Corning Inc: Form 10-Q for the period ended Sep 30, 2023

Corning Incorporated and its consolidated subsidiaries are hereinafter sometimes referred to as the “Company,” the “Registrant,” “Corning,” “we,” “our,” or “us.”

This report contains forward-looking statements that involve a number of risks and uncertainties. These statements relate to plans, objectives, expectations and estimates and may contain words such as “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “seek,” “see,” “would,” “target,” “estimate,” “forecast,” or similar expressions. Actual results could differ materially from what is expressed or forecasted in forward-looking statements. Some of the factors that could contribute to these differences include those discussed under “Forward-Looking Statements,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report.

ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) was prepared to provide a historical and prospective narrative on our financial condition and results of operations through the eyes of management and should be read in conjunction with our MD&A of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”).

Our MD&A is organized as follows:

• Overview
• Results of Operations
• Segment Analysis
• Core Performance Measures
• Liquidity and Capital Resources
• Environment
• Critical Accounting Estimates
• Forward-Looking Statements

OVERVIEW

Corning Incorporated is central to the advancement of the industries we serve and secular trends touching many facets of daily life. It all starts with our focused and cohesive portfolio. We maintain clear leadership in three core technologies and four proprietary manufacturing and engineering platforms. We apply new combinations of our assets and capabilities to solve a broad range of significant challenges and shape new industries in tandem with our customers. By reapplying and repurposing our insights and assets across multiple opportunities and markets, we increase our profitably. Importantly, as we partner closely with our customers to realize their visions and help solve their toughest technology challenges, we unlock new ways to integrate more of our content into their ecosystems. This “More Corning” approach provides a powerful value-creation lever. We’re not just relying on people buying more stuff; we’re driving more Corning content into the products they’re already buying.

Our accomplishments over the past several years illustrate the efficacy of our approach. Despite the challenging external environment, we have advanced fiber-to-the-home and data center solutions in Optical Communications, delivered on our gasoline particulate filter content opportunity in Environmental Technologies, introduced Ceramic Shield with Apple in Specialty Materials and ramped our Gen 10.5 plants to extend our leadership in Display Technologies. In addition, we made major progress on our emerging innovations; we gained significant traction in our Automotive Glass Solutions business; and our pharmaceutical packaging portfolio played a central role in combatting the global pandemic. These achievements have helped extend our leadership positions across our markets and pave the way for future growth.

At the same time, profitability and cash flow have lagged sales growth. Since 2020, the external environment has been characterized by the impact of the pandemic and its resulting effects including supply chain disruptions, large swings in consumer spending and inflation. Our core priorities throughout this period were protecting our people and delivering for our customers, and as a result, we operated with elevated staffing and higher-than-normal inventory levels during this period leading to reduced productivity. In addition, persistent inflation added to the cost of raw materials we purchased, the cost to produce and ship our products and the inventory we maintained.

In response, we took a series of actions to improve profitability and cash generation throughout 2022 and 2023. These actions included raising prices across our businesses to more appropriately share inflationary costs with our customers; restoring our productivity to pre-pandemic levels without impacting our ability to supply and capture future growth; and normalizing inventory levels. As expected, these actions delivered improved profitability and cash flow as we progressed through 2023.

Overall, we will continue to focus on operating each of our businesses well and adjusting to meet the needs of the moment while simultaneously advancing growth initiatives and capabilities that will drive continued success as the global economy stabilizes. Our focused and cohesive portfolio provides strategic resilience that is evident in our results, even in the current environment. We remain confident in our relevance to long-term secular trends and our “More Corning” approach, and we are well positioned to capture durable, profitable growth as the global economy improves.

Fourth-Quarter 2023 Corporate Outlook

We expect core net sales of approximately $3.25 billion for the fourth quarter of 2023.

RESULTS OF OPERATIONS

The following table presents selected highlights from our operations (in millions):

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Net Sales

Net sales for the three months ended September 30, 2023 decreased $315 million, or 9%, when compared to the same period in 2022. The decrease was primarily driven by decreased segment sales of $399 million in Optical Communications, $82 million in Life Sciences and $80 million in Hemlock and Emerging Growth Businesses, partially offset by increased segment sales in Display Technologies of $286 million, Specialty Materials of $44 million and Environmental Technologies of $24 million. In addition, movements in foreign exchange rates adversely impacted Corning’s consolidated net sales by $92 million for the three months ended September 30, 2023, when compared to the same period in 2022.

Net sales for the nine months ended September 30, 2023 decreased $1,189 million, or 11%, when compared to the same period in 2022. The decrease was primarily driven by decreased segment sales of $719 million in Optical Communications, $217 million in Life Sciences, $110 million in Hemlock and Emerging Businesses and $105 million in Specialty Materials, partially offset by increased segment sales in Environmental Technologies of $147 million and Display Technologies of $140 million. In addition, movements in foreign exchange rates adversely impacted Corning’s consolidated net sales by $287 million for the nine months ended September 30, 2023, when compared to the same period in 2022.

Refer to the “Segment Analysis” section of our MD&A below for a discussion of net sales by segment.

Cost of Sales / Gross Margin

The types of expenses included in cost of sales are: raw materials consumption, including direct and indirect materials; salaries, wages and benefits; depreciation and amortization; production utilities; production-related purchasing; warehousing (including receiving and inspection); repairs and maintenance; inter-location inventory transfer costs; production and warehousing facility property insurance; rent for production facilities; freight and logistics costs; and other production overhead.

For the three months ended September 30, 2023, gross margin decreased by $58 million, or 5%, and improved as a percentage of sales by 2 percentage points when compared to the same period in 2022. The increase in gross margin as a percentage of sales was primarily driven by the actions taken by management to improve profitability, including raising prices, restoring our productivity levels and normalizing inventory levels. These improvements were partially offset by movements in foreign exchange rates which adversely impacted Corning’s consolidated gross margin by $58 million for the three months ended September 30, 2023 when compared to the same period in 2022.

For the nine months ended September 30, 2023, gross margin decreased by $571 million, or 16%, and declined as a percentage of sales by 2 percentage points when compared to the same period in 2022. The decline in gross margin as a percentage of sales was primarily driven by higher inflationary and production costs, partially offset by the benefits from the actions taken by management to improve profitability. In addition, movements in foreign exchange rates adversely impacted Corning’s consolidated gross margin by $175 million for the nine months ended September 30, 2023 when compared to the same period in 2022.

Selling, General and Administrative Expenses

The types of expenses included in the selling, general and administrative expenses line item are salaries, wages and benefits; share-based compensation expense; travel; sales commissions; professional fees; and depreciation and amortization, utilities and rent for administrative facilities.

For the three and nine months ended September 30, 2023, selling, general and administrative expenses increased by $7 million and decreased $52 million, or 2% and 4%, respectively, and were fairly consistent as a percentage of sales when compared to the same periods in 2022.

Research, Development and Engineering Expenses

For the three and nine months ended September 30, 2023, research, development and engineering expenses decreased by $8 million and increased $21 million, or 3% and 3%, respectively, and were fairly consistent as a percentage of sales when compared to the same periods in 2022.

Translated earnings contract gain (loss), net

Included in translated earnings contract gain (loss), net, is the impact of foreign currency contracts which economically hedge the translation exposure arising from movements in the Japanese yen, South Korean won, new Taiwan dollar, euro, Chinese yuan and British pound and its impact on net income.

The following table provides detailed information on the impact of translated earnings contract gain (loss), net (in millions):

(1) For the three and nine months ended September 30, 2023, amount includes pre-tax realized losses of $20 million and $48 million, respectively, related to the expiration of option contracts. For the three and nine months ended September 30, 2022, amount includes pre-tax realized gains of $23 million and $9 million, respectively, related to the expiration of option contracts. These amounts were reflected within operating activities in the consolidated statements of cash flows.

(2) For the nine months ended September 30, 2023, amount excludes $11 million related to a forward contract designated as a net investment hedge, which was reflected within investing activities in the consolidated statements of cash flows.

(3) The impact to income for the three months ended September 30, 2023 was primarily driven by unrealized losses from our South Korean won and Japanese yen-denominated hedges. The impact to income for the three months ended September 30, 2022 was primarily driven by unrealized losses from our South Korean won-denominated hedges.

(4) The impact to income for the nine months ended September 30, 2023 was primarily driven by unrealized losses from our South Korean won and Chinese yuan-denominated hedges partially offset by unrealized gains from our Japanese yen-denominated hedges. The impact to income for the nine months ended September 30, 2022 was primarily driven by unrealized gains from our Japanese yen-denominated hedges partially offset by unrealized losses from our South Korean won-denominated hedges.

Income Before Income Taxes

The translation impact of fluctuations in foreign currency exchange rates offset by the impact of hedges realized in the current period, adversely impacted Corning’s consolidated income before income taxes by $87 million and $182 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022.

Provision for Income Taxes

For the three months ended September 30, 2023, the effective tax rate differed from the United States (“U.S.”) statutory rate of 21%, primarily due to differences arising from foreign earnings partially offset by changes in estimates based on the final 2022 U.S. Federal Income Tax Return. For the nine months ended September 30, 2023, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings, changes in estimates based on the final 2022 U.S. Federal Income Tax Return and adjustments related to share-based compensation, partially offset by changes in valuation allowance assessments.

For the three months ended September 30, 2022, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to the net impact of changes in tax legislation and changes in estimates based on the final 2021 U.S. Federal Income Tax Return, partially offset by changes in tax reserves. For the nine months ended September 30, 2022, the effective tax rate differed from the U.S. statutory rate of 21%, primarily due to differences arising from foreign earnings and changes in tax reserves, partially offset by the impact of changes in tax legislation, changes in estimates based on the final 2021 U.S. Federal Income Tax Return and adjustments related to share-based compensation.

Net Income Attributable to Corning Incorporated

As a result of the items discussed above, net income attributable to Corning Incorporated and per share data were as follows (in millions, except per share amounts):

Comprehensive (Loss) Income attributable to Corning Incorporated

Comprehensive loss attributable to Corning Incorporated for the three months ended September 30, 2023 was $39 million compared to $489 million for the three months ended September 30, 2022. This movement is primarily due to the $44 million decrease in net income attributable to Corning Incorporated and a decrease in net losses on foreign currency translation adjustments of $494 million, primarily driven by the Japanese yen, South Korean won, Chinese yuan and euro.

Comprehensive income attributable to Corning Incorporated for the nine months ended September 30, 2023 was $49 million compared to comprehensive loss attributable to Corning Incorporated of $264 million for the nine months ended September 30, 2022. This movement is primarily due to the $731 million decrease in net income attributable to Corning Incorporated and a decrease in net losses on foreign currency translation adjustments of $942 million, primarily driven by the Japanese yen, South Korean won, Chinese yuan and euro.

SEGMENT ANALYSIS

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, which is more fully discussed within Note 14 (Reportable Segments) in the accompanying notes to the consolidated financial statements and includes a reconciliation of our segment information to the corresponding amounts in our consolidated statements of income.

Segment net income may not be consistent with measures used by other companies.

The following table presents segment net sales by reportable segment and Hemlock and Emerging Growth Businesses (in millions):

(1) Refer to Note 14 (Reportable Segments) in the accompanying notes to the consolidated financial statements for the reconciliation to consolidated net sales.

Optical Communications

The decrease in segment net sales for both the three and nine month periods was primarily driven by a decline in volume due to lower order rates from carriers as they continue to draw down inventory.

Display Technologies

The increase in segment net sales during the three and nine month periods is due to higher volumes, primarily attributable to the recovery of panel maker utilization to normal ranges.

Specialty Materials

The increase in segment net sales for the three month period was primarily driven by higher volumes due to customer product launches and continued demand for semiconductor materials. The decrease in segment net sales for the nine month period was primarily driven by lower demand in the smartphone, tablet and notebook markets, partially offset by continued demand for semiconductor materials.

Environmental Technologies

The increase in segment net sales for both the three and nine month periods was primarily driven by increased demand of automotive products, including gasoline particulate filter adoption in China, partially offset by softness in heavy-duty markets in North America.

Life Sciences

The decrease in segment net sales for both the three and nine month periods was impacted by the lower demand for COVID-related products in China and the impact of customers drawing down inventory.

Hemlock and Emerging Growth Businesses

The decrease for both the three and nine month periods was primarily driven by a decrease in our Hemlock business due to declines in solar-grade polysilicon prices and lower sales in our Pharmaceutical Technologies business as the last of the volume commitments for COVID-related products were completed in the second quarter.

The following table presents segment net income by reportable segment and Hemlock and Emerging Growth Businesses (in millions):

* Not meaningful

(1) Refer to Note 14 (Reportable Segments) in the accompanying notes to the consolidated financial statements for the reconciliation to consolidated net income.

Optical Communications

The decrease in segment net income for both the three and nine month periods was primarily driven by a decline in sales volume, as outlined above, partially offset by improvements from pricing and productivity actions.

Display Technologies

The increase in segment net income for the three and nine month periods was primarily driven by the increase in sales, as outlined above.

Specialty Materials

The decrease in segment net income for the three month period was primarily driven by higher production costs, partially offset by the increase in sales volume, as outlined above. The decrease in segment net income for the nine month period was primarily driven by the decline in sales volume, as outlined above, and impacted by continued development costs for new product launches.

Environmental Technologies

The increase in segment net income for both the three and nine month periods was primarily driven by the increase in sales, as outlined above, and as a result of productivity-improvement actions.

Life Sciences

The decrease in segment net income for both the three and nine month periods was primarily driven by lower sales volume, as outlined above.

Hemlock and Emerging Growth Businesses

The decrease for the three month period was primarily driven by our Hemlock business due to lower sales, as outlined above.

CORE PERFORMANCE MEASURES

In managing the Company and assessing our financial performance, we adjust certain measures provided by our consolidated financial statements to exclude specific items to arrive at our core performance measures. These items include 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 items which do not reflect the ongoing operating results of the Company.

In addition, because a significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar, management believes it is important to understand the impact on sales and net income of translating these currencies into U.S. dollars. Therefore, management utilizes constant-currency reporting for the Display Technologies, Specialty Materials, Environmental Technologies and Life Sciences segments to exclude the impact 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. We establish constant-currency rates based on internally derived management estimates, which are closely aligned with the currencies we have hedged. For details of the rates used, please see the footnotes to the “Reconciliation of Non-GAAP Measures” section.

We believe that the use of constant-currency reporting allows management to understand our results without the volatility of currency fluctuation, analyze underlying trends in the businesses and establish operational goals and forecasts. Further, we believe 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.

Core performance measures are not prepared in accordance with GAAP, but management believes that reporting core performance measures provides investors with greater transparency to the information used by our management team to make financial and operational decisions. We believe investors should consider these non-GAAP measures in evaluating results as they are more indicative of our core operating performance and how management evaluates operational results and trends. These measures are not, and should not be viewed as a substitute for, GAAP reporting measures. With respect to the outlook for future periods, it is not possible to provide reconciliations for these non-GAAP measures because management does not forecast the movement of foreign currencies against the U.S. dollar, or other items that do not reflect ongoing operations, nor does it forecast items that have not yet occurred or are out of management’s control. As a result, management is unable to provide outlook information on a GAAP basis.

For a reconciliation of non-GAAP performance measures to their most directly comparable GAAP financial measure, please see “Reconciliation of Non-GAAP Measures.”

Results of Operations – Core Performance Measures

The following table presents selected highlights from our operations, excluding certain items (in millions):

Core Net Sales

Core net sales are consistent with net sales by reportable segment and Hemlock and Emerging Growth Businesses. Segment and Hemlock and Emerging Growth Businesses net sales and variances are discussed in detail in the “Segment Analysis” section of our MD&A.

Core Net Income

For the three months ended September 30, 2023, we generated core net income of $386 million, or $0.45 per core diluted share, compared to core net income generated for the three months ended September 30, 2022 of $438 million, or $0.51 per core diluted share. The decrease of $52 million, or $0.06 per core diluted share, was primarily due to lower segment net income for Optical Communications of $92 million, Life Sciences of $30 million and Specialty Materials of $24 million. This was partially offset by higher segment net income for Display Technologies of $108 million. Segment and Hemlock and Emerging Growth Businesses net income and variances are discussed in detail in the “Segment Analysis” section of our MD&A.

For the nine months ended September 30, 2023, we generated core net income of $1,124 million, or $1.31 per core diluted share, compared to core net income generated for the nine months ended September 30, 2022 of $1,392 million, or $1.62 per core diluted share. The decrease of $268 million, or $0.31 per core diluted share, was primarily due to lower segment net income for Optical Communications of $141 million, Specialty Materials of $118 million and Life Sciences of $89 million. This was partially offset by higher segment net income for Environmental Technologies of $65 million. Segment and Hemlock and Emerging Growth Businesses net income and variances are discussed in detail in the “Segment Analysis” section of our MD&A.

Core Earnings per Common Share

Core earnings per share decreased for the three and nine months ended September 30, 2023 to $0.45 and $1.31 per share, respectively, primarily as a result of the changes in core net income, outlined above.

The following table sets forth the computation of core basic and core diluted earnings per common share (in millions, except per share amounts):

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RECONCILIATION OF NON-GAAP MEASURES

We utilize certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the consolidated statements of income or statements of cash flows, or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure as calculated and presented in accordance with GAAP in the consolidated statements of income or statements of cash flows.

Core net sales and core net income and the related per share numbers are non-GAAP financial measures utilized by management to analyze financial performance without the impact of items that are driven by general economic conditions and events that do not reflect the underlying fundamentals and trends in our operations.

See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items.

The following tables reconcile our non-GAAP financial measures to their most directly comparable GAAP financial measure (amounts in millions, except percentages and per share amounts):

(a) Based upon statutory tax rates in the specific jurisdiction for each event.

(b) The calculation of the effective tax rate (“ETR”) excludes net income attributable to non-controlling interests (“NCI”).

(a) Based upon statutory tax rates in the specific jurisdiction for each event.

(b) The calculation of the ETR excludes net income attributable to NCI.

See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items.

(a) Based upon statutory tax rates in the specific jurisdiction for each event.

(b) The calculation of the ETR excludes net income attributable to NCI.

(a) Based upon statutory tax rates in the specific jurisdiction for each event.

(b) The calculation of the ETR excludes net income attributable to NCI.

See “Items Excluded from GAAP Measures” for the descriptions of the footnoted reconciling items.

Items Excluded from GAAP Measures

Items which we exclude from GAAP measures to arrive at core performance measures were as follows:

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LIQUIDITY AND CAPITAL RESOURCES

Our financial condition and liquidity are strong. We are not aware of any known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material decrease in our liquidity. In addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resources and no expected material changes in the mix of such resources.

Our major source of funding for 2023 and beyond will be our operating cash flow, our existing balances of cash and cash equivalents and proceeds from any issuances of debt. We believe we have sufficient liquidity to fund operations and meet our obligations for the foreseeable future. Such obligations include requirements for acquisitions, capital expenditures, debt repayments, dividend payments and share repurchase programs. We will continue to generate cash from operations and maintain access to our revolving credit facilities and commercial paper programs as discussed in more detail below.

Key Balance Sheet Data

We fund our working capital with cash from operations and short-term borrowings, including commercial paper, when necessary. In addition, we receive upfront cash from customers relating to long-term supply agreements, as well as cash incentives from government entities generally for capital expansion and related expenses.

The following table presents balance sheet and working capital measures (in millions):

(1) Includes trade payables only.

We perform comprehensive reviews of our significant customers and their creditworthiness by analyzing their financial strength at least annually or more frequently for customers where we have identified a measure of increased risk. We closely monitor payments and developments to identify potential customer credit issues. We are not aware of any customer credit issues that could have a material impact on our liquidity.

We participate in accounts receivable management programs, including factoring arrangements to sell certain accounts receivable to third-party financial institutions or accelerate collections through our customer’s supply chain financing arrangements. Sales of accounts receivable are reflected as a reduction of accounts receivable in the consolidated balance sheets and the proceeds are included in cash flows from operating activities in the consolidated statements of cash flows. By utilizing these types of programs, we have accelerated the collection of $435 million, $423 million, and $350 million of accounts receivable during the three months ended March 31, 2023, June 30, 2023 and September 30, 2023, respectively. We believe these accounts receivables would have been collected during the normal course of business in the following quarter.

Cash Flows

The following table presents a summary of cash flow data (in millions):

Net cash provided by operating activities decreased by $706 million in the nine months ended September 30, 2023, when compared to the same period in the prior year primarily driven by a decrease in net income of $737 million.

Net cash used in investing activities for the nine months ended September 30, 2023 improved by $199 million when compared to the same period last year, primarily driven by lower capital expenditures of $90 million and higher realized gains on translated earnings contracts of $61 million.

Net cash used in financing activities for the nine months ended September 30, 2023 improved by $910 million when compared to the same period last year, primarily driven by the $918 million proceeds received from the issuance of euro-denominated notes in May 2023.

Sources of Liquidity

As of September 30, 2023, our cash and cash equivalents and available credit capacity included (in millions):

Cash and Cash Equivalents

As of September 30, 2023, we had $1.6 billion of cash and cash equivalents. Our cash and cash equivalents are held in various locations throughout the world and are generally unrestricted. We utilize a variety of strategies to ensure that our worldwide cash is available in the locations in which it is needed. As of September 30, 2023, approximately 54% of the consolidated cash and cash equivalents were held outside the U.S.

If we distribute our foreign cash balances to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay withholding taxes. We do not foresee a need to repatriate any earnings for which we asserted permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not permanently reinvested.

Debt Facilities and Other Sources of Liquidity

We have a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding at any one time of $1.5 billion. Under this program, we may issue paper from time to time and will use the proceeds for general corporate purposes. As of September 30, 2023, we did not have outstanding commercial paper.

Our $1.5 billion Revolving Credit Agreement is available to support obligations under the commercial paper program and for general corporate purposes, if needed. In addition, we have a 25 billion Japanese yen liquidity facility, equivalent to approximately $167 million. As of September 30, 2023, there were no amounts outstanding under these facilities.

Our Revolving Credit Agreement includes affirmative and negative covenants with which we must comply, including a leverage (debt to capital ratio) financial covenant. The required leverage ratio is a maximum of 60%. As of September 30, 2023, our leverage using this measure was approximately 39%. As of September 30, 2023, we were in compliance.

Our debt instruments contain customary event of default provisions, which allow the lenders the option of accelerating all obligations upon the occurrence of certain events. In addition, some of our debt instruments contain a cross default provision, whereby an uncured default exceeding a specified amount on one debt obligation, also would be considered a default under the terms of another debt instrument. As of September 30, 2023, we were in compliance with all such provisions.

We have access to certain unsecured variable rate loan facilities, with an aggregate capacity of 5,045 million Chinese yuan, equivalent to approximately $691 million, whose proceeds are used for capital investment and general corporate purposes. As of September 30, 2023, borrowings totaled $287 million.

As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the SEC on December 4, 2020. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred stock, depositary shares and warrants. We plan to file a new shelf registration statement in the fourth quarter of 2023, prior to the expiration of the shelf registration statement currently in effect.

On May 15, 2023, the Company issued €300 million 3.875% Notes due 2026 (“2026 Notes”) and €550 million 4.125% Notes due 2031 (“2031 Notes”). The proceeds from the 2026 Notes and 2031 Notes were received in euros and converted to U.S. dollars on the date of issuance. The net proceeds received were approximately $918 million and will be used for general corporate purposes. As of September 30, 2023, the U.S. dollar equivalent carrying value of the euro-denominated long-term debt was $892 million.

Uses of Cash

Fixed Rate Cumulative Convertible Preferred Stock, Series A

We had 2,300 outstanding shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A (the “Preferred Stock”) as of December 31, 2020. On January 16, 2021, the Preferred Stock became convertible into 115 million common shares. On April 5, 2021, we executed a Share Repurchase Agreement (“SRA”) with Samsung Display Co., Ltd. (“SDC”) and the Preferred Stock was fully converted as of April 8, 2021. Immediately following the conversion, we repurchased and retired 35 million of the common shares held by SDC for an aggregate purchase price of approximately $1.5 billion, of which approximately $507 million was paid in April 2022 and 2021. The remaining payment of approximately $507 million was made in April 2023.

Stock Repurchases

In 2019, the Board authorized the repurchase of up to $5.0 billion of common stock (“2019 Authorization”). As of September 30, 2023, approximately $3.3 billion remains available under our 2019 Authorization, which does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice.

Common Stock Dividends

On October 4, 2023, Corning’s Board of Directors declared a dividend of $0.28 per share of common stock. The dividend will be payable on December 15, 2023.

Capital Expenditures

Capital expenditures were $1.1 billion for the nine months ended September 30, 2023. We expect our 2023 full year capital expenditures to be slightly lower than 2022.

Defined Benefit Pension Plans

Our global pension plans, including our unfunded and non-qualified plans, were 82% funded as of December 31, 2022. Our largest single pension plan is our U.S. qualified plan, which accounted for 77% of our consolidated defined benefit pension plans’ projected benefit obligation, was 93% funded as of December 31, 2022.

The funded status of our pension plans is dependent upon multiple factors including actuarial assumptions, interest rates at year-end, prior investment returns and contributions made to the plans. During 2023, the Company made cash contributions of $25 million to its international pension plans. The Company does not expect to make additional contributions in the fourth quarter of 2023.

Commitments, Contingencies and Guarantees

There were no material changes outside the ordinary course of business in the obligations disclosed in the 2022 Form 10-K under the caption “Commitments, Contingencies and Guarantees.”

Off Balance Sheet Arrangements

There were no material changes outside the ordinary course of business in off balance sheet arrangements as disclosed in the 2022 Form 10-K under the caption “Off Balance Sheet Arrangements.”

ENVIRONMENT

Refer to Item 1. Legal Proceedings or Note 9 (Commitments and Contingencies) in the accompanying notes to the consolidated financial statements for information.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. This requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. The estimates that are considered by management to be the most critical to the understanding of the consolidated financial statements as they require significant judgments that could materially impact our results of operations, financial position and cash flows are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Since the date of the Company’s most recent Annual Report, there were no material changes in the Company’s critical accounting estimates or assumptions.

FORWARD-LOOKING STATEMENTS

The statements in this Quarterly Report on Form 10-Q, in reports subsequently filed by Corning with the Securities and Exchange Commission (“SEC”) on Forms 10-Q and 8-K and related comments by management that are not historical facts or information and contain words such as “will,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “seek,” “see,” “would,” “target,” “estimate,” “forecast” or similar expressions are forward-looking statements. Such statements relate to future events that by their nature address matters that are, to different degrees, uncertain. These forward-looking statements relate to, among other things, the Company’s future operating performance, the Company’s share of new and existing markets, the Company’s revenue and earnings growth rates, the Company’s ability to innovate and commercialize new products, the Company’s expected capital expenditure and the Company’s implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the Company’s manufacturing capacity.

Although the Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, current estimates and forecasts, general economic conditions, its knowledge of its business and key performance indicators that impact the Company, there can be no assurance that these forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws.

Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:

• global economic trends, competition and geopolitical risks, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our businesses’ global supply chains and strategies;
• changes in macroeconomic and market conditions and market volatility, including developments and volatility arising from the COVID-19 pandemic, inflation, interest rates, the value of securities and other financial assets, precious metals, oil, natural gas and other commodity prices and exchange rates (particularly between the U.S. dollar and the Japanese yen, new Taiwan dollar, euro, Chinese yuan and South Korean won), the availability of government incentives, decreases or sudden increases of consumer demand, and the impact of such changes and volatility on our financial position and businesses;
• the duration and severity of the COVID-19 pandemic, and its impact across our businesses on demand, personnel, operations, our global supply chains and stock price;
• possible disruption in commercial activities or our supply chain due to terrorist activity, cyber-attack, armed conflict, political or financial instability, natural disasters, international trade disputes or major health concerns;
• loss of intellectual property due to theft, cyber-attack, or disruption to our information technology infrastructure;
• ability to enforce patents and protect intellectual property and trade secrets;
• unanticipated disruption to Corning’s, our suppliers’ and manufacturers’ supply chain, equipment, facilities, IT systems or operations;
• product demand and industry capacity;
• competitive products and pricing;
• availability and costs of critical components, materials, equipment, natural resources and utilities;
• new product development and commercialization;
• order activity and demand from major customers;
• the amount and timing of our cash flows and earnings and other conditions, which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels;
• the amount and timing of any future dividends;
• the effects of acquisitions, dispositions and other similar transactions;
• the effect of regulatory and legal developments;
• ability to pace capital spending to anticipated levels of customer demand;
• our ability to increase margins through implementation of operational changes, pricing actions and cost reduction measures;
• rate of technology change;
• adverse litigation;
• product and component performance issues;
• retention of key personnel;
• customer ability to maintain profitable operations and obtain financing to fund ongoing operations and manufacturing expansions and pay receivables when due;
• loss of significant customers;
• changes in tax laws, regulations and international tax standards;
• the impacts of audits by taxing authorities; and
• the potential impact of legislation, government regulations, and other government action and investigations.

As noted in the 2022 Form 10-K, we operate and conduct business in many foreign countries and as a result are exposed to movements in foreign currency exchange rates. Our exposure to exchange rates has the following effects:

• Exchange rate movements on financial instruments and transactions denominated in foreign currencies that impact earnings; and
• Exchange rate movements upon conversion of net assets and net income of foreign subsidiaries for which the functional currency is not the U.S. dollar.

For a discussion of the Company’s exposure to market risk and how we mitigate that risk, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risks, contained in the 2022 Form 10-K.

Disclosure Controls and Procedures

Under the supervision of and with the participation of Corning’s management, including the chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of September 30, 2023, the end of the period covered by this report. Based on that evaluation, we have concluded that the Company’s disclosure controls and procedures were effective as of that date. Corning’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by Corning in the reports that it files or submits under the Exchange Act is accumulated and communicated to Corning’s management, including Corning’s principal executive and principal financial officers, or other persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

An evaluation of internal controls over financial reporting was performed to determine whether any changes have occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting. The chief executive officer and chief financial officer concluded that there was no change in Corning’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in Corning’s 2022 Form 10-K, which could materially impact the Company’s business, financial condition or future results. Risks disclosed in the 2022 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact Corning’s business, financial condition or operating results.