Note 10 - Hedging Activities

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

10. Hedging Activities

Designated Hedges 

Corning uses over-the-counter (“OTC”) foreign exchange forward contracts as cash flow hedges 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 $714 million and $780 million at March 31, 2022 and December 31, 2021, respectively, with maturities spanning the years 2022 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, 2022, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $53 million.

Corning has entered into leases of precious metals with maturities through 2025. To offset the risk of changes in the fair value of the Company's separate accounting pool of leased precious metals due to adverse changes in the respective market prices, Corning designated the bifurcated embedded derivatives included in these leases as fair value hedges. The gain or loss on the derivatives, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings. The amounts representing the time value component of the derivatives are excluded from the assessment of effectiveness and amortized in earnings. The impact of the excluded component on Corning's other comprehensive income and earnings is not material. The carrying amount of the leased precious metals pool, which is included in the property, plant and equipment, net of accumulated depreciation line of the consolidated balance sheets is $223 million and $107 million at March 31, 2022 and December 31, 2021, respectively. 

Undesignated Hedges

Corning uses OTC foreign exchange forward and option contracts not designated as hedging instruments for accounting purposes to offset economic currency risks. The undesignated hedges limit exposure 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. revenue and expenses are denominated in Japanese yen, South Korean won, new Taiwan dollar, Chinese yuan, and euro. When this revenue and these 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 average rate forwards and option contracts. Most of these contracts hedge a significant portion of the Company’s exposure to the Japanese yen with maturities spanning years 2022 through 2024.  

The following table summarizes the total gross notional value for translated earnings contracts at March 31, 2022 and December 31, 2021 (in billions):

	March 31,		December 31,
	2022		2021
Average rate forward contracts:
Japanese yen-denominated	$	2.4	$	2.9
South Korean won-denominated		1.6		1.2
Euro-denominated		0.1		0.2
Other foreign currencies (1)		0.1		0.1
Option contracts:
Japanese yen-denominated (2)		4.9		3.6
Other foreign currencies (3)		0.3		0.9
Total gross notional value for translated earning contracts	$	9.4	$	8.9

(1)	Denominational currencies for average rate forward contracts include the Chinese yuan and British pound.
(2)	Japanese yen-denominated option contracts include zero-cost collars, purchased put and call options. With respect to the zero-cost collars, the gross notional amount includes the value of the put and call options. However, due to the nature of the zero-cost collars, only the put or call option can be exercised at maturity.
(3)	Other foreign currency option contracts are purchased basket options that include a basket of underlying currencies, including the Japanese yen, South Korean won, euro and British pound, and each basket option will be settled against U.S. dollars.

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis for March 31, 2022 and December 31, 2021 (in millions):

					Asset derivatives					Liability derivatives
	Notional amount				Balance	Fair value				Balance	Fair value
	March		December		sheet	March		December		sheet	March			December
	31, 2022		31, 2021		location	31, 2022		31, 2021		location	31, 2022			31, 2021
Derivatives designated as hedging instruments (1)
Foreign exchange contracts and other	$	714	$	780	Other current assets	$	55	$	49	Other accrued liabilities	$	(2	)	$	(2	)
					Other assets		19		10	Other liabilities		(44	)		(9	)
Derivatives not designated as hedging instruments
Foreign exchange contracts		3,842		3,864	Other current assets		155		91	Other accrued liabilities		(133	)		(95	)
Translated earnings contracts		9,396		8,899	Other current assets		358		196	Other accrued liabilities		(141	)		(47	)
					Other assets		180		154	Other liabilities		(41	)		(40	)
Total derivatives	$	13,952	$	13,543		$	767	$	500		$	(361	)	$	(193	)

⁽¹⁾ At March 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $714 million and fair value hedges of leased precious metals with gross notional amounts of 11,417 troy ounces.  At December 31, 2021, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $780 million and fair value hedges of leased precious metals with gross notional amounts of 7,559 troy ounces. 

The following tables summarize the effect of Corning’s derivative financial instruments on the consolidated financial statements (in millions):

	Three months ended March 31,
	Gain recognized				Location of gain (loss)	Gain reclassified
Derivatives in hedging	in other comprehensive				reclassified from accumulated	from accumulated
relationships for cash	income (OCI)				OCI into income	OCI into income
flow and fair value hedges	2022		2021		effective (ineffective)	2022		2021
					Net sales	$	10	$	2
Foreign exchange contracts and other	$	34	$	26	Cost of sales		7		7
Total cash flow and fair value hedges	$	34	$	26		$	17	$	9

		Gain recognized in income
		Three months ended
	Location of gain	March 31,
Undesignated derivatives	recognized in income	2022		2021
Foreign exchange contracts	Other income, net	$	26	$	44
Translated earnings contracts	Translated earnings contract gain, net		129		272
Total undesignated		$	155	$	316