Hedging Activities

6 Months Ended

Jun. 30, 2019

10. Hedging Activities

Cash Flow Hedges

Our cash flow hedging activities utilize over-the-counter (“OTC”) foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the sale of products to customers and purchases from suppliers. The total gross notional value for foreign currency cash flow hedges are $1.6 billion and $0.4 billion at June 30, 2019 and December 31, 2018, respectively. The majority of our foreign exchange forward contracts hedge a portion of the Company’s exposure to the Japanese yen denominated sales with maturities spanning the years 2020-2023 and with gross notional values of $1.2 billion at June 30, 2019. Corning defers gains and losses related to the cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. At June 30, 2019, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax net gain of $11 million.

The effect of cash flow hedges on Corning’s consolidated statements of income and other comprehensive income (loss) is not material for the three and six months ended June 30, 2019 and 2018.

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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.

The table below includes a total gross notional value for translated earnings contracts of $13.5 billion and $13.6 billion at June 30, 2019 and December 31, 2018, respectively. These include gross notional value for average rate forwards of $11.0 billion for both periods and zero-cost collars and purchased put or call options of $2.5 billion and $2.6 billion at June 30, 2019 and December 31, 2018, respectively. The majority of our average rate forward contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning the years 2019-2023 and with gross notional values of $8.1 billion and $9.1 billion at June 30, 2019 and December 31, 2018, respectively. The average rate forward contracts also partially hedge the impacts of the South Korean won, Chinese yuan, euro, New Taiwan dollar 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 June 30, 2019 and December 31, 2018 (in millions):



					Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value
	June 30,		Dec. 31,		sheet	June 30,		Dec. 31,		sheet	June 30,		Dec. 31,
	2019		2018		location	2019		2018		location	2019		2018

Derivatives ‎ designated as ‎ hedging ‎ instruments

Foreign exchange ‎ contracts	$	1,585	$	391	Other current ‎assets	$	13	$	4	Other accrued liabilities	$	(2)	$	(2)
					Other assets		9		2	Other liabilities		(15)

Derivatives not ‎ designated as ‎ hedging ‎ instruments

Foreign exchange ‎ and other contracts		1,000		900	Other current ‎assets		4		5	Other accrued ‎liabilities		(3)		(7)
					Other assets		23

Translated earnings ‎ contracts		13,513		13,620	Other current ‎assets		77		94	Other accrued ‎liabilities		(62)		(47)
					Other assets		64		43	Other liabilities		(330)		(386)

Total derivatives	$	16,098	$	14,911		$	190	$	148		$	(412)	$	(442)

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



		Gain (loss) recognized in income
		Three months ended				Six months ended
	Location of gain/(loss)	June 30,				June 30,
Undesignated derivatives	recognized in income	2019		2018		2019		2018

Foreign exchange and other contracts ‎ – balance sheet, loans and other	Other income, net	$	21	$	29	$	19	$	10
Foreign currency hedges ‎ related to translated earnings (1)	Translated earnings ‎ contract (loss) gain, net		(107)		458		77		(164)

Total undesignated		$	(86)	$	487	$	96	$	(154)

(1)The impact to income was primarily driven by yen-denominated hedges of translated earnings.