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, 2018

Components of Income before Income Taxes

The components of income before income taxes are as follows:

	Year Ended December 31,
	2018			2017			2016
	(in millions)
Domestic	$	(2.0	)	$	(29.0	)	$	(89.3	)
Foreign		466.2			500.2			454.0
Total	$	464.2		$	471.2		$	364.7

Components of Income Tax Expense

Income taxes are as follows:

	Year Ended December 31,
	2018			2017			2016
	(in millions)
Current:
Foreign	$	150.7		$	147.1		$	127.9
Federal		24.9			10.6			12.4
State		0.1			1.8			0.8
		175.7			159.5			141.1
Deferred:
Foreign		(13.7	)		(8.6	)		12.5
Federal		8.0			106.4			(47.2	)
State		(2.4	)		—			(1.7	)
		(8.1	)		97.8			(36.4	)
	$	167.6		$	257.3		$	104.7

Deferred Tax Assets and Liabilities

The significant categories of temporary differences that gave rise to deferred tax assets and liabilities are as follows:

	December 31,
	2018			2017
	(in millions)
Deferred income tax assets:
Accruals not currently deductible	$	86.8		$	78.5
Tax loss and credit carryforwards of certain foreign subsidiaries		168.1			137.6
Tax loss and domestic tax credit carryforwards		217.6			191.4
Deferred compensation plan		34.5			49.7
Deferred interest expense		26.1			—
Accrued vacation		4.9			4.4
Inventory reserve		6.5			7.4
Other		4.0			4.9
Gross deferred income tax assets		548.5			473.9
Less: valuation allowance		(382.9	)		(299.4	)
Total deferred income tax assets	$	165.6		$	174.5
Deferred income tax liabilities:
Intangible assets	$	70.9		$	71.1
Depreciation/amortization		2.4			5.4
Unremitted foreign earnings		12.6			20.5
Other		8.1			7.7
Total deferred income tax liabilities		94.0			104.7
Total net deferred tax assets	$	71.6		$	69.8

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 Nutrition 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 21% tax rate is applied for the year ended December 31, 2018 and a notional 35% tax rate is applied for the years ended December 31, 2017 and 2016 as follows:

	Year Ended December 31,
	2018			2017			2016
	(in millions)
Tax expense at United States statutory rate	$	97.4		$	164.9		$	127.7
Increase (decrease) in tax resulting from:
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes		31.0			(42.7	)		(16.6	)
U.S. tax (benefit) on foreign income, net of foreign tax credits		(0.8	)		(22.9	)		(10.2	)
Increase (decrease) in valuation allowances		83.7			183.7			(5.6	)
State taxes, net of federal benefit		(1.5	)		1.9			0.3
Unrecognized tax benefits		6.9			(4.0	)		5.3
Excess tax benefits on equity awards		(53.1	)		(31.1	)		—
Other		4.0			7.5			3.8
Total	$	167.6		$	257.3		$	104.7

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, 2018, 2017, and 2016:

	Year Ended December 31,
	2018			2017			2016
	(in millions)
Beginning balance of unrecognized tax benefits	$	50.6		$	50.5		$	49.4
Additions for current year tax positions		12.8			13.0			9.3
Additions for prior year tax positions		0.7			3.6			2.0
Reductions for prior year tax positions		(2.1	)		(6.0	)		(4.7	)
Reductions for audit settlements		(0.5	)		(7.1	)		—
Reductions for the expiration of statutes of limitations		(4.8	)		(6.2	)		(4.2	)
Changes due to foreign currency translation adjustments		(3.2	)		2.8			(1.3	)
Ending balance of unrecognized tax benefits (excluding interest and penalties)		53.5			50.6			50.5
Interest and penalties associated with unrecognized tax benefits		11.7			11.4			11.5
Ending balance of unrecognized tax benefits (including interest and penalties)	$	65.2		$	62.0		$	62.0