CORNING INC /NY

Corning leases certain real estate, vehicles, and equipment from third parties. On January 1, 2019 we adopted the new leasing standard.  Corning classifies leases as either financing or operating.  Operating leases are included in other assets with the corresponding liability in other accrued liabilities and other liabilities on our consolidated balance sheets.  Finance leases are included in property, plant and equipment with the corresponding liability in the current portion and long-term debt line items on our consolidated balance sheets.  Leases where we are the lessor are not significant.

Lease expense is recognized on a straight-line basis over the lease term for operating leases.  Financing leases are recognized on the effective interest method for interest expense and straight-line method for asset amortization.  Renewals and terminations are included in the calculation of the Right of Use (“ROU”) asset and lease liability when considered to be reasonably certain to be exercised.  When the implicit rate is unknown, we use our incremental borrowing rate based on commencement date in determining the present value of lease payments. 

Our leases do not include residual value guarantees.  We are not the primary beneficiary in or have other forms of variable interests with the lessor of the leased assets.  The impact to the balance sheet for operating leases is a gross-up for the addition of ROU assets and liabilities relating to the operating leases in the amount of $449 million at adoption.  The impact to the balance sheet for financing leases was not material.

We incurred lease expense in the amount of $42 million for the three months ended March 31, 2019.  Operating and Financing lease costs were $37 million and $5 million, respectively.  Short-term rental expense, for agreements less than one year in duration, is immaterial.  Financing lease cost was comprised of expenses for Depreciation of right-of-use assets and Interest on lease liabilities in the amounts of $2 million and $3 million, respectively.

We prepared the financial results for our reportable segments on a basis consistent with our internal disaggregation of financial information to assist the CODM in making internal operating decisions.  The impact of changes in the Japanese yen, Korean won, Chinese yuan and new Taiwan dollar are excluded from segment sales and segment net income for the Display Technologies and Specialty Materials segments.  The impact of changes in the euro, Chinese yuan and Japanese yen are excluded from segment sales and segment net income for our Environmental Technologies and Life Sciences segments.  In January 2019, we began presenting results of the Environmental Technologies and Life Sciences segments on a constant currency basis to mitigate the translation impact on these segments’ sales and net income.  We have not recast prior periods as the impact of fluctuations in these currencies were not material as compared to prior periods.  Certain income and expenses are included in the unallocated amounts in the reconciliation of reportable segment net income to consolidated net income.  These include items that are not used by our chief operating decision maker (“CODM”) in evaluating the results of or in allocating resources to our segments and include the following items:  the impact of our translated earnings contracts; acquisition-related costs; discrete tax items and other tax-related adjustments; certain litigation, regulatory and other legal matters; restructuring, impairment and other charges; adjustments relating to acquisitions; and other non-recurring non-operational items.  Although we exclude these amounts from segment results, they are included in reported consolidated results.

Net sales for the three months ended March 31, 2019 were $2.8 billion, compared to $2.5 billion in the same period in 2018.  The increase was led by the Optical Communications segment, which increased $178 million, due to higher sales of carrier network products in North America, an increase in sales of enterprise network products from growth in hyper-scale data centers and sales from our acquisition of 3M’s Communication Markets Division (“CMD”).  Net sales in the Display Technologies segment increased by $73 million for the three months ended March 31, 2019, with volumes exceeding the display glass market’s growth and more than offsetting price declines. The Specialty Materials segment net sales increased by $31 million resulting from strong demand for Gorilla Glass and Advanced Optics products.  Net sales for Environmental Technologies increased $40 million driven primarily by sales growth of gas particulate filters.  Life Sciences sales increased by $11 million.