Note 14 - Reportable Segments

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

14. Reportable Segments

The Company has determined that it has five reportable segments for financial reporting purposes, as follows:

● Optical Communications – manufactures carrier network and enterprise network components for the telecommunications industry; the carrier network group consists primarily of products and solutions for optical-based communications infrastructure for services such as video, data and voice communications, and the enterprise network group consists primarily of optical-based communication networks sold to businesses, governments and individuals for their own use.

● Display Technologies – manufactures high quality glass substrates for flat panel displays, including liquid crystal displays and organic light-emitting diodes that are used primarily in televisions, notebook computers, desktop monitors, tablets and handheld devices.

● Specialty Materials – manufactures products that provide material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs across a wide variety of commercial and industrial markets, including materials optimized for mobile consumer electronics, semiconductor equipment optics and consumables, aerospace and defense optics, radiation shielding products, sunglasses and telecommunications components.

● Environmental Technologies – manufactures ceramic substrates and filter products for emissions control systems in mobile applications.

● Life Sciences – develops, manufactures, and supplies laboratory products, including labware, equipment, media, serum and reagents, enabling workflow solutions for drug discovery and bioproduction.

All other businesses that do not meet the quantitative threshold for separate reporting have been grouped as Hemlock and Emerging Growth Businesses.  The net sales for this group are primarily attributable to Hemlock, which is an operating segment that produces solar and semiconductor products.  The emerging growth businesses primarily consist of Pharmaceutical Technologies, Auto Glass Solutions and the Emerging Innovations Group.  

Financial results for the reportable segments and Hemlock and Emerging Growth Businesses are prepared on a basis consistent with the internal disaggregation of financial information to assist the chief operating decision maker (“CODM”) in making internal operating decisions. As a significant portion of segment revenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on segment net sales and segment net income of translating these currencies into U.S. dollars.  Therefore, the Company utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments to exclude the impact on segment sales and segment net income from the Japanese yen, South Korean won, Chinese yuan, new Taiwan dollar and euro, as applicable to the segment.  The most significant constant-currency adjustment relates to the Japanese yen exposure within the Display Technologies segment.  Management utilizes constant-currency reporting based on internally-derived rates, as detailed below, which are closely aligned with the currencies we have hedged. 

The Company believes that the use of constant-currency reporting allows management to understand segment results without the volatility of currency fluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts.  Further, it reflects the underlying economics of the translated earnings contracts used to mitigate the impact of changes in currency exchange rates on our earnings and cash flows.

Constant-currency rates are as follows and are applied to all periods presented:

Currency	Japanese yen	Korean won	Chinese yuan	New Taiwan dollar	Euro
Rate	¥107	₩1,175	¥6.7	NT$31	€.81

In addition, certain income and expenses are excluded from segment net income and included in the unallocated amounts in the reconciliation of reportable segment net income to consolidated net income. These items are not used by the CODM in allocating resources or evaluating the results of the segments and include the following: the impact of translating the Japanese yen-denominated debt; the impact of the translated earnings contracts; acquisition-related costs; certain discrete tax items and other tax-related adjustments; restructuring, impairment and other charges and credits; certain litigation, regulatory and other legal matters; pension mark-to-market adjustments; and other non-recurring non-operational items. Although these amounts are excluded from segment results, they are included in reported consolidated results.

Corning’s administrative and staff functions are performed on a centralized basis and such costs and expenses are allocated among the segments differently than they would be for stand-alone financial reporting purposes. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. Expenses that are not allocated to the segments are included in the reconciliation of reportable segment net income to consolidated net income. Segment net income (loss) may not be consistent with measures used by other companies.

Segment Information (in millions):

																Hemlock
																and
																Emerging
	Optical			Display			Specialty			Environmental			Life			Growth
	Communications			Technologies			Materials			Technologies			Sciences			Businesses			Total
Three months ended September 30, 2023
Segment net sales	$	918		$	972		$	563		$	449		$	230		$	327		$	3,459
Depreciation (1)	$	65		$	119		$	37		$	32		$	18		$	37		$	308
Research, development and engineering expenses (2)	$	60		$	26		$	62		$	26		$	7		$	41		$	222
Income tax provision (3)	$	(24	)	$	(64	)	$	(19	)	$	(27	)	$	(4	)	$	(2	)	$	(140	)
Segment net income (loss)	$	91		$	242		$	72		$	99		$	13		$	(8	)	$	509

																Hemlock
																and
																Emerging
	Optical			Display			Specialty			Environmental			Life			Growth
	Communications			Technologies			Materials			Technologies			Sciences			Businesses			Total
Three months ended September 30, 2022
Segment net sales	$	1,317		$	686		$	519		$	425		$	312		$	407		$	3,666
Depreciation (1)	$	58		$	124		$	36		$	31		$	14		$	38		$	301
Research, development and engineering expenses (2)	$	60		$	31		$	66		$	25		$	10		$	43		$	235
Income tax provision (3)	$	(50	)	$	(35	)	$	(26	)	$	(23	)	$	(11	)	$	(8	)	$	(153	)
Segment net income	$	183		$	134		$	96		$	87		$	43		$	18		$	561

																Hemlock
																and
																Emerging
	Optical			Display			Specialty			Environmental			Life			Growth
	Communications			Technologies			Materials			Technologies			Sciences			Businesses			Total
Nine months ended September 30, 2023
Segment net sales	$	3,109		$	2,663		$	1,392		$	1,337		$	717		$	1,090		$	10,308
Depreciation (1)	$	195		$	362		$	111		$	97		$	52		$	105		$	922
Research, development and engineering expenses (2)	$	176		$	73		$	172		$	73		$	25		$	121		$	640
Income tax provision (3)	$	(105	)	$	(161	)	$	(38	)	$	(77	)	$	(9	)	$	(22	)	$	(412	)
Segment net income	$	390		$	610		$	144		$	288		$	33		$	34		$	1,499

																Hemlock
																and
																Emerging
	Optical			Display			Specialty			Environmental			Life			Growth
	Communications			Technologies			Materials			Technologies			Sciences			Businesses			Total
Nine months ended September 30, 2022
Segment net sales	$	3,828		$	2,523		$	1,497		$	1,190		$	934		$	1,200		$	11,172
Depreciation (1)	$	185		$	426		$	118		$	98		$	44		$	111		$	982
Research, development and engineering expenses (2)	$	173		$	92		$	163		$	74		$	28		$	121		$	651
Income tax provision (3)	$	(146	)	$	(157	)	$	(70	)	$	(59	)	$	(32	)	$	(19	)	$	(483	)
Segment net income	$	531		$	598		$	262		$	223		$	122		$	35		$	1,771

(1)	Depreciation expense for Corning’s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment.
(2)	Research, development and engineering expenses include direct project spending that is identifiable to a segment.
(3)	Income tax provision reflects a tax rate of 21%.

The following table presents a reconciliation of net sales of reportable segments to consolidated net sales (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
Net sales of reportable segments	$	3,132		$	3,259		$	9,218		$	9,972
Net sales of Hemlock and Emerging Growth Businesses		327			407			1,090			1,200
Impact of constant currency reporting (1)		(286	)		(178	)		(714	)		(389	)
Consolidated net sales	$	3,173		$	3,488		$	9,594		$	10,783

(1) This amount primarily represents the impact of foreign currency adjustments in the Display Technologies segment.

The following table presents a reconciliation of net income of reportable segments to consolidated net income (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
Net income of reportable segments	$	517		$	543		$	1,465		$	1,736
Net (loss) income of Hemlock and Emerging Growth Businesses		(8	)		18			34			35
Unallocated amounts:
Impact of constant currency reporting		(212	)		(136	)		(535	)		(319	)
Gain (loss) on foreign currency hedges related to translated earnings		20			(68	)		128			257
Translation gain on Japanese yen-denominated debt		35			84			162			321
Litigation, regulatory and other legal matters		(32	)		(23	)		(44	)		(65	)
Research, development, and engineering expenses (1)		(40	)		(43	)		(127	)		(115	)
Amortization of intangibles		(30	)		(31	)		(92	)		(92	)
Interest expense, net		(62	)		(59	)		(179	)		(180	)
Income tax benefit		105			119			234			103
Severance charges (2)		(13	)		(8	)		(86	)		(8	)
Disposal of assets and other charges and credits (3)		(59	)		(130	)		(184	)		(209	)
Gain on sale of business											53
Other corporate items		(57	)		(58	)		(155	)		(165	)
Net income attributable to Corning Incorporated	$	164		$	208		$	621		$	1,352

(1)	Amount does not include research, development and engineering expense related to severance charges and disposal of assets and other charges and credits.
(2)	For the three and nine months ended September 30, 2023, the amount recorded in cost of sales in the consolidated statements of income was $10 million and $51 million, respectively. For the three and nine months ended September 30, 2022, the amount recorded in cost of sales in the consolidated statements was not material.
(3)	For the three and nine months ended September 30, 2023, the amount recorded in cost of sales in the consolidated statements of income was $53 million and $145 million, respectively.  The activity primarily related to asset write-offs during the period.  For the three and nine months ended September 30, 2022, the amount recorded in cost of sales in the consolidated statements of income was $124 million and $192 million, respectively.  The activity primarily related to capacity optimization of an emerging growth business.