Note 13 – Equity-Based Compensation

Zebra has an equity-based compensation plan and a stock purchase plan available for future grants. Zebra recognizes compensation costs using the straight-line method over the vesting period of up to 5 years.

The compensation expense and the related tax benefit for equity-based payments were included in the Consolidated Statement of Earnings as follows (in thousands):


	Three Months Ended				Nine Months Ended
	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010
Cost of sales	$	218	$	207	$	755	$	627
Selling and marketing		333		390		1,107		936
Research and development		343		302		1,037		963
General and administrative		2,204		1,600		7,149		4,312

Total compensation	$	3,098	$	2,499	$	10,048	$	6,838

Income tax benefit	$	1,069	$	862	$	3,467	$	2,359

Cash flows resulting from the excess tax benefits attributed to tax deductions in excess of the compensation cost recognized are classified as financing cash flows in the statement of cash flows. The tax benefits classified as financing cash flows for the nine months ended October 1, 2011 was $1,265,000, and for the nine months ended October 2, 2010 was $83,000.

The fair value of equity-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 Zebra stock prices over our entire stock history. Stock option grants in the table below include both stock options, all of which were non-qualified, and stock appreciation rights (SAR) that will be settled in Zebra stock. The following table shows the weighted-average assumptions used for grants of stock options and SARs as well as the fair value of the grants based on those assumptions:

		October 1, 2011			October 1, 2011
	Nine Months Ended
	October 1, 2011			October 2, 2010
Expected dividend yield		0	%		0	%
Forfeiture rate		11.50	%		9.78	%
Volatility		35.33	%		39.50	%
Risk free interest rate		2.01	%		2.26	%
– Range of interest rates		0.01% - 3.18	%		0.06% - 3.41	%
Expected weighted-average life		5.42 years			5.36 years
Fair value of options and SARs granted	$	5,495,000		$	6,527,000
Weighted-average grant date fair value of options and SARs granted	$	14.29		$	10.65

SAR activity was as follows:

		Weighted-Average			Weighted-Average
	Nine Months Ended October 1, 2011
SARs	Shares			Weighted-Average Exercise Price
Outstanding at beginning of year		1,234,787		$	23.82
Granted		384,649			41.20
Exercised		(81,793	)		22.02
Forfeited		(221,914	)		24.71
Expired		(273	)		19.56

Outstanding at end of period		1,315,456		$	28.87

Exercisable at end of period		318,857		$	23.26

Intrinsic value of exercised SARs	$	1,539,000

The terms of the SARs are established under the Zebra Technologies Corporation 2006 Incentive Compensation Plan and 2011 Long-Term Incentive Plan (the 2006 Plan and 2011 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 base price of the SAR and the fair market value of a share of Zebra stock on the date the SAR is exercised, multiplied by the number of SARs exercised. Exercised SARs are settled in whole shares of Zebra stock, and any fraction of a share is settled in cash. Except for SARs granted to Zebra's five independent directors, which were vested in full at the May 19, 2011 grant date, the SARs granted above vest annually in four equal amounts on each of the first four anniversaries of the grant date and expire 10 years after the grant date.

The following table summarizes information about SARs outstanding at October 1, 2011:

		Weighted-Average	Weighted-Average		Weighted-Average		Weighted-Average		Weighted-Average
	Outstanding					Exercisable
Range of Exercise Prices	Number of Shares		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number of Shares		Weighted-Average Exercise Price
$ 19.56-$19.56		422,735	7.60 years	$	19.56		186,490	$	19.56
$ 19.57-$27.50		63,389	8.08 years		24.84		45,328		24.57
$ 27.51-$27.82		436,750	8.59 years		27.82		68,083		27.82
$ 27.83-$40.10		38,023	9.17 years		32.26		2,911		28.57
$ 40.11-$42.36		354,559	9.59 years		41.61		16,045		42.36

		1,315,456					318,857


	Outstanding		Exercisable
Aggregate intrinsic value	$	6,591,000	$2,631,000
Weighted-average remaining contractual term		8.5 years	8.0 years

Stock option activity was as follows:


	Nine Months Ended October 1, 2011
Options	Shares			Weighted-Average Exercise Price
Outstanding at beginning of year		2,340,959		$	37.36
Granted		0			0.00
Exercised		(370,612	)		25.88
Forfeited		(61,813	)		32.62
Expired		(57,683	)		40.07

Outstanding at end of period		1,850,851		$	39.69

Exercisable at end of period		1,730,494		$	40.08

Intrinsic value of exercised options	$	5,079,000

The following table summarizes information about stock options outstanding at October 1, 2011:


	Outstanding					Exercisable
Range of Exercise Prices	Number of Shares		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number of Shares		Weighted-Average Exercise Price
$ 1.29-$36.39		369,165	2.68 years	$	27.22		330,588	$	27.02
$ 36.40-$37.20		384,751	6.44 years		36.61		305,896		36.63
$ 37.21-$43.35		496,233	4.78 years		41.81		493,308		41.84
$ 43.36-$47.12		442,829	3.27 years		46.21		442,829		46.21
$ 47.13-$53.92		157,873	3.36 years		51.41		157,873		51.41

		1,850,851					1,730,494

		October 1, 2011		October 1, 2011
	Outstanding		Exercisable
Aggregate intrinsic value	$	1,964,000	$	1,797,000
Weighted-average remaining contractual term		4.2 years		4.1 years

Restricted stock award activity, granted under the 2006 Plan and 2011 Plan, was as follows:


	Nine Months Ended October 1, 2011
Restricted Stock Awards	Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		844,686		$	25.46
Granted		214,324			41.32
Vested		(196,606	)		30.27
Forfeited		(15,780	)		28.75

Outstanding at end of period		846,624		$	28.30

Zebra's restricted stock awards are expensed over the vesting period of the related award, typically three to five years. Compensation cost is calculated as the market date fair value on the grant date multiplied by the number of shares granted.


	As of October 1, 2011
Awards granted under Zebra's equity based compensation plans:
Unearned compensation costs related to awards granted	$	20,619,000
Period expected to be recognized over		2.6 years

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


	Nine Months Ended
	October 1, 2011			October 2, 2010
Fair market value	$	35.86		$	26.34
Option price	$	34.07		$	25.02
Expected dividend yield		0	%		0	%
Expected volatility		32	%		27	%
Risk free interest rate		0.09	%		0.13	%