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What changed in HERBALIFE LTD.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HERBALIFE LTD.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+418 added−481 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-14)

Top changes in HERBALIFE LTD.'s 2023 10-K

418 paragraphs added · 481 removed · 363 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

68 edited+8 added−21 removed151 unchanged
Biggest changeThe basis for calculating Marketing Plan payouts varies depending on product and market: for 2022, we utilized on a weighted-average basis approximately 90% of suggested retail price, to which we applied discounts of up to 50% for distributor allowances and payout rates of up to 15% for royalty overrides, up to 7% for production bonuses, and approximately 1% for a cash bonus known as the Mark Hughes bonus.
Biggest changeWe believe a gradual qualification approach is important to the success and retention of new sales leaders and benefits the business in the long term as it allows new Members to obtain product and customer experience as well as additional training and education on Herbalife products, daily consumption based business methods, and the business opportunity prior to becoming a sales leader. 8 The basis for calculating Marketing Plan payouts varies depending on product and market: for 2023, we utilized on a weighted-average basis approximately 90% of suggested retail price, to which we applied discounts of up to 50% for distributor allowances and payout rates of up to 15% for royalty overrides, up to 7% for production bonuses, and approximately 1% for a cash bonus known as the Mark Hughes bonus.
Item 1. Business GENERAL Herbalife Nutrition is a global nutrition company that provides health and wellness products to consumers in 95 markets, which consists of countries and territories, through our direct-selling business model. Our products are primarily in the categories of weight management, sports nutrition, and targeted nutrition.
Item 1. Business GENERAL Herbalife is a global nutrition company that provides health and wellness products to consumers in 95 markets, which consists of countries and territories, through our direct-selling business model. Our products are primarily in the categories of weight management, targeted nutrition, and sports nutrition.
Many first start out as consumers of our products who want to lose weight or improve their nutrition, and are customers of our Members. Some later join Herbalife Nutrition and become Members themselves, which makes them eligible to purchase products directly from us, simply to receive a discounted price on products for them and their families.
Many first start out as consumers of our products who want to lose weight or improve their nutrition, and are customers of our Members. Some later join Herbalife and become Members themselves, which makes them eligible to purchase products directly from us, simply to receive a discounted price on products for them and their families.
Herbalife Nutrition sponsorships of and partnerships with featured athletes, teams, and events promote brand awareness and the use of Herbalife Nutrition products. We continue to build brand awareness with a goal towards becoming the most trusted brand in nutrition. We also work to leverage the power of our Member base as a marketing and brand-building tool.
Herbalife sponsorships of and partnerships with featured athletes, teams, and events promote brand awareness and the use of Herbalife products. We continue to build brand awareness with a goal towards becoming the most trusted brand in nutrition. We also work to leverage the power of our Member base as a marketing and brand-building tool.
The Consent Order also requires distributors to meet certain conditions before opening Nutrition Clubs and/or entering into leases for their Herbalife Nutrition business in the United States.
The Consent Order also requires distributors to meet certain conditions before opening Nutrition Clubs and/or entering into leases for their Herbalife business in the United States.
On July 18, 2002, we entered into an agreement with our Members that provides that we will continue to distribute Herbalife Nutrition products exclusively to and through our Members and that, other than changes required by applicable law or necessary in our reasonable business judgment to account for specific local market or currency conditions to achieve a reasonable profit on operations, we will not make any material changes to certain aspects of our Marketing Plan that are adverse to our Members without the support of our Member leadership.
On July 18, 2002, we entered into an agreement with our Members that provides that we will continue to distribute Herbalife products exclusively to and through our Members and that, other than changes required by applicable law or necessary in our reasonable business judgment to account for specific local market or currency conditions to achieve a reasonable profit on operations, we will not make any material changes to certain aspects of our Marketing Plan that are adverse to our Members without the support of our Member leadership.
As part of our program to ensure the procurement of high-quality ingredients, we also test our incoming raw materials for compliance to potency, identity, and adherence to strict specifications. 10 Manufacturing The next key component of our seed to feed strategy involves the high-quality manufacturing of these ingredients into finished products, which are produced at both third-party manufacturers and our own manufacturing facilities.
As part of our program to better ensure the procurement of high-quality ingredients, we also test our incoming raw materials for compliance to potency, identity, and adherence to strict specifications. 10 Manufacturing The next key component of our seed to feed strategy involves the high-quality manufacturing of these ingredients into finished products, which are produced at both third-party manufacturers and our own manufacturing facilities.
For example, in recent years certain markets have allowed members to utilize a lower re-qualification volume threshold and the Company has continued to expand this lower re-qualification method to additional markets. Separately, with revised business requirements in place following the Consent Order, as described in Network Marketing Program below, we utilize a re-qualification equalization factor for U.S.
For example, in recent years certain markets have allowed members to utilize a lower re-qualification volume threshold and the Company has continued to expand this lower re-qualification method to additional markets. Separately, with revised business requirements in place following the Consent Order, as described in Regulation—Network Marketing Program below, we utilize a re-qualification equalization factor for U.S.
Independent service providers are independent business entities that are eligible to receive compensation from Herbalife Nutrition for the marketing, sales and support services they provide so long as they satisfy certain conditions, including procuring the requisite business licenses, having a physical business location, and complying with all applicable Chinese laws and Herbalife Nutrition rules.
Independent service providers are independent business entities that are eligible to receive compensation from Herbalife for the marketing, sales and support services they provide so long as they satisfy certain conditions, including procuring the requisite business licenses, having a physical business location, and complying with all applicable Chinese laws and Herbalife rules.
Our Changsha, China facility exclusively provides high quality tea and herbal raw materials to our manufacturing facilities as well as our third-party contract manufacturers around the world. We also source ingredients that we do not self-process from companies that are well-established, reputable suppliers in their respective field.
Our Changsha, China facility provides high quality tea and herbal raw materials to our manufacturing facilities as well as our third-party contract manufacturers around the world. We also source ingredients that we do not self-process from companies that are well-established, reputable suppliers in their respective field.
We believe sales leader retention rates are the result of efforts we have made to try and improve the sustainability of sales leaders’ businesses, such as encouraging Members to obtain experience retailing Herbalife Nutrition products before becoming a sales leader and providing them with advanced technology tools, as well as reflecting market conditions.
We believe sales leader retention rates are the result of efforts we have made to try and improve the sustainability of sales leaders’ businesses, such as encouraging Members to obtain experience retailing Herbalife products before becoming a sales leader and providing them with advanced technology tools, as well as reflecting market conditions.
Examples of these programs include the following: • Training Programs – We provide our employees access to an internal learning management system, Herbalife Nutrition University, which provides professional development courses, technical training, and compliance training to all employees globally. 17 • Mentorship Programs – The principle of servant leadership is a crucial part of our culture.
Examples of these programs include the following: • Training Programs – We provide our employees access to an internal learning management system, Herbalife University, which provides professional development courses, technical training, and compliance training to all employees globally. 17 • Mentorship Programs – The principle of servant leadership is a crucial part of our culture.
Second, Members who sponsor other Members and establish, maintain, coach, and train their own sales organizations may earn additional income based on the sales of their organization, which may include royalty overrides, production bonuses, and other cash bonuses. Members earning such compensation have generally attained the level of sales leader as described below.
Second, Members who sponsor other Members and establish, maintain, coach, and train their own sales organizations may earn additional income based on the sales of their organization, which may include royalty overrides, production bonuses, and other bonuses. Members earning such compensation have generally attained the level of sales leader as described below.
Through this program, participating employees can be provided with a one-on-one professional development opportunity, in which they receive dedicated coaching, feedback, and encouragement. • Educational Assistance – Another way we support employees’ continual professional development is by offsetting a portion of the cost of higher education.
Through this program, participating employees can be provided with a one-on-one professional development opportunity, in which they receive dedicated coaching, feedback, and encouragement. • Educational Assistance – Another way we support employees’ professional development is by offsetting a portion of the cost of higher education.
RESOURCES We seek to provide the highest quality products to our Members and their customers through our “seed to feed” strategy, which includes significant investments in obtaining quality ingredients from traceable sources, qualified by scientific personnel through product testing, and increasing the amount of self-manufacturing of our top products.
RESOURCES We seek to provide the highest quality products to our Members and their customers through our “seed to feed” strategy, which includes significant investments in obtaining quality ingredients from traceable sources, qualified by scientific personnel through product testing, and increasing the amount of self-manufacturing of our products.
HUMAN CAPITAL At Herbalife Nutrition, our commitment to improving lives and our communities is at the core of everything we do. This commitment also informs how we value and treat our employees. We seek to provide a work environment where employees can grow and thrive while supporting our Members and their customers.
HUMAN CAPITAL At Herbalife, our commitment to improving lives and our communities is at the core of everything we do. This commitment also informs how we value and treat our employees. We seek to provide a work environment where employees can grow and thrive while supporting our Members and their customers.
In addition, our Members consume our products themselves, and, therefore, can provide first-hand testimonials of the use and effectiveness of our products and programs to their customers. The personalized experience of our Members has served as a very powerful sales tool for our products. People become Herbalife Nutrition Members for a number of reasons.
In addition, our Members consume our products themselves, and, therefore, can provide first-hand testimonials of the use and effectiveness of our products and programs to their customers. The personalized experience of our Members has served as a very powerful sales tool for our products. People become Herbalife Members for a number of reasons.
Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing we make with the SEC.
Unless expressly noted, the information on our website, including our investor relations website, or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing we make with the SEC. 18
If for any reason a customer or preferred member is not satisfied with an Herbalife Nutrition product, they may return it or any unused portion of the product within 30 days from the time of receipt for a full refund or credit toward the exchange of another Herbalife Nutrition product.
If for any reason a customer or preferred member is not satisfied with an Herbalife product, they may return it or any unused portion of the product within 30 days from the time of receipt for a full refund or credit toward the exchange of another Herbalife product.
See the Our Network Marketing Program – Member Compensation and Sales Leader Retention and Requalification section above for sales leader and requalification metrics and further discussion on our sales leaders. 18 Available Information Our Internet website address is www.herbalife.com and our investor relations website is ir.herbalife.com.
See the Our Network Marketing Program – Member Compensation and Sales Leader Retention and Requalification section above for sales leader and requalification metrics and further discussion on our sales leaders. Available Information Our Internet website address is www.herbalife.com and our investor relations website is ir.herbalife.com.
Compliance Procedures As indicated above, Herbalife Nutrition, our products and our network marketing program are subject, both directly and indirectly through Members’ conduct, to numerous federal, state and local regulations, in the United States and foreign markets.
Compliance Procedures As indicated above, Herbalife, our products and our network marketing program are subject, both directly and indirectly through Members’ conduct, to numerous federal, state and local regulations, in the United States and foreign markets.
Some Members are interested in the entrepreneurial opportunity to earn compensation based on their own skills and hard work and join Herbalife Nutrition to earn part-time or full-time income.
Some Members are interested in the entrepreneurial opportunity to earn compensation based on their own skills and hard work and join Herbalife to earn part-time or full-time income.
Together, product returns and buybacks were approximately 0.1% of net sales for each of the years ended December 31, 2022, 2021, and 2020. Product development Our products are focused on nutrition and seek to help consumers achieve their goals in the areas of weight management; targeted nutrition (including everyday wellness and healthy aging); energy, sports, and fitness; and outer nutrition.
Together, product returns and buybacks were approximately 0.1% of net sales for each of the years ended December 31, 2023, 2022, and 2021. Product development Our products are focused on nutrition and seek to help consumers achieve their goals in the areas of weight management; targeted nutrition (including everyday wellness and healthy aging); energy, sports, and fitness; and outer nutrition.
In addition to the effectiveness of personalized selling through a direct-selling business model, we believe the primary drivers for our success throughout our 43-year operating history have been 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.
In addition to the effectiveness of personalized selling through a direct-selling business model, we believe the primary drivers for our success throughout our 44-year operating history have been 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.
The Transformation Program is still ongoing and expected to be completed in 2024 as described further in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Operating Results , of this Annual Report on Form 10-K and Note 14, Transformation Program , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K.
The Transformation Program is still ongoing and expected to be completed in 2024 as described further in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Annual Report on Form 10-K and Note 14, Transformation Program , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K.
We assign point values, known as Volume Points, to each of our products to determine a Member’s level within the Marketing Plan. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Operating Results , of this Annual Report on Form 10-K for a further description of Volume Points.
We assign point values, known as Volume Points, to each of our products to determine a Member’s level within the Marketing Plan. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Annual Report on Form 10-K for a further description of Volume Points.
We use the umbrella trademarks Herbalife® , Herbalife Nutrition® , and the Tri-Leaf design worldwide, and protect several other trademarks and trade names related to our products and operations, such as Niteworks® and Liftoff® . Our trademark registrations are issued through the United States Patent and Trademark Office, or USPTO, and comparable agencies in the foreign countries.
We use the umbrella trademarks Herbalife® , Herbalife Nutrition® , the Tri-Leaf, and the Rising Leaf designs worldwide, and protect several other trademarks and trade names related to our products and operations, such as Niteworks® and Liftoff® . Our trademark registrations are issued through the United States Patent and Trademark Office, or USPTO, and comparable agencies in the foreign countries.
The following table summarizes our products by product category: Percentage of Net Sales 2022 2021 2020 Description Representative Products Weight Management 56.8% 58.1% 59.8% Meal replacement, protein shakes, drink mixes, weight loss enhancers and healthy snacks Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder, Total Control ® , Formula 2 Multivitamin Complex, Prolessa ™ Duo , and Protein Bars Targeted Nutrition 29.1% 28.2% 27.6% Functional beverages and dietary and nutritional supplements containing quality herbs, vitamins, minerals and other natural ingredients Herbal Aloe Concentrate, Active Fiber Complex, Niteworks ® , and Herbalifeline ® Energy, Sports, and Fitness 10.6% 9.5% 7.9% Products that support a healthy active lifestyle Herbalife24 ® product line, N-R-G Tea, and Liftoff ® energy drink Outer Nutrition 1.6% 1.9% 2.0% Facial skin care, body care, and hair care Herbalife SKIN line and Herbal Aloe Bath and Body Care line Literature, Promotional, and Other 1.9% 2.3% 2.7% Start-up kits, sales tools, and educational materials Herbalife Member Packs and BizWorks 5 Product returns and buyback policies We offer a customer satisfaction guarantee in substantially all markets where our products are sold.
The following table summarizes our products by product category: Percentage of Net Sales 2023 2022 2021 Description Representative Products Weight Management 56.3% 56.8% 58.1% Meal replacement, protein shakes, drink mixes, weight loss supplements, healthy snacks, and metabolism boosting teas Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder, Total Control ® , Formula 2 Multivitamin Complex, Prolessa ™ Duo , and Protein Bars Targeted Nutrition 29.2% 29.1% 28.2% Functional beverages and dietary and nutritional supplements containing quality herbs, vitamins, minerals and other natural ingredients Herbal Aloe Concentrate, Active Fiber Complex, Niteworks ® , and Herbalifeline ® Energy, Sports, and Fitness 11.1% 10.6% 9.5% Products that support a healthy active lifestyle Herbalife24 ® product line, N-R-G Tea, and Liftoff ® energy drink Outer Nutrition 1.7% 1.6% 1.9% Facial skin care, body care, and hair care Herbalife SKIN line and Herbal Aloe Bath and Body Care line Literature, Promotional, and Other 1.7% 1.9% 2.3% Start-up kits, sales tools, and educational materials Herbalife Member Packs and BizWorks 5 Product returns and buyback policies We offer a customer satisfaction guarantee in substantially all markets where our products are sold.
In 1985, we began to institute formal compliance measures by developing a system to identify specific complaints against Members and to remedy any violations of Herbalife Nutrition’s rules by Members through appropriate sanctions, including warnings, fines, suspensions and, when necessary, terminations.
In 1985, we began to institute formal compliance measures by developing a system to identify specific complaints against Members and to remedy any violations of Herbalife’s rules by Members through appropriate sanctions, including warnings, fines, suspensions and, when necessary, terminations.
During 2022, we purchased approximately 15% of our products from our top three third-party manufacturers. Infrastructure and Technology Our direct-selling business model enables us to grow our business with moderate investment in infrastructure and fixed costs. We incur no direct incremental cost to add a new Member in our existing markets, and our Member compensation varies directly with product sales.
During 2023, we purchased approximately 18% of our products from our top three third-party manufacturers. Infrastructure and Technology Our direct-selling business model enables us to grow our business with moderate investment in infrastructure and fixed costs. We incur no direct incremental cost to add a new Member in our existing markets, and our Member compensation varies directly with product sales.
Our Formula 1 Nutritional Shake Mix, our best-selling product line, approximated 26% of our net sales for the year ended December 31, 2022.
Our Formula 1 Nutritional Shake Mix, our best-selling product line, approximated 26% of our net sales for the year ended December 31, 2023.
As of December 31, 2022, we had approximately 6.2 million Members, including 2.9 million preferred members and 2.0 million distributors in the markets where we have established these two categories and 0.3 million sales representatives and independent service providers in China.
As of December 31, 2023, we had approximately 6.5 million Members, including 3.5 million preferred members and 2.0 million distributors in the markets where we have established these two categories and 0.2 million sales representatives and independent service providers in China.
For example, we have implemented projects that have reduced overall packaging materials and incorporated usage of recycled materials in the packaging of our flagship product, Formula 1 Healthy Meal Nutritional Shake in North America, Mexico, and in certain markets where permitted by regulations. We are seeking opportunities across operations to reduce waste-prone materials such as single-use plastics.
For example, we have implemented projects that have reduced the amount of virgin plastic materials by incorporating usage of recycled materials in the packaging of our flagship product, Formula 1 Healthy Meal Nutritional Shake in North America, Mexico, and in certain markets where permitted by regulations. We are seeking opportunities across operations to reduce waste-prone materials such as single-use plastics.
In aggregate, we have over 1,500 distribution points and partner retail locations around the world.
In aggregate, we have approximately 1,500 distribution points and partner retail locations around the world.
We maintain a brand style guide and brand asset library so that our Members have access to the Herbalife Nutrition brand logo and marketing materials for use in their marketing efforts. 12 Sustainability Our goals and objectives to nourish people and communities and to improve the planet are part of both our day-to-day activities and our long-term growth strategy.
We maintain a brand style guide and brand asset library so that our Members have access to the Herbalife brand logo and marketing materials for use in their marketing efforts. 12 Sustainability Our goals and objectives to help people and communities live their best lives and to improve the planet are part of both our day-to-day activities and our long-term growth strategy.
PRODUCT SALES Our science-backed products help Members and their customers improve their overall health, enhance their wellness, and achieve their fitness and sport goals. As of December 31, 2022, we marketed and sold approximately 131 product types.
PRODUCT SALES Our science-backed products help Members and their customers improve their overall health, enhance their wellness, and achieve their fitness and sport goals. As of December 31, 2023, we marketed and sold approximately 136 product types.
We monitor the talent needs of our departments and functions with particular focus on the areas where human capital resources are important to daily operations to ensure we can timely manufacture, distribute, and sell products to our Members. As of December 31, 2022, we had approximately 10,100 employees, of which approximately 2,800 were located in the United States.
We monitor the talent needs of our departments and functions with particular focus on the areas where human capital resources are important to daily operations to ensure we can timely manufacture, distribute, and sell products to our Members. As of December 31, 2023, we had approximately 9,200 employees, of which approximately 2,500 were located in the United States.
This is a multi-year program and we expect our capital expenditures to increase in 2023 and future years as result of our investments in this Digital Technology Program as described further in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Operating Results , of this Annual Report on Form 10-K.
This is a multi-year program and we expect our capital expenditures to increase in 2024 and future years as result of our investments in this Herbalife One program as described further in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Annual Report on Form 10-K.
Nutrition products are sold through a number of distribution channels, including direct selling, online retailers, specialty retailers, and the discounted channels of food, drug and mass merchandise. Our competitors include companies such as Conagra Brands, Hain Celestial, and Post.
Nutrition products are sold through a number of distribution channels, including direct selling, online retailers, specialty retailers, and the discounted channels of food, drug and mass merchandise. Our competitors include companies such as BellRing Brands, Inc., Conagra Brands, Inc., The Hain Celestial Group, Inc., Post Holdings, Inc., and The Simply Good Foods Company.
We also expect to continue to improve our distribution channels relating to home delivery as we expect to see continued increased demands for our products being shipped to our Members in certain of our larger markets.
We are continuing to improve our distribution channels relating to home delivery as we expect to see continued increasing demands for our products being shipped to our Members in certain of our larger markets.
Additionally, we compete for the recruitment of Members from other network marketing organizations, including those that market nutrition products and other entrepreneurial opportunities. Our direct-selling competitors include companies such as Nu Skin, Tupperware, and USANA.
Additionally, we compete for the recruitment of Members from other network marketing organizations, including those that market nutrition products and other entrepreneurial opportunities. Our direct-selling competitors include companies such as Medifast, Inc., Nu Skin Enterprises, Inc., Tupperware Brands Corporation, USANA Health Sciences Inc., and Amway Corp.
We frequently interact and work directly with our sales leaders to explore ways to support our and our Members’ businesses, and their customers’ personal goals of living a healthier and more active lifestyle.
Our Members We are dependent on our Members to sell and promote our products to their customers. We frequently interact and work directly with our sales leaders to explore ways to support our and our Members’ businesses, and their customers’ personal goals of living a healthier and more active lifestyle.
Our personalized nutrition solutions include tools which aid in the development of optimal product packages specific to our customers’ individual nutritional needs, based on their expected wellness goals.
Our personalized nutrition solutions include tools which aid in the development of optimal product packages specific to our customers’ individual nutritional needs, based on their expected wellness goals. Our product development strategy focuses on innovation with the goal of offering consumers choices to meet their needs.
As the shift in consumption patterns continues to reflect an increasing daily consumption focus, one focus of this strategy is to provide more product access points closer to our Members and their customers.
Additionally, as the shift in consumption patterns continue, one focus of this strategy is to optimize product access points in order to reflect an increasing daily consumption focus for our Members and their customers.
REGULATION General In our United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations and guidance, court decisions and similar constraints that regulate the conduct of our business.
For information relating to our people and communities, please see the Human Capital section below. REGULATION General In our United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations and guidance, court decisions and similar constraints that regulate the conduct of our business.
Additionally, we have set diversity goals and targets for women in leadership roles globally and for racial and ethnic minorities in leadership roles in the U.S. Talent Acquisition and Development We seek to attract and retain a talented and diverse workforce.
Additionally, we have set diversity goals and targets for women in leadership roles globally and for racial and ethnic minorities in leadership roles in the U.S. Talent Acquisition and Development We seek to attract and retain top talent by utilizing a global recruitment strategy, tools and processes. Globally, we foster inclusive hiring practices to promote a diverse workforce.
In February of each year, we demote from the rank of sales leader those Members who did not satisfy the re-qualification requirements during the preceding twelve months.
In February of each year, we demote from the rank of sales leader those Members who did not satisfy the re-qualification requirements during the preceding twelve months. The re-qualification requirement does not apply to new sales leaders (i.e. those who became sales leaders subsequent to the January re-qualification of the prior year).
We work closely with our entrepreneurial Members to improve the sustainability of their businesses and to reach consumers. We require our Members to fairly and honestly market both our products and the Herbalife Nutrition business opportunity. Our relationship with our Members is key to our continued success as they allow us direct access to the voice of consumers.
We work closely with our entrepreneurial Members to improve the sustainability of their businesses and to reach consumers. We require our Members to fairly and honestly market both our products and the Herbalife business opportunity.
We have also implemented information technology systems to support Members and their increasing demand to be more connected to Herbalife Nutrition, their business, and their consumers with tools such as HN MyClub, Engage, HNconnect, BizWorks, MyHerbalife, GoHerbalife, and Herbalife.com.
We have also implemented information technology systems to support Members and their increasing demand to be more connected to Herbalife, their business, and their consumers with tools such as HN MyClub, Engage, BizWorks, MyHerbalife, GoHerbalife, and Herbalife.com. Additionally, we continue to support a growing suite of point-of-sale tools to assist our Members with ordering, tracking, and customer relationship management.
We also work closely with our third-party manufacturers to ensure high quality products are produced and tested through a vigorous quality control process at approved contract manufacturer labs or third-party labs.
Food and Drug Administration, or FDA, and strict Current Good Manufacturing Practice regulations, or CGMPs, for food, acidified foods, and dietary supplements. We also work closely with our third-party manufacturers to ensure high quality products are produced and tested through a vigorous quality control process at approved contract manufacturer labs or third-party labs.
The re-qualification requirement does not apply to new sales leaders (i.e. those who became sales leaders subsequent to the January re-qualification of the prior year). 8 As of December 31, 2022, prior to our February re-qualification process, approximately 772,000 of our Members have attained the level of sales leader, of which approximately 734,000 have attained this level in the 94 markets where we use our Marketing Plan and 38,000 independent service providers operating in our China business.
As of December 31, 2023, prior to our February re-qualification process, approximately 760,000 of our Members have attained the level of sales leader, of which approximately 716,000 have attained this level in the 94 markets where we use our Marketing Plan and 44,000 independent service providers operating in our China business.
We believe that one way to be a servant leader is to mentor others, and, in 2020, we introduced a new mentorship program to help guide junior employees in their professional journey.
We believe that one way to be a servant leader is to mentor others, and, in 2020, we launched a pilot for a new mentorship program to help guide junior leaders globally in their professional journey. The pilot feedback was then used to enhance the global mentorship program that was implemented in 2022.
As a signatory of the United Nations Global Compact, or UNGC, we have aligned our sustainability initiatives outlined by the United Nations’ Sustainable Development Goals. Our current sustainability initiatives focus on issues including climate and emissions, packaging, and operational waste.
As a signatory of the United Nations Global Compact, or UNGC, since 2020, we have aligned our sustainability initiatives with those outlined by the United Nations’ Sustainable Development Goals.
Some methods include Nutrition Clubs, Weight Loss Challenges, Wellness Evaluations, and Fit Camps. 6 For additional information regarding competition, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K.
For example, many Members have frequent contact with and provide support to their customers through a community-based approach to help them achieve nutrition goals. Some methods include Nutrition Clubs, Weight Loss Challenges, Wellness Evaluations, and Fit Camps. For additional information regarding competition, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K.
In China, while multi-level marketing is not permitted, direct selling is permitted. Chinese citizens who apply and become Members are referred to as sales representatives.
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. In China, while multi-level marketing is not permitted, direct selling is permitted. Chinese citizens who apply and become Members are referred to as sales representatives.
Many of our entrepreneurial Members identify and test new marketing efforts and programs developed by other Members and disseminate successful techniques to their sales organizations.
Our relationship with our Members is key to our continued success as they allow us direct access to the voice of consumers. 7 Many of our entrepreneurial Members identify and test new marketing efforts and programs developed by other Members and disseminate successful techniques to their sales organizations.
We refer to successful Member marketing techniques that we disseminate throughout our Member network, such as Nutrition Clubs, Weight Loss Challenges, and Fit Camps, as Daily Methods of Operations, or DMOs. 7 We believe that personal and professional development is key to our Members’ success and, therefore, we and our sales leader Members – those that achieve certain levels within our Marketing Plan – have meetings and events to support this important objective.
We believe that personal and professional development is key to our Members’ success and, therefore, we and our sales leader Members – those that achieve certain levels within our Marketing Plan – have meetings and events to support this important objective.
At our Company, we strive to create a learning culture, one in which development is an ongoing focus for all employees and managers. We invest in our employees’ development through a variety of programs. These programs are designed to help our employees grow professionally and strengthen their skills throughout their careers.
Investment in our employees' professional growth and development is important and helps establish a strong foundation for long-term success. At our Company, we strive to create a learning culture, one in which development is an ongoing focus for all employees and managers. We invest in our employees’ development through a variety of programs.
Our ability to remain competitive depends on many factors, including having relevant products that meet consumer needs, a rewarding compensation plan, enhanced education and tools, innovation in our products and services, competitive pricing, a strong reputation, and a financially viable company.
Our ability to remain competitive depends on many factors, including having relevant products that meet consumer needs, a rewarding compensation plan, enhanced education and tools, innovation in our products and services, competitive pricing, a strong reputation, and a financially viable company. 6 We have differentiated ourselves from our competitors through our Members’ focus on the consultative sales process, which includes ongoing personal contact, coaching, behavior motivation, education, and the creation of supportive communities.
During 2022, we also commenced a Digital Technology Program to develop a new enhanced platform to provide enhanced digital capabilities and experiences to our Members.
These tools allow our Members to manage their business and communicate with their customers more efficiently and effectively. During 2022, we also commenced our Herbalife One program to develop a new enhanced platform to provide enhanced digital capabilities and experiences to our Members.
The table below reflects sales leader retention rates by year and by region: Sales Leader Retention Rate 2023 2022 2021 North America 69.7 % 58.8 % 70.8 % Latin America (1) 71.6 % 69.3 % 67.0 % EMEA 64.6 % 77.1 % 72.7 % Asia Pacific 66.6 % 66.5 % 63.5 % Total sales leaders 67.6 % 68.9 % 67.9 % (1) The Company combined the Mexico and South and Central America regions into the Latin America region in 2022.
The table below reflects sales leader retention rates by year and by region: Sales Leader Retention Rate 2024 2023 2022 North America 70.3 % 69.7 % 58.8 % Latin America 70.4 % 71.6 % 69.3 % EMEA 66.9 % 64.6 % 77.1 % Asia Pacific 67.4 % 66.6 % 66.5 % Total sales leaders 68.3 % 67.6 % 68.9 % For the latest twelve-month re-qualification period ending January 2024, approximately 68.3% of our sales leaders, excluding China, re-qualified, versus 67.6% for the twelve-month period ended January 2023.
Together, our HIM manufacturing facilities produce approximately 51% of our inner nutrition products sold worldwide. Self-manufacturing also enables us greater control to reduce negative environmental impacts of our operations and supply chain. As described in the Sustainability section below, we are focused on developing science-based green-house gas emission reduction targets for our manufacturing facilities as part of our sustainability goals.
Together, our HIM manufacturing facilities produce approximately 47% of our inner nutrition products sold worldwide. Self-manufacturing also enables us greater control to reduce negative environmental impacts of our operations and supply chain.
The table below reflects the number of sales leaders as of the end of February of the year indicated (subsequent to the annual re-qualification process) and by region: Number of Sales Leaders 2022 2021 2020 North America 80,278 95,402 71,202 Latin America (1) 125,726 131,359 134,401 EMEA 183,056 158,153 130,438 Asia Pacific 201,137 173,582 158,815 Total sales leaders 590,197 558,496 494,856 China 33,486 68,301 70,701 Worldwide total sales leaders 623,683 626,797 565,557 (1) The Company combined the Mexico and South and Central America regions into the Latin America region in 2022.
The table below reflects the number of sales leaders as of the end of February of the year indicated (subsequent to the annual re-qualification process) and by region: Number of Sales Leaders 2023 2022 2021 North America 69,586 80,278 95,402 Latin America 118,605 125,726 131,359 EMEA 170,202 183,056 158,153 Asia Pacific 223,714 201,137 173,582 Total sales leaders 582,107 590,197 558,496 China 38,317 33,486 68,301 Worldwide total sales leaders 620,424 623,683 626,797 9 The number of sales leaders as of December 31 will exceed the number immediately subsequent to the preceding re-qualification period because sales leaders qualify throughout the year but sales leaders who do not re-qualify are removed from the rank of sales leader the following February.
Program offerings and eligibility vary by region, but may include partial reimbursement of tuition fees incurred for undergraduate and graduate degrees, certificate programs, or skills-based courses.
Program offerings and eligibility vary by region, but may include partial reimbursement of tuition fees incurred for undergraduate and graduate degrees, certificate programs, or skills-based courses. • Talent Review – In 2023, an employee talent review was conducted globally to identify top talent among senior leaders. The information gathered will help guide future succession and development opportunities.
In addition, we also have a Center of Excellence laboratory in Bangalore, India, and a quality control laboratory in Winston-Salem, North Carolina, Suzhou, China, and Nanjing, China. All HIM quality control labs contain modern analytical equipment and are backed by the expertise in testing and methods development of our scientists. In our U.S.
All HIM quality control labs contain modern analytical equipment and are backed by the expertise in testing and methods development of our scientists. In our U.S. HIM facilities, which manufacture products for the U.S. and most of our international markets, we operate and adhere to the regulations established by the U.S.
For self-manufactured products, we conduct all of our testing in-house at our fully-equipped, modern quality control laboratories in the U.S. and China. We have two quality control laboratories in Southern California and Changsha, China (including a Center of Excellence in both locations).
Our finished products are analyzed for label claims and tested for microbiological purity, thereby verifying that our products comply with food safety standards, meet label claims and have met other quality standards. For self-manufactured products, we conduct our testing in-house at our fully-equipped, modern quality control laboratories in the U.S. and China.
As a result, our business model in China differs from that used in other markets. Members in China are categorized differently than those in other markets. 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.
Business in China Our business model in China includes unique features as compared to our traditional business model in order to ensure compliance with Chinese regulations. As a result, our business model in China differs from that used in other markets. Members in China are categorized differently than those in other markets.
Our flagship wellness program in the U.S., “Wellness for Life,” offers employees a suite of activities to achieve overall wellness through improved fitness, nutrition, intellectual well-being, and financial literacy. The variety of activities offered ensures all employees may participate, no matter where they may be in their wellness journey.
Our employee wellness program is a critical part of our employer brand and aligns with our identity as a leader in the health and wellness industry. In 2023, our “Wellness For Life” program offered employees a suite of activities to achieve wellness through quarterly fitness challenges and movement conditioning routines, nutrition, intellectual well-being and financial literacy.
Removed
Our product development strategy is twofold: (1) to increase the value of existing customers by investing in products that address customers’ health, wellness and nutrition considerations, fill perceived gaps in our portfolios, add flavors, increase convenience by developing products like snacks and bars, and expand afternoon and evening consumption with products like savory shakes or soups; and (2) to attract new customers by entering into new categories, offering more choices, increasing individualization, and expanding our current sports line.
Added
To innovate, we look for new ingredients that deliver benefits and results, convenient product delivery formats, new categories for expansion like healthier food and snack options or other consumer preferences. Our development process emphasizes science-based ingredients and product personalization, incorporating feedback from Members and their customers to understand local preferences and needs.
Removed
We have a keen focus on product innovation and aim to launch new products and variations on existing products on a regular basis. Once a particular market opportunity has been identified, our scientists, along with our operations, marketing, and sales teams, work closely with Member leadership to introduce new products and variations on existing products.
Added
For instance, to accommodate growing customer demand for plant-based products, in 2023 we launched a new vegan product line in North America, Herbalife V, which is certified vegan, organic, and non-GMO.
Removed
We have differentiated ourselves from our competitors through our Members’ focus on the consultative sales process, which includes ongoing personal contact, coaching, behavior motivation, education, and the creation of supportive communities. For example, many Members have frequent contact with and provide support to their customers through a community-based approach to help them achieve nutrition goals.
Added
We refer to successful Member marketing techniques that we disseminate throughout our Member network, such as Nutrition Clubs, Weight Loss Challenges, and Fit Camps, as Daily Methods of Operations, or DMOs.
Removed
We believe a gradual qualification approach is important to the success and retention of new sales leaders and benefits the business in the long term as it allows new Members to obtain product and customer experience as well as additional training and education on Herbalife Nutrition products, daily consumption based DMOs, and the business opportunity prior to becoming a sales leader.
Added
We have two quality control laboratories in Southern California and Changsha, China (including a Center of Excellence in both locations). In addition, we also have a Center of Excellence laboratory in Bangalore, India, and a quality control laboratory in Winston-Salem, North Carolina, Suzhou, China, and Nanjing, China.
Removed
Historical information has been reclassified to conform with the current period geographic presentation. For the latest twelve-month re-qualification period ending January 2023, approximately 67.6% of our sales leaders, excluding China, re-qualified, versus 68.9% for the twelve-month period ended January 2022.
Added
Our current global sustainability initiatives focus on areas relating to the reduction of operational emission and waste, as well as the health and safety of our people and communities in which we operate.
Removed
Historical information has been reclassified to conform with the current period geographic presentation.
Added
Our DEI strategy is focused on fostering an environment of belonging in our workplace where employees and their voices are seen, heard and welcomed; creating an employee workforce that is reflective of Members, the customers they serve and their communities, and ensuring equitable recruitment processes; as well as extending the Herbalife brand to the community in a demonstrative way to drive tangibility and relevancy with diverse segments.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Our International Operations • A substantial portion of our business is conducted in foreign jurisdictions, exposing us to the risks associated with international operations. • We are subject to the anti-bribery laws, rules, and regulations of the United States and the other foreign jurisdictions in which we operate. • If we do not comply with transfer pricing, customs duties VAT, and similar regulations, we may be subject to additional taxes, customs duties, interest, and penalties in material amounts, which could materially harm our financial condition and operating results. • Our business in China is subject to general, as well as industry-specific, economic, political, and legal developments and risks and requires that we utilize a modified version of the business model we use elsewhere in the world. • The United Kingdom’s exit from the European Union could adversely impact us. 20 Risks Related to Our Indebtedness • The terms and covenants in our existing indebtedness could limit our discretion with respect to certain business matters, which could harm our business, financial condition, and operating results. • The conversion or maturity of our convertible notes may adversely affect our financial condition and operating results, and their conversion into common shares could have a dilutive effect that could cause our share price to go down.
Biggest changeRisks Related to Our International Operations • A substantial portion of our business is conducted in foreign jurisdictions, exposing us to the risks associated with international operations. • We are subject to the anti-bribery laws, rules, and regulations of the United States and the other foreign jurisdictions in which we operate. • If we do not comply with transfer pricing, income tax, customs duties, VAT, and similar regulations, we may be subject to additional taxes, customs duties, interest, and penalties in material amounts, which could materially harm our financial condition and operating results. • Our business in China is subject to general, as well as industry-specific, economic, political, and legal developments and risks and requires that we utilize a modified version of the business model we use elsewhere in the world.
The principal factors, events, and uncertainties that make an investment in our securities risky include the following: Risks Related to Our Business and Industry • Our failure to establish and maintain Member and sales leader relationships could negatively impact sales of our products and materially harm our business, financial condition, and operating results. • Because we cannot exert the same level of influence or control over our Members as we could if they were our employees, our Members could fail to comply with applicable law or our rules and procedures, which could result in claims against us that could materially harm our business, financial condition, and operating results. • Adverse publicity associated with our Company or the direct-selling industry could materially harm our business, financial condition, and operating results. • Our failure to compete successfully could materially harm our business, financial condition, and operating results. • Our contractual obligation to sell our products only through our Member network and to refrain from changing certain aspects of our Marketing Plan may limit our growth. • Our failure to appropriately respond to changing consumer trends, preferences, and demand for new products and product enhancements could materially harm our Member relationships, our Members’ customer relationships, and product sales or otherwise materially harm our business, financial condition, and operating results. • If we fail to further penetrate existing markets, the growth in sales of our products, along with our operating results could be negatively impacted. 19 • Since one of our products constitutes a significant portion of our net sales, significant decreases in consumer demand for this product or our failure to produce a suitable replacement, could materially harm our business, financial condition, and operating results. • Our business could be materially and adversely affected by natural disasters, other catastrophic events, acts of war or terrorism, cybersecurity incidents, pandemics, and/or other acts by third parties. • We depend on the integrity and reliability of our information technology infrastructure, and any related interruptions or inadequacies may have a material adverse effect on our business, financial condition, and operating results. • Disruption of supply, shortage, or increases in the cost of ingredients, packaging materials, and other raw materials as well as climate change could materially harm our business, financial condition, and operating results. • If any of our manufacturing facilities or third-party manufacturers fail to reliably supply products to us at required levels of quality or fail to comply with applicable laws, our financial condition and operating results could be materially and adversely impacted. • If we lose the services of members of our senior management team, our business, financial condition, and operating results could be materially harmed. • Our share price may be adversely affected by third parties who raise allegations about our Company. • ESG matters, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition, and operating results and may damage our reputation.
The principal factors, events, and uncertainties that make an investment in our securities risky include the following: Risks Related to Our Business and Industry • Our failure to establish and maintain Member and sales leader relationships could negatively impact sales of our products and materially harm our business, financial condition, and operating results. • Because we cannot exert the same level of influence or control over our Members as we could if they were our employees, our Members could fail to comply with applicable law or our rules and procedures, which could result in claims against us that could materially harm our business, financial condition, and operating results. • Adverse publicity associated with our Company or the direct-selling industry could materially harm our business, financial condition, and operating results. • Our failure to compete successfully could materially harm our business, financial condition, and operating results. • Our contractual obligation to sell our products only through our Member network and to refrain from changing certain aspects of our Marketing Plan may limit our growth. • Our failure to appropriately respond to changing consumer trends, preferences, and demand for new products and product enhancements could materially harm our Member relationships, Members’ customer relationships, and product sales or otherwise materially harm our business, financial condition, and operating results. • If we fail to further penetrate existing markets, the growth in sales of our products, along with our operating results, could be negatively impacted. • Since one of our products constitutes a significant portion of our net sales, significant decreases in consumer demand for this product or our failure to produce a suitable replacement could materially harm our business, financial condition, and operating results. • Our business could be materially and adversely affected by natural disasters, other catastrophic events, acts of war or terrorism, cybersecurity incidents, pandemics, and/or other acts by third parties. • We depend on the integrity and reliability of our information technology infrastructure, and any related interruptions or inadequacies may have a material adverse effect on our business, financial condition, and operating results. • Disruption of supply, shortage, or increases in the cost of ingredients, packaging materials, and other raw materials as well as climate change could materially harm our business, financial condition, and operating results. • If any of our manufacturing facilities or third-party manufacturers fail to reliably supply products to us at required levels of quality or fail to comply with applicable laws, our financial condition and operating results could be materially and adversely impacted. • If we lose the services of members of our senior management team, our business, financial condition, and operating results could be materially harmed. • Our share price may be adversely affected by third parties who raise allegations about our Company. 19 • ESG matters, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition, and operating results and may damage our reputation.
Although the California legislation provides an exemption for direct sellers, there can be no assurance that other jurisdictions will provide such an exemption or that judicial or regulatory authorities will not assert interpretations that would mandate that we change our classification.
Although the California legislation provides an exemption for direct sellers, there can be no assurance that other jurisdictions or authorities will provide such an exemption or that judicial or regulatory authorities will not assert interpretations that would mandate that we change our classification.
For example, a foreign government may impose trade restrictions or increased tariffs, require compliance with trade and economic sanctions laws, rules, or regulations, such as those administered by U.S. Customs and Border Protection and the U.S.
For example, a foreign government may impose trade restrictions or increased tariffs, require compliance with trade and economic sanctions laws, rules, or regulations, such as those administered by U.S. Customs and Border Protection, the U.S.
Furthermore, the court will only approve a scheme of arrangement if it is satisfied that: • the company is not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to majority vote have been complied with; • the shareholders who voted at the meeting in question fairly represent the relevant class of shareholders to which they belong; 41 • the scheme of arrangement is such as a businessman would reasonably approve; and • the scheme of arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.” If the scheme of arrangement is approved, dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of U.S. corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Furthermore, the court will only approve a scheme of arrangement if it is satisfied that: • the company is not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to majority vote have been complied with; • the shareholders who voted at the meeting in question fairly represent the relevant class of shareholders to which they belong; • the scheme of arrangement is such as a businessman would reasonably approve; and • the scheme of arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.” If the scheme of arrangement is approved, dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of U.S. corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
This perception is dependent upon opinions concerning a number of factors, including: • the safety, quality, and efficacy of our products, as well as those of similar companies; • our Members; • our network marketing program or the attractiveness or viability of the financial opportunities it may provide; • the direct-selling business generally; • actual or purported failure by us or our Members to comply with applicable laws, rules, and regulations, including those regarding product claims and advertising, good manufacturing practices, the regulation of our network marketing program, the registration of our products for sale in our target markets, or other aspects of our business; • our commitment to ESG matters and our ESG practices; • the security of our information technology infrastructure; and • actual or alleged impropriety, misconduct, or fraudulent activity by any person formerly or currently associated with our Members or us.
This perception is dependent upon opinions concerning a number of factors, including: • the safety, quality, and efficacy of our products, as well as those of similar companies; • our Members; • our network marketing program or the attractiveness or viability of the financial opportunities it may provide; • the direct-selling business generally; • actual or purported failure by us or our Members to comply with applicable laws, rules, and regulations, including those regarding product claims and advertising, good manufacturing practices, the regulation of our network marketing program, the registration of our products for sale in our target markets, or other aspects of our business; • our commitment to ESG matters and our ESG practices; 21 • the security of our information technology infrastructure; and • actual or alleged impropriety, misconduct, or fraudulent activity by any person formerly or currently associated with our Members or us.
While we do not believe that Herbalife Nutrition Ltd. is classified as a CFC, such entity and one or more of our non-U.S. corporate subsidiaries not already classified as CFCs could become classified as CFCs either as a result of (i) additional changes to tax laws, rules, or regulations, including future pronouncements or other guidance from the IRS or (ii) an increase in the percentage ownership of our common shares by shareholders who hold, or in the future may hold, 10% or more of our common shares, whether as a result of future share acquisitions, the impact of any share repurchases we may undertake, or otherwise.
While we do not believe that Herbalife Ltd. is classified as a CFC, such entity and one or more of our non-U.S. corporate subsidiaries not already classified as CFCs could become classified as CFCs either as a result of (i) additional changes to tax laws, rules, or regulations, including future pronouncements or other guidance from the IRS or (ii) an increase in the percentage ownership of our common shares by shareholders who hold, or in the future may hold, 10% or more of our common shares, whether as a result of future share acquisitions, the impact of any share repurchases we may undertake, or otherwise.
No assurances can be given that future legislative, administrative, or judicial developments will not result in an increase in the amount of U.S. taxes payable by an investor in our shares. If any such developments occur, such developments could have a material and adverse effect on an investment in our shares. Item 1B. Unresolv ed Staff Comments None.
No assurances can be given that future legislative, administrative, or judicial developments will not result in an increase in the amount of U.S. taxes payable by an investor in our shares. If any such developments occur, such developments could have a material and adverse effect on an investment in our shares. Item 1B. Unresolv ed Staff Comments None. 40
This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. 40 A shareholder may have a direct right of action against us where its individual rights have been, or are about to be, infringed.
This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. A shareholder may have a direct right of action against us where its individual rights have been, or are about to be, infringed.
If we fail to achieve any goals, targets, or objectives we may set with respect to ESG matters, if we do not meet or comply with new regulations or evolving consumer, investor, industry, or stakeholder expectations and standards, including those related to reporting, or if we are perceived to have not responded appropriately to the growing concern for ESG matters, we may face legal or regulatory actions, the imposition of fines, penalties, or other sanctions, adverse publicity, and decreased demand from consumers who may stop purchasing our products, or the price of our common shares could decline, any of which could materially harm our reputation or have a material adverse effect on our business, financial condition, or operating results. 29 Risks Related to Regulatory and Legal Matters Our products are affected by extensive regulations and our failure or our Members’ failure to comply with any regulations could lead to significant penalties or claims, which could materially harm our financial condition and operating results.
If we fail to achieve any goals, targets, or objectives we may set with respect to ESG matters, if we do not meet or comply with new regulations or evolving consumer, investor, industry, or stakeholder expectations and standards, including those related to reporting, or if we are perceived to have not responded appropriately to the growing concern for ESG matters, we may face legal or regulatory actions, the imposition of fines, penalties, or other sanctions, adverse publicity, and decreased demand from consumers who may stop purchasing our products, or the price of our common shares could decline, any of which could materially harm our reputation or have a material adverse effect on our business, financial condition, or operating results. 27 Risks Related to Regulatory and Legal Matters Our products are affected by extensive regulations and our failure or our Members’ failure to comply with any regulations could lead to significant penalties or claims, which could materially harm our financial condition and operating results.
While we have implemented policies and procedures designed to govern Member conduct and to protect the goodwill associated with Herbalife Nutrition, it can be difficult to enforce these policies and procedures because of our large number of Members and their status as independent contractors and because our policies and procedures differ by jurisdiction as a result of varying local legal requirements.
While we have implemented policies and procedures designed to govern Member conduct and to protect the goodwill associated with Herbalife, it can be difficult to enforce these policies and procedures because of our large number of Members and their status as independent contractors and because our policies and procedures differ by jurisdiction as a result of varying local legal requirements.
Except for force majeure events, such as natural disasters and other acts of God, and non-performance by Herbalife Nutrition, our contract manufacturers generally cannot unilaterally terminate these contracts. These contracts can generally be extended by us at the end of the relevant time-period and we have exercised this right in the past.
Except for force majeure events, such as natural disasters and other acts of God, and non-performance by Herbalife, our contract manufacturers generally cannot unilaterally terminate these contracts. These contracts can generally be extended by us at the end of the relevant time-period and we have exercised this right in the past.
None of Herbalife Nutrition Ltd., its directors, officers, advisors or service providers (including the organization that provides registered office services in the Cayman Islands) will bear any responsibility for any delay caused in mail reaching the forwarding address. U.S. Tax Reform may adversely impact certain U.S. shareholders of the Company.
None of Herbalife Ltd., its directors, officers, advisors or service providers (including the organization that provides registered office services in the Cayman Islands) will bear any responsibility for any delay caused in mail reaching the forwarding address. U.S. Tax Reform may adversely impact certain U.S. shareholders of the Company.
Such constructive ownership rules may also attribute share ownership to persons that are entitled to acquire shares pursuant to an option, such as the holders of our 2024 Convertible Notes or 2028 Convertible Notes. 42 As a result of certain changes to the CFC constructive ownership rules introduced by the Tax Cuts and Jobs Act of 2017, or U.S.
Such constructive ownership rules may also attribute share ownership to persons that are entitled to acquire shares pursuant to an option, such as the holders of our 2024 Convertible Notes or 2028 Convertible Notes. As a result of certain changes to the CFC constructive ownership rules introduced by the Tax Cuts and Jobs Act of 2017, or U.S.
Therefore, one of our top priorities is to modernize our technology and data infrastructure by, among other things, creating more relevant and more personalized experiences wherever our systems interact with Members and their customers; and developing ways to create more powerful digital tools and capabilities for Members to enable them to grow their 26 businesses.
Therefore, one of our top priorities is to modernize our technology and data infrastructure by, among other things, creating more relevant and more personalized experiences wherever our systems interact with Members and their customers; and developing ways to create more powerful digital tools and capabilities for Members to enable them to grow their businesses.
While we continue to invest in our information technology infrastructure, there can be no assurance that there will not be any significant interruptions to such systems, that the systems will be adequate to meet all of our business needs, or that the systems will keep pace with continuing changes in technology, legal and regulatory standards.
While we continue to invest in our information technology infrastructure, there can be no assurance that there will not be any significant interruptions to such systems, that the systems will be adequate to meet all of our business needs, or that the systems will keep pace with continuing 24 changes in technology, legal and regulatory standards.
In addition, our Members’ and consumers’ perception of Herbalife Nutrition and our direct-selling business as well as similar companies can be significantly influenced by media attention, publicized scientific research or findings, product liability claims, and other publicity, whether or not it is legitimate.
In addition, our Members’ and consumers’ perception of Herbalife and our direct-selling business as well as similar companies can be significantly influenced by media attention, publicized scientific research or findings, product liability claims, and other publicity, whether or not it is legitimate.
As a result, our growth may be limited. 23 Our failure to appropriately respond to changing consumer trends, preferences, and demand for new products and product enhancements could materially harm our Member relationships, Members’ customer relationships, and product sales or otherwise materially harm our business, financial condition, and operating results.
As a result, our growth may be limited. Our failure to appropriately respond to changing consumer trends, preferences, and demand for new products and product enhancements could materially harm our Member relationships, Members’ customer relationships, and product sales or otherwise materially harm our business, financial condition, and operating results.
We are contractually prohibited from expanding our business by selling Herbalife Nutrition products through other distribution channels that may be available to our competitors, such as over the Internet, through wholesale sales, by establishing retail stores, or through mail order systems.
We are contractually prohibited from expanding our business by selling Herbalife products through other distribution channels that may be available to our competitors, such as over the Internet, through wholesale sales, by establishing retail stores, or through mail order systems.
Tax Reform may adversely impact certain U.S. shareholders of the Company. Risks Related to Our Business and Industry Our failure to establish and maintain Member and sales leader relationships could negatively impact sales of our products and materially harm our business, financial condition, and operating results.
Tax Reform may adversely impact certain U.S. shareholders of the Company. 20 Risks Related to Our Business and Industry Our failure to establish and maintain Member and sales leader relationships could negatively impact sales of our products and materially harm our business, financial condition, and operating results.
Our ability to increase market penetration may be limited by the finite number of persons in a given country inclined to pursue a direct-selling business opportunity or consumers aware of, or willing to purchase, Herbalife Nutrition products.
Our ability to increase market penetration may be limited by the finite number of persons in a given country inclined to pursue a direct-selling business opportunity or consumers aware of, or willing to purchase, Herbalife products.
Our reputation and the quality of our brand are critical to our business, and the size and success of our Member organization, our operating results, and our share price may be significantly affected by the public’s perception of Herbalife Nutrition and other direct-selling companies.
Our reputation and the quality of our brand are critical to our business, and the size and success of our Member organization, our operating results, and our share price may be significantly affected by the public’s perception of Herbalife and other direct-selling companies.
To the extent legally permitted, an agreement we entered into with our Members provides assurances that we will not sell Herbalife Nutrition products worldwide through any distribution channel other than our network of Members.
To the extent legally permitted, an agreement we entered into with our Members provides assurances that we will not sell Herbalife products worldwide through any distribution channel other than our network of Members.
Finally, even if our insurance covers a claim, given the level of self-insured retentions that we have accepted under our current product liability insurance policies, which is $12.5 million, in certain cases we may be subject to the full amount of liability associated with any claims, which could be substantial. 33 If we fail to protect our intellectual property, our ability to compete could be negatively affected, which could materially harm our financial condition and operating results.
Finally, even if our insurance covers a claim, given the level of self-insured retentions that we have accepted under our current product liability insurance policies, which is $12.5 million, in certain cases we may be subject to the full amount of liability associated with any claims, which could be substantial. 31 If we fail to protect our intellectual property, our ability to compete could be negatively affected, which could materially harm our financial condition and operating results.
To operate under these regulations, we created and introduced a modified business model specific to China based on our understanding of how Chinese regulators interpret and enforce these regulations, our own interpretation of applicable regulations and the enforcement thereof, and our understanding of the practices of other licensed direct-selling organizations in China. 37 In China, we sell our products to and through independent service providers and sales representatives, to preferred customers and other customers, as well as through Company-operated retail platforms when necessary.
To operate under these regulations, we created and introduced a modified business model specific to China based on our understanding of how Chinese regulators interpret and enforce these regulations, our own interpretation of applicable regulations and the enforcement thereof, and our understanding of the practices of other licensed direct-selling organizations in China. 35 In China, we sell our products to and through independent service providers and sales representatives, to preferred customers and other customers, as well as through Company-operated retail platforms when necessary.
For example, shareholders of Cayman Islands exempted companies such as Herbalife Nutrition Ltd. have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders.
For example, shareholders of Cayman Islands exempted companies such as Herbalife Ltd. have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders.
Adverse publicity relating to us has had, and could again have, a negative effect on our ability to attract, motivate, and retain Members, on consumer perception of Herbalife Nutrition, and on our share price.
Adverse publicity relating to us has had, and could again have, a negative effect on our ability to attract, motivate, and retain Members, on consumer perception of Herbalife, and on our share price.
In addition, any failure of these systems to operate as designed could cause us to fail to maintain the records required under, or otherwise violate terms of, the Consent Order. 31 Further, management and our board of directors have been, and may continue to be, required to focus a substantial amount of time on Consent Order compliance activities, which could divert their attention from running and growing our business.
In addition, any failure of these systems to operate as designed could cause us to fail to maintain the records required under, or otherwise violate terms of, the Consent Order. 29 Further, management and our board of directors have been, and may continue to be, required to focus a substantial amount of time on Consent Order compliance activities, which could divert their attention from running and growing our business.
For example, in certain foreign countries, compensation to distributors in the direct-selling industry may be limited to a certain percentage of sales. 30 The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based and, thus, we are subject to the risk that these regulations or the enforcement or interpretation of these regulations by regulators or courts can change.
For example, in certain foreign countries, compensation to distributors in the direct-selling industry may be limited to a certain percentage of sales. 28 The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based and, thus, we are subject to the risk that these regulations or the enforcement or interpretation of these regulations by regulators or courts can change.
Our financial condition and operating results could be materially harmed if we fail to comply with the Consent Order, if costs related to compliance exceed our estimates, if it has a negative impact on net sales, or if it leads to further legal, regulatory, or compliance claims, proceedings, or investigations or litigation. 32 Our actual or perceived failure to comply with privacy and data protection laws, rules, and regulations could materially harm our business, financial condition, and operating results.
Our financial condition and operating results could be materially harmed if we fail to comply with the Consent Order, if costs related to compliance exceed our estimates, if it has a negative impact on net sales, or if it leads to further legal, regulatory, or compliance claims, proceedings, or investigations or litigation. 30 Our actual or perceived failure to comply with privacy and data protection laws, rules, and regulations could materially harm our business, financial condition, and operating results.
Any failure to comply with these agreements, or any resulting further government action, could result in a material and adverse impact to our business, financial condition, and operating results. 36 If we do not comply with transfer pricing, income tax, customs duties, VAT, and similar regulations, we may be subject to additional taxes, customs duties, interest, and penalties in material amounts, which could materially harm our financial condition and operating results.
Any failure to comply with these agreements, or any resulting further government action, could result in a material and adverse impact to our business, financial condition, and operating results. 34 If we do not comply with transfer pricing, income tax, customs duties, VAT, and similar regulations, we may be subject to additional taxes, customs duties, interest, and penalties in material amounts, which could materially harm our financial condition and operating results.
However, based on English authorities, which would likely be of persuasive authority and be applied by a court in the Cayman Islands, exceptions to the foregoing principle may apply where: • a company is acting or proposing to act illegally or outside the scope of its corporate authority; • the act complained of, although not beyond the scope of the company’s corporate authority, could be effected only if authorized by more than the number of votes of the shareholders of the company actually obtained; or • those who control the company are perpetrating a “fraud on the minority.” Certain provisions in our convertible senior notes and the related indentures, as well as Cayman Islands law and our organizational documents, could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
However, based on English authorities, which would likely be of persuasive authority and be applied by a court in the Cayman Islands, exceptions to the foregoing principle may apply where: • a company is acting or proposing to act illegally or outside the scope of its corporate authority; • the act complained of, although not beyond the scope of the company’s corporate authority, could be effected only if authorized by more than the number of votes of the shareholders of the company actually obtained; or • those who control the company are perpetrating a “fraud on the minority.” Certain provisions in our convertible senior notes and the related indentures, as well as Cayman Islands law and our articles of association, could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
We operate manufacturing facilities in the United States and around the world and also rely on third-party contract manufacturers to supply products to us. Any significant interruption of production at any of our manufacturing facilities or third-party contract manufacturers, or other interruption in our supply chain, may materially harm our business, financial condition, and operating results.
We operate manufacturing facilities in the United States and around the world and also rely on third-party contract manufacturers to manufacture and supply products. Any significant interruption of production at any of our manufacturing facilities or third-party contract manufacturers, or other interruption in our supply chain, may materially harm our business, financial condition, and operating results.
Any of the foregoing could have a material adverse effect on our business, financial condition, and operating results. 34 We may be held responsible for additional compensation, certain taxes, or assessments relating to the activities of our Members, which could materially harm our financial condition and operating results.
Any of the foregoing could have a material adverse effect on our business, financial condition, and operating results. 32 We may be held responsible for additional compensation, certain taxes, or assessments relating to the activities of our Members, which could materially harm our financial condition and operating results.
Changing consumer preferences may result in increased demands regarding the source of origin of our ingredients, the recyclability of, and amount of recycled content contained in, our packaging containers, and other components of our products and supply chain and their respective environmental impact, including on sustainability.
Changing consumer preferences and investor focus may result in increased demands regarding the source of origin of our ingredients, the recyclability of, and amount of recycled content contained in, our packaging containers, and other components of our products and supply chain and their respective environmental impact, including on sustainability.
Further, as discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , we recently commenced a Digital Technology Program to develop a new enhanced platform to provide enhanced digital capabilities and experiences to our Members.
Further, as discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , we recently commenced a Digital Technology Program to develop Herbalife One, a new enhanced platform to provide enhanced digital capabilities and experiences to our Members.
Additionally, the consent of each holder of a fixed or floating security interest is required to be obtained unless the Grand Court of the Cayman Islands waives such requirement. The Companies Act contains separate statutory provisions that provide for the merger, reconstruction, and amalgamation of companies.
Additionally, the consent of each holder of a fixed or floating security interest is required to be obtained unless the Grand Court of the Cayman Islands waives such requirement. The Companies Act contains separate statutory provisions that provide for the merger, reconstruction, and amalgamation of companies pursuant to court approved arrangements.
Herbalife Nutrition Ltd. has been advised by its Cayman Islands legal counsel, Maples and Calder (Cayman) LLP, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against Herbalife Nutrition Ltd. judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against Herbalife Nutrition Ltd. predicated upon the civil liability provisions of the securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. ln those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met.
A material portion of our assets are located outside of the United States. 39 Herbalife Ltd. has been advised by its Cayman Islands legal counsel, Maples and Calder (Cayman) LLP, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against Herbalife Ltd. judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against Herbalife Ltd. predicated upon the civil liability provisions of the securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. ln those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met.
Our Formula 1 Healthy Meal, which is our best-selling product line, approximated 26% of our net sales for the year ended December 31, 2022.
Our Formula 1 Healthy Meal, which is our best-selling product line, approximated 26% of our net sales for the year ended December 31, 2023.
In addition, our business depends in large part on our ability to maintain consumer confidence in the safety and quality of our products. We have rigorous product safety and quality standards, which we expect our manufacturing facilities as well as our contract manufacturers to meet.
In addition, our business depends in large part on our ability to maintain consumer confidence in the safety and quality of our products. We have rigorous product safety and quality standards, which our manufacturing facilities as well as our contract manufacturers are required to meet.
Any material disruption to our collective operations or supply, manufacturing, or distribution capabilities caused by unforeseen or catastrophic events, such as (i) natural disasters or severe weather conditions, including droughts, fires, floods, hurricanes, volcanic eruptions, and earthquakes; (ii) power loss or shortages; (iii) telecommunications or information technology infrastructure failures; (iv) acts or threats of war, terrorism, or other armed hostilities; (v) outbreaks of contagious diseases, epidemics, and pandemics; (vi) cybersecurity incidents, including intentional or inadvertent exposure of content perceived to be sensitive data; (vii) employee misconduct or error; and/or (viii) other actions by third parties and other similar disruptions, could materially adversely affect our ability to conduct business and our Members’ selling activities.
Any material disruption to our collective operations or supply, manufacturing, or distribution capabilities caused by unforeseen or catastrophic events, such as (i) natural disasters or severe weather conditions, including droughts, fires, floods, hurricanes, volcanic eruptions, and earthquakes; (ii) power loss or shortages; (iii) telecommunications or information technology infrastructure failures; (iv) acts or threats of war, terrorism, or other armed hostilities, such as the wars in Ukraine and the Middle East; (v) outbreaks of contagious diseases, epidemics, and pandemics, such as the COVID-19 pandemic; (vi) cybersecurity incidents, including intentional or inadvertent exposure of content perceived to be sensitive data; (vii) employee misconduct or error; and/or (viii) other actions by third parties and other similar disruptions, could materially adversely affect our ability to conduct business and our Members’ selling activities.
For example, natural disasters, including droughts, earthquakes, fires, hurricanes, or floods, technical issues, work stoppages, or other unforeseen or catastrophic events, that result in significant interruption of production at any of our facilities or third-party contract manufacturers or suppliers could impede our ability to conduct business.
Events such as natural disasters, including droughts, earthquakes, fires, hurricanes, or floods, technical issues, work stoppages, or other unforeseen or catastrophic events, that result in significant interruption of production at any of our facilities or third-party contract manufacturers or suppliers could impede our ability to conduct business.
Although the events in Central America did not have a material negative impact on our operations, we cannot make assurances that any future catastrophic events will not adversely affect our ability to operate our business or our financial condition and operating results.
Although the event in Turkey did not have a material negative impact on our operations, we cannot make assurances that any future catastrophic events will not adversely affect our ability to operate our business or our financial condition and operating results.
Treasury Department’s Office of Foreign Assets Control, implement new or change existing trade policies, or otherwise limit or restrict our ability to import products in a cost-effective manner, or at all, any of which could negatively impact our operations.
Treasury Department’s Office of Foreign Assets Control, implement new or change existing trade policies, impose sanctions or counter sanctions or otherwise limit or restrict our ability to import or export products in a cost-effective manner, or at all, any of which could negatively impact our operations.
Risks Related to Our International Operations A substantial portion of our business is conducted in foreign jurisdictions, exposing us to the risks associated with international operations. Approximately 77% of our net sales for the year ended December 31, 2022 were generated outside the United States, exposing our business to risks associated with international operations.
Risks Related to Our International Operations A substantial portion of our business is conducted in foreign jurisdictions, exposing us to the risks associated with international operations. Approximately 78% of our net sales for the year ended December 31, 2023 were generated outside the United States, exposing our business to risks associated with international operations.
Certain provisions in our convertible senior notes and the related indentures, as well as certain provisions of Cayman Islands law and our organizational documents, could make it more difficult or more expensive for a third party to acquire us.
Certain provisions in our convertible senior notes and the related indentures, as well as certain provisions of Cayman Islands law and our articles of association, could make it more difficult or more expensive for a third party to acquire us.
Our business and operations in China, which generated approximately 8% of our net sales for the year ended December 31, 2022, are subject to unique risks and uncertainties related to general economic, political, and legal developments.
Our business and operations in China, which generated approximately 7% of our net sales for the year ended December 31, 2023, are subject to unique risks and uncertainties related to general economic, political, and legal developments.
The Consent Order does not prevent other third parties from bringing actions against us, whether in the form of other federal, state, or foreign regulatory proceedings or private litigation, any of which could lead to monetary settlements, fines, penalties, or injunctions.
The Consent Order also creates additional third-party risks. The Consent Order does not prevent other third parties from bringing actions against us, whether in the form of other federal, state, or foreign regulatory proceedings or private litigation, any of which could lead to monetary settlements, fines, penalties, or injunctions.
Further, these initiatives may be subject to cost overruns and delays and may cause disruptions in our operations. These cost overruns and delays and disruptions could adversely impact our business, financial condition, and operating results.
Further, these initiatives may be subject to cost overruns and delays, may not operate as designed and may cause disruptions in our operations. These cost overruns and delays and disruptions could adversely impact our business, financial condition, and operating results.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere have had and are expected to continue to have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters.
In addition, if we do not introduce new products or make enhancements to meet the changing needs of our Members and their customers in a cost-effective, timely, and commercially appropriate manner, or if our competitors release new products or product enhancements before we do, some of our product offerings could be rendered obsolete, which could cause our market share to decline and negatively impact our business, financial condition, and operating results.
In addition, if we do not introduce new products or make enhancements to meet the changing needs of our Members and their customers in a cost-effective, timely, and commercially appropriate manner, or if our competitors release new products or product enhancements before we do, some of our product offerings could be rendered obsolete, which could cause our market share to decline and negatively impact our business, financial condition, and operating results. 23 If we fail to further penetrate existing markets, the growth in sales of our products, along with our operating results, could be negatively impacted.
Our continued success depends in part on our ability to anticipate and respond to these changes and introductions, and we may not respond or develop new products or product enhancements in a cost-effective, timely, or commercially appropriate manner, or at all, particularly while the COVID-19 pandemic persists.
Our continued success depends in part on our ability to anticipate and respond to these changes and introductions, and we may not respond or develop new products or product enhancements in a cost-effective, timely, or commercially appropriate manner, or at all.
Additionally, we cannot assure you that our third-party contract manufacturers will continue to reliably supply products to us at the levels of quality, or the quantities, we require, and in compliance with applicable laws. Our product supply contracts generally have three-year terms.
Additionally, we risk that our third-party contract manufacturers will not continue to reliably supply products at the quality levels, or in the quantities we require, and be in compliance with applicable laws. Our product supply contracts generally have three-year terms.
Since one of our products constitutes a significant portion of our net sales, significant decreases in consumer demand for this product or our failure to produce a suitable replacement could materially harm our business, financial condition, and operating results.
If we are unable to further penetrate existing markets, our business, financial condition, and operating results could materially suffer. Since one of our products constitutes a significant portion of our net sales, significant decreases in consumer demand for this product or our failure to produce a suitable replacement could materially harm our business, financial condition, and operating results.
See also the risk factor titled “ Our share price may be adversely affected by third parties who raise allegations about our Company. ” We expect that adverse publicity will, from time to time, continue to negatively impact our business in particular markets and may adversely affect our share price. 22 Our failure to compete successfully could materially harm our business, financial condition, and operating results.
See also the risk factor titled “ Our share price may be adversely affected by third parties who raise allegations about our Company. ” We expect that adverse publicity will, from time to time, continue to negatively impact our business in particular markets and may adversely affect our share price.
Additionally, in response to the COVID-19 pandemic, many of our employees have been encouraged to work remotely, which may increase our exposure to significant systems interruptions, cybersecurity attacks, and otherwise compromise the integrity and reliability of our information technology infrastructure and our internal controls.
Additionally, many of our employees work remotely, which may increase our exposure to significant systems interruptions, cybersecurity attacks, and otherwise compromise the integrity and reliability of our information technology infrastructure and our internal controls.
Any such disruptions, failures, or inadequacies could also create compliance risks under the Consent Order and result in penalties, fines, or sanctions under any applicable laws or regulations.
Any such disruptions, failures, or inadequacies could also create compliance risks under the Consent Order and result in penalties, fines, or sanctions under any applicable laws, regulations or impact our internal control over financial reporting.
The business of developing and marketing weight management and other nutrition and personal care products is highly competitive and sensitive to the introduction of new products and weight management plans, including various prescription drugs, which may rapidly capture a significant share of the market.
Our failure to compete successfully could materially harm our business, financial condition, and operating results. The business of developing and marketing weight management and other nutrition and personal care products is highly competitive and sensitive to the introduction of new products and weight management plans, including various prescription drugs, which may rapidly capture a significant share of the market.
Because our business is dependent on our Members, our business operations and net sales could be adversely affected if U.S. distributor compensation is restricted or if any meaningful number of Members are dissatisfied, choose to reduce activity levels, or leave our business altogether.
Because our business is dependent on our Members, our business operations and net sales could be adversely affected if U.S. distributor compensation is restricted or if any meaningful number of Members are dissatisfied, choose to reduce activity levels, or leave our business altogether. Member dissatisfaction may also negatively impact the willingness of new Members to join Herbalife as a distributor.
While we have business continuity programs for our manufacturing facilities which contemplate and plan for such events, if we were to experience such an event resulting in the temporary, partial, or complete shutdown of one of these manufacturing facilities, we could be required to transfer manufacturing to a surviving facility and/or third-party contract manufacturers if permissible.
While we have business continuity programs for our manufacturing facilities which plan for such events, any event resulting in the temporary, partial, or complete shutdown of one of these manufacturing facilities, could require us to transfer manufacturing to a surviving facility and/or third-party contract manufacturers if suitable, although no such alternatives may be available.
In particular, we expect many consumers will continue to put an increased priority on purchasing products that are sustainably and responsibly grown and made.
In particular, we expect many consumers will continue to put an increased priority on purchasing products that are sustainably and responsibly grown and made. Investors are also increasingly imposing additional standards and expectations on companies in these areas.
Payment of cash upon conversion of the 2024 Convertible Notes or 2028 Convertible Notes, or any adverse change in the accounting treatment of the 2024 Convertible Notes or 2028 Convertible Notes, may adversely affect our financial condition and operating results, each of which could in turn adversely impact the amount or timing of future potential share repurchases or the payment of dividends to our shareholders.
Payment of cash upon conversion of the 2024 Convertible Notes or 2028 Convertible Notes, or any adverse change in the accounting treatment of the 2024 Convertible Notes or 2028 Convertible Notes, may adversely affect our financial condition and operating results, each of which could in turn adversely impact the amount or timing of future potential share repurchases or the payment of dividends to our shareholders. 37 In addition, if a portion of the 2024 Convertible Notes or 2028 Convertible Notes are converted into common shares, our existing shareholders will experience immediate dilution of voting rights and our share price may decline.
However, despite our commitment to product safety and quality, we or our contract manufacturers may not always meet these standards, particularly as we expand our manufacturing operations and product offerings. Further, our manufacturing operations are subject to numerous regulations, including food and drug, environmental, and labor regulations, which continue to expand and evolve and require substantial expenditures.
Despite our commitment to managing product safety and quality, manufacturers may not always meet these standards, particularly as we expand our manufacturing footprint and product diversity. Manufacturing operations are subject to regulations, including food compliance, environmental, occupational, safety and labor regulations, which continue to evolve sometimes resulting in substantial expenditures to meet compliance standards.
For a discussion of the impacts of the COVID-19 pandemic on our supply chain see “If any of our manufacturing facilities or third-party manufacturers fail to reliably supply products to us at required levels of quality or fail to comply with applicable laws, our financial condition and operating results could be materially and adversely impacted” below.
If any of our manufacturing facilities or third-party manufacturers fail to reliably supply products to us at required levels of quality or fail to comply with applicable laws, our financial condition and operating results could be materially and adversely impacted.
In addition, we paid the SEC and the DOJ aggregate penalties, disgorgement, and prejudgment interest of approximately $123 million in September 2020.
We believe that we have remained in Compliance and fulfilled our obligations under the SEC and DOJ agreements. In addition, we paid the SEC and the DOJ aggregate penalties, disgorgement, and prejudgment interest of approximately $123 million in September 2020.
If consumer demand for this product decreases significantly or we cease offering this product without a suitable replacement, or if the replacement product fails to gain market acceptance, our business, financial condition, and operating results could be materially harmed. 24 Our business could be materially and adversely affected by natural disasters, other catastrophic events, acts of war or terrorism, cybersecurity incidents, pandemics, and/or other acts by third parties.
If consumer demand for this product decreases significantly or we cease offering this product without a suitable replacement, or if the replacement product fails to gain market acceptance, our business, financial condition, and operating results could be materially harmed.
Accordingly, any strengthening of the U.S. dollar versus a foreign currency could have a negative impact on us. Although we engage in transactions to protect against risks associated with foreign currency fluctuations, we cannot be certain any hedging activity will effectively reduce our exchange rate exposure.
Although we engage in transactions to protect against risks associated with foreign currency fluctuations, we cannot be certain any hedging activity will effectively reduce our exchange rate exposure.
We are incorporated as an exempted company with limited liability under the laws of the Cayman Islands. A material portion of our assets are located outside of the United States.
We are incorporated as an exempted company with limited liability under the laws of the Cayman Islands.
If we experience supply shortages, price increases, or supplier or regulatory impediments with respect to any of the materials we use in our products or packaging, we may need to seek alternative supplies or suppliers and may experience difficulties in finding replacements that are comparable in quality and price.
If we experience supply shortages, price increases, or supplier or regulatory impediments with respect to any of the materials we use in our products or packaging, we may need to seek alternative supplies or suppliers and may experience difficulties in finding replacements that are comparable in quality and price. 25 Further, the risks related to our ability to adequately source the materials required to meet our needs may be exacerbated by the effects of climate change and the legal, regulatory, or market measures that may be implemented to address climate change.
We issued convertible senior notes due on March 15, 2024, or the 2024 Convertible Notes, in the aggregate principal amount of $550.0 million. Prior to December 15, 2023, under certain circumstances, holders of our 2024 Convertible Notes may convert their notes at their option. On and after December 15, 2023, holders may convert their 2024 Convertible Notes at any time.
Prior to December 15, 2023, under certain circumstances, holders of our 2024 Convertible Notes may convert their notes at their option. On and after December 15, 2023, holders may convert their 2024 Convertible Notes at any time.
If we fail to further penetrate existing markets, the growth in sales of our products, along with our operating results, could be negatively impacted. The success of our business is to a large extent contingent on our ability to further penetrate existing markets, which is subject to numerous factors, many of which are out of our control.
The success of our business is to a large extent contingent on our ability to further penetrate existing markets, which is subject to numerous factors, many of which are out of our control.
Among other things, we are required to undertake compliance self-reporting obligations for the three-year terms of the agreements with the SEC and the DOJ. If we remain in compliance with the DPA during its three-year term, the deferred charge against us will be dismissed with prejudice.
Among other things, we were required to undertake compliance self-reporting obligations for the three-year terms of the agreements with the SEC and the DOJ. The DPA's three-year term expired on August 28, 2023. If it is determined by the DOJ that we have remained in compliance throughout the term, the deferred charge against us will be dismissed with prejudice.
When permissible, converting or transferring manufacturing could be expensive and time-consuming, result in delays in our production or shipping, reduce our net sales, damage our relationship with Members, and damage our reputation, any of which could harm our business, financial condition, and operating results.
Conversion to a different facility or a new manufacturer can be expensive and time-consuming, resulting in delays in production or shipping, reduction of our net sales, damage our relationship with Members, and damage our reputation, any of which could harm our business, financial condition, and operating results.
We could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present material risks. Additionally, the COVID-19 pandemic has amplified many of the other risks discussed below to which we are subject.
We could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present material risks.
As a result, there can be no assurance that our Members will participate in our marketing strategies or plans, accept our introduction of new products, or comply with applicable legal requirements or our rules and procedures. 21 We are subject to extensive federal, state, local, and foreign laws, rules, and regulations that regulate our business, products, direct sales channel, and network marketing program.
As a result, there can be no assurance that our Members will participate in our marketing strategies or plans, accept our introduction of new products, or comply with applicable legal requirements or our rules and procedures.
We depend on the ability of our business to run smoothly, including the ability of Members to engage in their day-to-day selling and business building activities. In coordination with our suppliers, third-party manufacturers, and distributors, our ability to make and move our products reasonably unimpeded around the world is critical to our success.
In coordination with our suppliers, third-party manufacturers, and distributors, our ability to make and move our products reasonably unimpeded around the world is critical to our success.
For example, the upfront financial cost to become a Member is low, we do not have time or exclusivity requirements, we do not charge for any required training, and, in substantially all jurisdictions, we maintain a buyback program.
For example, the upfront financial cost to become a Member is low, we do not have time or exclusivity requirements, we do not charge for any required training, and, in substantially all jurisdictions, we maintain a buyback program. For additional information regarding sales leader retention rates, see Part I, Item 1, Business , of this Annual Report on Form 10-K.
Risks Related to Our Common Shares • Holders of our common shares may difficulties in protecting their interests because we are incorporated under Cayman Islands law. • Provisions of our articles of association and Cayman Islands law may impede a takeover or make it more difficult for shareholders to change the direction or management of the Company, which could reduce shareholders’ opportunity to influence management of the Company. • There is uncertainty as to shareholders’ ability to enforce certain foreign civil liabilities in the Cayman Islands. • U.S.
Risks Related to Our Common Shares • Holders of our common shares may face difficulties in protecting their interests because we are incorporated under Cayman Islands law. • Certain provisions in our convertible senior notes and the related indentures, as well as Cayman Islands law and our articles of association, could delay or prevent an otherwise beneficial takeover or takeover attempt of us. • There is uncertainty as to shareholders’ ability to enforce certain foreign civil liabilities in the Cayman Islands. • U.S.
Since this is an open-ended commitment, there can be no assurance that we will be able to take advantage of innovative new distribution channels that are developed in the future or appropriately respond to consumer preferences as they continue to evolve.
Since this is an open-ended commitment, there can be no assurance that we will be able to take advantage of innovative new distribution channels that are developed in the future or appropriately respond to consumer preferences as they continue to evolve. 22 In addition, this agreement with our Members provides that we will not make any material changes adverse to our Members to certain aspects of our Marketing Plan that may negatively impact our Members without their approval as described in further detail below.
In addition, if an acquisition event constitutes a make-whole fundamental change under either or both indentures, we may be required to increase the conversion rate for holders who convert their notes in connection with such make-whole fundamental change.
In addition, if an acquisition event constitutes a make-whole fundamental change under either or both indentures, we may be required to increase the conversion rate for holders who convert their notes in connection with such make-whole fundamental change. 38 Our articles of association contain certain provisions which could have an effect of discouraging a takeover or other transaction or preventing or making it more difficult for shareholders to change the direction or management of our Company.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition to the properties noted above, we also lease other warehouse and office buildings in a majority of our other geographic areas of operation. 43 We own a manufacturing facility in Winston-Salem, North Carolina. The manufacturing facility contains approximately 800,000 square feet of manufacturing and office space.
Biggest changeIn addition to the properties noted above, we also lease other warehouse and office buildings in a majority of our other geographic areas of operation. We own a manufacturing facility in Winston-Salem, North Carolina. The manufacturing facility contains approximately 800,000 square feet of manufacturing and office space.
Item 2. Pr operties As of December 31, 2022, we leased the majority of our physical properties. We currently lease approximately 95,000 square feet in downtown Los Angeles, California, including our corporate executive offices located in the LA Live complex with the lease term expiring in 2033.
Item 2. Pr operties As of December 31, 2023, we leased the majority of our physical properties. We currently lease approximately 95,000 square feet in downtown Los Angeles, California, including our corporate executive offices located in the LA Live complex with the lease term expiring in 2033.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information set forth under Note 7, Contingencies , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Saf ety Disclosures Not applicable. 44 PART II
Biggest changeItem 3. Legal Proceedings The information set forth under Note 7, Contingencies , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Saf ety Disclosures Not applicable. 43 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeInformation with Respect to Purchases of Equity Securities by the Issuer 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.
Biggest changeInformation with Respect to Purchases of Equity Securities by the Issuer On February 9, 2021, our board of directors authorized a three-year $1.5 billion share repurchase program which had approximately $985.5 million of remaining authorized capacity prior to the share repurchase program expiring on February 9, 2024.
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 Nutrition Ltd.’s available distributable reserves under Cayman Islands law, restrictions imposed by the 2018 Credit Facility and the terms of any other indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by our board of directors.
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.
Performance Graph Set forth below is information comparing the cumulative total shareholder return and share price appreciation plus dividends on our common shares with the cumulative total return of the S&P 500 Index and a market-weighted index of publicly traded peers over the five-year period ended December 31, 2022.
Performance Graph Set forth below is information comparing the cumulative total shareholder return and share price appreciation plus dividends on our common shares with the cumulative total return of the S&P 500 Index and a market-weighted index of publicly traded peers over the five-year period ended December 31, 2023.
In addition, broad market fluctuations, as well as general economic, business and political conditions may adversely affect the market for our common shares, regardless of our actual or projected performance. The closing price of our common shares on February 7, 2023, was $16.80.
In addition, broad market fluctuations, as well as general economic, business and political conditions may adversely affect the market for our common shares, regardless of our actual or projected performance. The closing price of our common shares on February 7, 2024, was $11.63.
This share repurchase program allows us, which includes an indirect wholly-owned subsidiary of Herbalife Nutrition Ltd., to repurchase our common shares at such times and prices as determined by management, as market conditions warrant, and to the extent Herbalife Nutrition Ltd.’s distributable reserves are available under Cayman Islands law.
This share repurchase program allowed us, which included 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 warranted, and to the extent Herbalife Ltd.’s distributable reserves were available under Cayman Islands law.
The approximate number of holders of record of our common shares as of February 7, 2023 was 486.
The approximate number of holders of record of our common shares as of February 7, 2024 was 475.
We did not repurchase any of our common shares during the three months ended December 31, 2022. For further information on our share repurchases during the year ended December 31, 2022, see Note 8, Shareholders’ Deficit , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K.
For further information on our share repurchases during the year ended December 31, 2023, see Note 8, Shareholders’ Deficit , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K. Item 6. [Reserved] 45
The graph assumes that $100 is invested in each of our common shares, the S&P 500 Index, and the index of publicly traded peers on December 31, 2017 and that all dividends were reinvested.
The graph assumes that $100 is invested in each of our common shares, the S&P 500 Index, and the index of publicly traded peers on December 31, 2018 and that all dividends were reinvested. The Company updated its peer group during the year ended December 31, 2023 to be more representative of its product offerings and business model.
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 December 31, 2022, the remaining authorized capacity under our $1.5 billion share repurchase program was approximately $985.5 million.
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. We did not repurchase any of our common shares during the three months ended December 31, 2023.
The publicly traded companies in the peer group are Conagra Brands, Inc., The Hain Celestial Group, Inc., Nu Skin Enterprises, Inc., Post Holdings, Inc., Tupperware Brands Corporation, and USANA Health Sciences, Inc.
(2) The Old Peer Group consists of Conagra Brands, Inc., Nu Skin Enterprises, Inc., Post Holdings, Inc., The Hain Celestial Group, Inc., Tupperware Brands Corporation, and USANA Health Sciences Inc. Information with Respect to Dividends We have not declared or paid cash dividends since 2014.
Removed
December 31, 2017 2018 2019 2020 2021 2022 Herbalife Nutrition Ltd. $ 100.00 $ 174.10 $ 140.79 $ 141.91 $ 120.88 $ 43.95 S&P 500 Index $ 100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.88 Peer Group $ 100.00 $ 72.38 $ 89.49 $ 101.92 $ 102.26 $ 101.52 45 Information with Respect to Dividends We have not declared or paid cash dividends since 2014.
Added
December 31, 2018 2019 2020 2021 2022 2023 Herbalife Ltd. $ 100.00 $ 80.87 $ 81.51 $ 69.43 $ 25.24 $ 25.89 S&P 500 Index $ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 New Peer Group(1) $ 100.00 $ 121.80 $ 142.12 $ 143.40 $ 138.96 $ 128.70 Old Peer Group(2) $ 100.00 $ 123.64 $ 140.80 $ 141.27 $ 140.25 $ 110.91 44 (1) The New Peer Group consists of BellRing Brands, Inc., Conagra Brands, Inc., Medifast, Inc., Nu Skin Enterprises, Inc., Post Holdings Inc., The Hain Celestial Group, Inc., Tupperware Brands Corporation, and USANA Health Sciences, Inc.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

161 edited+40 added−50 removed104 unchanged
Biggest changeNet income for the year ended December 31, 2022 included a $12.8 million favorable impact on the extinguishment of a portion of the 2024 Convertible Notes (See Note 5, Long-Term Debt, to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K); a $12.1 million pre-tax unfavorable impact ($10.5 million post-tax) of Transformation Program expenses, primarily relating to professional fees; an $11.9 million pre-tax unfavorable impact ($11.3 million post-tax) of expenses relating to our new Digital Technology Program focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools; a $5.5 million pre-tax unfavorable impact ($4.4 million post-tax) relating to the Russia-Ukraine conflict, primarily from sales centers termination and other related costs in Russia; and a $4.4 million pre-tax unfavorable impact ($3.6 million post-tax) from expenses related to the COVID-19 pandemic. 53 Net income for the year ended December 31, 2021 included a $24.6 million pre-tax unfavorable impact ($19.1 million post-tax) of loss on extinguishment of our 2026 Notes; a $23.7 million unfavorable impact of non-cash interest expense related to the 2024 Convertible Notes (See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K); a $13.8 million pre-tax unfavorable impact ($11.2 million post-tax) from expenses related to the COVID-19 pandemic; a $12.9 million pre-tax unfavorable impact ($11.5 million post-tax) of Transformation Program expenses, primarily relating to professional fees; a $12.5 million pre-tax unfavorable impact ($9.6 million post-tax) of expenses relating to the class action lawsuit titled Rodgers, et al. v Herbalife Ltd., et al.
Biggest changeNet income for the year ended December 31, 2023 included a $54.2 million pre-tax unfavorable impact ($43.6 million post-tax) of Transformation Program expenses, primarily relating to employee retention and separation costs; a $32.1 million pre-tax unfavorable impact ($29.5 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; an $8.6 million pre-tax unfavorable impact ($7.5 million post-tax) related to the Korea customs duty settlement (See Note 7, Contingencies , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for further discussion); and a $1.0 million favorable impact ($1.0 million post-tax) on the extinguishment of a portion of the 2024 Convertible Notes (See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for further discussion). 51 Net income for the year ended December 31, 2022 included a $12.8 million favorable impact on the extinguishment of a portion of the 2024 Convertible Notes (See Note 5, Long-Term Debt, to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K); a $12.1 million pre-tax unfavorable impact ($10.5 million post-tax) of Transformation Program expenses, primarily relating to professional fees; an $11.9 million pre-tax unfavorable impact ($11.3 million post-tax) of expenses relating to our new Digital Technology Program focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools; a $5.5 million pre-tax unfavorable impact ($4.4 million post-tax) relating to the Russia-Ukraine conflict, primarily from sales centers termination and other related costs in Russia; and a $4.4 million pre-tax unfavorable impact ($3.6 million post-tax) from expenses related to the COVID-19 pandemic.
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 Nutrition products.
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.
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 our Members’ establishment of daily consumption-oriented Nutrition Clubs.
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.
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 and production bonuses; • the Mark Hughes bonus payable to some of our most senior Members; and • other discretionary incentive cash bonuses to qualifying Members.
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 and production bonuses; • the Mark Hughes bonus payable to some of our most senior Members; and • other discretionary incentive bonuses to qualifying Members.
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 Nutrition Ltd.’s available distributable reserves under Cayman Islands law, restrictions imposed by the 2018 Credit Facility and the terms of any other indebtedness that may be outstanding, cash requirements, future prospects, and other factors deemed relevant by our board of directors.
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.
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.
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. 64 Our policy is to account for global intangible low-taxed income as a period cost if and when incurred.
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. 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.
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. 47 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.
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.
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.
So long as it was consistent with applicable laws, such shares were voted by such subsidiary in the same manner, and to the maximum extent possible in the same proportion, as all other votes cast with respect to any matter properly submitted to a vote of Herbalife Nutrition Ltd.’s shareholders.
So long as it was consistent with applicable laws, such shares were voted by such subsidiary in the same manner, and to the maximum extent possible in the same proportion, as all other votes cast with respect to any matter properly submitted to a vote of Herbalife Ltd.’s shareholders.
Our “ other operating income ” consists of government grant income related to China. Our “other (income) expense, net” consists of non-operating income and expenses such as gains or losses on extinguishment of debt. Most of our sales to Members outside the United States are made in the respective local currencies.
Our “ other operating income ” consists of government grant income related to China. Our “other (income) expense, net” consists of non-operating income and expenses such as gains or losses on extinguishment of debt. 49 Most of our sales to Members outside the United States are made in the respective local currencies.
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.
In certain other markets that have not been segmented, we use Member data to similarly categorize Members for communication and promotion efforts. 50 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.
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 Nutrition simple.
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.
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 Nutrition products to retail consumers or other Members.
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.
The common shares of Herbalife Nutrition Ltd. held by the indirect wholly-owned subsidiary, however, remained outstanding on the books and records of our transfer agent and therefore still carried voting and other share rights related to ownership of our common shares, which could be exercised.
The common shares of Herbalife Ltd. held by the indirect wholly-owned subsidiary, however, remained outstanding on the books and records of our transfer agent and therefore still carried voting and other share rights related to ownership of our common shares, which could be exercised.
See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion on the 2018 Credit Facility.
See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion on our 2018 Credit Facility.
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.
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.
Should we make a determination to remit the cash and cash equivalents from our foreign subsidiaries that are considered indefinitely reinvested to Herbalife Nutrition Ltd. for the purpose of repatriation of undistributed earnings, we would need to accrue and pay taxes.
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.
All obligations under the 2018 Credit Facility are unconditionally guaranteed by certain direct and indirect wholly-owned subsidiaries of Herbalife Nutrition Ltd. and secured by the equity interests of certain of Herbalife Nutrition Ltd.’s subsidiaries and substantially all of the assets of the domestic loan parties.
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.
See Note 5, Long-Term Debt, to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules, of this Annual Report on Form 10-K for a further discussion on our 2028 Convertible Notes. 62 Senior Notes due 2025 In May 2020, we issued $600.0 million aggregate principal amount of senior notes due 2025, or the 2025 Notes.
See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion on our 2028 Convertible Notes. 60 Senior Notes due 2025 In May 2020, we issued $600.0 million aggregate principal amount of senior notes due 2025, or the 2025 Notes.
No goodwill or marketing-related intangibles impairment was recorded during the years ended December 31, 2022 and 2021. See Note 2, Basis of Presentation , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion.
No goodwill or marketing-related intangibles impairment was recorded during the years ended December 31, 2023 and 2022. See Note 2, Basis of Presentation , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion.
For a further discussion on our debt and operating lease commitments as of December 31, 2022, see the sections above as well as Note 4, Leases , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K and Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K.
For a further discussion on our debt and operating lease commitments as of December 31, 2023, see the sections above as well as Note 4, Leases and Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K.
The discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the year ended December 31, 2022 as compared to the same period in 2021, as well as the unique growth or contraction factors specific to certain geographic regions or significant markets within a region during these periods.
The discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the year ended December 31, 2023 as compared to the same period 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.
Discussions of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the year ended December 31, 2021, or the 2021 10-K.
Discussions of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 10-K.
For a discussion of China’s net sales for the year ended December 31, 2022 as compared to the same period in 2021, 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.
For a discussion of China’s net sales for the year ended December 31, 2023 as compared to the same period in 2022, 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.
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 a somewhat infrequent basis (e.g., monthly) which provides fewer opportunities for interaction with their customers.
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.
We expect that cash and funds provided from operations, available borrowings under the 2018 Credit Facility, and 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.
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.
As of December 31, 2022, 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.
As of December 31, 2023, we sold products in 95 markets throughout the world and we are organized and managed by geographic region. We aggregate our operating segments into one reporting segment, except China, as management believes that our operating segments have similar operating characteristics and similar long-term operating performance.
In addition, the 2018 Credit Facility contains customary events of default. As of December 31, 2022 and 2021, we were in compliance with our debt covenants under the 2018 Credit Facility. The 2018 Term Loan A and 2018 Term Loan B are payable in consecutive quarterly installments which began on December 31, 2018.
In addition, the 2018 Credit Facility contains customary events of default. As of December 31, 2023 and 2022, we were in compliance with our debt covenants under the 2018 Credit Facility. The 2018 Term Loan A and 2018 Term Loan B are payable in consecutive quarterly installments which began on December 31, 2018.
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.
An impairment loss is recognized to the extent that the carrying amount of the assets exceeds their fair value. During fiscal year 2023, 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.
GAAP. 50 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.
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.
Product returns and buybacks were approximately 0.1% of net sales for both of the years ended December 31, 2022 and 2021. 65 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.
Product returns and buybacks were approximately 0.1% of net sales for both of the years ended December 31, 2023 and 2022. We adjust our inventories to lower of cost and net realizable value. Additionally, we adjust the carrying value of our inventory based on assumptions regarding future demand for our products and market conditions.
Other Operating Income The $14.9 million of other operating income for the year ended December 31, 2022 consisted of $14.9 million of government grant income for China (See Note 2, Basis of Presentation , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K).
Other Operating Income The $10.2 million of other operating income for the year ended December 31, 2023 consisted of $10.2 million of government grant income for China (See Note 2, Basis of Presentation , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K).
This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021.
This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022.
While we continue to monitor the current global financial environment including the impacts of the COVID-19 pandemic and inflation, 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.
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.
As of December 31, 2022 and 2021, we had goodwill of approximately $93.2 million and $95.4 million, respectively. The decrease in goodwill during the year ended December 31, 2022 was due to foreign currency translation adjustments. As of both December 31, 2022 and 2021, we had marketing-related intangible assets of approximately $310.0 million.
As of December 31, 2023 and 2022, we had goodwill of approximately $95.4 million and $93.2 million, respectively. The increase in goodwill during the year ended December 31, 2023 was due to foreign currency translation adjustments. As of both December 31, 2023 and 2022, we had marketing-related intangible assets of approximately $310.0 million.
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 $1,690.1 million and $1,833.7 million for the years ended December 31, 2022 and 2021, respectively.
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 $1,659.2 million and $1,690.1 million for the years ended December 31, 2023 and 2022, respectively.
Other (Income) Expense, Net The $12.8 million of other income, net for the year ended December 31, 2022 consisted of a gain on the extinguishment of a portion of the 2024 Convertible Notes (See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K).
Other (Income) Expense, Net The $1.0 million of other income, net for the year ended December 31, 2023 consisted of a gain on the extinguishment of a portion of the 2024 Convertible Notes (See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K).
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 December 31, 2022.
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 less than 1% of our consolidated total assets as of December 31, 2023.
The 7.0% decrease in net sales for the year ended December 31, 2022 was primarily due to a decrease in sales volume, as indicated by a 9.0% decrease in Volume Points, a 5.2% unfavorable impact of fluctuations in foreign currency exchange rates, and a 1.3% unfavorable impact of country sales mix, partially offset by an 8.7% favorable impact of price increases.
The 2.7% decrease in net sales for the year ended December 31, 2023 was primarily driven by a decrease in sales volume, as indicated by a 9.1% decrease in Volume Points, a 1.1% unfavorable impact of fluctuations in foreign currency exchange rates, and a 0.7% unfavorable impact of country sales mix, partially offset by an 8.5% favorable impact of price increases.
We have obsolete and slow moving inventories which have been adjusted downward $31.5 million and $31.4 million to present them at their lower of cost and net realizable value in our consolidated balance sheets as of December 31, 2022 and 2021, respectively.
We have obsolete and slow moving inventories which have been adjusted downward $24.2 million and $31.5 million to present them at their lower of cost and net realizable value in our consolidated balance sheets as of December 31, 2023 and 2022, respectively.
We have provided to our Members 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.
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.
We have already incurred total pre-tax expenses of approximately $25.0 million through December 31, 2022, of which $12.1 million and $12.9 million were recognized in selling, general, and administrative expenses within our consolidated statements of income during the years ended December 31, 2022 and 2021, respectively.
We have already incurred total pre-tax expenses of approximately $79.2 million through December 31, 2023, of which $54.2 million, $12.1 million and $12.9 million, were recognized in selling, general, and administrative expenses within our consolidated statements of income during the years ended December 31, 2023, 2022 and 2021, respectively.
The 7.8% decrease in contribution margin for the year ended December 31, 2022 was primarily the result of a 9.0% unfavorable impact of volume decreases, a 6.3% unfavorable impact of foreign currency fluctuations, a 3.2% unfavorable impact of country sales mix, and a 2.9% unfavorable impact of cost changes related to self-manufacturing and sourcing primarily related to increased raw material, manufacturing labor, and inbound freight costs and increased allocated overhead costs due to lower production volume, partially offset by a 14.1% favorable impact of price increases.
The 3.4% decrease in contribution margin for the year ended December 31, 2023 was primarily the result of a 9.1% unfavorable impact of volume decreases, a 2.4% unfavorable impact of foreign currency fluctuations, a 5.4% 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 2.0% unfavorable impact of sales mix, partially offset by a 14.6% favorable impact of price increases.
Our $508.0 million cash and cash equivalents as of December 31, 2022 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.
Our $575.2 million cash and cash equivalents as of December 31, 2023 and our senior secured credit facility, in addition to cash flow from operations, can be used to support general corporate purposes, including any future share repurchases, debt repayments, dividends, and strategic investment opportunities. We have a cash pooling arrangement with a financial institution for cash management purposes.
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.
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 and our Members responded to the pandemic and its impacts on our business and theirs by adapting operations and taking a number of proactive measures to mitigate those impacts.
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 6.4% increase in net sales for the year ended December 31, 2022 was primarily due to an increase in sales volume, as indicated by a 10.0% increase in Volume Points, and a 7.0% favorable impact of price increases, partially offset by a 6.3% unfavorable impact of fluctuations in foreign currency exchange rates, and a 3.3% unfavorable impact of sales mix.
The 1.6% increase in net sales for the year ended December 31, 2023 was primarily due to an 8.0% favorable impact of price increases, partially offset by a 3.7% unfavorable impact of fluctuations in foreign currency exchange rates, a 2.1% unfavorable impact of sales mix, and a decrease in sales volume, as indicated by a 0.2% decrease in Volume Points.
See Note 12, Income Taxes , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for additional information on our net deferred tax assets and valuation allowances.
The impact of increasing or decreasing the valuation allowance could be material to our consolidated financial statements. See Note 12, Income Taxes , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for additional information on our net deferred tax assets and valuation allowances.
As of December 31, 2022, the total amount of cash and cash equivalents held by Herbalife Nutrition Ltd. and its U.S. entities, inclusive of U.S. territories, was $152.6 million. 63 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.
As of December 31, 2023, the total amount of cash and cash equivalents held by Herbalife Ltd. and its U.S. entities, inclusive of U.S. territories, was $184.8 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.
The 4.5% decrease in net sales for the year ended December 31, 2022 was primarily due to a decrease in sales volume, as indicated by a 12.7% decrease in Volume Points, and a 1.4% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 10.5% favorable impact of price increases.
The 4.5% increase in net sales for the year ended December 31, 2023 was primarily due to a 10.2% favorable impact of price increases, a 5.0% favorable impact of fluctuations in foreign currency exchange rates and a 1.9% favorable impact of country sales mix, partially offset by a decrease in sales volume, as indicated by a 12.7% decrease in Volume Points.
This share repurchase program allows us, which includes an indirect wholly-owned subsidiary of Herbalife Nutrition Ltd., to repurchase our common shares at such times and prices as determined by management, as market conditions warrant, and to the extent Herbalife Nutrition Ltd.’s distributable reserves are available under Cayman Islands law.
This share repurchase program allowed us, which included 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 warranted, and to the extent Herbalife Ltd.’s distributable reserves were available under Cayman Islands law.
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. 66 We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary.
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.
Latin America’s continuing Volume Point decreases for 2022 are due, we believe to the cumulative adverse impact of difficult economic conditions including intermittent pandemic-related constraints, current inflationary impacts on Members’ operations, and political and social instability in certain markets.
Latin America’s 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, and political and social instability in certain markets.
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.
Many regions were seeing significant inflation, mainly during 2022, which impacted both our cost structures and our pricing. Effective June 2022 we instituted a 10% price increase to address rising inflation in most of our geographic markets across all product lines, most remaining markets instituted a similar increase effective during the third quarter of 2022.
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 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.
The 37.9% decrease in net sales for the year ended December 31, 2022 was primarily due to a decrease in sales volume, as indicated by a 30.4% decrease in Volume Points, a 6.7% unfavorable impact of sales mix, and a 2.2% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 0.9% favorable impact of price increases.
The 0.9% decrease in net sales for the year ended December 31, 2023 was primarily due to a decrease in sales volume, as indicated by a 9.6% decrease in Volume Points, and an 1.7% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 10.9% favorable impact of price increases.
Net Sales by Reporting Segment The Primary Reporting Segment reported net sales of $4,813.4 million for the year ended December 31, 2022, representing a decrease of $359.9 million, or 7.0%, as compared to the same period in 2021. In local currency, net sales decreased 1.8% for the year ended December 31, 2022 as compared to the same period in 2021.
Net Sales by Reporting Segment The Primary Reporting Segment reported net sales of $4,735.0 million for the year ended December 31, 2023, representing a decrease of $78.4 million, or 1.6%, as compared to the same period in 2022. In local currency, net sales decreased 0.7% for the year ended December 31, 2023 as compared to the same period in 2022.
Cash and Cash Equivalents The majority of our foreign subsidiaries designate their local currencies as their functional currencies. As of December 31, 2022, the total amount of our foreign subsidiary cash and cash equivalents was $355.4 million, of which $23.3 million was held in U.S. dollars.
Cash and Cash Equivalents The majority of our foreign subsidiaries designate their local currencies as their functional currencies. As of December 31, 2023, the total amount of our foreign subsidiary cash and cash equivalents was $390.4 million, of which $37.9 million was held in U.S. dollars.
In local currency, net sales increased 11.8% for the year ended December 31, 2022 as compared to the same period in 2021. The fluctuation of foreign currency exchange rates had an unfavorable impact of $5.9 million on net sales for the year ended December 31, 2022. Vietnam saw a sales volume increase for 2022 versus 2021.
In local currency, net sales decreased 4.9% for the year ended December 31, 2023 as compared to the same period in 2022. The fluctuation of foreign currency exchange rates had an unfavorable impact of $5.2 million on net sales for the year ended December 31, 2023. Vietnam saw a sales volume decline for 2023 versus 2022.
The increase in the effective tax rate for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to changes in the geographic mix of our income and a decrease in net tax benefits from discrete events.
The increase in the effective tax rate for the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to changes in the geographic mix of our income, partially offset by an increase in net tax benefits from discrete events.
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 "Financial Results” and “Sales by Geographic Region” for more specific discussion of these and other factors.
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.
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.
We use Volume Points as an indication for changes in sales volume. 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.
The $203.0 million of lower net income excluding non-cash and reconciling items was primarily driven by lower contribution margin driven by lower net sales (See Financial Results for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 above for further discussion), partially offset by lower selling, general, and administrative expenses (See Selling, General, and Administrative Expenses above for further discussion).
The $165.8 million of lower net income excluding non-cash and reconciling items was primarily driven by lower contribution margin driven by lower net sales (See Financial Results for the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 above for further discussion), higher selling, general and administrative expenses, and higher interest expense.
The fluctuation of foreign currency exchange rates had an unfavorable impact of $43.7 million on net sales for the year ended December 31, 2022.
The fluctuation of foreign currency exchange rates had an unfavorable impact of $39.8 million on net sales for the year ended December 31, 2023.
The decrease in our operating cash flow was the result of $203.0 million of lower net income excluding non-cash and reconciling items disclosed within our consolidated statement of cash flows, partially offset by $95.2 million of favorable changes in operating assets and liabilities.
The increase in our operating cash flow was the result of $170.8 million of favorable changes in operating assets and liabilities, partially offset by $165.8 million of lower net income excluding non-cash and reconciling items disclosed within our consolidated statement of cash flows.
See Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K for a further discussion of risks related to the COVID-19 pandemic. Other 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.
See Part I, Item 1, Business , of this Annual Report on Form 10-K for further discussion about the Consent Order and Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K for a discussion of risks related to the settlement with the FTC. 46 Certain Factors Impacting Results Global inflationary pressures, other macroeconomic factors such as foreign exchange rate fluctuations and geopolitical conflicts can impact our financial condition, results of operations and liquidity.
In March 2021, our management awarded Members $81.1 million of Mark Hughes bonus payments related to their 2020 performance. In 2021, we initiated a global transformation program to optimize global processes for future growth, or the Transformation Program.
In April 2022, our management awarded Members $85.7 million of Mark Hughes bonus payments related to their 2021 performance. 57 In 2021, we initiated a global transformation program to optimize global processes for future growth, or the Transformation Program.
In local currency, net sales decreased 5.4% for the year ended December 31, 2022 as compared to the same period in 2021.
In local currency, net sales decreased 1.6% for the year ended December 31, 2023 as compared to the same period in 2022.
In local currency, net sales decreased 3.1% for the year ended December 31, 2022 as compared to the same periods in 2021.
In local currency, net sales decreased 0.5% for the year ended December 31, 2023 as compared to the same periods in 2022.
The increase in royalty overrides as a percentage of net sales for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to lower net sales in China as a proportion of our total worldwide net sales.
Royalty overrides as a percentage of net sales were 32.8% and 32.4% for the years ended December 31, 2023 and 2022, respectively. 55 The increase in royalty overrides as a percentage of net sales for the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to lower net sales in China as a proportion of our total worldwide net sales.
The debt issuance costs were recognized in interest expense within our consolidated statement of income during the fourth quarter of 2019. 60 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; 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.
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 December 31, 2023); increased borrowings under the 2018 Term Loan A from $234.4 million to a total of $264.8 million; increased the total available borrowing capacity under 2018 Revolving Credit Facility from $250.0 million to $282.5 million; and reduced the interest rate for borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility.
See Note 5, Long-Term Debt, to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules, of this Annual Report on Form 10-K for a further discussion on our 2024 Convertible Notes.
See Note 14, Transformation Program , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion on our Transformation Program.
Selling, General, and Administrative Expenses Selling, general, and administrative expenses were $1,810.4 million and $2,012.1 million for the years ended December 31, 2022 and 2021, respectively. Selling, general, and administrative expenses as a percentage of net sales were 34.8% and 34.6% for the years ended December 31, 2022 and 2021, respectively.
Selling, General, and Administrative Expenses Selling, general, and administrative expenses were $1,866.0 million and $1,810.4 million for the years ended December 31, 2023 and 2022, respectively. Selling, general, and administrative expenses as a percentage of net sales were 36.9% and 34.8% for the years ended December 31, 2023 and 2022, respectively.
The 10.3% decrease in net sales for the year ended December 31, 2022 was primarily driven by a decrease in sales volume, as indicated by a 10.1% decrease in Volume Points, a 4.9% unfavorable impact of fluctuations in foreign currency exchange rates, and a 3.0% unfavorable impact of country sales mix, partially offset by a 7.9% favorable impact of price increases.
The 1.6% decrease in net sales for the year ended December 31, 2023 was primarily due to a decrease in sales volume, as indicated by a 9.1% decrease in Volume Points, a 0.9% unfavorable impact of fluctuations in foreign currency exchange rates, and a 0.5% unfavorable impact of country sales mix, partially offset by an 8.9% favorable impact of price increases.
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.
The debt issuance costs were recognized in interest expense within our consolidated statement of income during the first quarter of 2021. 58 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.
We sell our 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.
We sell our 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. On July 15, 2016, we reached a settlement with the U.S.
The effective income tax rate was 24.4% and 20.3% for the years ended December 31, 2022 and 2021, respectively.
The effective income tax rate was 30.0% and 24.4% for the years ended December 31, 2023 and 2022, respectively.
Net sales in Mexico were $474.6 million for the year ended December 31, 2022. Net sales increased $10.9 million, or 2.4% for the year ended December 31, 2022 as compared to the same periods in 2021. In local currency, net sales increased 1.6% for the year ended December 31, 2022 as compared to the same periods in 2021.
Net sales in Mexico were $525.0 million for the year ended December 31, 2023. Net sales increased $50.4 million, or 10.6% for the year ended December 31, 2023 as compared to the same periods in 2022. In local currency, net sales decreased 2.5% for the year ended December 31, 2023 as compared to the same periods in 2022.
We have expanded our product line for the China market and continue to conduct sales promotions in the region. China had a 5% price increase in August 2022.
We have expanded our product line for the China market and continue to conduct sales promotions in the region.
Also, 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, have continued to decline.
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, are improving but continue to be below pre-pandemic levels.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

25 edited+2 added−4 removed17 unchanged
Biggest changeThe 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.
Biggest changeAs 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.
See Note 11, Derivative Instruments and Hedging Activities , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a description of foreign currency forward contracts that were outstanding as of December 31, 2022 and 2021, which discussion is incorporated herein by reference.
See Note 11, Derivative Instruments and Hedging Activities , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a description of foreign currency forward contracts that were outstanding as of December 31, 2023 and 2022, which discussion is incorporated herein by reference.
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 consolidated financial statements; however, if interest rates were to increase or decrease by 1%, their fair value could decrease by approximately $20.3 million or increase by approximately $21.6 million, respectively.
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 consolidated financial statements; however, if interest rates were to increase or decrease by 1%, their fair value could decrease by approximately $20.6 million or increase by approximately $21.8 million, respectively.
These agreements collectively provide 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.
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.
As of both December 31, 2022 and 2021, 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.
As of both December 31, 2023 and 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.
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 consolidated financial statements; however, if interest rates were to increase or decrease by 1%, their fair value could decrease by approximately $12.1 million or increase by approximately $12.4 million, respectively.
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 consolidated financial statements; however, if interest rates were to increase or decrease by 1%, their fair value could decrease by approximately $9.1 million or increase by approximately $9.2 million, respectively.
The 2018 Credit Facility bears variable interest rates, and as of December 31, 2022 and 2021, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 4.08% and 2.62%, respectively. 68 During the first quarter of 2020, we entered into various interest rate swap agreements with effective dates ranging between February 2020 and March 2020.
The 2018 Credit Facility bears variable interest rates, and as of December 31, 2023 and 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 7.62% and 4.08%, respectively. During the first quarter of 2020, we entered into various interest rate swap agreements with effective dates ranging between February 2020 and March 2020.
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.
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 December 31, 2023 and December 31, 2022.
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 December 31, 2022 and 2021, the aggregate notional amounts of these contracts outstanding were approximately $70.6 million and $54.5 million, respectively.
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 December 31, 2023 and 2022, the aggregate notional amounts of these contracts outstanding were approximately $76.3 million and $70.6 million, respectively.
As of December 31, 2022 and 2021, the aggregate notional amounts of interest rate swap agreements outstanding were approximately $25.0 million and $100.0 million, respectively.
As of December 31, 2023 and 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 are based on third-party bank quotes, and as of December 31, 2022 and 2021, we recorded assets at fair value of $0.3 million and liabilities at fair value of $0.1 million, respectively, relating to these interest rate swap agreements.
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.
As of December 31, 2021, the fair value of the 2025 Notes was approximately $639.7 million and the carrying value was $594.2 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.
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.
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 consolidated statement of income during the period which approximates the time the hedged inventory is sold.
For the forecasted inventory transactions, the forward contracts are used to hedge forecasted inventory transactions over specific months. 65 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 consolidated statement of income during the period which approximates the time the hedged inventory is sold.
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.
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.
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 December 31, 2022, the fair value of the 2025 Notes was approximately $534.4 million and the carrying value was $595.6 million.
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 December 31, 2023, the fair value of the 2025 Notes was approximately $596.8 million and the carrying value was $597.1 million.
If interest rates were to increase or decrease by 1% for the year and our borrowing amounts on our 2018 Credit Facility and related interest rate swaps remained constant, our annual interest expense could increase or decrease by approximately $9.5 million, respectively.
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 $8.9 million, respectively.
As of December 31, 2022, the outstanding contracts were expected to mature over the next fifteen months. Our derivative financial instruments are recorded on the 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.
As of December 31, 2023, the outstanding contracts were expected to mature over the next fifteen months. Our derivative financial instruments are recorded on the consolidated balance sheets at fair value based on quoted market rates.
A discussion of our primary market risk exposures and derivatives is presented below. 67 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.
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.
Interest Rate Risk As of December 31, 2022, the aggregate annual maturities of the 2018 Credit Facility were expected to be $29.0 million for 2023, $36.1 million for 2024, and $910.6 million for 2025.
Interest Rate Risk As of December 31, 2023, the aggregate annual maturities of the 2018 Credit Facility were expected to be $94.7 million for 2024 and $792.0 million for 2025.
As of December 31, 2021, we recorded assets at fair value of $0.3 million and liabilities at fair value of $1.7 million relating to all outstanding foreign currency contracts designated as cash flow hedges. These hedges remained effective as of December 31, 2022 and December 31, 2021.
As of December 31, 2023, we recorded assets at fair value of zero and liabilities at fair value of $3.3 million relating to all outstanding foreign currency contracts designated as cash flow hedges.
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. As of December 31, 2021, the fair value of the 2029 Notes was approximately $588.9 million and the carrying value was $592.8 million.
As of December 31, 2023, the fair value of the 2029 Notes was approximately $471.6 million and the carrying value was $594.5 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 variable interest rates payable under our 2018 Credit Facility are linked to LIBOR as the benchmark for establishing such rates.
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 of December 31, 2021, the fair values of the 2018 Term Loan A, 2018 Term Loan B, and 2018 Revolving Credit Facility were approximately $278.0 million, $663.1 million, and $150.0 million, respectively, and the carrying values were $278.1 million, $660.5 million, and $150.0 million, respectively.
As of December 31, 2023, the fair values of the 2018 Term Loan A and 2018 Term Loan B were approximately $236.1 million and $650.6 million, respectively, and the carrying values were $235.5 million and $648.2 million, respectively. There were no outstanding borrowings on the 2018 Revolving Credit Facility as of December 31, 2023.
See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion on the impact of adopting ASU 2020-06.
See Note 5, Long-Term Debt , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for a further discussion on the 2018 Credit Facility. 66 As of December 31, 2023, the fair value of the 2024 Convertible Notes was approximately $196.2 million, and the carrying value was $196.8 million.
Our 2018 Credit Facility includes mechanics to facilitate the adoption by us and our lenders of an alternative benchmark rate for use in place of LIBOR which may result in interest rates that are higher or lower than those that would have resulted had LIBOR remained in effect.
As a result, our 2018 Credit Facility was amended during the second quarter of 2023, to transition from LIBOR to the alternative benchmark rate, which was 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.
Removed
As of December 31, 2022, the remaining $25.0 million notional swap agreement provide for us to pay interest at a fixed rate of 0.52%, effectively fixing the interest rate on such notional amounts at an effective rate of, depending on our total leverage ratio, between 2.27% and 2.77%.
Added
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 within our consolidated statement of income during the period when the hedged item and underlying transaction affected earnings.
Removed
Our exposure to interest rate volatility risk related to our 2018 Credit Facility is partially mitigated by our interest rate swaps.
Added
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 December 31, 2023, the fair value of the 2028 Convertible Notes was approximately $320.9 million, and the carrying value was $270.5 million.
Removed
Pursuant to national, international, and other regulatory guidance and reform proposals regarding LIBOR, certain LIBOR tenors were discontinued or otherwise became unavailable as benchmark rates at the end of 2021 and LIBOR is expected to be fully discontinued or become unavailable as a benchmark rate by June 2023.
Removed
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. As of December 31, 2021, the fair value of the liability component of the 2024 Convertible Notes was approximately $547.4 million and the carrying value was $486.0 million.

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