OVERVIEW

Our key priorities for 2008 remain unchanged from the previous four years:
protect our financial health, improve our profitability, and invest in the future. During the third quarter of 2008, we made the following progress against our priorities:

Financial Health

Our balance sheet remains strong, and we generated significant positive cash flows from operating activities.

• Our debt to capital ratio of 10% at September 30, 2008 reflects an improvement from 14% at December 31, 2007, resulting primarily from solid earnings growth.

• Operating cash flow in the nine months ended September 30, 2008 was $1.7 billion.

• We ended the third quarter of 2008 with $3.2 billion of cash and short-term investments.

Profitability

For the three months ended September 30, 2008, we generated net income of $768 million or $0.49 per share compared to net income of $617 million or $0.38 per share for the same period in 2007. When compared to the same period last year, the improvement in net income was due largely to the following items:

• Higher net income in the Display Technologies segment driven by improvements in equity earnings from Samsung Corning Precision, our equity affiliate located in Korea, and the strength of the Japanese yen - U.S. dollar exchange rate.

• The release of $70 million of valuation allowances resulting from a change in estimate regarding current-year U.S. taxable income. For additional information, refer to Note 5 (Income Taxes) to the consolidated financial statements.

• A $43 million benefit related to a favorable tax settlement with the Canadian Revenue Agency.

The improvements in net income were offset somewhat by net realized losses of $39 million on short-term investments, an $18 million charge representing our share of an other-than-temporary impairment of auction rate securities at Dow Corning, and a $14 million loss on the sale of Corning's Steuben glass business.

We believe that worsening economic conditions are now affecting retail demand for several of our businesses and that an economic decline may accelerate in the fourth quarter. In response, we have initiated actions to scale back some manufacturing operations, curb the rate of growth in research, development and engineering expenses and reduce overhead to manage costs. We are prioritizing innovation projects, freezing hiring except for urgent needs, and challenging discretionary spending. We are also planning reductions to capital spending plans, where possible, and potential restructuring charges in the fourth quarter.

For the nine months ended September 30, 2008, we reported net income of $5.0 billion or $3.15 per share which represented an increase of $3.6 billion over the same period in 2007. In addition to the items described above, our net income for the nine months ended 2008 was also impacted by the release of $2.4 billion of valuation allowances resulting from a change in judgment about the realizability of deferred tax assets in future years and a credit to asbestos settlement expense of $312 million, reflecting the change in the estimate of our asbestos settlement liability compared to expense of $170 million for the same period last year. For additional information on the asbestos settlement, refer to Note 3 (Commitments and Contingencies) to the consolidated financial statements and Part II - Other Information, Item 1. Legal Proceedings.

We continue to focus on the future and on what we do best - creating and making keystone components that enable high-technology systems. We remain committed to investing in research, development, and engineering to drive innovation and continue to work on technologies for glass substrates for active matrix LCD glass substrates, diesel filters and substrates in response to tightening emissions control standards, and the optical fiber and cable and hardware and equipment that enable fiber-to-the-premises.

Our research, development and engineering expenses for the three and nine months ended September 30, 2008, increased by $15 million and $62 million, respectively, when compared to the same period last year but remained relatively constant as percentage of net sales. We believe our spending levels are adequate to support our technology and innovation strategies.

Capital spending totaled $1.2 billion and $871 million for the nine months ended September 30, 2008 and 2007, respectively. We expect to invest in manufacturing capacity to match the levels of demand in our businesses. As a result, capital expenditures in 2008 are expected to be focused on providing sufficient manufacturing capacity for LCD glass substrates in the Display Technologies segment and diesel products in the Environmental Technologies segment.

We expect our 2008 capital spending to be in the range of $1.8 billion to $1.9 billion. Spending is driven primarily by LCD capacity in anticipation of a larger display market in 2010 and growing demand for Corning's Gorilla™ glass, an optical quality glass that is optimized for high-end portable devices and touch screens. Higher precious metals prices are also impacting capital spending. We expect approximately $1.2 billion to $1.4 billion will be directed toward our Display Technologies segment to meet demand for LCD glass.

RESULTS OF OPERATIONS



Selected highlights for the third quarter follow (dollars in millions):

                          Three months ended           %           Nine months ended           %
                             September 30,          Change           September 30,          Change
                           2008          2007      08 vs. 07       2008          2007      08 vs. 07

Net sales                $   1,555      $ 1,553           0%     $   4,864      $ 4,278          14%

Gross margin             $     735      $   742         (1)%     $   2,431      $ 1,992          22%
(gross margin %)               47%          48%                        50%          47%

Selling, general and
administrative expenses  $     220      $   212           4%     $     722      $   655          10%
(as a % of net sales)          14%          14%                        15%          15%

Research, development
and engineering
expenses                 $     160      $   145          10%     $     474      $   412          15%
(as a % of net sales)          10%           9%                        10%          10%

Restructuring,
impairment and other
(credits) and charges    $     (2)                        0%     $     (3)      $   (2)          50%
(as a % of net sales)

Asbestos settlement      $       6      $  (16)       (138)%     $   (312)      $   170       (284)%
(as a % of net sales)                      (1)%                       (6)%           4%

Income before income
taxes                    $     326      $   445        (27)%     $   1,579      $   901          75%
(as a % of net sales)          21%          29%                        32%          21%

Benefit (provision) for
income taxes             $      60      $  (66)       (191)%     $   2,382      $ (141)     (1,789)%
(as a % of net sales)           4%         (4)%                        49%         (3)%

Equity in earnings of
affiliated companies,
net of impairments       $     382      $   239          60%     $   1,046      $   675          55%
(as a % of net sales)          25%          15%                        22%          16%

Net income               $     768      $   617          24%     $   5,008      $ 1,433         249%
(as a % of net sales)          49%          40%                       103%          33%

Net Sales

For the third quarter of 2008, net sales were even with the same period last year reflecting a $79 million positive impact from movements in foreign exchange rates offset by volume declines in most of our segments. For the nine months ended September 30, 2008, net sales increased when compared to the same periods in 2007 resulting primarily from year-over-year increased volumes in the Display Technologies segment and movements in foreign exchange rates. For the nine months ended September 30, 2008, net sales were positively impacted by approximately $334 million due to movements in foreign exchange rates.

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

Gross Margin

As a percentage of net sales, gross margin for the third quarter of 2008, was down slightly when compared to the third quarter of 2007 due primarily to the impact of lower prices in the Display Technologies segment. For the nine months ended September 30, 2008, gross margin as a percentage of net sales increased 3 percentage points when compared to the same period in 2007 driven by results of our Display Technologies segment which reflected volume gains and cost reduction efforts offset by price declines.

Selling, General and Administrative Expenses

For the three and nine months ended September 30, 2008, selling, general, and administrative expenses increased $8 million and $67 million, respectively, but remained constant as a percentage of sales when compared to the same periods in 2007. The increase in dollars was due primarily to increased compensation-related costs. Year-to-date expenses for 2008 included the impact of a $12 million litigation settlement in the second quarter of 2008.

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

Research, Development and Engineering Expenses

For the three and nine months ended September 30, 2008, research, development and engineering expenses increased by $15 million and $62 million, respectively, when compared to the same period last year but remained even as a percentage of net sales. Expenditures are currently focused on our Display Technologies, Environmental Technologies and Telecommunications segments as we strive to capitalize on growth opportunities in those segments. The largest driver of this increase was spending on development projects such as green lasers and other new business opportunities and baseline research for new business development.

Asbestos Settlement

In the third quarter of 2008 and 2007, we recorded an increase to our asbestos settlement liability of $6 million and a decrease of $16 million, respectively. In the nine months ended September 30, 2008 we recorded a net decrease to the asbestos settlement liability of $312 million compared to a charge of $170 million in the same period last year. The net decrease in the nine months ended September 30, 2008 was due to a $327 million reduction to our estimated liability for asbestos litigation that was recorded in the first quarter of 2008 as a result of the increase in the likelihood of a settlement under more recently proposed terms and a corresponding decrease in the likelihood of a settlement under terms that had been established in 2003. In the second and third quarters of 2008, we recorded charges of $9 million and $6 million, respectively, to reflect the change in the settlement value of the liability under the terms being negotiated.

For additional information on this matter, refer to Note 3 (Commitments and Contingencies) to the consolidated financial statements and Part II - Other Information, Item 1. Legal Proceedings.

Other (Expense) Income, Net

"Other (expense) income, net" in Corning's consolidated statements of income
includes the following:

                                                           Three months               Nine months
                                                       ended September 30,        ended September 30,
                                                        2008          2007         2008          2007

Royalty income from Samsung Corning Precision         $      54      $    37     $    148      $    100
Foreign currency exchange and hedge (losses) / gains  $     (19)     $     2     $    (53)     $     29
Net realized losses of available-for-sale securities  $     (39)     $    (2)    $    (41)     $     (2)
Loss on sale of Steuben glass business                $     (14)                 $    (14)
Gain on sale of Corning's submarine cabling business                                           $     19
Loss on repurchase of debt, net                                                                $    (15)
Other, net                                            $     (12)     $    (8)    $    (30)     $    (28)
Total                                                 $     (30)     $    29     $     10      $    103

Income Before Income Taxes

Income before income taxes for the three and nine months ended September 30, 2008, was positively impacted by $38 million and $126 million, respectively, due to movements in foreign exchange rates compared to the same periods last year.

Provision for Income Taxes

Our provision for income taxes and the related effective income tax rates were
as follows (in millions):

                                          Three months               Nine months
                                       ended September 30,       ended September 30,
                                        2008         2007         2008         2007

Benefit (provision) for income taxes  $    60      $  (66)      $  2,382     $ (141)
Effective tax (benefit) rate              18.4%      (14.8)%        150.9%     (15.6)%

For the three months ended September 30, 2008, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following items:

• The release of $70 million of valuation allowances resulting from a change in estimate regarding current-year U.S. taxable income.

• A $43 million benefit related to a favorable tax settlement with the Canadian Revenue Agency.

• The impact of not recording net tax expense on income generated in the U.S.

• The benefit of tax holidays and investment credits in foreign jurisdictions.

• The impact of discrete items for which no tax benefit was recorded, including $39 million of realized losses on our short-term investments and a $14 million loss on the sale of our Steuben glass business. Discrete items and the valuation allowance release decreased our effective tax rate by 32.1 percentage points. Refer to Note 7 (Short-term and Long-term Investments) for additional information about net realized losses.

In addition to the items noted above, the tax provision for the nine months ended September 30, 2008 reflected the impact of the release of $2.4 billion of valuation allowances attributable to a change in judgment about the realizability of certain deferred tax assets and other discrete items for which no tax expense was recorded including an asbestos settlement credit of $312 million and litigation-related items totaling $12 million. For the nine months ended September 30, 2008, discrete items and the valuation allowance releases decreased our effective tax rate by 164.7 percentage points. Refer to Note 3 (Commitments and Contingencies) for additional information about asbestos settlement litigation.

• The impact of not recording net tax benefits (expenses) on losses (income) generated in the U.S.

• The benefit of tax holidays and investment credits in Taiwan.

• An increase in tax expense of $15 million resulting from a change in the German statutory tax rate.

• The impact of discrete items for which no tax expense was recorded including a credit to asbestos settlement expense of $16 million. Refer to Note 3 (Commitments and Contingencies) for additional information about the asbestos settlement. Discrete items and the change in the German tax rate increased our effective tax rate by 3.0 percentage points for the three months ended September 30, 2007.

In addition to the items noted above, the tax provision for the nine months ended September 30, 2007 reflected the release of a $17 million reserve related to a favorable tax ruling from the Taiwanese government. The tax provision also included discrete items for which no tax benefit was recorded including asbestos settlement expense of $186 million, a loss on the repurchase of debt of $15 million, and a $19 million gain on the sale of our European submarine cabling business. For the nine months ended September 30, 2007, discrete items increased our effective tax rate by 2.2 percentage points.

As more fully described in Note 6 (Income Taxes) to the consolidated financial statements in our 2007 Form 10-K, all of our U.S. deferred tax assets had full valuation allowances at December 31, 2007. In the second quarter of 2008, we concluded that it is more likely than not that we will realize substantially all of our U.S. deferred tax assets because we expect to generate sufficient levels of income in the U.S. As a result, we released $2.4 billion of valuation allowances on our U.S. deferred tax assets in the second quarter of 2008.

In accordance with SFAS 109, "Accounting for Income Taxes" (SFAS 109), we considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance was needed. The evaluation of the realizability of deferred tax assets is inherently subjective. Following are the key items that provided positive evidence to support the release of the valuation allowance for a large portion of our deferred tax assets in the second quarter of 2008:

• Positive pre-tax income in the U.S. for the first half of 2008 and the preceding year.

• The impact of positive results in the Display Technologies operating segment and the royalty income generated from the foreign locations in this segment. A significant factor in our forecasts of future U.S. tax profitability is the amount of assumed royalties to be paid by our Display Technologies businesses to the U.S. parent company.

• The number of years remaining to utilize our net operating loss carryforwards. Corning has approximately 16 years remaining to utilize the majority of our net operating loss carryforwards.

• Increased confidence in our forecasted income levels which were supported by detailed sensitivity analyses. Our five-year planning process which is completed annually in the second quarter, considered a number of possible scenarios which support the future realization of our U.S. deferred tax assets.

In accordance with SFAS 109, for the remainder of 2008 we must continue to adjust the remaining valuation allowance to offset U.S. income tax expense (or benefit) that would otherwise be recorded on income (or losses) in the U.S. and therefore, reflect no net U.S. income tax expense in the third and fourth quarters of 2008. As our income for the third quarter and our forecasted fourth quarter income are lower than our forecast for these periods at June 30, 2008, we released an additional $70 million of valuation allowances in the third quarter. A further adjustment will be required if fourth quarter results differ from our expectations.

Certain shorter-lived deferred tax assets such as those represented by capital loss carry forwards and state tax net operating loss carry forwards, as well as other federal and state tax credits, will remain with a valuation allowance recorded against them as of September 30, 2008, as it is not more likely than not that we will earn income of the character required to utilize these assets before they expire. The amount of deferred tax assets that have remaining valuation allowances at September 30, 2008 was $252 million.

Equity in Earnings of Affiliated Companies, Net of Impairments

The following provides a summary of equity in earnings of associated companies
(in millions):

                             Three months ended        Nine months ended
                               September 30,             September 30,
                            2008          2007          2008         2007
Samsung Corning Precision  $    263     $     160     $      725    $ 406
Dow Corning Corporation         109            81            283      262
Samsung Corning                               (18)                    (36)
All other                        10            16             38       43
Total equity earnings      $    382     $     239     $    1,046    $ 675

Equity earnings for the three and nine months ended September 30, 2008 reflected earnings increases for Samsung Corning Precision and Dow Corning, the positive impact of movements in foreign exchange rates, and the absence of restructuring and impairment charges from Samsung Corning when compared to the same periods in 2007.

The increase in equity earnings for Samsung Corning Precision is explained in the discussion of the performance of our Display Technologies segment.

When compared to the same periods last year, the increase in equity earnings from Dow Corning for the periods presented was due primarily to volume gains in their traditional silicone product lines and in polysilicones for the semiconductor and solar energy industries offset somewhat by an other-than-temporary impairment for auction rate securities in the three and nine months ended September 30, 2008. Our share of this impairment was $18 million.

For the three and nine months ended September 30, 2008, equity earnings included $23 million and $98 million, respectively, from the positive impact of movements in foreign exchange rates.

In the three and nine months ended September 30, 2007, equity earnings from Samsung Corning included $18 million and $33 million, respectively, for our share of restructuring and impairment charges. Until December 31, 2007, Corning had a 50% interest in Samsung Corning. Samsung Electronics Company, Ltd. and affiliates owned the remaining 50% interest in Samsung Corning. On December 31, 2007, Samsung Corning Precision acquired all of the outstanding shares of Samsung Corning. After the transaction, Corning retained its 50% interest in Samsung Corning Precision. Refer to Note 9 (Investments) to the consolidated financial statements for additional information relating to Samsung Corning Precision, Dow Corning, and Samsung Corning's operating results.

Net Income

As a result of the above, our net income and per share data is as follows (in
millions, except per share amounts):

                                             Three months ended       Nine months ended
                                               September 30,            September 30,
                                              2008         2007        2008        2007
Net income                                  $     768     $   617    $   5,008    $ 1,433
Basic earnings per common share             $    0.49     $  0.39    $    3.20    $  0.91
Diluted earnings per common share           $    0.49     $  0.38    $    3.15    $  0.89
Shares used in computing per share amounts
Basic earnings per common share                 1,558       1,570        1,564      1,566
Diluted earnings per common share               1,578       1,605        1,592      1,603

Effective January 1, 2008, Corning changed its internal reporting structure to better reflect the company's focus on new business development and later-stage research projects and to provide more transparency on our Specialty Materials operating segment. As a result, our segment reporting includes the following changes which are in accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information:"

• We have provided separate financial information for the Specialty Materials operating segment. This operating segment was previously included in All Other.

• Certain later-stage development projects, such as microreactors and green lasers, now meet the criteria for operating segments and are included in All Other. Spending for these projects was previously part of Exploratory Research and was reported in the reconciliation of reportable segment net income to total net income.

• Certain other new product lines now meet the criteria for operating segments and are included in All Other. Spending related to these businesses was previously included in our Life Sciences and Display Technologies operating segments.

Our reportable operating segments are now as follows:

• Display Technologies - manufactures liquid crystal display glass for flat panel displays.

• Telecommunications - manufactures optical fiber and cable and hardware and equipment components for the telecommunications industry.

• Environmental Technologies - manufactures ceramic substrates and filters for automotive and diesel applications. This reportable operating segment is an aggregation of our Automotive and Diesel operating segments as these two segments share similar economic characteristics, products, customer types, production processes and distribution methods.

• 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 consumables for scientific applications.

All other operating segments that do not meet the quantitative threshold for separate reporting have been grouped as "All Other." This group is now primarily comprised of development projects and results for new product lines.

We prepared the financial results for our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We included the earnings of equity affiliates that are closely associated with our operating segments in the respective segment's net income. We have allocated certain common expenses among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. Segment net income may not be consistent with measures used by other companies. The accounting policies of our reportable segments are the same as those applied in the consolidated financial statements.

Display Technologies

. . .