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, 2019

Components of Income before Income Taxes

The components of income before income taxes were as follows:

	Year Ended December 31,
	2019		2018			2017
	(in millions)
Domestic	$	48.6	$	(2.0	)	$	(29.0	)
Foreign		402.8		466.2			500.2
Total	$	451.4	$	464.2		$	471.2

Components of Income Tax Expense

Income taxes were as follows:

	Year Ended December 31,
	2019		2018			2017
	(in millions)
Current:
Foreign	$	100.6	$	150.7		$	147.1
Federal		22.1		24.9			10.6
State		2.3		0.1			1.8
		125.0		175.7			159.5
Deferred:
Foreign		12.8		(13.7	)		(8.6	)
Federal		1.3		8.0			106.4
State		1.3		(2.4	)		—
		15.4		(8.1	)		97.8
	$	140.4	$	167.6		$	257.3

Deferred Tax Assets and Liabilities

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

	December 31,
	2019			2018
	(in millions)
Deferred income tax assets:
Accruals not currently deductible	$	80.2		$	86.8
Tax loss and credit carryforwards of certain foreign subsidiaries(1)		103.6			104.3
Tax loss and domestic tax credit carryforwards		215.2			217.6
Deferred compensation plan		40.9			34.5
Deferred interest expense		35.5			26.1
Accrued vacation		5.5			4.9
Inventory reserve		4.7			6.5
Operating lease liabilities		21.5			—
Other		6.0			4.0
Gross deferred income tax assets		513.1			484.7
Less: valuation allowance(1)		(330.3	)		(319.1	)
Total deferred income tax assets	$	182.8		$	165.6
Deferred income tax liabilities:
Intangible assets	$	71.1		$	70.9
Depreciation/amortization		3.7			2.4
Unremitted foreign earnings		22.7			12.6
Operating lease assets		18.0			—
Other		9.4			8.1
Total deferred income tax liabilities		124.9			94.0
Total net deferred tax assets	$	57.9		$	71.6

(1)

The deferred income tax assets relating to tax loss and credit carryforwards and the corresponding valuation allowance as of December 31, 2018 were reduced by $63.8 million. These offsetting reductions had no net impact to the Company’s consolidated balance sheets, consolidated statements of income, and consolidated statements of cash flows. See footnote 2 below for additional information.

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 years ended December 31, 2019 and 2018 and a notional 35% tax rate is applied for the year ended December 31, 2017 as follows:

	Year Ended December 31,
	2019			2018			2017
	(in millions)
Tax expense at United States statutory rate	$	94.8		$	97.4		$	164.9
Increase (decrease) in tax resulting from:
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes(2)		40.9			62.0			(9.9	)
U.S. tax (benefit) on foreign income, net of foreign tax credits		(10.1	)		(0.8	)		(22.9	)
Increase in valuation allowances(2)		11.4			52.7			150.9
State taxes, net of federal benefit		3.1			(1.5	)		1.9
Unrecognized tax benefits		(6.9	)		6.9			(4.0	)
Unremitted earnings		10.0			(9.2	)		(2.8	)
Excess tax benefits on equity awards		(5.8	)		(53.1	)		(31.1	)
Other		3.0			13.2			10.3
Total	$	140.4		$	167.6		$	257.3

(2)	The deferred income tax benefit and offsetting valuation allowance expense have been reduced by $31.0 million and $32.8 million for 2018 and 2017, respectively. These amounts had no net impact on the Company’s 2018 and 2017 total income tax expense and consolidated statements of income.

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, 2019, 2018, and 2017:

	Year Ended December 31,
	2019			2018			2017
	(in millions)
Beginning balance of unrecognized tax benefits	$	53.5		$	50.6		$	50.5
Additions for current year tax positions		8.4			12.8			13.0
Additions for prior year tax positions		6.1			0.7			3.6
Reductions for prior year tax positions		(15.4	)		(2.1	)		(6.0	)
Reductions for audit settlements		(0.1	)		(0.5	)		(7.1	)
Reductions for the expiration of statutes of limitations		(3.6	)		(4.8	)		(6.2	)
Changes due to foreign currency translation adjustments		—			(3.2	)		2.8
Ending balance of unrecognized tax benefits (excluding interest and penalties)		48.9			53.5			50.6
Interest and penalties associated with unrecognized tax benefits		11.0			11.7			11.4
Ending balance of unrecognized tax benefits (including interest and penalties)	$	59.9		$	65.2		$	62.0