Note 14 – Income Taxes

Zebra has identified, evaluated, and measured the amount of income tax benefits to be recognized for all of our income tax positions. Included in deferred tax assets are amounts related to federal and state net operating losses that resulted from our acquisition of WhereNet Corp in 2007. We intend to utilize these net operating loss carryforwards to offset future income taxes.

Zebra earns a significant amount of our operating income outside of the U.S., which is deemed to be permanently reinvested in foreign jurisdictions. Zebra does not intend to repatriate funds, however, should Zebra require more capital in the U.S. than is generated by our operations locally, Zebra could elect to repatriate funds held in foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. These alternatives could result in higher effective tax rates or increased interest expense.

The U.S. federal tax return for 2011 is currently open and subject to an audit by the Internal Revenue Service. The 2007 tax return is open on a limited basis due to an amended return filed in August 2011. The tax years 2008 through 2010 remain open to examination by multiple state taxing jurisdictions. Tax authorities in the United Kingdom have completed income tax audits for tax years through 2006.

Zebra’s continuing practice is to recognize interest and/or penalties related to income tax matters as part of income tax expense. For the nine months ended September 29, 2012 and October 1, 2011, we did not accrue any interest or penalties into income tax expense.


	Three Months Ended						Nine Months Ended
	September 29, 2012			October 1, 2011			September 29, 2012			October 1, 2011
Effective tax rate		31.0	%		28.8	%		27.5	%		29.7	%

Zebra’s estimates of taxes for interim periods are based upon the annual effective tax rate for the full-year, adjusted for any discrete items that relate to an interim period. The estimated annual effective tax rate is determined using projections of full-year taxable income by each Zebra legal entity with the appropriate statutory tax rate for that subsidiary applied. The effective rate may change during the year, typically due to the change in our estimated taxable income by jurisdiction as each year progresses.

The 2012 effective tax rate increase in the third quarter reflects a discrete item for a nondeductible asset impairment charge which is offset by a rate decrease related to the second quarter implementation of a new structure for Zebra’s international subsidiaries. The effect of the non-deductible asset impairment charge increased the effective tax rate by 6.0% for the third quarter of 2012. Effective August 2012, the statutory tax rate in the UK declined from 25.5 % to 24.5%.

The effective income tax rate for the first nine months of 2012 was 27.5% compared with an income tax rate of 29.7% for the first nine months of 2011. The 2012 effective tax rate decline for the first nine months of 2012 compared to 2011 reflects the implementation of a new structure for Zebra’s international subsidiaries which has contributed to reducing the effective tax rate. In addition, the UK statutory rate decreased from 25.5% to 24.5% in August 2012. These reductions were offset by a discrete item in the third quarter of 2012 related to a non-deductible asset impairment charge which increased the effective tax rate for first nine months of 2012 by 2.0%. The rate in 2011 included a tax valuation allowance in the first quarter of 2011 against a subsequently disposed subsidiary.