ORGANIZATION OF INFORMATION

Management's Discussion and Analysis provides a historical and prospective narrative on the Company's financial condition and results of operations. The discussion includes the following sections:

• Overview

• Results of Operations

• Operating Segments

• Liquidity and Capital Resources

• Critical Accounting Estimates

• New Accounting Standards

• Environment

• Forward Looking Statements

OVERVIEW

We believe the global economic recession continued to affect demand for our products in the first quarter of 2009 and that the decline may continue in the second quarter. The Company has responded to the economic conditions that affected demand for our products by scaling back manufacturing operations, curbing the rate of growth in research, development, and engineering expenses, reducing capital spending, and reducing operating costs. In the first quarter of 2009, we recorded restructuring charges of $165 million for costs associated with workforce reductions in all of our operating segments. Dow Corning also incurred restructuring costs associated with workforce reductions in the first quarter of 2009. Our share of these charges was $29 million.

Our key priorities for 2009 remain similar to those from the previous four years: protect our financial health and invest in the future. During the first quarter of 2009, we made the following progress against our priorities:

Protecting Financial Health

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

• Our debt to capital ratio of 12% at March 31, 2009 remains low when compared to 11% at December 31, 2008. The slight increase from December 31, 2008 reflected the impact of a capital lease associated with our Display Technologies segment.

• Operating cash flow in the three months ended March 31, 2009 was $264 million.

• We ended the first quarter of 2009 with $2.6 billion of cash, cash equivalents and short-term investments.

For the three months ended March 31, 2009, we generated net income of $14 million or $0.01 per share compared to net income of $1.0 billion or $0.64 per share for the same period in 2008. When compared to the same period last year, the decrease in net income was due largely to the following items:

• Lower net income in the Display Technologies segment driven by lower volumes, price declines, and a decline in equity earnings from Samsung Corning Precision, our equity affiliate located in Korea.

• Asbestos litigation expense of $4 million, compared to a credit of $327 million in the first quarter of 2008. In the first quarter of 2008, Corning reduced its liability for asbestos litigation as a result of the increase in the likelihood of a settlement under recently proposed terms and a corresponding decrease in the likelihood of a settlement under terms proposed in 2003. For additional information on the asbestos litigation, refer to Note
3 (Commitments and Contingencies) to the consolidated financial statements and Part II - Other Information, Item 1. Legal Proceedings.

• Charges of $165 million in the first quarter of 2009 for corporate-wide restructuring actions which included a selective voluntary early retirement program, global workforce reductions, and consolidation of manufacturing facilities. For additional information, refer to Note 2 (Restructuring, Impairment, and Other Charges (Credits)) to the consolidated financial statements.

• A decline in equity earnings from Dow Corning due to reduced volume and the negative impact of $29 million of restructuring charges at Dow Corning.

Investing In Our Future

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. We continue to make investments in promising technologies such as the Epic™ system, synthetic green lasers, silicon-on-glass, advanced flow reactors, thin-film photovoltaics, and mercury abatement.

Our research, development and engineering expenses for the three months ended March 31, 2009, were even with the same period last year. We believe our spending levels are adequate to support our technology and innovation strategies and reflect our commitment to the future, despite current economic conditions. As a percentage of net sales, these expenses grew 6 percentage points when compared to the first quarter of 2008 due to the significant decline in net sales when compared to a year ago.

Capital spending totaled $276 million and $467 million for the three months ended March 31, 2009 and 2008, respectively. Spending in the first quarter of 2009 was driven primarily by projects in our Display Technologies segment that were completed in 2008. We expect our 2009 capital spending to be about $1.1 billion. Approximately $700 million will be directed toward our Display Technologies segment, of which about $525 million relates to construction completed in 2008.

Corporate Outlook

We believe sales and profitability in 2009 will continue to be negatively impacted by global economic conditions. If we do not experience sufficient recovery in certain of our businesses, we may incur further charges to reduce our workforce and consolidate capacity. We will continue to focus on preserving cash, controlling our costs, and accelerating new products while maintaining our emphasis on research and development investments for longer term growth. We remain confident that our strategy to grow through global innovation while preserving our financial stability will enable our continued long-term success.

RESULTS OF OPERATIONS



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

                                                         Three months ended             %
                                                             March 31,               Change
                                                        2009          2008          09 vs. 08

Net sales                                              $    989     $    1,617          (39)%

Gross margin                                           $    270     $      844          (68)%
(gross margin %)                                            27%            52%

Selling, general and administrative expenses           $    207     $      242          (14)%
(as a % of net sales)                                       21%            15%

Research, development and engineering expenses         $    151     $      151             0%
(as a % of net sales)                                       15%             9%

Restructuring, impairment and other charges (credits)  $    165     $      (1)              *
(as a % of net sales)                                       17%             0%

Asbestos litigation charge (credit)                    $      4     $    (327)         (101)%
(as a % of net sales)                                        0%          (20)%

Equity in earnings of affiliated companies             $    195     $      312          (38)%
(as a % of net sales)                                       20%            19%

(Loss) income before income taxes                      $   (52)     $    1,103         (105)%
(as a % of net sales)                                      (5)%            68%

Benefit (provision) for income taxes                   $     66     $     (74)           189%
(as a % of net sales)                                        7%           (5)%

Net income attributable to Corning Incorporated        $     14     $    1,029          (99)%
(as a % of net sales)                                        1%            64%

* The percentage change calculation is not meaningful.

Net Sales

For the three months ended March 31, 2009, net sales decreased when compared to the same periods in 2008 resulting primarily from year-over-year lower volumes in the Display Technologies, Environmental Technologies, and Telecommunications segments. Net sales were positively impacted by approximately $17 million due to movements in foreign exchange rates, primarily the Japanese yen - U.S. dollar exchange rate because sales of the Display Technologies segment are denominated in Japanese yen. Net sales of our other operating segments were also lower in the first quarter of 2009 when compared with the same period last year.

Cost of Sales

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.

As a percentage of net sales, gross margin for the first quarter of 2009 declined significantly when compared to the first quarter of 2008 due primarily to the impact of significantly lower volume and price declines in the Display Technologies segment. Reduced volume in our other segments in the first quarter of 2009 also had a negative impact on gross margin when compared to the same period last year.

Selling, General and Administrative Expenses

For the three months ended March 31, 2009, selling, general, and administrative expenses decreased $35 million due primarily to lower compensation-related costs and the impact of recent restructuring actions. As a percentage of net sales, these expenses increased by 6 percentage points when compared to the same period in 2008 due to the significant decline in net sales.

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 months ended March 31, 2009, research, development and engineering expenses were even with the same period last year. Expenditures are currently focused on our Display Technologies, Environmental Technologies and Telecommunications segments as we strive to capitalize on growth opportunities in those segments. Excluding these segments, the largest driver of spending continues to be for development projects such as Gorilla™ glass, green lasers, silicon-on-glass and baseline research for new business development. Gorilla™ glass is an optical quality glass that is optimized for high-end portable devices and touch screens. As a percentage of net sales, these expenses increased by 6 percentage points when compared to the same period last year due to the significant decline in net sales.

Restructuring, Impairment and Other Charges (Credits)

In response to anticipated lower sales in 2009, we recorded a charge of $165 million in the first quarter of 2009 for a corporate-wide restructuring plan to reduce our global workforce. The charge included costs for severance, special termination benefits, outplacement services, and the impact of a $30 million curtailment loss for postretirement benefits. Total cash expenditures associated with this plan are expected to be approximately $105 million with the majority of spending completed by early 2010. We estimate annualized savings from these actions will be about $195 million and will be reflected largely in cost of sales and selling, general, and administrative expenses. In the second quarter of 2009, we expect to see about $30 million in savings.

Asbestos Litigation

In the first quarter of 2009 we recorded a $4 million increase to our asbestos litigation liability to reflect the change in the estimated liability. In the first quarter of 2008, we recorded a $327 million decrease to our asbestos litigation liability 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 proposed in 2003.

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.

Equity in Earnings of Affiliated Companies

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

                            Three months ended
                                March 31,
                            2009         2008
Samsung Corning Precision  $    187     $    216
Dow Corning Corporation           5           80
All other                         3           16
Total equity earnings      $    195     $    312

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

The decrease in equity earnings from Dow Corning in the first quarter of 2009 reflected volume declines in Dow Corning's traditional silicone businesses and the impact of restructuring charges offset somewhat by an increase in volume at Hemlock Semiconductor when compared to the first quarter of 2008. Hemlock Semiconductor is Dow Corning's consolidated subsidiary that makes high purity polycrystalline for the semiconductor and solar energy industries. In response to current economic challenges, Dow Corning incurred restructuring charges associated with a global workforce reduction in the first quarter of 2009. Our share of these charges was $29 million. In the second quarter of 2009, we expect equity earnings at Dow Corning to increase substantially when compared to the first quarter of 2009.

Other Income, Net

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

                                                       Three months
                                                      ended March 31,
                                                      2009        2008

Royalty income from Samsung Corning Precision        $    42     $  43
Foreign currency exchange and hedge (losses), net    $   (18)    $ (28)
Net income attributable to noncontrolling interests              $   1
Other, net                                           $    (4)    $ (14)
Total                                                $    20     $   2

(Loss) Income Before Income Taxes

(Loss) income before income taxes for the three months ended March 31, 2009, was positively impacted by $73 million, due to movements in foreign exchange rates compared to the same periods last year.

Benefit (Provision) for Income Taxes

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

                                         Three months
                                        ended March 31,
                                        2009        2008

Benefit (provision) for income taxes $     66     $ (74)
Effective (benefit) tax rate           (126.9)%       6.7%

For the three months ended March 31, 2009, the effective income tax rate differed from the U.S. statutory rate of 35% primarily due to the following items:

• Rate differences on income/(losses) of consolidated foreign companies;

• The impact of equity in earnings of affiliated companies;

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

• The impact of discrete items, including restructuring charge of $165 million and our share of Dow Corning's restructuring charge of $29 million. Refer to Note 2 (Restructuring, Impairment and Other Charges (Credits)) for additional information about the restructure charge. Discrete items increased our effective tax rate by 128.3 percentage points.

• 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; and

• The impact of discrete items for which no tax benefit was recorded, including an asbestos litigation credit of $327 million. Refer to Note 3 (Commitments and Contingencies) for additional information about the asbestos litigation. Discrete items decreased our effective tax rate by 2.8 percentage points.

As more fully described in Note 6 (Income Taxes) to the consolidated financial statements in our 2008 Form 10-K, all of our U.S. deferred tax assets had full valuation allowances until the second quarter of 2008. At that time, we concluded that it was more likely than not that we would 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 $2.5 billion of valuation allowances in 2008 on our U.S. deferred tax assets and, effective January 1, 2009, are providing U.S. income tax expense or (benefit) on U.S. earnings (losses).

For the three months ended March 31, 2008, we recorded tax expense on income generated in the U.S. of $172 million which was fully offset by releases of valuation allowance. This amount includes the impact of discrete items described above.

Refer to Note 5 (Income Taxes) to the consolidated financial statements for additional information.

Net Income Attributable to Corning Incorporated

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
                                                      March 31,
                                                   2009         2008
Net income attributable to Corning Incorporated  $      14     $ 1,029
Basic earnings per common share                  $    0.01     $  0.66
Diluted earnings per common share                $    0.01     $  0.64
Shares used in computing per share amounts
Basic earnings per common share                      1,548       1,566
Diluted earnings per common share                    1,559       1,598

OPERATING SEGMENTS

Our reportable operating segments are 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 are grouped as "All Other." This group is primarily comprised of development projects and results for new product lines.

Effective January 1, 2009, we began providing U.S. income tax expense (or benefit) on U.S. earnings (losses) due to the change in our conclusion about the realizability of our U.S. deferred tax assets in 2008. As a result of the change in our tax position, we adjusted the allocation of taxes to our operating segments in 2009 to reflect this difference. The impact of this change was not significant.

Display Technologies

The following table provides net sales and other data for the Display
Technologies segment (in millions):

                                          Three months ended         %
                                              March 31,           Change
                                          2009         2008      09 vs. 08

Net sales                                $    357     $    829       (57)%
Equity earnings of affiliated companies  $    180     $    207       (13)%
Net income                               $    218     $    679       (68)%

The decrease in net sales for the first quarter of 2009 compared to the first quarter of 2008 was largely the result of volume declines of 53% and price declines offset somewhat by the positive impact of $37 million from movements in foreign exchange rates. The decline in volume reflected the weak global market and continued soft demand in Taiwan.

When compared to the first quarter of 2008, equity earnings from Samsung Corning Precision for the three months ended March 31, 2009 reflected a slight increase in volume and the positive impact of $59 million from movements in foreign exchange rates that was more than offset by price declines. We believe lower volume levels at our wholly owned business compared to those at Samsung Corning Precision were partially because Taiwanese panel makers do not have strong brand recognition with consumers, so they are the first to experience supply chain corrections and are slower to benefit from supply chain improvements when demand returns. In addition, a number of Taiwanese panel makers provide capacity to customers that also produce their own LCD panels, and as overall demand has been lower, purchases of this excess capacity remain depressed.

Because Corning sells to panel makers and not to end market consumers, supply chain expansion and contraction for this industry is a key factor in Corning's volume. During 2008, the LCD market experienced a supply chain contraction in the second half of the year that worsened as global economic conditions deteriorated and demand rapidly declined. We believe the industry supply chain contraction ended in the first quarter of 2009. Segment results in the first quarter of 2009 reflected a slight decline in volume at our wholly owned business, and volume at Samsung Corning Precision increased 7% when compared to the fourth quarter of 2008. Pricing was also a key factor in the first quarter of 2009 when compared to the fourth quarter of 2008, with price declines near the upper single digits as expected at Corning's wholly owned business and higher at Samsung Corning Precision.

When compared to the first quarter of last year, the decline in net income in the first quarter of 2009 reflects the impact of volume and price declines as described above, restructuring charges, offset somewhat by $80 million from the positive impact of movements in foreign exchange rates. Net income of this segment in the first quarter included $34 million of restructuring charges associated with the Company's corporate-wide restructuring plan to reduce its global workforce in response to anticipated lower sales in 2009. Net income also includes royalty income from Samsung Corning Precision which was relatively even from the first quarter of last year. Corning licenses certain of its patents and know-how to Samsung Corning Precision, as well as to third parties, which generate royalty income. Refer to Note 7 (Investments) to the consolidated financial statements for more information about related party transactions.

In addition, Samsung Corning Precision's sales are concentrated across a small number of its customers. For the three months ended March 31, 2009, sales to two LCD panel makers located in Korea, Samsung Electronics Co., Ltd. and LG Phillips LCD Co., Ltd., accounted for approximately 92% of Samsung Corning Precision sales.

Outlook:

We expect the Display Technologies segment to continue to be impacted by the global recession but to a lesser extent than in the first quarter. In the second quarter of 2009, we expect the supply chain to continue to improve. We anticipate volumes at our wholly owned business to be up more than 50% and up more than 25% at Samsung Corning Precision. We anticipate the rate of price declines will be much more moderate in both our wholly owned business and at Samsung Corning Precision. As volumes improve, we expect a significant improvement in this segment's net income.

We now expect the overall LCD glass market in 2009 will be up 5% to 10% when compared with 2008, resulting from an increase in demand for LCD televisions offset slightly by falling demand for LCD monitors and notebook computers. In addition, we expect regional mix shifts as described above may continue to cause an increase in volume at Samsung Corning Precision with a corresponding decrease in volume for Corning's wholly owned business. Although the LCD supply chain has been impacted by the current global recession, we believe that the long-term drivers of this market, specifically increased penetration of LCD into the total . . .