Share-Based Compensation

6 Months Ended

Jun. 27, 2020

Share-based Payment Arrangement [Abstract]

On May 17, 2018, the Company’s stockholders 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 The 2018 Plan superseded and replaced the Zebra Technologies Corporation 2015 Long-Term Incentive Plan (“2015 Plan”) on the approval date, except that the 2015 Plan remains in effect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, expired or otherwise terminated in accordance with their terms. Together, the 2018 Plan and 2015 Plan provide for incentive compensation to the Company’s non-employee directors, officers and employees. The awards available under the plans include stock appreciation rights, restricted stock awards, performance share awards, cash-settled stock appreciation rights, restricted stock units, performance stock units, incentive stock options, and non-qualified stock options.

The Company uses outstanding treasury shares as its source for issuing shares under the share-based compensation programs.

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, 2019			3,484,960
Granted			(268,235)
Cancellation and forfeitures			986
Available for future grants as of June 27, 2020			3,217,711

The compensation expense from the Company’s share-based compensation plans and associated income tax benefit, excluding the effects of excess tax benefits or shortfalls, were included in the Consolidated Statements of Operations as follows (in millions):


	Three Months Ended						Six Months Ended
Compensation costs and related income tax benefit	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Cost of sales	$	1	$	1	$	2	$	2
Selling and marketing	5		4		6		8
Research and development	4		4		6		8
General and administration	7		9		9		13
Total compensation expense	$	17	$	18	$	23	$	31
Income tax benefit	$	2	$	3	$	4	$	5

As of June 27, 2020, total unearned compensation costs related to the Company’s share-based compensation plans was $87 million, which will be recognized over the weighted average remaining service period of 2.1 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 4-year vesting period of the related awards.

A summary of the Company’s SARs for the six months ended June 27, 2020 is as follows:


SARs	SARs	Weighted-Average Grant Date Exercise Price
Outstanding at beginning of period	896,923	$	89.05
Granted	64,727	244.97
Exercised	(178,625)	73.21
Forfeited	(8,954)	89.57

Outstanding at end of period	774,071	$	105.70
Exercisable at end of period	533,880	$	77.28

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 27, 2020	June 29, 2019
Expected dividend yield	0%	0%
Forfeiture rate	8.00%	8.20%
Volatility	42.51%	36.79%
Risk free interest rate	0.24%	2.28%
Expected weighted-average life	4.00	4.02
Weighted-average grant date fair value of SARs granted (per underlying share)	$79.47	$64.17

The following table summarizes information about SARs outstanding as of June 27, 2020:


	Outstanding		Exercisable
Aggregate intrinsic value (in millions)	$	109	$	90
Weighted-average remaining contractual life	4.7		4.4

The intrinsic value for SARs exercised during the six months ended June 27, 2020 and June 29, 2019 was $31 million and $30 million, respectively. The total fair value of SARs vested during the six months ended June 27, 2020 and June 29, 2019 was $8 million and $9 million, respectively.

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

The Company’s restricted stock grants consist of time-vested RSAs and PSAs, which 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. Upon vesting, RSAs and PSAs are released to holders and are no longer subject to restrictions. 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, vest 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, net of estimated forfeitures.

The Company also issues stock awards to non-employee directors. Each director receives an equity grant of shares annually in the second quarter. 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 the Company’s Class A Common Stock. During the first six months of 2020, there were 6,314 shares granted to non-employee directors compared to 7,371 shares during the first six months of 2019. The shares vest immediately on the grant date.

A summary of the Company’s RSAs for the six months ended June 27, 2020 is as follows:


RSAs	Shares	Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	434,641	$	151.52
Granted	145,299	244.01
Released	(268,063)	132.61
Forfeited	(6,697)	159.57
Outstanding at end of period	305,180	$	211.69

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 27, 2020 is as follows:


PSAs	Shares	Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	170,749	$	144.47
Granted	98,174	239.44
Released	(129,344)	159.76
Forfeited	(280)	204.76
Outstanding at end of period	139,299	$	198.21

Other Award Types

The Company also has cash-settled compensation awards, including cash-settled stock appreciation rights, restricted stock units, and performance stock units, which are expensed over the vesting period of the related award of up to 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 $5 million and $6 million for the six months ended June 27, 2020 and June 29, 2019, respectively. Share-equivalents granted under these programs totaled 16,194 and 17,207 during the six months ended June 27, 2020 and June 29, 2019, respectively.

Employee Stock Purchase PlanOn May 14, 2020, the Company’s stockholders approved the Zebra Technologies Corporation 2020 Employee Stock Purchase Plan (“2020 ESPP”), which supersedes the 2011 Employee Stock Purchase Plan (“2011 ESPP”) and became effective on July 1, 2020. Like the 2011 ESPP, the 2020 ESPP 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 the 2020 ESPP is 1,500,000 shares.