Revenue

9 Months Ended

Sep. 30, 2020

Revenue [Abstract]

Revenue

5. Revenue

Revenue Disaggregation Table

The following table shows revenues by major product categories, similar to the Company’s reportable segment disclosure. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty of revenue recognition and cash flows are substantially similar. The commercial markets and selling channels are also similar. Except for an inconsequential amount of revenue for Telecommunications products, product category revenues are recognized at point in time when control transfers to the customer.

Revenues by product category are as follows (in millions):

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Display products	$	834	$	780	$	2,211	$	2,395
Telecommunication products		909		1,008		2,587		3,162
Specialty glass products		570		463		1,339		1,141
Environmental substrate and filter products		369		380		891		1,084
Life science products		220		250		707		744
All Other		99		53		218		160
Total revenue	$	3,001	$	2,934	$	7,953	$	8,686
Impact of foreign currency movements (1)		6		35		66		119
Cumulative adjustment related to customer contract						105
Net sales of reportable segments and All Other	$	3,007	$	2,969	$	8,124	$	8,805

(1)This amount primarily represents the impact of foreign currency adjustments in the Display Technologies, Environmental Technologies and Life Sciences segments.

At the end of 2015, Corning entered into an agreement with a customer pursuant to which Corning exchanged contingent consideration, for the incremental fair value associated with several commercial agreements, including the amendment of the customer’s long-term supply agreement.  The net present fair value ($212 million) of the commercial benefit asset related to the long-term supply agreement was reclassified to the other asset line of the consolidated balance sheets and amortized over the term of agreement as a reduction in revenue.  During March 2020, this customer announced its decision to exit its production of LCD panels by the end of 2020. Based on this announcement, Corning recorded a cumulative adjustment of $105 million during the first quarter of 2020 as a reduction to revenue and will reflect the remaining balance as a reduction to revenue over the remainder of the current year. Due to the one-time nature of this cumulative adjustment, we have excluded it from segment results. However, it is included in the reconciliation from segment net income (loss) to consolidated net income.

Refer to Note 18 (Reportable Segments) to the consolidated financial statements for additional information.

Contract Assets and Liabilities

Contract assets, such as incremental costs to obtain or fulfill contracts, are an insignificant component of Corning’s revenue recognition process. Most of Corning’s cost of fulfillment as a manufacturer of products is classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of Corning’s products and their respective manufacturing processes.

Contract liabilities include deferred revenue, other advanced payments and customer deposits. Other advanced payments are not significant to Corning’s operations and are classified as part of other accrued liabilities in the financial statements. Customer deposits are predominately related to Display products and deferred revenue is predominately related to obtaining a controlling interest in HSG. Both are classified as other accrued liabilities and other liabilities, as appropriate, and are disclosed below. Refer to Note 4 (HSG Transactions) to the consolidated financial statements for additional information.

Shipping and handling fees are treated as a fulfillment cost and not as a separate performance obligation under the terms of the Company’s revenue contracts due to the perfunctory nature of the shipping and handling obligations.

Corning Customer Deposits

As of September 30, 2020, and December 31, 2019, Corning had customer deposits of approximately $1.3 billion and $1.0 billion, respectively.  The majority of the customer deposits were non-refundable cash deposits for customers to secure rights to an amount of glass produced by Corning under long-term supply agreements.  The duration of these long-term supply agreements ranges up to 10 years.  As glass is shipped to customers, Corning will recognize revenue and reduce the amount of the customer deposit liability. 

HSG Customer Deposits

During the third quarter of 2020, Corning obtained a controlling interest in HSG and recorded a customer deposit liability of $264 million, at the fair value, of refundable payments that HSG received from a customer under a long-term supply agreement. The discount rates being used to calculate the present value of the customer deposit range from 2.54% to 3.23%. The deposits will be repaid from 2029 to 2034 provided that all purchase obligations of this customer under the supply agreement have been satisfied.

In the nine months ended September 30, 2020 and 2019, credits issued for customer deposits were $107 million and $37 million, respectively.  As of September 30, 2020, and December 31, 2019, $1,153 million and $927 million were recorded as other long-term liabilities, respectively.  The remaining $181 million and $104 million, respectively, were classified as other current liabilities. 

HSG Deferred Revenue

During the third quarter of 2020, Corning obtained a controlling interest in HSG and recorded deferred revenue of $1,070 million at fair value related to the performance obligations of non-refundable consideration previously received by HSG from its customers under long term supply agreements. The fair values of deferred revenue were estimated by applying a bottom-up cost buildup method of the cost approach based on significant inputs such as the cost to fulfill the obligations as well as key assumptions including a normal profit margin as of September 9, 2020.

The deferred revenue recorded from customer deposits is tracked on a per customer contract unit basis.  As customers take delivery of the committed volumes under the terms of the contracts, a per unit amount of deferred revenue is recognized when control of promised goods is transferred to the customer based upon the units shipped as compared to the remaining contractual units. 

As of September 30, 2020, $931 million was classified as a long-term liability and $132 million remaining was classified as a current liability.  These balances reflect deferred revenue reductions since September 9, 2020.