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Note 10 - Hedging Activities | 6 Months Ended
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Jun. 30, 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 notional amounts for foreign currency cash flow hedges are $310 million and $419 million as of June 30, 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. As of June 30, 2023, the amount expected to be reclassified into earnings within the next 12 months is a pre-tax gain of $41 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 loss 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 $104 million and $278 million, respectively, as of June 30, 2023 and December 31, 2022. The carrying amount of the leased precious metals pool includes cumulative fair value losses of $269 million and $95 million as of June 30, 2023 and December 31, 2022, respectively. These losses are offset by changes in the fair value of the derivatives. Net Investment Hedges In May 2023, the Company designated the full amount of its 2026 Notes and 2031 Notes with a total notional amount of €850 million, which are non-derivative financial instruments, as net investment hedges against our investments in certain European subsidiaries with euro functional currencies. Changes in the value of these hedging instruments due to foreign currency gains or losses are deferred in other comprehensive loss on the consolidated statements of comprehensive (loss) income, within the foreign currency translation adjustments and other line, and will remain in accumulated other comprehensive loss until the hedged investment is sold or substantially liquidated. We evaluate the effectiveness of the net investment hedges each quarter using the critical term match method. As of June 30, 2023, the net investment hedges are deemed to be effective. During the three and six months ended June 30, 2023, the loss recognized in other comprehensive loss was not material. Refer to Note 7 (Debt) for additional information. Undesignated Hedges Corning uses OTC foreign exchange forward and option contracts to offset economic currency risks. These contracts are not designated as hedging instruments for accounting purposes. The undesignated hedges limit exposure to foreign 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 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 June 30, 2023 and December 31, 2022 (in millions):
|  |  |  |  |  |  |  |  |  | Asset derivatives |  | Liability derivatives |
|  |  | Notional amount |  | Balance |  | Fair value |  | Balance |  | Fair value |
|  |  | June |  |  | December |  | sheet |  | June |  |  | December |  | sheet |  | June |  |  | December |
|  |  | 30, 2023 |  |  | 31, 2022 |  | location |  | 30, 2023 |  |  | 31, 2022 |  | location |  | 30, 2023 |  |  | 31, 2022 |
Derivatives designated as hedging instruments (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange and precious metals lease contracts (2) |  |  | $ | 310 |  |  | $ | 419 |  | Other current assets |  | $ | 148 |  |  | $ | 26 |  | Other accrued liabilities |  |  |  |  |  | $ | (1 | )
|  |  |  |  |  |  |  |  |  | Other assets |  |  | 177 |  |  |  | 78 |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  |  |  | 1,801 |  |  |  | 2,231 |  | Other current assets |  |  | 34 |  |  |  | 44 |  | Other accrued liabilities |  | $ | (24 | ) |  |  | (49 | )
Translated earnings contracts |  |  |  | 6,014 |  |  |  | 7,543 |  | Other current assets |  |  | 412 |  |  |  | 384 |  | Other accrued liabilities |  |  | (140 | ) |  |  | (124 | )
|  |  |  |  |  |  |  |  |  | Other assets |  |  | 114 |  |  |  | 146 |  | Other liabilities |  |  | (54 | ) |  |  | (17 | )
Total derivatives |  |  | $ | 8,125 |  |  | $ | 10,193 |  |  |  | $ | 885 |  |  | $ | 678 |  |  |  | $ | (218 | ) |  | $ | (191 | )
(1) | The amounts above do not include €850 million of euro-denominated debt ($920 million equivalent as of June 30, 2023), which is a non-derivative financial instrument designated as a net investment hedge.
(2) | As of June 30, 2023, derivatives designated as hedging instruments include foreign exchange cash flow hedges with total notional amounts of $310 million and fair value hedges of leased precious metals with total notional amounts of 23,152 troy ounces. As of December 31, 2022, derivatives designated as hedging instruments include foreign exchange cash flow hedges with total notional amounts of $419 million and fair value hedges of leased precious metals with total notional amounts of 23,152 troy ounces.
The following table summarizes the total notional amounts for translated earnings contracts as of June 30, 2023 and December 31, 2022 (in billions):
|  | June 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Average rate forward contracts: |  |  |  |  |  |  |  |
Japanese yen-denominated |  | $ | 0.2 |  |  | $ | 0.1 |
South Korean won-denominated |  |  | 1.9 |  |  |  | 2.1 |
Other foreign currencies (1) |  |  | 0.9 |  |  |  | 0.7 |
Option contracts: |  |  |  |  |  |  |  |
Japanese yen-denominated (2) |  |  | 3.0 |  |  |  | 4.6 |
Total notional amount for translated earning contracts |  | $ | 6.0 |  |  | $ | 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 total 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 in earnings within translated earnings contract 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 June 30, 2023 and December 31, 2022 is $76 million and $19 million, respectively.
|  | Three months ended June 30, |
|  |  |  |  |  |  |  |  | Location of gain (loss) |  |  |  |  |  |  |  |
|  | Gain (loss) 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 |  |  |  | 2023 |  |  | 2022 |
|  |  |  |  |  |  |  |  | Net sales |  |  |  |  |  | $ | 13 |
|  |  |  |  |  |  |  |  | Cost of sales |  | $ | 11 |  |  |  | 6 |
Foreign exchange contracts and other |  | $ | 42 |  |  | $ | (14 | ) | Other income, net |  |  | (1 | ) |  |  | (1 | )
Total cash flow and fair value hedges |  | $ | 42 |  |  | $ | (14 | ) |  |  | $ | 10 |  |  | $ | 18 |
|  | Six months ended June 30, |
|  |  |  |  |  |  |  |  | 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 |  |  |  | 2023 |  |  | 2022 |
|  |  |  |  |  |  |  |  | Net sales |  |  |  |  |  | $ | 23 |
|  |  |  |  |  |  |  |  | Cost of sales |  | $ | 18 |  |  |  | 13 |
Foreign exchange contracts and other |  | $ | 74 |  |  | $ | 20 |  | Other income, net |  |  | (2 | ) |  |  | (2 | )
Total cash flow and fair value hedges |  | $ | 74 |  |  | $ | 20 |  |  |  | $ | 16 |  |  | $ | 34 |
|  |  | Gain recognized in income |
|  |  | Three months ended |  |  | Six months ended |
| Location of gain |  | June 30, |  |  | June 30, |
Undesignated derivatives | recognized in income |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Foreign exchange contracts | Other income, net |  | $ | 15 |  |  | $ | 33 |  |  | $ | 28 |  |  | $ | 59 |
Translated earnings contracts | Translated earnings contract gain, net |  |  | 116 |  |  |  | 196 |  |  |  | 108 |  |  |  | 325 |
Total undesignated |  | $ | 131 |  |  | $ | 229 |  |  | $ | 136 |  |  | $ | 384 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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