Note 3 - HSG Transactions and Acquisitions

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

During 2020, HSG entered into a series of agreements with DuPont resulting in a change in control of HSG and its consolidation into Corning. Through the agreements, HSG acquired DuPont’s TCS manufacturing assets, which was determined to be a business and recorded as a business combination. The fair value of the purchase price was $255 million. In conjunction with this acquisition, HSG settled the pre-existing TCS relationship (“TCS Settlement”) for a contractual amount of $175 million, which was determined to have a fair value of $200 million. Corning’s share of the pre-tax loss related to the TCS Settlement was $81 million and was recorded in other income (expense), net in the consolidated statements of income for the year ended December 31, 2020.

In addition, on  September 9, 2020, HSG redeemed DuPont’s entire ownership of HSG with a value of $250 million.  Upon completion of the Redemption, Corning obtained a 100% interest in HS LLC and 80.5% interest in HSO LLC. Corning accounted for the Redemption under the acquisition method of accounting in accordance with business combinations without the transfer of net cash consideration. The Redemption price of $250 million approximated the fair value of Corning’s equity interest in HSG immediately preceding the Redemption. The fair value of Corning’s equity interest in HSG was estimated by applying the income approach, which was based on significant assumptions such as projected revenue and discount rate. The Company used a discount rate of 16.5% and terminal growth rate of zero. As no net-cash consideration was transferred, the fair value of Corning’s previously held equity interest in HSG was used to measure the goodwill resulting from the Redemption and the Company’s controlling interest after the Redemption. 

Corning recognized a pre-tax gain of $498 million on its previously held equity investment in HSG as a result of the consolidation resulting from the Redemption. The gain was calculated based on the difference between the fair value and carrying value of the equity method investment immediately preceding the Redemption and included within the transaction-related gain, net in the consolidated statements of income for the year ended December 31, 2020.

The following table presents the calculation of the gain on previously owned equity (in millions):

Fair value of previously held equity investment	$	250
Equity investment liability balance as of acquisition date		(248	)
Corning's gain on previously held equity investment	$	498

Since September 9, 2020, HSG’s results have been consolidated in Corning’s consolidated financial statements and included within Hemlock and Emerging Growth Businesses. The amount of HSG’s net income is not material to Corning’s consolidated financial statements for the year ended December 31, 2020.