Share-Based Compensation

The Company has share-based compensation and employee stock purchase plans under which shares of the Company's Class A common stock are available for future grants and sales.

On May 14, 2015, the Company’s stockholders approved the 2015 Zebra Technologies Corporation Long-Term Incentive Plan (the 2015 Plan), which included authorization for issuance of awards of 4,000,000 shares. The 2015 Plan became effective immediately and superseded the 2011 Long-Term Incentive Plan (the 2011 Plan), except that the 2011 Plan remains in effect with respect to awards granted under the 2011 Plan until such awards have been exercised, forfeited, cancelled, expired or otherwise terminated in accordance with the terms of such awards. The types of awards available under the 2015 Plan are stock appreciation rights (SARs), restricted stock, restricted stock units, performance shares and units and performance-based cash bonuses. Employees, directors and consultants of the Company and its subsidiaries are eligible to participate in the 2015 Plan. The Compensation Committee of the Board of Directors administers the 2015 Plan. As of December 31, 2015, 3,430,707 shares were available for grant under the 2015 plan. Under the 2015 Plan, 325,512 SARs were outstanding as of December 31, 2015.

The 2011 Plan was superseded by the 2015 Plan. As of December 31, 2015, 672,290 SARs were outstanding under the 2011 Plan. The SARs granted under the 2011 Plan have an exercise or grant price equal to the closing market price of the Company’s Class A common stock on the date of grant. SAR’s generally vest over a four year period. These awards expire on the earlier of (a) ten years following the grant date, (b) immediately if the employee is terminated for cause, (c) ninety days after termination of employment if the employee is terminated involuntarily other than for cause, (d) thirty days after termination of employment if the employee voluntarily terminates his or her employment, or (e) one year after termination of employment if the employee’s employment terminates due to death, disability, or retirement.

The Company’s restricted stock grants consist of time-vested restricted stock awards ("RSAs") and performance vested restricted stock awards ("PSAs"). The following table shows the number of RSAs and PSAs granted during 2015 and the vesting schedule.



Vesting period	RSA’s	PSA’s	Total
At grant	9,194	—	9,194
After three years of service	176,588	106,411	282,999
Total	185,782	106,411	292,193

These RSAs and PSAs vest at each vesting date if the employee remains employed by the Company throughout the applicable time period, but will vest in whole or in part (as set forth in each restricted stock agreement) before the end of the vesting period in the event of death, disability, a change in control (as defined in the 2015 Plan), or termination by the Company other than for Cause, as defined in each restricted stock agreement. The restricted stock is forfeited in certain situations specified in the restricted stock agreement, including, if the employee’s employment is terminated by the Company for Cause or if the employee resigns for other than good reason. The Company’s restricted stock awards are expensed over the vesting period of the related award, which is typically 3 years. Some awards, including those granted annually to non-employee directors as an equity retainer fee, were vested upon grant. Compensation cost is calculated as the market date fair value on grant date multiplied by the number of shares granted.

The 2006 Long-Term Incentive Plan ("the 2006 Plan") was superseded by the 2011 Plan. As of December 31, 2015, options and SARs for 644,407 shares were outstanding and exercisable under the 2006 Plan. These options and SARs expire on the earlier of (a) 10 years following the grant date, or (b) immediately if the employee is terminated for cause, (c) ninety days after termination of employment if the employee is terminated involuntarily other than for cause, (d) thirty days after termination of employment if the employee voluntarily terminates his or her employment, or (e) 1 year after termination of employment if the employee’s employment terminates due to death, disability, or retirement.

The 1997 Stock Option Plan ("the 1997 Plan") was superseded by the 2006 Plan. As of December 31, 2015, options for 7,655 shares were outstanding and exercisable under the 1997 Plan. These options terms are the same as noted in the paragraph above regarding the 2006 Plan.

On May 19, 2011 the Company’s stockholders adopted the 2011 Employee Stock Purchase Plan (which replaced the 2001 Stock Purchase plan) under which employees who work a minimum of 20 hours per week may elect to withhold up to 10% of their cash compensation through regular payroll deductions to purchase shares of Class A common stock from the Company over a period not to exceed 12 months at a purchase price per share, which is equal to the lesser of: (1) 95% of the fair market value of the shares as of the date of the grant, or (2) 95% of the fair market value of the shares as of the date of purchase. Stock purchase plan expense for the year ended December 31, 2015 was $1 million. Stock purchase plan expense for the years ended December 31, 2014 and 2013 was less than $1 million.

Pre-tax share-based compensation expense recognized in the statements of operations was $33 million, $20 million and $13 million for the years ended December 31, 2015, 2014 and 2013, respectively. Tax related benefits of $11 million, $7 million and $5 million were also recognized for the years ended December 31, 2015, 2014 and 2013, respectively.

The fair value of share-based compensation is estimated on the date of grant using a binomial model. Volatility is based on an average of the implied volatility in the open market and the annualized volatility of the Company’s stock price over its entire stock history. Stock option grants in the table below include both stock options, all of which were non-qualified, and SARs that will be settled in the Class A common stock or cash. Restricted stock grants are valued at the market closing price on the grant date.

The following table shows the weighted-average assumptions used for grants of SARs, as well as the fair value of the grants based on those assumptions:



	2015	2014	2013
Expected dividend yield	0%	0%	0%
Forfeiture rate	10.24%	10.32%	10.31%
Volatility	33.98%	34.92%	32.00%
Risk free interest rate	1.53%	1.73%	0.82%
Range of interest rates	0.02% - 2.14%	0.02% - 2.61%	0.02% - 1.78%
Expected weighted-average life	5.32 years	5.36 years	5.42 years
Fair value of SARs granted (in millions)	$12	$5	$5
Weighted-average grant date fair value of SARs granted (per underlying share)	$35.00	$24.98	$13.86

The forfeiture rate is based on the historical annualized forfeiture rate, which is consistent with prior year rates. The risk free interest rate used is the implied yield currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the SARs or options. The expected weighted-average life is based on historical exercise behavior, which combines the average life of the SARs or options that have already been exercised or cancelled with the exercise life of all unexercised SARs and options. The exercise life of unexercised SARs and options assumes that the SARs or option will be exercised at the midpoint of the vesting date and the full contractual term. These assumptions are consistent with the assumptions used in prior years.

Stock option activity was as follows:



	2015					2014					2013
Options	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Outstanding at beginning of year	415,960			$	40.19	956,502			$	42.77	1,532,569			$	41.69
Granted	0			0		0			0		0			0
Exercised	(209,976		)	43.53		(540,542		)	44.76		(543,922		)	39.54
Forfeited	0			0		0			0		0			0
Expired	(1,550		)	$	51.62	0			0		(32,145		)	45.81
Outstanding at end of year	204,434			$	36.66	415,960			$	40.19	956,502			$	42.77
Exercisable at end of year	204,434			$	36.66	415,960			$	40.19	956,502			$	42.77
Intrinsic value of exercised options (in millions)	$	10				$	15				$	4

The following table summarizes information about stock options outstanding at December 31, 2015:



	Outstanding	Exercisable
Aggregate intrinsic value - (in millions)	$11	$11
Weighted-average remaining contractual term	2.1 years	2.1 years

SAR activity was as follows:



	2015					2014					2013
SARs	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Outstanding at beginning of year	1,292,142			$	42.20	1,402,784			$	36.36	1,535,804			$	31.66
Granted	332,159			107.31		195,560			74.59		326,811			46.13
Exercised	(179,702		)	40.71		(267,077		)	34.03		(376,673		)	25.44
Forfeited	(45,441		)	75.26		(38,738		)	50.57		(80,515		)	37.54
Expired	(1,547		)	47.11		(387		)	46.07		(2,643		)	33.70
Outstanding at end of year	1,397,611			$	56.78	1,292,142			$	42.20	1,402,784			$	36.36
Exercisable at end of year	736,075			$	35.90	586,344			$	33.03	520,426			$	30.51
Intrinsic value of exercised SARs (in millions)	$	11				$	11				$	8

The terms of the SARs are established under the applicable Plan and the applicable SAR agreement. Once vested, a SAR entitles the holder to receive a payment equal to the difference between the per-share grant price of the SAR and the fair market value of a share of Class A common stock on the date the SAR is exercised, multiplied by the number of SARs exercised. Exercised SARs are settled in whole shares of Class A common stock, and any fraction of a share is settled in cash. Vesting of SARs granted in 2015 is as follows: 332,159 SARs vest annually in four equal amounts on each of the first four anniversaries of the grant date. Vesting of SARs granted in 2014 is as follows: 195,560 SARs vest annually in four equal amounts on each of the first four anniversaries of the grant date. All SARs expire 10 years after the grant date.

The following table summarizes information about SARs outstanding at December 31, 2015:



	Outstanding	Exercisable
Aggregate intrinsic value - (in millions)	$52	$40
Weighted-average remaining contractual term	6.8 years	5.3 years

Restricted stock award activity was as follows:



	2015				2014				2013
Restricted Stock Awards	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year	691,621		$	60.06	435,377		$	40.92	444,362		$	35.43
Granted	185,782		107.17		423,644		73.42		167,515		46.17
Released	(253,801	)	51.95		(153,200	)	43.16		(161,976	)	31.28
Forfeited	(57,155	)	75.11		(14,200	)	54.08		(14,524	)	40.79
Outstanding at end of year	566,447		$	77.68	691,621		$	60.06	435,377		$	40.92

The Company issued 728,940 and 1,383,195 shares in connection with share-based compensation and employee stock purchase programs for the years ended December 31, 2015 and 2014, respectively.

Performance share award activity was as follows:



	2015				2014				2013
Performance Share Awards	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year	374,180		$	61.53	195,159		$	42.25	265,829		$	35.55
Granted	106,411		75.77		233,111		73.00		187,794		35.17
Released	(120,000	)	38.67		(33,535	)	41.45		(253,484	)	27.90
Forfeited	(27,961	)	73.45		(20,555	)	41.45		(4,980	)	41.46
Outstanding at end of year	332,630		$	73.40	374,180		$	61.53	195,159		$	42.25

Restricted stock unit activity was as follows:



	Year ended December 31,
Restricted Stock Units (Shares)	2015		2014
Outstanding at beginning of year	41,964		—
Granted	11,618		42,071
Released	(8,689	)	(4	)
Forfeited	(6,147	)	(103	)
Outstanding at end of year	38,746		41,964

Performance stock unit activity was as follows:



	Year Ended December 31, 2015		Year Ended December 31, 2014
Performance Stock Units	Shares		Shares
Outstanding at beginning of year	10,345		—
Granted	—		10,345
Released	—		—
Forfeited	(1,272	)	—
Outstanding at end of year	9,073		10,345

As of December 31, 2015 total unearned compensation costs related to the Company’s share-based compensation plans was $45 million, which will be amortized over the weighted average remaining service period of 2.4 years.

The fair value of the purchase rights issued to employees under the stock purchase plan is estimated using the following weighted-average assumptions for purchase rights granted. Expected lives of 3 months to 1 year have been used along with these assumptions.



	2015			2014			2013
Fair market value	$	77.38		$	64.99		$	42.45
Option price	$	73.51		$	61.74		$	40.33
Expected dividend yield	0		%	0		%	0		%
Expected volatility	41		%	31		%	19		%
Risk free interest rate	0.02		%	0.05		%	0.05		%