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 acquired as part of our acquisition of WhereNet Corporation in 2007. We intend to utilize these net operating loss carryforwards to offset future income taxes.

Zebra earns a significant amount of its operating income outside of the U.S., which is deemed to be permanently reinvested in foreign jurisdictions. We do not intend to repatriate funds. Repatriation would result in higher effective tax rates. Borrowing in the U.S. would result in increased interest expense.

An audit of U.S. federal tax returns for years 2008 through 2010 was completed in 2012. The Internal Revenue Service is currently in the process of auditing the 2011 federal return. The tax years 2010 through 2012 remain open to examination by multiple state taxing jurisdictions. Tax authorities in the United Kingdom have completed income tax audits for tax years through 2011.

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 28, 2013 and September 29, 2012, we did not accrue any interest or penalties into income tax expense.


	Three Months Ended						Nine months Ended
	September 28, 2013			September 29, 2012			September 28, 2013			September 29, 2012
Effective tax rate		18.1	%		31.0	%		18.4	%		27.5	%

The effective income tax rate for the first nine months of 2013 was 18.4% compared with 27.5% which reflects a discrete item for a nondeductible asset impairment charge increasing the effective tax rate by 2.0% for the first nine months of 2012. The 2013 effective tax rate reflects higher profits in lower-rate international jurisdictions in addition to 9 months of tax benefits derived from tax planning income tax strategies put into place during the second half of 2012. In addition, the US R&D credit reinstatement for the 2012 income tax year resulted in a tax benefit of $400,000 recorded in the first quarter. In addition, as a result of filing the 2012 federal income tax return during the third quarter, we recorded a onetime income tax benefit in the amount of $715,000 or a reduction of 1.5% related to differences between the income tax provision and the actual return that was filed.