14. 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 $16 million and $21 million for the three months ended September 30, 2012 and 2011, respectively, and approximately $56 million and $66 million for the nine months ended September 30, 2012 and 2011, respectively. Amounts for all periods presented included compensation expense for employee stock options and time-based restricted stock and restricted stock units. Performance-based restricted stock and restricted stock units fully vested in the first quarter of 2012. Compensation expense for performance-based restricted stock units is included in periods ended prior to April 1, 2012.

Stock Options

Our 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 to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 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 nine months ended September 30, 2012:

	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, 2011	65,027	$15.91
Granted	7,701	12.98
Exercised	(4,364)	6.07
Forfeited and Expired	(1,404)	17.85
Options Outstanding as of September 30, 2012	66,960	16.18	4.89	$92,589
Options Exercisable as of September 30, 2012	53,747	16.21	3.96	92,260

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 September 30, 2012, which would have been received by the option holders had all option holders exercised their options as of that date.

As of September 30, 2012, there was approximately $32 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 two years. Compensation cost related to stock options was approximately $30 million and $37 million for the nine months ended September 30, 2012 and 2011, respectively, and approximately $9 million and $12 million for the three months ended September 30, 2012 and 2011 respectively.

Proceeds received from the exercise of stock options were $26 million and $82 million for the nine months ended September 30, 2012 and 2011, respectively and $7 million and $9 million for the three months ended September 30, 2012 and 2011, 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 nine months ended September 30, 2012 and 2011 was approximately $31 million and $71 million, and $11 million and $3 million for the three months ended September 30, 2012 and 2011, respectively, which is currently deductible for tax purposes. However, these tax benefits were not recognized due to net operating loss carryforwards available to the Company. Refer to Note 4 (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 September 30,		Nine months ended September 30,
	2012	2011	2012	2011
Expected volatility	48%	48-49%	48-49%	47-49%
Weighted-average volatility	48%	48%	48-49%	47-48%
Expected dividends	2.59%	1.05%	2.28-2.59%	1.10%
Risk-free rate	1.0-1.3%	1.0-1.5%	0.9-1.3%	1.0-2.7%
Average risk-free rate	1.2%	1.5%	1.2-1.3%	1.5-2.6%
Expected term (in years)	5.7-7.1	5.1-6.7	5.7-7.1	5.1-6.7
Pre-vesting departure rate	0.4-4.2%	0.4-3.9%	0.4-4.2%	0.4-3.9%

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. The ranges given above result from different groups of employees exhibiting different exercise behavior.

Incentive Stock Plans

The Corning Incentive Stock Plan permits stock grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Shares under the Incentive Stock Plan are granted at the market price on the grant date, contingently vest over a period of 1 to 10 years, and have contractual lives of 1 to 10 years. The fair value of each restricted stock grant under the Incentive Stock Plans was estimated on the date of grant.

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 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, 2011, and changes which occurred during the nine months ended September 30, 2012:


	Shares (000's)	Weighted Average Grant-Date Fair Value
Non-vested shares at December 31, 2011	4,104	$	18.16
Granted	2,011		13.07
Vested	(662)		19.43
Forfeited	(72)		15.10
Non-vested shares at September 30, 2012	5,381	$	16.14

As of September 30, 2012, there was approximately $26 million of unrecognized compensation cost related to non-vested time-based restricted stock granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.8 years. Compensation cost related to time-based restricted stock and restricted stock units was approximately $24 million and $23 million for the nine months ended September 30, 2012 and 2011, respectively, and $7 million for the three months ended September 30, 2012 and 2011.

Performance-Based Restricted Stock and Restricted Stock Units:

Performance-based restricted stock and restricted stock units are earned upon the achievement of certain targets, and are payable in shares of the Company's common stock upon vesting, typically over a three-year period. The fair value is based on the market price of the Company's stock on the grant date and assumes that the target payout level will be achieved. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting. During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.

The following table represents a summary of the status of the Company's non-vested performance-based restricted stock and restricted stock units as of December 31, 2011, and changes which occurred during the nine months ended September 30, 2012:


	Shares (000's)	Weighted- Average Grant-Date Fair Value
Non-vested restricted stock and restricted stock units at December 31, 2011	5,134	$	8.67
Vested	(5,134)		8.67
Non-vested restricted stock and restricted stock units at September 30, 2012	0	$	0

The performance-based restricted stock and restricted stock unit compensation program was terminated in 2010. All performance-based restricted stock and stock units were fully vested in the first quarter of 2012.

As of September 30, 2012, there is no unrecognized compensation cost related to non-vested performance-based restricted stock and restricted stock units compensation arrangements granted under the Plan. Compensation cost related to performance-based restricted stock and restricted stock units was approximately $2 million and $6 million for the nine months ended September 30, 2012 and 2011, respectively, and $2 million for the three months ended September 30, 2011.