Share-Based Compensation

The Zebra Technologies Corporation Long-Term Incentive Plan (“2015 Plan”) which became effective in fiscal 2015, provides for incentive compensations to the Company’s non-employee directors, officers and employees. The awards available under the 2015 Plan include Stock Appreciation Rights (“SARs”), Restricted Stock Awards (“RSAs”), Performance Share Awards (“PSAs”), Cash-settled Stock Appreciation Rights (“CSRs”), Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”). Non-qualified stock options were available under the 2006 Long-Term Incentive Plan (“2006 Plan”). Non-qualified stock options are no longer granted under the 2015 Plan. A total of 4.0 million shares became available for delivery under the 2015 Plan.

A summary of the equity awards authorized and available for future grants under the 2015 Plan is as follows:



Available for future grants at December 31, 2015	3,430,707
Newly authorized options	—
Granted	(1,204,214	)
Cancellation and forfeitures	—
Plan termination	—
Available for future grants at December 31, 2016	2,226,493

Pre-tax share-based compensation expense recognized in the statements of operations was $28 million, $33 million, and $20 million for the years ended December 31, 2016, 2015 and 2014, respectively. Tax related benefits of $9 million, $11 million and $7 million were also recognized for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016 total unearned compensation costs related to the Company’s share-based compensation plans was $47 million, which will be amortized over the weighted average remaining service period of 2.3 years.

Stock Appreciation Rights (“SARs”)

A summary of the Company’s SARs outstanding under the 2015 Plan is as follows:



	2016				2015				2014
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 period	1,397,611		$	56.78	1,292,142		$	42.20	1,402,784		$	36.36
Granted	627,971		52.13		332,159		107.31		195,560		74.59
Exercised	(160,946	)	35.37		(179,702	)	40.71		(267,077	)	34.03
Forfeited	(115,215	)	65.74		(45,441	)	75.26		(38,738	)	50.57
Expired	(8,635	)	88.65		(1,547	)	47.11		(387	)	46.07
Outstanding at end of period	1,740,786		$	56.15	1,397,611		$	56.78	1,292,142		$	42.20
Exercisable at end of period	828,754		$	45.14	736,075		$	35.90	586,344		$	33.03

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. Grants in the table below include SARs that will be settled in the Class A common stock or cash.

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:



	2016	2015	2014
Expected dividend yield	0%	0%	0%
Forfeiture rate	9.01%	10.24%	10.32%
Volatility	43.14%	33.98%	34.92%
Risk free interest rate	1.29%	1.53%	1.73%
Range of interest rates	0.25%-1.75%	0.02% - 2.14%	0.02% - 2.61%
Expected weighted-average life	5.33	5.32	5.36
Fair value of SARs granted (in millions)	$13	$12	$5
Weighted-average grant date fair value of SARs granted (per underlying share)	$20.18	$35.00	$24.98

The following table summarizes information about SARs outstanding at December 31, 2016:



	Outstanding		Exercisable
Aggregate intrinsic value - (in millions)	$	28	$	20
Weighted-average remaining contractual term	7.0		5.0

The intrinsic value for SARs exercised in fiscal 2016, 2015 and 2014 was $6 million, $11 million and $11 million, respectively. The total fair value of SARs vested in fiscal 2016, 2015 and 2014 was $3 million, $8 million and $9 million, respectively.

Cash received from the exercise of SARs in fiscal 2016 was $6 million compared to $7 million in the prior year. The related tax benefit realized was $1 million in fiscal 2016 compared to $3 million in the prior year.

The Company’s SARs are expensed over the vesting period of the related award, which is typically 4 years.

Non-qualified Stock Options

A summary of the Company’s options outstanding under the 2006 Plan is as follows:



	2016				2015				2014
Non-qualified Options	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	204,434		$	36.66	415,960		$	40.19	956,502		$	42.77
Granted	—		—		—		—		—		—
Exercised	(47,393	)	38.60		(209,976	)	43.53		(540,542	)	44.76
Forfeited	—		—		—		—		—		—
Expired	(2,490	)	43.35		(1,550	)	51.62		—		—
Outstanding at end of year	154,551		$	35.96	204,434		$	36.66	415,960		$	40.19
Exercisable at end of year	154,551		$	35.96	204,434		$	36.66	415,960		$	40.19

The following table summarizes information about non-qualified stock options outstanding at December 31, 2016:



	Outstanding		Exercisable
Aggregate intrinsic value - (in millions)	$	4	$	4
Weighted-average remaining contractual term	1.32		1.32

There were no non-qualified stock options issued during the 12 months ended December 31, 2016.

The intrinsic value for non-qualified options exercised in fiscal 2016, 2015 and 2014 was $2 million, $10 million and $15 million, respectively. There were no non-qualified options vested in fiscal 2016, 2015, and 2014.

Cash received from the exercise of non-qualified options in fiscal 2016 was $2 million compared to $9 million in the prior year. The related tax benefit realized was less than $1 million in fiscal 2016 compared to $2 million in the prior year.

Employee Stock Purchase Plan

The Zebra Technologies Corporation 2011 Employee Stock Purchase Plan (“2011 Plan”) which became effective in fiscal 2011, and the 2011 Plan permits eligible employees to purchase common stock at 95% of the fair market value at the date of purchase. Employees may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased under this plan is 1.5 million. At December 31, 2016, 1 million shares were available for future purchase.

Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”)

The Company’s restricted stock grants consist of time-vested restricted stock awards (“RSAs”) and performance vested restricted stock awards (“PSAs”). The RSAs and PSAs vest at each vesting date subject to restrictions such as continuous employment except in certain cases as set forth in each stock agreement. 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.

A summary of information relative to the Company’s restricted stock awards is as follows:



	2016				2015				2014
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	566,447		$	77.68	691,621		$	60.06	435,377		$	40.92
Granted	389,193		51.93		185,782		107.17		423,644		73.42
Released	(275,229	)	59.39		(253,801	)	51.95		(153,200	)	43.16
Forfeited	(57,597	)	70.50		(57,155	)	75.11		(14,200	)	54.08
Outstanding at end of year	622,814		$	70.19	566,447		$	77.68	691,621		$	60.06

The fair value of each performance award granted includes assumptions around the Company’s performance goals. A summary of information relative to the Company’s performance awards is as follows:



	2016				2015				2014
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	332,630		$	73.40	374,180		$	61.53	195,159		$	42.25
Granted	172,024		51.01		106,411		75.77		233,111		73.00
Released	(111,325	)	46.58		(120,000	)	38.67		(33,535	)	41.45
Forfeited	(14,103	)	75.73		(27,961	)	73.45		(20,555	)	41.45
Outstanding at end of year	379,226		$	70.14	332,630		$	73.40	374,180		$	61.53

Other Award Types

The Company also has cash-settled compensation awards including Cash-settled Stock Appreciation Rights (“CSRs”), Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”) (the “Awards”) that are expensed over the vesting period of the related award, which is not more than 4 years. Compensation cost is calculated at the market date fair value on grant date multiplied by the number of share-equivalents granted and the fair value is remeasured at the end of each reporting period. Share-based liabilities paid for these awards was $0.8 million in 2016 compared to $0.9 million in 2015. Share-equivalents issued under these programs totaled 95,210, 11,618 and 52,416 in fiscal 2016, 2015, and 2014, respectively.

The Company also issues stock awards to nonemployee directors. Each director receives an equity grant of shares every year during the month of May. The number of shares granted to each director is determined by dividing the value of the annual grant by the price of a share of common stock. In fiscal 2016, there were 25,088 shares granted to nonemployee directors compared to 9,194 shares and 12,953 shares in fiscal 2015 and 2014, respectively. New directors in any fiscal year earned a prorated amount. The shares vest immediately upon the grant date.