Polaris 2013 Annual Report Download - page 87

Reconciliation of the Federal statutory income tax rate to the effective tax rate is as follows:
For the Years Ended
December 31,
2013 2012 2011
Federal statutory rate ................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit ..................... 1.5 1.8 1.8
Domestic manufacturing deduction ......................... (1.0) (1.5) (1.9)
Research and development tax credit ........................ (2.2) — (0.8)
Valuation allowance for foreign subsidiaries net operating losses .... 0.3 — 0.5
Other permanent differences .............................. 0.1 (0.4) (0.3)
Effective income tax rate for continuing operations ............. 33.7% 34.9% 34.3%
In January 2013, the President of the United States signed the American Taxpayers Relief Act of 2012, which
reinstated the research and development tax credit. As a result, the impact of both the 2012 and 2013
research and development tax credits were recorded in the 2013 tax provision.
Undistributed earnings relating to certain non-U.S. subsidiaries of approximately $75,487,000 and $56,812,000
at December 31, 2013 and 2012, respectively, are considered to be permanently reinvested; accordingly, no
provision for U.S. federal income taxes has been provided thereon. If the Company were to distribute these
earnings, it would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits
reflecting the amounts paid to non-U.S. taxing authorities) and withholding taxes payable to the non-U.S.
countries. Determination of the unrecognized deferred U.S. income tax liability related to these undistributed
earnings is not practicable due to the complexities associated with this hypothetical calculation.
Polaris utilizes the liability method of accounting for income taxes whereby deferred taxes are determined
based on the estimated future tax effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of enacted tax laws. The net deferred income taxes consist of the following
(in thousands):
December 31,
2013 2012
Current deferred income taxes:
Inventories ................................. $ 6,306 $ 7,277
Accrued expenses ............................ 87,157 78,164
Derivative instruments ......................... (107) 851
Total current................................ 93,356 86,292
Noncurrent deferred income taxes:
Cost in excess of net assets of business acquired ...... (13,594) 5,193
Property and equipment ........................ (36,069) (21,656)
Compensation payable in common stock ............ 42,385 40,329
Net unrealized gains in other comprehensive income . . . 143 (1,698)
Net operating loss carryforwards ................. 5,782 4,744
Valuation allowance ........................... (5,059) (4,523)
Total noncurrent ............................. (6,412) 22,389
Total net deferred income tax asset ................... $ 86,944 $108,681
At December 31, 2013, the Company had available unused international and acquired federal net operating
loss carryforwards of $21,137,000. The net operating loss carryforwards will primarily expire at various dates
from 2014 to 2020, with certain jurisdictions having indefinite carryforward terms.
63