19.

Share-based Compensation

Stock Compensation Plans

Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of our Board of Directors. The Plans allow us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At

December

31,

2016,

there were approximately

million unissued common shares available for future grants under the Plans.

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.

The fair value of awards granted subsequent to

January

2006

that are expected to ultimately vest is recognized as expense over the requisite service periods. The number of options expected to vest equals the total options granted less an estimation of the number of forfeitures expected to occur prior to vesting. The forfeiture rate is calculated based on

years of historical data and is adjusted if actual forfeitures differ significantly from the original estimates. The effect of any change in estimated forfeitures would be recognized through a cumulative adjustment that would be included in compensation cost in the period of the change in estimate.

Total share-based compensation cost of

$42

million,

$46

million and

$58

million was disclosed in operating activities on the Company’s Consolidated Statements of Cash Flows for the years ended

December

31,

2016,

2015

and

2014,

respectively.

Stock Options

Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from

one

five

years from the grant date. The maximum term of non-qualified and incentive stock options is

years from the grant date.

The following table summarizes information concerning stock options outstanding including the related transactions under the stock option plans for the year ended

December

31,

2016:

	Number of shares (in thousands)			Weighted- average exercise price		Weighted- average remaining contractual term in years		Aggregate intrinsic value (in thousands)
Options outstanding as of December 31, 2015		42,738		$	19.40
Granted		1,680			20.01
Exercised		(8,549	)		16.16
Forfeited and expired		(4,362	)		25.97
Options outstanding as of December 31, 2016		31,507			19.40		3.79	$	160,932
Options expected to vest as of December 31, 2016		31,469			19.40		3.79		160,794
Options exercisable as of December 31, 2016		26,723			19.15		2.98		144,236

The aggregate intrinsic value (market value of stock less option exercise price) in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price on

December

30,

2016,

which would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date. The total number of “in-the-money” options exercisable on

December

31,

2016,

was approximately

million.

The weighted-average grant-date fair value for options granted for the years ended

December

31,

2016,

2015

and

2014

was

$6.31,

$7.99

and

$8.29,

respectively. The total fair value of options that vested during the years ended

December

31,

2016,

2015

and

2014

was approximately

$22

million,

$36

million and

$16

million, respectively. Compensation cost related to stock options for the years ended

December

31,

2016,

2015

and

2014,

was approximately

$11

million,

$14

million and

$22

million, respectively.

As of

December

31,

2016,

there was approximately

million of unrecognized compensation cost related to stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of

1.7

years.

Proceeds received from the exercise of stock options were

$138

million for the year ended

December

31,

2016,

which were included in financing activities on the Company’s Consolidated Statements of Cash Flows. The total intrinsic value of options exercised for the years ended

December

31,

2016,

2015

and

2014

was approximately

$53

million,

$48

million and

$69

million, respectively. The income tax benefit realized from share-based compensation was not significant for the years ended

December

31,

2016,

2015

and

2014.

Refer to Note

(Income Taxes).

An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”). Awards to retirement eligible employees are fully vested at the date of grant, and the related compensation expense is recognized immediately upon grant or over the period from the grant date to the date of retirement eligibility for employees that become age

during the vesting period.

Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent

-year historical volatility. The expected term assumption is the period of time the options are expected to be outstanding, and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a

zero

-coupon U.S. Treasury bond with a term equal to the option’s expected term. The ranges given below reflect results from separate groups of employees exhibiting different exercise behavior.

The following inputs were used for the valuation of option grants under our Stock Option Plans:

	2016			2015			2014
Expected volatility	37.1	-	43.1%	43.6	-	44.9%	45.4	-	46.2%
Weighted-average volatility	37.1	-	43.1%	43.6	-	44.9%	45.4	-	46.2%
Expected dividends	2.28	-	2.94%	1.92	-	2.68%	1.90	-	2.09%
Risk-free rate	1.4	-	2.1%	1.9	-	2.1%	2.0	-	2.2%
Average risk-free rate	1.4	-	2.1%	1.9	-	2.1%	2.0	-	2.2%
Expected term (in years)	7.4	-	7.4	7.2	-	7.2	7.2	-	7.2
Pre-vesting departure rate	0.6	-	0.6%	0.6	-	0.6%	0.5	-	0.5%

Incentive Stock Plans

The Corning Incentive Stock Plan permits restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plan are granted at the closing market price on the grant date, contingently vest over a period of generally

one

ten

years, and generally have contractual lives of

one

ten

years. The fair value of each restricted stock grant or restricted stock unit awarded under the Incentive Stock Plan is based on the grant date closing price of the Company’s stock.

Time-Based Restricted Stock and Restricted Stock Units:

Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company’s common stock upon vesting. The fair value is based on the closing market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.

The following table represents a summary of the status of the Company’s non-vested time-based restricted stock and restricted stock units as of

December

31,

2015,

and changes which occurred during the year ended

December

31,

2016:

	Shares (000’s)			Weighted- average grant-date fair value
Non-vested shares and share units at December 31, 2015		5,242		$	17.91
Granted		1,518			20.80
Vested		(2,014	)		14.78
Forfeited		(106	)		20.58
Non-vested shares and share units at December 31, 2016		4,640		$	20.15

As of

December

31,

2016,

there was approximately

$25

million of unrecognized compensation cost related to non-vested time-based restricted stock and restricted stock units compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of

2.1

years. The total fair value of time-based restricted stock that vested during the years ended

December

31,

2016,

2015

and

2014

was approximately

$27

million,

$32

million and

$32

million, respectively. Compensation cost related to time-based restricted stock and restricted stock units was approximately

$31

million,

$32

million and

$36

million for the years ended

December

31,

2016,

2015

and

2014,

respectively.