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

Corning's results for the third quarter of 2009 reflected the continued effects of the global economic recession and the impact of a disruption at one of our manufacturing facilities offset by the positive impact of movements in foreign exchange rates. Although results for most of our operating segments were down when compared to last year, the rate of decline has slowed. In August, an earthquake halted production at one of the Company's liquid crystal display (LCD) glass manufacturing facilities in Japan. Production capacity in Taiwan and our ability to quickly resume some manufacturing in Japan helped to ease the impact of the disruption.

In comparison to the second quarter of 2009, results improved in a number of segments. Continued strength in demand for the Company's LCD glass products contributed to the performance of the Display Technologies segment and government incentives drove improvements in the Environmental Technologies segment. Results in the Telecommunications segment continued to reflect the strength in demand for optical fiber and cable products in China. We also saw an increase in demand at Dow Corning Corporation, our equity affiliate which manufactures silicone products worldwide when compared to the previous quarter.

In the third quarter of 2009, Corning acquired Axygen BioScience, Inc. (Axygen) for $410 million, net of $7 million cash received. The acquisition of Axygen, which will be integrated into the Life Sciences operating segment, supports the Company's strategy to expand Corning's portfolio of life sciences products and enhance global customer access in this business.

The Company's year-to-date results included restructuring charges of $175 million primarily for costs associated with workforce reductions in the first quarter of 2009 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 third quarter of 2009, we made the following progress toward 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 September 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 nine months ended September 30, 2009 was $1.2 billion.

• We ended the third quarter of 2009 with $2.9 billion of cash, cash equivalents and short-term investments, well above our debt balance of $2.0 billion.

• Lower net income in the Display Technologies segment driven by lower prices and approximately $20 million of costs associated with the earthquake in Japan.

• The absence of a $70 million valuation allowance release on deferred tax assets last year resulting from a change in estimate of full-year income.

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

The decrease in net income for the three months ended September 30, 2009, was offset somewhat by $102 million from the positive impact of movements in foreign exchange rates when compared to the same period last year.

For the nine months ended September 30, 2009, we reported net income of $1.3 billion or $0.81 per share compared with $5.0 billion or $3.15 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:

• The absence of a $2.4 billion valuation allowance release on our deferred tax assets resulting from a change in judgment about the realizability of deferred tax assets in future years.

• The absence of a credit to asbestos litigation expense of $312 million reflecting a change in the estimate of our asbestos settlement liability compared to expense of $15 million reported in the current year.

• Lower net income in the Display Technologies segment due to lower volume and lower prices.

The decrease in net income for the nine months ended September 30, 2009, was offset somewhat by $256 million 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. For additional information on the release of valuation allowances in 2008, refer to Note 5 (Income Taxes) to the consolidated financial statements. For additional information on asbestos litigation, refer to Note 3 (Commitments and Contingencies) to the consolidated financial statements and

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 and nine months ended September 30, 2009, were lower when compared to the same periods last year. Reduced spending in both periods presented was driven primarily by the impact of restructuring actions taken in the first quarter of 2009 and cost reduction efforts. Expenses in the third quarter were also favorably impacted by research and development services provided to Corsam Technologies LLC (Corsam) in 2009 when compared to the same periods last year. Refer to Note 9 (Investments) to the consolidated financial statements for additional information about Corsam and related party transactions.

Capital spending totaled $727 million and $1.2 billion for the nine months ended September 30, 2009 and 2008, respectively. Spending in the third quarter of 2009 was driven primarily by projects in our Display Technologies segment. We expect our 2009 capital spending to be about $1.0 billion. Approximately $600 million will be directed toward our Display Technologies segment, of which about $525 million relates to construction completed in 2008.

Although our outlook is favorable, we believe our sales and profitability will continue to be negatively impacted by global economic conditions for the remainder of the year. In mid-October, production at the Company's LCD glass manufacturing facility in Taichung was impacted by a power disruption. Prior to the impact of the power disruption, we anticipated volume at our wholly-owned business in our Display Technologies segment in the fourth quarter to be up 5% when compared to the third quarter. We now expect this volume to be flat to down slightly. We continue to assess the levels of recovery in certain of our businesses and we may incur further charges to reduce our workforce and consolidate capacity where necessary. 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 may take advantage of acquisition opportunities that support the long-term strategies of our businesses, such as our recent purchase of Axygen. 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 third quarter follow (dollars in millions):

                          Three months ended           %          Nine  months ended           %
                             September 30,          Change           September 30,          Change
                           2009          2008      09 vs. 08       2009          2008      09 vs. 08

Net sales                $   1,479      $ 1,555         (5)%     $   3,863      $ 4,864        (21)%

Gross margin             $     599      $   735        (19)%     $   1,444      $ 2,431        (41)%
(gross margin %)               41%          47%                        37%          50%

Selling, general and
administrative expenses  $     219      $   220                  $     637      $   722        (12)%
(as a % of net sales)          15%          14%                        16%          15%

Research, development
and engineering
expenses                 $     131      $   160        (18)%     $     418      $   474        (12)%
(as a % of net sales)           9%          10%                        11%          10%

Restructuring,
impairment and other
charges (credits)        $      10      $   (2)            *     $     175      $   (3)           *
(as a % of net sales)           1%                                      5%

Asbestos litigation
charge (credit)          $       6      $     6                  $      15      $ (312)      (105)%
(as a % of net sales)                                                              (6)%

Equity in earnings of
affiliated companies     $     418      $   391           7%     $     974      $ 1,070         (9)%
(as a % of net sales)          28%          25%                        25%          22%

Income before income
taxes                    $     675      $   717         (6)%     $   1,230      $ 2,650        (54)%
(as a % of net sales)          46%          46%                        32%          54%

(Provision) benefit for
income taxes             $    (32)      $    51       (163)%     $      38      $ 2,358        (98)%
(as a % of net sales)         (2)%           3%                         1%          48%

Net income attributable
to Corning Incorporated  $     643      $   768        (16)%     $   1,268      $ 5,008        (75)%
(as a % of net sales)          43%          49%                        33%         103%

* The percentage change calculation is not meaningful.

For the three months ended September 30, 2009, net sales decreased in the majority of our segments when compared to the same period in 2008. In the third quarter of 2009, the net sales decrease was largely due to the impact of lower volumes in the Telecommunications, Environmental Technologies and Specialty Materials segments and price declines in the Display Technologies segment when compared to the same period last year.

For the nine months ended September 30, 2009, net sales reflected decreases in all of our segments when compared to the same period last year and was primarily driven by volume and price declines in the Display Technologies segment. The largest portion of this decline occurred in the first quarter of 2009 as LCD glass demand fell rapidly in response to worsening economic conditions. Lower volume in the Environmental Technologies and Telecommunications segments also impacted the decline in sales.

For the three and nine months ended September 30, 2009, net sales were positively impacted by $82 million and $122 million, respectively, due to movements in foreign exchange rates when compared to the prior 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.

Gross Margin

As a percentage of net sales, gross margin for the third quarter of 2009 declined when compared to the same period last year due primarily to the impact of price declines in the Display Technologies segment and the impact of costs associated with the earthquake in Japan. As a percentage of net sales, gross margin for the nine months ended September 30, 2009, declined when compared to the same period last year, due primarily to reduced volume in the Display and Environmental Technologies segments and price declines in the Display Technologies segment. When compared to the second quarter of 2009, gross margin for the third quarter of 2009 as a percentage of net sales was relatively even, and largely reflected improved volume in the Environmental Technologies segment offset by the impact of costs associated with the earthquake in Japan.

Selling, General and Administrative Expenses

For the three and nine months ended September 30, 2009, selling, general, and administrative expenses decreased by $1 million and $85 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 for the three and nine months ended September 30, 2009 were up slightly when compared to the same periods last year due to the decline in net sales offset by the favorable impact of restructuring actions in 2009.

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, 2009, research, development and engineering expenses decreased by $29 million and $56 million, respectively, when compared to the same periods last year. Lower expenses reflected the impact of restructuring actions in the first quarter of 2009 and cost reduction efforts. Expenses in the third quarter were also favorably impacted by research and development services provided to Corsam in 2009. Refer to Note 9 (Investments) to the consolidated financial statements for additional information about Corsam and related party transactions.

Restructuring, Impairment and Other Charges (Credits)

In response to anticipated lower sales in 2009, we recorded charges of $175 million in the nine months ended September 30, 2009 primarily for a corporate-wide restructuring plan to reduce our global workforce. The charges included costs for severance, special termination benefits, outplacement services, and the impact of a $30 million curtailment loss for postretirement benefits in the first quarter of 2009. Total cash expenditures associated with these actions are expected to be approximately $110 million with the majority of spending completed by early 2010. We estimate annualized savings from these actions will be about $200 million and will be reflected largely in cost of sales and selling, general, and administrative expenses. In the fourth quarter of 2009, we expect to see about $35 million in savings from these actions.

Asbestos Litigation

In the three months ended September 30, 2009 and 2008, we recorded an increase to our asbestos litigation liability of $6 million in both periods. In the nine months ended September 30, 2009 we recorded an increase of $15 million to the asbestos settlement liability compared to a net decrease of $312 million in the same period last year. The net decrease in the first nine months 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        Nine months ended
                              September 30,             September 30,
                            2009         2008        2009         2008
Samsung Corning Precision  $    316     $    268    $   797     $      737
Dow Corning Corporation          92          109        154            283
All other                        10           14         23             50
Total equity earnings      $    418     $    391    $   974     $    1,070

Equity earnings for the three months ended September 30, 2009 reflected increased volume, manufacturing efficiency gains and the positive impact of $48 million from movements in foreign exchange rates offset somewhat by lower pricing at Samsung Corning Precision offset by lower sales at Dow Corning when compared to the same period last year. Equity earnings for the nine months ended September 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 $151 million from movements in foreign exchange rates at Samsung Corning Precision.

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

Other Income (Expense), Net

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

                                                           Three months ended        Nine months ended
                                                             September 30,             September 30,
                                                           2009          2008         2009        2008
Royalty income from Samsung Corning Precision            $     62      $     54     $    165      $ 148
Foreign currency exchange and hedge (losses)/gains, net       (12)          (19)         (47)       (53)
Net realized losses on available-for-sale securities                        (39)                    (41)
Loss on sale of Steuben glass business                                      (14)                    (14)
Net income attributable to noncontrolling interests            (5)                        (6)          1
Other, net                                                      3           (12)          (3)       (30)
Total                                                    $     48      $    (30)    $    109      $  11

Income Before Income Taxes

Income before income taxes for the three and nine months ended September 30, 2009, was positively impacted by $107 million and $265 million, respectively, due to movements in foreign exchange rates when compared to the same periods last year.

(Provision) Benefit for Income Taxes

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

                                       Three months ended       Nine months ended
                                         September 30,            September 30,
                                        2009         2008       2009        2008

(Provision) benefit for income taxes  $    (32)     $ 51       $  38     $ 2,358
Effective (tax) benefit rate              (4.7)%       7.1%       3.1%        89.0%

For the three months ended September 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.

• The impact of discrete items, including a restructuring charge of $10 million. Refer to Note 2 (Restructuring, Impairment and Other Charges (Credits)) for additional information about Corning's restructuring charge. Discrete items decreased our effective tax rate by 2.5 percentage points.

In addition to the items noted above, the tax provision for the nine months ended September 30, 2009, reflected the impact of discrete items, including a restructuring charge of $165 million. Discrete items decreased our effective rate by 7.4 percentage points.

• The release of $70 million of valuation allowances resulting from a change in estimate regarding 2008 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 net realized losses on 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 15.1 percentage points. Refer to Note 7 (Available-for-Sale 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 valuation allowance releases decreased our effective tax rate by 97.7 percentage points. Refer to Note 3 (Commitments and Contingencies) for additional information about asbestos settlement litigation.

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 in the second quarter of 2008. We considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance was needed.

For the three and nine months ended September 30, 2008, we recorded tax expense on income generated in the U.S. of $16 million and $239 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        Nine months ended
                                                    September 30,             September 30,
                                                   2009         2008         2009         2008
Net income attributable to Corning Incorporated  $     643     $   768     $   1,268     $ 5,008
Basic earnings per common share                  $    0.41     $  0.49     $    0.82     $  3.20
Diluted earnings per common share                $    0.41     $  0.49     $    0.81     $  3.15
. . .