Share-Based Compensation

6 Months Ended

Jun. 29, 2019

Share-based Payment Arrangement [Abstract]

On May 17, 2018, shareholders approved the Zebra Technologies 2018 Long-Term Incentive Plan (“2018 Plan”). The 2018 Plan superseded and replaced the Zebra Technologies Corporation 2015 Long-Term Incentive Plan (“2015 Plan”) on the approval date, except that the 2015 Plan remains in effect with respect to outstanding awards under the 2015 Plan until such awards have been exercised, forfeited, canceled, expired or otherwise terminated in accordance with their terms. The 2018 Plan provides for incentive compensation to the Company’s non-employee directors, officers and employees. The awards available under the 2018 Plan include Stock Appreciation Rights (“SARs”), Restricted Stock Awards (“RSAs”), Performance Share Awards (“PSAs”), Cash-settled Stock Appreciation Rights (“CSRs”), Restricted Stock Units (“RSUs”), Performance Stock Units (“PSUs”), Incentive Stock Options, and Non-qualified Stock Options.

A summary of the equity awards available for future grants under the 2018 Plan is as follows:



Available for future grants as of December 31, 2018	3,789,800
Granted	(298,304	)
Available for future grants as of June 29, 2019	3,491,496

Pre-tax share-based compensation expense recognized in the Consolidated Statements of Operations was $18 million and $17 million for the three months ended June 29, 2019 and June 30, 2018, respectively. The associated income tax benefits were $3 million and $2 million for the three months ended June 29, 2019 and June 30, 2018, respectively. Pre-tax share-based compensation expense recognized in the Consolidated Statements of Operations was $31 million and $28 million for the six months ended June 29, 2019 and June 30, 2018, respectively. The associated income tax benefits were $5 million for each of the six months ended June 29, 2019 and June 30, 2018. As of June 29, 2019, total unearned compensation costs related to the Company’s share-based compensation plans was $86 million, which will be amortized over the weighted average remaining service period of 1.9 years.

Stock Appreciation Rights (“SARs”)

Upon exercise of SARs, the Company issues whole shares of Class A Common Stock to participants based on the difference between the fair market value of the stock at the time of exercise and the exercise price. Fractional shares are settled in cash upon exercise. The grant date fair value of SARs is expensed over the vesting period of the related awards, which are typically a period of 4 years.

A summary of the Company’s SARs for the six months ended June 29, 2019 is as follows:



SARs	SARs		Weighted-Average Grant Date Exercise Price
Outstanding at beginning of period	1,261,185		$	75.71
Granted	70,141		205.12
Exercised	(220,839	)	66.39
Forfeited	(19,288	)	86.33
Outstanding at end of period	1,091,199		$	85.74
Exercisable at end of period	655,542		$	69.40

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.

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:



	June 29, 2019	June 30, 2018
Expected dividend yield	0%	0%
Forfeiture rate	8.20%	8.40%
Volatility	36.79%	35.93%
Risk free interest rate	2.28%	2.96%
Expected weighted-average life	4.02	4.11
Weighted-average grant date fair value of SARs granted (per underlying share)	$64.17	$47.59

The following table summarizes information about SARs outstanding as of June 29, 2019:



	Outstanding		Exercisable
Aggregate intrinsic value (in millions)	$	135	$	92
Weighted-average remaining contractual term	5.3		4.9

The intrinsic value for SARs exercised during the six months ended June 29, 2019 and June 30, 2018 was $30 million and $34 million, respectively. The total fair value of SARs vested during the six months ended June 29, 2019 and June 30, 2018 was $9 million and $7 million, respectively.

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 share awards (“PSAs”). The RSAs and PSAs hold voting rights and therefore are considered participating securities. The outstanding RSAs and PSAs are included as part of the Company’s Class A Common Stock outstanding. 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 RSAs and PSAs 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. PSA targets are set based on certain Company-wide financial metrics. Compensation cost is calculated as the market date fair value of the Company’s Class A Common Stock on grant date multiplied by the number of shares granted.

The Company also issues stock awards to non-employee directors. Each director receives an equity grant of shares annually in 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. During the first six months of 2019, there were 7,371 shares granted to non-employee directors compared to 7,980 shares during the first six months of 2018. The shares vest immediately upon the grant date.

A summary of the Company’s RSAs for the six months ended June 29, 2019 is as follows:



RSAs	Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	657,724		$	93.45
Granted	167,237		203.80
Vested	(351,521	)	71.98
Forfeited	(9,078	)	115.84
Outstanding at end of period	464,362		$	148.99

The fair value of each PSA granted includes assumptions around the Company’s performance goals. A summary of the Company’s PSAs for the six months ended June 29, 2019 is as follows:



PSAs	Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	259,727		$	86.41
Granted	145,828		205.12
Vested	(229,122	)	120.30
Forfeited	(5,215	)	80.42
Outstanding at end of period	171,218		$	142.24

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 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 based on the Company’s stock price. Cash settlement is based on the fair value of share equivalents at the time of vesting, which was $6 million and $2 million for the six months ended June 29, 2019 and June 30, 2018, respectively. Share-equivalents granted under these programs totaled 17,207 and 17,253 during the six months ended June 29, 2019 and June 30, 2018, respectively.

Employee Stock Purchase Plan

The Zebra Technologies Corporation 2011 Employee Stock Purchase Plan (“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 1,500,000 shares. As of June 29, 2019, 798,288 shares were available for future purchase.