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

In the second quarter of 2009, the Company's businesses continued to feel the impact of the global economic recession with lower sales and net income for all of our operating segments, when compared to the same period last year. The largest decreases occurred in the Display Technologies, Environmental Technologies, and Telecommunications operating segments.

In comparison to the first quarter of 2009, however, results in the second quarter reflected stronger-than-anticipated demand for the Company's liquid crystal display (LCD) glass products, and an increase in net sales in the majority of our other operating segments. Strong retail sales of flat panel TVs supported replenishment of the supply chain. This helped to generate sales of $673 million in our Display Technologies segment in the second quarter of 2009, which were nearly double the amount of sales for this segment in the first quarter of 2009. Sales in the Telecommunications segment reflected increasing demand for optical fiber and cable products in China. Environmental Technologies segment performance included the impact of government incentives and, we believe, the leveling off of the downward slope in automotive builds experienced in the last six months. We also saw an increase in demand at Dow Corning Corporation, our equity affiliate that manufactures silicone products worldwide.

The Company's year-to-date results included restructuring charges of $165 million for costs associated with workforce reductions in all of our operating segments as we scaled back manufacturing operations, curbed the rate of growth in research, development, and engineering expenses, reduced capital spending, and reduced operating costs. We also recorded $29 million for our share of restructuring charges at Dow Corning in the first quarter of 2009.

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 second 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 13% at June 30, 2009 remains low. The increase from 11% at December 31, 2008 primarily reflected the impact of $350 million of senior unsecured notes that were issued in the second quarter of 2009 for general corporate purposes.

• Operating cash flow in the first half of 2009 was $632 million.

• We ended the second quarter of 2009 with $3.1 billion of cash, cash equivalents and short-term investments, substantially above our debt balance of $2.0 billion.

• The absence of a $2.4 billion valuation allowance release on our deferred tax assets. In the second quarter of 2008, 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 $2.4 billion of valuation allowance on our U.S. deferred tax assets. For additional information, refer to Note 5 (Income Taxes) to the consolidated financial statements.

• 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.

For the six months ended June 30, 2009, we reported net income of $625 million or $0.40 per share which represented a decrease of $3.6 billion when compared to the same period in 2008. The decrease was primarily attributable to the absence of the valuation allowance release described above, lower net income in the Display Technologies segment, and the absence of a credit to asbestos litigation expense of $318 million when compared to the six months ended June 30, 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 more recently proposed terms and a corresponding decrease in the likelihood of a settlement under terms proposed in 2003. For additional information on asbestos litigation, refer to Note 3 (Commitments and Contingencies) to the consolidated financial statements and Part II - Other Information, Item 1. Legal Proceedings.

The decrease in net income for the three and six months ended June 30, 2009, was offset somewhat by $69 million and $155 million, respectively, from the positive impact of movements in foreign exchange rates and lower operating expenses resulting from the Company's restructuring activities in the first quarter of 2009 when compared to the same periods last year.

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 June 30, 2009, were lower when compared to the same period last year but even as a percentage of net sales. For the six months ended June 30, 2009, spending was lower compared to the same period last year due to the impact of restructuring actions taken in the first quarter of 2009, but was higher as a percentage of net sales reflecting the year-over-year decline in net sales. 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.

Capital spending totaled $491 million and $864 million for the six months ended June 30, 2009 and 2008, respectively. Spending in the second 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

Although our outlook has improved, 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 second quarter follow (dollars in millions):

                          Three months ended           %           Six months ended            %
                               June 30,             Change             June 30,             Change
                           2009          2008      09 vs. 08       2009          2008      09 vs. 08

Net sales                $   1,395      $ 1,692        (18)%     $   2,384      $ 3,309        (28)%

Gross margin             $     575      $   852        (33)%     $     845      $ 1,696        (50)%
(gross margin %)               41%          50%                        35%          51%

Selling, general and
administrative expenses  $     211      $   260        (19)%     $     418      $   502        (17)%
(as a % of net sales)          15%          15%                        18%          15%

Research, development
and engineering
expenses                 $     136      $   163        (17)%     $     287      $   314         (9)%
(as a % of net sales)          10%          10%                        12%           9%

Restructuring,
impairment and other
charges (credits)        $       0      $     0           0%     $     165      $   (1)           *
(as a % of net sales)           0%           0%                         7%           0%

Asbestos litigation
charge (credit)          $       5      $     9        (44)%     $       9      $ (318)           *
(as a % of net sales)           0%           1%                         0%        (10)%

Equity in earnings of
affiliated companies     $     361      $   367         (2)%     $     556      $   679        (18)%
(as a % of net sales)          26%          22%                        23%          21%

Income before income
taxes                    $     607      $   830        (27)%     $     555      $ 1,933        (71)%
(as a % of net sales)          44%          49%                        23%          58%

Benefit for income
taxes                    $       4      $ 2,381       (100)%     $      70      $ 2,307        (97)%
(as a % of net sales)           0%         141%                         3%          70%

Net income attributable
to Corning Incorporated  $     611      $ 3,211        (81)%     $     625      $ 4,240        (85)%
(as a % of net sales)          44%         190%                        26%         128%

* The percentage change calculation is not meaningful.

Net Sales

For the three and six months ended June 30, 2009, net sales decreased in all of our segments when compared to the same periods in 2008. The largest decreases resulted from lower volumes in the Display Technologies, Environmental Technologies, and Telecommunications segments. For the three and six months ended June 30, 2009, net sales were positively impacted by $24 million and $40 million, respectively, due to movements in foreign exchange rates when compared to the prior year.

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 three and six months ended June 30, 2009 declined when compared to the same periods last year due primarily to the impact of significantly lower volume and price declines in the Display Technologies segment. When compared to the prior year, reduced volume in our other segments also had a negative impact on gross margin for the three and six months ended June 30, 2009. As a percentage of net sales, gross margin for the second quarter of 2009 improved when compared to the first quarter of 2009 driven primarily by sales volume improvements in our Display Technologies segment.

Selling, General and Administrative Expenses

For the three and six months ended June 30, 2009, selling, general, and administrative expenses decreased by $49 million and $84 million, respectively, due primarily to lower compensation-related costs and the favorable impact of restructuring actions in the first quarter of 2009, when compared to the same periods last year. As a percentage of net sales, these expenses increased by 3 percentage points for the first half of 2009 when compared to the same period in 2008 due primarily to the decline in net sales. For the second quarter of 2009, selling, general, and administrative expenses as a percentage of net sales were even with the same period last year due to a more moderate decline in net sales and the favorable impact of restructuring actions.

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 six months ended June 30, 2009, research, development and engineering expenses decreased by $27 million when compared to the same periods last year. Lower expenses reflected the impact of restructuring actions in the first quarter of 2009. 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 protective cover glass that is optimized for high-end consumer electronic devices. When compared to the same periods last year, as a percentage of net sales, these expenses were even in the second quarter of 2009. For the first half of 2009, as a percentage of net sales, research, development, and engineering expenses increased 3 percentage points due primarily to the 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 third quarter of 2009, we expect to see about $35 million in savings.

In the three months ended June 30, 2009 and 2008, we recorded an increase to our asbestos litigation liability of $5 million and $9 million, respectively. In the six months ended June 30, 2009 we recorded an increase of $9 million to the asbestos settlement liability compared to a net decrease of $318 million in the same period last year. The net decrease in the first half of 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. 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        Six months ended
                                 June 30,                 June 30,
                            2009         2008        2009         2008
Samsung Corning Precision  $    294     $    253    $    481     $    469
Dow Corning Corporation          58           94          62          174
All other                         9           20          13           36
Total equity earnings      $    361     $    367    $    556     $    679

Equity earnings for the three months ended June 30, 2009 reflected higher sales at Samsung Corning, along with the positive impact of $43 million from movements in foreign exchange rates at Samsung Corning Precision offset by lower sales at Dow Corning when compared to the same period last year. Equity earnings for the six months ended June 30, 2009, decreased when compared to the same period in 2008 due primarily to a decline in sales at Dow Corning and $29 million for our share of restructuring charges at Dow Corning, offset somewhat by the positive impact of $103 million from movements in foreign exchange rates.

Equity earnings for Samsung Corning Precision are explained more fully in the discussion of the performance of our Display Technologies segment.

The decrease in equity earnings from Dow Corning in the second quarter of 2009 reflected volume declines in Dow Corning's traditional silicone businesses offset somewhat by the positive impact from a change in the useful lives of certain fixed assets. When compared to the same period last year, the decrease in the six months ended June 30, 2009 reflected volume declines and the impact of restructuring charges offset somewhat by an increase in volume at Hemlock Semiconductor Corporation, and the positive impact from a change in the useful lives of certain fixed assets. Hemlock Semiconductor Corporation is Dow Corning's consolidated subsidiary that makes high purity polycrystalline for the semiconductor and solar energy industries. In response to recent 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 third quarter of 2009, we expect equity earnings at Dow Corning to continue to improve when compared to the second quarter of 2009.

Other Income, Net

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

                                                             Three months ended        Six months ended
                                                                  June 30,                 June 30,
                                                             2009          2008        2009        2008
Royalty income from Samsung Corning Precision              $      61      $    50     $   103      $  93
Foreign currency exchange and hedge (losses) / gains, net        (16)          (6)        (35)       (34)
Net income attributable to noncontrolling interests               (1)                      (1)         1
Other, net                                                        (3)          (5)         (6)       (19)
Total                                                      $      41      $    39     $    61      $  41

Income before income taxes for the three and six months ended June 30, 2009, was positively impacted by $68 million and $159 million, respectively, due to movements in foreign exchange rates when compared to the same periods last year.

Benefit for Income Taxes

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

                               Three months ended        Six months ended
                                    June 30,                 June 30,
                               2009        2008         2009         2008

Benefit for income taxes     $   (4)    $ (2,381)     $  (70)     $ (2,307)
Effective tax (benefit) rate   (0.6)%      (286.9)%     (12.6)%      (119.3)%

For the three months ended June 30, 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.

In addition to the items noted above, the tax provision for the six months ended June 30, 2009, reflected the impact of discrete items, including a restructuring charge of $165 million and $29 million for our share of Dow Corning's restructuring charge. Refer to Note 2 (Restructuring, Impairment and Other Charges (Credits)) for additional information about Corning's restructuring charge. Discrete items decreased our effective rate by 14.2 percentage points.

For the three months ended June 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 $2.4 billion of valuation allowances resulting from a change in judgment about the realizability of deferred tax assets in future years, described below.

• 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 litigation-related items totaling $21 million. Refer to Note 3 (Commitments and Contingencies) for additional information about asbestos settlement litigation. Discrete items and the valuation allowance release decreased our effective tax rate by 295.4 percentage points.

In addition to the items noted above, the tax provision for the six months ended June 30, 2008, reflected the impact of additional discrete items for which no tax expense was recorded including an asbestos settlement credit of $327 million in the first quarter of 2008. For the six months ended June 30, 2008, discrete items and the valuation allowance release decreased our effective tax rate by 128.3 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 $2.4 billion of valuation allowances 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 and six months ended June 30, 2008, we recorded tax expense on income generated in the U.S. of $51 million and $223 million, respectively, which was fully offset by releases of valuation allowance. These amounts include 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         Six months ended
                                                       June 30,                  June 30,
                                                   2009         2008         2009         2008
Net income attributable to Corning Incorporated  $     611     $ 3,211     $     625     $ 4,240
Basic earnings per common share                  $    0.39     $  2.05     $    0.40     $  2.71
Diluted earnings per common share                $    0.39     $  2.01     $    0.40     $  2.65
Shares used in computing per share amounts
Basic earnings per common share                      1,550       1,569         1,549       1,567
Diluted earnings per common share                    1,567       1,600         1,563       1,599

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.

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.

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          %           Six months ended            %
                                   June 30,            Change             June 30,             Change
                              2009         2008       09 vs. 08       2009         2008       09 vs. 08

Net sales                    $    673     $    809        (17)%     $   1,030     $  1,638        (37)%
. . .