UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
Trading Symbol(s): |
Name of each exchange on which registered: |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares of registrant’s common shares outstanding as of April 25, 2023 was
TABLE OF CONTENTS
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Page No. |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
3 |
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3 |
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4 |
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Unaudited Condensed Consolidated Statements of Comprehensive Income |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
Item 3. |
49 |
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Item 4. |
53 |
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PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
56 |
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Item 2. |
56 |
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Item 3. |
56 |
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Item 4. |
56 |
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Item 5. |
56 |
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Item 6. |
56 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HERBALIFE LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, |
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December 31, |
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(in millions, except share and par value amounts) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, net of allowance for doubtful accounts |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment, at cost, net of accumulated depreciation and amortization |
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Operating lease right-of-use assets |
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Marketing-related intangibles and other intangible assets, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Royalty overrides |
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Current portion of long-term debt |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, net of current portion |
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Non-current operating lease liabilities |
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Other non-current liabilities |
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Total liabilities |
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Shareholders’ deficit: |
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Common shares, $ |
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Paid-in capital in excess of par value |
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Accumulated other comprehensive loss |
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( |
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Accumulated deficit |
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( |
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( |
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Total shareholders’ deficit |
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( |
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( |
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Total liabilities and shareholders’ deficit |
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$ |
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$ |
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See the accompanying notes to unaudited condensed consolidated financial statements.
3
HERBALIFE LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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March 31, |
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March 31, |
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(in millions, except per share amounts) |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Royalty overrides |
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Selling, general, and administrative expenses |
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Other operating income |
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Operating income |
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Interest expense, net |
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Income before income taxes |
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Income taxes |
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Net income |
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$ |
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$ |
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Earnings per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average shares outstanding: |
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Basic |
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Diluted |
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See the accompanying notes to unaudited condensed consolidated financial statements.
4
HERBALIFE LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended |
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March 31, |
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March 31, |
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(in millions) |
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Net income |
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$ |
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$ |
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Other comprehensive income: |
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Foreign currency translation adjustment, net of income taxes of $ |
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Unrealized loss on derivatives, net of income taxes of $ |
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Total other comprehensive income |
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Total comprehensive income |
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$ |
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$ |
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See the accompanying notes to unaudited condensed consolidated financial statements.
5
HERBALIFE LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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March 31, |
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March 31, |
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(in millions) |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Share-based compensation expenses |
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Non-cash interest expense |
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Deferred income taxes |
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Inventory write-downs |
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Foreign exchange transaction loss |
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Other |
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( |
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Changes in operating assets and liabilities: |
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Receivables |
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( |
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( |
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Inventories |
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( |
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Prepaid expenses and other current assets |
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Accounts payable |
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Royalty overrides |
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Other current liabilities |
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Other |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property, plant, and equipment |
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Other |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Borrowings from senior secured credit facility |
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Principal payments on senior secured credit facility and other debt |
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Debt issuance costs |
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Share repurchases |
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Other |
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Net cash used in financing activities |
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Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
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Net change in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents, and restricted cash, beginning of period |
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Cash, cash equivalents, and restricted cash, end of period |
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$ |
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$ |
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See the accompanying notes to unaudited condensed consolidated financial statements.
6
HERBALIFE LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Herbalife Ltd. (formerly Herbalife Nutrition Ltd.), a Cayman Islands exempted company with limited liability, was incorporated on April 4, 2002. On April 26, 2023, the Company officially changed its name from Herbalife Nutrition Ltd. to Herbalife Ltd. Herbalife Ltd. (and together with its subsidiaries, the “Company” or “Herbalife”) is a global nutrition company that sells weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products to and through a network of independent members, or Members. In China, the Company sells its products to and through independent service providers and sales representatives to customers and preferred customers, as well as through Company-operated retail platforms when necessary. The Company sells its products in
2. Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s, or SEC, Regulation S-X. Accordingly, as permitted by Article 10 of the SEC’s Regulation S-X, it does not include all of the information required by generally accepted accounting principles in the U.S., or U.S. GAAP, for complete financial statements. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP, as permitted by Article 10 of the SEC’s Regulation S-X. The Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 include Herbalife Ltd. and all of its direct and indirect subsidiaries. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 10-K. Operating results for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
Recently Adopted Pronouncements
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging — Portfolio Layer Method. This ASU improves hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. It expands the current last-of-layer method that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio, and to reflect that expansion, the last-of-layer method is renamed the portfolio layer method. The amendments in this update are effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company's condensed consolidated financial statements.
In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments in this update are effective for reporting periods beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for periods beginning after December 15, 2023. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company's condensed consolidated financial statements.
New Accounting Pronouncements
In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842) - Common Control Arrangements. This ASU addresses issues related to accounting for leases under common control arrangements. The standard will include an amendment to Topic 842 for all entities with leasehold improvements in common control arrangements to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group if certain criteria are met. The amendments in this update are effective for reporting periods beginning after December 15, 2023, with early adoption permitted. The adoption of this guidance will not have a material impact on the Company’s condensed consolidated financial statements.
7
Revenue Recognition
The Company’s net sales consist of product sales. In general, the Company’s performance obligation is to transfer its products to its Members. The Company generally recognizes revenue when product is delivered to its Members. For the majority of China independent service providers and for third-party importers utilized in certain other countries where sales historically have not been material, the Company recognizes revenue based on the Company’s estimate of when the service provider or third-party importer sells the products because the Company is deemed to be the principal party of these product sales due to the additional selling and operating requirements relating to pricing of products, conducting business with physical locations, and other selling and marketing activities required of the service providers and third-party importers. The Company recognizes revenue for certain China independent service providers upon delivery as such Members have pricing discretion and increased fulfillment responsibilities and accordingly were determined to be the Company’s customers for accounting purposes.
The Company’s Members, excluding its China independent service providers, may receive distributor allowances, which are comprised of discounts, rebates, and wholesale commission payments from the Company. Distributor allowances resulting from the Company’s sales of its products to its Members are recorded against net sales because the distributor allowances represent discounts from the suggested retail price.
The Company compensates its sales leader Members with royalty overrides for services rendered relating to the development, retention, and management of their sales organizations. Royalty overrides are payable based on achieved sales volume. Royalty overrides are classified as an operating expense reflecting the services provided to the Company. The Company compensates its China independent service providers and third-party importers utilized in certain other countries for providing marketing, selling, and customer support services. For China and third-party importer sales transactions, as the Company is the principal party for the majority of these product sales as described above, the majority of service fees payable to China independent service providers and the compensation received by third-party importers for the services they provide, which represents the discount provided to them, are recorded in selling, general, and administrative expenses within the Company’s condensed consolidated statements of income. In addition, for those certain China independent service providers who are deemed to be the Company’s customers for accounting purposes as described above, a portion of the service fees payable to these Members will be classified as a reduction of net sales as opposed to the entire service fee being recognized within selling, general, and administrative expenses.
The Company recognizes revenue when it delivers products to its United States Members; distributor allowances, inclusive of discounts and wholesale commissions, are recorded as a reduction to net sales; and royalty overrides are classified as an operating expense.
Shipping and handling services relating to product sales are recognized as fulfillment activities on the Company’s performance obligation to transfer products and are therefore recorded within net sales as part of product sales and are not considered as separate revenues. Shipping and handling costs paid by the Company are included in cost of sales.
The Company presents sales taxes collected from customers on a net basis.
The Company generally receives the net sales price in cash or through credit card payments at the point of sale. Accounts receivable consist principally of credit card receivables arising from the sale of products to the Company’s Members, and its collection risk is reduced due to geographic dispersion. Credit card receivables were $
The Company records advance sales deposits when payment is received but revenue has not yet been recognized. In the majority of the Company’s markets, advance sales deposits are generally recorded to income when the product is delivered to its Members. Additionally, advance sales deposits also include deferred revenues due to the timing of revenue recognition for products sold through China independent service providers. The estimated deferral period for advance sales deposits is generally within one week. During the three months ended March 31, 2023, the Company recognized substantially all of the revenues that were included within advance sales deposits as of December 31, 2022 and any remaining such balance was not material as of March 31, 2023. Advance sales deposits are included in other current liabilities on the Company’s condensed consolidated balance sheets. See Note 14, Detail of Certain Balance Sheet Accounts, for further information.
8
In general, if a Member returns product to the Company on a timely basis, they may obtain replacement product from the Company for such returned products. In addition, in general the Company maintains a buyback program pursuant to which it will repurchase products sold to a Member who has decided to leave the business. Allowances for product returns, primarily in connection with the Company’s buyback program, are provided at the time the sale is recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Allowances for product returns were $
The Company’s products are grouped in
Distributor Compensation – U.S.
In the U.S., distributor compensation, including Royalty overrides, is capped if the Company does not meet an annual requirement as described in the consent order discussed in more detail in Note 5, Contingencies. On a periodic basis, the Company evaluates if this requirement will be achieved by year end to determine if a cap on distributor compensation will be required, and then determines the appropriate amount of distributor compensation expense, which may vary in each reporting period. As of March 31, 2023, the Company believes that the cap to distributor compensation will not be applicable for the current year.
Other Operating Income
To encourage local investment and operations, governments in various China provinces conduct grant programs. The Company applied for and received several such grants in China. Government grants are recorded into income when a legal right to the grant exists, there is a reasonable assurance that the grant proceeds will be received, and the substantive conditions under which the grants were provided have been met. Generally, these substantive conditions are the Company maintaining operations and paying certain taxes in the relevant province and obtaining government approval by completing an annual application process. The Company believes the continuing obligation with respect to the funds is a general requirement that they are used only for its business in China. The Company recognized government grant income related to its regional headquarters and distribution centers within China of approximately $
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows:
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March 31, |
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December 31, |
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(in millions) |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash included in Prepaid expenses and other current assets |
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Restricted cash included in Other assets |
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Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
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$ |
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$ |
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The majority of the Company’s consolidated restricted cash is held by certain of its foreign entities and consists of cash deposits that are required due to the business operating requirements in those jurisdictions.
9
Use of Estimates
The Company continues to operate in an uncertain macroeconomic and geopolitical environment caused by high inflation, foreign exchange rate fluctuations, the war in Ukraine, lingering COVID-19 pandemic impacts and other factors. The Company is closely monitoring the evolving macroeconomic and geopolitical conditions to assess potential impacts on its business. Due to the significant uncertainty created by these circumstances, actual results could differ from Management's estimates and judgments. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current macroeconomic environment, which estimates and assumptions the Company believes to be reasonable under the circumstances. Changes in estimates resulting from continuing changes in the macroeconomic environment will be reflected in the financial statements in future periods.
3. Inventories
Inventories consist primarily of finished goods available for resale. Inventories are stated at lower of cost (primarily on the first-in, first-out basis) and net realizable value.
The following are the major classes of inventory:
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March 31, |
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December 31, |
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(in millions) |
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Raw materials |
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$ |
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$ |
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Work in process |
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Finished goods |
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Total |
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$ |
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$ |
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4. Long-Term Debt
Long-term debt consists of the following:
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March 31, |
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December 31, |
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(in millions) |
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Borrowings under senior secured credit facility, carrying value |
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$ |
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$ |
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Other |
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Total |
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Less: current portion |
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Long-term portion |
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$ |
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$ |
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Senior Secured Credit Facility
On August 16, 2018, the Company entered into a $
10
The 2018 Term Loan B was issued to the lenders at a
On December 12, 2019, the Company amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B from either the eurocurrency rate plus a margin of
On
On February 10, 2021, the Company amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B from either the eurocurrency rate plus a margin of
On July 30, 2021, the Company amended the 2018 Credit Facility which, among other things, increased borrowings under the 2018 Term Loan A from $
11
Under the 2018 Credit Facility, borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility bear interest at, depending on the Company’s total leverage ratio, either the eurocurrency rate plus a margin of between
The 2018 Credit Facility requires the Company to comply with a leverage ratio. The 2018 Credit Facility also contains affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, loans and investments, additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2018 Credit Facility contains customary events of default. As of March 31, 2023 and December 31, 2022, the Company was in compliance with its debt covenants under the 2018 Credit Facility. During April 2023, the Company amended the 2018 Credit Facility which, among other things, increased the leverage ratio covenant under both the 2018 Term Loan A and 2018 Revolving Credit Facility. In addition, the 2018 Credit Facility was also amended pursuant to the existing terms of the 2018 Credit Agreement to transition from LIBOR to the alternative benchmark rate, which is now being set as the Secured Overnight Financing Rate, or SOFR, under both the 2018 Term Loan A and 2018 Revolving Credit Facility when LIBOR is expected to be fully discontinued. The Company incurred approximately $
The 2018 Term Loan A and 2018 Term Loan B are payable in consecutive quarterly installments which began on December 31, 2018. In addition, beginning in 2020, the Company may be required to make mandatory prepayments towards the 2018 Term Loan B based on the Company’s consolidated leverage ratio and annual excess cash flows as defined under the terms of the 2018 Credit Facility. The Company is also permitted to make voluntary prepayments. Amounts outstanding under the 2018 Term Loan A and 2018 Term Loan B may be voluntarily prepaid without premium or penalty, subject to customary breakage fees in connection with the prepayment of a eurocurrency loan. These prepayments, if any, will be applied against remaining quarterly installments owed under the 2018 Term Loan A and 2018 Term Loan B in order of maturity with the remaining principal due upon maturity, unless directed otherwise by the Company. Based on the 2022 consolidated leverage ratio and excess cash flow calculation, both as defined under the terms of the 2018 Credit Facility, the Company will not be required to make a mandatory prepayment in 2023 toward the 2018 Term Loan B.
As of March 31, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was
During the three months ended March 31, 2023, the Company borrowed an aggregate amount of $
During the three months ended March 31, 2023 and 2022, the Company recognized $
12
The fair value of the outstanding borrowings on the 2018 Term Loan A are determined by utilizing over-the-counter market quotes for similar instruments, which are considered Level 2 inputs as described in Note 12, Fair Value Measurements. As of March 31, 2023 and December 31, 2022, the carrying value of the 2018 Term Loan A was $
Convertible Senior Notes due 2024
In March 2018, the Company issued $
In March 2018, prior to the adoption of ASU 2020-06 as described further below, the $
The Company incurred approximately $
As a result of adopting ASU 2020-06, on January 1, 2022, the Company increased long-term debt by approximately $
13
In December 2022, the Company issued $
As of March 31, 2023, the remaining outstanding principal on the 2024 Convertible Notes was $
During the three months ended March 31, 2023 and 2022, the Company recognized $
Convertible Senior Notes due 2028
In December 2022, the Company issued $
The Company incurred approximately $
14
As of March 31, 2023, the outstanding principal on the 2028 Convertible Notes was $
During the three months ended March 31, 2023, the Company recognized $
Senior Notes due 2025
In May 2020, the Company issued $
The Company may redeem all or part of the 2025 Notes at the following redemption prices, expressed as percentages of principal amount, plus accrued and unpaid interest thereon to the redemption date, if redeemed during the twelve-month period beginning on September 1 of the years indicated below:
|
|
Percentage |
|
|
2022 |
|
|
% |
|
2023 |
|
|
% |
|
2024 and thereafter |
|
|
% |
|
The 2025 Notes contain customary negative covenants, including, among other things, limitations or prohibitions on restricted payments, incurrence of additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2025 Notes contain customary events of default.
The Company incurred approximately $
As of March 31, 2023, the outstanding principal on the 2025 Notes was $
During the three months ended March 31, 2023 and 2022, the Company recognized $
Senior Notes due 2029
In May 2021, the Company issued $
15
At any time prior to June 1, 2024, the Company may redeem all or part of the 2029 Notes at a redemption price equal to
|
|
Percentage |
|
|
2024 |
|
|
% |
|
2025 |
|
|
% |
|
2026 and thereafter |
|
|
% |
|
The 2029 Notes contain customary negative covenants, including, among other things, limitations or prohibitions on restricted payments, incurrence of additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2029 Notes contain customary events of default.
The Company incurred approximately $
As of March 31, 2023, the outstanding principal on the 2029 Notes was $
During the three months ended March 31, 2023 and 2022, the Company recognized $
Total Debt
The Company’s total interest expense was $
As of March 31, 2023, annual scheduled principal payments of debt were as follows:
|
|
Principal Payments |
|
|
|
|
(in millions) |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Certain vendors and government agencies may require letters of credit or similar guaranteeing arrangements to be issued or executed. As of March 31, 2023, the Company had $
5. Contingencies
The Company is from time to time engaged in routine litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters when a probable loss estimate can be made.
16
The matters described in this Note may take several years to resolve. While the Company believes it has meritorious defenses, it cannot be sure of their ultimate resolution. Although the Company may reserve amounts for certain matters that the Company believes represent the most likely outcome of the resolution of these related disputes, if the Company is incorrect in its assessment, the Company may have to record additional expenses, when it becomes probable that an increased potential liability is warranted.
Tax Matters
The Mexican Tax Administration Service has delayed processing value-added tax, or VAT, refunds for companies operating in Mexico and the Company believes that the process for its Mexico subsidiary to receive VAT refunds may be delayed. As of March 31, 2023, the Company had $
In addition, the Mexican Tax Administration Service is auditing the Company’s various tax filings for the 2019 year and after completing its initial examination, the Tax Administration Service is now discussing its preliminary findings with the Company. Those findings primarily concern which VAT rate is applicable to certain of the Company’s products. It is possible that the Company could receive an assessment from the Tax Administration Service after these discussions are completed. The Company believes that it has meritorious defenses if an assessment is issued by the Tax Administration Service and does not believe a loss is currently probable. The Company is currently unable to reasonably estimate the amount of loss that may result from an unfavorable outcome if a formal assessment is issued by the Tax Administration Service.
The Company has received tax assessments for multiple years from the Federal Revenue Office of Brazil related to withholding/contributions based on payments to the Company’s Members. In February 2022, the Company received a mixed verdict related to the 2004 tax assessment which reduced the exposure to the Company. The aggregate combined amount of all these assessments is equivalent to approximately $
The Company is under examination in several Brazilian states related to ICMS and ICMS-ST taxation. Some of these examinations have resulted in assessments for underpaid tax that the Company has appealed. The State of São Paulo has audited the Company for the 2013 and 2014 tax years. During July 2016, for the State of São Paulo, the Company received an assessment in the aggregate amount of approximately $
17
The Company has received various tax assessments in multiple jurisdictions in India for multiple years from the Indian VAT and Service Tax authorities in an amount equivalent to approximately $
The Korea Customs Service audited the importation activities of Herbalife Korea for the period January 2011 through May 2013. The total assessment for the audit period was approximately $
During the course of 2016, the Company received various questions from the Greek Social Security Agency and on December 29, 2016, the Greek Social Security Agency issued assessments with respect to Social Security Contributions on Member earnings for the 2006 year. For Social Security issues, the statute of limitations is open for 2012 and later years in Greece. Despite the assessment amount being immaterial, the Company could receive similar assessments covering other years. The Company continues to litigate the assessment. The Company has not recognized a loss as it does not believe a loss is probable. The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome if additional assessments for other periods were to be issued.
U.S. Federal Trade Commission Consent Order
On July 15, 2016, the Company and the Federal Trade Commission, or the FTC, entered into a proposed Stipulation to Entry of Order for Permanent Injunction and Monetary Judgment, or the Consent Order. The Consent Order was lodged with the U.S. District Court for the Central District of California on July 15, 2016 and became effective on July 25, 2016, or the Effective Date. The Consent Order resolved the FTC’s multi-year investigation of the Company.
18
Pursuant to the Consent Order, under which the Company neither admitted nor denied the FTC’s allegations (except as to the Court having jurisdiction over the matter), the Company made, through its wholly-owned subsidiary Herbalife International of America, Inc., a $
Other Matters
As a marketer of foods, dietary and nutritional supplements, and other products that are ingested by consumers or applied to their bodies, the Company has been and is currently subjected to various product liability claims. The effects of these claims to date have not been material to the Company. The Company currently maintains product liability insurance with an annual deductible of $
As previously disclosed, the SEC and the Department of Justice, or DOJ, conducted investigations into the Company’s compliance with the Foreign Corrupt Practices Act, or FCPA, in China. Also, as previously disclosed, the Company conducted its own review and implemented remedial and improvement measures based upon this review, including replacement of certain employees and enhancements of Company policies and procedures in China. The Company cooperated with the SEC and the DOJ and has now reached separate resolutions with each of them.
On August 28, 2020, the SEC accepted the Offer of Settlement and issued an administrative order finding that the Company violated the books and records and internal controls provisions of the FCPA. In addition, on August 28, 2020, the Company and the DOJ separately entered into a court-approved deferred prosecution agreement, or DPA, under which the DOJ deferred criminal prosecution of the Company for a period of three years related to a conspiracy to violate the books and records provisions of the FCPA. Among other things, the Company is required to undertake compliance self-reporting obligations for the
On September 18, 2017, the Company and certain of its subsidiaries and Members were named as defendants in a purported class action lawsuit, titled Rodgers, et al. v Herbalife Ltd., et al. and filed in the U.S. District Court for the Southern District of Florida, which alleges violations of Florida’s Deceptive and Unfair Trade Practices statute and federal Racketeer Influenced and Corrupt Organizations statutes, unjust enrichment, and negligent misrepresentation. On August 23, 2018, the U.S. District Court for the Southern District of Florida issued an order transferring the action to the U.S. District Court for the Central District of California as to
19
On January 17, 2022, the Company filed a lawsuit, titled Herbalife International of America, Inc. vs. Eastern Computer Exchange, Inc., against a former technology services vendor in the U.S. District Court for the Central District of California. The Company alleges claims of breach of contract, breach of fiduciary duty, fraudulent concealment, conversion, and declaratory relief related to the defendant’s request for payment for technology services and products that the company never authorized. The defendant asserted numerous counterclaims against the Company. On December 28, 2022, the Court partially granted a motion to dismiss counterclaims, leaving only breach of contract, promissory estoppel, and declaratory relief counterclaims. The Company believes the defendant’s counterclaims are without merit and will vigorously defend itself while pursuing relief for its own claims. The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome and does not believe a loss is probable.
6. Segment Information
The Company is a nutrition company that sells a wide range of weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products. The Company’s products are manufactured by the Company in its Changsha, Hunan, China extraction facility; Suzhou, China facility; Nanjing, China facility; Lake Forest, California facility; and Winston-Salem, North Carolina facility, as well as by third-party providers, and then are sold to Members who consume and sell Herbalife products to retail consumers or other Members. Revenues reflect sales of products by the Company to its Members and are categorized based on geographic location.
The Company sells products in
Operating information for the
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(in millions) |
|
|||||
Net sales: |
|
|
|
|
|
|
||
Primary Reporting Segment |
|
$ |
|
|
$ |
|
||
China |
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
||
Contribution margin(1): |
|
|
|
|
|
|
||
Primary Reporting Segment |
|
$ |
|
|
$ |
|
||
China |
|
|
|
|
|
|
||
Total contribution margin |
|
$ |
|
|
$ |
|
||
Selling, general, and administrative expenses(1) |
|
|
|
|
|
|
||
Other operating income |
|
|
( |
) |
|
|
( |
) |
Interest expense, net |
|
|
|
|
|
|
||
Income before income taxes |
|
|
|
|
|
|
||
Income taxes |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
20
The following table sets forth net sales by geographic area:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(in millions) |
|
|||||
Net sales: |
|
|
|
|
|
|
||
United States |
|
$ |
|
|
$ |
|
||
India |
|
|
|
|
|
|
||
Mexico |
|
|
|
|
|
|
||
China |
|
|
|
|
|
|
||
Others |
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
||
7. Share-Based Compensation
The Company has share-based compensation plans, which are more fully described in Note 9, Share-Based Compensation, to the Consolidated Financial Statements included in the 2022 10-K. During the three months ended March 31, 2023, the Company granted restricted stock units subject to service conditions and stock appreciation rights, or SARs, subject to service conditions.
Share-based compensation expense amounted to $
The following table summarizes the activity for all SARs under the Company’s share-based compensation plans for the three months ended March 31, 2023:
|
|
Number of Awards |
|
|
Weighted-Average Exercise Price Per Award |
|
|
Weighted-Average Remaining Contractual Term |
|
Aggregate Intrinsic Value(1) |
|
|||
|
|
(in thousands) |
|
|
|
|
|
|
|
(in millions) |
|
|||
Outstanding as of December 31, 2022(2) |
|
|
|
|
$ |
|
|
|
$ |
|
||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|||
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
||
Forfeited(3) |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
||
Outstanding as of March 31, 2023(2) |
|
|
|
|
$ |
|
|
|
$ |
|
||||
Exercisable as of March 31, 2023(4) |
|
|
|
|
$ |
|
|
|
$ |
|
||||
Vested and expected to vest as of March 31, 2023(4) |
|
|
|
|
$ |
|
|
|
$ |
|
||||
The weighted-average grant date fair value of SARs granted during the three months ended March 31, 2023 was $
21
The following table summarizes the activities for all restricted stock units under the Company’s share-based compensation plans for the three months ended March 31, 2023:
|
|
Number of Shares |
|
|
Weighted-Average Grant Date Fair Value Per Share |
|
||
|
|
(in thousands) |
|
|
|
|
||
Outstanding and nonvested as of December 31, 2022(1) |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Outstanding and nonvested as of March 31, 2023(1) |
|
|
|
|
$ |
|
||
Expected to vest as of March 31, 2023(2) |
|
|
|
|
$ |
|
||
The total vesting date fair value of restricted stock units which vested during the three months ended March 31, 2023 and 2022 was $
8. Income Taxes
Income taxes were $
As of March 31, 2023, the total amount of unrecognized tax benefits, including related interest and penalties, was $
The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately $
9. Derivative Instruments and Hedging Activities
Interest Rate Risk Management
The Company engaged in an interest rate hedging strategy for which the hedged transactions were forecasted interest payments on the Company’s 2018 Credit Facility, which are based on variable rates.
During the first quarter of 2020, the Company entered into various interest rate swap agreements with effective dates ranging between
22
Foreign Currency Instruments
The Company designates certain foreign currency derivatives, primarily comprised of foreign currency forward contracts and option contracts, as freestanding derivatives for which hedge accounting does not apply. The changes in the fair market value of these freestanding derivatives are included in selling, general, and administrative expenses within the Company’s condensed consolidated statements of income. The Company primarily uses freestanding foreign currency derivatives to hedge foreign currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The fair value of the freestanding foreign currency derivatives is based on third-party quotes. The Company’s foreign currency derivative contracts are generally executed on a monthly basis.
The Company designates as cash flow hedges those foreign currency forward contracts it enters into to hedge forecasted inventory purchases and intercompany management fees that are subject to foreign currency exposures. Forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in cost of sales within the Company’s condensed consolidated statement of income during the period which approximates the time the hedged inventory is sold. The Company also hedges forecasted intercompany management fees over specific months. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in selling, general, and administrative expenses within the Company’s condensed consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. The Company has elected to record changes in the fair value of amounts excluded from the assessment of effectiveness currently in earnings.
As of March 31, 2023 and December 31, 2022, the aggregate notional amounts of all foreign currency contracts outstanding designated as cash flow hedges were approximately $
As of both March 31, 2023 and December 31, 2022, the majority of the Company’s outstanding foreign currency forward contracts had maturity dates of less than
The following tables summarize the derivative activity during the three months ended March 31, 2023 and 2022 relating to all the Company’s derivatives.
Gains and Losses on Derivative Instruments
The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive income (loss) during the three months ended March 31, 2023 and 2022:
|
|
Amount of (Loss) Gain Recognized in Other Comprehensive Income |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(in millions) |
|
|||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
||
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
|
$ |
( |
) |
|
$ |
( |
) |
Interest rate swaps |
|
|
|
|
|
|
||
As of March 31, 2023, the estimated amount of existing net losses related to cash flow hedges recorded in accumulated other comprehensive loss that are expected to be reclassified into earnings over the next twelve months was $
23
The effect of cash flow hedging relationships on the Company’s condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 was as follows:
|
|
Location and Amount of (Loss) Gain Recognized in Income on Cash Flow Hedging Relationships |
|
|||||||||||||||||||||
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
March 31, |
|
|
March 31, |
|
||||||||||||||||||
|
|
Cost of sales |
|
|
Selling, general, and administrative expenses |
|
|
Interest expense, net |
|
|
Cost of sales |
|
|
Selling, general, and administrative expenses |
|
|
Interest expense, net |
|
||||||
|
|
(in millions) |
|
|||||||||||||||||||||
Total amounts presented in the condensed consolidated statements of income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign exchange currency contracts relating to inventory hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amount of loss reclassified from accumulated other comprehensive loss to income |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Amount of loss excluded from assessment of effectiveness recognized in income |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign exchange currency contracts relating to intercompany management fee hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amount of gain (loss) reclassified from accumulated other comprehensive loss to income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Amount of gain excluded from assessment of effectiveness recognized in income |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amount of gain (loss) reclassified from accumulated other comprehensive loss to income |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|||
Amount of gain excluded from assessment of effectiveness recognized in income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
The following table summarizes gains (losses) recorded to income relating to derivative instruments not designated as hedging instruments during the three months ended March 31, 2023 and 2022:
|
|
Amount of Loss Recognized in Income |
|
|
|
|||||
|
|
Three Months Ended |
|
|
|
|||||
|
|
March 31, |
|
|
March 31, |
|
|
Location of Loss Recognized in Income |
||
|
|
(in millions) |
|
|
|
|||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
|
$ |
( |
) |
|
$ |
( |
) |
|
Selling, general, and administrative expenses |
|
The Company reports its derivatives at fair value as either assets or liabilities within its condensed consolidated balance sheets. See Note 12, Fair Value Measurements, for information on derivative fair values and their condensed consolidated balance sheets location as of March 31, 2023 and December 31, 2022.
24
10. Shareholders’ Deficit
Changes in shareholders’ deficit for the three months ended March 31, 2023 and 2022 were as follows:
|
|
Three Months Ended March 31, 2023 |
|
|||||||||||||||||
|
|
Common Shares |
|
|
Paid-in Capital in Excess of Par Value |
|
|
Accumulated Other Comprehensive Loss |
|
|
Accumulated Deficit |
|
|
Total Shareholders’ Deficit |
|
|||||
|
|
(in millions) |
|
|||||||||||||||||
Balance as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Additional capital from share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Repurchases of |
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Foreign currency translation adjustment, net of income taxes of $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Unrealized loss on derivatives, net of income taxes of $ |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Balance as of March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
Three Months Ended March 31, 2022 |
|
|||||||||||||||||||||
|
|
Common Shares |
|
|
Treasury Stock |
|
|
Paid-in Capital in Excess of Par Value |
|
|
Accumulated Other Comprehensive Loss |
|
|
Accumulated Deficit |
|
|
Total Shareholders’ Deficit |
|
||||||
|
|
(in millions) |
|
|||||||||||||||||||||
Balance as of December 31, 2021 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Additional capital from share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Repurchases of |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign currency translation adjustment, net of income taxes of $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unrealized loss on derivatives, net of income taxes of $ |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Cumulative effect of accounting change relating to adoption of ASU 2020-06 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||
Balance as of March 31, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
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 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.
25
Share Repurchases
On February 9, 2021, the Company’s board of directors authorized a new three-year $
During the three months ended March 31, 2023, the Company did
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 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. During the three months ended March 31, 2023 and 2022, 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 condensed consolidated balance sheets.
For the three months ended March 31, 2023 and 2022, the Company’s share repurchases, inclusive of transaction costs, were zero and $
Accumulated Other Comprehensive Loss
The following table summarizes changes in accumulated other comprehensive loss by component during the three months ended March 31, 2023 and 2022:
|
|
Changes in Accumulated Other Comprehensive Loss by Component |
|
|||||||||||||||||||||
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
March 31, |
|
|
March 31, |
|
||||||||||||||||||
|
|
Foreign Currency Translation Adjustments |
|
|
Unrealized Loss on Derivatives |
|
|
Total |
|
|
Foreign Currency Translation Adjustments |
|
|
Unrealized Loss on Derivatives |
|
|
Total |
|
||||||
|
|
(in millions) |
|
|||||||||||||||||||||
Beginning balance |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) before reclassifications, net of tax |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Amounts reclassified from accumulated other comprehensive loss to income, net of tax(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total other comprehensive income (loss), net of reclassifications |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Ending balance |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
26
11. Earnings Per Share
Basic earnings per share represents net income divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share represents net income divided by the weighted-average number of common shares outstanding, inclusive of the effect of dilutive securities, such as outstanding SARs, restricted stock units, and convertible notes.
The following are the common share amounts used to compute the basic and diluted earnings per share for each period:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(in millions) |
|
|||||
Weighted-average shares used in basic computations |
|
|
|
|
|
|
||
Dilutive effect of exercise of equity grants outstanding |
|
|
|
|
|
|
||
Dilutive effect of 2028 Convertible Notes |
|
|
|
|
|
|
||
Weighted-average shares used in diluted computations |
|
|
|
|
|
|
||
There were an aggregate of
For the 2024 Convertible Notes, the Company is required to settle the principal amount in cash and has the option to settle the conversion feature for the amount above the conversion price, or the conversion spread, in common shares or cash. The Company uses the if-converted stock method for calculating any potential dilutive effect of the conversion spread on diluted earnings per share, if applicable. The conversion spread will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common shares for a given period exceeds the conversion price of the 2024 Convertible Notes. For the three months ended March 31, 2023 and 2022, the 2024 Convertible Notes have been excluded from the computation of diluted earnings per share, as the effect would be anti-dilutive since the conversion price of the 2024 Convertible Notes exceeded the average market price of the Company’s common shares for the three months ended March 31, 2023 and 2022. The initial conversion rate and conversion price for the 2024 Convertible Notes are described further in Note 4, Long-Term Debt.
For the 2028 Convertible Notes, the Company is required to settle the principal amount in cash and has the option to settle the conversion feature for the amount above the conversion price, or the conversion spread, in cash or common shares and cash. The Company uses the if-converted method for calculating any potential dilutive effect of the conversion spread on diluted earnings per share, if applicable. The conversion spread will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common shares for a given period exceeds the conversion price of the 2028 Convertible Notes. The dilutive impact for the three months ended March 31, 2023 is
12. Fair Value Measurements
The Company applies the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, for its financial and non-financial assets and liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 inputs are unobservable inputs for the asset or liability.
27
The Company measures certain assets and liabilities at fair value as discussed throughout the notes to its condensed consolidated financial statements. Foreign exchange currency contracts and interest rate swaps are valued using standard calculations and models. Foreign exchange currency contracts are valued primarily based on inputs such as observable forward rates, spot rates, and foreign currency exchange rates at the reporting period ended date. Interest rate swaps were valued primarily based on inputs such as LIBOR and swap yield curves at the reporting period ended date.
|
|
Significant Other Observable Inputs (Level 2) Fair Value as of March 31, |
|
|
Significant Other Observable Inputs (Level 2) Fair Value as of December 31, |
|
|
Balance Sheet Location |
||
|
|
(in millions) |
|
|
|
|||||
ASSETS: |
|
|
|
|
|
|
|
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
|
$ |
|
|
$ |
|
|
Prepaid expenses and other current assets |
||
Interest rate swaps |
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Foreign exchange currency contracts |
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
||
|
|
$ |
|
|
$ |
|
|
|
||
LIABILITIES: |
|
|
|
|
|
|
|
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
|
$ |
|
|
$ |
|
|
Other current liabilities |
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
||
Foreign exchange currency contracts |
|
|
|
|
|
|
|
Other current liabilities |
||
|
|
$ |
|
|
$ |
|
|
|
||
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised of money market funds and foreign and domestic bank accounts. These cash and cash equivalents are valued based on Level 1 inputs which consist of quoted prices in active markets. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.
The Company’s deferred compensation plan assets consist of Company-owned life insurance policies. As these policies are recorded at their cash surrender value, they are not required to be included in the fair value table above. See Note 6, Employee Compensation Plans, to the Consolidated Financial Statements included in the 2022 10-K for a further description of the Company’s deferred compensation plan assets.
28
The following tables summarize the offsetting of the fair values of the Company’s derivative assets and derivative liabilities for presentation in the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:
|
|
Offsetting of Derivative Assets |
|
|||||||||
|
|
Gross Amounts of Recognized Assets |
|
|
Gross Amounts Offset in the Balance Sheet |
|
|
Net Amounts of Assets Presented in the Balance Sheet |
|
|||
|
|
(in millions) |
|
|||||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange currency contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange currency contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
Offsetting of Derivative Liabilities |
|
|||||||||
|
|
Gross Amounts of Recognized Liabilities |
|
|
Gross Amounts Offset in the Balance Sheet |
|
|
Net Amounts of Liabilities Presented in the Balance Sheet |
|
|||
|
|
(in millions) |
|
|||||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange currency contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange currency contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The Company offsets all of its derivative assets and derivative liabilities in its condensed consolidated balance sheets to the extent it maintains master netting arrangements with related financial institutions. As of March 31, 2023 and December 31, 2022, all of the Company’s derivatives were subject to master netting arrangements and no collateralization was required for the Company’s derivative assets and derivative liabilities.
13. Transformation Program
In 2021, the Company initiated a global transformation program to optimize global processes for future growth, or the Transformation Program. The Transformation Program involves the investment in certain new technologies and the realignment of infrastructure and the locations of certain functions to better support distributors and customers. The Company has incurred total pre-tax expenses of approximately $
Costs related to the Transformation Program were as follows:
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
March 31, |
|
|
March 31, |
|
|
|
Cumulative costs incurred to date as of March 31, 2023 |
|
|||
|
|
(in millions) |
|
|
|
||||||||
Professional fees |
|
$ |
|
|
$ |
|
|
|
$ |
|
|||
Retention and separation |
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
|
$ |
|
|||
29
Changes in the liabilities related to the Transformation Program, which were recognized in other current liabilities within the Company’s condensed consolidated balance sheets, were as follows:
|
|
Professional Fees |
|
|
Retention and Separation |
|
|
Other |
|
|
Total |
|
||||
|
|
(in millions) |
|
|||||||||||||
Balance as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Non-cash items and other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
14. Detail of Certain Balance Sheet Accounts
Other Assets
The Other assets on the Company’s accompanying condensed consolidated balance sheets included deferred compensation plan assets of $
Other Current Liabilities
Other current liabilities consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
(in millions) |
|
|||||
Accrued compensation |
|
$ |
|
|
$ |
|
||
Accrued service fees to China independent service providers |
|
|
|
|
|
|
||
Accrued advertising, events, and promotion expenses |
|
|
|
|
|
|
||
Current operating lease liabilities |
|
|
|
|
|
|
||
Advance sales deposits |
|
|
|
|
|
|
||
Income taxes payable |
|
|
|
|
|
|
||
Other accrued liabilities |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Other Non-Current Liabilities
The Other non-current liabilities on the Company’s accompanying condensed consolidated balance sheets included deferred compensation plan liabilities of $
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with other information, including our condensed consolidated financial statements and related notes included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, and Part I, Item 1A, Risk Factors, and our consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 10-K. Unless the context otherwise requires, all references herein to the “Company,” “we,” “us” or “our,” or similar terms, refer to Herbalife Ltd., a Cayman Islands exempted company with limited liability, and its consolidated subsidiaries.
Overview
We are a global nutrition company that sells weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products to and through independent members, or Members. In China, we sell our products to and through independent service providers and sales representatives to customers and preferred customers, as well as through Company-operated retail platforms when necessary. We refer to Members that distribute our products and achieve certain qualification requirements as “sales leaders.”
We provide high-quality, science-backed products to Members and their customers who seek a healthy lifestyle and we also offer a business opportunity to those Members who seek additional income. We believe enhanced consumer awareness and demand for our products due to global trends such as the obesity epidemic, increasing interest in a fit and active lifestyle, living healthier, and the rise of entrepreneurship, coupled with the effectiveness of personalized selling through a direct sales channel, have been the primary reasons for our continued success.
Our products are grouped in four principal categories: weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition, along with literature, promotional, and other items. Our products are often sold through a series of related products and literature designed to simplify weight management and nutrition for consumers and maximize our Members’ cross-selling opportunities.
While we continue to monitor the current global financial environment, including the impacts of the inflation and COVID-19 pandemic, we remain focused on the opportunities and challenges in retailing our products and enhancing the customer experience, sponsoring and retaining Members, improving Member productivity, further penetrating existing markets, globalizing successful Daily Methods of Operation, or DMOs, such as Nutrition Clubs, Fit Clubs, and Weight Loss Challenges, introducing new products and globalizing existing products, developing niche market segments and further investing in our infrastructure.
We sell our products in five geographic regions:
Our Company was previously organized and managed by six geographic regions: North America, Mexico, South and Central America, EMEA, Asia Pacific, and China. In order to simplify the understanding of our performance and ongoing trends of the business and align with our organizational structure, in the third quarter of 2022 we combined our Mexico geographic region with our South and Central America region, into one geographic region now named Latin America; therefore, we currently have five geographic regions as opposed to six geographic regions. When applicable, historical information presented in this Management's Discussion and Analysis of Financial Condition and Results of Operations relating to our geographic regions has been reclassified to conform with the current period geographic presentation.
On July 15, 2016, we reached a settlement with the U.S. Federal Trade Commission, or FTC, and entered into the Consent Order, which resolved the FTC’s multi-year investigation of the Company. We continue to monitor the impact of the Consent Order and our Audit Committee assists our board of directors in overseeing continued compliance with the Consent Order. While we currently do not expect the settlement to have a long-term and materially adverse impact on our business and our Member base, our business and our Member base, particularly in the U.S., may be negatively impacted. The terms of the Consent Order do not change our going to market through direct selling by independent distributors, and compensating those distributors based upon the product they and their sales organization sell. See Part I, Item 1A, Risk Factors, of the 2022 10-K for a discussion of risks related to the settlement with the FTC.
31
Certain Factors Impacting Results
Global inflationary pressures, other macroeconomic factors such as foreign exchange rate fluctuations and geopolitical conflicts can also impact our financial condition, results of operations and liquidity. Many regions are seeing significant inflation, which can impact both our cost structures and our pricing. Effective June 2022 we instituted a 10% price increase in most of our geographic markets across all product lines, most remaining markets instituted a similar increase effective during the third quarter of 2022. We continue to examine our cost structure and assess additional potential incremental pricing actions in response to ongoing inflationary pressures.
The war in Ukraine has also impacted our results there as well as in Russia and certain neighboring markets; we do not have any manufacturing operations in Russia and Ukraine and our combined total assets in Russia and Ukraine, which primarily consists of short-term assets, was approximately 1% of our consolidated total assets as of March 31, 2023.
The outbreak and subsequent global spread of the coronavirus disease 2019, or COVID-19, has impacted economic activity worldwide. Measures implemented by public health organizations and governmental bodies have now largely eased across most markets where we operate but have continued intermittently for certain markets and could resume more broadly as conditions evolve. Since the initial onset, our business and operations were affected by the pandemic in manners and degrees that varied by market. The most significant impacts we have seen included supply chain challenges, including increased costs in freight, labor, and certain raw materials, and constrained ability to deliver product to Members and/or have Members pick product up from our access points; restrictions or outright prohibitions on in-person training and promotional meetings and events for Members; and constrained ability of Members to have face-to-face contact with their customers, including at Nutrition Clubs. We and our Members responded to the pandemic and its impacts on our business and theirs by adapting operations and taking measures to mitigate those impacts. The most significant measures, including those that have continued even as pandemic conditions have eased, were adapting product access to the varying market-specific challenges, including shifting to more home product delivery from Member pick-up; shifting to online or phone orders only from in-person ordering; enhancing our training and promotion of technological tools offered to support Members’ online operations; and Members continuing to or increasing the ways they leverage the Internet and social media for customer contact.
Given the unpredictable and fluid nature of these factors, we are unable to predict the extent to which they will adversely impact our business, financial condition, and results of operations, including the impact they may have on our geographic regions and individual markets. See “Summary Financial Results” and “Sales by Geographic Region” for more specific discussion of these and other factors. See Part I, Item 1A, Risk Factors, of the 2022 10-K for a further discussion of risks related to the COVID-19 pandemic.
Volume Points by Geographic Region
A key non-financial measure we focus on is Volume Points on a Royalty Basis, or Volume Points, which is essentially our weighted-average measure of product sales volume. Volume Points, which are unaffected by exchange rates or price changes, are used by management as a proxy for sales trends because in general, excluding the impact of price changes, an increase in Volume Points in a particular geographic region or country indicates an increase in our local currency net sales while a decrease in Volume Points in a particular geographic region or country indicates a decrease in our local currency net sales. The criteria we use to determine how and when we recognize Volume Points are not identical to our revenue recognition policies under U.S. GAAP. Unlike net sales, which are generally recognized when the product is delivered and when control passes to the Member, as discussed in greater detail in Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, we recognize Volume Points when a Member pays for the order, which is generally prior to the product being delivered. Further, the periods in which Volume Points are tracked can vary slightly from the fiscal periods for which we report our results under U.S. GAAP. Therefore, there can be timing differences between the product orders for which net sales are recognized and for which Volume Points are recognized within a given period. However, historically these timing differences generally have been immaterial in the context of using changes in Volume Points as a proxy to explain volume-driven changes in net sales.
32
The specific number of Volume Points assigned to a product, which is generally consistent across all markets, is based on a Volume Point to suggested retail price ratio for similar products. If a product is available in different quantities, the various sizes will have different Volume Point values. In general, once assigned, a Volume Point value is consistent in each region and country and does not change from year to year. We use Volume Points for Member qualification and recognition purposes, as well as a proxy for sales trends, and therefore we generally keep Volume Points for a similar or like product consistent on a global basis. However, because Volume Points are a function of value rather than product type or size, they are not a reliable measure for product mix. As an example, an increase in Volume Points in a specific country or region could mean a significant increase in sales of less expensive products or a marginal increase in sales of more expensive products.
|
|
Three Months Ended |
|
|||||||||
|
|
March 31, |
|
|
March 31, |
|
|
% Change |
|
|||
|
|
(Volume Points in millions) |
|
|||||||||
North America |
|
|
314.5 |
|
|
|
403.1 |
|
|
|
(22.0 |
)% |
Latin America |
|
|
271.4 |
|
|
|
319.7 |
|
|
|
(15.1 |
)% |
EMEA |
|
|
314.3 |
|
|
|
391.7 |
|
|
|
(19.8 |
)% |
Asia Pacific |
|
|
505.2 |
|
|
|
518.5 |
|
|
|
(2.6 |
)% |
China |
|
|
48.6 |
|
|
|
66.9 |
|
|
|
(27.4 |
)% |
Worldwide |
|
|
1,454.0 |
|
|
|
1,699.9 |
|
|
|
(14.5 |
)% |
Volume Points decreased 14.5% for the three months ended March 31, 2023, after having decreased 7.0% for the same period of 2022. North America’s Volume Point decrease for the 2023 first quarter, after a lesser decrease for the prior year period, continues to reflect lower levels of new Members as, we believe, Members work to re-establish pre-pandemic face-to-face approaches for their businesses. Latin America’s greater Volume Point decreases for 2023 versus 2022 are due, we believe, to the cumulative adverse impact of difficult economic conditions including inflationary impacts on Members’ operations as well as political and social instability in certain markets. EMEA’s Volume Point decrease for 2023 after a lesser decrease for 2022 reflects lower levels of new Members as, we believe, Members work to re-establish pre-pandemic face-to-face approaches for their businesses, as well as political and economic uncertainty across much of the region. The Asia Pacific region saw a small year-over-year Volume Point decline versus growth for the 2022 period. Although the India market, the largest in the region, once again achieved growth, the growth was less than the prior year and was offset by declines elsewhere in the region, particularly Indonesia and Vietnam, due in part, we believe, to lower levels of recruiting of new Members as Members transition back to traditional face-to-face approaches from pandemic-driven virtual methods. China saw continuing significant Volume Point decreases for 2023. This trend reflects, we believe, our Members being challenged to adjust their business approaches to a confluence of factors, including changes we have made for our business and external conditions, as well as an adverse impact on first quarter volumes of a surge of COVID cases late in 2022.
Presentation
“Net sales” represent product sales to our Members, net of “distributor allowances,” and inclusive of any shipping and handling revenues, as described further below.
Our Members purchase product from us at a suggested retail price, less discounts referred to as “distributor allowance.” Each Member’s level of discount is determined by qualification based on their volume of purchases. In cases where a Member has qualified for less than the maximum discount, the remaining discount, which we also refer to as a wholesale commission, is received by their sponsoring Members. Distributor allowances may also vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances. We also offer reduced distributor allowances with respect to certain products worldwide.
For U.S. GAAP purposes, shipping and handling services relating to product sales are recognized as fulfillment activities on our performance obligation to transfer products and are therefore recorded within net sales as part of product sales and are not considered as separate revenues.
In certain geographic markets, we have introduced segmentation of our Member base into two categories: “preferred members” – who are simply consumers who wish to purchase product for their own household use, and “distributors” – who are Members who also wish to resell products or build a sales organization. Additionally, in certain markets we are simplifying our pricing by eliminating certain shipping and handling charges and recovering those costs within suggested retail price.
33
Our international operations have provided and will continue to provide a significant portion of our total net sales. As a result, total net sales will continue to be affected by fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, in addition to comparing the percent change in net sales from one period to another in U.S. dollars, we also compare the percent change in net sales from one period to another period using “net sales in local currency.” Net sales in local currency is not a U.S. GAAP financial measure. Net sales in local currency removes from net sales in U.S. dollars the impact of changes in exchange rates between the U.S. dollar and the local currencies of our foreign subsidiaries, by translating the current period net sales into U.S. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period. We believe presenting net sales in local currency is useful to investors because it allows a meaningful comparison of net sales of our foreign operations from period to period. However, net sales in local currency measures should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.
Our “gross profit” consists of net sales less “cost of sales,” which represents our manufacturing costs, the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs, including duties, tariffs, and similar expenses.
While certain Members may profit from their activities by reselling our products for amounts greater than the prices they pay us, Members that develop, retain, and manage other Members may earn additional compensation for those activities, which we refer to as “Royalty overrides.” Royalty overrides are a significant operating expense and consist of:
Royalty overrides are compensation to Members for the development, retention and improved productivity of their sales organizations and are paid to several levels of Members on each sale. Royalty overrides are compensation for services rendered to us and, as such, are recorded as an operating expense.
In China, our independent service providers are compensated for marketing, sales support, and other services instead of the distributor allowances and royalty overrides utilized in our global Marketing Plan. The majority of service fees to China independent service providers are included in selling, general, and administrative expenses.
Because of local country regulatory constraints, we may be required to modify our Member incentive plans as described above. We also pay reduced royalty overrides with respect to certain products worldwide. Consequently, the total Royalty override percentage may vary over time.
Our “contribution margins” consist of net sales less cost of sales and Royalty overrides.
“Selling, general, and administrative expenses” represent our operating expenses, which include labor and benefits, service fees to China independent service providers, sales events, professional fees, travel and entertainment, Member promotions, occupancy costs, communication costs, bank fees, depreciation and amortization, foreign exchange gains and losses, and other miscellaneous operating expenses.
Our “other operating income” consists of government grant income related to China.
Most of our sales to Members outside the United States are made in the respective local currencies. In preparing our financial statements, we translate revenues into U.S. dollars using average exchange rates. Additionally, the majority of our purchases from our suppliers generally are made in U.S. dollars. Consequently, a strengthening of the U.S. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate foreign currency losses on intercompany transactions. Foreign currency exchange rates can fluctuate significantly. From time to time, we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in Part I, Item 3, Quantitative and Qualitative Disclosures about Market Risk, of this Quarterly Report on Form 10-Q.
34
Summary Financial Results
Net sales for the three months ended March 31, 2023 was $1,252.1 million. Net sales decreased $83.7 million, or 6.3%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales decreased 2.6% for the three months ended March 31, 2023, as compared to the same period in 2022. The 6.3% decrease in net sales for the three months ended March 31, 2023 was primarily driven by a decrease in sales volume, as indicated by a 14.5% decrease in Volume Points, a 3.7% unfavorable impact of fluctuations in foreign currency exchange rates, and a 1.4% unfavorable impact of country sales mix, partially offset by a 13.0% favorable impact of price increases.
Net income was $29.3 million, or $0.29 per diluted share, for the three months ended March 31, 2023. Net income decreased $68.9 million, or 70.2%, for the three months ended March 31, 2023 as compared to the same period in 2022. The decrease in net income for the three months ended March 31, 2023 was mainly due to $57.4 million lower contribution margin driven by lower net sales, and $21.0 million higher selling, general, and administrative expenses; partially offset by $23.4 million lower income taxes.
Net income for the three months ended March 31, 2023 included a $27.3 million pre-tax unfavorable impact ($21.3 million post-tax) of Transformation Program expenses, primarily relating to employee retention and separation costs; and a $3.5 million pre-tax unfavorable impact ($3.3 million post-tax) of expenses relating to our new Digital Technology Program focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools.
The income tax impact of the expenses discussed above is based on forecasted items affecting our 2023 full year effective tax rate. Adjustments to forecasted items unrelated to these expenses, as well as impacts related to interim reporting, will have an effect on the income tax impact of these items in subsequent periods.
Net income for the three months ended March 31, 2022 included a $1.7 million pre-tax unfavorable impact ($1.4 million post-tax) from expenses related to the COVID-19 pandemic; and a $1.6 million pre-tax unfavorable impact ($1.4 million post-tax) of Transformation Program expenses, primarily relating to professional fees.
Results of Operations
Our results of operations for the periods below are not necessarily indicative of results of operations for future periods, which depend upon numerous factors, including our ability to sponsor Members and retain sales leaders, further penetrate existing markets, introduce new products and programs that will help our Members increase their retail efforts and develop niche market segments.
The following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
Operations: |
|
|
|
|
|
|
||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
23.8 |
|
|
|
23.0 |
|
Gross profit |
|
|
76.2 |
|
|
|
77.0 |
|
Royalty overrides(1) |
|
|
33.2 |
|
|
|
32.5 |
|
Selling, general, and administrative expenses(1) |
|
|
38.1 |
|
|
|
34.0 |
|
Other operating income |
|
|
(0.7 |
) |
|
|
(1.0 |
) |
Operating income |
|
|
5.6 |
|
|
|
11.5 |
|
Interest expense, net |
|
|
3.1 |
|
|
|
2.3 |
|
Income before income taxes |
|
|
2.5 |
|
|
|
9.2 |
|
Income taxes |
|
|
0.2 |
|
|
|
1.9 |
|
Net income |
|
|
2.3 |
% |
|
|
7.3 |
% |
35
Reporting Segment Results
We aggregate our operating segments, excluding China, into a reporting segment, or the Primary Reporting Segment. The Primary Reporting Segment includes the North America, Latin America, EMEA, and Asia Pacific regions. China has been identified as a separate reporting segment as it does not meet the criteria for aggregation. See Note 6, Segment Information, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further discussion of our reporting segments. See below for discussions of net sales and contribution margin by our reporting segments.
Net Sales by Reporting Segment
The Primary Reporting Segment reported net sales of $1,184.4 million for the three months ended March 31, 2023 representing a decrease of $45.8 million, or 3.7%, as compared to the same period in 2022. In local currency, net sales decreased 0.1% for the three months ended March 31, 2023 as compared to the same period in 2022. The 3.7% decrease in net sales for the three months ended March 31, 2023 was primarily due to a decrease in sales volume, as indicated by a 13.9% decrease in Volume Points, and a 3.6% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 13.9% favorable impact of price increases.
For a discussion of China’s net sales for the three months ended March 31, 2023, see the China section of Sales by Geographic Region below.
Contribution Margin by Reporting Segment
As discussed above under “Presentation,” contribution margin consists of net sales less cost of sales and Royalty overrides.
The Primary Reporting Segment reported contribution margin of $482.5 million, or 40.7% of net sales, for the three months ended March 31, 2023, representing a decrease of $21.9 million, or 4.3%, for the three months ended March 31, 2023, as compared to the same period in 2022. The 4.3% decrease in contribution margin for the three months ended March 31, 2023 was primarily the result of a 13.9% unfavorable impact of volume decreases, a 6.9% unfavorable impact of foreign currency fluctuations, a 4.1% unfavorable impact of cost changes related to self-manufacturing and sourcing primarily related to increased raw material and manufacturing labor costs and increased allocated overhead costs due to lower production volume, a 1.0% unfavorable impact of higher inventory write-downs, and a 1.0% unfavorable impact of sales mix, partially offset by a 23.2% favorable impact of price increases.
China reported contribution margin of $55.0 million for the three months ended March 31, 2023, representing a decrease of $35.5 million, or 39.2%, for the three months ended March 31, 2023, as compared to the same period in 2022. The 39.2% decrease in contribution margin for the three months ended March 31, 2023 was primarily the result of a 27.4% unfavorable impact of volume decreases, a 5.3% unfavorable impact of foreign currency fluctuations, a 5.0% unfavorable impact of sales mix, and a 3.7% unfavorable impact of cost changes related to self-manufacturing and sourcing primarily related to increased raw material and manufacturing labor costs and increased allocated overhead costs due to lower production volume, partially offset by 3.8% favorable impact of price increases and a 3.6% favorable impact of lower inventory write-down.
Sales by Geographic Region
Net sales by geographic region were as follows:
|
|
Three Months Ended |
|
|||||||||
|
|
March 31, |
|
|
March 31, |
|
|
% Change |
|
|||
|
|
(Dollars in millions) |
|
|||||||||
North America |
|
$ |
297.2 |
|
|
$ |
326.2 |
|
|
|
(8.9 |
)% |
Latin America |
|
|
205.5 |
|
|
|
201.3 |
|
|
|
2.1 |
% |
EMEA |
|
|
268.1 |
|
|
|
295.0 |
|
|
|
(9.1 |
)% |
Asia Pacific |
|
|
413.6 |
|
|
|
407.7 |
|
|
|
1.4 |
% |
China |
|
|
67.7 |
|
|
|
105.6 |
|
|
|
(35.9 |
)% |
Worldwide |
|
$ |
1,252.1 |
|
|
$ |
1,335.8 |
|
|
|
(6.3 |
)% |
Changes in net sales are directly associated with the retailing of our products, recruitment of new Members, and retention of sales leaders. Our strategies involve providing quality products, improved DMOs, including daily consumption approaches such as Nutrition Clubs, easier access to product, systemized training and education of Members on our products and methods, leveraging technology to make it easier for our Members to do business, and continued promotion and branding of Herbalife products.
36
Management’s role, in-country and at the region and corporate level, is to provide Members with a competitive, broad, and innovative product line, offer leading-edge business tools and technology services, and encourage strong teamwork and Member leadership to make doing business with Herbalife simple. We continue to provide our Members with enhanced technology tools for ordering, business performance, and customer retailing to make it easier for them to do business with us and to optimize their customers’ experiences. Management uses the Marketing Plan, which reflects the rules for our global network marketing organization that specify the qualification requirements and general compensation structure for Members, coupled with educational and motivational programs and promotions to encourage Members to increase retailing, retention, and recruiting, which in turn affect net sales. Such programs include sales events such as Extravaganzas, Leadership Development Weekends and World Team Schools where large groups of Members network with other Members, learn retailing, retention, and recruiting techniques from our leading Members, and become more familiar with how to market and sell our products and business opportunities. Accordingly, management believes that these development and motivation programs increase the productivity of the sales leader network. The expenses for such programs are included in selling, general, and administrative expenses. We also use event and non-event product promotions to motivate Members to increase retailing, retention, and recruiting activities. These promotions have prizes ranging from qualifying for events to product prizes and vacations. In a number of markets, we have segmented our Member base into “preferred members” and “distributors” for more targeted and efficient communication and promotions for these two differently motivated types of Members. In certain other markets that have not been segmented, we use Member data to similarly categorize Members for communication and promotion efforts.
DMOs are being generated in many of our markets and are globalized where applicable through the combined efforts of Members and country, regional and corporate management. While we support a number of different DMOs, one of the most popular DMOs is the daily consumption DMO. Under our traditional DMO, a Member typically sells to its customers on an infrequent basis (e.g., monthly) which provides fewer opportunities for interaction with their customers. Under a daily consumption DMO, a Member interacts with its customers on a more frequent basis, including such activities as weekly weigh-ins, which enables the Member to better educate and advise customers about nutrition and the proper use of the products and helps promote daily usage as well, thereby helping the Member grow his or her business. Specific examples of globalized DMOs include the Nutrition Club concept in Mexico and the Weight Loss Challenge in the United States. Management’s strategy is to review the applicability of expanding successful country initiatives throughout a region, and where appropriate, support the globalization of these initiatives.
The factors described above help Members increase their business, which in turn helps drive Volume Point growth in our business, and thus, net sales growth. The discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the three months ended March 31, 2023 as compared to the same periods in 2022, as well as the unique growth or contraction factors specific to certain geographic regions or significant markets within a region during these periods. Net sales fluctuations, both Company-wide and within a particular geographic region or market, are primarily the result of changes in volume, changes in prices, or changes in foreign currency translation rates. The discussion of changes in net sales quantifies the impact of those drivers that are quantifiable such as changes in foreign currency translation rates, and cites the estimated impact of any significant price changes. The remaining drivers, which management believes are the primary drivers of changes in volume, are typically qualitative factors whose impact cannot be quantified. We use Volume Points as an indication for changes in sales volume.
COVID-19 pandemic conditions may continue to impact our results of operations in future quarters and their comparability to prior periods, both on a consolidated basis and at the regional level. In addition, global inflationary pressures, supply chain challenges and other non-pandemic factors such as geopolitical conflict may impact both our cost structures and our pricing, with potential sales volume impact. However, given the unpredictable, unprecedented, and fluid nature of these factors, we are unable to predict the extent to which they will adversely impact our business, financial condition, and results of operations, including the impact it may have on our regions and individual markets. As described further below, effective June 2022 most of our geographic markets instituted a 10% price increase across all product lines, and certain additional markets instituted this increase effective during the third quarter of 2022 as described below. We continue to examine our cost structure and assess potential incremental pricing actions in response to ongoing inflationary pressures. See below for a more detailed discussion of the pandemic and price change impacts on net sales for the first quarter of 2023 for each geographic region and individual market.
North America
The North America region reported net sales of $297.2 million for the three months ended March 31, 2023. Net sales decreased $29.0 million, or 8.9%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales decreased 8.7% for the three months ended March 31, 2023, as compared to the same period in 2022. The 8.9% decrease in net sales for the three months ended March 31, 2023 was primarily due to a decrease in sales volume, as indicated by a 22.0% decrease in Volume Points, partially offset by a 13.6% favorable impact of price increases.
Net sales in the U.S. were $289.2 million for the three months ended March 31, 2023. Net sales decreased $27.9 million, or 8.8%, for the three months ended March 31, 2023 as compared to the same period in 2022.
37
Sales volumes declined for the 2023 first quarter versus the 2022 period. Emerging from pandemic conditions, we have seen lower levels of new Members in the region as Members work to re-establish and evolve traditional face-to-face approaches for their businesses, while also maintaining online approaches. Inflationary pressures have also challenged some areas of customer demand. We are supporting Members with increased numbers of in-person events as well as targeted communications and sales incentives. The region implemented a 3.5% price increase during March 2023 and a 10% price increase during June 2022.
Latin America
The Latin America region reported net sales of $205.5 million for the three months ended March 31, 2023. Net sales increased $4.2 million, or 2.1%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales increased 0.1% for the three months ended March 31, 2023, as compared to the same period in 2022. The 2.1% increase in net sales for the three months ended March 31, 2023 was due to a 16.1% favorable impact of price increases and a 2.0% favorable impact of fluctuations in foreign currency exchange rates, partially offset by a decrease in sales volume, as indicated by a 15.1% decrease in Volume Points.
Net sales in Mexico were $127.8 million for the three months ended March 31, 2023. Net sales increased $9.4 million, or 7.9%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales decreased 1.6% for the three months ended March 31, 2023, as compared to the same period in 2022. The fluctuation of foreign currency exchange rates had a favorable impact of $11.3 million on net sales for the three months ended March 31, 2023. A volume decline was seen for the 2023 first quarter versus the prior year period, as well as continued declines in new Members and Sales Leaders. Inflationary conditions have adversely impacted Members’ Nutrition Club operations, which are an important DMO in the market. We are supporting Members with promotions that encourage volume, even at lower levels, for newer Members. The market saw a 5% price increase during January 2023 following a 10% price increase during June 2022.
Other markets across the region also saw volume declines for the 2023 first quarter versus the 2022 period. The region has seen difficult economic conditions as well as market-specific factors including political and social instability. Members are working toward re-establishing traditional face-to-face business operations after operating more virtually during the pandemic. Inflationary pressures across the region have challenged our Members’ operations and customer demand. Prices were increased 10% or more in June 2022 for virtually all markets of the region, in addition to other market-specific price increases during the first quarter of 2023. The sales volume declines in markets other than Mexico was greatest for Chile. Efforts within the region include increasing in-person activities, supporting on a market-by-market basis the Nutrition Club DMO, utilizing segmented promotions and sales incentives, and launching new products.
EMEA
The EMEA region reported net sales of $268.1 million for the three months ended March 31, 2023. Net sales decreased $26.9 million, or 9.1%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales decreased 2.8% for the three months ended March 31, 2023, as compared to the same period in 2022. The 9.1% decrease in net sales for the three months ended March 31, 2023 was primarily due to a decrease in sales volume, as indicated by a 19.8% decrease in Volume Points, and a 6.4% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 14.3% favorable impact of price increases and a 2.3% favorable impact of sales mix. The EMEA region has no single market that accounts for a significant portion of our consolidated net sales.
Volumes declined across most EMEA markets for the 2023 first quarter as compared to the 2022 period. Emerging from pandemic restrictions, we have seen fewer new distributors and preferred customers joining our business as Members transition back to traditional face-to-face business approaches or work to adopt hybrid approaches. Economic conditions across the region, including inflation, weakened consumer confidence, and foreign exchange rate fluctuations, as well as political uncertainty in certain markets appear to be further hindering business recovery. The volume declines across the EMEA markets for the 2023 first quarter as compared to the 2022 period were led by Russia, Turkey, and Spain. Russia volumes for the 2023 first quarter have been adversely affected by geopolitical conflict in the region compared to the stronger sales volume during the first quarter of 2022. Turkey volumes were adversely impacted we believe by a deadly earthquake in February 2023 that damaged some areas of the country.
Focus areas for Herbalife and our Members in the region include branding and promotions, strengthening the Nutrition Club DMO in certain markets, improving Member and customer technological interfaces, and other promotional initiatives to incentivize sales.
38
Asia Pacific
The Asia Pacific region, which excludes China, reported net sales of $413.6 million for the three months ended March 31, 2023. Net sales increased $5.9 million, or 1.4%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales increased 8.5% for the three months ended March 31, 2023, as compared to the same period in 2022. The 1.4% increase in net sales for the three months ended March 31, 2023 was primarily due to a 12.6% favorable impact of price increases, partially offset by a decrease in sales volume, as indicated by a 2.6% decrease in Volume Points, a 7.1% unfavorable impact of fluctuations in foreign currency exchange rates and a 2.1% unfavorable impact of sales mix.
Net sales in India were $178.6 million for the three months ended March 31, 2023. Net sales increased $26.6 million, or 17.5%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales increased 28.5% for the three months ended March 31, 2023, as compared to the same period in 2022. The fluctuation of foreign currency exchange rates had an unfavorable impact of $16.7 million on net sales for the three months ended March 31, 2023. Sales volumes have increased in India in recent years as we continue to promote our brand, such as through sports sponsorships, expand our product line, increase the number of in-person events, strengthen the Preferred Customer program in the market, and make it easier for our Members to do business, such as by adding and improving product access points and payment methods. The India market implemented a 14% price increase in September 2022.
Net sales in Vietnam were $71.1 million for the three months ended March 31, 2023. Net sales decreased $2.6 million, or 3.5%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales decreased 0.1% for the three months ended March 31, 2023, as compared to the same period in 2022. The fluctuation of foreign currency exchange rates had an unfavorable impact of $2.5 million on net sales for the three months ended March 31, 2023. Vietnam saw a sales volume decrease for the 2023 first quarter versus the 2022 period, reflecting we believe the impact of inflationary pressures, combined with a January 2023 increase in the local value added tax rate. The market implemented a 3% price increase in March 2023 and a 10% price increase in July 2022. Further changes to direct-selling regulations in the market are expected to receive government approval in 2023; we continue to assess and monitor these proposed regulations and any impact they may have on our business in Vietnam.
Across most of the region’s other markets sales volume was down for the 2023 first quarter as compared to the 2022 period, most significantly for Indonesia and Malaysia. Emerging from pandemic conditions, we are seeing lower levels of recruiting of new Members for some markets as Members transition back to traditional face-to-face approaches from pandemic-driven virtual methods, and as Members’ Nutrition Club operations recover from pandemic disruption. Our efforts in the region include promotional initiatives to incentivize sales. Contributing to the Indonesia decline was comparison to a 2022 base period that included strong sales volume ahead of an April 1, 2022 price increase.
China
The China region reported net sales of $67.7 million for the three months ended March 31, 2023. Net sales decreased $37.9 million, or 35.9%, for the three months ended March 31, 2023 as compared to the same period in 2022. In local currency, net sales decreased 30.8% for the three months ended March 31, 2023, as compared to the same period in 2022. The 35.9% decrease in net sales for the three months ended March 31, 2023 was primarily due to a decrease in sales volume, as indicated by a 27.4% decrease in Volume Points, a 4.3% unfavorable impact of sales mix, and a 5.1% unfavorable impact of fluctuations in foreign currency exchange rates partially offset by a 3.3% favorable impact of price increases.
Sales volume declines of recent years for the China market continued in the first quarter of 2023 versus the 2022 period, a continuing result, we believe, of our Members being challenged to adjust their business approaches to a confluence of factors. These factors include increases we made during 2020 and 2021 to the requirements for sales representatives to be eligible to apply to be an independent service provider. In addition, the frequency and attendance of our and our Members’ in-person training and sales meetings, which are important to the business as they are a central channel for attracting and retaining customers, providing personal and professional development for our Members, and promoting our products, continue to be below pre-pandemic levels. These meeting declines were initially driven by government regulatory constraints and subsequently by the constraints of COVID pandemic conditions. Steps to adjust to these changing conditions have included some Members establishing daily consumption-oriented Nutrition Clubs such as in other regions of the world, however in the near term these efforts have diverted from traditional business approaches. Also, a surge of COVID cases late in 2022 which followed the Chinese government's unwinding of its zero-COVID policy had an adverse effect on our results, we believe, into the beginning of the first quarter of 2023.
39
Focus areas for China include enhancing our digital capabilities and offerings, such as improving the integration of our technological tools to make it easier for our Members to do business, returning to face-to-face business approaches, encouraging a customer-based approach through DMOs such as weight management challenges, and supporting Members’ establishment of daily consumption-oriented Nutrition Clubs. We have expanded our product line for the China market and continue to conduct sales promotions in the region.
Sales by Product Category
Net sales by product category were as follows:
|
|
Three Months Ended |
|
|||||||||
|
|
March 31, |
|
|
March 31, |
|
|
% Change |
|
|||
|
|
(Dollars in millions) |
|
|||||||||
Weight Management |
|
$ |
706.3 |
|
|
$ |
761.8 |
|
|
|
(7.3 |
)% |
Targeted Nutrition |
|
|
365.9 |
|
|
|
390.1 |
|
|
|
(6.2 |
)% |
Energy, Sports, and Fitness |
|
|
135.7 |
|
|
|
132.7 |
|
|
|
2.3 |
% |
Outer Nutrition |
|
|
20.8 |
|
|
|
23.0 |
|
|
|
(9.6 |
)% |
Literature, Promotional, and Other(1) |
|
|
23.4 |
|
|
|
28.2 |
|
|
|
(17.0 |
)% |
Total |
|
$ |
1,252.1 |
|
|
$ |
1,335.8 |
|
|
|
(6.3 |
)% |
Net sales for the majority of product categories decreased for the three months ended March 31, 2023 as compared to the same period in 2022. The trends and business factors described in the above discussions of the individual geographic regions apply generally to all product categories.
Gross Profit
Gross profit was $953.5 million and $1,028.7 million for the three months ended March 31, 2023 and 2022, respectively. Gross profit as a percentage of net sales was 76.2% and 77.0% for the three months ended March 31, 2023 and 2022, respectively, or an unfavorable net decrease of 86 basis points.
The decrease in gross profit as a percentage of net sales for the three months ended March 31, 2023 as compared to the same period in 2022 included unfavorable cost changes related to self-manufacturing and sourcing of 220 basis points primarily related to increased raw material and manufacturing labor costs and increased allocated overhead costs due to lower production volume; the unfavorable impact of foreign currency fluctuations of 154 basis points; unfavorable changes in sales mix of 32 basis points; the unfavorable impact of higher inventory write-downs of 27 basis points; unfavorable other cost changes of 12 basis points; and unfavorable cost changes of 8 basis points relating to increased outbound freight costs due to orders shifting toward home delivery versus Member pick-up; partially offset by the favorable impact of price increases of 367 basis points.
We expect our gross margin to continue to be negatively impacted in 2023 primarily due to increased costs related to raw materials and manufacturing labor costs.
Generally, gross profit as a percentage of net sales may vary from period to period due to the impact of foreign currency fluctuations, changes in sales mix, price increases, cost changes related to inflation, self-manufacturing and sourcing, and inventory write-downs.
Royalty Overrides
Royalty overrides were $416.0 million and $433.8 million for the three months ended March 31, 2023 and 2022, respectively. Royalty overrides as a percentage of net sales were 33.2% and 32.5% for the three months ended March 31, 2023 and 2022, respectively.
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The increase in royalty overrides as a percentage of net sales for the three months ended March 31, 2023 as compared to the same period in 2022 was primarily due to lower net sales in China as a proportion of our total worldwide net sales. The majority of service fees to our independent service providers in China are included in selling, general, and administrative expenses while Member compensation for all other countries is included in Royalty overrides.
Generally, Royalty overrides as a percentage of net sales may vary from period to period due to changes in the mix of products and countries because full royalty overrides are not paid on certain products and in certain countries.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $475.9 million and $454.9 million for the three months ended March 31, 2023 and 2022, respectively. Selling, general, and administrative expenses as a percentage of net sales were 38.1% and 34.0% for the three months ended March 31, 2023 and 2022, respectively.
The increase in selling, general, and administrative expenses for the three months ended March 31, 2023 as compared to the same period in 2022 was driven by $23.3 million in higher Member event and promotion costs, and $20.0 million in higher labor and benefits costs primarily from employee retention and separation costs related to the Transformation Program (See Note 13, Transformation Program, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further discussion), partially offset by $20.5 million in lower service fees for China independent service providers due to lower sales in China.
Other Operating Income
The $8.9 million of other operating income for the three months ended March 31, 2023 consisted of $8.9 million of government grant income for China (See Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q). The $13.1 million of other operating income for the three months ended March 31, 2022 consisted of $13.1 million of government grant income for China.
Interest Expense, Net
Interest expense, net was as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(in millions) |
|
|||||
Interest expense |
|
$ |
41.8 |
|
|
$ |
31.4 |
|
Interest income |
|
|
(2.4 |
) |
|
|
(1.7 |
) |
Interest expense, net |
|
$ |
39.4 |
|
|
$ |
29.7 |
|
The increase in interest expense, net for the three months ended March 31, 2023 as compared to the same period in 2022 was primarily due to an increase in our weighted-average interest rate.
Income Taxes
Income taxes were $1.8 million and $25.2 million for the three months ended March 31, 2023 and 2022, respectively. The effective income tax rate was 5.8% and 20.4% for the three months ended March 31, 2023 and 2022, respectively. The decrease in the effective tax rate for the three months ended March 31, 2023 as compared to the same period in 2022 was due to an increase in tax benefits from discrete events, primarily as a result of a change in unrecognized tax benefits, partially offset by changes in the geographic mix of the Company's income.
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Liquidity and Capital Resources
We have historically met our short- and long-term working capital and capital expenditure requirements, including funding for expansion of operations, through net cash flows provided by operating activities. Variations in sales of our products directly affect the availability of funds. There are no material contractual restrictions on our ability to transfer and remit funds among our international affiliated companies. However, there are foreign currency restrictions in certain countries which could reduce our ability to timely obtain U.S. dollars. Even with these restrictions and the impacts of the COVID-19 pandemic and the current inflationary environment, we believe we will have sufficient resources, including cash flow from operating activities and longer-term access to capital markets, to meet debt service obligations in a timely manner and be able to continue to meet our objectives.
Historically, our debt has not resulted from the need to fund our normal operations, but instead has resulted primarily from our share repurchase programs. Since inception in 2007, total share repurchases amounted to approximately $6.5 billion. While a significant net sales decline could potentially affect the availability of funds, many of our largest expenses are variable in nature, which we believe protects our funding in all but a dramatic net sales downturn. Our $454.2 million cash and cash equivalents as of March 31, 2023 and our senior secured credit facility, in addition to cash flow from operations, can be used to support general corporate purposes, including any future share repurchases, dividends, and strategic investment opportunities.
We have a cash pooling arrangement with a financial institution for cash management purposes. This cash pooling arrangement allows certain of our participating subsidiaries to withdraw cash from this financial institution based upon our aggregate cash deposits held by subsidiaries who participate in the cash pooling arrangement. We did not owe any amounts to this financial institution under the pooling arrangement as of March 31, 2023 and December 31, 2022.
For the three months ended March 31, 2023, we generated $46.2 million of operating cash flow as compared to $130.5 million for the same period in 2022. The decrease in our operating cash flow was the result of $61.6 million of lower net income excluding non-cash and reconciling items disclosed within our condensed consolidated statement of cash flows, and $22.7 million of unfavorable changes in operating assets and liabilities. The $61.6 million of lower net income excluding non-cash and reconciling items was primarily driven by lower contribution margin driven by lower net sales (See Summary Financial Results above for further discussion) and higher selling, general, and administrative expenses. The $22.7 million of unfavorable changes in operating assets and liabilities was primarily the result of unfavorable changes in accounts payable, and royalty overrides mainly due to the timing of payments of the Mark Hughes bonus as described below, and others primarily from unfavorable changes in unrecognized tax benefits; partially offset by favorable changes in inventories and other current liabilities primarily from favorable changes in accrued compensation. The favorable changes in accrued compensation is primarily from lower employee bonus payments in 2023.
Capital expenditures, including accrued capital expenditures, were $28.0 million and $40.3 million for the three months ended March 31, 2023 and 2022, respectively. The majority of these expenditures during the three months ended March 31, 2023 represented investments in management information systems, including initiatives to develop enhanced Member tools which includes our new Digital Technology Program. We expect to continue our investments in these areas and expect to incur total capital expenditures of approximately $175 million to $225 million for the full year of 2023 which includes our new multi-year Digital Technology Program that is focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools to provide enhanced digital capabilities and experiences to our Members. Based on our estimates, and after reallocating future expected expenditures, we expect our future capital expenditures to remain elevated during 2023, 2024, and 2025 as a result of this $400 million Digital Technology Program. The capital expenditures relating to this Digital Technology Program are separate to the Transformation Program described further below.
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In March 2023, we hosted our annual global Herbalife Honors event where sales leaders from around the world met, shared best practices, and conducted leadership training, and our management awarded Members $77.9 million of Mark Hughes bonus payments related to their 2022 performance. In April 2022, our management awarded Members $85.7 million of Mark Hughes bonus payments related to their 2021 performance.
In 2021, we initiated a global transformation program to optimize global processes for future growth, or the Transformation Program. The Transformation Program involves the investment in certain new technologies and the realignment of infrastructure and the locations of certain functions to better support distributors and customers. The Transformation Program is expected to deliver annual savings of at least $70 million with approximately half of these savings being realized in 2023 with the remainder largely being realized in 2024. We also expect to incur total pre-tax expenses of at least $60.0 million to realize these run-rate savings. We have already incurred total pre-tax expenses of approximately $52.3 million through March 31, 2023, of which $27.3 million and $1.6 million were recognized in selling, general, and administrative expenses within our condensed consolidated statements of income during the three months ended March 31, 2023 and 2022, respectively. We expect a total of $20 million to $25 million of related capital expenditures through 2024, primarily relating to technology, to support the Transformation Program. Since the Transformation Program is still ongoing and expected to be completed in 2024, these estimated amounts are preliminary and based on Management’s estimates and actual results could differ from such estimates.
Senior Secured Credit Facility
On August 16, 2018, we entered into a $1.25 billion senior secured credit facility, or the 2018 Credit Facility, consisting of a $250.0 million term loan A, or the 2018 Term Loan A, a $750.0 million term loan B, or the 2018 Term Loan B, and a $250.0 million revolving credit facility, or the 2018 Revolving Credit Facility, with a syndicate of financial institutions as lenders. The 2018 Term Loan B matures upon the earlier of: (i) August 18, 2025, or (ii) December 15, 2023 if the outstanding principal on the 2024 Convertible Notes, as defined below, exceeds $350.0 million and we exceed certain leverage ratios as of that date. As described further below, the outstanding principal on the 2024 Convertible Notes is less than $350.0 million as of March 31, 2023. All obligations under the 2018 Credit Facility are unconditionally guaranteed by certain direct and indirect wholly-owned subsidiaries of Herbalife Ltd. and secured by the equity interests of certain of Herbalife Ltd.’s subsidiaries and substantially all of the assets of the domestic loan parties. Also on August 16, 2018, we issued $400.0 million aggregate principal amount of senior unsecured notes, or the 2026 Notes as described below, and used the proceeds from the 2018 Credit Facility and the 2026 Notes to repay in full the $1,178.1 million outstanding under our prior senior secured credit facility.
On December 12, 2019, we amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B. We incurred approximately $1.2 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 470, Debt, or ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. The debt issuance costs were recognized in interest expense, net within our condensed consolidated statement of income during the fourth quarter of 2019.
On March 19, 2020, we amended the 2018 Credit Facility which, among other things, extended the maturity of both the 2018 Term Loan A and 2018 Revolving Credit Facility to the earlier of: (i) March 19, 2025 or (ii) September 15, 2023 if the outstanding principal on the 2024 Convertible Notes, as defined below, exceeds $350.0 million and we exceed certain leverage ratios as of that date (as described further below, the outstanding principal on the 2024 Convertible Notes is less than $350.0 million as of March 31, 2023); increased borrowings under the 2018 Term Loan A from $234.4 million to a total of $264.8 million; increased the total available borrowing capacity under 2018 Revolving Credit Facility from $250.0 million to $282.5 million; and reduced the interest rate for borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility. We incurred approximately $1.6 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. Of the $1.6 million of debt issuance costs, approximately $1.1 million was recorded on our condensed consolidated balance sheet and is being amortized over the life of the 2018 Credit Facility using the effective-interest method, and approximately $0.5 million was recognized in interest expense, net within our condensed consolidated statement of income during the first quarter of 2020.
On February 10, 2021, we amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B. We incurred approximately $1.1 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. The debt issuance costs were recognized in interest expense, net within our condensed consolidated statement of income during the first quarter of 2021.
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On July 30, 2021, we amended the 2018 Credit Facility which, among other things, increased borrowings under the 2018 Term Loan A from $245.0 million to a total of $286.2 million; increased the total available borrowing capacity under the 2018 Revolving Credit Facility from $282.5 million to $330.0 million; reduced the interest rate for borrowings under the 2018 Term Loan A and 2018 Revolving Credit Facility; and amended the commitment fee on the undrawn portion of the 2018 Revolving Credit Facility. As a result of the amendment, the applicable margin for the 2018 Term Loan A and 2018 Revolving Credit Facility is currently subject to certain premiums or discounts tied to criteria determined by certain sustainability targets. We incurred approximately $1.4 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. Of the $1.4 million of debt issuance costs, approximately $0.8 million was recorded on our condensed consolidated balance sheet and is being amortized over the life of the 2018 Credit Facility using the effective-interest method, and approximately $0.6 million was recognized in interest expense, net within our condensed consolidated statement of income during the third quarter of 2021.
During April 2023, we amended the 2018 Credit Facility which, among other things, increased the leverage ratio covenant under both the 2018 Term Loan A and 2018 Revolving Credit Facility. In addition, the 2018 Credit Facility was also amended pursuant to the existing terms of the 2018 Credit Agreement to transition from LIBOR to the alternative benchmark rate, which is now being set as SOFR, under both the 2018 Term Loan A and 2018 Revolving Credit Facility when LIBOR is expected to be fully discontinued. We incurred approximately $1.1 million of debt issuance costs in connection with the amendments. For accounting purposes, pursuant to ASC 470, these transactions are expected to be accounted for as modifications of the 2018 Credit Facility during the second quarter of 2023.
The 2018 Credit Facility requires us to comply with a leverage ratio. The 2018 Credit Facility also contains affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, loans and investments, additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2018 Credit Facility contains customary events of default. As of March 31, 2023 and December 31, 2022, we were in compliance with our debt covenants under the 2018 Credit Facility.
The 2018 Term Loan A and 2018 Term Loan B are payable in consecutive quarterly installments which began on December 31, 2018. Interest is due at least quarterly on amounts outstanding under the 2018 Credit Facility. In addition, beginning in 2020, we may be required to make mandatory prepayments towards the 2018 Term Loan B based on our consolidated leverage ratio and annual excess cash flows as defined under the terms of the 2018 Credit Facility. We are also permitted to make voluntary prepayments. Amounts outstanding under the 2018 Term Loan A and 2018 Term Loan B may be voluntarily prepaid without premium or penalty, subject to customary breakage fees in connection with the prepayment of a eurocurrency loan. These prepayments, if any, will be applied against remaining quarterly installments owed under the 2018 Term Loan A and 2018 Term Loan B in order of maturity with the remaining principal due upon maturity, unless directed otherwise by us. Based on the 2022 consolidated leverage ratio and excess cash flow calculation, both as defined under the terms of the 2018 Credit Facility, we will not be required to make a mandatory prepayment in 2023 toward the 2018 Term Loan B.
During the three months ended March 31, 2023, we borrowed an aggregate amount of $71.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $138.2 million on amounts outstanding under the 2018 Credit Facility, which included $131.0 million of repayments on amounts outstanding under the 2018 Revolving Credit Facility. During the three months ended March 31, 2022, we borrowed an aggregate amount of $82.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $89.2 million on amounts outstanding under the 2018 Credit Facility, which included $82.0 million of repayments on amounts outstanding under the 2018 Revolving Credit Facility. As of March 31, 2023 and December 31, 2022, the U.S. dollar amount outstanding under the 2018 Credit Facility was $908.4 million and $975.7 million, respectively. Of the $908.4 million outstanding under the 2018 Credit Facility as of March 31, 2023, $252.2 million was outstanding under the 2018 Term Loan A and $656.2 million was outstanding under the 2018 Term Loan B. There were no borrowings outstanding under the 2018 Revolving Credit Facility as of March 31, 2023. Of the $975.7 million outstanding under the 2018 Credit Facility as of December 31, 2022, $257.6 million was outstanding under the 2018 Term Loan A, $658.1 million was outstanding under the 2018 Term Loan B, and $60.0 million was outstanding under the 2018 Revolving Credit Facility. There were no outstanding foreign currency borrowings under the 2018 Credit Facility as of March 31, 2023 and December 31, 2022. As of March 31, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 6.93% and 4.08%, respectively.
See Note 4, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for a further discussion on the 2018 Credit Facility.
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Convertible Senior Notes due 2024
In March 2018, we issued $550.0 million aggregate principal amount of convertible senior notes due 2024, or the 2024 Convertible Notes. The 2024 Convertible Notes are senior unsecured obligations which rank effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2024 Convertible Notes pay interest at a rate of 2.625% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2018. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2024 Convertible Notes mature on March 15, 2024. The primary purpose of the issuance of the 2024 Convertible Notes was to repurchase a portion of the 2019 Convertible Notes.
In December 2021, we made an irrevocable election under the indenture governing the 2024 Convertible Notes to require the principal portion of the 2024 Convertible Notes to be settled in cash and any excess in shares or cash. In December 2022, we issued $277.5 million aggregate principal of new convertible senior notes due 2028 as described below, and subsequently used the proceeds, to repurchase $287.5 million of our existing 2024 Convertible Notes from a limited number of holders in privately negotiated transactions for an aggregate purchase price of $274.9 million, which included $1.7 million of accrued interest. As of March 31, 2023, the remaining outstanding principal on the 2024 Convertible Notes was $262.5 million.
See Note 4, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for a further discussion on our 2024 Convertible Notes.
Convertible Senior Notes due 2028
In December 2022, we issued $277.5 million aggregate principal amount of convertible senior notes due 2028, or the 2028 Convertible Notes. The 2028 Convertible Notes are senior unsecured obligations which rank effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2028 Convertible Notes pay interest at a rate of 4.25% per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2023. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2028 Convertible Notes mature on June 15, 2028. The primary purpose of the issuance of the 2028 Convertible Notes was to repurchase a portion of the 2024 Convertible Notes. See Note 4, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for a further discussion on our 2028 Convertible Notes.
Senior Notes due 2025
In May 2020, we issued $600.0 million aggregate principal amount of senior notes due 2025, or the 2025 Notes. The 2025 Notes are senior unsecured obligations which rank effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2025 Notes pay interest at a rate of 7.875% per annum payable semiannually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021. The 2025 Notes mature on September 1, 2025, unless redeemed or repurchased in accordance with their terms prior to such date. The primary purpose of the issuance of the 2025 Notes was for general corporate purposes, including share repurchases and other capital investment projects. See Note 4, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for a further discussion on our 2025 Notes.
Senior Notes due 2029
In May 2021, we issued $600.0 million aggregate principal amount of senior notes due 2029, or the 2029 Notes. The 2029 Notes are senior unsecured obligations which rank effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2029 Notes pay interest at a rate of 4.875% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2029 Notes mature on June 1, 2029, unless redeemed or repurchased in accordance with their terms prior to such date. The primary purpose of the issuance of the 2029 Notes was to repurchase the 2026 Notes as well as for general corporate purposes, which may include shares repurchases and other capital investment projects. See Note 4, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for a further discussion on our 2029 Notes.
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Cash and Cash Equivalents
The majority of our foreign subsidiaries designate their local currencies as their functional currencies. As of March 31, 2023, the total amount of our foreign subsidiary cash and cash equivalents was $391.3 million, of which $53.3 million was held in U.S. dollars. As of March 31, 2023, the total amount of cash and cash equivalents held by Herbalife Ltd. and its U.S. entities, inclusive of U.S. territories, was $62.9 million.
For earnings not considered to be indefinitely reinvested deferred taxes have been provided. For earnings considered to be indefinitely reinvested, deferred taxes have not been provided. Should we make a determination to remit the cash and cash equivalents from our foreign subsidiaries that are considered indefinitely reinvested to Herbalife Ltd. for the purpose of repatriation of undistributed earnings, we would need to accrue and pay taxes. As of December 31, 2022, Herbalife Ltd. had approximately $3.0 billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. As of December 31, 2022, we do not have any plans to repatriate these unremitted earnings to Herbalife Ltd.; therefore, we do not have any liquidity concerns relating to these unremitted earnings and related cash and cash equivalents. See Note 12, Income Taxes, to the Consolidated Financial Statements included in our 2022 10-K for additional discussion on our unremitted earnings.
Off-Balance Sheet Arrangements
As of March 31, 2023 and December 31, 2022, we had no material off-balance sheet arrangements.
Dividends
We have not declared or paid cash dividends since 2014. The declaration of future dividends is subject to the discretion of our board of directors and will depend upon various factors, including our earnings, financial condition, Herbalife 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 our board of directors.
Share Repurchases
On February 9, 2021, our board of directors authorized a new three-year $1.5 billion share repurchase program that will expire on February 9, 2024, which replaced our 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 us, which includes an indirect wholly-owned subsidiary of Herbalife Ltd., to repurchase our common shares at such times and prices as determined by management, as market conditions warrant, and to the extent Herbalife Ltd.’s distributable reserves are available under Cayman Islands law. The 2018 Credit Facility permits us to repurchase our 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 March 31, 2023, the remaining authorized capacity under our $1.5 billion share repurchase program was approximately $985.5 million.
During the three months ended March 31, 2023, we did not repurchase any of our common shares through open-market purchases. During the three months ended March 31, 2022, we repurchased approximately 2.6 million of our common shares through open-market purchases at an aggregate cost of approximately $101.7 million, or an average cost of $39.32 per share, and subsequently retired these shares.
See Note 10, Shareholders’ Deficit, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, for a further discussion on our share repurchases.
Working Capital and Operating Activities
As of March 31, 2023 and December 31, 2022, we had working capital of $95.0 million and $379.5 million, respectively, or a decrease of $284.5 million. The decrease was primarily due to a decrease in cash and cash equivalents, and increases in the current portion of long-term debt primarily relating to our 2024 Convertible Notes, which matures in less than one year; partially offset by an increase in prepaid expenses and other current assets.
We expect that cash and funds provided from operations, available borrowings under the 2018 Credit Facility, and longer-term access to capital markets will provide sufficient working capital to operate our business, to make expected capital expenditures, and to meet foreseeable liquidity requirements for the next twelve months and thereafter.
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The majority of our purchases from suppliers are generally made in U.S. dollars, while sales to our Members generally are made in local currencies. Consequently, strengthening of the U.S. dollar versus a foreign currency can have a negative impact on net sales and contribution margins and can generate transaction gains or losses on intercompany transactions. For discussion of our foreign exchange contracts and other hedging arrangements, see Part I, Item 3, Quantitative and Qualitative Disclosures about Market Risk, of this Quarterly Report on Form 10-Q.
Contingencies
See Note 5, Contingencies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, for information on our contingencies as of March 31, 2023.
Critical Accounting Policies and Estimates
U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. We regularly evaluate our estimates and assumptions related to revenue recognition, allowance for product returns, inventory, goodwill and purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, and other loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. Actual results could differ from those estimates. We consider the following policies to be most critical in understanding the judgments that are involved in preparing the financial statements and the uncertainties that could impact our operating results, financial condition and cash flows.
We are a nutrition company that sells a wide range of weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products. Our products are manufactured by us in our Changsha, Hunan, China extraction facility; Suzhou, China facility; Nanjing, China facility; Lake Forest, California facility; and Winston-Salem, North Carolina facility; and by third-party providers, and then are sold to Members who consume and sell Herbalife products to retail consumers or other Members. As of March 31, 2023, we sold products in 95 markets throughout the world and we are organized and managed by geographic region. We aggregate our operating segments into one reporting segment, except China, as management believes that our operating segments have similar operating characteristics and similar long-term operating performance. In making this determination, management believes that the operating segments are similar in the nature of the products sold, the product acquisition process, the types of customers to whom products are sold, the methods used to distribute the products, the nature of the regulatory environment, and their economic characteristics.
We generally recognize revenue upon delivery when control passes to the Member. Product sales are recognized net of product returns, and discounts referred to as “distributor allowances.” We generally receive the net sales price in cash or through credit card payments at the point of sale. Royalty overrides are generally recorded when revenue is recognized. See Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, for a further discussion of distributor compensation in the U.S.
Allowances for product returns, primarily in connection with our buyback program, are provided at the time the sale is recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Historically, product returns and buybacks have not been significant. Product returns and buybacks were approximately 0.1% of net sales for both the three months ended March 31, 2023 and 2022.
We adjust our inventories to lower of cost and net realizable value. Additionally we adjust the carrying value of our inventory based on assumptions regarding future demand for our products and market conditions. If future demand and market conditions are less favorable than management’s assumptions, additional inventory write-downs could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if previously written down inventories are sold. We have obsolete and slow moving inventories which have been adjusted downward $32.9 million and $31.5 million to present them at their lower of cost and net realizable value in our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.
Goodwill and marketing-related intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.
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Under the quantitative method for impairment testing of goodwill, which is done at the reporting unit level, we primarily use an income approach in order to determine the fair value of a reporting unit and compare it to its carrying amount. The determination of the fair value of the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions include estimates of future revenues and expense growth rates, capital expenditures and the depreciation and amortization related to these capital expenditures, discount rates, and other inputs. Due to the inherent uncertainty involved in making these estimates, actual future results could differ. Changes in assumptions regarding future results or other underlying assumptions could have a significant impact on the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit over its fair value. During fiscal year 2022, we performed a quantitative assessment and determined that the fair value of each reporting unit was significantly greater than its respective carrying value.
Under the quantitative method for impairment testing of our marketing-related intangible assets, we use a discounted cash flow model, or the income approach, under the relief-from-royalty method to determine the fair value of our marketing-related intangible assets in order to confirm there is no impairment required. An impairment loss is recognized to the extent that the carrying amount of the assets exceeds their fair value. During fiscal year 2022, we performed a quantitative assessment of our marketing-related intangible assets and determined that the fair value of the assets was significantly greater than their carrying value.
As of March 31, 2023 and December 31, 2022, we had goodwill of approximately $94.0 million and $93.2 million, respectively. The increase in goodwill during the three months ended March 31, 2023 was due to foreign currency translation adjustments. As of both March 31, 2023 and December 31, 2022, we had marketing-related intangible assets of approximately $310.0 million. No goodwill or marketing-related intangibles impairment was recorded during the three months ended March 31, 2023 and 2022.
Contingencies are accounted for in accordance with FASB ASC Topic 450, Contingencies, or ASC 450. ASC 450 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible as required by ASC 450. Accounting for contingencies such as legal and non-income tax matters requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Many of these legal and tax contingencies can take years to be resolved. Generally, as the time period increases over which the uncertainties are resolved, the likelihood of changes to the estimate of the ultimate outcome increases.
As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate prior to the completion and filing of tax returns for such periods. These estimates involve complex issues and require us to make judgments about the likely application of the tax law to our situation, as well as with respect to other matters, such as anticipating the positions that we will take on tax returns prior to us actually preparing the returns and the outcomes of disputes with tax authorities. The ultimate resolution of these issues may take extended periods of time due to examinations by tax authorities and statutes of limitations. In addition, changes in our business, including acquisitions, changes in our international corporate structure, changes in the geographic location of business functions or assets, changes in the geographic mix and amount of income, as well as changes in our agreements with tax authorities, valuation allowances, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and other matters, and variations in the estimated and actual level of annual pre-tax income can affect the overall effective income tax rate.
We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. Although realization is not assured, we believe it is more likely than not that the net carrying value will be realized. The amount of the carryforwards that is considered realizable, however, could change if estimates of future taxable income are adjusted. The ability to forecast income over multiple years at a jurisdictional level is subject to uncertainty especially when our assessment of valuation allowances factor in longer term income forecasts. The impact of increasing or decreasing the valuation allowance could be material to our condensed consolidated financial statements. See Note 12, Income Taxes, to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules, of the 2022 10-K for additional information on our net deferred tax assets and valuation allowances.
We account for uncertain tax positions in accordance with FASB ASC Topic 740, Income Taxes, or ASC 740, which provides guidance on the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
Our policy is to account for global intangible low-taxed income as a period cost if and when incurred.
48
We account for foreign currency transactions in accordance with FASB ASC Topic 830, Foreign Currency Matters. In a majority of the countries where we operate, the functional currency is the local currency. Our foreign subsidiaries’ asset and liability accounts are translated for condensed consolidated financial reporting purposes into U.S. dollar amounts at period-end exchange rates. Revenue and expense accounts are translated at the average rates during the year. Our foreign currency translation adjustments are included in accumulated other comprehensive loss on our accompanying condensed consolidated balance sheets. Foreign currency transaction gains and losses and foreign currency remeasurements are generally included in selling, general, and administrative expenses in the accompanying condensed consolidated statements of income.
New Accounting Pronouncements
See discussion under Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, for information on new accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates. On a selected basis, we use derivative financial instruments to manage or hedge certain of these risks. All hedging transactions are authorized and executed pursuant to written guidelines and procedures.
We apply FASB ASC Topic 815, Derivatives and Hedging, or ASC 815, which established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the underlying hedged item are recognized concurrently in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive loss and are recognized in the condensed consolidated statements of income when the hedged item affects earnings. ASC 815 defines the requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized concurrently in earnings.
A discussion of our primary market risk exposures and derivatives is presented below.
Foreign Exchange Risk
We transact business globally and are subject to risks associated with changes in foreign exchange rates. Our objective is to minimize the impact to earnings and cash flow associated with foreign exchange rate fluctuations. We enter into foreign exchange derivatives in the ordinary course of business primarily to reduce exposure to currency fluctuations attributable to intercompany transactions, translation of local currency earnings, inventory purchases subject to foreign currency exposure, and to partially mitigate the impact of foreign currency rate fluctuations. Due to volatility in foreign exchange markets, our current strategy, in general, is to hedge some of the significant exposures on a short-term basis. We will continue to monitor the foreign exchange markets and evaluate our hedging strategy accordingly. With the exception of our foreign currency forward contracts relating to forecasted inventory purchases and intercompany management fees discussed below, all of our foreign exchange contracts are designated as freestanding derivatives for which hedge accounting does not apply. The changes in the fair value of the derivatives not qualifying as cash flow hedges are included in selling, general, and administrative expenses within our condensed consolidated statements of income.
The foreign currency forward contracts and option contracts designated as freestanding derivatives are primarily used to hedge foreign currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The fair value of foreign exchange derivative contracts is based on third-party quotes. Our foreign currency derivative contracts are generally executed on a monthly basis.
49
We also purchase foreign currency forward contracts in order to hedge forecasted inventory transactions and intercompany management fees that are designated as cash flow hedges and are subject to foreign currency exposures. We applied the hedge accounting rules as required by ASC 815 for these hedges. These contracts allow us to buy and sell certain currencies at specified contract rates. As of March 31, 2023 and December 31, 2022, the aggregate notional amounts of these contracts outstanding were approximately $70.4 million and $70.6 million, respectively. As of March 31, 2023, the outstanding contracts were expected to mature over the next fifteen months. Our derivative financial instruments are recorded on the condensed consolidated balance sheets at fair value based on quoted market rates. For the forecasted inventory transactions, the forward contracts are used to hedge forecasted inventory transactions over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in cost of sales within our condensed consolidated statement of income during the period which approximates the time the hedged inventory is sold. We also hedge forecasted intercompany management fees over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in selling, general, and administrative expenses within our condensed consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. As of March 31, 2023, we recorded assets at fair value of $0.2 million and liabilities at fair value of $4.7 million relating to all outstanding foreign currency contracts designated as cash flow hedges. As of December 31, 2022, we recorded assets at fair value of $1.5 million and liabilities at fair value of $3.2 million relating to all outstanding foreign currency contracts designated as cash flow hedges. These hedges remained effective as of March 31, 2023 and December 31, 2022.
As of both March 31, 2023 and December 31, 2022, the majority of our outstanding foreign currency forward contracts had maturity dates of less than twelve months with the majority of freestanding derivatives expiring within one month.
50
The following table provides information about the details of all foreign currency forward contracts that were outstanding as of March 31, 2023:
|
|
Weighted-Average Contract Rate |
|
|
Notional Amount |
|
|
Fair Value Gain (Loss) |
|
|||
|
|
(in millions, except weighted-average contract rate) |
|
|||||||||
As of March 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Buy British pound sell Euro |
|
|
0.88 |
|
|
$ |
7.9 |
|
|
$ |
— |
|
Buy British pound sell U.S. dollar |
|
|
1.23 |
|
|
|
24.7 |
|
|
|
0.1 |
|
Buy Chinese yuan sell U.S. dollar |
|
|
6.76 |
|
|
|
67.1 |
|
|
|
(0.7 |
) |
Buy Danish krone sell U.S. dollar |
|
|
6.88 |
|
|
|
0.9 |
|
|
|
— |
|
Buy Euro sell Australian dollar |
|
|
1.62 |
|
|
|
1.1 |
|
|
|
— |
|
Buy Euro sell British pound |
|
|
0.88 |
|
|
|
21.8 |
|
|
|
— |
|
Buy Euro sell Chilean peso |
|
|
889.35 |
|
|
|
4.4 |
|
|
|
(0.1 |
) |
Buy Euro sell Chinese yuan |
|
|
7.50 |
|
|
|
1.1 |
|
|
|
— |
|
Buy Euro sell Hong Kong dollar |
|
|
8.47 |
|
|
|
5.1 |
|
|
|
— |
|
Buy Euro sell Indonesian rupiah |
|
|
16,560.00 |
|
|
|
14.5 |
|
|
|
(0.3 |
) |
Buy Euro sell Japanese yen |
|
|
142.65 |
|
|
|
1.9 |
|
|
|
— |
|
Buy Euro sell Kazakhstani tenge |
|
|
505.10 |
|
|
|
3.4 |
|
|
|
— |
|
Buy Euro sell Korean won |
|
|
1,414.96 |
|
|
|
1.1 |
|
|
|
— |
|
Buy Euro sell Malaysian ringgit |
|
|
4.80 |
|
|
|
4.5 |
|
|
|
— |
|
Buy Euro sell Mexican peso |
|
|
21.58 |
|
|
|
58.4 |
|
|
|
(4.0 |
) |
Buy Euro sell Peruvian nuevo sol |
|
|
4.10 |
|
|
|
1.7 |
|
|
|
— |
|
Buy Euro sell Taiwan dollar |
|
|
32.76 |
|
|
|
1.0 |
|
|
|
— |
|
Buy Euro sell U.S. dollar |
|
|
1.09 |
|
|
|
22.2 |
|
|
|
(0.1 |
) |
Buy Euro sell Vietnamese dong |
|
|
25,520.00 |
|
|
|
15.9 |
|
|
|
— |
|
Buy Hong Kong dollar sell U.S. dollar |
|
|
7.82 |
|
|
|
3.8 |
|
|
|
— |
|
Buy Kazakhstani tenge sell U.S. dollar |
|
|
463.25 |
|
|
|
5.4 |
|
|
|
— |
|
Buy Korean won sell U.S. dollar |
|
|
1,299.69 |
|
|
|
16.9 |
|
|
|
— |
|
Buy Mexican peso sell Euro |
|
|
19.75 |
|
|
|
5.4 |
|
|
|
— |
|
Buy Mexican peso sell U.S. dollar |
|
|
18.69 |
|
|
|
4.2 |
|
|
|
0.1 |
|
Buy Norwegian krone sell U.S. dollar |
|
|
10.48 |
|
|
|
1.8 |
|
|
|
— |
|
Buy Polish zloty sell U.S. dollar |
|
|
4.37 |
|
|
|
0.9 |
|
|
|
— |
|
Buy Romanian leu sell U.S. dollar |
|
|
4.58 |
|
|
|
1.3 |
|
|
|
— |
|
Buy Swedish krona sell U.S. dollar |
|
|
10.33 |
|
|
|
0.1 |
|
|
|
— |
|
Buy Taiwan dollar sell U.S. dollar |
|
|
30.22 |
|
|
|
13.3 |
|
|
|
(0.1 |
) |
Buy U.S. dollar sell Brazilian real |
|
|
5.32 |
|
|
|
2.5 |
|
|
|
(0.1 |
) |
Buy U.S. dollar sell British pound |
|
|
1.22 |
|
|
|
54.1 |
|
|
|
(0.9 |
) |
Buy U.S. dollar sell Chinese yuan |
|
|
6.86 |
|
|
|
50.8 |
|
|
|
(0.2 |
) |
Buy U.S. dollar sell Colombian peso |
|
|
4,810.97 |
|
|
|
2.2 |
|
|
|
— |
|
Buy U.S. dollar sell Euro |
|
|
1.07 |
|
|
|
190.8 |
|
|
|
(3.3 |
) |
Buy U.S. dollar sell Indian rupee |
|
|
83.16 |
|
|
|
3.0 |
|
|
|
— |
|
Buy U.S. dollar sell Mexican peso |
|
|
18.93 |
|
|
|
8.1 |
|
|
|
(0.4 |
) |
Buy U.S. dollar sell Philippine peso |
|
|
54.41 |
|
|
|
3.7 |
|
|
|
— |
|
Total forward contracts |
|
|
|
|
$ |
627.0 |
|
|
$ |
(10.0 |
) |
|
The majority of our foreign subsidiaries designate their local currencies as their functional currencies. See Liquidity and Capital Resources — Cash and Cash Equivalents in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q for further discussion of our foreign subsidiary cash and cash equivalents.
51
Interest Rate Risk
As of March 31, 2023, the aggregate annual maturities of the 2018 Credit Facility were expected to be $21.7 million for the remainder of 2023, $36.1 million for 2024, and $850.6 million for 2025. As of March 31, 2023, the fair values of the 2018 Term Loan A and 2018 Term Loan B were approximately $250.6 million and $652.1 million, respectively, and the carrying values were $251.6 million and $652.8 million, respectively. There were no outstanding borrowings on the 2018 Revolving Credit Facility as of March 31, 2023. As of December 31, 2022, the fair values of the 2018 Term Loan A, 2018 Term Loan B, and 2018 Revolving Credit Facility were approximately $250.0 million, $638.8 million, and $60.0 million, respectively, and the carrying values were $257.0 million, $654.3 million, and $60.0 million, respectively. The 2018 Credit Facility bears variable interest rates, and as of March 31, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 6.93% and 4.08%, respectively.
During the first quarter of 2020, we entered into various interest rate swap agreements with effective dates ranging between February 2020 and March 2020. These agreements collectively provided for us to pay interest at a weighted-average fixed rate of 0.98% on aggregate notional amounts of $100.0 million under the 2018 Credit Facility until their respective expiration dates ranging between February 2022 and March 2023, while receiving interest based on LIBOR on the same notional amounts for the same periods. At inception, these swap agreements were designated as cash flow hedges against the variability in certain LIBOR-based borrowings under the 2018 Credit Facility, effectively fixing the interest rate on such notional amounts at a weighted-average effective rate of, depending on our total leverage ratio, between 2.73% and 3.23%. These hedge relationships qualified as effective under FASB ASC Topic 815, Derivatives and Hedging, or ASC 815, and consequently all changes in the fair value of these interest rate swaps were recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and were recognized in interest expense, net within our condensed consolidated statement of income during the period when the hedged item and underlying transaction affected earnings. As of March 31, 2023 and December 31, 2022, the aggregate notional amounts of interest rate swap agreements outstanding were approximately zero and $25.0 million, respectively. The fair values of the interest rate swap agreements were based on third-party bank quotes, and as of December 31, 2022, we recorded assets at fair value of $0.3 million relating to these interest rate swap agreements.
Since our 2018 Credit Facility is based on variable interest rates, if interest rates were to increase or decrease by 1% for the year and our borrowing amounts on our 2018 Credit Facility remained constant, our annual interest expense could increase or decrease by approximately $9.1 million, respectively. The variable interest rates payable under our 2018 Credit Facility continue to be linked to LIBOR as the benchmark for establishing such rates. Recent national, international and other regulatory guidance and reform proposals regarding LIBOR required certain LIBOR tenors to be discontinued or become unavailable by the end of 2021 and are requiring LIBOR to be fully discontinued or become unavailable as a benchmark rate by June 2023. Our 2018 Credit Facility includes mechanics to facilitate the adoption by us and our lenders of an alternative benchmark rate for use in place of LIBOR which may result in interest rates that are higher or lower than those that would have resulted had LIBOR remained in effect.
As of March 31, 2023, the fair value of the 2024 Convertible Notes was approximately $249.4 million and the carrying value was $261.4 million. As of December 31, 2022, the fair value of the 2024 Convertible Notes was approximately $243.3 million and the carrying value was $261.2 million. The 2024 Convertible Notes pay interest at a fixed rate of 2.625% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2018. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2024 Convertible Notes mature on March 15, 2024.
As of March 31, 2023, the fair value of the 2028 Convertible Notes was approximately $332.0 million and the carrying value was $269.4 million. As of December 31, 2022, the fair value of the 2028 Convertible Notes was approximately $305.4 million, and the carrying value was $269.1 million. The 2028 Convertible Notes pay interest at a fixed rate of 4.25% per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2023. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2028 Convertible Notes mature on June 15, 2028.
As of March 31, 2023, the fair value of the 2025 Notes was approximately $567.8 million and the carrying value was $596.0 million. As of December 31, 2022, the fair value of the 2025 Notes was approximately $534.4 million and the carrying value was $595.6 million. The 2025 Notes pay interest at a fixed rate of 7.875% per annum payable semiannually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021. The 2025 Notes mature on September 1, 2025, unless redeemed or repurchased in accordance with their terms prior to such date. The 2025 Notes are recorded at their carrying value and their fair value is used only for disclosure purposes, so an increase or decrease in interest rates would not have any impact to our condensed consolidated financial statements; however, if interest rates were to increase or decrease by 1%, their fair value could decrease by approximately $11.9 million or increase by approximately $12.3 million, respectively.
52
As of March 31, 2023, the fair value of the 2029 Notes was approximately $459.4 million and the carrying value was $593.8 million. As of December 31, 2022, the fair value of the 2029 Notes was approximately $412.5 million and the carrying value was $593.6 million. The 2029 Notes pay interest at a fixed rate of 4.875% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2029 Notes mature on June 1, 2029, unless redeemed or repurchased in accordance with their terms prior to such date. The 2029 Notes are recorded at their carrying value and their fair value is used only for disclosure purposes, so an increase or decrease in interest rates would not have any impact to our condensed consolidated financial statements; however, if interest rates were to increase or decrease by 1%, their fair value could decrease by approximately $22.3 million or increase by approximately $23.8 million, respectively.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2023.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
53
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management, including for future operations, capital expenditures, or share repurchases; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief or expectation; and any statements of assumptions underlying any of the foregoing or other future events. Forward-looking statements may include, among other, the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate” or any other similar words.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results or outcomes could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include the following:
54
Additional factors and uncertainties that could cause actual results or outcomes to differ materially from our forward-looking statements are set forth in this Quarterly Report on Form 10-Q, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Condensed Consolidated Financial Statements and the related Notes, and in Part I, Item 1A, Risk Factors, of the 2022 10-K. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
55
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See discussion under Note 5, Contingencies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
Our business, reputation, prospects, financial condition, operating results, cash flows, liquidity, and share price can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A, Risk Factors, of the 2022 10-K. When any one or more of these risks materialize from time to time, our business, reputation, prospects, financial condition, operating results, cash flows, liquidity, and share price can be materially and adversely affected. There have been no material changes to our risk factors disclosed in the 2022 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) On February 9, 2021, our board of directors authorized a new three-year $1.5 billion share repurchase program that will expire on February 9, 2024, which replaced our 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 us, which includes an indirect wholly-owned subsidiary of Herbalife Ltd., to repurchase our common shares at such times and prices as determined by management, as market conditions warrant, and to the extent Herbalife Ltd.’s distributable reserves are available under Cayman Islands law. The 2018 Credit Facility permits us to repurchase our 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 March 31, 2023, the remaining authorized capacity under our $1.5 billion share repurchase program was approximately $985.5 million. We did not repurchase any of our common shares during the three months ended March 31, 2023.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) None.
(b) None.
Item 6. Exhibits
(a) Exhibit Index:
56
EXHIBIT INDEX
57
10.24# |
|
|
(m) |
|
10.25# |
|
|
(m) |
|
10.26# |
|
|
(n) |
|
10.27 |
|
|
(p) |
|
10.28# |
|
Retention Agreement, effective as of April 6, 2020, by and between Mark Schissel and the Company |
|
(w) |
10.29 |
|
|
(r) |
|
10.30 |
|
|
(r) |
|
10.31 |
|
|
(s) |
|
10.32 |
|
|
(v) |
|
10.33# |
|
|
(bb) |
|
10.34# |
|
|
(aa) |
|
10.35# |
|
|
(aa) |
|
10.36# |
|
|
(aa) |
|
10.37# |
|
Retention Agreement, effective as of April 6, 2020, by and between Frank Lamberti and Herbalife Ltd. |
|
* |
10.38 |
|
|
* |
|
10.39# |
|
|
* |
|
10.40# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Stock Unit Award Agreement |
|
* |
10.41# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Lead Director Stock Unit Award Agreement |
|
* |
10.42# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Board of Directors Stock Unit Award Agreement |
|
* |
10.43# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Stock Appreciation Right Award Agreement |
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* |
10.44 |
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* |
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10.45 |
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* |
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31.1 |
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* |
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31.2 |
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* |
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32.1 |
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** |
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32.2 |
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** |
58
101.INS |
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Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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* |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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* |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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* |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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* |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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* |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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* |
104 |
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Cover Page Interactive Data File – The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 is formatted in Inline XBRL (included as Exhibit 101) |
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* |
*Filed herewith.
** Furnished herewith.
# Management contract or compensatory plan or arrangement.
59
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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HERBALIFE LTD. |
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By: |
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/s/ ALEXANDER AMEZQUITA |
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Alexander Amezquita Chief Financial Officer |
Dated: May 2, 2023
61
Exhibit 3.1
THE COMPANIES LAW (2016 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM AND ARTICLES
OF
ASSOCIATION
OF
HERBALIFE LTD.
(as adopted by special resolution passed on April 24, 2018
and effective on May 7, 2018, as amended by special
resolution passed on April 29, 2020, and reflecting the
change of name of the Company effected by special
resolution passed on April 26, 2023)
THE COMPANIES LAW (2016 REVISION) OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION OF
HERBALIFE LTD.
(as adopted by special resolution passed on April 24, 2018 and effective on May 7, 2018, as amended by special resolution passed on April 29, 2020, and reflecting the change of name of the Company effected by special resolution passed on April 26, 2023)
2
AMENDED AND RESTATED ARTICLES OF ASSOCIATION TABLE OF CONTENTS
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AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION AND ALTERATION OF CAPITAL |
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RESTRICTIONS ON THE COMPANY ENGAGING IN BUSINESS COMBINATIONS |
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18 |
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3
THE COMPANIES LAW (2016 REVISION) OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED ARTICLES OF ASSOCIATION OF
HERBALIFE LTD.
(as adopted by special resolution passed on April 24, 2018 and effective on May 7, 2018, as amended by special resolution passed on April 29, 2020, and reflecting the change of name of the Company effected by special resolution passed on April 26, 2023)
INTERPRETATION
“Articles” |
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means these articles of association of the Company, as amended from time to time by Special Resolution. |
“Auditors” |
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means the persons for the time being performing the duties of auditors of the Company. |
“Board” |
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means the board of directors of the Company. |
“Common Shares” |
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has the meaning given in the Memorandum. |
“Company” |
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means the above-named company. |
“Directors” |
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means the directors for the time being of the Company. |
“dividend” |
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means any dividend (whether interim or final) declared or resolved to be paid on Shares pursuant to the Articles. |
“Dividend Period” |
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shall bear the meaning given to it in the Articles under the heading “PREFERENCE SHARES”. |
“Electronic Record” |
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has the same meaning as in the Electronic Transactions Law. |
“Electronic Transactions Law” |
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means the Electronic Transactions Law (2003 Revision) of the Cayman Islands. |
“Exchange” |
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shall mean any securities exchange or other system on which the Shares may be listed or otherwise authorised for trading from time to time. |
“Independent Director” |
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shall mean a person recognised as such by the relevant code, rules and regulations applicable to the listing of the Shares on the Exchange. |
“Member” |
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has the same meaning as in the Statute. |
“Memorandum” |
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means the memorandum of association of the Company as amended from time to time by Special Resolution. |
“month” |
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means calendar month. |
“Ordinary Resolution” |
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means a resolution passed by a simple majority of the Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting. In computing the majority when a poll is demanded regard shall be had to the number of votes to which each Member is entitled by the Articles. |
“paid-up” |
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means paid-up as to the par value and any premium payable in respect of the issue of any Share and includes credited as paid-up. |
“Preference Shares” |
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has the meaning given in the Memorandum. |
“Register of Members” |
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means the register of Members maintained in accordance with the Statute and includes (except where otherwise stated) any branch or duplicate register of Members. |
“registered office” |
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means the registered office for the time being of the Company. |
“Seal” |
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means the common seal of the Company and includes every duplicate seal. |
“Secretary” |
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includes an assistant secretary and any person appointed to perform the |
4
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duties of secretary of the Company. |
“Share” and “Shares” |
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means a share or shares in the Company and includes a fraction of a share in the Company. |
“Special Resolution” |
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has the same meaning as in the Statute provided that a Special Resolution may not be passed by way of an unanimous written resolution. |
“Statute” |
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means the Companies Law (2016 Revision) of the Cayman Islands. |
“written” and “in writing” |
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include all modes of representing or reproducing words in visible form. |
“Treasury Share” |
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means a Share held in the name of the Company as a treasury share in accordance with the Statute. |
5
ISSUE OF WARRANTS AND OPTIONS
6
REGISTER OF MEMBERS
7
8
NON-RECOGNITION OF TRUSTS
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION AND ALTERATION OF CAPITAL
REGISTERED OFFICE
9
CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE
GENERAL MEETINGS
NOTICE OF GENERAL MEETINGS
10
PROCEEDINGS AT GENERAL MEETINGS
(ii) the class and number of Shares that are owned by such Member, and (iii) a clear and concise statement of the proposal and the Member’s reasons for supporting it. The filing of a Member notice as required above shall not, in and of itself, constitute the making of the proposal described therein. If the Chairman of the meeting determines that any proposed business has not been properly brought before the meeting, he shall declare such business out of order, and such business shall not be conducted at the meeting.
11
NOMINATIONS OF DIRECTORS
day following the date of the first public announcement of the date of such meeting, whichever is later) nor more than 120 days prior to such meeting. Such Member’s notice shall set forth (a) as to each person whom the Member proposes to nominate for appointment or re-appointment as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for appointment of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, of the United States of America, as amended, or any successor provisions thereto, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if appointed and (b) as to the Member giving the notice (i) the name and address of such Member, as they appear on the Register of Members,
(ii) the class and number of Shares that are owned beneficially and/or of record by such Member, (iii) a representation that the Member is a registered holder of Shares entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination and (iv) a statement as to whether the Member intends or is part of a group that intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Company’s outstanding share capital required to approve or elect the nominee for appointment and/or (y) otherwise to solicit proxies from Members in support of such nomination. The Board may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Company, including such evidence satisfactory to the Board that such nominee has no interests that would limit such nominee’s ability to fulfil his duties as a director.
VOTES OF MEMBERS
12
against the same resolution in such proportion as specified in the instrument appointing the proxy. Where a Member appoints more than one proxy the instrument of proxy shall specify the number of Shares in respect of which each proxy is entitled to exercise the related votes.
PROXIES
CORPORATE MEMBERS
DIRECTORS
13
APPOINTMENT OF DIRECTORS
REMOVAL OF DIRECTORS
VACATION OF OFFICE OF DIRECTOR
100 |
The office of a Director shall be vacated if: |
100.1 |
the Director gives notice in writing to the Company that he resigns the office of Director; |
100.2 |
the Director absents himself from three consecutive meetings of the Board of Directors without special leave of absence from the Directors, and the Directors pass a resolution that he has by reason of such absence vacated office; |
100.3 |
the Director dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; |
100.4 |
the Director is found a lunatic or becomes of unsound mind; or |
100.5 |
the Director being prohibited by any applicable law, or the relevant code, rules and regulations applicable to the listing of the Shares on the Exchange, from being a Director. |
REMUNERATION OF DIRECTORS
14
DIRECTORS’ INTERESTS
POWERS AND DUTIES OF DIRECTORS
RESTRICTIONS ON THE COMPANY ENGAGING IN BUSINESS COMBINATIONS
(3) years following the date that such Member became an Interested Member, unless:
15
(50) percent. or more of either that aggregate market value of all of the assets of the Company determined on a consolidated basis or the aggregate market value of all the outstanding shares of the Company; or (C) a proposed tender or exchange offer for fifty (50) percent or more of the outstanding Voting Shares of the Company. The Company shall give not less than twenty (20) days’ notice to all Interested Members prior to the consummation of any of the transactions described in clauses (A) or (B) of the second sentence of this sub-paragraph.
16
and the affiliates and associates of such person; provided, however, that the term “Interested Member” shall not include any person whose ownership of shares in excess of the fifteen (15) percent. limitation set forth herein is the result of action taken solely by the Company provided that such person shall be an Interested Member if thereafter such person acquires additional Voting Shares of the Company, except as a result of further corporate action not caused, directly or indirectly, by such person. For the purpose of determining whether a person is an Interested Member, the Voting Shares of the Company deemed to be outstanding shall include shares deemed to be owned by the person through application of the definition of beneficial owner set out below under this Article but shall not include any other unissued shares of the Company which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
17
MINUTES
DELEGATION OF THE BOARD’S POWERS
EXECUTIVE OFFICERS
limitation, any Secretary) as it considers necessary in the management of the business of the Company and as it may decide for such period and upon such terms as it thinks fit and upon such terms as to remuneration as it may decide in accordance with these Articles. Such officers need not also be a Director. Unless otherwise specified in the terms of his appointment, an officer of the Company may be removed by resolution of the Board. An officer of the Company may vacate his office at any time if he gives notice in writing to the Company that he resigns his office.
PROCEEDINGS OF THE BOARD
18
PRESUMPTION OF ASSENT
SEAL
Secretary-Treasurer or some other officer of the Company or other person appointed by the Board for the purpose.
19
DIVIDENDS, DISTRIBUTIONS AND RESERVE
CAPITALISATION
BOOKS OF ACCOUNT
20
AUDIT
NOTICES
WINDING UP
21
INDEMNITY
including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than a proceeding by, or in the name or on behalf of, the Company), to which he was, is, or is threatened to be made, a party or in which he is otherwise involved, (a “proceeding”) by reason of the fact that he is or was a Covered Person; provided, however, that this provision shall not indemnify any Covered Person against any liability arising out of (a) any fraud or dishonesty in the performance of such Covered Person’s duty to the Company, or (b) such Covered Person’s conscious, intentional or wilful breach of his obligation to act honestly, lawfully and in good faith with a view to the best interests of the Company. Notwithstanding the preceding sentence, this section shall not extend to any matter which would render it void pursuant to the Statute, applicable law or to any person holding the office of auditor in relation to the Company.
22
indemnify him against such liability under the provisions of these Articles. As used in these Articles relating to indemnification, references to the “Company” include all constituent corporations in an amalgamation, consolidation or merger or similar arrangement in which the Company or a predecessor to the Company by amalgamation, consolidation or merger or similar arrangement was involved.
FINANCIAL YEAR
TRANSFER BY WAY OF CONTINUATION
MERGERS AND CONSOLIDATIONS
23
Exhibit 10.37
[Herbalife Letterhead]
Frank Lamberti
via email
Re: Retention Agreement
Dear Frank:
In recognition of your continued service with Herbalife Nutrition Ltd. and/or its affiliates and subsidiaries (“Herbalife Nutrition”) from April 6, 2020 through April 6, 2023 (the “Retention Period"), we offered you, and you accepted, a retention bonus in the amount of $1,000,000, less all applicable withholdings and deductions required by law (the "Retention Bonus"). If you terminate your employment or if Herbalife Nutrition terminates your employment for Cause before the end of the Retention Period, you will be required to repay the Retention Bonus in full to Herbalife Nutrition within fifteen (15) days of the termination of your employment. As used herein, “Cause” means: (i) willful failure to perform substantially all of your duties, including carrying out or complying with any lawful and reasonable material directive of the Chief Executive Officer of the Company; (ii) engagement in an act of fraud, embezzlement, dishonesty or of any policy or written agreement with the Company or any of its subsidiaries, including the Code of Business Conduct Policy and any employment or non-disclosure agreement; (iii) conviction of or pleas of guilty or nolo contendere to a crime that constitutes a felony; or (iv) willful misconduct or gross negligence resulting in material economic harm to the Company, any of which occur, or which first become known to the Company, after the date of this Agreement.
In addition, we offered you, and you accepted, an off-cycle equity grant with a grant value equal to $1,500,000, which will vest 100% on April 7, 2023 (“Retention RSUs”), in accordance with the Herbalife Ltd. 2014 Stock Incentive Plan Stock Unit Award Agreement.
You will be eligible to receive the Retention RSUs if all of the following eligibility criteria are satisfied:
1. You are actively employed by Herbalife Nutrition on the last day of the Retention Period.
2. You have not given notice of your intent to resign from employment on or before the last day of the Retention Period.
3. Herbalife Nutrition has not given you notice of its intent to terminate your employment for cause on or before the last day of the Retention Period.
Your employment remains at-will, meaning that you and Herbalife Nutrition may terminate the employment relationship at any time, with or without cause, and with or without notice.
This letter agreement is intended to comply with, or be exempt from, Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A") and shall be construed and administered in accordance with Section 409A.
Exhibit 10.37
This letter agreement contains all of the understandings and representations between Herbalife Nutrition and you relating to the Retention Bonus and the Retention RSUs and supersedes all prior and contemporaneous understandings, discussions, agreements, representations, and warranties, both written and oral, with respect to any retention bonus; provided, however, that this letter agreement shall not supersede any other agreements between Herbalife Nutrition and you, and specifically your confidentiality agreement and terms of your employment shall remain in full force and effect. This letter agreement may not be amended or modified unless in writing signed by both the Chief Executive Officer of Herbalife Nutrition and you.
This letter agreement and all related documents, and all matters arising out of or relating to this letter agreement for all purposes shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any conflict of laws principles that would cause the laws of any other jurisdiction to apply. Any legal suit, action, or proceeding arising out of or relating to this letter agreement shall be adjudicated in the appropriate state or federal court in the State of California in each case located in the County of Los Angeles and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action, or proceeding.
If any term of this letter agreement is to any extent invalid, illegal, or incapable of being enforced, such term shall be excluded to the extent of such invalidity, illegality, or unenforceability; all other terms hereof shall remain in full force and effect.
This letter agreement is made effective as of April 6, 2020.
Very truly yours,
Herbalife Nutrition Ltd.
/s/ Everton Harris
Everton Harris
Chief Human Resources Officer
Agreed to and accepted by:
/s/ Frank Lamberti
______________________________
Frank Lamberti
Exhibit 10.38
Execution Version
FIFTH AMENDMENT TO CREDIT AGREEMENT
USD LIBOR HARDWIRE TRANSITION AMENDMENT (REVOLVER AND TERM LOAN A)
THIS FIFTH AMENDMENT, dated as of April 3, 2023 (this “Fifth Amendment”), is executed and delivered by Coöperatieve Rabobank U.A., New York Branch (“Rabobank”) as Term Loan A Agent and Revolver Administrative Agent (each as defined in the Credit Agreement) (in such capacities, the “TLA-Revolver Administrative Agent”) which amends that certain Credit Agreement, dated as of August 16, 2018, by and among HLF Financing SaRL, LLC, a Delaware limited liability company (the “Term Loan Borrower”), Herbalife Nutrition Ltd., a Cayman Islands exempted company incorporated with limited liability with company number 116838 and with its registered office at Maples Corporate Services Limited, P.O. Box 309, Ugland House, George Town, Grand Cayman, KY1-1104, Cayman Islands (“Parent”), Herbalife International Luxembourg S.à R.L., a Luxembourg private limited liability company (société à responsabilité limitée), existing and organized under the laws of Luxembourg, having its registered office at 16, Avenue de la Gare, L-1610 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg Register of Commerce and Companies (R.C.S. Luxembourg) under number B 88006 (“HIL”), Herbalife International, Inc., a Nevada corporation (“HII” and, together with Parent, the Term Loan Borrower and HIL, the “Revolver Borrowers”; the Revolver Borrowers, together with the Term Loan Borrower, are referred to herein as the “Borrowers”), certain subsidiaries of the Borrowers as Subsidiary Guarantors, TLA-Revolver Administrative Agent and each other party party thereto (together with all exhibits and schedules attached thereto, as amended,restated, amended and restated, supplemented or otherwise modified prior to the date hereof, the “Credit Agreement”; the Credit Agreement, as amended by this Fifth Amendment, the “Amended Credit Agreement”). Capitalized terms not otherwise defined in this Fifth Amendment have the same meanings as specified in the Credit Agreement or the Amended Credit Agreement, as applicable.
RECITALS
WHEREAS, certain loans or other extensions of credit under the Credit Agreement or other Loan Documents bear or are permitted to bear interest, or incur or are permitted to incur fees, commissions or other amounts, based on USD LIBOR in accordance with the terms of the Credit Agreement or the other Loan Documents;
WHEREAS, pursuant to Section 2.16(b)(i)(i) of the Credit Agreement, the TLA-Revolver Administrative Agent has determined in accordance with the Credit Agreement that USD LIBOR should be replaced with should be replaced with an alternate rate of interest for purposes of Term Loan A Facility and the Revolving Credit Facility in accordance with the Credit Agreement and, in accordance therewith, the TLA-Revolver Administrative Agent is implementing a Benchmark Replacement and effecting the Benchmark Conforming Changes, in each case as set forth in the Amended Credit Agreement;
WHEREAS, pursuant to Section 2.16(b)(iv) of the Credit Agreement, in connection with the implementation and administration of a Benchmark Replacement, the applicable Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary therein or in any other Loan
1
|US-DOCS\138602899.7||
Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to the Credit Agreement; and
WHEREAS, the Benchmark Replacement Conforming Changes shall become effective on June 30, 2023 (the “Transition Date”).
NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the following shall be effective:
2
|US-DOCS\138602899.7||
3
|US-DOCS\138602899.7||
[Signature Page Follows]
4
|US-DOCS\138602899.7||
IN WITNESS WHEREOF, the TLA-Revolver Administrative Agent has caused this Amendment to be duly executed by its respective authorized officer(s) as of the day and year first above written.
COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH, as Term Loan A Agent and Revolver Administrative Agent
By: /s/ Eric Rogowski
Name: Eric Rogowski
Title: Managing Director
By: /s/ Anthony Fidanza
Name: Anthony Fidanza
Title: Vice President
[Signature Page to Fifth Amendment]
EXHIBIT A
[Attached]
DM3/6240052
|US-DOCS\138602899.7||
Exhibit A to Fifth Amendment to Credit Agreement
CREDIT AGREEMENT
dated as of
August 16, 2018
(as amended by the First Amendment to Credit Agreement, dated as of December 12, 2019, as further amended by the Second Amendment to Credit Agreement, dated as of March 19, 2020, as further amended by the Third Amendment to Credit Agreement, dated as of February 10, 2021, as further by the Fourth Amendment to Credit Agreement, dated as of July 30, 2021 and as further by the Fifth Amendment to Credit Agreement, dated as of April 3, 2023)
among
HLF FINANCING SaRL, LLC
as Term Loan Borrower,
HERBALIFE INTERNATIONAL, INC., HERBALIFE NUTRITION LTD., HLF FINANCING SaRL, LLC and
HERBALIFE INTERNATIONAL LUXEMBOURG S.À R.L.,
as Revolver Borrowers,
THE LENDERS PARTY HERETO,
JEFFERIES FINANCE LLC,
as Term Loan B Agent and Collateral Agent,
COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH,
as Term Loan A Agent and Revolver Administrative Agent,
JEFFERIES FINANCE LLC and
COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH,
as Joint Lead Arrangers and Bookrunners for the Term Loan B Facility
and
COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH,
as Sole Lead Arranger and Bookrunner for the Term Loan A Facility and Revolving Credit Facility
and
CITIZENS BANK, N.A., CITICORP NORTH AMERICA, INC., FIFTH THIRD BANK, and MIZUHO BANK, LTD.
as Joint Lead Arrangers
and
CAPITAL ONE, NATIONAL ASSOCIATION and COMERICA SECURITIES
as Co-Syndication Agents
and
BBVA COMPASS
as Documentation Agent
and
COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH,
as Sustainability Coordinator
TABLE OF CONTENTS
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Page |
SECTION 1. |
DEFINITIONS |
2 |
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1.1 |
Defined Terms |
2 |
1.2 |
Other Definitional Provisions |
7069 |
1.3 |
Classification of Loans and Borrowings |
7271 |
1.4 |
Accounting Terms; GAAP |
72 |
1.5 |
Pro Forma Calculations |
7372 |
1.6 |
Classification of Permitted Items |
7473 |
1.7 |
Rounding |
7574 |
1.8 |
Currency Equivalents Generally |
7574 |
1.9 |
Exchange Rates; Currency Equivalents |
7574 |
1.10 |
Additional Alternative Currencies |
7675 |
1.11 |
Change of Currency |
7776 |
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SECTION 2. |
AMOUNT AND TERMS OF COMMITMENTS |
7877 |
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2.1 |
Term Loan Commitments |
7877 |
2.2 |
Procedure for Term Loan Borrowing |
7877 |
2.3 |
Repayment of Term Loans |
7877 |
2.4 |
Revolving Credit Commitments |
7978 |
2.5 |
Loans and Borrowings |
7978 |
2.6 |
Requests for Revolving Credit Borrowing |
8079 |
2.7 |
Letter of Credit |
8180 |
2.8 |
Funding of Borrowings |
8887 |
2.9 |
Interest Elections |
8988 |
2.10 |
Termination and Reduction of Commitments |
9190 |
2.11 |
Repayment of Revolving Credit Loans; Evidence of Debt |
9290 |
2.12 |
Prepayment of Loans |
9291 |
2.13 |
Fees |
9694 |
2.14 |
Mandatory Prepayments |
9796 |
2.15 |
Interest |
10099 |
2.16 |
Alternate Rate of Interest; Benchmark Replacement Setting |
101100 |
2.17 |
Increased Costs |
104102 |
2.18 |
Break Funding Payments |
106104 |
2.19 |
Taxes |
107104 |
2.20 |
Payments Generally; Pro Rata Treatment; Sharing of Set-offs |
112110 |
2.21 |
Mitigation Obligations; Replacement of Lenders |
113111 |
2.22 |
Defaulting Lenders |
116113 |
2.23 |
Incremental Facilities |
118115 |
2.24 |
Replacement Facilities |
126123 |
2.25 |
Extensions of Term Loans and Revolving Credit Commitments |
129126 |
2.26 |
Permitted Debt Exchanges |
133130 |
2.27 |
MIRE Events |
136133 |
2.28 |
Sustainability Linked Pricing Adjustment |
137133 |
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SECTION 3. |
REPRESENTATIONS AND WARRANTIES |
139135 |
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3.1 |
Financial Condition |
139135 |
3.2 |
No Change |
139136 |
3.3 |
Corporate Existence; Compliance with Law |
139136 |
3.4 |
Organizational Power; Authorization; Enforceable Obligations |
140136 |
3.5 |
No Legal Bar |
140137 |
3.6 |
No Material Litigation |
140137 |
3.7 |
Ownership of Property; Liens |
140137 |
3.8 |
Intellectual Property |
141137 |
3.9 |
Taxes |
141138 |
3.10 |
Federal Reserve Board Regulations |
141138 |
3.11 |
ERISA |
141138 |
3.12 |
Investment Company Act |
142139 |
3.13 |
Restricted Subsidiaries |
142139 |
3.14 |
Use of Proceeds |
142139 |
3.15 |
Environmental Matters |
142139 |
3.16 |
Accuracy of Information, Etc. |
143140 |
3.17 |
Collateral Documents |
144140 |
3.18 |
Solvency |
144141 |
3.19 |
PATRIOT Act; FCPA; Sanctions |
144141 |
3.20 |
Broker’s or Finder’s Commissions |
145142 |
3.21 |
Labor Matters |
145142 |
3.22 |
Representations as to Foreign Obligors |
145142 |
3.23 |
Luxembourg Specific Representations |
146143 |
|
|
|
SECTION 4. |
CONDITIONS PRECEDENT |
147144 |
|
|
|
4.1 |
Conditions to Closing Date |
147144 |
4.2 |
Conditions to Each Post-Closing Extension of Credit |
153149 |
|
|
|
SECTION 5. |
AFFIRMATIVE COVENANTS |
154150 |
|
|
|
5.1 |
Financial Statements |
154150 |
5.2 |
Certificates; Other Information |
155151 |
5.3 |
Payment of Obligations |
156152 |
5.4 |
Conduct of Business and Maintenance of Existence, Compliance with Laws, Etc. |
156153 |
5.5 |
Maintenance of Property; Insurance |
157153 |
5.6 |
Inspection of Property; Books and Records; Discussions |
158154 |
5.7 |
Notices |
158154 |
5.8 |
Environmental Laws |
159155 |
5.9 |
Additional Collateral, Etc. |
159155 |
5.10 |
Use of Proceeds |
168163 |
ii
5.11 |
Further Assurances |
168163 |
5.12 |
Maintenance of Ratings |
169164 |
5.13 |
Designation of Subsidiaries |
169164 |
5.14 |
Guarantor Coverage Test |
170165 |
5.15 |
Post-Closing Matters |
170165 |
|
|
|
SECTION 6. |
NEGATIVE COVENANTS |
171166 |
|
|
|
6.1 |
[Reserved] |
171166 |
6.2 |
Limitation on Indebtedness |
171166 |
6.3 |
Limitation on Liens |
176170 |
6.4 |
Limitation on Fundamental Changes |
181176 |
6.5 |
Limitation on Disposition of Property |
183177 |
6.6 |
Limitation on Restricted Payments |
186180 |
6.7 |
Limitation on Investments |
188182 |
6.8 |
Limitation on Optional Payments of Junior Debt Instruments |
192186 |
6.9 |
Limitation on Transactions with Affiliates |
193187 |
6.10 |
Limitation on Sales and Leasebacks |
194189 |
6.11 |
Limitation on Negative Pledge Clauses |
195189 |
6.12 |
Limitation on Restrictions on Restricted Subsidiary Distributions |
196190 |
6.13 |
Limitation on Lines of Business |
197191 |
6.14 |
Total Leverage Ratio |
197191 |
6.15 |
Modification of Certain Agreements |
197191 |
6.16 |
Changes in Fiscal Periods |
197191 |
|
|
|
SECTION 7. |
EVENTS OF DEFAULT |
197192 |
|
|
|
7.1 |
Events of Default |
197192 |
7.2 |
Right to Cure |
202196 |
7.3 |
Application of Funds |
203197 |
|
|
|
SECTION 8. |
THE AGENTS |
205199 |
|
|
|
8.1 |
Appointment |
205199 |
8.2 |
Delegation of Duties |
205199 |
8.3 |
Exculpatory Provisions |
205199 |
8.4 |
Reliance by the Agents |
206200 |
8.5 |
Notice of Default |
206200 |
8.6 |
Non-Reliance on the Agents and Other Lenders |
207200 |
8.7 |
Indemnification |
207201 |
8.8 |
The Agent in Its Individual Capacity |
208201 |
8.9 |
Successor Agent |
208202 |
8.10 |
Arrangers, Documentation Agent and Syndication Agent. |
209203 |
8.11 |
Certain ERISA Matters |
209203 |
|
|
|
iii
SECTION 9. |
MISCELLANEOUS |
210204 |
|
|
|
9.1 |
Notices |
210204 |
9.2 |
Waivers; Amendments |
214208 |
9.3 |
Expenses; Indemnity; Damage Waiver |
218212 |
9.4 |
Successors and Assigns |
220214 |
9.5 |
Survival |
226220 |
9.6 |
Counterparts; Integration; Effectiveness |
227220 |
9.7 |
Severability |
227220 |
9.8 |
Right of Setoff |
227221 |
9.9 |
Governing Law; Jurisdiction; Consent to Service of Process |
228221 |
9.10 |
WAIVER OF JURY TRIAL |
228222 |
9.11 |
Headings |
229222 |
9.12 |
Confidentiality |
229222 |
9.13 |
PATRIOT Act |
230223 |
9.14 |
Release of Liens and Guarantees; Secured Parties |
230224 |
9.15 |
No Fiduciary Duty |
232225 |
9.16 |
Interest Rate Limitation |
233226 |
9.17 |
Intercreditor Agreements |
233226 |
9.18 |
Discretionary Guarantors |
233227 |
9.19 |
Posting of Margin and Collateral |
234227 |
9.20 |
Judgment Currency |
235228 |
9.21 |
Acknowledgement and Consent to Bail-In of EEA Financial Institutions |
235228 |
9.22 |
Collateral |
236229 |
|
|
|
|
|
|
SCHEDULES |
|
|
|
|
|
1.1(A) |
Closing Date Guarantors |
|
1.1(B) |
Existing Roll-Over Letters of Credit |
|
1.2 |
Closing Date Mortgaged Property |
|
2.1 |
Lenders |
|
3.4 |
Consents, Authorizations, Filings and Notices |
|
3.9 |
Tax ID Numbers |
|
3.13(a) |
Restricted Subsidiaries |
|
3.13(b) |
Agreements Related to Capital Stock |
|
5.15 |
Post-Closing Matters |
|
6.2(d) |
Existing Indebtedness |
|
6.3(f) |
Existing Liens |
|
6.7(c) |
Existing Investments |
|
6.9(b) |
Existing Affiliate Transactions |
|
6.11 |
Existing Negative Pledges |
|
|
|
|
EXHIBITS: |
|
|
|
|
|
A |
Form of Security Agreement |
|
iv
B |
Form of Compliance Certificate |
|
C |
Form of Closing Certificate |
|
D |
Form of Perfection Certificate |
|
E |
Form of Assignment and Assumption |
|
F-1 |
Form of Senior/Junior Intercreditor Agreement |
|
F-2 |
Form of Senior Pari Passu Intercreditor Agreement |
|
G-1 |
Form of Term A Note |
|
G-2 |
Form of Term B Note |
|
G-3 |
Form of Revolving Credit Note |
|
H-1 – H-4 |
Forms of US Tax Compliance Certificates |
|
I |
Form of Borrowing Request |
|
J |
Form of Solvency Certificate |
|
K |
Form of Notice of Additional Guarantor |
|
L |
Form of Sustainability Compliance Certificate |
|
M |
Form of Sustainability Proposal |
|
v
CREDIT AGREEMENT, dated as of August 16, 2018, among HLF Financing SaRL, LLC, a Delaware limited liability company (the “Term Loan Borrower”), Herbalife Nutrition Ltd., a Cayman Islands exempted company incorporated with limited liability with company number 116838 and with its registered office at Maples Corporate Services Limited, P.O. Box 309, Ugland House, George Town, Grand Cayman, KY1-1104, Cayman Islands (“Parent”), Herbalife International Luxembourg S.à R.L., a Luxembourg private limited liability company (société à responsabilité limitée), existing and organized under the laws of Luxembourg, having its registered office at 16, Avenue de la Gare, L-1610 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg Register of Commerce and Companies (R.C.S. Luxembourg) under number B 88006 (“HIL”), Herbalife International, Inc., a Nevada corporation (“HII” and, together with Parent, the Term Loan Borrower and HIL, the “Revolver Borrowers”; the Revolver Borrowers, together with the Term Loan Borrower, are referred to herein as the “Borrowers”), the several banks and other financial institutions or entities from time to time parties to this Agreement as lenders, Jefferies Finance LLC (“Jefferies”), as administrative agent for the Term Loan B Lenders (together with its successors and permitted assigns in such capacity, the “Term Loan B Agent”) and collateral agent (together with its successors and permitted assigns in such capacity, the “Collateral Agent”), and Coöperatieve Rabobank U.A., New York Branch (“Rabobank”), as an Issuing Bank, as sustainability coordinator (together with its successors and permitted assigns in such capacity, the “Sustainability Coordinator”) and as administrative agent for the Term Loan A Lenders (together with its successors and permitted assigns in such capacity, the “Term Loan A Agent” and together with the Term Loan B Agent, the “Term Loan Administrative Agents” and each, a “Term Loan Administrative Agent”) and the Revolving Credit Lenders (together with its successors and permitted assigns in such capacity, the “Revolver Administrative Agent” and, together with the Term Loan Administrative Agents, the “Administrative Agents”; the Term Loan Administrative Agents, the Collateral Agent, the Revolver Administrative Agent and the Sustainability Coordinator are referred to herein collectively as the “Agents” and each, an “Agent”).
PRELIMINARY STATEMENTS
The Borrowers have requested that (i) the Term Loan A Lenders extend credit to the Term Loan Borrower in the form of Term A Loans on the Closing Date in an initial aggregate principal amount of up to $250.0 million pursuant to this Agreement, (ii) the Term Loan B Lenders extend credit to the Term Loan Borrower in the form of Term B Loans on the Closing Date in an initial aggregate principal amount of up to $750.0 million pursuant to this Agreement and (iii) the Revolving Credit Lenders extend credit to the Revolver Borrowers in accordance with the Revolving Credit Commitments in an initial aggregate principal amount of up to $250.0 million pursuant to this Agreement (with the aggregate principal amount of Revolving Credit Loans permitted to be borrowed on the Closing Date).
On the Closing Date, Parent will enter into the Senior Notes Indenture pursuant to which Parent will issue Senior Notes in an aggregate principal amount of $400.0 million and the proceeds of the Loans, together with the Senior Notes and the cash on hand, will be used in part to repay in full all amounts due or outstanding under the Credit Agreement dated as of February 15, 2017, as amended and restated on March 8, 2018, among Parent, the Term Loan Borrower, HII, HIL, HLF Financing US, LLC, a Delaware limited liability company as the other term loan borrower thereunder, the guarantors party thereto, the lenders party thereto, Credit Suisse AG, Cayman
Islands Branch, as administrative agent for the Term Loan Lenders and Coöperatieve Rabobank U.A., New York Branch, as administrative agent for the Revolving Credit Lenders (the “Existing Credit Agreement”) and such repayment, together with the termination of all commitments thereunder and the release of all liens granted in connection therewith, the “Refinancing”), and to pay Transaction Costs.
The Lenders have indicated their willingness to extend credit on the terms and subject to the conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
2
“Agency Fee Letters”: collectively, (i) that certain Agency Fee Letter, dated August 16, 2018, by and among, inter alios, the Borrowers and Jefferies and (ii) that certain Agency Fee Letter, dated August 16, 2018, by and among the Borrowers and Rabobank.
3
4
Level |
Total Leverage Ratio |
Applicable Margin for Revolving Loans and Term A Loans that are Eurodollar Loans or SOFR Loans |
Applicable Margin for Revolving Loans and Term A Loans that are ABR Loans |
Revolving Commitment Fee Rate |
I |
≥ 2.50:1.00 |
2.25% |
1.25% |
0.35% |
II |
< 2.50:1.00, but ≥ 1.50:1.00 |
2.00% |
1.00% |
0.30% |
III |
< 1.50:1.00 |
1.75% |
0.75% |
0.25% |
No change in the Applicable Margin shall be effective until three (3) Business Days after the date on which the Administrative Agents shall have received the applicable financial statements and a Compliance Certificate pursuant to Section 5.2(a) calculating the Total Leverage Ratio. If (x) an Event of Default has occurred and is continuing or (y) the Borrower shall fail to deliver any financial statement or certificate required to be delivered pursuant to Section 5.1 or Section 5.2 within the time periods specified in Section 5.1 or Section 5.2, as applicable, then the Applicable Margin from and including the 60th day after the end of such fiscal quarter or the 90th day after the end of such fiscal year, as the case may be, to but not including the date the Borrower delivers to the Administrative Agent such financial statement or certificate shall conclusively equal the highest possible Applicable Margin provided for in this definition. Within one (1) Business Day of receipt of the applicable information under Section 5.1 or Section 5.2, the Term Loan A Agent shall give each Term Loan A Lender and Revolving Credit Lender electronic or telephonic notice (confirmed in writing) of the Applicable Margin in effect from such date.
Notwithstanding anything to the contrary set forth in this Agreement (including the then-effectivethen‑effective Total Leverage Ratio), if (i) the Total Leverage Ratio used to determine the Applicable Margin for any period is incorrect as a result of any error, misstatement or misrepresentation contained in any financial statement or certificate delivered pursuant to Section 5.1 or Section 5.2, and (ii) as a result thereof, the Applicable Margin paid to the Lenders and/or the Issuing Banks, as the case may be, at any time pursuant to this Agreement is lower than the Applicable Margin that would have been payable to the Lenders and/or the Issuing Banks, as the case may be, had the Applicable Margin been calculated on the basis of the correct Total Leverage Ratio, the Applicable Margin in respect of such period will be adjusted upwards automatically and retroactively, and the applicable Borrowers shall pay to each Lender and/or each Issuing Bank, as the case may be, such additional amounts (“Additional Amounts”) as are necessary so that after receipt of such amounts such Lender and/or Issuing Bank, as the case may be, receives an amount equal to the amount it would have received had the Applicable Margin been calculated during such period on the basis of the correct Total Leverage Ratio. Additional Amounts shall be payable ten (10) days following delivery by the applicable Administrative Agent to the applicable Borrower(s) of a notice (which shall be conclusive and binding absent manifest error) setting forth in reasonable detail such Administrative Agent’s calculation of the amount of any Additional Amounts owed to the Lenders and/or the Issuing Banks. The payment of Additional Amounts shall be in addition to, and not in limitation of, any other amounts payable by the Borrower pursuant to Section 2.13 and Section 2.15. Additional Amounts shall constitute “Obligations”. The agreements in this
5
paragraph shall survive the payment of the Loans and all other Obligations payable under this Agreement and the termination of the Commitments.
6
7
8
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
9
(1) For purposes of clause (i) of Section 2.16(b), the first alternative set forth below that can be determined by the applicable Administrative Agent:
(a) the sum of: (i) Term SOFR and (ii) 0.11448% (11.448 basis points) for an Available Tenor of one-month’s duration, 0.26161% (26.161 basis points) for an Available Tenor of three-months’ duration, 0.42826% (42.826 basis points) for an Available Tenor of six-months’ duration, and 0.71513% (71.513 basis points) for an Available Tenor of twelve-months’ duration; provided, that if any Available Tenor of USD LIBOR does not correspond to an Available Tenor of Term SOFR, the Benchmark Replacement for such Available Tenor of USD LIBOR shall be the closest corresponding Available Tenor (based on length) for Term SOFR and if such Available Tenor of USD LIBOR equally corresponds to two Available Tenors of Term SOFR, the corresponding tenor of Term SOFR with the shorter duration shall apply; or
(b) the sum of: (i) Daily Simple SOFR and (ii) the spread adjustment selected or recommended by the Relevant Governmental Body for the replacement of the tenor of USD LIBOR with a SOFR-based rate having approximately the same length as the interest payment period specified in clause (i) of Section 2.16(b) (which spread adjustment, for the avoidance of doubt, shall be 0.11448% (11.448 basis points));
provided, that, notwithstanding the application of clause (1)(a) above, the applicable Borrower shall have the option to select an Interest Period of less than one month’s duration, in which case the Benchmark Replacement for such Interest Period shall be, as selected by the Borrowers prior to the first such Borrowing with an Interest Period of less than one month’s duration, either (x) the rate as calculated in accordance with clause (1)(b) above or (y) the rate which results from interpolating on a linear basis between: (I) Term SOFR with an Available Tenor of one month’s duration and (II) Daily Simple SOFR, provided further, that availability of the interpolated rate set forth in the preceding clause (y) shall be subject to (i) Term SOFR having been recommended for use by the Relevant Governmental Body and (ii) determination by the applicable Administrative Agent that the administration of Term SOFR is administratively feasible for the applicable Administrative Agent, provided further, for the avoidance of doubt, that the spread adjustment corresponding to any Benchmark Replacement effected pursuant to the above provisos shall be 0.11448% (11.448 basis points); and
10
(2) For purposes of clause (ii) of Section 2.16(b), the sum of (a) the alternate benchmark rate and (b) an adjustment (which may be a positive or negative value or zero), in each case, that has been selected by the applicable Administrative Agent and the applicable Borrowers as the replacement for such Available Tenor of such Benchmark giving due consideration to any evolving or then-prevailing market convention, including any applicable recommendations made by the Relevant Governmental Body, for loans denominated in the corresponding currency for syndicated credit facilities at such time (for the avoidance of doubt, for purposes of clause (2) hereof with respect to US Dollars and Alternative Currencies, the evolving or then-prevailing market conventions shall be those applicable to the US loan market);
provided that, if the Benchmark Replacement as determined pursuant to clause (1) or (2) above would be less than the Floor for the applicable Benchmark, the Benchmark Replacement will be deemed to be the Floor applicable to such Benchmark for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Conforming Changes”: with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “ABR,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions and other technical, administrative or operational matters) that the applicable Administrative Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the applicable Administrative Agent in a manner substantially consistent with market practice (or, if the applicable Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the applicable Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the applicable Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
11
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
12
13
14
15
16
17
(y) subtracting therefrom the aggregate amount of all noncash items and nonrecurring gains or credits, determined on a consolidated basis, to the extent such items were added in determining Consolidated Net Income for such period.
18
19
20
21
“Daily Simple SOFR”: for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by the applicable Administrative Agent in accordance with the conventions for this rate recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for syndicated business loans; provided, that if the applicable Administrative Agent decides that any such convention is not administratively feasible for the applicable Administrative Agent, then the applicable Administrative Agent, as applicable, may establish another convention in its reasonable discretion.
22
23
24
“Early Opt-in Effective Date”: with respect to any Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Term Loan A Lenders and the Revolving Credit Lenders, so long as the applicable Administrative Agents have not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to such Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Pro Rata Facility Lenders.
“Early Opt-in Election”: for any then-current Benchmark that uses LIBOR, the occurrence of:
(1) (a) with respect to US Dollars, a notification by the applicable Administrative Agent to (or the request by any Borrower to the applicable Administrative Agent to notify) each of the applicable Borrowers, the Term Loan A Lenders and the Revolving Credit Facility Lenders that at least five (5) currently outstanding US Dollars denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review); or (b) with respect to any Alternative Currency a notification by the applicable Administrative Agent to (or the request by any Borrower to the applicable Administrative Agent to notify) each of the applicable Borrowers, the Term Loan A Lenders and the Revolving Credit Facility Lenders that at least five (5) currently outstanding syndicated credit facilities which include such Alternative Currency at such time in the U.S. syndicated loan market contain (as a result of amendment or as originally executed) a new benchmark interest rate to replace the then-current Benchmark with respect to such Alternative Currency as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and
(2) in each case, the joint election by the applicable Administrative Agent and the applicable Borrowers to trigger a fallback from the applicable then-current Benchmark and the provision by the applicable Administrative Agent of written notice of such election to the Term Loan A Lenders and the Revolving Facility Lenders.
25
26
27
28
29
30
31
provided, that assets described above that were deemed “Excluded Assets” as a result of a prohibition or restriction described above shall no longer be “Excluded Assets” upon termination of the applicable prohibition or restriction that caused such assets to be treated as “Excluded Assets.”
32
“Existing Roll-Over Letters of Credit” shall mean those letters of credit or bank guarantees issued and outstanding as of the Closing Date and set forth on Schedule 1.1(B), which shall each be deemed to constitute a Letter of Credit issued hereunder on the Closing Date.
33
34
“FCA”: as defined in Section 2.16(b).
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
“Relevant Governmental Body”: (i) with respect to a Benchmark or Benchmark Replacement in respect of any Benchmark applicable to US Dollars, the Board of Governors of the Federal Reserve System means the Board or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto, and (ii) with respect to a Benchmark or Benchmark Replacement for any Benchmark applicable to any Alternative Currency, (1) the central bank for the currency in which such amounts are denominated hereunder or any central bank or other supervisor which is responsible for supervising either (A) such Benchmark Replacement or (B) the administrator of such
58
Benchmark Replacement or (2) any working group or committee officially endorsed or convened by (A) the central bank for the currency in which such amounts are denominated, (B) any central bank or other supervisor that is responsible for supervising either (x) such Benchmark Replacement or (y) the administrator of such Benchmark Replacement, (C) a group of those central banks or other supervisors or (D) the Financial Stability Board or any part thereof..
59
60
61
62
63
64
65
66
67
68
69
0.11448% |
Interest Period |
Percentage |
One month |
0.11448% |
Three months |
0.26161% |
Six months |
0.42826% |
Twelve months |
0.71513% |
“Term SOFR Adjustment” means, 0.11448% (11.448 basis points) for an Available Tenor of one-month’s duration, 0.26161% (26.161 basis points) for an Available Tenor of three-months’ duration, 0.42826% (42.826 basis points) for an Available Tenor of six-months’ duration and 0.71513% (71.513 basis points) for an Available Tenor of twelve-months’ duration.
70
“Term SOFR Notice” means a notification by the applicable Administrative Agent to the Term Loan A Lenders, the Revolving Credit Lenders and the applicable Borrowers of the occurrence of a Term SOFR Transition Event.
“Term SOFR Transition Event Effective Date” means, with respect to a Term SOFR Transition Event, the date that is thirty (30) days after the date a Term SOFR Notice is provided to the Term Loan A Lenders, the Revolving Credit Lenders and the applicable Borrowers pursuant to Section 2.16(b)(iii).
“Term SOFR Transition Event” means the determination by the applicable Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the applicable Administrative Agent in their sole discretion, and (c) a Benchmark Transition Event or an Early Opt-in Election, as applicable, has previously occurred resulting in a Benchmark Replacement in accordance with Section 2.16(b) that is not Term SOFR. For the avoidance of doubt, a Term SOFR Transition Event shall only apply for loans and borrowings denominated in US Dollars.
71
72
“USD LIBOR” means the London interbank offered rate for US Dollars.
73
74
Without prejudice to the generality of any provision of this Agreement, to the extent this Agreement relates to a Luxembourg Loan Party, a reference to: (i) a winding-up, administration or dissolution includes, without limitation, bankruptcy (faillite), insolvency, liquidation, composition with creditors (concordat préventif de la faillite), moratorium or reprieve from payment (sursis de paiement), controlled management (gestion contrôlée), general settlement with creditors, reorganization or similar laws affecting the rights of creditors generally; (ii) a receiver, administrative receiver, administrator, trustee, custodian, sequestrator, conservator or similar officer appointed for the reorganization or liquidation of the business of a person includes, without limitation, a juge délégué, commissaire, juge-commissaire, mandataire ad hoc, administrateur provisoire, liquidateur or curateur; (iii) a lien or security interest includes any hypothèque, nantissement, gage, privilège, sûreté réelle, droit de rétention and any type of security in rem (sûreté réelle) or agreement or arrangement having a similar effect and any transfer of title by way of security; (iv) creditors process means an executory attachment (saisie exécutoire) or conservatory attachment (saisie conservatoire); (v) a guarantee includes any garantie which is independent from the debt to which it relates and excludes any suretyship (cautionnement) within the meaning of Articles 2011 and seq. of the Luxembourg Civil Code; (vi) by-laws or constitutional documents includes its up-to-date (restated) articles of association (statuts coordonnés); and (vii) a director or a manager includes an administrateur or a gérant.
75
76
For purposes of determining compliance at any time with Section 6.7, any Investments made under Section 6.7(r) may be reclassified, as Parent elects from time to time, as incurred under Section 6.7(l), in each case, so long as the ratios and other requirements of such clauses are satisfied as of the date of determination.
77
78
79
80
81
82
If no election as to the Type of Revolving Credit Borrowing is specified, then the requested Revolving Credit Borrowing shall be (A) in the case of a Borrowing denominated in US Dollars, an ABR Borrowing or (B) in the case of a Borrowing denominated in an Alternative Currency, a Eurodollar Borrowing. If no Interest Period is specified with respect to any requested Eurodollar
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Revolving Credit Borrowing or SOFR Revolving Credit Borrowing, then the Revolver Borrowers shall be deemed to have selected an Interest Period of one month’s duration. If no currency is specified with respect to any Eurodollar Borrowing, then the applicable Revolver Borrowers shall be deemed to have requested a Borrowing in US Dollars. If a Borrowing Request fails to specify the identity of the applicable Revolver Borrower, then the Loans so requested shall be made to the Revolver Borrower submitting such Borrowing Request; provided, however, that in the case of a failure to identify the applicable Borrower in the case of a request for a continuation of Revolving Credit Loans, such Loans shall be continued as Loans made to the Borrower to which such Loans were initially made. No Revolving Credit Loan may be converted into or continued as a Loan denominated in a different currency, but instead must be prepaid in the original currency of such Loan and reborrowed in the other currency. Promptly following receipt of a Borrowing Request in accordance with this Section, the Revolver Administrative Agent shall advise each Revolving Credit Lender of the relevant Facility or Facilities of the details thereof and of the amount of such Revolving Credit Lender’s Loan to be made as part of the requested Revolving Credit Borrowing.
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Additionally, no Issuing Bank shall be under any obligation to issue or renew any Letter of Credit if the Letter of Credit is to be denominated in a currency other than US Dollars or an Alternative Currency. Subject to the terms and conditions set forth herein, any Revolver Borrower may request the issuance of Letters of Credit for its own account or for its own account for the benefit of any Restricted Subsidiary, in a form reasonably acceptable to the Revolver Administrative Agent and the applicable Issuing Bank, at any time and from time to time during the Availability Period (but not later than the date that is 30 days prior to the Revolving Credit Maturity Date). In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the applicable Revolver Borrower to, or entered into by such Revolver Borrower with, the applicable Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.
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If any such Interest Election Request requests a Eurodollar Borrowing or a SOFR Borrowing but does not specify an Interest Period, then the applicable Borrower shall be deemed to have selected an Interest Period of one month’s duration.
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then the applicable Administrative Agent shall give notice thereof to the applicable Borrowers and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the applicable Administrative Agent notifies the applicable Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Revolving Credit Borrowing, such Borrowing shall be made as, or converted to, an ABR Borrowing.
(i) Replacing USD LIBOR. On March 5, 2021 the Financial Conduct Authority (“FCA”), the regulatory supervisor of LIBOR’s administrator (“IBA”), announced in a public statement the future cessation or loss of representativeness of overnight/Spot Next, 1-week, 1-month, 2-month, 3-month, 6-month and 12- month LIBOR tenor settings. On the earlier of (i) the date that all Available Tenors of USD LIBOR have either permanently or indefinitely ceased to be provided by IBA or have been announced by the FCA pursuant to public statement or publication of information to be no longer representative and (ii) the Early Opt-in Effective Date, if the then-current Benchmark is USD LIBOR, the Benchmark Replacement will replace such Benchmark for purposes of the Term Loan A Facility and the Revolving Credit Facility only in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document. If the Benchmark Replacement is Daily Simple SOFR, all interest payments will be payable on a monthly basis.
(ii) Replacing Non-USD LIBOR Benchmarks. Upon (i) the occurrence of a Benchmark Transition Event, the Benchmark Replacement will replace the then-current Benchmark for purposes of the Term Loan A Facility and the Revolving Credit Facility only in respect of any Benchmark setting at or after 5:00 p.m. New York City time on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the applicable Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Pro Rata Facility Lenders or (ii) an Early Opt-in Effective Date with respect to an Early Opt-in Election under clause (1)(b) and (2) of the definition thereof, the Benchmark Replacement will replace such Benchmark for
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purposes of the Term Loan A Facility and the Revolving Credit Facility only in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document. At any time that the administrator of the then-current Benchmark has permanently or indefinitely ceased to provide such Benchmark or such Benchmark has been announced by the regulatory supervisor for the administrator or the administrator of such Benchmark pursuant to public statement or publication of information to be no longer representative and will not be restored, (i) with respect to amounts denominated in US Dollars, the applicable Borrowers may revoke any request for a borrowing of, conversion to or continuation of Loans to be made, converted or continued that would bear interest by reference to such Benchmark until the applicable Borrowers’ receipt of notice from the applicable Administrative Agent that a Benchmark Replacement has replaced such Benchmark, and, failing that, the applicable Borrowers will be deemed to have converted any such request into a request for a borrowing of or conversion to ABR Loans and (ii) with respect to amounts denominated in any currency other than US Dollars, the obligations of the Lenders to make or maintain Loans referencing such current Benchmark in the affected currency shall be suspended (to the extent of the affected Borrowings or Interest Periods). During the period referenced in the foregoing sentence, to the extent a component of ABR is based upon the Benchmark it will not be used in any determination of ABR.
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and the result of any of the foregoing shall be to increase the cost to such Lender (or in the case of clause (i) above, to such Agent, such Lender or such Issuing Bank, as the case may be) of making or maintaining any Eurodollar Loan or SOFR Loan (or in the case of clause (i) above, any Loan) (or of maintaining its obligation to make any such Loan) or to increase the cost to such Agent, such Lender or such Issuing Bank, as the case may be, of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Agent, such Lender or such Issuing Bank, as the case may be, hereunder (whether of principal, interest or otherwise), then the applicable Borrower will pay to such Agent, such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Agent, such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered; provided, in each case, that such Agent, such Lender or such Issuing Bank certifies that it has requested such payments from similarly situated borrowers.
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Each Lender or Issuing Bank agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the applicable Borrowers and the applicable Administrative Agent in writing of its legal inability to do so.
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In the event that the Revolver Administrative Agent, the Revolver Borrowers and each Issuing Bank each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Revolving Credit Commitment and on such date such Lender shall purchase at par (plus such amount, if any, that would otherwise be reimbursable by the Borrowers pursuant to Section 2.18 as a result of such purchase on such date) such of the Loans of the other Lenders, if any, as the Revolver Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage, and such Lender shall then cease to be a Defaulting Lender with respect to subsequent periods unless such Lender shall thereafter become a Defaulting Lender. Notwithstanding the fact that any Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, (x) no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Revolver Borrowers while such Lender was a Defaulting Lender and (y) except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender.
Notwithstanding anything to the contrary herein, without the consent of the Required Lenders, the aggregate amount of the Incremental Facilities shall not exceed, at any time, the sum of (i) the greater of (1) $855.0 million, and (2) 100% of Consolidated EBITDA on a pro forma basis after giving effect to the incurrence of such additional amounts as the most recent test period
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for which financial statements have been delivered to the Agents pursuant to Section 5.1(a) or 5.1(b), as applicable, plus (ii) all voluntary prepayments, debt buybacks (to the extent of the actual cash price paid in connection with such buybacks) and any prepayments, repayments, refinancing, substitutions or replacements of any portion of the Term Loans of any Non-Consenting Lender pursuant to Section 2.21(c)(ii), or any other voluntary prepayments of Incremental Debt that is secured by a Lien on the Collateral that is pari passu with the Liens securing the Term Loan Facility, in each case made prior to the date of incurrence of such Incremental Debt (other than in connection with any refinancing of such Loans or other Incremental Debt or to the extent otherwise financed with the proceeds of long-term Indebtedness) and, in the case of voluntary prepayments of a revolving credit facility, solely to the extent accompanied by a corresponding permanent commitment reduction (the amount under clauses (i) and (ii), the “Incremental Dollar Basket”) plus (iii) an unlimited amount (any such Incremental Debt, in each case to the extent incurred under this clause (iii), “Ratio-Based Incremental Debt”) so long as, in the case of this clause (iii), upon the effectiveness of the relevant Incremental Facility Amendment or the relevant documentation relating to other Incremental Debt, as the case may be, (x) (A) in the case of Incremental Debt that is secured by a Lien on the Collateral that is pari passu with the Liens securing the applicable Term Loan Facility or (B) in the case of Incremental Debt that is secured by a Lien on the Collateral that is junior to the Liens securing the Term Loan Facility, the First Lien Net Leverage Ratio calculated on a Pro Forma Basis giving effect to such Incremental Debt and the use of the proceeds thereof (but it being understood that the proceeds from such Incremental Debt shall not be used for netting indebtedness, and any such Incremental Facility that is a revolving credit facility shall be deemed to be fully drawn on the effective date thereof, and any junior lien Indebtedness incurred in reliance on the Ratio-Based Incremental Debt shall be deemed ranking pari passu in priority of security to the Obligations in respect of the Facilities at all times for any purpose of the calculation of the First Lien Net Leverage Ratio, does not exceed 1.50:1.00 and (y) in the case of Incremental Debt that is unsecured, the Fixed Charge Coverage Ratio calculated on a Pro Forma Basis giving effect to such Incremental Debt and the use of the proceeds thereof (but it being understood that the proceeds from such Incremental Debt shall not be used for netting indebtedness and any such Incremental Facility that is a revolving credit facility shall be deemed to be fully drawn on the effective date thereof) shall not be less than 2.00:1.00. Unless elected otherwise by the applicable Borrowers, any Incremental Debt shall be deemed to have been incurred first, in reliance on the Ratio-Based Incremental Debt to the extent thereof, and second, in reliance on the Incremental Dollar Basket to the extent thereof. Incremental Debt may be incurred contemporaneously in reliance on the Ratio-Based Incremental Debt and in reliance on the Incremental Dollar Basket, and proceeds from any such incurrence may be utilized in a single transaction, by first calculating the amount available to be incurred in reliance on the Ratio-BasedRatio‑Based Incremental Debt and disregarding any concurrent utilization of the Incremental Dollar Basket. Any utilization of the Incremental Dollar Basket may be reclassified at any time, as the applicable Borrower may elect from time to time, as incurred under the Incremental Ratio Basket if the applicable Borrower satisfies, on a pro forma basis, the applicable leverage or coverage ratio at such time. All Incremental Term A Loans, Incremental Term B Loans and all Incremental Revolving Commitments shall be in an integral multiple of $1.0 million and in an aggregate principal amount that is not less than $5.0 million (or in such lesser minimum amount agreed by the applicable Administrative Agent (such consent not to be unreasonably withheld, conditioned or delayed); provided, that such amount may be less than the applicable
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minimum amount if such amount represents all the remaining availability in respect of the Incremental Facilities.
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Notwithstanding anything to the contrary herein, no Lender shall have any obligation to agree to have any of its Loans or Term Loan Commitments exchanged pursuant to any Permitted Debt Exchange Offer.
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To induce the Agents and the Lenders to enter into this Agreement and to make the Loans, Parent and the other Borrowers hereby jointly and severally represent and warrant to the Agents and each Lender that:
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None of any written information, report, financial statement, exhibit or schedule furnished by or on behalf of any Group Member to the Administrative Agents or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto (as modified or supplemented by other information so furnished but excluding projected financial information and information of a general economic, forward looking or industry-specific nature), when taken as a whole, contained or contains as of the date the same was or is furnished any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements contained therein, in the light of the circumstances under which they were or are made (after giving effect to all supplements and updates thereto), not materially misleading; provided, that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast, projection or other forward looking statement, each of Parent and each other Borrower represents only that it acted in good faith based upon assumptions believed by management of Parent or such other Borrower, as the case may be, to be reasonable at the time made and at the time furnished (it being understood that forecasts and projections by their nature are inherently uncertain, that actual results may differ significantly from the forecasted or projected results and that such differences may be material and no assurances are being given that the results reflected in the forecasts and projections will be achieved).
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Each Borrowing of a Loan by or issuance of a Letter of Credit on behalf of the applicable Borrowers with respect to which the above conditions of this Section 4.2 apply shall be deemed to constitute a representation and warranty by Parent and each other Borrower as of the date of such extension of credit that the applicable conditions contained in clause (a) and (b) of this Section 4.2 have been satisfied. Notwithstanding the foregoing or anything else in this Agreement to the contrary, solely to the extent set forth in Section 2.23, in connection with any Limited Conditionality Incremental Transaction, (x) accuracy of representations and warranties (other than Specified Representations in connection with an acquisition, which shall be accurate in all material respects as of the closing date of such acquisition) or (y) occurrence of a Default or Event of Default (other than a Specified Default), in each case may, at the option of the Borrowers, be determined as of the date the definitive agreement for such Permitted Acquisition or Investment is signed or the applicable irrevocable redemption notice is given.
Parent and each other Borrower hereby jointly and severally agree that, so long as any Commitments remain in effect or any Loan or other amount (excluding Obligations in respect of any Specified Hedge Agreements, Cash Management Obligations and contingent reimbursement and indemnification obligations that are not then due and payable) is owing to any Lender, the Agents or the Arrangers hereunder, each Borrower shall, and Parent shall and shall cause each of the Restricted Subsidiaries to:
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Notwithstanding the foregoing, the obligations in clauses (a), (b) and (c) of this Section 5.1 may be satisfied with respect to financial information of Parent and its Subsidiaries by furnishing Parent’s Form 10-K or 10-Q, as applicable, filed with the SEC; provided, that, to the extent any such Form 10-K is in lieu of information required to be provided under Section 5.1(a), the consolidated financial statements included in the materials provided are accompanied by a report by an independent certified public accountants of nationally recognized standing (without a “going concern” or like qualification, exception or explanatory paragraph, or qualification, exception or explanatory paragraph as to the scope of the audit (other than any such exception or explanatory paragraph that is expressly solely with respect to, or expressly resulting solely from, (x) an upcoming maturity date under any Indebtedness occurring within one year from the time such report is delivered or (y) any potential inability to satisfy any financial maintenance covenant on a future date or in a future period)).
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Each Borrower hereby acknowledges and agrees that all financial statements furnished pursuant to Sections 5.1(a) and 5.1(b) above and the Compliance Certificates furnished pursuant to Section 5.2(a) are hereby deemed to be Borrower Materials suitable for distribution, and to be made available, to Public Lenders as contemplated by Section 9.1 and may be treated by the Administrative Agent and the Lenders as if the same had been marked “PUBLIC” in accordance with such paragraph (unless such Borrower otherwise notifies the Administrative Agent in writing on or prior to the delivery thereof).
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Each notice pursuant to this Section 5.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action (if any) the relevant Group Member proposes to take with respect thereto.
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The Borrowers shall otherwise take or cause to be taken such actions and execute and/or deliver or cause to be executed and/or delivered to the Collateral Agent such documents as the Collateral Agent shall require to confirm the validity of the Lien granted in favor of the Collateral Agent for the benefit of the Secured Parties against such after-acquired properties or assets, and such assets held on the Closing Date not made subject to a Lien created by any of the Collateral Documents.
For the avoidance of doubt, and without limitation, Section 5.9 shall apply to any division of a Loan Party and to any division of a Group Member required to become a Loan Party pursuant to the terms of the Loan Documents and to any allocation of assets to a series of a limited liability company.
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For the avoidance of doubt, and without limitation, Section 5.11 shall apply to any division of a Loan Party and to any division of a Group Member required to become a Loan Party pursuant to the terms of the Loan Documents and to any allocation of assets to a series of a limited liability company.
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provided that, for the purposes of determining compliance with this Section 5.14: (w) the Consolidated EBITDA and total assets of any Restricted Subsidiary of Parent which is an Excluded Subsidiary shall be excluded in calculating the Consolidated EBITDA and the consolidated total assets of Parent and its Restricted Subsidiaries; (x) the Consolidated EBITDA and total assets of any Restricted Subsidiary of Parent which is not a Loan Party shall be excluded in calculating the Loan Party Consolidated EBITDA and the Loan Party Assets to the extent included therein; (y) Consolidated EBITDA, Loan Party Consolidated EBITDA, Loan Party Assets and the consolidated total assets of Parent and its Restricted Subsidiaries shall be determined without giving effect to any write-off of any intercompany receivables due from, or equity value attributable to, Herbalife Venezuela; and (z) the Consolidated EBITDA and the consolidated total assets of Parent and its Restricted Subsidiaries shall be calculated by giving pro forma effect to any such purchase or acquisition of the capital stock or other equity securities of another Person or the assets of another Person that constitute a business unit or all or substantially all of the business of such Person as though such purchase or acquisition had been consummated as of the first day of the applicable fiscal period; and provided, further that Restricted Subsidiaries may be excluded from the requirements of this Section 5.14 in circumstances where the Borrowers and the Administrative Agents reasonably agree that the cost of providing such a guarantee is excessive in relation to the value afforded thereby. Additionally, it is agreed and understood that any Loan Party that is not a guarantor of all of the Obligations under the Loan Documents shall be excluded for the purposes of this Section 5.14 in determining any Loan Party Consolidated EBITDA and/or any Loan Party Assets.
Parent and each other Borrower hereby jointly and severally agree that, so long as any Commitments remain in effect or any Loan or other amount (excluding Obligations in respect of any Specified Hedge Agreements, Cash Management Obligations and contingent reimbursement and indemnification obligations, in each case, that are not then due and payable) is owing to any Lender, any Agent or the Arrangers hereunder, each Borrower shall not, and Parent shall not and shall not permit any of the Restricted Subsidiaries to:
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provided, that to the extent any Indebtedness incurred in reliance on clause (c), (e), (f), (g), (l), (o), (p) or (y) of this Section 6.2 is used to finance, in whole or in part, any Limited Conditionality Incremental Transaction, then for purposes of determining compliance under such clause, the applicable Borrowers shall have the option of making such determination as of the date the definitive documentation for such Limited Conditionality Incremental Transaction is executed or the redemption or prepayment notice is given, and the applicable financial ratios or tests and any other Pro Forma Transactions in connection therewith shall thereafter be calculated and determined as if such Limited Conditionality Incremental Transaction were consummated on such date until consummated or terminated; provided, further, that if the applicable Borrowers elect to have such determinations occur as of the date of such definitive agreement or redemption or prepayment notice, any related incurrence of Indebtedness or Liens shall be deemed to have occurred on such date and outstanding thereafter for purposes of subsequently calculating any ratios under this Agreement after such date and before the consummation of such Limited Conditionality Incremental Transaction and to the extent baskets were utilized in satisfying any covenants, such baskets shall be deemed utilized, but any calculation of Consolidated EBITDA or Consolidated Total Assets for purposes of other incurrences of Indebtedness or Liens or determining the permissibility of other transactions (not related to such Limited Conditional Incremental Transaction) shall not reflect such Limited Conditionality Incremental Transaction until it is consummated or terminated.
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For purposes of determining compliance with any US Dollar-denominated restriction on the incurrence or refinancing of Indebtedness, the US Dollar Equivalent principal amount of Indebtedness denominated in a Foreign Currency shall be calculated based on the relevant currency Exchange Rate in effect on the date such Indebtedness was incurred or refinanced, in the case of term debt, or first committed or refinanced, in the case of revolving credit debt; provided, that if such Indebtedness is incurred to extend, replace, refund, refinance, renew or defease other Indebtedness denominated in a Foreign Currency, and such extension, replacement, refunding, refinancing, renewal or defeasance would cause the applicable US Dollar-denominated restriction to be exceeded if calculated at the relevant currency Exchange Rate in effect on the date of such extension, replacement, refunding, refinancing, renewal or defeasance, such US Dollar-denominatedDollar‑denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being extended, replaced, refunded, refinanced, renewed or defeased, plus the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing.
To the extent otherwise constituting Indebtedness, the accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness shall be deemed not to be Indebtedness for purposes of this Section 6.2. The principal amount of any non-interest bearing Indebtedness or other discount security constituting Indebtedness at any date shall be the accreted amount thereof.
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provided, that to the extent any Liens incurred in reliance on clause (t), (v) or (ff) of this Section 6.3 are used, in whole or in part, as part of any Limited Conditionality Incremental Transaction, then for purposes of determining compliance under such clause, the applicable Borrowers shall have the option of making such determination as of the date the definitive documentation for such Limited Conditionality Incremental Transaction is executed or the redemption or prepayment notice is given, and the applicable financial ratios or tests and any other Pro Forma Transactions in connection therewith shall thereafter be calculated and determined as if such Limited Conditionality Incremental Transaction were consummated on such date until consummated or terminated; provided, further, that if the applicable Borrowers elects to have such determinations occur as of the date of such definitive agreement or redemption or prepayment notice, any related incurrence of Indebtedness or Liens shall be deemed to have occurred on such date and outstanding thereafter for purposes of subsequently calculating any ratios under this Agreement after such date and before the consummation of such Limited Conditionality Incremental Transaction and to the extent baskets were utilized in satisfying any covenants, such baskets shall be deemed utilized, but any calculation of Consolidated EBITDA or Consolidated Total Assets for purposes of other incurrences of Indebtedness or Liens or determining the permissibility of other transactions (not related to such Limited Conditional Incremental Transaction) shall not reflect such Limited Conditionality Incremental Transaction until it is consummated or terminated.
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Any transaction otherwise permitted by this Section 6.4 that results in any Subsidiary Guarantor becoming a Non-Loan Party Subsidiary or an Excluded Subsidiary (pursuant to clause (d) of the definition of such term after giving effect to such transaction) shall be deemed an Investment in a Non-Loan Party Subsidiary for purposes of (and subject to) Section 6.7 in an amount equal to the fair market value (as reasonably determined in good faith by Parent) of such Subsidiary Guarantor prior to giving effect to such transaction.
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Any Disposition of Capital Stock of any Loan Party from one Group Member to another Group Member otherwise permitted by this Section 6.5 that results in any Subsidiary Guarantor becoming a Non-Loan Party Subsidiary or an Excluded Subsidiary (pursuant to clause (d) of the definition of such term after giving effect to such Disposition) shall be deemed an Investment in a Non-Loan Party Subsidiary for purposes of (and subject to) Section 6.7 in an amount equal to the fair market value (as reasonably determined in good faith by Parent) of such Subsidiary Guarantor prior to giving effect to such Disposition.
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provided, that for purposes of covenant compliance, (x) the amount of any Investment at any time shall be the amount actually invested (measured at the time made), without adjustment for subsequent changes in the value of such Investment, net of all Returns on such Investment up to the original amount of such Investment, and (y) in the case of any Investment in connection with any Limited Conditionality Incremental Transaction, the applicable Borrowers shall have the option of making any determination required by this Section 6.7 and any related determination required by Section 6.2, 6.3, 6.8 or 6.10, as applicable, as of the date the definitive documentation for such Investment is executed, and the applicable financial ratios or tests and any other Pro Forma Transactions in connection therewith shall thereafter be calculated and determined as if such Limited Conditionality Incremental Transaction were consummated on such date until consummated or terminated; provided, further, that if the applicable Borrowers elect to have such determinations occur as of the date of such definitive agreement, any related incurrence of Indebtedness or Liens shall be deemed to have occurred on such date and outstanding thereafter for purposes of subsequently calculating any ratios under this Agreement after such date and before the consummation of such Investment and to the extent baskets were utilized in satisfying any covenants, such baskets shall be deemed utilized, but any calculation of Consolidated EBITDA or Consolidated Total Assets for purposes of other incurrences of Indebtedness or Liens or determining the permissibility of other transactions (not related to such Investment) shall not reflect such Investment until it is consummated or terminated; provided, further, that any
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intercompany Investment permitted above that is in the form of a loan or advance owed to (A) a Loan Party shall be evidenced by an intercompany note (individually or pursuant to a global note (which global note may be a Subordinated Intercompany Note)) and pledged by such Loan Party as Collateral pursuant to the Collateral Documents and (B) a Non-Loan Party Subsidiary by a Loan Party (other than Parent) shall be subordinated in right of payment to the Obligations on customary terms reasonably satisfactory to the Collateral Agent.
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Period |
Ratio |
September 30, 2018 to September 30, 2021 |
4.00:1.00 |
December 31, 2021 and thereafter |
3.75: 1.00 |
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then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to any Borrower, the Commitments hereunder shall automatically and immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall immediately become due and payable, and (B) if such event is any other Event of Default, then, with the consent of the Required Lenders, the applicable Administrative Agent may, or upon the request of the Required Lenders, the applicable Administrative Agent shall, by notice to Parent and the applicable Borrowers, (i) declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable and (ii) subject to the terms and conditions of the Intercreditor Agreements, any Senior Pari Passu Intercreditor Agreement, any Senior/Junior Intercreditor Agreement and any other intercreditor arrangement entered into in connection with this Agreement, commence foreclosure actions with respect to the Collateral in accordance with the terms and procedures set forth in the Collateral Documents; provided, further that during the continuance of any Event of Default arising from a failure to comply with Section 6.14, (A) solely upon the request of the Required Pro Rata Facility Lenders, either Term Loan A Agent or the Revolver Administrative Agent shall, by notice to Parent, (1) declare the Revolving Credit Commitments, Term Loan A Commitments and the obligation of each Lender to make Revolving Credit Loans and Term A Loans to be terminated, whereupon the same shall forthwith terminate, and (2) declare the Revolving Credit Loans, Term A Loans, all interest thereon and all other amounts payable under this Agreement in respect of such Revolving Loans and Term A Loans to be forthwith due and payable, whereupon the Revolving Loans, Term A Loans and all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers and each Guarantor and (B) subject to the Financial Covenant Standstill, the Term Loan B Agent shall at the request, or may with the consent, of the Required Term B Lenders in respect of the Term Loan B Facility, by notice to Parent, declare the Term B Loans, all interest thereon and all other amounts payable under this Agreement in respect of the Term B Loans to be forthwith due and payable, whereupon the Term B Loans, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers and each Guarantor.
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First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Agents and amounts payable under Sections 2.16 through 2.19) payable to the applicable Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and fees in respect of Letters of Credit that are payable pursuant to Section 2.13(b)) payable to the Lenders and the Issuing Banks (including fees, charges and disbursements of counsel to the respective Lenders and the Issuing Banks (including fees and time charges for attorneys who may be employees of any Lender or any Issuing Bank) and amounts payable under Sections 2.16 through 2.19), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid fees in respect of Letters of Credit that are payable pursuant to Section 2.13(b) and interest on the Loans, LC Exposure and other Obligations, ratably among the Lenders and the Issuing Banks in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, LC Disbursements, Cash Management Obligations, Obligations then owing under Specified Hedge Agreements, Obligations owing to the Revolver Administrative Agent for the account of the Issuing Banks, to cash collateralize (in a manner consistent with Section 2.7(j)) that portion of the LC Exposure comprised of the aggregate undrawn amount of Letters of Credit, ratably among the Revolver Administrative Agent, the Lenders, the Issuing Banks and Qualified Counterparties in proportion to the respective amounts described in this clause Fourth held by them;
Last, the balance, if any, after all of the Obligations have been paid in full, to the Borrowers or as otherwise required by Law.
Subject to Section 2.7, amounts used to cash collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fourth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as cash collateral after all Letters
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of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
Notwithstanding the foregoing, Cash Management Obligations and Obligations arising under Specified Hedge Agreements shall be excluded from the application described above if the Collateral Agent has not received written notice thereof, together with such supporting documentation as the Collateral Agent may reasonably request, from the applicable Qualified Counterparty, as the case may be. Each Qualified Counterparty that is not a party to this Agreement that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Agents pursuant to the terms of Section 8 hereof for itself and its Affiliates as if a “Lender” party hereto. Excluded Swap Obligations with respect to any Guarantor shall not be paid with amounts received from such Guarantor or its assets, but appropriate adjustments shall be made with respect to payments from other Loan Parties to preserve the allocation to Obligations otherwise set forth above in this Section.
Furthermore, notwithstanding the foregoing, any Lender (a “Declining Lender”) may from time to time voluntarily disclaim its interest in one or more assets constituting Collateral by sending irrevocable notice to the Collateral Agent identifying such assets with specificity and containing an agreement by such Lender that such assets shall no longer secure the Obligations owing to such Lender (any such asset, with respect to such Declining Lender, a “Declined Asset”). Delivery of such notice by any Declining Lender shall not affect or impair the security interest of any other Secured Party with respect to such asset. Notwithstanding anything herein to the contrary, no proceeds or other amounts distributed on account of any Declined Asset (as a result of foreclosure or otherwise) shall be distributed to any Declining Lender who has disclaimed an interest in such Declined Asset, and such proceeds or other amounts shall instead be distributed to each other Secured Party who is otherwise entitled to receive such proceeds or other amounts on the terms set forth herein. For the avoidance of doubt, the effect of any Declining Lenders disclaiming a security interest in any Declined Asset shall be borne solely by such Declining Lenders, and such Declining Lenders shall not by virtue thereof be entitled to a “true up” or otherwise be entitled to receive a greater than pro rata share of any other Collateral proceeds or other amounts distributed to the Secured Parties on account of the Obligations.
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Herbalife Nutrition Ltd.
990 West 190th Street
Torrance, CA 90502
Attention: Richard Caloca, Vice President, Treasurer
Telephone: (310) 851-2333
Facsimile: (310) 767-3328
E-mail: richardc@herbalife.com
with, in the case of any Luxembourg Borrower, copies to it at:
16 Avenue de la Gare
L-1610 Luxembourg
Telephone: 352 26 20 77 21
Facsimile: 352 26 20 77 20
Email: helened@herbalife.com
with copies (which shall not constitute notice) to:
Gibson, Dunn & Crutcher LLP
2029 Century Park East
Los Angeles, CA 90067
Attention: Jonathan Layne; Cromwell Montgomery
Facsimile: (310) 552-7053
E-mail: JLayne@gibsondunn.com; CMontgomery@gibsondunn.com
Jefferies Finance LLC
520 Madison Avenue
New York, NY 10022
Attention: Account Manager — Herbalife
Facsimile: (212) 284-3444
Email: JFin.Admin@Jefferies.com
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Coöperatieve Rabobank U.A., New York Branch,
Capital Markets and Agency Services
Attention: Anna Marie Ybanez
Telephone: (212) 574-7334
Facsimile: (914) 304-9327
E-mail: fm.am.SyndicatedLoans@rabobank.com with a copy to: AnnaMarie.Ybanez@rabobank.com and Ann.McDonough@rabobank.com; and
Coöperatieve Rabobank U.A., New York Branch
245 Park Avenue, New York, NY 10167
Attn: Loan Syndications
Telephone: (212) 574-7334
Facsimile: (914) 304-9327
E-mail: fm.am.SyndicatedLoans@rabobank.com with a copy to:
AnnaMarie.Ybanez@rabobank.com and
Ann.McDonough@rabobank.com; and
Coöperatieve Rabobank U.A., New York Branch
Trade Finance Services
Attention: Sandra Rodriguez
Telephone: (212) 574-7315
Facsimile: (914) 304-9329
E-mail: RaboNYSBLC@rabobank.com with a copy to: Sandra.L.Rodriguez@rabobank.com
All notices and other communications given to any party hereto, in accordance with the provisions of this Agreement, shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service, or sent by fax or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.1, or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.1. As agreed to among the Borrowers, the Agents and the applicable Lenders from time to time, notices and other communications may also be delivered by e-mail to the e-mail address of a representative of the applicable Person provided from time to time by such Person.
Each of Parent and each other Borrower hereby agrees, unless directed otherwise by the applicable Agent or unless the electronic mail address referred to below has not been provided by the applicable Agent to Parent and the other Borrowers, that it will, and Parent will cause its Subsidiaries to, provide to the applicable Agent all information, documents and other materials
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that it is obligated to furnish to the applicable Agent pursuant to the Loan Documents or to the Lenders under Section 5, including all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (a) is or relates to a Borrowing Request, a notice pursuant to Section 2.9, or a notice requesting the issuance, amendment, extension or renewal of a Letter of Credit pursuant to Section 2.7, (b) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (c) provides notice of any Default or Event of Default under this Agreement or any other Loan Document or (d) is required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any Borrowing or other extension of credit hereunder (all such nonexcluded communications being referred to herein collectively as “Communications”), by transmitting the Communications in an electronic/soft medium that is properly identified in a format acceptable to the applicable Agent to an electronic mail address as directed by the applicable Agent. In addition, Parent and the other Borrowers agree, and agree to cause Parent’s Subsidiaries, to continue to provide the Communications to the applicable Agent or the Lenders, as the case may be, in the manner specified in the Loan Documents but only to the extent requested by the applicable Agent.
Each of Parent and each other Borrower hereby acknowledges that (a) the applicable Administrative Agent will make available to the Lenders and the Issuing Banks materials and/or information provided by, or on behalf of, the applicable Borrowers hereunder (collectively, the “Borrower Materials”) by posting the Borrower Materials on Intralinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that wish to receive information and documentation that is publicly available or (y) does not contain MNPI (collectively, “Public Lender Information”)) (each, a “Public Lender”). Each of Parent and each other Borrower hereby agrees that (i) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (ii) by marking Borrower Materials “PUBLIC”, the applicable Borrowers shall be deemed to have authorized the applicable Administrative Agent and the Lenders to treat such Borrower Materials as not containing any Private Lender Information (as defined below) (provided, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 9.12); (iii) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated as “Public Investor”; and (iv) the applicable Administrative Agent shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not marked as “Public Investor”. Notwithstanding the foregoing, the following Borrower Materials shall be deemed to be marked “PUBLIC” unless the applicable Borrowers notify the applicable Administrative Agent promptly that any such document contains Private Lender Information: (A) the Loan Documents, (B) notification of changes in the terms of the Facilities and (C) all information delivered pursuant to Section 5.1 and Section 5.2(a). “Private Lender Information” means any information and documentation that is not Public Lender Information.
Each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the “Private Side Information” or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lender’s compliance procedures and applicable law, including United States Federal and state securities laws, to make reference to Communications that are not
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made available through the “Public Side Information” portion of the Platform and that may contain MNPI.
THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” NEITHER THE APPLICABLE ADMINISTRATIVE AGENT NOR ANY OF ITS RELATED PARTIES WARRANTS THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS OR THE ADEQUACY OF THE PLATFORM AND EACH EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS IS MADE BY THE APPLICABLE ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL THE APPLICABLE ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PARTIES HAVE ANY LIABILITY TO ANY LOAN PARTY, ANY LENDER OR ANY OTHER PERSON FOR DAMAGES OF ANY KIND, WHETHER OR NOT BASED ON STRICT LIABILITY AND INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY’S OR THE APPLICABLE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF ANY SUCH PERSON IS FOUND IN A FINAL RULING BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
The applicable Agent agrees that the receipt of the Communications by the applicable Agent at its electronic mail address set forth above shall constitute effective delivery of the Communications to the applicable Agent for purposes of the Loan Documents. Each Lender agrees that receipt of notice to it (as provided in the next sentence) specifying that the Communications have been posted to the Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender agrees to notify the applicable Administrative Agent in writing (including by electronic communication) from time to time of such Lender’s electronic mail address to which the foregoing notice may be sent by electronic transmission and that the foregoing notice may be sent to such e-mail address. Nothing herein shall prejudice the right of the applicable Agent or any Lender to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.
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provided, further that no such agreement shall amend, modify or otherwise affect the rights or duties of the applicable Administrative Agent, Sustainability Coordinator or any Issuing Bank hereunder in a manner adverse to the applicable Administrative Agent, Sustainability Coordinator or such Issuing Bank, as the case may be, without the prior written consent of the applicable Administrative Agent, Sustainability Coordinator or such Issuing Bank, as the case may be. Notwithstanding the foregoing, (i) amendments, waivers or other modifications may be made to any condition precedent to the extension of Revolving Credit Loans (or deemed extensions of Revolving Credit Loans) under the Revolving Credit Facility of the same Class with only the written consent of the Required Revolving Lenders (or by the Revolver Borrowers and the Revolver Administrative Agent with the consent of the Required Revolving Lenders) of such Class, (ii) amendments, waivers and other modifications may be made to Sections 6.14, 7.1(c), 7.1(e) and 7.2 (and definitions to the extent relating to such Sections) (including, for the avoidance of doubt, the amendment, waiver, termination or other modification of a Financial Covenant Event of Default) with only the written consent of the Required Pro Rata Facility Lenders and (iii) amendments, waivers and other modifications to the provisions of any Loan Document in a manner that by its terms adversely affects the rights or obligations of Lenders holding Loans or Commitments of a particular Class (but not the rights or obligations of Lenders holding Loans or Commitments of any other Class) will require only the prior written consent of Lenders holding the requisite percentage under this Section 9.2(b) of the outstanding Loans and unused Commitments of such Class (as if such Class were the only Class of Loans and Commitments then outstanding under this Agreement), Parent and the Borrowers.
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Exhibit 10.39
HERBALIFE LTD.
2023 STOCK INCENTIVE PLAN
Effective April 26, 2023
HERBALIFE LTD.
2023 STOCK INCENTIVE PLAN
Effective April 26, 2023
1. Purpose
The purpose of the Herbalife Ltd. 2023 Stock Incentive Plan (as amended from time to time, the “Plan”) is to promote and closely align the interests of employees, directors and consultants of Herbalife Ltd. (the “Company”) and its shareholders by providing stock-based compensation and other performance-based compensation. The Plan is intended to strengthen the Company’s ability to drive performance which enhances long term shareholder value; to increase employee stock ownership; and to strengthen the Company’s ability to attract and retain outstanding employees, directors and consultants.
The Plan supersedes the Herbalife Ltd. Amended and Restated 2014 Stock Incentive Plan with respect to future awards, and provides for the grant of Options, Stock Appreciation Rights, Stock Units and Restricted Stock, any of which may be performance-based, and for Incentive Bonuses, which may be paid in cash or stock or a combination thereof, as determined by the Committee.
2. Definitions
As used in the Plan, the following terms shall have the meanings set forth below:
(a) “Affiliate” means any entity in which the Company has a substantial direct or indirect equity interest, as determined by the Committee from time to time.
(b) “Act” means the Securities Exchange Act of 1934, as amended, or any successor thereto.
(c) “Award” means an Option, Stock Appreciation Right, Stock Unit or Incentive Bonus granted to a Participant pursuant to the provisions of the Plan, any of which may be subject to performance conditions in accordance with Section 12 of the Plan.
(d) “Award Agreement” means a written or electronic agreement or other instrument as may be approved from time to time by the Committee and designated as such implementing the grant of each Award. An Award Agreement may be in the form of an agreement to be executed by both the Participant and the Company (or an authorized representative of the Company) or certificates, notices or similar instruments as approved by the Committee and designated as such.
(e) “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Act.
(f) “Board” means the board of directors of the Company.
(g) “Change in Control” means the occurrence of any one of the following:
(1) an acquisition (other than directly from the Company after advance approval by a majority of the Incumbent Board) of Common Shares or other voting securities of the Company by any “person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), other than the Company, any Subsidiary, any employee benefit plan of the Company or any Subsidiary, or any person in connection with a transaction described in clause (iii) of this Section 2(d), immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the then outstanding Common Shares or the combined voting power of the Company’s then outstanding voting securities;
(2) the individuals who, as of the Effective Date, are members of the Board (the “Incumbent Board”), cease for any reason during any 24-month period to constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s common shareholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board; or
(3) the consummation of: (A) a merger, consolidation or reorganization with or into the Company, unless the voting securities of the Company, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least 50% of the combined voting power of the outstanding voting securities of the entity resulting from such merger or consolidation or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation or reorganization; (B) a complete liquidation or dissolution of the Company; or (C) the sale, lease, transfer or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a Subsidiary).
(h) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rulings and regulations issues thereunder.
(i) “Committee” means the Compensation Committee of the Board (or any successor committee), or such other committee as designated by the Board to administer the Plan under Section 6.
(j) “Common Stock” means the common shares of the Company, par value $0.0005 a share, or such other class or kind of shares or other securities as may be applicable under Section 15.
(k) “Company” means Herbalife Ltd., a Cayman Islands exempted company incorporated with limited liability, and except as utilized in the definition of Change in Control, any successor corporation.
(l) “Dividend Equivalents” mean an amount payable in cash or Common Stock, as determined by the Committee, with respect to a Stock Unit Award equal to what would have been received if the shares underlying the Award had been owned by the Participant.
(m) “Effective Date” means the date on which the Plan takes effect, as defined pursuant to Section 4 of the Plan.
(n) “Eligible Person” means an employee, director or consultant of the Company or a Subsidiary, including an officer or director who is such an employee. Notwithstanding the foregoing, a person who would otherwise be an Eligible Person shall not be an Eligible Person in any jurisdiction where such person’s participation in the Plan would be unlawful. Non-employee directors shall be considered Eligible Persons under the Plan.
(o) “Fair Market Value” means as of any date, the value of the Common Stock determined as follows: (i) if on such date the Common Stock is listed on any established stock exchange, system or market, its Fair Market Value shall be the closing price for the Common Stock as quoted on such exchange, system or market as reported in the Wall Street Journal or such other source as the Committee deems reliable (or, if no such closing price is reported, the closing price on the last preceding date on which a sale of Common Stock occurred); provided, however, that the Committee may, in its discretion, determine the Fair Market Value of a share of Common Stock on the basis of the opening, closing, or average of the high and low sale prices of a share of Common Stock on such date, the preceding trading day, the next succeeding trading day, an average of trading days, or the actual sale price of a share of Common Stock; and (ii) in the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee by the reasonable application of a reasonable valuation method, taking into account factors consistent with Treas. Reg. § 409A-1(b)(5)(iv)(B) as the Committee deems appropriate.
(p) “Incentive Bonus” means a bonus opportunity awarded under Section 11 pursuant to which a Participant may become entitled to receive an amount based on satisfaction of such performance criteria established for a performance period of not less than one year as are specified in the Award Agreement.
(q) “Incentive Stock Option” means a stock option that is designated as potentially eligible to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
(r) “Nonqualified Stock Option” means a stock option that is not intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
(s) “Option” means a right to purchase a number of shares of Common Stock at such exercise price, at such times and on such other terms and conditions as are specified in or determined pursuant to an Award Agreement. Options granted pursuant to Section 8 of the Plan may be Incentive Stock Options or Nonqualified Stock Options.
(t) “Participant” means any individual described in Section 3 to whom Awards have been granted from time to time by the Committee and any authorized transferee of such individual.
(u) “Performance Criteria” has the meaning set forth in Section 12(b).
(v) “Person” shall have the meaning given in Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(w) “Plan” means this Herbalife Ltd. 2023 Stock Incentive Plan, as it may be amended from time to time.
(x) “Prior Plan” means the Herbalife Ltd. Amended and Restated 2014 Stock Incentive Plan.
(y) “Restricted Stock” means an Award or issuance of Common Stock the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions (including continued employment or performance conditions) and terms as the Committee deems appropriate.
(aa) “Separation from Service” or “Separates from Service” means the termination of Participant’s employment with the Company and all Subsidiaries that constitutes a “separation from service” within the meaning of Section 409A of the Code.
(bb) “Stock Appreciation Right” means a right granted pursuant to Section 9 of the Plan that entitles the Participant to receive, in cash or Common Stock or a combination thereof, as determined by the Committee, value equal to the excess of (i) the market price of a specified number of shares of Common Stock at the time of exercise over (ii) the exercise price of the right, as established by the Committee on the date of grant.
(cc) “Stock Unit” means an Award denominated in units of Common Stock under which the issuance of shares of Common Stock (or cash payment in lieu thereof) is subject to such conditions (including continued employment or performance conditions) and terms as the Committee deems appropriate.
(dd) “Subsidiary” means any business association (including a corporation or a partnership, other than the Company) in an unbroken chain of such associations beginning with the Company if each of the associations other than the last association in the unbroken chain owns equity interests (including stock or partnership interests) possessing 50% or more of the total combined voting power of all classes of equity interests in one of the other associations in such chain.
(ee) “Substitute Awards” means Awards granted or Common Stock issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
3. Eligibility
Any Eligible Person is eligible to receive an Award. Options intending to qualify as Incentive Stock Options may only be granted to employees of the Company or any Subsidiary.
4. Adoption and Termination of Plan
This Plan was approved by the Board on February 7, 2023 and will become effective upon approval by the Company’s shareholders at the Company’s 2023 Annual General Meeting of Shareholders (the date of such approval, the “Effective Date”). The Plan shall remain available for the grant of Awards until the tenth anniversary of the Effective Date; provided, however, that Incentive Stock Options may not be granted under the Plan after February 7, 2033. Notwithstanding the foregoing, the Plan may be terminated at such earlier time as the Board may determine. Termination of the Plan will not affect the rights and obligations of the Participants and the Company arising under Awards theretofore granted.
5. Shares Subject to the Plan and to Awards
(a) Aggregate Limits. The aggregate number of shares of Common Stock issuable under the Plan shall not exceed 8,500,000, plus any shares of Common Stock that remained available for issuance under the Prior Plan as of the Effective Date. Any shares of Common Stock issued under Options or Stock Appreciation Rights shall be counted against the number of shares issuable under the Plan on a one-for-one basis and any shares of Common Stock issued pursuant to Awards other than Options or Stock Appreciation Rights shall be counted against this limit as 1.85 shares of Common Stock for every one (1) share of Common Stock subject to such Award. Shares of Common Stock subject to outstanding awards under the Prior Plan as of the Effective Date (such awards the “Prior Plan Awards”) that, after the Effective Date, are canceled, expired, forfeited or otherwise not issued under a Prior Plan Award) or settled in cash shall be added to the number of shares of Common Stock issuable under the Plan as one (1) share of Common Stock if such shares were subject to options or stock appreciation rights granted under a Prior Plan, and as 1.85 shares of Common Stock if such shares were subject to awards other than options or stock appreciation rights granted under the Prior Plan. The aggregate number of shares of Common Stock available for grant under this Plan and the number of shares of Common Stock subject to Awards outstanding at the time of any event described in Section 15 shall be subject to adjustment as provided in Section 15. The shares of Common Stock issued pursuant to Awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market.
(b) Issuance of Shares. For purposes of Section 5(a), the aggregate number of shares of Common Stock issued under this Plan at any time shall equal only the number of shares of Common Stock actually issued upon exercise or settlement of an Award (taking into account the formula set forth in Section 5(a)), and shares of Common Stock subject to Awards that have been canceled, expired, forfeited or otherwise not issued under an Award and shares of Common Stock subject to Awards settled in cash shall not count as shares of Common Stock issued under this Plan. Notwithstanding the foregoing, the following shares of Common Stock will not be added back (or with respect to Prior Plan Awards, will not be added) to the aggregate number of shares of Common Stock available for issuance: (i) shares of Common Stock that were subject to a stock-settled Stock Appreciation Right (or a stock appreciation right granted under a Prior Plan) and were not issued upon the net settlement or net exercise of such Stock Appreciation Right (or stock appreciation right granted under a Prior Plan), (ii) shares of Common Stock delivered to or withheld by the Company to pay the exercise price of an Option (or an option granted under a Prior Plan), (iii) Shares of Common Stock delivered to or withheld by the Company to pay the withholding taxes related an Award (or an award granted under a Prior Plan), or (iv) Shares of Common Stock repurchased on the open market with cash proceeds from exercise of an Option (or option granted under a Prior Plan). Any shares of Common Stock that again become available for grant pursuant to this Section 5 shall be added back as one (1) share of Common Stock if such shares were subject to Options or Stock Appreciation Rights granted under the Plan or
options or stock appreciation rights granted under a Prior Plan, and as 1.85 shares of Common Stock if such shares were subject to Awards other than Options or Stock Appreciation Rights granted under the Plan or subject to awards other than options or stock appreciation rights granted under the Prior Plan. In addition, any shares issued by the Company through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares available for grants under the Plan.
(c) Tax Code Limits. The aggregate number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options granted under this Plan shall not exceed 5,000,000, which number shall be calculated and adjusted pursuant to Section 15 only to the extent that such calculation or adjustment will not affect the status of any option intended to qualify as an Incentive Stock Option under Section 422 of the Code.
(d) Substitute Awards. Substitute Awards shall not reduce the shares of Common Stock authorized for issuance under the Plan or authorized for grant to a Participant in any calendar year. Additionally, in the event that a company acquired by the Company or any Subsidiary, or with which the Company or any Subsidiary combines, has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the shares of Common Stock authorized for issuance under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were employees or directors of such acquired or combined company before such acquisition or combination.
(e) Non-Employee Director Limits. The aggregate number of shares of Common Stock subject to Awards granted under this Plan during any calendar year to any one non-employee director shall not exceed that number of shares having a Fair Market Value on the date of grant of $375,000; provided, however, that in the calendar year in which a non-employee director first joins the Board or is first designated as Chairman of the Board or Lead Director, the maximum number of shares subject to Awards granted to such non-employee director may be up to two hundred percent (200%) of the number of shares of Common Stock indicated by the foregoing limit.
6. Administration of the Plan
(a) Administrator of the Plan. The Plan shall be administered by the Committee. The Board shall fill vacancies on, and from time to time may remove or add members to, the Committee. The Committee shall act pursuant to a majority vote or unanimous written consent. Any power of the Committee may also be exercised by the Board, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Securities Exchange Act of 1934. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control. To the maximum extent permissible under applicable law, the Compensation Committee of the Board (or any successor) may by resolution delegate any or all of its authority to one or more subcommittees composed of one or more directors and/or officers, and any such subcommittee shall be treated as the Committee for all purposes under this Plan. Notwithstanding the foregoing, if the Board or the Compensation Committee of the Board (or any successor) delegates to a subcommittee comprised of one or more officers of the Company (who are not also directors) the authority to grant Awards, the resolution so authorizing such subcommittee shall specify the total number of shares of Common Stock such subcommittee may award pursuant to such delegated authority, and no such subcommittee shall designate any officer serving thereon or any executive officer of the Company as a recipient of any Awards granted under such delegated authority. The Committee hereby delegates to and designates the senior human resources officer of the Company (or such other officer with similar authority), and to his or her delegates or designees, the authority to assist the Committee in the day-to-day administration of the Plan and of Awards granted under the Plan, including without limitation those powers set forth in Section 6(b)(4) through (9) and to execute agreements evidencing Awards made under this Plan or other documents entered into under this Plan on behalf of the Committee or the Company. The Committee may further designate and delegate to one or more additional officers or employees of the Company or any subsidiary, and/or one or more agents, authority to assist the Committee in any or all aspects of the day-to-day administration of the Plan and/or of Awards granted under the Plan.
(b) Powers of Committee. Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of this Plan, including, without limitation:
(1) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein;
(2) to determine which persons are Eligible Persons, to which of such Eligible Persons, if any, Awards shall be granted hereunder and the timing of any such Awards;
(3) to prescribe and amend the terms of the Award Agreements, to grant Awards and determine the terms and conditions thereof;
(4) to establish and verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, retention, vesting, exercisability or settlement of any Award;
(5) to prescribe and amend the terms of or form of any document or notice required to be delivered to the Company by Participants under this Plan;
(6) to determine the extent to which adjustments are required pursuant to Section 15;
(7) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions if the Committee, in good faith, determines that it is appropriate to do so;
(8) to approve corrections in the documentation or administration of any Award; and
(9) to make all other determinations deemed necessary or advisable for the administration of this Plan.
Notwithstanding anything in this Plan to the contrary, with respect to any Award that is “deferred compensation” under Section 409A of the Code, the Committee shall exercise its discretion in a manner that causes such Awards to be compliant with or exempt from the requirements of such Code section. Without limiting the foregoing, unless expressly agreed to in writing by the Participant holding such Award, the Committee shall not take any action with respect to any Award which constitutes (i) a modification of a stock right within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(B) so as to constitute the grant of a new stock right, (ii) an extension of a stock right, including the addition of a feature for the deferral of compensation within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(C), or (iii) an impermissible acceleration of a payment date or a subsequent deferral of a stock right subject to Section 409A of the Code within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(E).
The Committee may, in its sole and absolute discretion, without amendment to the Plan but subject to the limitations otherwise set forth in Section 19, waive or amend the operation of Plan provisions respecting exercise after termination of employment or service to the Company or an Affiliate. The Committee or any member thereof may, in its sole and absolute discretion and, except as otherwise provided in Section 19, waive, settle or adjust any of the terms of any Award so as to avoid unanticipated consequences or address unanticipated events (including any temporary closure of an applicable stock exchange, disruption of communications or natural catastrophe).
Further, and notwithstanding anything in the Plan to the contrary, Awards granted under the Plan may not become exercisable, vest or be settled, in whole or in part, prior to the one-year anniversary of the date of grant, except that the Committee may provide that such Awards become exercisable, vest or settle prior to such date in the event of the Participant’s death or disability or in the event of a Change in Control. Notwithstanding the foregoing, (i) up to 5% of the aggregate number of shares of Common Stock authorized for issuance under this Plan (as described in Section 5(a)) may be issued pursuant to Awards subject to any, or no, vesting conditions, as the Committee determines appropriate, and (ii) Awards to non-employee directors may vest in less than one year and not count against the 5% pool described in clause (i) so long as such Awards vest based upon service as a member of the Board from the date of the annual grant to directors through at least April 15 of the next following calendar year.
(c) Determinations by the Committee. All decisions, determinations and interpretations by the Committee regarding the Plan, any rules and regulations under the Plan and the terms and conditions of or operation of any Award granted hereunder, shall be final and binding on all Participants, beneficiaries, heirs, assigns or other persons holding or claiming rights under the Plan or any Award. The Committee shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select. Members of the Board and members of the Committee acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties.
(d) Subsidiary Awards. In the case of a grant of an Award to any Participant employed by a Subsidiary, such grant may, if the Committee so directs, be implemented by the Company issuing any subject shares of Common Stock to the Subsidiary, for such lawful consideration as the Committee may determine, upon the condition or understanding that the Subsidiary will transfer the shares of Common Stock to the Participant in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Award may be issued by and in the name of the Subsidiary and shall be deemed granted on such date as the Committee shall determine.
7. Plan Awards
(a) Terms Set Forth in Award Agreement. Awards may be granted at any time and from time to time prior to the termination of the Plan to Eligible Persons as determined by the Committee. The terms and conditions of each Award shall be set forth in an Award Agreement in a form approved by the Committee for such Award, which Award Agreement may contain such terms and conditions as specified from time to time by the Committee, provided such terms and conditions do not conflict with the Plan. The Award Agreement for any Award (other than Restricted Stock awards) shall include the time or times at or within which and the consideration, if any, for which any shares of Common Stock may be acquired from the Company. The terms of Awards may vary among Participants, and the Plan does not impose upon the Committee any requirement to make Awards subject to uniform terms. Accordingly, the terms of individual Award Agreements may vary.
(b) Separation from Service. Subject to the express provisions of the Plan, the Committee shall specify before, at, or after the time of grant of an Award the provisions governing the effect(s) upon an Award of a Participant’s Separation from Service.
(c) Rights of a Shareholder. A Participant shall have no rights as a shareholder with respect to shares of Common Stock covered by an Award (including voting rights) until the date the Participant becomes the holder of record of such shares of Common Stock. No adjustment shall be made for dividends or other rights for which the record date is prior to such date, except as provided in Section 10(b) or Section 15 of this Plan or as otherwise provided by the Committee.
8. Options
(a) Grant, Term and Price. The grant, issuance, retention, vesting and/or settlement of any Option shall occur at such time and be subject to such terms and conditions as determined by the Committee or under criteria established by the Committee, which may include conditions based on continued employment, passage of time, attainment of age and/or service requirements, and/or satisfaction of performance conditions in accordance with Section 12 of the Plan. The term of an Option shall in no event be greater than ten years; provided, however, the term of an Option (other than an Incentive Stock Option) shall be automatically extended if, at the time of its scheduled expiration, the Participant holding such Option is prohibited by law or the Company’s insider trading policy from exercising the Option, which extension shall expire on the thirtieth (30th) day following the date such prohibition no longer applies. The Committee will establish the price at which Common Stock may be purchased upon exercise of an Option, which, in no event will be less than the Fair Market Value of such shares on the date of grant; provided, however, that the exercise price per share of Common Stock with respect to an Option that is granted as a Substitute Award may be less than the Fair Market Value of the shares of Common Stock on the date such Option is granted if such exercise price is based on a formula set forth in the terms of the options held by such optionees or in the terms of the agreement providing for such merger or other acquisition that satisfies the requirements of (i) Section 409A of the Code, if such options held by such optionees are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code, and (ii) Section 424(a) of the Code, if such options held by such optionees are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code. The exercise price of any Option may be paid in cash or such other method as determined by the Committee, including an irrevocable commitment by a broker to pay over such amount from a sale of the Shares issuable under an Option, the delivery of previously owned shares of Common Stock or withholding of shares of Common Stock deliverable upon exercise.
(b) No Repricing without Shareholder Approval. Other than in connection with a change in the Company’s capitalization (as described in Section 15), the Committee shall not, without shareholder approval, reduce the exercise price of such Option and, at any time when the exercise price of an Option is above the Fair Market Value of a share of Common Stock, shall not, without shareholder approval (except in the case of a Change in Control), exchange such Option for a new Award or for cash.
(c) Incentive Stock Options. Notwithstanding anything to the contrary in this Section 8, in the case of the grant of an Option intending to qualify as an Incentive Stock Option, if the Participant owns stock possessing more than 10 percent of
the combined voting power of all classes of stock of the Company (a “10% Shareholder”), the exercise price of such Option must be at least 110 percent of the Fair Market Value of the shares of Common Stock on the date of grant and the Option must expire within a period of not more than five (5) years from the date of grant. Notwithstanding anything in this Section 8 to the contrary, options designated as Incentive Stock Options shall not be eligible for treatment under the Code as Incentive Stock Options (and will be deemed to be Nonqualified Stock Options) to the extent that either (a) the aggregate Fair Market Value of shares of Common Stock (determined as of the time of grant) with respect to which such Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, taking Options into account in the order in which they were granted, or (b) such Options otherwise remain exercisable but are not exercised within three (3) months (or such other period of time provided in Section 422 of the Code) of separation of service (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder).
(d) No Shareholder Rights. Participants shall have no voting rights and will have no rights to receive dividends or Dividend Equivalents in respect of an Option or any shares of Common Stock subject to an Option until the Participant has become the holder of record of such shares.
9. Stock Appreciation Rights
(a) General Terms. The grant, issuance, retention, vesting and/or settlement of any Stock Appreciation Right shall occur at such time and be subject to such terms and conditions as determined by the Committee or under criteria established by the Committee, which may include conditions based on continued employment, passage of time, attainment of age and/or service requirements, and/or satisfaction of performance conditions in accordance with Section 12 of the Plan. Stock Appreciation Rights may be granted to Participants from time to time either in tandem with or as a component of Options granted under the Plan (“tandem SARs”) or not in conjunction with other Awards (“freestanding SARs”). Upon exercise of a tandem SAR as to some or all of the shares covered by the grant, the related Option shall be canceled automatically to the extent of the number of shares covered by such exercise. Conversely, if the related Option is exercised as to some or all of the shares covered by the grant, the related tandem SAR, if any, shall be canceled automatically to the extent of the number of shares covered by the Option exercise. Any Stock Appreciation Right granted in tandem with an Option may be granted at the same time such Option is granted or at any time thereafter before exercise or expiration of such Option, provided that the Fair Market Value of Common Stock on the date of the SAR’s grant is not greater than the exercise price of the related Option. All freestanding SARs shall be granted subject to the same terms and conditions applicable to Options as set forth in Section 8 and all tandem SARs shall have the same exercise price as the Option to which they relate. Subject to the provisions of Section 8 and the immediately preceding sentence, the Committee may impose such other conditions or restrictions on any Stock Appreciation Right as it shall deem appropriate. Stock Appreciation Rights may be settled in Common Stock, cash, Restricted Stock or a combination thereof, as determined by the Committee and set forth in the applicable Award Agreement.
(b) No Repricing without Shareholder Approval. Other than in connection with a change in the Company’s capitalization (as described in Section 15), the Committee shall not, without shareholder approval, reduce the exercise price of such Stock Appreciation Right and, at any time when the exercise price of a Stock Appreciation Right is above the Fair Market Value of a share of Common Stock, shall not, without shareholder approval (except in the case of a Change in Control), exchange such Stock Appreciation Right for a new Award or for cash.
(c) No Shareholder Rights. Participants shall have no voting rights and will have no rights to receive dividends or Dividend Equivalents in respect of an Award of Stock Appreciation Rights or any shares of Common Stock subject to an Award of Stock Appreciation Rights until the Participant has become the holder of record of such shares.
10. Restricted Stock and Stock Unit Awards
(a) Vesting and Performance Criteria. The grant, issuance, retention, vesting and/or settlement of any Restricted Stock or Stock Unit Award shall occur at such time and be subject to such terms and conditions as determined by the Committee or under criteria established by the Committee, which may include conditions based on continued employment, passage of time, attainment of age and/or service requirements, and /or satisfaction of performance conditions in accordance with Section 12 of the Plan. In addition, the Committee shall have the right to grant Restricted Stock or Stock Unit Awards as the form of payment for grants or rights earned or due under other shareholder-approved compensation plans or arrangements of the Company.
(b) Dividends and Distributions. Participants in whose name Restricted Stock is granted shall be entitled to receive all dividends and other distributions paid with respect to those shares of Common Stock, unless determined otherwise by the
Committee. The Committee will determine whether any such dividends or distributions will be automatically reinvested in additional Restricted Stock and/or subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were distributed or whether such dividends or distributions will be paid in cash. Unless otherwise provided in the Award Agreement, during the period prior to shares being issued in the name of a Participant under any Stock Unit, the Company shall pay or accrue Dividend Equivalents on each date dividends on Common Stock are paid, subject to such conditions as the Committee may deem appropriate. The time and form of any such payment of Dividend Equivalents shall be specified in the Award Agreement. Notwithstanding anything herein to the contrary, in no event will dividends or Dividend Equivalents be paid with respect to unvested Awards of Restricted Stock or Stock Units. Dividends or Dividend Equivalents accrued on such shares shall become payable no earlier than the date the vesting criteria have been achieved and the underlying shares or Stock Units have become vested.
11. Incentive Bonuses
(a) Performance Criteria. The Committee shall establish the performance criteria and level of achievement versus these criteria that shall determine the amount payable under an Incentive Bonus, which may include a target, threshold and/or maximum amount payable and any formula for determining such, and which criteria may be based on performance conditions in accordance with Section 12 of the Plan.
(b) Timing and Form of Payment. The Committee shall determine the timing of payment of any Incentive Bonus. Payment of the amount due under an Incentive Bonus may be made in cash or in Common Stock, as determined by the Committee.
12. Performance-Based Compensation
(a) General. The Committee may establish performance criteria and level of achievement versus such criteria that shall determine the number of shares of Common Stock to be granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an Award, which criteria may be based on Performance Criteria or other standards of financial performance and/or personal performance evaluations.
(b) Performance Criteria. For purposes of this Plan, the term “Performance Criteria” shall mean any one or more of the following performance criteria, or derivations of such performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or Subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee: (i) cash flow (before or after dividends), (ii) earnings per share (including earnings before interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity, (v) total shareholder return, (vi) return on capital (including return on total capital or return on invested capital), (vii) return on assets or net assets, (viii) market capitalization, (ix) economic value added, (x) debt leverage (debt to capital), (xi) revenue (including adjusted revenue, Volume Points, net sales and analogous financial measures), (xii) income or net income, (xiii) operating income, (xiv) operating profit or net operating profit, (xv) operating margin or profit margin, (xvi) return on operating revenue, (xvii) cash from operations, (xviii) operating ratio, (xix) operating revenue, (xx) customer service, or (xxi) any other measures of performance as the Committee, in its discretion, deems appropriate. The Committee may provide, at the time an Award is granted or at any time thereafter, that any evaluation of performance under a Performance Criteria shall include or exclude any of the following events that occurs during the applicable performance period: (A) the effects of charges for restructurings or discontinued operations, (B) items of gain, loss or expense determined to be infrequently occurring or related to the disposal of a segment of a business or related to a change in accounting principle, (C) the cumulative effect of accounting change, (D) asset write-downs, (E) litigation, claims, judgments, settlements or loss contingencies, (F) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (G) accruals for reorganization and restructuring programs and (H) accruals of any amounts for payment under this Plan or any other compensation arrangement maintained by the Company.
13. Deferral of Payment
The Committee may, in an Award Agreement or otherwise, provide for the deferred delivery of Common Stock or cash upon settlement, vesting or other events with respect to Stock Units, or in payment or satisfaction of an Incentive Bonus. If a Participant has elected to defer payment or settlement of an Award, then the Award will (provided that all vesting and other conditions have been satisfied) be paid in accordance with the Participant’s deferral consistent with the terms of the applicable deferred compensation plan maintained by the Company. Notwithstanding anything herein to the contrary, in no event will any election to defer the delivery of Common Stock or any other payment with respect to any Award be
allowed if the Committee determines, in its sole discretion, that the deferral would result in the imposition of the additional tax under Section 409A(a)(1)(B) of the Code. No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code. The Company, the Board and the Committee shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A of the Code is not so exempt or compliant or for any action taken by the Board or the Committee.
14. Conditions and Restrictions Upon Securities Subject to Awards
The Committee may provide that the Common Stock issued upon exercise of an Option or Stock Appreciation Right or otherwise subject to or issued under an Award shall be subject to such further agreements, restrictions, conditions or limitations as the Committee in its discretion may specify prior to the exercise of such Option or Stock Appreciation Right or the grant, vesting or settlement of such Award, including without limitation, conditions on vesting or transferability, forfeiture or repurchase provisions and method of payment for the Common Stock issued upon exercise, vesting or settlement of such Award (including the actual or constructive surrender of Common Stock already owned by the Participant) or payment of taxes arising in connection with an Award. Without limiting the foregoing, such restrictions may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued under an Award, including without limitation (i) restrictions under an insider trading policy or pursuant to applicable law, (ii) restrictions designed to delay and/or coordinate the timing and manner of sales by the Participant and holders of other Company equity compensation arrangements, (iii) restrictions as to the use of a specified brokerage firm for such resales or other transfers and (iv) provisions requiring Common Stock be sold on the open market or to the Company in order to satisfy tax withholding or other obligations.
15. Adjustment of and Changes in the Stock
(a) The number and kind of shares of Common Stock available for issuance under this Plan (including under any Awards then outstanding), and the number and kind of shares of Common Stock subject to the limits set forth in Section 5 of this Plan, shall be equitably adjusted by the Committee to reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of shares of Common Stock outstanding. Such adjustment may be designed to comply with Section 424 of the Code or may be designed to treat the shares of Common Stock available under the Plan and subject to Awards as if they were all outstanding on the record date for such event or transaction or to increase the number of such shares of Common Stock to reflect a deemed reinvestment in shares of Common Stock of the amount distributed to the Company’s securityholders. The terms of any outstanding Award shall also be equitably adjusted by the Committee as to price, number or kind of shares of Common Stock subject to such Award, vesting, and other terms to reflect the foregoing events, which adjustments need not be uniform as between different Awards or different types of Awards. No fractional shares of Common Stock shall be issued pursuant to such an adjustment.
(b) In the event there shall be any other change in the number or kind of outstanding shares of Common Stock, or any stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, by reason of a Change in Control, other merger, consolidation or otherwise, then the Committee shall determine the appropriate and equitable adjustment to be effected, which adjustments need not be uniform between different Awards or different types of Awards. In addition, in the event of such change described in this paragraph, the Committee may accelerate the time or times at which any Award may be exercised, consistent with and as otherwise permitted under Section 409A of the Code, and may provide for cancellation of such accelerated Awards that are not exercised within a time prescribed by the Committee in its sole discretion.
(c) Unless otherwise expressly provided for in the Award Agreement or another contract, including an employment agreement, or under the terms of a transaction constituting a Change in Control, the following shall occur upon a Participant’s involuntary termination of employment within twenty-four (24) months following a Change in Control, provided that such termination does not result from the Participant’s termination for disability, cause or gross misconduct: (i) in the case of an Option or Stock Appreciation Right, the Participant shall have the ability to exercise such Option or Stock Appreciation Right, including any portion of the Option or Stock Appreciation Right not previously exercisable, and the Option or Stock Appreciation Right shall remain exercisable for a period of three (3) years following such termination, but in no event after the expiration of such Option or Stock Appreciation Right, (ii) in the case of an Award subject to performance conditions in accordance with Section 12 of the Plan, the Participant shall have the right to receive a payment based on performance through a date determined by the Committee prior to the Change in Control (unless such performance cannot be determined, in which case the Participant shall have the right to receive a payment equal to the
target amount payable), and (iii) in the case of outstanding Restricted Stock and/or Stock Units, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse. Notwithstanding anything herein to the contrary, in the event of a Change in Control in which the acquiring or surviving company in the transaction does not assume or continue outstanding Awards upon the Change in Control, immediately prior to the Change in Control, all Awards that are not assumed or continued shall be treated as follows effective immediately prior to the Change in Control: (A) in the case of an Option or Stock Appreciation Right, the Participant shall have the ability to exercise such Option or Stock Appreciation Right, including any portion of the Option or Stock Appreciation Right not previously exercisable (provided, that any Option or Stock Appreciation Right for which the exercise price is less than the consideration per Share payable to shareholders of the Company in such Change in Control may be cancelled upon the consummation of the Change in Control without payment of any additional consideration), (B) in the case of an Award subject to performance conditions in accordance with Section 12 of the Plan, the Participant shall have the right to receive a payment based on performance through a date determined by the Committee prior to the Change in Control (unless such performance cannot be determined, in which case the Participant shall have the right to receive a payment equal to the target amount payable), and (C) in the case of outstanding Restricted Stock and/or Stock Units, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse. In no event shall any action be taken pursuant to this Section 15(c) that would change the payment or settlement date of an Award in a manner that would result in the imposition of any additional taxes or penalties pursuant to Section 409A of the Code.
(d) The Company shall notify Participants holding Awards subject to any adjustments pursuant to this Section 15 of such adjustment, but (whether or not notice is given) such adjustment shall be effective and binding for all purposes of the Plan.
(e) Notwithstanding anything in this Section 15 to the contrary, an adjustment to an Option or Stock Appreciation Right under this Section 15 shall be made in a manner that will not result in the grant of a new Option or Stock Appreciation Right under Section 409A of the Code.
16. Transferability
Each Award may not be sold, transferred for value, pledged, assigned, or otherwise alienated or hypothecated by a Participant other than by will or the laws of descent and distribution, and each Option or Stock Appreciation Right shall be exercisable only by the Participant during his or her lifetime. Notwithstanding the foregoing, outstanding Options may be exercised following the Participant’s death by the Participant’s beneficiaries or as permitted by the Committee.
17. Compliance with Laws and Regulations
This Plan, the grant, issuance, vesting, exercise and settlement of Awards thereunder, and the obligation of the Company to sell, issue or deliver shares of Common Stock under such Awards, shall be subject to all applicable foreign, federal, state and local laws, rules and regulations, stock exchange rules and regulations, and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a Participant’s name or deliver Common Stock prior to the completion of any registration or qualification of such shares under any foreign, federal, state or local law or any ruling or regulation of any government body which the Committee shall determine to be necessary or advisable. To the extent the Company is unable to or the Committee deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares of Common Stock hereunder, the Company and its Subsidiaries shall be relieved of any liability with respect to the failure to issue or sell such shares of Common Stock as to which such requisite authority shall not have been obtained. No Option shall be exercisable and no Common Stock shall be issued and/or transferable under any other Award unless a registration statement with respect to the Common Stock underlying such Option is effective and current or the Company has determined that such registration is unnecessary.
In the event an Award is granted to or held by a Participant who is employed or providing services outside the United States, the Committee may, in its sole discretion, modify the provisions of the Plan or of such Award as they pertain to such individual to comply with applicable foreign law or to recognize differences in local law, currency or tax policy. The Committee may also impose conditions on the grant, issuance, exercise, vesting, settlement or retention of Awards in order to comply with such foreign law and/or to minimize the Company’s obligations with respect to tax equalization for Participants employed outside their home country.
18. Withholding
To the extent required by applicable federal, state, local or foreign law, the Committee may and/or a Participant shall make arrangements satisfactory to the Company for the satisfaction of any minimum statutory withholding tax obligations that arise with respect to any Award, or the issuance or sale of any shares of Common Stock. The Company shall not be required to recognize any Participant rights under an Award, to issue shares of Common Stock or to recognize the disposition of such shares of Common Stock until such obligations are satisfied. To the extent permitted or required by the Committee, these obligations may or shall be satisfied by the Company withholding cash from any compensation otherwise payable to or for the benefit of a Participant, the Company withholding a portion of the shares of Common Stock that otherwise would be issued to a Participant under such Award or any other award held by the Participant or by the Participant tendering to the Company cash or shares of Common Stock. For the avoidance of doubt, the Company may only withhold a portion of the shares of Common Stock to satisfy any minimum statutory withholding tax obligations that arise with respect to any Award, or the issuance or sale of any shares of Common Stock.
19. Amendment of the Plan or Awards
The Board may amend, alter or discontinue this Plan and the Committee may amend, or alter any agreement or other document evidencing an Award made under this Plan but, except as provided pursuant to the provisions of Section 15, no such amendment shall, without the approval of the shareholders of the Company:
(a) increase the maximum number of shares of Common Stock for which Awards may be granted under this Plan;
(b) reduce the price at which Options may be granted below the price provided for in Section 8(a);
(c) reprice outstanding Options or SARs as described in 8(b) and 9(b);
(d) extend the term of this Plan;
(e) change the class of persons eligible to be Participants; or
(f) otherwise amend the Plan in any manner requiring shareholder approval by law or the rules of any stock exchange or market or quotation system on which the Common Stock is traded, listed or quoted.
No amendment or alteration to the Plan or an Award or Award Agreement shall be made which would impair the rights of the holder of an Award, without such holder’s consent, provided that no such consent shall be required if the Committee determines in its sole discretion and prior to the date of any Change in Control that such amendment or alteration either (i) is required or advisable in order for the Company, the Plan or the Award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award, or that any such diminishment has been adequately compensated.
20. No Liability of Company
The Company, any Subsidiary or Affiliate which is in existence or hereafter comes into existence, the Board and the Committee shall not be liable to a Participant or any other person as to: (a) the non-issuance or sale of shares of Common Stock as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares of Common Stock hereunder; and (b) any tax consequence expected, but not realized, by any Participant or other person due to the receipt, exercise or settlement of any Award granted hereunder.
21. Non-Exclusivity of Plan
Neither the adoption of this Plan by the Board nor the submission of this Plan to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other incentive arrangements as either may deem desirable, including without limitation, the granting of restricted stock, stock units, stock appreciation rights or stock options otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
22. Governing Law
This Plan and any agreements or other documents hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. Any reference in this Plan or in the agreement or other document evidencing any Awards to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect or applicability.
23. No Right to Employment, Reelection or Continued Service
Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries and/or its Affiliates to terminate any Participant’s employment, service on the Board or service for the Company at any time or for any reason not prohibited by law, nor shall this Plan or an Award itself confer upon any Participant any right to continue his or her employment or service for any specified period of time. Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company, any Subsidiary and/or its Affiliates. Subject to Sections 4 and 19, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Board without giving rise to any liability on the part of the Company, its Subsidiaries and/or its Affiliates.
24. Forfeiture Upon Termination of Employment
Except as otherwise provided by the Committee in the Award Agreement, Awards may be forfeited if the Participant terminates his or her employment with the Company, a Subsidiary or an Affiliate for any reason.
25. Specified Employee Delay
To the extent any payment under this Plan is considered deferred compensation subject to the restrictions contained in Section 409A of the Code, and to the extent necessary to avoid the imposition of taxes under Section 409A of the Code, such payment may not be made to a specified employee (as determined in accordance with a uniform policy adopted by the Company with respect to all arrangements subject to Section 409A of the Code) upon Separation from Service before the date that is six months after the specified employee’s Separation from Service (or, if earlier, the specified employee’s death). Any payment that would otherwise be made during this period of delay shall be accumulated and paid on the sixth month plus one day following the specified employee’s Separation from Service (or, if earlier, as soon as administratively practicable after the specified employee’s death).
26. No Liability of Committee Members
No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or willful bad faith; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Association, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
27. Severability
If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
28. Unfunded Plan
The Plan is intended to be an unfunded plan. Participants are and shall at all times be general creditors of the Company with respect to their Awards. If the Committee or the Company chooses to set aside funds in a trust or otherwise for the payment of Awards under the Plan, such funds shall at all times be subject to the claims of the creditors of the Company in the event of its bankruptcy or insolvency.
29. Recoupment Policy
As applicable, all Awards, including any shares of Common Stock subject to an Award, are subject to any recovery, recoupment, clawback and/or other forfeiture policy maintained by the Company from time to time and, in accordance
with such policy, may be subject to the requirement that such Awards, including any shares of Common Stock subject to such Awards, be repaid to the Company after they have been paid. To the extent any policy adopted by the New York Stock Exchange (or any other exchange on which the securities of the Company are listed) pursuant to Section 10D of the Securities Exchange Act of 1934 requires the repayment of incentive-based compensation received by a Participant, whether paid pursuant to an Award granted under this Plan or any other plan of incentive-based compensation maintained in the past or adopted in the future by the Company, by accepting an Award under this Plan, the Participant agrees to the repayment of such amounts to the extent required by such policy and applicable law.
Exhibit 10.40
HERBALIFE LTD.
2023 STOCK INCENTIVE PLAN
STOCK UNIT AWARD AGREEMENT
U.S. PARTICIPANTS
(Time-Vesting)
This Stock Unit Award Agreement (this “Agreement”) is dated as of ________ (the “Grant Date”), and is between Herbalife Ltd. (the “Company”) and _______ (“Participant”).
WHEREAS, the Company, by action of the Board and approval of its shareholders, established the Herbalife Ltd. 2023 Stock Incentive Plan (as may be amended from time to time, the “Plan”);
WHEREAS, Participant is employed by the Company or one or more of its Subsidiaries and the Company desires to encourage Participant to own Common Stock for the purposes stated in Section 1 of the Plan; and
WHEREAS, Participant and the Company have entered into this Agreement to govern the terms of the Stock Unit Award (as defined below) granted to Participant by the Company.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:
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[signature page follows]
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Exhibit 10.40
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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HERBALIFE LTD. |
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Exhibit 10.41
HERBALIFE LTD.
2023 STOCK INCENTIVE PLAN
LEAD DIRECTOR
STOCK UNIT AWARD AGREEMENT
This Lead Director Stock Unit Award Agreement (this “Agreement”) is dated as of ___________ (the “Grant Date”), and is between Herbalife Ltd. (the “Company”) and __________ (“Participant”).
WHEREAS, the Company, by action of the Board and approval of its shareholders, established the Herbalife Ltd. 2023 Stock Incentive Plan (as may be amended from time to time, the “Plan”);
WHEREAS, the Board has determined that it is advisable and in the best interests of the Company and its shareholders to grant awards under the Plan in the form of Stock Units to the Lead Director of the Board in order to attract and retain a qualified Lead Director and align his or her interests with those of the Company’s shareholders; and
WHEREAS, Participant and the Company have entered into this Agreement to govern the terms of the Stock Unit Award (as defined below) granted to Participant by the Company.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:
Except as otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Plan.
The Company hereby grants to Participant an Award of __________ Stock Units (the “Award”) in accordance with Section 10 of the Plan and subject to the conditions set forth in this Agreement and the Plan. Each Stock Unit represents the right to receive one share of Common Stock (as adjusted from time to time pursuant to Section 15 of the Plan) subject to the fulfillment of the vesting and other conditions set forth in this Agreement and the Plan. By accepting the Award, Participant irrevocably agrees on behalf of Participant and Participant’s successors and permitted assigns to all of the terms and conditions of the Award as set forth in or pursuant to this Agreement and the Plan.
Prior to any issuance of Common Stock in settlement of the Award, no Common Stock will be reserved or earmarked for Participant or Participant’s account nor shall Participant have any of the rights of a shareholder (including, without limitation, any voting or dividend rights) with respect to either the Stock Units granted hereunder or the Common Stock underlying the Stock Units, unless and until such Common Stock are actually delivered to Participant hereunder.
Participant is liable and responsible for all taxes owed in connection with the Award, regardless of any action the Company may take with respect to any tax withholding obligations that arise in connection with the Award. The Company does not make any representation or undertaking regarding the treatment of any tax withholding in connection with any aspect of the Award, including, but not limited to, the grant, vesting or settlement of the Award or the subsequent sale of Common Stock issuable pursuant to the Award. The Company does not commit and is under no obligation to structure the Award to reduce or eliminate Participant’s tax liability or achieve a particular tax result. Prior to any event in connection with the Award (e.g., vesting or settlement in respect of the Award) that the Company determines may result in any domestic or foreign tax withholding obligation, whether national, federal, state or local, including any social tax obligation, Participant is required to arrange for the satisfaction of the amount of such tax withholding obligation in a manner acceptable to the Company.
The terms of this Agreement are governed by the terms of the Plan, as it exists on the Grant Date and as the Plan is amended from time to time. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the terms of the Plan shall control, except as expressly stated otherwise in this Agreement. The term “Section” generally refers to provisions within the Plan; provided, however, the term “Paragraph” refers to provisions of this Agreement.
By entering into this Agreement and accepting the Award, Participant acknowledges that: (a) Participant’s participation in the Plan is voluntary and (b) the grant of the Award will not be interpreted to form an employment relationship with the Company or any Subsidiary. The Company shall be under no obligation whatsoever to advise Participant of the existence, maturity or termination of any of Participant’s rights hereunder and Participant shall be responsible for familiarizing himself or herself with all matters contained herein and in the Plan which may affect any of Participant’s rights or privileges hereunder.
Any question concerning the interpretation of this Agreement or the Plan, any adjustments required to be made under the Plan or this Agreement, and any controversy that may arise under the Plan or this Agreement shall be determined by the Committee (including any subcommittee or other person(s) to whom the Committee has delegated its authority) in its sole and absolute discretion. All decisions by the Committee shall be final and binding.
The Award (whether or not vested) may not be assigned or transferred otherwise than by will or by the laws of descent and distribution. Neither the Award nor any right hereunder shall be subject to attachment, execution or other similar process. In the event of any attempt by Participant to alienate, assign, pledge, hypothecate or otherwise dispose of the Award or any right hereunder, or in the event of the levy or any attachment, execution or similar process upon the rights or
interests hereby conferred, the Company may terminate the Award by notice to Participant, and the Award shall thereupon become null and void.
Participant understands that the Company and one or more of its Subsidiaries or affiliates may collect, maintain, process and disclose certain personal information about Participant for the exclusive purpose of implementing, administering and, managing the Plan. Such information may include, but is not limited to: Participant’s name, home address, email address, telephone number, date of birth, social insurance number, compensation, job title, any shares of Common Stock or directorships held in the Company, details of all equity awards or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor. Participant further understands that such personal information will be transferred to one or more third parties selected by the Company to assist the Company with the implementation, administration and management of the Plan. Participant understands that such data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan, including to maintain records regarding participation.
[signature page follows]
Exhibit 10.41
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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HERBALIFE LTD. |
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Exhibit 10.42
HERBALIFE LTD.
2023 STOCK INCENTIVE PLAN
BOARD OF DIRECTORS
STOCK UNIT AWARD AGREEMENT
This Board of Directors Stock Unit Award Agreement (this “Agreement”) is dated as of __________ (the “Grant Date”), and is between Herbalife Ltd. (the “Company”) and __________ (“Participant”).
WHEREAS, the Company, by action of the Board and approval of its shareholders, established the Herbalife Ltd. 2023 Stock Incentive Plan (as may be amended from time to time, the “Plan”);
WHEREAS, the Board has determined that it is advisable and in the best interests of the Company and its shareholders to grant awards under the Plan in the form of Stock Units to Participant to encourage Participant to own Common Stock for the purposes stated in Section 1 of the Plan; and
WHEREAS, Participant and the Company have entered into this Agreement to govern the terms of the Stock Unit Award (as defined below) granted to Participant by the Company.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:
Except as otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Plan.
The Company hereby grants to Participant an Award of __________ Stock Units (the “Award”) in accordance with Section 10 of the Plan and subject to the conditions set forth in this Agreement and the Plan. Each Stock Unit represents the right to receive one share of Common Stock (as adjusted from time to time pursuant to Section 15 of the Plan) subject to the fulfillment of the vesting and other conditions set forth in this Agreement and the Plan. By accepting the Award, Participant irrevocably agrees on behalf of Participant and Participant’s successors and permitted assigns to all of the terms and conditions of the Award as set forth in or pursuant to this Agreement and the Plan.
Prior to any issuance of Common Stock in settlement of the Award, no Common Stock will be reserved or earmarked for Participant or Participant’s account nor shall Participant have any of the rights of a shareholder (including, without limitation, any voting or dividend rights) with respect to either the Stock Units granted hereunder or the Common Stock underlying the Stock Units, unless and until such Common Stock are actually delivered to Participant hereunder.
Participant is liable and responsible for all taxes owed in connection with the Award, regardless of any action the Company may take with respect to any tax withholding obligations that arise in connection with the Award. The Company does not make any representation or undertaking regarding the treatment of any tax withholding in connection with any aspect of the Award, including, but not limited to, the grant, vesting or settlement of the Award or the subsequent sale of Common Stock issuable pursuant to the Award. The Company does not commit and is under no obligation to structure the Award to reduce or eliminate Participant’s tax liability or achieve a particular tax result. Prior to any event in connection with the Award (e.g., vesting or settlement in respect of the Award) that the Company determines may result in any domestic or foreign tax withholding obligation, whether national, federal, state or local, including any social tax obligation, Participant is required to arrange for the satisfaction of the amount of such tax withholding obligation in a manner acceptable to the Company.
The terms of this Agreement are governed by the terms of the Plan, as it exists on the Grant Date and as the Plan is amended from time to time. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the terms of the Plan shall control, except as expressly stated otherwise in this Agreement. The term “Section” generally refers to provisions within the Plan; provided, however, the term “Paragraph” refers to provisions of this Agreement.
By entering into this Agreement and accepting the Award, Participant acknowledges that: (a) Participant’s participation in the Plan is voluntary and (b) the grant of the Award will not be interpreted to form an employment relationship with the Company or any Subsidiary. The Company shall be under no obligation whatsoever to advise Participant of the existence, maturity or termination of any of Participant’s rights hereunder and Participant shall be responsible for familiarizing himself or herself with all matters contained herein and in the Plan which may affect any of Participant’s rights or privileges hereunder.
Any question concerning the interpretation of this Agreement or the Plan, any adjustments required to be made under the Plan or this Agreement, and any controversy that may arise under the Plan or this Agreement shall be determined by the Committee (including any subcommittee or other person(s) to whom the Committee has delegated its authority) in its sole and absolute discretion. All decisions by the Committee shall be final and binding.
The Award (whether or not vested) may not be assigned or transferred otherwise than by will or by the laws of descent and distribution. Neither the Award nor any right hereunder shall be subject to attachment, execution or other similar process. In the event of any attempt by Participant to alienate, assign, pledge, hypothecate or otherwise dispose of the Award or any right hereunder, or in the event of the levy or any attachment, execution or similar process upon the rights or
interests hereby conferred, the Company may terminate the Award by notice to Participant, and the Award shall thereupon become null and void.
Participant understands that the Company and one or more of its Subsidiaries or affiliates may collect, maintain, process and disclose certain personal information about Participant for the exclusive purpose of implementing, administering and, managing the Plan. Such information may include, but is not limited to: Participant’s name, home address, email address, telephone number, date of birth, social insurance number, compensation, job title, any shares of Common Stock or directorships held in the Company, details of all equity awards or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor. Participant further understands that such personal information will be transferred to one or more third parties selected by the Company to assist the Company with the implementation, administration and management of the Plan. Participant understands that such data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan, including to maintain records regarding participation.
[signature page follows]
Exhibit 10.42
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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HERBALIFE LTD. |
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Exhibit 10.43
HERBALIFE LTD.
2023 STOCK INCENTIVE PLAN
STOCK APPRECIATION RIGHT AWARD AGREEMENT
This Stock Appreciation Right Agreement (this “Agreement”) is dated as of _______ (the “Grant Date”), and is between Herbalife Ltd. (the “Company”) and _______ (“Participant”).
WHEREAS, the Company, by action of the Board and approval of its shareholders, established the Herbalife Ltd. 2023 Stock Incentive Plan (as may be amended from time to time, the “Plan”);
WHEREAS, Participant is employed by the Company or one or more of its Subsidiaries and the Company desires to encourage Participant to own Common Stock for the purposes stated in Section 1 of the Plan; and
WHEREAS, Participant and the Company have entered into this Agreement to govern the terms of the Stock Appreciation Right Award (as defined below) granted to Participant by the Company.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:
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[signature page follows]
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Exhibit 10.43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
_________________________________ |
HERBALIFE LTD.
_______________________________________
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Exhibit 10.44
Execution Version
SIXTH AMENDMENT TO CREDIT AGREEMENT
This SIXTH AMENDMENT to the Credit Agreement referred to below, dated as of April 28, 2023 (this “Sixth Amendment”) by and among HLF Financing SaRL, LLC, a Delaware limited liability company (the “Term Loan Borrower”), Herbalife Ltd. (f/k/a Herbalife Nutrition Ltd.), a Cayman Islands exempted company incorporated with limited liability with company number 116838 and with its registered office at Maples Corporate Services Limited, P.O. Box 309, Ugland House, George Town, Grand Cayman, KY1-1104, Cayman Islands (“Parent”), Herbalife International Luxembourg S.à R.L., a Luxembourg private limited liability company (société à responsabilité limitée), existing and organized under the laws of Luxembourg, having its registered office at 16, Avenue de la Gare, L-1610 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg Register of Commerce and Companies (R.C.S. Luxembourg) under number B 88006 (“HIL”), Herbalife International, Inc., a Nevada corporation (“HII” and, together with Parent, the Term Loan Borrower and HIL, the “Revolver Borrowers”; the Revolver Borrowers, together with the Term Loan Borrower, are referred to herein as the “Borrowers”), certain subsidiaries of the Borrowers as Subsidiary Guarantors, the Term Loan A Lenders and the Revolving Credit Lenders under the Credit Agreement party hereto (consisting of at least the Required Pro Rata Facility Lenders (as defined in the Credit Agreement)) and Coöperatieve Rabobank U.A., New York Branch (“Rabobank”) as Term Loan A Agent and Revolver Administrative Agent (each as defined in the Credit Agreement; RaboBank, in such capacities, the “Pro Rata Agent”). Capitalized terms not otherwise defined in this Sixth Amendment have the same meanings as specified in the Credit Agreement.
RECITALS
WHEREAS, the Borrowers, the Subsidiary Guarantors, the several Lenders (as defined in the Credit Agreement) from time to time party thereto, Rabobank as the Term Loan A Agent and Revolver Administrative Agent and Jefferies Finance LLC, as the administrative agent for the Term Loan B Lenders and the Collateral Agent have entered into that certain Credit Agreement, dated as of August 16, 2018 (together with all exhibits and schedules attached thereto, as amended, restated, amended and restated, supplemented or otherwise modified prior to the date hereof, the “Credit Agreement”);
WHEREAS, the Borrowers have requested that the Required Pro Rata Facility Lenders agree to amend certain provisions of the Credit Agreement as provided for herein;
WHEREAS, subject to certain conditions, the Required Pro Rata Facility Lenders are willing to agree to such amendment relating to the Credit Agreement;
WHEREAS, each Loan Party party hereto (collectively, the “Reaffirming Parties”, and each, a “Reaffirming Party”) expects to realize substantial direct and indirect benefits as a result of this Sixth Amendment becoming effective and agrees to reaffirm its obligations, guaranties and any security interests granted by it pursuant to the Credit Agreement, the Collateral Documents, and the other Loan Documents to which it is a party; and
NOW, THEREFORE, in consideration of the covenants and agreements contained herein, as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Effective as of the Sixth Amendment Effective Date (as defined below), (for the avoidance of doubt, the amendments set forth herein shall not be superseded by Exhibit A to the Fifth Amendment to Credit Agreement, dated as of April 3, 2023, notwithstanding that such changes shall become effective after the Sixth Amendment Effective Date) and subject to the satisfaction of the conditions precedent set forth in SECTION 2 below, the Credit Agreement is hereby amended by deleting the maximum Total Leverage Ratio table in Section 6.14 of the Credit Agreement and replacing it with the following:
Period |
Ratio |
September 30, 2018 to September 30, 2021 |
4.00:1.00 |
December 31, 2021 to December 31, 2022 |
3.75: 1.00 |
March 31, 2023 to December 31, 2023 |
4.50:1.00 |
March 31, 2024 |
4.25:1.00 |
June 30, 2024 and thereafter |
4.00:1.00 |
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IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to be duly executed and delivered by their respective proper and duly authorized officers and managers as of the day and year first above written.
BORROWERS: |
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HLF FINANCING SaRL, LLC |
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By: |
/s/ David Tademaru |
Name: |
David Tademaru |
Title: |
Manager |
HERBALIFE LTD. |
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By: |
/s/ David Tademaru |
Name: |
David Tademaru |
Title: |
Treasurer |
HERBALIFE INTERNATIONAL |
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LUXEMBOURG S.À R.L. |
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By: |
/s/ Hélène Dekhar |
Name: |
Hélène Dekhar |
Title: |
Class A Manager and authorized signatory |
HERBALIFE INTERNATIONAL, INC. |
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By: |
/s/ David Tademaru |
Name: |
David Tademaru |
Title: |
Treasurer |
[Signature Page to Sixth Amendment]
SUBSIDIARY GUARANTORS: |
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HERBALIFE INTERNATIONAL OF AMERICA, INC. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HERBALIFE INTERNATIONAL OF EUROPE, INC. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HERBALIFE TAIWAN, INC. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HERBALIFE INTERNATIONAL DO BRASIL LTDA. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HERBALIFE KOREA CO., LTD. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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[Signature Page to Sixth Amendment]
HERBALIFE VENEZUELA HOLDINGS, LLC |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HERBALIFE MANUFACTURING LLC |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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WH LUXEMBOURG INTERMEDIATE HOLDINGS S.À R.L. LLC |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HERBALIFE INTERNATIONAL (THAILAND), LTD. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HERBALIFE VH INTERMEDIATE INTERNATIONAL, LLC |
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By: |
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VHSA LLC |
By: |
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Herbalife International, Inc. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
[Signature Page to Sixth Amendment]
HERBALIFE VH INTERNATIONAL LLC |
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By: |
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Herbalife VH Intermediate International, LLC |
By: |
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VHSA LLC |
By: |
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Herbalife International, Inc. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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WH CAPITAL, LLC |
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By: |
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HLF Financing SaRL, LLC |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Manager |
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[Signature Page to Sixth Amendment]
HBL LUXEMBOURG HOLDINGS S.À R.L. |
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By: |
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/s/ Hélène Dekhar |
Name: |
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Hélène Dekhar |
Title: |
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Class A Manager and authorized signatory |
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By: |
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/s/ Nebil Belakhlef |
Name: |
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Nebil Belakhlef |
Title: |
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Class B Manager and authorized signatory |
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WH LUXEMBOURG HOLDINGS S.À R.L. |
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By: |
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/s/ Hélène Dekhar |
Name: |
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Hélène Dekhar |
Title: |
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Class A Manager and authorized signatory |
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By: |
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/s/ Eleni Dalmira |
Name: |
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Eleni Dalmira |
Title: |
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Class B Manager and authorized signatory |
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HV HOLDINGS LTD. |
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By: |
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/s/ Rishi Dalal |
Name: |
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Rishi Dalal |
Title: |
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President and Treasurer |
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WH INTERMEDIATE HOLDINGS LTD. |
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By: |
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/s/ Rishi Dalal |
Name: |
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Rishi Dalal |
Title: |
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President and Treasurer |
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[Signature Page to Sixth Amendment]
HBL LUXEMBOURG SERVICES S.À R.L. |
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By: |
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/s/ Hélène Dekhar |
Name: |
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Hélène Dekhar |
Title: |
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Class A Manager and authorized signatory |
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By: |
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/s/ Nebil Belakhlef |
Name: |
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Nebil Belakhlef |
Title: |
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Class B Manager and authorized signatory |
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HLF FINANCING, INC. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Treasurer |
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HBL HOLDINGS LTD. |
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By: |
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/s/ Rishi Dalal |
Name: |
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Rishi Dalal |
Title: |
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Director |
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HBL IHB OPERATIONS S.À R.L. |
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By: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Class A Manager and authorized signatory |
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By: |
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/s/ Eleni Dalmira |
Name: |
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Eleni Dalmira |
Title: |
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Class B Manager and authorized signatory |
[Signature Page to Sixth Amendment]
HERBALIFE LUXEMBOURG DISTRIBUTION S.À R.L. |
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By: |
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/s/ Hélène Dekhar |
Name: |
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Hélène Dekhar |
Title: |
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Manager and authorized signatory |
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By: |
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/s/ Nebil Belakhlef |
Name: |
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Nebil Belakhlef |
Title: |
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Manager and authorized signatory |
[Signature Page to Sixth Amendment]
COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH, as Term Loan A Agent, Revolver Administrative Agent, Issuing Bank, a Term Loan A Lender, a Revolving Credit Lender |
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By: |
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/s/ Eric Rogowski |
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Name: Eric Rogowski |
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Title: Managing Director |
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By: |
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/s/ Anthony Fidanza |
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Name: Anthony Fidanza |
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Title: Executive Director |
[Signature Page to Sixth Amendment]
CITIZENS BANK, N.A., as a Term Loan A |
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Lender and a Revolving Credit Lender |
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By: |
/s/ Darran Wee |
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Name: Darran Wee |
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Title: Senior Vice President |
[Signature Page to Sixth Amendment]
CITICORP NORTH AMERICA, INC., as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Raymond Gatcliffe |
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Name: Raymond Gatcliffe |
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Title: Vice President |
[Signature Page to Sixth Amendment]
FIFTH THIRD BANK, NATIONAL |
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ASSOCIATION, as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Sam Schuessler |
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Name: Sam Schuessler |
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Title: Principal |
[Signature Page to Sixth Amendment]
MIZUHO BANK, LTD., as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Tracy Rahn |
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Name: |
Tracy Rahn |
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Title: |
Executive Director |
[Signature Page to Sixth Amendment]
COMERICA BANK, as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Collin Miller |
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Name: |
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Collin Miller |
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Title: |
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Relationship Manager |
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[Signature Page to Sixth Amendment]
PNC BANK, NATIONAL ASSOCIATION (successor by merger to BBVA USA, an Alabama banking corporation), as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Kendall Simmonds |
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Name: |
Kendall Simmonds |
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Title: |
SVP |
[Signature Page to Sixth Amendment]
STANDARD CHARTERED BANK, as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Kristopher Tracy |
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Name: |
Kristopher Tracy |
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Title: |
Director, Financing Solutions |
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[Signature Page to Sixth Amendment]
BANK OF AMERICA, N.A., as a Term Loan A |
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Lender and a Revolving Credit Lender |
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By: |
/s/ Keith Suen |
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Name: |
Keith Suen |
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Title: |
Senior Vice President |
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[Signature Page to Sixth Amendment]
MUFG UNION BANK, N.A., as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Erik Siegfried |
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Name: |
Erik Siegfried |
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Title: |
Vice President |
[Signature Page to Sixth Amendment]
Banco Bilbao Vizcaya Argentaria, S.A. New York Branch, as a Term Loan A Lender and a Revolving Credit Lender |
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By: |
/s/ Cara Younger |
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Name: |
Cara Younger |
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Title: |
Managing Director |
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By: |
/s/ Miriam Trautmann |
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Name: |
Miriam Trautmann |
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Title: |
Managing Director |
[Signature Page to Sixth Amendment]
Exhibit 10.45
ADDENDUM TO AMENDMENT TO THE AGREEMENTS OF DISTRIBUTORSHIP
THIS ADDENDUM TO THE AMENDMENT TO THE AGREEMENTS OF DISTRIBUTORSHIP (“Addendum”) is effective as of April 27, 2023 (the “Effective Date”) and is added to and made a part of the existing Amendment to the Agreements of Distributorship between HERBALIFE INTERNATIONAL, INC., a Nevada corporation (the “Company”) and its Distributors, dated as of July 18, 2002 (the “Tirelli Agreement”). All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Tirelli Agreement. A full copy of the Tirelli Agreement as addended is attached hereto as Exhibit 1.
WHEREAS, in response to a request from Distributors, and in accordance with Section 8 of the Tirelli Agreement, the Company requested a vote of the Distributors then at the level of Presidents Team earning at the production bonus level of 6% to approve an addendum to the Tirelli Agreement;
WHEREAS, in March 2023, the terms of the addendum that are set forth below were approved by more than 68.4% of the Distributors then at the level of Presidents Team earning at the production bonus level of 6%;
WHEREAS, in April 2023, the Company’s Board of Directors approved this Addendum.
NOW THEREFORE, in consideration of the foregoing, the receipt and adequacy of which is hereby acknowledged, the Company and Distributors agree that the following language is added to the end of Section 1 of the Tirelli Agreement:
“The Company confirms that all customers (including Preferred Customers/ Members) are the Distributor’s customers. The Company may facilitate the fulfillment of customer orders and the processing of customer payments on behalf of Distributors.”
IN WITNESS WHEREOF, this Addendum is executed as of the Effective Date.
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HERBALIFE INTERNATIONAL, INC., |
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a Nevada corporation |
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By: |
/s/ Henry C. Wang |
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Name: |
Henry C. Wang |
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Title: |
EVP, General Counsel & Corporate Secretary |
Exhibit 1
ADDENDED AND RESTATED AMENDMENT TO AGREEMENTS OF DISTRIBUTORSHIP
THIS AMENDMENT TO THE AGREEMENTS OF DISTRIBUTORSHIP (“Amendment”) is made and entered into as of July 18, 2002 by HERBALIFE INTERNATIONAL, INC., a Nevada corporation (the “Company”), for the benefit of all of the Company’s existing and future independent distributors that meet (and continue to meet) the requirements to become (or remain) a distributor according to Company policy (“Distributors”).
RECITALS
A. Whereas the Company distributes its products through individuals acting as independent distributors.
B. Whereas the Company acknowledges the importance of its Distributors to the ongoing success and growth of the Company.
C. Whereas the Company has operated for years based on paying its Distributors under the Company Sales and Marketing Plan and utilizing its Distributors as its exclusive means of distribution for the sale of Herbalife products.
D. Whereas the Distributors, to continue as Herbalife Distributors, desire assurances that no material changes adverse to the Distributors will be made to the existing Company Sales and Marketing Plan or the use of Distributors as the exclusive means of distribution of Herbalife products.
E. Whereas in consideration for the Company giving assurances that no material changes adverse to the Distributors will be made to the existing Company Marketing Plan or to its use of Distributors as the exclusive means of distribution of Herbalife products, the Distributors will continue to distribute Herbalife products following the consummation of the proposed merger pursuant to the Agreement and Plan of Merger by and among the Company, WH Acquisition Corp. and WH Holdings (Cayman Islands) Ltd. dated as of April 10, 2002.
NOW, THEREFORE, in consideration of the foregoing, the receipt and adequacy of which is hereby acknowledged, the Company agrees as follows:
1. Distribution of Company Products by Independent Distributors. The Company agrees to continue to distribute its products exclusively through individuals acting as independent Distributors. Such Distributors will be encouraged both to sell products directly to customers and (subject to compliance with any applicable law) to develop their own networks of individuals acting as independent Distributors. Subject to compliance with any applicable law (United States federal, state or local, and the laws of any other governmental authority with jurisdiction over the Company), the Company also agrees not to materially change the existing requirements for becoming a Distributor, which will continue to be minimal and non-burdensome.
In connection with the distribution of the Company’s products, the Company shall therefore not (i) adopt any strategy which would entail multiple distribution channels, (ii) enter into any exclusive sales agreement, or (iii) enter into any exclusive license agreement with respect to any geographic area or territory. The Company confirms that all customers (including Preferred Customers/ Members) are the Distributor’s customers. The Company may facilitate the fulfillment of customer orders and the processing of customer payments on behalf of Distributors.
2. Establishment and Maintenance of Distributor Networks. The Company agrees to continue to permit the development of Distributor networks without any geographic or exclusive territory restrictions, subject to limitations on activities in countries which have not been cleared by the Company for product sales and subject to restrictions imposed on the development of such Distributor networks by any governmental authority, including but not limited to any applicable laws or regulations. The Company will continue to develop and maintain rules and regulations and other Company policies and procedures to assist the Distributors in establishing networks and maintain and protect the integrity of Distributor networks once established.
3. Marketing Plan. The Company may increase but not decrease the current discount percentages available to Distributors for the purchase of products from the Company and may increase but not decrease the applicable royalty override percentages (including roll-ups) and production and other bonus percentages available to Distributors at various qualification levels below the percentage levels currently provided for in the Company’s Sales and Marketing Plan, including the Rules of Conduct & Distributor Policies (the “Rules of Conduct”), the Company’s Career Book and other Company promotional material and literature regarding Distributors (collectively, “Company Distributor Material”), in effect as of the date hereof.
The Company further agrees not to modify the criteria for eligibility for such discounts and/or the qualification criteria for royalty overrides and production and other bonuses, unless it does so in a manner to make eligibility and/or qualification easier but not more difficult than under the applicable criteria currently provided for in Company Distributor Material in effect as of the date hereof.
The Company also agrees not to vary the criteria for qualification for each distributor tier (including, without limitation, the Chairman’s Club, 50K President, 30K President, 20K President, President’s Team, Millionaire Team, Global Expansion Team, World Team, Supervisor and Senior Consultant tiers) unless it does so in such a way so as to make qualification easier but not more difficult.
Without limiting the foregoing, (i) the Company may decrease but may not increase the royalty override qualification thresholds of 1,000, 4,000, 10,000, 20,000, 30,000, and 50,000 royalty override points for 2%, 4%, 6% 6.5%, 6.75% and 7% production bonuses, respectively, paid to TAB Team Distributors and may increase but may not decrease such percentages, (ii) the Company may increase but not decrease the aggregate President’s Council bonus below its current level of 1% of retail product sales and (iii) the Company may not, in countries where the Company is currently operating, materially change the relative relationship between the volume points, the adjusted retail price and/or the retail price of all products sold by the Company in the markets in which such products are being sold, unless such changes are made to convert adjusted retail prices up to a full retail price basis (i.e., one volume point per US $1.00 in the United States) or unless such changes are required by applicable law or are necessary in the Company’s reasonable business judgment to account for specific local market conditions or local currency conditions to achieve a reasonable profit on operations in such respective market or markets.
4. Herbalife Products. The Company will continue to endeavor to provide Distributors with high quality products for distribution, and will use reasonable commercial efforts to meet the demand of Distributors for the Company’s products.
5. Termination of Distributors. The Company maintains the right to terminate any Distributor of the Company who violates the Company Rules of Conduct and Distributor Policies or other rules and regulations of the Company as adopted or amended, consistent with Company policies and procedures as published in the Career Manual or other Company literature (the “Company Rules”). The Company however does not have the right to terminate a Distributor who does not violate the Company Rules.
A terminated Distributor must however be provided an opportunity to appeal such decision in accordance with the Rules of Conduct and Distributor policies and must be given an opportunity to present evidence relevant to the termination decision.
Upon receipt of the appeal and other evidence, the Company must review the terminated Distributor’s file and prepare a summary of the evidence for and against such termination and submit such summary without identifying the complaining party or parties, the terminated Distributor or his or her upline or downline to a committee comprised of an appointed representative from each of the Sales Department, the Distributor Relations Department and the Legal Department (the “Review Committee”). If a majority of the Review Committee determines that the terminated Distributor should not have been terminated, the Distributor shall be reinstated, but the Review Committee shall recommend an alternative penalty, if any, for the alleged violations. In making a termination decision, however, the Review Committee must consider whether the alleged violation was material.
6. Death of A Distributor. Subject to applicable laws, a Distributorship may, upon the death of the Distributor, be transferred to a spouse or heir who is, or upon the transfer becomes, an active participant in the business, subject to the prior written approval of Herbalife, which approval shall not be unreasonably withheld, and subject to reasonable terms and conditions of transfer (including, without limitation, demonstration to Herbalife’s
satisfaction that the proposed transferee has the ability to actively promote the business and provide services as a distributor).
In the event of such a transfer, the transferee shall succeed to the qualification level and earning status generated by the Distributorship without any reduction based solely as a result of the death of the decedent.
7. Privacy. The Company agrees that all Distributor records are confidential and will not disclose any such information except (i) in the ordinary course of business, (ii) as determined by the Board of Directors or senior management of the Company to be necessary or appropriate so long as the recipient of any such information is bound by a confidentiality agreement and as may be required by law, legal process, regulation or other reasonable governmental or governmental agency request.
8. Term. The term of this Amendment shall commence from the Effective Date hereof as set forth in Section 11 of this Amendment and shall continue until terminated or amended by the approval of (a) not less than fifty-one percent (51%) of the Distributors then at the level of Presidents Team earning at the production bonus level of 6% of the Company who respond to ballots sent to 100% of such Distributors, provided however that at least 50% of those Distributors entitled to vote return their ballots to the Company; and (b) a majority of the Board of Directors of the Company.
9. Future Distributors. The Company makes this Amendment for the benefit of all future Distributors and agrees to include this Amendment in the terms of the Agreement of Distributorship of each future Distributor.
10. Controlling Effect. In the event of any inconsistency between this Amendment, any Company Distributor Material and any other document, instrument or agreement to which the Company is now or hereafter becomes a party, the provisions of this Amendment, as amended (or terminated) in accordance with Section 8 of this Amendment, shall prevail and be given effect.
11. Effective Date. This Amendment is expressly conditioned upon and shall be effective only upon the date of consummation of the proposed merger pursuant to the Agreement and Plan of Merger by and among the Company, WH Acquisition Corp and WH Holdings (Cayman Islands) Ltd. dated as of April 10, 2002.
12. Governing Law. This Amendment shall be governed by and construed and enforced in accordance with the laws of the State of California, without regard to conflicts of law principles.
13. Successors and Assigns. All covenants and other agreements contained in this Amendment by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors (including, without limitation, any successor in any merger, consolidation or other business combination in which the Company is not the surviving entity) and assigns whether so expressed or not. This Amendment may not be assigned by the Company; provided, however, that in the event substantially all of the assets or substantially all of the business of the Company or the Herbalife trade names or trademarks are to be disposed of by the Company in one or a series of transactions, the Company shall assign this Amendment to the Acquiror(s) of substantially all of the assets or substantially all of the business of the Company or the Herbalife trade names or trademarks in such transaction or transactions and such Acquiror(s) will agree to assume the Company’s obligations hereunder. This Section 13 will apply to successive successors (including, without limitation, any successor in any merger, consolidation or other business combination in which the Company is not the surviving entity) of the parties hereto and successive assigns of this Amendment. In consideration of the provisions of this Section 13, each Distributor accepting the benefits of this amendment agrees not to employ or recruit any present, former or future employee or Distributor of the Company or any of its subsidiaries to serve in any type of management capacity, as an employee, consultant, advisor, distributor, member or otherwise, for any person or entity, other than the Company or any of its subsidiaries, that engages in the business of selling products through a multi-level or network marketing system or the sale of weight management products, nutritional supplements or personal care products anywhere in the United States or any other country in which the Company or one of its subsidiaries operates.
14. Severability of Provisions. The provisions of this Amendment are severable, and the invalidity or unenforceability of any provision or provisions of this Amendment or portions thereof shall not affect the validity or enforceability of any other provision, or portion of this Amendment, which shall remain in full force and effect as if executed with the unenforceable or invalid provisions or portion thereof eliminated.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.
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HERBALIFE INTERNATIONAL, INC., |
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a Nevada corporation |
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By: |
/s/ Francis X. Tirelli |
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Name: |
Francis X. Tirelli |
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Title: |
President & CEO |
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION
I, Michael O. Johnson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Herbalife Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ MICHAEL O. JOHNSON |
Michael O. Johnson Chairman of the Board and Chief Executive Officer |
Dated: May 2, 2023
Exhibit 31.2
RULE 13a-14(a) CERTIFICATION
I, Alexander Amezquita, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Herbalife Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ ALEXANDER AMEZQUITA |
Alexander Amezquita Chief Financial Officer |
Dated: May 2, 2023
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Herbalife Ltd., or the Company, on Form 10-Q for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof, or the Report, I, Michael O. Johnson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ MICHAEL O. JOHNSON |
Michael O. Johnson Chairman of the Board and Chief Executive Officer |
Dated: May 2, 2023
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Herbalife Ltd., or the Company, on Form 10-Q for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof, or the Report, I, Alexander Amezquita, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ ALEXANDER AMEZQUITA |
Alexander Amezquita Chief Financial Officer |
Dated: May 2, 2023
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Mar. 31, 2023 |
Dec. 31, 2022 |
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| Statement of Financial Position [Abstract] | ||
| Common shares, par value | $ 0.0005 | $ 0.0005 |
| Common shares, shares authorized | 2,000,000,000.0 | 2,000,000,000.0 |
| Common shares, shares outstanding | 98,700,000 | 97,900,000 |
Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Income Statement [Abstract] | ||||
| Net sales | $ 1,252.1 | $ 1,335.8 | ||
| Cost of sales | 298.6 | 307.1 | ||
| Gross profit | 953.5 | 1,028.7 | ||
| Royalty overrides | 416.0 | 433.8 | ||
| Selling, general, and administrative expenses | [1] | 475.9 | 454.9 | |
| Other operating income | (8.9) | (13.1) | ||
| Operating income | 70.5 | 153.1 | ||
| Interest expense, net | 39.4 | 29.7 | ||
| Income before income taxes | 31.1 | 123.4 | ||
| Income taxes | 1.8 | 25.2 | ||
| Net income | $ 29.3 | $ 98.2 | ||
| Earnings per share: | ||||
| Basic | $ 0.30 | $ 0.98 | ||
| Diluted | $ 0.29 | $ 0.96 | ||
| Weighted-average shares outstanding: | ||||
| Basic | 98.5 | 99.9 | ||
| Diluted | 100.2 | 101.7 | ||
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Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Millions |
3 Months Ended | |
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Mar. 31, 2023 |
Mar. 31, 2022 |
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| Statement of Comprehensive Income [Abstract] | ||
| Net income | $ 29.3 | $ 98.2 |
| Other comprehensive income: | ||
| Foreign currency translation adjustment, net of income taxes of $- for both the three months ended March 31, 2023 and 2022 | 13.2 | 4.4 |
| Unrealized loss on derivatives, net of income taxes of $- for both the three months ended March 31, 2023 and 2022 | (2.0) | (2.6) |
| Total other comprehensive income | 11.2 | 1.8 |
| Total comprehensive income | $ 40.5 | $ 100.0 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | |
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Mar. 31, 2023 |
Mar. 31, 2022 |
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| Statement of Comprehensive Income [Abstract] | ||
| Foreign currency translation adjustment, tax | $ 0 | $ 0 |
| Unrealized (loss) gain on derivatives, tax | $ 0 | $ 0 |
Organization |
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Mar. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Organization | 1. Organization Herbalife Ltd. (formerly Herbalife Nutrition Ltd.), a Cayman Islands exempted company with limited liability, was incorporated on April 4, 2002. On April 26, 2023, the Company officially changed its name from Herbalife Nutrition Ltd. to Herbalife Ltd. Herbalife Ltd. (and together with its subsidiaries, the “Company” or “Herbalife”) is a global nutrition company that sells weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products to and through a network of independent members, or Members. In China, the Company sells its products to and through independent service providers and sales representatives to customers and preferred customers, as well as through Company-operated retail platforms when necessary. The Company sells its products in five geographic regions: North America; Latin America, which consists of Mexico and South and Central America; EMEA, which consists of Europe, the Middle East, and Africa; Asia Pacific (excluding China); and China. See Note 6, Segment Information, for further information regarding geographic regions. |
Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies | 2. Significant Accounting Policies Basis of Presentation The unaudited condensed consolidated interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s, or SEC, Regulation S-X. Accordingly, as permitted by Article 10 of the SEC’s Regulation S-X, it does not include all of the information required by generally accepted accounting principles in the U.S., or U.S. GAAP, for complete financial statements. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP, as permitted by Article 10 of the SEC’s Regulation S-X. The Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 include Herbalife Ltd. and all of its direct and indirect subsidiaries. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 10-K. Operating results for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. Recently Adopted Pronouncements In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging — Portfolio Layer Method. This ASU improves hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. It expands the current last-of-layer method that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio, and to reflect that expansion, the last-of-layer method is renamed the portfolio layer method. The amendments in this update are effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company's condensed consolidated financial statements. In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments in this update are effective for reporting periods beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for periods beginning after December 15, 2023. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company's condensed consolidated financial statements. New Accounting Pronouncements In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842) - Common Control Arrangements. This ASU addresses issues related to accounting for leases under common control arrangements. The standard will include an amendment to Topic 842 for all entities with leasehold improvements in common control arrangements to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group if certain criteria are met. The amendments in this update are effective for reporting periods beginning after December 15, 2023, with early adoption permitted. The adoption of this guidance will not have a material impact on the Company’s condensed consolidated financial statements. Revenue Recognition The Company’s net sales consist of product sales. In general, the Company’s performance obligation is to transfer its products to its Members. The Company generally recognizes revenue when product is delivered to its Members. For the majority of China independent service providers and for third-party importers utilized in certain other countries where sales historically have not been material, the Company recognizes revenue based on the Company’s estimate of when the service provider or third-party importer sells the products because the Company is deemed to be the principal party of these product sales due to the additional selling and operating requirements relating to pricing of products, conducting business with physical locations, and other selling and marketing activities required of the service providers and third-party importers. The Company recognizes revenue for certain China independent service providers upon delivery as such Members have pricing discretion and increased fulfillment responsibilities and accordingly were determined to be the Company’s customers for accounting purposes. The Company’s Members, excluding its China independent service providers, may receive distributor allowances, which are comprised of discounts, rebates, and wholesale commission payments from the Company. Distributor allowances resulting from the Company’s sales of its products to its Members are recorded against net sales because the distributor allowances represent discounts from the suggested retail price. The Company compensates its sales leader Members with royalty overrides for services rendered relating to the development, retention, and management of their sales organizations. Royalty overrides are payable based on achieved sales volume. Royalty overrides are classified as an operating expense reflecting the services provided to the Company. The Company compensates its China independent service providers and third-party importers utilized in certain other countries for providing marketing, selling, and customer support services. For China and third-party importer sales transactions, as the Company is the principal party for the majority of these product sales as described above, the majority of service fees payable to China independent service providers and the compensation received by third-party importers for the services they provide, which represents the discount provided to them, are recorded in selling, general, and administrative expenses within the Company’s condensed consolidated statements of income. In addition, for those certain China independent service providers who are deemed to be the Company’s customers for accounting purposes as described above, a portion of the service fees payable to these Members will be classified as a reduction of net sales as opposed to the entire service fee being recognized within selling, general, and administrative expenses. The Company recognizes revenue when it delivers products to its United States Members; distributor allowances, inclusive of discounts and wholesale commissions, are recorded as a reduction to net sales; and royalty overrides are classified as an operating expense. Shipping and handling services relating to product sales are recognized as fulfillment activities on the Company’s performance obligation to transfer products and are therefore recorded within net sales as part of product sales and are not considered as separate revenues. Shipping and handling costs paid by the Company are included in cost of sales. The Company presents sales taxes collected from customers on a net basis. The Company generally receives the net sales price in cash or through credit card payments at the point of sale. Accounts receivable consist principally of credit card receivables arising from the sale of products to the Company’s Members, and its collection risk is reduced due to geographic dispersion. Credit card receivables were $67.0 million and $52.4 million as of March 31, 2023 and December 31, 2022, respectively. Substantially all credit card receivables were current as of March 31, 2023 and December 31, 2022. The Company recorded bad-debt expense related to allowances for the Company’s receivables of zero during both the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $1.8 million and $2.1 million, respectively. As of March 31, 2023 and December 31, 2022, the majority of the Company’s total outstanding accounts receivable were current. The Company records advance sales deposits when payment is received but revenue has not yet been recognized. In the majority of the Company’s markets, advance sales deposits are generally recorded to income when the product is delivered to its Members. Additionally, advance sales deposits also include deferred revenues due to the timing of revenue recognition for products sold through China independent service providers. The estimated deferral period for advance sales deposits is generally within one week. During the three months ended March 31, 2023, the Company recognized substantially all of the revenues that were included within advance sales deposits as of December 31, 2022 and any remaining such balance was not material as of March 31, 2023. Advance sales deposits are included in other current liabilities on the Company’s condensed consolidated balance sheets. See Note 14, Detail of Certain Balance Sheet Accounts, for further information. In general, if a Member returns product to the Company on a timely basis, they may obtain replacement product from the Company for such returned products. In addition, in general the Company maintains a buyback program pursuant to which it will repurchase products sold to a Member who has decided to leave the business. Allowances for product returns, primarily in connection with the Company’s buyback program, are provided at the time the sale is recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Allowances for product returns were $2.0 million and $2.1 million as of March 31, 2023 and December 31, 2022, respectively. The Company’s products are grouped in five product categories: weight management; targeted nutrition; energy, sports, and fitness; outer nutrition; and literature and promotional items. However, the effect of economic factors on the nature, amount, timing, and uncertainty of revenue recognition and cash flows are similar among all five product categories. The Company defines its operating segments through five geographic regions. The effect of economic factors on the nature, amount, timing, and uncertainty of revenue recognition and cash flows are similar among the geographic regions within the Company’s Primary Reporting Segment. See Note 6, Segment Information, for further information on the Company’s reportable segments and the Company’s presentation of disaggregated revenue by reportable segment. Distributor Compensation – U.S. In the U.S., distributor compensation, including Royalty overrides, is capped if the Company does not meet an annual requirement as described in the consent order discussed in more detail in Note 5, Contingencies. On a periodic basis, the Company evaluates if this requirement will be achieved by year end to determine if a cap on distributor compensation will be required, and then determines the appropriate amount of distributor compensation expense, which may vary in each reporting period. As of March 31, 2023, the Company believes that the cap to distributor compensation will not be applicable for the current year. Other Operating Income To encourage local investment and operations, governments in various China provinces conduct grant programs. The Company applied for and received several such grants in China. Government grants are recorded into income when a legal right to the grant exists, there is a reasonable assurance that the grant proceeds will be received, and the substantive conditions under which the grants were provided have been met. Generally, these substantive conditions are the Company maintaining operations and paying certain taxes in the relevant province and obtaining government approval by completing an annual application process. The Company believes the continuing obligation with respect to the funds is a general requirement that they are used only for its business in China. The Company recognized government grant income related to its regional headquarters and distribution centers within China of approximately $8.9 million and $13.1 million during the three months ended March 31, 2023 and 2022, respectively, in other operating income within its condensed consolidated statements of income. The Company intends to continue applying for government grants in China when programs are available; however, there is no assurance that the Company will receive grants in future periods. Restricted Cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows:
The majority of the Company’s consolidated restricted cash is held by certain of its foreign entities and consists of cash deposits that are required due to the business operating requirements in those jurisdictions. Use of Estimates The Company continues to operate in an uncertain macroeconomic and geopolitical environment caused by high inflation, foreign exchange rate fluctuations, the war in Ukraine, lingering COVID-19 pandemic impacts and other factors. The Company is closely monitoring the evolving macroeconomic and geopolitical conditions to assess potential impacts on its business. Due to the significant uncertainty created by these circumstances, actual results could differ from Management's estimates and judgments. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current macroeconomic environment, which estimates and assumptions the Company believes to be reasonable under the circumstances. Changes in estimates resulting from continuing changes in the macroeconomic environment will be reflected in the financial statements in future periods. |
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Inventories |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 3. Inventories Inventories consist primarily of finished goods available for resale. Inventories are stated at lower of cost (primarily on the first-in, first-out basis) and net realizable value. The following are the major classes of inventory:
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Long-Term Debt |
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| Long-Term Debt | 4. Long-Term Debt Long-term debt consists of the following:
Senior Secured Credit Facility On August 16, 2018, the Company entered into a $1.25 billion senior secured credit facility, or the 2018 Credit Facility, consisting of a $250.0 million term loan A, or the 2018 Term Loan A, a $750.0 million term loan B, or the 2018 Term Loan B, and a $250.0 million revolving credit facility, or the 2018 Revolving Credit Facility, with a syndicate of financial institutions as lenders. The 2018 Term Loan B matures upon the earlier of: (i) August 18, 2025, or (ii) December 15, 2023 if the outstanding principal on the 2024 Convertible Notes, as defined below, exceeds $350.0 million and the Company exceeds certain leverage ratios as of that date. As described further below, the outstanding principal on the 2024 Convertible Notes is less than $350.0 million as of March 31, 2023. All obligations under the 2018 Credit Facility are unconditionally guaranteed by certain direct and indirect wholly-owned subsidiaries of Herbalife Ltd. and secured by the equity interests of certain of Herbalife Ltd.’s subsidiaries and substantially all of the assets of the domestic loan parties. Also on August 16, 2018, the Company issued $400.0 million aggregate principal amount of senior unsecured notes, or the 2026 Notes as described below, and used the proceeds from the 2018 Credit Facility and the 2026 Notes to repay in full the $1,178.1 million outstanding under the Company’s prior senior secured credit facility. The 2018 Term Loan B was issued to the lenders at a 0.25% discount, or $1.9 million. The Company incurred approximately $11.7 million of debt issuance costs in connection with the 2018 Credit Facility. The discount and debt issuance costs are recorded on the Company’s condensed consolidated balance sheet and are being amortized over the life of the 2018 Credit Facility using the effective-interest method. On December 12, 2019, the Company amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B from either the eurocurrency rate plus a margin of 3.25% or the base rate plus a margin of 2.25% to either the eurocurrency rate plus a margin of 2.75% or the base rate plus a margin of 1.75%. The Company incurred approximately $1.2 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to FASB ASC Topic 470, Debt, or ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. The debt issuance costs were recognized in interest expense, net within the Company’s condensed consolidated statement of income during the fourth quarter of 2019. On March 19, 2020, the Company amended the 2018 Credit Facility which, among other things, extended the maturity of both the 2018 Term Loan A and 2018 Revolving Credit Facility to the earlier of: (i) March 19, 2025, or (ii) September 15, 2023 if the outstanding principal on the 2024 Convertible Notes, as defined below, exceeds $350.0 million and the Company exceeds certain leverage ratios as of that date (as described further below, the outstanding principal on the 2024 Convertible Notes is less than $350.0 million as of March 31, 2023); increased borrowings under the 2018 Term Loan A from $234.4 million to a total of $264.8 million; increased the total available borrowing capacity under 2018 Revolving Credit Facility from $250.0 million to $282.5 million; and reduced the interest rate for borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility from either the eurocurrency rate plus a margin of 3.00% or the base rate plus a margin of 2.00% to either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50%. The Company incurred approximately $1.6 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. Of the $1.6 million of debt issuance costs, approximately $1.1 million was recorded on the Company’s condensed consolidated balance sheet and is being amortized over the life of the 2018 Credit Facility using the effective-interest method, and approximately $0.5 million was recognized in interest expense, net within the Company’s condensed consolidated statement of income during the first quarter of 2020. On February 10, 2021, the Company amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B from either the eurocurrency rate plus a margin of 2.75% or the base rate plus a margin of 1.75% to either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50%. The Company incurred approximately $1.1 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. The debt issuance costs were recognized in interest expense, net within the Company’s condensed consolidated statement of income during the first quarter of 2021. On July 30, 2021, the Company amended the 2018 Credit Facility which, among other things, increased borrowings under the 2018 Term Loan A from $245.0 million to a total of $286.2 million; increased the total available borrowing capacity under the 2018 Revolving Credit Facility from $282.5 million to $330.0 million; reduced the interest rate for borrowings under the 2018 Term Loan A and 2018 Revolving Credit Facility from either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50% to, depending on the Company’s total leverage ratio, either the eurocurrency rate plus a margin of between 1.75% and 2.25% or the base rate plus a margin of between 0.75% and 1.25%; and amended the commitment fee on the undrawn portion of the 2018 Revolving Credit Facility from 0.35% per annum to, depending on the Company’s total leverage ratio, between 0.25% to 0.35% per annum. As a result of the amendment, the applicable margin for the 2018 Term Loan A and 2018 Revolving Credit Facility is currently subject to certain premiums or discounts tied to criteria determined by certain sustainability targets where the applicable margin may increase or decrease up to three basis points. The Company incurred approximately $1.4 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. Of the $1.4 million of debt issuance costs, approximately $0.8 million was recorded on the Company’s condensed consolidated balance sheet and is being amortized over the life of the 2018 Credit Facility using the effective-interest method, and approximately $0.6 million was recognized in interest expense, net within the Company’s condensed consolidated statement of income during the third quarter of 2021. Under the 2018 Credit Facility, borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility bear interest at, depending on the Company’s total leverage ratio, either the eurocurrency rate plus a margin of between 1.75% and 2.25% or the base rate plus a margin of between 0.75% and 1.25%. As described above, the applicable margin may also be subject to certain premiums or discounts tied to criteria determined by certain sustainability targets. Borrowings under the 2018 Term Loan B bear interest at either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50%. The eurocurrency rate is based on adjusted LIBOR and is subject to a floor of 0.00%. The base rate represents the highest of the Federal Funds Rate plus 0.50%, one-month adjusted LIBOR plus 1.00%, and the prime rate quoted by The Wall Street Journal, and is subject to a floor of 1.00%. The Company is required to pay a commitment fee on the 2018 Revolving Credit Facility of, depending on the Company’s total leverage ratio, between 0.25% to 0.35% per annum on the undrawn portion of the 2018 Revolving Credit Facility. Interest is due at least quarterly on amounts outstanding under the 2018 Credit Facility. The 2018 Credit Facility requires the Company to comply with a leverage ratio. The 2018 Credit Facility also contains affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, loans and investments, additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2018 Credit Facility contains customary events of default. As of March 31, 2023 and December 31, 2022, the Company was in compliance with its debt covenants under the 2018 Credit Facility. During April 2023, the Company amended the 2018 Credit Facility which, among other things, increased the leverage ratio covenant under both the 2018 Term Loan A and 2018 Revolving Credit Facility. In addition, the 2018 Credit Facility was also amended pursuant to the existing terms of the 2018 Credit Agreement to transition from LIBOR to the alternative benchmark rate, which is now being set as the Secured Overnight Financing Rate, or SOFR, under both the 2018 Term Loan A and 2018 Revolving Credit Facility when LIBOR is expected to be fully discontinued. The Company incurred approximately $1.1 million of debt issuance costs in connection with the amendments. For accounting purposes, pursuant to ASC 470, these transactions are expected to be accounted for as modifications of the 2018 Credit Facility during the second quarter of 2023. The 2018 Term Loan A and 2018 Term Loan B are payable in consecutive quarterly installments which began on December 31, 2018. In addition, beginning in 2020, the Company may be required to make mandatory prepayments towards the 2018 Term Loan B based on the Company’s consolidated leverage ratio and annual excess cash flows as defined under the terms of the 2018 Credit Facility. The Company is also permitted to make voluntary prepayments. Amounts outstanding under the 2018 Term Loan A and 2018 Term Loan B may be voluntarily prepaid without premium or penalty, subject to customary breakage fees in connection with the prepayment of a eurocurrency loan. These prepayments, if any, will be applied against remaining quarterly installments owed under the 2018 Term Loan A and 2018 Term Loan B in order of maturity with the remaining principal due upon maturity, unless directed otherwise by the Company. Based on the 2022 consolidated leverage ratio and excess cash flow calculation, both as defined under the terms of the 2018 Credit Facility, the Company will not be required to make a mandatory prepayment in 2023 toward the 2018 Term Loan B. As of March 31, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 6.93% and 4.08%, respectively. During the three months ended March 31, 2023, the Company borrowed an aggregate amount of $71.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $138.2 million on amounts outstanding under the 2018 Credit Facility, which included $131.0 million of repayments on amounts outstanding under the 2018 Revolving Credit Facility. During the three months ended March 31, 2022, the Company borrowed an aggregate amount of $82.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $89.2 million on amounts outstanding under the 2018 Credit Facility, which included $82.0 million of repayment on amounts outstanding under the Revolving Credit Facility. As of March 31, 2023 and December 31, 2022, the U.S. dollar amount outstanding under the 2018 Credit Facility was $908.4 million and $975.7 million, respectively. Of the $908.4 million outstanding under the 2018 Credit Facility as of March 31, 2023, $252.2 million was outstanding under the 2018 Term Loan A and $656.2 million was outstanding under the 2018 Term Loan B. There were no borrowings outstanding under the 2018 Revolving Credit Facility as of March 31, 2023. Of the $975.7 million outstanding under the 2018 Credit Facility as of December 31, 2022, $257.6 million was outstanding under the 2018 Term Loan A, $658.1 million was outstanding under the 2018 Term Loan B, and $60.0 million was outstanding under the 2018 Revolving Credit Facility. There were no outstanding foreign currency borrowings under the 2018 Credit Facility as of March 31, 2023 and December 31, 2022. During the three months ended March 31, 2023 and 2022, the Company recognized $17.1 million and $7.5 million, respectively, of interest expense relating to the 2018 Credit Facility, which included $0.1 million and $0.1 million, respectively, relating to non-cash interest expense relating to the debt discount and $0.5 million and $0.5 million, respectively, relating to amortization of debt issuance costs. The fair value of the outstanding borrowings on the 2018 Term Loan A are determined by utilizing over-the-counter market quotes for similar instruments, which are considered Level 2 inputs as described in Note 12, Fair Value Measurements. As of March 31, 2023 and December 31, 2022, the carrying value of the 2018 Term Loan A was $251.6 million and $257.0 million, respectively, and the fair value was approximately $250.6 million and $250.0 million, respectively. The fair value of the outstanding borrowings under the 2018 Term Loan B are determined by utilizing over-the-counter market quotes, which are considered Level 2 inputs as described in Note 12, Fair Value Measurements. As of March 31, 2023 and December 31, 2022, the carrying amount of the 2018 Term Loan B was $652.8 million and $654.3 million, respectively, and the fair value was approximately $652.1 million and $638.8 million, respectively. The fair value of the outstanding borrowings on the 2018 Revolving Credit Facility approximated its carrying value of $60.0 million as of December 31, 2022 due to its variable interest rate which reprices frequently and represents floating market rates. Convertible Senior Notes due 2024 In March 2018, the Company issued $550.0 million aggregate principal amount of convertible senior notes, or the 2024 Convertible Notes, in a private offering to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2024 Convertible Notes are senior unsecured obligations which rank effectively subordinate to any of the Company’s existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2024 Convertible Notes pay interest at a rate of 2.625% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2018. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2024 Convertible Notes mature on March 15, 2024. Holders of the 2024 Convertible Notes may convert their notes at their option under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending June 30, 2018, if the last reported sale price of the Company’s common shares for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price for the 2024 Convertible Notes on each applicable trading day; (ii) during the five business-day period immediately after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of 2024 Convertible Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of the Company’s common shares and the conversion rate for the 2024 Convertible Notes for each such day; (iii) if the Company calls the 2024 Convertible Notes for redemption; or (iv) upon the occurrence of specified corporate events. On and after December 15, 2023, holders may convert their 2024 Convertible Notes at any time, regardless of the foregoing circumstances. In December 2021, the Company made an irrevocable election under the indenture governing the 2024 Convertible Notes to require the principal portion of the 2024 Convertible Notes to be settled in cash and any excess in shares or cash. Upon conversion, the 2024 Convertible Notes will be settled in cash and, if applicable, the Company’s common shares, based on the applicable conversion rate at such time. The 2024 Convertible Notes had an initial conversion rate of 16.0056 common shares per $1,000 principal amount of the 2024 Convertible Notes, or an initial conversion price of approximately $62.48 per common share. The conversion rate is subject to adjustment upon the occurrence of certain events and was 16.0467 common shares per $1,000 principal amount of the 2024 Convertible Notes, or a conversion price of approximately $62.32 per common share, as of March 31, 2023. In March 2018, prior to the adoption of ASU 2020-06 as described further below, the $550.0 million aggregate principal amount of the 2024 Convertible Notes were initially allocated between long-term debt, or liability component, and additional paid-in capital, or equity component, within the Company’s condensed consolidated balance sheet at $410.1 million and $139.9 million, respectively. The liability component was measured using the nonconvertible debt interest rate. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the 2024 Convertible Notes as a whole. Since the Company must still settle these 2024 Convertible Notes at face value at or prior to maturity, this liability component was being accreted up to its face value prior to the adoption of ASU 2020-06, resulting in additional non-cash interest expense being recognized within the Company’s condensed consolidated statements of income while the 2024 Convertible Notes remain outstanding. Prior to the adoption of ASU 2020-06, the effective-interest rate on the 2024 Convertible Notes was approximately 8.4% per annum. The equity component was not to be remeasured as long as it continued to meet the conditions for equity classification. The Company incurred approximately $12.9 million of issuance costs during the first quarter of 2018 relating to the issuance of the 2024 Convertible Notes. Of the $12.9 million issuance costs incurred, $9.6 million and $3.3 million were recorded as debt issuance costs and additional paid-in capital, respectively, in proportion to the allocation of the proceeds of the 2024 Convertible Notes prior to the adoption of ASU 2020-06. The $9.6 million of debt issuance costs, which was recorded as an additional debt discount on the Company’s condensed consolidated balance sheet, are being amortized over the contractual term of the 2024 Convertible Notes using the effective-interest method. As a result of adopting ASU 2020-06, on January 1, 2022, the Company increased long-term debt by approximately $59.1 million, reduced paid-in capital in excess of par value by approximately $136.7 million, and decreased accumulated deficit by approximately $77.6 million within its condensed consolidated balance sheet. In addition, the effective-interest on the 2024 Convertible Notes is approximately 3.1% per annum. See Note 2, Significant Accounting Policies, of the 2022 10-K for further information on the Company’s adoption of ASU 2020-06. In December 2022, the Company issued $277.5 million aggregate principal amount of new convertible senior notes due 2028, or the 2028 Convertible Notes as described below, and subsequently used the proceeds, to repurchase $287.5 million of its existing 2024 Convertible Notes from a limited number of holders in privately negotiated transactions for an aggregate purchase price of $274.9 million, which included $1.7 million of accrued interest. For accounting purposes, pursuant to ASC 470, Debt, these transactions were accounted for as an extinguishment of 2024 Convertible Notes and an issuance of new 2028 Convertible Notes. As a result, the Company recognized $286.0 million as a reduction to long-term debt representing the carrying value of the repurchased 2024 Convertible Notes. The $12.8 million difference between the cash paid and carrying value of the repurchased 2024 Convertible Notes was recognized as a gain on the extinguishment of debt and is recorded in other (income) expense, net within the Company’s consolidated statement of income during the fourth quarter of 2022. The accounting impact of the new 2028 Convertible Notes is described in further detail below. As of March 31, 2023, the remaining outstanding principal on the 2024 Convertible Notes was $262.5 million, the unamortized debt issuance costs were $1.1 million, and the carrying amount was $261.4 million, which was recorded to current portion of long-term debt within the Company’s condensed consolidated balance sheet. As of December 31, 2022, the remaining outstanding principal on the 2024 Convertible Notes was $262.5 million, the unamortized debt issuance costs were $1.3 million, and the carrying amount was $261.2 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. The fair value of the 2024 Convertible Notes was approximately $249.4 million and $243.3 million as of March 31, 2023 and December 31, 2022, respectively, and was determined by utilizing over-the-counter market quotes, which are considered Level 2 inputs as defined in Note 12, Fair Value Measurements. During the three months ended March 31, 2023 and 2022, the Company recognized $1.8 million and $4.2 million, respectively, of interest expense relating to the 2024 Convertible Notes, which included $0.3 million and $0.5 million, respectively, relating to amortization of debt issuance costs. Convertible Senior Notes due 2028 In December 2022, the Company issued $250.0 million aggregate principal amount of convertible senior notes in a private offering to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933, as amended. The Company granted an option to the initial purchasers to purchase up to an additional $37.5 million aggregate principal amount of 2028 Convertible Notes, of which $27.5 million was exercised during December 2022, resulting in a total issuance of $277.5 million aggregate principal amount of 2028 Convertible Notes. The 2028 Convertible Notes are senior unsecured obligations which rank effectively subordinate to any of the Company’s existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2028 Convertible Notes pay interest at a rate of 4.25% per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2023. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2028 Convertible Notes mature on June 15, 2028. Holders of the 2028 Convertible Notes may convert their notes at their option under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending March 31, 2023, if the last reported sale price of the Company’s common shares for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price for the 2028 Convertible Notes on each applicable trading day; (ii) during the five business-day period immediately after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of 2028 Convertible Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of the Company’s common shares and the conversion rate for the 2028 Convertible Notes for each such day; (iii) if the Company calls the 2028 Convertible Notes for redemption; or (iv) upon the occurrence of specified corporate events. On and after March 15, 2028, holders may convert their 2028 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the principal portion of the 2028 Convertible Notes will be settled in cash and to the extent the conversion value exceeds the principal amount, the Company may elect to settle in cash, or a combination of cash and common shares, based on the applicable conversion rate at such time. The 2028 Convertible Notes had an initial conversion rate of 58.8998 common shares per $1,000 principal amount of the 2028 Convertible Notes, or an initial conversion price of approximately $16.98 per common share. The conversion rate is subject to adjustment upon the occurrence of certain events. The Company incurred approximately $8.5 million of issuance costs during the fourth quarter of 2022 relating to the issuance of the 2028 Convertible Notes. These were recorded as a debt discount on the Company’s consolidated balance sheet and are being amortized over the contractual term of the 2028 Convertible Notes using the effective-interest method. The effective-interest rate on the 2028 Convertible Notes is approximately 4.9% per annum. As of March 31, 2023, the outstanding principal on the 2028 Convertible Notes was $277.5 million, the unamortized debt issuance costs were $8.1 million, and the carrying amount was $269.4 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. As of December 31, 2022, the outstanding principal on the 2028 Convertible Notes was $277.5 million, the unamortized debt issuance costs were $8.4 million, and the carrying amount was $269.1 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. The fair value of the 2028 Convertible Notes was approximately $332.0 million and $305.4 million as of March 31, 2023 and December 31, 2022, respectively, and was determined by utilizing over-the-counter market quotes, which are considered Level 2 inputs as defined in Note 12, Fair Value Measurements. During the three months ended March 31, 2023, the Company recognized $3.3 million, of interest expense relating to the 2028 Convertible Notes, which included $0.3 million, relating to non-cash interest expense relating to amortization of debt issuance costs. Senior Notes due 2025 In May 2020, the Company issued $600.0 million aggregate principal amount of senior notes, or the 2025 Notes, in a private offering in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and outside the United States pursuant to Regulation S under the Securities Act of 1933, as amended. The 2025 Notes are senior unsecured obligations which rank effectively subordinate to any of the Company’s existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2025 Notes pay interest at a rate of 7.875% per annum payable semiannually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021. The 2025 Notes mature on September 1, 2025. The Company may redeem all or part of the 2025 Notes at the following redemption prices, expressed as percentages of principal amount, plus accrued and unpaid interest thereon to the redemption date, if redeemed during the twelve-month period beginning on September 1 of the years indicated below:
The 2025 Notes contain customary negative covenants, including, among other things, limitations or prohibitions on restricted payments, incurrence of additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2025 Notes contain customary events of default. The Company incurred approximately $7.9 million of issuance costs during the second quarter of 2020 relating to the issuance of the 2025 Notes. The $7.9 million of debt issuance costs, which was recorded as a debt discount on the Company’s condensed consolidated balance sheet, are being amortized over the contractual term of the 2025 Notes using the effective-interest method. As of March 31, 2023, the outstanding principal on the 2025 Notes was $600.0 million, the unamortized debt issuance costs were $4.0 million, and the carrying amount was $596.0 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. As of December 31, 2022, the outstanding principal on the 2025 Notes was $600.0 million, the unamortized debt issuance costs were $4.4 million, and the carrying amount was $595.6 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. The fair value of the 2025 Notes was approximately $567.8 million and $534.4 million as of March 31, 2023 and December 31, 2022, respectively, and was determined by utilizing over-the-counter market quotes and yield curves, which are considered Level 2 inputs as defined in Note 12, Fair Value Measurements. During the three months ended March 31, 2023 and 2022, the Company recognized $12.2 million and $12.2 million, respectively, of interest expense relating to the 2025 Notes, which included $0.4 million and $0.3 million, respectively, relating to amortization of debt issuance costs. Senior Notes due 2029 In May 2021, the Company issued $600.0 million aggregate principal amount of senior notes, or the 2029 Notes, in a private offering in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and outside the United States pursuant to Regulation S under the Securities Act of 1933, as amended. The 2029 Notes are senior unsecured obligations which rank effectively subordinate to any of the Company’s existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2029 Notes pay interest at a rate of 4.875% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2029 Notes mature on June 1, 2029. At any time prior to June 1, 2024, the Company may redeem all or part of the 2029 Notes at a redemption price equal to 100% of their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest to the redemption date. In addition, at any time prior to June 1, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2029 Notes with the proceeds of one or more equity offerings, at a redemption price equal to 104.875%, plus accrued and unpaid interest. Furthermore, at any time on or after June 1, 2024, the Company may redeem all or part of the 2029 Notes at the following redemption prices, expressed as percentages of principal amount, plus accrued and unpaid interest thereon to the redemption date, if redeemed during the twelve-month period beginning on June 1 of the years indicated below:
The 2029 Notes contain customary negative covenants, including, among other things, limitations or prohibitions on restricted payments, incurrence of additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2029 Notes contain customary events of default. The Company incurred approximately $7.7 million of issuance costs during the second quarter of 2021 relating to the issuance of the 2029 Notes. The $7.7 million of debt issuance costs, which was recorded as a debt discount on the Company’s condensed consolidated balance sheet, are being amortized over the contractual term of the 2029 Notes using the effective-interest method. As of March 31, 2023, the outstanding principal on the 2029 Notes was $600.0 million, the unamortized debt issuance costs were $6.2 million, and the carrying amount was $593.8 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. As of December 31, 2022, the outstanding principal on the 2029 Notes was $600.0 million, the unamortized debt issuance costs were $6.4 million, and the carrying amount was $593.6 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. The fair value of the 2029 Notes was approximately $459.4 million and $412.5 million as of March 31, 2023 and December 31, 2022, respectively, and was determined by utilizing over-the-counter market quotes and yield curves, which are considered Level 2 inputs as defined in Note 12, Fair Value Measurements. During the three months ended March 31, 2023 and 2022, the Company recognized $7.5 million and $7.5 million, respectively, of interest expense relating to the 2029 Notes, which included $0.2 million and $0.2 million, respectively, relating to amortization of debt issuance costs. Total Debt The Company’s total interest expense was $41.8 million and $31.4 million for the three months ended March 31, 2023 and 2022, respectively, which was recognized within its condensed consolidated statements of income. As of March 31, 2023, annual scheduled principal payments of debt were as follows:
Certain vendors and government agencies may require letters of credit or similar guaranteeing arrangements to be issued or executed. As of March 31, 2023, the Company had $37.9 million of issued but undrawn letters of credit or similar arrangements. |
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Contingencies |
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Mar. 31, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Contingencies | 5. Contingencies The Company is from time to time engaged in routine litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters when a probable loss estimate can be made. The matters described in this Note may take several years to resolve. While the Company believes it has meritorious defenses, it cannot be sure of their ultimate resolution. Although the Company may reserve amounts for certain matters that the Company believes represent the most likely outcome of the resolution of these related disputes, if the Company is incorrect in its assessment, the Company may have to record additional expenses, when it becomes probable that an increased potential liability is warranted. Tax Matters The Mexican Tax Administration Service has delayed processing value-added tax, or VAT, refunds for companies operating in Mexico and the Company believes that the process for its Mexico subsidiary to receive VAT refunds may be delayed. As of March 31, 2023, the Company had $20.7 million of Mexico VAT-related assets, of which $14.3 million was recognized in prepaid expenses and other current assets and $6.4 million was recognized in other assets within its condensed consolidated balance sheet. This amount relates to VAT payments made over various periods and the Company believes these amounts are recoverable by refund or they may be applied against certain future tax liabilities. Effective January 1, 2019, a tax reform law changed the rules concerning possible use of VAT assets, specifically providing that, for VAT balances generated after December 31, 2018, those balances could not be offset against taxes other than VAT obligations currently due. The Company has not recognized any losses related to these VAT-related assets as the Company does not believe a loss is probable. In addition, the Mexican Tax Administration Service is auditing the Company’s various tax filings for the 2019 year and after completing its initial examination, the Tax Administration Service is now discussing its preliminary findings with the Company. Those findings primarily concern which VAT rate is applicable to certain of the Company’s products. It is possible that the Company could receive an assessment from the Tax Administration Service after these discussions are completed. The Company believes that it has meritorious defenses if an assessment is issued by the Tax Administration Service and does not believe a loss is currently probable. The Company is currently unable to reasonably estimate the amount of loss that may result from an unfavorable outcome if a formal assessment is issued by the Tax Administration Service. The Company has received tax assessments for multiple years from the Federal Revenue Office of Brazil related to withholding/contributions based on payments to the Company’s Members. In February 2022, the Company received a mixed verdict related to the 2004 tax assessment which reduced the exposure to the Company. The aggregate combined amount of all these assessments is equivalent to approximately $11.1 million, translated at the March 31, 2023 spot rate. The Company is currently litigating these assessments and has issued a surety bond for certain of these amounts. The Company has not accrued a loss for the majority of the assessments because the Company does not believe a loss is probable. The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome if additional assessments for other periods were to be issued. The Company is under examination in several Brazilian states related to ICMS and ICMS-ST taxation. Some of these examinations have resulted in assessments for underpaid tax that the Company has appealed. The State of São Paulo has audited the Company for the 2013 and 2014 tax years. During July 2016, for the State of São Paulo, the Company received an assessment in the aggregate amount of approximately $31.3 million, translated at the March 31, 2023 spot rate, relating to various ICMS issues for its 2013 tax year. In August 2016, the Company filed a first-level administrative appeal which was denied in February 2017. The Company filed a further appeal on March 9, 2017. On March 20, 2018, the Court held a hearing and a verdict was issued in June 2019, remanding the case back to the first-level administrative court. During August 2017, for the State of São Paulo, the Company received an assessment in the aggregate amount of approximately $11.6 million, translated at the March 31, 2023 spot rate, relating to various ICMS issues for its 2014 tax year. In September 2017, the Company filed a first-level administrative appeal for the 2014 tax year. The first-level administrative appeal was denied. The Company filed an appeal at the second-level administrative court in December 2018 and a verdict was issued in April 2019, remanding the case back to the first-level administrative court. During July 2022, the Company received an unfavorable decision at the first-level administrative court for both the 2013 and 2014 cases which was subsequently reaffirmed by the second-level administrative court. In August 2022, the Company filed an appeal with the second-level administrative court relating to both the 2013 and 2014 cases. In the first quarter of 2023, the Company received an unfavorable decision relating to both the 2013 and 2014 cases at the second-level administrative court. The Company filed an appeal at the third-level administrative court relating to both the 2013 and 2014 cases. During September 2018, for the State of Rio de Janeiro, the Company received an assessment in the aggregate amount of approximately $6.9 million, translated at the March 31, 2023 spot rate, relating to various ICMS-ST issues for its 2016 and 2017 tax years. On November 8, 2018, the Company filed a first-level administrative appeal, which was subsequently denied. On April 5, 2019, the Company appealed this tax assessment to the Administrative Council of Tax Appeals (second-level administrative appeal) and in the first quarter of 2023, received an unfavorable decision. The Company plans to litigate the case at the Judicial level. The Company has also received other ICMS tax assessments in Brazil. During the fourth quarter of 2015, the Company filed appeals with state judicial courts against three of the assessments. The Company had issued surety bonds in the aggregate amount of $11.8 million, translated at the March 31, 2023 spot rate, to guarantee payment of some of the tax assessments as required while the Company pursues the appeals. In addition, the Company has received several ICMS tax assessments in the aggregate amount of $3.5 million, translated at the March 31, 2023 spot rate, from several other Brazilian states where surety bonds have not been issued. Litigation in all these cases is currently ongoing. The Company has not recognized a loss relating to any of these cases, assessments, and matters as the Company does not believe a loss is probable. The Company has received various tax assessments in multiple jurisdictions in India for multiple years from the Indian VAT and Service Tax authorities in an amount equivalent to approximately $12.5 million, translated at the March 31, 2023 spot rate. These assessments are for underpaid VAT and the ability to claim input Service Tax credits. The Company is litigating these cases at the tax administrative level and the tax tribunal levels as it believes it has meritorious defenses. The Company has not recognized a loss as it does not believe a loss is probable. In addition, the Indian income tax authorities audited the Company’s fiscal years ended March 31, 2017 and 2018 and the Company has received assessments for tax and interest of approximately $17.6 million and $17.2 million for those respective years, translated at the March 31, 2023 spot rate. These assessments are subject to penalty adjustments. The Company is currently litigating these cases. The Company currently believes that it is more likely than not that it will be successful in supporting its positions relating to these assessments. Accordingly, the Company has not accrued any amounts relating to these matters. In addition, the Indian income tax authorities are auditing multiple years and it is uncertain whether additional assessments will be received. The Korea Customs Service audited the importation activities of Herbalife Korea for the period January 2011 through May 2013. The total assessment for the audit period was approximately $25 million. The Company paid the assessment in order to litigate the case and had previously recognized these payments in other assets within its consolidated balance sheet as of December 31, 2021. The Company lodged a first-level administrative appeal, which was denied on October 21, 2016. On January 31, 2017, the Company filed a further appeal to the National Tax Tribunal of Korea. In November 2018, the Company received an unfavorable decision from the National Tax Tribunal of Korea. In February 2019, the Company submitted an appeal to the Seoul Administrative Court. On February 17, 2021, the Seoul Administrative Court issued a verdict in favor of the Company. On March 10, 2021, the Korea Customs Service filed an appeal to the High Court against the verdict. In May 2022, the High Court issued a favorable verdict to the Company on narrow technical grounds without addressing the core of the Company's arguments. The Company filed a limited scope appeal to Supreme Court of Korea on the core of the Company's arguments where the Supreme Court declined the Company's appeal but upheld the favorable verdict that was issued by the High Court. Therefore, despite the existing customs assessment being nullified the Korea Customs Service can still issue a new assessment to the Company for the same period. In October 2022, the Korea Customs service refunded the approximately $25 million assessed amount to the Company since the assessment had been nullified by the Courts and the Company has reduced its other assets within its consolidated balance sheet by the same corresponding amount. The Korea Customs Service audited the importation activities of Herbalife Korea for the period May 2013 through December 2013. The total assessment for the audit period is $8.9 million, translated at the March 31, 2023 spot rate. The Company has paid the assessment and has recognized this payment in other assets within its condensed consolidated balance sheet as of March 31, 2023. In March 2023 the Seoul Administrative Court issued a verdict in favor of the Company on narrow technical grounds. In April 2023, the Korea Customs Service filed an appeal to the High Court against the verdict and the case continues to be litigated. The Korea Customs Service audited the importation activities of Herbalife Korea for the period January 2014 through December 2014. The total assessment for the audit period is $13.8 million, translated at the March 31, 2023 spot rate. The Company paid the assessment in September 2020 and has recognized this payment in other assets within its condensed consolidated balance sheet as of March 31, 2023. The Korea Customs Service audited the importation activities of Herbalife Korea for the period January 2015 through December 2017. The total assessment for the audit period is $11.2 million, translated at the March 31, 2023 spot rate. The Company has paid the assessment and has recognized this payment in other assets within its condensed consolidated balance sheet as of March 31, 2023. The Company is currently litigating these two assessments at the Seoul Administrative Court. The Company disagrees with the assertions made in all of these assessments, as well as the calculation methodology used in the assessments. The Company has not recognized a loss as the Company does not believe a loss is probable. During the course of 2016, the Company received various questions from the Greek Social Security Agency and on December 29, 2016, the Greek Social Security Agency issued assessments with respect to Social Security Contributions on Member earnings for the 2006 year. For Social Security issues, the statute of limitations is open for 2012 and later years in Greece. Despite the assessment amount being immaterial, the Company could receive similar assessments covering other years. The Company continues to litigate the assessment. The Company has not recognized a loss as it does not believe a loss is probable. The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome if additional assessments for other periods were to be issued. U.S. Federal Trade Commission Consent Order On July 15, 2016, the Company and the Federal Trade Commission, or the FTC, entered into a proposed Stipulation to Entry of Order for Permanent Injunction and Monetary Judgment, or the Consent Order. The Consent Order was lodged with the U.S. District Court for the Central District of California on July 15, 2016 and became effective on July 25, 2016, or the Effective Date. The Consent Order resolved the FTC’s multi-year investigation of the Company. Pursuant to the Consent Order, under which the Company neither admitted nor denied the FTC’s allegations (except as to the Court having jurisdiction over the matter), the Company made, through its wholly-owned subsidiary Herbalife International of America, Inc., a $200 million payment to the FTC. Additionally, the Company implemented and continues to enhance certain existing procedures in the U.S. Among other requirements, the Consent Order requires the Company to categorize all existing and future Members in the U.S. as either “preferred members” – who are simply consumers who only wish to purchase products for their own household use, or “distributors” – who are Members who wish to resell some products or build a sales organization. The Company also agreed to compensate distributors on eligible U.S. sales within their downline organization, which include purchases by preferred members, purchases by a distributor for his or her personal consumption within allowable limits and sales of product by a distributor to his or her customers. The Consent Order also imposes restrictions on a distributor’s ability to open Nutrition Clubs in the United States. The Consent Order subjects the Company to certain audits by an independent compliance auditor for a period of seven years; imposes requirements on the Company regarding compliance certification and record creation and maintenance; and prohibits the Company, its affiliates and its distributors from making misrepresentations and misleading claims regarding, among other things, income and lavish lifestyles. The FTC and the independent compliance auditor have the right to inspect Company records and request additional compliance reports for purposes of conducting audits pursuant to the Consent Order. In September 2016, the Company and the FTC mutually selected Affiliated Monitors, Inc. to serve as the independent compliance auditor. The Company continues to monitor the impact of the Consent Order and, while the Company currently does not expect the settlement to have a long-term and materially adverse impact on its business and its Member base, the Company’s business and its Member base, particularly in the United States, may be negatively impacted. If the Company is unable to comply with the Consent Order then this could result in a material and adverse impact to the Company’s results of operations and financial condition. Other Matters As a marketer of foods, dietary and nutritional supplements, and other products that are ingested by consumers or applied to their bodies, the Company has been and is currently subjected to various product liability claims. The effects of these claims to date have not been material to the Company. The Company currently maintains product liability insurance with an annual deductible of $12.5 million. As previously disclosed, the SEC and the Department of Justice, or DOJ, conducted investigations into the Company’s compliance with the Foreign Corrupt Practices Act, or FCPA, in China. Also, as previously disclosed, the Company conducted its own review and implemented remedial and improvement measures based upon this review, including replacement of certain employees and enhancements of Company policies and procedures in China. The Company cooperated with the SEC and the DOJ and has now reached separate resolutions with each of them. On August 28, 2020, the SEC accepted the Offer of Settlement and issued an administrative order finding that the Company violated the books and records and internal controls provisions of the FCPA. In addition, on August 28, 2020, the Company and the DOJ separately entered into a court-approved deferred prosecution agreement, or DPA, under which the DOJ deferred criminal prosecution of the Company for a period of three years related to a conspiracy to violate the books and records provisions of the FCPA. Among other things, the Company is required to undertake compliance self-reporting obligations for the three-year terms of the agreements with the SEC and the DOJ. If the Company remains in compliance with the DPA during its three-year term, the deferred charge against the Company will be dismissed with prejudice. In addition, the Company paid the SEC and the DOJ aggregate penalties, disgorgement and prejudgment interest of approximately $123 million in September 2020, of which $83 million and $40 million were recognized in selling, general, and administrative expenses within the Company’s consolidated statements of income for the years ended December 31, 2020 and 2019, respectively, related to this matter. Any failure to comply with these agreements, or any resulting further government action, could result in a material and adverse impact to the Company’s business, financial condition, and operating results. On September 18, 2017, the Company and certain of its subsidiaries and Members were named as defendants in a purported class action lawsuit, titled Rodgers, et al. v Herbalife Ltd., et al. and filed in the U.S. District Court for the Southern District of Florida, which alleges violations of Florida’s Deceptive and Unfair Trade Practices statute and federal Racketeer Influenced and Corrupt Organizations statutes, unjust enrichment, and negligent misrepresentation. On August 23, 2018, the U.S. District Court for the Southern District of Florida issued an order transferring the action to the U.S. District Court for the Central District of California as to four of the putative class plaintiffs and ordering the remaining four plaintiffs to arbitration, thereby terminating the Company defendants from the Florida action. The plaintiffs seek damages in an unspecified amount. While the Company continues to believe the lawsuit is without merit, and without admitting liability or wrongdoing, the Company and the plaintiffs have reached a settlement. Under the principal terms of the settlement, the Company would pay $12.5 million into a fund to be distributed to qualified claimants. As of March 31, 2023, this amount has been adequately reserved for within the Company’s condensed consolidated financial statements. The settlement is subject to the preliminary and final approval of the U.S. District Court for the Central District of California. The preliminary approval hearing took place on October 24, 2022, and the U.S. District Court for the Central District of California granted preliminary approval on April 6, 2023. Per the terms of the agreement, Herbalife deposited $12.5 million into the settlement fund on April 19, 2023. On January 17, 2022, the Company filed a lawsuit, titled Herbalife International of America, Inc. vs. Eastern Computer Exchange, Inc., against a former technology services vendor in the U.S. District Court for the Central District of California. The Company alleges claims of breach of contract, breach of fiduciary duty, fraudulent concealment, conversion, and declaratory relief related to the defendant’s request for payment for technology services and products that the company never authorized. The defendant asserted numerous counterclaims against the Company. On December 28, 2022, the Court partially granted a motion to dismiss counterclaims, leaving only breach of contract, promissory estoppel, and declaratory relief counterclaims. The Company believes the defendant’s counterclaims are without merit and will vigorously defend itself while pursuing relief for its own claims. The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome and does not believe a loss is probable. |
Segment Information |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information | 6. Segment Information The Company is a nutrition company that sells a wide range of weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products. The Company’s products are manufactured by the Company in its Changsha, Hunan, China extraction facility; Suzhou, China facility; Nanjing, China facility; Lake Forest, California facility; and Winston-Salem, North Carolina facility, as well as by third-party providers, and then are sold to Members who consume and sell Herbalife products to retail consumers or other Members. Revenues reflect sales of products by the Company to its Members and are categorized based on geographic location. The Company sells products in 95 markets throughout the world. The Company was previously organized and managed by six geographic regions: North America, Mexico, South and Central America, EMEA, Asia Pacific, and China. During the third quarter of 2022, in order to simplify the understanding of the Company's performance and ongoing trends of the business and align with the Company's organizational structure, the Company combined its Mexico geographic region with its South and Central America region, into one geographic region now named Latin America; therefore, the Company currently has five geographic regions. The Company defines its operating segments as those geographical operations. The Company aggregates its operating segments, excluding China, into a reporting segment, or the Primary Reporting Segment, as management believes that the Company’s operating segments have similar operating characteristics and similar long-term operating performance. In making this determination, management believes that the operating segments are similar in the nature of the products sold, the product acquisition process, the types of customers to whom products are sold, the methods used to distribute the products, the nature of the regulatory environment, and their economic characteristics. China has been identified as a separate reporting segment as it does not meet the criteria for aggregation. The Company reviews its net sales and contribution margin by operating segment, and reviews its assets and capital expenditures on a consolidated basis and not by operating segment. Therefore, net sales and contribution margin are presented by reportable segment and assets and capital expenditures by segment are not presented. Although, the Company reduced its operating segments from six to five during fiscal year 2022, this change did not impact the Company’s two reportable segments and therefore, the historical reportable segment disclosures below did not need to be restated. Operating information for the two reportable segments is as follows:
(1) Contribution margin consists of net sales less cost of sales and Royalty overrides. For the China segment, contribution margin does not include the portion of service fees to China independent service providers included in selling, general, and administrative expenses, which totaled $33.7 million and $54.2 million for the three months ended March 31, 2023 and 2022, respectively. The following table sets forth net sales by geographic area:
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Share-Based Compensation |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation | 7. Share-Based Compensation The Company has share-based compensation plans, which are more fully described in Note 9, Share-Based Compensation, to the Consolidated Financial Statements included in the 2022 10-K. During the three months ended March 31, 2023, the Company granted restricted stock units subject to service conditions and stock appreciation rights, or SARs, subject to service conditions. Share-based compensation expense amounted to $10.8 million and $12.4 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the total unrecognized compensation cost related to all non-vested stock awards was $66.6 million and the related weighted-average period over which it is expected to be recognized is approximately 1.7 years. The following table summarizes the activity for all SARs under the Company’s share-based compensation plans for the three months ended March 31, 2023:
(1) The intrinsic value is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock awards. (2) Includes 0.7 million and 0.8 million performance condition SARs as of March 31, 2023 and December 31, 2022, respectively. (3) Includes 0.1 million performance condition SARs (4) Includes 0.7 million performance condition SARs The weighted-average grant date fair value of SARs granted during the three months ended March 31, 2023 was $9.20. There were no SARs granted during the three months ended March 31, 2022. The total intrinsic value of SARs exercised during the three months ended March 31, 2023 and 2022 was less than $0.1 million and $0.3 million, respectively. The following table summarizes the activities for all restricted stock units under the Company’s share-based compensation plans for the three months ended March 31, 2023:
(1) Includes 520,138 performance-based restricted stock units as of both March 31, 2023 and December 31, 2022, which represents the maximum amount that can vest. (2) Includes 68,300 performance-based restricted stock units. The total vesting date fair value of restricted stock units which vested during the three months ended March 31, 2023 and 2022 was $20.0 million and $32.4 million, respectively. |
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Income Taxes |
3 Months Ended |
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Mar. 31, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 8. Income Taxes Income taxes were $1.8 million and $25.2 million for the three months ended March 31, 2023 and 2022, respectively. The effective income tax rate was 5.8% and 20.4% for the three months ended March 31, 2023 and 2022, respectively. The decrease in the effective tax rate for the three months ended March 31, 2023 as compared to the same period in 2022 was due to an increase in tax benefits from discrete events, primarily as a result of a change in unrecognized tax benefits, partially offset by changes in the geographic mix of the Company's income. As of March 31, 2023, the total amount of unrecognized tax benefits, including related interest and penalties, was $61.3 million. If the total amount of unrecognized tax benefits was recognized, $40.2 million of unrecognized tax benefits, $14.5 million of interest, and $3.2 million of penalties would impact the effective tax rate. The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately $10.2 million within the next twelve months. Of this possible decrease, $9.3 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 the settlement of audits or resolution of administrative or judicial proceedings. |
Derivative Instruments and Hedging Activities |
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| Derivative Instruments and Hedging Activities | 9. Derivative Instruments and Hedging Activities Interest Rate Risk Management The Company engaged in an interest rate hedging strategy for which the hedged transactions were forecasted interest payments on the Company’s 2018 Credit Facility, which are based on variable rates. During the first quarter of 2020, the Company entered into various interest rate swap agreements with effective dates ranging between February 2020 and March 2020. These agreements collectively provided for the Company to pay interest at a weighted-average fixed rate of 0.98% on aggregate notional amounts of $100.0 million under the 2018 Credit Facility until their respective expiration dates ranging between February 2022 and March 2023, while receiving interest based on LIBOR on the same notional amounts for the same periods. At inception, these swap agreements were designated as cash flow hedges against the variability in certain LIBOR-based borrowings under the 2018 Credit Facility, effectively fixing the interest rate on such notional amounts at a weighted-average effective rate of, depending on the Company's total leverage ratio, between 2.73% and 3.23%. These hedge relationships qualified as effective under FASB ASC Topic 815, Derivatives and Hedging, or ASC 815, and consequently all changes in the fair value of these interest rate swaps were recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and were recognized in interest expense, net within the Company’s condensed consolidated statement of income during the period when the hedged item and underlying transaction affected earnings. As of March 31, 2023 and December 31, 2022, the aggregate notional amounts of interest rate swap agreements outstanding were approximately zero and $25.0 million, respectively. The fair values of the interest rate swap agreements were based on third-party bank quotes, and as of December 31, 2022, the Company recorded assets at fair value of $0.3 million relating to these interest rate swap agreements. Foreign Currency Instruments The Company designates certain foreign currency derivatives, primarily comprised of foreign currency forward contracts and option contracts, as freestanding derivatives for which hedge accounting does not apply. The changes in the fair market value of these freestanding derivatives are included in selling, general, and administrative expenses within the Company’s condensed consolidated statements of income. The Company primarily uses freestanding foreign currency derivatives to hedge foreign currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The fair value of the freestanding foreign currency derivatives is based on third-party quotes. The Company’s foreign currency derivative contracts are generally executed on a monthly basis. The Company designates as cash flow hedges those foreign currency forward contracts it enters into to hedge forecasted inventory purchases and intercompany management fees that are subject to foreign currency exposures. Forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in cost of sales within the Company’s condensed consolidated statement of income during the period which approximates the time the hedged inventory is sold. The Company also hedges forecasted intercompany management fees over specific months. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in selling, general, and administrative expenses within the Company’s condensed consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. The Company has elected to record changes in the fair value of amounts excluded from the assessment of effectiveness currently in earnings. As of March 31, 2023 and December 31, 2022, the aggregate notional amounts of all foreign currency contracts outstanding designated as cash flow hedges were approximately $70.4 million and $70.6 million, respectively. As of March 31, 2023, these outstanding contracts were expected to mature over the next fifteen months. The Company’s derivative financial instruments are recorded on the condensed consolidated balance sheets at fair value based on third-party quotes. As of March 31, 2023, the Company recorded assets at fair value of $0.2 million and liabilities at fair value of $4.7 million relating to all outstanding foreign currency contracts designated as cash flow hedges. As of December 31, 2022, the Company recorded assets at fair value of $1.5 million and liabilities at fair value of $3.2 million relating to all outstanding foreign currency contracts designated as cash flow hedges. The Company assesses hedge effectiveness at least quarterly and the hedges remained effective as of March 31, 2023 and December 31, 2022. As of both March 31, 2023 and December 31, 2022, the majority of the Company’s outstanding foreign currency forward contracts had maturity dates of less than twelve months with the majority of freestanding derivatives expiring within one month. As of March 31, 2023, the Company had aggregate notional amounts of approximately $627.0 million of foreign currency contracts, inclusive of freestanding contracts and contracts designated as cash flow hedges. The following tables summarize the derivative activity during the three months ended March 31, 2023 and 2022 relating to all the Company’s derivatives. Gains and Losses on Derivative Instruments The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive income (loss) during the three months ended March 31, 2023 and 2022:
As of March 31, 2023, the estimated amount of existing net losses related to cash flow hedges recorded in accumulated other comprehensive loss that are expected to be reclassified into earnings over the next twelve months was $4.2 million. The effect of cash flow hedging relationships on the Company’s condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 was as follows:
The following table summarizes gains (losses) recorded to income relating to derivative instruments not designated as hedging instruments during the three months ended March 31, 2023 and 2022:
The Company reports its derivatives at fair value as either assets or liabilities within its condensed consolidated balance sheets. See Note 12, Fair Value Measurements, for information on derivative fair values and their condensed consolidated balance sheets location as of March 31, 2023 and December 31, 2022. |
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Deficit | 10. Shareholders’ Deficit Changes in shareholders’ deficit for the three months ended March 31, 2023 and 2022 were as follows:
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 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 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 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 March 31, 2023, the remaining authorized capacity under the Company’s $1.5 billion share repurchase program was approximately $985.5 million. During the three months ended March 31, 2023, the Company did not repurchase any of its common shares through open-market purchases. During the three months ended March 31, 2022, the Company repurchased approximately 2.6 million of its common shares through open-market purchases at an aggregate cost of approximately $101.7 million, or an average cost of $39.32 per share, and subsequently retired these shares. 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 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. During the three months ended March 31, 2023 and 2022, 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 condensed consolidated balance sheets. For the three months ended March 31, 2023 and 2022, the Company’s share repurchases, inclusive of transaction costs, were zero and $101.7 million, respectively, under the Company’s share repurchase programs, and $8.7 million and $14.5 million, respectively, due to shares withheld for tax purposes related to the Company’s share-based compensation plans. For the three months ended March 31, 2023 and 2022, the Company’s total share repurchases, including shares withheld for tax purposes, were $8.7 million and $116.2 million, respectively, and have been recorded as an increase to shareholders’ deficit within the Company’s condensed consolidated balance sheets. Accumulated Other Comprehensive Loss The following table summarizes changes in accumulated other comprehensive loss by component during the three months ended March 31, 2023 and 2022:
(1) See Note 9, Derivative Instruments and Hedging Activities, for information regarding the location within the condensed consolidated statements of income of gains (losses) reclassified from accumulated other comprehensive loss to income during the three months ended March 31, 2023 and 2022. |
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Earnings Per Share |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share | 11. Earnings Per Share Basic earnings per share represents net income divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share represents net income divided by the weighted-average number of common shares outstanding, inclusive of the effect of dilutive securities, such as outstanding SARs, restricted stock units, and convertible notes. The following are the common share amounts used to compute the basic and diluted earnings per share for each period:
There were an aggregate of 4.9 million and 1.6 million of equity grants, consisting of SARs and restricted stock units, that were outstanding during the three months ended March 31, 2023 and 2022, respectively, but were not included in the computation of diluted earnings per share because their effect would be anti-dilutive or the performance condition of the award had not been satisfied. For the 2024 Convertible Notes, the Company is required to settle the principal amount in cash and has the option to settle the conversion feature for the amount above the conversion price, or the conversion spread, in common shares or cash. The Company uses the if-converted stock method for calculating any potential dilutive effect of the conversion spread on diluted earnings per share, if applicable. The conversion spread will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common shares for a given period exceeds the conversion price of the 2024 Convertible Notes. For the three months ended March 31, 2023 and 2022, the 2024 Convertible Notes have been excluded from the computation of diluted earnings per share, as the effect would be anti-dilutive since the conversion price of the 2024 Convertible Notes exceeded the average market price of the Company’s common shares for the three months ended March 31, 2023 and 2022. The initial conversion rate and conversion price for the 2024 Convertible Notes are described further in Note 4, Long-Term Debt. For the 2028 Convertible Notes, the Company is required to settle the principal amount in cash and has the option to settle the conversion feature for the amount above the conversion price, or the conversion spread, in cash or common shares and cash. The Company uses the if-converted method for calculating any potential dilutive effect of the conversion spread on diluted earnings per share, if applicable. The conversion spread will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common shares for a given period exceeds the conversion price of the 2028 Convertible Notes. The dilutive impact for the three months ended March 31, 2023 is 0.6 million common shares. The initial conversion rate and conversion price for the 2028 Convertible Notes are described further in Note 4, Long-Term Debt. |
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Fair Value Measurements |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | 12. Fair Value Measurements The Company applies the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, for its financial and non-financial assets and liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 inputs are unobservable inputs for the asset or liability. The Company measures certain assets and liabilities at fair value as discussed throughout the notes to its condensed consolidated financial statements. Foreign exchange currency contracts and interest rate swaps are valued using standard calculations and models. Foreign exchange currency contracts are valued primarily based on inputs such as observable forward rates, spot rates, and foreign currency exchange rates at the reporting period ended date. Interest rate swaps were valued primarily based on inputs such as LIBOR and swap yield curves at the reporting period ended date. The Company’s derivative assets and liabilities are measured at fair value and consisted of Level 2 inputs and their amounts are shown below at their gross values as of March 31, 2023 and December 31, 2022:
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised of money market funds and foreign and domestic bank accounts. These cash and cash equivalents are valued based on Level 1 inputs which consist of quoted prices in active markets. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents. The Company’s deferred compensation plan assets consist of Company-owned life insurance policies. As these policies are recorded at their cash surrender value, they are not required to be included in the fair value table above. See Note 6, Employee Compensation Plans, to the Consolidated Financial Statements included in the 2022 10-K for a further description of the Company’s deferred compensation plan assets. The following tables summarize the offsetting of the fair values of the Company’s derivative assets and derivative liabilities for presentation in the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:
The Company offsets all of its derivative assets and derivative liabilities in its condensed consolidated balance sheets to the extent it maintains master netting arrangements with related financial institutions. As of March 31, 2023 and December 31, 2022, all of the Company’s derivatives were subject to master netting arrangements and no collateralization was required for the Company’s derivative assets and derivative liabilities. |
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Transformation Program |
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| Transformation Programs Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transformation Program | 13. Transformation Program In 2021, the Company initiated a global transformation program to optimize global processes for future growth, or the Transformation Program. The Transformation Program involves the investment in certain new technologies and the realignment of infrastructure and the locations of certain functions to better support distributors and customers. The Company has incurred total pre-tax expenses of approximately $52.3 million through March 31, 2023, of which $27.3 million and $1.6 million were recognized in selling, general, and administrative expenses within its condensed consolidated statements of income during the three months ended March 31, 2023 and 2022, respectively. The Company expects to incur total pre-tax expenses of at least $60.0 million relating to the Transformation Program based on actual expenses incurred to date and expected future expenses. Since the Transformation Program is still ongoing and is expected to be completed in 2024, these estimated amounts are preliminary and based on Management's estimates and actual results could differ from such estimates. Costs related to the Transformation Program were as follows:
Changes in the liabilities related to the Transformation Program, which were recognized in other current liabilities within the Company’s condensed consolidated balance sheets, were as follows:
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Detail of Certain Balance Sheet Accounts |
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| Balance Sheet Related Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Detail of Certain Balance Sheet Accounts | 14. Detail of Certain Balance Sheet Accounts Other Assets The Other assets on the Company’s accompanying condensed consolidated balance sheets included deferred compensation plan assets of $41.0 million and $39.4 million and deferred tax assets of $127.3 million and $131.6 million as of March 31, 2023 and December 31, 2022, respectively. Other Current Liabilities Other current liabilities consisted of the following:
Other Non-Current Liabilities The Other non-current liabilities on the Company’s accompanying condensed consolidated balance sheets included deferred compensation plan liabilities of $64.6 million and $61.1 million and deferred income tax liabilities of $21.1 million and $19.0 million as of March 31, 2023 and December 31, 2022, respectively. See Note 6, Employee Compensation Plans, to the Consolidated Financial Statements included in the 2022 10-K for a further description of the Company’s deferred compensation plan assets and liabilities. |
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Significant Accounting Policies (Policies) |
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation The unaudited condensed consolidated interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s, or SEC, Regulation S-X. Accordingly, as permitted by Article 10 of the SEC’s Regulation S-X, it does not include all of the information required by generally accepted accounting principles in the U.S., or U.S. GAAP, for complete financial statements. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP, as permitted by Article 10 of the SEC’s Regulation S-X. The Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 include Herbalife Ltd. and all of its direct and indirect subsidiaries. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 10-K. Operating results for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. |
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| Recently Adopted Pronouncements | Recently Adopted Pronouncements In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging — Portfolio Layer Method. This ASU improves hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. It expands the current last-of-layer method that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio, and to reflect that expansion, the last-of-layer method is renamed the portfolio layer method. The amendments in this update are effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company's condensed consolidated financial statements. In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments in this update are effective for reporting periods beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for periods beginning after December 15, 2023. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company's condensed consolidated financial statements. |
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| New Accounting Pronouncements | New Accounting Pronouncements In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842) - Common Control Arrangements. This ASU addresses issues related to accounting for leases under common control arrangements. The standard will include an amendment to Topic 842 for all entities with leasehold improvements in common control arrangements to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group if certain criteria are met. The amendments in this update are effective for reporting periods beginning after December 15, 2023, with early adoption permitted. The adoption of this guidance will not have a material impact on the Company’s condensed consolidated financial statements. |
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| Revenue Recognition | Revenue Recognition The Company’s net sales consist of product sales. In general, the Company’s performance obligation is to transfer its products to its Members. The Company generally recognizes revenue when product is delivered to its Members. For the majority of China independent service providers and for third-party importers utilized in certain other countries where sales historically have not been material, the Company recognizes revenue based on the Company’s estimate of when the service provider or third-party importer sells the products because the Company is deemed to be the principal party of these product sales due to the additional selling and operating requirements relating to pricing of products, conducting business with physical locations, and other selling and marketing activities required of the service providers and third-party importers. The Company recognizes revenue for certain China independent service providers upon delivery as such Members have pricing discretion and increased fulfillment responsibilities and accordingly were determined to be the Company’s customers for accounting purposes. The Company’s Members, excluding its China independent service providers, may receive distributor allowances, which are comprised of discounts, rebates, and wholesale commission payments from the Company. Distributor allowances resulting from the Company’s sales of its products to its Members are recorded against net sales because the distributor allowances represent discounts from the suggested retail price. The Company compensates its sales leader Members with royalty overrides for services rendered relating to the development, retention, and management of their sales organizations. Royalty overrides are payable based on achieved sales volume. Royalty overrides are classified as an operating expense reflecting the services provided to the Company. The Company compensates its China independent service providers and third-party importers utilized in certain other countries for providing marketing, selling, and customer support services. For China and third-party importer sales transactions, as the Company is the principal party for the majority of these product sales as described above, the majority of service fees payable to China independent service providers and the compensation received by third-party importers for the services they provide, which represents the discount provided to them, are recorded in selling, general, and administrative expenses within the Company’s condensed consolidated statements of income. In addition, for those certain China independent service providers who are deemed to be the Company’s customers for accounting purposes as described above, a portion of the service fees payable to these Members will be classified as a reduction of net sales as opposed to the entire service fee being recognized within selling, general, and administrative expenses. The Company recognizes revenue when it delivers products to its United States Members; distributor allowances, inclusive of discounts and wholesale commissions, are recorded as a reduction to net sales; and royalty overrides are classified as an operating expense. Shipping and handling services relating to product sales are recognized as fulfillment activities on the Company’s performance obligation to transfer products and are therefore recorded within net sales as part of product sales and are not considered as separate revenues. Shipping and handling costs paid by the Company are included in cost of sales. The Company presents sales taxes collected from customers on a net basis. The Company generally receives the net sales price in cash or through credit card payments at the point of sale. Accounts receivable consist principally of credit card receivables arising from the sale of products to the Company’s Members, and its collection risk is reduced due to geographic dispersion. Credit card receivables were $67.0 million and $52.4 million as of March 31, 2023 and December 31, 2022, respectively. Substantially all credit card receivables were current as of March 31, 2023 and December 31, 2022. The Company recorded bad-debt expense related to allowances for the Company’s receivables of zero during both the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $1.8 million and $2.1 million, respectively. As of March 31, 2023 and December 31, 2022, the majority of the Company’s total outstanding accounts receivable were current. The Company records advance sales deposits when payment is received but revenue has not yet been recognized. In the majority of the Company’s markets, advance sales deposits are generally recorded to income when the product is delivered to its Members. Additionally, advance sales deposits also include deferred revenues due to the timing of revenue recognition for products sold through China independent service providers. The estimated deferral period for advance sales deposits is generally within one week. During the three months ended March 31, 2023, the Company recognized substantially all of the revenues that were included within advance sales deposits as of December 31, 2022 and any remaining such balance was not material as of March 31, 2023. Advance sales deposits are included in other current liabilities on the Company’s condensed consolidated balance sheets. See Note 14, Detail of Certain Balance Sheet Accounts, for further information. In general, if a Member returns product to the Company on a timely basis, they may obtain replacement product from the Company for such returned products. In addition, in general the Company maintains a buyback program pursuant to which it will repurchase products sold to a Member who has decided to leave the business. Allowances for product returns, primarily in connection with the Company’s buyback program, are provided at the time the sale is recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Allowances for product returns were $2.0 million and $2.1 million as of March 31, 2023 and December 31, 2022, respectively. The Company’s products are grouped in five product categories: weight management; targeted nutrition; energy, sports, and fitness; outer nutrition; and literature and promotional items. However, the effect of economic factors on the nature, amount, timing, and uncertainty of revenue recognition and cash flows are similar among all five product categories. The Company defines its operating segments through five geographic regions. The effect of economic factors on the nature, amount, timing, and uncertainty of revenue recognition and cash flows are similar among the geographic regions within the Company’s Primary Reporting Segment. See Note 6, Segment Information, for further information on the Company’s reportable segments and the Company’s presentation of disaggregated revenue by reportable segment. |
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| Distributor Compensation - U.S. | Distributor Compensation – U.S. In the U.S., distributor compensation, including Royalty overrides, is capped if the Company does not meet an annual requirement as described in the consent order discussed in more detail in Note 5, Contingencies. On a periodic basis, the Company evaluates if this requirement will be achieved by year end to determine if a cap on distributor compensation will be required, and then determines the appropriate amount of distributor compensation expense, which may vary in each reporting period. As of March 31, 2023, the Company believes that the cap to distributor compensation will not be applicable for the current year. |
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| Other Operating Income | Other Operating Income To encourage local investment and operations, governments in various China provinces conduct grant programs. The Company applied for and received several such grants in China. Government grants are recorded into income when a legal right to the grant exists, there is a reasonable assurance that the grant proceeds will be received, and the substantive conditions under which the grants were provided have been met. Generally, these substantive conditions are the Company maintaining operations and paying certain taxes in the relevant province and obtaining government approval by completing an annual application process. The Company believes the continuing obligation with respect to the funds is a general requirement that they are used only for its business in China. The Company recognized government grant income related to its regional headquarters and distribution centers within China of approximately $8.9 million and $13.1 million during the three months ended March 31, 2023 and 2022, respectively, in other operating income within its condensed consolidated statements of income. The Company intends to continue applying for government grants in China when programs are available; however, there is no assurance that the Company will receive grants in future periods. |
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| Restricted Cash | Restricted Cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows:
The majority of the Company’s consolidated restricted cash is held by certain of its foreign entities and consists of cash deposits that are required due to the business operating requirements in those jurisdictions. |
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| Use of Estimates | Use of Estimates The Company continues to operate in an uncertain macroeconomic and geopolitical environment caused by high inflation, foreign exchange rate fluctuations, the war in Ukraine, lingering COVID-19 pandemic impacts and other factors. The Company is closely monitoring the evolving macroeconomic and geopolitical conditions to assess potential impacts on its business. Due to the significant uncertainty created by these circumstances, actual results could differ from Management's estimates and judgments. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current macroeconomic environment, which estimates and assumptions the Company believes to be reasonable under the circumstances. Changes in estimates resulting from continuing changes in the macroeconomic environment will be reflected in the financial statements in future periods. |
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Significant Accounting Policies (Tables) |
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Reconciliation of Cash, Cash Equivalents and Restricted Cash for Balance Sheets and Cash Flows | The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows:
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Inventories (Tables) |
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Classes of Inventory | The following are the major classes of inventory:
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Long-Term Debt (Tables) |
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| Schedule of Long-Term Debt | Long-term debt consists of the following:
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| Annual Scheduled Principal Payments of Debt | As of March 31, 2023, annual scheduled principal payments of debt were as follows:
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| 7.875% Senior Notes Due 2025 [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Redemption Prices Express as a Percentage of Principal Amount | The Company may redeem all or part of the 2025 Notes at the following redemption prices, expressed as percentages of principal amount, plus accrued and unpaid interest thereon to the redemption date, if redeemed during the twelve-month period beginning on September 1 of the years indicated below:
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| 4.875% Senior Notes Due 2029 [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Redemption Prices Express as a Percentage of Principal Amount | Furthermore, at any time on or after June 1, 2024, the Company may redeem all or part of the 2029 Notes at the following redemption prices, expressed as percentages of principal amount, plus accrued and unpaid interest thereon to the redemption date, if redeemed during the twelve-month period beginning on June 1 of the years indicated below:
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Segment Information (Tables) |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of Revenue from Segments to Consolidated | Operating information for the two reportable segments is as follows:
(1)
Contribution margin consists of net sales less cost of sales and Royalty overrides. For the China segment, contribution margin does not include the portion of service fees to China independent service providers included in selling, general, and administrative expenses, which totaled $33.7 million and $54.2 million for the three months ended March 31, 2023 and 2022, respectively. |
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| Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area | The following table sets forth net sales by geographic area:
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Share-Based Compensation (Tables) |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Activity Under Share-Based Compensation Plans | The following table summarizes the activity for all SARs under the Company’s share-based compensation plans for the three months ended March 31, 2023:
(1) The intrinsic value is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock awards. (2) Includes 0.7 million and 0.8 million performance condition SARs as of March 31, 2023 and December 31, 2022, respectively. (3) Includes 0.1 million performance condition SARs (4) Includes 0.7 million performance condition SARs The following table summarizes the activities for all restricted stock units under the Company’s share-based compensation plans for the three months ended March 31, 2023:
(1) Includes 520,138 performance-based restricted stock units as of both March 31, 2023 and December 31, 2022, which represents the maximum amount that can vest. (2)
Includes 68,300 performance-based restricted stock units. |
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Derivative Instruments and Hedging Activities (Tables) |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) Relating to Derivative Instruments Recorded in Other Comprehensive Loss | The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive income (loss) during the three months ended March 31, 2023 and 2022:
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| Effect of Cash Flow Hedging Relationships on Condensed Consolidated Statements of Income | The effect of cash flow hedging relationships on the Company’s condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 was as follows:
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| Gains Relating to Derivative Instruments Not Designated As Hedging Instruments Recorded to Income | The following table summarizes gains (losses) recorded to income relating to derivative instruments not designated as hedging instruments during the three months ended March 31, 2023 and 2022:
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Shareholders' Deficit (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Changes in Shareholders' Deficit | Changes in shareholders’ deficit for the three months ended March 31, 2023 and 2022 were as follows:
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|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Changes in Accumulated Other Comprehensive Loss | The following table summarizes changes in accumulated other comprehensive loss by component during the three months ended March 31, 2023 and 2022:
(1)
See Note 9, Derivative Instruments and Hedging Activities, for information regarding the location within the condensed consolidated statements of income of gains (losses) reclassified from accumulated other comprehensive loss to income during the three months ended March 31, 2023 and 2022. |
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Earnings Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Computation of Basic and Diluted Earnings Per Share | The following are the common share amounts used to compute the basic and diluted earnings per share for each period:
|
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Fair Value Measurements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Assets and Liabilities Measured at Fair Value | The Company’s derivative assets and liabilities are measured at fair value and consisted of Level 2 inputs and their amounts are shown below at their gross values as of March 31, 2023 and December 31, 2022:
|
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| Offsetting of Derivative Assets | The following tables summarize the offsetting of the fair values of the Company’s derivative assets and derivative liabilities for presentation in the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:
|
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| Offsetting of Derivative Liabilities |
|
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Transformation Program (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transformation Programs Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of costs related to the transformation program | Costs related to the Transformation Program were as follows:
|
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| Schedule of changes in the liabilities related to the transformation program | Changes in the liabilities related to the Transformation Program, which were recognized in other current liabilities within the Company’s condensed consolidated balance sheets, were as follows:
|
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Detail of Certain Balance Sheet Accounts (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance Sheet Related Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Current Liabilities | Other current liabilities consisted of the following:
|
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Organization - Additional Information (Detail) |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
Segment
| |
| Organization And Description Of Business [Abstract] | |
| Number of geographic regions | 5 |
Significant Accounting Policies - Additional Information (Detail) $ in Millions |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Mar. 31, 2023
USD ($)
Segment
Product
|
Mar. 31, 2022
USD ($)
|
Dec. 31, 2022
USD ($)
|
Jan. 01, 2022
USD ($)
|
|
| Subsidiary or Equity Method Investee [Line Items] | ||||
| Credit card receivables | $ 67.0 | $ 52.4 | ||
| Bad-debt expense | 0.0 | $ 0.0 | ||
| Allowance for doubtful accounts | 1.8 | 2.1 | ||
| Allowances for product returns | $ 2.0 | 2.1 | ||
| Number of geographic regions | Segment | 5 | |||
| Number of product categories | Product | 5 | |||
| Accumulated deficit | $ (1,175.2) | (59.1) | (1,204.5) | |
| Long-term debt | 2,629.1 | $ 2,692.0 | ||
| Other operating income | 8.9 | 13.1 | ||
| ASU 2020-06 [Member] | ||||
| Subsidiary or Equity Method Investee [Line Items] | ||||
| Accumulated deficit | $ 77.6 | |||
| China [Member] | ||||
| Subsidiary or Equity Method Investee [Line Items] | ||||
| Other operating income | $ 8.9 | $ 13.1 | ||
Significant Accounting Policies - Summary of Reconciliation of Cash, Cash Equivalents and Restricted Cash for Balance Sheets and Cash Flows (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|---|---|
| Cash, Cash Equivalents and Restricted Cash [Line Items] | ||||
| Cash and cash equivalents | $ 454.2 | $ 508.0 | ||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | 461.8 | 516.3 | $ 578.6 | $ 610.4 |
| Prepaid expenses and other current assets [Member] | ||||
| Cash, Cash Equivalents and Restricted Cash [Line Items] | ||||
| Restricted cash | 2.5 | 2.5 | ||
| Other Assets [Member] | ||||
| Cash, Cash Equivalents and Restricted Cash [Line Items] | ||||
| Restricted cash | $ 5.1 | $ 5.8 |
Inventories - Classes of Inventory (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 78.9 | $ 83.1 |
| Work in process | 8.0 | 7.0 |
| Finished goods | 458.2 | 490.6 |
| Total | $ 545.1 | $ 580.7 |
Long-Term Debt - Schedule of Long-Term Debt (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
Jan. 01, 2022 |
Mar. 31, 2018 |
|---|---|---|---|---|
| Debt Instrument [Line Items] | ||||
| Borrowings under senior secured credit facility, carrying value | $ 904.4 | $ 971.3 | ||
| Other | 4.1 | 1.2 | ||
| Total | 2,629.1 | 2,692.0 | ||
| Less: current portion | 293.7 | 29.5 | ||
| Long-term portion | 2,335.4 | 2,662.5 | ||
| 2.625% Convertible Senior Notes Due 2024 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Convertible senior notes, carrying value | 261.4 | 261.2 | ||
| Total | $ 59.1 | $ 410.1 | ||
| 4.250% Convertible Senior Notes Due 2028 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Convertible senior notes, carrying value | 269.4 | 269.1 | ||
| 7.875% Senior Notes Due 2025 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Senior notes, carrying value | 596.0 | 595.6 | ||
| 4.875% Senior Notes Due 2029 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Senior notes, carrying value | $ 593.8 | $ 593.6 |
Long-Term Debt - Schedule of Long-Term Debt (Parenthetical) (Detail) |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
May 31, 2021 |
May 31, 2020 |
Mar. 31, 2018 |
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| 2.625% Convertible Senior Notes Due 2024 [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Debt instrument interest rate | 2.625% | 2.625% | |||
| Debt instrument maturity date | Mar. 15, 2024 | Mar. 15, 2024 | |||
| 4.250% Convertible Senior Notes Due 2028 [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Debt instrument interest rate | 4.25% | 4.25% | |||
| Debt instrument maturity date | Jun. 15, 2028 | Jun. 15, 2028 | |||
| 7.875% Senior Notes Due 2025 [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Debt instrument interest rate | 7.875% | 7.875% | |||
| Debt instrument maturity date | Sep. 01, 2025 | Jan. 09, 2025 | |||
| 4.875% Senior Notes Due 2029 [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Debt instrument interest rate | 4.875% | 4.875% | |||
| Debt instrument maturity date | Jun. 01, 2029 | Jan. 06, 2029 | |||
Long-Term Debt - Annual Scheduled Principal Payments of Debt (Detail) $ in Millions |
Mar. 31, 2023
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| 2023 | $ 23.1 |
| 2024 | 300.0 |
| 2025 | 1,451.8 |
| 2026 | 0.1 |
| 2027 | 0.0 |
| Thereafter | 877.5 |
| Total | $ 2,652.5 |
Segment Information - Additional Information (Detail) |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
Segment
Country
| |
| Segment Reporting [Abstract] | |
| Number of countries in which the Company sells products | Country | 95 |
| Number of reportable segments | Segment | 2 |
Segment Information - Reconciliation of Revenue from Segments to Consolidated (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | $ 1,252.1 | $ 1,335.8 |
| Primary Reporting Segment [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | 1,184.4 | 1,230.2 |
| China [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | $ 67.7 | $ 105.6 |
Segment Information - Reconciliation of Operating Profit (Loss) from Segments to Consolidated (Detail) - USD ($) $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Contribution Margin | ||||
| Total Contribution Margin | $ 537.5 | $ 594.9 | ||
| Selling, general and administrative expenses | [1] | 475.9 | 454.9 | |
| Other operating income | (8.9) | (13.1) | ||
| Interest expense, net | 39.4 | 29.7 | ||
| Income before income taxes | 31.1 | 123.4 | ||
| Income taxes | 1.8 | 25.2 | ||
| Net income | 29.3 | 98.2 | ||
| Primary Reporting Segment [Member] | ||||
| Contribution Margin | ||||
| Total Contribution Margin | 482.5 | 504.4 | ||
| China [Member] | ||||
| Contribution Margin | ||||
| Total Contribution Margin | 55.0 | 90.5 | ||
| Other operating income | $ (8.9) | $ (13.1) | ||
| ||||
Segment Information - Reconciliation of Operating Profit (Loss) from Segments to Consolidated (Parenthetical) (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Selling, General and Administrative Expenses [Member] | ||
| Segment Reporting Reconciling Item For Operating Profit Loss From Segment To Consolidated [Line Items] | ||
| Independent service providers service fees costs | $ 33.7 | $ 54.2 |
Segment Information - Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | $ 1,252.1 | $ 1,335.8 |
| United States [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | 289.2 | 317.1 |
| India [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | 178.6 | 152.0 |
| Mexico [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | 127.8 | 118.4 |
| China [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | 67.7 | 105.6 |
| Other [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total net sales | $ 588.8 | $ 642.7 |
Share-Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Share-based compensation expense | $ 10.8 | $ 12.4 |
| Unrecognized compensation cost on non-vested stock awards | $ 66.6 | |
| Unrecognized compensation cost on non-vested stock awards, weighted-average period of recognition | 1 year 8 months 12 days | |
| Weighted-average grant date fair value of SARs granted | $ 20.17 | |
| Total intrinsic value of awards exercised for SARs | $ 0.1 | 0.3 |
| Total vesting date fair value of stock units | $ 20.0 | $ 32.4 |
| SARs [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Weighted-average grant date fair value of SARs granted | $ 9.20 | |
| SARs granted | 217 | 0 |
Share-Based Compensation - Summary of Activity Under Share-Based Compensation Plans (Parenthetical) (Detail) - shares |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Outstanding SARs | 700,000 | 800,000 |
| Performance condition SARs [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Outstanding SARs | 700,000 | |
| Performance condition SARs [Member] | Maximum [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Outstanding SARs | 100,000 | |
| Performance Based Stock Unit Awards [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Number of Shares, Vested | 68,300 | |
| Performance Based Stock Unit Awards [Member] | Maximum [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Number of share based payment awards other than options outstanding and nonvested that can vest maximum | 520,138 | 520,138 |
Income Taxes - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Income Tax Disclosure [Abstract] | ||
| Income taxes | $ 1.8 | $ 25.2 |
| Effective income tax rate | 5.80% | 20.40% |
| Total amount of unrecognized tax benefits, including related interest and penalties | $ 61.3 | |
| Unrecognized tax benefits excluding interest and penalties that if recognized would affect the effective tax rate | 40.2 | |
| Total accrued interest for tax contingencies | 14.5 | |
| Total accrued penalties for tax contingencies | 3.2 | |
| Amount of unrecognized tax benefits that could decrease within the next 12 months | 10.2 | |
| Decrease in unrecognized tax benefits expiration of statute of limitations | 9.3 | |
| Decrease in unrecognized tax benefits due to the settlement of audits or resolution of administrative or judicial proceedings | $ 0.9 | |
Derivative Instruments and Hedging Activities - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2020 |
Dec. 31, 2022 |
|
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative liability fair value | $ 10.6 | $ 6.0 | |
| Derivative asset fair value | 0.6 | 2.9 | |
| Cash flow hedges reclassified into earnings over next twelve months | 4.2 | ||
| Interest Rate Swap [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative aggregate notional amounts | 0.0 | 25.0 | |
| Derivative asset fair value | 0.3 | ||
| Foreign exchange currency contracts [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative aggregate notional amounts | 627.0 | ||
| Derivative liability fair value | 10.6 | 6.0 | |
| Derivative asset fair value | 0.6 | 2.6 | |
| Foreign exchange currency contracts [Member] | Derivatives designated as cash flow hedging instruments [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative aggregate notional amounts | 70.4 | 70.6 | |
| Derivative liability fair value | 4.7 | 3.2 | |
| Derivative asset fair value | $ 0.2 | $ 1.5 | |
| Freestanding derivatives [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative average remaining maturity period | 1 month | 1 month | |
| 2018 Credit Facility [Member] | Interest Rate Swap [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative aggregate notional amounts | $ 100.0 | ||
| Derivative, Weighted-average fixed interest rate | 0.98% | ||
| Derivative asset fair value | $ 0.3 | ||
| Minimum [Member] | 2018 Credit Facility [Member] | Interest Rate Swap [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative effective period | 2020-02 | ||
| Derivative expiration period | 2022-02 | ||
| Minimum [Member] | 2018 Credit Facility [Member] | Interest Rate Swap [Member] | LIBOR [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative, Weighted-average fixed interest rate | 2.73% | ||
| Maximum [Member] | Foreign exchange currency contracts [Member] | Derivatives designated as cash flow hedging instruments [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative maximum remaining maturity period | 15 months | ||
| Maximum [Member] | Foreign exchange forward contracts [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative average remaining maturity period | 12 months | 12 months | |
| Maximum [Member] | 2018 Credit Facility [Member] | Interest Rate Swap [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative effective period | 2020-03 | ||
| Derivative expiration period | 2023-03 | ||
| Maximum [Member] | 2018 Credit Facility [Member] | Interest Rate Swap [Member] | LIBOR [Member] | |||
| Derivative Instruments, Gain (Loss) [Line Items] | |||
| Derivative, Weighted-average fixed interest rate | 3.23% | ||
Derivative Instruments and Hedging Activities - Losses Relating to Derivative Instruments Recorded in Other Comprehensive Income (Loss) (Detail) - Derivatives designated as hedging instruments [Member] - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Foreign exchange currency contracts relating to inventory and intercompany management fee hedges [Member] | ||
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Amount of (Loss) Gain Recognized in Other Comprehensive Loss | $ (4.6) | $ (2.9) |
| Interest rate swaps [Member] | ||
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Amount of (Loss) Gain Recognized in Other Comprehensive Loss | $ 0.0 | $ 0.3 |
Derivative Instruments and Hedging Activities - Effect of Cash Flow Hedging Relationships on Condensed Consolidated Statements of Income (Detail) - USD ($) $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Cost of sales | $ 298.6 | $ 307.1 | ||
| Selling, general, and administrative expenses | [1] | 475.9 | 454.9 | |
| Interest expense, net | 39.4 | 29.7 | ||
| Foreign Exchange Currency Contracts Relating To Inventory Hedges [Member] | Cost of sales [Member] | ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Amount of gain (loss) reclassified from accumulated other comprehensive loss to income | (2.9) | |||
| Amount of (loss) gain excluded from assessment of effectiveness recognized in income | (1.4) | (1.6) | ||
| Foreign Exchange Currency Contracts Relating To Inventory Hedges [Member] | Interest expense, net [Member] | ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Amount of gain (loss) reclassified from accumulated other comprehensive loss to income | 0.0 | |||
| Foreign Exchange Currency Contracts Relating To Intercompany Management Fee Hedges | Selling, General and Administrative Expenses [Member] | ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Amount of gain (loss) reclassified from accumulated other comprehensive loss to income | (0.1) | 0.2 | ||
| Amount of (loss) gain excluded from assessment of effectiveness recognized in income | 0.1 | |||
| Interest Rate Swap [Member] | Selling, General and Administrative Expenses [Member] | ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Amount of gain (loss) reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | ||
| Interest Rate Swap [Member] | Interest expense, net [Member] | ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Amount of gain (loss) reclassified from accumulated other comprehensive loss to income | $ 0.3 | $ (0.2) | ||
| ||||
Derivative Instruments and Hedging Activities - Gains (Losses) Relating to Derivative Instruments Not Designated As Hedging Instruments Recorded to Income (Detail) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Derivative, Gain (Loss), Statement of Income or Comprehensive Income [Extensible Enumeration] | Selling, General and Administrative Expense | Selling, General and Administrative Expense |
| Foreign exchange currency contracts [Member] | Derivatives not designated as hedging instruments [Member] | ||
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Amount of (Loss) Gain Recognized in Income | $ 3.5 | $ (0.5) |
Shareholders' Deficit - Summary of Changes in Shareholders' Deficit (Detail) - USD ($) $ in Millions |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Beginning balance | $ (1,265.9) | $ (1,391.5) | |
| Issuance of common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other | 0.5 | 1.1 | |
| Additional capital from share-based compensation | 10.8 | 12.4 | |
| Repurchases of common shares | (8.7) | (116.2) | |
| Net income | 29.3 | 98.2 | |
| Foreign currency translation adjustment, net of income taxes | 13.2 | 4.4 | |
| Unrealized gain/loss on derivatives, net of income taxes | (2.0) | (2.6) | |
| Accumulated deficit | (1,175.2) | (59.1) | $ (1,204.5) |
| Ending balance | (1,222.8) | (1,453.3) | |
| Common Shares [Member] | |||
| Beginning balance | 0.1 | 0.1 | |
| Issuance of common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other | 0.0 | 0.0 | |
| Repurchases of common shares | 0.0 | 0.0 | |
| Ending balance | 0.1 | 0.1 | |
| Treasury Stock [Member] | |||
| Beginning balance | (328.9) | ||
| Ending balance | (328.9) | ||
| Paid-in Capital in Excess of par Value [Member] | |||
| Beginning balance | 188.7 | 318.1 | |
| Issuance of common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other | 0.5 | 1.1 | |
| Additional capital from share-based compensation | 10.8 | 12.4 | |
| Repurchases of common shares | (8.7) | (21.9) | |
| Ending balance | 191.3 | 173.0 | |
| Paid-in Capital in Excess of par Value [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member] | |||
| Accumulated deficit | (136.7) | ||
| Accumulated Other Comprehensive Loss [Member] | |||
| Beginning balance | (250.2) | (211.8) | |
| Foreign currency translation adjustment, net of income taxes | 13.2 | 4.4 | |
| Unrealized gain/loss on derivatives, net of income taxes | (2.0) | (2.6) | |
| Ending balance | (239.0) | (210.0) | |
| Accumulated Deficit [Member] | |||
| Beginning balance | (1,204.5) | (1,169.0) | |
| Repurchases of common shares | (94.3) | ||
| Net income | 29.3 | 98.2 | |
| Ending balance | $ (1,175.2) | (1,087.5) | |
| Accumulated Deficit [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member] | |||
| Accumulated deficit | $ 77.6 | ||
Shareholders' Deficit - Summary of Changes in Shareholders' Deficit (Parenthetical) (Detail) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Equity [Abstract] | ||
| Issuance of common shares | 1.3 | 1.0 |
| Repurchases of common shares | 0.5 | 3.0 |
| Foreign currency translation adjustment, tax | $ 0 | $ 0 |
| Unrealized (loss) gain on derivatives, tax | $ 0 | $ 0 |
Shareholders' Deficit - Additional Information (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
Feb. 09, 2021 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Feb. 08, 2021 |
|
| Stockholders Equity [Line Items] | ||||
| Share repurchase program authorized amount | $ 1,500.0 | $ 1,500.0 | ||
| Share repurchase program, remaining authorized capacity | 985.5 | $ 7.9 | ||
| Share repurchase program expiration date | Oct. 30, 2023 | Feb. 09, 2024 | ||
| Shares repurchases, value | $ 8.7 | $ 116.2 | ||
| Repurchase of common stock, shares | 0.5 | 3.0 | ||
| Repurchase of common stock, value | $ 101.7 | |||
| Withheld for tax purpose for share-based compensation plans | $ 8.7 | 14.5 | ||
| Common Stock [Member] | ||||
| Stockholders Equity [Line Items] | ||||
| Shares repurchases, value | $ 0.0 | $ 0.0 | ||
| Open Market Repurchase Plan [Member] | Common Stock [Member] | ||||
| Stockholders Equity [Line Items] | ||||
| Share price | $ 39.32 | |||
| Repurchase of common stock, shares | 0.0 | 2.6 | ||
| Repurchase of common stock, value | $ 101.7 | |||
Shareholders' Deficit - Summary of Changes in Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
| Beginning balance | $ (1,265.9) | $ (1,391.5) | ||
| Amounts reclassified from accumulated other comprehensive loss to income, net of tax | [1] | 2.7 | 0.0 | |
| Total other comprehensive income | 11.2 | 1.8 | ||
| Ending balance | (1,222.8) | (1,453.3) | ||
| Foreign Currency Translation Adjustments [Member] | ||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
| Beginning balance | (248.2) | (211.6) | ||
| Other comprehensive income (loss) before reclassifications, net of tax | 13.2 | 4.4 | ||
| Amounts reclassified from accumulated other comprehensive loss to income, net of tax | [1] | 0.0 | 0.0 | |
| Total other comprehensive income | 13.2 | 4.4 | ||
| Ending balance | (235.0) | (207.2) | ||
| Unrealized (Loss) Gain on Derivatives [Member] | ||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
| Beginning balance | (2.0) | (0.2) | ||
| Other comprehensive income (loss) before reclassifications, net of tax | (4.7) | (2.6) | ||
| Amounts reclassified from accumulated other comprehensive loss to income, net of tax | [1] | 2.7 | 0.0 | |
| Total other comprehensive income | (2.0) | (2.6) | ||
| Ending balance | (4.0) | (2.8) | ||
| Accumulated Other Comprehensive Loss [Member] | ||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
| Beginning balance | (250.2) | (211.8) | ||
| Other comprehensive income (loss) before reclassifications, net of tax | 8.5 | 1.8 | ||
| Total other comprehensive income | 11.2 | 1.8 | ||
| Ending balance | $ (239.0) | $ (210.0) | ||
| ||||
Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Detail) - shares shares in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Earnings Per Share [Abstract] | ||
| Weighted-average shares used in basic computations | 98.5 | 99.9 |
| Dilutive effect of exercise of equity grants outstanding | 1.1 | 1.8 |
| Dilutive effect of 2028 Convertible Notes | 0.6 | 0.0 |
| Weighted-average shares used in diluted computations | 100.2 | 101.7 |
Earnings Per Share - Additional Information (Detail) - shares shares in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Earnings Per Share [Abstract] | ||
| Equity grants with anti-dilutive effect | 4.9 | 1.6 |
| Common shares affected by exceeded conversion price | 0.6 | |
Fair Value Measurements - Derivative Assets and Liabilities Measured at Fair Value (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | $ 0.6 | $ 2.9 |
| Fair value derivative liabilities | 10.6 | 6.0 |
| Foreign exchange currency contracts [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | 0.6 | 2.6 |
| Fair value derivative liabilities | 10.6 | 6.0 |
| Interest Rate Swap [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | 0.3 | |
| Significant Other Observable Inputs (Level 2) [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value measurements, assets total | 0.6 | 2.9 |
| Fair value measurements, liabilities total | 10.6 | 6.0 |
| Significant Other Observable Inputs (Level 2) [Member] | Derivatives designated as hedging instruments [Member] | Foreign exchange currency contracts relating to inventory and intercompany management fee hedges [Member] | Prepaid expenses and other current assets [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | 0.2 | 1.5 |
| Significant Other Observable Inputs (Level 2) [Member] | Derivatives designated as hedging instruments [Member] | Foreign exchange currency contracts relating to inventory and intercompany management fee hedges [Member] | Other current liabilities [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative liabilities | 4.7 | 3.2 |
| Significant Other Observable Inputs (Level 2) [Member] | Derivatives designated as hedging instruments [Member] | Interest Rate Swap [Member] | Prepaid expenses and other current assets [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | 0.0 | 0.3 |
| Significant Other Observable Inputs (Level 2) [Member] | Derivatives not designated as hedging instruments [Member] | Foreign exchange currency contracts [Member] | Prepaid expenses and other current assets [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | 0.4 | 1.1 |
| Significant Other Observable Inputs (Level 2) [Member] | Derivatives not designated as hedging instruments [Member] | Foreign exchange currency contracts [Member] | Other current liabilities [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative liabilities | $ 5.9 | $ 2.8 |
Fair Value Measurements - Offsetting of Derivative Assets (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Derivative [Line Items] | ||
| Derivative Asset, Subject to Master Netting Arrangement, before Offset | $ 0.6 | $ 2.9 |
| Gross Amounts Offset in the Balance Sheet, Derivative Assets | $ (0.6) | $ (2.4) |
| Derivative Asset, Current, Statement of Financial Position [Extensible Enumeration] | Prepaid Expense and Other Assets, Current | Prepaid Expense and Other Assets, Current |
| Net Amounts of Assets Presented in the Balance Sheet | $ 0.0 | $ 0.5 |
| Foreign exchange currency contracts [Member] | ||
| Derivative [Line Items] | ||
| Derivative Asset, Subject to Master Netting Arrangement, before Offset | 0.6 | 2.6 |
| Gross Amounts Offset in the Balance Sheet, Derivative Assets | (0.6) | (2.4) |
| Net Amounts of Assets Presented in the Balance Sheet | $ 0.0 | 0.2 |
| Interest rate swaps [Member] | ||
| Derivative [Line Items] | ||
| Derivative Asset, Subject to Master Netting Arrangement, before Offset | 0.3 | |
| Gross Amounts Offset in the Balance Sheet, Derivative Assets | 0.0 | |
| Net Amounts of Assets Presented in the Balance Sheet | $ 0.3 |
Fair Value Measurements - Offsetting of Derivative Liabilities (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Derivative [Line Items] | ||
| Derivative Liability, Subject to Master Netting Arrangement, before Offset | $ 10.6 | $ 6.0 |
| Gross Amounts Offset in the Balance Sheet, Derivative Liabilities | $ (0.6) | $ (2.4) |
| Derivative Liability, Statement of Financial Position [Extensible Enumeration] | Other Liabilities, Current | Other Liabilities, Current |
| Net Amounts of Liabilities Presented in the Balance Sheet | $ 10.0 | $ 3.6 |
| Foreign exchange currency contracts [Member] | ||
| Derivative [Line Items] | ||
| Derivative Liability, Subject to Master Netting Arrangement, before Offset | 10.6 | 6.0 |
| Gross Amounts Offset in the Balance Sheet, Derivative Liabilities | (0.6) | (2.4) |
| Net Amounts of Liabilities Presented in the Balance Sheet | $ 10.0 | $ 3.6 |
Transformation Program - Additional Information (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Restructuring Cost and Reserve [Line Items] | |||
| Total cost of transformation program | $ 27.3 | $ 1.6 | |
| Minimum [Member] | |||
| Restructuring Cost and Reserve [Line Items] | |||
| Expected Pre-tax charges | $ 52.3 | $ 60.0 | |
Transformation Program - Schedule of Costs Related to the Transformation (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Restructuring Cost and Reserve [Line Items] | ||
| Total cost of transformation program | $ 27.3 | $ 1.6 |
| Cumulative cost incurred | 52.3 | |
| Professional Fees [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Total cost of transformation program | 2.1 | 0.9 |
| Cumulative cost incurred | 19.0 | |
| Retention and Separation [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Total cost of transformation program | 25.2 | 0.7 |
| Cumulative cost incurred | 33.0 | |
| Other [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Total cost of transformation program | 0.0 | $ 0.0 |
| Cumulative cost incurred | $ 0.3 | |
Transformation Program - Schedule of Changes in the Liabilities Related to the Transformation Program (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Restructuring Cost and Reserve [Line Items] | ||
| Beginning Balance | $ 3.8 | |
| Expenses | 27.3 | $ 1.6 |
| Cash payments | (9.1) | |
| Non-cash items and other | 0.0 | |
| Ending Balance | 22.0 | |
| Professional Fees [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Beginning Balance | 0.6 | |
| Expenses | 2.1 | 0.9 |
| Cash payments | (0.9) | |
| Non-cash items and other | 0.0 | |
| Ending Balance | 1.8 | |
| Retention and Separation [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Beginning Balance | 3.2 | |
| Expenses | 25.2 | 0.7 |
| Cash payments | (8.2) | |
| Non-cash items and other | 0.0 | |
| Ending Balance | 20.2 | |
| Other [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Beginning Balance | 0.0 | |
| Expenses | 0.0 | $ 0.0 |
| Cash payments | 0.0 | |
| Non-cash items and other | 0.0 | |
| Ending Balance | $ 0.0 | |
Detail of Certain Balance Sheet Accounts - Additional Information (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Balance Sheet Related Disclosures [Abstract] | ||
| Deferred compensation plan assets | $ 41.0 | $ 39.4 |
| Deferred tax assets | 127.3 | 131.6 |
| Deferred compensation plan liabilities | 64.6 | 61.1 |
| Deferred income tax liabilities | $ 21.1 | $ 19.0 |
Detail of Certain Balance Sheet Accounts - Schedule of Other Current Liabilities (Detail) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Other Liabilities, Current [Abstract] | ||
| Accrued compensation | $ 111.8 | $ 108.3 |
| Accrued service fees to China independent service providers | 36.0 | 33.0 |
| Accrued advertising, events, and promotion expenses | 76.3 | 65.0 |
| Current operating lease liabilities | 37.0 | 37.4 |
| Advance sales deposits | 73.1 | 53.9 |
| Income taxes payable | 9.2 | 12.5 |
| Other accrued liabilities | 204.8 | 203.9 |
| Total | $ 548.2 | $ 514.0 |