Herbalife Ltd. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes (Tables)

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Components of Income before Income Taxes

The components of income before income taxes are as follows (in millions):

	Year Ended December 31,
	2016			2015		2014
Domestic	$	(89.3	)	$	80.9	$	94.0
Foreign		454.0			405.5		327.3
Total	$	364.7		$	486.4	$	421.3

Components of Income Tax Expense

Income taxes are as follows (in millions):

	Year Ended December 31,
	2016			2015			2014
Current:
Foreign	$	127.9		$	147.0		$	141.7
Federal		12.4			35.4			47.4
State		0.8			3.1			8.3
		141.1			185.5			197.4
Deferred:
Foreign		12.5			(13.2	)		(6.0	)
Federal		(47.2	)		(23.8	)		(76.5	)
State		(1.7	)		(1.2	)		(2.3	)
		(36.4	)		(38.2	)		(84.8	)
	$	104.7		$	147.3		$	112.6

Deferred Tax Assets and Liabilities

The significant categories of temporary differences that gave rise to deferred tax assets and liabilities are as follows (tax effected in millions):

	December 31,
	2016			2015
Deferred income tax assets:
Accruals not currently deductible	$	85.2		$	84.6
Tax loss and credit carryforwards of certain foreign subsidiaries		115.1			121.4
Tax loss and domestic tax credit carryforwards		102.6			76.7
Unremitted foreign earnings		—			6.4
Deferred compensation plan		73.8			63.9
Accrued vacation		6.2			5.8
Inventory reserve		11.2			11.5
Other		2.5			3.4
Gross deferred income tax assets		396.6			373.7
Less: valuation allowance		(115.4	)		(121.3	)
Total deferred income tax assets	$	281.2		$	252.4
Deferred income tax liabilities:
Intangible assets	$	112.2		$	112.8
Depreciation/amortization		15.9			22.1
Unremitted foreign earnings		5.5			—
Other		7.7			0.9
Total deferred income tax liabilities		141.3			135.8
Total net deferred tax assets	$	139.9		$	116.6

Reconciliation between Provision for Income Taxes at Statutory Rate and Provision for Income Taxes at Effective Tax Rate

The applicable statutory income tax rate in the Cayman Islands was zero for Herbalife Ltd. for the years being reported. For purposes of the reconciliation between the provision for income taxes at the statutory rate and the provision for income taxes at the effective tax rate, a notional 35% tax rate is applied as follows:

	Year Ended December 31,
	2016			2015			2014
	(In millions)
Tax expense at United States statutory rate	$	127.7		$	170.2		$	147.4
Increase (decrease) in tax resulting from:
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes		(16.6	)		203.1			(60.0	)
U.S. tax (benefit) on foreign income net of foreign tax credits		(10.2	)		(23.9	)		(73.4	)
(Decrease) increase in valuation allowances		(5.6	)		(205.6	)		85.7
State taxes, net of federal benefit		0.3			1.7			4.1
Unrecognized tax benefits		5.3			10.1			13.0
Other		3.8			(8.3	)		(4.2	)
Total	$	104.7		$	147.3		$	112.6

Changes Occurred in Amount of Unrecognized Tax Benefits

The following changes occurred in the amount of unrecognized tax benefits during the years ended December 31, 2016, 2015, and 2014 (in millions):

	Year Ended December 31 2016			Year Ended December 31 2015			Year Ended December 31 2014
Beginning balance of unrecognized tax benefits	$	49.4		$	40.5		$	29.9
Additions for current year tax positions		9.3			11.3			9.4
Additions for prior year tax positions		2.0			2.5			6.1
Reductions for prior year tax positions		(4.7	)		(0.6	)		(1.0	)
Reductions for audit settlements		—			(0.1	)		(0.1	)
Reductions for the expiration of statutes of limitation		(4.2	)		(2.8	)		(2.5	)
Changes due to foreign currency translation adjustments		(1.3	)		(1.4	)		(1.3	)
Ending balance of unrecognized tax benefits (excluding interest and penalties)	$	50.5		$	49.4		$	40.5
Interest and penalties associated with unrecognized tax benefits		11.5			8.6			6.7
Ending balance of unrecognized tax benefits (including interest and penalties)	$	62.0		$	58.0		$	47.2