ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We continue to focus on three key priorities in 2004: protect our financial health, improve our profitability, and invest in the future. We continue to make progress towards all three in 2004.

Financial Health
During the third quarter of 2004, we continued to make strides in improving our balance sheet and delivering positive cash flows from operating activities. The following are the highlights for the three and nine months ended September 30, 2004:

. As part of our ongoing debt reduction program, we retired $58 million of our 3.5% convertible debentures during the third quarter of 2004. For the nine months ended September 30, 2004, we have retired a total of $368 million of our 3.5% convertible debentures and $119 million of our zero coupon bonds.
. We ended the third quarter of 2004 with $1.7 billion in cash, cash equivalents and short-term investments. This represents an increase of approximately $470 million compared to our December 31, 2003 balance, primarily due to the issuance of $400 million senior unsecured notes in the first quarter of 2004 and improved operating cash flows for the nine months ended September 30, 2004.
. We generated sufficient cash flows from operating activities to cover our capital expenditures.

Profitability
During the third quarter of 2004, Corning's net loss reflects the following:

. a $1,794 million ($1,798 million after-tax and minority interest) of restructuring, impairment and other charges and (credits), which primarily comprised Telecommunications segment impairment charges relating to goodwill of $1,420 million and fixed assets of $374 million;
. a $50 million asbestos settlement credit, which relates to the mark-to-market adjustment of the Pittsburgh Corning Corporation liability to be settled in Corning's common stock;
. a $4 million loss on the repurchases of debt;
. a $937 million in provision for income taxes caused by our decision to record a valuation allowance against certain deferred tax assets;
. a $35 million impairment charge to write-down certain Telecommunications equity method investments to fair value, which is reflected in equity in earnings of associated companies, net of impairments; and
. a $20 million gain related to the sale of our former precision lens business, which is included in income from discontinued operation.

The goodwill and fixed asset impairment charges were triggered from the results of our annual strategic planning process of the Telecommunications segment. Specifically, we determined that we needed to lower our estimates and forecasts for the long-term revenue growth of the Telecommunications segment. Although we are currently experiencing stronger than expected volume in this segment, the improved demand comes from a narrow band of customers, and we see few signs of a broader recovery in overall demand, mix of premium products, and pricing for our products. The lack of industry consolidation, increased competitive pressures in the industry, and revised estimates of future customer demand for the types of products they will deploy have caused us to change our assessment of the future pace of recovery. The primary estimates and forecasts driving this change in our outlook are:

. Revised estimates of future pricing for fiber and cable: Pricing in the telecommunications industry remains depressed as the industry has failed to reduce capacity. Our previous projections assumed some rationalization of capacity that would lead to more stable pricing. We now expect the current depressed pricing conditions to persist into 2005 and beyond.
. Revised estimates of demand for premium fiber product: Based on competitive conditions and projected future customer requirements, we do not expect to achieve the level of demand for premium fiber products we previously forecasted. Although we have introduced innovative products to the market, we have not been able to obtain the historically premium prices for such products. Additionally, demand for premium fiber has declined as there are fewer long-haul projects. As a result, we have significantly reduced our outlook for future revenue and profitability from premium products. We now do not expect any significant increase in premium fiber mix for the foreseeable future.
. Revised estimates for the long-term worldwide market volume growth: As we project customer demand, we have lowered the rate of volume growth in the longer range.

As a result of the impairment charges and lower long-term outlook for our Telecommunication segment, we have also concluded that we must provide a valuation allowance against certain of our deferred tax assets in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109). The valuation allowance relates to our domestic (U.S. federal, state and local) and German deferred tax assets. We have incurred significant losses in the U.S. and Germany due primarily to the Telecommunications restructuring and impairment charges and operating losses over the last four years. Although Corning's profitability has improved over the last several quarters, a growing portion of our sales and earnings is outside of the U.S., particularly in Asia. The U.S. portion of our operations is still operating at a loss. This portion not only includes most of our Telecommunications segment, but also a significant portion of our global research, development and engineering and corporate infrastructure spending. As we have taken additional significant impairment charges and lowered our outlook for our largest U.S. based business during the third quarter, we believe that a valuation allowance against these tax assets is required until realization is more assured. We remain committed to return to profitability in the U.S. and Germany so that we will be able to use these deferred tax assets before they expire. In general, U.S. tax laws allow 20 years to use operating loss carryforwards.

Investing in our Future
We continue to invest in a wide array of technologies, with our focus being glass substrates for active matrix liquid crystal displays (LCDs), diesel filters and substrates in response to tightening emissions control standards, and optical fiber and cable and hardware and equipment that will enable fiber-to-the-premises. Our research, development and engineering expenses have remained relatively constant for the respective three and nine month periods. We believe our current spending levels are adequate to enable us to execute our growth strategies.

Our capital expenditures are primarily focused on expanding manufacturing capacity for LCD glass substrates in the Display Technologies segment and diesel products in the Environmental Technologies segment. Total capital expenditures for the three and nine months ended September 30, 2004 were $254 million and $556 million, respectively. Of these amounts, $191 million and $416 million, respectively, were directed toward our Display Technologies segment.

On October 6, 2004, Corning's board of directors approved an additional capital expenditure plan of $326 million to further expand our LCD manufacturing capacity in Taichung, Taiwan. This is the fourth major LCD capital expansion announced in the past 18 months. Our 2004 forecasted consolidated capital spending remains at $950 million to $1 billion. Of this amount, $750 million to $800 million will be directed toward our Display Technologies segment, with this year's portion of the recently-announced expansion plan being included in this range.

Selected highlights for the third quarter follow (dollars in millions):
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                                                                        Three months                          Nine months
                                                                     ended September 30,                   ended September 30,
                                                                  -------------------------             -------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
Net sales                                                         $   1,006       $    772              $  2,821       $   2,270

Gross margin                                                      $     404       $    226              $  1,050       $     607
  (gross margin %)                                                      40%            29%                   37%             27%

Selling, general and administrative expenses                      $     153       $    147              $    479       $     447
  (as a % of net sales)                                                 15%            19%                   17%             20%

Research, development and engineering expenses                    $      88       $     80              $    257       $     258
  (as a % of net sales)                                                  9%            10%                    9%             11%

Restructuring, impairment and other charges and (credits)         $   1,794       $   (10)              $  1,794       $      90
  (as a % of net sales)                                                178%           (1)%                   64%              4%

Asbestos settlement                                               $    (50)       $     51              $     16       $     388
  (as a % of net sales)                                                (5)%             7%                    1%             17%

Loss from continuing operations before income taxes               $ (1,619)       $   (74)              $(1,647)       $   (668)
  (as a % of net sales)                                              (161)%          (10)%                 (58)%           (29)%

(Provision) benefit for income taxes                              $   (985)       $     30              $  (997)       $     208
  (as a % of net sales)                                               (98)%             4%                 (35)%              9%

Equity in earnings of associated companies, net
  of impairments                                                  $      96       $     75              $    310       $     194
  (as a % of net sales)                                                 10%            10%                   11%              9%

(Loss) income from continuing operations                          $ (2,511)       $     33              $(2,348)       $   (194)
  (as a % of net sales)                                              (250)%             4%                 (83)%            (9)%
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Net Sales
Net sales increased 30%, or $234 million, for the three months ended September 30, 2004 compared to the prior year quarter. The primary drivers of this growth were the continued high demand for glass substrates in our Display Technologies segment and demand for products in our Telecommunications segment mostly due to the fiber-to-the-premises build-out in North America. For the nine months ended September 30, 2004, our net sales increased $551 million, or 24%, compared to the prior year period. The growth in the Display Technologies segment was the primary driver. Strong performance in the Environmental Technologies segment, for both automotive and diesel products, as well as our other operating segments more than offset the sales decreases resulting from our exiting of the conventional video and photonic technologies businesses in 2003. Movements in foreign exchange rates, primarily the Japanese Yen and Euro, did not have a significant impact on sales for the three and nine months ended September 30, 2004, compared to their respective 2003 periods.

Gross Margin
As a percentage of net sales, gross margin improved 11 percentage points for the three months ended September 30, 2004, compared to the prior year quarter. For the nine months ended September 30, 2004, the improvement was 10 percentage points compared to the prior year period. The improvement in both periods can be attributed to: (a) lower depreciation and fixed costs due to the restructuring actions taken in 2003, most notably the exit of the conventional television businesses, and (b) revenue growth in the Display Technologies segment of 105% and 103% for the respective three and nine month periods.

Selling, General and Administrative Expenses As a percentage of sales, selling, general and administrative expenses decreased 4 percentage points and 3 percentage points for the three and nine months ended September 30, 2004, respectively, compared to the corresponding periods in 2003. For the three and nine months ended September 30, 2004, selling, general and administrative expenses increased $6 million and $32 million, respectively, compared to the corresponding periods in 2003. These increases were primarily related to general increases in compensation costs.

Research, Development and Engineering Expenses As a percentage of sales, research, development and engineering expenses decreased by 1 percentage point and 2 percentage points for the three and nine months ended September 30, 2004, respectively, compared to the corresponding periods in 2003. Total research, development and engineering expenses has remained relatively constant for the respective periods. However, during 2004 the focus of our spending has shifted from Telecommunications projects to Display Technologies projects with investments in Environmental Technologies and Life Sciences remaining relatively constant.

Restructuring, Impairment and Other Charges and (Credits)
We recorded  significant  net charges during the third quarter of 2004 impacting the  comparison  of the three and nine months ended
September 30, 2004 to their respective  prior year  periods.  A summary  of the net  charges  and  (credits) recorded during the
periods follows (in millions):
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                                                           Three months                          Nine months
                                                        ended September 30,                   ended September 30,
                                                     -------------------------            --------------------------
                                                        2004           2003                  2004            2003
------------------------------------------------------------------------------------------------------------------------------------
Impairment of goodwill                               $   1,420       $      -             $   1,420       $       -
Impairment of long-lived assets other
   than goodwill
     Assets to be disposed of by
       sale or abandonment                                 330             (9)                  295             (26)
     Assets to be held and used                             24                                   24              62
Accelerated Depreciation                                                                         39
Loss on sale of businesses                                  14             13                    14              13
Impairment of cost investments                                             (1)                                    4
Restructuring charges and (credits)                          6            (13)                    2              37
                                                     ---------       --------             ---------       ---------
Total restructuring, impairment
   other charges and (credits)                       $   1,794       $    (10)            $   1,794       $      90
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Pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets," (SFAS 142) goodwill is required to be tested for impairment annually at the reporting unit level. In addition, goodwill should be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its related carrying value. The reporting unit for our Telecommunications segment goodwill is our Telecommunications operating segment. Our annual goodwill recoverability assessment is completed in the fourth quarter, as it is traditionally based on our annual strategic planning process that runs from June to October. This process includes reviewing expectations for the long-term growth of the telecommunications industry and forecasting future cash flows. In the third quarter, we identified certain factors during this annual strategic planning process that caused us to lower our estimates and projections for the long-term revenue growth of the Telecommunications segment, which indicated that the fair value of the Telecommunications segment reporting unit was less than its carrying value. As such, we performed an interim impairment test of our Telecommunications segment goodwill in the third quarter of 2004 and reviewed the outcome with Corning's board of directors on October 6, 2004.

We estimated the fair value of the Telecommunications segment using a discounted cash flow model based on our current estimates for the long-term growth of the Telecommunications segment, and concluded that the fair value of the Telecommunications segment was below its carrying amount. Accordingly, we recorded an impairment charge of $1,420 million to reduce the carrying value of goodwill to its estimated fair value of $117 million.

Refer to Note 8 of the consolidated financial statements and Critical Accounting Policies and Estimates for additional details.

Assets to be disposed of by sale or abandonment

These charges comprise the following:
. Telecommunications segment: In the third quarter of 2004, we recorded a net $338 million charge to impair plant and equipment related to certain facilities to be disposed of or shutdown. Approximately $332 million of this charge is comprised of the partially completed sections of our Concord, N.C. optical fiber facility. As a result of our lowered outlook, we have permanently abandoned this construction in progress as we no longer believe the demand for optical fiber will warrant the investment necessary to complete this facility. Corning will continue to mothball and depreciate the separate previously-operated portion of the Concord fiber facility. The remaining charge of $6 million relates to current impairment charges for various assets available for sale ($18 million) and credits for assets originally impaired in 2002 but will now be utilized in operations ($12 million).

. Other businesses: We recorded gains on the sale of assets of $8 million and $41 million for the three and nine months ended September 30, 2004, respectively, compared to gains on the sale of assets of $9 million and $26 million for the three and nine months ended September 30, 2003, respectively. The 2004 and 2003 gains relate to proceeds in excess of assumed salvage values for assets previously impaired, primarily relating to assets of Corning Asahi Video Products Company (CAV) sold to a third party in China. In July 2004, we completed the sale of CAV's assets.

Assets to be held and used

These charges comprise the following:
. Telecommunications segment: Due to our decision to permanently abandon certain assets and lower our long-term outlook for the Telecommunications segment during the third quarter of 2004, we determined that an event of impairment had occurred in our Telecommunications segment which required us to test the segment's long-lived assets other than goodwill for impairment. As a result of this impairment evaluation, we recorded a $24 million impairment charge in the third quarter of 2004 to write-down certain assets to fair value.

. Other businesses: As a result of our decision to exit CAV in April of 2003, we recorded an asset impairment charge of $62 million during the nine months ended September 30, 2003. These assets were written down to estimated salvage value, as this amount was our best estimate of fair value.

In connection with the above charges, our impairment evaluations included the development of expected future cash flows against which to compare the carrying value of the asset group being evaluated.

We recorded $39 million of accelerated depreciation in the nine months ended September 30, 2004 relating to the final shutdown of our semiconductor materials manufacturing facility in Charleston, South Carolina, which we announced in the fourth quarter of 2003.

On September 1, 2004 we completed the sale of our frequency controls business, which was part of the Telecommunications segment, for net cash proceeds of $80 million. We recorded a loss on the sale of $14 million, which included an allocation of $30 million of the Telecommunications segment goodwill. The frequency controls business had 2003 annual sales of $76 million.

During the three months ended September 30, 2003, we recorded a $13 million loss on the sale of a significant portion of our photonic technologies business, which was part of our Telecommunications segment.

In the first quarter of 2003, we recorded a $5 million charge for other than temporary declines in certain cost investments in the Telecommunications segment. In the third quarter of 2003, we sold these investments for $4 million in cash, which was $1 million more than previously expected. We reported this gain as a credit to restructuring actions.

2004 Restructuring Actions

In the third quarter of 2004, we recorded a charge of $6 million comprised of adjustments to prior years' restructuring and impairment charges, including charges of $5 million for employee separation costs and charges of $1 million for exit costs.

For the nine months ended September 30, 2004, we recorded net charges of $2 million. In addition to the third quarter 2004 charges, we recorded net credits of $4 million primarily for reversals of reserves related to prior years' restructuring charges.

2003 Restructuring Actions

In the third quarter of 2003, we recorded net credits of $13 million comprised of reversals of restructuring reserves related to prior years' restructuring charges ($16 million) offset by a charge ($3 million) related to the exit of the photonic technologies business.

For the nine months ended September 30, 2003, we recorded net charges of $37 million. In addition to the third quarter 2003 net credits, we incurred net charges of $50 million from the following actions:

. charges for the exit of our photonics technologies business;
. charges for restructuring actions in the Telecommunications segment and administrative staffs; and
. credits for reversals of restructuring reserves related to prior years' restructuring charges.

Refer to Note 4 to the consolidated financial statements for additional information.

Asbestos Settlement
For the three and nine months ended September 30, 2004, we recorded (credits) charges of $(50) million and $16 million, respectively, related to the quarterly mark-to-market of our common stock associated with the asbestos settlement agreement. For the three and nine months ended September 30, 2003, we recorded charges of $51 million and $388 million, respectively, as part of our asbestos settlement, the latter of which included $298 million associated with the initial settlement. Refer to Note 5 to the consolidated financial statements for additional information.

Loss From Continuing Operations Before Income Taxes For the three months ended September 30, 2004, we incurred a loss from continuing operations before income taxes of $1,619 million compared to a loss of $74 million for the prior year quarter. For the nine months ended September 30, 2004, we incurred a loss from continuing operations before income taxes of $1,647 million compared to a loss of $668 million for the prior year period. For both the three and nine month comparisons, the key drivers are outlined under Gross Margin, Restructuring, Impairment and Other Charges and (Credits), and Asbestos Settlement.

In addition to the above, the following impacted the results of our loss from continuing operations before income taxes:
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                                                                        Three months                         Nine months
                                                                     ended September 30,                  ended September 30,
                                                                     -------------------                  -------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
(Loss)  gain on  repurchases  and  retirement  of debt,  net         $(4)            $2                   $(36)          $19
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Refer to Note 12 to the consolidated financial statements and Corning's 2003 Annual Report on Form 10-K for additional information regarding the (losses) gains recognized on the repurchase and retirement of debt for the respective periods.

(Provision) Benefit for Income Taxes
Our (provision)  benefit for income taxes and the related effective (income tax) benefit rates were as follows (in millions):
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                                                                        Three months                         Nine months
                                                                     ended September 30,                  ended September 30,
                                                                    ---------------------                ---------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
(Provision) benefit for income taxes                                ($985)           $30                 ($997)          $208
Effective income tax rate                                            (61%)           41%                  (61%)          (31%)
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The effective (income tax) benefit rate for the three and nine months ended September 30, 2004 differed from the U.S. statutory tax rate of 35% primarily due to an increase in the valuation allowance against certain domestic (U.S. federal, state and local) and foreign deferred tax assets and the write-off of nondeductible goodwill. The effective (income tax) benefit rate for the three months ended September 30, 2003, was higher than the U.S. statutory income tax rate of 35% due to the reversal of restructuring charges on which a tax benefit was not accrued. The effective (income tax) benefit rate for the nine months ended September 30, 2003, was lower than the U.S. statutory income tax rate of 35% due to the impact of restructuring, impairment and other charges, asbestos settlement, debt transactions and state and local tax benefits.

In the third quarter of 2004, we increased our tax expense by $937 million as a result of our decision to establish a valuation allowance against a significant portion of our deferred tax assets, primarily in the U.S. and Germany. We assess the realizability of our deferred tax assets on a quarterly basis. In connection with our third quarter assessment, we performed a review of all available positive and negative evidence, including an evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax planning strategies as well as related key assumptions. SFAS 109 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. SFAS 109 further requires that "greater weight be given to previous cumulative losses than the outlook for future profitability when determining whether deferred tax assets can be used."

We have incurred significant losses in the U.S. and Germany due primarily to the restructuring and impairment charges and operating losses in our Telecommunications segment over the last four years. As a result of the third quarter of 2004 impairment charges and the lowering of our long-term outlook for the Telecommunications segment, our largest U.S. and German business, we concluded that a valuation allowance against certain deferred tax assets was required.

We expect to maintain a valuation allowance on future tax benefits until an appropriate level of profitability, primarily in the U.S. and Germany, is sustained or we are able to develop tax planning strategies that enable us to conclude that it is more likely than not that a larger portion of our deferred tax assets would be realizable, or if the PCC settlement is finalized earlier than we anticipate. Until then, our tax provision will include only the net tax expense attributable to certain foreign operations. Refer to Note 9 to the consolidated financial statements for additional information.

Equity in Earnings of Associated Companies, Net of Impairments
For the three months ended September 30, 2004, equity earnings increased $21 million, or 28%, compared to the prior year quarter,
primarily due to the strong performance of Samsung Corning Precision Glass Company, Ltd. (Samsung Corning Precision). For the nine
months ended September 30, 2004, equity earnings increased $116 million, or 60%, compared to the prior year period, primarily due to
Samsung Corning Precision. A summary of equity earnings follows (in millions):
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                                                                          Three months                         Nine months
                                                                     ended September 30,                   ended September 30,
                                                                  -------------------------             --------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
Samsung Corning Precision                                         $      68       $     39              $    204       $      94
Dow Corning Corporation                                                  40             22                    81              64
All other                                                               (12)            14                    25              36
                                                                  ---------       --------              --------       ---------
Total equity earnings                                             $      96       $     75              $    310       $     194
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During the third quarter of 2004, we recorded other-than-temporary impairments of certain Telecommunications segment investments of $35 million.

Refer to Note 7 to the consolidated financial statements for additional information.

(Loss) Income From Continuing Operations
As a result of the above, our (loss) income from continuing operations and per share data were as follows (in millions, except per
share amounts):
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                                                                         Three months                          Nine months
                                                                      ended September 30,                  ended September 30,
                                                                  -------------------------             --------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations                          $  2,511)       $     33              $  (2,348)     $   (194)
Basic (loss) earnings per common share                            $  (1.79)       $   0.03              $   (1.70)     $  (0.15)
Diluted (loss) earnings per common share                          $  (1.79)       $   0.02              $   (1.70)     $  (0.15)
Shares used in computing per share amounts
     Basic (loss) earnings per common share                          1,399           1,314                  1,380         1,253
     Diluted (loss) earnings per common share                        1,399           1,390                  1,380         1,253
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DISCONTINUED OPERATION

On December 13, 2002, we completed the sale of our precision lens business to 3M Company ("3M") for cash proceeds up to $850 million, of which $50 million was deposited in an escrow account. In 2003, 3M notified Corning that 3M believed it had certain claims arising out of the representations and warranties made by Corning in connection with the sale of the precision lens business to 3M. In the third quarter of 2004, Corning and 3M reached a final settlement agreement for the funds held in escrow. Accordingly, we recognized a gain of $20 million upon receipt of $20 million of proceeds. This gain is included in income from discontinued operation in the consolidated statement of operations.

OPERATING SEGMENTS

Effective with the first quarter of 2004, we revised our reportable operating segments from Telecommunications and Technologies to Telecommunications, Display Technologies, Environmental Technologies and Life Sciences. Prior year information has been restated to conform to this revision. The following provides a brief description of the products and markets served by each reportable segment:

. Telecommunications - manufactures optical fiber and cable and hardware and equipment components for the worldwide telecommunications industry;
. Display Technologies - manufactures liquid crystal display glass substrates for flat panel displays;
. Environmental Technologies - manufactures ceramic substrates and filters for automobile and diesel applications; and
. Life Sciences - manufactures glass and plastic consumables for scientific applications.

The change in our segment presentation reflects how Corning's Chief Operating Decision Making group (CODM) allocates resources and assesses the performance of its businesses. Specifically, the CODM is significantly increasing its level of review of the Display Technologies segment due to the recent increase in growth and capital spending in that segment. In addition, the CODM is increasing its review of the Environmental Technologies and Life Sciences segments to strengthen the overall balance and stability of Corning's portfolio of businesses.

We prepare the financial results for our operating 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 include 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 accounting principles generally accepted in the United States. These expenses include interest, taxes and corporate functions. Segment net income may not be consistent with measures used by other companies. The accounting policies of our operating segments are the same as those applied in the consolidated financial statements.

Telecommunications
The following table provides net sales and other data for the Telecommunications segment (dollars in millions):
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                                                                          Three months                        Nine months
                                                                     ended September 30,                  ended September 30,
                                                                  -------------------------             --------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
Net sales:
   Optical fiber and cable                                        $     202       $    209              $    543       $   580
   Hardware and equipment                                               210            151                   573           446
   Photonic technologies                                                                10                                  43
                                                                  ---------       --------              --------       -------
     Total net sales                                              $     412       $    370              $  1,116       $ 1,069
                                                                  =========       ========              ========       =======

Net loss                                                          $  (1,820)      $    (27)             $ (1,884)      $  (151)
                                                                  =========       ========              ========       =======

Segment net loss as a percentage of segment sales                     (442)%           (7)%                (169)%         (14)%
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For the three months ended September 30, 2004, sales increased by $42 million, or 11%, compared to the prior year quarter. This performance was led by sales of hardware and equipment and optical fiber and cable in North America, primarily driven by Verizon Communications' fiber-to-the-premises build-out, and strong sales in Europe. For the comparable periods, fiber volumes were up 29% while prices declined 8%. Although fiber volumes were up considerably for the quarter, optical fiber and cable sales declined due to the price declines and strong third quarter 2003 sales for aerial and submarine projects that were not repeated in 2004. Movements in foreign exchange rates, primarily the Japanese Yen and Euro, did not have a significant impact on sales for the three months ended September 30, 2004, compared to the prior year quarter.

For the nine months ended September 30, 2004, sales increased $47 million, or 4%, compared to the prior year period. The strong results in the second and third quarters of 2004 have been substantially offset by the impact of the 2003 exit of the photonic technologies business and a decline of fiber sales in Japan and China , compared to the prior year period. For the comparable nine month periods, fiber volumes have increased 9% and prices declined 10%. Movements in exchange rates for the comparable nine month periods did not significantly impact sales.

For the Telecommunications segment, the increased losses in each of the 2004 periods compared to their respective 2003 are primarily due to the goodwill, fixed asset, and equity method investments impairment charges recorded in the third quarter of 2004. Refer to Results of Continuing Operations for a detailed discussion of these charges.

Display Technologies
The following table provides net sales and other data for the Display Technologies segment (dollars in millions):
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                                                                         Three months                          Nine months
                                                                      ended September 30,                  ended September 30,
                                                                  -------------------------             --------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
Sales                                                             $     295       $    144              $    802       $     396
Income before equity earnings                                     $      74       $     25              $    191       $      60
Equity earnings of associated companies                           $      68       $     39              $    204       $      94
Net income                                                        $     142       $     64              $    395       $     154

Segment income before equity earnings as a percentage
  of segment sales                                                      25%            17%                   24%             15%
Segment net income as a percentage of segment sales                     48%            44%                   49%             39%
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For the three months ended September 30, 2004, sales increased $151 million, or 105%, compared to the prior year quarter. This performance is largely reflective of the overall LCD-market growth. For the third quarter of 2004, glass substrate volumes (measured in square feet of glass sold) increased greater than 70%. Sales were also benefited by modest average price increases, primarily the result of a change in product mix as the market continues to trend toward large size glass substrates (generation 5 and above) which carry a higher selling price per square foot. The sales of the Display Technologies segment are largely Asian based and, as such, are susceptible to movements in the US dollar - Japanese Yen exchange rates. For the third quarter of 2004, sales benefited by approximately 9% from a weakening of the US dollar compared to the same period in 2003.

For the nine months ended September 30, 2004, sales increased $406 million, or 103%, compared to the prior year period. The factors affecting the nine-month performance are largely the same as those identified for the third quarter of 2004. For the comparable nine month period, glass substrate volumes increased approximately 75%, average pricing increases were modest, and movements in the US dollar - Japanese Yen exchange rates benefited sales by approximately 9% compared to the same period in 2003.

For the three and nine months ended September 30, 2004, income before equity earnings increased by more than 2.5 times compared to the prior quarter and more than tripled compared to the prior year period. For both periods, the key drivers were the impact of incremental volumes and efficiencies realized through the shift in production toward large size glass substrates. Movements in the U.S. dollar - Japanese Yen exchange rates did not have a significant impact on income before equity earnings for the three and nine months ended September 30, 2004, compared to their respective 2003 periods. The increases in our equity earnings from Samsung Corning Precision for the periods presented were largely driven by the same factors identified for our wholly-owned business.

The Display Technologies segment manufactures and sells glass substrates to a concentrated customer base comprised of LCD panel makers primarily located in Japan and Taiwan. LCD panels are used in computer products, such as notebook computers and desktop monitors, consumer electronics products, such as digital cameras and camcorders and car navigation systems, and LCD televisions. For the three and nine months ended September 30, 2004, six LCD customers accounted for 78% of the Display Technologies segment sales. In addition, Samsung Corning Precision's sales were also concentrated, with 2 customers accounting for 87% and 84% of sales for the three and nine months ended September 30, 2004, respectively.

Corning and these customers have typically entered into multi-year supply agreements for the purchase and sale of glass substrates. These agreements provide for Corning to supply a percentage of the customers' requirements and include mechanisms for forecasting and ordering. During 2004, Corning improved the payment terms under these agreements to improve cash flow and reduce its working capital requirements.

The LCD market continues to grow rapidly. This growth is being driven, in part, by higher demand for LCD televisions, for which our LCD customers require larger size glass substrates. Over the past few months, Corning has held discussions with several of its customers to discuss how to meet this demand. As part of its discussions, Corning has sought improved payment terms, including deposits against orders, to provide a greater degree of assurance that we are effectively building capacity to meet the needs of a rapidly growing industry. There can be no assurance that Corning will be able to pace its capacity expansion to the actual demand and, while the industry has grown rapidly, it is possible that glass manufacturing capacity may exceed demand during certain periods. In the third quarter of 2004, we received approximately $100 million for deposits against orders.

Environmental Technologies
The following table provides net sales and other data for the Environmental Technologies segment (dollars in millions):
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Three months                          Nine months
                                                                      ended September 30,                  ended September 30,
                                                                  ------------------------              -------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
Sales                                                              $   136        $   121               $   418        $   353
Net income                                                         $     0        $     3               $    10        $    11

Segment net income as a percentage of segment sales                     0%             3%                    2%             3%
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For the three months ended September 30, 2004, sales increased $15 million, or 12%, compared to the prior year quarter. We continue to see strong demand for our automotive and diesel products in response to ever-tightening emission standards around the world, although we are experiencing near-term softening in Asian retrofit markets for diesel products. Our automotive products benefited from both an increase in volume and a higher mix of our thin-wall and ultra thin-wall substrates, which allow our customers to meet their emission control requirements in a more cost effective manner. Although showing strong growth, diesel products represented a modest portion of the total Environmental Technologies sales for the three months ended September 30, 2004. A portion of the sales of the Environmental Technologies segment are susceptible to movements in the US dollar - Euro exchange rates. Movements in exchange rates did not have a significant impact on sales for the comparable quarters.

For the nine months ended September 30, 2004, sales increased $65 million, or 18%, compared to the prior year period. The factors affecting the nine-month period performance are largely the same as those identified for the quarter.

For the three months ended September 30, 2004, the segment operated at a break-even level compared to a modest profit in the comparable prior year period. The full benefits of the increases in product volumes and higher mix of thin-wall and ultra thin wall automotive substrates have been offset by higher development and engineering costs for our diesel products and lower than expected manufacturing results in the quarter. For the nine months ended September 30, 2004, segment net income was essentially equal with the prior year. Similar to the three month period comparison, the benefit of the sales increase is not being reflected in net income largely due to increased development and engineering spending.

Life Sciences
The following table provides net sales and other data for the Life Sciences segment (dollars in millions):
------------------------------------------------------------------------------------------------------------------------------------
                                                                          Three months                         Nine months
                                                                       ended September 30,                 ended September 30,
                                                                  -------------------------             -------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
Sales                                                             $      75       $     70              $    233       $     215
Net income                                                        $       2       $      3              $     12       $      15

Segment net income as a percentage of segment sales                      3%             4%                    5%              7%
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For the three months ended September 30, 2004, sales increased $5 million, or 7%, compared to the prior year quarter. Volume increases across the majority of our product lines, drove the sales increase compared to the third quarter of 2003. Movements in foreign exchange rates, primarily the Euro, did not have a significant impact on sales for the comparable quarters.

For the nine months ended September 30, 2004, sales increased $18 million, or 8%, compared to the prior year period. The factors affecting the nine-month period performance are largely the same as those identified for the quarter.

For the three and nine months ended September 30, 2004 net income was consistent with that of the comparable period. For the three and nine month periods the incremental gross margin improvements resulting from the increase in sales volumes have been largely offset by new product development costs. In addition, for the nine month period, the comparison of net income was negatively impacted due to a gain recognized in the first quarter of 2003 on the disposition of a minor product line.

Unallocated and Other
The following table provides net sales and other data for the non-reportable operating segments and unallocated items (dollars in
millions):
------------------------------------------------------------------------------------------------------------------------------------
                                                                          Three months                        Nine months
                                                                       ended September 30,                 ended September 30,
                                                                  -------------------------             -------------------------
                                                                     2004           2003                  2004           2003
------------------------------------------------------------------------------------------------------------------------------------
Net sales:
   Conventional Video Components                                                  $     14              $      2       $      63
   Other businesses                                               $      88             53                   250             174
                                                                  ---------       --------              --------       ---------
     Total net sales                                              $      88       $     67              $    252       $     237
                                                                  =========       ========              ========       =========

Loss before minority interests and equity earnings                $    (895)      $    (46)             $ (1,004)      $    (405)
Equity earnings of associated companies                           $      63       $     34              $    138       $     110
Net loss                                                          $    (815)      $    (10)             $   (861)      $    (223)

Loss before minority interests and equity earnings
  as a percentage of net sales                                     (1,017)%          (69)%                (398)%          (171)%
Net loss as a percentage of net sales                                (926)%          (15)%                (342)%           (94)%
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Unallocated and Other includes all other operating segments that do not meet the quantitative threshold for separate reporting (e.g., Specialty Materials, Ophthalmic, and Conventional Video Components), certain corporate investments (e.g., Dow Corning and Steuben), discontinued operations and unallocated expenses. Unallocated expenses include research and other expenses related to new business development; gains or losses on repurchases and retirement of debt; charges related to the asbestos litigation; restructuring and impairment charges related to the corporate research and development or staff organizations; and charges for increases in our tax valuation allowance. Unallocated and Other also represents the reconciliation between the total operating results for the reportable segments and our consolidated operating results.

The increase in sales for the three and nine months ended September 30, 2004 compared to their respective prior year periods is primarily attributable to improvements in our specialty materials business. The 2004 decrease of conventional video components sales is due to our second quarter 2003 decision, along with our partner, to cease production and shut down our 51% owned affiliate, Corning Asahi Video Products Company (CAV), which was a manufacturer of glass panels and funnels for use in conventional tube televisions. Although sales in our Specialty Materials segment have increased over prior year periods, we have recently seen reductions in future forecasts of customer orders for semiconductor lens glass. It is too early to tell if this is a temporary market correction or the beginning of a downward cycle in the business. In addition, technology changes are being made by our customers that will impact certain of our product lines. We will monitor this situation during the fourth quarter of 2004, and it is possible we could see asset write-offs or impairments as a result of these changes.

Refer to the discussion regarding Restructuring, Impairment, and Other Charges and (Credits), Asbestos Settlement and (Provision) Benefit for Income Taxes for a description of the key drivers of net loss for periods presented.

LIQUIDITY AND CAPITAL RESOURCES

Financing Structure
During the third quarter of 2004, we issued 6 million shares of common stock and paid $4 million in cash in exchange for 57,500 of our 3.5% convertible debentures with a book value of $58 million. We recorded a loss of $4 million relating to the retirement of debt.

During the second quarter of 2004, we issued 10 million shares of common stock and paid $9 million in cash in exchange for 97,500 of our 3.5% convertible debentures with a book value of $98 million. We recorded a loss of $9 million relating to the retirement of debt.

During the first quarter of 2004, we issued 22 million shares of common stock and paid $24 million in cash in exchange for our 3.5% convertible debentures with a book value of $213 million. In addition, we repurchased 150,000 of our zero coupon convertible debentures with a book value $119 million for $117 million in cash. As a result of these transactions, we recorded a loss of $23 million.

In March 2004, we issued $400 million of senior unsecured notes under our existing $5 billion universal shelf registration statement, which became effective in March 2001. We realized net proceeds of $396 million from the issuance of these notes. As of September 30, 2004, our remaining capacity under the shelf registration was approximately $2.5 billion.

As an additional source of funds, we currently have full unrestricted access to a $2 billion revolving credit facility with 16 banks, expiring on August 17, 2005. As of September 30, 2004, there were no borrowings under the credit facility. The facility includes one financial covenant limiting the ratio of total debt to total capital, as defined, to not greater than 60%. At September 30, 2004, this ratio was 42%.

Capital Spending
Capital spending totaled $556 million and $204 million during the nine months ended September 30, 2004 and 2003, respectively. Our 2004 forecasted consolidated capital spending remains at $950 million to $1 billion. Of this amount, $750 million to $800 million will be directed toward expanding manufacturing capacity for LCD glass substrates in the Display Technologies segment.

On October 6, 2004, Corning's board of directors approved an additional capital expenditure plan of $326 million to further expand our LCD manufacturing capacity in Taichung, Taiwan. This is the fourth major LCD capital expansion in the past 18 months. This year's portion of the recent expansion plan is included in the above ranges.

Restructuring
During the nine months ended September 30, 2004, we made payments of $75 million related to employee severance and termination costs and $20 million in other exit costs resulting from restructuring actions. We expect additional payments to range from $15 million to $20 million in the fourth quarter of 2004 for actions taken in 2001, 2002 and 2003.

Balance sheet and working capital measures are provided in the following table (dollars in millions):
------------------------------------------------------------------------------------------------------------------------------------
                                                                    September 30, 2004       December 31, 2003
------------------------------------------------------------------------------------------------------------------------------------
Working capital                                                          $  1,340                $  1,141
Working capital, excluding cash and short-term investments               $  (399)                $  (125)
Current ratio                                                               1.8:1                   1.7:1
Trade accounts receivable, net of allowances                             $    538                $    525
Days sales outstanding                                                         48                      58
Inventories                                                              $    498                $    467
Inventory turns                                                               4.8                     4.8
Days payable outstanding                                                       73                      52
Long-term debt                                                           $  2,438                $  2,668
Total debt to total capital                                                   42%                     34%
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RATING AGENCY                     Rating                         Outlook
Last Update                   Long-Term Debt                   Last Update
--------------------------------------------------------------------------------

Fitch                               BB+                         Positive
    August 12, 2004                                          August 12, 2004

Standard & Poor's                   BB+                          Stable
    July 29, 2002                                           January 16, 2004

Moody's                             Ba2                          Stable
    July 29, 2002                                           November 19, 2003
--------------------------------------------------------------------------------

Management Assessment of Liquidity
Our major source of funding for 2004 and beyond will be our existing balance of cash, cash equivalents and short-term investments. From time to time we may also issue debt or equity securities to raise additional cash to fund a portion of our capital expenditures related to our growth businesses. We believe we have sufficient liquidity for the next several years to fund operations, restructuring, the asbestos settlement, research and development, capital expenditures and scheduled debt repayments.

Contractual Obligations
There have been no material changes outside the ordinary course of business in the contractual obligations disclosed in our 2003 Annual Report on Form 10-K under the caption "Contractual Obligations."

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The estimates that required us to make difficult, subjective or complex judgments in the third quarter of 2004 follow. Refer to our 2003 Annual Report on Form 10-K for additional significant estimates used in the preparation of financial statements.

Impairment of goodwill

SFAS 142 requires us to make certain difficult, subjective and complex judgments on a number of matters, including assumptions and estimates used to determine the fair value of our reporting unites; which are the same as our segments.

We measure fair value on the basis of discounted expected future cash flows. Our estimates are based upon our historical experience, our current knowledge from our commercial relationships, and available external information about future trends.

Pricing in the telecommunications industry remains depressed as the industry has failed to reduce capacity. Our previous forecasts assumed some rationalization of capacity that would lead to more stable pricing. We now expect the current depressed pricing conditions to persist. Based on competitive conditions and forecasted future customer requirements, we do not expect the level of demand for premium fiber products we previously forecasted. As a result, we have significantly reduced our outlook for future revenue and profitability from premium products. As we forecast customer demand, we have lowered the rate of volume growth in the longer range. Further negative developments in the telecommunications industry could cause us to change our forecasts for fiber volumes, pricing or mix of premium products which may result in additional goodwill impairment charges of up to $117 million.

Terminal value of the business assumes a growth in perpetuity of 3%. These cash flows are also used to value intangible and tangible assets which determine the implied value of reporting unit goodwill. The discount rate applied to these cash flows represents a telecommunications weighted average cost of capital based upon current debt and equity activity of 11 public companies representing a cross section of worldwide competitors of the reporting unit. For our third quarter 2004 interim test, we used a discount rate of 12.5% in our calculation of fair value of the expected future cash flows. An impairment charge of $1,420 million was recorded in the third quarter of 2004. Had we used a discount rate of 12%, the impairment charge would have been approximately $90 million lower. Had we used a discount rate of 13%, the impairment charge would have been approximately $80 million higher. In 2003, we used a 12% discount rate for our annual impairment test. The results of our 2003 test indicated that goodwill was not impaired. The 2003 results would not have changed had we used a discount rate of 11.5% or 12.5%.

Valuation allowance for deferred income taxes

SFAS 109 requires us to exercise judgment about our future results in assessing the realizability of our deferred tax assets. At September 30, 2004, Corning had gross deferred tax assets of approximately $2.2 billion. We determined that the likelihood of realization of certain deferred tax assets is less than 50% and recorded additional valuation allowances of $1.2 billion. If we sustain an appropriate level of profitability, primarily in the U.S. and Germany, or if we are able to develop additional tax-planning strategies, or if the PCC settlement is finalized earlier than we anticipate, adjustments to these allowances will be required may affect future net income.

In determining the amount of domestic deferred tax assets that we believe are more likely than not to be realized through a tax planning strategy involving the sale of a non-strategic asset, we estimated the fair value of the underlying non-strategic asset based primarily on discounted cash flows and precedent transactions. Changes in fair value of the non-strategic asset may also affect future net income.

See (Provision) Benefit for Income Taxes and Note 9 to the consolidated financial statements for additional information.

ENVIRONMENT

We have been named by the Environmental Protection Agency under the Superfund Act, or by state governments under similar state laws, as a potentially responsible party for 11 active hazardous waste sites. Under the Superfund Act, all parties who may have contributed any waste to a hazardous waste site, identified by such Agency, are jointly and severally liable for the cost of cleanup unless the Agency agrees otherwise. It is our policy to accrue for the estimated liability related to Superfund sites and other environmental liabilities related to property owned and operated by us based on expert analysis and continual monitoring by both internal and external consultants. We have accrued approximately $20 million for the estimated liability for environmental cleanup and related litigation at September 30, 2004. Based upon the information developed to date, we believe that the accrued amount is a reasonable estimate of our liability and that the risk of an additional loss in an amount materially higher than that accrued is remote.

FORWARD-LOOKING STATEMENTS

The statements in this Quarterly Report on Form 10-Q, in reports subsequently filed by Corning with the Securities and Exchange Commission (SEC) on Forms 8-K, and related comments by management which are not historical facts or information and contain words such as "believes," "expects," "anticipates," "estimates," "forecasts," and similar expressions are forward-looking statements. These forward-looking statements involve risks and uncertainties that may cause the actual outcome to be materially different. Such risks and uncertainties include, but are not limited to:

- global economic and political conditions;
- tariffs, import duties and currency fluctuations;
- product demand and industry capacity;
- competitive products and pricing;
- sufficiency of manufacturing capacity and efficiencies;
- availability and costs of critical components and materials;
- new product development and commercialization;
- order activity and demand from major customers;
- fluctuations in capital spending by customers;
- possible disruption in commercial activities due to terrorist activity, armed conflict, political instability or major health concerns;
- facility expansions and new plant start-up costs;
- effect of regulatory and legal developments;
- capital resource and cash flow activities;
- ability to pace capital spending to anticipated levels of customer demand, which may fluctuate;
- equity company activities;
- interest costs;
- credit rating and ability to obtain financing and capital on commercially reasonable terms;
- adequacy and availability of insurance;
- financial risk management;
- acquisition and divestiture activities;
- level of excess or obsolete inventory;
- ability to enforce patents;
- adverse litigation;
- product and components performance issues;
- stock price fluctuations;
- the rate of substitution by end-users purchasing LCDs for notebook computers, desktop monitors and televisions;
- a downturn in demand for LCD glass substrates;
- ability of our customers, most notably in the Display Technologies segment, to maintain profitable operations and obtain financing to fund their manufacturing expansions;
- fluctuations in inventory levels in the supply chain;
- equity company activities, principally at Dow Corning Corporation and Samsung Corning Co., Ltd.; and
- other risks detailed in Corning's SEC filings.

Risk Factors

Set forth below and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the SEC are some of the principal risks and uncertainties that could cause our actual business results to differ materially from any forward-looking statements or other projections contained in this Quarterly Report on Form 10-Q. In addition, future results could be materially affected by general industry and market conditions, changes in laws or accounting rules, general U.S. and non-U.S. economic and political conditions, including a global economic slowdown, fluctuation of interest rates or currency exchange rates, terrorism, political unrest or international conflicts, political instability or major health concerns, natural disasters or other disruptions of expected economic and business conditions. These risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Quarterly Report on Form 10-Q, including statements related to markets for our products and trends in our business that involve a number of risks and uncertainties. Our separate statement labeled Forward-Looking Statements should be considered in addition to the statements below.

Our sales could be negatively impacted if one or more of our key customers substantially reduce orders for our products

Our customer base is relatively concentrated with less than 10 significant customers accounting for a high percentage (greater than 50%) of net sales in most of our businesses, including those purchasing LCD glass. However, no individual customer accounts for more than 10% of consolidated sales.

Our Display Technologies, Environmental Technologies, and Life Sciences segments have concentrated customer bases. If we lose a significant customer in any of these businesses, or if one or more significant customers reduce orders, our sales could be negatively impacted. The Display Technologies segment manufactures and sells glass substrates to a concentrated customer base comprised of LCD panel makers primarily located in Japan and Taiwan. LCD panels are used in computer products, such as notebook computers and desktop monitors, consumer electronics products, such as digital cameras and camcorders and car navigation systems, and LCD televisions. For the nine months ended September 30, 2004, six LCD customers accounted for 78% of the Display Technologies segment sales. In addition, Samsung Corning Precision's sales were also concentrated, with two customers accounting 84% of sales for the nine months ended September 30, 2004.

Although the sale of LCD glass substrates has increased from quarter to quarter in 2004, there can be no assurance that this upward trend will continue. Our customers are LCD panel makers, and as they switch to larger size glass, the pace of their orders may be uneven while they adjust their manufacturing processes and facilities. Additionally, consumer preferences for panels of differing sizes, or price or other factors, may lead to pauses in market growth from time to time. There is further risk that our customers may not be able to maintain profitable operations or access sufficient capital to fund ongoing expansions.

In the Environmental Technologies segment, sales of our ceramic substrate and filter technologies for gasoline and diesel emissions and pollution control fluctuate with our customers' production and sales of automobiles and other vehicles, as well as changes in governmental laws and regulations for air quality and emission controls. Sales in our Life Sciences segment are primarily through two large distributors to government entities, pharmaceutical and biotechnology companies, hospitals, universities and other laboratories, and any changes in distribution could impact our future sales.

Our Telecommunications segment customers' purchases of our products are affected by general market and economic uncertainty, government regulatory changes and the June 2004 Chinese Ministry preliminary determination of dumping of certain U.S. optical fiber exports to China. For the third quarter ended September 30, 2004, one customer accounted for approximately 17% of our Telecommunications segment sales, and 10 customers accounted for 51% of total segment sales.

If we do not successfully adjust our manufacturing volumes and fixed cost structure, or achieve manufacturing yields or sufficient product reliability, our operating results could suffer, and we may not achieve profitability levels anticipated

We are investing heavily in additional manufacturing capacity of certain businesses, including nearly $800 million in 2004 to expand our liquid crystal display glass facilities in response to anticipated increases in customer demand. The speed of constructing the new facilities presents challenges. We may face technical and process issues in moving to commercial production capacity. There can be no assurance that Corning will be able to pace its capacity expansion to the actual demand. While the industry has grown rapidly, it is possible that glass manufacturing capacity may exceed customer demand during certain periods.

The manufacturing of our products involves highly complex and precise processes, requiring production in highly controlled and clean environments. Any changes in our manufacturing processes or those of our suppliers could significantly reduce our manufacturing yields and product reliability. In some cases, existing manufacturing may be insufficient to achieve the volume or requirements of our customers. We will need to develop new manufacturing processes and techniques to achieve targeted volume, pricing and cost levels that will permit profitable operations. While we continue to fund projects to improve our manufacturing techniques and processes, we may not achieve satisfactory cost levels in our manufacturing activities that will fully satisfy our yield and margin targets.

We have incurred, and may in the future incur, restructuring and other charges, the amounts of which are difficult to predict accurately

As a result of a severe decline in the telecommunications industry beginning in 2001, we have recorded charges for restructuring, impairment of assets, and the write-off of cost and equity based investments in the third quarter of 2004.

It is possible we may record additional charges for restructuring or other asset impairments if additional actions become necessary to align costs to a reduced level of demand, or respond to increased competition, regulatory actions, or other factors impacting our businesses.

If the markets for our products do not develop and expand as we anticipate, demand for our products may decline further, which would negatively impact our results of operations and financial performance

The markets for our products are characterized by rapidly changing technologies, evolving industry government standards and frequent new product introductions. Our success is expected to depend, in substantial part, on the timely and successful introduction of new products, upgrades of current products to comply with emerging industry government standards, our ability to acquire technologies needed to remain competitive and our ability to address competing technologies and products. In addition, the following factors related to our products and the markets for them, if not achieved, could have an adverse impact on our results of operations and financial performance:

. our ability to introduce leading products such as glass substrates for liquid crystal displays, optical fiber and environmental substrate products that can command competitive prices in the marketplace;
. our ability to maintain or achieve a favorable sales mix of large generation sizes of display glass;
. our ability to continue to develop new product lines to address our customers' diverse needs within the several market segments that we participate in, which requires a high level of innovation, as well as the accurate anticipation of technological and market trends;
. our ability to develop new products in response to favorable government regulations and laws driving customer demand, particularly environmental substrate diesel filter products in the Environmental Technologies segment and Telecommunications segment products associated with fiber-to-the-premises;
. our ability to create the infrastructure required to support anticipated growth in certain businesses:
. continued strong demand for notebook computers;
. the rate of substitution by end-users purchasing LCD monitors to replace cathode ray tube monitors;
. the rate of growth in purchases of LCD televisions to replace other technologies;
. fluctuations in inventory levels in the supply chain of LCD-based consumer electronics; or
. the rate of growth of the fiber-to-the-premises build-out in North America.

We face pricing pressures in each of our leading businesses that could adversely affect our results of operations and financial performance

We periodically face pricing pressures in each of our leading businesses as a result of intense competition, emerging new technologies, or over-capacity. While we will work toward reducing our costs to respond to the pricing pressures that may continue, we may not be able to achieve proportionate reductions in costs. As a result of overcapacity and the current economic and industry downturn in the Telecommunications segment, pricing pressures continued in 2004, particularly in our optical fiber and cable products. We anticipate pricing pressures will continue into 2005 and beyond. Increased pricing pressure is possible in our Display Technologies segment as our customers strive to reduce their costs.

We have incurred, and may in the future incur, goodwill and other intangible asset impairment charges

At September 30, 2004, Corning had goodwill of $276 million (including $117 million related to the Telecommunications segment). During the third quarter of 2004, we recorded a $1,420 million impairment charge to write-down the Telecommunications segment goodwill balance to its estimated fair value.

While we believe the estimates and judgments about future cash flows used in the goodwill impairment tests are reasonable, we cannot provide assurance that future impairment charges will not be required if the expected cash flow estimates as projected by management do not occur or change based on market conditions.

We may be limited in our ability to obtain additional capital on commercially reasonable terms

Although we believe existing cash, short-term investments and borrowing capacity, collectively, provide adequate resources to fund ongoing operating requirements, we may be required to seek additional financing to compete effectively in our markets. Our public debt ratings affect our ability to raise capital and the cost of such capital. In July 2002, our credit ratings were downgraded to below investment grade. Our ratings as of September 30, 2004 were BB+ from both Fitch and Standard & Poor's and Ba2 from Moody's. Any downgrades may increase our borrowing costs and affect our ability to access the debt capital markets.

As a result of our lower debt ratings, we may face difficulties in our business. For example, we may face increasing requirements to post cash collateral for performance bonds and some customers may seek alternative suppliers.

We are subject under our revolving credit facility to a covenant that requires us to maintain a ratio of total debt to capital, as defined under the credit facility, of not greater than 60%. Our total debt to capital ratio was 42% at September 30, 2004. This covenant may limit our ability to borrow funds. Future losses or significant charges could materially increase our total debt to capital ratio which may reduce the amounts we are able to borrow under the revolving credit facility.

If our products or components purchased from our suppliers experience performance issues, our business will suffer

Our business depends on the production of excellent products of consistently high quality. To this end, our products, including components purchased from our suppliers, are tested for quality both by us and our customers. Nevertheless, our products are highly complex, and our customers' testing procedures are limited to evaluating our products under likely and foreseeable failure scenarios. For various reasons (including, among others, the occurrence of performance problems unforeseeable in testing), our products and components purchased from our suppliers may fail to perform as expected. Performance issues could result from faulty design or problems in manufacturing or testing. We have experienced such performance issues in the past and remain exposed to such performance issues. In some cases, product redesigns or additional capital equipment may be required to correct a defect. In addition, any significant or systemic product failure could result in customer relations problems and harm the future sales of our products.

Interruptions of supplies from our key suppliers may affect our results of operations and financial performance

Interruptions of supplies from our key suppliers could disrupt production or impact our ability to increase production and sales. We do not have long-term or volume purchase agreements with every supplier, and may have limited options for alternative supply if these suppliers fail, for any reason, including their business failure or financial difficulties, to continue the supply of components.

We face intense competition in most of our businesses

We expect that we will face additional competition from existing competitors and new entrants. Because some of the markets in which we compete have been historically characterized by rapid growth and are characterized by rapid technology changes, smaller niche and start-up companies may become our principal competitors in the future. We must invest in research and development, expand our engineering, manufacturing and marketing capabilities, and continue to improve customer service and support in order to remain competitive. We cannot assure you that we will be able to maintain or improve our competitive position.

We may experience difficulties in enforcing our intellectual property rights and we may be subject to claims of infringement of the intellectual property rights of others

We may encounter difficulties in protecting our intellectual property rights or obtaining rights to additional intellectual property necessary to permit us to continue or expand our businesses. We cannot assure you that the patents that we hold or may obtain will provide meaningful protection against our competitors or competitive technologies. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Litigation is inherently uncertain and the outcome is often unpredictable. Other companies hold patents on technologies used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios.

The intellectual property rights of others could inhibit our ability to introduce new products. We are, and may in the future be, subject to claims of intellectual property infringement or misappropriation that may result in loss of revenue or require us to incur substantial costs. We cannot assure you as to the outcome of such claims.

Current or future litigation may harm our financial condition or results of operations

Pending, threatened or future litigation is subject to inherent uncertainties. Our financial condition or results of operations may be adversely affected by unfavorable outcomes, expenses and costs exceeding amounts estimated or insured. In particular, we have been named as a defendant in numerous lawsuits against PCC and several other defendants involving claims alleging personal injury from exposure to asbestos. As described in Legal Proceedings, our negotiations with the representatives of asbestos claimants have produced a tentative settlement, but certain cases may still be litigated. Final approval of a global settlement through the PCC bankruptcy process may impact the results of operations for the period in which such costs, if any, are recognized. Total charges of $429 million have been incurred through September 30, 2004; however, the final settlement value will be dependent on the price of our common stock at the time it is contributed to the settlement trust. Management cannot provide assurances that the ultimate outcome of a settlement will not be materially different from the amount recorded to date.

We face risks related to our international operations and sales

We have customers and significant operations, including manufacturing and sales, located outside the U.S. We have large manufacturing operations for liquid crystal display glass substrates in the Asia-Pacific region, including equity investments in companies operating in South Korea that make liquid crystal display glass and in China that make telecommunications products, and several significant customers are located in this region. As a result of these and other international operations, we face a number of risks, including:

. major health concerns such as SARS;
. difficulty of effectively managing our diverse global operations;
. change in regulatory requirements;
. tariffs, duties and other trade barriers including anti-dumping duties as in the pending China proceedings (Refer to Part II - Other Information, Item 1. Legal Proceedings for additional information);
. undeveloped legal systems; and
. political and economic instability in foreign markets.

We face risks through our equity method investments in companies that we do not control

Dow Corning Corporation (which makes silicone products) and Samsung Corning Precision Glass Co., Ltd. (which makes liquid crystal display glass), two companies in which we have a 50% ownership interest, have contributed to our earnings by recognition of a share of their earnings. For the nine months ended September 30, 2004, we have recognized $310 million of equity earnings, primarily from these two companies. Samsung Corning Precision is located in the Asia-Pacific region and, as such, is subject to those geographic risks referred to above. With 50% or lower ownership, we do not control such equity companies nor their management and operations. Performance of our equity investments may not continue at the same levels in the future. During 2003, we recognized charges associated with Samsung Corning Co., Ltd. (our 50% equity method investment that makes glass panels and funnels for conventional televisions), which recorded significant fixed asset impairment charges. During 2004, we have recognized charges associated with Dow Corning Corporation, which recorded charges for restructuring actions and bankruptcy related settlement activities. It is possible that future earnings could be negatively impacted by additional charges recorded by our equity method investments.

We face risks due to foreign currency fluctuations

Because we have significant customers and operations outside the U.S., fluctuations in foreign currencies affect our sales and profit levels. Foreign exchange rates may make our products less competitive in countries where local currencies decline in value relative to the dollar. These currency risks may increase as our sales outside the U.S. grow.

If the financial condition of our customers declines, our credit risks could increase

In 2002 and 2003, certain of our customers experienced financial difficulties, and some filed with the courts seeking protection under bankruptcy or reorganization laws. We have experienced, and in the future may experience, losses as a result of our inability to collect our accounts receivable, as well as the loss of such customer's ongoing business. If our customers fail to meet their payment obligations to us, including deposits due under long-term purchase and supply agreements in our Display Technologies segment, we could experience reduced cash flows and losses in excess of amounts reserved. As of September 30, 2004, reserves for trade receivables totaled approximately $36 million.

We may not have adequate insurance coverage for claims against us

We face the risk of loss resulting from, and adverse publicity associated with, product liability, securities, fiduciary liability, intellectual property, antitrust, contractual, warranty, fraud and other lawsuits, whether or not such claims are valid. In addition, our product liability, fiduciary, directors and officers, property and comprehensive general liability insurance may not be adequate to cover such claims or may not be available to the extent we expect. Our insurance costs have increased substantially and may increase further. We may not be able to get adequate insurance coverage in the future at acceptable costs. A successful claim that exceeds or is not covered by our policy limits could require us to pay substantial sums. Some of the carriers in our historic excess insurance program are not rated, or may have lower ratings, or are in liquidation and may not be able to respond if we should have claims reaching into excess layers. In addition, we may not be able to insure against certain risks or obtain some types of insurance, such as terrorism or war insurance.