Quarterly report pursuant to Section 13 or 15(d)

Shareholders' Equity (Deficit)

v3.5.0.2
Shareholders' Equity (Deficit)
9 Months Ended
Sep. 30, 2016
Equity [Abstract]  
Shareholders' Equity (Deficit)

10. Shareholders’ Equity (Deficit)

Dividends

The declaration of future dividends is subject to the discretion of the Company’s board of directors and will depend upon various factors, including its earnings, financial condition, Herbalife Ltd.’s available distributable reserves under Cayman Islands law, restrictions imposed by the Credit Facility and the terms of any other indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by its board of directors. The Credit Facility permits payments of dividends up to a specified cap as long as no default or event of default exists and the consolidated leverage ratio specified in the Credit Facility is not exceeded. See Note 4, Long-Term Debt, for further information on restrictions concerning the Company’s ability to declare dividends.

Share Repurchases

On July 30, 2012, the Company announced that its board of directors authorized a new $1 billion share repurchase program that will expire on June 30, 2017. On February 3, 2014, the Company announced that its board of directors authorized an increase in the existing share repurchase authorization to an available balance of $1.5 billion. This share repurchase program allows the Company to repurchase its common shares, at such times and prices as determined by the Company’s management as market conditions warrant, and to the extent Herbalife Ltd.’s distributable reserves are available under Cayman Islands law. The Credit Facility permits the Company to repurchase its common shares up to a specified cap as long as no default or event of default exists and the consolidated leverage ratio specified in the Credit Facility is not exceeded. See Note 4, Long-Term Debt, for further information on restrictions concerning the Company’s ability to repurchase its common shares.

In conjunction with the issuance of the Convertible Notes during February 2014, the Company paid approximately $685.8 million to enter into prepaid forward share repurchase transactions, or the Forward Transactions, with certain financial institutions, or the Forward Counterparties, pursuant to which the Company purchased approximately 9.9 million common shares, at an average cost of $69.02 per share, for settlement on or around the August 15, 2019 maturity date for the Convertible Notes, subject to the ability of each Forward Counterparty to elect to settle all or a portion of its Forward Transactions early. See Note 4, Long-Term Debt for further information on the conditions for which Holders of the Convertible Notes may convert their notes prior to the maturity date. The Forward Transactions were generally expected to facilitate privately negotiated derivative transactions between the Forward Counterparties and holders of the Convertible Notes, including swaps, relating to the common shares by which holders of the Convertible Notes establish short positions relating to the common shares and otherwise hedge their investments in the Convertible Notes concurrently with, or shortly after, the pricing of the Convertible Notes. The shares are treated as retired shares for basic and diluted EPS purposes although they remain legally outstanding.

As a result of the Forward Transactions, the Company’s total shareholders’ equity (deficit) within its condensed consolidated balance sheet was reduced by approximately $685.8 million during the first quarter of 2014, with amounts of $653.9 million and $31.9 million being allocated between accumulated deficit and additional paid-in-capital, respectively, within total shareholders’ equity (deficit). Also, upon executing the Forward Transactions, the Company recorded, at fair value, $35.8 million in non-cash issuance costs to other assets and a corresponding amount to additional paid-in-capital within its condensed consolidated balance sheet. These non-cash issuance costs will be amortized to interest expense over the contractual term of the Forward Transactions. For both the three and nine months ended September 30, 2016 and 2015, the Company recognized $1.6 million and $4.8 million, respectively, of non-cash interest expense within its condensed consolidated statements of income relating to amortization of these non-cash issuance costs.

During the three and nine months ended September 30, 2016 and 2015, the Company did not repurchase any of its common shares through open market purchases. As of September 30, 2016, the remaining authorized capacity under the Company’s $1.5 billion share repurchase program was $232.9 million inclusive of reductions for the Forward Transactions.

The Company reflects the aggregate purchase price of its common shares repurchased as a reduction to shareholders’ equity (deficit). The Company allocates the purchase price of the repurchased shares to accumulated deficit, common shares and additional paid-in-capital.

The number of shares issued upon vesting or exercise for certain restricted stock units and SARs granted pursuant to the Company’s share-based compensation plans is net of the minimum statutory withholding requirements that the Company pays on behalf of its employees. Although shares withheld are not issued, they are treated as common share repurchases in the Company’s condensed consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting. These shares do not count against the authorized capacity under the Company’s share repurchase program described above.

Capped Call Transactions

In February 2014, in connection with the issuance of Convertible Notes, the Company paid approximately $123.8 million to enter into capped call transactions with respect to its common shares, or the Capped Call Transactions, with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the Convertible Notes in the event that the market price of the common shares is greater than the strike price of the Capped Call Transactions, initially set at $86.28 per common share, with such reduction of potential dilution subject to a cap based on the cap price initially set at $120.79 per common share. The strike price and cap price are subject to certain adjustments under the terms of the Capped Call Transactions. Therefore, as a result of executing the Capped Call Transactions, the Company in effect will only be exposed to potential net dilution once the market price of its common shares exceeds the adjusted cap price. As a result of the Capped Call Transactions, the Company’s additional paid-in capital within shareholders’ equity (deficit) on its condensed consolidated balance sheet was reduced by $123.8 million during the first quarter of 2014.

Accumulated Other Comprehensive Income (Loss)

The following table summarizes changes in accumulated other comprehensive income (loss) during the three months ended September 30, 2016 and 2015:

 

 

 

Changes in Accumulated Other Comprehensive

 

 

 

Income (Loss) by Component

 

 

 

Three Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

Foreign

Currency

Translation

Adjustments

 

 

Unrealized

Gain (Loss)

on

Derivatives

 

 

Unrealized Gain

(Loss) on

Available-For-

Sale

Investments

 

 

Total

 

 

Foreign

Currency

Translation

Adjustments

 

 

Unrealized

Gain (Loss)

on

Derivatives

 

 

Unrealized Gain

(Loss) on

Available-For-

Sale

Investments

 

 

Total

 

 

 

(In millions)

 

Beginning Balance

 

$

(178.8

)

 

$

10.3

 

 

$

 

 

$

(168.5

)

 

$

(140.8

)

 

$

22.5

 

 

$

(0.1

)

 

$

(118.4

)

Other comprehensive income (loss)

   before reclassifications, net of tax

 

 

(2.6

)

 

 

0.8

 

 

 

 

 

 

(1.8

)

 

 

(37.0

)

 

 

4.5

 

 

 

 

 

 

(32.5

)

Amounts reclassified from

   accumulated other comprehensive

   income (loss) to income, net of

   tax(1)

 

 

 

 

 

(3.0

)

 

 

 

 

 

(3.0

)

 

 

 

 

 

(5.4

)

 

 

 

 

 

(5.4

)

Total other comprehensive income

   (loss), net of reclassifications

 

 

(2.6

)

 

 

(2.2

)

 

 

 

 

 

(4.8

)

 

 

(37.0

)

 

 

(0.9

)

 

 

 

 

 

(37.9

)

Ending balance

 

$

(181.4

)

 

$

8.1

 

 

$

 

 

$

(173.3

)

 

$

(177.8

)

 

$

21.6

 

 

$

(0.1

)

 

$

(156.3

)

 

(1)

See Note 9, Derivative Instruments and Hedging Activities, for information regarding the location in the condensed consolidated statements of income of gains (losses) reclassified from accumulated other comprehensive income (loss) into income during the three months ended September 30, 2016 and 2015.

Other comprehensive income (loss) before reclassifications was net of tax expense of $5.8 million for foreign currency translation adjustment for the three months ended September 30, 2016.

Other comprehensive income (loss) before reclassifications was net of tax benefits of $2.7 million and $0.3 million for foreign currency translation adjustment and unrealized gain (loss) on derivatives, respectively, for the three months ended September 30, 2015. Amounts reclassified from accumulated other comprehensive income (loss) to income was net of tax expense of $0.1 million for unrealized gain (loss) on derivatives for the three months ended September 30, 2015.

 The following table summarizes changes in accumulated other comprehensive income (loss) during the nine months ended September 30, 2016 and 2015:

 

 

 

Changes in Accumulated Other Comprehensive

 

 

 

Income (Loss) by Component

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

Foreign

Currency

Translation

Adjustments

 

 

Unrealized

Gain (Loss)

on

Derivatives

 

 

Unrealized Gain

(Loss) on

Available-For-

Sale

Investments

 

 

Total

 

 

Foreign

Currency

Translation

Adjustments

 

 

Unrealized

Gain (Loss)

on

Derivatives

 

 

Unrealized Gain

(Loss) on

Available-For-

Sale

Investments

 

 

Total

 

 

 

(In millions)

 

Beginning Balance

 

$

(183.0

)

 

$

17.4

 

 

$

0.1

 

 

$

(165.5

)

 

$

(96.4

)

 

$

18.0

 

 

$

0.2

 

 

$

(78.2

)

Other comprehensive income (loss)

   before reclassifications, net of tax

 

 

1.6

 

 

 

3.4

 

 

 

 

 

 

5.0

 

 

 

(81.4

)

 

 

13.6

 

 

 

(1.8

)

 

 

(69.6

)

Amounts reclassified from

   accumulated other comprehensive

   income (loss) to income, net of

   tax(1)

 

 

 

 

 

(12.7

)

 

 

(0.1

)

 

 

(12.8

)

 

 

 

 

 

(10.0

)

 

 

1.5

 

 

 

(8.5

)

Total other comprehensive income

   (loss), net of reclassifications

 

 

1.6

 

 

 

(9.3

)

 

 

(0.1

)

 

 

(7.8

)

 

 

(81.4

)

 

 

3.6

 

 

 

(0.3

)

 

 

(78.1

)

Ending balance

 

$

(181.4

)

 

$

8.1

 

 

$

 

 

$

(173.3

)

 

$

(177.8

)

 

$

21.6

 

 

$

(0.1

)

 

$

(156.3

)

 

(1)

See Note 9, Derivative Instruments and Hedging Activities, for information regarding the location in the condensed consolidated statements of income of gains (losses) reclassified from accumulated other comprehensive income (loss) into income during the nine months ended September 30, 2016 and 2015.

Other comprehensive income (loss) before reclassifications was net of tax expense of $7.3 million and tax benefits of $0.3 million for foreign currency translation adjustment and unrealized gain (loss) on derivatives, respectively, for the nine months ended September 30, 2016. Amounts reclassified from other comprehensive income (loss) to income were net of tax expense of $0.1 million for unrealized gain (loss) on available-for-sale investments for the nine months ended September 30, 2016.

Other comprehensive income (loss) before reclassifications was net of tax benefits of $7.0 million, tax expense of $0.2 million, and tax benefits of $1.0 million for foreign currency translation adjustments, unrealized gain (loss) on derivatives, and unrealized gain (loss) on available-for-sale investments, respectively, for the nine months ended September 30, 2015. Amounts reclassified from accumulated other comprehensive income (loss) to income was net of tax benefits of $0.1 million and tax expense of $0.8 million for unrealized gain (loss) on derivatives and unrealized gain (loss) on available-for-sale investments, respectively, for the nine months ended September 30, 2015.