16. Share-based Compensation

Stock Compensation Plans

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values. Fair values for stock options were estimated using a multiple-point Black-Scholes valuation model. Share-based compensation cost was approximately $14 million and $9 million for the three months ended March 31, 2017 and 2016, respectively. Amounts for all periods presented included compensation expense for employee stock options and time-based restricted stock and restricted stock units.

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 three years from the grant date. The maximum term of non-qualified and incentive stock options is ten 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 three months ended March 31, 2017:



				Weighted-
				Average
		Weighted-		Remaining	Aggregate
	Number	Average		Contractual	Intrinsic
	of Shares	Exercise		Term in	Value
	(in thousands)	Price		Years	(in thousands)
Options Outstanding as of December 31, 2016	31,507	$	19.40
Granted	1,501		27.00
Exercised	(8,429)		21.78
Forfeited and Expired	(80)		21.40
Options Outstanding as of March 31, 2017	24,499		19.04	4.64	$	195,009
Options Expected to Vest as of March 31, 2017	24,949		19.07	4.68		197,946
Options Exercisable as of March 31, 2017	18,769		18.01	3.41		168,779

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 March 31, 2017, which would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date.

As of March 31, 2017, there was approximately $18 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 1.5 years. Compensation cost related to stock options was approximately $8 million and $3 million for the three months ended March 31, 2017 and 2016, respectively.

Proceeds received from the exercise of stock options were $182 million and $9 million for the three months ended March 31, 2017 and 2016, respectively. Proceeds received from the exercise of stock options were included in financing activities on the Company’s Consolidated Statements of Cash Flows. The total intrinsic value of options exercised for the three months ended March 31, 2017 and 2016 was approximately $44 million and $6 million, respectively. The income tax (expense) benefit realized from share-based compensation was not significant for the three months ended March 31, 2017 and 2016, respectively. Refer to Note 5 (Income Taxes) to the Consolidated Financial Statements.

The following inputs were used for the valuation of option grants under our stock option plans:



	Three months ended
	March 31,
	2017	2016
Expected volatility	36.1%	43.1%
Weighted-average volatility	36.1%	43.1%
Expected dividends	2.28%	2.94%
Risk-free rate	2.3%	1.5%
Average risk-free rate	2.3%	1.5%
Expected term (in years)	7.4	7.4
Pre-vesting departure rate	0.6%	0.6%

Expected volatility is based on a blended approach 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 15-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 rate assumption is the implied rate for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term.

Incentive Stock Plans

Corning’s 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 three 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, 2016, and changes which occurred during the three months ended March 31, 2017:



		Weighted
		Average
	Shares	Grant-Date
	(000’s)	Fair Value
Non-vested shares and share units at December 31, 2016	4,640	$	20.15
Granted	956		26.90
Vested	(150)		20.16
Forfeited	(53)		20.99
Non-vested shares and share units at March 31, 2017	5,393	$	21.34

As of March 31, 2017, there was approximately $49 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 1.9 years. Compensation cost related to time-based restricted stock and restricted stock units was approximately $6 million for the three months ended March 31, 2017 and 2016, respectively.