11. Hedging Activities

Undesignated Hedges

The table below includes a total gross notional value for translated earnings contracts of $14.3 billion at March 31, 2018 and December 31, 2017. The translated earnings contracts include average rate forwards of $13.1 billion and $13.0 billion and zero-cost collars of $1.2 billion and $1.3 billion at March 31, 2018 and December 31, 2017, respectively. The majority of the average rate forward contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning the years 2017-2022 and with gross notional values of $11.0 billion and $11.7 billion at March 31, 2018 and December 31, 2017, respectively. The average rate forward contracts also partially hedge the impacts of the South Korean won, New Taiwan dollar, Chinese yuan, Euro and British pound translation on the Company’s projected net income. With respect to the zero-cost collars, the gross notional amount includes the value of both the put and call options. However, due to the nature of the zero-cost collars, only the put or the call option can be exercised at maturity.

The following tables summarize the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for March 31, 2018 and December 31, 2017 (in millions):



					Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value
	March 31,		Dec. 31,		sheet	March 31,		Dec. 31,		sheet	March 31,		Dec. 31,
	2018		2017		location	2018		2017		location	2018		2017

Derivatives designated as hedging instruments

Foreign exchange contracts (1)	$	313	$	294	Other current assets	$	16	$	20
					Other assets		3		1

Interest rate contracts		550		550						Other liabilities	$	(11)	$	(8)

Derivatives not designated as hedging instruments

Foreign exchange contracts, other		1,431		599	Other current assets		3		2	Other accrued liabilities		(14)		(7)

Translated earnings contracts		14,280		14,275	Other current assets		106		176	Other accrued liabilities		(108)		(34)
					Other assets		69		66	Other liabilities		(819)		(325)

Total derivatives	$	16,574	$	15,718		$	197	$	265		$	(952)	$	(374)

(1)

Cash flow hedges with a typical duration of 24 months or less.

The following table summarizes the effect of derivative financial instruments on Corning’s consolidated financial statements for the three months ended March 31, 2018 and 2017 (in millions):



	Effect of derivative instruments on the consolidated financial statements
	for the three months ended March 31,
	Gain recognized in other				Location of gain/(loss)	Gain/(loss) reclassified from
	comprehensive income				reclassified from	accumulated OCI into
Derivatives in hedging	(OCI)				accumulated OCI into	income (effective) (1)
relationships	2018		2017		income (effective)	2018		2017


					Cost of sales	$	4	$	(6)
Foreign exchange contracts	$	2	$	23

Total cash flow hedges	$	2	$	23		$	4	$	(6)

(1)

The amount of hedge ineffectiveness at March 31, 2018 and 2017 was insignificant.

The following table summarizes the effect on the consolidated financial statements relating to Corning’s derivative financial instruments (in millions):



		Gain (loss) recognized in income
		Three months ended
	Location of gain/(loss)	March 31,
Undesignated derivatives	recognized in income	2018		2017

Foreign exchange contracts – balance sheet and loans	Other expense, net	$	(19)	$	2
Foreign currency hedges related to translated earnings	Translated earnings contract loss, net		(622)		(438)

Total undesignated		$	(641)	$	(436)