x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended
September 30, 2016
|
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
|
to
|
|
Commission file number:
1-3247
|
|
(Exact name of registrant as specified in its charter)
|
New York
|
16-0393470
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
One Riverfront Plaza, Corning, New York
|
14831
|
|
(Address of principal executive offices)
|
(Zip Code)
|
|
607-974-9000
|
|
(Registrant’s telephone number, including area code)
|
Yes
|
x
|
No
|
¨
|
Yes
|
x
|
No
|
¨
|
Large accelerated filer
|
x
|
Accelerated filer
|
¨
|
|||
Non-accelerated filer
|
¨
|
Smaller reporting company
|
¨
|
Yes
|
¨
|
No
|
x
|
Class
|
Outstanding as of October 14, 2016
|
|
Corning’s Common Stock, $0.50 par value per share
|
951,225,180 shares
|
PART I – FINANCIAL INFORMATION
|
||
Page
|
||
Item 1. Financial Statements
|
||
Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015
|
3
|
|
Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015
|
4
|
|
Consolidated Balance Sheets (Unaudited) at September 30, 2016 and December 31, 2015
|
5
|
|
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2016 and 2015
|
6
|
|
Notes to Consolidated Financial Statements (Unaudited)
|
7
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
29
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
58
|
|
Item 4. Controls and Procedures
|
58
|
|
PART II – OTHER INFORMATION
|
||
Item 1. Legal Proceedings
|
59
|
|
Item 1A. Risk Factors
|
59
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
60
|
|
Item 6. Exhibits
|
61
|
|
Signatures
|
62
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Net sales
|
$
|
2,507
|
$
|
2,272
|
$
|
6,914
|
$
|
6,880
|
|||
Cost of sales
|
1,466
|
1,380
|
4,158
|
4,084
|
|||||||
Gross margin
|
1,041
|
892
|
2,756
|
2,796
|
|||||||
Operating expenses:
|
|||||||||||
Selling, general and administrative expenses
|
302
|
307
|
1,104
|
960
|
|||||||
Research, development and engineering expenses
|
187
|
181
|
569
|
561
|
|||||||
Amortization of purchased intangibles
|
17
|
12
|
46
|
40
|
|||||||
Restructuring, impairment and other charges
|
78
|
||||||||||
Operating income
|
535
|
392
|
959
|
1,235
|
|||||||
Equity in earnings of affiliated companies
|
19
|
39
|
119
|
195
|
|||||||
Interest income
|
9
|
6
|
21
|
16
|
|||||||
Interest expense
|
(41)
|
(38)
|
(122)
|
(101)
|
|||||||
Translated earnings contract (loss) gain, net
|
(237)
|
(149)
|
(2,295)
|
42
|
|||||||
Gain on realignment of equity investment
|
2,676
|
||||||||||
Other expense, net
|
(28)
|
(32)
|
(70)
|
(70)
|
|||||||
Income before income taxes
|
257
|
218
|
1,288
|
1,317
|
|||||||
Benefit (provision) for income taxes (Note 5)
|
27
|
(6)
|
835
|
(202)
|
|||||||
Net income attributable to Corning Incorporated
|
$
|
284
|
$
|
212
|
$
|
2,123
|
$
|
1,115
|
|||
Earnings per common share attributable to Corning Incorporated:
|
|||||||||||
Basic (Note 6)
|
$
|
0.27
|
$
|
0.16
|
$
|
1.96
|
$
|
0.84
|
|||
Diluted (Note 6)
|
$
|
0.26
|
$
|
0.15
|
$
|
1.81
|
$
|
0.82
|
|||
Dividends declared per common share
(1)
|
$
|
0.135
|
$
|
0.12
|
$
|
0.405
|
$
|
0.24
|
(1)
|
The first quarter 2015 dividend was declared on December 3, 2014.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Net income attributable to Corning Incorporated
|
$
|
284
|
$
|
212
|
$
|
2,123
|
$
|
1,115
|
|||
Foreign currency translation adjustments and other
|
245
|
(181)
|
869
|
(477)
|
|||||||
Net unrealized (losses) gains on investments
|
(3)
|
1
|
|||||||||
Unamortized (losses) gains and prior service credits (costs) for postretirement benefit plans
|
(5)
|
6
|
260
|
12
|
|||||||
Net unrealized gains (losses) on designated hedges
|
11
|
(37)
|
(30)
|
(32)
|
|||||||
Other comprehensive income (loss), net of tax (Note 15)
|
251
|
(212)
|
1,096
|
(496)
|
|||||||
Comprehensive income attributable to Corning Incorporated
|
$
|
535
|
$
|
0
|
$
|
3,219
|
$
|
619
|
September 30,
2016
|
December 31,
2015
|
||||
Assets
|
|||||
Current assets:
|
|||||
Cash and cash equivalents
|
$
|
4,821
|
$
|
4,500
|
|
Short-term investments, at fair value
|
100
|
||||
Trade accounts receivable, net of doubtful accounts and allowances - $62 and $48
|
1,645
|
1,372
|
|||
Inventories, net of inventory reserves - $160 and $146 (Note 8)
|
1,516
|
1,385
|
|||
Other current assets
|
497
|
912
|
|||
Total current assets
|
8,479
|
8,269
|
|||
Investments (Note 9)
|
352
|
1,975
|
|||
Property, plant and equipment, net of accumulated depreciation - $10,206 and $9,188
|
13,293
|
12,648
|
|||
Goodwill, net (Note 10)
|
1,569
|
1,380
|
|||
Other intangible assets, net (Note 10)
|
797
|
706
|
|||
Deferred income taxes (Note 5)
|
3,110
|
2,056
|
|||
Other assets
|
1,209
|
1,493
|
|||
Total Assets
|
$
|
28,809
|
$
|
28,527
|
|
Liabilities and Equity
|
|||||
Current liabilities:
|
|||||
Current portion of long-term debt and short-term borrowings (Note 4)
|
$
|
7
|
$
|
572
|
|
Accounts payable
|
933
|
934
|
|||
Other accrued liabilities (Note 3 and Note 12)
|
1,354
|
1,308
|
|||
Total current liabilities
|
2,294
|
2,814
|
|||
Long-term debt (Note 4)
|
3,916
|
3,890
|
|||
Postretirement benefits other than pensions (Note 11)
|
708
|
718
|
|||
Other liabilities (Note 3 and Note 12)
|
4,104
|
2,242
|
|||
Total liabilities
|
11,022
|
9,664
|
|||
Commitments, contingencies and guarantees (Note 3)
|
|||||
Shareholders’ equity (Note 15):
|
|||||
Convertible preferred stock, Series A – Par value $100 per share; Shares authorized 3,100; Shares issued: 2,300
|
2,300
|
2,300
|
|||
Common stock – Par value $0.50 per share; Shares authorized 3.8 billion; Shares issued: 1,689 million and 1,681 million
|
844
|
840
|
|||
Additional paid-in capital – common stock
|
13,340
|
13,352
|
|||
Retained earnings
|
15,460
|
13,832
|
|||
Treasury stock, at cost; Shares held: 738 million and 551 million
|
(13,508)
|
(9,725)
|
|||
Accumulated other comprehensive loss
|
(715)
|
(1,811)
|
|||
Total Corning Incorporated shareholders’ equity
|
17,721
|
18,788
|
|||
Noncontrolling interests
|
66
|
75
|
|||
Total equity
|
17,787
|
18,863
|
|||
Total Liabilities and Equity
|
$
|
28,809
|
$
|
28,527
|
Nine months ended
September 30,
|
|||||
2016
|
2015
|
||||
Cash Flows from Operating Activities:
|
|||||
Net income
|
$
|
2,123
|
$
|
1,115
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||
Depreciation
|
844
|
842
|
|||
Amortization of purchased intangibles
|
46
|
40
|
|||
Restructuring, impairment and other charges
|
78
|
||||
Stock compensation charges
|
33
|
36
|
|||
Equity in earnings of affiliated companies
|
(119)
|
(195)
|
|||
Dividends received from affiliated companies
|
20
|
143
|
|||
Deferred tax (benefit) provision
|
(1,047)
|
187
|
|||
Restructuring payments
|
(10)
|
(38)
|
|||
Employee benefit payments less than expense
|
5
|
||||
Losses (gains) on foreign currency hedges related to translated earnings
|
2,295
|
(42)
|
|||
Unrealized translation (gains) losses on transactions
|
(177)
|
303
|
|||
Contingent consideration fair value adjustment
|
(40)
|
||||
Gain on realignment of equity investment
|
(2,676)
|
||||
Changes in certain working capital items:
|
|||||
Trade accounts receivable
|
(184)
|
52
|
|||
Inventories
|
(69)
|
(60)
|
|||
Other current assets
|
(42)
|
(204)
|
|||
Accounts payable and other current liabilities
|
14
|
(294)
|
|||
Other, net
|
6
|
(45)
|
|||
Net cash provided by operating activities
|
1,095
|
1,845
|
|||
Cash Flows from Investing Activities:
|
|||||
Capital expenditures
|
(815)
|
(939)
|
|||
Acquisitions of business, net of cash acquired
|
(279)
|
(531)
|
|||
Investment in unconsolidated entities
|
(14)
|
(33)
|
|||
Cash received on realignment of equity investment
|
4,818
|
||||
(Payments) proceeds from loan repayments from unconsolidated entities
|
(10)
|
6
|
|||
Short-term investments – acquisitions
|
(20)
|
(859)
|
|||
Short-term investments – liquidations
|
121
|
1,046
|
|||
Realized gains on foreign currency hedges related to translated earnings
|
146
|
489
|
|||
Other, net
|
9
|
(1)
|
|||
Net cash provided by (used in) investing activities
|
3,956
|
(822)
|
|||
Cash Flows from Financing Activities:
|
|||||
Net repayments of short-term borrowings and current portion of long-term debt
|
(85)
|
||||
Principal payments under capital lease obligations
|
(1)
|
(1)
|
|||
Proceeds from issuance of short-term debt
|
2
|
||||
Proceeds from issuance of long-term debt
|
745
|
||||
Payments from issuance of commercial paper
|
(481)
|
||||
Payments from settlement of interest rate swap arrangements
|
(10)
|
||||
Proceeds from the exercise of stock options
|
86
|
99
|
|||
Repurchases of common stock for treasury
|
(3,884)
|
(1,905)
|
|||
Dividends paid
|
(493)
|
(519)
|
|||
Net cash used in financing activities
|
(4,858)
|
(1,589)
|
|||
Effect of exchange rates on cash
|
128
|
(303)
|
|||
Net increase (decrease) in cash and cash equivalents
|
321
|
(869)
|
|||
Cash and cash equivalents at beginning of period
|
4,500
|
5,309
|
|||
Cash and cash equivalents at end of period
|
$
|
4,821
|
$
|
4,440
|
Reserve at
January 1,
2016
|
Net
Charges/
Reversals
|
Non-cash
adjustments
|
Cash
payments
|
Reserve at
September 30,
2016
|
||||||||||
Restructuring:
|
||||||||||||||
Employee related costs
|
$
|
3
|
$
|
15
|
$
|
(1)
|
$
|
(9)
|
$
|
8
|
||||
Other charges
|
1
|
(1)
|
||||||||||||
Total restructuring activity
|
$
|
3
|
$
|
16
|
$
|
(1)
|
$
|
(10)
|
$
|
8
|
||||
Disposal of long-lived assets
|
$
|
62
|
||||||||||||
Total restructuring, impairment and other charges
|
$
|
78
|
Operating segment
|
Employee-
related
and other
charges
|
|
Display Technologies
|
$
|
4
|
Optical Communications
|
6
|
|
Environmental Technologies
|
5
|
|
Specialty Materials
|
12
|
|
Life Sciences
|
3
|
|
All Other
|
40
|
|
Corporate
|
8
|
|
Total restructuring, impairment and other charges
|
$
|
78
|
Amended PCC Plan
|
Non-PCC
|
Total Asbestos
Litigation Liability
|
|||||||||
Equity
Interests
|
Fixed Series
of Payments
|
||||||||||
Fair Value of Asbestos Litigation Liability as of Dec. 31, 2015
|
$
|
238
|
$
|
290
|
$
|
150
|
$
|
678
|
|||
Less: Contribution of PCC & PCE Equity Interests - Carrying Value
|
182
|
-
|
-
|
182
|
|||||||
Gain on Contribution of Equity Interests
|
56
|
-
|
-
|
56
|
|||||||
Asbestos Litigation Liability as of September 30, 2016
|
$
|
-
|
$
|
290
|
$
|
150
|
$
|
440
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Benefit (provision) for income taxes
|
$
|
27
|
$
|
(6)
|
$
|
835
|
$
|
(202)
|
|||
Effective tax rate
|
(10.5%)
|
2.8%
|
(64.8%)
|
15.3%
|
·
|
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income.
|
·
|
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income;
|
·
|
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax; and
|
·
|
The tax-free nature of the realignment of our equity interest in Dow Corning during the period, as well as the release of the deferred tax liability related to Corning’s tax on Dow Corning’s undistributed earnings as of the date of the transaction.
|
·
|
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of high-taxed foreign earnings in U.S. income; and
|
·
|
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Net income attributable to Corning Incorporated
|
$
|
284
|
$
|
212
|
$
|
2,123
|
$
|
1,115
|
|||
Less: Series A convertible preferred stock dividend
|
24
|
24
|
73
|
73
|
|||||||
Net income available to common stockholders – basic
|
260
|
188
|
2,050
|
1,042
|
|||||||
Plus: Series A convertible preferred stock dividend
(1)
|
24
|
73
|
73
|
||||||||
Net income available to common stockholders – diluted
|
$
|
284
|
$
|
188
|
$
|
2,123
|
$
|
1,115
|
|||
Weighted-average common shares outstanding – basic
|
978
|
1,210
|
1,046
|
1,241
|
|||||||
Effect of dilutive securities:
|
|||||||||||
Stock options and other dilutive securities
|
9
|
8
|
9
|
10
|
|||||||
Series A convertible preferred stock
(1)
|
115
|
115
|
115
|
||||||||
Weighted-average common shares outstanding – diluted
|
1,102
|
1,218
|
1,170
|
1,366
|
|||||||
Basic earnings per common share
|
$
|
0.27
|
$
|
0.16
|
$
|
1.96
|
$
|
0.84
|
|||
Diluted earnings per common share
|
$
|
0.26
|
$
|
0.15
|
$
|
1.81
|
$
|
0.82
|
|||
Antidilutive potential shares excluded from diluted earnings per common share:
|
|||||||||||
Series A convertible preferred stock
(1)
|
115
|
||||||||||
Employee stock options and awards
|
13
|
29
|
18
|
22
|
|||||||
Accelerated share repurchase forward contract
|
14
|
14
|
|||||||||
Total
|
27
|
144
|
32
|
22
|
(1)
|
In the three months ended September 30, 2015, the Series A convertible preferred stock was anti-dilutive and therefore excluded from the calculation of diluted earnings per share.
|
September 30,
2016
|
December 31,
2015
|
||||
Finished goods
|
$
|
636
|
$
|
633
|
|
Work in process
|
301
|
264
|
|||
Raw materials and accessories
|
278
|
200
|
|||
Supplies and packing materials
|
301
|
288
|
|||
Total inventories, net of inventory reserves
|
$
|
1,516
|
$
|
1,385
|
Cash
|
$
|
4,818
|
Carrying Value of Dow Corning Equity Investment
|
(1,560)
|
|
Carrying Value of HSG Equity Investment
|
(383)
|
|
Other
(1)
|
(199)
|
|
Gain
|
$
|
2,676
|
(1)
|
Primarily consists of the release of accumulated other comprehensive income items related to unamortized actuarial losses related to Dow Corning’s pension plan and foreign currency translation gains in the amounts of $260 million and $45 million, respectively.
|
Ownership
interest
|
September 30,
2016
|
December 31,
2015
|
|||||||
Affiliated companies accounted for by the equity method
|
|||||||||
Dow Corning
(1)
|
50%
|
$
|
1,483
|
||||||
All other
(1)
|
20%
|
to
|
50%
|
$
|
285
|
422
|
|||
285
|
1,905
|
||||||||
Other investments
|
67
|
70
|
|||||||
Subtotal Investment Assets
|
$
|
352
|
$
|
1,975
|
|||||
Affiliated companies accounted for by the equity method
|
|||||||||
HSG
(2)(3)
|
50%
|
$
|
343
|
||||||
Subtotal Investment Liabilities
|
$
|
343
|
(1)
|
Amounts reflect Corning’s direct ownership interests in the respective affiliated companies at September 30, 2016 and December 31, 2015. Corning does not control any of such entities.
|
(2)
|
HSG indirectly holds an 80.5% interest in a HSG operating partnership.
|
(3)
|
The negative carrying value of the investment in HSG is recorded in Other Liabilities.
|
Optical
Communications
|
Display
Technologies
|
Specialty
Materials
|
Life
Sciences
|
All
Other
|
Total
|
||||||||||||
Balance at December 31, 2015
|
$
|
439
|
$
|
128
|
$
|
150
|
$
|
562
|
$
|
101
|
$
|
1,380
|
|||||
Acquired goodwill
(1)
|
175
|
175
|
|||||||||||||||
Measurement period adjustment
(2)
|
(6)
|
(6)
|
|||||||||||||||
Foreign currency translation adjustment
|
7
|
5
|
6
|
2
|
20
|
||||||||||||
Balance at September 30, 2016
|
$
|
615
|
$
|
133
|
$
|
150
|
$
|
568
|
$
|
103
|
$
|
1,569
|
(1)
|
The Company completed an acquisition in the Optical Communications segment during the second quarter of 2016 with a purchase price of $296 million.
|
(2)
|
In the third quarter of 2016, minor adjustments were made to the preliminary allocation of the total purchase consideration related to a second quarter acquisition. The allocation is expected to be finalized in the fourth quarter of 2016, and any adjustments are not expected to be material.
|
September 30, 2016
|
December 31, 2015
|
||||||||||||||||
Gross
|
Accumulated
amortization
|
Net
|
Gross
|
Accumulated
amortization
|
Net
|
||||||||||||
Amortized intangible assets:
|
|||||||||||||||||
Patents, trademarks, and trade names
|
$
|
367
|
$
|
176
|
$
|
191
|
$
|
350
|
$
|
162
|
$
|
188
|
|||||
Customer lists and other
|
744
|
138
|
606
|
621
|
103
|
518
|
|||||||||||
Total
|
$
|
1,111
|
$
|
314
|
$
|
797
|
$
|
971
|
$
|
265
|
$
|
706
|
Pension benefits
|
Postretirement benefits
|
||||||||||||||||||||||
Three months ended
September 30,
|
Nine months ended
September 30,
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||||||||||||
2016
|
2015
|
2016
|
2015
|
2016
|
2015
|
2016
|
2015
|
||||||||||||||||
Service cost
|
$
|
22
|
$
|
22
|
$
|
65
|
$
|
67
|
$
|
3
|
$
|
3
|
$
|
7
|
$
|
10
|
|||||||
Interest cost
|
31
|
36
|
93
|
109
|
6
|
8
|
19
|
24
|
|||||||||||||||
Expected return on plan assets
|
(41)
|
(44)
|
(124)
|
(133)
|
|||||||||||||||||||
Amortization of net loss
|
1
|
(1)
|
3
|
||||||||||||||||||||
Amortization of prior service cost (credit)
|
1
|
2
|
4
|
5
|
(1)
|
(2)
|
(3)
|
(5)
|
|||||||||||||||
Recognition of actuarial loss
|
26
|
60
|
8
|
||||||||||||||||||||
Total pension and postretirement benefit expense
|
$
|
39
|
$
|
16
|
$
|
98
|
$
|
56
|
$
|
8
|
$
|
10
|
$
|
22
|
$
|
32
|
12.
|
Other Liabilities
|
September 30,
2016
|
December 31,
2015
|
||||
Current liabilities:
|
|||||
Wages and employee benefits
|
$
|
472
|
$
|
491
|
|
Income taxes
|
149
|
53
|
|||
Asbestos and other litigation reserves
|
73
|
238
|
|||
Derivative instruments
|
204
|
55
|
|||
Other current liabilities
|
456
|
471
|
|||
Other accrued liabilities
|
$
|
1,354
|
$
|
1,308
|
|
Non-current liabilities:
|
|||||
Asbestos and other litigation reserves
|
$
|
394
|
$
|
440
|
|
Derivative instruments
|
1,543
|
88
|
|||
Investment in Hemlock Semiconductor Group
(1)
|
343
|
||||
Defined benefit pension plan liabilities
|
762
|
672
|
|||
Other non-current liabilities
|
1,062
|
1,042
|
|||
Other liabilities
|
$
|
4,104
|
$
|
2,242
|
(1)
|
The negative carrying value resulted from a one-time charge to this entity in 2014 for the permanent abandonment of certain assets.
|
U.S. Dollar
|
Asset derivatives
|
Liability derivatives
|
|||||||||||||
Gross notional amount
|
Balance
sheet
location
|
Fair value
|
Balance
sheet
location
|
Fair value
|
|||||||||||
Sept. 30,
2016
|
Dec. 31,
2015
|
Sept. 30,
2016
|
Dec. 31,
2015
|
Sept. 30,
2016
|
Dec. 31,
2015
|
||||||||||
Derivatives designated as hedging instruments
|
|||||||||||||||
Foreign exchange contracts
(1)
|
$ 527
|
$ 782
|
Other current assets
|
$ 1
|
$ 5
|
Other accrued liabilities
|
$ (54)
|
$ (10)
|
|||||||
Other assets
|
1
|
Other liabilities
|
(12)
|
(23)
|
|||||||||||
Interest rate contracts
|
550
|
550
|
Other assets
|
7
|
Other liabilities
|
(4)
|
|||||||||
Derivatives not designated as hedging instruments
|
|||||||||||||||
Foreign exchange contracts, other
|
759
|
1,095
|
Other current assets
|
2
|
6
|
Other accrued liabilities
|
(36)
|
(12)
|
|||||||
Translated earnings contracts
|
17,595
|
11,972
|
Other current assets
|
66
|
511
|
Other accrued liabilities
|
(114)
|
(33)
|
|||||||
Other assets
|
27
|
472
|
Other liabilities
|
(1,531)
|
(61)
|
||||||||||
Total derivatives
|
$19,431
|
$14,399
|
$103
|
$995
|
$(1,747)
|
$(143)
|
(1)
|
Cash flow hedges with a typical duration of 24 months or less.
|
Effect of designated derivative instruments on the consolidated financial statements
for the three months ended September 30
|
|||||||||||||
Derivatives in hedging relationships
|
Gain/(loss)
recognized in other
comprehensive income
(OCI)
|
Location of gain/(loss)
reclassified from
accumulated OCI into
income (effective)
|
Gain/(loss) reclassified from
accumulated OCI into
income (effective)
(1)
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||||
Interest rate hedges
|
Sales
|
$
|
1
|
$
|
4
|
||||||||
Cost of sales
|
(13)
|
1
|
|||||||||||
Foreign exchange contracts
|
$
|
26
|
$
|
(58)
|
|||||||||
Total cash flow hedges
|
$
|
26
|
$
|
(58)
|
$
|
(12)
|
$
|
5
|
(1)
|
The amount of hedge ineffectiveness at September 30, 2016 and 2015 was insignificant.
|
Effect of derivative instruments on the consolidated financial statements
for the nine months ended September 30
|
|||||||||||||
Derivatives in hedging relationships
|
Gain/(loss)
recognized in other
comprehensive income
(OCI)
|
Location of gain/(loss)
reclassified from
accumulated OCI into
income (effective)
|
Gain/(loss) reclassified from
accumulated OCI into
income (effective)
(1)
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||||
Interest rate hedges
|
$
|
(7)
|
Sales
|
$
|
2
|
$
|
14
|
||||||
Cost of sales
|
(27)
|
7
|
|||||||||||
Foreign exchange contracts
|
$
|
(37)
|
(24)
|
||||||||||
Total cash flow hedges
|
$
|
(37)
|
$
|
(31)
|
$
|
(25)
|
$
|
21
|
(1)
|
The amount of hedge ineffectiveness at September 30, 2016 and 2015 was insignificant.
|
Undesignated derivatives
|
Location of gain/(loss)
recognized in income
|
Gain (loss) recognized in income
|
|||||||||||
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||||
Foreign exchange contracts – balance sheet
|
Foreign currency hedge gain (loss), net
|
$
|
1
|
$
|
(6)
|
$
|
(27)
|
$
|
7
|
||||
Foreign exchange contracts – loans
|
Foreign currency hedge gain (loss), net
|
(4)
|
1
|
(48)
|
3
|
||||||||
Foreign currency hedges related to translated earnings
|
Foreign currency hedge gain (loss), net
|
(237)
|
(149)
|
(2,295)
|
42
|
||||||||
Total undesignated
|
$
|
(240)
|
$
|
(154)
|
$
|
(2,370)
|
$
|
52
|
Fair value measurements at reporting date using
|
|||||||||||
September 30,
2016
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
Significant other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
||||||||
Current assets:
|
|||||||||||
Other current assets
(1)
|
$
|
68
|
$
|
68
|
|||||||
Non-current assets:
|
|||||||||||
Other assets
(1)(2)
|
$
|
350
|
$
|
64
|
$
|
286
|
|||||
Current liabilities:
|
|||||||||||
Other accrued liabilities
(1)
|
$
|
204
|
$
|
204
|
|||||||
Non-current liabilities:
|
|||||||||||
Other liabilities
(1)
|
$
|
1,543
|
$
|
1,543
|
(1)
|
Derivative assets and liabilities include foreign exchange forward and zero-cost collar contracts, and interest rate swaps which are measured using observable quoted prices for similar assets and liabilities.
|
(2)
|
Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and contingent consideration assets or liabilities which are measured by applying an option pricing model using projected future revenue and forecasted foreign exchange rates.
|
Fair value measurements at reporting date using
|
|||||||||||
December 31,
2015
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
Significant other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
||||||||
Current assets:
|
|||||||||||
Short-term investments
|
$
|
100
|
$
|
100
|
|||||||
Other current assets
(1)
|
$
|
522
|
$
|
522
|
|||||||
Non-current assets:
|
|||||||||||
Other assets
(1)(2)
|
$
|
752
|
$
|
506
|
$
|
246
|
|||||
Current liabilities:
|
|||||||||||
Other accrued liabilities
(1)
|
$
|
55
|
$
|
55
|
|||||||
Non-current liabilities:
|
|||||||||||
Other liabilities
(1)
|
$
|
98
|
$
|
88
|
$
|
10
|
(1)
|
Derivative assets and liabilities include foreign exchange contracts which are measured using observable quoted prices for similar assets and liabilities.
|
(2)
|
Other assets include asset-backed securities which are measured using observable quoted prices for similar assets and contingent consideration assets or liabilities which are measured by applying an option pricing model using projected future revenues.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Beginning balance
|
$
|
(547)
|
$
|
(877)
|
$
|
(1,171)
|
$
|
(581)
|
|||
Other comprehensive income (loss)
|
235
|
(163)
|
860
|
(399)
|
|||||||
Equity method affiliates
|
10
|
(18)
|
9
|
(78)
|
|||||||
Net current-period other comprehensive income (loss)
|
245
|
(181)
|
869
|
(477)
|
|||||||
Ending balance
|
$
|
(302)
|
$
|
(1,058)
|
$
|
(302)
|
$
|
(1,058)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Beginning balance
|
$
|
(323)
|
$
|
(703)
|
$
|
(588)
|
$
|
(709)
|
|||
Other comprehensive (loss) income before reclassifications
(2)
|
(31)
|
(1)
|
(64)
|
5
|
|||||||
Amounts reclassified from accumulated other comprehensive income
(2)
|
26
|
1
|
60
|
11
|
|||||||
Equity method affiliates
(3)
|
6
|
264
|
(4)
|
||||||||
Net current-period other comprehensive income
|
(5)
|
6
|
260
|
12
|
|||||||
Ending balance
|
$
|
(328)
|
$
|
(697)
|
$
|
(328)
|
$
|
(697)
|
(1)
|
All amounts are after tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.
|
(2)
|
Tax effects are not significant.
|
(3)
|
For the three months ended September 30, 2016, tax effects are not significant. For the nine months ended September 30, 2016, amounts are net of total tax expense of $19 million. For the three and nine months ended September 30, 2015, tax effects are not significant.
|
Number
of Shares
(in thousands)
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term in
Years
|
Aggregate
Intrinsic
Value
(in thousands)
|
||||
Options Outstanding as of December 31, 2015
|
42,738
|
$19.40
|
|||||
Granted
|
1,669
|
19.98
|
|||||
Exercised
|
(5,838)
|
15.63
|
|||||
Forfeited and Expired
|
(4,317)
|
26.02
|
|||||
Options Outstanding as of September 30, 2016
|
34,252
|
19.24
|
3.96
|
$164,226
|
|||
Options Expected to Vest as of September 30, 2016
|
34,208
|
19.23
|
3.95
|
164,091
|
|||
Options Exercisable as of September 30, 2016
|
29,475
|
18.99
|
3.21
|
150,477
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Expected volatility
|
38.6%
|
44.2%
|
38.6
|
-
|
43.1%
|
44.2
|
-
|
44.9%
|
|||
Weighted-average volatility
|
38.6%
|
44.2%
|
38.6
|
-
|
43.1%
|
44.2
|
-
|
44.9%
|
|||
Expected dividends
|
2.34%
|
2.67%
|
2.34
|
-
|
2.94%
|
1.92
|
-
|
2.67%
|
|||
Risk-free rate
|
1.4%
|
2.0%
|
1.4
|
-
|
1.6%
|
1.9
|
-
|
2.0%
|
|||
Average risk-free rate
|
1.4%
|
2.0%
|
1.4
|
-
|
1.6%
|
1.9
|
-
|
2.0%
|
|||
Expected term (in years)
|
7.4
|
7.2
|
7.4
|
-
|
7.4
|
7.2
|
-
|
7.2
|
|||
Pre-vesting departure rate
|
0.6%
|
0.6%
|
0.6
|
-
|
0.6%
|
0.6
|
-
|
0.6%
|
Shares
(000’s)
|
Weighted
Average
Grant-Date
Fair Value
|
|||
Non-vested shares and share units at December 31, 2015
|
5,242
|
$
|
17.91
|
|
Granted
|
1,415
|
20.57
|
||
Vested
|
(1,802)
|
14.48
|
||
Forfeited
|
(75)
|
20.78
|
||
Non-vested shares and share units at September 30, 2016
|
4,780
|
$
|
19.95
|
·
|
Display Technologies – manufactures glass substrates primarily for flat panel liquid crystal displays.
|
·
|
Optical Communications – manufactures carrier and enterprise network components for the telecommunications industry.
|
·
|
Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel emission control applications.
|
·
|
Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.
|
·
|
Life Sciences – manufactures glass and plastic labware, equipment, media and reagents enabling workflow solutions for scientific applications.
|
Display
Technologies
|
Optical
Communications
|
Environmental
Technologies
|
Specialty
Materials
|
Life
Sciences
|
All
Other
|
Total
|
|||||||||||||||
Three months ended
September 30, 2016
|
|||||||||||||||||||||
Net sales
|
$
|
902
|
$
|
795
|
$
|
264
|
$
|
295
|
$
|
214
|
$
|
37
|
$
|
2,507
|
|||||||
Depreciation
(1)
|
$
|
152
|
$
|
41
|
$
|
32
|
$
|
26
|
$
|
14
|
$
|
12
|
$
|
277
|
|||||||
Amortization of purchased intangibles
|
$
|
10
|
$
|
5
|
$
|
2
|
$
|
17
|
|||||||||||||
Research, development and engineering expenses
(2)
|
$
|
14
|
$
|
37
|
$
|
24
|
$
|
31
|
$
|
6
|
$
|
47
|
$
|
159
|
|||||||
Equity in earnings of affiliated companies
|
$
|
(3)
|
$
|
(3)
|
|||||||||||||||||
Income tax (provision) benefit
|
$
|
(98)
|
$
|
(49)
|
$
|
(17)
|
$
|
(21)
|
$
|
(8)
|
$
|
21
|
$
|
(172)
|
|||||||
Net income (loss)
(3)
|
$
|
279
|
$
|
78
|
$
|
35
|
$
|
42
|
$
|
16
|
$
|
(47)
|
$
|
403
|
Display
Technologies
|
Optical
Communications
|
Environmental
Technologies
|
Specialty
Materials
|
Life
Sciences
|
All
Other
|
Total
|
|||||||||||||||
Three months ended
September 30, 2015
|
|||||||||||||||||||||
Net sales
|
$
|
757
|
$
|
747
|
$
|
257
|
$
|
288
|
$
|
211
|
$
|
12
|
$
|
2,272
|
|||||||
Depreciation
(1)
|
$
|
147
|
$
|
41
|
$
|
32
|
$
|
29
|
$
|
15
|
$
|
9
|
$
|
273
|
|||||||
Amortization of purchased intangibles
|
$
|
7
|
$
|
5
|
$
|
12
|
|||||||||||||||
Research, development and engineering expenses
(2)
|
$
|
28
|
$
|
33
|
$
|
21
|
$
|
27
|
$
|
6
|
$
|
34
|
$
|
149
|
|||||||
Equity in earnings of affiliated companies
|
$
|
(3)
|
$
|
4
|
$
|
1
|
|||||||||||||||
Income tax (provision) benefit
|
$
|
(119)
|
$
|
(34)
|
$
|
(19)
|
$
|
(23)
|
$
|
(9)
|
$
|
19
|
$
|
(185)
|
|||||||
Net income (loss)
(3)
|
$
|
255
|
$
|
70
|
$
|
38
|
$
|
46
|
$
|
18
|
$
|
(38)
|
$
|
389
|
Display
Technologies
|
Optical
Communications
|
Environmental
Technologies
|
Specialty
Materials
|
Life
Sciences
|
All
Other
|
Total
|
|||||||||||||||
Nine months ended
September 30, 2016
|
|||||||||||||||||||||
Net sales
|
$
|
2,408
|
$
|
2,186
|
$
|
787
|
$
|
788
|
$
|
633
|
$
|
112
|
$
|
6,914
|
|||||||
Depreciation
(1)
|
$
|
452
|
$
|
125
|
$
|
97
|
$
|
81
|
$
|
42
|
$
|
34
|
$
|
831
|
|||||||
Amortization of purchased intangibles
|
$
|
25
|
$
|
15
|
$
|
6
|
$
|
46
|
|||||||||||||
Research, development and engineering expenses
(2)
|
$
|
49
|
$
|
110
|
$
|
75
|
$
|
96
|
$
|
18
|
$
|
139
|
$
|
487
|
|||||||
Restructuring, impairment and other charges
|
$
|
4
|
$
|
6
|
$
|
5
|
$
|
12
|
$
|
3
|
$
|
40
|
$
|
70
|
|||||||
Equity in earnings of affiliated companies
|
$
|
(8)
|
$
|
(8)
|
|||||||||||||||||
Income tax (provision) benefit
|
$
|
(277)
|
$
|
(99)
|
$
|
(52)
|
$
|
(52)
|
$
|
(22)
|
$
|
87
|
$
|
(415)
|
|||||||
Net income (loss)
(3)
|
$
|
692
|
$
|
172
|
$
|
106
|
$
|
106
|
$
|
45
|
$
|
(187)
|
$
|
934
|
Display
Technologies
|
Optical
Communications
|
Environmental
Technologies
|
Specialty
Materials
|
Life
Sciences
|
All
Other
|
Total
|
|||||||||||||||
Nine months ended
September 30, 2015
|
|||||||||||||||||||||
Net sales
|
$
|
2,354
|
$
|
2,244
|
$
|
799
|
$
|
832
|
$
|
619
|
$
|
32
|
$
|
6,880
|
|||||||
Depreciation
(1)
|
$
|
455
|
$
|
122
|
$
|
93
|
$
|
82
|
$
|
45
|
$
|
29
|
$
|
826
|
|||||||
Amortization of purchased intangibles
|
$
|
24
|
$
|
15
|
$
|
39
|
|||||||||||||||
Research, development and engineering expenses
(2)
|
$
|
78
|
$
|
101
|
$
|
67
|
$
|
87
|
$
|
17
|
$
|
123
|
$
|
473
|
|||||||
Equity in earnings of affiliated companies
|
$
|
(8)
|
$
|
12
|
$
|
4
|
|||||||||||||||
Income tax (provision) benefit
|
$
|
(387)
|
$
|
(100)
|
$
|
(64)
|
$
|
(66)
|
$
|
(26)
|
$
|
63
|
$
|
(580)
|
|||||||
Net income (loss)
(3)
|
$
|
852
|
$
|
204
|
$
|
132
|
$
|
128
|
$
|
52
|
$
|
(131)
|
$
|
1,237
|
(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)
|
Many of Corning’s administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal, are allocated to segments, primarily as a percentage of sales. Expenses that are not allocated to the segments are included in the reconciliation of reportable net segment net income to consolidated net income below.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Net income of reportable segments
|
$
|
450
|
$
|
427
|
$
|
1,121
|
$
|
1,368
|
|||
Net loss of All Other
|
(47)
|
(38)
|
(187)
|
(131)
|
|||||||
Unallocated amounts:
|
|||||||||||
Net financing costs
(1)
|
(26)
|
(31)
|
(84)
|
(80)
|
|||||||
Stock-based compensation expense
|
(10)
|
(11)
|
(33)
|
(36)
|
|||||||
Exploratory research
|
(27)
|
(32)
|
(82)
|
(86)
|
|||||||
Corporate contributions
|
(15)
|
(13)
|
(38)
|
(37)
|
|||||||
Gain on realignment of equity investment
|
2,676
|
||||||||||
Equity in earnings of affiliated companies, net of impairments
(2)
|
22
|
38
|
126
|
191
|
|||||||
Unrealized loss on foreign currency hedges related to translated earnings
|
(239)
|
(317)
|
(2,441)
|
(447)
|
|||||||
Resolution of Department of Justice investigation
|
(98)
|
||||||||||
Income tax benefit
|
199
|
178
|
1,253
|
375
|
|||||||
Other corporate items
|
(23)
|
11
|
(90)
|
(2)
|
|||||||
Net income
|
$
|
284
|
$
|
212
|
$
|
2,123
|
$
|
1,115
|
(1)
|
Net financing costs include interest income, interest expense, and interest costs and investment gains and losses associated with benefit plans.
|
(2)
|
Through May 31, 2016, the date of the strategic realignment of our equity interest in Dow Corning, this amount primarily represents the equity earnings of Dow Corning.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
·
|
Overview
|
·
|
Results of Operations
|
·
|
Core Performance Measures
|
·
|
Reportable Segments
|
·
|
Capital Resources and Liquidity
|
·
|
Critical Accounting Estimates
|
·
|
New Accounting Standards
|
·
|
Environment
|
·
|
Forward-Looking Statements
|
·
|
The decrease in unrealized losses from our foreign currency hedges related to translated earnings in the amount of $50 million;
|
·
|
An increase in net income of $24 million in the Display Technologies, driven by an increase in volume in the low-teens in percentage terms, the positive impact of the change in the contingent consideration fair value adjustment in the amount of $51 million and improvements in manufacturing efficiency, offset somewhat by LCD glass price declines slightly above 10%; and
|
·
|
An increase in net income of $8 million in the Optical Communications segment, driven by an increase in fiber-to-the-home products volume, favorable product mix and improvements in manufacturing efficiency.
|
·
|
A decrease of $20 million in equity earnings as a result of our strategic realignment of our ownership interest in Dow Corning; and
|
·
|
Pension mark-to-market adjustments of $17 million resulting from small settlements in several of our benefit plans.
|
·
|
A $2.7 billion non-taxable gain and $105 million positive tax adjustment on the strategic realignment of our ownership interest in Dow Corning completed on May 31, 2016; and
|
·
|
The gain of $25 million on the contribution of our equity interests in PCC and PCE as partial settlement of the asbestos litigation.
|
·
|
The increase in unrealized losses from our foreign currency translation hedges in the amount of $1,257 million;
|
·
|
Lower net income in the Display Technologies segment, down $160 million, or 19%, primarily driven by LCD glass price declines slightly higher than 10% and a decrease of $220 million in net realized gains from our yen and won-denominated currency hedge contracts, offset somewhat by an increase in volume and the positive impact on operations from the strengthening of the Japanese yen versus the U.S. dollar exchange rate;
|
·
|
A decrease in net income of $32 million, or 16%, in the Optical Communications segment, driven by lower sales primarily due to production issues related to the implementation of new manufacturing software, which limited our ability to fulfill customer orders in the first half of 2016; and
|
·
|
The resolution of an investigation by the U.S. Department of Justice and related costs in the total amount of $86 million.
|
Three months ended
September 30,
|
%
change
|
Nine months ended
September 30,
|
%
change
|
||||||||||||
2016
|
2015
|
16 vs. 15
|
2016
|
2015
|
16 vs. 15
|
||||||||||
Net sales
|
$
|
2,507
|
$
|
2,272
|
10%
|
$
|
6,914
|
$
|
6,880
|
*
|
|||||
Gross margin
|
$
|
1,041
|
$
|
892
|
17%
|
$
|
2,756
|
$
|
2,796
|
(1%)
|
|||||
(gross margin %)
|
42%
|
39%
|
40%
|
41%
|
|||||||||||
Selling, general and administrative expenses
|
$
|
302
|
$
|
307
|
(2%)
|
$
|
1,104
|
$
|
960
|
15%
|
|||||
(as a % of net sales)
|
12%
|
14%
|
16%
|
14%
|
|||||||||||
Research, development and engineering expenses
|
$
|
187
|
$
|
181
|
3%
|
$
|
569
|
$
|
561
|
1%
|
|||||
(as a % of net sales)
|
7%
|
8%
|
8%
|
8%
|
|||||||||||
Equity in earnings of affiliated companies
|
$
|
19
|
$
|
39
|
(51%)
|
$
|
119
|
$
|
195
|
(39%)
|
|||||
(as a % of net sales)
|
1%
|
2%
|
2%
|
3%
|
|||||||||||
Translated earnings contract (loss) gain, net
|
$
|
(237)
|
$
|
(149)
|
59%
|
$ |
(2,295)
|
$
|
42
|
*
|
|||||
(as a % of net sales)
|
*
|
*
|
*
|
1%
|
|||||||||||
Loss (gain) on realignment of equity investment
|
$
|
2,676
|
*
|
||||||||||||
(as a % of net sales)
|
39%
|
||||||||||||||
Income before income taxes
|
$
|
257
|
$
|
218
|
18%
|
$
|
1,288
|
$
|
1,317
|
(2%)
|
|||||
(as a % of net sales)
|
10%
|
10%
|
19%
|
19%
|
|||||||||||
Benefit (provision) for income taxes
|
$
|
27
|
$
|
(6)
|
(550%)
|
$
|
835
|
$
|
(202)
|
(513%)
|
|||||
(as a % of net sales)
|
1%
|
*
|
12%
|
*
|
|||||||||||
Net income attributable to Corning Incorporated
|
$
|
284
|
$
|
212
|
34%
|
$
|
2,123
|
$
|
1,115
|
90%
|
|||||
(as a % of net sales)
|
11%
|
9%
|
31%
|
16%
|
*
|
Percent change not meaningful.
|
Three months ended
September 30,
|
%
Change
|
Nine months ended
September 30,
|
%
Change
|
||||||||||||
2016
|
2015
|
16 vs. 15
|
2016
|
2015
|
16 vs. 15
|
||||||||||
Display Technologies
|
$
|
902
|
$
|
757
|
19%
|
$
|
2,408
|
$
|
2,354
|
2%
|
|||||
Optical Communications
|
795
|
747
|
6%
|
2,186
|
2,244
|
(3)%
|
|||||||||
Environmental Technologies
|
264
|
257
|
3%
|
787
|
799
|
(2)%
|
|||||||||
Specialty Materials
|
295
|
288
|
2%
|
788
|
832
|
(5)%
|
|||||||||
Life Sciences
|
214
|
211
|
1%
|
633
|
619
|
2%
|
|||||||||
All Other
|
37
|
12
|
208%
|
112
|
32
|
250%
|
|||||||||
Total net sales
|
$
|
2,507
|
$
|
2,272
|
10%
|
$
|
6,914
|
$
|
6,880
|
-
|
·
|
An increase of $145 million in the Display Technologies segment, driven by the positive impact from the strengthening of the Japanese yen in the amount of $138 million and an increase in volume in the low-teens in percentage terms, partially offset by LCD glass price declines slightly higher than 10%;
|
·
|
An increase of $48 million in the Optical Communications segment primarily due to higher sales of fiber-to-the-home products in North America;
|
·
|
An increase of $7 million in the Environmental Technologies segment, driven by record quarterly sales of light-duty substrate products due to market strength in North America, Europe and China;
|
·
|
An increase of $7 million in the Specialty Materials segment;
|
·
|
An increase of $3 million in the Life Sciences segment; and
|
·
|
An increase of $25 million in the All Other segment, driven by the acquisition of a glass tubing business and the formation of the Corning Pharmaceutical Technologies business completed in the fourth quarter of 2015.
|
·
|
An increase of $54 million in the Display Technologies segment, driven by the positive impact from the strengthening of the Japanese yen in the amount of $274 million and a low-single digit percentage volume increase, offset somewhat by LCD glass price declines slightly higher than 10%;
|
·
|
A decrease of $58 million in the Optical Communications segment, driven primarily by production issues related to the implementation of new manufacturing software;
|
·
|
A decrease of $12 million in the Environmental Technologies segment driven by lower sales of heavy-duty diesel products due to the weakening of the North American truck market, offset partially by an increase in sales of light-duty substrates, driven by strength in the North American and European markets;
|
·
|
A decrease of $44 million in the Specialty Materials segment, driven by a decline in volume of Corning Gorilla Glass products;
|
·
|
An increase of $14 million in the Life Sciences segment, driven by volume growth in Europe, North America and China; and
|
·
|
An increase of $80 million in the All Other segment, driven by the acquisition of a glass tubing business and the formation of the Corning Pharmaceutical Technologies business completed in the fourth quarter of 2015.
|
·
|
An increase of $58 million in acquisition-related costs primarily related to the realignment of our equity interest in Dow Corning and an acquisition completed in the second quarter of 2016;
|
·
|
An increase of $60 million in litigation, regulatory and other legal costs related to the resolution of an investigation by the U.S. Department of Justice and an environmental matter, partially offset by the gain on the contribution of our equity interests in PCC and PCE as partial settlement of the asbestos litigation;
|
·
|
An increase of $52 million in the mark-to-market of our defined benefit pension plans; and
|
·
|
Higher operating expenses in the Optical Communications, Environmental Technologies and Specialty Materials segments.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Dow Corning Corporation
(1)
|
$
|
36
|
$
|
82
|
$
|
185
|
|||||
Hemlock Semiconductor Group
(2)
|
$
|
22
|
44
|
||||||||
All other
|
(3)
|
3
|
(7)
|
10
|
|||||||
Total equity earnings
|
$
|
19
|
$
|
39
|
$
|
119
|
$
|
195
|
(1)
|
Results include equity earnings for Dow Corning, which includes the silicones business and Hemlock Semiconductor business, through May 31, 2016, the date of the realignment of our ownership interest in Dow Corning.
|
(2)
|
Results include equity earnings for Hemlock Semiconductor Group beginning on June 1, 2016.
|
Three months ended
September 30, 2016
|
Three months ended
September 30, 2015
|
Change
2016 vs. 2015
|
|||||||||||||||
(in millions)
|
Income
before
income
taxes
|
Net
income
|
Income
before
income
taxes
|
Net
income
|
Income
before
income
taxes
|
Net
income
|
|||||||||||
Hedges related to translated earnings:
|
|||||||||||||||||
Realized gains (losses), net
|
$
|
2
|
$
|
1
|
$
|
168
|
$
|
106
|
$
|
(166)
|
$
|
(105)
|
|||||
Unrealized (losses) gains, net
|
(239)
|
(150)
|
(317)
|
(200)
|
78
|
50
|
|||||||||||
Total translated earnings contract loss, net
|
$
|
(237)
|
$
|
(149)
|
$
|
(149)
|
$
|
(94)
|
$
|
(88)
|
$
|
(55)
|
Nine months ended
September 30, 2016
|
Nine months ended
September 30, 2015
|
Change
2016 vs. 2015
|
|||||||||||||||
(in millions)
|
Income
before
income
taxes
|
Net
income
|
Income
before
income
taxes
|
Net
income
|
Income
before
income
taxes
|
Net
income
|
|||||||||||
Hedges related to translated earnings:
|
|||||||||||||||||
Realized gains (losses), net
|
$
|
146
|
$
|
92
|
$
|
489
|
$
|
307
|
$
|
(343)
|
$
|
(215)
|
|||||
Unrealized losses, net
|
(2,441)
|
(1,539)
|
(447)
|
(282)
|
(1,994)
|
(1,257)
|
|||||||||||
Total translated earnings contract (loss) gain, net
|
$
|
(2,295)
|
$
|
(1,447)
|
$
|
42
|
$ |
25
|
$
|
(2,337)
|
$
|
(1,472)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Benefit (provision) for income taxes
|
$
|
27
|
$
|
(6)
|
$
|
835
|
$
|
(202)
|
|||
Effective tax rate
|
(10.5%)
|
2.8%
|
(64.8%)
|
15.3%
|
·
|
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income.
|
·
|
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income;
|
·
|
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax; and
|
·
|
The tax-free nature of the realignment of our equity interest in Dow Corning during the period, as well as the release of the deferred tax liability related to Corning’s tax on Dow Corning’s undistributed earnings as of the date of the transaction.
|
·
|
Rate differences on income (loss) of consolidated foreign companies, including the benefit of excess foreign tax credits resulting from the inclusion of high-taxed foreign earnings in U.S. income; and
|
·
|
The impact of equity in earnings of nonconsolidated affiliates reported in the financials, net of tax.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Net income attributable to Corning Incorporated
|
$
|
284
|
$
|
212
|
$
|
2,123
|
$
|
1,115
|
|||
Net income attributable to Corning Incorporated used in basic earnings per common share calculation
(1)
|
$
|
260
|
$
|
188
|
$
|
2,050
|
$
|
1,042
|
|||
Net income attributable to Corning Incorporated used in diluted earnings per common share calculation
(1)
|
$
|
284
|
$
|
188
|
$
|
2,123
|
$
|
1,115
|
|||
Basic earnings per common share
|
$
|
0.27
|
$
|
0.16
|
$
|
1.96
|
$
|
0.84
|
|||
Diluted earnings per common share
|
$
|
0.26
|
$
|
0.15
|
$
|
1.81
|
$
|
0.82
|
|||
Weighted-average common shares outstanding - basic
|
978
|
1,210
|
1,046
|
1,241
|
|||||||
Weighted-average common shares outstanding - diluted
|
1,102
|
1,218
|
1,170
|
1,366
|
(1)
|
Refer to Note 6 (Earnings per Common Share) to the consolidated financial statements for additional information.
|
·
|
An increase in net income attributable to Corning Incorporated of $72 million and $1,008 million, respectively;
|
·
|
The positive impact due to the change in foreign currency translation gains and losses of $426 million and $1,346 million, respectively, largely driven by the strengthening of the Japanese yen; and
|
·
|
The change in the amount of unamortized actuarial losses released in the amounts of $11 million and $248 million, respectively. The significant change in the first three quarters of 2016 was driven by the release of Dow Corning’s unamortized actuarial loss in the amount of $260 million, which was included in the gain on the realignment of our ownership interests in Dow Corning.
|
Three months ended
September 30,
|
%
change
|
Nine months ended
September 30,
|
%
change
|
||||||||||||
2016
|
2015
|
16 vs. 15
|
2016
|
2015
|
16 vs. 15
|
||||||||||
Core net sales
|
$
|
2,548
|
$
|
2,451
|
4%
|
$
|
7,159
|
$
|
7,398
|
(3)%
|
|||||
Core equity in earnings of affiliated companies
|
$
|
19
|
$
|
58
|
(67)%
|
$
|
138
|
$
|
182
|
(24)%
|
|||||
Core earnings
|
$
|
466
|
$
|
447
|
4%
|
$
|
1,240
|
$
|
1,453
|
(15)%
|
Three months ended
September 30,
|
%
change
|
Nine months ended
September 30,
|
%
change
|
||||||||||||
2016
|
2015
|
16 vs. 15
|
2016
|
2015
|
16 vs. 15
|
||||||||||
Display Technologies
|
$
|
943
|
$
|
936
|
1%
|
$
|
2,652
|
$
|
2,871
|
(8)%
|
|||||
Optical Communications
|
795
|
747
|
6%
|
2,186
|
2,244
|
(3)%
|
|||||||||
Environmental Technologies
|
264
|
257
|
3%
|
787
|
799
|
(2)%
|
|||||||||
Specialty Materials
|
295
|
288
|
2%
|
788
|
832
|
(5)%
|
|||||||||
Life Sciences
|
214
|
211
|
1%
|
633
|
619
|
2%
|
|||||||||
All Other
|
37
|
12
|
208%
|
113
|
33
|
242%
|
|||||||||
Total core net sales
|
$
|
2,548
|
$
|
2,451
|
4%
|
$
|
7,159
|
$
|
7,398
|
(3)%
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Dow Corning Corporation
(1)
|
$
|
53
|
$
|
98
|
$
|
167
|
|||||
Hemlock Semiconductor Group
(2)
|
$
|
22
|
44
|
||||||||
All other
|
(3)
|
5
|
(4)
|
15
|
|||||||
Total core equity earnings
|
$
|
19
|
$
|
58
|
$
|
138
|
$
|
182
|
(1)
|
Results include equity earnings for Dow Corning, which includes the silicones business and Hemlock Semiconductor business, through May 31, 2016, the date of the realignment of our ownership interest in Dow Corning.
|
(2)
|
Results include equity earnings for Hemlock Semiconductor Group beginning on June 1, 2016.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
2016
|
2015
|
2016
|
2015
|
||||||||
Core earnings attributable to Corning Incorporated
|
$
|
466
|
$
|
447
|
$
|
1,240
|
$
|
1,453
|
|||
Less: Series A convertible preferred stock dividend
|
24
|
24
|
73
|
73
|
|||||||
Core earnings available to common stockholders - basic
|
442
|
423
|
1,167
|
1,380
|
|||||||
Add: Series A convertible preferred stock dividend
|
24
|
24
|
73
|
73
|
|||||||
Core earnings available to common stockholders - diluted
|
$
|
466
|
$
|
447
|
$
|
1,240
|
$
|
1,453
|
|||
Weighted-average common shares outstanding - basic
|
978
|
1,210
|
1,046
|
1,241
|
|||||||
Effect of dilutive securities:
|
|||||||||||
Stock options and other dilutive securities
|
9
|
8
|
9
|
10
|
|||||||
Series A convertible preferred stock
|
115
|
115
|
115
|
115
|
|||||||
Weighted-average common shares outstanding - diluted
|
1,102
|
1,333
|
1,170
|
1,366
|
|||||||
Core basic earnings per common share
|
$
|
0.45
|
$
|
0.35
|
$
|
1.12
|
$
|
1.11
|
|||
Core diluted earnings per common share
|
$
|
0.42
|
$
|
0.34
|
$
|
1.06
|
$
|
1.06
|
Three months ended September 30, 2016
|
|||||||||||||||
Net
sales
|
Equity
earnings
|
Income
before
income
taxes
|
Net
income
|
Effective
tax
rate
|
Per
share
|
||||||||||
As reported - GAAP
|
$
|
2,507
|
$
|
19
|
$
|
257
|
$
|
284
|
(10.5)%
|
0.26
|
|||||
Constant-yen
(1)
|
40
|
47
|
30
|
0.03
|
|||||||||||
Constant-won
(1)
|
1
|
(4)
|
(3)
|
||||||||||||
Foreign currency hedges related to translated earnings
(2)
|
237
|
149
|
0.14
|
||||||||||||
Acquisition-related costs
(3)
|
15
|
11
|
0.01
|
||||||||||||
Discrete tax items and other tax-related adjustments
(4)
|
6
|
0.01
|
|||||||||||||
Restructuring, impairment and other charges
(6)
|
11
|
9
|
0.01
|
||||||||||||
Impacts from the acquisition of Samsung Corning Precision Materials
(8)
|
(49)
|
(41)
|
(0.04)
|
||||||||||||
Pension mark-to-market
(10)
|
26
|
17
|
0.02
|
||||||||||||
Taiwan power outage
(12)
|
5
|
4
|
|||||||||||||
Core performance measures
|
$
|
2,548
|
$
|
19
|
$
|
545
|
$
|
466
|
14.5%
|
0.42
|
Three months ended September 30, 2015
|
|||||||||||||||
Net
sales
|
Equity
earnings
|
Income
before
income
taxes
|
Net
income
|
Effective
tax
rate
|
Per
share
|
||||||||||
As reported - GAAP
|
$
|
2,272
|
$
|
39
|
$
|
218
|
$
|
212
|
2.8%
|
0.15
|
|||||
Constant-yen
(1)
|
178
|
2
|
144
|
111
|
0.08
|
||||||||||
Constant-won
(1)
|
1
|
(1)
|
(14)
|
(10)
|
(0.01)
|
||||||||||
Foreign currency hedges related to translated earnings
(2)
|
149
|
94
|
0.07
|
||||||||||||
Acquisition-related costs
(3)
|
9
|
5
|
|||||||||||||
Discrete tax items and other tax-related adjustments
(4)
|
14
|
0.01
|
|||||||||||||
Litigation, regulatory and other legal matters
(5)
|
(9)
|
(6)
|
|||||||||||||
Restructuring, impairment and other charges
(6)
|
1
|
1
|
|||||||||||||
Equity in earnings of affiliated companies
(7)
|
18
|
18
|
16
|
0.01
|
|||||||||||
Impacts from the acquisition of Samsung Corning Precision Materials
(8)
|
13
|
10
|
0.01
|
||||||||||||
Core performance measures
|
$
|
2,451
|
$
|
58
|
$
|
529
|
$
|
447
|
15.5%
|
0.34
|
Nine months ended September 30, 2016
|
|||||||||||||||
Net
sales
|
Equity
earnings
|
Income
before
income
taxes
|
Net
income
|
Effective
tax
rate
|
Per
share
|
||||||||||
As reported – GAAP
|
$
|
6,914
|
$
|
119
|
$
|
1,288
|
$
|
2,123
|
(64.8)%
|
1.81
|
|||||
Constant-yen
(1)
|
242
|
4
|
232
|
164
|
0.14
|
||||||||||
Constant-won
(1)
|
3
|
(1)
|
(36)
|
(26)
|
(0.02)
|
||||||||||
Foreign currency hedges related to translated earnings
(2)
|
2,295
|
1,447
|
1.24
|
||||||||||||
Acquisition-related costs
(3)
|
109
|
95
|
0.08
|
||||||||||||
Discrete tax items and other tax-related adjustments
(4)
|
(83)
|
(0.07)
|
|||||||||||||
Litigation, regulatory and other legal matters
(5)
|
55
|
70
|
0.06
|
||||||||||||
Restructuring, impairment and other charges
(6)
|
131
|
91
|
0.08
|
||||||||||||
Equity in earnings of affiliated companies
(7)
|
16
|
16
|
15
|
0.01
|
|||||||||||
Impacts from the acquisition of Samsung Corning Precision Materials
(8)
|
(45)
|
(38)
|
(0.03)
|
||||||||||||
Pension mark-to-market
(10)
|
60
|
39
|
0.03
|
||||||||||||
Gain on realignment of equity investment
(11)
|
(2,676)
|
(2,676)
|
(2.29)
|
||||||||||||
Taiwan power outage
(12)
|
25
|
19
|
0.02
|
||||||||||||
Core performance measures
|
$
|
7,159
|
$
|
138
|
$
|
1,454
|
$
|
1,240
|
14.7%
|
1.06
|
Nine months ended September 30, 2015
|
|||||||||||||||
Net
sales
|
Equity
earnings
|
Income
before
income
taxes
|
Net
income
|
Effective
tax
rate
|
Per
share
|
||||||||||
As reported
|
$
|
6,880
|
$
|
195
|
$
|
1,317
|
$
|
1,115
|
15.3%
|
0.82
|
|||||
Constant-yen
(1)
|
517
|
4
|
419
|
313
|
0.23
|
||||||||||
Constant-won
(1)
|
1
|
(1)
|
(13)
|
(10)
|
(0.01)
|
||||||||||
Foreign currency hedges related to translated earnings
(2)
|
(42)
|
(25)
|
(0.02)
|
||||||||||||
Acquisition-related costs
(3)
|
40
|
25
|
0.02
|
||||||||||||
Discrete tax items and other tax-related adjustments
(4)
|
25
|
0.02
|
|||||||||||||
Litigation, regulatory and other legal matters
(5)
|
(6)
|
(4)
|
|||||||||||||
Restructuring, impairment and other charges
(6)
|
6
|
6
|
|||||||||||||
Equity in earnings of affiliated companies
(7)
|
(16)
|
(16)
|
(16)
|
(0.01)
|
|||||||||||
Impacts from the acquisition of Samsung Corning Precision Materials
(8)
|
4
|
3
|
|||||||||||||
Post-combination expenses
(9)
|
25
|
16
|
0.01
|
||||||||||||
Pension mark-to-market
(10)
|
8
|
5
|
|||||||||||||
Core performance measures
|
$
|
7,398
|
$
|
182
|
$
|
1,742
|
$
|
1,453
|
16.6%
|
1.06
|
(1)
|
Constant-currency adjustments:
|
Constant-yen
:
Because a significant portion of Display Technologies segment revenues and manufacturing costs are denominated in Japanese yen, management believes it is important to understand the impact on core earnings of translating yen into dollars. Presenting results on a constant-yen basis mitigates the translation impact of the Japanese yen, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts. As of January 1, 2015, we used an internally derived management rate of ¥99, which is closely aligned to our current yen portfolio of foreign currency hedges, and have recast all periods presented based on this rate in order to effectively remove the impact of changes in the Japanese yen.
|
|
Constant-won
:
Because a significant portion of Corning Precision Materials’ costs are denominated in South Korean won, management believes it is important to understand the impact on core earnings from translating won into dollars. Presenting results on a constant-won basis mitigates the translation impact of the South Korean won, and allows management to evaluate performance period over period, analyze underlying trends in our businesses, and establish operational goals and forecasts without the variability caused by the fluctuations caused by changes in the rate of this currency. We use an internally derived management rate of ₩1,100, which is consistent with historical prior period averages of the won.
|
|
(2)
|
Foreign currency hedges related to translated earnings
:
We have excluded the impact of the gains and losses of our foreign currency hedges related to translated earnings for each period presented.
|
(3)
|
Acquisition-related costs
:
These expenses include intangible amortization, inventory valuation adjustments and external acquisition-related deal costs.
|
(4)
|
Discrete tax items and other tax-related adjustments
:
This represents the removal of discrete adjustments attributable to changes in tax law and other non-operational tax-related adjustments.
|
(5)
|
Litigation, regulatory and other legal matters
:
Includes amounts related to the Pittsburgh Corning Corporation (PCC) asbestos litigation, adjustments to our estimated liability for environmental-related items and other legal matters.
|
(6)
|
Restructuring, impairment and other charges
:
This amount includes restructuring, impairment and other charges, including goodwill impairment charges and other expenses and disposal costs not classified as restructuring expense.
|
(7)
|
Equity in earnings of affiliated companies
:
These adjustments relate to items which do not reflect expected on-going operating results of our affiliated companies, such as restructuring, impairment and other charges and settlements under “take-or-pay” contracts.
|
(8)
|
Impacts from the acquisition of Samsung Corning Precision Materials
:
Fair value adjustments to the indemnity asset related to contingent consideration and other items related to the acquisition of Samsung Corning Precision Materials.
|
(9)
|
Post-combination expenses
:
Post-combination expenses incurred as a result of an acquisition in the first quarter of 2015.
|
(10)
|
Pension mark-to-market adjustment
:
Mark-to-market pension gains and losses, which arise from changes in actuarial assumptions and the difference between actual and expected returns on plan assets and discount rates.
|
(11)
|
Gain on realignment of equity investment
:
Gain recorded upon the completion of the strategic realignment of our ownership interest in Dow Corning.
|
(12)
|
Taiwan power outage
:
Impact of the power outage that temporarily halted production at our Tainan, Taiwan manufacturing location in the first half of 2016. The impact includes asset write-offs and charges for facility repairs, offset somewhat by partial reimbursement through our insurance program. We expect to receive the remainder of the insurance reimbursement in the fourth quarter of 2016.
|
·
|
Display Technologies – manufactures glass substrates primarily for flat panel liquid crystal displays.
|
·
|
Optical Communications – manufactures carrier and enterprise network components for the telecommunications industry.
|
·
|
Environmental Technologies – manufactures ceramic substrates and filters for automotive and diesel emission control applications.
|
·
|
Specialty Materials – manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs.
|
·
|
Life Sciences – manufactures glass and plastic labware, equipment, media and reagents enabling workflow solutions for scientific applications.
|
Three months ended
September 30, 2016
|
Nine months ended
September 30, 2016
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
902
|
$
|
279
|
$
|
2,408
|
$
|
692
|
|||
Constant-yen
(1)
|
40
|
35
|
242
|
171
|
|||||||
Constant-won
(1)
|
1
|
(3)
|
2
|
(24)
|
|||||||
Foreign currency hedges related to translated earnings
(2)
|
(2)
|
(93)
|
|||||||||
Restructuring, impairment and other charges
(6)
|
13
|
||||||||||
Impacts from the acquisition of Samsung Corning Precision Materials
(8)
|
(41)
|
(38)
|
|||||||||
Taiwan power outage
(12)
|
2
|
9
|
|||||||||
Core performance
|
$
|
943
|
$
|
270
|
$
|
2,652
|
$
|
730
|
Three months ended
September 30, 2015
|
Nine months ended
September 30, 2015
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
757
|
$
|
255
|
$
|
2,354
|
$
|
852
|
|||
Constant-yen
(1)
|
178
|
107
|
516
|
311
|
|||||||
Constant won
(1)
|
1
|
(9)
|
1
|
(9)
|
|||||||
Foreign currency hedges related to translated earnings
(2)
|
(106)
|
(313)
|
|||||||||
Impacts from the acquisition of Samsung Corning Precision Materials
(8)
|
10
|
||||||||||
Core performance
|
$
|
936
|
$
|
257
|
$
|
2,871
|
$
|
841
|
Three months ended
September 30, 2016
|
Nine months ended
September 30, 2016
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
795
|
$
|
78
|
$
|
2,186
|
$
|
172
|
|||
Acquisition-related costs
(3)
|
3
|
16
|
|||||||||
Discrete tax items and other tax-related adjustments
(4)
|
6
|
6
|
|||||||||
Restructuring, impairment and other charges
(6)
|
7
|
12
|
|||||||||
Pension mark to market
(10)
|
4
|
4
|
|||||||||
Core performance
|
$
|
795
|
$
|
98
|
$
|
2,186
|
$
|
210
|
Three months ended
September 30, 2015
|
Nine months ended
September 30, 2015
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
747
|
$
|
70
|
$
|
2,244
|
$
|
204
|
|||
Acquisition-related costs
(3)
|
1
|
15
|
|||||||||
Restructuring, impairment and other charges
(6)
|
(1)
|
||||||||||
Post-combination expenses
(9)
|
16
|
||||||||||
Core performance
|
$
|
747
|
$
|
71
|
$
|
2,244
|
$
|
234
|
Three months ended
September 30, 2016
|
Nine months ended
September 30, 2016
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
264
|
$
|
35
|
$
|
787
|
$
|
106
|
|||
Restructuring, impairment and other charges
(6)
|
3
|
||||||||||
Core performance measures
|
$
|
264
|
$
|
35
|
$
|
787
|
$
|
109
|
Three months ended
September 30, 2015
|
Nine months ended
September 30, 2015
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
257
|
$
|
38
|
$
|
799
|
$
|
132
|
|||
Core performance measures
|
$
|
257
|
$
|
38
|
$
|
799
|
$
|
132
|
Three months ended
September 30, 2016
|
Nine months ended
September 30, 2016
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
295
|
$
|
42
|
$
|
788
|
$
|
106
|
|||
Constant-yen
(1)
|
(1)
|
||||||||||
Constant-won
(1)
|
(1)
|
||||||||||
Restructuring, impairment and other charges
(6)
|
14
|
||||||||||
Taiwan power outage
(12)
|
2
|
6
|
|||||||||
Core performance
|
$
|
295
|
$
|
44
|
$
|
788
|
$
|
124
|
Three months ended
September 30, 2015
|
Nine months ended
September 30, 2015
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported - GAAP
|
$
|
288
|
$
|
46
|
$
|
832
|
$
|
128
|
|||
Constant-yen
(1)
|
(2)
|
(5)
|
|||||||||
Constant-won
(1)
|
(1)
|
(1)
|
|||||||||
Foreign currency hedges related to translated earnings
(2)
|
5
|
||||||||||
Restructuring, impairment and other charges
(6)
|
1
|
7
|
|||||||||
Core performance
|
$
|
288
|
$
|
44
|
$
|
832
|
$
|
134
|
Three months ended
September 30, 2016
|
Nine months ended
September 30, 2016
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported – GAAP
|
$
|
214
|
$
|
16
|
$
|
633
|
$
|
45
|
|||
Acquisition-related costs
(3)
|
3
|
9
|
|||||||||
Restructuring, impairment and other charges
(6)
|
2
|
6
|
|||||||||
Core performance
|
$
|
214
|
$
|
21
|
$
|
633
|
$
|
60
|
Three months ended
September 30, 2015
|
Nine months ended
September 30, 2015
|
||||||||||
(in millions)
|
Net
sales
|
Net
income
|
Net
sales
|
Net
income
|
|||||||
As reported – GAAP
|
$
|
211
|
$
|
18
|
$
|
619
|
$
|
52
|
|||
Acquisition-related costs
(3)
|
3
|
9
|
|||||||||
Core performance
|
$
|
211
|
$
|
21
|
$
|
619
|
$
|
61
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||
As Reported
|
2016
|
2015
|
2016
|
2015
|
|||||||
Net sales
|
$
|
37
|
$
|
12
|
$
|
112
|
$
|
32
|
|||
Research, development and engineering expenses
|
$
|
47
|
$
|
34
|
$
|
139
|
$
|
123
|
|||
Equity earnings of affiliated companies
|
$
|
(3)
|
$
|
4
|
$
|
(8)
|
$
|
12
|
|||
Net loss
|
$
|
(47)
|
$
|
(38)
|
$
|
(187)
|
$
|
(131)
|
Nine months ended
September 30,
|
|||||
2016
|
2015
|
||||
Net cash provided by operating activities
|
$
|
1,095
|
$
|
1,845
|
|
Net cash provided by (used in) investing activities
|
$
|
3,956
|
$
|
(822)
|
|
Net cash used in financing activities
|
$
|
(4,858)
|
$
|
(1,589)
|
As of
September 30,
2016
|
As of
December 31,
2015
|
||||
Working capital
|
$
|
6,185
|
$
|
5,455
|
|
Current ratio
|
3.7:1
|
2.9:1
|
|||
Trade accounts receivable, net of allowances
|
$
|
1,645
|
$
|
1,372
|
|
Days sales outstanding
|
59
|
55
|
|||
Inventories
|
$
|
1,516
|
$
|
1,385
|
|
Inventory turns
|
3.8
|
4.0
|
|||
Days payable outstanding
(1)
|
43
|
42
|
|||
Long-term debt
|
$
|
3,916
|
$
|
3,890
|
|
Total debt to total capital
|
18%
|
19%
|
(1)
|
Includes trade payables only.
|
RATING AGENCY
|
Rating
Long-Term Debt
|
Outlook
last update
|
|
Fitch
|
BBB+
|
Stable
|
|
October 29, 2015
|
|||
Standard & Poor’s
|
BBB+
|
Stable
|
|
October 27, 2015
|
|||
Moody’s
|
Baa1
|
Stable
|
|
October 28, 2015
|
-
|
global business, financial, economic and political conditions;
|
-
|
tariffs and import duties;
|
-
|
currency fluctuations between the U.S. dollar and other currencies, primarily the Japanese yen, New Taiwan dollar, euro, Chinese renminbi and South Korean won;
|
-
|
product demand and industry capacity;
|
-
|
competitive products and pricing;
|
-
|
availability and costs of critical components and materials;
|
-
|
new product development and commercialization;
|
-
|
order activity and demand from major customers;
|
-
|
capital allocation plans, as such plans may change including with respect to the timing and size of share repurchases, acquisitions, joint ventures, dispositions and other strategic actions;
|
-
|
the effectiveness of our risk management framework;
|
-
|
fluctuations in capital spending by 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;
|
-
|
possible disruption in commercial activities due to terrorist activity, cyber-attack, armed conflict, political or financial instability, natural disasters, or major health concerns;
|
-
|
unanticipated disruption to equipment, facilities, IT systems or operations;
|
-
|
facility expansions and new plant start-up costs;
|
-
|
effect of regulatory and legal developments;
|
-
|
ability to pace capital spending to anticipated levels of customer demand;
|
-
|
credit rating and ability to obtain financing and capital on commercially reasonable terms;
|
-
|
adequacy and availability of insurance;
|
-
|
financial risk management;
|
-
|
acquisition and divestiture activities;
|
-
|
rate of technology change;
|
-
|
level of excess or obsolete inventory;
|
-
|
ability to enforce patents and protect intellectual property and trade secrets;
|
-
|
adverse litigation;
|
-
|
product and components performance issues;
|
-
|
retention of key personnel;
|
-
|
stock price fluctuations;
|
-
|
trends for the continued growth of the Company’s businesses;
|
-
|
the ability of research and development projects to produce revenues in future periods;
|
-
|
a downturn in demand or decline in growth rates for LCD glass substrates;
|
-
|
customer ability, most notably in the Display Technologies segment, to maintain profitable operations and obtain financing to fund their ongoing operations and manufacturing expansions and pay their receivables when due;
|
-
|
loss of significant customers;
|
-
|
fluctuations in supply chain inventory levels;
|
-
|
equity company activities;
|
-
|
changes in tax laws and regulations;
|
-
|
changes in accounting rules and standards;
|
-
|
the potential impact of legislation, government regulations, and other government action and investigations;
|
-
|
temporary idling of capacity or delaying expansion;
|
-
|
the ability to implement productivity, consolidation and cost reduction efforts, and to realize anticipated benefits;
|
-
|
restructuring actions and charges; and
|
-
|
other risks detailed in Corning’s SEC filings.
|
Period
|
Total number
of shares
purchased
(1)
|
Average
price paid
per share
(1)
|
Number of
shares purchased as
part of publicly
announced plan
or program
(2)
|
Approximate dollar
value of shares that
may yet be purchased
under the plans
or programs
(2)
|
|||
July 1-31, 2016
|
79,260,346
|
$21.47
|
79,189,464
|
$1,010,581,646
|
|||
August 1-31, 2016
|
5,525,500
|
$22.71
|
5,523,401
|
$ 885,135,880
|
|||
September 1-30, 2016
|
5,006,403
|
$22.88
|
5,004,963
|
$ 770,601,760
|
|||
Total
|
89,792,249
|
$21.62
|
89,717,828
|
$ 770,601,760
|
(1)
|
This column reflects the following transactions during the third quarter of 2016: (i) the deemed surrender to us of 25,679 shares of common stock to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units; (ii) the surrender to us of 48,742 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees; and (iii) the purchase of 89,717,828 shares of common stock in conjunction with the repurchase program announced on October 26, 2015.
|
(2)
|
On October 26, 2015, Corning’s Board of Directors authorized the repurchase of up to $4 billion worth of shares of common stock between date of announcement and December 31, 2016.
|
(a)
|
Exhibits
|
||
Exhibit Number
|
Exhibit Name
|
||
10.1
|
Master Confirmation – Uncollared Accelerated Share Repurchase
|
||
31.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Exchange Act
|
||
31.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Exchange Act
|
||
32
|
Certification Pursuant to 18 U.S.C. Section 1350
|
||
101.INS
|
XBRL Instance Document
|
||
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
||
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document
|
||
101.LAB
|
XBRL Taxonomy Label Linkbase Document
|
||
101.PRE
|
XBRL Taxonomy Presentation Linkbase Document
|
||
101.DEF
|
XBRL Taxonomy Definition Document
|
Corning Incorporated
|
||||
(Registrant)
|
||||
October 27, 2016
|
/s/ Edward Schlesinger
|
|||
Date
|
Edward Schlesinger
|
|||
Vice President and Corporate Controller
|
Calculation Period:
|
For each Transaction, the period from, and including, the Calculation Period Start Date for such Transaction to, and including, the Termination Date for such Transaction.
|
||
Calculation Period Start Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
||
Termination Date:
|
For each Transaction, the Scheduled Termination Date for such Transaction;
provided
that Dealer shall have the right to designate any Exchange Business Day on or after the First Acceleration Date to be the Termination Date for all of such Transaction (an “
Accelerated Termination Date
”) by delivering notice (an “
Acceleration Notice
”) to Counterparty of any such designation prior to 5:00 p.m. (New York City time) on the Exchange Business Day immediately following the designated Accelerated Termination Date.
|
||
Scheduled Termination Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation, subject to postponement as provided in “Valuation Disruption” below.
|
||
First Acceleration Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
||
Valuation Disruption:
|
The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words “at any time during the one-hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be” and inserting the words “at any time on any Scheduled Trading Day during the Calculation Period or Settlement Valuation Period” after the word “material,” in the third line thereof.
|
||
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the term “Scheduled Closing Time” in the fourth line thereof.
|
Notwithstanding anything to the contrary in the Equity Definitions, if a Disrupted Day occurs (i) in the Calculation Period, the Calculation Agent may, in its good faith and commercially reasonable discretion, postpone the Scheduled Termination Date, or (ii) in the Settlement Valuation Period, the Calculation Agent may extend the Settlement Valuation Period. The Calculation Agent may also determine that (i) such Disrupted Day is a Disrupted Day in full, in which case the VWAP Price for such Disrupted Day shall not be included for purposes of determining the Forward Price or the Settlement Price, as the case may be, or (ii) such Disrupted Day is a Disrupted Day only in part, in which case the VWAP Price for such Disrupted Day shall be determined by the Calculation Agent based on Rule 10b-18-compliant transactions in the Shares on such Disrupted Day taking into account the nature and duration of the relevant Market Disruption Event, and the weighting of the VWAP Price for the relevant Exchange Business Days during the Calculation Period or the Settlement Valuation Period, as the case may be, shall be adjusted in a commercially reasonable manner by the Calculation Agent for purposes of determining the Forward Price or the Settlement Price, as the case may be, with such adjustments based on, among other factors, the duration of any Market Disruption Event and the volume, historical trading patterns and price of the Shares; provided, however, that any Market Disruption Event due to a Regulatory Disruption shall be a Disrupted Day in full. Any Exchange Business Day on which, as of the date hereof, the Exchange is scheduled to close prior to its normal close of trading shall be deemed not to be an Exchange Business Day; if a closure of the Exchange prior to its normal close of trading on any Exchange Business Day is scheduled following the date hereof, then such Exchange Business Day shall be deemed to be a Disrupted Day in full.
|
|||
If a Disrupted Day occurs during the Calculation Period for any Transaction or the Settlement Valuation Period for any Transaction, as the case may be, and each of the nine immediately following Scheduled Trading Days is a Disrupted Day (a “
Disruption Event
”), then the Calculation Agent, in its good faith and commercially reasonable discretion, may deem such Disruption Event (and each consecutive Disrupted Day thereafter) to be either (x) a Potential Adjustment Event in respect of such Transaction or (y) an Additional Termination Event in respect of such Transaction, with Counterparty as the sole Affected Party and such Transaction as the sole Affected Transaction.
|
Settlement Terms
.
|
||||
Settlement Procedures:
|
For each Transaction:
|
|||
(i)
|
if the Number of Shares to be Delivered for such Transaction is positive, Physical Settlement shall be applicable to such Transaction;
provided
that Dealer does not, and shall not, make the agreement or the representations set forth in Section 9.11 of the Equity Definitions related to the restrictions imposed by applicable securities laws with respect to any Shares delivered by Dealer to Counterparty under any Transaction; or
|
|||
(ii)
|
if the Number of Shares to be Delivered for such Transaction is negative, then the Counterparty Settlement Provisions in Annex A hereto shall apply to such Transaction.
|
|||
Number of Shares to be Delivered:
|
For each Transaction, a number of Shares (rounded down to the nearest whole number) equal to (a)(i) the Prepayment Amount for such Transaction,
divided by
(ii)(A) the Forward Price for such Transaction
minus
(B) the Forward Price Adjustment Amount for such Transaction,
minus
(b) the number of Initial Shares for such Transaction;
provided
that if the result of the calculation in clause (a)(ii) is equal to or less than the Floor Price for such Transaction, then the Number of Shares to be Delivered for such Transaction shall be determined as if clause (a)(ii) were replaced with “(ii) the Floor Price for such Transaction”. For the avoidance of doubt, if the Forward Price Adjustment Amount for any Transaction is a negative number, clause (a)(ii) of the immediately preceding sentence shall be equal to (A) the Forward Price for such Transaction,
plus
(B) the absolute value of the Forward Price Adjustment Amount.
|
|||
Floor Price:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
|||
Excess Dividend Amount:
|
For the avoidance of doubt, all references to the Excess Dividend Amount shall be deleted from Section 9.2(a)(iii) of the Equity Definitions.
|
|||
Settlement Date:
|
For each Transaction, if the Number of Shares to be Delivered for such Transaction is positive, the date that is one Settlement Cycle immediately following the Termination Date for such Transaction.
|
|||
Settlement Currency:
|
USD
|
|||
Initial Share Delivery:
|
For each Transaction, Dealer shall deliver a number of Shares equal to the Initial Shares for such Transaction to Counterparty on the Initial Share Delivery Date for such Transaction in accordance with Section 9.4 of the Equity Definitions, with such Initial Share Delivery Date deemed to be a “Settlement Date” for purposes of such Section 9.4.
|
||
Initial Share Delivery Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation
|
||
Initial Shares:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
||
Share Adjustments
.
|
|||
Potential Adjustment Event:
|
In addition to the events described in Section 11.2(e) of the Equity Definitions, it shall constitute an additional Potential Adjustment Event if (x) the Scheduled Termination Date for any Transaction is postponed pursuant to “Valuation Disruption” above (including, for the avoidance of doubt, pursuant to Section 7 hereof), (y) a Regulatory Disruption as described in Section 7 occurs or (z) a Disruption Event occurs. In the case of any event described in clause (x), (y) or (z) above occurs, the Calculation Agent may, in its commercially reasonable judgment, adjust any relevant terms of such Transaction as necessary to preserve as nearly as practicable the fair value of such Transaction to Dealer prior to such postponement, Regulatory Disruption or Disruption Event.
|
||
Excess Dividend:
|
For any calendar quarter, any dividend or distribution on the Shares with an ex-dividend date occurring during such calendar quarter (other than any dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions or any Extraordinary Dividend) (a “
Dividend
”) the amount or value of which per Share (as determined by the Calculation Agent), when aggregated with the amount or value (as determined by the Calculation Agent) of any and all previous Dividends with ex-dividend dates occurring in the same calendar quarter, exceeds the Ordinary Dividend Amount.
|
||
Extraordinary Dividend
|
Means the per Share cash dividend or distribution, or a portion thereof, declared by Counterparty on the Shares that is classified by the board of directors of Counterparty as an “extraordinary” dividend. For the avoidance of doubt, no dividend paid on Counterparty’s Fixed Rate Cumulative Convertible Preferred Stock, Series A, par value $100 per share (“Preferred Stock”), shall be considered a Dividend, Excess Dividend or Extraordinary Dividend under this Master Confirmation or any Supplemental Confirmation.
|
Consequences of Excess Dividend:
|
The declaration by the Issuer of any Excess Dividend, the ex-dividend date for which occurs or is scheduled to occur during the Relevant Dividend Period for any Transaction, shall, at Dealer’s election in its sole judgment, either (x) constitute an Additional Termination Event in respect of such Transaction, with Counterparty as the sole Affected Party and such Transaction as the sole Affected Transaction or (y) result in an adjustment, by the Calculation Agent, to the Floor Price as the Calculation Agent determines appropriate to account for the economic effect on such Transaction of such Excess Dividend; provided that Dealer’s election must be made within 10 days of the first public announcement of such Excess Dividend.
|
||
Ordinary Dividend Amount:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
||
Method of Adjustment:
|
Calculation Agent Adjustment
|
||
Early Ordinary Dividend
Payment:
|
For each Transaction, if an ex-dividend date for any Dividend that is not (x) an Excess Dividend or (y) a dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions, occurs during any calendar quarter occurring (in whole or in part) during the Relevant Dividend Period for such Transaction and is prior to the Scheduled Ex-Dividend Date for such Transaction for the relevant calendar quarter (as determined by the Calculation Agent), then the Calculation Agent shall make such adjustment to the exercise, settlement, payment or any other terms of the relevant Transaction as the Calculation Agent determines appropriate to account for the economic effect on such Transaction of such event.
|
||
Scheduled Ex-Dividend Dates:
|
For each Transaction, as set forth in the related Supplemental Confirmation for each calendar quarter.
|
||
Relevant Dividend Period:
|
For each Transaction, the period from, and including, the Trade Date for such Transaction to, and including, the Relevant Dividend Period End Date for such Transaction.
|
||
Relevant Dividend Period End Date:
|
For each Transaction, if the Number of Shares to be Delivered for such Transaction is negative, the last day of the Settlement Valuation Period; otherwise, the Termination Date for such Transaction.
|
||
Extraordinary Events
.
|
|||
Consequences of Merger Events:
|
|||
(a) Share-for-Share:
|
Modified Calculation Agent Adjustment
|
||
(b) Share-for-Other:
|
Cancellation and Payment
|
||
(c) Share-for-Combined:
|
Component Adjustment
|
Tender Offer:
|
Applicable;
provided
that (a) Section 12.1(l) of the Equity Definitions shall be amended (i) by deleting the parenthetical in the fifth line thereof, (ii) by replacing “that” in the fifth line thereof with “whether or not such announcement” and (iii) by adding immediately after the words “Tender Offer” in the fifth line thereof “, and any publicly announced change or amendment to such an announcement (including, without limitation, the announcement of an abandonment of such intention)” and (b) Sections 12.3(a) and 12.3(d) of the Equity Definitions shall each be amended by replacing each occurrence of the words “Tender Offer Date” by “Announcement Date.”
|
||
Consequences of Tender Offers:
|
|||
(a) Share-for-Share:
|
Modified Calculation Agent Adjustment
|
||
(b) Share-for-Other:
|
Modified Calculation Agent Adjustment
|
||
(c) Share-for-Combined:
|
Modified Calculation Agent Adjustment
|
||
Nationalization, Insolvency or Delisting:
|
Cancellation and Payment;
provided
that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall be deemed to be the Exchange.
|
||
Additional Disruption Events:
|
|||
(a) Change in Law:
|
Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the phrase “the interpretation” in the third line thereof with the phrase “, or public announcement of, the formal or informal interpretation”; provided further that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by replacing the parenthetical beginning after the word “regulation” in the second line thereof with the words “(including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute)”. Notwithstanding the Equity Definitions, the consequence of an occurrence of a Change in Law under clause (y) thereof shall be as set forth under 12.9(b)(vi) of the Equity Definitions.
|
||
(b) Failure to Deliver:
|
Applicable
|
||
(c) Insolvency Filing:
|
Applicable
|
||
(d) Loss of Stock Borrow:
|
Applicable
|
Maximum Stock Loan Rate:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
||
Hedging Party:
|
Dealer
|
||
Determining Party:
|
Dealer
|
||
(e) Increased Cost of Stock Borrow:
|
Applicable
|
||
Initial Stock Loan Rate:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
||
Hedging Party:
|
Dealer
|
||
Determining Party:
|
Dealer
|
||
Hedging Adjustments:
|
For the avoidance of doubt, whenever the Calculation Agent is called upon to make an adjustment pursuant to the terms of this Confirmation or the Equity Definitions to take into account the effect of an event, the Calculation Agent shall make such adjustment by reference to the effect of such event on Dealer, assuming that Dealer maintains a commercially reasonable Hedge Position.
|
||
Non-Reliance/Agreements and Acknowledgements Regarding Hedging Activities/Additional Acknowledgements:
|
Applicable
|
||
2.
|
Calculation Agent.
|
Dealer; In addition, if at any time an Event of Default occurs or exists with respect to Dealer ,then Counterparty will appoint a third party independent dealer in the relevant market to act as Calculation Agent. For the avoidance of doubt, all calculations and determinations of the Calculation Agent shall be done in a commercially reasonable manner. Following any determination or calculation by the Calculation Agent hereunder, upon a written request by Counterparty, the Calculation Agent will promptly (but in any event no later than five (5) Exchange Business Days following receipt of such written request by Dealer) provide to Counterparty by e-mail to the e-mail address provided by Counterparty in such written request a report (in a commonly used file format for the storage and manipulation of financial data) displaying in reasonable detail the basis for such determination or calculation, as the case may be, it being understood that the Calculation Agent shall not be obligated to disclose any proprietary or confidential models or any other confidential or proprietary information, in each case, used by it for such determination or calculation.
|
6.
|
Representations, Warranties and Agreements
.
|
|||
(a)
|
Additional Representations, Warranties and Covenants of Each Party.
In addition to the representations, warranties and covenants in the Agreement, each party represents, warrants and covenants to the other party that:
|
|||
(i)
|
It is an “eligible contract participant” (as such term is defined in the Commodity Exchange Act, as amended).
|
|||
(ii)
|
Each party acknowledges that the offer and sale of each Transaction to it is intended to be exempt from registration under the Securities Act of 1933, as amended (the “
Securities Act
”), by virtue of Section 4(2) thereof. Accordingly, each party represents and warrants to the other that (A) it has the financial ability to bear the economic risk of its investment in each Transaction and is able to bear a total loss of its investment, (B) it is an “accredited investor” as that term is defined under Regulation D under the Securities Act and (C) the disposition of each Transaction is restricted under this Master Confirmation, the Securities Act and state securities laws.
|
|||
(b)
|
Additional Representations, Warranties and Covenants of Counterparty.
In addition to the representations, warranties and covenants in the Agreement, Counterparty represents, warrants and covenants to Dealer that:
|
|||
(i)
|
As of the Trade Date for each Transaction hereunder, (A) such Transaction is being entered into pursuant to a publicly disclosed Share buy-back program and its Board of Directors has approved the use of derivatives to effect the Share buy-back program, and (B) there is no internal policy of Counterparty, whether written or oral, that would prohibit Counterparty from entering into any aspect of such Transaction, including, without limitation, the purchases of Shares to be made pursuant to such Transaction.
|
|||
(ii)
|
As of the Trade Date for each Transaction hereunder, the purchase or writing of such Transaction and the transactions contemplated hereby will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.
|
|||
(iii)
|
As of the Trade Date for each Transaction hereunder, it is not entering into such Transaction, in each case (A) on the basis of, and is not aware of, any material non-public information regarding Counterparty or the Shares, (B) in anticipation of, in connection with, or to facilitate, a distribution of its securities, a self tender offer or a third-party tender offer in violation of the Exchange Act or (C) to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares).
|
|||
(iv)
|
Counterparty (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least USD 50,000,000 as of the date hereof.
|
(v)
|
As of the Trade Date for each Transaction hereunder, Counterparty is in compliance in all material respects with its reporting obligations under the Exchange Act and its most recent Annual Report on Form 10-K, together with all reports filed by it through the Trade Date pursuant to the Exchange Act, taken together and as amended and supplemented to the date of this representation, do not, as of their respective filing dates, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
|
||
(vii)
|
The Shares are not, and Counterparty will not cause the Shares to be, subject to a “restricted period” (as defined in Regulation M promulgated under the Exchange Act) at any time during any Regulation M Period (as defined below) for any Transaction unless Counterparty has provided written notice to Dealer of such restricted period not later than the Scheduled Trading Day immediately preceding the first day of such “restricted period”; Counterparty acknowledges that any such notice may cause a Disrupted Day to occur pursuant to Section 7 below; accordingly, Counterparty acknowledges that its delivery of such notice must comply with the standards set forth in Section 8 below. Counterparty is not currently contemplating any “distribution” (as defined in Regulation M promulgated under the Exchange Act) of Shares, or any security for which Shares are a “reference security” (as defined in Regulation M promulgated under the Exchange Act). “
Regulation M Period
” means, for any Transaction, (A) the Relevant Period (as defined below) for such Transaction, (B) the Settlement Valuation Period, if any, for such Transaction and (C) the Seller Termination Purchase Period (as defined below), if any, for such Transaction. “
Relevant Period
” means, for any Transaction, the period commencing on the Calculation Period Start Date for such Transaction and ending on the later of (1) the earlier of (x) the Scheduled Termination Date and (y) the last Additional Relevant Day (as specified in the related Supplemental Confirmation) for such Transaction, or such earlier day as elected by Dealer and communicated to Counterparty on such day (or, if later, the First Acceleration Date without regard to any acceleration thereof pursuant to “Special Provisions for Acquisition Transaction Announcements” below) and (2) if Section 14 is applicable to such Transaction, the date on which all deliveries owed pursuant to Section 14 have been made.
|
||
(viii)
|
As of the Trade Date, the Prepayment Date, the Initial Share Delivery Date, the Settlement Date, any Cash Settlement Payment Date and any Settlement Method Election Date for each Transaction, Counterparty is not “insolvent” (as such term is defined under Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the “
Bankruptcy Code
”)) and Counterparty would be able to purchase a number of Shares with a value equal to the Prepayment Amount in compliance with the laws of the jurisdiction of Counterparty’s incorporation.
|
||
(ix)
|
Counterparty is not, and after giving effect to each Transaction will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.
|
(x)
|
Counterparty has not entered, and will not enter, into any repurchase transaction with respect to the Shares (or any security convertible into or exchangeable for the Shares) (including, without limitation, any agreements similar to the Transactions described herein), except with Dealer or any of its affiliates, where any initial hedge period, calculation period, relevant period, settlement valuation period or seller termination purchase period (each however defined) in such other transaction will overlap at any time (including, without limitation, as a result of extensions in such initial hedge period, calculation period, relevant period, settlement valuation period or seller termination purchase period as provided in the relevant agreements) with any Relevant Period, any Settlement Valuation Period (if applicable) or any Seller Termination Purchase Period (if applicable) under this Master Confirmation. In the event that the initial hedge period, relevant period, calculation period or settlement valuation period in any other transaction overlaps with any Relevant Period, any Settlement Valuation Period (if applicable) or any Seller Termination Purchase Period (if applicable) under this Master Confirmation as a result of any postponement of the Scheduled Termination Date or extension of the Settlement Valuation Period pursuant to “Valuation Disruption” above or any analogous provision in such other transaction, Counterparty shall promptly amend such other transaction to avoid any such overlap.
|
||
(xi)
|
Counterparty shall, at least one day prior to the first day of the Calculation Period, the Settlement Valuation Period, if any, or the Seller Termination Purchase Period, if any, for any Transaction, notify Dealer of the total number of Shares purchased in Rule 10b-18 purchases of blocks pursuant to the once-a-week block exception set forth in paragraph (b)(4) of Rule 10b-18 under the Exchange Act (“
Rule 10b-18
”) by or for Counterparty or any of its “affiliated purchasers” (as defined in Rule 10b-18) during each of the four calendar weeks preceding such day and during the calendar week in which such day occurs (“Rule 10b-18 purchase” and “blocks” each being used as defined in Rule 10b-18), which notice shall be substantially in the form set forth in Schedule B hereto.
|
||
(xii)
|
As of the Trade Date for each Transaction hereunder, and as of the date of any election with respect to any Transaction hereunder, there has not been any Merger Announcement (as defined below).
|
||
(c)
|
Additional Representations, Warranties and Covenants of Dealer.
In addition to the representations, warranties and covenants in the Agreement, Dealer represents, warrants and covenants to Counterparty that it has implemented policies and procedures, taking into consideration the nature of its business, reasonably designed to ensure that individuals making investment decisions related to any Transaction would not violate the laws prohibiting trading on the basis of material nonpublic information regarding Issuer.
|
||
7.
|
Regulatory Disruption.
In the event that Dealer concludes, in its good faith and commercially reasonable discretion based on the advice of counsel that it is necessary with respect to any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by Dealer, and provided that such policies or procedures are related to legal or regulatory issues and are generally applicable in similar situations and applied to any Transaction hereunder in a non-discriminatory manner), for it to refrain from or decrease any market activity on any Scheduled Trading Day or Days during the Calculation Period or, if applicable, the Settlement Valuation Period, Dealer may by written notice to Counterparty elect to deem that a Market Disruption Event has occurred and will be continuing on such Scheduled Trading Day or Days.
|
8.
|
Other Provisions
|
||
(a)
|
Rule 10b-18:
|
||
(i)
|
Dealer covenants and agrees to use commercially reasonable efforts, during the Calculation Period and any Settlement Valuation Period (as defined in Annex A) for any Transaction, to make all purchases of Shares in connection with such Transaction in a manner that would comply with the limitations set forth in clauses (b)(1), (b)(2), (b)(3) and (b)(4) and (c) of Rule 10b-18, as if such rule were applicable to such purchases and taking into account any applicable Securities and Exchange Commission no-action letters as appropriate, and subject to any delays between the execution and reporting of a trade of the Shares on the Exchange and other circumstances beyond Dealer’s control; provided that, during the Calculation Period, the foregoing agreement shall not apply to purchases made to dynamically hedge for Dealer’s own account or the account of its affiliate(s) the optionality arising under a Transaction (including, for the avoidance of doubt, timing optionality); provided further that, without limiting the generality of the first sentence of this Section 6(c)(i), Dealer shall not be responsible for any failure to comply with Rule 10b-18(b)(3) to the extent any transaction that was executed (or deemed to be executed) by or on behalf of Counterparty or an “affiliated purchaser” (as defined under Rule 10b-18) pursuant to a separate agreement is not deemed to be an “independent bid” or an “independent transaction” for purposes of Rule 10b-18(b)(3).
|
||
(ii)
|
Except as disclosed to Dealer in writing prior to the Trade Date, Counterparty represents and warrants to Dealer that it has not made any purchases of blocks by or for itself or any of its "affiliated purchasers" pursuant to the one block purchase per week exception in Rule 10b-18(b)(4) under the Exchange Act during each of the four calendar weeks preceding such date ("Rule 10b-18 purchase," "blocks" and "affiliated purchaser", each as defined in Rule 10b-18).
|
||
(b)
|
10b5-1 Plan:
|
||
(i)
|
Counterparty is entering into this Master Confirmation and each Transaction hereunder in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 under the Exchange Act (“
Rule 10b5-1
”) or any other antifraud or anti-manipulation provisions of the federal or applicable state securities laws and that it has not entered into or altered and will not enter into or alter any corresponding or hedging transaction or position with respect to the Shares. Counterparty acknowledges that it is the intent of the parties that each Transaction entered into under this Master Confirmation comply with the requirements of paragraphs (c)(1)(i)(A) and (B) of Rule 10b5-1 and each Transaction entered into under this Master Confirmation shall be interpreted to comply with the requirements of Rule 10b5-1(c).
|
||
(ii)
|
During the Calculation Period and the Settlement Valuation Period, if any, for any Transaction and in connection with the delivery of any Alternative Delivery Units for any Transaction, Dealer (or its agent or Affiliate) may effect transactions in Shares in connection with such Transaction. The timing of such transactions by Dealer, the price paid or received per Share pursuant to such transactions and the manner in which such transactions are made, including, without limitation, whether such transactions are made on any securities exchange or privately, shall be within the sole judgment of Dealer. Counterparty acknowledges and agrees that all such transactions shall be made in Dealer’s sole judgment and for Dealer’s own account.
|
(iii)
|
Counterparty represents that it does not have, and shall not attempt to exercise, any control or influence over how, when or whether Dealer (or its agent or Affiliate) makes any “purchases or sales” (within the meaning of Rule 10b5-1(c)(1)(i)(B)(3)) in connection with any Transaction, including, without limitation, over how, when or whether Dealer (or its agent or Affiliate) enters into any hedging transactions. Counterparty represents and warrants that it has consulted with its own advisors as to the legal aspects of its adoption and implementation of this Master Confirmation and each Supplemental Confirmation under Rule 10b5-1.
|
||
(iv)
|
Counterparty acknowledges and agrees that any amendment, modification, waiver or termination of this Master Confirmation or any Supplemental Confirmation must be effected in accordance with the requirements for the amendment or termination of a “plan” as defined in Rule 10b5-1(c). Without limiting the generality of the foregoing, any such amendment, modification, waiver or termination shall be made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5, and no such amendment, modification or waiver shall be made at any time at which Counterparty or any officer, director, manager or similar person of Counterparty is aware of any material non-public information regarding Counterparty or the Shares.
|
||
(v)
|
Counterparty shall not, directly or indirectly, communicate any information relating to the Shares or any Transaction (including, without limitation, any notices required by Section 10(a)) to any employee of Dealer, other than as set forth in written procedures provided by Dealer to Counterparty.
|
||
9.
|
Counterparty Purchases.
Counterparty (or any “affiliate” or “affiliated purchaser” as defined in Rule 10b-18) shall not, without the prior written consent of Dealer (which written consent shall not be unreasonably withheld or delayed, but it being understood that Dealer may withhold such consent if it determines that such request would adversely impact Dealer’s trading activity in respect of any Transaction), directly or indirectly purchase any Shares (including by means of a derivative instrument), listed contracts on the Shares or securities that are convertible into, or exchangeable or exercisable for Shares (including, without limitation, any Rule 10b-18 purchases of blocks (as defined in Rule 10b-18)) during any Relevant Period, any Settlement Valuation Period (if applicable) or any Seller Termination Purchase Period (if applicable)
provided
that this Section 9 shall not apply to any of the following: (A) purchases of Shares pursuant to exercises of stock options granted to former or current employees, officers, directors, or other affiliates of Counterparty, including the withholding and/or purchase of Shares from holders of such options to satisfy payment of the option exercise price and/or satisfy tax withholding requirements in connection with the exercise of such options; (B) purchases of Shares from holders of performance shares or units or restricted shares or units to satisfy tax withholding requirements in connection with vesting; (C) the conversion or exchange by holders of any convertible or exchangeable securities of the Counterparty previously issued; (D) purchases of Shares effected by or for a plan by an agent independent of Counterparty that satisfy the requirements of Rule 10b-18(a)(13)(ii); (E) purchases which are not solicited by or on behalf of Counterparty, its “affiliates” or “affiliated purchasers” (each as defined in Rule 10b-18) and are not reasonably expected to result in purchases of Shares in the market; (F) purchases of Preferred Stock; (G) purchases executed by or through Dealer or an Affiliate of Dealer and, if Dealer is requested to make any such purchases, Dealer will endeavor in good faith and in a commercially reasonable manner to fulfill such request, taking into account such factors as it deems appropriate at such time in light of this Transaction and existing liquidity conditions at such time.
|
10.
|
Special Provisions for Merger Transactions.
Notwithstanding anything to the contrary herein or in the Equity Definitions:
|
||
(a)
|
Counterparty agrees that it:
|
||
(i)
|
will not during the period commencing on the Trade Date for any Transaction and ending on the last day of the Relevant Period or, if applicable, the later of the last day of the Settlement Valuation Period and the last day of the Seller Termination Purchase Period, for such Transaction make, or to the extent it is within its reasonable control, permit to be made, any public announcement (as defined in Rule 165(f) under the Securities Act) of any Merger Transaction or potential Merger Transaction (a “
Merger Announcement
”) unless such Merger Announcement is made prior to the opening or after the close of the regular trading session on the Exchange for the Shares;
|
||
(ii)
|
shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange) notify Dealer following any such Merger Announcement that such Merger Announcement has been made; and
|
||
(iii)
|
shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange) provide Dealer with written notice specifying (i) Counterparty’s average daily Rule 10b-18 Purchases (as defined in Rule 10b-18) during the three full calendar months immediately preceding the announcement date of any Merger Transaction or potential Merger Transaction that were not effected through Dealer or its Affiliates and (ii) the number of Shares purchased pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act for the three full calendar months preceding the announcement date of any Merger Transaction or potential Merger Transaction. Such written notice shall be deemed to be a certification by Counterparty to Dealer that such information is true and correct. In addition, Counterparty shall promptly notify Dealer of the earlier to occur of the completion of such transaction and the completion of the vote by target shareholders.
|
||
(b)
|
Counterparty acknowledges that any such Merger Announcement or delivery of a notice with respect thereto may cause the terms of any Transaction to be adjusted or such Transaction to be terminated; accordingly, Counterparty acknowledges that its delivery of such notice must comply with the standards set forth in Section 8 above.
|
||
(c)
|
Upon the occurrence of any Merger Announcement (whether made by Counterparty or a third party), Dealer in its sole discretion may (i) make commercially reasonable adjustments to the terms of any Transaction including, without limitation, the Scheduled Termination Date or the Forward Price Adjustment Amount, and/or suspend the Calculation Period and/or any Settlement Valuation Period or (ii) treat the occurrence of such Merger Announcement as an Additional Termination Event with Counterparty as the sole Affected Party and the Transactions hereunder as the Affected Transactions and with the amount under Section 6(e) of the Agreement determined taking into account the fact that the Calculation Period or Settlement Valuation Period, as the case may be, had fewer Scheduled Trading Days than originally anticipated.
|
||
“Merger Transaction”
means any merger, acquisition or similar transaction involving a recapitalization as contemplated by Rule 10b-18(a)(13)(iv) under the Exchange Act, other than, solely for purposes of this Section 10, any such transaction in which the consideration consists solely of cash and there is no valuation period.
|
12.
|
Acknowledgments
.
|
||
(a)
|
The parties hereto intend for:
|
||
(i)
|
each Transaction to be a “securities contract” as defined in Section 741(7) of the Bankruptcy Code and a “forward contract” as defined in Section 101(25) of the Bankruptcy Code, and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(27), 362(o), 546(e), 546(j), 555, 556, 560 and 561 of the Bankruptcy Code;
|
||
(ii)
|
the Agreement to be a “master netting agreement” as defined in Section 101(38A) of the Bankruptcy Code;
|
||
(iii)
|
a party’s right to liquidate, terminate or accelerate any Transaction, net out or offset termination values or payment amounts, and to exercise any other remedies upon the occurrence of any Event of Default or Termination Event under the Agreement with respect to the other party or any Extraordinary Event that results in the termination or cancellation of any Transaction to constitute a “contractual right” (as defined in the Bankruptcy Code); and
|
||
(iv)
|
all payments for, under or in connection with each Transaction, all payments for the Shares (including, for the avoidance of doubt, payment of the Prepayment Amount) and the transfer of such Shares to constitute “settlement payments” and “transfers” (as defined in the Bankruptcy Code).
|
||
(b)
|
Counterparty acknowledges that:
|
||
(i)
|
during the term of any Transaction, Dealer and its Affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to establish, adjust or unwind its hedge position with respect to such Transaction;
|
||
(ii)
|
Dealer and its Affiliates may also be active in the market for the Shares and Share-linked transactions other than in connection with hedging activities in relation to any Transaction;
|
||
(iii)
|
Dealer shall make its own determination as to whether, when or in what manner any hedging or market activities in Counterparty’s securities shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Forward Price and the VWAP Price;
|
||
(iv)
|
any market activities of Dealer and its Affiliates with respect to the Shares may affect the market price and volatility of the Shares, as well as the Forward Price and VWAP Price, each in a manner that may be adverse to Counterparty; and
|
||
(v)
|
each Transaction is a derivatives transaction in which it has granted Dealer an option; Dealer may purchase shares for its own account at an average price that may be greater than, or less than, the price paid by Counterparty under the terms of the related Transaction.
|
13.
|
No Collateral, Netting or Setoff.
Notwithstanding any provision of the Agreement or any other agreement between the parties to the contrary, the obligations of Counterparty hereunder are not secured by any collateral. Obligations under any Transaction shall not be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against any other obligations of the parties, whether arising under the Agreement, this Master Confirmation or any Supplemental Confirmation, or under any other agreement between the parties hereto, by operation of law or otherwise, and no other obligations of the parties shall be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against obligations under any Transaction, whether arising under the Agreement, this Master Confirmation or any Supplemental Confirmation, or under any other agreement between the parties hereto, by operation of law or otherwise, and each party hereby waives any such right of setoff, netting or recoupment.
|
14.
|
Alternative Termination Settlement.
In the event that (a) an Early Termination Date (whether as a result of an Event of Default or a Termination Event) occurs or is designated with respect to any Transaction or (b) any Transaction is cancelled or terminated upon the occurrence of an Extraordinary Event (except as a result of (i) a Nationalization, Insolvency or Merger Event in which the consideration to be paid to holders of Shares consists solely of cash, (ii) a Merger Event or Tender Offer that is within Counterparty’s control, or (iii) an Event of Default in which Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected Party other than an Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a Termination Event of the type described in Section 5(b) of the Agreement, in each case that resulted from an event or events outside Counterparty’s control), if either party would owe any amount to the other party pursuant to Section 6(d)(ii) of the Agreement or any Cancellation Amount pursuant to Article 12 of the Equity Definitions (any such amount, a
“Payment Amount
”), then, in lieu of any payment of such Payment Amount, unless Counterparty makes an election to the contrary no later than the Early Termination Date or the date on which such Transaction is terminated or cancelled, Counterparty or Dealer, as the case may be, shall deliver to the other party a number of Shares (or, in the case of a Nationalization, Insolvency or Merger Event, a number of units, each comprising the number or amount of the securities or property that a hypothetical holder of one Share would receive in such Nationalization, Insolvency or Merger Event, as the case may be (each such unit, an
“Alternative Delivery Unit
”) with a value equal to the Payment Amount, as determined by the Calculation Agent over a commercially reasonable period of time (and the parties agree that, in making such determination of value, the Calculation Agent may take into account a number of factors, including, without limitation, the market price of the Shares or Alternative Delivery Units on the Early Termination Date or the date of early cancellation or termination, as the case may be, and, if such delivery is made by Dealer, the prices at which Dealer purchases Shares or Alternative Delivery Units to fulfill its delivery obligations under this Section 14);
provided
that in determining the composition of any Alternative Delivery Unit, if the relevant Nationalization, Insolvency or Merger Event involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash; and
provided further
that Counterparty may elect that the provisions of this Section 14 above providing for the delivery of Shares or Alternative Delivery Units, as the case may be, shall not apply only if Counterparty represents and warrants to Dealer, in writing on the date it notifies Dealer of such election, that, as of such date, Counterparty is not aware of any material non-public information regarding Counterparty or the Shares and is making such election in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws. If delivery of Shares or Alternative Delivery Units, as the case may be, pursuant to this Section 14 is to be made by Counterparty, paragraphs 2 through 7 of Annex A hereto shall apply as if (A) such delivery were a settlement of such Transaction to which Net Share Settlement applied, (B) the Cash Settlement Payment Date were the Early Termination Date or the date of early cancellation or termination, as the case may be, and (C) the Forward Cash Settlement Amount were equal to (x) zero
minus
(y) the Payment Amount owed by Counterparty. For the avoidance of doubt, if Counterparty validly elects for the provisions of this Section 14 relating to the delivery of Shares or Alternative Delivery Units, as the case may be, not to apply to any Payment Amount, the provisions of Article 12 of the Equity Definitions, or the provisions of Section 6(d)(ii) of the Agreement, as the case may be, shall apply. If delivery of Shares or Alternative Delivery Units, as the case may be, is to be made by Dealer pursuant to this Section 14, the period during which Dealer purchases Shares or Alternative Delivery Units to fulfill its delivery obligations under this Section 14 shall be referred to as the “Seller Termination Purchase Period”.
|
20.
|
Counterparty Indemnification.
Counterparty agrees to indemnify and hold harmless Dealer and its officers, directors, employees, Affiliates, advisors, agents and controlling persons (each, an
“Indemnified
Person
”) from and against any and all losses, claims, damages and liabilities, joint or several (collectively,
“Obligations
”), to which an Indemnified Person may become subject arising out of or attributable to: (a) any breach by Counterparty of its obligations under this Master Confirmation; (b) the incorrectness or inaccuracy of any of Counterparty’s representations or warranties; or (c) any violation by Counterparty of applicable laws or regulations relating to this Master Confirmation or any Transaction, or any claim, litigation, investigation or proceeding relating thereto, regardless of whether any of such Indemnified Person is a party thereto, and to reimburse, upon written request, each such Indemnified Person for any reasonable legal or other expenses incurred in connection with investigating, preparation for, providing evidence for or defending any of the foregoing;
provided, however
, that Counterparty shall not have any liability to any Indemnified Person to the extent that such Obligations (a) are finally determined by a court of competent jurisdiction to have resulted from the gross negligence, bad faith, breach of agreement or willful misconduct of such Indemnified Person (and in such case, such Indemnified Person shall promptly return to Counterparty any amounts previously expended by Counterparty hereunder) or (b) are trading losses incurred by Dealer as part of its purchases or sales of Shares pursuant to this Master Confirmation or any Supplemental Confirmation (unless such trading losses are a direct result of the breach of any agreement, term or covenant herein).
|
||
21.
|
Assignment and Transfer.
Notwithstanding anything to the contrary in the Agreement, Dealer may assign any of its rights or duties hereunder to any one or more of its Affiliates organized in the United States (or any State thereof) or in England whose obligations hereunder are guaranteed by Dealer without the prior written consent of Counterparty subject to (A) the following conditions:
|
||
(i) Counterparty will not be required to pay to the transferee an amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) of the Agreement (except in respect of interest under Section 2(e), 6(d)(ii), or 6(e)) greater than the amount in respect of which Counterparty would have been required to pay to Dealer in the absence of such transfer;
|
|||
(ii) Counterparty will not receive a payment from which an amount has been withheld or deducted, on account of a Tax under Section 2(d)(i) (except in respect of interest under Section 2(e), 6(d)(ii), or 6(e) of the Agreement), in excess of that which Dealer would have been required to so withhold or deduct in the absence of such transfer, unless the transferee would be required to make additional payments pursuant to Section 2(d)(i)(4) of the Agreement corresponding to such withholding or deduction;
|
|||
(iii) It is not unlawful for either party to perform any obligation under the Agreement or the Transaction as a result of such transfer; and
|
|||
(iv) An Extraordinary Event, Announcement Event, Potential Adjustment Event, Event of Default or Termination Event does not occur as a result of such transfer;
|
|||
Notwithstanding any other provision in this Master Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, Dealer may designate any of its Affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Dealer’s obligations in respect of any Transaction and any such designee may assume such obligations. Dealer may assign the right to receive Settlement Shares to any third party who may legally receive Settlement Shares. Dealer shall be discharged of its obligations to Counterparty only to the extent of any such performance. For the avoidance of doubt, Dealer hereby acknowledges that notwithstanding any such designation hereunder, to the extent any of Dealer’s obligations in respect of any Transaction are not completed by its designee, Dealer shall be obligated to continue to perform or to cause any other of its designees to perform in respect of such obligations.
|
|||
22.
|
Amendments to the Equity Definitions
.
|
||
(a)
|
Section 11.2(e) of the Equity Definitions is hereby amended by deleting items (iii) and (v) in their entirety.
|
||
(b)
|
Section 12.9(b)(iv) of the Equity Definitions is hereby amended by deleting (1) subsection (A) in its entirety, (2) the phrase “or (B)” following subsection (A) and (3) the phrase “in each case” in subsection (B); and replacing the phrase “neither the Non-Hedging Party nor the Lending Party lends Shares” with the phrase “such Lending Party does not lend Shares” in the penultimate sentence.
|
||
(c)
|
Section 12.9(b)(v) of the Equity Definitions is hereby amended by adding the word “or” immediately before subsection “(B)” and deleting the comma at the end of subsection (A); and (1) deleting subsection (C) in its entirety, (2) deleting the word “or” immediately preceding subsection (C), (3) deleting the penultimate sentence in its entirety and replacing it with the sentence “The Hedging Party will determine the Cancellation Amount payable by one party to the other” and (4) deleting clause (X) in the final sentence.
|
||
23.
|
Extraordinary Dividend.
If Counterparty declares any Extraordinary Dividend that has an ex-dividend date during the period commencing on the Trade Date for any Transaction and ending on the last day of the Relevant Period or, if applicable, the later of the last day of the Settlement Valuation Period and the last day of the Seller Termination Purchase Period, for such Transaction, then prior to or on the date on which such Extraordinary Dividend is paid by Counterparty to holders of record, Counterparty shall pay to Dealer, for each Transaction under this Master Confirmation, an amount in cash equal to the product of (i) the amount of such Extraordinary Dividend and (ii) the theoretical short delta number of shares as of the opening of business on the related ex-dividend date, as determined by the Calculation Agent, required for Dealer to hedge its exposure to such Transaction.
|
||
24.
|
Status of Claims in Bankruptcy.
Dealer acknowledges and agrees that neither this Master Confirmation nor any Supplemental Confirmation is intended to convey to Dealer rights against Counterparty with respect to any Transaction that are senior to the claims of common stockholders of Counterparty in any United States bankruptcy proceedings of Counterparty;
provided
that nothing herein shall limit or shall be deemed to limit Dealer’s right to pursue remedies in the event of a breach by Counterparty of its obligations and agreements with respect to any Transaction;
provided further
that nothing herein shall limit or shall be deemed to limit Dealer’s rights in respect of any transactions other than any Transaction.
|
||
25.
|
Wall Street Transparency and Accountability Act.
In connection with Section 739 of the Wall Street Transparency and Accountability Act of 2010 (“
WSTAA
”), the parties hereby agree that neither the enactment of WSTAA or any regulation under the WSTAA, nor any requirement under WSTAA or an amendment made by WSTAA, nor any similar legal certainty provision in any legislation enacted, or rule or regulation promulgated, on or after the date of this Master Confirmation, shall limit or otherwise impair either party’s otherwise applicable rights to terminate, renegotiate, modify, amend or supplement any Supplemental Confirmation, this Master Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under any Supplemental Confirmation, this Master Confirmation, the Equity Definitions incorporated herein, or the Agreement (including, without limitation, rights arising from Change in Law, Loss of Stock Borrow, Increased Cost of Stock Borrow, or Illegality).
|
26.
|
Waiver of Jury Trial.
EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING RELATING TO THE AGREEMENT, THIS MASTER CONFIRMATION, EACH SUPPLEMENTAL CONFIRMATION, THE TRANSACTIONS HEREUNDER AND ALL MATTERS ARISING IN CONNECTION WITH THE AGREEMENT, THIS MASTER CONFIRMATION AND ANY SUPPLEMENTAL CONFIRMATION AND THE TRANSACTIONS HEREUNDER.
EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH A SUIT, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THE TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS PROVIDED HEREIN.
|
27.
|
Counterparts.
This Master Confirmation may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Master Confirmation by signing and delivering one or more counterparts.
|
MORGAN STANLEY & CO. LLC
|
||
By:
|
/s/ Chris Andrews
|
|
Authorized Signatory
|
||
Name:
|
Chris Andrews
|
Accepted and confirmed
|
||
as of the date first set
|
||
forth above:
|
||
CORNING INCORPORATED
|
||
By:
|
/s/ Mark S. Rogus
|
|
Senior Vice President and Treasurer
|
||
Name:
|
Mark S. Rogus
|
[_____]
|
||||
[_____], 201[6]
|
||||
To:
|
Corning Incorporated
|
|||
[_______________]
|
||||
[_______________]
|
||||
Attention:
|
[Title of contact]
|
|||
Telephone No.:
|
[____________]
|
|||
Facsimile No.:
|
[____________]
|
Trade Date:
|
[__________], 2015
|
Forward Price Adjustment Amount:
|
USD [___]
|
Calculation Period Start Date:
|
The [__]th Scheduled Trading Day immediately following the Trade Date.
|
Scheduled Termination Date:
|
[ ]
|
First Acceleration Date:
|
[ ].
|
Prepayment Amount:
|
USD [___]
|
Prepayment Date:
|
[__________], 2015
|
Initial Shares:
|
[___] Shares;
provided
that if, in connection with the Transaction, Dealer is unable, after using commercially reasonable efforts, to borrow or otherwise acquire a number of Shares equal to the Initial Shares for delivery to Counterparty on the Initial Share Delivery Date, the Initial Shares delivered on the Initial Share Delivery Date shall be reduced to such number of Shares that Dealer is able to so borrow or otherwise acquire
provided further
that (i) if the Initial Shares are reduced as provided in the preceding proviso, then Dealer shall use commercially reasonable efforts to borrow or otherwise acquire an additional number of Shares equal to the shortfall in the Initial Shares delivered on the Initial Share Delivery Date and shall deliver such additional Shares as promptly as practicable, and all Shares so delivered shall be considered Initial Shares, and (ii) if fewer than [same number as above] Initial Shares are so delivered in the aggregate on or prior to the second Exchange Business Day following the Initial Share Delivery Date, then (A) the Prepayment Amount shall be reduced by an amount equal to (x)(I) [same number as above]
minus
(II) the aggregate number of Initial Shares so delivered on or prior to such second Exchange Business Day
multiplied by
(y) USD [insert closing price on the Trade Date]
divided by
(z) [ ], and (B) Dealer shall return to Counterparty on such second Exchange Business Day the amount by which the Prepayment Amount is so reduced. All Shares delivered to Counterparty in respect of the Transaction pursuant to this paragraph shall be the “Initial Shares” for purposes of “Number of Shares to be Delivered” in the Master Confirmation.
|
Initial Share Delivery Date:
|
[__________], 20[__]
|
Ordinary Dividend Amount:
|
For any Dividend before the Termination Date, USD
[___] per Share
For any Dividend after the Termination Date, USD
0.00 per Share
|
Scheduled Ex-Dividend Dates:
|
[__________]
|
Maximum Stock Loan Rate:
|
200 basis points per annum
|
Initial Stock Loan Rate:
|
25 basis points per annum
|
Maximum Number of Shares:
|
[___] Shares
|
Floor Price:
|
USD 0.01 per Share
|
Termination Price:
|
USD [___] per Share
|
Excluded Days:
|
N/A
|
Additional Relevant Days:
|
N/A
|
Reserved Shares:
|
Notwithstanding anything to the contrary in the Master Confirmation, as of the date of this Supplemental Confirmation, the Reserved Shares shall be equal to [___] Shares.
|
[_____]
|
||
By:
|
||
Authorized Signatory
|
||
Name:
|
Accepted and confirmed
|
||
as of the Trade Date:
|
||
CORNING INCORPORATED
|
||
By:
|
||
Authorized Signatory
|
||
Name:
|
CORNING INCORPORATED
|
||
By:
|
||
Authorized Signatory
|
||
Name:
|
Settlement Currency:
|
USD
|
Settlement Method Election:
|
Applicable;
provided
that (i) Section 7.1 of the Equity Definitions is hereby amended by deleting the word “Physical” in the sixth line thereof and replacing it with the words “Net Share” and (ii) the Electing Party may make a settlement method election only if the Electing Party represents and warrants to Dealer in writing on the date it notifies Dealer of its election that, as of such date, the Electing Party is not aware of any material non-public information regarding Counterparty or the Shares and is electing the settlement method in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws.
|
Electing Party:
|
Counterparty
|
Settlement Method Election Date:
|
Subsequent to the expiration of the Settlement Valuation Period, the earlier of (i) the date on which Counterparty is able to make the representation and warranty required for such election, as provided under “Settlement Method Election”, and (ii) the 45
th
calendar day following the conclusion of the Settlement Valuation Period.
|
Default Settlement Method:
|
Cash Settlement
|
Forward Cash Settlement Amount:
|
An amount equal to (a) the Number of Shares to be Delivered,
multiplied by
(b) the Settlement Price.
|
Settlement Price:
|
The average of the 10b-18 VWAP prices for the Exchange Business Days in the Settlement Valuation Period, subject to Valuation Disruption as specified in the Confirmation.
|
Settlement Valuation Period:
|
A number of Scheduled Trading Days selected by Dealer in its reasonable discretion by notice to Counterparty on or prior to the second Scheduled Trading Day prior to the last Scheduled Trading Day thereof, beginning on the Scheduled Trading Day immediately following the earlier of (i) the Scheduled Termination Date or (ii) the Exchange Business Day immediately following the Termination Date.
|
Cash Settlement:
|
If Cash Settlement is applicable, then Buyer shall pay to Dealer the absolute value of the Forward Cash Settlement Amount on the Cash Settlement Payment Date.
|
Cash Settlement Payment Date:
|
The Exchange Business Day immediately following the date of Counterparty’s Settlement Method Election or, if no election is made, the Settlement Method Election Date.
|
Net Share Settlement Procedures:
|
If Net Share Settlement is applicable, Net Share Settlement shall be made in accordance with paragraphs 2 through 7 below.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Corning Incorporated (the registrant);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
/s/ Wendell P. Weeks
|
|
Wendell P. Weeks
|
|
Chairman, Chief Executive Officer and President
|
|
(Principal Executive Officer)
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Corning Incorporated (the registrant);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
/s/ R. Tony Tripeny
|
|
R. Tony Tripeny
|
|
Senior Vice President and Chief Financial Officer
|
|
(Principal Financial Officer)
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Wendell P. Weeks
|
|
Wendell P. Weeks
|
|
Chairman, Chief Executive Officer and President
|
/s/ R. Tony Tripeny
|
|
R. Tony Tripeny
|
|
Senior Vice President and Chief Financial Officer
|