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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | 12. 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 |
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 |
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 |
Tax loss and credit carryforwards of certain foreign subsidiaries for 2018 and 2017 were $168.1 million and $137.6 million, respectively. If unused, tax loss and credit carryforwards of certain foreign subsidiaries of $71.6 million will expire between 2019 and 2028 and $96.5 million can be carried forward indefinitely. U.S. foreign tax credit carryforwards for 2018 and 2017 were $211.0 million and $186.2 million, respectively, which are included in Tax loss and domestic tax credit carryforwards in the table above. If unused, U.S. foreign tax credit carryforwards will expire between 2020 and 2028. Domestic research and development tax credit carryforwards for 2018 and 2017 were $7.3 million and $4.8 million. If unused, domestic research and development tax credit carryforwards will expire in 2037. The deferred interest expense can be carried forward indefinitely. State tax loss carryforwards for 2018 and 2017 were $2.2 million and $0.4 million. If unused, state tax loss carryforwards will expire between 2022 and 2038. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act, or the Act. The Act, which is also commonly referred to as “U.S. Tax Reform,” significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a modified territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. During the fourth quarter of 2017, in accordance with the SEC Staff Accounting Bulletin (“SAB”) No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), the Company recorded a provisional net expense of $153.3 million. This amount, which is included in tax expense, predominantly consists of three components: (i) a $163.4 million charge caused by the establishment of a valuation allowance on deferred tax assets due to the Act’s changes in the sourcing and calculation of foreign income, which thereby limited the expected utilization of foreign tax credit carryforwards, (ii) a $5.5 million benefit resulting from the remeasurement of the Company’s net deferred tax liabilities in the U.S. based on the new lower corporate income tax rate, and (iii) a non-recurring benefit of $4.6 million related to additional foreign tax credits (a result of the impact of a one-time mandatory repatriation on previously unremitted earnings of certain non-U.S. subsidiaries that are owned either directly or indirectly by the U.S. parent). Although the $153.3 million provisional net expense represented what the Company believed was a reasonable estimate of the impact of the income tax effects of the Act on the Company’s consolidated financial statements as of December 31, 2017, it was considered provisional. Provisional items include, but are not limited to, foreign tax credits and associated valuation allowance, limitations on executive compensation, and the one-time tax on previously unremitted foreign earnings of U.S. subsidiaries. The Company continued to analyze regulatory guidance, including proposed regulations relating to foreign tax credits that were issued during the fourth quarter of 2018, and other information, including a continued inability to fully utilize foreign tax credits generated. Accordingly, the Company recorded an additional $29.5 million of expense during the fourth quarter of 2018, which was caused by the establishment of a valuation allowance on deferred tax assets relating to foreign tax credit carryforwards. As a result, the Company’s accounting for the ultimate tax effects of the Act has been finalized under SAB 118 as of December 31, 2018. 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, 2018 and 2017, the Company held valuation allowances against net deferred tax assets of certain subsidiaries, primarily related to tax loss carryforwards and U.S. foreign tax credits, in the amount of $382.9 million and $299.4 million, respectively. The change in the Company’s valuation allowance during 2018 of $83.5 million was related to $83.7 million of net additions charged to income tax expense, primarily related to the valuation allowance established for U.S. foreign tax credits described above, partially offset by $0.2 million of currency translation adjustments recognized within other comprehensive income. The change in the Company’s valuation allowance during 2017 of $184.0 million was related to $183.7 million of net additions charged to income tax expense, primarily related to the valuation allowance established for U.S. foreign tax credits described above, and $0.3 million of currency translation adjustments recognized within other comprehensive income. 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. As of December 31, 2018, the Company’s U.S. consolidated group had approximately $116.6 million of unremitted earnings that were permanently reinvested relating to certain foreign subsidiaries. As of December 31, 2018, Herbalife Nutrition Ltd. had approximately $2.3 billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. As a result of the Company’s decision to invest in the China Growth and Impact Investment Fund, approximately $119.8 million of unremitted earnings were permanently reinvested as of December 31, 2018. Since Herbalife Nutrition Ltd.’s 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, 2018 and 2017 was a deferred tax liability (net of valuation allowance) of $18.0 million and $29.1 million, respectively. 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 |
As of December 31, 2018, the total amount of unrecognized tax benefits, including related interest and penalties was $65.2 million. If the total amount of unrecognized tax benefits was recognized, $46.8 million of unrecognized tax benefits, $10.0 million of interest, and $1.7 million of penalties would impact the effective tax rate. As of December 31, 2017, 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, $44.4 million of unrecognized tax benefits, $9.9 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, 2018, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $1.0 million and $0.4 million, respectively. During the year ended December 31, 2017, the Company recorded a decrease in interest and penalty expense related to uncertain tax positions of less than $0.1 million and $0.8 million, respectively. 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. As of December 31, 2018, the total amount of interest and penalties related to unrecognized tax benefits recognized in the consolidated balance sheet was $10.0 million and $1.7 million, respectively. As of December 31, 2017, the total amount of interest and penalties related to unrecognized tax benefits recognized in the consolidated balance sheet was $9.9 million and $1.5 million, respectively. As of December 31, 2016, the total amount of interest and penalties related to unrecognized tax benefits recognized in the consolidated balance sheet was $9.4 million and $2.1 million, respectively. 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 |
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, 2018, the Company’s tax filings are generally subject to examination in major tax jurisdictions for years ending on or after December 31, 2013. The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately $6.4 million within the next twelve months. Of this possible decrease, $0.4 million would be due to the settlement of audits or resolution of administrative or judicial proceedings. The remaining possible decrease of $6.0 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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