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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 12. Income Taxes The components of income before income taxes were as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in millions) |
Domestic |  | $ | (94.1 | ) |  | $ | (72.0 | ) |  | $ | 53.4 |
Foreign |  |  | 297.1 |  |  |  | 496.8 |  |  |  | 507.4 |
Total |  | $ | 203.0 |  |  | $ | 424.8 |  |  | $ | 560.8 |
Income taxes were as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in millions) |
Current: |  |  |  |  |  |  |  |  |
Foreign |  | $ | 80.8 |  |  | $ | 100.1 |  |  | $ | 121.8 |
Federal |  |  | 21.3 |  |  |  | 26.3 |  |  |  | 20.1 |
State |  |  | (0.2 | ) |  |  | 7.0 |  |  |  | 5.0 |
|  |  | 101.9 |  |  |  | 133.4 |  |  |  | 146.9 |
Deferred: |  |  |  |  |  |  |  |  |
Foreign |  |  | (1.7 | ) |  |  | (2.0 | ) |  |  | (17.0 | )
Federal |  |  | (34.6 | ) |  |  | (25.1 | ) |  |  | (16.0 | )
State |  |  | (4.8 | ) |  |  | (2.8 | ) |  |  | (0.3 | )
|  |  | (41.1 | ) |  |  | (29.9 | ) |  |  | (33.3 | )
|  | $ | 60.8 |  |  | $ | 103.5 |  |  | $ | 113.6 |
The significant categories of temporary differences that gave rise to deferred tax assets and liabilities were as follows:
|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | (in millions) |
Deferred income tax assets: |  |  |  |  |  |
Accruals not currently deductible |  | $ | 77.1 |  |  | $ | 72.9 |
Tax loss and credit carryforwards of certain foreign subsidiaries |  |  | 216.7 |  |  |  | 131.8 |
Tax loss and domestic tax credit carryforwards |  |  | 174.3 |  |  |  | 195.4 |
Deferred compensation plan |  |  | 32.6 |  |  |  | 35.8 |
Deferred interest expense |  |  | 48.9 |  |  |  | 161.1 |
Inventory reserve |  |  | 7.1 |  |  |  | 9.6 |
Operating lease liabilities |  |  | 41.0 |  |  |  | 42.1 |
Depreciation and amortization |  |  | 56.7 |  |  |  | 22.5 |
Other |  |  | 8.9 |  |  |  | 8.6 |
Gross deferred income tax assets |  |  | 663.3 |  |  |  | 679.8 |
Less: valuation allowance |  |  | (375.5 | ) |  |  | (436.6 | )
Total deferred income tax assets |  | $ | 287.8 |  |  | $ | 243.2 |
Deferred income tax liabilities: |  |  |  |  |  |
Intangible assets |  | $ | 72.7 |  |  | $ | 73.0 |
Unremitted foreign earnings |  |  | 18.7 |  |  |  | 13.7 |
Operating lease assets |  |  | 35.8 |  |  |  | 37.2 |
Other |  |  | 2.4 |  |  |  | 6.7 |
Total deferred income tax liabilities |  |  | 129.6 |  |  |  | 130.6 |
Total net deferred tax assets |  | $ | 158.2 |  |  | $ | 112.6 |
Tax loss and credit carryforwards of certain foreign subsidiaries for 2023 and 2022 were $216.7 million and $131.8 million, respectively. If unused, tax loss and credit carryforwards of certain foreign subsidiaries of $176.7 million will expire between 2024 and 2040 and $40.0 million can be carried forward indefinitely. U.S. foreign tax credit carryforwards for 2023 and 2022 were $168.1 million and $185.9 million, respectively, which are included in Domestic tax credit carryforwards in the table above. If unused, U.S. foreign tax credit carryforwards will expire between 2024 and 2033. U.S. research and development tax credit carryforwards for 2023 and 2022 were $7.3 million and $13.9 million, respectively. If unused, U.S. research and development tax credit carryforwards begin expiring in 2042. The deferred interest expense can be carried forward inde finitely. U.S. state tax loss and credit carryforwards for 2023 were $1.1 million. If unused, certain U.S. state tax loss carryforwards will expire between 2031 and 2044, w hile the remaining can be carried forward indefinitely. 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, 2023 and 2022, 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 $375.5 million and $436.6 million, respectively. The change in the Company’s valuation allowance during 2023 of $61.1 million was primarily attributable to foreign tax loss carryforwards. The change in the Company’s valuation allowance during 2022 of $24.7 million was primarily attributable to foreign deferred interest expense and tax loss carryforwards. The change in the Company’s valuation allowance during 2021 of $21.1 million was primarily related to foreign deferred interest expense and tax loss carryforwards. As of December 31, 2023, Herbalife Ltd. had approximately $2.9 billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. Since Herbalife 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, 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 liabilities on the unremitted foreign earnings as of December 31, 2023 and 2022 were $18.7 million and $13.7 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 21% tax rate is applied for the years ended December 31, 2023, 2022, and 2021 as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in millions) |
Tax expense at United States statutory rate |  | $ | 42.6 |  |  | $ | 89.2 |  |  | $ | 117.8 |
Increase (decrease) in tax resulting from: |  |  |  |  |  |  |  |  |
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes |  |  | 82.9 |  |  |  | (21.5 | ) |  |  | (15.1 | )
U.S. tax expense (benefit) on foreign income, net of foreign tax credits |  |  | 1.1 |  |  |  | (4.7 | ) |  |  | (21.9 | )
(Decrease) Increase in valuation allowances |  |  | (61.1 | ) |  |  | 24.7 |  |  |  | 21.1 |
State taxes, net of federal benefit |  |  | (5.6 | ) |  |  | 3.9 |  |  |  | 3.0 |
Unrecognized tax (benefits) expenses |  |  | (6.1 | ) |  |  | 7.5 |  |  |  | 9.3 |
Excess tax expense (benefits) on equity awards |  |  | 5.2 |  |  |  | 0.6 |  |  |  | (3.5 | )
U.S. research and development tax credit |  |  | (4.4 | ) |  |  | (2.4 | ) |  |  | (2.4 | )
Other |  |  | 6.2 |  |  |  | 6.2 |  |  |  | 5.3 |
Total |  | $ | 60.8 |  |  | $ | 103.5 |  |  | $ | 113.6 |
As of December 31, 2023, the total amount of unrecognized tax benefits, including related interest and penalties was $67.4 million. If the total amount of unrecognized tax benefits was recognized, $45.6 million of unrecognized tax benefits, $16.0 million of interest, and $2.3 million of penalties would impact the effective tax rate. As of December 31, 2022, the total amount of unrecognized tax benefits, including related interest and penalties was $72.5 million. If the total amount of unrecognized tax benefits was recognized, $46.3 million of unrecognized tax benefits, $19.7 million of interest, and $3.1 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, 2023, the Company recorded a decrease in interest and penalty expense related to uncertain tax positions of $4.2 million and $1.0 million, respectively. During the year ended December 31, 2022, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $6.1 million and $0.1 million, respectively. During the year ended December 31, 2021, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $4.1 million and $1.5 million, respectively. As of December 31, 2023, the total amount of interest and penalties related to unrecognized tax benefits recognized in the consolidated balance sheet was $16.0 million and $2.3 million, respectively. As of December 31, 2022, the total amount of interest and penalties related to unrecognized tax benefits recognized in the consolidated balance sheet was $19.7 million and $3.1 million, respectively. As of December 31, 2021, the total amount of interest and penalties related to unrecognized tax benefits recognized in the consolidated balance sheet was $15.1 million and $3.3 million, respectively. The following changes occurred in the amount of unrecognized tax benefits during the years ended December 31, 2023, 2022, and 2021:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in millions) |
Beginning balance of unrecognized tax benefits |  | $ | 49.7 |  |  | $ | 54.1 |  |  | $ | 52.7 |
Additions for current year tax positions |  |  | 9.7 |  |  |  | 8.8 |  |  |  | 9.2 |
Additions for prior year tax positions |  |  | 1.0 |  |  |  | 2.2 |  |  |  | 5.1 |
Reductions for prior year tax positions |  |  | (6.6 | ) |  |  | (3.7 | ) |  |  | (2.3 | )
Reductions for audit settlements |  |  | (0.2 | ) |  |  | (1.8 | ) |  |  | (5.2 | )
Reductions for the expiration of statutes of limitations |  |  | (4.4 | ) |  |  | (6.2 | ) |  |  | (4.1 | )
Changes due to foreign currency translation adjustments |  |  | (0.1 | ) |  |  | (3.7 | ) |  |  | (1.3 | )
Ending balance of unrecognized tax benefits (excluding interest and penalties) |  |  | 49.1 |  |  |  | 49.7 |  |  |  | 54.1 |
Interest and penalties associated with unrecognized tax benefits |  |  | 18.3 |  |  |  | 22.8 |  |  |  | 18.4 |
Ending balance of unrecognized tax benefits (including interest and penalties) |  | $ | 67.4 |  |  | $ | 72.5 |  |  | $ | 72.5 |
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, 2023, the Company’s tax filings are generally subject to examination in major tax jurisdictions for years ending on or after December 31, 2015. The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately $9.6 million within the next twelve months. Of this possible decrease, $8.7 million would be due to the expiration of statute of limitations in various jurisdictions. The remaining possible decrease of $0.9 million would be due to settlement of audits or resolution of administrative or judicial proceedings.

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