Share-Based Compensation

6 Months Ended

Jul. 03, 2021

Share-based Payment Arrangement [Abstract]

In May 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 The 2018 Plan superseded and replaced the Zebra Technologies Corporation 2015 Long-Term Incentive Plan (“2015 Plan”) on the approval date, except that the 2015 Plan, as well as the Zebra Technologies Corporation 2011 Long-Term Incentive Plan that was previously superseded by the 2015 Plan, remain in effect with respect to outstanding stock appreciation rights that were granted under those plans until such awards have been exercised, forfeited, cancelled, expired or otherwise terminated in accordance with their terms. Awards available under the 2018 Plan include stock-settled awards, including stock-settled restricted stock units, stock-settled performance stock units, restricted stock awards, performance share awards, stock appreciation rights, incentive stock options, and non-qualified stock options. Awards available under the 2018 Plan also include cash-settled awards, including cash-settled stock appreciation rights, cash-settled restricted stock units, and cash-settled performance stock units. No awards remain available for future grants under the 2015 Plan or previous plans.

The Company uses treasury shares as its source for issuing shares under the share-based compensation programs. As of July 3, 2021, the Company had 3,212,007 shares of Class A Common stock available to be issued under the 2018 Plan.

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	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Cost of sales	$	2	$	1	$	4	$	2
Selling and marketing	7		5		13		6
Research and development	8		4		14		6
General and administration	10		7		17		9
Total compensation expense	$	27	$	17	$	48	$	23
Income tax benefit	$	4	$	2	$	7	$	4

As of July 3, 2021, total unearned compensation costs related to the Company’s share-based compensation plans was $109 million, which will be recognized over the weighted average remaining service period of approximately 1.6 years.

Stock-Settled Restricted Stock Units (“stock-settled RSUs”) and Stock-Settled Performance Share Units (“stock-settled PSUs”)

The Company began issuing stock-settled RSUs and stock-settled PSUs in the second quarter of 2021. Stock-settled RSUs and stock-settled PSUs each typically vest over a three-year service period, with stock-settled RSUs vesting ratably in three annual installments and stock-settled PSUs vesting at the end of the three-year period. Vesting for each participant is subject to restrictions, such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, stock-settled RSUs and stock-settled PSUs are converted into shares of Class A Common Stock that are released to participants.

Compensation cost for the Company’s stock-settled RSUs and stock-settled PSUs is expensed over each participant’s required service period. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on grant

date multiplied by the number of units granted, net of estimated forfeitures. The fair value of PSUs also includes assumptions around achievement of certain Company-wide financial performance goals.

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

Previously, the Company’s restricted stock grants consisted of time-vested RSAs and PSAs as part of the Company’s annual share-based compensation award issuances during the second quarter of each year. These awards hold voting rights and therefore are considered participating securities. Accordingly, 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.

Compensation cost for the Company’s RSAs and PSAs is expensed over each participant’s required service period, which is typically three years. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on grant date multiplied by the number of units granted, net of estimated forfeitures. The fair value of PSAs also includes assumptions around achievement of certain Company-wide financial performance goals.

The Company also issues Class A Common Stock to non-employee directors. Each director receives such stock award annually in the second quarter. The number of shares granted to each non-employee 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. New directors in any fiscal year earn a prorated amount. During the first six months of 2021, there were 2,877 shares granted to non-employee directors compared to 6,314 shares during the first six months of 2020. The shares vest immediately on the grant date.

A summary of the Company’s restricted and performance stock-settled awards for the six months ended July 3, 2021 is as follows:


	RSUs			PSUs			RSAs			PSAs
	Units	Weighted-Average Grant Date Fair Value		Units	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	—	$	—	—	$	—	318,565	$	228.08	126,022	$	199.77
Granted	79,057	482.45		38,393	482.42		5,832	483.17		—	—
Released	(101)	482.42		—	—		(147,135)	202.92		(44,023)	151.72
Forfeited	(541)	482.42		(296)	482.42		(5,088)	228.99		(2,102)	237.03
Outstanding at end of period	78,415	$	482.45	38,097	$	482.42	172,174	$	258.20	79,897	$	225.65

Stock Appreciation Rights (“SARs”)

SARs were previously granted primarily as part of the Company’s annual share-based compensation award issuances during the second quarter of each year. Beginning in 2021, the Company no longer included SARs in its annual share-based compensation award issuances; however, may from time-to-time issue additional SARs in the future.

A summary of the Company’s SARs for the six months ended July 3, 2021 is as follows:


SARs	SARs	Weighted-Average Exercise Price
Outstanding at beginning of period	638,124	$	113.98
Granted	—	—
Exercised	(94,306)	78.73
Forfeited	(3,826)	211.28

Outstanding at end of period	539,992	$	119.46
Exercisable at end of period	446,171	$	97.73

The following table summarizes information related to the SARs outstanding as of July 3, 2021:


	Outstanding		Exercisable
Aggregate intrinsic value (in millions)	$	227	$	197
Weighted-average remaining contractual life	4.0		3.8

The intrinsic value of SARs exercised during the six months ended July 3, 2021 and June 27, 2020 was $38 million and $31 million, respectively. The total fair value of SARs vested during the six months ended July 3, 2021 and June 27, 2020 was $5 million and $8 million, respectively.

Reflexis Replacement Options

In connection with the Company’s September 2020 acquisition of Reflexis, the Company assumed the 2016 Stock Incentive Plan of Reflexis Systems, Inc. (the “Reflexis Plan”) and replaced certain unvested options under the Reflexis Plan with Zebra incentive stock options (“Reflexis Replacement Options”). Upon exercise of Reflexis Replacement Options, the Company receives cash proceeds equal to the exercise price and issues whole shares of Class A Common Stock to participants.

A summary of the Reflexis Replacement Options outstanding is as follows:


Reflexis Replacement Options	Options	Weighted-Average Exercise Price
Outstanding at beginning of period	34,424	$	58.09
Granted	—	—
Exercised	(4,706)	58.85
Forfeited	(1,529)	63.01

Outstanding at end of period	28,189	$	57.78
Exercisable at end of period	14,016	$	54.88

The following table summarizes information related to the Reflexis Replacement Options outstanding as of July 3, 2021:


	Outstanding		Exercisable
Aggregate intrinsic value (in millions)	$	14	$	7
Weighted-average remaining contractual life	6.9		6.6

The intrinsic value for options exercised during the six months ended July 3, 2021 was $2 million. The total fair value of options vested during the six months ended July 3, 2021 was $3 million.

Cash-settled awards

The Company also has cash-settled share-based compensation awards, including cash-settled stock appreciation rights, cash-settled restricted stock units and cash-settled performance stock units, which are expensed over the vesting period of the related award, which is up to 4 years. Compensation cost is calculated at the fair value on grant date multiplied by the number of share-equivalents granted. The fair value is remeasured at the end of each reporting period based on the Company’s stock price, with remeasurements reflected as an adjustment to compensation expense in the Consolidated Statements of Operations. Cash settlement is based on the fair value of share equivalents at the time of vesting, which was $9 million and $5 million for the six months ended July 3, 2021 and June 27, 2020, respectively. Share-equivalents issued under these programs totaled 9,262 and 16,194 during the six months ended July 3, 2021 and June 27, 2020, respectively.

Employee Stock Purchase Plan

In May 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 Company Class A 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. As of July 3, 2021, 1,461,757 shares remained available for future purchase.