XML 27 R18.htm IDEA: XBRL DOCUMENT

Note 10 - Hedging Activities

3 Months Ended

Mar. 31, 2023

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 designated 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 $365 million and $419 million at March 31, 2023 and December 31, 2022, respectively, with maturities through 2024. Corning defers gains and losses related to cash flow hedges into accumulated other comprehensive loss on the consolidated balance sheets until the hedged item impacts earnings. At March 31, 2023, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $29 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 within property, plant and equipment, net of accumulated depreciation in the consolidated balance sheets, is $185 million and $278 million, respectively, as of March 31, 2023 and December 31, 2022. The carrying amount of the leased precious metals pool includes cumulative fair value losses of $188 million and $95 million as of March 31, 2023 and December 31, 2022, 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 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 through 2024, and South Korean won, with maturities through 2026.

The following table summarizes the notional amounts and respective fair values of Corning’s derivative financial instruments on a gross basis as of March 31, 2023 and December 31, 2022 (in millions):

									Asset derivatives									Liability derivatives
		Notional amount							Balance		Fair value							Balance		Fair value
		March				December			sheet		March				December			sheet		March				December
		31, 2023				31, 2022			location		31, 2023				31, 2022			location		31, 2023				31, 2022
Derivatives designated as hedging instruments (1)
Foreign exchange and precious metals lease contracts (1)		$	365			$	419		Other current assets		$	75			$	26		Other accrued liabilities						$	(1	)
									Other assets			146				78

Derivatives not designated as hedging instruments
Foreign exchange contracts			2,924				2,231		Other current assets			22				44		Other accrued liabilities		$	(18	)			(49	)
Translated earnings contracts			6,770				7,543		Other current assets			354				384		Other accrued liabilities			(126	)			(124	)
									Other assets			114				146		Other liabilities			(43	)			(17	)
Total derivatives		$	10,059			$	10,193				$	711			$	678				$	(187	)		$	(191	)

⁽¹⁾

As of March 31, 2023, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $365 million and fair value hedges of leased precious metals with gross notional amounts of 23,152 troy ounces. As of December 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with gross notional amounts of $419 million and fair value hedges of leased precious metals with gross notional amounts of 23,152 troy ounces.

The following table summarizes the total gross notional value for translated earnings contracts as of March 31, 2023 and December 31, 2022 (in billions):

		March 31,				December 31,
		2023				2022
Average rate forward contracts:
Japanese yen-denominated		$	0.2			$	0.1
South Korean won-denominated			2.0				2.1
Other foreign currencies ⁽¹⁾			0.8				0.7
Option contracts:
Japanese yen-denominated ⁽²⁾			3.8				4.6
Total gross notional value for translated earning contracts		$	6.8			$	7.5

⁽¹⁾	Denominational currencies for other average rate forward contracts include the Chinese yuan, New Taiwan dollar, euro and British pound.
⁽²⁾	Japanese yen-denominated option contracts include purchased put and call options, knock-out options, and zero-cost collars. 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.

The fair values of these derivative contracts are recorded as either assets (gain position) or liabilities (loss position) on the consolidated balance sheets. Changes in the fair value of the derivative contracts are recorded currently in earnings within translated earnings contract (loss) gain, net in the consolidated statements of income.

The following tables summarize the effect in the consolidated statements of income relating to Corning’s derivative financial instruments (in millions). The accumulated derivative gain included in accumulated other comprehensive loss on the consolidated balance sheets as of March 31, 2023 and December 31, 2022 is $44 million and $19 million, respectively.

		Three months ended March 31,
									Location of gain (loss)
		Gain recognized							reclassified from		Gain (loss) reclassified
Derivative hedging		in other comprehensive							accumulated		from accumulated
relationships for cash		income (OCI)							OCI into income		OCI into income
flow and fair value hedges		2023				2022			effective (ineffective)		2023				2022

									Net sales						$	10
									Cost of sales		$	7				7
Foreign exchange and precious metals lease contracts		$	32			$	34		Other income, net			(1	)			(1	)
Total cash flow and fair value hedges		$	32			$	34				$	6			$	16

			Gain (loss) recognized in income
			Three months ended
	Location of gain (loss)		March 31,
Undesignated derivatives	recognized in income		2023				2022

Foreign exchange contracts	Other income, net		$	13			$	26
Translated earnings contracts	Translated earnings contract (loss) gain, net			(8	)			129
Total undesignated			$	5			$	155