Annual report pursuant to Section 13 and 15(d)

Shareholders' Deficit

v3.22.0.1
Shareholders' Deficit
12 Months Ended
Dec. 31, 2021
Equity [Abstract]  
Shareholders' Deficit

8. Shareholders’ Deficit

The Company had 100.8 million, 120.1 million, and 137.4 million common shares outstanding as of December 31, 2021, 2020, and 2019, respectively. In December 2004, the Company authorized 7.5 million preference shares at $0.002 par value. The 7.5 million authorized preference shares remained unissued as of December 31, 2021. Preference shares may be issued from time to time in one or more series, each of such series to have such voting powers (full or limited or without voting powers), designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as determined by the Company’s board of directors.

Dividends

The Company has not declared or paid cash dividends since 2014. 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 Nutrition Ltd.’s available distributable reserves under Cayman Islands law, restrictions imposed by the 2018 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.

Share Repurchases

On February 9, 2021, the Company’s board of directors authorized a new three-year $1.5 billion share repurchase program that will expire on February 9, 2024, which replaced the Company’s prior share repurchase authorization that was set to expire on October 30, 2023 and had approximately $7.9 million of remaining authorized capacity when it was replaced. This share repurchase program allows the Company, which includes an indirect wholly-owned subsidiary of Herbalife Nutrition Ltd., to repurchase the Company’s common shares at such times and prices as determined by management, as market conditions warrant, and to the extent Herbalife Nutrition Ltd.’s distributable reserves are available under Cayman Islands law. The 2018 Credit Facility permits the Company to repurchase its common shares as long as no default or event of default exists and other conditions, such as specified consolidated leverage ratios, are met. As of December 31, 2021, the remaining authorized capacity under the Company’s $1.5 billion share repurchase program was approximately $1.1 billion.

In conjunction with the issuance of the 2019 Convertible Notes during February 2014, the Company paid approximately $685.8 million to enter into Forward Transactions with certain financial institutions, or the Forward Counterparties, pursuant to which the Company purchased approximately 19.9 million common shares, at an average cost of $34.51 per share, for settlement on or around the August 15, 2019 maturity date for the 2019 Convertible Notes, subject to the ability of each Forward Counterparty to elect to settle all or a portion of its Forward Transactions early. The Forward Transactions were generally expected to facilitate privately negotiated derivative transactions between the Forward Counterparties and holders of the 2019 Convertible Notes, including swaps, relating to the common shares by which holders of the 2019 Convertible Notes establish short positions relating to the common shares and otherwise hedge their investments in the 2019 Convertible Notes concurrently with, or shortly after, the pricing of the 2019 Convertible Notes. The approximate 19.9 million common shares effectively repurchased through the Forward Transactions were treated as retired shares for basic and diluted EPS purposes. During the year ended December 31, 2019, the Forward Counterparties delivered approximately 6.0 million to the Company, which were subsequently retired by the Company. As of December 31, 2019, the Forward Counterparties had delivered all of the approximate 19.9 million common shares effectively repurchased through the Forward Transactions and no shares remained legally outstanding.

As a result of the Forward Transactions, the Company’s total shareholders’ equity within its 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 retained earnings and additional paid-in capital, respectively, within total shareholders’ equity. 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 consolidated balance sheet. These non-cash issuance costs were amortized to interest expense over the contractual term of the Forward Transactions. During the year ended December 31, 2019, the Company recognized $1.2 million of non-cash interest expense relating to amortization of these non-cash issuance costs within its consolidated statements of income.

During January 2021, the Company repurchased from Mr. Carl C. Icahn and certain of his affiliates an aggregate of approximately 12.5 million common shares of the Company at an aggregate cost of approximately $600.0 million, or $48.05 per share, and subsequently retired these shares. In addition, during the year ended December 31, 2021, the Company repurchased approximately 7.9 million of its common shares through open-market purchases at an aggregate cost of approximately $382.7 million, or an average cost of $48.17 per share, and subsequently retired these shares. In total, during the year ended December 31, 2021, the Company repurchased approximately 20.4 million of its common shares at an aggregate cost of approximately $982.7 million, or an average cost of $48.10 per share. In August 2020, the Company completed its modified Dutch auction tender offer and then subsequently paid cash to repurchase and retire a total of approximately 15.4 million of its common shares at an aggregate cost of approximately $750.0 million, or $48.75 per share. In addition, during the year ended December 31, 2020, the Company repurchased approximately 3.0 million of its common shares through open-market purchases at an aggregate cost of approximately $142.1 million, or an average cost of $47.40 per share, and subsequently retired these shares. In total, during the year ended December 31, 2020, the Company repurchased approximately 18.4 million of its common shares at an aggregate cost of approximately $892.1 million, or an average cost of $48.53 per share.

As of both December 31, 2021 and 2020, the Company held approximately 10.0 million of treasury shares for U.S. GAAP purposes. These treasury shares increased the Company’s shareholders’ deficit and are reflected at cost within the Company’s accompanying consolidated balance sheets. Although these shares are owned by an indirect wholly-owned subsidiary of the Company and remain legally outstanding, they are reflected as treasury shares under U.S. GAAP and therefore reduce the number of common shares outstanding within the Company’s consolidated financial statements and the weighted-average number of common shares outstanding used in calculating earnings per share. The common shares of Herbalife Nutrition Ltd. held by the indirect wholly-owned subsidiary, however, remain outstanding on the books and records of the Company’s transfer agent and therefore still carry voting and other share rights related to ownership of the Company’s common shares, which may be exercised. So long as it is consistent with applicable laws, such shares will be voted by such subsidiary in the same manner, and to the maximum extent possible in the same proportion, as all other votes cast with respect to any matter properly submitted to a vote of Herbalife Nutrition Ltd.’s shareholders.

In connection with the Company’s October 2017 modified Dutch auction tender offer, the Company incurred $1.6 million in transaction costs and also provided a non-transferable contractual CVR for each share tendered, allowing participants in the tender offer to receive a contingent cash payment in the event Herbalife Nutrition was acquired in a going-private transaction (as defined in the CVR Agreement) within two years of the commencement of the tender offer. The initial fair value of the CVR was $7.3 million, which was recorded as a liability in the fourth quarter of 2017 with a corresponding decrease to shareholders’ equity. In determining the initial fair value of the CVR, the Company used a lattice model, which included inputs such as the underlying stock price, strike price, time to expiration, and dividend yield. Subsequent changes in the fair value of the CVR liability, using a similar valuation approach as the initial fair value determination, were recognized within the Company’s consolidated balance sheets with corresponding gains or losses being recognized in other expense (income), net within the Company’s consolidated statements of income during each reporting period until the CVR expired in August 2019 or was terminated due to a going-private transaction, which was also incorporated in the valuation of the CVR; this going-private probability input was considered to be a Level 3 input in the fair value hierarchy and any increase or decrease in this input could have significantly impacted the fair value of the CVR as of the reporting date. The CVR expired without value on August 21, 2019, the two-year anniversary of August 21, 2017, the date the Company commenced the related modified Dutch auction tender offer.

During the year ended December 31, 2019, the Company recognized a $15.7 million gain in other expense (income), net within its consolidated statement of income due to the change in the fair value of the CVR, which was driven by its expiration during August 2019.

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 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 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. During the years ended December 31, 2021, 2020, and 2019, the Company withheld shares on its vested restricted stock units and exercised SARs relating to its share-based compensation plans.

The Company reflects the aggregate purchase price of its common shares repurchased as an increase to shareholders’ deficit. The Company generally allocated the purchase price of the repurchased shares to accumulated deficit, common shares, and additional paid-in capital, with the exception of treasury shares, which are recorded separately on the Company’s consolidated balance sheets.

For the years ended December 31, 2021, 2020, and 2019, the Company’s share repurchases, inclusive of transaction costs, were $982.7 million, $893.9 million, and zero, respectively, under the Company’s share repurchase programs, which include open-market purchases and the tender offers described above, and $28.6 million, $29.6 million, and $16.7 million, respectively, due to shares withheld for tax purposes related to the Company’s share-based compensation plans. For the years ended December 31, 2021, 2020, and 2019, the Company’s total share repurchases, including shares withheld for tax purposes, were $1,011.3 million, $923.5 million, and $16.7 million, respectively, and have been recorded as an increase to shareholders’ deficit within the Company’s consolidated balance sheets.

Capped Call Transactions

In February 2014, in connection with the issuance of the 2019 Convertible Notes, the Company paid approximately $123.8 million to enter into Capped Call Transactions with certain financial institutions. The Capped Call Transactions were expected generally to reduce the potential dilution upon conversion of the 2019 Convertible Notes in the event that the market price of the common shares was greater than the strike price of the Capped Call Transactions, initially set at $43.14 per common share, with such reduction of potential dilution subject to a cap based on the cap price initially set at $60.39 per common share. The strike price and cap price were 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 was only exposed to potential net dilution once the market price of its common shares exceeded the adjusted cap price. As a result of the Capped Call Transactions, the Company’s additional paid-in capital within shareholders’ deficit on its consolidated balance sheet was reduced by $123.8 million during the first quarter of 2014.

During March 2018, in connection with the Company’s repurchase of a portion of the 2019 Convertible Notes, the Company entered into partial settlement agreements with the option counterparties to the Capped Call Transactions to terminate a portion of such existing transactions, in each case, in a notional amount corresponding to the aggregate principal amount of 2019 Convertible Notes that were repurchased. As a result of terminating a portion of the Capped Call Transactions, which were in a favorable position, the Company received $55.9 million in cash and recognized an offsetting increase to additional paid-in capital during 2018.

On August 15, 2019, the 2019 Convertible Notes matured and the remaining Capped Call Transactions expired unexercised. The expiration of the Capped Call Transactions did not have an impact on the Company’s consolidated financial statements

Accumulated Other Comprehensive Loss

The following table summarizes changes in accumulated other comprehensive loss by component during the years ended December 31, 2021, 2020, and 2019:

 

 

 

Changes in Accumulated Other Comprehensive Loss by Component

 

 

 

Foreign Currency Translation Adjustments

 

 

Unrealized Gain (Loss) on Derivatives

 

 

Total

 

 

 

(in millions)

 

Balance as of December 31, 2018

 

$

(211.6

)

 

$

1.8

 

 

$

(209.8

)

Other comprehensive loss before reclassifications, net of tax

 

 

 

 

 

(1.9

)

 

 

(1.9

)

Amounts reclassified from accumulated other comprehensive loss to income, net of tax(1)

 

 

 

 

 

(0.8

)

 

 

(0.8

)

Total other comprehensive loss, net of reclassifications

 

 

 

 

 

(2.7

)

 

 

(2.7

)

Balance as of December 31, 2019

 

 

(211.6

)

 

 

(0.9

)

 

 

(212.5

)

Other comprehensive income before reclassifications, net of tax

 

 

33.2

 

 

 

1.7

 

 

 

34.9

 

Amounts reclassified from accumulated other comprehensive loss to income, net of tax(1)

 

 

 

 

 

(4.6

)

 

 

(4.6

)

Total other comprehensive income (loss), net of reclassifications

 

 

33.2

 

 

 

(2.9

)

 

 

30.3

 

Balance as of December 31, 2020

 

 

(178.4

)

 

 

(3.8

)

 

 

(182.2

)

Other comprehensive (loss) income before reclassifications, net of tax

 

 

(33.2

)

 

 

0.2

 

 

 

(33.0

)

Amounts reclassified from accumulated other comprehensive loss to income, net of tax(1)

 

 

 

 

 

3.4

 

 

 

3.4

 

Total other comprehensive (loss) income, net of reclassifications

 

 

(33.2

)

 

 

3.6

 

 

 

(29.6

)

Balance as of December 31, 2021

 

$

(211.6

)

 

$

(0.2

)

 

$

(211.8

)

 

(1) See Note 2, Basis of Presentation, and Note 11, Derivative Instruments and Hedging Activities, for information regarding the location within the consolidated statements of income of gains (losses) reclassified from accumulated other comprehensive loss to income during the years ended December 31, 2021, 2020, and 2019.

Other comprehensive income (loss) before reclassifications was net of tax expense of $0.2 million for foreign currency translation adjustments for the year ended December 31, 2021.

Other comprehensive income (loss) before reclassifications was net of tax benefit of $2.0 million and $0.6 million for foreign currency translation adjustments and unrealized gain (loss) on derivatives, respectively, for the year ended December 31, 2020. Amounts reclassified from accumulated other comprehensive loss to income was net of tax expense of $0.2 million for unrealized gain (loss) on derivatives for the year ended December 31, 2020.

Other comprehensive income (loss) before reclassifications was net of tax expense of $0.1 million for foreign currency translation adjustments for the year ended December 31, 2019.