Stock Incentive Plans

As of June 28, 2013, the Company had outstanding stock-based incentive awards issued pursuant to various shareholder-approved plans. For the quarters ended June 28, 2013 and June 29, 2012, the Company recognized stock-based compensation expense as follows:



	Quarter Ended
(Amounts in millions)	June 28, 2013		June 29, 2012
Cost of services	$	6	$	3
Selling, general and administrative	11		4
Total	$	17	$	7
Total, net of tax	$	11	$	4

The Company’s overall stock-based compensation granting practice has not changed significantly year over year. Adjustments for actual and expected achievement of the specified performance criteria for certain performance-based RSUs increased stock-based compensation expense recognized for the three months ended June 28, 2013 by $6 million, which is predominantly represented by participants in selling, general and administrative positions. An adjustment to reflect actual forfeiture experience for the prior fiscal year decreased stock-based compensation expense recognized for the three months ended June 28, 2013 and June 29, 2012 by $4 million and $3 million, respectively.

The Company uses the Black-Scholes-Merton model in determining the fair value of stock options granted. The weighted average grant date fair values of stock options granted during the three months ended June 28, 2013 and June 29, 2012 were $13.10, and $7.03 per share, respectively. In calculating the compensation expense for its stock incentive plans, the Company used the following weighted average assumptions:



	Quarter ended
	June 28, 2013		June 29, 2012
Risk-free interest rate	1.27	%	1.13	%
Expected volatility	34	%	36	%
Expected term (in years)	6.47		6.45
Dividend yield	1.72	%	2.87	%

During the three months ended June 28, 2013 and June 29, 2012, the Company's actual tax benefit realized for tax deductions from exercising stock options and RSU releases was $6 million and $2 million, respectively, and an excess tax benefit of $3 million and $0 million, respectively, related to all of its stock incentive plans.

Employee Incentives

The Company has three stock incentive plans that authorize the issuance of stock options, restricted stock and other stock-based incentives to employees upon terms approved by the Compensation Committee of the Board of Directors. The Company issues authorized but previously unissued shares upon the exercise of stock options, the granting of restricted stock and the redemption of RSUs. As of June 28, 2013, 10,172,180 shares of CSC common stock were available for the grant of future stock options, equity awards or other stock-based incentives to employees under such stock incentive plans.

Stock Options

The Company’s standard vesting schedule for stock options is one-third of the total stock option award on each of the first three anniversaries of the grant date. Stock options are generally exercisable for a term of ten years from the grant date. Information concerning stock options granted under the Company's stock incentive plans is as follows:



	As of June 28, 2013
	Number of Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (millions)
Outstanding as March 29, 2013	15,140,567		$	43.23	5.45	$	113
Granted	2,059,857		44.67
Exercised	(466,283	)	36.83			4
Canceled/Forfeited	(692,297	)	32.75
Expired	(741,959	)	51.94
Outstanding as of June 28, 2013	15,299,885		43.67		5.86	56
Vested and expected to vest in the future as of June 28, 2013	15,005,999		43.77		5.76	54
Exercisable as of June 28, 2013	10,943,403		46.58		4.49	22

The total intrinsic value of options exercised during the three months ended June 28, 2013 and June 29, 2012, was $4 million and $0 million, respectively. The cash received from stock options exercised during the three months ended June 28, 2013 and June 29, 2012 was $16 million and $0 million, respectively.

As of June 28, 2013, there was $46 million of total unrecognized compensation expense related to unvested stock options, net of expected forfeitures. The cost is expected to be recognized over a weighted-average period of 2.34 years.

Restricted Stock Units

RSUs consist of equity awards with the right to receive one share of common stock of the Company issued at a price of $0. Upon the settlement date, RSUs are settled in shares of CSC common stock and dividend equivalents. If, prior to the vesting of the RSU in full, the employee's status as a full-time employee is terminated, then the RSU is automatically canceled on the employment termination date and any unvested shares are forfeited.

The Company grants RSUs with service and performance-based vesting terms. Service-based RSUs, generally vest over periods of three to five years. The number of performance-based RSUs that ultimately vest is dependent upon the Company's achievement of certain specified performance criteria over a three-year period. Awards are settled for shares of CSC common stock and dividend equivalents upon the filing with the SEC of the Annual Report on Form 10-K for the last fiscal year of the performance period if the specified performance criteria is met. In fiscal 2013, performance-based RSU awards granted include the potential for accelerated vesting of 25% of the shares granted after the first and second fiscal years if certain company performance targets are met early. Compensation expense during the performance period is estimated at each reporting date using management's expectation of the probable achievement of the specified performance criteria and is adjusted to the extent the expected achievement changes. In the first quarter of fiscal 2014, shares were released due to meeting the company performance targets in fiscal year 2013. The probable achievement was also increased to the maximum payout based on management's expectation of meeting the performance criteria resulting in additional expense recognized as previously discussed. In the table below, such awards are reflected at the number of shares to be settled upon achievement of target performance measures.

During the three months ended June 28, 2013, certain executives were awarded service-based RSUs for which the shares are redeemable over the 10 anniversaries following the executive’s separation from service as a full-time employee, provided the executive complies with certain non-competition covenants during the ten-year period following the executives separation of service. For the certain executives who joined the company in fiscal year 2013 and after, the awards vest at age 62, or 50% of the award partially vests at age 55 with 5 years service with an additional 10% vesting each additional year of service up to 10 years of service. Prior to fiscal year 2013, awards vested at age 65 or 55 and 10 years of service.

Information concerning RSUs granted under stock incentive plans is as follows:



	As of June 28, 2013
	Number of Shares		Weighted Average Fair Value per share
Outstanding as of March 29, 2013	2,263,272		$	31.53
Granted	974,885		44.67
Released/Issued	(302,135	)	32.31
Canceled/Forfeited	(310,511	)	40.32
Outstanding as of June 28, 2013	2,625,511		35.57

As of June 28, 2013, there was $83 million of total unrecognized compensation expense related to unvested RSUs, net of expected forfeitures. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.65 years.

Non-employee Director Incentives

The Company has two stock incentive plans that authorize the issuance of stock options, restricted stock and other stock-based incentives to nonemployee directors upon terms approved by the Company’s Board of Directors. As of June 28, 2013, 72,400 shares of CSC common stock remained available for grant to non-employee directors as RSUs or other stock-based incentives.

Generally, RSU awards to non-employee directors vest in full as of the next annual meeting of the Company’s stockholders following the date they are granted and are issued at a price of $0. Information concerning RSUs granted to nonemployee directors is as follows:



	As of June 28, 2013
	Number of Shares	Weighted Average Fair Value per share
Outstanding as of March 29, 2013	188,445	$	39.85
Granted	—	—
Released/Issued	—	—
Canceled/Forfeited	—	—
Outstanding as of June 28, 2013	188,445	39.85

When a holder of RSUs ceases to be a director of the Company, the vested RSUs are automatically redeemed for shares of CSC common stock and dividend equivalents with respect to such shares. The number of shares to be delivered upon redemption is equal to the number of RSUs that are vested at the time the holder ceases to be a director. At the holder’s election, the RSUs may be redeemed (i) in their entirety, upon the day the holder ceases to be a director, or (ii) in substantially equal amounts upon the first five, ten or fifteen anniversaries of such termination of service.