10. Shareholders’ 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.

On April 28, 2014, the Company announced that its board of directors approved terminating the Company’s quarterly cash dividend and instead utilizing the cash to repurchase additional common shares as discussed below. There were no dividends declared and paid during the three and nine months ended September 30, 2015. There were no dividends declared and paid during the three months ended September 30, 2014. The aggregate amount of dividends declared and paid during the nine months ended September 30, 2014 was $30.4 million.

During the nine months ended September 30, 2014, the Company received $3.4 million of dividends primarily relating to the Forward Transactions described below which was recorded directly to its accumulated deficit. The Company did not receive any dividends during the three months ended September 30, 2014 or during the three and nine months ended September 30, 2015.

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 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. 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. As a result of the Forward Transactions, the Company’s total shareholders’ 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’ deficit. Also, upon executing the Forward Transactions, the Company recorded $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, reflecting the fair value of the Forward Transactions. These non-cash issuance costs will be amortized to interest expense over the contractual term of the Forward Transactions. For the three and nine months ended September 30, 2015, the Company recognized $1.6 million and $4.8 million, respectively, of non-cash interest expense within its condensed consolidated statement of income relating to amortization of these non-cash issuance costs, as compared to $1.6 million and $4.2 million for the same periods in 2014.

On May 6, 2014, the Company entered into an agreement with Merrill Lynch International to repurchase $266.0 million of its common shares, or the Repurchase Agreement, which expired on June 30, 2014. Under the terms of the Repurchase Agreement, the Company paid $266.0 million on May 7, 2014, and received an aggregate 4.3 million of its common shares under the Repurchase Agreement during May and June 2014. The total number of common shares repurchased under the Repurchase Agreement was determined generally upon a discounted volume-weighted average share price of the Company’s common shares over the course of the Repurchase Agreement.

During the three months ended March 31, 2014, the Company effectively repurchased approximately 9.9 million of its common shares through the Forward Transactions at an aggregate cost of approximately $685.8 million or an average cost of $69.02 per share and they are treated as retired shares for basic and diluted EPS purposes although they remain legally outstanding. During the three months ended June 30, 2014, the Company repurchased approximately 9.8 million of its common shares through open market purchases and under the Repurchase Agreement, at an aggregate cost of approximately $581.3 million or an average cost of $59.41 per share. The Company did not repurchase any common shares in the open market during the three months ended September 30, 2014.

During the three and nine months ended September 30, 2015, the Company did not repurchase any of its common shares through open market purchases. As of September 30, 2015, the remaining authorized capacity under the Company’s 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’ deficit. The Company allocated 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’ 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, 2015 and 2014:

	Changes in Accumulated Other Comprehensive
	Income (Loss) by Component
	Three Months Ended September 30,
	2015												2014
	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	$	(140.8	)	$	22.5		$	(0.1	)	$	(118.4	)	$	(25.4	)	$	2.5		$	0.2		$	(22.7	)
Other comprehensive income (loss) before reclassifications, net of tax		(37.0	)		4.5			—			(32.5	)		(39.9	)		5.7			(4.6	)		(38.8	)
Amounts reclassified from accumulated other comprehensive income (loss) to income, net of tax(1)		—			(5.4	)		—			(5.4	)		—			(1.7	)		4.4			2.7
Total other comprehensive income (loss), net of reclassifications		(37.0	)		(0.9	)		—			(37.9	)		(39.9	)		4.0			(0.2	)		(36.1	)
Ending balance	$	(177.8	)	$	21.6		$	(0.1	)	$	(156.3	)	$	(65.3	)	$	6.5		$	—		$	(58.8	)

(1)

See Note 2, Significant Accounting Policies, and 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, 2015 and 2014.

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.

Other comprehensive income (loss) before reclassifications was net of tax benefits of $0.8 million, tax expense of $0.5 million, and tax benefits of $2.5 million for foreign currency translation adjustments, unrealized gain (loss) on derivatives, and unrealized gain (loss) on available-for-sale investments, respectively, for the three months ended September 30, 2014. Amounts reclassified from accumulated other comprehensive income (loss) to income was net of tax expense of $2.4 million for unrealized gain (loss) on available-for-sale investments for the three months ended September 30, 2014.

The following table summarizes changes in accumulated other comprehensive income (loss) during the nine months ended September 30, 2015 and 2014:

	Changes in Accumulated Other Comprehensive
	Income (Loss) by Component
	Nine Months Ended September 30,
	2015												2014
	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	$	(96.4	)	$	18.0		$	0.2		$	(78.2	)	$	(25.6	)	$	5.7		$	0.1		$	(19.8	)
Other comprehensive income (loss) before reclassifications, net of tax		(81.4	)		13.6			(1.8	)		(69.6	)		(39.7	)		4.0			(6.5	)		(42.2	)
Amounts reclassified from accumulated other comprehensive income (loss) to income, net of tax(1)		—			(10.0	)		1.5			(8.5	)		—			(3.2	)		6.4			3.2
Total other comprehensive income (loss), net of reclassifications		(81.4	)		3.6			(0.3	)		(78.1	)		(39.7	)		0.8			(0.1	)		(39.0	)
Ending balance	$	(177.8	)	$	21.6		$	(0.1	)	$	(156.3	)	$	(65.3	)	$	6.5		$	—		$	(58.8	)

(1)

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.

Other comprehensive income (loss) before reclassifications was net of tax expense of $0.7 million, tax expense of $0.2 million, and tax benefits of $3.5 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, 2014. Amounts reclassified from accumulated other comprehensive income (loss) to income was net of tax expense of $3.4 million for unrealized gain (loss) on available-for-sale investments for the nine months ended September 30, 2014.