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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Polaris’ income from continuing operations before income taxes was generated from its United States and foreign operations as follows (in thousands):
| For the Years Ended December 31,
| 2016 |  | 2015 |  | 2014
United States | $ | 262,403 |  |  | $ | 640,604 |  |  | $ | 666,323 |
Foreign | 50,848 |  |  | 45,133 |  |  | 32,994 |
Income from continuing operations before income taxes | $ | 313,251 |  |  | $ | 685,737 |  |  | $ | 699,317 |
Components of Polaris’ provision for income taxes for continuing operations are as follows (in thousands):
| For the Years Ended December 31,
| 2016 |  | 2015 |  | 2014
Current: |  |  |  |  |
Federal | $ | 103,717 |  |  | $ | 211,017 |  |  | $ | 255,299 |
State | 4,780 |  |  | 16,609 |  |  | 20,438 |
Foreign | 17,367 |  |  | 20,733 |  |  | 21,584 |
Deferred | (25,561 | ) |  | (17,983 | ) |  | (52,033 | )
Total provision for income taxes for continuing operations | $ | 100,303 |  |  | $ | 230,376 |  |  | $ | 245,288 |
Reconciliation of the Federal statutory income tax rate to the effective tax rate is as follows:
| For the Years Ended December 31,
| 2016 |  | 2015 |  | 2014
Federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal benefit | 1.4 |  |  | 1.5 |  |  | 1.5 |
Domestic manufacturing deduction | (2.1 | ) |  | (0.8 | ) |  | (1.1 | )
Research and development tax credit | (4.3 | ) |  | (3.1 | ) |  | (1.1 | )
Valuation allowance for foreign subsidiaries net operating losses | — |  |  | 0.2 |  |  | — |
Non-deductible expenses | 2.4 |  |  | 0.4 |  |  | 0.3 |
Other permanent differences | (0.4 | ) |  | 0.4 |  |  | 0.5 |
Effective income tax rate for continuing operations | 32.0 | % |  | 33.6 | % |  | 35.1 | %
The income tax rate for 2016 was 32.0% as compared with 33.6% and 35.1% in 2015 and 2014, respectively. The lower income tax rate for 2016, compared with 2015 was primarily due to the decrease in 2016 pretax income, as the beneficial impact of discrete items increases with lower pretax earnings. In December 2015, the President of the United States signed the Consolidated Appropriations Act, 2016, which retroactively reinstated the research and development tax credit for 2015, and also made the research and development tax credit permanent. In addition to the 2015 research and development credits, the Company filed amended returns in 2015 to claim additional credits related to qualified research expenditures incurred in prior years. Undistributed earnings relating to certain non-U.S. subsidiaries of approximately $155,386,000 and $143,284,000 at December 31, 2016 and 2015, 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. In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in the consolidated balance sheet. The Company has early adopted the requirements of ASU No. 2015-17, and applied the amended provisions prospectively. The net deferred income taxes consist of the following (in thousands):
| December 31,
| 2016 |  | 2015
Deferred income taxes: |  |  |
Inventories | $ | 13,252 |  |  | $ | 10,047 |
Accrued expenses | 152,798 |  |  | 107,767 |
Derivative instruments | (175 | ) |  | (1,112 | )
Cost in excess of net assets of business acquired | (10,257 | ) |  | (7,956 | )
Property and equipment | (56,240 | ) |  | (28,853 | )
Compensation payable in common stock | 73,297 |  |  | 67,222 |
Net operating loss carryforwards and impairments | 13,650 |  |  | 12,374 |
Valuation allowance | (6,981 | ) |  | (6,684 | )
Total net deferred income tax asset | $ | 179,344 |  |  | $ | 152,805 |
At December 31, 2016, the Company had available unused international and acquired federal net operating loss carryforwards of $42,776,000. The net operating loss carryforwards will expire at various dates from 2017 to 2034, with certain jurisdictions having indefinite carryforward terms. Polaris classified liabilities related to unrecognized tax benefits as long-term income taxes payable in the accompanying consolidated balance sheets in accordance with ASC Topic 740. Polaris recognizes potential interest and penalties related to income tax positions as a component of the provision for income taxes on the consolidated statements of income. Reserves related to potential interest are recorded as a component of long-term income taxes payable. The entire balance of unrecognized tax benefits at December 31, 2016, if recognized, would affect the Company’s effective tax rate. The Company does not anticipate that total unrecognized tax benefits will materially change in the next twelve months. Tax years 2011 through 2016 remain open to examination by certain tax jurisdictions to which the Company is subject. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
| For the Years Ended December 31,
| 2016 |  | 2015
Balance at January 1, | $ | 22,509 |  |  | $ | 9,836 |
Gross increases for tax positions of prior years | 3,065 |  |  | 9,683 |
Gross increases for tax positions of current year | 4,672 |  |  | 4,961 |
Decreases due to settlements and other prior year tax positions | (3,424 | ) |  | (178 | )
Decreases for lapse of statute of limitations | (1,782 | ) |  | (1,364 | )
Currency translation effect on foreign balances | (39 | ) |  | (429 | )
Balance at December 31, | 25,001 |  |  | 22,509 |
Reserves related to potential interest at December 31, | 1,389 |  |  | 907 |
Unrecognized tax benefits at December 31, | $ | 26,390 |  |  | $ | 23,416 |

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