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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | 12. 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 |
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 |
The Company recognizes excess tax benefits associated with share-based compensation to shareholders’ (deficit) equity only when realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company follows the with-and-without approach. Under this approach, excess tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to the Company, which are also subject to applicable limitations. As of December 31, 2016 and 2015, the Company had $29.6 million and $25.4 million, respectively, of unrealized excess tax benefits. The $29.6 million of excess tax benefits at December 31, 2016 relates to foreign tax credits generated and carried forward on U.S. federal income tax returns. If unused, tax credit carryforwards will expire between 2021 and 2026. 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 |
Tax loss and credit carryforwards of certain foreign subsidiaries for 2016 and 2015 were $115.1 million and $121.4 million, respectively. If unused, tax loss and credit carryforwards of certain foreign subsidiaries of $81.5 million will expire between 2017 and 2026 and $33.6 million can be carried forward indefinitely. Domestic foreign tax credit carryforwards for 2016 and 2015 were $99.6 million and $76.7 million, respectively. If unused, domestic foreign tax credit carryforwards begin to expire in 2024. The domestic research and development tax credit carryforward for 2016 was $2.2 million. If unused, domestic research and development tax credit carryforwards will expire in 2036. The state tax loss carryforwards for 2016 were $0.8 million. If unused, state tax loss carryforwards will expire between 2021 and 2036. The Company’s net deferred tax asset year over year increase is primarily related to the increase of $22.9 million in excess foreign tax credits. This increase is mostly a result of the deduction of a settlement payment made to the Federal Trade Commission, which for US foreign tax credit purposes resulted in an overall domestic loss and limited the Company’s ability to claim foreign tax credits. In future taxable years as domestic source income is generated, 50% of such income will be reclassified as foreign source income as allowed and will increase the Company’s foreign tax credit limitation, thereby enabling the use of additional foreign tax credits. Although not certain, the Company believes that the utilization of the foreign tax credits carryforward of $99.6 million at December 31, 2016 is more likely than not. The Company does not have a history of foreign tax credits expiring. In addition, the Company expects that $25.7 million of foreign tax credits, resulting from the overall domestic loss, will be utilized as discussed above. Also, the Company believes that anticipated taxable income and, if needed, the potential implementation of tax planning strategies, such as the acceleration of foreign source income, should prevent foreign tax credit carryforwards from expiring. The Company recognizes valuation allowances on deferred tax assets reported if, based on the weight of the evidence it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2016 and 2015 the Company held valuation allowances against net deferred tax assets of certain subsidiaries, primarily related to tax loss carryforwards, in the amount of $115.4 million and tax loss carryforwards of $121.3 million, respectively. The change in the Company’s valuation allowance during 2016 of $5.9 million was related to $5.6 million of net reductions charged to income tax expense and $0.3 million of currency translation adjustments recognized within other comprehensive income. The change in the Company’s valuation allowance during 2015 of $208.7 million was related to $205.6 million of net reductions charged to income tax expense, primarily related to the utilization of our deferred tax asset balance related to intercompany deferred interest expense, partially offset by increases in Venezuelan tax loss carryforwards, and $3.1 million of currency translation adjustments recognized within other comprehensive income. The change in the Company’s valuation allowance during 2014 of $82.4 million was related to $85.7 million of net additions charged to income tax expense, primarily relating to increases in Venezuelan tax loss carryforwards and deferred interest expense carryforwards, reduced by $3.3 million of currency translation adjustments recognized within other comprehensive income. At December 31, 2016, the Company’s U.S. consolidated group had approximately $131.9 million of unremitted earnings that were permanently reinvested relating to certain foreign subsidiaries. In addition, at December 31, 2016, Herbalife Ltd. had approximately $2.5 billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. Since these unremitted earnings have been permanently reinvested, deferred taxes were not provided on these unremitted earnings. Further, it is not practicable to determine the amount of unrecognized deferred taxes with respect to these unremitted earnings. If the Company were to remit these unremitted earnings then it would be subject to income tax on these remittances. Deferred taxes have been accrued for earnings that are not considered indefinitely reinvested. The deferred tax on the unremitted foreign earnings as of December 31, 2016 and 2015 was a deferred tax liability of $5.5 million and a deferred tax asset of $6.4 million, respectively. 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 |
As of December 31, 2016, the total amount of unrecognized tax benefits, including related interest and penalties was $62.0 million. If the total amount of unrecognized tax benefits was recognized, $44.8 million of unrecognized tax benefits, $9.4 million of interest and $2.1 million of penalties would impact the effective tax rate. As of December 31, 2015, the total amount of unrecognized tax benefits, including related interest and penalties was $58.0 million. If the total amount of unrecognized tax benefits was recognized, $44.1 million of unrecognized tax benefits, $7.1 million of interest and $1.5 million of penalties would impact the effective tax rate. The Company accounts for the interest and penalties generated by tax contingencies as a component of income tax expense. During the year ended December 31, 2016, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $2.7 million and $0.7 million, respectively. During the year ended December 31, 2015, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $2.0 million and $0.6 million, respectively. During the year ended December 31, 2014, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $1.9 million and $0.3 million, respectively. As of December 31, 2016, total amount of interest and penalties related to unrecognized tax benefits recognized in the statement of financial position were $9.4 million and $2.1 million, respectively. As of December 31, 2015, total amount of interest and penalties related to unrecognized tax benefits recognized in the statement of financial position were $7.1 million and $1.5 million, respectively. As of December 31, 2014, total amount of interest and penalties related to unrecognized tax benefits recognized in the statement of financial position were $5.5 million and $1.1 million respectively. 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 |
The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are resolved, which may impact the Company’s effective tax rate. As of December 31, 2016, the Company’s tax filings are generally subject to examination in major tax jurisdictions for years ending on or after December 31, 2009. The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately $11.0 million within the next twelve months. Of this possible decrease, $5.5 million would be due to the settlement of audits or resolution of administrative or judicial proceedings. The remaining possible decrease of $5.5 million would be due to the expiration of statute of limitations in various jurisdictions.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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