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Note 12 - Hedging Activities

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Text Block]

12. 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 values for foreign currency cash flow hedges are $0.8 billion and $1.1 billion at March 31, 2021 and December 31, 2020, respectively, with maturities spanning the years 2021 through 2023. 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 March 31, 2021, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $45 million.

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 exposure 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 $8.1 billion and $7.5 billion at March 31, 2021 and December 31, 2020, respectively. The majority of average rate forward and option contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning the years 2021 through 2024.

	March 31,		December 31,
	2021		2020
Average rate forward contracts:
Japanese yen-denominated	$	4.1	$	4.5
South Korean won-denominated		0.3		0.4
Euro-denominated		0.4		0.5
Other foreign currencies ⁽¹⁾		0.1		0.1
Option contracts:
Japanese yen-denominated ⁽²⁾		1.8		2.0
Other foreign currencies ⁽³⁾		1.4
Total gross notional value for translated earning contracts	$	8.1	$	7.5

⁽¹⁾	Other foreign currencies denominated average rate forward contracts include Chinese yuan, new Taiwan dollar and British pound.

⁽²⁾	Japanese yen-denominated option contracts include zero-cost collars, purchased call options and put options. 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.
⁽³⁾	Other foreign currencies denominated option contracts are purchased basket options that include a basket of underlying currencies, including the Japanese yen, South Korean won, Chinese yuan, euro and British pound, and each basket option will be settled against USD.

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for March 31, 2021 and December 31, 2020 (in millions):

					Asset derivatives					Liability derivatives
	Notional amount				Balance	Fair value				Balance	Fair value
	March 31,		Dec. 31,		sheet	March 31,		Dec. 31,		sheet	March 31,			Dec. 31,
	2021		2020		location	2021		2020		location	2021			2020

Derivatives designated as hedging instruments

Foreign exchange contracts ⁽¹⁾	$	769	$	1,143	Other current assets	$	47	$	37	Other accrued liabilities	$	(2	)	$	(3	)
					Other assets		24		21	Other liabilities					(1	)

Derivatives not designated as hedging instruments

Foreign exchange and other contracts		5,781		6,144	Other current assets		71		45	Other accrued liabilities		(39	)		(76	)
					Other assets		14		41	Other liabilities		(32	)		(59	)
Translated earnings contracts		8,124		7,453	Other current assets		98		66	Other accrued liabilities		(11	)		(110	)
					Other assets		144		61	Other liabilities		(5	)		(95	)
Total derivatives	$	14,674	$	14,740		$	398	$	271		$	(89	)	$	(344	)

⁽¹⁾

At March 31, 2021, the total gross notional values for foreign currency cash flow hedges are $769 million. At December 31, 2020, the foreign exchange contracts that are designated as hedging instruments include the notional amount $892 million of cash flow hedges and $251 million of net investment hedges.

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 three months ended March 31,
Derivative hedging	Gain (loss) recognized in other					Location of gain (loss) reclassified from	Gain (loss) reclassified from
relationships for	comprehensive income (OCI)					accumulated OCI into income	accumulated OCI into income
cash flow hedges	2021		2020			effective (ineffective)	2021		2020

						Net sales	$	2	$	1
						Cost of sales		7		5
Foreign exchange contracts	$	26	$	(89	)	Other expense, net ⁽¹⁾				(14	)
Total cash flow hedges	$	26	$	(89	)		$	9	$	(8	)

⁽¹⁾	A loss of $14 million was reclassified from accumulated other comprehensive loss into other expense, net, resulting from the de-designation of certain cash flow hedges.

		Gain recognized in income (loss)
		Three months ended
	Location of gain	March 31,
Undesignated derivatives	recognized in income (loss)	2021		2020

Foreign exchange and other contracts – balance sheet, loans and other	Other income, net	$	44	$	1
Translated earnings contracts	Translated earnings contract gain, net		272		68
Total undesignated		$	316	$	69