Shareholders’ Equity

Preferred Stock

As of December 31, 2018, we had one class of preferred stock outstanding. See Note 15 – Preferred Stock for further information. We are authorized to issue approximately 100 million shares of cumulative preferred stock at $0.01 par value per share.

Common Stock

We have 1 billion authorized shares of common stock at $0.01 par value per share. At December 31, 2018, 15 million shares were reserved for issuance under our incentive compensation plans and 5.4 million shares were reserved for conversion of the Series A convertible preferred stock.

Stock Compensation Plans

Certain of our employees participate in a long-term incentive plan. Our long-term incentive plan authorizes the issuance of restricted stock units / shares (RSU), performance stock units / share (PSU) and non-qualified stock options to employees. All awards for these plans prior to 2017 were made in Xerox stock and therefore converted into Conduent stock effective upon the Separation. Using a formula designed to preserve the value of the award immediately prior to the Separation, all of these awards will be settled and are reflected in the Company's Consolidated Statements of Shareholders' Equity. Stock-based compensation expense includes expense based on the awards and terms previously granted to the employees.

Stock-based compensation expense was as follows:



	Year Ended December 31,
(in millions)	2018		2017		2016
Stock-based compensation expense, pre-tax	$	38	$	42	$	23
Income tax benefit recognized in earnings	7		17		9

Restricted Stock Units / Shares Compensation expense is based upon the grant date market price. The compensation expense is recorded over the vesting period, which is normally three years from the date of grant, based on management's estimate of the number of shares expected to vest.

Performance Stock Units / Shares: The Company granted PSUs that vest contingent upon its achievement of certain specified financial performance criteria over a three-year period. If the three-year actual results exceed the stated targets, then the plan participants have the potential to earn additional shares of common stock, which cannot exceed 100% of the original grant.

The fair value of PSUs is based upon the market price of Conduent's common stock on the date of the grant. Compensation expense is recognized over the vesting period, which is normally three years from the date of grant, based on management's estimate of the number of shares expected to vest. If the stated targets are not met, any recognized compensation cost would be reversed.

Employee Stock Options: Stock options were issued by a former parent company and were converted to Conduent's common stock upon the Separation. These options generally expire within the next one year. Other than these options, Conduent has not issued any new stock options.

Summary of Stock-based Compensation Activity



	2018				2017				2016
(shares in thousands)	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Restricted Stock Units / Shares
Outstanding at January 1	3,125		$	16.29	1,961		$	13.99	782		$	11.70
Granted	1,246		18.82		1,988		16.75		2,602		9.61
Vested	(1,501	)	17.30		(215	)	19.98		(119	)	9.43
Canceled	(471	)	16.62		(609	)	15.88		(121	)	10.55
Impact of spin-off⁽¹⁾	—		n/a		—		n/a		(1,183	)	n/a
Outstanding at December 31	2,399		16.90		3,125		16.29		1,961		13.99

Performance Stock Units / Shares
Outstanding at January 1	5,429		$	16.55	4,926		$	13.99	7,522		$	11.57
Granted	730		18.64		3,933		16.76		1,850		9.35
Vested	(980	)	17.12		(1,696	)	19.67		—		—
Canceled	(622	)	16.59		(1,734	)	17.46		(1,478	)	11.96
Impact of spin-off⁽¹⁾	—		n/a		—		n/a		(2,968	)	n/a
Outstanding at December 31	4,557		16.76		5,429		16.55		4,926		13.99

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(1)	Stock-based compensation was converted from former parent stock into Conduent common stock at spin-off.

The Company issued 96 thousand Deferred Stock Units (DSU) to non-employee members of the Board of Directors. These DSUs are fully vested and will be issued when the directors leave the Board.

The Company has 119 thousand stock options outstanding as of December 31, 2018 at a strike price of $10.15. These stock options are fully vested and exercisable.

The total unrecognized compensation cost related to non-vested stock-based awards at December 31, 2018 was as follows (in millions):

The aggregate intrinsic value of outstanding RSUs and PSUs awards were as follows (in millions):



Awards	December 31, 2018
Restricted Stock Units / Shares	$	26
Performance Stock Units / Shares	48

Information related to stock options outstanding and exercisable at December 31, 2018 was as follows



(in millions)	Options
	Outstanding		Exercisable
Aggregate intrinsic value	$	1	$	1
Weighted-average remaining contractual life (years)	0.6		0.6

The total intrinsic value and actual tax benefit realized for vested and exercised stock-based awards were as follows:



(in millions)	December 31, 2018						December 31, 2017						December 31, 2016
Awards	Total Intrinsic Value		Cash Received		Tax Benefit		Total Intrinsic Value		Cash Received		Tax Benefit		Total Intrinsic Value		Cash Received		Tax Benefit
Restricted Stock Units / Shares	$	20	$	—	$	4	$	3	$	—	$	1	$	1	$	—	$	—
Performance Stock Units / Shares	18		—		4		25		—		10		—		—		—
Stock Options	2		2		—		3		6		1		3		9		1

Unrecognized Compensation

Remaining Weighted-Average Vesting Period (Years)

Restricted Stock Units / Shares

Performance Stock Units / Shares