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 July 26, 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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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 |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
62 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HERBALIFE LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30, |
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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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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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Six Months Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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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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$ |
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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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$ |
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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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$ |
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$ |
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Diluted |
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$ |
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$ |
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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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Six Months Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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(in millions) |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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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 $( |
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Total other comprehensive income (loss) |
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( |
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Total comprehensive income |
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$ |
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$ |
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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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Six Months Ended |
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June 30, |
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June 30, |
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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 (gain) |
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Other |
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Changes in operating assets and liabilities: |
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Receivables |
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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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( |
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( |
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Accounts payable |
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( |
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Royalty overrides |
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( |
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( |
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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. 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 June 30, 2023 and for the three and six months ended June 30, 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 June 30, 2023 and for the three and six months ended June 30, 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 and six months ended June 30, 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.
7
In July 2023, the FASB issued ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement- Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation- Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 − General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which among various updates, includes (1) clarification on comprehensive income presentation for registrants having more than one class of common stock and (2) more specifically, clarifies language on considering the impact of material non-public information over share-based payment transactions, such as spring-loaded grants, when a) estimating the expected volatility for valuation purposes and b) calculating the fair value of the share based payment transactions to take into account a minimum amount of factors, including the current price of underlying shares. In addition, this ASU, also describes disclosure requirements for share-based payment transactions relating to these types of spring-loaded grant arrangements. This ASU does not provide any new guidance so there is no transition or effective date associated with this ASU which 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.
8
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 six months ended June 30, 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 June 30, 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 $
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 June 30, 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 $
9
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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June 30, |
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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 held by certain of its foreign entities consists of cash deposits that are required due to the business operating requirements in those jurisdictions. In addition, as of June 30, 2023, the Company's consolidated restricted cash also includes $
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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June 30, |
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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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10
4. Long-Term Debt
Long-term debt consists of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
(in millions) |
|
|||||
Borrowings under senior secured credit facility, carrying value |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less: current portion |
|
|
|
|
|
|
||
Long-term portion |
|
$ |
|
|
$ |
|
||
Senior Secured Credit Facility
On August 16, 2018, the Company entered into a $
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
11
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 $
During the second quarter of 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 to transition from LIBOR to the Secured Overnight Financing Rate, or SOFR, in connection with the discontinuation of LIBOR as of June 30, 2023. Following the transition, borrowings utilizing SOFR under the 2018 Credit Facility will use the “Adjusted Term SOFR”, which is the rate per annum equal to Term SOFR plus a rate adjustment based on interest periods of one month, three months, six months and twelve months tenors equaling to approximately
Through June 30, 2023, under the 2018 Credit Facility, borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility bore interest at, depending on the Company’s total leverage ratio, either the eurocurrency rate plus a margin of between
Beginning July 1, 2023, the borrowings utilizing SOFR under both the 2018 Term Loan A and 2018 Revolving Credit Facility, will now bear interest at, depending on the Company’s total leverage ratio, either the Adjusted Term SOFR plus a margin of between
12
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 June 30, 2023 and December 31, 2022, the Company was in compliance with its 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. 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 June 30, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was
During the six months ended June 30, 2023, the Company borrowed an aggregate amount of $
During the three months ended June 30, 2023 and 2022, the Company recognized $
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 June 30, 2023 and December 31, 2022, the carrying value of the 2018 Term Loan A was $
13
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 $
In December 2022, the Company issued $
14
As of June 30, 2023, the remaining outstanding principal on the 2024 Convertible Notes was $
During the three months ended June 30, 2023 and 2022, the Company recognized $
Convertible Senior Notes due 2028
In December 2022, the Company issued $
The Company incurred approximately $
As of June 30, 2023, the outstanding principal on the 2028 Convertible Notes was $
During the three months ended June 30, 2023, the Company recognized $
15
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 June 30, 2023, the outstanding principal on the 2025 Notes was $
During the three months ended June 30, 2023 and 2022, the Company recognized $
Senior Notes due 2029
In May 2021, the Company issued $
16
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 June 30, 2023, the outstanding principal on the 2029 Notes was $
During the three months ended June 30, 2023 and 2022, the Company recognized $
Total Debt
The Company’s total interest expense was $
As of June 30, 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 June 30, 2023, the Company had $
17
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 June 30, 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 $
18
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.
19
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
20
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. Summary judgment motions have been filed, but not yet ruled upon. The current trial date for the action is March 12, 2024. 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
21
Operating information for the
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
|
|
(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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table sets forth net sales by geographic area:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
|
|
(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 six months ended June 30, 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 $
22
The following table summarizes the activity for all SARs under the Company’s share-based compensation plans for the six months ended June 30, 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 June 30, 2023(2) |
|
|
|
|
$ |
|
|
|
$ |
|
||||
Exercisable as of June 30, 2023(4) |
|
|
|
|
$ |
|
|
|
$ |
|
||||
Vested and expected to vest as of June 30, 2023(4) |
|
|
|
|
$ |
|
|
|
$ |
|
||||
The weighted-average grant date fair value of SARs granted during the three months ended June 30, 2023 was $
The following table summarizes the activities for all restricted stock units under the Company’s share-based compensation plans for the six months ended June 30, 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 June 30, 2023(1) |
|
|
|
|
$ |
|
||
Expected to vest as of June 30, 2023(2) |
|
|
|
|
$ |
|
||
The total vesting date fair value of restricted stock units which vested during the three months ended June 30, 2023 and 2022 was $
8. Income Taxes
Income taxes were $
23
As of June 30, 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 February 2020 and March 2020. These agreements collectively provided for the Company to pay interest at a weighted-average fixed rate of
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.
24
As of June 30, 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 June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2023 and 2022:
|
|
Amount of (Loss) Gain Recognized in Other Comprehensive Income (Loss) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
|
|
(in millions) |
|
|||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of June 30, 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 $
25
The effect of cash flow hedging relationships on the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 was as follows:
|
|
Location and Amount of (Loss) Gain Recognized in Income on Cash Flow Hedging Relationships |
|
|||||||||||||||||||||
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||||||||||
|
|
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 reclassified from accumulated other comprehensive loss to income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amount of gain excluded from assessment of effectiveness recognized in income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
26
|
|
Location and Amount of (Loss) Gain Recognized in Income on Cash Flow Hedging Relationships |
|
|||||||||||||||||||||
|
|
Six Months Ended |
|
|||||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||||||||||
|
|
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 |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
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|
||||
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
||||||
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 and six months ended June 30, 2023 and 2022:
|
|
Amount of (Loss) Gain Recognized in Income |
|
|
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
Location of (Loss) Gain 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 June 30, 2023 and December 31, 2022.
27
10. Shareholders’ Deficit
Changes in shareholders’ deficit for the three months ended June 30, 2023 and 2022 were as follows:
|
|
Three Months Ended June 30, 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 March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Additional capital from share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Repurchases of less than |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Foreign currency translation adjustment, net of income taxes of $( |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Unrealized loss on derivatives, net of income taxes of $( |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Balance as of June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
Three Months Ended June 30, 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 March 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 June 30, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
28
Changes in shareholders’ deficit for the six months ended June 30, 2023 and 2022 were as follows:
|
|
Six Months Ended June 30, 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 June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
Six Months Ended June 30, 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 June 30, 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.
29
Share Repurchases
On February 9, 2021, the Company’s board of directors authorized a new three-year $
During the six months ended June 30, 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 and six months ended June 30, 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 allocates the purchase price of the repurchased shares to accumulated deficit, common shares and additional paid-in capital.
For the six months ended June 30, 2023 and 2022, the Company’s share repurchases, inclusive of transaction costs, were
Accumulated Other Comprehensive Loss
The following table summarizes changes in accumulated other comprehensive loss by component during the three months ended June 30, 2023 and 2022:
|
|
Changes in Accumulated Other Comprehensive Loss by Component |
|
|||||||||||||||||||||
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||||||||||
|
|
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 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
30
Other comprehensive income (loss) before reclassifications was net of tax benefit of $
Other comprehensive income (loss) before reclassifications was net of tax benefit of $
The following table summarizes changes in accumulated other comprehensive loss by component during the six months ended June 30, 2023 and 2022:
|
|
Changes in Accumulated Other Comprehensive Loss by Component |
|
|||||||||||||||||||||
|
|
Six Months Ended |
|
|||||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||||||||||
|
|
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 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) before reclassifications was net of tax benefit of $
Other comprehensive income (loss) before reclassifications was net of tax benefit of $
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
|
|
(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
31
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 and six months ended June 30, 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 and six months ended June 30, 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. For the three months ended June 30, 2023, the 2028 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 2028 Convertible Notes exceeded the average market price of the Company’s common shares for the three months ended June 30, 2023. The dilutive impact for the six months ended June 30, 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.
32
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 June 30, |
|
|
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.
33
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 June 30, 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) |
|
|||||||||
June 30, 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) |
|
|||||||||
June 30, 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 June 30, 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 $
34
Costs related to the Transformation Program were as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
|||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
Cumulative costs incurred to date as of June 30, 2023 |
|
|||||
|
|
(in millions) |
|
|
|
|
||||||||||||||
Professional fees |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Retention and separation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
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 June 30, 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:
|
|
June 30, |
|
|
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 $
35
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, foreign exchange rate fluctuations, the war in Ukraine, and lingering 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.
36
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 have also instituted other more localized price increases to address region or market-specific conditions. 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 June 30, 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 these matters.
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.
37
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 |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
% Change |
|
|
June 30, |
|
|
June 30, |
|
|
% Change |
|
||||||
|
|
(Volume Points in millions) |
|
|||||||||||||||||||||
North America |
|
|
313.4 |
|
|
|
397.2 |
|
|
|
(21.1 |
)% |
|
|
627.9 |
|
|
|
800.3 |
|
|
|
(21.5 |
)% |
Latin America |
|
|
258.5 |
|
|
|
310.9 |
|
|
|
(16.9 |
)% |
|
|
529.9 |
|
|
|
630.6 |
|
|
|
(16.0 |
)% |
EMEA |
|
|
331.2 |
|
|
|
354.9 |
|
|
|
(6.7 |
)% |
|
|
645.5 |
|
|
|
746.6 |
|
|
|
(13.5 |
)% |
Asia Pacific |
|
|
530.5 |
|
|
|
579.5 |
|
|
|
(8.5 |
)% |
|
|
1,035.7 |
|
|
|
1,098.0 |
|
|
|
(5.7 |
)% |
China |
|
|
62.6 |
|
|
|
69.8 |
|
|
|
(10.3 |
)% |
|
|
111.2 |
|
|
|
136.7 |
|
|
|
(18.7 |
)% |
Worldwide |
|
|
1,496.2 |
|
|
|
1,712.3 |
|
|
|
(12.6 |
)% |
|
|
2,950.2 |
|
|
|
3,412.2 |
|
|
|
(13.5 |
)% |
Volume Points decreased 12.6% and 13.5% for the three and six months ended June 30, 2023, respectively, after having decreased 9.1% and 8.0%, respectively, for the same periods in 2022. North America’s Volume Point decrease for 2023 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 lesser decrease for 2023 compared to 2022 reflects lower levels of new Members as, we believe, Members work to re-establish pre-pandemic face-to-face approaches for their businesses, inflationary pressure on customer demand, as well as political and economic uncertainty across certain markets in the region. The Asia Pacific region saw a 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 more than offset by declines elsewhere in the region, particularly Vietnam, Indonesia, Korea, and Malaysia, due in part, we believe, to weak economic climate and inflationary pressure and 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 but lesser Volume Point decreases for 2023. This trend reflects, we believe, our Members continue to adjust their business approaches to a confluence of factors, including changes we have made for our business and external conditions. Also, a surge of COVID cases late in 2022 that had an adverse effect on our results, we believe, into the beginning of the first quarter of 2023, has now eased.
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.
38
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.
39
Summary Financial Results
Net sales were $1,314.0 million and $2,566.1 million for the three and six months ended June 30, 2023, respectively. Net sales decreased $78.7 million, or 5.7%, and $162.4 million, or 6.0%, for the three and six months ended June 30, 2023 as compared to the same periods in 2022. In local currency, net sales decreased 4.2% and 3.4% for the three and six months ended June 30, 2023, as compared to the same periods in 2022. The 5.7% decrease in net sales for the three months ended June 30, 2023 was primarily driven by a decrease in sales volume, as indicated by a 12.6% decrease in Volume Points, a 1.5% unfavorable impact of fluctuations in foreign currency exchange rates, and a 2.0% unfavorable impact of sales mix, partially offset by a 10.9% favorable impact of price increases. The 6.0% decrease in net sales for the six months ended June 30, 2023 was primarily driven by a decrease in sales volume, as indicated by a 13.5% decrease in Volume Points, a 2.6% unfavorable impact of fluctuations in foreign currency exchange rates, and a 1.6% unfavorable impact of sales mix, partially offset by a 11.8% favorable impact of price increases.
Net income was $59.9 million, or $0.60 per diluted share, and $89.2 million, or $0.89 per diluted share, for the three and six months ended June 30, 2023, respectively. Net income decreased $26.6 million, or 30.8%, and $95.5 million, or 51.7%, for the three and six months ended June 30, 2023 as compared to the same periods in 2022. The decrease in net income for the three months ended June 30, 2023 was mainly due to $41.3 million lower contribution margin driven by lower net sales, and $6.7 million higher interest expense, net; partially offset by $12.5 million lower income taxes and $9.5 million lower selling, general, and administrative expenses. The decrease in net income for the six months ended June 30, 2023 was mainly due to $98.7 million lower contribution margin driven by lower net sales, $16.4 million higher interest expense, net, and $11.5 million higher selling, general, and administrative expenses; partially offset by $35.9 million lower income taxes.
Net income for the three months ended June 30, 2023 included a $10.1 million pre-tax unfavorable impact ($7.6 million post-tax) of Transformation Program expenses, primarily relating to employee retention and separation costs; and a $7.0 million pre-tax unfavorable impact ($6.5 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.
Net income for the six months ended June 30, 2023 included a $37.4 million pre-tax unfavorable impact ($28.9 million post-tax) of Transformation Program expenses, primarily relating to employee retention and separation costs; and a $10.5 million pre-tax unfavorable impact ($9.8 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 June 30, 2022 included a $5.4 million pre-tax unfavorable impact ($4.2 million post-tax) relating to the Russia-Ukraine conflict, primarily from sales centers termination and other related costs in Russia; a $3.2 million pre-tax unfavorable impact ($2.9 million post-tax) of Transformation Program expenses, primarily relating to professional fees; and a $1.6 million pre-tax unfavorable impact ($1.2 million post-tax) from expenses related to the COVID-19 pandemic.
Net income for the six months ended June 30, 2022 included a $5.4 million pre-tax unfavorable impact ($4.2 million post-tax) relating to the Russia-Ukraine conflict, primarily from sales centers termination and other related costs in Russia; a $4.8 million pre-tax unfavorable impact ($4.3 million post-tax) of Transformation Program expenses, primarily relating to professional fees; and a $3.3 million pre-tax unfavorable impact ($2.6 million post-tax) from expenses related to the COVID-19 pandemic.
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.
40
The following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
23.0 |
|
|
|
22.7 |
|
|
|
23.4 |
|
|
|
22.8 |
|
Gross profit |
|
|
77.0 |
|
|
|
77.3 |
|
|
|
76.6 |
|
|
|
77.2 |
|
Royalty overrides(1) |
|
|
32.7 |
|
|
|
32.5 |
|
|
|
32.9 |
|
|
|
32.5 |
|
Selling, general, and administrative expenses(1) |
|
|
35.0 |
|
|
|
33.7 |
|
|
|
36.5 |
|
|
|
33.9 |
|
Other operating income |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.4 |
) |
|
|
(0.5 |
) |
Operating income |
|
|
9.4 |
|
|
|
11.2 |
|
|
|
7.6 |
|
|
|
11.3 |
|
Interest expense, net |
|
|
2.9 |
|
|
|
2.3 |
|
|
|
3.1 |
|
|
|
2.2 |
|
Income before income taxes |
|
|
6.5 |
|
|
|
8.9 |
|
|
|
4.5 |
|
|
|
9.1 |
|
Income taxes |
|
|
1.9 |
|
|
|
2.7 |
|
|
|
1.0 |
|
|
|
2.3 |
|
Net income |
|
|
4.6 |
% |
|
|
6.2 |
% |
|
|
3.5 |
% |
|
|
6.8 |
% |
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 $1,226.0 million and $2,410.4 million for the three and six months ended June 30, 2023, respectively, representing a decrease of $63.0 million, or 4.9%, and $108.8 million, or 4.3%, as compared to the same periods in 2022. In local currency, net sales decreased 3.7% and 2.0% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The 4.9% decrease in net sales for the three months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 12.7% decrease in Volume Points, a 1.2% unfavorable impact of fluctuations in foreign currency exchange rates, and a 2.0% unfavorable impact of sales mix, partially offset by a 11.5% favorable impact of price increases. The 4.3% decrease in net sales for the six months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 13.3% decrease in Volume Points, a 2.3% unfavorable impact of fluctuations in foreign currency exchange rates, and a 1.1% unfavorable impact of sales mix, partially offset by a 12.5% favorable impact of price increases.
For a discussion of China’s net sales for the three and six months ended June 30, 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 $507.6 million, or 41.4% of net sales, and $990.1 million, or 41.1% of net sales, for the three and six months ended June 30, 2023, respectively, representing a decrease of $26.5 million, or 5.0%, and $48.4 million, or 4.7%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The 5.0% decrease in contribution margin for the three months ended June 30, 2023 was primarily the result of a 12.7% unfavorable impact of volume decreases, a 2.9% unfavorable impact of foreign currency fluctuations, a 3.8% 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, and a 4.6% unfavorable impact of sales mix, partially offset by an 18.9% favorable impact of price increases. The 4.7% decrease in contribution margin for the six months ended June 30, 2023 was primarily the result of a 13.3% unfavorable impact of volume decreases, a 5.1% unfavorable impact of foreign currency fluctuations, a 4.5% 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, and a 2.9% unfavorable impact of sales mix, partially offset by a 20.7% favorable impact of price increases.
41
China reported contribution margin of $75.1 million and $130.1 million for the three and six months ended June 30, 2023, representing a decrease of $14.8 million, or 16.5%, and $50.3 million, or 27.9%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The 16.5% decrease in contribution margin for the three months ended June 30, 2023 was primarily the result of a 10.3% unfavorable impact of volume decreases, a 6.2% unfavorable impact of foreign currency fluctuations, 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 5.0% favorable impact of price increases. The 27.9% decrease in contribution margin for the six months ended June 30, 2023 was primarily the result of a 18.6% unfavorable impact of volume decreases, a 5.7% unfavorable impact of foreign currency fluctuations, a 4.8% unfavorable impact of sales mix, and a 2.5% 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 4.3% favorable impact of price increases.
Sales by Geographic Region
Net sales by geographic region were as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
% Change |
|
|
June 30, |
|
|
June 30, |
|
|
% Change |
|
||||||
|
|
(Dollars in millions) |
|
|||||||||||||||||||||
North America |
|
$ |
303.6 |
|
|
$ |
343.5 |
|
|
|
(11.6 |
)% |
|
$ |
600.8 |
|
|
$ |
669.7 |
|
|
|
(10.3 |
)% |
Latin America |
|
|
207.0 |
|
|
|
205.8 |
|
|
|
0.6 |
% |
|
|
412.5 |
|
|
|
407.1 |
|
|
|
1.3 |
% |
EMEA |
|
|
289.6 |
|
|
|
289.0 |
|
|
|
0.2 |
% |
|
|
557.7 |
|
|
|
584.0 |
|
|
|
(4.5 |
)% |
Asia Pacific |
|
|
425.8 |
|
|
|
450.7 |
|
|
|
(5.5 |
)% |
|
|
839.4 |
|
|
|
858.4 |
|
|
|
(2.2 |
)% |
China |
|
|
88.0 |
|
|
|
103.7 |
|
|
|
(15.1 |
)% |
|
|
155.7 |
|
|
|
209.3 |
|
|
|
(25.6 |
)% |
Worldwide |
|
$ |
1,314.0 |
|
|
$ |
1,392.7 |
|
|
|
(5.7 |
)% |
|
$ |
2,566.1 |
|
|
$ |
2,728.5 |
|
|
|
(6.0 |
)% |
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.
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.
42
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 and six months ended June 30, 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.
Lingering impacts from the COVID-19 pandemic 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. We generally experience increased Member demand for our products ahead of the effective date of announced price increases. This increased Member demand can positively impact our current period net sales while having an adverse effect on our subsequent period net sales, which we sometimes refer to as a pull-forward effect. As described further below, we believe most of our geographic markets who instituted a 10% price increase, generally experienced such increased demand during the second quarter of 2022 ahead of the June 2022 price increase, affecting the 2023 versus 2022 period comparisons. Certain additional markets instituted this increase effective during the third quarter of 2022.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 each geographic region and individual market.
North America
The North America region reported net sales of $303.6 million and $600.8 million for the three and six months ended June 30, 2023, respectively. Net sales decreased $39.9 million, or 11.6%, and $68.9 million, or 10.3%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. In local currency, net sales decreased 11.5% and 10.1% for the three and six months ended June 30, 2023, as compared to the same periods in 2022. The 11.6% decrease in net sales for the three months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 21.1% decrease in Volume Points, partially offset by a 9.6% favorable impact of price increases. The 10.3% decrease in net sales for the six months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 21.5% decrease in Volume Points, partially offset by a 11.6% favorable impact of price increases.
Net sales in the U.S. were $295.3 million and $584.5 million for the three and six months ended June 30, 2023, respectively. Net sales decreased $38.2 million, or 11.5%, and $66.1 million, or 10.2%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022.
Sales volumes declined for the second quarter and first half of 2023 compared to the 2022 prior year periods, respectively. 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 $207.0 million and $412.5 million for the three and six months ended June 30, 2023, respectively. Net sales increased $1.2 million, or 0.6%, and $5.4 million, or 1.3%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022, respectively. In local currency, net sales decreased 4.4% and 2.2% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The 0.6% increase in net sales for the three months ended June 30, 2023 was due to a 13.6% favorable impact of price increases and a 5.0% favorable impact of fluctuations in foreign currency exchange rates, partially offset by a decrease in sales volume, as indicated by a 16.9% decrease in Volume Points. The 1.3% increase in net sales for the six months ended June 30, 2023 was due to a 15.0% favorable impact of price increases and a 3.5% favorable impact of fluctuations in foreign currency exchange rates, partially offset by a decrease in sales volume, as indicated by a 16.0% decrease in Volume Points.
43
Net sales in Mexico were $138.5 million and $266.3 million for the three and six months ended June 30, 2023, respectively. Net sales increased $14.6 million, or 11.8%, and $24.0 million, or 9.9%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. In local currency, net sales decreased 1.3% and 1.5% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The fluctuation of foreign currency exchange rates had a favorable impact of $16.2 million and $27.6 million on net sales for the three and six months ended June 30, 2023, respectively. A volume decline was seen for the second quarter and first half of 2023 versus the 2022 periods, as well as continued declines in new Members. Members’ Nutrition Club operations continue to be an important DMO in the market which management continues to support. We are supporting Members with promotions that encourage volume, even at lower levels, for newer Members. The market saw a 2% price increase during June 2023 and 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 second quarter and first half of 2023 versus the 2022 periods. 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 in certain markets in the region have challenged our Members’ operations and customer demand. The sales volume declines in markets other than Mexico was greatest for Chile, Brazil, and Colombia. Promotional 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 $289.6 million and $557.7 million for the three and six months ended June 30, 2023, respectively. Net sales increased $0.6 million, or 0.2%, and decreased $26.3 million, or 4.5%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022, respectively. In local currency, net sales increased 2.2% and decreased 0.3% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022, respectively. The 0.2% increase in net sales for the three months ended June 30, 2023 was primarily due to an 13.1% favorable impact of price increases, partially offset by a decrease in sales volume, as indicated by a 6.7% decrease in Volume Points, a 2.0% unfavorable impact of fluctuations in foreign currency exchange rates and a 3.3% unfavorable impact from sales mix. The 4.5% decrease in net sales for the six months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 13.5% decrease in Volume Points and a 4.2% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 13.1% favorable impact of price increases. 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 second quarter and first half of 2023 as compared to the 2022 periods. 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 in certain markets, 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 second quarter and first half of 2023 as compared to the 2022 comparative periods were led by Russia, Spain, and Turkey, partially offset by increases in Kazakhstan. Our Russia entity had significant volume declines during the second quarter and first half of 2023 compared to the prior year comparative periods, respectively, due to the suspension of product shipments to our Russia entity. We anticipate product sales in Russia to cease during the third quarter as we expect our product inventory in Russia to be depleted. As a result, Russian Members purchasing products in Kazakhstan, among other neighboring markets, has led to an increase in volume in Kazakhstan. Turkey volumes during the first half of 2023 were adversely impacted, we believe, by a deadly earthquake in February 2023 that damaged some areas of the country, and Turkey’s net sales were also negatively impacted by the foreign currency fluctuations as a result of its highly inflationary economy.
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. The majority of the markets in the region instituted price increases to address market-specific conditions during the six months ended June 2023 and a 10% price increase during June 2022.
44
Asia Pacific
The Asia Pacific region, which excludes China, reported net sales of $425.8 million and $839.4 million for the three and six months ended June 30, 2023. Net sales decreased $24.9 million, or 5.5%, and $19.0 million, or 2.2%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. In local currency, net sales decreased 1.3% and increased 3.3% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The 5.5% decrease in net sales for the three months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 8.5% decrease in Volume Points, a 4.2% unfavorable impact of fluctuations in foreign currency exchange rates and a 3.6% unfavorable impact of sales mix, partially offset by a 10.8% favorable impact of price increases. The 2.2% decrease in net sales for the six months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 5.7% decrease in Volume Points, a 5.6% unfavorable impact of fluctuations in foreign currency exchange rates and a 2.8% unfavorable impact of sales mix, partially offset by a 11.6% favorable impact of price increases.
Net sales in India were $189.4 million and $368.0 million for the three and six months ended June 30, 2023, respectively. Net sales increased $25.8 million, or 15.8%, and $52.4 million, or 16.6%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022, respectively. In local currency, net sales increased 23.3% and 25.8% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022, respectively. The fluctuation of foreign currency exchange rates had an unfavorable impact of $12.4 million and $29.0 million on net sales for the three and six months ended June 30, 2023, respectively. 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 improving product access points and payment methods. The India market implemented a 14% price increase in September 2022 and had no price increases during the six months ended 2023.
Net sales in Vietnam were $66.1 million and $137.2 million for the three and six months ended June 30, 2023, respectively. Net sales decreased $8.4 million, or 11.3%, and $11.0 million, or 7.4%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. In local currency, net sales decreased 9.7% and 4.9% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The fluctuation of foreign currency exchange rates had an unfavorable impact of $1.2 million and $3.7 million on net sales for the three and six months ended June 30, 2023, respectively. Vietnam saw a sales volume decrease for the first half of 2023 versus the 2022 period. We believe, the impact of inflationary pressures, combined with a January 2023 increase in the local value added tax rate, may have also been contributing factors to the decline in Vietnam's net sales for the first half of 2023. 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 were approved by local government in April 2023; we continue to assess and monitor these 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 second quarter and first half of 2023 as compared to the 2022 periods, most significantly for Indonesia, South Korea, and Malaysia. Emerging from pandemic conditions, we are seeing lower levels 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, rising interest rates, and inflationary pressure in certain markets. Our efforts in the region include promotional initiatives to incentivize sales and launching new products.
China
The China region reported net sales of $88.0 million and $155.7 million for the three and six months ended June 30, 2023, respectively. Net sales decreased $15.7 million, or 15.1%, and $53.6 million, or 25.6%, for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. In local currency, net sales decreased 10.0% and 20.4% for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The 15.1% decrease in net sales for the three months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 10.3% decrease in Volume Points, a 1.6% unfavorable impact of sales mix, and a 5.2% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 4.3% favorable impact of price increases. The 25.6% decrease in net sales for the six months ended June 30, 2023 was primarily due to a decrease in sales volume, as indicated by a 18.7% decrease in Volume Points, a 4.1% unfavorable impact of sales mix, and a 5.2% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 3.7% favorable impact of price increases.
45
Sales volume declines of recent years for the China market continued, but lessened, in the second quarter and first half of 2023 versus the 2022 periods, 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 that had an adverse effect on our results, we believe, into the beginning of the first quarter of 2023, has now eased. China had a 5% price increase in August 2022 and had no price increases during the six months ended 2023.
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 |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
% Change |
|
|
June 30, |
|
|
June 30, |
|
|
% Change |
|
||||||
|
|
(Dollars in millions) |
|
|||||||||||||||||||||
Weight Management |
|
$ |
742.8 |
|
|
$ |
790.7 |
|
|
|
(6.1 |
)% |
|
$ |
1,449.1 |
|
|
$ |
1,552.5 |
|
|
|
(6.7 |
)% |
Targeted Nutrition |
|
|
378.7 |
|
|
|
402.2 |
|
|
|
(5.8 |
)% |
|
|
744.6 |
|
|
|
792.3 |
|
|
|
(6.0 |
)% |
Energy, Sports, and Fitness |
|
|
147.4 |
|
|
|
149.1 |
|
|
|
(1.1 |
)% |
|
|
283.1 |
|
|
|
281.8 |
|
|
|
0.5 |
% |
Outer Nutrition |
|
|
21.5 |
|
|
|
23.1 |
|
|
|
(6.9 |
)% |
|
|
42.3 |
|
|
|
46.1 |
|
|
|
(8.2 |
)% |
Literature, Promotional, and Other(1) |
|
|
23.6 |
|
|
|
27.6 |
|
|
|
(14.5 |
)% |
|
|
47.0 |
|
|
|
55.8 |
|
|
|
(15.8 |
)% |
Total |
|
$ |
1,314.0 |
|
|
$ |
1,392.7 |
|
|
|
(5.7 |
)% |
|
$ |
2,566.1 |
|
|
$ |
2,728.5 |
|
|
|
(6.0 |
)% |
Net sales for the majority of product categories decreased for the three and six months ended June 30, 2023 as compared to the same periods 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 $1,012.4 million and $1,076.9 million for the three months ended June 30, 2023 and 2022, respectively, and $1,965.9 million and $2,105.6 million for the six months ended June 30, 2023 and 2022, respectively. Gross profit as a percentage of net sales was 77.0% and 77.3% for the three months ended June 30, 2023 and 2022, respectively, or an unfavorable net decrease of 27 basis points, and 76.6% and 77.2% for the six months ended June 30, 2023 and 2022, respectively, or an unfavorable net decrease of 56 basis points.
The decrease in gross profit as a percentage of net sales for the three months ended June 30, 2023 as compared to the same period in 2022 included unfavorable cost changes related to self-manufacturing and sourcing of 179 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 89 basis points; unfavorable changes in sales mix of 58 basis points; and unfavorable other cost changes of 20 basis points; partially offset by the favorable impact of price increases of 295 basis points; the favorable impact of cost changes of 16 basis points relating to lower outbound freight costs; and lower inventory write-downs of 8 basis points.
46
The decrease in gross profit as a percentage of net sales for the six months ended June 30, 2023 as compared to the same period in 2022 included unfavorable cost changes related to self-manufacturing and sourcing of 199 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 119 basis points; unfavorable changes in sales mix of 48 basis points; unfavorable other cost changes of 18 basis points; and the unfavorable impact of higher inventory write-downs of 9 basis points; partially offset by the favorable impact of price increases of 326 basis points; and favorable cost changes of 11 basis points relating to lower outbound freight costs.
We expect our gross margin to continue to be negatively impacted in the remainder of 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 $429.7 million and $452.9 million for the three months ended June 30, 2023 and 2022, respectively, and $845.7 million and $886.7 million for the six months ended June 30, 2023 and 2022, respectively. Royalty overrides as a percentage of net sales were 32.7% and 32.5% for the three months ended June 30, 2023 and 2022, respectively, and 32.9% and 32.5% for the six months ended June 30, 2023 and 2022, respectively.
The increase in royalty overrides as a percentage of net sales for the three and six months ended June 30, 2023 as compared to the same periods 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 $460.5 million and $470.0 million for the three months ended June 30, 2023 and 2022, respectively, and $936.4 million and $924.9 million for the six months ended June 30, 2023 and 2022, respectively. Selling, general, and administrative expenses as a percentage of net sales were 35.0% and 33.7% for the three months ended June 30, 2023 and 2022, respectively, and 36.5% and 33.9% for the six months ended June 30, 2023 and 2022, respectively.
The decrease in selling, general, and administrative expenses for the three months ended June 30, 2023 as compared to the same period in 2022 was driven by $7.7 million in lower service fees for China independent service providers due to lower sales in China, $6.8 million of favorable impact of changes in market value of deferred compensation assets, and $5.4 million of expenses related to Russia-Ukraine conflict in 2022; partially offset by $8.9 million in higher labor and benefits costs. The increase in labor and benefit costs was driven by the unfavorable impact of changes in market value of deferred compensation liabilities, higher employee bonus accrual, and higher employee retention and separation costs related to the Transformation Program; partially offset by savings on labor costs resulting from the Transformation Program.
The increase in selling, general, and administrative expenses for the six months ended June 30, 2023 as compared to the same period in 2022 was driven by $29.0 million in higher labor and benefits costs and $19.6 million in higher Member event and promotion costs, partially offset by $28.2 million in lower service fees for China independent service providers due to lower sales in China, and $11.5 million of favorable impact of changes in market value of deferred compensation assets. The increase in labor and benefit costs was driven by higher employee retention and separation costs related to the Transformation Program and the unfavorable impact of changes in market value of deferred compensation liabilities; partially offset by savings on labor cost resulting from 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.
47
Other Operating Income
The $1.2 million of other operating income for the three months ended June 30, 2023 consisted of $1.2 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 $1.8 million of other operating income for the three months ended June 30, 2022 consisted of $1.8 million of government grant income for China.
The $10.1 million of other operating income for the six months ended June 30, 2023 consisted of $10.1 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 $14.9 million of other operating income for the six months ended June 30, 2022 consisted of $14.9 million of government grant income for China.
Interest Expense, Net
Interest expense, net was as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
|
|
(in millions) |
|
|||||||||||||
Interest expense |
|
$ |
41.1 |
|
|
$ |
33.2 |
|
|
$ |
82.9 |
|
|
$ |
64.6 |
|
Interest income |
|
|
(2.7 |
) |
|
|
(1.5 |
) |
|
|
(5.1 |
) |
|
|
(3.2 |
) |
Interest expense, net |
|
$ |
38.4 |
|
|
$ |
31.7 |
|
|
$ |
77.8 |
|
|
$ |
61.4 |
|
The increase in interest expense, net for the three and six months ended June 30, 2023 as compared to the same periods in 2022 was primarily due to an increase in our weighted-average interest rate, partially offset by a decrease in our overall weighted-average borrowings.
Income Taxes
Income taxes were $25.1 million and $37.6 million for the three months ended June 30, 2023 and 2022, respectively, and $26.9 million and $62.8 million for the six months ended June 30, 2023 and 2022, respectively. The effective income tax rate was 29.5% and 30.3% for the three months ended June 30, 2023 and 2022, respectively, and 23.2% and 25.4% for the six months ended June 30, 2023 and 2022, respectively. The decrease in the effective tax rate for the three and six months ended June 30, 2023 as compared to the same period in 2022 was primarily due to an increase in benefits from discrete events, partially offset by changes in the geographic mix of our income.
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 $526.6 million cash and cash equivalents as of June 30, 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 June 30, 2023 and December 31, 2022.
48
For the six months ended June 30, 2023, we generated $181.8 million of operating cash flow as compared to $229.3 million for the same period in 2022. The decrease in our operating cash flow was the result of $103.1 million of lower net income excluding non-cash and reconciling items disclosed within our condensed consolidated statement of cash flows, and $55.6 million of favorable changes in operating assets and liabilities. The $103.1 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 interest expense, net; partially offset by lower income taxes. The $55.6 million of favorable changes in operating assets and liabilities was primarily the result of favorable changes in inventories, and other current liabilities primarily from favorable changes in accrued compensation; partially offset by unfavorable changes in other primarily from capitalized implementation costs of cloud-based hosting arrangements and unrecognized tax benefits. The favorable changes in accrued compensation was primarily from lower employee bonus payments in 2023.
Capital expenditures, including accrued capital expenditures, were $64.1 million and $85.1 million for the six months ended June 30, 2023 and 2022, respectively. The majority of these expenditures during the six months ended June 30, 2023 represented investments in management information systems, including initiatives to develop enhanced Member tools which includes our new $400 million multi-year Digital Technology Program, which we also refer to as Herbalife One. We expect to continue our investments in these areas and expect to incur total capital expenditures of approximately $150 million to $200 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, we expect our future capital expenditures to remain elevated during 2023, 2024, and 2025 as a result of our Digital Technology Program. The capital expenditures relating to this Digital Technology Program are separate to the Transformation Program described further below.
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 $90 million with approximately more than half of these savings being realized in 2023 with the full amount being realized starting in 2024. We also expect to incur total pre-tax expenses of at least $75.0 million to realize these annual run-rate savings. We have already incurred total pre-tax expenses of approximately $62.4 million through June 30, 2023, of which $10.1 million and $3.2 million were incurred in the three months ended June 30, 2023 and 2022, respectively, and $37.4 million and $4.8 million were incurred in the six months ended June 30, 2023 and 2022, respectively, and recognized in selling, general, and administrative expenses within our condensed consolidated statements of income. In addition, 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 was less than $350.0 million as of June 30, 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.
49
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 was less than $350.0 million as of June 30, 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.
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 the second quarter of 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 to transition from LIBOR to the Secured Overnight Financing Rate, or SOFR, in connection with the discontinuation of LIBOR as of June 30, 2023. Following the transition, borrowings utilizing SOFR under the 2018 Credit Facility will use the “Adjusted Term SOFR”, which is the rate per annum equal to Term SOFR plus a rate adjustment based on interest periods of one month, three months, six months and twelve months tenors equaling to approximately 0.11%, 0.26%, 0.43% and 0.72%, respectively. We incurred approximately $1.1 million of debt issuance costs in connection with these amendments. For accounting purposes, pursuant to ASC 470, these transactions were accounted for as modifications of the 2018 Credit Facility. Of the $1.1 million of debt issuance costs, approximately $1.0 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 $0.1 million was recognized in interest expense, net within our condensed consolidated statement of income 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 June 30, 2023 and December 31, 2022, we were in compliance with our debt covenants under the 2018 Credit Facility.
50
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 six months ended June 30, 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 $145.5 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 six months ended June 30, 2022, we borrowed an aggregate amount of $159.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $173.5 million on amounts outstanding under the 2018 Credit Facility, which included $159.0 million of repayments on amounts outstanding under the 2018 Revolving Credit Facility. As of June 30, 2023 and December 31, 2022, the U.S. dollar amount outstanding under the 2018 Credit Facility was $901.2 million and $975.7 million, respectively. Of the $901.2 million outstanding under the 2018 Credit Facility as of June 30, 2023, $246.8 million was outstanding under the 2018 Term Loan A and $654.4 million was outstanding under the 2018 Term Loan B. There were no borrowings outstanding under the 2018 Revolving Credit Facility as of June 30, 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 June 30, 2023 and December 31, 2022. As of June 30, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 7.21% 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.
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. From time to time, we may also repurchase certain amounts of our 2024 Convertible Notes in the open market or privately negotiated transactions depending upon the market conditions, the interest rate environment, and upcoming maturity dates. 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 June 30, 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.
51
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.
Cash and Cash Equivalents
The majority of our foreign subsidiaries designate their local currencies as their functional currencies. As of June 30, 2023, the total amount of our foreign subsidiary cash and cash equivalents was $412.3 million, of which $40.7 million was held in U.S. dollars. As of June 30, 2023, the total amount of cash and cash equivalents held by Herbalife Ltd. and its U.S. entities, inclusive of U.S. territories, was $114.3 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 June 30, 2023 and December 31, 2022, we had no material off-balance sheet arrangements.
52
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 June 30, 2023, the remaining authorized capacity under our $1.5 billion share repurchase program was approximately $985.5 million.
During the six months ended June 30, 2023, we did not repurchase any of our common shares through open-market purchases. During the six months ended June 30, 2022, we repurchased approximately 3.7 million of our common shares through open-market purchases at an aggregate cost of approximately $131.8 million, or an average cost of $35.73 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 June 30, 2023 and December 31, 2022, we had working capital of $130.6 million and $379.5 million, respectively, or a decrease of $248.9 million. The decrease was primarily due to a decrease in inventories, and an increase in the current portion of long-term debt primarily relating to our 2024 Convertible Notes, which mature 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.
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 June 30, 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.
53
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 June 30, 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 each of the three and six months ended June 30, 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 to $29.4 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 June 30, 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.
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 June 30, 2023 and December 31, 2022, we had goodwill of approximately $94.4 million and $93.2 million, respectively. The increase in goodwill during the six months ended June 30, 2023 was due to foreign currency translation adjustments. As of both June 30, 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 and six months ended June 30, 2023 and 2022.
54
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.
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.
55
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 income (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.
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 June 30, 2023 and December 31, 2022, the aggregate notional amounts of these contracts outstanding were approximately $50.5 million and $70.6 million, respectively. As of June 30, 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 June 30, 2023, we recorded assets at fair value of $0.1 million and liabilities at fair value of $4.9 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 June 30, 2023 and December 31, 2022.
As of both June 30, 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.
56
The following table provides information about the details of all foreign currency forward contracts that were outstanding as of June 30, 2023:
|
|
Weighted-Average Contract Rate |
|
|
Notional Amount |
|
|
Fair Value Gain (Loss) |
|
|||
|
|
(in millions, except weighted-average contract rate) |
|
|||||||||
As of June 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
Buy Chinese yuan sell U.S. dollar |
|
|
7.08 |
|
|
$ |
10.6 |
|
|
$ |
(0.2 |
) |
Buy Chinese yuan sell Euro |
|
|
7.83 |
|
|
|
1.4 |
|
|
|
— |
|
Buy Danish krone sell U.S. dollar |
|
|
6.79 |
|
|
|
0.9 |
|
|
|
— |
|
Buy Euro sell British pound |
|
|
0.86 |
|
|
|
3.8 |
|
|
|
— |
|
Buy Euro sell Chilean peso |
|
|
880.46 |
|
|
|
4.0 |
|
|
|
— |
|
Buy Euro sell Chinese yuan |
|
|
7.61 |
|
|
|
1.4 |
|
|
|
0.1 |
|
Buy Euro sell Hong Kong dollar |
|
|
8.59 |
|
|
|
5.3 |
|
|
|
— |
|
Buy Euro sell Indonesian rupiah |
|
|
16,420.84 |
|
|
|
19.9 |
|
|
|
— |
|
Buy Euro sell Indian rupee |
|
|
89.83 |
|
|
|
2.4 |
|
|
|
— |
|
Buy Euro sell Korean won |
|
|
1,413.51 |
|
|
|
0.9 |
|
|
|
— |
|
Buy Euro sell Mexican peso |
|
|
21.42 |
|
|
|
35.6 |
|
|
|
(4.3 |
) |
Buy Euro sell Malaysian ringgit |
|
|
5.08 |
|
|
|
2.1 |
|
|
|
— |
|
Buy Euro sell Taiwan dollar |
|
|
33.12 |
|
|
|
3.9 |
|
|
|
0.1 |
|
Buy Euro sell U.S. dollar |
|
|
1.10 |
|
|
|
3.2 |
|
|
|
— |
|
Buy Euro sell Vietnamese dong |
|
|
25,808.75 |
|
|
|
16.9 |
|
|
|
— |
|
Buy Hong Kong dollar sell U.S. dollar |
|
|
7.83 |
|
|
|
3.8 |
|
|
|
— |
|
Buy Korean won sell U.S. dollar |
|
|
1,291.47 |
|
|
|
17.0 |
|
|
|
(0.3 |
) |
Buy Mexican peso sell Euro |
|
|
18.85 |
|
|
|
4.0 |
|
|
|
— |
|
Buy Mexican peso sell U.S. dollar |
|
|
17.26 |
|
|
|
36.4 |
|
|
|
0.2 |
|
Buy Norwegian krone sell U.S. dollar |
|
|
10.68 |
|
|
|
1.8 |
|
|
|
— |
|
Buy Polish zloty sell U.S. dollar |
|
|
4.06 |
|
|
|
0.9 |
|
|
|
— |
|
Buy Romanian leu sell U.S. dollar |
|
|
4.53 |
|
|
|
1.3 |
|
|
|
— |
|
Buy Swedish krona sell U.S. dollar |
|
|
10.66 |
|
|
|
1.1 |
|
|
|
— |
|
Buy Singapore dollar sell U.S. dollar |
|
|
1.34 |
|
|
|
3.3 |
|
|
|
— |
|
Buy Taiwan dollar sell U.S. dollar |
|
|
30.50 |
|
|
|
13.2 |
|
|
|
(0.4 |
) |
Buy U.S. dollar sell Brazilian real |
|
|
5.04 |
|
|
|
2.7 |
|
|
|
(0.1 |
) |
Buy U.S. dollar sell British pound |
|
|
1.27 |
|
|
|
19.0 |
|
|
|
(0.1 |
) |
Buy U.S. dollar sell Colombian peso |
|
|
4,210.95 |
|
|
|
2.4 |
|
|
|
— |
|
Buy U.S. dollar sell Euro |
|
|
1.08 |
|
|
|
163.7 |
|
|
|
(2.4 |
) |
Buy U.S. dollar sell Indian rupee |
|
|
82.29 |
|
|
|
14.5 |
|
|
|
— |
|
Buy U.S. dollar sell Japanese yen |
|
|
141.44 |
|
|
|
2.6 |
|
|
|
— |
|
Buy U.S. dollar sell Mexican peso |
|
|
17.27 |
|
|
|
7.4 |
|
|
|
— |
|
Buy U.S. dollar sell Philippine peso |
|
|
55.69 |
|
|
|
3.6 |
|
|
|
— |
|
Buy U.S. dollar sell Taiwan dollar |
|
|
30.74 |
|
|
|
1.8 |
|
|
|
— |
|
Total forward contracts |
|
|
|
|
$ |
412.8 |
|
|
$ |
(7.4 |
) |
|
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.
Interest Rate Risk
As of June 30, 2023, the aggregate annual maturities of the 2018 Credit Facility were expected to be $14.5 million for the remainder of 2023, $36.1 million for 2024, and $850.6 million for 2025. As of June 30, 2023, the fair values of the 2018 Term Loan A and 2018 Term Loan B were approximately $239.4 million and $634.7 million, respectively, and the carrying values were $246.0 million and $651.3 million, respectively. There were no outstanding borrowings on the 2018 Revolving Credit Facility as of June 30, 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 June 30, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 7.21% and 4.08%, respectively.
57
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 June 30, 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 $9.0 million, respectively. The variable interest rates payable under our 2018 Credit Facility were linked to LIBOR as the benchmark for establishing such rates until June 30, 2023, when LIBOR was discontinued as a benchmark rate. As a result, our 2018 Credit Facility was amended during the second quarter of 2023, to transition from LIBOR to the alternative benchmark rate, which is now being set as SOFR starting July 1, 2023. This transition from LIBOR to SOFR may result in interest rates that are higher or lower than those that would have resulted had LIBOR remained in effect. 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.
As of June 30, 2023, the fair value of the 2024 Convertible Notes was approximately $254.9 million and the carrying value was $261.7 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 June 30, 2023, the fair value of the 2028 Convertible Notes was approximately $289.7 million and the carrying value was $269.8 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 June 30, 2023, the fair value of the 2025 Notes was approximately $551.9 million and the carrying value was $596.3 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 $10.4 million or increase by approximately $10.6 million, respectively.
As of June 30, 2023, the fair value of the 2029 Notes was approximately $427.5 million and the carrying value was $594.0 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 $19.8 million or increase by approximately $21.0 million, respectively.
58
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 June 30, 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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
59
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 others, 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:
60
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.
61
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 June 30, 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 June 30, 2023.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) None.
(b) None.
(c) None.
Item 6. Exhibits
(a) Exhibit Index:
62
EXHIBIT INDEX
63
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. |
|
(cc) |
10.38 |
|
|
(cc) |
|
10.39# |
|
|
(cc) |
|
10.40# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Stock Unit Award Agreement |
|
(cc) |
10.41# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Lead Director Stock Unit Award Agreement |
|
(cc) |
10.42# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Board of Directors Stock Unit Award Agreement |
|
(cc) |
10.43# |
|
Form of Herbalife Ltd. 2023 Stock Incentive Plan Stock Appreciation Right Award Agreement |
|
(cc) |
10.44 |
|
|
(cc) |
64
10.45 |
|
|
* |
|
10.46 |
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|
* |
|
31.1 |
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|
* |
|
31.2 |
|
|
* |
|
32.1 |
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|
** |
|
32.2 |
|
|
** |
|
101.INS |
|
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 |
|
* |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
* |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
* |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
* |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
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* |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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* |
104 |
|
Cover Page Interactive Data File – The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 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.
65
66
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: August 2, 2023
67
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: |
Francis X. Tirelli |
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Name: |
Francis X. Tirelli |
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Title: |
President & CEO |
Exhibit 10.46
Execution Version
SEVENTH AMENDMENT TO CREDIT AGREEMENT
This SEVENTH AMENDMENT to the Credit Agreement referred to below, dated as of June 29, 2023 (this “Seventh 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, Jefferies Finance LLC (“Jefferies”), as Term Loan B Agent and Collateral Agent (each 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”, and, the Pro Rata Agent together with the Term Loan B Agent, the “Agents”). Capitalized terms not otherwise defined in this Seventh 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, 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, in accordance with Section 1.2(g) of the Credit Agreement, the Term Loan B Agent and the Borrowers have determined in accordance with the Credit Agreement that USD LIBOR should be replaced with an alternative benchmark rate for purposes of the Term Loan B Facility pursuant to a benchmark replacement amendment in accordance with the benchmark replacement provisions set forth in the Credit Agreement and, in accordance therewith, the Term Loan B Agent is implementing a Benchmark Replacement as set forth herein;
WHEREAS, in accordance with Section 1.2(g) of the Credit Agreement, this Seventh Amendment shall become effective at 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the Term Loan B Agent shall have posted this Seventh Amendment to all Term Loan B Lenders (such time, the “Objection Deadline”); provided, that the parties hereto agree that this Amendment shall only become effective so long as the Term Loan B Agent has not received, by such Objection Deadline, written notice of objection to this Seventh Amendment from Lenders comprising the Required Term B Lenders;
1
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WHEREAS, pursuant to Section 9.2(c)(i) of the Credit Agreement, the applicable Agent and the applicable Borrowers, in their sole discretion and without the consent or approval of any other party, may amend the Credit Agreement to cure any error, defect or inconsistency, and such amendment shall become effective without any further action or consent of any other party to any Loan Documents if the same is not objected to in writing by the Required Lenders within five Business Days following receipt of notice thereof;
WHEREAS, the Borrowers have requested that the Pro Rata Agent agree to amend certain provisions of the Credit Agreement as provided for herein to correct certain errors;
WHEREAS, each Loan Party hereto (collectively, the “Reaffirming Parties”, and each, a “Reaffirming Party”) expects to realize substantial direct and indirect benefits as a result of this Seventh 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 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\141526972.4 |
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3
US-DOCS\141526972.4 |
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4
US-DOCS\141526972.4 |
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5
US-DOCS\141526972.4 |
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[Signature Pages Follow]
6
US-DOCS\141526972.4 |
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IN WITNESS WHEREOF, the parties hereto have caused this Seventh 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: |
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/s/ David Tademaru |
Name: |
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David Tademaru |
Title: |
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Manager |
HERBALIFE 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 |
HERBALIFE INTERNATIONAL LUXEMBOURG 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 |
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 Seventh 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 |
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 |
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 |
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 |
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 |
[Signature Page to Seventh 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 |
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 |
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 |
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 |
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 Seventh 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 |
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 |
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/ James Segal |
Name: |
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James Segal |
Title: |
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Class B Manager and authorized signatory |
[Signature Page to Seventh Amendment]
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 |
HV HOLDINGS LTD. |
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By: |
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/s/ Alaaeddine Sahibi |
Name: |
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Alaaeddine Sahibi |
Title: |
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Director |
WH INTERMEDIATE HOLDINGS LTD. |
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By: |
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/s/ Alaaeddine Sahibi |
Name: |
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Alaaeddine Sahibi |
Title: |
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Director |
HBL LUXEMBOURG SERVICES S.À R.L. |
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By: |
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/s/ Hélène Dekhar |
Name: |
|
Hélène Dekhar |
Title: |
|
Class A Manager and authorized signatory |
By: |
|
/s/ James Segal |
Name: |
|
James Segal |
Title: |
|
Class B Manager and authorized signatory |
[Signature Page to Seventh Amendment]
HLF FINANCING, INC. |
||
|
|
|
By: |
|
/s/ David Tademaru |
Name: |
|
David Tademaru |
Title: |
|
Treasurer |
HBL HOLDINGS LTD. |
||
|
|
|
By: |
|
/s/ Alaaeddine Sahibi |
Name: |
|
Alaaeddine Sahibi |
Title: |
|
Director |
HBL IHB OPERATIONS S.À R.L. |
||
|
|
|
By: |
|
/s/ David Tademaru |
Name: |
|
David Tademaru |
Title: |
|
Class A Manager and authorized signatory |
By: |
|
/s/ Eleni Dalmira |
Name: |
|
Eleni Dalmira |
Title: |
|
Class B Manager and authorized signatory |
HERBALIFE LUXEMBOURG DISTRIBUTION S.À R.L. |
||
|
|
|
By: |
|
/s/ Hélène Dekhar |
Name: |
|
Hélène Dekhar |
Title: |
|
Manager and authorized signatory |
By: |
|
/s/ Ruslan Mammadov |
Name: |
|
Ruslan Mammadov |
Title: |
|
Manager and authorized signatory |
[Signature Page to Seventh Amendment]
JEFFERIES FINANCE LLC, as Term Loan B Agent and Collateral Agent |
||
|
|
|
By: |
|
/s/ Peter Cucchiara |
Name: |
|
Peter Cucchiara |
Title: |
|
Senior Vice President |
[Signature Page to Seventh Amendment]
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: |
|
Managing Director |
[Signature Page to Seventh Amendment]
EXHIBIT A
[Amendments]
US-DOCS\141526972.4 |
|
|
Exhibit A to Seventh Amendment to Credit Agreement
CREDIT AGREEMENT1
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, as further by the Fifth Amendment to Credit Agreement, dated as of April 3, 2023 and, as further by the Sixth Amendment to Credit Agreement, dated as of April 28, 2023 and as further by the Seventh Amendment to Credit Agreement, dated as of June 29, 2023)
among
HLF FINANCING SaRL, LLC
as Term Loan Borrower,
HERBALIFE INTERNATIONAL, INC., HERBALIFE LTD. (f/k/a 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
1 Conformed copy for the Sixth Amendment to Credit Agreement, dated as of April 28, 2023.
US-DOCS\138541167.4141447058.7
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
US-DOCS\138541167.4141447058.7
TABLE OF CONTENTS |
Page |
|
|
|
|
SECTION 1. |
DEFINITIONS |
2 |
|
|
|
1.1 |
Defined Terms |
2 |
1.2 |
Other Definitional Provisions |
72 |
1.3 |
Classification of Loans and Borrowings |
74 |
1.4 |
Accounting Terms; GAAP |
74 |
1.5 |
Pro Forma Calculations |
74 |
1.6 |
Classification of Permitted Items |
75 |
1.7 |
Rounding |
76 |
1.8 |
Currency Equivalents Generally |
76 |
1.9 |
Exchange Rates; Currency Equivalents |
77 |
1.10 |
Additional Alternative Currencies |
77 |
1.11 |
Change of Currency |
78 |
|
|
|
SECTION 2. |
AMOUNT AND TERMS OF COMMITMENTS |
79 |
|
|
|
2.1 |
Term Loan Commitments |
79 |
2.2 |
Procedure for Term Loan Borrowing |
79 |
2.3 |
Repayment of Term Loans |
80 |
2.4 |
Revolving Credit Commitments |
80 |
2.5 |
Loans and Borrowings |
81 |
2.6 |
Requests for Revolving Credit Borrowing |
81 |
2.7 |
Letter of Credit |
83 |
2.8 |
Funding of Borrowings |
90 |
2.9 |
Interest Elections |
91 |
2.10 |
Termination and Reduction of Commitments |
93 |
2.11 |
Repayment of Revolving Credit Loans; Evidence of Debt |
93 |
2.12 |
Prepayment of Loans |
94 |
2.13 |
Fees |
97 |
2.14 |
Mandatory Prepayments |
99 |
2.15 |
Interest |
102 |
2.16 |
Alternate Rate of Interest; Benchmark Replacement Setting |
103 |
2.17 |
Increased Costs |
106 |
2.18 |
Break Funding Payments |
108 |
2.19 |
Taxes |
108 |
2.20 |
Payments Generally; Pro Rata Treatment; Sharing of Set-offs |
113 |
2.21 |
Mitigation Obligations; Replacement of Lenders |
115 |
2.22 |
Defaulting Lenders |
117 |
2.23 |
Incremental Facilities |
119 |
2.24 |
Replacement Facilities |
127 |
2.25 |
Extensions of Term Loans and Revolving Credit Commitments |
130 |
2.26 |
Permitted Debt Exchanges |
134 |
2.27 |
MIRE Events |
137 |
US-DOCS\138541167.4141447058.7
2.28 |
Sustainability Linked Pricing Adjustment |
137 |
|
|
|
SECTION 3. |
REPRESENTATIONS AND WARRANTIES |
140 |
|
|
|
3.1 |
Financial Condition |
140 |
3.2 |
No Change |
140 |
3.3 |
Corporate Existence; Compliance with Law |
140 |
3.4 |
Organizational Power; Authorization; Enforceable Obligations |
141 |
3.5 |
No Legal Bar |
141 |
3.6 |
No Material Litigation |
141 |
3.7 |
Ownership of Property; Liens |
141 |
3.8 |
Intellectual Property |
142 |
3.9 |
Taxes |
142 |
3.10 |
Federal Reserve Board Regulations |
142 |
3.11 |
ERISA |
142 |
3.12 |
Investment Company Act |
143 |
3.13 |
Restricted Subsidiaries |
143 |
3.14 |
Use of Proceeds |
143 |
3.15 |
Environmental Matters |
143 |
3.16 |
Accuracy of Information, Etc. |
144 |
3.17 |
Collateral Documents |
145 |
3.18 |
Solvency |
145 |
3.19 |
PATRIOT Act; FCPA; Sanctions |
145 |
3.20 |
Broker’s or Finder’s Commissions |
146 |
3.21 |
Labor Matters |
146 |
3.22 |
Representations as to Foreign Obligors |
146 |
3.23 |
Luxembourg Specific Representations |
147 |
|
|
|
SECTION 4. |
CONDITIONS PRECEDENT |
148 |
|
|
|
4.1 |
Conditions to Closing Date |
148 |
4.2 |
Conditions to Each Post-Closing Extension of Credit |
153 |
|
|
|
SECTION 5. |
AFFIRMATIVE COVENANTS |
154 |
|
|
|
5.1 |
Financial Statements |
154 |
5.2 |
Certificates; Other Information |
155 |
5.3 |
Payment of Obligations |
157 |
5.4 |
Conduct of Business and Maintenance of Existence, Compliance with Laws, Etc. |
157 |
5.5 |
Maintenance of Property; Insurance |
158 |
5.6 |
Inspection of Property; Books and Records; Discussions |
158 |
5.7 |
Notices |
159 |
5.8 |
Environmental Laws |
160 |
5.9 |
Additional Collateral, Etc. |
160 |
ii
|US-DOCS\138541167.4141447058.7||
5.10 |
Use of Proceeds |
168 |
5.11 |
Further Assurances |
168 |
5.12 |
Maintenance of Ratings |
169 |
5.13 |
Designation of Subsidiaries |
169 |
5.14 |
Guarantor Coverage Test |
170 |
5.15 |
Post-Closing Matters |
170 |
|
|
|
SECTION 6. |
NEGATIVE COVENANTS |
170 |
|
|
|
6.1 |
[Reserved] |
171 |
6.2 |
Limitation on Indebtedness |
171 |
6.3 |
Limitation on Liens |
175 |
6.4 |
Limitation on Fundamental Changes |
181 |
6.5 |
Limitation on Disposition of Property |
182 |
6.6 |
Limitation on Restricted Payments |
185 |
6.7 |
Limitation on Investments |
187 |
6.8 |
Limitation on Optional Payments of Junior Debt Instruments |
191 |
6.9 |
Limitation on Transactions with Affiliates |
192 |
6.10 |
Limitation on Sales and Leasebacks |
194 |
6.11 |
Limitation on Negative Pledge Clauses |
194 |
6.12 |
Limitation on Restrictions on Restricted Subsidiary Distributions |
195 |
6.13 |
Limitation on Lines of Business |
196 |
6.14 |
Total Leverage Ratio |
196 |
6.15 |
Modification of Certain Agreements |
196 |
6.16 |
Changes in Fiscal Periods |
197 |
|
|
|
SECTION 7. |
EVENTS OF DEFAULT |
197 |
|
|
|
7.1 |
Events of Default |
197 |
7.2 |
Right to Cure |
201 |
7.3 |
Application of Funds |
203 |
|
|
|
SECTION 8. |
THE AGENTS |
204 |
|
|
|
8.1 |
Appointment |
204 |
8.2 |
Delegation of Duties |
205 |
8.3 |
Exculpatory Provisions |
205 |
8.4 |
Reliance by the Agents |
205 |
8.5 |
Notice of Default |
206 |
8.6 |
Non-Reliance on the Agents and Other Lenders |
206 |
8.7 |
Indemnification |
207 |
8.8 |
The Agent in Its Individual Capacity |
207 |
8.9 |
Successor Agent |
207 |
8.10 |
Arrangers, Documentation Agent and Syndication Agent. |
208 |
8.11 |
Certain ERISA Matters |
209 |
iii
|US-DOCS\138541167.4141447058.7||
|
|
|
SECTION 9. |
MISCELLANEOUS |
210 |
|
|
|
9.1 |
Notices |
210 |
9.2 |
Waivers; Amendments |
213 |
9.3 |
Expenses; Indemnity; Damage Waiver |
217 |
9.4 |
Successors and Assigns |
219 |
9.5 |
Survival |
226 |
9.6 |
Counterparts; Integration; Effectiveness |
226 |
9.7 |
Severability |
226 |
9.8 |
Right of Setoff |
226 |
9.9 |
Governing Law; Jurisdiction; Consent to Service of Process |
227 |
9.10 |
WAIVER OF JURY TRIAL |
228 |
9.11 |
Headings |
228 |
9.12 |
Confidentiality |
228 |
9.13 |
PATRIOT Act |
229 |
9.14 |
Release of Liens and Guarantees; Secured Parties |
230 |
9.15 |
No Fiduciary Duty |
231 |
9.16 |
Interest Rate Limitation |
232 |
9.17 |
Intercreditor Agreements |
232 |
9.18 |
Discretionary Guarantors |
233 |
9.19 |
Posting of Margin and Collateral |
233 |
9.20 |
Judgment Currency |
234 |
9.21 |
Acknowledgement and Consent to Bail-In of EEA Financial Institutions |
234 |
9.22 |
Collateral |
235 |
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 |
iv
|US-DOCS\138541167.4141447058.7||
EXHIBITS:
A |
Form of Security Agreement |
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
|US-DOCS\138541167.4141447058.7||
CREDIT AGREEMENT, dated as of August 16, 2018, 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”), 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
US-DOCS\138541167.4141447058.7
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:
Section 1. DEFINITIONS
“2014 Convertible Notes”: the Convertible Senior Notes due 2019 issued pursuant to that certain Indenture, dated as of February 7, 2014, by and among Parent and Union Bank, N.A., in its capacity as trustee, as amended, restated, supplemented or otherwise modified from time to time to the extent not less favorable in any material respect to the Loan Parties or the Lenders than as in effect on the Closing Date.
“2018 Convertible Notes”: the Convertible Senior Notes due 2024 issued pursuant to that certain Indenture, dated as of March 15, 2018, by and among Parent and MUFG Union Bank, N.A., in its capacity as trustee, as amended, restated, supplemented or otherwise modified from time to time to the extent not less favorable in any material respect to the Loan Parties or the Lenders than as in effect on the Closing Date.
“ABR”: when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
“ABR Term SOFR Determination Day”: has the meaning specified in the definition of “Term SOFR”.
“Accounting Change”: as defined in Section 1.4.
“Additional Lenders”: any Eligible Assignee that makes an Incremental Term A Loan, an Incremental Term B Loan or Replacement Term Loan or extends Incremental Revolving Commitments or commitments with respect to Incremental Revolving Increases pursuant to Section 2.23 or 2.24.
“Adjusted LIBO Rate”: with respect to any Eurodollar Borrowing, for any Interest Period, an interest rate per annum equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate; provided, that the Adjusted LIBO Rate shall in no event be less than 0.00%.
2
|US-DOCS\138541167.4141447058.7||
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment; provided that if Adjusted Term SOFR as so determined shall ever be less than the Floor (if any), then Adjusted Term SOFR shall be deemed to be the Floor.
“Administrative Agents”: as defined in the preamble hereto.
“Administrative Questionnaire”: an administrative questionnaire in a form supplied by the applicable Administrative Agent.
“Affiliate”: as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. For purposes of this Agreement and the other Loan Documents, Jefferies LLC and its Affiliates shall be deemed to be Affiliates of Jefferies Finance LLC and its Affiliates.
“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.
“Agent”: as defined in the preamble hereto.
“Agent Indemnitee”: as defined in Section 8.7.
“Aggregate Exposure”: with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Commitments at such time and (b) thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lender’s Term A Loans and/or Term B Loans, as applicable and (ii) the amount of such Lender’s Revolving Credit Commitments then in effect or, if the Revolving Credit Commitments have been terminated, the amount of such Lender’s Revolving Credit Exposure.
“Aggregate Exposure Percentage”: with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.
“Agreement”: this Credit Agreement.
“Alternate Base Rate”: for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1.00%, and (c) (i) the Adjusted LIBO Rate that would be calculated as of such day (or, if such day is not a Business Day, as of the next preceding Business Day) in respect of a proposed Eurodollar Loan with a one-month Interest Period plus 1.00% or (ii) the Adjusted Term SOFR that would be calculated as of such day (or, if such day is not a Business Day, as of the next preceding Business Day) in respect of a proposed SOFR Loan with a one-month Interest Period plus 1.00%; provided, that the Alternate Base Rate shall in no event be less than 1.00%. For the purpose of clause (c) above, the Adjusted LIBO Rate for any day shall be based on the rate determined on such day at
3
|US-DOCS\138541167.4141447058.7||
approximately 11:00 a.m. (London time) by reference to the ICE Benchmark Administration Limited (or such other Person that takes over the administration of such rate) LIBO Rate for deposits in US Dollars (as set forth by any service selected by the applicable Administrative Agent that has been nominated by the ICE Benchmark Administration Limited (or such other Person that takes over the administration of such rate) as an authorized vendor for the purpose of displaying such rates). If the applicable Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, the Alternate Base Rate shall be determined without regard to clause (b) of the immediately preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate, Adjusted LIBO Rate or Adjusted Term SOFR shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate, Adjusted LIBO Rate or such Adjusted Term SOFR, respectively.
“Alternative Currency”: each of Euro and each other currency (other than US Dollars) that is approved in accordance with Section 1.10.
“Alternative Currency Equivalent”: at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Revolver Administrative Agent or the applicable Issuing Bank, as applicable, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with US Dollars.
“Applicable Discount”: as defined in Section 2.12(f)(iii).
“Applicable Margin”: (a) with respect to Term A Loans, (i) until delivery of the financial statements for the first full fiscal quarter ending after the Fourth Amendment Effective Date pursuant to Sections 5.1(a) and 5.1(b), the rate per annum set forth in Level I below for the applicable Type of Loan and (ii) thereafter, the rate per annum set forth in the table below for the applicable Type of Loan based on the Total Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agents pursuant to Section 5.2(a), as such rate may be adjusted in accordance with the Sustainability Linked Pricing Adjustment, (b) with respect to Term B Loans, the rate per annum equal to (i) for ABR Loans, 1.50%, and (ii) for EurodollarSOFR Loans, 2.50%, (c) with respect to Revolving Credit Loans, (i) until delivery of the financial statements for the first full fiscal quarter ending after the Fourth Amendment Effective Date pursuant to Sections 5.1(a) and 5.1(b), the rate per annum set forth in Level I below and (ii) thereafter, the rate per annum set forth in the table below based on the Total Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agents pursuant to Section 5.2(a), as such rate may be adjusted in accordance with the Sustainability Linked Pricing Adjustment, (d) with respect to any Incremental Facility, the rate or rates per annum set forth in the applicable Incremental Facility Amendment, (e) with respect to any Extended Revolving Credit Commitment or Extended Term Loan, the rate or rates per annum specified in the applicable Extension Offer and (f) with respect to any Replacement Facility, the rate or rates per annum specified in the applicable Replacement Facility Amendment.
4
|US-DOCS\138541167.4141447058.7||
Level |
Total Leverage Ratio |
Applicable Margin for (i) Revolving Loans and Term A Loans that are Eurodollar Loans or SOFR Loans and (ii) Term A Loans that are 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‑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
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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 paragraph shall survive the payment of the Loans and all other Obligations payable under this Agreement and the termination of the Commitments.
“Applicable Percentage”: with respect to any Revolving Credit Lender, the percentage of the Total Revolving Credit Commitments represented by such Lender’s Revolving Credit Commitment. If the Revolving Credit Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Credit Commitments most recently in effect, after giving effect to any assignments. The Applicable Percentage shall be adjusted appropriately, as determined by the Revolver Administrative Agent, in accordance with Section 2.22(c) to disregard the Revolving Credit Commitment of Defaulting Lenders.
“Applicable Prepayment Percentage”: (a) on or prior to August 10, 2021, 1.00%, and (b) thereafter, 0%.
“Appraisal Period”: any period of twelve consecutive calendar months commencing on May 1 in any calendar year through and including April 30 in the following calendar year.
“Approved Fund”: any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit as its primary activity and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Approved Sustainability Proposal”: as defined in Section 2.28(b).
“Arrangers”: (i) Jefferies and Rabobank, as joint lead arrangers and joint bookrunners for the Term Loan B Facility, (ii) Rabobank as sole lead arranger and bookrunner for the Term Loan A Facility and the Revolving Credit Facility and (iii) Citizens Bank, N.A. (“Citizens”), Citicorp North America, Inc. (“Citi”), Fifth Third Bank (“Fifth Third”) and Mizuho Bank, Ltd. (“Mizuho”) as joint lead arrangers for the Facilities.
“Asset Sale”: any Disposition of Property or series of related Dispositions of Property pursuant to clause (d)(ii), (j), (k), (o) or (q) of Section 6.5 or Section 6.10 to the extent applicable by any Group Member to any Person (other than a Group Member).
“Assignment and Assumption”: an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4), and accepted by the applicable Administrative Agent, in the form of Exhibit E-1 or any other form approved by the applicable Administrative Agent and the applicable Borrowers.
“Attributable Indebtedness”: when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at a rate equivalent to Parent’s then current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental
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payments during the remaining term of the lease included in any such Sale and Leaseback Transaction.
“Auction”: as defined in Section 2.12(f)(i).
“Auction Amount”: as defined in Section 2.12(f)(i).
“Auction Notice”: as defined in Section 2.12(f)(i).
“Auto Renewal Letter of Credit”: as defined in Section 2.7(c).
“Availability Period”: with respect to the Revolving Credit Facility, the period from and after the Closing Date to but excluding the earlier of the Revolving Credit Maturity Date and the date of termination of the Revolving Credit Commitments.
“Available Basket”: as of any date of determination, an amount equal to (a)(i) $250.0 million plus (ii) (x) an amount equal to 50% of Consolidated Net Income of the Group Members for the period (taken as one accounting period) commencing with July 1, 2018 to the end of the fiscal quarter most recently ended in respect of which a Compliance Certificate has been delivered as required hereunder or (y) in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit, plus (iii) the net cash proceeds from the issuance of Capital Stock of, or capital contributions to, Parent after the Closing Date (other than proceeds from the issuance of Disqualified Capital Stock, Excluded Contributions, any Cure Amount and proceeds from capital contributions described in Section 6.2(y)) other than, for the avoidance of any doubt, in connection with the 2014 Convertible Notes and/or the 2018 Convertible Notes, plus (iv) the net cash proceeds received by Parent after the Closing Date from the issuance or sale of convertible or exchangeable Disqualified Capital Stock or debt securities of any Group Member that has thereafter been converted into or exchanged for Qualified Capital Stock other than, for the avoidance of any doubt, in connection with the 2014 Convertible Notes and/or the 2018 Convertible Notes, plus (v) returns, repayments, interest, profits, distributions, income and similar amounts received in cash or Cash Equivalents by the Group Members in respect of Investments (including Investments made in non-Group Members) made using the Available Basket (such amounts not exceeding the fair market value (as determined in good faith by Parent) of such original Investment), plus (vi) an amount equal to Retained Asset Sale Proceeds, plus (vii) the Investments of the Group Members made using the Available Basket in any Unrestricted Subsidiary that has been re-designated as a Restricted Subsidiary or that has been merged or consolidated with or into Parent or any of the Restricted Subsidiaries (up to the lesser of (A) the fair market value (as determined in good faith by Parent) of the Investments of Parent and the Restricted Subsidiaries made using the Available Basket in such Unrestricted Subsidiary at the time of such re-designation or merger or consolidation and (B) the fair market value (as determined in good faith by Parent) of the original Investments by Parent and the Restricted Subsidiaries made using the Available Basket in such Unrestricted Subsidiary), plus (viii) any Declined Term Loan A Proceeds and Declined Term Loan B Proceeds, minus (b) the sum of (w) Investments made pursuant to Section 6.7(f)(iii), (x) the amount of Restricted Payments made by Parent pursuant to Section 6.6(d), (y) Investments made pursuant to Section 6.7(s) and (z) Specified Prepayments made pursuant to Section 6.8(ii), in each case to the extent utilizing the Available Basket.
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“Available Tenor” means, as of any date of determination and with respect to the then‑current Benchmark, as applicable, (x) if such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement or (y) otherwise, any payment period for interest calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark, in each case, as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 2.16(b)(iv)2.16(b)(v).
“Bail-In Action”: the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“Bail-In Legislation”: with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“Bankruptcy Code”: Title 11 of the United States Code (11 U.S.C. § 101, et seq.).
“Bankruptcy Event”: with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency proceeding or a corporate statutory arrangement proceeding having similar effect, is subject to, or any Person that directly or indirectly controls such Person is subject to, a forced liquidation, or winding-up, or has had a receivership, liquidator, provisional liquidator, or has had a receiver, conservator, trustee, administrator, custodian, monitor, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it or any substantial part of its assets, or, in the good faith determination of the Term Loan Administrative Agent, has taken any action or the shareholders of such Person have passed a resolution in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment under the laws of any jurisdiction; provided, that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, so long as such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“Baseline Score”: as defined in Section 2.28(a).
“Benchmark”: initially, (i) with respect to anyObligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, US Dollars, the Term SOFR Reference Rate and (ii) with respect to anyObligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, Euros, EURIBOR; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the
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extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to SectionSections 2.16(b)(i) and 2.16(b)(ii).
“Benchmark Replacement” means with respect to any Benchmark Transition Event, the sum of: (a) the alternate benchmark rate that has been selected by the applicable Administrative Agent and Borrowers giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark for Dollar-denominated syndicated credit facilities and (b) the related Benchmark Replacement Adjustment; provided that, if such Benchmark Replacement as so determined would be less than the Floor, such Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the applicable Administrative Agent and the Borrowers giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated credit facilities at such time.
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:
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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).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:
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).
“Benchmark Transition Start Date” means, in the case of a Benchmark Transition Event, the earlier of (a) the applicable Benchmark Replacement Date and (b) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such event as of such public statement or publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication).
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“Benchmark Unavailability Period” means, the period (if any) (a) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.16(b) and (b) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.16(b).
“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Board”: the Board of Governors of the Federal Reserve System of the United States (or any successor thereto).
“Board of Directors”: with respect to any Person, (i) in the case of any corporation or exempted company, the board of directors of such Person, (ii) in the case of any limited liability company, the board of managers of such person or, if there is none, the Board of Directors of the managing member of such Person, (iii) in the case of any partnership, the Board of Directors of the general partner of such Person, (iv) in any other case, the functional equivalent of the foregoing, and (v) in the case of any Person organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia, the foreign equivalent of any of the foregoing.
“Borrower Materials”: as defined in Section 9.1.
“Borrowers”: as defined in the preamble.
“Borrowing”: Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans or SOFR Loans, as applicable, as to which a single Interest Period is in effect.
“Borrowing Request”: a request by the applicable Borrowers for a Borrowing substantially in the form of Exhibit I.
“Business Day”: any day that is not a Saturday, Sunday or other day on which commercial banks in New York City or Luxembourg are authorized or required by law to remain closed; provided, that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in US Dollar deposits in the London interbank market.
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“Capital Expenditures”: for any period, with respect to any Person, the aggregate of all expenditures by such Person for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that are required to be capitalized under GAAP on a balance sheet of such Person, it being understood that Capital Expenditures do not include amounts expended to purchase assets constituting an on-going business, including investments that constitute Permitted Acquisitions.
“Capital Lease Obligations”: with respect to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP; and the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.
“Capital Stock”: any and all shares, interests, participations or other equivalents (however designated) of capital stock or equity of a corporation or exempted company, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing, but excluding debt securities convertible or exchangeable into any of the foregoing and/or into cash based on the value of the foregoing (including the 2014 Convertible Notes and the 2018 Convertible Notes).
“Cash Equivalents”: (a) US Dollars; (b) securities and other obligations issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided, that the full faith and credit of such country is pledged in support of those securities) having maturities of not more than one year from the date of acquisition; (c) certificates of deposit, time deposits and eurocurrency time deposits with maturities of one year or less from the date of acquisition, demand deposits, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any Lender or with any domestic or foreign bank having, or which is a banking subsidiary of a domestic or foreign bank holding company or any branch of a foreign bank in the US having, capital and surplus of not less than $500.0 million (or its foreign currency equivalent); (d) fully collateralized repurchase obligations for underlying securities of the types described in clauses (b) and (c) above or clause (f) below entered into with any financial institution meeting the qualifications specified in clause (c) above; (e) commercial paper and variable or fixed rate notes rated at least P-2 by Moody’s or at least A-2 by S&P (or, if at any time neither Moody’s nor S&P shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency) and, in each case, maturing within one year after the date of acquisition; (f) marketable short-term money market and similar highly liquid funds having a rating of at least P-2 or A-2 from either Moody’s or S&P, respectively (or, if at any time neither Moody’s nor S&P shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency); (g) readily marketable direct obligations issued by any state, commonwealth or territory of the United States or any political subdivision thereof rated at least P-2 by Moody’s or at least A-2 by S&P (or, if at any time neither Moody’s nor S&P shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency) with maturities of one year or less from the date of acquisition; (h) Investments with average maturities of one year or less from the date of acquisition in money market funds rated
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AAA- (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moody’s (or, if at any time neither Moody’s nor S&P shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency); and (i) investment funds investing substantially all of their assets in Cash Equivalents of the kinds described in clauses (a) through (h) of this definition.
In the case of Investments by any Foreign Subsidiary that is a Restricted Subsidiary, Cash Equivalents shall also include (i) Investments of the type and maturity described in clauses (a) through (i) above of foreign obligors, which Investments or obligors (or the parents of such obligors) have ratings described in such clauses and (ii) other short-term investments utilized by Foreign Subsidiaries that are Restricted Subsidiaries in accordance with normal investment practices for cash management in investments analogous to the foregoing investments in clauses (a) through (i) and in this paragraph.
Notwithstanding the foregoing, Cash Equivalents shall include, in the case of any Foreign Subsidiary, amounts denominated in the local currency of the jurisdiction of incorporation or formation of such Foreign Subsidiary in addition to those set forth in clause (a) above; provided, that such amounts are held by such Foreign Subsidiary from time to time in the ordinary course of business and not for speculation.
“Cash Management Obligations”: obligations owed by any Loan Party to any Qualified Counterparty in respect of or in connection with Cash Management Services and designated by such Qualified Counterparty and the Borrowers in writing to the Collateral Agent as “Cash Management Obligations”.
“Cash Management Services”: any treasury, depositary, disbursement, lockbox, funds transfer, pooling, netting, overdraft, stored value card, purchase card (including so-called “procurement cards” or “P-cards”), debit card, credit card, e-payable, cash management and similar services and any automated clearing house transfer of funds.
“Cayman Security Documents”: the following Cayman Islands law governed security agreements:
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“CFC”: any “controlled foreign corporation” within the meaning of Section 957 of the Code that is directly or indirectly owned by any member of the Parent Group that is a “United States person,” within the meaning of Section 7701(a)(30) of the Code.
“CFC Debt”: intercompany loans, indebtedness or receivables owed (or treated as owed for U.S. federal income tax purposes) by one or more CFCs.
“Change in Law”: (a) the adoption of any law, rule, regulation or treaty after the date of this Agreement or, if later, the date on which the applicable Lender or Issuing Bank becomes a Lender or Issuing Bank hereunder, (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or, if later, the date on which the applicable Lender or Issuing Bank becomes a Lender or Issuing Bank hereunder or (c) compliance by any Lender or Issuing Bank (or, for purposes of Section 2.17(b), by any lending office of such Lender or Issuing Bank or by such Lender’s or Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement or, if later, the date on which the applicable Lender or Issuing Bank becomes a Lender or Issuing Bank hereunder; provided, that, notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives promulgated thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, in each case shall be deemed to be a “Change in Law”, regardless of the date enacted, adopted, promulgated or issued.
“Change of Control”: the occurrence of any of the following events: (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act (but (i) excluding any employee benefit plan of Parent or any of its Subsidiaries and any Person acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, (ii) excluding from any determination of the amount of Capital Stock beneficially owned by such “person” or “group,” where such person or group includes both Permitted Holders and one or more Persons that are not Permitted Holders, any Capital Stock owned by Permitted Holders, and (iii) excluding any “person” or “group” comprised solely of Permitted Holders) shall become the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of Capital Stock representing more than 35.0% of the ordinary voting power for the election of directors of Parent, measured by voting power rather than number of shares; (b) Parent shall cease to own and control, of record and beneficially, directly or indirectly, 100% of each class of outstanding Capital Stock of each other Borrower free and clear of all Liens (except Permitted Liens); or (c) a Specified Change of Control.
“Class”: (a) when used with respect to Lenders, refers to whether such Lenders are Revolving Credit Lenders, Term Loan Lenders, Incremental Revolving Lenders (of the same tranche), Lenders in respect of Incremental Term A Loans or Incremental Term B Loans (of the same tranche), Extending Revolving Credit Lenders (of the same tranche), Lenders in respect of a Replacement Revolving Credit Facility, Extending Term Lenders (of the same tranche) or Lenders in respect of Replacement Term Loans (of the same tranche), (b) when used with respect to
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Commitments, refers to whether such Commitments are Revolving Credit Commitments, Term Loan Commitments, Incremental Revolving Commitments (of the same tranche), commitments in respect of Incremental Term A Loans or Incremental Term B Loans (of the same tranche), Extended Revolving Credit Commitments (of the same tranche), Replacement Revolving Credit Commitments, commitments to make Extended Term Loans (of the same tranche) or commitments to make Replacement Term Loans (of the same tranche) and (c) when used with respect to Loans or Borrowings, refers to whether such Loan or the Loans comprising such Borrowing, are Revolving Credit Loans, Term Loans, Incremental Term A Loans or Incremental Term B Loans (of the same tranche), Extended Term Loans (of the same tranche) or Replacement Term Loans (of the same tranche) or other loans in respect of the same Class of Commitments.
“Closing Date”: the date on which the conditions precedent set forth in Section 4.1 shall have been satisfied or waived in accordance with Section 9.2.
“Code”: the Internal Revenue Code of 1986, as amended.
“Collateral”: all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is created or purported to be created by any Collateral Document.
“Collateral Agent”: as defined in the preamble hereto.
“Collateral Documents”: collectively, the Perfection Certificate, the Security Agreement, any US IP Security Agreements, any Mortgages, the Cayman Security Documents, the Luxembourg Security Documents, the Pledge Agreement, the IP Security Agreement, any security agreements, pledge agreements, mortgages, deeds to secure debt or deeds of trust, or other similar agreements delivered to the Collateral Agent pursuant to Section 5.9 hereof and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Collateral Agent for the benefit of the Secured Parties.
“Commitment”: with respect to any Lender, a Term Loan A Commitment, Term Loan B Commitment or a Revolving Credit Commitment of such Lender, as the context may require.
“Commonly Controlled Entity”: an entity, whether or not incorporated, that is under common control with Parent within the meaning of Section 4001 of ERISA or is part of a group that includes Parent and that is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under subsection (b), (c), (m) or (o) of Section 414 of the Code.
“Communications”: as defined in Section 9.1.
“Company Intellectual Property”: as defined in Section 3.8(i).
“Compliance Certificate”: a certificate duly executed by a Responsible Officer, substantially in the form of Exhibit B.
“Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any
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technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period” or any similar or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods and other technical, administrative or operational matters) that the applicable Administrative Agent decides may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and 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 any such rate 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).
“Connection Income Taxes”: Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Current Assets”: of Parent at any date, all amounts (other than cash and Cash Equivalents) that would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of the Group Members at such date, excluding deferred tax assets, assets held for sale, loans permitted to third parties, pension assets, deferred bank fees and derivative financial instruments, and, furthermore, excluding the effects of adjustments pursuant to GAAP resulting from the application of recapitalization accounting or purchase accounting, as the case may be, in relation to the Transactions or any consummated acquisition.
“Consolidated Current Liabilities”: of Parent at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of the Group Members at such date, excluding, to the extent otherwise included therein, (a) the current portion of any Funded Debt or other long-term liabilities (including Capital Lease Obligations) or interest, (b) revolving loans and letter of credit obligations under the Revolving Credit Facility or any other revolving credit facilities or revolving lines of credit, (c) deferred tax liabilities, and (d) non-cash compensation liabilities and, furthermore, excluding the effects of adjustments pursuant to GAAP resulting from the application of recapitalization accounting or purchase accounting, as the case may be, in relation to the Transactions or any consummated acquisition.
“Consolidated EBITDA”: with respect to any Person for any period, Consolidated Net Income for such period, adjusted, in each case only to the extent (and in the same proportion) deducted in determining Consolidated Net Income, without duplication, by (x) adding thereto:
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(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.
“Consolidated First Lien Debt”: at any date, the sum of (x) the aggregate principal amount of all Consolidated Total Debt under this Agreement and (y) all other Consolidated Total Debt to the extent such debt is secured by any assets of the Parent or any of its Restricted Subsidiaries on an equal priority basis (but without regard to control of remedies) with the Liens securing the Obligations.
“Consolidated First Lien Net Debt”: Consolidated First Lien Debt less Unrestricted Cash as of such date.
“Consolidated Interest Expense”: with respect to any Person for any period, the total consolidated cash interest expense (including that portion attributable to Capital Lease Obligations) of such Person and its consolidated Restricted Subsidiaries for such period (calculated without regard to any limitations on the payment thereof and including commitment fees, letter‑of‑credit fees, and net amounts payable under any interest rate protection agreements) determined in accordance with GAAP.
“Consolidated Net Income”: with respect to any Person for any period, the consolidated net after tax income (or loss) of such Person and its consolidated Restricted Subsidiaries determined in accordance with GAAP and before any reduction in respect of preferred stock dividends; provided that:
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“Consolidated Total Assets”: the consolidated total assets of the Group Members, determined in accordance with GAAP, shown on the consolidated balance sheet of Parent as of the end of the most recently ended fiscal quarter prior to the applicable date of determination for which financial statements have been delivered; provided, that, for purposes of calculating “Consolidated Total Assets” under this Agreement, the consolidated assets of the Group Members shall be adjusted to reflect any acquisitions and dispositions of assets outside the ordinary course of business that have occurred during the period from the date of the applicable balance sheet through the applicable date of determination but without giving effect to the transaction being tested under this Agreement.
“Consolidated Total Debt”: at any date, an amount equal to the aggregate outstanding principal amount of all third party Indebtedness of the Group Members at such date that would be classified as a liability on the consolidated balance sheet of Parent, in accordance with GAAP, consisting of Indebtedness for borrowed money, unreimbursed obligations in respect of drawn letters of credit, Capital Lease Obligations and third party debt obligations evidenced by bonds,
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notes, debentures or similar instruments; provided, that Consolidated Total Debt shall not include Indebtedness in respect of (i) any letter of credit, except to the extent of obligations in respect of drawn letters of credit unreimbursed for at least three Business Days and (ii) obligations under Hedge Agreements unless such obligations have not been paid when due.
“Consolidated Total Net Debt”: Consolidated Total Debt net of Unrestricted Cash as of such date.
“Consolidated Working Capital”: at any date, the difference of (a) Consolidated Current Assets on such date less (b) Consolidated Current Liabilities on such date.
“Contractual Obligation”: with respect to any Person, (i) the Organizational Documents of such Person and (ii) any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound.
“Control Investment Affiliate”: with respect to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.
“Convertible Notes”: the 2014 Convertible Notes and the 2018 Convertible Notes.
“Credit Party”: the Agents or any other Lender.
“Cure Amount”: as defined in Section 7.2(b).
“Cure Notice”: as defined in Section 7.2(b).
“Cure Right”: as defined in Section 7.2(b).
“Cure Specified Date”: with respect to any of the first three fiscal quarters of Parent in a fiscal year, the deadline to deliver quarterly financial statements pursuant to Section 5.1(b), commencing with the fiscal quarter ending March 31, 2019 and with respect to the fourth fiscal quarter of Parent in a fiscal year, the deadline to deliver annual audited financial statements pursuant to Section 5.1(a), commencing with the fiscal quarter ending December 31, 2018.
“Debtor Relief Laws”: the Bankruptcy Code and other liquidation, conservatorship, bankruptcy, general assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, winding-up, reorganization, compromise, arrangement or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally, and including the statutory arrangement provisions of any corporations statute having similar effect.
“Declined Asset”: as defined in Section 2.14(g)(i).
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“Declined Term Loan A Proceeds”: as defined in Section 2.14(g)(i).
“Declined Term Loan B Proceeds”: as defined in Section 2.14(g)(i).
“Declining Lender”: as defined in Section 2.14(g)(i).
“Default”: any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
“Default Rate”: as defined in Section 2.15(b).
“Defaulting Lender”: any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the applicable Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified Parent, any other Revolver Borrower or the applicable Administrative Agent in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a Loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after written request by the applicable Administrative Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations to fund prospective Loans (unless such Lender indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a Loan under this Agreement cannot be satisfied) and participations in then outstanding Letters of Credit under this Agreement (provided, that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon the applicable Administrative Agent’s and the Revolver Borrowers’ receipt of such certification in form and substance reasonably satisfactory to the applicable Administrative Agent), or (d) admits that it is insolvent or has (or has a direct or indirect parent that has) become the subject of a Bankruptcy Event or (e) has, or has a direct or indirect parent that has, become subject to a Bail‑In Action. This definition is subject to the provisions of the second paragraph of Section 2.22.
“Designated Lender”: as defined in Section 2.8(c).
“Designated Non-Cash Consideration”: the fair market value (as determined in good faith by Parent) of non-cash consideration received by a Group Member in connection with a Disposition pursuant to Section 6.5(j) that is designated as “Designated Non-Cash Consideration” pursuant to a certificate of a Responsible Officer, setting forth the basis of such valuation, less the amount of cash and Cash Equivalents received in connection with a subsequent sale of such Designated Non-Cash Consideration.
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“Discharge of Secured Obligations”: collectively, (i) the termination of the Commitments and payment in full of all Obligations (other than (A) contingent indemnification and reimbursement obligations that are not then due and payable and (B) Cash Management Obligations and obligations and liabilities under Specified Hedge Agreements as to which arrangements satisfactory to the applicable Qualified Counterparty shall have been made) and the expiration or termination of all Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Revolver Administrative Agent and the applicable Issuing Bank shall have been made).
“Discount Range”: as defined in Section 2.12(f)(i).
“Discretionary Guarantor”: as defined in Section 9.18.
“Disposition”: with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof (excluding Liens but including by allocation of assets by division, merger, consolidation or amalgamation, or allocation or assets to any series of a limited liability company); and the terms “Dispose” and “Disposed of” shall have correlative meanings.
“Disqualified Capital Stock”: any Capital Stock which, by its terms (or by the terms of any security or other Capital Stock into which it is convertible or for which it is exchangeable) or upon the happening of any event or condition, (i) matures or is mandatorily redeemable (other than solely for Qualified Capital Stock), pursuant to a sinking fund obligation or otherwise, (ii) is redeemable at the option of the holder thereof (other than solely for Qualified Capital Stock), in whole or in part, (iii) provides for the scheduled payments or dividends in cash, or (iv) is or becomes convertible into or exchangeable for Indebtedness or any other Capital Stock that would constitute Disqualified Capital Stock, in each case, prior to the date that is 91 days after the then Latest Maturity Date at the time of issuance, except, in the case of clauses (i) and (ii), if as a result of a change of control event or asset sale or other Disposition or casualty event, so long as any rights of the holders thereof to require the redemption thereof upon the occurrence of such a change of control event or asset sale or other Disposition or casualty event are subject to the prior payment in full of the Obligations; provided, that if such Capital Stock is issued pursuant to a plan for the benefit of employees of any Group Member or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Capital Stock solely because it may be required to be repurchased by any Group Member in order to satisfy applicable statutory or regulatory obligations.
“Disqualified Lender”: (i) any bank, financial institution or other institutional lender that has been identified in writing to the Arrangers as a Disqualified Lender on August 16, 2018, (ii) any other Persons who are competitors of any Group Member that are separately identified in writing by Parent or the other Borrowers to the Arrangers (or, after the Closing Date, to the Administrative Agents) from time to time and (iii) in each case of the foregoing clauses (i) and (ii), any of such Person’s Affiliates (other than any bona-fide debt funds) that are either (x) identified in writing by Parent or the other Borrowers to the Administrative Agents from time to time or (y) clearly identifiable as an Affiliate on the basis of such Affiliate’s name; provided, that no such identification after the date hereof pursuant to clauses (ii) or (iii) above shall apply
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retroactively to disqualify and Person that has previously acquired an assignment or participation of an interest in any of the Facilities with respect to amounts of Commitments or Loans previously acquired by such Person. The list of Disqualified Lenders shall be made available by the applicable Administrative Agent to the Lenders upon written request therefor.
“Disqualifying Event”: as defined in Section 1.10(d).
“Documentation Agent”: Compass Bank d/b/a BBVA Compass.
“Dollar Basket Incremental Debt”: as defined in Section 2.23(a).
“Domestic Subsidiary”: a Restricted Subsidiary that is organized under the laws of the United States or any State thereof or the District of Columbia, including any Domesticated Foreign Subsidiary.
“Domesticated Foreign Subsidiary”: a Foreign Subsidiary that is also treated as a Domestic Subsidiary by reason of being or treated as being organized under the laws of any political subdivision of the United States.
“Dutch Auction”: an auction of Term Loans conducted pursuant to Section 9.4(g) to allow a Purchasing Borrower Party to prepay Term Loans at a discount to par value and on a non-pro rata basis in accordance with the applicable Dutch Auction Procedures.
“Dutch Auction Procedures”: Dutch auction procedures as set forth in Section 2.12(f) and otherwise as reasonably agreed upon by the applicable Purchasing Borrower Party and the Term Loan Administrative Agent.
“ECF Percentage”: with respect to any Excess Cash Flow Period, 50.0%; provided, that (i) the ECF Percentage shall be 25.0% if the Total Net Leverage Ratio as of the last day of such Excess Cash Flow Period is less than or equal to 3.40:1.00 and greater than 2.40:1.00 and (ii) the ECF Percentage shall be 0.0% if the Total Net Leverage Ratio as of the last day of such Excess Cash Flow Period is less than or equal to 2.40:1.00.
“EEA Financial Institution”: (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country”: any of the member states of the European Union, Iceland, Liechtenstein and Norway.
“EEA Resolution Authority”: any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
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“Eligible Assignee”: (i) any Lender, any Affiliate of a Lender and any Approved Fund, (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act) and which extends credit or buys loans in the ordinary course and (iii) subject to the terms of Section 2.12(f) and Sections 9.4(g) and (h), Purchasing Borrower Parties; provided, that “Eligible Assignee” shall not include (w) any Borrower or any Borrower’s Subsidiaries or Affiliates (other than Purchasing Borrower Parties to the extent permitted by, and in accordance with, Section 2.12(f) and Sections 9.4(g) and (h)), (x) any Disqualified Lender, (y) any Lender that is, as of the date of the applicable assignment, a Defaulting Lender or (z) any natural Person.
“EMU Legislation”: the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.
“Environmental Laws”: any and all laws, rules, orders, regulations, statutes, ordinances, enforceable guidelines, codes, decrees, or other legally enforceable requirements of any federal, state, territorial, local, municipal, foreign or other Governmental Authority, regulating, relating to or imposing liability associated with or standards of conduct for the protection of the environment, or insofar as it relates to exposure to hazardous or toxic materials.
“Environmental Liability”: any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation or compliance with orders and directives, fines, penalties or indemnities), resulting from or based upon (a) compliance or non-compliance with any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) human exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Environmental Permits”: any and all permits, licenses, approvals, registrations, and other authorizations of a Governmental Authority required under any Environmental Law.
“ERISA”: the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
“EU Bail-In Legislation Schedule”: the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“EURIBOR”: the Euro interbank offered rate for Euros.
“Euro” and “EUR”: the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.
“Eurodollar”: when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. All Revolving Credit Loans denominated in an Alternative Currency must be Eurodollar Loans. No Revolving Credit Loans denominated in US Dollars shall
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be Eurodollar Loans that areand no Term Loan A Loans or Term B Loans shall be denominated in US DollarsEurodollar Loans.
“Event of Default”: any of the events specified in Section 7; provided, that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
“Excess Cash Flow”: for any Excess Cash Flow Period, the excess, if any, of:
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“Excess Cash Flow Application Date”: as defined in Section 2.14(c).
“Excess Cash Flow Period”: each fiscal year of Parent, commencing with the fiscal year ending December 31, 2019.
“Exchange Act”: the Securities Exchange Act of 1934.
“Exchange Rate”: on any day, and subject to Section 1.8, with respect to any currency (the “Initial Currency”), the rate at which such currency may be exchanged into another currency (the “Exchange Currency”), as set forth at approximately 11:00 a.m. (London time) on such day on the Reuters World Currency Page for the Initial Currency; in the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates as may be reasonably selected by the applicable Administrative Agent (in consultation with Parent and the other Borrowers), or, in the absence of such available service, such Exchange Rate shall instead be the arithmetic average of the exchange rates of the applicable Administrative Agent in the market where its foreign currency exchange operations in respect of the Initial Currency are then being conducted, at or about 10:00 a.m. (New York City time) on such date for the purchase of the Exchange Currency for delivery two Business Days later; provided, that if at the time of any such determination, no such exchange rate can reasonably be quoted, the applicable Administrative Agent may use any reasonable method as it deems applicable to determine such rate, and such determination shall be conclusive absent manifest error.
“Excluded Assets”: the collective reference to:
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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.”
“Excluded Contributions”: the net cash proceeds received by Parent from (a) capital contributions to its common Capital Stock or (b) the sale (other than to a Subsidiary) of Capital
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Stock of Parent (other than proceeds from the issuance of Disqualified Capital Stock) which proceeds are used substantially concurrently to make an Investment.
“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.
“Excluded Subsidiary”: (a) Unrestricted Subsidiaries, (b) Immaterial Subsidiaries, (c) any Subsidiary that is prohibited by applicable law, rule or regulation or by any contractual obligation existing on the Closing Date (or, if later, the date it becomes a Restricted Subsidiary) from guaranteeing the Facilities or which would require governmental (including regulatory) consent, approval, license or authorization to provide a guarantee unless such consent, approval, license or authorization has been received, (d) other than with respect to HIL, a Restricted Subsidiary whose provision of a guarantee would otherwise result in material adverse tax consequences to Parent or any of its Subsidiaries, as reasonably determined by the Borrowers, (e) not-for-profit Restricted Subsidiaries or (f) Restricted Subsidiaries that are captive insurance companies. As of the Closing Date, Herbalife Venezuela, as well as Restricted Subsidiaries of the Parent that are incorporated in China, Russia, India and Mexico, shall be Excluded Subsidiaries (unless subsequently designated by the Parent as not constituting an Excluded Subsidiary). For the avoidance of doubt, in no event shall any Borrower constitute an Excluded Subsidiary.
“Excluded Swap Obligation”: with respect to any Loan Party, any Swap Obligation if, and to the extent that, all or a portion of the guaranty of such Loan Party of, or the grant by such Loan Party of a security interest to secure, such Swap Obligation (or any guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the guaranty of such Loan Party or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such guaranty or security interest is or becomes illegal.
“Excluded Taxes”: any of the following Taxes imposed on or with respect to the Agents, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Loan Parties hereunder, or required to be withheld or deducted from any payment to any such recipient (a) Taxes imposed on (or measured by) net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such recipient being organized under the laws of, or having its principal office or, in the case of any Lender or Issuing Bank, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender or Issuing Bank, US Federal withholding Taxes that are imposed on amounts payable to or for the account of such Lender or Issuing Bank with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender or Issuing Bank acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the applicable Borrowers under Section 2.21(b)) or (ii) such Lender or Issuing Bank
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changes its lending office, except in each case to the extent that, pursuant to Section 2.19, amounts with respect to such Taxes were payable either to such Lender’s or Issuing Bank’s assignor immediately before such Lender or Issuing Bank acquired the applicable interest in a Loan or Commitment or to such Lender or Issuing Bank immediately before it changed its lending office, (c) Taxes attributable to such recipient’s failure to comply with Section 2.19(e) and (d) any US Federal withholding Taxes imposed under FATCA.
“Excluded U.S. Guarantor”: (a) in the case of Obligations of HII, any Restricted Subsidiary that is a Foreign Holding Company or a CFC or that is owned directly or indirectly by a CFC; and (b) in the case of Obligations of Term Loan Borrower any Restricted Subsidiary that is a Foreign Holding Company or a CFC or that is owned directly or indirectly by a CFC; provided that, notwithstanding the foregoing, HIL shall not be an Excluded U.S. Guarantor. For the avoidance of doubt, it is understood that the following Guarantors do not constitute, as of the Closing Date, Excluded U.S. Guarantors: Herbalife Ltd. (f/k/a Herbalife Nutrition Ltd.), Herbalife International, Inc., HLF Financing SaRL, LLC, HLF Financing US, LLC, HV Holdings Ltd., WH Intermediate Holdings Ltd., HBL Luxembourg Holdings S.a.R.L., WH Luxembourg Holdings S.a.R.L., HLF Luxembourg Holdings, Inc., WH Luxembourg Intermediate Holdings S.a.R.L., LLC, WH Capital Corporation, Herbalife International Luxembourg S.a.R.L., Herbalife International do Brasil Ltda. and Herbalife Korea Co., Ltd., Herbalife International of Europe, Inc. Herbalife International of America, Inc., Herbalife Taiwan, Inc., Herbalife International (Thailand) Ltd., Herbalife Manufacturing LLC, Herbalife Venezuela Holdings LLC, Herbalife VH Intermediate International, LLC and Herbalife VH International LLC.
“Existing Credit Agreement”: has the meaning given in the Preliminary Statements.
“Extended Revolving Credit Commitment”: as defined in Section 2.25(a)(i).
“Extended Term Loans”: as defined in Section 2.25(a).
“Extending Revolving Credit Lender”: as defined in Section 2.25(a)(i).
“Extending Term Lender”: as defined in Section 2.25(a).
“Extension”: as defined in Section 2.25(a).
“Extension Amendment”: as defined in Section 2.25(c).
“Extension Offer”: as defined in Section 2.25(a).
“Facility”: each of (a) the Term Loan A Commitments and any Term A Loan made thereunder (the “Term Loan A Facility”), (b) the Term Loan B Commitments and any Term B Loan made thereunder (the “Term Loan B Facility” and together with the Term Loan A Facility, the “Term Loan Facilities” and each, a “Term Loan Facility”, as the context may require), (c) the Revolving Credit Commitments and the extensions of credit made thereunder (the “Revolving Credit Facility”), (d) any Incremental Facility and the Commitments and extensions of credit thereunder and (e) any Replacement Facility and the Commitments and extensions of credit thereunder.
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“Failed Auction”: as defined in Section 2.12(f)(iii).
“FATCA”: Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any intergovernmental agreements with respect thereto, any law, regulation, or other official guidance enacted in a non-US jurisdiction pursuant to an intergovernmental agreement with respect thereto, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules, guidance, notes or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“FCPA”: United States Foreign Corrupt Practices Act of 1977.
“Federal Funds Effective Rate”: for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1.00%) of the rates on overnightgreater of (a) the rate calculated by the Federal Reserve Bank of New York based on such day’s Federal funds transactions asby depositary institutions (as determined in such manner as the Federal Reserve Bank of New York shall set forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York; provided, that in no event shall as the Federal funds effective rate be less than 0.00and (b) 0%.
“Fee Letter”: that certain Fee Letter, dated August 16, 2018, by and among the Borrowers, Jefferies and Rabobank.
“Financial Covenant Event of Default”: an Event of Default under paragraph (c) of Section 7.1 as a result of a failure to observe or perform the Financial Covenant.
“Financial Covenant Standstill”: as defined in Section 7.1(e).
“Financial Maintenance Covenant”: the Total Leverage Ratio covenant set forth in Section 6.14.
“First Lien Net Leverage Ratio”: as of any date of determination, the ratio of (a) Consolidated First Lien Net Debt on such day to (b) Consolidated EBITDA of Parent and its Restricted Subsidiaries for the Relevant Reference Period. For the avoidance of doubt, any Indebtedness that is (i) secured on a junior basis with respect to security to the Obligations and (ii) has been incurred pursuant to Section 2.23 and/or 6.3(ff) shall be deemed ranking pari passu with the liens securing the Facilities at all times for any purpose of the calculation of the First Lien Net Leverage Ratio.
“Fixed Charge Coverage Ratio”: on any date, the ratio of (i) Consolidated EBITDA of Parent and its Restricted Subsidiaries to (ii) Consolidated Interest Expense paid or payable in cash, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date.
“Flood Laws” means the National Flood Insurance Reform Act of 1994 and related legislation (including the regulations of the Board of Governors of the Federal Reserve System).
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“Floor”: means a rate of interest equal to 0.00%.
“Foreign Asset Sale”: an Asset Sale consummated by a Foreign Subsidiary.
“Foreign Currency”: an official national currency (including the Euro) of any nation other than the United States and which constitutes freely-transferable and lawful money under the laws of the country or countries of issuance.
“Foreign Holding Company”: a Restricted Subsidiary of Parent that is organized under the laws of the United States and substantially all of the assets of such Restricted Subsidiary consist of stock of one or more CFCs (or are treated as consisting of such assets for U.S. federal income tax purposes) and/or CFC Debt.
“Foreign Lender”: any Lender or Issuing Bank that is not a US Person.
“Foreign Obligor Enforceability Exceptions”: (a) as it relates to HIL and any other Luxembourg Loan Party, (i) the enforceability of the provisions hereof with respect to compound interest may be subject to the provisions of Article 1154 of the Luxembourg Civil Code (and any successor provision) in case a Luxembourg court would hold these provisions to be a point of international public policy, (ii) any certificate or determination which would by contract be deemed to be conclusive may not be upheld by the Luxembourg courts, (iii) the rights and obligations hereunder binding successors and assigns may not be enforceable in Luxembourg, if such successor or assign is a Luxembourg individual or Person organized under the laws of Luxembourg in the absence of an agreement from any such Luxembourg resident confirming the enforceability thereof, (iv) the severability of the provisions of this Agreement or any other Loan Document to which HIL or any other Luxembourg Loan Party is party may be ineffective if a Luxembourg court considers the clause regarding illegality, invalidity or unenforceability to be a substantive or material clause, (v) the enforceability of a foreign jurisdiction clause, which may not prevent the parties thereto from initiating legal action before a Luxembourg court to the extent that summary proceedings seeking conservatory or urgent provisional measures are taken and which may retain jurisdiction with respect to assets located in Luxembourg, (vi) the enforceability of contractual provisions in this Agreement or the other Loan Documents allowing service of process against HIL and any other Luxembourg Loan Party at any location other than such Loan Party’s Luxembourg domicile, which may be overridden by Luxembourg statutory provisions allowing the valid service of process against such Loan Parties in accordance with applicable Luxembourg laws only at the Luxembourg domicile of such Loan Party, (vii) the enforceability of any provision in this Agreement or the other Loan Documents providing for renunciation, before litigation arises, to the right to bring a claim in a court, (viii) certain creditors may have rights to preferred payments arising by operation of law, some of which may supersede the right to payment of secured creditors, (ix) certain obligations may not be the subject of specific performance pursuant to court orders, but may result only in damages, (x) jurisdiction clauses would be unenforceable in, or not binding upon, a Luxembourg court in relation to actions brought for non‑contractual claims, (xi) the perfection of the security interests created pursuant to, and in pursuance of, the Loan Documents does not prevent any third party creditor of the respective security provider from seeking attachment or execution against the assets which are subject to security interests created pursuant to the Loan Documents to satisfy such creditor’s unpaid claims
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against such security provider without however impairing the priority of the secured creditor over the collateral and (xii) a third party creditor may seek the forced sale of the assets of the security provider which are subject to the security rights granted under the Loan Documents through court proceedings, although the beneficiaries thereunder will, in principle, remain entitled to priority over the proceeds of such sale (subject to insolvency proceedings and the preferred rights of certain creditors deriving from laws of general application) and (b) any provision, whether by statute, common law, civil law, in equity or otherwise, of any jurisdiction other than Luxembourg or any State or territory of the United States having an effect similar to any of the foregoing.
“Foreign Obligors”: collectively, Parent, HIL, and each other Loan Party that is not a “United States person” as defined in Section 7701(a)(30) of the Code.
“Foreign Recovery Event”: a Recovery Event relating to the property or casualty insurance claims or condemnation proceedings relating to any asset of any Foreign Subsidiary.
“Foreign Subsidiary”: any Restricted Subsidiary of Parent that is not a Domestic Subsidiary.
“Fourth Amendment”: that certain Fourth Amendment to Credit Agreement, dated as of July 30, 2021, by and among the Borrowers, the Subsidiary Guarantors, the Term Loan A Agent, the Revolver Administrative Agent and the Lenders party thereto.
“Fourth Amendment Effective Date”: the date on which all of the conditions contained in Section 3 of the Fourth Amendment have been satisfied or waived in accordance with the terms of the Fourth Amendment.
“Funded Debt”: all Indebtedness of Parent and the Restricted Subsidiaries for borrowed money that matures more than one year from the date of its creation or matures within one year from such date and is renewable or extendable, at the option of such Person, to a date that is more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including Indebtedness in respect of the Loans.
“GAAP”: generally accepted accounting principles in the United States as in effect from time to time; provided, however, that if the Borrowers notify the applicable Administrative Agent that the Borrowers request an amendment to any provision hereof in respect of an Accounting Change (including through the adoption of International Financial Reporting Standards (“IFRS”)) (or if the applicable Administrative Agent notifies the Borrowers that the Required Lenders request an amendment to any provision hereof for such purpose), GAAP shall be interpreted in accordance with Section 1.4 until such notice shall have been withdrawn or such provision amended in accordance with Section 1.4.
“Governmental Authority”: any nation or government, any state, province, territory or other political subdivision thereof and any other agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
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“Group Member”: any of Parent or any of the Restricted Subsidiaries of Parent.
“Guarantee Obligation”: with respect to any Person (the “guaranteeing person”), any obligation of the guaranteeing person guaranteeing or having the economic effect of guaranteeing any Indebtedness (the “primary obligations”) of any other third Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security for such primary obligation, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, in each case, so as to enable the primary obligor to pay such primary obligation, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business or customary indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or Disposition permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation (or portion thereof) in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrowers in good faith.
“Guaranties”: collectively, (i) the Parent Obligations Guaranty, (ii) the HII Obligations Guaranty, (iii) the HIL Obligations Guaranty, and (iv) Term Loan Borrower Obligations Guaranty. Subject to the terms thereof, the Guaranties are the joint and several obligations of the Guarantors party thereto.
“Guarantors”: collectively, Parent, HII, HIL, the Term Loan Borrower, each IP Holding Company, each Restricted Subsidiary of Parent listed on Schedule 1.1(A) hereto and each other Restricted Subsidiary (other than any Excluded Subsidiary) that is required to guarantee the Obligations pursuant to Sections 5.9 and 5.14 hereof.
“Hazardous Materials”: (i) petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and explosive or radioactive substances or (ii) any chemical, material, waste, substance or pollutant that is prohibited, limited or regulated pursuant to any Environmental Law.
“Hedge Agreements”: all interest rate or currency swaps, caps or collar agreements, foreign exchange agreements, commodity contracts or similar arrangements (which, for the avoidance of doubt, shall include any master agreement that governs the terms of one or more interest rate or
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currency swaps, caps or collar agreements, foreign exchange agreements, commodity contracts or similar arrangements) entered into by any Group Member providing for protection against fluctuations in interest rates, currency exchange rates, commodity prices or the exchange of nominal interest obligations, either generally or under specific contingencies.
“Herbalife Venezuela”: Vida Herbal Suplementos Alimenticios, C.A., a company dually organized under the laws of Venezuela (compania anónima) and Delaware (under the name VHSA, LLC).
“HII”: as defined in the preamble hereto.
“HII Obligations Guaranty”: the Guaranty, dated as of the Closing Date, made by Parent and its Restricted Subsidiaries that are Loan Parties (other than (i) HII and (ii) any such Restricted Subsidiaries that are Excluded U.S. Guarantors pursuant to clause (a) of the definition thereof) in favor of the Collateral Agent, for the benefit of the Secured Parties, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“HIL”: as defined in the preamble hereto.
“HIL Obligations Guaranty”: the Guaranty, dated as of the Closing Date, made by the Parent and its Restricted Subsidiaries that are Loan Parties (other than HIL) in favor of the Collateral Agent, for the benefit of the Secured Parties, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“IBA”: as defined in Section 2.16(b).
“IFRS”: as defined in the definition of GAAP.
“Immaterial Subsidiary”: a Subsidiary (other than any Borrower) (a) the Consolidated Total Assets of which equal 2.50% or less of the Consolidated Total Assets of Parent and its Restricted Subsidiaries as of the end of Parent’s most recently ended fiscal quarter for which financial statements have been delivered and (b) the gross revenues of which for the most recently ended four full fiscal quarters for which financial statements have been delivered constitute 2.50% or less of the total gross revenues of Parent and its Subsidiaries, on a consolidated basis, for such period; provided, that if at any time the aggregate amount of Consolidated Total Assets as of the end of Parent’s most recently ended fiscal quarter for which financial statements have been delivered represented by all Immaterial Subsidiaries would, but for this proviso, exceed 5.00% of Consolidated Total Assets of Parent and its Subsidiaries as of such date, or the total gross revenues represented by all Immaterial Subsidiaries would, but for this proviso, exceed 5.00% of the total gross revenues of Parent and its Subsidiaries, on a consolidated basis, in each case as of the end of Parent’s most recently ended fiscal quarter, then Parent shall designate sufficient Immaterial Subsidiaries to no longer constitute Immaterial Subsidiaries so as to eliminate such excess, and each such designated Subsidiary shall thereupon cease to be an Immaterial Subsidiary (or, if Parent shall make no such designation by the next date of delivery of financial statements pursuant to Section 5.1(a) or 5.1(b), one or more of such Immaterial Subsidiaries selected in descending order based on their respective contributions to the Consolidated Total Assets of Parent and its
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Subsidiaries shall cease to be considered to be Immaterial Subsidiaries until such excess is eliminated) and any such Subsidiary (if not otherwise an Excluded Subsidiary) shall be required to comply with Section 5.9(c) within the time periods set forth therein. For purposes of this definition, Consolidated Total Assets shall be calculated eliminating all intercompany items.
“Incremental Equivalent Debt”: Indebtedness consisting of (x) unsecured senior, senior subordinated or junior subordinated notes, or senior secured notes secured by the Collateral on an equal or junior priority basis with or to the Obligations, in each case issued in a public offering, Rule 144A or other private placement, or (y) senior unsecured loans or senior secured loans secured by the Collateral on an equal or junior priority basis with or to the Obligations, in each case of clauses (x) and (y), subject to the terms set forth in Section 2.23(d).
“Incremental Facility”: as defined in Section 2.23(a).
“Incremental Facility Amendment”: as defined in Section 2.23(c).
“Incremental Facility Closing Date”: as defined in Section 2.23(c).
“Incremental Revolving Commitments”: as defined in Section 2.23(a)(ii).
“Incremental Revolving Increase”: as defined in Section 2.23(a)(ii).
“Incremental Revolving Lender”: as defined in Section 2.23(c).
“Incremental Revolving Tranche”: as defined in Section 2.23(a)(ii).
“Incremental Term Loan A Facility”: as defined in Section 2.23(a)(i).
“Incremental Term A Loans”: as defined in Section 2.23(a)(i).
“Incremental Term Loan B Facility”: as defined in Section 2.23(a)(i).
“Incremental Term B Loans”: as defined in Section 2.23(a)(i).
“Indebtedness”: of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than (i) trade accounts or similar obligations to a trade creditor and accrued expenses payable in the ordinary course of business, (ii) any earn-out obligation unless such obligation is not paid promptly after becoming due and payable and (iii) accruals for payroll or other employee compensation and other liabilities accrued in the ordinary course of business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), but limited to the lesser of the fair market value (as determined in good faith by Parent) of such Property and the principal amount of such Indebtedness if recourse is solely to such Property, (e) all Capital Lease Obligations of such
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Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under bankers’ acceptances, letters of credit, surety bonds and similar instruments (except unsecured and unmatured reimbursement obligations in respect thereof obtained in the ordinary course of business to secure the performance of obligations that are not Indebtedness pursuant to another clause of this definition), (g) the liquidation value of all Disqualified Capital Stock of such Person, to the extent mandatorily redeemable in cash prior to the date that is the 91st day after the relevant Latest Maturity Date (as determined on the date of issuance thereof) (other than in connection with change of control events and asset sales and other Disposition and casualty events to the extent that the terms of such Capital Stock provide that such Person may not redeem any such Capital Stock in connection with such change of control event or asset sale or other Disposition or casualty event unless such redemption is subject to the prior payment in full of the Obligations), (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above, (i) all obligations of the kind referred to in clauses (a) through (h) above of another Person secured by any Lien on Property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligations (but limited to the lesser of the fair market value of such Property and the principal amount of such obligations) and (j) solely for the purposes of Section 6.2 and Section 7, the net obligations of such Person in respect of Hedge Agreements.
“Indemnified Taxes”: (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“Indemnitee”: as defined in Section 9.3(b).
“Information”: as defined in Section 9.12(a).
“Insolvency”: with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA; and the term “Insolvent” shall have a correlative meaning.
“Intellectual Property”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, state, multinational or foreign laws or otherwise, including copyrights, patents, trademarks, service marks, trade names, franchise rights, technology, know-how and processes, recipes, formulas, trade secrets, licenses to any of the foregoing, and all rights to sue at law or in equity for any infringement, misappropriation, dilution, or other violation or impairment thereof, including the right to receive all proceeds and damages therefrom.
“Interest Election Request”: a request by the applicable Borrowers to convert or continue a Borrowing in accordance with Section 2.9.
“Interest Payment Date”: (a) with respect to any ABR Loan, the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and the final maturity date of such Loan and (b) with respect to any Loan that is not an ABR Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan
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is a part and, in the case of a Eurodollar Borrowing or a SOFR Borrowing with an Interest Period of more than three months’ duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months’ duration been applicable to such Borrowing.
“Interest Period”: with respect to (a) any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, if made available by all participating Lenders, twelve months) and (b) any SOFR Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, three or six months (or, if made available by all participating Lenders, twelve months) (in each case, subject to the availability thereof) or, solely with respect to Revolving Credit Borrowings, one day or one week, thereafter, as the applicable Borrowers may elect (in which case the rate for such Interest Period of one day or one week for the determination of Applicable Margin shall be, the rate which results from interpolating on a linear basis between (x) (a) the applicable Term SOFR rate for the longest period (for which Term SOFR is available) which is less than the Interest Period of the requested loan or (b) if Term SOFR is not available for a period which is less than the Interest Period of the requested loan, SOFR for the day which is two US Government Securities Business Days before such date of determination and (y) Term SOFR for the shortest period (for which Term SOFR is available) which exceeds the Interest Period of the requested Loan; provided that such interpolation by the TLA-Revolver Administrative Agent shall only be available if such interpolation of Term SOFR is administratively feasible for the TLA-Revolver Administrative Agent); provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and, (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period; provided, further, that the initial Interest Period with respect to any Eurodollar Borrowing on the Closing Date may be for such other period specified in the applicable, (iii) no Interest Period shall extend beyond the applicable Maturity Date and (iv) no tenor that has been removed from this definition pursuant to Section 2.16(b)(v) shall be available for specification in such Borrowing Request that is acceptable to the applicable Administrative Agentor Interest Election Request. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“Internally Generated Cash Flow”: cash and Cash Equivalents on the balance sheet not constituting (i) proceeds of Indebtedness (excluding borrowings under the Revolving Credit Facility or any other revolving credit facilities or revolving lines of credit (other than, in each case, for purposes of clauses (b)(iii), (b)(vi), (b)(vii) and (b)(viii) of the definition of “Excess Cash Flow”)) of Parent and the Group Members, (ii) proceeds of issuances of Capital Stock by or capital contributions to Parent and the Group Members or (iii) proceeds of any Reinvestment Deferred Amount.
“Interpolated Screen Rate”: in relation to the LIBO Rate for any Loan, the rate which results from interpolating on a linear basis between: (a) the rate appearing on ICE Benchmark
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Administration page (or on any successor or substitute page of such service) for the longest period (for which that rate is available) which is less than the applicable Interest Period and (b) the rate appearing on the ICE Benchmark Administration page (or on any successor or substitute page of such service) for the shortest period (for which that rate is available) which exceeds the applicable Interest Period, each as of approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
“Investments”: as defined in Section 6.7.
“IP Holding Company”: (i) WH Intermediate Holdings Ltd. and (ii) any other Restricted Subsidiary of Parent which from time to time owns or possesses the right to use any Intellectual Property (other than Intellectual Property that is of de minimis value) and licenses such rights to any other Subsidiary of Parent.
“IP Office”: each of the United States Patent and Trademark Office and the United States Copyright Office.
“IP Security Agreement”: the Intellectual Property Security Agreement among HV Holdings Ltd., the other Restricted Subsidiaries of Parent from time to time party thereto and the Collateral Agent.
“IRS”: United States Internal Revenue Service.
“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
“Issuing Bank”: (i) each of Rabobank and Coöperatieve Rabobank U.A., a banking cooperative established under the laws of The Netherlands, in its capacity as issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.7(i), (ii) for purposes of the Existing Roll-Over Letters of Credit, the Issuing Bank set forth on Schedule 1.1(B), and (iii) any other Lender reasonably acceptable to the Revolver Administrative Agent and the Revolver Borrowers, which has agreed to act as Issuing Bank hereunder. An Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“Jefferies”: as defined in the preamble hereto.
“Junior Debt”: any Indebtedness of a Group Member (other than Indebtedness under revolving credit facilities or other revolving lines of credit) that constitutes (i) Indebtedness subordinated in right of payment to the Obligations (other than Indebtedness among Parent and its Restricted Subsidiaries), (ii) unsecured Indebtedness incurred pursuant to Section 6.2(f), 6.2(w) and Section 6.2(z) and any Permitted Refinancings thereof, (iii) unsecured Incremental Equivalent Debt or Incremental Equivalent Debt secured by Collateral on a junior basis to the Liens securing the Obligations or (iv) Permitted Junior Secured Refinancing Debt or Permitted Unsecured Refinancing Debt).
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“Latest Maturity Date”: at any date of determination, the latest Maturity Date applicable to any Loan or Commitment hereunder at such time.
“LC Disbursement”: a payment made by any Issuing Bank pursuant to a Letter of Credit.
“LC Exposure”: at any time, the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (ii) the aggregate amount of all LC Disbursements in respect of Letters of Credit that have not yet been reimbursed by or on behalf of the Revolver Borrowers at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time, in each case with respect to the Revolving Credit Facility.
“LC Percentage”: as of any date of determination, with respect to any Issuing Bank, such Issuing Bank’s share, expressed as a percentage, of the LC Sublimit, as the same may be adjusted from time to time, as a result of an agreement by such Issuing Bank, with the Revolver Borrowers’ consent, to assume the obligations of another such Issuing Bank with respect to any or all of the Letters of Credit issued by such other Issuing Bank or as a result of the addition of a new Issuing Bank, with the Revolver Borrowers’ consent, in accordance with the terms hereof.
“LC Sublimit”: $45.0 million, as such amount may be increased from time to time in accordance with Section 9.2(i).
“Lender Parties”: as defined in Section 9.16.
“Lenders”: the Persons listed on Schedule 2.1 and any other Person that shall have become a party hereto as a lender pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto as a lender pursuant to an Assignment and Assumption.
“Lending Office”: as to the Revolver Administrative Agent, any Issuing Bank or any Revolving Credit Lender, the office or offices of such Person as such Person may from time to time notify the Revolver Borrowers and the Revolver Administrative Agent; which office may include any Affiliate of such Person or any domestic or foreign branch of such Person or such Affiliate.
“Letter of Credit”: any standby or commercial letter of credit, in a form acceptable to the Issuing Bank in its sole and absolute discretion, issued by the Issuing Bank pursuant to the provisions hereof and providing for the payment of cash upon the honoring of a presentation thereunder. Each Existing Roll-Over Letter of Credit shall be deemed to constitute a Letter of Credit issued hereunder on the Closing Date for all purposes of the Loan Documents.
“LIBO Rate”: with respect to any Interest Period when used in reference to any Eurodollar Borrowing, (a) in the case of Eurodollar Loans denominated in US Dollars, the rate of interest appearing on Reuters Screen LIBOR01 Page (or on any successor or substitute page of such service, or any successor to such service as determined by the applicable Administrative Agent) as the London interbank offered rate administered by ICE Benchmark Administration Limited for deposits in US Dollars for a term comparable to such Interest Period, at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the commencement of such Interest Period, (b) in the case of Eurodollar Loans denominated in Euros, the rate of interest appearing on
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Reuters Screen EURIBOR-01 Page (or on any successor or substitute page of such service, or any successor to such service as determined by the applicable Administrative Agent) as the Euro interbank offered rate administered by the European Money Markets Institute for deposits in Euros for a term comparable to such Interest Period, at approximately 11:00 a.m. (Brussels time) on the date which is two Business Days prior to the commencement of such Interest Period and (c) if any such rate is not available at such time for any reason, then the “LIBO Rate” for such Interest Period shall be the Interpolated Screen Rate.
“Lien”: any mortgage, pledge, hypothecation, security assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing); provided, that in no event shall an operating lease in and of itself constitute a Lien.
“Limited Conditionality Incremental Transaction”: as defined in Section 2.23(e).
“Loan”: any loan made by any Lender pursuant to this Agreement.
“Loan Documents”: this Agreement, the Collateral Documents, each Agency Fee Letter, the Fee Letter, any Notes, any Senior Pari Passu Intercreditor Agreement, any Senior/Junior Intercreditor Agreement, any Permitted Amendment and any other document executed and delivered in conjunction with this Agreement from time to time and designated as a “Loan Document”.
“Loan Parties”: the collective reference to the Borrowers and the Guarantors.
“Loan Party Assets”: for any Loan Party, as of any date of determination, the total assets of such Loan Party, determined in accordance with GAAP, calculated on an unconsolidated basis and by excluding all intercompany items other than ordinary course receivables owed to and payables owed by such Loan Party (including, without limitation, the value of any investments (whether as equity or advances) among the Loan Parties and their subsidiaries).
“Loan Party Consolidated EBITDA”: for any period for any Loan Party, the amount of Consolidated EBITDA attributable to such Loan Party for such period, calculated on an unconsolidated basis and by excluding all intercompany items other than ordinary course sales.
“Luxembourg”: the Grand Duchy of Luxembourg or Luxembourg city when the context so requires.
“Luxembourg Companies Register”: the Luxembourg Register of Commerce and Companies (R.C.S Luxembourg).
“Luxembourg Loan Party”: any Loan Party whose registered office or place of central administration is located in Luxembourg.
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“Luxembourg Security Documents”: the following Luxembourg law governed pledge agreements:
“Material Adverse Effect”: a material adverse effect on (a) the business, financial condition, assets or results of operations, in each case, of the Group Members, taken as a whole, (b) the ability of the Loan Parties, taken as a whole, to perform their payment obligations under the Loan Documents or (c) the rights and remedies of the Agents and the Lenders, taken as a whole, under any Loan Document.
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“Material Debt”: Indebtedness (other than Indebtedness constituting Obligations), or obligations in respect of one or more Hedge Agreements (other than to the extent constituting Obligations), of any one or more of any Group Member in an aggregate principal amount exceeding the greater of (a) $120.0 million and (b) 5.0% of Consolidated Total Assets. For purposes of determining Material Debt, the “obligations” of any Group Member in respect of any Hedge Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that any Group Member would be required to pay if such Hedge Agreement were terminated at such time.
“Material Party”: Parent or any Restricted Subsidiary (other than an Immaterial Subsidiary).
“Material Real Property”: any fee-owned real property having a fair market value equal to or in excess of $65.0 million.
“Maturity Date”: with respect to (a) the Revolving Credit Facility, the applicable Revolving Credit Maturity Date, (b) the Term Loan A Facility, the Term Loan A Maturity Date and (c) the Term Loan B Facility, the Term Loan B Maturity Date; provided, that the reference to Maturity Date with respect to any other Term Loans shall be the final maturity date as specified in the applicable Incremental Facility Amendment or Replacement Facility Amendment, and with respect to any Extended Term Loans in respect thereof, shall be the final maturity date as specified in the applicable Extension Offer.
“Maximum Rate”: as defined in Section 9.17.
“Maximum Tender Condition”: as defined in Section 2.26.
“Minimum Tender Condition”: as defined in Section 2.26.
“MIRE Event”: at any time after the Closing Date, if there are any Mortgaged Properties at such time, any increase, extension of the maturity or renewal of any of the Commitments or Loans (including an Incremental Facility Amendment, Extension Amendment or Replacement Facility Amendment, but excluding for the avoidance of doubt (a) any continuation or conversion of borrowings, (b) the making of any Loan, (c) the issuance, creation, renewal or extension of Letters of Credit).
“MNPI”: any material Nonpublic Information regarding Parent and its Subsidiaries or the Loans or securities of any of them that has not been disclosed to the Lenders generally (other than Lenders who elect not to receive such information). For purposes of this definition “material Nonpublic Information” shall mean Nonpublic Information with respect to the business of Parent and its Subsidiaries that would reasonably be expected to be material to a decision by any Lender to participate in any Dutch Auction or assign or acquire any Term Loans or to enter into any of the transactions contemplated thereby or would otherwise be material for purposes of United States Federal and state securities laws.
“Moody’s”: Moody’s Investor Services, Inc.
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“Mortgaged Properties”: the real properties listed on Schedule 1.2 (if any), as to which the Collateral Agent for the benefit of the Secured Parties shall be granted a Lien in accordance with Section 5.15 pursuant to the Mortgages and such other real properties as to which the Collateral Agent for the benefit of the Secured Parties shall be granted a Lien after the Closing Date pursuant to Section 5.9.
“Mortgages”: each of the real property mortgages made by any Loan Party in favor of, or for the benefit of, the Collateral Agent for the benefit of the Secured Parties, to be in form and substance reasonably satisfactory to the Collateral Agent and the Borrowers.
“Multiemployer Plan”: a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“Net Cash Proceeds”: (a) in connection with any Asset Sale or Recovery Event, the proceeds thereof received by any Group Member in the form of cash or Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of the sum of (i) out-of-pocket attorneys’ fees, accountants’ fees and investment banking and advisory fees incurred by any Group Member in connection with such Asset Sale or Recovery Event, (ii) principal, premium or penalty, interest and other amounts required to be paid in respect of Indebtedness secured by a Lien permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Collateral Document or a Lien which is expressly pari passu with or subordinate to the Liens under the Loan Documents) or, in the case of any Asset Sale or Recovery Event relating to assets of a Non-Loan Party Subsidiary, principal, premium or penalty, interest and other amounts required to be paid in respect of Indebtedness of such Non-Loan Party Subsidiary as a result of such Asset Sale or Recovery Event, (iii) other reasonable out-of-pocket fees and expenses actually incurred in connection therewith, (iv) taxes (including sales, transfer, deed or mortgage recording taxes) paid or reasonably estimated to be payable as a result thereof, (v) in the case of any Asset Sale or Recovery Event by a Restricted Subsidiary that is not a Wholly Owned Subsidiary, the pro-rata portion of the Net Cash Proceeds thereof (calculated without regard to this clause (v)) attributable to minority interests and not available for distribution to or for the account of a Group Member that is a Wholly Owned Subsidiary as a result thereof and (vi) any reserve established in accordance with GAAP (provided, that such reserved amounts shall be Net Cash Proceeds to the extent and at the time of any reversal (without the satisfaction of any applicable liabilities in cash in a corresponding amount) of any such reserve) and (b) in connection with any issuance or incurrence of any Indebtedness, the cash proceeds received by any Group Member from such issuance or incurrence, net of reasonable out-of-pocket attorneys’ fees, investment banking and advisory fees, accountants’ fees, underwriting discounts and commissions and other customary out-of-pocket fees, costs and expenses actually incurred in connection therewith (including, in the case of a Replacement Facility or Permitted Term Loan Refinancing Indebtedness, any swap breakage costs and other termination costs related to Hedge Agreements and any other fees and expenses actually incurred in connection therewith), in each case as determined reasonably and in good faith by a Responsible Officer of Parent.
“Non-Consenting Lender”: as defined Section 2.21(c).
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“Non-Loan Party Subsidiary”: any Restricted Subsidiary of Parent that is not a Loan Party.
“Nonpublic Information”: information which has not been disseminated in a manner making it available to investors generally, within the meaning of Regulation FD.
“Note”: any promissory note evidencing any Loan substantially in the form of Exhibit G.
“Notice of Additional Guarantor”: a Notice of Additional Guarantor, in substantially the form of Exhibit K hereto.
“Obligations”: the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Borrower, whether or not a claim for post-filing or post-petition interest is allowed or allowable in such proceeding) the Loans, the Reimbursement Obligations and all other obligations and liabilities of the Loan Parties to the Agents or to any Lender or any Qualified Counterparty, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit or any Specified Hedge Agreement, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs or expenses (including all fees, charges and disbursements of counsel to the Arrangers, to the Agents or to any Lender that are required to be paid by the Borrowers pursuant hereto) and any Cash Management Obligations; provided, that (i) obligations of the Term Loan Borrower or any Restricted Subsidiary under any Specified Hedge Agreement or any Cash Management Obligations shall be secured and guaranteed pursuant to the Collateral Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (ii) any release of Collateral or Guarantors effected in the manner permitted by this Agreement or any Collateral Document shall not require the consent of holders of obligations under Specified Hedge Agreements or holders of any Cash Management Obligations. Notwithstanding the foregoing, the “Obligations” of any Loan Party shall not include any Excluded Swap Obligation of such Loan Party.
“OFAC”: has the meaning assigned to such term in the definition of “Sanctioned Person.”
“Optional Prepayment Amount”: for any Excess Cash Flow Period, the aggregate amount of (x) all prepayments of Revolving Loans during such Excess Cash Flow Period (or, at the option of the Revolver Borrowers, during such Excess Cash Flow Period and the period in the succeeding Excess Cash Flow Period prior to the applicable Excess Cash Flow Application Date) to the extent accompanying permanent optional reductions of the Revolving Credit Commitments, (y) all optional prepayments (including any premiums and penalties associated therewith) of the Term Loans during such Excess Cash Flow Period (or, at the option of the Term Loan Borrower, during such Excess Cash Flow Period and the period in the succeeding Excess Cash Flow Period prior to the applicable Excess Cash Flow Application Date) and (z) all optional prepayments (including any premiums and penalties associated therewith) of any Permitted Credit Agreement Refinancing Indebtedness or any Incremental Equivalent Debt, in each case that is secured on a pari passu basis with the Facilities, which payments are permitted to be made hereunder and made during such
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Excess Cash Flow Period (or, at the option of the Term Loan Borrower, during such Excess Cash Flow Period and the period in the succeeding Excess Cash Flow Period prior to the applicable Excess Cash Flow Application Date), in each case except to the extent that such prepayments are funded with the proceeds of incurrences of Indebtedness or the issuances of Capital Stock; provided, that, with respect to any prepayment of Term Loans, any Permitted Credit Agreement Refinancing Indebtedness or any Incremental Equivalent Debt, in each case by any Purchasing Borrower Party pursuant to Section 9.4 or the corresponding provision in the definitive agreement governing any Incremental Equivalent Debt, the Optional Prepayment Amount shall include only the aggregate amount of cash actually paid by such Purchasing Borrower Party in respect of the principal amount of the Term Loans, Permitted Credit Agreement Refinancing Indebtedness or Incremental Equivalent Debt, as the case may be, so prepaid; provided, further, that to the extent any such prepayments made after the applicable Excess Cash Flow Period reduce Excess Cash Flow for such Excess Cash Flow Period, such prepayments shall not also reduce Excess Cash Flow in the Excess Cash Flow Period in which they are made.
“Organizational Documents”: with respect to any Person and as applicable, the certificate of incorporation or formation, memorandum and/or articles of association, bylaws, limited liability company agreement, limited partnership agreement or other organizational documents of such Person.
“Other Applicable Indebtedness”: as defined in Section 2.14(b).
“Other Connection Taxes”: with respect to the Agents or any Lender or Issuing Bank, Taxes imposed as a result of a present or former connection between the Agents or such Lender or Issuing Bank and the jurisdiction imposing such Tax (other than a connection arising solely from the Agents or such Lender or Issuing Bank having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes”: any and all present or future recording, stamp or documentary, property, intangible, recording, filing or similar Taxes arising from any payment made under any Loan Document or from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.21(b)).
“Other Term Loans”: as defined in Section 2.23(a).
“Overnight Rate”: for any day, (a) with respect to any amount denominated in US Dollars, the greater of (i) the Federal Funds Effective Rate and (ii) an overnight rate determined by the applicable Administrative Agent or the applicable Issuing Bank, as the case may be, in accordance with banking industry rules on interbank compensation, and (b) with respect to any amount denominated in an Alternative Currency, the rate of interest per annum at which overnight deposits in the applicable Alternative Currency, in an amount approximately equal to the amount with
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respect to which such rate is being determined, would be offered for such day by a branch or Affiliate of the Revolver Administrative Agent in the applicable offshore interbank market for such currency to major banks in such interbank market.
“Parent”: as defined in the preamble hereto.
“Parent Group”: Parent and all of its Subsidiaries. For the avoidance of doubt, any reference to a “member of the Parent Group” shall refer to the Company and each of its Subsidiaries.
“Parent Obligations Guaranty”: the Guaranty, dated as of the Closing Date, made by the Restricted Subsidiaries of the Parent that are Loan Parties in favor of the Collateral Agent, for the benefit of the Secured Parties, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“Participant”: as defined in Section 9.4(c).
“Participant Register”: as defined in Section 9.4(c).
“Participating Member State” means any member state of the European Union that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Union relating to economic and monetary union.
“PATRIOT Act”: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act of 2001).
“PBGC”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor entity performing similar functions.
“Perfection Certificate”: a certificate in the form of Exhibit D or any other form approved by the Collateral Agent.
“Permitted Acquisition”: as defined in Section 6.7(f).
“Permitted Amendment”: any Extension Amendment, Incremental Facility Amendment or Replacement Facility Amendment.
“Permitted Convertible Indebtedness Call Transaction”: any purchase by Parent of a call or capped call option (or substantively equivalent derivative transaction) on Parent’s common stock in connection with the issuance of any convertible Indebtedness otherwise permitted hereunder, or any refinancing, refunding, extension or renewal thereof as permitted by Section 6.2(v), and any sale by Parent of a call option or warrant (or substantively equivalent derivative transaction) on Parent’s common stock; provided that the purchase price for the Permitted Convertible Indebtedness Call Transaction does not exceed the net proceeds from the issuance of such convertible notes issued in connection with the Permitted Convertible Indebtedness Call Transaction or any such refinancing, refunding, extension or renewal thereof as permitted by Section 6.2(v), as applicable.
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“Permitted Credit Agreement Refinancing Indebtedness”: in the case of any (a) Permitted Pari Passu Secured Refinancing Debt, (b) Permitted Junior Secured Refinancing Debt or (c) Permitted Unsecured Refinancing Debt, in each case, issued, incurred or otherwise obtained (including by means of the extension or renewal of existing Indebtedness) in exchange for, or to extend, renew, replace or refinance, in whole or part, existing Loans or Revolving Credit Commitments (including any successive Permitted Credit Agreement Refinancing Indebtedness) (“Refinanced Debt”), such exchanging, extending, renewing, replacing or refinancing Indebtedness that (i) is in an original aggregate principal amount not greater than the aggregate principal amount of the Refinanced Debt except by an amount equal to unpaid accrued or capitalized interest thereon, any make-whole payments or premium (including tender premium) applicable thereto or paid in connection therewith, plus upfront fees and original issue discount on such exchanging, extending, renewing, replacing or refinancing Indebtedness, plus other customary fees and expenses in connection with such exchange, modification, refinancing, refunding, renewal, replacement or extension, (ii) does not require any scheduled payment of principal (including pursuant to a sinking fund obligation) or mandatory redemption or redemption at the option of the holders thereof or similar prepayment (other than customary offers to purchase upon an asset sale or change of control), the maturity date of such Indebtedness is not prior to the maturity date of the applicable Refinanced Debt and, in the case of a refinancing of Term Loans, the Weighted Average Life to Maturity of such Indebtedness is not shorter than the Weighted Average Life to Maturity of the applicable Refinanced Debt, (iii) has terms and conditions (other than (x) as provided in the foregoing clause (ii), (y) interest rate, fees, funding discounts and other pricing terms, liquidation preferences, call protection periods, prepayment or other premiums, optional prepayment terms and redemption terms (subject to the foregoing clause (ii)) and subordination terms and (z) covenants (including any financial maintenance covenants added for the benefit of any lenders or investors providing such Indebtedness) or other provisions to the extent (1) also added for the benefit of any existing Lenders or (2) applicable only to periods after the then Latest Maturity Date at the time of incurrence of such Indebtedness) that are, when taken as a whole, not materially more favorable (as determined by the Borrowers in good faith) to the lenders or investors providing such Indebtedness than those set forth in the Loan Documents are to the Lenders holding such Refinanced Debt, (iv) is guaranteed only by such Person that is also a Guarantor and (v) the proceeds of which are used to repay (in the case of Refinanced Debt consisting of Loans), defease or satisfy and discharge such Refinanced Debt and pay all accrued interest, fees and premiums (if any) in connection therewith; provided that, in the case of Refinanced Debt consisting of Revolving Credit Loans, the Revolving Credit Commitments shall be permanently reduced on a dollar-for-dollar basis, in each case substantially concurrently with the issuance, incurrence or obtaining of such Permitted Credit Agreement Refinancing Indebtedness.
“Permitted Cure Securities”: Capital Stock of Parent issued (in the form of common equity and/or preferred stock having terms reasonably acceptable to the Revolver Administrative Agent) to fund the Cure Amount in connection with the Cure Right.
“Permitted Debt Exchange”: as defined in Section 2.26.
“Permitted Debt Exchange Notes”: as defined in Section 2.26.
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“Permitted Debt Exchange Offer”: as defined in Section 2.26.
“Permitted Holders”: (a) (1) Carl C. Icahn and his siblings, his and their respective spouses and descendants (including stepchildren and adopted children) and the spouses of such descendants (including stepchildren and adopted children) (collectively, the “Family Group”); (2) any trust, estate, partnership, corporation, company, limited liability company or unincorporated association or organization (each an “Entity” and collectively “Entities”) Controlled by one or more members of the Family Group, including without limitation any funds managed by any member of the Family Group that are acting in concert with the Family Group; (3) any Entity over which one or more members of the Family Group, directly or indirectly, have rights that, either legally or in practical effect, enable them to make or veto significant management decisions with respect to such Entity, whether pursuant to the constituent documents of such Entity, by contract, through representation on a board of directors or other governing body of such Entity, through a management position with such Entity or in any other manner (such rights hereinafter referred to as “Veto Power”); (4) the estate of any member of the Family Group; (5) any trust created (in whole or in part) by any one or more members of the Family Group; (6) any individual or Entity who receives an interest in any estate or trust listed in clauses (4) or (5), to the extent of such interest; (7) any trust or estate, substantially all the beneficiaries of which (other than charitable organizations or foundations) consist of one or more members of the Family Group; (8) any organization described in Section 501(c) of the Code, over which any one or more members of the Family Group and the trusts and estates listed in clauses (4), (5) and (7) have direct or indirect Veto Power, or to which they are substantial contributors (as such term is defined in Section 507 of the Code);(9) any organization described in Section 501(c) of the Code of which a member of the Family Group is an officer, director or trustee; or (10) any Entity, directly or indirectly (a) owned or Controlled by or (b) a majority of the economic interests in which are owned by, or are for or accrue to the benefit of, in either case, any Person or Persons identified in clauses (1) through (9) above; and (b) HBL Swiss Financing GmbH, HBL Luxembourg Holdings S.à r.l., WH Luxembourg Holdings S.à R.L., Herbalife International Luxembourg S.à R.L., and WH Intermediate Holdings LTD (and their respective successors) in connection with any purchases and/or holdings of Parent’s common equity interests permitted hereunder, to the extent, in the case of this clause (b), (x) immediately before and after giving effect to any such purchases, the Loan Parties shall have been in compliance with the requirements of Section 5.14 determined on a Pro Forma Basis and (y) such Persons are Wholly Owned Subsidiaries of Parent. For the purposes of this definition of Permitted Holders, (I) “Control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise and (II) for the avoidance of doubt, in addition to any other Person or Persons that may be considered to possess Control, (x) a partnership shall be considered Controlled by a general partner or managing general partner thereof, (y) a limited liability company shall be considered Controlled by a managing member of such limited liability company and (z) a trust or estate shall be considered Controlled by any trustee, executor, personal representative, administrator or any other Person or Persons having authority over the control, management or disposition of the income and assets therefrom.
“Permitted Junior Secured Refinancing Debt”: Indebtedness incurred by the Term Loan Borrower in the form of one or more series of secured notes or loans; provided, that, (i) such Indebtedness is, in each case, secured by Collateral on a junior basis to the Liens securing the
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Obligations and is not secured by any property or assets of Parent or any Subsidiary of Parent other than property or assets constituting Collateral, (ii) such Indebtedness constitutes Permitted Credit Agreement Refinancing Indebtedness, (iii) the security agreements relating to such Indebtedness are not materially more favorable (as determined in good faith by Parent) to the lenders or investors thereunder than the Collateral Documents and (iv) a Senior Representative acting on behalf of the holders of such Indebtedness shall have become party to a Senior/Junior Intercreditor Agreement or such other customary intercreditor arrangements reasonably satisfactory to the Collateral Agent. Permitted Junior Secured Refinancing Debt will include any Registered Equivalent Notes issued in exchange therefor.
“Permitted Liens”: the collective reference to (i) in the case of Collateral other than Pledged Equity Interests and Material Real Property, Liens permitted by Section 6.3, (ii) in the case of Collateral consisting of Material Real Property, Liens of the type described in Sections 6.3(a), 6.3(b), 6.3(e) and 6.3(f) and (iii) in the case of Collateral consisting of Pledged Equity Interests, non-consensual Liens permitted by Section 6.3 and Liens permitted by any of Sections 6.3(h), 6.3(j), 6.3(l), 6.3(s)(ii), 6.3(t), 6.3(v) (other than Liens on the Capital Stock of any Borrower), 6.3(w), 6.3(dd) and 6.3(ff).
“Permitted Pari Passu Secured Refinancing Debt”: Indebtedness incurred by the Term Loan Borrower in the form of one or more series of senior secured loans or senior secured notes; provided, that (i) such Indebtedness is secured by the Collateral on a pari passu basis (but without regard to the control of remedies) with the Obligations and is not secured by any property or assets of Parent or any Subsidiary of Parent other than the Collateral, (ii) such Indebtedness constitutes Permitted Credit Agreement Refinancing Indebtedness, (iii) the security agreements relating to such Indebtedness are not materially more favorable (as determined in good faith by Parent) to the lenders or investors thereunder than the Collateral Documents and (iv) a Senior Representative acting on behalf of the holders of such Indebtedness shall have become party to a Senior/Junior Intercreditor Agreement or other customary intercreditor arrangements reasonably satisfactory to the Collateral Agent. Permitted Pari Passu Secured Refinancing Debt will include any Registered Equivalent Notes issued in exchange therefor.
“Permitted Refinancing”: with respect to any Indebtedness of any Person, any refinancing, refunding, renewal, replacement, defeasance, discharge or extension of such Indebtedness (each, a “refinancing”, with “refinanced” having a correlative meaning); provided, that (a) the aggregate principal amount (or accreted value, if applicable) does not exceed the then outstanding aggregate principal amount (or accreted value, if applicable) of the Indebtedness so refinanced, except by an amount equal to all unpaid accrued or capitalized interest thereon, any make-whole payments or premium (including tender premium) applicable thereto or paid in connection therewith, any swap breakage costs and other termination costs related to Hedge Agreements, plus upfront fees and original issue discount on such refinancing Indebtedness, plus other customary fees and expenses in connection with such refinancing, (b) other than in the case of a refinancing of purchase money Indebtedness and Capital Lease Obligations, such refinancing has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being refinanced, (c) the borrower/issuer under such refinancing is the same Person that is the borrower/issuer under the Indebtedness being so refinanced and the other Persons that are (or are required to be) obligors
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under such refinancing are not more expansive than the Persons that are (or are required to be) obligors under the Indebtedness being so refinanced, except that any Guarantor may be an obligor thereof if otherwise permitted by this Agreement, (d) in the event such Indebtedness being so refinanced is (i) contractually subordinated in right of payment to the Obligations, such refinancing shall contain subordination provisions that are substantially the same (as determined in good faith by Parent) as those in effect prior to such refinancing or are not materially less favorable, taken as a whole (as determined in good faith by Parent), to the Secured Parties than those contained in the Indebtedness being so refinanced or are otherwise reasonably acceptable to the applicable Administrative Agent (provided that, in the case of the Convertible Notes, any refinancing thereof shall not be required to contain subordination provisions to the extent the Indebtedness that refinances such Convertible Notes is unsecured) or (ii) secured by a junior permitted lien on the Collateral (or portion thereof) and/or subject to intercreditor arrangements for the benefit of the Lenders, in the case of this clause (ii) such refinancing shall be unsecured or secured by a junior permitted lien on the Collateral (or portion thereof), and subject to intercreditor arrangements on substantially the same terms (as determined in good faith by Parent) as those in effect prior to such refinancing or on terms not materially less favorable, taken as a whole, to the Secured Parties than those in respect of the Indebtedness being so refinanced or on such other terms reasonably acceptable to the applicable Administrative Agent, (e) such refinancing does not provide for the granting or obtaining of collateral security from, or obtaining any lien on any assets of, any Person, other than collateral security obtained from Persons that provided (or were required to provide) collateral security with respect to Indebtedness being so refinanced (so long as the assets subject to such liens were or would have been required to secure the Indebtedness so refinanced) (provided, that additional Persons that would have been required to provide collateral security with respect to the Indebtedness being so refinanced may provide collateral security with respect to such refinancing and any Guarantor may provide collateral security otherwise permitted by this Agreement that is junior to the Liens under the Collateral Documents on terms not materially less favorable to the Lenders (as determined in good faith by Parent) than those set forth in the Intercreditor Agreements) and (f) in the event such Indebtedness being so refinanced is Junior Debt or is incurred under Section 6.2(d) or (g), the terms of such refinancing, as compared to the Indebtedness being so refinanced, are, when taken as a whole, not materially less favorable to the Secured Parties as compared to the Indebtedness being so refinanced (other than (x) with respect to interest rates, fees, funding discounts and other pricing terms, liquidation preferences, prepayment or other premiums, call protection periods, subordination terms and optional prepayment and redemption provisions and (y) terms applicable only after the then Latest Maturity Date (as determined on the date of incurrence of such Indebtedness)) (in each case, as determined in good faith by Parent).
“Permitted Term Loan Refinancing Indebtedness”: (a) Permitted Pari Passu Secured Refinancing Debt, (b) Permitted Junior Secured Refinancing Debt and (c) Permitted Unsecured Refinancing Debt and, in each case, any Permitted Refinancing thereof.
“Permitted Unsecured Refinancing Debt”: Indebtedness incurred by the Term Loan Borrower in the form of one or more series of unsecured notes or loans; provided, that (i) such Indebtedness is not secured by any property or assets of any Group Member and (ii) such Indebtedness constitutes Permitted Credit Agreement Refinancing Indebtedness. Permitted
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Unsecured Refinancing Debt will include any Registered Equivalent Notes issued in exchange therefor.
“Person”: an individual, partnership, corporation, exempted company, person, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. Any division of a limited liability company shall constitute a separate Person hereunder (and each division of any limited liability company that is a Subsidiary, Restricted Subsidiary, Unrestricted Subsidiary, joint venture or any other like term shall also constitute such a Person or entity).
“Plan”: any employee benefit plan that is subject to ERISA and in respect of which any Borrower or a Commonly Controlled Entity is or, if such plan were terminated, would under Section 4062 or Section 4069 of ERISA be deemed to be an “employer” as defined in Section 3(5) of ERISA.
“Platform”: as defined in Section 9.1.
“Pledge Agreement”: the Pledge Agreement between WH Luxembourg Holdings S.à R.L. and the Collateral Agent.
“Pledged Debt”: as defined in the Security Agreement.
“Pledged Equity Interests”: as defined in the Security Agreement.
“Prime Rate”: for any day, the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. for such day or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate for such day or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent), in each case, for such day. Each change in the Prime Rate shall be effective on the date that such change is effective.
“Private Lender Information”: as defined in Section 9.1.
“Pro Forma Balance Sheet”: as defined in Section 3.1(a)(i).
“Pro Forma Basis”: with respect to compliance with any test or covenant or calculation of any ratio hereunder, the determination or calculation of such test, covenant or ratio (including in connection with Pro Forma Transactions) in accordance with Section 1.5.
“Pro Forma Financial Statements”: as defined in Section 4.1(c)(iii)4.1(d).
“Pro Forma Transaction”: (a) the Transactions, (b) any incurrence or repayment of Indebtedness (other than for working capital purposes or in the ordinary course of business), the making of any Restricted Payment pursuant to Section 6.6(d) or (n), any Investment that results in a Person becoming a Restricted Subsidiary or an Unrestricted Subsidiary, any Permitted
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Acquisition or any Disposition that results in a Restricted Subsidiary ceasing to be a Subsidiary or any Investment constituting an acquisition of assets constituting a business unit, line of business or division of another Person or any Disposition of a business unit, line of business or division of a Group Member, in each case whether by merger, consolidation, amalgamation or otherwise and (c) any restructuring or cost saving, operational change or business rationalization initiative or other initiative.
“Process Agent”: as defined in Section 9.9(e).
“Property”: any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including Capital Stock.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public Lender”: as defined in Section 9.1.
“Public Lender Information”: as defined in Section 9.1.
“Purchasing Borrower Party”: Parent or any Restricted Subsidiary of Parent that becomes an Eligible Assignee pursuant to Section 9.4.
“Qualified Capital Stock”: Capital Stock that is not Disqualified Capital Stock.
“Qualified Counterparty”: with respect to any Specified Hedge Agreement or Cash Management Obligations, any counterparty thereto that, at the time such Specified Hedge Agreement or Cash Management Obligations were entered into or, in the case of a Specified Hedge Agreement or Cash Management Obligations, as the case may be, existing on the Closing Date, was an Agent, a Lender or an Affiliate of any of the foregoing, regardless of whether any such Person shall thereafter cease to be an Agent, a Lender or an Affiliate of any of the foregoing.
“Qualifying Bids”: as defined in Section 2.12(f)(iii).
“Qualifying Lender”: as defined in Section 2.12(f)(iv).
“Ratio-Based Incremental Facility”: as defined in Section 2.23(a).
“Realized Score”: in relation to any Sustainability KPI in respect of any fiscal year (or, for the first period, part of any applicable fiscal year), the actual score assigned to that Sustainability KPI in the Sustainability KPI Report for that fiscal year (or, for the first period, part of any applicable fiscal year).
“Recovery Event”: any settlement of, or payment in respect of, any property or casualty insurance claim or any condemnation proceeding relating to any asset of any Group Member.
“Reference Rate”: (a) with respect to the Loans comprising each Eurodollar Borrowing for each day during each Interest Period with respect thereto, a rate per annum equal to the Adjusted
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LIBO Rate for the Interest Period in effect for such Borrowing, (b) with respect to the Loans comprising each SOFR Borrowing for each day during each Interest Period with respect thereto, a rate per annum equal to the Adjusted Term SOFR for the Interest Period in effect for such Borrowing, and (c) with respect to any ABR Loan, the Alternate Base Rate and (d) with respect to the Loans comprising each Eurodollar Borrowing in Euros for each day during each Interest Period with respect thereto, a rate per annum equal to EURIBOR for the Interest Period in effect for such Borrowing.
“Refinancing”: has the meaning given in the Preliminary Statements.
“Refinancing Indebtedness”: with respect to any Indebtedness, any other Indebtedness incurred in connection with a Permitted Refinancing of such Indebtedness.
“Register”: as defined in Section 9.4(b)(iv).
“Registered Equivalent Notes”: with respect to any notes originally issued in a Rule 144A or other private placement transaction under the Securities Act, substantially identical notes (having the same guarantees) issued in a dollar-for-dollar exchange therefor pursuant to an exchange offer registered with the SEC.
“Regulation”: as defined in Section 3.22.
“Regulation FD”: Regulation FD as promulgated by the SEC under the Exchange Act, as in effect from time to time.
“Regulation H”: Regulation H of the Board as in effect from time to time.
“Regulation U”: Regulation U of the Board as in effect from time to time.
“Reimbursement Obligation”: the obligation of the Revolver Borrowers to reimburse each Issuing Bank pursuant to Section 2.7(e) for amounts drawn under Letters of Credit issued by such Issuing Bank.
“Reinvestment Deferred Amount”: with respect to any Reinvestment Event, the aggregate amount of Net Cash Proceeds received by any Group Member in connection therewith that are not applied to prepay the Term Loans as a result of the delivery of a Reinvestment Notice.
“Reinvestment Event”: any Asset Sale (other than a Specified Sale and Leaseback Transaction) or Recovery Event in respect of which the Term Loan Borrower has delivered a Reinvestment Notice.
“Reinvestment Notice”: a written notice executed by a Responsible Officer stating that a Group Member intends and expects to use all or a portion of the amount of Net Cash Proceeds of an Asset Sale or Recovery Event to restore, rebuild, repair, construct, improve, replace or otherwise acquire assets useful in the business of a Group Member.
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“Reinvestment Prepayment Amount”: with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to restore, rebuild, repair, construct, improve, replace or otherwise acquire assets useful in Parent’s or a Restricted Subsidiary’s business.
“Reinvestment Prepayment Date”: with respect to any Reinvestment Event, the earlier of (a) the date that is 365 days after the date of such Reinvestment Event (or, if a Group Member shall have entered into a legally binding commitment prior to the date that is 365 days after such Reinvestment Event to restore, rebuild, repair, construct, improve, replace or otherwise acquire assets useful in the applicable Group Member’s business with the applicable Reinvestment Deferred Amount, the later of (x) the date that is 365 days after the date of such Reinvestment Event and (y) the date that is 180 days after the date on which such commitment became legally binding) and (b) the date on which the Term Loan Borrower shall have determined not to restore, rebuild, repair, construct, improve, replace or otherwise acquire assets useful in the applicable Group Member’s business with all or any portion of the relevant Reinvestment Deferred Amount.
“Related Parties”: with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, partners, members, trustees, managers, controlling persons, agents, advisors and other representatives of such Person and such Person’s Affiliates and the respective successors and permitted assigns of each of the foregoing.
“Release”: any actual or threatened release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment or within any building, structure, facility or fixture.
“Relevant Governmental Body” means: means (i) with respect to a Benchmark or Benchmark Replacement in respect of any Benchmark applicable to US Dollars, the Board or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board 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 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.
“Relevant Reference Period”: with respect to any action or determination under this Agreement, the Test Period then most recently ended for which financial statements have been delivered pursuant to Section 5.1(a) or 5.1(b) immediately preceding the date on which the action for which such calculation is being made shall occur or the determination is being made (or, prior to the first delivery of the financial statements pursuant to Section 5.1(a) or 5.1(b), the Test Period ended December 31, 2018).
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“Replacement Facility”: as defined in Section 2.24(a).
“Replacement Facility Amendment”: as defined in Section 2.24(c).
“Replacement Facility Closing Date”: as defined in Section 2.24(c).
“Replacement Revolving Credit Commitments”: as defined in Section 2.24(d).
“Replacement Revolving Credit Facility”: as defined in Section 2.24(a).
“Replacement Term Loans”: as defined in Section 2.24(a).
“Reply Amount”: as defined in Section 2.12(f)(ii).
“Reply Discount Price”: as defined in Section 2.12(f)(ii).
“Reportable Event”: any of the “reportable events” set forth in Section 4043(c) of ERISA or the regulations issued thereunder, with respect to a Plan, other than those events as to which notice is waived pursuant to DOL Reg. Part 4043.
“Repricing Event”: (a) any prepayment, repayment, refinancing, substitution or replacement of all or a portion of the Term B Loans with the proceeds of, or any conversion of Term B Loans into, any new or replacement tranche of term loans (including new Term B Loans under this Agreement) having an “effective yield” (taking into account interest rate margin and benchmark floors, recurring fees and all upfront or similar fees or original issue discount (amortized over the shorter of (x) the Weighted Average Life to Maturity of such term loans and (y) four years), but excluding any bona fide arrangement, underwriting, structuring, syndication or other fees payable in connection therewith that are not shared ratably with all lenders or holders of such new or replacement term loans in their capacities as lenders or holders of such new or replacement term loans) less than the “effective yield” applicable to the Term B Loans (determined on the same basis as provided in the preceding parenthetical) and (b) any amendment (including pursuant to a replacement term loan as contemplated by Section 9.2) to the Term B Loans or any tranche thereof that, directly or indirectly, reduces the “effective yield” (determined on the same basis as provided in the second parenthetical in the preceding clause (a)) applicable to the Term B Loans.
“Required Lender Consent Items”: as defined in Section 9.4(f).
“Required Lenders”: at any time, the holders of more than 50.0% of (a) until the Closing Date, the Commitments and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans then outstanding and (ii) the Total Revolving Credit Commitments then in effect or, if the Revolving Credit Commitments have been terminated, the Total Revolving Credit Exposure; provided that the Aggregate Exposure and Commitments of any Defaulting Lender shall be disregarded in making any determination under this definition.
“Required Pro Rata Facility Lenders”: at any time, with respect to the Term Loan A Facility and the Revolving Credit Facility taken together, Lenders holding greater than 50% of (x) the then
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aggregate unpaid principal amount of the Loans held by all Lenders under such Facilities and (y) the aggregate undrawn Commitments of all Lenders under such Facilities (provided that, for purposes hereof, no Defaulting Lender shall be included in (a) the Lenders holding such amount of the Loans or having such amount of Commitments or (b) determining the aggregate unpaid principal amount of the Loans outstanding under such Facilities or the aggregate unfunded Commitments under such Facilities).
“Required Revolving Lenders”: at any time, the holders of more than 50% of the sum of the Total Revolving Credit Commitments then in effect or, if the Revolving Credit Commitments have been terminated, the Total Revolving Credit Exposure; provided that (i) the Revolving Credit Exposure and Revolving Credit Commitment of any Defaulting Lender shall be disregarded in making any determination under this definition and (ii) at any time that there are three (3) or more Revolving Credit Lenders, “Required Revolving Lenders” shall include not less than three (3) Revolving Credit Lenders.
“Required Term A Lenders”: at any time, the holders of more than 50% of the sum of the aggregate unpaid principal amount of the Term A Loans held by all Lenders under the Term Loan A Facility, or, if no such principal amount is then outstanding, Lenders having greater than 50% of the aggregate Commitments under such Facility; provided that the Aggregate Exposure of any Defaulting Lender shall be disregarded in making any determination under this definition.
“Required Term B Lenders”: at any time, the holders of more than 50% of the sum of the aggregate unpaid principal amount of the Term B Loans held by all Lenders under the Term Loan B Facility, or, if no such principal amount is then outstanding, Lenders having greater than 50% of the aggregate Commitments under such Facility; provided that the Aggregate Exposure of any Defaulting Lender shall be disregarded in making any determination under this definition.
“Required Term Lenders”: at any time, the holders of more than 50% of the sum of the aggregate unpaid principal amount of the Term Loans held by all Lenders under the Term Loan Facilities, or, if no such principal amount is then outstanding, Lenders having greater than 50% of the aggregate Commitments under such Facility; provided that the Aggregate Exposure of any Defaulting Lender shall be disregarded in making any determination under this definition.
“Requirement of Law”: as to any Person, any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.
“Requirement of Tax Law”: as to any Person, any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority relating to Taxes, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.
“Responsible Officer”: as to any Person, the chief executive officer, president, chief financial officer, chief accounting officer or treasurer of such Person, but in any event, with respect to financial matters, the chief financial officer, chief accounting officer or treasurer of such Person.
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Unless otherwise qualified, all references to a “Responsible Officer” shall refer to a Responsible Officer of Parent.
“Restricted Asset Sale Proceeds”: in respect of a Foreign Asset Sale, an amount equal to the Net Cash Proceeds attributable thereto if and solely to the extent that the repatriation of such Net Cash Proceeds to any Group Member, or the inclusion of such Net Cash Proceeds in the calculation of Net Cash Proceeds for purposes of calculating any prepayment requirement under Section 2.14(b) (a) would result in material adverse Tax consequences to Parent or any Subsidiary of Parent, as reasonably determined by Parent or (b) would be prohibited or restricted by applicable law, rule or regulation, in each case as determined in good faith by Parent.
“Restricted ECF”: with respect to any Excess Cash Flow Period, an amount equal to the unrepatriated Excess Cash Flow attributable to any Foreign Subsidiary if and solely to the extent that the repatriation of such attributable Excess Cash Flow to any Group Member, or the inclusion of such Excess Cash Flow in Excess Cash Flow for purposes of calculating any prepayment requirement under Section 2.14(c) (a) would result in adverse Tax consequences to Parent or any Subsidiary of Parent of more than a de minimis amount, as reasonably determined by Parent or (b) would be prohibited or restricted by applicable law, rule or regulation, in each case, as determined in good faith by Parent.
“Restricted Payments”: as defined in Section 6.6.
“Restricted Recovery Event Proceeds”: in respect of a Foreign Recovery Event, an amount equal to the Net Cash Proceeds attributable thereto if and solely to the extent that the repatriation of such Net Cash Proceeds, or the inclusion of such Net Cash Proceeds in the calculation of Net Cash Proceeds for purposes of calculating any prepayment requirement under Section 2.14(b) (a) would result in material adverse Tax consequences to Parent or any Subsidiary of Parent, as reasonably determined by Parent or (b) would be prohibited or restricted by applicable law, rule or regulation, in each case as determined in good faith by Parent.
“Restricted Subsidiary”: any Subsidiary of Parent other than an Unrestricted Subsidiary. For the avoidance of doubt, each Borrower (other than Parent) is as of the date hereof and shall remain for all purposes of this Agreement a Restricted Subsidiary.
“Retained Asset Sale Proceeds”: as defined in Section 2.14(b).
“Return Bid”: as defined in Section 2.12(f)(ii).
“Returns”: with respect to any Investment, any dividends, interest, distributions, return of capital and other amounts received or realized in respect of such Investment.
“Revaluation Date”: (a) with respect to any Revolving Credit Loan, each of the following: (i) each date of a Borrowing of a Eurodollar Loan denominated in an Alternative Currency, but only as to the amounts so borrowed on such date, (ii) each date of a continuation of a Eurodollar Loan denominated in an Alternative Currency pursuant to Section 2.9, but only as to the amounts so continued on such date, and (iii) such additional dates as the Revolver Administrative Agent shall determine or the Required Revolving Lenders shall require; and (b) with respect to any Letter
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of Credit, each of the following: (i) each date of issuance of a Letter of Credit denominated in an Alternative Currency, but only as to the Letter of Credit so issued on such date, (ii) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof, but only as to the amount of such increase, (iii) each date of any payment by the applicable Issuing Bank under any Letter of Credit denominated in an Alternative Currency and (iv) such additional dates as the Revolver Administrative Agent or the applicable Issuing Bank shall determine or the Required Revolving Lenders shall require.
“Revolver Administrative Agent”: as defined in the preamble hereto.
“Revolver Borrowers”: as defined in the preamble hereto.
“Revolving Commitment Fee Rate”: (i) until delivery of the financial statements for the first full fiscal quarter ending after the Fourth Amendment Effective Date pursuant to Sections 5.1(a) and 5.1(b), the rate per annum set forth in Level I of the table set forth in the definition of “Applicable Margin” and (ii) thereafter, the rate per annum set forth in the table set forth in the definition of “Applicable Margin” based on the Total Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agents pursuant to Section 5.2(a), in each case on the undrawn portion of the Revolving Credit Commitments (excluding any Revolving Credit Commitments of Defaulting Lenders, except to the extent such Revolving Credit Commitments are reallocated under the same terms to Lenders that are not Defaulting Lenders).
“Revolving Credit Borrowing”: a Borrowing comprised of Revolving Credit Loans.
“Revolving Credit Commitments” as to any Revolving Credit Lender, the obligation of such Revolving Credit Lender, if any, to make Revolving Credit Loans pursuant to Section 2.4(a), and to participate in Letters of Credit pursuant to Section 2.7, expressed as an amount representing the maximum aggregate permitted amount of such Revolving Credit Lender’s Revolving Credit Exposure hereunder, in an aggregate principal and/or face amount not to exceed the amount set forth under the heading “Revolving Credit Commitment” opposite such Revolving Credit Lender’s name on Schedule 2.1, or, as the case may be, in the Assignment and Assumption pursuant to which such Revolving Credit Lender became a party hereto, in each case as the same may be changed from time to time pursuant to the terms hereof. The original aggregate amount of the total Revolving Credit Commitments on the Closing Date is $250.0 million.
“Revolving Credit Exposure”: at any time, with respect to any Lender, the sum of such Lender’s Revolving Credit Loans and its LC Exposure at such time.
“Revolving Credit Facility”: as defined in the definition of “Facility” and including, as appropriate, any Extensions thereof and any Replacement Revolving Credit Facility.
“Revolving Credit Lender”: each Lender that has a Revolving Credit Commitment or that is the holder of Revolving Credit Loans.
“Revolving Credit Loan”: a Loan made by a Revolving Credit Lender pursuant to Section 2.4. Each Revolving Credit Loan shall be a Eurodollar Loan (if denominated in an Alternative Currency), SOFR Loan or an ABR Loan, as applicable.
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“Revolving Credit Maturity Date”: with respect to (a) Revolving Credit Commitments (including, for the avoidance of doubt, any Incremental Revolving Increases) that have not been extended pursuant to Section 2.25, March 19, 2025; provided that “Revolving Credit Maturity Date” with respect to the Revolving Commitments shall mean the date that is 182 days prior to the scheduled maturity date of the 2018 Convertible Notes if (i) the aggregate principal amount of the 2018 Convertible Notes outstanding on such date exceeds $350.0 million and (ii) either (x) the First Lien Net Leverage Ratio as of such date is greater than 1.50:1.00 or (y) the Total Net Leverage Ratio as of such date is greater than 3.50:1.00, (b) with respect to Extended Revolving Credit Commitments, the final maturity date therefor as specified in the applicable Extension Offer accepted by the respective Revolving Credit Lender or Revolving Credit Lenders and (c) with respect to any commitments under a Replacement Revolving Credit Facility, the final maturity date therefor specified in the applicable Replacement Facility Amendment.
“Sanctioned Countries” means, at any time, a country or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, the Crimea region of Ukraine, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, any Person that is the target of Sanctions, including (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) or the U.S. Department of State, by the United Nations Security Council, the European Union, Her Majesty’s Treasury of the United Kingdom or other relevant Governmental Authority, (b) any Person operating from, organized, or resident in a Sanctioned Country, or (c) any Person 50% or more owned or, where relevant under applicable Sanctions, controlled by any such Person or Persons or acting for or on behalf of such Person or Persons.
“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by relevant Governmental Authorities, including, but not limited those administered by the U.S. government through OFAC, or the U.S. Department of State, the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.
“S&P”: Standard & Poor’s Ratings Group, a division of The McGraw Hill Corporation.
“Sale and Leaseback Transaction”: as defined in Section 6.10.
“SEC”: the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority).
“Secured Parties”: collectively, the Administrative Agents, the Collateral Agent, the Lenders, the Issuing Banks, each Qualified Counterparty, each co-agent or sub-agent appointed by an Agent from time to time pursuant to Section 8.2, the Indemnitees and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.
“Securities Act”: the Securities Act of 1933.
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“Security Agreement”: the Security Agreement among HII, the Term Loan Borrower and each Guarantor that is a Domestic Subsidiary, substantially in the form of Exhibit A.
“Senior Notes”: the unsecured senior notes of HII and the TL Borrower due 2026 in an aggregate principal amount of $400.0 million issued on or prior to the Closing Date pursuant to the Senior Notes Indenture.
“Senior Notes Indenture”: the Indenture dated as of the Closing Date, relating to the Senior Notes, among HII and the TL Borrower, as co-issuers, MUFG Union Bank, N.A., as trustee, the Guarantors from time to time party thereto (as defined therein), together with all instruments and other agreements in connection therewith, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, to the extent not prohibited under the Loan Documents.
“Senior Pari Passu Intercreditor Agreement”: a pari passu intercreditor agreement between or among the Agents and one or more Senior Representatives for holders of Indebtedness secured by any of the Collateral on an equal priority basis with the Obligations substantially in the form of Exhibit F-2 hereto.
“Senior/Junior Intercreditor Agreement”: an intercreditor agreement substantially in the form of Exhibit F-1 hereto.
“Senior Representative”: with respect to any series of Permitted Pari Passu Secured Refinancing Debt or Permitted Junior Secured Refinancing Debt, Incremental Equivalent Debt or other Indebtedness permitted to be secured by the Collateral under this Agreement, the trustee, administrative agent, collateral agent, security agent or similar agent under the indenture or agreement pursuant to which such Indebtedness is issued, incurred or otherwise obtained, as the case may be, and each of their successors in such capacities.
“Single Employer Plan”: any Plan that is covered by Title IV of ERISA, but which is not a Multiemployer Plan.
“SOFR” means a rate per annum equal to the secured overnight financing rate for such Business Day as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Borrowing”: a Borrowing comprised of SOFR Loans.
“SOFR Loan” means any Loan bearing interest or incurring fees, commissions or other amounts based upon Adjusted Term SOFR, but excluding any ABR Loan.
“Solvent”: with respect to any Person, as of any date of determination, (a) the fair value of the assets of such Person exceeds the amount of all debts and liabilities of such Person, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of such Person is greater than the amount that will be required to pay the probable liability of the debts
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and other liabilities of such Person, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) such Person has not incurred and does not intend to incur, or believe that it will incur, debts or other liabilities, including current obligations, beyond its ability to pay such debts or other liabilities as they become due (whether at maturity or otherwise); (d) such Person is not engaged in, and is not about to be engaged in, business for which it has unreasonably small capital; and (e) in respect of a Luxembourg Loan Party, such Person is not in a state of cessation of payments (cessation de paiements) and has not lost its commercial creditworthiness. For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. For purposes of this definition, the amount of any contingent, unliquidated and disputed claim and any claim that has not been reduced to judgment at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Special Notice Currency”: at any time an Alternative Currency, other than the currency of a country that is a member of the Organization for Economic Cooperation and Development at such time located in North America or Europe.
“Specified Change of Control”: a “Change of Control” or like event as defined in the agreement or agreements governing any Material Debt.
“Specified Event of Default”: any Event of Default under Section 7.1(a) or 7.1(f).
“Specified Hedge Agreements”: any Hedge Agreement entered into or assumed by any Loan Party and any Qualified Counterparty and designated by the Qualified Counterparty and the Borrowers in writing to the Collateral Agent as a “Specified Hedge Agreement”.
“Specified Prepayment”: as defined in Section 6.8.
“Specified Representations”: the representations and warranties with respect to the Borrowers and the Guarantors set forth in this Agreement under (i) Section 3.3(a); (ii) the first two sentences and the last two sentences of Section 3.4; (iii) Section 3.5 (but only in respect of violations or defaults under Organizational Documents of the Loan Parties); (iv) Section 3.10; (v) Section 3.12; (vi) Section 3.17(a), (c) and (d) (subject to (x) Permitted Liens and (y) in the case of priority, any Senior Pari Passu Intercreditor Agreement, any Senior/Junior Intercreditor Agreement and any other intercreditor arrangements required to be entered into pursuant to this Agreement); (vii) Section 3.18; and (viii) Section 3.19.
“Specified Sale and Leaseback Transaction”: as defined in Section 6.10.
“Spot Rate”: for a currency means the rate determined by the Revolver Administrative Agent or the applicable Issuing Bank, as applicable, to be the rate quoted by the Person acting in
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such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 8:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the Revolver Administrative Agent or the applicable Issuing Bank may obtain such spot rate from another financial institution designated by the Revolver Administrative Agent or the applicable Issuing Bank if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that the applicable Issuing Bank may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in an Alternative Currency.
“Statutory Reserve Rate”: a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the applicable Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurodollar Liabilities” in Regulation D of the Board). Such reserve percentage shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Subject Class”: as defined in Section 2.12(f)(i).
“Subsequent Required Guarantor”: as defined in Section 5.9(c).
“Subsidiary”: as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of Parent.
“Subsidiary Guarantor”: each Subsidiary of Parent, other than any Borrower or an Excluded Subsidiary (but including any Discretionary Guarantor).
“Surety Bonds”: surety bonds for which any Group Member is liable that were obtained to secure performance commitments of any Group Member.
“Sustainability Compliance Certificate”: as defined in Section 2.28(a).
“Sustainability Coordinator”: as defined in the preamble hereto.
“Sustainability KPI”: each key performance indicator on sustainability set out, and further defined, in the Approved Sustainability Proposal, which, for the avoidance of doubt, will include
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indicators related to (1) an S&P Global ESG Score, (2) the percentage of virgin plastic materials used in packaging, (3) Scope 1 and Scope 2 greenhouse gas emissions as measured by metric tons of (or percentage reduction in) carbon dioxide equivalents (CO2e) at select manufacturing facilities owned by Parent Group and (4) the percentage of female employees in executive management positions (i.e. at the Vice President level or above).
“Sustainability KPI Report”: with respect to any fiscal year (or, for the first period, part of any applicable fiscal year), the report which includes the Realized Score in relation to each Sustainability KPI as verified by the Sustainability Verifier.
“Sustainability Linked Pricing Adjustment”: as defined in Section 2.28(a).
“Sustainability Pricing Adjustment Date”: as defined in Section 2.28(d).
“Sustainability Proposal”: as defined in Section 2.28(a).
“Sustainability Verifier”: as defined in Section 2.28(a).
“Swap Obligation”: with respect to any Loan Party, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
“Syndication Agent”: Jefferies, Rabobank, Citizens, Citi, Fifth Third, Mizuho, Capital One, National Association and Comerica Securities as syndication agents for the Facilities.
“Target Score”: as defined in Section 2.28(a).
“Taxes”: any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholdings), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Borrowing”: any Borrowing of Term Loans.
“Term A Loan”: as defined in Section 2.1. Each Term A Loan shall be a SOFR Loan or an ABR Loan, as applicable.
“Term Loan A Agent”: as defined in the preamble hereto.
“Term Loan A Commitment”: as to any Lender, the obligation of such Lender, if any, to make a Term A Loan to the Term Loan Borrower hereunder in a principal amount not to exceed the amount set forth under the heading “Term Loan A Commitment” opposite such Lender’s name on Schedule 2.1 The original aggregate amount of the Term Loan A Commitments as of the Closing Date is $250.0 million.
“Term Loan A Facility”: as defined in the definition of “Facility”.
“Term Loan A Installment Date”: as defined in Section 2.3.
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“Term Loan A Lenders”: each Lender that has a Term Loan A Commitment or is the holder of a Term A Loan.
“Term Loan A Maturity Date”: March 19, 2025; provided that “Term Loan A Maturity Date” with respect to Term A Loans shall mean the date that is 182 days prior to the scheduled maturity date of the 2018 Convertible Notes if (i) the aggregate principal amount of the 2018 Convertible Notes outstanding on such date exceeds $350.0 million and (ii) either (x) the First Lien Net Leverage Ratio as of such date is greater than 1.50:1.00 or (y) the Total Net Leverage Ratio as of such date is greater than 3.50:1.00.
“Term Loan A Percentage”: with respect to any Lender on any Term Loan A Installment Date, the percentage which the aggregate principal amount of such Lender’s Term A Loans then outstanding and subject to repayment pursuant to Section 2.3 on such date constitutes of the aggregate principal amount of the Term A Loans of all Term Loan A Lenders then outstanding and subject to repayment pursuant to Section 2.3 on such date.
“Term Loan Administrative Agents”: as defined in the preamble hereto.
“Term B Loan”: as defined in Section 2.1. Each Term B Loan shall be a SOFR Loan or an ABR Loan, as applicable.
“Term Loan B Agent”: as defined in the preamble hereto.
“Term Loan B Commitment”: as to any Lender, the obligation of such Lender, if any, to make a Term B Loan to the Term Loan Borrower hereunder in a principal amount not to exceed the amount set forth under the heading “Term Loan B Commitment” opposite such Lender’s name on Schedule 2.1. The original aggregate amount of the Term Loan B Commitments as of the Closing Date is $750.0 million.
“Term Loan B Facility”: as defined in the definition of “Facility”.
“Term Loan B Installment Date”: as defined in Section 2.3.
“Term Loan B Lenders”: each Lender that has a Term Loan B Commitment or is the holder of a Term B Loan.
“Term Loan B Maturity Date”: August 18, 2025; provided that “Term Loan B Maturity Date” with respect to Term B Loans shall mean the date that is (A) 91 days prior to the scheduled maturity date of the 2014 Convertible Notes if (i) the aggregate principal amount of the 2014 Convertible Notes outstanding on such date exceeds $350.0 million and (ii) either (x) the First Lien Net Leverage Ratio as of such date is greater than 1.50:1.00 or (y) the Total Net Leverage Ratio as of such date is greater than 3.50:1.00 or (B) 91 days prior to the scheduled maturity date of the 2018 Convertible Notes if (i) the aggregate principal amount of the 2018 Convertible Notes outstanding on such date exceeds $350.0 million and (ii) either (x) the First Lien Net Leverage Ratio as of such date is greater than 1.50:1.00 or (y) the Total Net Leverage Ratio as of such date is greater than 3.50:1.00.
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“Term Loan B Percentage”: with respect to any Lender on any Term Loan B Installment Date, the percentage which the aggregate principal amount of such Lender’s Term B Loans then outstanding and subject to repayment pursuant to Section 2.3 on such date constitutes of the aggregate principal amount of the Term B Loans of all Term Loan B Lenders then outstanding and subject to repayment pursuant to Section 2.3 on such date.
“Term Loan Borrower” as defined in the preamble hereto.
“Term Loan Borrower Obligations Guaranty”: the Guaranty, dated as of the Closing Date, made by the Parent and its Restricted Subsidiaries that are Loan Parties (other than (i) the Term Loan Borrower and (ii) any such Restricted Subsidiaries that are Excluded U.S. Guarantors pursuant to clause (b) of the definition thereof) in favor of the Collateral Agent, for the benefit of the Secured Parties, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“Term Loan Facility”: the Term Loan A Facility, the Term Loan B Facility, an Incremental Term Loan A Facility, an Incremental Term Loan B Facility or a Replacement Facility consisting of Term Loans.
“Term Loans”: Term A Loans, Term B Loans as well as any term loans made pursuant to this Agreement (including for the avoidance of doubt, any Incremental Term A Loans, Incremental Term B Loans, Replacement Term Loans and Extended Term Loans, if any).
“Term Loan Lender”: any Lender that is the holder of Term Loans.
“Term SOFR” means,
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“Term SOFR Adjustment” means, for any calculation with respect to an ABR Loan or a SOFR Loan, a percentage per annum as set forth below for the applicable type of such Loan and (if applicable) Interest Period therefor:
ABR Loan:
0.11448% |
SOFR Loan:
Interest Period |
Percentage |
One month |
0.11448% |
Three months |
0.26161% |
Six months |
0.42826% |
Twelve months |
0.71513% |
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Test Period”: on any date of determination, the period of four consecutive fiscal quarters of Parent then most recently ended, taken as one accounting period.
“Total Leverage Ratio”: as of any date of determination, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA of Parent and its Restricted Subsidiaries for the Relevant Reference Period.
“Total Net Leverage Ratio”: as of any date of determination, the ratio of (a) Consolidated Total Net Debt on such day to (b) Consolidated EBITDA of Parent and its Restricted Subsidiaries for the Relevant Reference Period.
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“Total Revolving Credit Commitments”: at any time, the aggregate amount of the Revolving Credit Commitments then in effect.
“Total Revolving Credit Exposure”: at any time, the aggregate amount of the Revolving Credit Exposure of all Revolving Credit Lenders outstanding at such time.
“Transaction Costs”: all fees (including original issue discount), costs and expenses incurred by any Group Member in connection with the Transactions.
“Transactions”: the collective reference to (a) the execution, delivery and performance by the Borrowers and each other Loan Party of this Agreement and each other Loan Document required to be delivered hereunder, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, (b) the Refinancing and (c) the payment of the Transaction Costs.
“Type”: when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, Adjusted Term SOFR or the Alternate Base Rate.
“UCC” or “Uniform Commercial Code”: the Uniform Commercial Code as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral.
“UCP” means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ICC”) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“United States” and “US”: the United States of America.
“Unrestricted Cash”: as of any date of determination, the aggregate amount of all cash and Cash Equivalents on the consolidated balance sheet of the Group Members that is not “restricted” for purposes of GAAP; provided, however, that the aggregate amount of Unrestricted Cash shall not (i) exceed $250.0 million, (ii) include any cash or Cash Equivalents that are subject to a Lien (other than any Lien in favor of the Collateral Agent or in favor of the institution holding such cash or Cash Equivalents so long as not securing Indebtedness for borrowed money) or (iii) include any cash or Cash Equivalents that are restricted by contract, law or material adverse tax consequences from being applied to repay any Funded Debt.
“Unrestricted Subsidiary”: any Subsidiary of Parent (other than any other Borrower or the direct parent company of any Borrower) designated by the Board of Directors of Parent as an Unrestricted Subsidiary pursuant to Section 5.13 subsequent to the date hereof, until such Person ceases to be an Unrestricted Subsidiary of Parent in accordance with Section 5.13. For the
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avoidance of doubt, no Subsidiary will be an Unrestricted Subsidiary unless it is also an Unrestricted Subsidiary under the Senior Notes Indenture.
“US Dollar Equivalent”: on any date of determination, (a) with respect to any amount in US Dollars, such amount, and (b) with respect to any amount in a Foreign Currency, the equivalent in US Dollars of such amount, determined by the applicable Administrative Agent using the Exchange Rate with respect to such Foreign Currency at the time in effect for such amount.
“US Dollars” and “$”: lawful currency of the United States.
“U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“US IP Security Agreements”: the collective reference to each Intellectual Property Security Agreement required to be entered into and delivered pursuant to the terms of this Agreement and the Security Agreement, in each case, in substantially the form of Exhibits A, B and C to the Security Agreement.
“US Loan Party”: any Loan Party that is a US Person.
“US Person”: any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“US Tax Compliance Certificate”: as defined in Section 2.19(e)(ii)(B)(3).
“Weighted Average Life to Maturity”: when applied to any Indebtedness at any date, the number of years obtained by dividing: (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal (excluding nominal amortization), including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness.
“Wholly Owned Subsidiary”: as to any Person, any other Person all of the Capital Stock of which (other than (a) directors’ qualifying shares and (b) nominal shares issued to foreign nationals to the extent required by applicable Requirements of Law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.
“Withholding Agent”: any Loan Party or the applicable Administrative Agent, as applicable.
“Write-Down and Conversion Powers”: with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
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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.
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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.
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Section 2. AMOUNT AND TERMS OF COMMITMENTS
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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 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 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) Notwithstanding anything to the contrary herein or in any other Loan Documents, upon the occurrence of a Benchmark Transition Event, the applicable Administrative Agent and the Borrowers may amend this Agreement to replace the then‑current Benchmark with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the applicable Administrative Agent has posted such proposed amendment to all affected Lenders and the Borrowers so long as the applicable Administrative Agent has not received, by such time, written notice of objection to such amendment from Lenders comprising the Required Pro Rata Facility Lenders. No replacement of a Benchmark with a Benchmark Replacement pursuant to this Section
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2.16(b) will occur prior to the applicable Benchmark Transition Start Date. No Swap Obligation or Hedge Agreement shall be deemed to be a “Loan Document” for purposes of this Section 2.16(b).
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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.
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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 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‑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
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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 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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Section 3. REPRESENTATIONS AND WARRANTIES
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
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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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SECTION 4. CONDITIONS PRECEDENT
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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.
SECTION 5. AFFIRMATIVE COVENANTS
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.
SECTION 6. NEGATIVE COVENANTS
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
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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
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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.
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‑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
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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 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 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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SECTION 7. EVENTS OF DEFAULT
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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.
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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 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.
SECTION 8. THE AGENTS
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Section 9. MISCELLANEOUS
Herbalife Nutrition Ltd.
990 West 190th Street
Torrance, CA 90502
Attention: Richard CalocaDavid Tademaru, Vice President, Treasurer
Telephone: (310) 851-2333357-0652
Facsimile: (310) 767-3328767-3321
E-mail: richardc@herbalife.comdavet@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
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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 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.
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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 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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[Credit Agreement]
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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: August 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: August 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 June 30, 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: August 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 June 30, 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: August 2, 2023
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common shares, par value | $ 0.0005 | $ 0.0005 |
| Common shares, shares authorized | 2,000,000,000 | 2,000,000,000 |
| Common shares, shares outstanding | 98,900,000 | 97,900,000 |
Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|||
| Income Statement [Abstract] | ||||||
| Net sales | $ 1,314.0 | $ 1,392.7 | $ 2,566.1 | $ 2,728.5 | ||
| Cost of sales | 301.6 | 315.8 | 600.2 | 622.9 | ||
| Gross profit | 1,012.4 | 1,076.9 | 1,965.9 | 2,105.6 | ||
| Royalty overrides | 429.7 | 452.9 | 845.7 | 886.7 | ||
| Selling, general, and administrative expenses | [1] | 460.5 | 470.0 | 936.4 | 924.9 | |
| Other operating income | (1.2) | (1.8) | (10.1) | (14.9) | ||
| Operating income | 123.4 | 155.8 | 193.9 | 308.9 | ||
| Interest expense, net | 38.4 | 31.7 | 77.8 | 61.4 | ||
| Income before income taxes | 85.0 | 124.1 | 116.1 | 247.5 | ||
| Income taxes | 25.1 | 37.6 | 26.9 | 62.8 | ||
| Net income | $ 59.9 | $ 86.5 | $ 89.2 | $ 184.7 | ||
| Earnings per share: | ||||||
| Basic | $ 0.6 | $ 0.88 | $ 0.9 | $ 1.86 | ||
| Diluted | $ 0.6 | $ 0.88 | $ 0.89 | $ 1.84 | ||
| Weighted-average shares outstanding: | ||||||
| Basic | 99.1 | 98.2 | 98.8 | 99.1 | ||
| Diluted | 99.5 | 98.7 | 99.8 | 100.2 | ||
| ||||||
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Statement of Comprehensive Income [Abstract] | ||||
| Net income | $ 59.9 | $ 86.5 | $ 89.2 | $ 184.7 |
| Other comprehensive income (loss): | ||||
| Foreign currency translation adjustment, net of income taxes of $(0.2) and $(0.4) for the three months ended June 30, 2023 and 2022 respectively, and $(0.2) and $(0.4) for the six months ended June 30, 2023 and 2022, respectivey | 1.6 | (31.9) | 14.8 | (27.5) |
| Unrealised gain (loss) on derivatives, net of income taxes of $ (0.1) and $ - for the three months ended June 30, 2023 and 2022, respectively, and $ (00.1) and $ - for the six months ended June 30, 2023 and 2022, respectively | (0.6) | (1.2) | (2.6) | (3.8) |
| Total other comprehensive income (loss) | 1.0 | (33.1) | 12.2 | (31.3) |
| Total other comprehensive income | $ 60.9 | $ 53.4 | $ 101.4 | $ 153.4 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Statement of Comprehensive Income [Abstract] | ||||
| Foreign currency translation adjustment, tax | $ (0.2) | $ (0.4) | $ (0.2) | $ (0.4) |
| Unrealized (loss) gain on derivatives, tax | $ (0.1) | $ 0.0 | $ (0.1) | $ 0.0 |
Organization |
6 Months Ended |
|---|---|
Jun. 30, 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. 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 June 30, 2023 and for the three and six months ended June 30, 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 June 30, 2023 and for the three and six months ended June 30, 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 and six months ended June 30, 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. In July 2023, the FASB issued ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement- Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation- Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 − General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which among various updates, includes (1) clarification on comprehensive income presentation for registrants having more than one class of common stock and (2) more specifically, clarifies language on considering the impact of material non-public information over share-based payment transactions, such as spring-loaded grants, when a) estimating the expected volatility for valuation purposes and b) calculating the fair value of the share based payment transactions to take into account a minimum amount of factors, including the current price of underlying shares. In addition, this ASU, also describes disclosure requirements for share-based payment transactions relating to these types of spring-loaded grant arrangements. This ASU does not provide any new guidance so there is no transition or effective date associated with this ASU which 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 $66.7 million and $52.4 million as of June 30, 2023 and December 31, 2022, respectively. Substantially all credit card receivables were current as of June 30, 2023 and December 31, 2022. The Company recorded bad-debt expense related to allowances for the Company’s receivables of less than $0.1 million and $0.1 million during the three months ended June 30, 2023 and 2022, respectively, and $0.1 million and $0.1 million during the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $1.7 million and $2.1 million, respectively. As of June 30, 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 six months ended June 30, 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 June 30, 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 $1.8 million and $2.1 million as of June 30, 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 June 30, 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 $1.2 million and $1.8 million during the three months ended June 30, 2023 and 2022, respectively, and $10.1 million and $14.9 million during the six months ended June 30, 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 held by certain of its foreign entities consists of cash deposits that are required due to the business operating requirements in those jurisdictions. In addition, as of June 30, 2023, the Company's consolidated restricted cash also includes $12.5 million in deposits into an escrow account in the U.S. for the class action lawsuit, titled Rodgers, et al. v Herbalife Ltd., et al. See Note 5, Contingencies, for further information. 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 |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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 was less than $350.0 million as of June 30, 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 was less than $350.0 million as of June 30, 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. During the second quarter of 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 to transition from LIBOR to the Secured Overnight Financing Rate, or SOFR, in connection with the discontinuation of LIBOR as of June 30, 2023. Following the transition, borrowings utilizing SOFR under the 2018 Credit Facility will use the “Adjusted Term SOFR”, which is the rate per annum equal to Term SOFR plus a rate adjustment based on interest periods of one month, three months, six months and twelve months tenors equaling to approximately 0.11%, 0.26%, 0.43% and 0.72%, respectively. The Company incurred approximately $1.1 million of debt issuance costs in connection with these amendments. For accounting purposes, pursuant to ASC 470, these transactions were accounted for as modifications of the 2018 Credit Facility. Of the $1.1 million of debt issuance costs, approximately $1.0 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 $0.1 million was recognized in interest expense, net within the Company’s condensed consolidated statement of income during the second quarter of 2023. Through June 30, 2023, under the 2018 Credit Facility, borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility bore 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%. Additionally, borrowings under the 2018 Term Loan B bore 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 was based on adjusted LIBOR and was subject to a floor of 0.00%. The base rate represented 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 was subject to a floor of 1.00%. Beginning July 1, 2023, the borrowings utilizing SOFR under both the 2018 Term Loan A and 2018 Revolving Credit Facility, will now bear interest at, depending on the Company’s total leverage ratio, either the Adjusted Term SOFR plus a margin of between 1.75% and 2.25%, or the base rate plus a margin of between 0.75% and 1.25%. The applicable margin may also be subject to certain premiums or discounts tied to criteria determined by certain sustainability targets, as described above. Borrowings utilizing SOFR under the 2018 Term Loan B will bear interest at either, the Adjusted Term SOFR plus a margin of 2.50%, or the base rate plus a margin of 1.50%. The Adjusted Term SOFR is also subject to a floor of 0.00%. The base rate represents the highest of the Federal Funds Rate plus 0.50%, one-month Adjusted Term SOFR plus 1.00%, and the prime rate quoted by The Wall Street Journal and continues to be subject to a floor of 1.00%. The transition to Adjusted Term SOFR did not affect the margins previously applied to LIBOR or the base rate, as described further above. The Company will continue to be 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 continues to be 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 June 30, 2023 and December 31, 2022, the Company was in compliance with its 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. 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 June 30, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 7.21% and 4.08%, respectively. During the six months ended June 30, 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 $145.5 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 six months ended June 30, 2022, the Company borrowed an aggregate amount of $159.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $173.5 million on amounts outstanding under the 2018 Credit Facility, which included $159.0 million of repayments on amounts outstanding under the Revolving Credit Facility. As of June 30, 2023 and December 31, 2022, the U.S. dollar amount outstanding under the 2018 Credit Facility was $901.2 million and $975.7 million, respectively. Of the $901.2 million outstanding under the 2018 Credit Facility as of June 30, 2023, $246.8 million was outstanding under the 2018 Term Loan A and $654.4 million was outstanding under the 2018 Term Loan B. There were no borrowings outstanding under the 2018 Revolving Credit Facility as of June 30, 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 June 30, 2023 and December 31, 2022. During the three months ended June 30, 2023 and 2022, the Company recognized $18.1 million and $9.4 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. During the six months ended June 30, 2023 and 2022, the Company recognized $35.2 million and $16.9 million, respectively, of interest expense relating to the 2018 Credit Facility, which included $0.2 million and $0.2 million, respectively, relating to non-cash interest expense relating to the debt discount and $1.0 million and $1.0 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 June 30, 2023 and December 31, 2022, the carrying value of the 2018 Term Loan A was $246.0 million and $257.0 million, respectively, and the fair value was approximately $239.4 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 June 30, 2023 and December 31, 2022, the carrying amount of the 2018 Term Loan B was $651.3 million and $654.3 million, respectively, and the fair value was approximately $634.7 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 June 30, 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 June 30, 2023, the remaining outstanding principal on the 2024 Convertible Notes was $262.5 million, the unamortized debt issuance costs were $0.8 million, and the carrying amount was $261.7 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 $254.9 million and $243.3 million as of June 30, 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 June 30, 2023 and 2022, the Company recognized $2.0 million and $4.1 million, respectively, of interest expense relating to the 2024 Convertible Notes, which included $0.2 million and $0.6 million, respectively, relating to amortization of debt issuance costs. During the six months ended June 30, 2023 and 2022, the Company recognized $3.8 million and $8.3 million, respectively, of interest expense relating to the 2024 Convertible Notes, which included $0.5 million and $1.1 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 June 30, 2023, the outstanding principal on the 2028 Convertible Notes was $277.5 million, the unamortized debt issuance costs were $7.7 million, and the carrying amount was $269.8 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 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 $289.7 million and $305.4 million as of June 30, 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 June 30, 2023, the Company recognized $3.3 million of interest expense relating to the 2028 Convertible Notes, which included $0.4 million relating to non-cash interest expense relating to amortization of debt issuance costs. During the six months ended June 30, 2023, the Company recognized $6.6 million, of interest expense relating to the 2028 Convertible Notes, which included $0.7 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 June 30, 2023, the outstanding principal on the 2025 Notes was $600.0 million, the unamortized debt issuance costs were $3.7 million, and the carrying amount was $596.3 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 $551.9 million and $534.4 million as of June 30, 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 June 30, 2023 and 2022, the Company recognized $12.2 million and $12.1 million, respectively, of interest expense relating to the 2025 Notes, which included $0.4 million and $0.4 million, respectively, relating to amortization of debt issuance costs. During the six months ended June 30, 2023 and 2022, the Company recognized $24.4 million and $24.3 million, respectively, of interest expense relating to the 2025 Notes, which included $0.8 million and $0.7 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 June 30, 2023, the outstanding principal on the 2029 Notes was $600.0 million, the unamortized debt issuance costs were $6.0 million, and the carrying amount was $594.0 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 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 $427.5 million and $412.5 million as of June 30, 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 June 30, 2023 and 2022, the Company recognized $7.6 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. During the six months ended June 30, 2023 and 2022, the Company recognized $15.1 million and $15.0 million, respectively, of interest expense relating to the 2029 Notes, which included $0.4 million and $0.4 million, respectively, relating to amortization of debt issuance costs. Total Debt The Company’s total interest expense was $41.1 million and $33.2 million for the three months ended June 30, 2023 and 2022, respectively, and $82.9 million and $64.6 million for the six months ended June 30, 2023 and 2022, respectively, which was recognized within its condensed consolidated statements of income. As of June 30, 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 June 30, 2023, the Company had $41.0 million of issued but undrawn letters of credit or similar arrangements. |
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Contingencies |
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| 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 June 30, 2023, the Company had $19.5 million of Mexico VAT-related assets, of which $11.5 million was recognized in prepaid expenses and other current assets and $8.0 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 $11.7 million, translated at the June 30, 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 $33.1 million, translated at the June 30, 2023 spot rate, relating to various ICMS issues for its 2013 tax year. During August 2017, for the State of São Paulo, the Company received an assessment in the aggregate amount of approximately $12.3 million, translated at the June 30, 2023 spot rate, relating to various ICMS issues for its 2014 tax year. The Company is appealing both of these assessments and they are currently at the Third Level Administrative Court. During September 2018, for the State of Rio de Janeiro, the Company received an assessment in the aggregate amount of approximately $7.3 million, translated at the June 30, 2023 spot rate, relating to various ICMS-ST issues for its 2016 and 2017 tax years. The Company is appealing this assessment and the case is about to commence in the First Level Judicial Court. 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 $12.7 million, translated at the June 30, 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 $3.7 million, translated at the June 30, 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 June 30, 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 $17.7 million and $17.2 million for those respective years, translated at the June 30, 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 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 $8.8 million, translated at the June 30, 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 June 30, 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 $13.6 million, translated at the June 30, 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 June 30, 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 $11.1 million, translated at the June 30, 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 June 30, 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 June 30, 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 established a settlement fund and deposited $12.5 million into an escrow account on April 19, 2023, which was included in prepaid expenses and other current assets within its consolidated balance sheet as of June 30, 2023. The final approval hearing is set for October 16, 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. Summary judgment motions have been filed, but not yet ruled upon. The current trial date for the action is March 12, 2024. 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 $44.5 million and $52.2 million for the three months ended June 30, 2023 and 2022, respectively, and $78.2 million and $106.4 million for the six months ended June 30, 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 six months ended June 30, 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 $11.2 million and $13.7 million for the three months ended June 30, 2023 and 2022, respectively, and $22.0 million and $26.1 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, the total unrecognized compensation cost related to all non-vested stock awards was $102.1 million and the related weighted-average period over which it is expected to be recognized is approximately 2.2 years. The following table summarizes the activity for all SARs under the Company’s share-based compensation plans for the six months ended June 30, 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 June 30, 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 June 30, 2023 was $6.09. There were no SARs granted during the three months ended June 30, 2022. The weighted-average grant date fair value of SARs granted during the six months ended June 30, 2023 was $6.71. There were no SARs granted during the six months ended June 30, 2022. There were no SARs exercised during the three months ended June 30, 2023. The total intrinsic value of SARs exercised during the three months ended June 30, 2022 was $0.1 million. The total intrinsic value of SARs exercised during the six months ended June 30, 2023 and 2022 was less than $0.1 million and $0.4 million, respectively. The following table summarizes the activities for all restricted stock units under the Company’s share-based compensation plans for the six months ended June 30, 2023:
(1) Includes 520,138 performance-based restricted stock units as of both June 30, 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 June 30, 2023 and 2022 was $2.8 million and $1.1 million, respectively. The total vesting date fair value of restricted stock units which vested during the six months ended June 30, 2023 and 2022 was $22.8 million and $33.5 million, respectively. |
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Income Taxes |
6 Months Ended |
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Jun. 30, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 8. Income Taxes Income taxes were $25.1 million and $37.6 million for the three months ended June 30, 2023 and 2022, respectively, and $26.9 million and $62.8 million for the six months ended June 30, 2023 and 2022, respectively. The effective income tax rate was 29.5% and 30.3% for the three months ended June 30, 2023 and 2022, respectively, and 23.2% and 25.4% for the six months ended June 30, 2023 and 2022, respectively. The decrease in the effective tax rate for the three and six months ended June 30, 2023 as compared to the same period in 2022 was primarily due to an increase in benefits from discrete events, partially offset by changes in the geographic mix of the Company's income. As of June 30, 2023, the total amount of unrecognized tax benefits, including related interest and penalties, was $67.8 million. If the total amount of unrecognized tax benefits was recognized, $45.4 million of unrecognized tax benefits, $15.8 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 $10.5 million within the next twelve months. Of this possible decrease, $9.6 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 Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 June 30, 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 June 30, 2023 and December 31, 2022, the aggregate notional amounts of all foreign currency contracts outstanding designated as cash flow hedges were approximately $50.5 million and $70.6 million, respectively. As of June 30, 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 June 30, 2023, the Company recorded assets at fair value of $0.1 million and liabilities at fair value of $4.9 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 June 30, 2023 and December 31, 2022. As of both June 30, 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 June 30, 2023, the Company had aggregate notional amounts of approximately $412.8 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 and six months ended June 30, 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 and six months ended June 30, 2023 and 2022:
As of June 30, 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 $5.1 million. The effect of cash flow hedging relationships on the Company’s condensed consolidated statements of income for the three and six months ended June 30, 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 and six months ended June 30, 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 June 30, 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 June 30, 2023 and 2022 were as follows:
Changes in shareholders’ deficit for the six months ended June 30, 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 June 30, 2023, the remaining authorized capacity under the Company’s $1.5 billion share repurchase program was approximately $985.5 million. During the six months ended June 30, 2023, the Company did not repurchase any of its common shares through open-market purchases. During the six months ended June 30, 2022, the Company repurchased approximately 3.7 million of its common shares through open-market purchases at an aggregate cost of approximately $131.8 million, or an average cost of $35.73 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 and six months ended June 30, 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 allocates the purchase price of the repurchased shares to accumulated deficit, common shares and additional paid-in capital. For the six months ended June 30, 2023 and 2022, the Company’s share repurchases, inclusive of transaction costs, were zero and $131.8 million, respectively, under the Company’s share repurchase programs, and $9.4 million and $14.7 million, respectively, due to shares withheld for tax purposes related to the Company’s share-based compensation plans. For the six months ended June 30, 2023 and 2022, the Company’s total share repurchases, including shares withheld for tax purposes, were $9.4 million and $146.5 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 June 30, 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 June 30, 2023 and 2022. Other comprehensive income (loss) before reclassifications was net of tax benefit of $0.2 million for foreign currency translation adjustments for the three months ended June 30, 2023. Amounts reclassified from accumulated other comprehensive loss to income was net of tax benefit of $0.1 million for unrealized gain (loss) on derivatives for the three months ended June 30, 2023. Other comprehensive income (loss) before reclassifications was net of tax benefit of $0.4 million for foreign currency translation adjustments for the three months ended June 30, 2022. The following table summarizes changes in accumulated other comprehensive loss by component during the six months ended June 30, 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 six months ended June 30, 2023 and 2022. Other comprehensive income (loss) before reclassifications was net of tax benefit of $0.2 million for foreign currency translation adjustments for the six months ended June 30, 2023. Amounts reclassified from accumulated other comprehensive loss to income was net of tax benefit of $0.1 million for unrealized gain (loss) on derivatives for the six months ended June 30, 2023. Other comprehensive income (loss) before reclassifications was net of tax benefit of $0.4 million for foreign currency translation adjustments for the six months ended June 30, 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 6.0 million and 5.4 million of equity grants, consisting of SARs and restricted stock units, that were outstanding during the three months ended June 30, 2023 and 2022, respectively, and an aggregate of 5.5 million and 3.7 million of equity grants, consisting of SARs and restricted stock units, that were outstanding during the six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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. For the three months ended June 30, 2023, the 2028 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 2028 Convertible Notes exceeded the average market price of the Company’s common shares for the three months ended June 30, 2023. The dilutive impact for the six months ended June 30, 2023 is 0.3 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 June 30, 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 June 30, 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 June 30, 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 $62.4 million through June 30, 2023, of which $10.1 million and $3.2 million for the three months ended June 30, 2023 and 2022, respectively, and $37.4 million and $4.8 million for the six months ended June 30, 2023 and 2022, respectively, were recognized in selling, general, and administrative expenses within its condensed consolidated statements of income. The Company expects to incur total pre-tax expenses of at least $75.0 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 $42.3 million and $39.4 million and deferred tax assets of $146.6 million and $131.6 million as of June 30, 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 $64.7 million and $61.1 million and deferred income tax liabilities of $22.6 million and $19.0 million as of June 30, 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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Jun. 30, 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 June 30, 2023 and for the three and six months ended June 30, 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 June 30, 2023 and for the three and six months ended June 30, 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 and six months ended June 30, 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. In July 2023, the FASB issued ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement- Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation- Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 − General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which among various updates, includes (1) clarification on comprehensive income presentation for registrants having more than one class of common stock and (2) more specifically, clarifies language on considering the impact of material non-public information over share-based payment transactions, such as spring-loaded grants, when a) estimating the expected volatility for valuation purposes and b) calculating the fair value of the share based payment transactions to take into account a minimum amount of factors, including the current price of underlying shares. In addition, this ASU, also describes disclosure requirements for share-based payment transactions relating to these types of spring-loaded grant arrangements. This ASU does not provide any new guidance so there is no transition or effective date associated with this ASU which 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 $66.7 million and $52.4 million as of June 30, 2023 and December 31, 2022, respectively. Substantially all credit card receivables were current as of June 30, 2023 and December 31, 2022. The Company recorded bad-debt expense related to allowances for the Company’s receivables of less than $0.1 million and $0.1 million during the three months ended June 30, 2023 and 2022, respectively, and $0.1 million and $0.1 million during the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $1.7 million and $2.1 million, respectively. As of June 30, 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 six months ended June 30, 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 June 30, 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 $1.8 million and $2.1 million as of June 30, 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 June 30, 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 $1.2 million and $1.8 million during the three months ended June 30, 2023 and 2022, respectively, and $10.1 million and $14.9 million during the six months ended June 30, 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 held by certain of its foreign entities consists of cash deposits that are required due to the business operating requirements in those jurisdictions. In addition, as of June 30, 2023, the Company's consolidated restricted cash also includes $12.5 million in deposits into an escrow account in the U.S. for the class action lawsuit, titled Rodgers, et al. v Herbalife Ltd., et al. See Note 5, Contingencies, for further information. |
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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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| 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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| 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 June 30, 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 $44.5 million and $52.2 million for the three months ended June 30, 2023 and 2022, respectively, and $78.2 million and $106.4 million for the six months ended June 30, 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 six months ended June 30, 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 June 30, 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 six months ended June 30, 2023:
(1) Includes 520,138 performance-based restricted stock units as of both June 30, 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) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2023 and 2022:
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Shareholders' Deficit (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Changes in Shareholders' Deficit | Changes in shareholders’ deficit for the three months ended June 30, 2023 and 2022 were as follows:
Changes in shareholders’ deficit for the six months ended June 30, 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 June 30, 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 June 30, 2023 and 2022. The following table summarizes changes in accumulated other comprehensive loss by component during the six months ended June 30, 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 six months ended June 30, 2023 and 2022. |
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Earnings Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 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) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 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 June 30, 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 June 30, 2023 and December 31, 2022:
|
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| Offsetting of Derivative Liabilities |
|
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Transformation Program (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 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) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 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) |
6 Months Ended |
|---|---|
|
Jun. 30, 2023
Segment
| |
| Organization And Description Of Business [Abstract] | |
| Number of geographic regions | 5 |
Significant Accounting Policies - Summary of Reconciliation of Cash, Cash Equivalents and Restricted Cash for Balance Sheets and Cash Flows (Detail) - USD ($) $ in Millions |
Jun. 30, 2023 |
Dec. 31, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|---|---|
| Cash, Cash Equivalents and Restricted Cash [Line Items] | ||||
| Cash and cash equivalents | $ 526.6 | $ 508.0 | ||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | 547.3 | 516.3 | $ 589.9 | $ 610.4 |
| Prepaid expenses and other current assets [Member] | ||||
| Cash, Cash Equivalents and Restricted Cash [Line Items] | ||||
| Restricted cash | 15.8 | 2.5 | ||
| Other Assets [Member] | ||||
| Cash, Cash Equivalents and Restricted Cash [Line Items] | ||||
| Restricted cash | $ 4.9 | $ 5.8 |
Inventories - Classes of Inventory (Detail) - USD ($) $ in Millions |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 84.2 | $ 83.1 |
| Work in process | 9.4 | 7.0 |
| Finished goods | 431.5 | 490.6 |
| Total | $ 525.1 | $ 580.7 |
Long-Term Debt - Schedule of Long-Term Debt (Detail) - USD ($) $ in Millions |
Jun. 30, 2023 |
Dec. 31, 2022 |
Jan. 01, 2022 |
Mar. 31, 2018 |
|---|---|---|---|---|
| Debt Instrument [Line Items] | ||||
| Borrowings under senior secured credit facility, carrying value | $ 897.3 | $ 971.3 | ||
| Other | 3.2 | 1.2 | ||
| Total | 2,622.3 | 2,692.0 | ||
| Less: current portion | 295.8 | 29.5 | ||
| Long-term portion | 2,326.5 | 2,662.5 | ||
| 2.625% Convertible Senior Notes Due 2024 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Convertible senior notes, carrying value | 261.7 | 261.2 | ||
| Total | $ 59.1 | $ 410.1 | ||
| 4.250% Convertible Senior Notes Due 2028 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Convertible senior notes, carrying value | 269.8 | 269.1 | ||
| 7.875% Senior Notes Due 2025 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Senior notes, carrying value | 596.3 | 595.6 | ||
| 4.875% Senior Notes Due 2029 [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Senior notes, carrying value | $ 594.0 | $ 593.6 |
Long-Term Debt - Schedule of Long-Term Debt (Parenthetical) (Detail) |
1 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
May 31, 2021 |
May 31, 2020 |
Mar. 31, 2018 |
Jun. 30, 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 |
Jun. 30, 2023
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| 2023 | $ 14.9 |
| 2024 | 300.1 |
| 2025 | 1,451.8 |
| 2026 | 0.1 |
| 2027 | 0.0 |
| Thereafter | 877.5 |
| Total | $ 2,644.4 |
Segment Information - Additional Information (Detail) |
6 Months Ended |
|---|---|
|
Jun. 30, 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 | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | $ 1,314.0 | $ 1,392.7 | $ 2,566.1 | $ 2,728.5 |
| Primary Reporting Segment [Member] | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | 1,226.0 | 1,289.0 | 2,410.4 | 2,519.2 |
| China [Member] | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | $ 88.0 | $ 103.7 | $ 155.7 | $ 209.3 |
Segment Information - Reconciliation of Operating Profit (Loss) from Segments to Consolidated (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|||
| Contribution Margin | ||||||
| Total Contribution Margin | $ 582.7 | $ 624.0 | $ 1,120.2 | $ 1,218.9 | ||
| Selling, general and administrative expenses | [1] | 460.5 | 470.0 | 936.4 | 924.9 | |
| Other operating income | (1.2) | (1.8) | (10.1) | (14.9) | ||
| Interest expense, net | 38.4 | 31.7 | 77.8 | 61.4 | ||
| Income before income taxes | 85.0 | 124.1 | 116.1 | 247.5 | ||
| Income taxes | 25.1 | 37.6 | 26.9 | 62.8 | ||
| Net income | 59.9 | 86.5 | 89.2 | 184.7 | ||
| Primary Reporting Segment [Member] | ||||||
| Contribution Margin | ||||||
| Total Contribution Margin | 507.6 | 534.1 | 990.1 | 1,038.5 | ||
| China [Member] | ||||||
| Contribution Margin | ||||||
| Total Contribution Margin | 75.1 | 89.9 | 130.1 | 180.4 | ||
| Other operating income | $ (1.2) | $ (1.8) | $ (10.1) | $ (14.9) | ||
| ||||||
Segment Information - Reconciliation of Operating Profit (Loss) from Segments to Consolidated (Parenthetical) (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 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 | $ 44.5 | $ 52.2 | $ 78.2 | $ 106.4 |
Segment Information - Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | $ 1,314.0 | $ 1,392.7 | $ 2,566.1 | $ 2,728.5 |
| United States [Member] | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | 295.3 | 333.5 | 584.5 | 650.6 |
| India [Member] | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | 189.4 | 163.6 | 368.0 | 315.6 |
| Mexico [Member] | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | 138.5 | 123.9 | 266.3 | 242.3 |
| China [Member] | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | 88.0 | 103.7 | 155.7 | 209.3 |
| Other [Member] | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total net sales | $ 602.8 | $ 668.0 | $ 1,191.6 | $ 1,310.7 |
Share-Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
| Share-based compensation expense | $ 11.2 | $ 13.7 | $ 22.0 | $ 26.1 |
| Unrecognized compensation cost on non-vested stock awards | 102.1 | $ 102.1 | ||
| Unrecognized compensation cost on non-vested stock awards, weighted-average period of recognition | 2 years 2 months 12 days | |||
| Weighted-average grant date fair value of SARs granted | $ 13.8 | |||
| Total intrinsic value of awards exercised for SARs | 0.1 | $ 0.1 | 0.4 | |
| Total vesting date fair value of stock units | $ 2.8 | $ 1.1 | $ 22.8 | $ 33.5 |
| SARs [Member] | ||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
| Weighted-average grant date fair value of SARs granted | $ 6.09 | $ 6.71 | ||
| SARs granted | 0 | 1,094 | 0 | |
| SARs exercised | 0 | 7 | ||
Share-Based Compensation - Summary of Activity Under Share-Based Compensation Plans (Parenthetical) (Detail) - shares |
Jun. 30, 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 |
Income Taxes - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | ||||
| Income taxes | $ 25.1 | $ 37.6 | $ 26.9 | $ 62.8 |
| Effective income tax rate | 29.50% | 30.30% | 23.20% | 25.40% |
| Total amount of unrecognized tax benefits, including related interest and penalties | $ 67.8 | $ 67.8 | ||
| Unrecognized tax benefits excluding interest and penalties that if recognized would affect the effective tax rate | 45.4 | 45.4 | ||
| Total accrued interest for tax contingencies | 15.8 | 15.8 | ||
| Total accrued penalties for tax contingencies | 3.2 | 3.2 | ||
| Amount of unrecognized tax benefits that could decrease within the next 12 months | 10.5 | 10.5 | ||
| Decrease in unrecognized tax benefits expiration of statute of limitations | 9.6 | 9.6 | ||
| Decrease in unrecognized tax benefits due to the settlement of audits or resolution of administrative or judicial proceedings | $ 0.9 | $ 0.9 | ||
Derivative Instruments and Hedging Activities - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | 12 Months Ended | |
|---|---|---|---|---|
Mar. 31, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
Mar. 31, 2020 |
|
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Derivative liability fair value | $ 8.1 | $ 6.0 | ||
| Derivative asset fair value | 0.7 | 2.9 | ||
| Cash flow hedges reclassified into earnings over next twelve months | 5.1 | |||
| 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 | 412.8 | |||
| Derivative liability fair value | 8.1 | 6.0 | ||
| Derivative asset fair value | 0.7 | 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 | 50.5 | 70.6 | ||
| Derivative liability fair value | 4.9 | 3.2 | ||
| Derivative asset fair value | $ 0.1 | $ 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] | 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 | 12 months | |
| 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 | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 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 Income (Loss) | $ (2.3) | $ (1.4) | $ (6.9) | $ (4.3) |
| Interest rate swaps [Member] | ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Amount of (Loss) Gain Recognized in Other Comprehensive Income (Loss) | $ 0.0 | $ 0.1 | $ 0.0 | $ 0.4 |
Derivative Instruments and Hedging Activities - Effect of Cash Flow Hedging Relationships on Condensed Consolidated Statements of Income (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Cost of sales | $ 301.6 | $ 315.8 | $ 600.2 | $ 622.9 | ||
| Selling, general, and administrative expenses | [1] | 460.5 | 470.0 | 936.4 | 924.9 | |
| Interest expense, net | 38.4 | 31.7 | 77.8 | 61.4 | ||
| Foreign Exchange Currency Contracts Relating To Inventory Hedges [Member] | Cost of sales [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | (1.4) | (0.8) | (4.3) | (0.8) | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | (1.1) | (1.2) | (2.5) | (2.8) | ||
| Foreign Exchange Currency Contracts Relating To Inventory Hedges [Member] | Selling, General and Administrative Expenses [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Foreign Exchange Currency Contracts Relating To Inventory Hedges [Member] | Interest expense, net [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Foreign Exchange Currency Contracts Relating To Intercompany Management Fee Hedges | Cost of sales [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | 0.0 | 0.0 | 0.0 | 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 loss reclassified from accumulated other comprehensive loss to income | (0.1) | 0.7 | (0.2) | 0.9 | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | 0.1 | 0.0 | 0.2 | 0.0 | ||
| Foreign Exchange Currency Contracts Relating To Intercompany Management Fee Hedges | Interest expense, net [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Interest Rate Swap [Member] | Cost of sales [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Interest Rate Swap [Member] | Selling, General and Administrative Expenses [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Interest Rate Swap [Member] | Interest expense, net [Member] | ||||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||||
| Amount of loss reclassified from accumulated other comprehensive loss to income | 0.0 | 0.0 | 0.3 | (0.2) | ||
| Amount of loss excluded from assessment of effectiveness recognized in income | $ 0.0 | $ 0.0 | $ 0.0 | $ 0.0 | ||
| ||||||
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 | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 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 | 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 | $ (1.5) | $ 0.1 | $ (5.0) | $ (0.4) |
Shareholders' Deficit - Summary of Changes in Shareholders' Deficit (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Beginning balance | $ (1,222.8) | $ (1,453.3) | $ (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 | 1.0 | 1.1 | 1.5 | 2.2 | |
| Additional capital from share-based compensation | 11.2 | 13.7 | 22.0 | 26.1 | |
| Repurchases of common shares | (0.7) | (30.3) | (9.4) | (146.5) | |
| Net income | 59.9 | 86.5 | 89.2 | 184.7 | |
| Foreign currency translation adjustment, net of income taxes | 1.6 | (31.9) | 14.8 | (27.5) | |
| Unrealized gain/loss on derivatives, net of income taxes | (0.6) | (1.2) | (2.6) | (3.8) | |
| Accumulated deficit | (1,115.3) | (59.1) | (1,115.3) | (59.1) | $ (1,204.5) |
| Ending balance | (1,150.4) | (1,415.4) | (1,150.4) | (1,415.4) | |
| Common Shares [Member] | |||||
| Beginning balance | 0.1 | 0.1 | 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 | 0.0 | 0.0 | |
| Repurchases of common shares | 0.0 | 0.0 | 0.0 | 0.0 | |
| Ending balance | 0.1 | 0.1 | 0.1 | 0.1 | |
| Treasury Stock [Member] | |||||
| Beginning balance | (328.9) | (328.9) | |||
| Ending balance | (328.9) | (328.9) | |||
| Paid-in Capital in Excess of par Value [Member] | |||||
| Beginning balance | 191.3 | 173.0 | 188.7 | 318.1 | |
| Issuance of common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other | 1.0 | 1.1 | 1.5 | 2.2 | |
| Additional capital from share-based compensation | 11.2 | 13.7 | 22.0 | 26.1 | |
| Repurchases of common shares | (0.7) | (2.0) | (9.4) | (23.9) | |
| Ending balance | 202.8 | 185.8 | 202.8 | 185.8 | |
| Paid-in Capital in Excess of par Value [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member] | |||||
| Accumulated deficit | (136.7) | (136.7) | |||
| Accumulated Other Comprehensive Loss [Member] | |||||
| Beginning balance | (239.0) | (210.0) | (250.2) | (211.8) | |
| Foreign currency translation adjustment, net of income taxes | 1.6 | (31.9) | 14.8 | (27.5) | |
| Unrealized gain/loss on derivatives, net of income taxes | (0.6) | (1.2) | (2.6) | (3.8) | |
| Ending balance | (238.0) | (243.1) | (238.0) | (243.1) | |
| Accumulated Deficit [Member] | |||||
| Beginning balance | (1,175.2) | (1,087.5) | (1,204.5) | (1,169.0) | |
| Repurchases of common shares | 0.0 | (28.3) | 0.0 | (122.6) | |
| Net income | 59.9 | 86.5 | 89.2 | 184.7 | |
| Ending balance | $ (1,115.3) | (1,029.3) | $ (1,115.3) | (1,029.3) | |
| Accumulated Deficit [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member] | |||||
| Accumulated deficit | $ 77.6 | $ 77.6 | |||
Shareholders' Deficit - Summary of Changes in Shareholders' Deficit (Parenthetical) (Detail) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Issuance of common shares | 0.2 | 0.1 | 1.5 | 1.1 |
| Repurchases of common shares | 1.1 | 0.5 | 4.1 | |
| Foreign currency translation adjustment, tax | $ (0.2) | $ (0.4) | $ (0.2) | $ (0.4) |
| Unrealized (loss) gain on derivatives, tax | $ (0.1) | $ 0.0 | $ (0.1) | $ 0.0 |
| Maximum [Member] | ||||
| Repurchases of common shares | 0.1 | |||
Shareholders' Deficit - Additional Information (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Feb. 09, 2021 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Feb. 08, 2021 |
|
| Stockholders Equity [Line Items] | ||||||
| Share repurchase program authorized amount | $ 1,500.0 | $ 1,500.0 | $ 1,500.0 | |||
| Share repurchase program, remaining authorized capacity | 985.5 | $ 985.5 | $ 7.9 | |||
| Share repurchase program expiration date | Oct. 30, 2023 | Feb. 09, 2024 | ||||
| Shares repurchases, value | 0.7 | $ 30.3 | $ 9.4 | $ 146.5 | ||
| Repurchase of common stock, shares | 1.1 | 0.5 | 4.1 | |||
| Repurchase of common stock, value | $ 0.0 | $ 131.8 | ||||
| Withheld for tax purpose for share-based compensation plans | 9.4 | 14.7 | ||||
| Other comprehensive income (loss) before foreign currency translation adjustments reclassifications, tax expense (benefit) | 0.2 | $ 0.4 | 0.2 | 0.4 | ||
| Other comprehensive income (Loss), reclassification adjustment from AOCI on derivatives, net of tax expense (benefit) | 0.1 | 0.1 | ||||
| Common Stock [Member] | ||||||
| Stockholders Equity [Line Items] | ||||||
| Shares repurchases, value | $ 0.0 | $ 0.0 | $ 0.0 | $ 0.0 | ||
| Open Market Repurchase Plan [Member] | Common Stock [Member] | ||||||
| Stockholders Equity [Line Items] | ||||||
| Share price | $ 35.73 | $ 35.73 | ||||
| Repurchase of common stock, shares | 0.0 | 3.7 | ||||
| Repurchase of common stock, value | $ 131.8 | |||||
Shareholders' Deficit - Summary of Changes in Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||
| Beginning balance | $ (1,222.8) | $ (1,453.3) | $ (1,265.9) | $ (1,391.5) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss to income, net of tax | 1.7 | [1] | 0.1 | [1] | 4.4 | [2] | 0.1 | [2] | ||||
| Total other comprehensive income (loss) | 1.0 | (33.1) | 12.2 | (31.3) | ||||||||
| Ending balance | (1,150.4) | (1,415.4) | (1,150.4) | (1,415.4) | ||||||||
| Foreign Currency Translation Adjustments [Member] | ||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||
| Beginning balance | (235.0) | (207.2) | (248.2) | (211.6) | ||||||||
| Other comprehensive loss before reclassifications, net of tax | (1.6) | (31.9) | 0.0 | (27.5) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss to income, net of tax | 0.0 | [1] | 0.0 | [1] | 0.0 | [2] | 0.0 | [2] | ||||
| Total other comprehensive income (loss) | (1.6) | (31.9) | 0.0 | (27.5) | ||||||||
| Ending balance | (233.4) | (239.1) | (233.4) | (239.1) | ||||||||
| Unrealized (Loss) Gain on Derivatives [Member] | ||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||
| Beginning balance | (4.0) | (2.8) | (2.0) | (0.2) | ||||||||
| Other comprehensive loss before reclassifications, net of tax | (2.3) | (1.3) | (7.0) | (3.9) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss to income, net of tax | 1.7 | [1] | 0.1 | [1] | 4.4 | [2] | 0.1 | [2] | ||||
| Total other comprehensive income (loss) | (0.6) | (1.2) | (2.6) | (3.8) | ||||||||
| Ending balance | (4.6) | (4.0) | (4.6) | (4.0) | ||||||||
| Accumulated Other Comprehensive Loss [Member] | ||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||
| Beginning balance | (239.0) | (210.0) | (250.2) | (211.8) | ||||||||
| Other comprehensive loss before reclassifications, net of tax | (0.7) | (33.2) | (7.8) | (31.4) | ||||||||
| Total other comprehensive income (loss) | (1.0) | (33.1) | (12.2) | (31.3) | ||||||||
| Ending balance | $ (238.0) | $ (243.1) | $ (238.0) | $ (243.1) | ||||||||
| ||||||||||||
Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Detail) - shares shares in Millions |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Mar. 31, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Earnings Per Share [Abstract] | |||||
| Weighted-average shares used in basic computations | 99.1 | 98.2 | 98.8 | 99.1 | |
| Dilutive effect of exercise of equity grants outstanding | 0.4 | 0.5 | 0.7 | 1.1 | |
| Dilutive effect of 2028 Convertible Notes | 0.0 | 0.0 | 0.3 | 0.0 | |
| Weighted-average shares used in diluted computations | 99.5 | 99.8 | 98.7 | 99.8 | 100.2 |
Earnings Per Share - Additional Information (Detail) - shares shares in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Earnings Per Share [Abstract] | ||||
| Equity grants with anti-dilutive effect | 6.0 | 5.4 | 5.5 | 3.7 |
| Common shares affected by exceeded conversion price | 0.3 | |||
Fair Value Measurements - Derivative Assets and Liabilities Measured at Fair Value (Detail) - USD ($) $ in Millions |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | $ 0.7 | $ 2.9 |
| Fair value derivative liabilities | 8.1 | 6.0 |
| Foreign exchange currency contracts [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value derivative assets | 0.7 | 2.6 |
| Fair value derivative liabilities | 8.1 | 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 | 0.7 | 2.9 |
| Fair value measurements, liabilities total | 8.1 | 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 | 0.1 | 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 | 4.9 | 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 | 0.6 | 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 | $ 3.2 | $ 2.8 |
Fair Value Measurements - Offsetting of Derivative Assets (Detail) - USD ($) $ in Millions |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Derivative [Line Items] | ||
| Derivative Asset, Subject to Master Netting Arrangement, before Offset | $ 0.7 | $ 2.9 |
| Gross Amounts Offset in the Balance Sheet, Derivative Assets | $ (0.5) | $ (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 | $ 0.2 | $ 0.5 |
| Foreign exchange currency contracts [Member] | ||
| Derivative [Line Items] | ||
| Derivative Asset, Subject to Master Netting Arrangement, before Offset | 0.7 | 2.6 |
| Gross Amounts Offset in the Balance Sheet, Derivative Assets | (0.5) | (2.4) |
| Net Amounts of Assets Presented in the Balance Sheet | $ 0.2 | 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 |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Derivative [Line Items] | ||
| Derivative Liability, Subject to Master Netting Arrangement, before Offset | $ 8.1 | $ 6.0 |
| Gross Amounts Offset in the Balance Sheet, Derivative Liabilities | $ (0.5) | $ (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 | $ 7.6 | $ 3.6 |
| Foreign exchange currency contracts [Member] | ||
| Derivative [Line Items] | ||
| Derivative Liability, Subject to Master Netting Arrangement, before Offset | 8.1 | 6.0 |
| Gross Amounts Offset in the Balance Sheet, Derivative Liabilities | (0.5) | (2.4) |
| Net Amounts of Liabilities Presented in the Balance Sheet | $ 7.6 | $ 3.6 |
Transformation Program - Additional Information (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Restructuring Cost and Reserve [Line Items] | |||||
| Total cost of transformation program | $ 10.1 | $ 3.2 | $ 37.4 | $ 4.8 | |
| Minimum [Member] | |||||
| Restructuring Cost and Reserve [Line Items] | |||||
| Expected Pre-tax charges | $ 62.4 | $ 75.0 | |||
Transformation Program - Schedule of Costs Related to the Transformation (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Restructuring Cost and Reserve [Line Items] | ||||
| Total cost of transformation program | $ 10.1 | $ 3.2 | $ 37.4 | $ 4.8 |
| Cumulative cost incurred | 62.4 | 62.4 | ||
| Professional Fees [Member] | ||||
| Restructuring Cost and Reserve [Line Items] | ||||
| Total cost of transformation program | 2.0 | 2.2 | 4.1 | 3.1 |
| Cumulative cost incurred | 21.0 | 21.0 | ||
| Retention and Separation [Member] | ||||
| Restructuring Cost and Reserve [Line Items] | ||||
| Total cost of transformation program | 7.9 | 1.0 | 33.1 | 1.7 |
| Cumulative cost incurred | 40.9 | 40.9 | ||
| Other [Member] | ||||
| Restructuring Cost and Reserve [Line Items] | ||||
| Total cost of transformation program | 0.2 | $ 0.0 | 0.2 | $ 0.0 |
| Cumulative cost incurred | $ 0.5 | $ 0.5 | ||
Transformation Program - Schedule of Changes in the Liabilities Related to the Transformation Program (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Restructuring Cost and Reserve [Line Items] | ||||
| Beginning Balance | $ 3.8 | |||
| Expenses | $ 10.1 | $ 3.2 | 37.4 | $ 4.8 |
| Cash payments | (35.2) | |||
| Non-cash items and other | 0.0 | |||
| Ending Balance | 6.0 | 6.0 | ||
| Professional Fees [Member] | ||||
| Restructuring Cost and Reserve [Line Items] | ||||
| Beginning Balance | 0.6 | |||
| Expenses | 2.0 | 2.2 | 4.1 | 3.1 |
| Cash payments | (4.0) | |||
| Non-cash items and other | 0.0 | |||
| Ending Balance | 0.7 | 0.7 | ||
| Retention and Separation [Member] | ||||
| Restructuring Cost and Reserve [Line Items] | ||||
| Beginning Balance | 3.2 | |||
| Expenses | 7.9 | 1.0 | 33.1 | 1.7 |
| Cash payments | (31.0) | |||
| Non-cash items and other | 0.0 | |||
| Ending Balance | 5.3 | 5.3 | ||
| Other [Member] | ||||
| Restructuring Cost and Reserve [Line Items] | ||||
| Beginning Balance | 0.0 | |||
| Expenses | 0.2 | $ 0.0 | 0.2 | $ 0.0 |
| Cash payments | (0.2) | |||
| Non-cash items and other | 0.0 | |||
| Ending Balance | $ 0.0 | $ 0.0 | ||
Detail of Certain Balance Sheet Accounts - Additional Information (Detail) - USD ($) $ in Millions |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Balance Sheet Related Disclosures [Abstract] | ||
| Deferred compensation plan assets | $ 42.3 | $ 39.4 |
| Deferred tax assets | 146.6 | 131.6 |
| Deferred compensation plan liabilities | 64.7 | 61.1 |
| Deferred income tax liabilities | $ 22.6 | $ 19.0 |
Detail of Certain Balance Sheet Accounts - Schedule of Other Current Liabilities (Detail) - USD ($) $ in Millions |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Other Liabilities, Current [Abstract] | ||
| Accrued compensation | $ 107.0 | $ 108.3 |
| Accrued service fees to China independent service providers | 32.3 | 33.0 |
| Accrued advertising, events, and promotion expenses | 62.2 | 65.0 |
| Current operating lease liabilities | 37.3 | 37.4 |
| Advance sales deposits | 73.2 | 53.9 |
| Income taxes payable | 10.5 | 12.5 |
| Other accrued liabilities | 205.9 | 203.9 |
| Total | $ 528.4 | $ 514.0 |