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, 2012

Components of Income Before Income Taxes

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


	Year Ended December 31,
	2012		2011		2010
Domestic	$	172.3	$	143.9	$	69.5
Foreign		478.6		415.9		310.6

Total	$	650.9	$	559.8	$	380.1

Components of Income Tax Expense

Income taxes are as follows (in millions):


	Year Ended December 31,
	2012			2011			2010
Current:
Foreign	$	89.6		$	94.7		$	75.6
Federal		84.2			57.8			30.3
State		8.9			7.6			8.3

		182.7			160.1			114.2

Deferred:
Foreign		(5.6	)		(12.4	)		(3.2	)
Federal		(4.6	)		(0.1	)		(30.7	)
State		1.2			(0.4	)		0.6

		(9.0	)		(12.9	)		(33.3	)

	$	173.7		$	147.2		$	80.9

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):


	Year EndedDecember 31,
	2012			2011
Deferred income tax assets:
Accruals not currently deductible	$	48.0		$	47.1
Tax loss carry forwards of certain foreign subsidiaries		22.0			2.8
Depreciation/amortization		13.5			11.9
Deferred compensation plan		35.6			26.2
Deferred interest expense		186.9			205.6
Accrued vacation		4.6			4.0
Inventory reserve		6.4			4.2
Hyperinflationary adjustment		3.5			7.4
Other		8.6			11.3

Gross deferred income tax assets		329.1			320.5
Less: valuation allowance		(209.3	)		(208.3	)

Total deferred income tax assets	$	119.8		$	112.2

Deferred income tax liabilities:
Intangible assets	$	111.7		$	113.1
Unremitted foreign earnings		13.9			8.7
Other		4.5			4.7
Total deferred income tax liabilities	$	130.1		$	126.5
Total net deferred tax liabilities	$	(10.3	)	$	(14.3	)

Reconciliation Between Provision for Income Taxes at Statutory Rate and Provision for Income Taxes

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 (in millions):


	Year Ended December 31,
	2012			2011			2010
	(In millions)
Tax expense at United States statutory rate	$	227.8		$	195.9		$	133.0
Increase (decrease) in tax resulting from:
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes		(68.7	)		(134.1	)		(77.8	)
U.S. tax (benefit) on foreign income net of foreign tax credits		1.8			(8.8	)		(19.3	)
Increase (decrease) in valuation allowances		0.4			86.0			64.6
State taxes, net of federal benefit		7.6			5.5			5.9
Unrecognized tax benefits		6.6			1.1			(10.9	)
Venezuela DASTM hyperinflationary impact		—			—			(14.5	)
Other		(1.8	)		1.6			(0.1	)

Total	$	173.7		$	147.2		$	80.9

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, 2012, 2011, and 2010 (in millions):


	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2010
Beginning balance of unrecognized tax benefits	$	32.4		$	31.6		$	39.3
Additions for current year tax positions		7.8			5.5			4.3
Additions for prior year tax positions		4.5			2.0			1.1
Reductions for prior year tax positions		(0.1	)		(0.9	)		(2.3	)
Reductions for audit settlements		(0.3	)		(0.7	)		(8.6	)
Reductions for the expiration of statutes of limitation		(4.9	)		(4.5	)		(2.4	)
Changes due to foreign currency translation adjustments		0.3			(0.6	)		0.2

Ending balance of unrecognized tax benefits (excluding interest and penalties)	$	39.7		$	32.4		$	31.6
Interest and penalties associated with unrecognized tax benefits		7.4			6.6			6.9

Ending balance of unrecognized tax benefits (including interest and penalties)	$	47.1		$	39.0		$	38.5

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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