As of January 3, 2020, the Company had stock-based compensation awards outstanding under the following plans: the 2017 Omnibus Incentive Plan, 2006 Equity Incentive Plan, as amended, and the 2006 Employee Stock Purchase Plan, as amended ("ESPP"). Leidos issues new shares upon the issuance of the vesting of stock units or exercising of stock options under these plans.

In fiscal 2017, stockholders approved the 2017 Omnibus Incentive Plan which provides the Company and its affiliates' employees, directors and consultants the opportunity to receive various types of stock-based compensation awards, such as stock options, restricted stock units and performance-based awards, as well as cash awards. The Company grants service-based awards that generally vest or become exercisable 25% a year over four years or cliff vest in three years. As of January 3, 2020, 4.4 million shares of Leidos' stock were reserved for future issuance under the 2017 Omnibus Incentive Plan and the 2006 Equity Incentive Plan.

The Company offers eligible employees the opportunity to defer restricted stock units into an equity-based deferred equity compensation plan, the Key Executive Stock Deferral Plan ("KESDP"). Prior to 2013, the Company offered an additional opportunity for deferrals into the Management Stock Compensation Plan ("MSCP"). Benefits from these plans are payable in shares of Leidos' stock that are held in a trust for the purpose of funding shares to the plans' participants. Restricted stock units deferred under the KESDP are counted against the total shares available for future issuance under the 2017 Omnibus Incentive Plan. All awards under the MSCP are fully vested and the plan does not provide for a maximum number of shares available for future issuance.

The Company's ESPP allows eligible employees to purchase shares of Leidos' stock at a discount of up to 15% of the fair market value on the date of purchase. During the first half of fiscal 2018 and 2017, the discount was 5% of the fair market value on the date of purchase, thereby resulting in the ESPP being non-compensatory. Effective the second half of fiscal 2018, the Company increased the discount to 10% of the fair market value on the date of purchase, resulting in the ESPP being compensatory. During fiscal 2019, 2018 and 2017, $25 million, $11 million and $10 million, respectively, was received from ESPP plan participants for the issuance of Leidos' stock. A total of 4.2 million shares remain available for future issuance under the ESPP.



	Year Ended
	January 3, 2020		December 28, 2018		December 29, 2017
	(in millions)
Total stock-based compensation expense	$	52	$	44	$	43
Tax benefits recognized from stock-based compensation	13		11		17

Stock options are granted with exercise prices equal to the fair market value of Leidos' common stock on the date of grant and for terms not greater than ten years. Stock options have a term of seven years and a vesting period of four years, except for stock options granted to the Company's outside directors, which have a vesting period of the earlier of one year from grant date or the next annual meeting of stockholders following grant date.

The fair value of the Company's stock option awards is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The fair value of the Company's stock option awards to employees are expensed on a straight-line basis over the vesting period of four years, except for stock options granted to the Company's outside directors, which is recognized over the vesting period of one year or less.

During fiscal 2017, the Company ceased the usage of peer group volatility, as an input into its blended approach to measure expected volatility, and increased the reliance on historical volatility. The revised blended approach includes the Company's weighted average historical and implied volatilities. The Company continued the use of this approach during fiscal 2018 and fiscal 2019.

The risk-free rate is derived using the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the stock option on the grant date. During fiscal 2017 and fiscal 2018, Leidos utilized the simplified method for the expected term, which represented an appropriate period of time that the options granted were expected to remain outstanding between the weighted-average vesting period and end of the respective contractual term. Upon re-examining the Company's exercise history, the methodology used to calculate the expected term changed in fiscal 2019. Based on actual historical settlement data, the midpoint scenario is utilized with a one-year grant date filter assumption for outstanding options. The Company uses historical data to estimate forfeitures and was derived in the same manner as in the prior years presented.

The weighted average grant-date fair value and assumptions used to determine fair value of stock options granted for the periods presented were as follows:



	Year Ended
	January 3, 2020			December 28, 2018			December 29, 2017
Weighted average grant-date fair value	$	11.89		$	13.85		$	11.53
Expected term (in years)	4.4			4.7			4.7
Expected volatility	24.3		%	26.6		%	29.7		%
Risk-free interest rate	2.4		%	2.6		%	1.9		%
Dividend yield	2.2		%	2.0		%	2.5		%



	Shares of stock under stock options		Weighted average exercise price		Weighted average remaining contractual term	Aggregate intrinsic value
	(in millions)				(in years)	(in millions)
Outstanding at December 30, 2016	3.3		$	29.77	4.1	$	70
Options granted	0.5		53.51
Options forfeited or expired	(0.2	)	35.72
Options exercised	(0.8	)	27.23			23
Outstanding at December 29, 2017	2.8		$	34.38	3.9	$	86
Options granted	0.4		63.75
Options forfeited or expired	(0.2	)	49.65
Options exercised	(0.6	)	30.40			24
Outstanding at December 28, 2018	2.4		$	39.41	3.8	$	36
Options granted	0.5		63.61
Options forfeited or expired	—		58.08
Options exercised	(0.5	)	30.86			21
Outstanding at January 3, 2020	2.4		46.04		3.8	128
Exercisable at January 3, 2020	1.4		$	37.04	2.7	$	89
Vested and expected to vest in the future as of January 3, 2020	2.4		$	45.80	3.8	$	126

As of January 3, 2020, there was $6 million of unrecognized compensation cost, net of estimated forfeitures, related to stock options, which is expected to be recognized over a weighted-average period of 1.9 years. Tax benefits from stock options exercised for fiscal 2019, 2018 and 2017 were $5 million, $6 million and $7 million respectively.

Compensation expense is measured at the grant date fair value and generally recognized over the vesting period of either three to four years based upon required service conditions and in some cases revenue or EPS-based performance conditions.



	Shares of stock under stock awards		Weighted average grant- date fair value
	(in millions)
Unvested stock awards at December 30, 2016	2.5		$	40.39
Awards granted	0.8		53.91
Awards forfeited	(0.3	)	45.89
Awards vested	(1.0	)	41.02
Unvested stock awards at December 29, 2017	2.0		$	44.96
Awards granted	0.6		64.05
Awards forfeited	(0.2	)	42.67
Awards vested	(0.4	)	44.60
Unvested stock awards at December 28, 2018	2.0		$	50.85
Awards granted	0.6		64.70
Awards forfeited	(0.1	)	60.20
Awards vested	(1.1	)	44.10
Unvested stock awards at January 3, 2020	1.4		$	60.91

As of January 3, 2020, there was $37 million of unrecognized compensation cost, net of estimated forfeitures, related to restricted stock units, which is expected to be recognized over a weighted average period of 2.0 years. The fair value of restricted stock units that vested in fiscal 2019, 2018 and 2017, was $66 million, $22 million and $33 million, respectively. In addition, the fair value of dividend equivalents with respect to restricted stock units that vested in fiscal 2019 and 2018 was $1 million and in fiscal 2017 was $13 million.

The Company's performance-based stock awards vest and the stock is issued at the end of a three-year period based upon the achievement of specific performance criteria, with the number of shares ultimately awarded, if any, ranging up to 150% of the specified target awards. If performance is below the threshold level of performance, no shares will be issued.

For awards granted during fiscal 2019, 2018 and 2017, the target number of shares of stock granted under the awards will vest and the stock will be issued at the end of a three-year period based on a three-year cycle performance period and the actual number of shares to be issued will be based upon the achievement of the three-year cycle's performance criteria. Also, during fiscal 2019, 2018 and 2017, the Company granted performance-based awards with market conditions. These market conditions grants represent the target number of shares and the actual number of shares to be awarded upon vesting may be higher or lower depending upon the achievement of the relevant market conditions. The target number of shares granted under the market conditions grants will vest and the stock will be issued at the end of a three-year period based on the attainment of certain total shareholder return performance measures and the employee's continued service through the vest date.



	Expected number of shares of stock to be issued under performance-based stock awards		Weighted average grant- date fair value
	(in millions)
Unvested at December 30, 2016	0.4		$	44.44
Awards granted	0.2		57.94
Awards vested	(0.1	)	42.85
Unvested at December 29, 2017	0.5		$	50.34
Awards granted	0.3		61.43
Awards forfeited	(0.1	)	61.81
Awards vested	(0.2	)	44.04
Unvested at December 28, 2018	0.5		$	57.36
Awards granted	0.2		66.92
Awards forfeited	—		66.72
Awards vested	(0.1	)	45.83
Unvested at January 3, 2020	0.6		$	63.66

The weighted average grant date fair value for performance-based stock, excluding those with a market condition, during fiscal 2019, 2018 and 2017 was $62.66, $63.76 and $53.58, respectively. The weighted average grant date fair value for performance-based stock with market conditions that were granted during fiscal 2019, 2018 and 2017, was $72.53, $71.50 and $62.30, respectively, and was calculated using the Monte Carlo simulation.

The Monte Carlo simulation assumptions used for the periods presented were as follows:



	Year Ended
	January 3, 2020			December 28, 2018			December 29, 2017
Expected volatility	22.02		%	25.37		%	27.19		%
Risk free rate of return	2.39		%	2.35		%	1.53		%
Weighted average grant date stock price	$	62.66		$	65.00		$	53.73