash. One time or unusual items may impact our ability or intent to keep our foreign earnings and cash indefinitely reinvested. As of December 31, 2016, taxes have not been provided on approximately $12.6 billion of accumulated foreign unremitted earnings that are expected to remain invested indefinitely. While it remains impracticable to calculate the tax cost of repatriating our total unremitted foreign earnings, such cost could be material to the results of operations of Corning in a particular period.
Investments are comprised of the following
(in millions):
|
|
Ownership
interest
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
Affiliated companies accounted for by the equity method
|
|
|
|
|
|
|
|
|
|
|
Dow Corning
(1)
|
|
50%
|
|
|
|
|
|
$
|
1,483
|
|
All other
(2)
|
20%
|
to
|
50%
|
|
$
|
269
|
|
|
422
|
|
|
|
|
|
|
|
269
|
|
|
1,905
|
|
Other investments
|
|
|
|
|
|
67
|
|
|
70
|
|
Subtotal Investment Assets
|
|
|
|
|
$
|
336
|
|
$
|
1,975
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliated companies accounted for by the equity method
|
|
|
|
|
|
|
|
|
|
|
HSG
(3)
|
|
50%
|
|
|
$
|
241
|
|
|
|
|
Subtotal Investment Liabilities
|
|
|
|
|
$
|
241
|
|
|
|
|
(1)
|
Amount reflects Corning's direct ownership interest in Dow Corning at December 31, 2015. Corning did not control Dow Corning.
|
|
(2)
|
Amount reflects Corning's direct ownership interests in the affiliated companies at December 31, 2016 and December 31, 2015. Corning does not control any of such entities.
|
|
(3)
|
HSG indirectly holds an 80.5% interest in a HSG operating partnership. The negative carrying value of the investment in HSG is recorded in Other Liabilities.
|
Affiliated Companies at Equity
The results of operations and financial position of the investments accounted for under the equity method follow (in millions):
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
4,024
|
|
$
|
6,461
|
|
$
|
7,124
|
|
Gross profit
|
$
|
1,006
|
|
$
|
1,606
|
|
$
|
1,701
|
|
Net income
|
$
|
565
|
|
$
|
586
|
|
$
|
647
|
|
Corning's equity in earnings of affiliated companies
|
$
|
284
|
|
$
|
299
|
|
$
|
266
|
|
|
|
|
|
|
|
|
|
|
|
Related party transactions:
|
|
|
|
|
|
|
|
|
|
Corning sales to affiliated companies
|
$
|
95
|
|
$
|
75
|
|
$
|
53
|
|
Corning purchases from affiliated companies
|
$
|
19
|
|
$
|
19
|
|
$
|
25
|
|
Corning transfers of assets, at cost, to affiliated companies
|
$
|
42
|
|
|
|
|
|
|
|
Dividends received from affiliated companies
|
$
|
85
|
|
$
|
143
|
|
$
|
130
|
|
Royalty income from affiliated companies
|
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
Balance sheet:
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
1,522
|
|
$
|
5,228
|
|
|
|
|
Noncurrent assets
|
$
|
2,112
|
|
$
|
6,453
|
|
|
|
|
Short-term borrowings, including current portion of long-term debt
|
$
|
3
|
|
$
|
6
|
|
|
|
|
Other current liabilities
|
$
|
715
|
|
$
|
1,461
|
|
|
|
|
Long-term debt
|
$
|
23
|
|
$
|
800
|
|
|
|
|
Other long-term liabilities
|
$
|
2,523
|
|
$
|
4,557
|
|
|
|
|
Non-controlling interest
|
$
|
267
|
|
$
|
631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party transactions:
|
|
|
|
|
|
|
|
|
|
Balances due from affiliated companies
|
$
|
27
|
|
$
|
11
|
|
|
|
|
Balances due to affiliated companies
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
Investments (continued)
We have contractual agreements with several of our equity affiliates which include sales, purchasing, licensing and technology agreements.
At December 31, 2015, approximately $2 billion of equity in undistributed earnings of equity companies was included in our retained earnings. As a result of the realignment of our investment in Dow Corning, as of December 31, 2016 the undistributed earnings of equity companies included in our retained earnings are not material.
Samsung Corning Precision Materials
Prior to December 2013, Corning owned 50% of its equity affiliate, Samsung Corning Precision Materials, Samsung Display owned 42.5% and three shareholders owned the remaining 7%. In the fourth quarter of 2013, in connection with a series of strategic and financial agreements with Samsung Display announced in October 2013, Corning acquired the minority interests of three shareholders in Samsung Corning Precision Materials for $506 million, which included payment for the transfer of non-operating assets and the pro-rata portion of cash on the Samsung Corning Precision Materials balance sheet at September 30, 2013. The resulting transfer of shares to Corning increased Corning's ownership percentage of Samsung Corning Precision Materials from 50% to 57.5%. Because this transaction did not result in a change in control based on the governing documents of this entity, Corning did not consolidate this entity as of December 31, 2013.
As further discussed in Note 8 (Acquisitions), on January 15, 2014, Corning completed the acquisition of the common shares of Samsung Corning Precision Materials previously held by Samsung Display. As a result of these transactions, Corning became the owner of 100% of the common shares of Samsung Corning Precision Materials, which were consolidated into our results beginning in the first quarter of 2014. Operating under the name of Corning Precision Materials, the former Samsung Corning Precision Materials organization and operations were integrated into the Display Technologies segment in the first quarter of 2014.
Dow Corning
On May 31, 2016, Corning completed the strategic realignment of its equity investment in Dow Corning Corporation ("Dow Corning") pursuant to the Transaction Agreement announced in December 2015. Under the terms of the Transaction Agreement, Corning exchanged with Dow Corning its 50% stock interest in Dow Corning for 100% of the stock of a newly formed entity, which holds an equity interest in Hemlock Semiconductor Group ("HSG") and approximately $4.8 billion in cash.
Prior to realignment, HSG, a consolidated subsidiary of Dow Corning, was an indirect equity investment of Corning. Upon completion of the exchange, Corning now has a direct equity investment in HSG. Because our ownership percentage in HSG did not change as a result of the realignment, the investment in HSG is recorded at its carrying value, which had a negative carrying value of $383 million at the transaction date. The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Excluding this charge, the entity is profitable and is expected to recover its equity in the near term.
Corning's financial statements as of December 31, 2016 include the positive impact of the release of a deferred tax liability of $105 million related to Corning's tax on Dow Corning's earnings that were not distributed as of the date of the transaction and a non-taxable gain of $2,676 million on the realignment. Details of the gain are illustrated below (in millions):
|
Cash
|
$
|
4,818
|
|
Carrying Value of Dow Corning Equity Investment
|
|
(1,560)
|
|
Carrying Value of HSG Equity Investment
|
|
(383)
|
|
Other
(1)
|
|
(199)
|
|
Gain
|
$
|
2,676
|
|
(1)
|
Primarily consists of the release of accumulated other comprehensive income items related to unamortized actuarial losses related to Dow Corning's pension plan and foreign currency translation gains in the amounts of $260 million and $45 million, respectively.
|
7.
Investments (continued)
For the period ended December 31, 2016, Corning reported Dow Corning equity earnings and dividends through May 31, 2016, the transaction date. Dow Corning information presented below is shown for the five months ended May 31, 2016 (in millions):
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,215
|
|
$
|
5,649
|
|
$
|
6,221
|
|
Gross profit
(1)
|
$
|
588
|
|
$
|
1,472
|
|
$
|
1,543
|
|
Net income attributable to Dow Corning
|
$
|
163
|
|
$
|
563
|
|
$
|
513
|
|
Corning's equity in earnings of Dow Corning
|
$
|
82
|
|
$
|
281
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
Related party transactions:
|
|
|
|
|
|
|
|
|
|
Corning purchases from Dow Corning
|
$
|
7
|
|
$
|
15
|
|
$
|
15
|
|
Dividends received from Dow Corning
|
$
|
20
|
|
$
|
143
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Balance sheet:
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
$
|
4,511
|
|
|
|
Noncurrent assets
|
|
|
|
$
|
6,064
|
|
|
|
Short-term borrowings, including current portion of long-term debt
|
|
|
|
$
|
6
|
|
|
|
Other current liabilities
|
|
|
|
$
|
1,305
|
|
|
|
Long-term debt
|
|
|
|
$
|
785
|
|
|
|
Other long-term liabilities
|
|
|
|
$
|
4,539
|
|
|
|
Non-controlling interest
|
|
|
|
$
|
631
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Gross profit for the five months ended May 31, 2016 includes R&D cost of $100 million (2015: $233 million and 2014: $273 million).
|
Pittsburgh Corning Corporation and Asbestos Litigation.
Corning and PPG Industries, Inc. each owned 50% of the capital stock of Pittsburgh Corning Corporation ("PCC"). PCC filed for Chapter 11 reorganization in 2000 and the Modified Third Amended Plan of Reorganization for PCC (the "Plan") became effective in April 2016. At December 31, 2015, the Company's liability under the Plan was estimated to be $528 million. At December 31, 2016, this estimated liability was $290 million, due to the Company's contribution, in the second quarter of 2016, of its equity interests in PCC and Pittsburgh Corning Europe N.V. in the total amount of $238 million, as required by the Plan. Corning recognized a gain of $56 million in the second quarter of 2016 in the selling, general and administrative expenses line of the Company's Consolidated Statements of Income for the difference between the fair value of the asbestos litigation liability and carrying value of the investment. This gain includes the release of foreign translation losses in the amount of $25 million reclassified from accumulated other comprehensive income. The remaining $290 million liability is for the series of fixed payments required by the Plan. At December 31, 2016, the total amount of the payments due in years 2018 through 2022 is $220 million and is classified as a non-current liability. The remaining $70 million payment due in the second quarter of 2017 is classified as a current liability because it is expected to be made within the next twelve months.
Non-PCC Asbestos Claims Insurance Litigation
Corning is a defendant in certain cases alleging injuries from asbestos unrelated to PCC (the "non-PCC asbestos claims") which had been stayed pending the confirmation of the Plan. The stay was lifted on August 25, 2016. Corning previously established a $150 million reserve for these non-PCC asbestos claims. The estimated reserve represents the undiscounted projection of claims and related legal fees. The amount may need to be adjusted in future periods as more data becomes available; however, we cannot estimate any lesser or greater liabilities at this time.
Several of Corning's insurers have commenced litigation in state courts for a declaration of the rights and obligations of the parties under insurance policies, including rights that may be affected by the potential resolutions described above. Corning has resolved these issues with a majority of its relevant insurers, and is vigorously contesting these cases with the remaining relevant insurers. Management is unable to predict the outcome of the litigation with these remaining insurers.
7.
Investments (continued)
A summary of changes of the estimated asbestos litigation liability is as follows (in millions):
|
|
Amended PCC Plan
|
|
Non-PCC
|
Total Asbestos
Litigation Liability
|
|
|
Equity
Interests
|
|
Fixed Series
of Payments
|
|
|
Fair Value of Asbestos Litigation Liability as of December 31, 2015
|
$
|
238
|
|
$
|
290
|
|
$
|
150
|
|
$
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of PCC & PCE Equity Interests - Carrying Value
|
|
(182)
|
|
|
|
|
|
|
|
|
(182)
|
|
Gain on Contribution of Equity Interests
|
|
(56)
|
|
|
|
|
|
|
|
|
(56)
|
|
Other adjustments
|
|
|
|
|
|
|
|
(1)
|
|
|
(1)
|
|
Asbestos Litigation Liability as of December 31, 2016
|
$
|
0
|
|
$
|
290
|
|
$
|
149
|
|
$
|
439
|
Year ended December 31, 2016
There were no material acquisitions completed in 2016. See Note 10 (Goodwill and Other Intangible Assets) for further information on goodwill and intangibles acquired in 2016.
Year ended December 31, 2015
Corning completed five acquisitions in 2015. There were minor adjustments during 2015 made to the preliminary allocation of the total purchase consideration related to working capital adjustments and true-up of the fair value of assets acquired for the acquisitions. Corning has completed the purchase accounting for all of these acquisitions. A summary of the allocation of the total purchase consideration for the five acquisitions is as follows (in millions):
|
Cash and cash equivalents
|
$
|
2
|
|
Trade receivables
|
|
63
|
|
Inventory
|
|
47
|
|
Property, plant and equipment
|
|
117
|
|
Other intangible assets
|
|
286
|
|
Other current and non-current assets
|
|
27
|
|
Current and non-current liabilities
|
|
(117)
|
|
Total identified net assets
|
|
425
|
|
Purchase consideration
|
|
(725)
|
|
Goodwill
(1)
|
$
|
300
|
|
(1)
|
The goodwill recognized is partially deductible for U.S. income tax purposes. The goodwill was allocated to the Optical Communications and All Other reporting segment in the amount of $213 million and $87 million, respectively.
|
The goodwill generated from these acquisitions is primarily related to the value of the product portfolio and customer/distribution networks acquired, combined with Corning's existing business segments, as well as market participant synergies and other intangibles that do not qualify for separate recognition.
The acquired amortizable intangible assets have a weighted-average useful life of approximately 10 years.
Acquisition-related costs of $11 million included in selling, general and administrative expense in the Consolidated Statements of Income for the year ended December 31, 2015 included costs for legal, accounting, valuation and other professional services. The Consolidated Financial Statements include the operating results of each business combination from the date of acquisition. Pro forma results of operations have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to Corning's financial results.
8.
Acquisitions (continued)
Year ended December 31, 2014
On January 15, 2014, Corning completed a series of strategic and financial agreements pursuant to the Framework Agreement with Samsung Display to acquire the remaining common shares of Samsung Corning Precision Materials. The transaction is expected to strengthen product and technology collaborations between the two companies and allow Corning to extend its leadership in specialty glass and drive earnings growth.
The acquisition of Samsung Corning Precision Materials was accounted for under the purchase method of accounting in accordance with business combination accounting guidance. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value on the date of acquisition. The fair value was determined based on the fair value of consideration transferred for the remaining equity interest of Samsung Display's shares.
In connection with the purchase of Samsung Display's equity interest in Samsung Corning Precision Materials pursuant to the Framework Agreement, the Company designated a new series of its preferred stock as Fixed Rate Cumulative Convertible Preferred Stock, Series A, par value $100 per share ("Preferred Stock"). As contemplated by the Framework Agreement, Samsung Display became the owner of 2,300 shares of Preferred Stock (with an issue price of $1 million per share), of which 1,900 shares were issued in connection with the acquisition and 400 shares were issued for cash.
Corning issued 1,900 shares of Preferred Stock as consideration in the acquisition of Samsung Corning Precision Materials which had a fair value of $1.9 billion on the acquisition date. The fair value was determined using an option pricing model based on the features of the Preferred Stock. That measure is based on Level 2 inputs observable in the market such as Corning's common stock price and dividend yield.
As a result of the acquisition of Samsung Corning Precision Materials in January 2014, the Company has contingent consideration that was measured using unobservable (Level 3) inputs. This contingent consideration arrangement potentially requires additional consideration to be paid between the parties in 2018: one based on projections of future revenues generated by the business of Corning Precision Materials for the period between the acquisition date and December 31, 2017, which is subject to a cap of $665 million; and another based on the volumes of certain sales during the same period, which is subject to a separate cap of $100 million. The fair value of the potential receipt of the contingent consideration in 2018 in the amount of $196 million recognized on the acquisition date was estimated by applying an option pricing model using the Company's projection of future revenues generated by Corning Precision Materials. Changes in the fair value of the contingent consideration in future periods are valued using an option pricing model and are recorded in Corning's results in the period of the change.
On December 29, 2015, Corning and Samsung Display entered into an agreement pursuant to which Corning exchanged the amount of contingent consideration in excess of $300 million (net present fair value: $246 million), as consideration for the incremental fair value associated with a number of commercial agreements, including the amendment of its long-term supply agreement with Samsung Display. As of December 29, 2015, the net present fair value of the contingent consideration receivable was $458 million. The net present fair value of the commercial benefit associated with the amended long-term supply agreement exceeds the value exchanged by Corning pursuant to this agreement (net present fair value: $212 million). Consequently, Corning reclassified this amount to the other asset line of the Consolidated Balance Sheet and will amortize the amount over the remaining term of the long-term supply agreement as a reduction in revenue.
As of December 31, 2016 and December 31, 2015, the fair value of the potential receipt of the contingent consideration in 2018 was $289 million and $246 million, respectively.
8.
Acquisitions (continued)
The following table summarizes the total fair value of Samsung Corning Precision Materials at the acquisition date including the net consideration transferred to acquire the remaining 42.5% of Samsung Corning Precision Materials, the fair value of Corning's non-controlling interest in Samsung Corning Precision Materials pre- and post-acquisition and the amount of the implied fair value of the total entity for the purpose of allocating the purchase price to the acquired net assets.
|
Net consideration applied to acquired assets
|
Samsung
Display
|
|
Corning
Incorporated
|
|
Samsung
Corning
Precision
Materials
|
|
Ownership percentage
|
|
42.5%
|
|
|
57.5%
|
|
|
100%
|
|
Fair value based on $1.9 billion consideration transferred
|
$
|
1,911
|
|
$
|
2,588
|
|
$
|
4,499
|
|
Less contingent consideration - receivable
|
|
(196)
|
|
|
(265)
|
|
|
(461)
|
|
Net fair value of consideration @ 100%
|
|
1,715
|
|
|
2,323
|
|
|
4,038
|
|
|
|
|
|
|
|
|
|
|
|
Corning's loss on royalty contract
|
|
(136)
|
|
|
(184)
|
|
|
(320)
|
|
Fair value post-acquisition
|
$
|
1,579
|
|
$
|
2,139
|
|
$
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
Corning's fair value 57.5% post-acquisition
|
|
2,139
|
|
|
|
|
|
|
|
Total fair value at January 15, 2014
|
$
|
3,718
|
|
|
|
|
|
|
The $1.9 billion fair value of consideration transferred for the remaining 42.5% interest in Samsung Corning Precision Materials plus the fair value of Corning's pre-acquisition fair value less the contingent consideration due Corning as of the acquisition date results in a net fair value for the total entity of $4 billion.
As a result of the acquisition of Samsung Corning Precision Materials, Corning reacquired its technology license rights and effectively settled its pre-existing royalty contract with the acquired entity, Samsung Corning Precision Materials. With regard to the reacquired right, Corning engaged a third-party specialist to assist in assessing the fair value of this right and determined that the reacquired right had a value of zero. In addition, the Company assessed whether this royalty contract was favorable or unfavorable to Corning. It was determined that the contractual royalty rate of 3% as compared to the then current market rate of 12% was unfavorable to Corning. The effective settlement of the contract was valued using the Income Approach; specifically, a relief from royalty method. The amount by which the contract was unfavorable to Corning when compared to current market transactions for similar items resulted in a loss of $320 million which was recorded on the acquisition date, representing 100% of the loss on the effective settlement of the contract. There were no stated contractual settlement provisions or previously recorded assets or liabilities to consider when determining the value associated with the settlement.
Because the pre-existing contract was unfavorable to Corning, a portion of the consideration transferred was deemed to be applicable to the effective settlement of the royalty contract between Corning and the acquiree, Samsung Corning Precision Materials. The $320 million loss attributable to the settlement of the pre-existing arrangement was accounted for as a separate transaction from the business combination as follows:
|
·
|
At acquisition, since the contract with Samsung Corning Precision Materials was effectively settled, Corning recognized a loss of $320 million. Of the $320 million, $184 million effectively offset the portion of the gain on previously held equity investment attributable to Corning's interest in the royalty contract. As a result, the pre-acquisition fair value of Corning's 57.5% share of $2.3 billion decreased to the fair value of $2.1 billion post-acquisition; and
|
|
·
|
At acquisition, since the seller, Samsung Display, was a 42.5% shareholder of Samsung Corning Precision Materials, 42.5%, or $136 million, of the $320 million loss to effectively settle the contract reduced the consideration transferred to acquire Samsung Display's interest in Samsung Corning Precision Materials. Accordingly, $136 million of the consideration transferred was treated separately from the purchase price, resulting in the implied consideration transferred of approximately $1.6 billion.
|
The net economic effect to Corning following the transaction was a net loss of $136 million, constituting a $320 million loss due to Corning's unfavorable contract and its share of the favorable contract in Samsung Corning Precision Materials of $184 million.
The gain on the previously held equity investment was calculated based on the fair value of the entity immediately preceding the acquisition of Samsung Corning Precision Materials. As the pre-existing contract was treated as a separate transaction, the pre-existing contract was not taken into consideration when calculating the gain on the previously held equity interest.
8.
Acquisitions (continued)
The net gain on previously owned equity was calculated as follows:
|
December 2013 Investment Balance
|
$
|
3,709
|
|
Dividend
(1)
|
|
(1,574)
|
|
Other
|
|
(18)
|
|
Net investment book balance at 1/15/2014
|
$
|
2,117
|
|
|
|
|
|
Fair value Samsung Corning Precision Materials
|
$
|
4,038
|
|
57.5% of Samsung Corning Precision Materials
(2)
|
|
2,323
|
|
Working capital adjustment and other
|
|
52
|
|
57.5% of the pre-acquisition fair value of assets
|
$
|
2,375
|
|
|
|
|
|
Gain on previously held equity investment
(2)
|
$
|
258
|
|
Translation gain
|
|
136
|
|
Net gain
|
$
|
394
|
|
(1)
|
In conjunction with the Framework Agreement, the parties agreed to have Samsung Corning Precision Materials distribute all cash and cash equivalents as a dividend to the shareholders of record as of December 31, 2013. The dividend was not part of the purchase price as the agreement was to distribute cash and cash equivalents as a dividend to the shareholders as soon as practicable. As such, at acquisition Corning did not have legal title to the cash to be distributed, although the dividend was distributed subsequent to the acquisition date. Therefore, the portion of Corning's share of the $1.6 billion dividend received was accounted for in Corning's consolidated financial statements as if the dividend occurred at or immediately prior to the date of acquisition at which time Samsung Corning Precision Materials was still an equity method investment in Corning's consolidated financial statements.
|
|
(2)
|
As Corning was a 57.5% shareholder at the date of acquisition, immediately preceding the acquisition of Samsung Corning Precision Materials, Corning recognized an asset and respective gain as part of the calculation of its previously held equity investment which included approximately $184 million attributed to its economic interest in the royalty contract.
|
The following table summarizes the amounts of identified assets acquired and liabilities assumed at acquisition date and recorded measurement period adjustments. Corning has completed its accounting for the acquisition of Samsung Corning Precision Materials and its review of deferred taxes.
Recognized amounts of identified assets acquired and liabilities assumed (in millions):
|
Cash and cash equivalents
(1)
|
$
|
133
|
|
Trade receivables
(3)
|
|
357
|
|
Inventory
(3)
|
|
105
|
|
Property, plant and equipment
(3)
|
|
3,595
|
|
Other current and non-current assets
(3)
|
|
71
|
|
Debt – current
|
|
(32)
|
|
Accounts payable and accrued expenses
(3)
|
|
(357)
|
|
Other current and non-current liabilities
(3)
|
|
(294)
|
|
Total identified net assets
(3)
|
|
3,578
|
|
Non-controlling interests
|
|
15
|
|
Fair value of Samsung Corning Precision Materials on acquisition date
|
|
(3,718)
|
|
Goodwill
(2)(3)
|
$
|
125
|
|
(1)
|
Cash and cash equivalents are presented net of the 2014 dividend distributed subsequent to the acquisition of Samsung Corning Precision Materials, in the amount of $2.8 billion.
|
|
(2)
|
The goodwill recognized is not deductible for U.S. income tax purposes. The goodwill was allocated to the Display Technologies segment.
|
|
(3)
|
During 2014, the Company recorded total measurement period adjustments of $60 million for the acquisition of Corning Precision Materials primarily related to accrual of contingent liabilities and employee benefit obligations.
|
The goodwill is primarily attributable to the workforce of the acquired business and the synergies expected to result from the integration of Corning Precision Materials. Acquisition-related costs of $93 million in the year ended December 31, 2014 included costs for post-acquisition compensation expense, legal, accounting, valuation and other professional services and were included in selling, general and administrative expenses in the Consolidated Statements of Income. Since the date of acquisition, the consolidation of Corning Precision Materials added $1,317 million, $1,343 million and $1,761 million to net sales for the years ending December 31, 2016, 2015 and 2014, respectively. The impact to net income of the consolidation of Corning Precision Materials is impracticable to calculate due to the level of integration within the Display Technologies segment and the significant amount of estimates that would be required.
9.
Property, Plant and Equipment, Net of Accumulated Depreciation
Property, plant and equipment, net of accumulated depreciation follow (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Land
|
$
|
435
|
|
$
|
438
|
|
Buildings
|
|
5,540
|
|
|
5,504
|
|
Equipment
|
|
14,973
|
|
|
14,688
|
|
Construction in progress
|
|
1,482
|
|
|
1,206
|
|
|
|
22,430
|
|
|
21,836
|
|
Accumulated depreciation
|
|
(9,884)
|
|
|
(9,188)
|
|
Total
|
$
|
12,546
|
|
$
|
12,648
|
Approximately $23 million, $35 million and $40 million of interest costs were capitalized as part of property, plant and equipment, net of accumulated depreciation, in 2016, 2015 and 2014, respectively.
Manufacturing equipment includes certain components of production equipment that are constructed of precious metals. At December 31, 2016 and 2015, the recorded value of precious metals totaled $3 billion in each period. Depletion expense for precious metals in the years ended December 31, 2016, 2015 and 2014 was $20 million, $19 million and $21 million, respectively.
10.
Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill for the twelve months ended December 31, 2016 and 2015 were as follows (in millions):
|
|
Display
Technologies
|
|
Optical
Communications
|
|
Specialty
Materials
|
|
Life
Sciences
|
|
All
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
$
|
134
|
|
$
|
238
|
|
$
|
198
|
|
$
|
580
|
|
|
|
|
$
|
1,150
|
|
Acquired goodwill
(1)
|
|
|
|
|
220
|
|
|
|
|
|
|
|
$
|
87
|
|
|
307
|
|
Measurement period adjustment
|
|
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
(7)
|
|
Foreign currency translation adjustment
|
|
(6)
|
|
|
(12)
|
|
|
(4)
|
|
|
(18)
|
|
|
(1)
|
|
|
(41)
|
|
Other
(2)
|
|
|
|
|
|
|
|
(44)
|
|
|
|
|
|
15
|
|
|
(29)
|
|
Balance at December 31, 2015
|
$
|
128
|
|
$
|
439
|
|
$
|
150
|
|
$
|
562
|
|
$
|
101
|
|
$
|
1,380
|
|
Acquired goodwill
(3)
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
Measurement period adjustment
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
Foreign currency translation adjustment
|
|
(2)
|
|
|
5
|
|
|
|
|
|
(4)
|
|
|
(3)
|
|
|
(4)
|
|
Balance at December 31, 2016
|
$
|
126
|
|
$
|
645
|
|
$
|
150
|
|
$
|
558
|
|
$
|
98
|
|
$
|
1,577
|
|
(1)
|
The Company completed four acquisitions in the Optical Communications segment during the first quarter of 2015 and one acquisition that is being reported in All Other in the fourth quarter of 2015. Refer to Note 8 (Acquisitions) to the Consolidated Financial Statements for additional information on these acquisitions.
|
|
(2)
|
In the fourth quarter of 2015, Corning made a change to the internal reporting structure related to a small acquisition in 2014 originally recorded in the Specialty Materials segment, which is now being reported in All Other. Additionally, a charge of $29 million for the impairment of goodwill related to this acquisition was recorded in the fourth quarter.
|
|
(3)
|
The Company completed two acquisitions in the Optical Communications segment during the year ended December 31, 2016 with total purchase price of $356 million.
|
Corning's gross goodwill balance for the fiscal years ended December 31, 2016 and 2015 were $8.1 billion and $7.9 billion, respectively. Accumulated impairment losses were $6.5 billion for the fiscal years ended December 31, 2016 and 2015, respectively, and were generated primarily through goodwill impairments related to the Optical Communications segment.
10.
Goodwill and Other Intangible Assets (continued)
Other Intangible Assets
Other intangible assets follow (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
Gross
|
|
Accumulated
amortization
|
|
Net
|
|
Gross
|
|
Accumulated
amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, trademarks & trade names
|
$
|
360
|
|
$
|
176
|
|
$
|
184
|
|
$
|
350
|
|
$
|
162
|
|
$
|
188
|
|
Customer list and other
|
|
761
|
|
|
149
|
|
|
612
|
|
|
621
|
|
|
103
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,121
|
|
$
|
325
|
|
$
|
796
|
|
$
|
971
|
|
$
|
265
|
|
$
|
706
|
Amortized intangible assets are primarily related to the Optical Communications and Life Sciences segments. The net carrying amount of intangible assets increased by $90 million during the year ended December 31, 2016, primarily due to acquisitions of $150 million and foreign currency translation adjustments of $4 million offset by amortization of $64 million.
Amortization expense related to these intangible assets is estimated to be $68 million annually for 2017 through 2019, $65 million annually for 2020 and 2021.
|
11.
|
Other Assets and Other Liabilities
|
Other assets follow (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Current assets:
|
|
|
|
|
|
|
Derivative instruments
|
$
|
435
|
|
$
|
522
|
|
Other current assets
|
|
370
|
|
|
390
|
|
Other current assets
|
$
|
805
|
|
$
|
912
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
Derivative instruments
|
$
|
146
|
|
$
|
473
|
|
Contingent consideration asset
|
|
289
|
|
|
246
|
|
Other non-current assets
|
|
836
|
|
|
774
|
|
Other assets
|
$
|
1,271
|
|
$
|
1,493
|
|
11.
|
Other Assets and Other Liabilities (continued)
|
Other liabilities follow (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Current liabilities:
|
|
|
|
|
|
|
Wages and employee benefits
|
$
|
487
|
|
$
|
491
|
|
Income taxes
|
|
150
|
|
|
53
|
|
Asbestos litigation
|
|
70
|
|
|
238
|
|
Derivative instruments
|
|
88
|
|
|
55
|
|
Other current liabilities
|
|
621
|
|
|
471
|
|
Other accrued liabilities
|
$
|
1,416
|
|
$
|
1,308
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
Asbestos litigation
|
$
|
369
|
|
$
|
440
|
|
Derivative instruments
|
|
282
|
|
|
88
|
|
Investment in Hemlock Semiconductor Group
(1)
|
|
241
|
|
|
|
|
Defined benefit pension plan liabilities
|
|
692
|
|
|
672
|
|
Other non-current liabilities
|
|
1,221
|
|
|
1,042
|
|
Other liabilities
|
$
|
2,805
|
|
$
|
2,242
|
|
(1)
|
The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets. Refer to Note 7 (Investments) to the Consolidated Financial Statements for additional information.
|
Asbestos Litigation
Corning and PPG each owned 50% of the capital stock of PCC. Over a period of more than two decades, PCC and several other defendants were named in numerous lawsuits involving claims alleging personal injury from exposure to asbestos. Refer to Note 7 (Investments) to the Consolidated Financial Statements for additional information on the asbestos litigation.
Customer Deposits
In December 2015, Corning announced that with the support of the Hefei government it will locate a Gen 10.5 glass manufacturing facility in the Hefei XinZhan General Pilot Zone in Anhui Province, China. Glass substrate production from the new facility is expected to support mass production of LCD panels for large-size televisions beginning in 2018.
As part of this investment, Corning and a Chinese customer have entered into a long-term supply agreement that commits the customer to the purchase of Gen 10.5 glass substrates from the Corning manufacturing facility in Hefei. This agreement stipulates that the customer will provide a non-refundable cash deposit in the amount of approximately $400 million to Corning to secure rights to an amount of glass that is produced by Corning over the next 10 years. Corning has collected the full amount of this deposit, adjusted for foreign exchange movements, receiving $185 million of this deposit in 2016 and $197 million in 2015. As glass is shipped to the customer, Corning will recognize revenue and issue credit memoranda to reduce the amount of the customer deposit liability, which are applied against customer receivables resulting from the sale of glass. In 2016 and 2015, there were no credit memoranda issued.
(In millions)
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and short-term borrowings
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
256
|
|
$
|
91
|
|
Commercial paper
|
|
|
|
|
481
|
|
Total current portion of long-term debt and short-term borrowings
|
$
|
256
|
|
$
|
572
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
Debentures, 8.875%, due 2016
|
|
|
|
$
|
64
|
|
Debentures, 1.45%, due 2017
|
$
|
250
|
|
|
249
|
|
Debentures, 1.5%, due 2018
|
|
374
|
|
|
373
|
|
Debentures, 6.625%, due 2019
|
|
245
|
|
|
245
|
|
Debentures, 4.25%, due 2020
|
|
290
|
|
|
290
|
|
Debentures, 8.875%, due 2021
|
|
67
|
|
|
68
|
|
Debentures, 2.9%, due 2022
|
|
372
|
|
|
372
|
|
Debentures, 3.70%, due 2023
|
|
248
|
|
|
248
|
|
Medium-term notes, average rate 7.66%, due through 2023
|
|
45
|
|
|
45
|
|
Debentures, 7.00%, due 2024
|
|
99
|
|
|
99
|
|
Debentures, 6.85%, due 2029
|
|
167
|
|
|
168
|
|
Debentures, callable, 7.25%, due 2036
|
|
248
|
|
|
248
|
|
Debentures, 4.70%, due 2037
|
|
248
|
|
|
247
|
|
Debentures, 5.75%, due 2040
|
|
395
|
|
|
395
|
|
Debentures, 4.75%, due 2042
|
|
495
|
|
|
495
|
|
Other, average rate 5.02%, due through 2042
|
|
359
|
|
|
375
|
|
Total long-term debt
|
|
3,902
|
|
|
3,981
|
|
Less current portion of long-term debt
|
|
256
|
|
|
91
|
|
Long-term debt
|
$
|
3,646
|
|
$
|
3,890
|
At December 31, 2016 and 2015, the weighted-average interest rate on current portion of long-term debt was 1.5% and 7.0%, respectively. At December 31, 2015, the weighted-average interest rate on commercial paper was 0.6%. Corning did not have outstanding commercial paper at December 31, 2016.
Based on borrowing rates currently available to us for loans with similar terms and maturities, the fair value of long-term debt was $3.9 billion at December 31, 2016 and $4.1 billion at December 31, 2015. The Company measures the fair value of its long-term debt using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.
The following table shows debt maturities by year at December 31, 2016 (in millions)*:
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$256
|
|
$379
|
|
$254
|
|
$305
|
|
$67
|
|
$2,655
|
|
*
|
Excludes interest rate swap gains and bond discounts.
|
Debt Issuances and Retirements
2016
|
·
|
In the third quarter of 2016, Corning's Board of Directors approved a $1 billion increase to our commercial paper program, raising it to $2 billion. If needed, this program is supported by our $2 billion revolving credit facility that expires in 2019.
|
2015
|
·
|
In the second quarter of 2015, we issued $375 million of 1.50% senior unsecured notes that mature on May 8, 2018 and $375 million of 2.90% senior unsecured notes that mature on May 15, 2022. The net proceeds of $745 million will be used for general corporate purposes. We can redeem these notes at any time, subject to certain customary terms and conditions.
|
|
13.
|
Employee Retirement Plans
|
Defined Benefit Plans
We have defined benefit pension plans covering certain domestic and international employees. Our funding policy has been to contribute, as necessary, an amount in excess of the minimum requirements in order to achieve the Company's long-term funding targets. In 2016, we made voluntary cash contributions of $73 million to our domestic defined benefit pension plan and $16 million to our international pension plans. In 2015, we made voluntary cash contributions of $65 million to our domestic defined benefit pension plan and $35 million to our international pension plans. We are not subject to any mandatory contributions in 2017, and do not anticipate making voluntary cash contributions to our U.S. qualified pension plan. We anticipate contributing up to $23 million to our international pension plans in 2017.
Corning offers postretirement plans that provide health care and life insurance benefits for retirees and eligible dependents. Certain employees may become eligible for such postretirement benefits upon reaching retirement age and service requirements. For current retirees (including surviving spouses) and active employees eligible for the salaried retiree medical program, we have placed a "cap" on the amount we will contribute toward retiree medical coverage in the future. The cap is equal to 120% of our 2005 contributions toward retiree medical benefits. Once our contributions toward salaried retiree medical costs reach this cap, impacted retirees will have to pay the excess amount in addition to their regular contributions for coverage. This cap was attained for post-65 retirees in 2008 and has impacted their contribution rate in 2009 and going forward. The pre-65 retirees triggered the cap in 2010, which has impacted their contribution rate in 2011 and going forward. Furthermore, employees hired or rehired on or after January 1, 2007 will be eligible for Corning retiree medical benefits upon retirement; however, these employees will pay 100% of the cost.
13.
Employee Retirement Plans (continued)
Obligations and Funded Status
The change in benefit obligation and funded status of our employee retirement plans follows (in millions):
|
|
Total
pension benefits
|
|
Domestic
pension benefits
|
|
International
pension benefits
|
|
December 31,
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
3,715
|
|
$
|
3,809
|
|
$
|
3,161
|
|
$
|
3,222
|
|
$
|
554
|
|
$
|
587
|
|
Service cost
|
|
85
|
|
|
90
|
|
|
61
|
|
|
64
|
|
|
24
|
|
|
26
|
|
Interest cost
|
|
124
|
|
|
144
|
|
|
111
|
|
|
126
|
|
|
13
|
|
|
18
|
|
Plan participants' contributions
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
229
|
|
|
(95)
|
|
|
145
|
|
|
(87)
|
|
|
84
|
|
|
(8)
|
|
Other
|
|
(3)
|
|
|
(8)
|
|
|
1
|
|
|
|
|
|
(4)
|
|
|
(8)
|
|
Benefits paid
|
|
(210)
|
|
|
(188)
|
|
|
(191)
|
|
|
(165)
|
|
|
(19)
|
|
|
(23)
|
|
Foreign currency translation
|
|
(54)
|
|
|
(38)
|
|
|
|
|
|
|
|
|
(54)
|
|
|
(38)
|
|
Benefit obligation at end of year
|
$
|
3,887
|
|
$
|
3,715
|
|
$
|
3,289
|
|
$
|
3,161
|
|
$
|
598
|
|
$
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
3,058
|
|
$
|
3,263
|
|
$
|
2,616
|
|
$
|
2,814
|
|
$
|
442
|
|
$
|
449
|
|
Actual gain (loss) on plan assets
|
|
310
|
|
|
(108)
|
|
|
235
|
|
|
(111)
|
|
|
75
|
|
|
3
|
|
Employer contributions
|
|
125
|
|
|
116
|
|
|
104
|
|
|
77
|
|
|
21
|
|
|
39
|
|
Plan participants' contributions
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
Benefits paid
|
|
(210)
|
|
|
(188)
|
|
|
(191)
|
|
|
(165)
|
|
|
(19)
|
|
|
(23)
|
|
Foreign currency translation
|
|
(59)
|
|
|
(26)
|
|
|
|
|
|
|
|
|
(59)
|
|
|
(26)
|
|
Fair value of plan assets at end of year
|
$
|
3,225
|
|
$
|
3,058
|
|
$
|
2,765
|
|
$
|
2,616
|
|
$
|
460
|
|
$
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
$
|
3,225
|
|
$
|
3,058
|
|
$
|
2,765
|
|
$
|
2,616
|
|
$
|
460
|
|
$
|
442
|
|
Benefit obligations
|
|
(3,887)
|
|
|
(3,715)
|
|
|
(3,289)
|
|
|
(3,161)
|
|
|
(598)
|
|
|
(554)
|
|
Funded status of plans
|
$
|
(662)
|
|
$
|
(657)
|
|
$
|
(524)
|
|
$
|
(545)
|
|
$
|
(138)
|
|
$
|
(112)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent asset
|
$
|
35
|
|
$
|
50
|
|
|
|
|
|
|
|
$
|
35
|
|
$
|
50
|
|
Current liability
|
|
(18)
|
|
|
(35)
|
|
$
|
(13)
|
|
$
|
(30)
|
|
|
(5)
|
|
|
(5)
|
|
Noncurrent liability
|
|
(679)
|
|
|
(672)
|
|
|
(511)
|
|
|
(515)
|
|
|
(168)
|
|
|
(157)
|
|
Recognized liability
|
$
|
(662)
|
|
$
|
(657)
|
|
$
|
(524)
|
|
$
|
(545)
|
|
$
|
(138)
|
|
$
|
(112)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
348
|
|
$
|
332
|
|
$
|
311
|
|
$
|
305
|
|
$
|
37
|
|
$
|
27
|
|
Prior service cost (credit)
|
|
30
|
|
|
35
|
|
|
31
|
|
|
37
|
|
|
(1)
|
|
|
(2)
|
|
Amount recognized at end of year
|
$
|
378
|
|
$
|
367
|
|
$
|
342
|
|
$
|
342
|
|
$
|
36
|
|
$
|
25
|
The accumulated benefit obligation for defined benefit pension plans was $3.6 billion and $3.5 billion at December 31, 2016 and 2015, respectively.
13.
Employee Retirement Plans (continued)
|
|
Postretirement benefits
|
|
December 31,
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
763
|
|
$
|
862
|
|
Service cost
|
|
9
|
|
|
13
|
|
Interest cost
|
|
26
|
|
|
33
|
|
Plan participants' contributions
|
|
8
|
|
|
7
|
|
Actuarial loss (gain)
|
|
16
|
|
|
(97)
|
|
Other
|
|
2
|
|
|
4
|
|
Benefits paid
|
|
(50)
|
|
|
(61)
|
|
Medicare subsidy received
|
|
2
|
|
|
2
|
|
Benefit obligation at end of year
|
$
|
776
|
|
$
|
763
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
|
|
|
Fair value of plan assets
|
$
|
0
|
|
$
|
0
|
|
Benefit obligations
|
|
(776)
|
|
|
(763)
|
|
Funded status of plans
|
$
|
(776)
|
|
$
|
(763)
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
Current liability
|
$
|
(39)
|
|
$
|
(45)
|
|
Noncurrent liability
|
|
(737)
|
|
|
(718)
|
|
Recognized liability
|
$
|
(776)
|
|
$
|
(763)
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
50
|
|
$
|
33
|
|
Prior service credit
|
|
(15)
|
|
|
(19)
|
|
Amount recognized at end of year
|
$
|
35
|
|
$
|
14
|
The following information is presented for pension plans where the projected benefit obligation as of December 31, 2016 and 2015 exceeded the fair value of plan assets (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
3,607
|
|
$
|
3,341
|
|
Fair value of plan assets
|
$
|
2,787
|
|
$
|
2,635
|
In 2016, the fair value of plan assets exceeded the projected benefit obligation for the United Kingdom and one of the South Korea pension plans.
The following information is presented for pension plans where the accumulated benefit obligation as of December 31, 2016 and 2015 exceeded the fair value of plan assets (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
$
|
3,285
|
|
$
|
3,159
|
|
Fair value of plan assets
|
$
|
2,786
|
|
$
|
2,634
|
In 2016, the fair value of plan assets exceeded the accumulated benefit obligation for the United Kingdom and the South Korea pension plans.
13.
Employee Retirement Plans (continued)
The components of net periodic benefit expense for our employee retirement plans follow (in millions):
|
|
Total pension benefits
|
|
Domestic pension benefits
|
|
International pension benefits
|
|
December 31,
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$ 85
|
|
$ 90
|
|
$ 82
|
|
$ 61
|
|
$ 64
|
|
$ 55
|
|
$24
|
|
$26
|
|
$ 27
|
|
Interest cost
|
124
|
|
144
|
|
160
|
|
111
|
|
126
|
|
137
|
|
13
|
|
18
|
|
23
|
|
Expected return on plan assets
|
(165)
|
|
(178)
|
|
(174)
|
|
(153)
|
|
(166)
|
|
(159)
|
|
(12)
|
|
(12)
|
|
(15)
|
|
Amortization of prior service cost (credit)
|
6
|
|
6
|
|
6
|
|
6
|
|
7
|
|
7
|
|
|
|
(1)
|
|
(1)
|
|
Recognition of actuarial loss
|
67
|
|
165
|
|
29
|
|
55
|
|
162
|
|
4
|
|
12
|
|
3
|
|
25
|
|
Total net periodic benefit expense
|
$117
|
|
$227
|
|
$103
|
|
$ 80
|
|
$193
|
|
$ 44
|
|
$37
|
|
$34
|
|
$ 59
|
|
Settlement charge
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
$118
|
|
$227
|
|
$103
|
|
$ 81
|
|
$193
|
|
$ 44
|
|
$37
|
|
$34
|
|
$ 59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment effects
|
|
|
|
|
$ (3)
|
|
|
|
|
|
|
|
|
|
|
|
$ (3)
|
|
Settlements
|
$ (2)
|
|
$ (1)
|
|
(2)
|
|
$ (2)
|
|
|
|
|
|
|
|
$(1)
|
|
(2)
|
|
Current year actuarial loss
|
84
|
|
191
|
|
212
|
|
63
|
|
$189
|
|
$198
|
|
$21
|
|
2
|
|
14
|
|
Recognition of actuarial (loss)
|
(64)
|
|
(165)
|
|
(29)
|
|
(55)
|
|
(162)
|
|
(4)
|
|
(9)
|
|
(3)
|
|
(25)
|
|
Current year prior service cost
|
|
|
|
|
25
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
Amortization of prior service (cost) credit
|
(6)
|
|
(6)
|
|
(6)
|
|
(6)
|
|
(7)
|
|
(7)
|
|
|
|
1
|
|
1
|
|
Total recognized in other comprehensive (income) loss
|
$ 12
|
|
$ 19
|
|
$197
|
|
$ 0
|
|
$ 20
|
|
$212
|
|
$12
|
|
$(1)
|
|
$(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive (income) loss
|
$130
|
|
$246
|
|
$300
|
|
$ 81
|
|
$213
|
|
$256
|
|
$49
|
|
$33
|
|
$ 44
|
|
|
Postretirement benefits
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
9
|
|
$
|
13
|
|
$
|
11
|
|
Interest cost
|
|
26
|
|
|
33
|
|
|
38
|
|
Amortization of net gain (loss)
|
|
(1)
|
|
|
3
|
|
|
|
|
Amortization of prior service credit
|
|
(4)
|
|
|
(7)
|
|
|
(6)
|
|
Total net periodic benefit expense
|
$
|
30
|
|
$
|
42
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Current year actuarial loss (gain)
|
$
|
15
|
|
$
|
(96)
|
|
$
|
49
|
|
Amortization of actuarial gain (loss)
|
|
1
|
|
|
(3)
|
|
|
|
|
Current year prior service credit
|
|
|
|
|
|
|
|
(5)
|
|
Amortization of prior service credit
|
|
5
|
|
|
7
|
|
|
6
|
|
Total recognized in other comprehensive loss (income)
|
$
|
21
|
|
$
|
(92)
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive loss (income)
|
$
|
51
|
|
$
|
(50)
|
|
$
|
93
|
13.
Employee Retirement Plans (continued)
The Company expects to recognize $6 million of net prior service cost as a component of net periodic pension cost in 2017 for its defined benefit pension plans. The Company expects to recognize $1 million of net actuarial gain and $3 million of net prior service credit as components of net periodic postretirement benefit cost in 2017.
Corning uses a hypothetical yield curve and associated spot rate curve to discount the plan's projected benefit payments. Once the present value of projected benefit payments is calculated, the suggested discount rate is equal to the level rate that results in the same present value. The yield curve is based on actual high-quality corporate bonds across the full maturity spectrum, which also includes private placements as well as Eurobonds that are denominated in U.S. currency. The curve is developed from yields on approximately 350-375 bonds from four grading sources, Moody's, S&P, Fitch and the Dominion Bond Rating Service. A bond will be included if at least half of the grades from these sources are Aa, non-callable bonds. The very highest 10% yields and the lowest 40% yields are excluded from the curve to eliminate outliers in the bond population.
Mortality is one of the key assumptions used in valuing liabilities of retirement plans. It is used to assign a probability of payment for future plan benefits that are contingent upon participants' survival. To make this assumption, benefit plan sponsors typically use a base mortality table and an improvement scale that adjusts the rates of mortality for future anticipated changes to historical death rates. For the seven years prior to the year ended December 31, 2014, Corning utilized the RP 2000 mortality table with improvement Scale AA in performing valuations of its U.S. pension and OPEB liabilities. On October 27, 2014, the Society of Actuaries ("SOA") published new mortality tables for benefit plan sponsors to consider when measuring their benefit plan costs and obligations. These tables reflect the fact that life expectancies have improved since the last comprehensive study of mortality data was released in 2000. Therefore, in the fourth quarter of 2014, Corning undertook a review of its mortality assumption for its U.S. benefit plans to determine if an update to our current mortality table was appropriate. Based on the findings of this analysis, Corning believes that the RP-2014 table adjusted for Corning's experience with future improvements projected using scale BB-2D represents the best estimate of future mortality improvement for Corning's U.S. benefit plans.
Prior to the December 31, 2015 valuation of its defined benefit pension and OPEB plans, Corning used the traditional, single weighted-average discount rate approach to develop the obligation, interest cost and service cost components of net periodic benefit cost for its defined benefit pension and OPEB plans. The individual spot rates from the yield curve are used in measuring the pension plan projected benefit obligation (PBO) or OPEB plan accumulated postretirement benefit obligation (APBO) at the measurement date. The benefit obligation is effectively calculated as the aggregate present value at the measurement date of each future benefit payment related to past service, with each payment discounted using a spot rate from a high-quality corporate bond yield curve that matches the duration of the benefit payment. Under Corning's traditional, single weighted-average discount rate approach, a single weighted-average rate is developed from the approach described above and rounded to the nearest 25 basis points. Traditionally, the weighted-average discount rate is determined at the plan measurement date, based on the same projected future benefit payments used in developing the benefit obligation. The traditional single weighted-average discount rate represents the constant annual rate that would be required to discount all future benefit payments related to past service from the date of expected future payment to the measurement date such that the aggregate present value equals the benefit obligation.
Beginning with the December 31, 2015 valuation of its defined benefit pension and OPEB plans, Corning changed its methodology of determining the service and interest cost components of net periodic pension and other postretirement benefit costs to a more granular approach. Under the new approach the cash flows from each applicable pension and OPEB plan will be used to directly calculate the benefit obligation, service cost and interest cost using the spot rates from the applicable yield curve.
Moving to a more granular approach has a limited impact on the determination of the respective benefit obligations. The only impacts will be as a result of the elimination of the rounding of the discount rate that occurred in the traditional approach and the use of specific cash flows for Corning's non-qualified pension plans, while separately applying the yield curve to each separate OPEB plan instead of aggregating the OPEB plan cash flows. This change will result in a decrease in the interest cost and service cost components of net periodic pension and OPEB costs. For the year ended December 31, 2017, net periodic pension and OPEB costs will be lower by approximately $23 million and $5 million, respectively, due to this change. For Corning's pension plans, this change will increase the immediate recognition of actuarial losses (or decrease the immediate recognition of actuarial gains), due to Corning's previous election to immediately recognize actuarial gains and losses outside of the corridor. For Corning's OPEB plans, this change will increase the accumulated other comprehensive income (AOCI) account balance due to the accumulation of lower actuarial gains or higher actuarial losses. Over time, the amortization of the actuarial losses from AOCI will begin to reduce the savings from the lower interest cost and service cost.
This change is a change in accounting estimate and therefore applied prospectively (beginning with the next measurement date of December 31, 2015). No restatement of prior periods is required.
13.
Employee Retirement Plans (continued)
Measurement of postretirement benefit expense is based on assumptions used to value the postretirement benefit obligation at the beginning of the year.
The weighted-average assumptions used to determine benefit obligations at December 31 follow:
|
|
Pension benefits
|
|
|
|
|
Domestic
|
|
International
|
|
Postretirement benefits
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Discount rate
|
4.01%
|
|
4.24%
|
|
4.00%
|
|
2.29%
|
|
3.23%
|
|
3.21%
|
|
4.07%
|
|
4.31%
|
|
4.00%
|
|
Rate of compensation increase
|
3.50%
|
|
3.50%
|
|
3.50%
|
|
3.97%
|
|
3.92%
|
|
3.88%
|
|
|
|
|
|
|
The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 follow:
|
|
Pension benefits
|
|
|
|
|
Domestic
|
|
International
|
|
Postretirement benefits
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Discount rate
|
4.24%
|
|
4.00%
|
|
4.75%
|
|
3.23%
|
|
3.21%
|
|
4.08%
|
|
4.31%
|
|
4.00%
|
|
4.75%
|
|
Expected return on plan assets
|
6.00%
|
|
6.00%
|
|
6.25%
|
|
2.89%
|
|
2.97%
|
|
4.12%
|
|
|
|
|
|
|
|
Rate of compensation increase
|
3.50%
|
|
3.50%
|
|
4.00%
|
|
3.92%
|
|
3.88%
|
|
3.85%
|
|
|
|
|
|
|
The assumed rate of return was determined based on the current interest rate environment and historical market premiums relative to fixed income rates of equities and other asset classes. Reasonableness of the results is tested using models provided by the plan actuaries.
|
Assumed health care trend rates at December 31
|
2016
|
|
2015
|
|
Health care cost trend rate assumed for next year
|
6.75%
|
|
7%
|
|
Rate that the cost trend rate gradually declines to
|
5%
|
|
5%
|
|
Year that the rate reaches the ultimate trend rate
|
2024
|
|
2024
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions):
|
|
One-percentage-point
increase
|
|
One-percentage-point
decrease
|
|
Effect on annual total of service and interest cost (credit)
|
$ 3
|
|
$ (3)
|
|
Effect on postretirement benefit obligation
|
$55
|
|
$(45)
|
Plan Assets
Corning's expected long-term rates of return on plan assets reflect the average rates of earnings expected on the funds invested to provide for the benefits included in our domestic and international projected benefit obligations. We based these rates on asset/liability forecast modeling, which is based on our current asset allocation, the return and standard deviation for each asset class, current market conditions and transitions from current conditions to long-term returns.
The Company's overall investment strategy is to obtain sufficient return to offset or exceed inflation and provide adequate liquidity to meet the benefit obligations of the pension plan. Investments are made in public securities to ensure adequate liquidity to support benefit payments. Domestic and international stocks and bonds provide diversification to the portfolio. The target allocation range for global equity investment is 20%-25% which includes large, mid and small cap companies and investments in both developed and emerging markets. The target allocation for bond investments is 60%, which predominately includes corporate bonds. Long duration fixed income assets are utilized to mitigate the sensitivity of funding ratios to changes in interest rates. The target allocation range for non-public investments in private equity and real estate is 5%-15%, and is used to enhance returns and offer additional asset diversification. The target allocation range for commodities is 0%-5%, which provides some inflation protection to the portfolio.
13.
Employee Retirement Plans (continued)
The following tables provide fair value measurement information for the Company's major categories; Level 1 (quoted market prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of our domestic defined benefit plan assets:
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(in millions)
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
$
|
318
|
|
$
|
47
|
|
$
|
271
|
|
|
|
|
$
|
336
|
|
$
|
51
|
|
$
|
285
|
|
|
|
|
International companies
|
|
340
|
|
|
90
|
|
|
250
|
|
|
|
|
|
322
|
|
|
79
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate bonds
|
|
1,608
|
|
|
175
|
|
|
1,433
|
|
|
|
|
|
1,566
|
|
|
158
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity
(1)
|
|
137
|
|
|
|
|
|
|
|
$
|
137
|
|
|
163
|
|
|
|
|
|
|
|
$
|
163
|
|
Real estate
(2)
|
|
150
|
|
|
|
|
|
|
|
|
150
|
|
|
61
|
|
|
|
|
|
|
|
|
61
|
|
Cash equivalents
|
|
100
|
|
|
100
|
|
|
|
|
|
|
|
|
71
|
|
|
71
|
|
|
|
|
|
|
|
Commodities
(3)
|
|
112
|
|
|
|
|
|
112
|
|
|
|
|
|
97
|
|
|
|
|
|
97
|
|
|
|
|
Total
|
$
|
2,765
|
|
$
|
412
|
|
$
|
2,066
|
|
$
|
287
|
|
$
|
2,616
|
|
$
|
359
|
|
$
|
2,033
|
|
$
|
224
|
|
(1)
|
This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in U.S. companies. The inputs are valued by discounted cash flow analysis and comparable sale analysis.
|
|
(2)
|
This category includes industrial, office, apartments, hotels, infrastructure and retail investments which are limited partnerships predominately in the U.S. The inputs are valued by discounted cash flow analysis; comparable sale analysis and periodic external appraisals.
|
|
(3)
|
This category includes investments in energy, industrial metals, precious metals, agricultural and livestock primarily through futures, options, swaps and exchange traded funds.
|
The following tables provide fair value measurement information for the Company's major categories; Level 1 (quoted market prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of our international defined benefit plan assets:
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(in millions)
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
$
|
7
|
|
|
|
|
$
|
7
|
|
|
|
|
$
|
7
|
|
|
|
|
$
|
7
|
|
|
|
|
International companies
|
|
26
|
|
|
|
|
|
26
|
|
|
|
|
|
23
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International fixed income
|
|
385
|
|
$
|
321
|
|
|
64
|
|
|
|
|
|
347
|
|
$
|
286
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
2
|
|
|
|
|
|
|
|
$
|
2
|
|
|
3
|
|
|
|
|
|
|
|
$
|
3
|
|
Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
2
|
|
Cash equivalents
|
|
40
|
|
|
40
|
|
|
|
|
|
|
|
|
60
|
|
|
60
|
|
|
|
|
|
|
|
Total
|
$
|
460
|
|
$
|
361
|
|
$
|
97
|
|
$
|
2
|
|
$
|
442
|
|
$
|
346
|
|
$
|
91
|
|
$
|
5
|
13.
Employee Retirement Plans (continued)
The tables below set forth a summary of changes in the fair value of the defined benefit plans Level 3 assets for the years ended December 31, 2016 and 2015:
|
|
Level 3 assets – Domestic
|
|
Level 3 assets – International
|
|
|
Year ended December 2016
|
|
Year ended December 2016
|
|
(in millions)
|
Private
equity
|
|
Real
estate
|
|
Mortgages
|
|
Insurance
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at December 31, 2015
|
$
|
163
|
|
$
|
61
|
|
$
|
2
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets relating to assets still held at the reporting date
|
|
14
|
|
|
(7)
|
|
|
|
|
|
|
|
Transfers in and/or out of level 3
|
|
(40)
|
|
|
96
|
|
|
(2)
|
|
|
(1)
|
|
Ending balance at December 31, 2016
|
$
|
137
|
|
$
|
150
|
|
$
|
0
|
|
$
|
2
|
|
|
Level 3 assets – Domestic
|
|
Level 3 assets – International
|
|
|
Year ended December 2015
|
|
Year ended December 2015
|
|
(in millions)
|
Private
equity
|
|
Real
estate
|
|
Mortgages
|
|
Insurance
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at December 31, 2014
|
$
|
192
|
|
$
|
84
|
|
$
|
7
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets relating to assets still held at the reporting date
|
|
16
|
|
|
12
|
|
|
|
|
|
|
|
Transfers in and/or out of level 3
|
|
(45)
|
|
|
(35)
|
|
|
(5)
|
|
|
(2)
|
|
Ending balance at December 31, 2015
|
$
|
163
|
|
$
|
61
|
|
$
|
2
|
|
$
|
3
|
Credit Risk
58% of domestic plan assets are invested in long duration bonds. The average rating for these bonds is A. These bonds are subject to credit risk, such that a decline in credit ratings for the underlying companies, countries or assets (for asset-backed securities) would result in a decline in the value of the bonds. These bonds are also subject to default risk.
Currency Risk
12% of domestic assets are valued in non-U.S. dollar denominated investments that are subject to currency fluctuations. The value of these securities will decline if the U.S. dollar increases in value relative to the value of the currencies in which these investments are denominated.
Liquidity Risk
10% of the domestic securities are invested in Level 3 securities. These are long-term investments in private equity and private real estate investments that may not mature or be sellable in the near-term without significant loss.
At December 31, 2016 and 2015, the amount of Corning common stock included in equity securities was not significant.
Cash Flow Data
In 2017, we do not anticipate making voluntary cash contributions to our domestic defined benefit plan and expect to make voluntary contributions of approximately $23 million to our international defined benefit plans.
13.
Employee Retirement Plans (continued)
The following reflects the gross benefit payments that are expected to be paid for our domestic and international defined benefit pension plans, the postretirement medical and life plans and the gross amount of annual Medicare Part D federal subsidy expected to be received (in millions):
|
|
Expected benefit payments
|
|
|
|
|
Domestic
pension
benefits
|
|
International
pension
benefits
|
Postretirement
benefits
|
|
Expected federal subsidy payments
postretirement benefits
|
|
2017
|
$ 182
|
|
$ 19
|
$ 43
|
|
$ 3
|
|
2018
|
$ 189
|
|
$ 24
|
$ 42
|
|
$ 3
|
|
2019
|
$ 196
|
|
$ 24
|
$ 42
|
|
$ 3
|
|
2020
|
$ 201
|
|
$ 27
|
$ 42
|
|
$ 3
|
|
2021
|
$ 206
|
|
$ 27
|
$ 43
|
|
$ 3
|
|
2022-2026
|
$1,118
|
|
$172
|
$215
|
|
$17
|
Other Benefit Plans
We offer defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense was $56 million, $53 million and $62 million for the years ended December 31, 2016, 2015 and 2014, respectively.
14.
Commitments, Contingencies and Guarantees
The amounts of our obligations follow (in millions):
|
|
|
|
Amount of commitment and contingency expiration per period
|
|
|
Total
|
|
Less than
1 year
|
|
1 to 3
years
|
|
3 to 5
years
|
|
5 years and
thereafter
|
|
Performance bonds and guarantees
|
$
|
178
|
|
$
|
102
|
|
$
|
2
|
|
|
|
|
$
|
74
|
|
Stand-by letters of credit
(1)
|
|
51
|
|
|
44
|
|
|
|
|
$
|
1
|
|
|
6
|
|
Credit facility to equity company
|
|
30
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Loan guarantees
|
|
8
|
|
|
|
|
|
1
|
|
|
|
|
|
7
|
|
Subtotal of commitment expirations per period
|
$
|
267
|
|
$
|
176
|
|
$
|
3
|
|
$
|
1
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations
(6)
|
$
|
231
|
|
$
|
127
|
|
$
|
81
|
|
$
|
20
|
|
$
|
3
|
|
Capital expenditure obligations
(2)
|
|
378
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
Total debt
(3)
|
|
3,557
|
|
|
250
|
|
|
625
|
|
|
362
|
|
|
2,320
|
|
Interest on long-term debt
(4)
|
|
2,222
|
|
|
162
|
|
|
299
|
|
|
259
|
|
|
1,502
|
|
Capital leases and financing obligations
|
|
359
|
|
|
6
|
|
|
8
|
|
|
10
|
|
|
335
|
|
Imputed interest on capital leases and financing obligations
|
|
231
|
|
|
18
|
|
|
36
|
|
|
36
|
|
|
141
|
|
Minimum rental commitments
|
|
545
|
|
|
68
|
|
|
111
|
|
|
76
|
|
|
290
|
|
Amended PCC Plan
(7)
|
|
290
|
|
|
70
|
|
|
85
|
|
|
85
|
|
|
50
|
|
Uncertain tax positions
(5)
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal of contractual obligation payments due by period
(5)
|
$
|
7,861
|
|
$
|
1,079
|
|
$
|
1,245
|
|
$
|
848
|
|
$
|
4,641
|
|
Total commitments and contingencies
(5)
|
$
|
8,128
|
|
$
|
1,255
|
|
$
|
1,248
|
|
$
|
849
|
|
$
|
4,728
|
|
(1)
|
At December 31, 2016, $39 million of the $51 million was included in other accrued liabilities on our consolidated balance sheets.
|
|
(2)
|
Capital expenditure obligations primarily reflect amounts associated with our capital expansion activities.
|
|
(3)
|
Total debt above is stated at maturity value, and excludes interest rate swap gains/losses and bond discounts.
|
|
(4)
|
The estimate of interest payments assumes interest is paid through the date of maturity or expiration of the related debt, based upon stated rates in the respective debt instruments.
|
|
(5)
|
At December 31, 2016, $48 million was included on our balance sheet related to uncertain tax positions. Of this amount, we are unable to estimate when any of that amount will become payable.
|
|
(6)
|
Purchase obligations are enforceable and legally binding obligations which primarily consist of raw material and energy-related take-or-pay contracts.
|
|
(7)
|
See Note 7 (Investments) to the Consolidated Financial Statements for additional details.
|
14.
Commitments, Contingencies and Guarantees (continued)
We are required, at the time a guarantee is issued, to recognize a liability for the fair value or market value of the obligation it assumes. In the normal course of our business, we do not routinely provide significant third-party guarantees. Generally, third-party guarantees provided by Corning are limited to certain financial guarantees, including stand-by letters of credit and performance bonds, and the incurrence of contingent liabilities in the form of purchase price adjustments related to attainment of milestones. These guarantees have various terms, and none of these guarantees are individually significant.
We believe a significant majority of these guarantees and contingent liabilities will expire without being funded.
Minimum rental commitments under leases outstanding at December 31, 2016 follow (in millions):
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022 and
thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$68
|
|
$63
|
|
$48
|
|
$40
|
|
$36
|
|
$290
|
Total rental expense was $105 million for 2016, $94 million for 2015 and $92 million for 2014.
Product warranty liability accruals at December 31, 2016 and December 31, 2015 are insignificant.
Corning is a defendant in various lawsuits and is subject to various claims that arise in the normal course of business. In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse effect on Corning's consolidated financial position, liquidity, or results of operations, is remote. Other than certain asbestos related claims, there are no other material loss contingencies related to litigation.
Corning has been named by the Environmental Protection Agency (the Agency) under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 17 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by the Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is Corning's policy to accrue for its estimated liability related to Superfund sites and other environmental liabilities related to property owned by Corning based on expert analysis and continual monitoring by both internal and external consultants. At December 31, 2016 and December 31, 2015, Corning had accrued approximately $43 million (undiscounted) and $37 million (undiscounted), respectively, for the estimated liability for environmental cleanup and related litigation. Based upon the information developed to date, management believes that the accrued reserve is a reasonable estimate of the Company's liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.
The ability of certain subsidiaries and affiliated companies to transfer funds is limited by provisions of foreign government regulations, affiliate agreements and certain loan agreements. At December 31, 2016, the amount of equity subject to such restrictions for consolidated subsidiaries and affiliated companies was not significant. While this amount is legally restricted, it does not result in operational difficulties since we have generally permitted subsidiaries to retain a majority of equity to support their growth programs.
Corning is exposed to interest rate and foreign currency risks due to the movement of these rates.
The areas in which exchange rate fluctuations affect us include:
|
·
|
Financial instruments and transactions denominated in foreign currencies, which impact earnings; and
|
|
·
|
The translation of net assets in foreign subsidiaries for which the functional currency is not the U.S. dollar, which impacts our net equity.
|
Our most significant foreign currency exposures relate to the Japanese yen, South Korean won, New Taiwan dollar, Chinese yuan, and the euro. We seek to mitigate the impact of exchange rate movements in our income statement by using over-the-counter (OTC) derivative instruments including foreign exchange forward and option contracts. In general, these hedges expire coincident with the timing of the underlying foreign currency commitments and transactions.
15.
Hedging Activities (continued)
We are exposed to potential losses in the event of non-performance by our counterparties to these derivative contracts. However, we minimize this risk by maintaining a diverse group of highly-rated major international financial institutions. We do not expect to record any losses as a result of such counterparty default. Neither we nor our counterparties are required to post collateral for these financial instruments. The Company qualified for and elected the end-user exception to the mandatory swap clearing requirement of the Dodd-Frank Act.
Cash Flow Hedges
Our cash flow hedging activities utilize OTC foreign exchange forward contracts and options to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to foreign customers and purchases from foreign suppliers. Our cash flow hedging activity also uses interest rate swaps to reduce the risk of increases in benchmark interest rates on the probable issuance of debt and associated interest payments. In the fourth quarter of 2014, the Company entered into interest rate swap agreements to hedge against the variability in cash flows due to changes in the benchmark interest rate related to an anticipated issuance. The instruments were designated as cash flow hedges. In the first quarter of 2015, these interest rate swaps were settled prior to the issuance of the anticipated debt. Because the Company continued to anticipate that the debt issuance would occur, it entered into two interest rate swap agreements in the first quarter of 2015 to hedge against the variability in cash flows due to changes in the benchmark interest rate related to an anticipated issuance. The instruments were designated as cash flow hedges, and were settled on May 5, 2015. Concurrent with the settlement of the interest rate swap agreements, Corning issued $375 million of 1.50% senior unsecured notes that mature on May 8, 2018 and $375 million of 2.90% senior unsecured notes that mature on May 15, 2022.
Corning uses a regression analysis to monitor the effectiveness of its cash flow hedges both prospectively and retrospectively. Through December 31, 2016, the hedge ineffectiveness related to these instruments is not material. Corning defers net gains and losses related to effective portion of cash flow hedges into accumulated other comprehensive income (loss) on the consolidated balance sheet until such time as the hedged item impacts earnings. At December 31, 2016, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax net loss of $28 million.
Fair Value Hedges
In October of 2012, we entered into two interest rate swaps that are designated as fair value hedges and economically exchange a notional amount of $550 million of previously issued fixed rate long-term debt to floating rate debt. Under the terms of the swap agreements, we pay the counterparty a floating rate that is indexed to the one-month LIBOR rate.
Corning utilizes the long haul method for effectiveness analysis, both retrospectively and prospectively. The analysis excludes the impact of credit risk from the assessment of hedge effectiveness. The amount recorded in current period earnings in the other (expense) income, net component, relative to ineffectiveness, is nominal for the year ended December 31, 2016.
Net gains and losses from fair value hedges and the effects of the corresponding hedged item are recorded on the same line item in the consolidated statements of income.
Undesignated Hedges
Corning also uses OTC foreign exchange forward and option contracts that are not designated as hedging instruments for accounting purposes. The undesignated hedges limit exposures to foreign functional currency fluctuations related to certain subsidiaries' monetary assets, monetary liabilities and net earnings in foreign currencies.
A significant portion of the Company's non-U.S. revenues and expenses are denominated in Japanese yen, South Korean won, New Taiwan dollar, Chinese yuan and euro. When these revenues and expenses are translated back to U.S. dollars, the Company is exposed to foreign exchange rate movements. To protect translated earnings against movements in these currencies, the Company has entered into a series of zero-cost collars and average rate forwards.
With a zero-cost collar structure, the Company writes a local currency call option and purchases a local currency put option or vice versa. The zero-cost collars offset the impact of translated earnings above the put price and below the call strike price and that offset is reported in Translated earnings contract (loss) gain, net. The Company entered into a series of zero-cost collars, settling quarterly, to hedge the effect of translation impact for each respective quarter. The zero-cost collar program hedges exposures through 2022 and 2017 for the Japanese yen and Korean won, respectively. Due to the nature of the instruments, only either the put option or the call option can be exercised at maturity. As of December 31, 2016, the U.S. dollar net notional value of the Japanese yen and Korean won zero-cost collars is $1 billion.
15.
Hedging Activities (continued)
The Company extended its foreign exchange hedge program in 2016 and entered into a series of average rate forwards. These will hedge a significant portion of its projected yen exposure for the period of 2018-2022. As of December 31, 2016, the U.S. dollar net notional value of the yen average rate forwards program is $14 billion. The average rate forward program was also expanded to partially hedge the impact of the South Korean won, New Taiwan dollar, Chinese yuan and euro translation on the Company's projected net income. As of December 31, 2016 these average rate forwards have a total notional value of $1 billion. The entire average rate forward program will settle net without obligation to deliver Japanese yen, Korean won, New Taiwan dollar, Chinese yuan and euro.
The fair value of these derivative contracts are recorded as either assets (gain position) or liabilities (loss position) on the Consolidated Balance Sheet. Changes in the fair value of the derivative contracts are recorded currently in earnings in the Translated earnings contract (loss) gain, net line of the Consolidated Statement of Income.
The following table summarizes the notional amounts and respective fair values of Corning's derivative financial instruments on a gross basis for December 31, 2016 and December 31, 2015 (in millions):
|
|
|
|
Asset derivatives
|
|
Liability derivatives
|
|
|
Notional amount
|
|
Balance sheet location
|
|
Fair value
|
|
Balance sheet location
|
|
Fair value
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
(1)
|
$
|
458
|
|
$
|
782
|
|
Other current assets
|
|
$
|
1
|
|
$
|
5
|
|
Other accrued liabilities
|
|
$
|
(29)
|
|
$
|
(10)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
1
|
|
Other liabilities
|
|
|
|
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
550
|
|
|
550
|
|
Other assets
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
(5)
|
|
|
(4)
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts, other
|
|
890
|
|
|
1,095
|
|
Other current assets
|
|
|
11
|
|
|
6
|
|
Other accrued liabilities
|
|
|
(7)
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translated earnings contracts
|
|
16,711
|
|
|
11,972
|
|
Other current assets
|
|
|
423
|
|
|
511
|
|
Other accrued liabilities
|
|
|
(52)
|
|
|
(33)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
146
|
|
|
472
|
|
Other liabilities
|
|
|
(277)
|
|
|
(61)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
$
|
18,609
|
|
$
|
14,399
|
|
|
|
$
|
581
|
|
$
|
995
|
|
|
|
$
|
(370)
|
|
$
|
(143)
|
|
(1)
|
Cash flow hedges with a typical duration of 24 months or less.
|
15.
Hedging Activities (continued)
The following tables summarize the effect on the consolidated financial statements relating to Corning's derivative financial instruments (in millions):
|
|
Effect of derivative instruments on the consolidated financial statements for the years ended December 31
|
|
Derivatives
in hedging
relationships
|
(Loss)/gain recognized in other
comprehensive income (OCI)
|
|
Location of gain/(loss) reclassified from
accumulated OCI into income
effective/ineffective
|
Gain/(loss) reclassified from
accumulated OCI into income
ineffective/effective
(1)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
4
|
|
$
|
20
|
|
$
|
3
|
|
Interest rate hedge
|
|
|
|
$
|
(7)
|
|
$
|
(3)
|
|
Cost of sales
|
|
(36)
|
|
|
6
|
|
|
7
|
|
Foreign exchange contracts
|
$
|
(33)
|
|
|
(17)
|
|
|
20
|
|
Other (expense) income, net
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow hedges
|
$
|
(33)
|
|
$
|
(24)
|
|
$
|
17
|
|
|
$
|
(34)
|
|
$
|
26
|
|
$
|
10
|
|
|
|
|
Gain (loss) recognized in income
|
|
|
Undesignated
derivatives
|
Location of gain/(loss)
recognized in income
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts – balance sheet
|
Translated earnings contract gain (loss), net
|
|
$
|
4
|
|
$
|
8
|
|
$
|
29
|
|
|
Foreign exchange contracts – loans
|
Translated earnings contract (loss) gain, net
|
|
|
(31)
|
|
|
(3)
|
|
|
13
|
|
|
Translated earnings contracts
|
Translated earnings contract (loss) gain, net
|
|
|
(448)
|
|
|
80
|
|
|
1,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total undesignated
|
|
|
$
|
(475)
|
|
$
|
85
|
|
$
|
1,411
|
|
|
(1)
|
There were no material amounts of ineffectiveness for 2016 and 2015.
|
16.
Fair Value Measurements
Fair value standards under U.S. GAAP define fair value, establish a framework for measuring fair value in applying generally accepted accounting principles, and require disclosures about fair value measurements. The standards also identify two kinds of inputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources while unobservable inputs are based on the Company's own market assumptions. Once inputs have been characterized, the inputs are prioritized into one of three broad levels (provided in the table below) used to measure fair value. Fair value standards apply whenever an entity is measuring fair value under other accounting pronouncements that require or permit fair value measurement and require the use of observable market data when available.
16.
Fair Value Measurements (continued)
The following tables provide
f
air value measurement information for the Company's major categories of financial assets and liabilities measured on a recurring basis:
|
|
|
|
Fair value measurements at reporting date using
|
|
(in millions)
|
December 31,
2016
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
Significant other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
Other current assets
(1)
|
$435
|
|
|
|
$435
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Other assets
(1)(2)
|
$464
|
|
|
|
$175
|
|
$289
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other accrued liabilities
(1)
|
$ 88
|
|
|
|
$ 88
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Other liabilities
(1)
|
$282
|
|
|
|
$282
|
|
|
|
(1)
|
Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets and liabilities.
|
|
(2)
|
Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and a contingent consideration asset which was measured by applying an option pricing model using projected future Corning Precision Materials' revenue.
|
|
|
|
|
Fair value measurements at reporting date using
|
|
(in millions)
|
December 31,
2015
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
Significant other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Short-term investments
|
$100
|
|
$100
|
|
|
|
|
|
Other current assets
(1)
|
$522
|
|
|
|
$522
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Other assets
(1)(2)
|
$752
|
|
|
|
$506
|
|
$246
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other accrued liabilities
(1)
|
$ 55
|
|
|
|
$ 55
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Other liabilities
(1)(2)
|
$ 98
|
|
|
|
$ 88
|
|
$ 10
|
|
(1)
|
Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets and liabilities.
|
|
(2)
|
Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and contingent consideration assets or liabilities which are measured by applying an option pricing model using projected future revenues.
|
|
|
Level 3 Roll-Forward – Other Assets
|
|
(in millions)
|
2016
|
|
2015
|
|
|
|
|
|
|
Beginning balance
|
$246
|
|
$445
|
|
Unrealized gains (loss)
|
43
|
|
13
|
|
Transfer in (out) of level 3
|
|
|
(212)
|
|
Ending balance
|
$289
|
|
$246
|
16.
Fair Value Measurements (continued)
As a result of the acquisition of Samsung Corning Precision Materials in January 2014, the Company has contingent consideration that was measured using unobservable (Level 3) inputs. This contingent consideration arrangement potentially requires additional consideration to be paid between the parties in 2018: one based on projections of future revenues generated by the business of Corning Precision Materials for the period between the acquisition date and December 31, 2017, which is subject to a cap of $665 million; and another based on the volumes of certain sales during the same period, which is subject to a separate cap of $100 million. The fair value of the potential receipt of the contingent consideration in 2018 in the amount of $196 million recognized on the acquisition date was estimated by applying an option pricing model using the Company's projection of future revenues generated by Corning Precision Materials. Changes in the fair value of the contingent consideration in future periods are valued using an option pricing model and are recorded in Corning's results in the period of the change.
On December 29, 2015, Corning and Samsung Display entered into an agreement pursuant to which Corning exchanged the amount of contingent consideration in excess of $300 million (net present fair value: $246 million), as consideration for the incremental fair value associated with a number of commercial agreements, including the amendment of its long-term supply agreement with Samsung Display. As of December 29, 2015, the net present fair value of the contingent consideration receivable was $458 million. The net present fair value of the commercial benefit associated with the amended long-term supply agreement exceeds the value exchanged by Corning pursuant to this agreement (net present fair value: $212 million). Consequently, Corning reclassified this amount to the other asset line of the Consolidated Balance Sheet and will amortize the amount over the remaining term of the long-term supply agreement as a reduction in revenue.
As of December 31, 2016 and 2015, the fair value of the potential receipt of the contingent consideration in 2018 was $289 million and $246 million, respectively.
There were no significant financial assets and liabilities measured on a nonrecurring basis during the years ended December 31, 2016 and 2015.
Fixed Rate Cumulative Convertible Preferred Stock, Series A
On January 15, 2014, Corning designated a new series of its preferred stock as Fixed Rate Cumulative Convertible Preferred Stock, Series A, par value $100 per share, and issued 1,900 shares of Preferred Stock at an issue price of $1 million per share, for an aggregate issue price of $1.9 billion, to Samsung Display in connection with the acquisition of its equity interests in Samsung Corning Precision Materials. Corning also issued to Samsung Display an additional amount of Preferred Stock at closing, for an aggregate issue price of $400 million in cash.
Dividends on the Preferred Stock are cumulative and accrue at the annual rate of 4.25% on the per share issue price of $1 million. The dividends are payable quarterly as and when declared by the Company's Board of Directors. The Preferred Stock ranks senior to our common stock with respect to payment of dividends and rights upon liquidation. The Preferred Stock is not redeemable except in the case of a certain deemed liquidation event, the occurrence of which is under the control of the Company. The Preferred Stock is convertible at the option of the holder and the Company upon certain events, at a conversion rate of 50,000 shares of Corning's common stock per one share of Preferred Stock, subject to certain anti-dilution provisions. As of December 31, 2016, the Preferred Stock has not been converted, and none of the anti-dilution provisions have been triggered. Following the seventh anniversary of the closing of the acquisition of Samsung Corning Precision Materials, the Preferred Stock will be convertible, in whole or in part, at the option of the holder. The Company has the right, at its option, to cause some or all of the shares of Preferred Stock to be converted into Common Stock, if, for 25 trading days (whether or not consecutive) within any period of 40 consecutive trading days, the closing price of Common Stock exceeds $35 per share. If the aforementioned right becomes exercisable before the seventh anniversary of the closing, the Company must first obtain the written approval of the holders of a majority of the Preferred Stock before exercising its conversion right. The Preferred Stock does not have any voting rights except as may be required by law.
17.
Shareholders' Equity (continued)
Share Repurchases
2014 Share Repurchases
On March 4, 2014, as part of the $2 billion share repurchase program announced on October 22, 2013 and made effective concurrent with the closing of Corning's acquisition of Samsung Corning Precision Materials on January 15, 2014 (the "March 2014 Repurchase Program"), Corning entered into an ASR agreement (the "2014 ASR agreement") with Citibank N.A. ("Citi"). Under the 2014 ASR agreement, Corning agreed to purchase $1.25 billion of its common stock, with an initial delivery by Citi of 52.5 million shares based on the current market price, and payment of $1.25 billion made by Corning to Citi. The 2014 ASR agreement was completed on May 28, 2014, and Corning received an additional 8.7 million shares to settle the 2014 ASR agreement. In total, Corning repurchased 61.2 million shares based on the average daily volume weighted-average price of Corning's common stock during the term of the 2014 ASR agreement, less a discount.
In addition to the shares repurchased through the 2014 ASR agreement, in the year ended December 31, 2014, we repurchased 36.9 million shares of common stock on the open market for approximately $750 million, as part of the March 2014 Repurchase Program. This program was completed in the fourth quarter of 2014, with a total of 98.1 million shares repurchased for approximately $2 billion.
On December 3, 2014, Corning's Board of Directors authorized the repurchase of up to $1.5 billion shares of common stock (the "December 2014 Repurchase Program") between the date of announcement and December 31, 2016.
2015 Share Repurchases
On July 15, 2015, Corning's Board of Directors approved a $2 billion share repurchase program (the "July 2015 Repurchase Program") and on October 26, 2015 the Board of Directors authorized an additional $4 billion share repurchase program (together with the July 2015 Repurchase Program, the "2015 Repurchase Programs"). The 2015 Repurchase Programs permit Corning to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, advance repurchase agreements and/or other arrangements.
On October 28, 2015, Corning entered into an ASR with Morgan Stanley and Co. LLC ("Morgan Stanley") to repurchase $1.25 billion of Corning's common stock (the "2015 ASR agreement"). The 2015 ASR was executed under the July 2015 Repurchase Program. Under the 2015 ASR agreement, Corning made a $1.25 billion payment to Morgan Stanley on October 29, 2015 and received an initial delivery of approximately 53.1 million shares of Corning common stock from Morgan Stanley on the same day. On January 19, 2016, the 2015 ASR agreement was completed. Corning received an additional 15.9 million shares on January 22, 2016 to settle the 2015 ASR agreement. In total, Corning purchased 69 million shares based on the average daily volume weighted-average price of Corning's common stock during the term of the 2015 ASR agreement, less a discount.
In addition to the shares repurchased through the 2015 ASR agreement, we repurchased 98 million shares of common stock on the open market for approximately $2 billion, as part of the December 2014 Repurchase Program and the July 2015 Repurchase Program, resulting in a total of 167 million shares repurchased for $3.25 billion during 2015.
2016 Share Repurchases
In July 2016, Corning entered into an accelerated share repurchase agreement (the "2016 ASR agreement") under the 2015 Repurchase Program with Morgan Stanley to repurchase Corning's common stock. Under the 2016 ASR agreement, Corning made a $2.0 billion payment to Morgan Stanley in July and received an initial delivery of approximately 74.4 million shares of Corning common stock on the same day. The transaction was structured with two tranches resulting in a total of 12.3 million shares being delivered to Corning in the fourth quarter of 2016, for a total of 86.7 million shares repurchased under the 2016 ASR agreement.
In addition to the 2016 ASR agreement, during the year ended December 31, 2016, the Company repurchased 110 million shares of common stock on the open market for approximately $2.2 billion as part of its 2015 Repurchase Programs, resulting in a total of 197.1 million shares repurchased for $4.2 billion during 2016.
17.
Shareholders' Equity (continued)
The following table presents changes in capital stock for the period from January 1, 2014 to December 31, 2016 (in millions):
|
|
Common stock
|
|
Treasury stock
|
|
|
Shares
|
|
Par value
|
|
Shares
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
1,661
|
|
$
|
831
|
|
(262)
|
|
$
|
(4,099)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to benefit plans and for option exercises
|
11
|
|
|
5
|
|
|
|
|
(2)
|
|
Shares purchased for treasury
|
|
|
|
|
|
(135)
|
|
|
(2,612)
|
|
Other, net
|
|
|
|
|
|
(1)
|
|
|
(14)
|
|
Balance at December 31, 2014
(1)
|
1,672
|
|
$
|
836
|
|
(398)
|
|
$
|
(6,727)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to benefit plans and for option exercises
|
9
|
|
|
4
|
|
|
|
|
(1)
|
|
Shares purchased for treasury
|
|
|
|
|
|
(151)
|
|
|
(2,978)
|
|
Other, net
|
|
|
|
|
|
(2)
|
|
|
(19)
|
|
Balance at December 31, 2015
|
1,681
|
|
$
|
840
|
|
(551)
|
|
$
|
(9,725)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to benefit plans and for option exercises
|
10
|
|
|
6
|
|
|
|
|
(2)
|
|
Shares purchased for treasury
|
|
|
|
|
|
(214)
|
|
|
(4,409)
|
|
Other, net
|
|
|
|
|
|
|
|
|
(16)
|
|
Balance at December 31, 2016
|
1,691
|
|
$
|
846
|
|
(765)
|
|
$
|
(14,152)
|
|
(1)
|
On January 15, 2014, in conjunction with the acquisition of Corning Precision Materials, Corning issued 2,300 Fixed Rate Cumulative Convertible Preferred Stock, Series A ("Preferred Stock"), par value $100 per share, at an issue price of $1 million per share, for an aggregate issue price of $2.3 billion. There have been no further issuances or conversions of Preferred Stock since 2014.
|
17.
Shareholders' Equity (continued)
Accumulated Other Comprehensive Income (Loss)
A summary of changes in the components of accumulated other comprehensive income (loss), including our proportionate share of equity method investee's accumulated other comprehensive income (loss), is as follows (in millions)
(1)
:
|
|
Foreign
currency
translation
adjustments
and other
|
|
Unamortized
actuarial gains
(losses) and
prior service
(costs) credits
|
|
Net
unrealized
gains
(losses) on
investments
|
|
Net
unrealized
gains
(losses) on
designated
hedges
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
$
|
492
|
|
$
|
(428)
|
|
$
|
(14)
|
|
$
|
(6)
|
|
$
|
44
|
|
Other comprehensive (loss) income before reclassifications
(4)
|
|
(821)
|
|
|
(172)
|
|
|
4
|
|
|
10
|
|
|
(979)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
(2)(8)
|
|
|
|
|
18
|
|
|
1
|
|
|
(6)
|
|
|
13
|
|
Equity method affiliates
(3)
|
|
(252)
|
|
|
(127)
|
|
|
(6)
|
|
|
|
|
|
(385)
|
|
Net current-period other comprehensive (loss) income
|
|
(1,073)
|
|
|
(281)
|
|
|
(1)
|
|
|
4
|
|
|
(1,351)
|
|
Balance at December 31, 2014
|
$
|
(581)
|
|
$
|
(709)
|
|
$
|
(15)
|
|
$
|
(2)
|
|
$
|
(1,307)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications
(5)
|
$
|
(487)
|
|
$
|
(59)
|
|
|
|
|
$
|
(18)
|
|
$
|
(564)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
(2)
|
|
|
|
|
105
|
|
$
|
1
|
|
|
(20)
|
|
|
86
|
|
Equity method affiliates
(3)
|
|
(103)
|
|
|
75
|
|
|
|
|
|
2
|
|
|
(26)
|
|
Net current-period other comprehensive (loss) income
|
|
(590)
|
|
|
121
|
|
|
1
|
|
|
(36)
|
|
|
(504)
|
|
Balance at December 31, 2015
|
$
|
(1,171)
|
|
$
|
(588)
|
|
$
|
(14)
|
|
$
|
(38)
|
|
$
|
(1,811)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassifications
(6)
|
$
|
(89)
|
|
$
|
(63)
|
|
$
|
(2)
|
|
$
|
(21)
|
|
$
|
(175)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
(2)
|
|
|
|
|
40
|
|
|
|
|
|
22
|
|
|
62
|
|
Equity method affiliates
(3)(7)
|
|
(15)
|
|
|
264
|
|
|
(1)
|
|
|
|
|
|
248
|
|
Net current-period other comprehensive (loss) income
|
|
(104)
|
|
|
241
|
|
|
(3)
|
|
|
1
|
|
|
135
|
|
Balance at December 31, 2016
|
$
|
(1,275)
|
|
$
|
(347)
|
|
$
|
(17)
|
|
$
|
(37)
|
|
$
|
(1,676)
|
|
(1)
|
All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.
|
|
(2)
|
Tax effects of reclassifications are disclosed separately in this Note 17.
|
|
(3)
|
Tax effects related to equity method affiliates are not significant in the reported periods except for the tax expense of $20 million related to the pension component in 2016.
|
|
(4)
|
Amounts are net of total tax benefit of $96 million, including $(7) million related to the hedges component and $104 million related to the retirement plans component and $(1) million related to the investments component.
|
|
(5)
|
Amounts are net of total tax benefit of $41 million, including $35 million related to the retirement plans component and $6 million related to the hedges component.
|
|
(6)
|
Amounts are net of total tax benefit of $52 million, including $36 million related to the retirement plans component, $12 million related to the hedges component, $3 million related to the foreign currency translation adjustments, and $1 million related to the investments component.
|
|
(7)
|
Most of the changes in equity method affiliate accumulated other comprehensive income components in 2016 relate to disposal transactions with amounts reclassified to the income statement. See Note 7 (Investments) and Note 8 (Acquisitions) to the Consolidated Financial Statements for more information on the Dow Corning realignment, the PCE disposition and the acquisition of the remaining equity interest of Samsung Corning Precision Materials.
|
17.
Shareholders' Equity (continued)
(In millions)
|
Reclassifications Out of Accumulated Other Comprehensive Income (AOCI) by Component
(1)
|
|
Details about AOCI Components
|
Amount reclassified from AOCI
|
|
Affected line item
in the consolidated
statements of income
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
$
|
(62)
|
|
$
|
(168)
|
|
$
|
(29)
|
|
(2)
|
|
Amortization of prior service (cost) credit
|
|
(1)
|
|
|
1
|
|
|
|
|
(2)
|
|
|
|
(63)
|
|
|
(167)
|
|
|
(29)
|
|
Total before tax
|
|
|
|
23
|
|
|
62
|
|
|
11
|
|
Tax benefit
|
|
|
$
|
(40)
|
|
$
|
(105)
|
|
$
|
(18)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on investments
|
|
|
|
$
|
(1)
|
|
$
|
(1)
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
|
|
|
$
|
(1)
|
|
$
|
(1)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized (losses) gains on designated hedges
|
$
|
4
|
|
$
|
20
|
|
$
|
3
|
|
Sales
|
|
|
|
(36)
|
|
|
6
|
|
|
7
|
|
Cost of sales
|
|
|
|
(2)
|
|
|
|
|
|
|
|
Other expense (income), net
|
|
|
|
(34)
|
|
|
26
|
|
|
10
|
|
Total before tax
|
|
|
|
12
|
|
|
(6)
|
|
|
(4)
|
|
Tax benefit (expense)
|
|
|
$
|
(22)
|
|
$
|
20
|
|
$
|
6
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
$
|
(62)
|
|
$
|
(86)
|
|
$
|
(13)
|
|
Net of tax
|
|
(1)
|
Amounts in parentheses indicate debits to the statement of income.
|
|
(2)
|
These accumulated other comprehensive income components are included in net periodic pension cost. See Note 13 (Employee Retirement Plans) to the Consolidated Financial Statements
for additional details.
|
18.
Earnings Per Common Share
Basic earnings per common share are computed by dividing income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share assumes the issuance of common shares for all potentially dilutive securities outstanding.
The reconciliation of the amounts used to compute basic and diluted earnings per common share from operations follows (in millions, except per share amounts):
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Net income attributable to Corning Incorporated
|
$
|
3,695
|
|
$
|
1,339
|
|
$
|
2,472
|
|
Less: Series A convertible preferred stock dividend
|
|
98
|
|
|
98
|
|
|
94
|
|
Net income available to common stockholders - basic
|
|
3,597
|
|
|
1,241
|
|
|
2,378
|
|
Plus: Series A convertible preferred stock dividend
|
|
98
|
|
|
98
|
|
|
94
|
|
Net income available to common stockholders - diluted
|
$
|
3,695
|
|
$
|
1,339
|
|
$
|
2,472
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
|
1,020
|
|
|
1,219
|
|
|
1,305
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options and other dilutive securities
|
|
9
|
|
|
9
|
|
|
12
|
|
Series A convertible preferred stock
|
|
115
|
|
|
115
|
|
|
110
|
|
Weighted-average common shares outstanding - diluted
|
|
1,144
|
|
|
1,343
|
|
|
1,427
|
|
Basic earnings per common share
|
$
|
3.53
|
|
$
|
1.02
|
|
$
|
1.82
|
|
Diluted earnings per common share
|
$
|
3.23
|
|
$
|
1.00
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive potential shares excluded from diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
Employee stock options and awards
|
|
15
|
|
|
22
|
|
|
24
|
|
Accelerated share repurchase forward contract
|
|
|
|
|
15
|
|
|
3
|
|
Total
|
|
15
|
|
|
37
|
|
|
27
|
19.
Share-based Compensation
Stock Compensation Plans
Corning maintains long-term incentive plans (the "Plans") for key employees and non-employee members of our Board of Directors. The Plans allow us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At December 31, 2016, there were approximately 69 million unissued common shares available for future grants under the Plans.
The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.
The fair value of awards granted subsequent to January 1, 2006 that are expected to ultimately vest is recognized as expense over the requisite service periods. The number of options expected to vest equals the total options granted less an estimation of the number of forfeitures expected to occur prior to vesting. The forfeiture rate is calculated based on 15 years of historical data and is adjusted if actual forfeitures differ significantly from the original estimates. The effect of any change in estimated forfeitures would be recognized through a cumulative adjustment that would be included in compensation cost in the period of the change in estimate.
Total share-based compensation cost of $42 million, $46 million and $58 million was disclosed in operating activities on the Company's Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014, respectively.
19.
Share-based Compensation (continued)
Stock Options
Corning's stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from one to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 years from the grant date.
The following table summarizes information concerning stock options outstanding including the related transactions under the stock option plans for the year ended December 31, 2016:
|
|
Number of
shares
(in thousands)
|
|
Weighted-
average
exercise price
|
|
Weighted-
average
remaining
contractual
term in years
|
|
Aggregate
intrinsic
value
(in thousands)
|
|
Options outstanding as of December 31, 2015
|
42,738
|
|
$19.40
|
|
|
|
|
|
Granted
|
1,680
|
|
20.01
|
|
|
|
|
|
Exercised
|
(8,549)
|
|
16.16
|
|
|
|
|
|
Forfeited and expired
|
(4,362)
|
|
25.97
|
|
|
|
|
|
Options outstanding as of December 31, 2016
|
31,507
|
|
19.40
|
|
3.79
|
|
$160,932
|
|
Options expected to vest as of December 31, 2016
|
31,469
|
|
19.40
|
|
3.79
|
|
160,794
|
|
Options exercisable as of December 31, 2016
|
26,723
|
|
19.15
|
|
2.98
|
|
144,236
|
The aggregate intrinsic value (market value of stock less option exercise price) in the preceding table represents the total pretax intrinsic value, based on the Company's closing stock price on December 30, 2016, which would have been received by the option holders had all option holders exercised their "in-the-money" options as of that date. The total number of "in-the-money" options exercisable on December 31, 2016, was approximately 18 million.
The weighted-average grant-date fair value for options granted for the years ended December 31, 2016, 2015 and 2014 was $6.31, $7.99 and $8.29, respectively. The total fair value of options that vested during the years ended December 31, 2016, 2015 and 2014 was approximately $22 million, $36 million and $16 million, respectively. Compensation cost related to stock options for the years ended December 31, 2016, 2015 and 2014, was approximately $11 million, $14 million and $22 million, respectively.
As of December 31, 2016, there was approximately $6 million of unrecognized compensation cost related to stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.7 years.
Proceeds received from the exercise of stock options were $138 million for the year ended December 31, 2016, which were included in financing activities on the Company's Consolidated Statements of Cash Flows. The total intrinsic value of options exercised for the years ended December 31, 2016, 2015 and 2014 was approximately $53 million, $48 million and $69 million, respectively. The income tax benefit realized from share-based compensation was not significant for the years ended December 31, 2016, 2015 and 2014. Refer to Note 6 (Income Taxes).
An award is considered vested when the employee's retention of the award is no longer contingent on providing subsequent service (the "non-substantive vesting period approach"). Awards to retirement eligible employees are fully vested at the date of grant, and the related compensation expense is recognized immediately upon grant or over the period from the grant date to the date of retirement eligibility for employees that become age 55 during the vesting period.
Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term assumption is the period of time the options are expected to be outstanding, and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a zero-coupon U.S. Treasury bond with a term equal to the option's expected term. The ranges given below reflect results from separate groups of employees exhibiting different exercise behavior.
19.
Share-based Compensation (continued)
The following inputs were used for the valuation of option grants under our Stock Option Plans:
|
|
2016
|
|
2015
|
|
2014
|
|
Expected volatility
|
37.1
|
-
|
43.1%
|
|
43.6
|
-
|
44.9%
|
|
45.4
|
-
|
46.2%
|
|
Weighted-average volatility
|
37.1
|
-
|
43.1%
|
|
43.6
|
-
|
44.9%
|
|
45.4
|
-
|
46.2%
|
|
Expected dividends
|
2.28
|
-
|
2.94%
|
|
1.92
|
-
|
2.68%
|
|
1.90
|
-
|
2.09%
|
|
Risk-free rate
|
1.4
|
-
|
2.1%
|
|
1.9
|
-
|
2.1%
|
|
2.0
|
-
|
2.2%
|
|
Average risk-free rate
|
1.4
|
-
|
2.1%
|
|
1.9
|
-
|
2.1%
|
|
2.0
|
-
|
2.2%
|
|
Expected term (in years)
|
7.4
|
-
|
7.4
|
|
7.2
|
-
|
7.2
|
|
7.2
|
-
|
7.2
|
|
Pre-vesting departure rate
|
0.6
|
-
|
0.6%
|
|
0.6
|
-
|
0.6%
|
|
0.5
|
-
|
0.5%
|
Incentive Stock Plans
The Corning Incentive Stock Plan permits restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plan are granted at the closing market price on the grant date, contingently vest over a period of generally one to ten years, and generally have contractual lives of one to ten years. The fair value of each restricted stock grant or restricted stock unit awarded under the Incentive Stock Plan is based on the grant date closing price of the Company's stock.
Time-Based Restricted Stock and Restricted Stock Units:
Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company's common stock upon vesting. The fair value is based on the closing market price of the Company's stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.
The following table represents a summary of the status of the Company's non-vested time-based restricted stock and restricted stock units as of December 31, 2015, and changes which occurred during the year ended December 31, 2016:
|
|
Shares
(000's)
|
|
Weighted-
average
grant-date
fair value
|
|
Non-vested shares and share units at December 31, 2015
|
5,242
|
|
$17.91
|
|
Granted
|
1,518
|
|
20.80
|
|
Vested
|
(2,014)
|
|
14.78
|
|
Forfeited
|
(106)
|
|
20.58
|
|
Non-vested shares and share units at December 31, 2016
|
4,640
|
|
$20.15
|
As of December 31, 2016, there was approximately $25 million of unrecognized compensation cost related to non-vested time-based restricted stock and restricted stock units compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of time-based restricted stock that vested during the years ended December 31, 2016, 2015 and 2014 was approximately $27 million, $32 million and $32 million, respectively. Compensation cost related to time-based restricted stock and restricted stock units was approximately $31 million, $32 million and $36 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Our reportable segments are as follows:
|
·
|
Display Technologies – manufactures glass substrates for flat panel liquid crystal displays.
|
|
·
|
Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry.
|
|
·
|
Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel applications.
|
|
·
|
Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.
|
|
·
|
Life Sciences – manufactures glass and plastic labware, equipment, media and reagents to provide workflow solutions for scientific applications.
|
All other segments that do not meet the quantitative threshold for separate reporting have been grouped as "All Other." This group is primarily comprised of the results of Corning's Pharmaceutical Technologies business, our non-LCD glass business, new product lines and development projects, as well as certain corporate investments such as Eurokera and Keraglass equity affiliates.
We prepared the financial results for our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We included the earnings of equity affiliates that are closely associated with our reportable segments in the respective segment's net income. We have allocated certain common expenses among reportable segments differently than we would for stand-alone financial information. Segment net income may not be consistent with measures used by other companies. The accounting policies of our reportable segments are the same as those applied in the Consolidated Financial Statements.
20.
Reportable Segments (continued)
The following provides historical segment information as described above:
Segment Information
(in millions)
|
|
Display
Technologies
|
|
Optical
Communications
|
|
Environmental
Technologies
|
|
Specialty
Materials
|
|
Life
Sciences
|
|
All
Other
|
|
Total
|
|
For the year ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,238
|
|
$
|
3,005
|
|
$
|
1,032
|
|
$
|
1,124
|
|
$
|
839
|
|
$
|
152
|
|
$
|
9,390
|
|
Depreciation
(1)
|
$
|
598
|
|
$
|
175
|
|
$
|
129
|
|
$
|
109
|
|
$
|
58
|
|
$
|
50
|
|
$
|
1,119
|
|
Amortization of purchased intangibles
|
|
|
|
$
|
35
|
|
|
|
|
|
|
|
$
|
20
|
|
$
|
8
|
|
$
|
63
|
|
Research, development and engineering expenses
(2)
|
$
|
45
|
|
$
|
147
|
|
$
|
102
|
|
$
|
126
|
|
$
|
24
|
|
$
|
191
|
|
$
|
635
|
|
Restructuring, impairment and other charges
|
$
|
4
|
|
$
|
5
|
|
$
|
5
|
|
$
|
12
|
|
$
|
3
|
|
$
|
40
|
|
$
|
69
|
|
Equity in earnings (loss) of affiliated companies
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6)
|
|
$
|
(5)
|
|
Income tax (provision) benefit
|
$
|
(372)
|
|
$
|
(129)
|
|
$
|
(65)
|
|
$
|
(85)
|
|
$
|
(28)
|
|
$
|
114
|
|
$
|
(565)
|
|
Net income (loss)
(3)
|
$
|
935
|
|
$
|
245
|
|
$
|
133
|
|
$
|
174
|
|
$
|
58
|
|
$
|
(240)
|
|
$
|
1,305
|
|
Investment in affiliated companies, at equity
|
$
|
41
|
|
$
|
(1)
|
|
$
|
32
|
|
|
|
|
|
|
|
$
|
252
|
|
$
|
324
|
|
Segment assets
(4)
|
$
|
8,032
|
|
$
|
2,010
|
|
$
|
1,267
|
|
$
|
1,604
|
|
$
|
504
|
|
$
|
750
|
|
$
|
14,167
|
|
Capital expenditures
|
$
|
464
|
|
$
|
245
|
|
$
|
97
|
|
$
|
120
|
|
$
|
39
|
|
$
|
56
|
|
$
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,086
|
|
$
|
2,980
|
|
$
|
1,053
|
|
$
|
1,107
|
|
$
|
821
|
|
$
|
64
|
|
$
|
9,111
|
|
Depreciation
(1)
|
$
|
605
|
|
$
|
163
|
|
$
|
125
|
|
$
|
112
|
|
$
|
60
|
|
$
|
43
|
|
$
|
1,108
|
|
Amortization of purchased intangibles
|
|
|
|
$
|
32
|
|
|
|
|
|
|
|
$
|
20
|
|
$
|
1
|
|
$
|
53
|
|
Research, development and engineering expenses
(2)
|
$
|
105
|
|
$
|
138
|
|
$
|
93
|
|
$
|
113
|
|
$
|
23
|
|
$
|
186
|
|
$
|
658
|
|
Equity in earnings (loss) of affiliated companies
|
$
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17
|
|
$
|
8
|
|
Income tax (provision) benefit
|
$
|
(499)
|
|
$
|
(115)
|
|
$
|
(78)
|
|
$
|
(85)
|
|
$
|
(30)
|
|
$
|
89
|
|
$
|
(718)
|
|
Net income (loss)
(3)
|
$
|
1,095
|
|
$
|
237
|
|
$
|
161
|
|
$
|
167
|
|
$
|
61
|
|
$
|
(202)
|
|
$
|
1,519
|
|
Investment in affiliated companies, at equity
|
$
|
43
|
|
$
|
1
|
|
$
|
32
|
|
|
|
|
|
|
|
$
|
261
|
|
$
|
337
|
|
Segment assets
(4)
|
$
|
8,344
|
|
$
|
1,783
|
|
$
|
1,288
|
|
$
|
1,407
|
|
$
|
514
|
|
$
|
738
|
|
$
|
14,074
|
|
Capital expenditures
|
$
|
594
|
|
$
|
171
|
|
$
|
117
|
|
$
|
88
|
|
$
|
32
|
|
$
|
57
|
|
$
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,851
|
|
$
|
2,652
|
|
$
|
1,092
|
|
$
|
1,205
|
|
$
|
862
|
|
$
|
53
|
|
$
|
9,715
|
|
Depreciation
(1)
|
$
|
676
|
|
$
|
154
|
|
$
|
119
|
|
$
|
113
|
|
$
|
60
|
|
$
|
31
|
|
$
|
1,153
|
|
Amortization of purchased intangibles
|
|
|
|
$
|
10
|
|
|
|
|
|
|
|
$
|
22
|
|
|
|
|
$
|
32
|
|
Research, development and engineering expenses
(2)
|
$
|
138
|
|
$
|
141
|
|
$
|
91
|
|
$
|
140
|
|
$
|
22
|
|
$
|
177
|
|
$
|
709
|
|
Restructuring, impairment and other charges
|
$
|
50
|
|
$
|
17
|
|
|
|
|
|
|
|
$
|
1
|
|
|
|
|
$
|
68
|
|
Equity in earnings (loss) of affiliated companies
|
$
|
(20)
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
$
|
18
|
|
|
|
|
Income tax (provision) benefit
|
$
|
(608)
|
|
$
|
(111)
|
|
$
|
(89)
|
|
$
|
(75)
|
|
$
|
(33)
|
|
$
|
83
|
|
$
|
(833)
|
|
Net income (loss)
(3)
|
$
|
1,396
|
|
$
|
194
|
|
$
|
178
|
|
$
|
138
|
|
$
|
67
|
|
$
|
(198)
|
|
$
|
1,775
|
|
Investment in affiliated companies, at equity
|
$
|
63
|
|
$
|
2
|
|
$
|
32
|
|
|
|
|
|
|
|
$
|
214
|
|
$
|
311
|
|
Segment assets
(4)
|
$
|
8,863
|
|
$
|
1,737
|
|
$
|
1,297
|
|
$
|
1,288
|
|
$
|
553
|
|
$
|
518
|
|
$
|
14,256
|
|
Capital expenditures
|
$
|
492
|
|
$
|
145
|
|
$
|
173
|
|
$
|
104
|
|
$
|
30
|
|
$
|
101
|
|
$
|
1,045
|
|
(1)
|
Depreciation expense for Corning's reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.
|
|
(2)
|
Research, development and engineering expenses include direct project spending that is identifiable to a segment.
|
|
(3)
|
Many of Corning's administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal are allocated to segments, primarily as a percentage of sales.
|
|
(4)
|
Segment assets include inventory, accounts receivable, property, plant and equipment, net of accumulated depreciation, and associated equity companies and cost investments.
|
20.
Reportable Segments (continued)
A reconciliation of reportable segment net income (loss) to consolidated net income follows (in millions):
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Net income of reportable segments
|
$
|
1,545
|
|
$
|
1,721
|
|
$
|
1,973
|
|
Net loss of All Other
|
|
(240)
|
|
|
(202)
|
|
|
(198)
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
Net financing costs
(1)
|
|
(107)
|
|
|
(111)
|
|
|
(113)
|
|
Share-based compensation expense
|
|
(42)
|
|
|
(46)
|
|
|
(58)
|
|
Exploratory research
|
|
(107)
|
|
|
(109)
|
|
|
(102)
|
|
Corporate contributions
|
|
(49)
|
|
|
(52)
|
|
|
(43)
|
|
Gain on realignment of equity investment
|
|
2,676
|
|
|
|
|
|
|
|
Equity in earnings of affiliated companies, net of impairments
(2)
|
|
292
|
|
|
291
|
|
|
269
|
|
Unrealized (loss) gain on translated earnings contracts
|
|
(649)
|
|
|
(573)
|
|
|
1,095
|
|
Resolution of Department of Justice investigation
|
|
(98)
|
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
573
|
|
|
568
|
|
|
(267)
|
|
Other corporate items
|
|
(99)
|
|
|
(148)
|
|
|
(84)
|
|
Net income
|
$
|
3,695
|
|
$
|
1,339
|
|
$
|
2,472
|
|
(1)
|
Net financing costs include interest income, interest expense, and interest costs and investment gains and losses associated with benefit plans.
|
|
(2)
|
Primarily represents the equity earnings of Hemlock Semiconductor Group in 2016, and Dow Corning in 2015 and 2014.
|
A reconciliation of reportable segment assets to consolidated total assets follows (in millions):
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Total assets of reportable segments
|
$
|
13,417
|
|
$
|
13,336
|
|
$
|
13,738
|
|
Non-reportable segments
|
|
750
|
|
|
738
|
|
|
518
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
Current assets
(1)
|
|
6,070
|
|
|
5,488
|
|
|
7,402
|
|
Investments
(2)
|
|
12
|
|
|
1,638
|
|
|
1,490
|
|
Property, plant and equipment, net
(3)
|
|
1,681
|
|
|
1,692
|
|
|
1,657
|
|
Other non-current assets
(4)
|
|
5,969
|
|
|
5,635
|
|
|
5,258
|
|
Total assets
|
$
|
27,899
|
|
$
|
28,527
|
|
$
|
30,063
|
|
(1)
|
Includes current corporate assets, primarily cash, short-term investments, current portion of long-term derivative assets and deferred taxes.
|
|
(2)
|
Primarily represents the equity earnings of Dow Corning.
|
|
(3)
|
Represents corporate property not specifically identifiable to an operating segment.
|
|
(4)
|
Includes non-current corporate assets, pension assets, long-term derivative assets and deferred taxes.
|
For the year ended December 31, 2016, the following number of customers, which individually accounted for 10% or more of each segment's sales, represented the following concentration of segment sales:
|
·
|
In the Display Technologies segment, three customers accounted for 65% of total segment sales.
|
|
·
|
In the Optical Communications segment, one customer accounted for 15% of total segment sales.
|
|
·
|
In the Environmental Technologies segment, three customers accounted for 85% of total segment sales.
|
|
·
|
In the Specialty Materials segment, three customers accounted for 56% of total segment sales.
|
|
·
|
In the Life Sciences segment, two customers accounted for 46% of total segment sales.
|
20.
Reportable Segments (continued)
Selected financial information concerning the Company's product lines and reportable segments follow (in millions):
|
|
Years Ended December 31,
|
|
Revenues from External Customers
|
2016
|
|
2015
|
|
2014
|
|
Display Technologies
|
$
|
3,238
|
|
$
|
3,086
|
|
$
|
3,851
|
|
|
|
|
|
|
|
|
|
|
|
Optical Communications
|
|
|
|
|
|
|
|
|
|
Carrier network
|
|
2,274
|
|
|
2,194
|
|
|
2,036
|
|
Enterprise network
|
|
731
|
|
|
786
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
|
Total Optical Communications
|
|
3,005
|
|
|
2,980
|
|
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
Environmental Technologies
|
|
|
|
|
|
|
|
|
|
Automotive and other
|
|
585
|
|
|
528
|
|
|
528
|
|
Diesel
|
|
447
|
|
|
525
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
Total Environmental Technologies
|
|
1,032
|
|
|
1,053
|
|
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Materials
|
|
|
|
|
|
|
|
|
|
Corning Gorilla Glass
|
|
807
|
|
|
810
|
|
|
846
|
|
Advanced optics and other specialty glass
|
|
317
|
|
|
297
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
Total Specialty Materials
|
|
1,124
|
|
|
1,107
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences
|
|
|
|
|
|
|
|
|
|
Labware
|
|
512
|
|
|
512
|
|
|
536
|
|
Cell culture products
|
|
327
|
|
|
309
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
Total Life Science
|
|
839
|
|
|
821
|
|
|
862
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
152
|
|
|
64
|
|
|
53
|
|
|
$
|
9,390
|
|
$
|
9,111
|
|
$
|
9,715
|
20.
Reportable Segments (continued)
Information concerning principal geographic areas was as follows (in millions):
|
|
2016
|
|
2015
|
|
2014
|
|
|
Net
sales
(2)
|
|
Long-
lived
assets
(1)
|
|
Net
sales
(2)
|
|
Long-
lived
assets
(1)
|
|
Net
sales
(2)
|
|
Long-
lived
assets
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
2,625
|
|
$
|
6,473
|
|
$
|
2,719
|
|
$
|
8,241
|
|
$
|
2,275
|
|
$
|
7,998
|
|
Canada
|
|
282
|
|
|
142
|
|
|
244
|
|
|
144
|
|
|
311
|
|
|
|
|
Mexico
|
|
50
|
|
|
134
|
|
|
37
|
|
|
135
|
|
|
35
|
|
|
50
|
|
Total North America
|
|
2,957
|
|
|
6,749
|
|
|
3,000
|
|
|
8,520
|
|
|
2,621
|
|
|
8,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
450
|
|
|
1,008
|
|
|
440
|
|
|
1,160
|
|
|
608
|
|
|
1,311
|
|
Taiwan
|
|
840
|
|
|
2,347
|
|
|
841
|
|
|
2,301
|
|
|
1,092
|
|
|
2,005
|
|
China
|
|
2,083
|
|
|
1,140
|
|
|
1,869
|
|
|
1,036
|
|
|
1,893
|
|
|
1,115
|
|
Korea
|
|
1,444
|
|
|
3,413
|
|
|
1,501
|
|
|
3,552
|
|
|
1,882
|
|
|
3,595
|
|
Other
|
|
363
|
|
|
167
|
|
|
331
|
|
|
98
|
|
|
308
|
|
|
109
|
|
Total Asia Pacific
|
5,180
|
|
|
8,075
|
|
|
4,982
|
|
|
8,147
|
|
|
5,783
|
|
|
8,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
363
|
|
|
154
|
|
|
326
|
|
|
189
|
|
|
397
|
|
|
217
|
|
France
|
|
83
|
|
|
266
|
|
|
90
|
|
|
263
|
|
|
81
|
|
|
277
|
|
United Kingdom
|
|
182
|
|
|
41
|
|
|
164
|
|
|
47
|
|
|
187
|
|
|
47
|
|
Other
|
|
352
|
|
|
1,047
|
|
|
311
|
|
|
987
|
|
|
369
|
|
|
1,109
|
|
Total Europe
|
|
980
|
|
|
1,508
|
|
|
891
|
|
|
1,486
|
|
|
1,034
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
273
|
|
|
44
|
|
|
238
|
|
|
36
|
|
|
277
|
|
|
55
|
|
Total
|
$
|
9,390
|
|
$
|
16,376
|
|
$
|
9,111
|
|
$
|
18,189
|
|
$
|
9,715
|
|
$
|
17,888
|
|
(1)
|
Long-lived assets primarily include investments, plant and equipment, goodwill and other intangible assets. In 2014 and 2015, assets in the U.S. include the investment in Dow Corning.
|
|
(2)
|
Net sales are attributed to countries based on location of customer.
|
Corning Incorporated and Subsidiary Companies
Schedule II – Valuation Accounts and Reserves
(in millions)
|
Year ended December 31, 2016
|
Balance at
beginning
of period
|
|
Additions
|
|
Net
deductions
and other
|
|
Balance at
end
of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and allowances
|
$
|
48
|
|
$
|
11
|
|
|
|
|
$
|
59
|
|
Deferred tax valuation allowance
|
$
|
238
|
|
$
|
55
|
|
$
|
23
|
|
$
|
270
|
|
Accumulated amortization of purchased intangible assets
|
$
|
265
|
|
$
|
64
|
|
$
|
4
|
|
$
|
325
|
|
Reserves for accrued costs of business restructuring
|
$
|
3
|
|
$
|
15
|
|
$
|
13
|
|
$
|
5
|
|
Year ended December 31, 2015
|
Balance at
beginning
of period
|
|
Additions
|
|
Net
deductions
and other
|
|
Balance at
end
of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and allowances
|
$
|
47
|
|
$
|
1
|
|
|
|
|
$
|
48
|
|
Deferred tax valuation allowance
|
$
|
298
|
|
$
|
30
|
|
$
|
90
|
|
$
|
238
|
|
Accumulated amortization of purchased intangible assets
|
$
|
216
|
|
$
|
49
|
|
|
|
|
$
|
265
|
|
Reserves for accrued costs of business restructuring
|
$
|
44
|
|
|
|
|
$
|
41
|
|
$
|
3
|
|
Year ended December 31, 2014
|
Balance at
beginning
of period
|
|
Additions
|
|
Net
deductions
and other
|
|
Balance at
end
of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and allowances
|
$
|
28
|
|
$
|
19
|
|
|
|
|
$
|
47
|
|
Deferred tax valuation allowance
|
$
|
286
|
|
$
|
186
|
|
$
|
174
|
|
$
|
298
|
|
Accumulated amortization of purchased intangible assets
|
$
|
185
|
|
$
|
31
|
|
|
|
|
$
|
216
|
|
Reserves for accrued costs of business restructuring
|
$
|
44
|
|
$
|
49
|
|
$
|
49
|
|
$
|
44
|
Quarterly Operating Results
(unaudited)
(In millions, except per share amounts)
|
2016
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
Total
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,047
|
|
$
|
2,360
|
|
$
|
2,507
|
|
$
|
2,476
|
|
$
|
9,390
|
|
Gross margin
|
$
|
764
|
|
$
|
951
|
|
$
|
1,041
|
|
$
|
990
|
|
$
|
3,746
|
|
Equity in earnings of affiliated companies
|
$
|
59
|
|
$
|
41
|
|
$
|
19
|
|
$
|
165
|
|
$
|
284
|
|
Benefit (provision) for income taxes
|
$
|
304
|
|
$
|
504
|
|
$
|
27
|
|
$
|
(832)
|
|
$
|
3
|
|
Net (loss) income attributable to Corning Incorporated
|
$
|
(368)
|
|
$
|
2,207
|
|
$
|
284
|
|
$
|
1,572
|
|
$
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
$
|
(0.36)
|
|
$
|
2.06
|
|
$
|
0.27
|
|
$
|
1.64
|
|
$
|
3.53
|
|
Diluted (loss) earnings per common share
|
$
|
(0.36)
|
|
$
|
1.87
|
|
$
|
0.26
|
|
$
|
1.47
|
|
$
|
3.23
|
|
2015
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
Total
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,265
|
|
$
|
2,343
|
|
$
|
2,272
|
|
$
|
2,231
|
|
$
|
9,111
|
|
Gross margin
|
$
|
929
|
|
$
|
975
|
|
$
|
892
|
|
$
|
857
|
|
$
|
3,653
|
|
Equity in earnings of affiliated companies
|
$
|
94
|
|
$
|
62
|
|
$
|
39
|
|
$
|
104
|
|
$
|
299
|
|
(Provision) benefit for income taxes
|
$
|
(86)
|
|
$
|
(110)
|
|
$
|
(6)
|
|
$
|
55
|
|
$
|
(147)
|
|
Net income attributable to Corning Incorporated
|
$
|
407
|
|
$
|
496
|
|
$
|
212
|
|
$
|
224
|
|
$
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.30
|
|
$
|
0.38
|
|
$
|
0.16
|
|
$
|
0.17
|
|
$
|
1.02
|
|
Diluted earnings per common share
|
$
|
0.29
|
|
$
|
0.36
|
|
$
|
0.15
|
|
$
|
0.17
|
|
$
|
1.00
|