Stock Incentive Plans

As of September 27, 2013, the Company had outstanding stock-based incentive awards issued pursuant to various shareholder-approved plans. For the quarters and six months ended September 27, 2013 and September 28, 2012, the Company recognized stock-based compensation expense as follows:



	Quarter Ended
(Amounts in millions)	September 27, 2013		September 28, 2012
Cost of services	$	7	$	3
Selling, general and administrative	9		10
Total	$	16	$	13
Total, net of tax	$	10	$	9



	Six Months Ended
(Amounts in millions)	September 27, 2013		September 28, 2012
Cost of services	13		$	6
Selling, general and administrative	20		14
Total	$	33	$	20
Total, net of tax	$	21	$	13

The Company’s overall stock-based compensation granting practice has not changed significantly year over year. The increase in stock-based compensation expense, for both the second quarter and the six month period ended September 27, 2013, was primarily due to adjustments for actual and expected achievement of the specified performance criteria for certain performance-based RSUs. Stock-based compensation expense for six months ended September 27, 2013 and September 28, 2012, included an adjustment of $4 million and $3 million, respectively, to reflect actual forfeiture experience for the prior fiscal years.

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 September 27, 2013 and September 28, 2012 were $16.35, and $7.21 per share, respectively. In calculating the compensation expense for its stock incentive plans, the Company used the following weighted average assumptions:



	Six Months Ended
	September 27, 2013		September 28, 2012
Risk-free interest rate	2.08	%	1.14	%
Expected volatility	35	%	36	%
Expected term (in years)	6.70		6.59
Dividend yield	1.67	%	2.90	%

During the six months ended September 27, 2013 and September 28, 2012, the Company's actual tax benefit realized for tax deductions from exercising stock options and RSU releases was $13 million and $2 million, respectively, and an excess tax benefit of $5 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 settlement of RSUs. As of September 27, 2013, 18,682,673 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 September 27, 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	2,134,934		44.88
Exercised	(2,159,991	)	40.88			19
Canceled/Forfeited	(891,787	)	32.69
Expired	(937,241	)	51.94
Outstanding as of September 27, 2013	13,286,482		43.97		5.76	117
Vested and expected to vest in the future as of September 27, 2013	13,053,535		44.04		5.69	114
Exercisable as of September 27, 2013	9,195,803		47.04		4.28	56

The total intrinsic value of options exercised during the six months ended September 27, 2013 and September 28, 2012 was $19 million and less than $1 million, respectively. The cash received from stock options exercised during the six months ended September 27, 2013 and September 28, 2012 was $85 million and $1 million, respectively.

As of September 27, 2013, there was $41 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 2.17 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 and dividend equivalents 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. Beginning 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 settled 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. In the table below, such awards are reflected at the number of shares to be settled upon achievement of target performance measures.

During the six months ended September 27, 2013, certain executives were awarded service-based RSUs for which the shares are redeemable over the ten 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 ten 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 September 27, 2013
	Number of Shares		Weighted Average Fair Value per share
Outstanding as of March 29, 2013	2,263,272		$	31.53
Granted	1,194,442		45.82
Released/Issued	(365,753	)	31.88
Canceled/Forfeited	(415,623	)	38.63
Outstanding as of September 27, 2013	2,676,338		37.04

As of September 27, 2013, there was $80 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 2.37 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 September 27, 2013, 197,400 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 September 27, 2013
	Number of Shares		Weighted Average Fair Value per share
Outstanding as of March 29, 2013	188,445		$	39.85
Granted	25,000		51.55
Released/Issued	(29,299	)	35.81
Canceled/Forfeited	—		—
Outstanding as of September 27, 2013	184,146		42.07

For awards granted in fiscal 2013 and prior, vested RSUs are automatically settled for shares of CSC common stock and dividend equivalents when the non-employee director ceases to be a director of the Company. The number of shares to be settled 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 settled (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. For RSU awards granted in fiscal 2014, RSUs vest and settle at the earlier of (i) the one-year anniversary of the grant date, or (ii) the date of the Company's first Annual Meeting of the Stockholders held after the grant date. Alternatively, settlement of the RSU may be deferred per election of the non-employee director.