Stock Incentive Plans

For the quarters and nine months ended January 1, 2016 and January 2, 2015, the Company recognized stock-based compensation expense (benefit) as follows:



	Quarter Ended				Nine Months Ended
(Amounts in millions)	January 1, 2016		January 2, 2015		January 1, 2016		January 2, 2015
Cost of services	$	8	$	5	$	6	$	14
Selling, general and administrative	13		14		22		40
Total	$	21	$	19	$	28	$	54
Total, net of tax	$	14	$	12	$	18	$	35

Stock-based compensation for the third quarter of fiscal 2016 increased $2 million, when compared to the third quarter of fiscal 2015, due to higher forfeitures in fiscal 2015 that did not recur in fiscal 2016. For the nine month period, stock based compensation reflected the benefit recognized in the first quarter of fiscal 2016 of approximately $15 million related to higher than normal employee terminations, forfeitures as of the annual vesting date and changes in the assumed forfeiture.

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 nine months ended January 1, 2016 and January 2, 2015 were $9.03 and $18.32 per share, respectively. In calculating the compensation expense for its stock incentive plans, the Company used the following weighted-average assumptions:



	Nine Months Ended
	January 1, 2016		January 2, 2015
Risk-free interest rate	1.82	%	2.07	%
Expected volatility	31	%	33	%
Expected term (in years)	6.25		6.22
Dividend yield	1.39	%	1.50	%

For the nine months ended January 1, 2016 and January 2, 2015, the tax benefit realized from stock option exercises and RSU settlements was $40 million and $41 million, respectively, and the excess tax benefit was $19 million and $15 million, respectively.

As a result of the separation of CSRA in the third quarter fiscal 2016, most stock awards issued by the Company were modified, including acceleration of vesting of certain awards and the issuance of new CSRA awards under the basket method, whereby awards granted prior to fiscal year 2016 in CSC equity were converted into two awards: an award in an adjusted CSC equity award and a CSRA equity award. In the case of stock options, the number of options and the exercise price were adjusted for the impact of the separation. The conversions were structured to generally preserve the intrinsic value of the wards immediately prior to the Separation. There was no incremental stock compensation expense recognized as a result of the modification of the awards.

Employee Incentives

The Company currently has two active 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 January 1, 2016, 8,575,199 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:



	Number of Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (millions)
Outstanding as of April 3, 2015⁽¹⁾	5,556,309		$	20.70	5.93	$	107
Granted	1,050,557		28.86
CSC option shares issued resulting from separation modification	1,614,100		28.35
Exercised	(1,861,855	)	19.36			40
Canceled/Forfeited	(279,097	)	27.97
Expired	(28,722	)	18.48
Outstanding as of January 1, 2016	6,051,292		24.38		7.05	50
Vested and expected to vest in the future as of January 1, 2016	5,880,029		24.18		7.01	49
Exercisable as of January 1, 2016	3,695,353		$	20.62	5.74	$	44


⁽¹⁾	The amount of the weighted average exercise price and aggregate intrinsic value has been revised to reflect the impact of the Separation.

The total intrinsic value of options exercised during the nine months ended January 1, 2016 and January 2, 2015 was $40 million and $62 million, respectively. The cash received from stock options exercised during the quarters ended January 1, 2016 and January 2, 2015 was $72 million and $151 million, respectively.

As of January 1, 2016, there was $18 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 2.3 years.

Restricted Stock Units

Information concerning RSUs granted under the Company's stock incentive plans is as follows:



	Number of Shares		Weighted Average Fair Value per share
Outstanding as of April 3, 2015⁽¹⁾	2,579,675			$	35.99
Granted	3,118,089			29.75
CSC shares issued resulting from separation modification	408,440			31.47
Released/Issued	(947,415	)		30.97
Canceled/Forfeited	(672,461	)		50.12
Outstanding as of January 1, 2016	4,486,328			$	30.16


⁽¹⁾	The amount of the weighted average fair value per share has been revised to reflect the impact of the Separation.

As of January 1, 2016, there was $84 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 2.69 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 January 1, 2016, 129,763 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 non-employee directors is as follows:



	Number of Shares		Weighted Average Fair Value per share
Outstanding as of April 3, 2015⁽¹⁾	143,986			$	30.02
Granted	55,561			32.19
Released/Issued	(52,100	)		47.22
Canceled/Forfeited	(12,250	)		33.96
Outstanding as of January 1, 2016	135,197			$	23.93


⁽¹⁾	The amount of the weighted average fair value per share has been revised to reflect the impact of the Separation.