Item 7. Management’s Discussion and Analysis o f Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part I, Item 1A, Risk Factors , and our consolidated financial statements and related notes, each included elsewhere in this Annual Report on Form 10-K.
This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-over-year comparisons between 2025 and 2024. Discussions of 2023 items and year-over-year comparisons between 2024 and 2023 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, 2024, or the 2024 10-K.
Overview
We are a global nutrition company that sells weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products to and through independent members, or Members. In China, we sell our products to and through independent service providers and sales representatives to customers and preferred customers, as well as through Company-operated retail platforms when necessary. We refer to Members that distribute our products and achieve certain qualification requirements as “sales leaders.”
We provide high-quality, science-backed products to Members and their customers who seek a healthy lifestyle and we also offer a business opportunity to those Members who seek additional income. We believe enhanced consumer awareness and demand for our products due to global trends such as the obesity epidemic, increasing interest in a fit and active lifestyle, living healthier, and the rise of entrepreneurship, coupled with the effectiveness of personalized selling through a direct sales channel, have been the primary reasons for our continued success.
Our products are grouped in four principal categories: weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition, along with literature, promotional, and other items. Our products are often sold through a series of related products and literature designed to simplify weight management and nutrition for consumers and maximize our Members’ cross-selling opportunities.
While we continue to monitor the current global financial environment including the impacts of inflation, foreign exchange rate fluctuations, the wars in Ukraine and the Middle East, rising trade tensions, including U.S. tariffs and retaliatory tariffs from foreign countries and other factors, we remain focused on the opportunities and challenges in retailing our products and enhancing the customer experience, sponsoring and retaining Members, improving Member productivity, further penetrating existing markets, globalizing successful Daily Methods of Operation, or DMOs, such as Nutrition Clubs, Fit Clubs, and Weight Loss Challenges, introducing new products and globalizing existing products, developing niche market segments and further investing in our infrastructure.
We sell our products in five geographic regions:
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. Federal Trade Commission, or FTC, and entered into the Consent Order, which resolved the FTC’s multi-year investigation of the Company. We continue to monitor the impact of the Consent Order and our Audit Committee assists our board of directors in overseeing continued compliance with the Consent Order. While we currently do not expect the settlement to have a long-term and materially adverse impact on our business and our Member base, our business and our Member base, particularly in the U.S., may be negatively impacted. The terms of the Consent Order do not change our going to market through direct selling by independent distributors, and compensating those distributors based upon the product they and their sales organization sell. See Part I, Item 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.
Certain Factors Impacting Results
Global inflationary pressures and other macroeconomic factors, such as foreign exchange rate fluctuations and geopolitical conflicts, can impact our financial condition, results of operations and liquidity. For example, inflationary pressure impacts both our cost structures and our pricing. During the twelve months ended December 31, 2025, we instituted pricing actions in certain markets to address region or market-specific conditions. We also instituted localized pricing actions in 2024. These actions are discussed further in the Sales by Geographic Region discussion further below. We continue to examine our cost structure and assess additional potential incremental pricing actions in response to ongoing inflationary pressures and any tariffs and retaliatory tariffs imposed by the U.S. or foreign governments which could have a significant adverse impact to our business, which includes our Mexico market where our U.S. manufacturing operations provide a significant amount of finished goods inventory to our Mexico operations.
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, 2025.
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 for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024” and “Sales by Geographic Region” for more specific discussion of these and other factors. See Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K for a further discussion of risks related to these matters.
Volume Points by Geographic Region
As previously disclosed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of the 2024 10-K, considering the changes to Volume Point values in certain regions and Management’s recent assessment of its value and continued usefulness, Management has decided to no longer disclose the Volume Points by Geographic Region going forward.
Presentation
“ Net sales ” represent product sales to our Members, net of “ distributor allowances ,” and inclusive of any shipping and handling revenues, as described further below.
Our Members purchase product from us at a suggested retail price, less discounts referred to as “ distributor allowance .” Each Member’s level of discount is determined by qualification based on their volume of purchases. In cases where a Member has qualified for less than the maximum discount, the remaining discount, which we also refer to as a wholesale commission, is received by their sponsoring Members. Distributor allowances may also vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances. We also offer reduced distributor allowances with respect to certain products worldwide.
For U.S. GAAP purposes, shipping and handling services relating to product sales are recognized as fulfillment activities on our performance obligation to transfer products and are therefore recorded within net sales as part of product sales and are not considered as separate revenues.
In certain geographic markets, we have introduced segmentation of our Member base into two categories: “preferred members” – who are simply consumers who wish to purchase product for their own household use, and “distributors” – who are Members who also wish to resell products or build a sales organization. Additionally, in certain markets we are simplifying our pricing by eliminating certain shipping and handling charges and recovering those costs within suggested retail price.
Our international operations have provided and will continue to provide a significant portion of our total net sales. As a result, total net sales will continue to be affected by fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, in addition to comparing the percent change in net sales from one period to another in U.S. dollars, we also compare the percent change in net sales from one period to another period using “ net sales in local currency .” Net sales in local currency is not a U.S. GAAP financial measure. Net sales in local currency removes from net sales in U.S. dollars the impact of changes in exchange rates between the U.S. dollar and the local currencies of our foreign subsidiaries, by translating the current period net sales into U.S. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period. We believe presenting net sales in local currency is useful to investors because it allows a meaningful comparison of net sales of our foreign operations from period to period. However, net sales in local currency measures should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.
Our “ gross profit ” consists of net sales less “ cost of sales ,” which represents our manufacturing costs, the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties, tariffs, and similar expenses.
Our “ selling expenses” primarily consists of certain compensation to our Members. Our sales leader Members may also earn sales commissions and bonuses, which are also considered Member compensation. Globally, excluding China, 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 Member compensation for those activities, which is paid based on retail sales volume of certain other Members who are sponsored directly or indirectly by the Member. This Member compensation is a significant operating expense. In China, our independent service providers are compensated for marketing, sales support, and other services; the majority of these service fees to China independent service providers are also recognized as operating expenses. Member compensation, excluding China, also includes the Mark Hughes bonus payable to some of our most senior Members and other discretionary incentive payments to qualifying Members. Collectively, all of these Member compensation operating expenses are within selling expenses. 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 additional details regarding prior period selling expense amounts being reclassified to conform to current period presentation.
Because of local country regulatory constraints, we may be required to modify our Member incentive plans as described above. We also pay reduced Member compensation with respect to certain products worldwide. Consequently, the total Member compensation percentage may vary over time.
Our “ contribution margins ” consist of net sales less cost of sales and selling expenses, as discussed further below and described in Note 10, Segment Information , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K.
“G eneral and administrative expenses ” represent our operating expenses, which include labor and benefits, sales events, professional fees, travel and entertainment, Member promotions, occupancy costs, communication costs, bank fees, depreciation and amortization, foreign exchange gains and losses, and other miscellaneous operating expenses.
Our “ other operating income ” consists of government grant income related to China.
Our “other expense (income), 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. In preparing our financial statements, we translate revenues into U.S. dollars using average exchange rates. Additionally, the majority of our purchases from our suppliers generally are made in U.S. dollars. Consequently, a strengthening of the U.S. dollar versus a foreign currency can have a negative impact on gross profit and can generate foreign currency losses on intercompany transactions. Foreign currency exchange rates can fluctuate significantly. From time to time, we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk , of this Annual Report on Form 10-K.
Results of Operations
Our results of operations for the periods below are not necessarily indicative of results of operations for future periods, which depend upon numerous factors, including our ability to sponsor Members and retain sales leaders, further penetrate existing markets, introduce new products and programs that will help our Members increase their retail efforts and develop niche market segments.
The following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated:
Year Ended December 31,
Operations:
Net sales
Cost of sales
Gross profit
Selling expenses(1)
General and administrative expenses(1)
Other operating income
Operating income
Interest expense
Interest income
Other expense (income), net
Income before income taxes
Income taxes
Net income
Prior period amounts were reclassified to conform to current period presentation. 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 additional details.
Changes in net sales are directly associated with the retailing of our products, recruitment of new Members, and retention of sales leaders. Our strategies involve providing quality products, improved DMOs, including daily consumption approaches such as Nutrition Clubs, easier access to product, systemized training and education of Members on our products and methods, leveraging technology to make it easier for our Members to do business, and continued promotion and branding of Herbalife products.
Management’s role, in-country and at the region and corporate level, is to provide Members with a competitive, broad, and innovative product line, offer leading-edge business tools and technology services, and encourage strong teamwork and Member leadership to make doing business with Herbalife simple. We continue to provide our Members with enhanced technology tools, which includes updated brand sites, for ordering, business performance, and customer retailing to make it easier for them to do business with us and to optimize their customers’ experiences. Management uses the Marketing Plan, which reflects the rules for our global network marketing organization that specify the qualification requirements and general compensation structure for Members, coupled with educational, training, and motivational programs and promotions to encourage Members to increase retailing, retention, and recruiting, which in turn affect net sales. Such programs include sales events such as Extravaganzas, Leadership Development Weekends and World Team Schools where large groups of Members network with other Members, learn retailing, retention, and recruiting techniques from our leading Members, and become more familiar with how to market and sell our products and business opportunities. Accordingly, management believes that these development and motivation programs increase the productivity of the sales leader network. The expenses for such programs are included in general and administrative expenses. We also use event and non-event product promotions to motivate Members to increase retailing, retention, and recruiting activities. These promotions have prizes ranging from qualifying for events to product prizes and vacations. In a number of markets, we have segmented our Member base into “preferred members” and “distributors” for more targeted and efficient communication and promotions for these two differently motivated types of Members. In certain other markets that have not been segmented, we use Member data to similarly categorize Members for communication and promotion efforts.
DMOs are being generated in many of our markets and are globalized where applicable through the combined efforts of Members and country, regional and corporate management. While we support a number of different DMOs, one of the most popular DMOs is the daily consumption DMO. Under our traditional DMO, a Member typically sells to its customers on an infrequent basis (e.g., monthly) which provides fewer opportunities for interaction with their customers. Under a daily consumption DMO, a Member interacts with its customers on a more frequent basis, including such activities as weekly weigh-ins, which enables the Member to better educate and advise customers about nutrition and the proper use of the products and helps promote daily usage as well, thereby helping the Member grow his or her business. Specific examples of globalized DMOs include the Nutrition Club concept in Mexico and the Weight Loss Challenge in the United States. Management’s strategy is to review the applicability of expanding successful country initiatives throughout a region, and where appropriate, support the globalization of these initiatives.
The factors described above help Members increase their business, which in turn helps drive sales volume growth in our business, and thus, net sales growth. The discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the year ended December 31, 2025 as compared to the same period in 2024, as well as the unique growth or contraction factors specific to certain geographic regions or significant markets within a region during these periods. Net sales fluctuations, both Company-wide and within a particular geographic region or market, are primarily the result of changes in sales volume, changes in prices, or changes in foreign currency translation rates. The discussion of changes in net sales quantifies the impact of those drivers that are quantifiable such as changes in foreign currency translation rates, and cites the estimated impact of any significant price changes. The remaining drivers, which management believes are the primary drivers of changes in volume, are typically qualitative factors whose impact cannot be quantified.
Global inflationary pressures, supply chain challenges and other macroeconomic factors such as foreign exchange rate fluctuations, geopolitical conflict, and rising trade tensions, including U.S. tariffs and retaliatory tariffs from foreign countries, may impact both our cost structures and our pricing, with potential adverse sales volume impact. However, given the unpredictable, unprecedented, and fluid nature of these factors, we are unable to predict the extent to which they will adversely impact our business, financial condition, and results of operations, including the impact it may have on our regions and individual markets. We continue to examine our cost structure and assess potential incremental pricing actions in response to ongoing inflationary pressures which could impact our net sales and sales volumes. See the Sales by Geographic Region below for a more detailed discussion of each geographic region and individual market.
Financial Results for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
Net sales were $5,037.5 million for the year ended December 31, 2025. Net sales increased $44.4 million, or 0.9%, for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales increased 2.5% for the year ended December 31, 2025 as compared to the same period in 2024. The 0.9% increase in net sales for the year ended December 31, 2025 was primarily driven by a 3.2% favorable impact of price increases, partially offset by a 1.6% unfavorable impact of fluctuations in foreign currency exchange rates and a 0.5% decrease in sales volume.
Net income attributable to Herbalife was $228.3 million, or $2.20 per diluted share, for the year ended December 31, 2025. Net income attributable to Herbalife decreased $26.0 million, or 10.2%, for the year ended December 31, 2025 as compared to the same period in 2024. The decrease in net income attributable to Herbalife for the year ended December 31, 2025 was mainly due to $132.2 million higher income taxes; partially offset by $61.3 million lower general and administrative expenses driven by lower labor and benefits costs (see General and Administrative Expenses below for further discussion), $34.1 million higher gross profit driven by higher net sales, and $10.5 million loss on extinguishment of debt in 2024 related to the April 2024 debt refinancing transactions (see Liquidity and Capital Resources below for further discussion).
Net income attributable to Herbalife for the year ended December 31, 2025 included $36.3 million favorable deferred income tax impacts relating to the changes in the Company’s corporate entity structure in 2024, an $11.3 million pre-tax unfavorable impact ($8.5 million post-tax) of Goods and Services Tax (“GST”) transition charge related to the September 2025 GST amendments in India, a $9.1 million pre-tax unfavorable impact ($7.5 million post-tax) of Technology Realignment Program expenses, primarily relating to employee retention and separation costs, a $7.0 million pre-tax unfavorable impact ($5.9 million post-tax) of Restructuring Program expenses, primarily relating to employee retention and separation costs, and a $6.2 million pre-tax unfavorable impact ($5.5 million post-tax) of expenses relating to our new Digital Technology Program focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools.
Net income attributable to Herbalife for the year ended December 31, 2024 included a $147.3 million favorable deferred income tax impacts from corporate reorganization in 2024, a $69.1 million pre-tax unfavorable impact ($51.6 million post-tax) of Restructuring Program expenses, primarily relating to employee retention and separation costs, a $26.7 million pre-tax unfavorable impact ($24.9 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 $13.4 million pre-tax unfavorable impact ($10.3 million post-tax) of Transformation Program expenses, primarily relating to employee retention and separation costs, a $10.5 million pre-tax unfavorable impact ($8.2 million post-tax) of loss on extinguishment of debt related to the April 2024 debt refinancing transactions, and a $4.0 million pre-tax favorable impact ($3.1 million post-tax) of gain on sale of the Company’s land, building, and related building improvements of its office building in Torrance, California. (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 further discussion).
Reporting Segment Results
We aggregate our operating segments, excluding China, into a reporting segment, or the Primary Reporting Segment. The Primary Reporting Segment includes the North America, Latin America, EMEA, and Asia Pacific regions. China has been identified as a separate reporting segment as it does not meet the criteria for aggregation. See Note 10, Segment Information , 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 of our reporting segments. See below for discussions of net sales and contribution margin by our reporting segments.
Net Sales by Reporting Segment
The Primary Reporting Segment reported net sales of $4,758.4 million for the year ended December 31, 2025, representing an increase of $62.9 million, or 1.3%, as compared to the same period in 2024. In local currency, net sales increased 3.0% for the year ended December 31, 2025 as compared to the same period in 2024. The 1.3% increase in net sales for the year ended December 31, 2025 was primarily due to a 3.5% favorable impact of price increases, partially offset by a 1.7% unfavorable impact of fluctuations in foreign currency exchange rates and a 0.1% decrease in sales volume.
For a discussion of China’s net sales for the year ended December 31, 2025 as compared to the same period in 2024, 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 selling expenses.
The Primary Reporting Segment reported contribution margin of $2,037.2 million, or 42.8% of net sales, for the year ended December 31, 2025, representing an increase of $32.9 million, or 1.6%, as compared to the same period in 2024. The 1.6% increase in contribution margin for the year ended December 31, 2025 was primarily the result of a 5.6% favorable impact of price increases and a 0.3% favorable impact of other cost changes, partially offset by a 3.4% unfavorable impact of foreign currency fluctuations, a 0.8% unfavorable impact of sales mix, and a 0.3% unfavorable impact of higher inventory write downs.
China reported contribution margin of $103.3 million for the year ended December 31, 2025, representing an increase of $1.6 million, or 1.6%, as compared to the same period in 2024. The 1.6% increase in contribution margin for the year ended December 31, 2025 was primarily the result of an 8.0% favorable impact of sales mix driven by the customer loyalty program in China, a 2.2% favorable impact of cost changes related to self-manufacturing and sourcing, and a 1.4% favorable impact of lower inventory write downs, partially offset by a 10.5% unfavorable impact of sales volume decreases.
Sales by Geographic Region
Net sales by geographic region were as follows:
Year Ended December 31,
% Change
(Dollars in millions)
North America
Latin America
EMEA
Asia Pacific
China
Worldwide
North America
The North America region reported net sales of $1,033.0 million for the year ended December 31, 2025. Net sales decreased $21.4 million, or 2.0%, for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales decreased 2.0% for the year ended December 31, 2025 as compared to the same period in 2024. The 2.0% decrease in net sales for the year ended December 31, 2025 was primarily due to a 3.9% decrease in sales volume and a 0.7% unfavorable impact of sales mix, partially offset by a 2.7% favorable impact of price increases. North America’s sales volume decreased for the year ended December 31, 2025 as compared to the same period in 2024, and the decrease was less than the prior year period decrease.
Net sales in the U.S. were $1,006.4 million for the year ended December 31, 2025. Net sales decreased $19.6 million, or 1.9%, for the year ended December 31, 2025 as compared to the same period in 2024.
We are supporting Members with new product launches, such as our healthy lifespan supplement and our MultiBurn product, an innovative nonpharmaceutical weight loss supplement, a training and recognition program, targeted communications and sales incentives, as well as modernizing our technological tools including the launch of digital start-up kits and E-commerce tools, in order to enhance our Members’ ability to market and sell our products and promote business opportunities. The majority of the region implemented 2.3% price increases during January 2025. During March 2024, the region implemented 3.0% price increases.
In July 2025, at the North America Extravaganza, we unveiled the beta version of the new Pro2col health and wellness digital platform, that will allow customers in the future to have access to more product offerings in addition to being able to access this health and wellness digital application. The successful release of Pro2col Beta 2.0 in the U.S., Canada, and Puerto Rico occurred in December 2025, with additional markets to follow beginning in 2026.
Latin America
The Latin America region reported net sales of $881.2 million for the year ended December 31, 2025. Net sales increased $48.7 million, or 5.8%, for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales increased 10.5% for the year ended December 31, 2025 as compared to the same period in 2024. The 5.8% increase in net sales for the year ended December 31, 2025 was primarily due to a 5.5% favorable impact of net price increases, a 3.1% increase in sales volume, and a 2.0% favorable impact of sales mix, partially offset by a 4.7% unfavorable impact of fluctuations in foreign currency exchange rates. Latin America’s sales volume increased for the year ended December 31, 2025 as compared to the same period in 2024, and the increase was more than the prior year period increase.
Net sales in Mexico were $557.7 million for the year ended December 31, 2025. Net sales increased $19.1 million, or 3.5% for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales increased 8.9% for the year ended December 31, 2025 as compared to the same period in 2024. The fluctuation of foreign currency exchange rates had an unfavorable impact of $28.9 million for the year ended December 31, 2025. Mexico’s sales volume increased 2.6% for the twelve months ended December 31, 2025, as compared to the same period in 2024. We believe recent localized initiatives, new product launches, and other promotional efforts have provided additional support for members and Members’ Nutrition Club operations, which continue to be an important DMO in the market. While we believe macroeconomic conditions, such as a slowdown in the economy and prolonged high interest rates are stabilizing, these continue to create challenges for certain of our Members’ and Members’ Nutrition Club operations. The market saw a 4.2% price increase during February 2025. During March 2024, the Mexico market implemented a 5.25% price increase.
Across several other markets, net sales increased and were greatest for Peru, Bolivia, and Guatemala for the twelve months ended December 31, 2025, compared to the same period in 2024. The majority of markets in the region instituted price increases to address market-specific conditions during the twelve months ended December 31, 2025 and 2024. During the second quarter of 2024, most markets within the Latin America region, excluding Mexico, implemented pricing adjustments and Marketing Plan changes that aim to enhance the competitiveness of our product pricing and stimulate incremental growth in volume. We believe these changes, coupled with other promotional efforts and new product launches, may have been a contributing factor for the increases in sales volume for certain markets in the region during the twelve months ended December 31, 2025 and 2024.
Certain markets in the region continue to see difficult economic conditions, including political and social instability. Inflationary pressures are improving but remained elevated, and foreign exchange rate fluctuations in certain markets in the region have challenged our Members’ operations and customer demand. Promotional efforts within the region include increasing in-person activities, adding programs, supporting on a market-by-market basis the Nutrition Club DMO, utilizing segmented promotions and sales incentives, and launching new products.
EMEA
The EMEA region reported net sales of $1,114.4 million for the year ended December 31, 2025. Net sales increased $29.6 million, or 2.7% for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales increased 2.3% for the year ended December 31, 2025 as compared to the same period in 2024. The 2.7% increase in net sales for the year ended December 31, 2025 was primarily due to a 4.2% favorable impact of price increases, a 1.6% favorable impact of sales mix, and a 0.4% favorable impact of fluctuations in foreign currency exchange rates, partially offset by a 3.5% decrease in sales volume. EMEA region’s sales volume decreased for the twelve months ended December 31, 2025 as compared to the same period in 2024, and the decrease was less than the prior year period decrease. The EMEA region has no single market that accounts for a significant portion of our consolidated net sales.
In the majority of our markets across the region net sales increased for the twelve months ended December 31, 2025 as compared to the same period in 2024. However, certain markets in the region continue to experience adverse economic conditions, such as inflation, weakened consumer confidence, and foreign exchange rate fluctuations, as well as political uncertainty and also experienced declines in net sales for the twelve months of 2025, as compared to the same period in 2024, with the greatest declines occurring in Spain. Our Russia entity had no sales during the twelve months ended December 31, 2025 and 2024 due to the suspension of product shipments to our Russia entity where its inventory had been fully depleted as of September 30, 2023; therefore our Russia entity will not have any product sales in future periods while its inventory remains fully depleted. As a result, Russian Members purchasing products from Kazakhstan, among other neighboring markets, led to increases in net sales for Kazakhstan during the twelve months ended December 31, 2025, as compared to the same period in 2024.
Focus areas for Herbalife and our Members in the region include promotions and events, launching new products, enhancing both online and in person training programs and meetings to help distributors improve their business, supporting Nutrition clubs and other DMOs, and other promotional activities in order to grow our sales in the region. The majority of the markets in the region instituted price increases to address market-specific conditions during the twelve months ended December 31, 2025 and 2024.
Asia Pacific
The Asia Pacific region, which excludes China, reported net sales of $1,729.8 million for the year ended December 31, 2025. Net sales increased $6.0 million, or 0.3%, for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales increased 3.0% for the year ended December 31, 2025 as compared to the same period in 2024. The 0.3% increase in net sales for the year ended December 31, 2025 was primarily due to a 2.5% favorable impact of price increases and a 1.9% increase in sales volume, partially offset by a 2.7% unfavorable impact of fluctuations in foreign currency exchange rates and a 1.4% unfavorable impact of sales mix. The Asia Pacific region saw a sales volume increase for the twelve months ended December 31, 2025, compared to the same period in 2024, and the increase was more than the prior year period increase.
Net sales in India were $889.6 million for the year ended December 31, 2025. Net sales increased $44.8 million, or 5.3%, for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales increased 9.7% for the year ended December 31, 2025 as compared to the same period in 2024. The fluctuation of foreign currency exchange rates had an unfavorable impact of $37.5 million on net sales for the year ended December 31, 2025. The sales volume in India increased 6.8% for the twelve months ended December 31, 2025, as compared to the same period in 2024. Our growth rate for the twelve months ended December 31, 2025 was more than the growth rate experienced during the same period in 2024. To stimulate consumer spending, the India government announced a reduction in GST rates across multiple sectors, effective on September 22, 2025, which resulted in a tax rate reduction from 18% to 5% for the majority of our products being sold to our Members. This reduction on the GST rate may have had a favorable impact on our net sales for the year ended December 31, 2025. We continue to promote our brand, such as through sports sponsorships and in-person events. There were no price increases in the India market during the twelve months ended December 31, 2025. In November 2024, the India market implemented a 3.0% price increase.
Net sales in Vietnam were $278.2 million for the year ended December 31, 2025. Net sales decreased $5.5 million, or 1.9%, for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales increased 1.8% for the year ended December 31, 2025 as compared to the same period in 2024. The fluctuation of foreign currency exchange rates had an unfavorable impact of $10.7 million on net sales for the year ended December 31, 2025. The sales volume in Vietnam decreased 1.2% for the twelve months ended December 31, 2025, as compared to the same period in 2024. Focus areas for the Vietnam market include sports sponsorships, promotional initiatives, and sales events. Members’ Nutrition Club operations continue to be an important DMO in the market which management continues to support and monitor. The market implemented a 2.5% price increase in March 2025. During March 2024, the market implemented a 3.5% price increase. Further, changes to direct-selling regulations in the market were approved by the Vietnam government in April 2023; we continue to work closely with the Vietnam government to monitor their interpretations of these regulations and address them accordingly.
Across several other markets, net sales were down for the twelve months ended December 31, 2025 as compared to the same period in 2024, with the greatest declines in South Korea, Indonesia, and Taiwan. We continued to see a decline of new Members for some markets. In addition, Members’ Nutrition Club operations continue to recover from macroeconomic conditions including inflationary pressure and high interest rates in certain markets that have also challenged some areas of customer demand. Our efforts in the region include programs and promotional initiatives to incentivize sales, and launching new products. Most markets in the region instituted price increases to address market-specific conditions during the twelve months ended December 31, 2025 and 2024.
China
The China region reported net sales of $279.1 million for the year ended December 31, 2025. Net sales decreased $18.5 million, or 6.2%, for the year ended December 31, 2025 as compared to the same period in 2024. In local currency, net sales decreased 6.3% for the year ended December 31, 2025 as compared to the same period in 2024. The 6.2% decrease in net sales for the year ended December 31, 2025 was primarily due to a 10.6% decrease in sales volume, partially offset by a 4.3% favorable impact of sales mix primarily relating to the customer loyalty program in China. China’s sales volume decreased for the year ended December 31, 2025 as compared to the same period in 2024, and the decrease was more than the prior year period decrease. The China region had no price increase during the twelve months ended December 31, 2025 and 2024.
In China we continue to enhance our digital capabilities and offerings, such as improving the integration of our technological and enhanced tools to make it easier for our Members to do business, encouraging a customer-based approach through customer loyalty programs which we continue to enhance to engage customers, and supporting Nutrition Clubs. We have expanded our product line for the China market and continue to conduct sales promotions in the region.
Sales by Product Category
Net sales by product category were as follows:
Year Ended December 31,
% Change
(Dollars in millions)
Weight Management
Targeted Nutrition
Energy, Sports, and Fitness
Outer Nutrition
Literature, Promotional, and Other
Total
The trends and business factors described in the above discussions of the individual geographic regions apply generally to all product categories.
Gross Profit
Gross profit was $3,922.9 million and $3,888.8 million for the years ended December 31, 2025 and 2024, respectively. Gross profit as a percentage of net sales was 77.9% for both the years ended December 31, 2025 and 2024, or zero basis points change.
Gross profit as a percentage of net sales was flat for the year ended December 31, 2025 as compared to the same period in 2024 and included a favorable impact of price increases of 78 basis points; and favorable other cost changes of 9 basis points; offset by the unfavorable impact of foreign currency fluctuations of 65 basis points; unfavorable changes in sales mix of 12 basis points; and the unfavorable impact of higher inventory write-downs of 10 basis points.
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.
Selling Expenses
Selling expenses were $1,782.4 million and $1,782.8 million for the years ended December 31, 2025 and 2024, respectively. Selling expenses as a percentage of net sales were 35.4% and 35.7% for the years ended December 31, 2025 and 2024, respectively.
The decrease in selling expenses as a percentage of net sales for the year ended December 31, 2025 as compared to the same period in 2024 was primarily due to favorable changes in mix of products and countries. Generally, selling expenses as a percentage of net sales may vary from period to period due to changes in the mix of products and countries.
General and Administrative Expenses
General and administrative expenses were $1,664.3 million and $1,725.6 million for the years ended December 31, 2025 and 2024, respectively. General and administrative expenses as a percentage of net sales were 33.0% and 34.6% for the years ended December 31, 2025 and 2024, respectively.
The decrease in general and administrative expenses for the year ended December 31, 2025 as compared to the same period in 2024 was primarily driven by $78.3 million in lower labor and benefits costs and $22.7 million in lower professional fees primarily from lower expenses related to the Digital Transformation Program; partially offset by $20.1 million in higher non-income tax expenses primarily attributable to approximately $22 million of India GST expenses which included the $11.3 million GST transition charge discussed above. The decrease in labor and benefit costs includes lower employee bonus accruals, lower employee retention and separation costs related to the Restructuring Program and the Transformation Program, and savings on labor cost resulting from the restructuring initiatives, partially offset by employee retention and separation costs related to the Technology Realignment Program in 2025.
See Note 14, Restructuring 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 further discussion.
Other Operating Income
The $4.8 million of other operating income for the year ended December 31, 2025 consisted of $4.8 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).
The $5.5 million of other operating income for the year ended December 31, 2024 consisted of $5.5 million of government grant income for China.
Interest Expense, Net
Interest expense, net is as follows:
Year Ended December 31,
(in millions)
Interest expense
Interest income
Interest expense, net
The decrease in interest expense, net for the year ended December 31, 2025 as compared to the same period in 2024 was primarily due to a decrease in our overall weighted-average borrowings, partially offset by an increase in our weighted-average interest rate as a result of the April 2024 debt refinancing transactions and lower interest income earned as a result of a lower average balance on interest-bearing cash and cash equivalents. 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.
Other Expense, Net
The $10.5 million of other expense, net for the year ended December 31, 2024 consisted of a loss on the extinguishment of the 2018 Credit Facility and the partial redemption of 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).
Income Taxes
Income taxes were $47.3 million and $(84.9) million for the years ended December 31, 2025 and 2024, respectively. The effective income tax rate was 17.2% and (50.1)% for the years ended December 31, 2025 and 2024, respectively. The increase in the effective tax rate for the year ended December 31, 2025 as compared to the same period in 2024 was primarily due to a decrease in net tax benefits from discrete events, partially offset by changes in the geographic mix of our income. The income tax benefit for the year ended December 31, 2024 included the tax impacts of changes we initiated to our corporate entity structure during the fourth quarter of 2024. This reorganization resulted in the recognition of a large benefit from the establishment of a deferred tax asset and the release of valuation allowance primarily related to net operating losses.
Liquidity and Capital Resources
We have historically met our short- and long-term working capital and capital expenditure requirements, including funding for expansion of operations, through net cash flows provided by operating activities. Variations in sales of our products directly affect the availability of funds. There are no material contractual restrictions on our ability to transfer and remit funds among our international affiliated companies. However, there are foreign currency restrictions in certain countries which could reduce our ability to timely obtain U.S. dollars. Even with these restrictions and the current inflationary environment, which is improving but has remained elevated in certain markets during the twelve months ended December 31, 2025, we believe we will have sufficient resources, including cash flow from operating activities and longer-term access to capital markets, to meet debt service obligations in a timely manner and be able to continue to meet our objectives.
Historically, our debt has not resulted from the need to fund our normal operations, but instead has resulted primarily from our share repurchase programs. Since inception in 2007, total share repurchases amounted to approximately $6.5 billion. While a significant net sales decline could potentially affect the availability of funds, many of our largest expenses are variable in nature, which we believe protects our funding in all but a dramatic net sales downturn. Our $353.1 million cash and cash equivalents as of December 31, 2025 and our senior secured credit facility, in addition to cash flow from operations, can be used to support general corporate purposes, including any future strategic investment opportunities, share repurchases, and dividends. Currently, we are planning the refinancing of our 2029 Secured Notes and our 2024 Credit Facility, which includes our 2024 Term Loan B.
For the year ended December 31, 2025, we generated $333.3 million of operating cash flow as compared to $285.4 million of operating cash flow generated for the same period in 2024. The increase in our operating cash flow was the result of $115.9 million of higher net income excluding non-cash and reconciling items disclosed within our consolidated statement of cash flows, partially offset by $68.0 million of unfavorable changes in operating assets and liabilities. The $115.9 million of higher net income excluding non-cash and reconciling items was primarily driven by lower general and administrative expenses, higher gross profit driven by higher net sales, and lower income taxes excluding the impact of the net deferred income tax benefits (See Financial Results for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024 above for further discussion). The $68.0 million of unfavorable changes in operating assets and liabilities was primarily the result of unfavorable changes in other current liabilities, prepaid expense and other current assets, and receivables; partially offset by a favorable change in accounts payable. The unfavorable change in other current liabilities is mainly driven by higher employee bonus payments as well as lower employee bonus accruals.
Capital expenditures, including accrued capital expenditures, were $80.5 million and $112.2 million for the years ended December 31, 2025 and 2024, respectively. The majority of these expenditures during the year ended December 31, 2025 represented investments in management information systems, including initiatives to develop enhanced Member tools. These initiatives included our $400 million multi-year Digital Technology Program commenced in 2022, which focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools to provide improved digital capabilities and experiences, which we also refer to as Herbalife One. As we plan to continue investing broadly in digital technology and infrastructure, these costs will be part of our ongoing capital expenditures and future spending. Accordingly, it is no longer relevant to separately disclose costs associated with Herbalife One. As of December 31, 2025, we have incurred approximately $357 million of implementation costs related to Herbalife One. Beginning in the first quarter of 2024, we started recognizing non-cash amortization expenses related to Herbalife One. For the years ended December 31, 2025 and 2024, we recognized approximately $43 million and $35 million, respectively in non-cash amortization expenses, as the assets are amortized. The capital expenditures relating to Herbalife One were separate from the Transformation Program described further below. We expect to incur total capital expenditures of approximately $50 million to $80 million for the full year 2026, which includes normal ongoing digital technology costs and enhancing member and retail customer facing technology.
During 2025, separate from the capital expenditures described above, we acquired certain assets of Pruvit, Pro2col LLC, and of Link BioSciences Inc. for an aggregate consideration of approximately $25.5 million, which is reflected separately in investing activities within our consolidated statement of cash flows. These acquisitions are subject to post-closing performance targets that may lead to additional cash payments to the sellers. 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 further information relating to our 2025 acquisitions.
In March 2025, we hosted our annual global honors event where sales leaders from around the world met, shared best practices, and conducted leadership training, and our management awarded Members $74.3 million of Mark Hughes bonus payments related to their 2024 performance. In March 2024, our management awarded Members $74.9 million of Mark Hughes bonus payments related to their 2023 performance.
In 2021, we initiated a global transformation program to optimize global processes for future growth, or the Transformation Program. The Transformation Program involved the investment in certain new technologies and the realignment of infrastructure and the locations of certain functions to better support distributors and customers. The Transformation Program delivered annual savings of approximately $110 million with approximately $70 million of savings realized in 2023 and approximately $110 million of annual savings realized in 2024 and thereafter. We have incurred total pre-tax expenses of approximately $92.5 million from inception through the end of the Transformation Program, which was completed as of December 31, 2024. During the years ended December 31, 2024 and 2023, we incurred $13.3 million and $54.2 million, respectively, of pre-tax expenses which were recognized in general and administrative expenses within our consolidated statements of income. In addition, we have incurred approximately $20 million in related capital expenditures from inception through the end of the Transformation Program, primarily relating to technology, to support the initiative.
During the first quarter of 2024, we initiated a Restructuring Program to streamline our organizational structure to make it more efficient and effective and to allow our management team to work more closely to the markets, distributors, and customers. The Restructuring Program delivered annual savings of approximately $80 million with approximately $50 million of savings realized in 2024 and approximately $80 million of savings realized in 2025 and thereafter. We have incurred total pre-tax expenses of approximately $76.1 million from inception through the end of the Restructuring Program, which was completed as of December 31, 2025. During the years ended December 31, 2025 and 2024, we incurred $7.0 million and $69.1 million, respectively, of pre-tax expenses which were recognized in general and administrative expenses within the consolidated statement of income.
During April 2025, we initiated a process and organizational redesign project of our global technology infrastructure, or the Technology Realignment Program, to better align with new technologies, enhance operational efficiency, and optimize support of business goals and processes. The Technology Realignment Program is expected to deliver annual savings of approximately $13 million beginning in 2026 with approximately $6 million of savings realized in 2025. We have incurred total pre-tax expenses of approximately $9.1 million through December 31, 2025, which were recognized in general and administrative expenses within the consolidated statement of income. We expect to incur total pre-tax expenses of at least $11 million to achieve the projected run-rate savings. Since the Technology Realignment Program is still ongoing and is expected to be completed in 2026, these estimated amounts are preliminary and based on Management’s estimates and actual results could differ from such estimates.
Senior Secured Credit Facility
On August 16, 2018, we entered into a $1.25 billion senior secured credit facility, or the 2018 Credit Facility, consisting of a $250.0 million term loan A, or the 2018 Term Loan A, a $750.0 million term loan B, or the 2018 Term Loan B, and a $250.0 million revolving credit facility, or the 2018 Revolving Credit Facility, with a syndicate of financial institutions as lenders.
Subsequently, the 2018 Credit Facility was amended in a series of amendments that, as of March 31, 2024, among other things, increased the borrowing capacity of the 2018 Term Loan A to a total of $286.2 million and the 2018 Revolving Credit Facility to a total of $330.0 million and establishing the Secured Overnight Financing Rate, or SOFR, for interest rate purposes under the 2018 Credit Facility. Borrowings utilizing SOFR under both the 2018 Term Loan A and 2018 Revolving Credit Facility, bore interest at, depending on our total leverage ratio and the Adjusted Term SOFR, which is the rate per annum equal to Term SOFR plus a rate adjustment based on interest periods of one month, three months, six months and twelve months tenors equaling to approximately 0.11%, 0.26%, 0.43% and 0.72%, respectively. The maturity date of both the 2018 Term Loan A and 2018 Revolving Credit Facility was March 19, 2025. The 2018 Term Loan B maturity date was August 18, 2025.
The 2018 Credit Facility required us to comply with a leverage ratio. The 2018 Credit Facility also contained affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, making loans and investments, incurring additional indebtedness, granting liens, and effecting mergers, asset sales and transactions with affiliates. In addition, the 2018 Credit Facility contained customary events of default.
On April 12, 2024, concurrently with the issuance of the $800.0 million aggregate principal amount of senior secured notes, or the 2029 Secured Notes, as described further below, we entered into the eighth amendment to the 2018 Credit Facility. The eighth amendment to the 2018 Credit Facility, among other things, refinanced and replaced in full the 2018 Credit Facility with, (i) a Term Loan B Facility, or the 2024 Term Loan B, with an aggregate principal amount of $400.0 million and (ii) a revolving credit facility, or the 2024 Revolving Credit Facility, with an aggregate principal amount of $400.0 million, collectively the 2024 Credit Facility. All obligations under the 2024 Credit Facility are unconditionally guaranteed by certain direct and indirect wholly-owned subsidiaries of Herbalife Ltd. and secured on a senior secured basis by the equity interests of certain of Herbalife Ltd.’s subsidiaries and substantially all of the assets of the domestic loan parties. Interest is due at least quarterly on amounts outstanding under the 2024 Credit Facility.
The 2024 Term Loan B Facility was issued to the lenders at a 7.00% discount, or $28.0 million, and we incurred approximately $10.3 million of debt issuance costs in connection with the 2024 Credit Facility. We may prepay the 2024 Term Loan B at a 101% premium on or prior to the second anniversary, and, solely in connection with a repricing event, at a 101% premium after the second anniversary but on or prior to the third anniversary, and generally at no premium thereafter. The 2024 Term Loan B requires quarterly payments equal to 5.0% of the aggregate principal amount of the 2024 Term Loan B per annum, commencing in September 2024. In addition, pursuant to the terms of the 2024 Credit Facility, we may be required to make mandatory prepayments towards the 2024 Term Loan B based on an annual excess cash flow calculation and consolidated leverage ratio as defined under the terms of the 2024 Credit Facility. Based on the 2025 excess cash flow calculation, pursuant to the terms of the 2024 Credit Facility, we will not be required to make a mandatory prepayment in 2026 toward the 2024 Term Loan B.
Proceeds from the 2024 Term Loan B together with the proceeds from the 2029 Secured Notes were used to repay indebtedness, including all borrowings outstanding under the 2018 Credit Facility, effectively terminating its $228.9 million outstanding principal balance on the 2018 Term Loan A, and repaying $584.3 million on the 2018 Term Loan B, $170.0 million on the 2018 Revolving Credit Facility, and a portion of the 2025 Notes described further below. For accounting purposes, pursuant to ASC 470, Debt , these transactions were accounted for as an extinguishment of the 2018 Credit Facility. As a result, we recognized $981.0 million as a reduction to long-term debt representing the carrying value of the 2018 Credit Facility repaid in full in the second quarter of 2024. We also recognized a loss on extinguishment of approximately $2.5 million, as a result, which was recorded in other expense, net within our consolidated statement of income during the second quarter of 2024.
Borrowings utilizing SOFR under the 2024 Credit Facility use Adjusted Term SOFR. The applicable interest rates on our borrowings under the 2024 Term Loan B, as amended, bear interest at either, the Adjusted Term SOFR, which is the rate per annum equal to Term SOFR plus a rate adjustment based on interest periods of one month, three months, six months and twelve months tenors equaling to approximately 0.11%, 0.26%, 0.43% and 0.72%, respectively, plus a margin of 6.75%, or the base rate, which represents the highest of the Federal Funds Rate plus 0.50%, one-month Adjusted Term SOFR plus 1.00%, and the prime rate quoted by The Wall Street Journal, plus a margin of 5.75%. The Adjusted Term SOFR is subject to a floor of 0.00% and the base rate is subject to a floor of 1.00%. The 2024 Term Loan B Facility matures upon the earlier of (i) April 12, 2029, or (ii) March 16, 2028 if the outstanding principal on the 2028 Convertible Notes, as defined below, exceeds $100.0 million and we exceed certain leverage ratios as of that date.
Depending on our total leverage ratio, borrowings under the 2024 Revolving Credit Facility bear interest at either the Adjusted Term SOFR plus a margin of between 5.50% and 6.50%, or the base rate plus a margin of between 4.50% and 5.50%. The 2024 Revolving Credit Facility matures upon the earlier of (i) April 12, 2028, or (ii) December 16, 2027 if the outstanding principal on the 2028 Convertible Notes, as defined below, exceeds $100.0 million and we exceed certain leverage ratios as of that date. We pay a commitment fee on the 2024 Revolving Credit Facility of, depending on our total leverage ratio, between 0.35% to 0.45% per annum on the undrawn portion of the 2024 Revolving Credit Facility.
The 2024 Credit Facility contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, limitations or prohibitions on declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, making loans and investments, incurring additional indebtedness, granting liens, and effecting mergers, asset sales and transactions with affiliates. In addition, the 2024 Credit Facility contains customary events of default. The 2024 Revolving Credit Facility requires us to maintain a maximum total leverage ratio of 4.50:1.00 through December 31, 2024, stepping down to 4.25:1.00 on March 31, 2025 and 4.00:1.00 at September 30, 2025 and thereafter. The financial covenants also include a maximum first lien net leverage ratio of 2.50:1.00, a minimum fixed charge coverage ratio of 2.00:1.00, and a minimum liquidity of $200 million of revolver availability and accessible cash. As of December 31, 2025 and December 31, 2024, we were in compliance with its financial covenants under the 2024 Credit Facility.
We are permitted to make voluntary prepayments, subject to the premiums as discussed above. These prepayments, if any, will be applied against remaining quarterly installments owed under the 2024 Term Loan B in order of maturity with the remaining principal due upon maturity, unless directed otherwise by us. Pursuant to the terms of the 2018 Credit Facility excess cash flow clause and based on the 2023 excess cash flow calculation and consolidated leverage ratio as of December 31, 2023, as described and defined under the terms of the 2018 Credit Facility, we made a $66.3 million mandatory prepayment towards the 2018 Term Loan B during the first quarter of 2024.
During the year ended December 31, 2025, we borrowed an aggregate amount of $724.8 million under the 2024 Credit Facility, all of which was under the 2024 Revolving Credit Facility, and repaid a total amount of $744.8 million on amounts outstanding under the 2024 Credit Facility, which included $724.8 million of repayments on amounts outstanding under the 2024 Revolving Credit Facility. During the year ended December 31, 2024, we borrowed an aggregate amount of $1,421.2 million, including $1,221.2 million under the 2024 Credit Facility, which included $821.2 million of borrowings under the 2024 Revolving Credit Facility, and $200.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $1,917.9 million, including $831.2 million on amounts outstanding under the 2024 Credit Facility, which included $821.2 million of repayments on amounts outstanding under the 2024 Revolving Credit Facility, and $1,086.7 million on amounts outstanding under the 2018 Credit Facility, which included $200.0 million of repayments on amounts outstanding under the 2018 Revolving Credit Facility and a $66.3 million mandatory prepayment on amounts outstanding under the 2018 Term Loan B pursuant to the terms of the 2018 Credit Facility excess cash flow clause. As of December 31, 2025 and 2024, the U.S. dollar amount outstanding under the 2024 Credit Facility was $370.0 million and $390.0 million, respectively. Of the $370.0 million outstanding under the 2024 Credit Facility as of December 31, 2025, $370.0 million was outstanding under the 2024 Term Loan B. Of the $390.0 million outstanding under the 2024 Credit Facility as of December 31, 2024, $390.0 million was outstanding under the 2024 Term Loan B. There were no borrowings outstanding under the 2024 Revolving Credit Facility as of December 31, 2025 and 2024. In addition, as of both December 31, 2025 and December 31, 2024, we had an issued but undrawn letter of credit against the 2024 Revolving Credit Facility, of approximately $45 million which reduced our remaining available borrowing capacity under the 2024 Revolving Credit Facility. As a result of the issued but undrawn letter of credit, as of both December 31, 2025 and December 31, 2024, the remaining available borrowing capacity under the 2024 Revolving Credit Facility, was approximately $355 million. There were no outstanding foreign currency borrowings under the 2024 Credit Facility as of December 31, 2025 and 2024. As of December 31, 2025 and December 31, 2024, the weighted-average interest rate for borrowings under the 2024 Credit Facility was 11.64% and 10.35%, respectively.
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 2024 Credit Facility, 2018 Credit Facility, and the refinancing thereof.
Senior Secured Notes due 2029
In April 2024, we issued $800.0 million aggregate principal amount of senior secured notes due 2029, or the 2029 Secured Notes. The 2029 Secured Notes are guaranteed on a senior secured basis by us and each of our existing and future subsidiaries that is a guarantor of the obligations of any domestic borrower under our 2024 Credit Facility. The 2029 Secured Notes pay interest at a rate of 12.250% per annum payable semiannually in arrears on April 15 and October 15 of each year, beginning on October 15, 2024. The 2029 Secured Notes mature on April 15, 2029. The primary purpose of the issuance of the 2029 Secured Notes was to, along with proceeds from the 2024 Credit Facility, repay in full the 2018 Credit Facility and a partial redemption and private repurchase of the 2025 Notes. As of December 31, 2025, the outstanding principal on the 2029 Secured Notes was $800.0 million. 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 2029 Secured Notes.
Convertible Senior Notes due 2024
In March 2018, we issued $550.0 million aggregate principal amount of convertible senior notes due 2024, or the 2024 Convertible Notes. The 2024 Convertible Notes were senior unsecured obligations which ranked effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2024 Convertible Notes paid interest at a rate of 2.625% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2018. The 2024 Convertible Notes matured on March 15, 2024.
We repurchased $287.5 million and $65.5 million of our 2024 Convertible Notes in December 2022 and August 2023, respectively. For accounting purposes, pursuant to ASC 470, Debt , these transactions were accounted for as an extinguishment of 2024 Convertible Notes. During March 2024, we repaid a total amount of $197.0 million to repay in full amounts outstanding on the 2024 Convertible Notes upon maturity, as well as $2.6 million of accrued interest.
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.
Convertible Senior Notes due 2028
In December 2022, we issued $277.5 million aggregate principal amount of convertible senior notes due 2028, or the 2028 Convertible Notes. The 2028 Convertible Notes are senior unsecured obligations which rank effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2024 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2028 Convertible Notes pay interest at a rate of 4.25% per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2023. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2028 Convertible Notes mature on June 15, 2028. The primary purpose of the issuance of the 2028 Convertible Notes was to repurchase a portion of the 2024 Convertible Notes. As of December 31, 2025, the outstanding principal on the 2028 Convertible Notes was $277.5 million. 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.
Senior Notes due 2025
In May 2020, we issued $600.0 million aggregate principal amount of senior notes due 2025, or the 2025 Notes. The 2025 Notes were senior unsecured obligations which ranked effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2024 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2025 Notes paid interest at a rate of 7.875% per annum payable semiannually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021. The 2025 Notes matured on September 1, 2025. In April 2024, we redeemed $300.0 million of the 2025 Notes for an aggregate purchase price of $309.1 million, which included $3.2 million of accrued interest. Separately, in April 2024, we also repurchased $37.7 million of the 2025 Notes in a private transaction for an aggregate purchase price of $38.9 million, which included $0.5 million of accrued interest. In February 2025, we redeemed $65.0 million aggregate principal amount of the 2025 Notes for an aggregate purchase price of $67.3 million, which included $2.3 million of accrued and unpaid interest to the redemption date. Additionally, in June 2025, we redeemed $50.0 million aggregate principal amount of the 2025 Notes for an aggregate purchase price of $51.3 million, which included $1.3 million of accrued and unpaid interest to the redemption date. In September 2025, we repaid the $147.3 million remaining aggregate principal amount of the 2025 Notes upon maturity, as well as $5.8 million of accrued and unpaid interest. 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 2025 Notes.
Senior Notes due 2029
In May 2021, we issued $600.0 million aggregate principal amount of senior notes due 2029, or the 2029 Notes. The 2029 Notes are senior unsecured obligations which rank effectively subordinate to any of our existing and future secured indebtedness, including amounts outstanding under the 2024 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2029 Notes pay interest at a rate of 4.875% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2029 Notes mature on June 1, 2029, unless redeemed or repurchased in accordance with their terms prior to such date. The primary purpose of the issuance of the 2029 Notes was to repurchase the senior notes due in 2026 as well as for general corporate purposes, which may include shares repurchases and other capital investment projects. As of December 31, 2025, the outstanding principal on the 2029 Notes was $600.0 million. 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 2029 Notes.
Contractual Obligations
Our inventory purchase commitments are generally short-term in nature and have ordinary commercial terms. We did not have any material long-term inventory purchase commitments as of December 31, 2025. Our leases generally consist of long-term operating leases, which are payable monthly and relate to our office space, warehouses, distribution centers, manufacturing centers, and equipment.
For a further discussion on our debt and operating lease commitments as of December 31, 2025, 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.
Cash and Cash Equivalents
The majority of our foreign subsidiaries designate their local currencies as their functional currencies. As of December 31, 2025, the total amount of our foreign subsidiary cash and cash equivalents was $305.3 million, of which $26.0 million was held in U.S. dollars. As of December 31, 2025, the total amount of cash and cash equivalents held by Herbalife Ltd. and its U.S. entities, inclusive of U.S. territories, was $47.8 million.
For earnings not considered to be indefinitely reinvested, deferred income taxes have been provided. For earnings considered to be indefinitely reinvested, deferred income taxes have not been provided. Should we make a determination to remit the cash and cash equivalents from our foreign subsidiaries that are considered indefinitely reinvested to Herbalife Ltd. for the purpose of repatriation of undistributed earnings, we would need to accrue and pay taxes. As of December 31, 2025, we do not have any plans to repatriate these unremitted earnings to Herbalife Ltd.; therefore, we do not have any liquidity concerns relating to these unremitted earnings and related cash and cash equivalents. See Note 12, Income Taxes , to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K for additional discussion on our unremitted earnings.
Off-Balance Sheet Arrangements
As of December 31, 2025 and 2024, we had no material off-balance sheet arrangements except for those described in Note 5, Long-Term Debt , and 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.
Dividends
We have not declared or paid cash dividends since 2014. The declaration of future dividends is subject to the discretion of our board of directors and will depend upon various factors, including our earnings, financial condition, Herbalife Ltd.’s available distributable reserves under Cayman Islands law, restrictions imposed by the 2024 Credit Facility and the terms of any other indebtedness that may be outstanding, cash requirements, future prospects, and other factors deemed relevant by our board of directors.
Share Repurchases
On February 9, 2021, our board of directors authorized a 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. 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 2024 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.
During the years ended December 31, 2025 and 2024, we did not repurchase any of our common shares through open-market purchases.
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 a further discussion on our share repurchases.
Working Capital and Operating Activities
As of December 31, 2025 and 2024, we had positive working capital of $131.8 million and negative working capital of $86.7 million, respectively. The $218.5 million increase in working capital was primarily due to a decrease in current portion of long-term debt, and a decrease in other current liabilities, along with increases in receivables and inventories, partially offset by a decrease in cash and cash equivalents and increases in accounts payable and member compensation liabilities. The decrease in current portion of long-term debt was primarily from the partial redemption and repayment at maturity of the remaining aggregate $262.3 million balance of our 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.
We expect that cash and funds provided from operations, available borrowings under the 2024 Credit Facility, and longer-term access to capital markets will provide sufficient working capital to operate our business, to make expected capital expenditures, and to meet foreseeable liquidity requirements for the next twelve months and thereafter.
The majority of our purchases from suppliers are generally made in U.S. dollars, while sales to our Members generally are made in local currencies. Consequently, strengthening of the U.S. dollar versus a foreign currency can have a negative impact on gross profit and can generate transaction gains or losses on intercompany transactions. For discussion of our foreign exchange contracts and other hedging arrangements, see Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk , of this Annual Report on Form 10-K.
Contingencies
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 information on our contingencies as of December 31, 2025.
Critical Accounting Policies and Estimates
U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. We regularly evaluate our estimates and assumptions related to revenue recognition, allowance for product returns, inventory, goodwill and purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, and other loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. Actual results could differ from those estimates. We consider the following policies to be most critical in understanding the judgments that are involved in preparing the financial statements and the uncertainties that could impact our operating results, financial condition and cash flows.
We are a nutrition company that sells a wide range of weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products. Our products are manufactured by us in our Changsha, Hunan, China extraction facility; Suzhou, China facility; Lake Forest, California facility; and Winston-Salem, North Carolina facility; and by third-party providers, and then are sold to Members who consume and sell Herbalife products to retail consumers or other Members. As of December 31, 2025, we sold products in 95 markets throughout the world and we are organized and managed by geographic region. We aggregate our operating segments into one reporting segment, except China, as management believes that our operating segments have similar operating characteristics and similar long-term operating performance. In making this determination, management believes that the operating segments are similar in the nature of the products sold, the product acquisition process, the types of customers to whom products are sold, the methods used to distribute the products, the nature of the regulatory environment, and their economic characteristics.
We generally recognize revenue upon delivery when control passes to the Member. Product sales are recognized net of product returns, and discounts referred to as “distributor allowances.” We generally receive the net sales price in cash or through credit card payments at the point of sale. Member compensation, included in selling expenses within our consolidated statements of income, is generally recorded when revenue is recognized. 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 of distributor compensation in the U.S.
Allowances for product returns, primarily in connection with our buyback program, are provided at the time the sale is recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Historically, product returns and buybacks have not been significant. Product returns and buybacks were approximately 0.1% of net sales for each of the years ended December 31, 2025 and 2024.
We adjust our inventories to lower of cost and net realizable value. Additionally, we adjust the carrying value of our inventory based on assumptions regarding future demand for our products and market conditions. If future demand and market conditions are less favorable than management’s assumptions, additional inventory write-downs could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if previously written down inventories are sold. We have obsolete and slow moving inventories which have been adjusted downward $19.9 million and $14.4 million to present them at their lower of cost and net realizable value in our consolidated balance sheets as of December 31, 2025 and 2024, respectively.
Goodwill and marketing-related intangible assets not subject to amortization are tested annually for impairment and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.
As part of the annual goodwill impairment test, which is performed at the reporting unit level, we may conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In a qualitative assessment, we would consider the macroeconomic conditions, including any deterioration of general conditions and industry and market conditions, including any deterioration in the environment where the reporting unit operates, increased competition, changes in the products/services and regulatory and political developments, cost of doing business, overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods, other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation, and events affecting the reporting unit, including changes in the carrying value of net assets. If we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then we would perform the quantitative goodwill impairment test as required. If we determine that it is not more likely than not that the fair value of the reporting unit is less than the carrying value, then no further testing is required. During fiscal year 2025, we performed a qualitative assessment and determined that it is not more likely than not that the fair value of each reporting unit is less than its respective carrying value.
For our marketing-related intangible assets, we may also utilize a qualitative assessment similar to the one described above, with the exception that the test is performed at the consolidated level rather than at the reporting unit level. During fiscal year 2025, we performed a qualitative assessment of our marketing-related intangible assets and determined that it is not more likely than not that the fair value of the assets is less than their carrying value.
If we are required to determine the fair value of each reporting unit using the quantitative method, we primarily use an income approach in order to determine the fair value of a reporting unit and compare it to its carrying amount. The determination of the fair value of the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions include estimates of future revenues and expense growth rates, capital expenditures and the depreciation and amortization related to these capital expenditures, discount rates, and other inputs. Due to the inherent uncertainty involved in making these estimates, actual future results could differ. Changes in assumptions regarding future results or other underlying assumptions could have a significant impact on the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit over its fair value.
If we are required to determine the fair value of our marketing-related intangible assets using the quantitative method, we use a discounted cash flow model, or the income approach, under the relief-from-royalty method to determine the fair value of our marketing-related intangible assets in order to confirm there is no impairment required. An impairment loss is recognized to the extent that the carrying amount of the assets exceeds their fair value.
As of December 31, 2025 and 2024, we had goodwill of approximately $100.5 million and $87.7 million, respectively, or an increase of $12.8 million. Of the $12.8 million increase, $7.2 million was due to the business acquisition of Link BioSciences Inc., as further described in 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, and $5.6 million was due to foreign currency translation adjustments. As of both December 31, 2025 and 2024, we had marketing-related intangible assets of approximately $310.0 million. No goodwill or marketing-related intangibles impairment was recorded during the years ended December 31, 2025 and 2024.
Contingencies are accounted for in accordance with FASB ASC Topic 450, Contingencies, or ASC 450. ASC 450 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible as required by ASC 450. Accounting for contingencies such as legal and non-income tax matters requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Many of these legal and tax contingencies can take years to be resolved. Generally, as the time period increases over which the uncertainties are resolved, the likelihood of changes to the estimate of the ultimate outcome increases.
As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate prior to the completion and filing of tax returns for such periods. These estimates involve complex issues and require us to make judgments about the likely application of the tax law to our situation, as well as with respect to other matters, such as anticipating the positions that we will take on tax returns prior to us actually preparing the returns and the outcomes of disputes with tax authorities. The ultimate resolution of these issues may take extended periods of time due to examinations by tax authorities and statutes of limitations. In addition, changes in our business, including acquisitions, changes in our international corporate structure, changes in the geographic location of business functions or assets, changes in the geographic mix and amount of income, as well as changes in our agreements with tax authorities, valuation allowances, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and other matters, and variations in the estimated and actual level of annual pre-tax income can affect the overall effective income tax rate.
We evaluate the realizability of our deferred income tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. Although realization is not assured, we believe it is more likely than not that the net carrying value will be realized. The amount of the carryforwards that is considered realizable, however, could change if estimates of future taxable income are adjusted. The ability to forecast income over multiple years at a jurisdictional level is subject to uncertainty especially when our assessment of valuation allowances factor in longer term income forecasts. The impact of increasing or decreasing the valuation allowance could be material to our consolidated financial statements. In addition, during the quarter ended December 31, 2024, the Company initiated changes to its corporate entity structure including intra-entity transfers of intellectual property to one of its European subsidiaries. This reorganization resulted in the Company recognizing a step-up in tax basis on the fair value of the intellectual property and required management to make significant estimates and assumptions to determine the fair value of such assets, using a discounted cash flow model. Significant assumptions in valuing the intellectual property include, but are not limited to, revenue growth rates, projected operating income, and the discount rate. 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 income tax assets and valuation allowances.
We account for uncertain tax positions in accordance with FASB ASC Topic 740, Income Taxes , or ASC 740, which provides guidance on the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
Our policy is to account for net foreign tested income as a period cost if and when incurred.
We account for foreign currency transactions in accordance with FASB ASC Topic 830, Foreign Currency Matters . In a majority of the countries where we operate, the functional currency is the local currency. Our foreign subsidiaries’ asset and liability accounts are translated for consolidated financial reporting purposes into U.S. dollar amounts at period-end exchange rates. Revenue and expense accounts are translated at the average rates during the year. Our foreign currency translation adjustments are included in accumulated other comprehensive loss on our accompanying consolidated balance sheets. Foreign currency transaction gains and losses and foreign currency remeasurements are generally included in general and administrative expenses in the accompanying consolidated statements of income.
New Accounting Pronouncements
See discussion under 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 information on new accounting pronouncements.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk
We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates. On a selected basis, we use derivative financial instruments to manage or hedge certain of these risks. All hedging transactions are authorized and executed pursuant to written guidelines and procedures.
We apply FASB ASC Topic 815, Derivatives and Hedging, or ASC 815, which established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the underlying hedged item are recognized concurrently in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the consolidated statements of income when the hedged item affects earnings. ASC 815 defines the requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized concurrently in earnings.
A discussion of our primary market risk exposures and derivatives is presented below.
Foreign Exchange Risk
We transact business globally and are subject to risks associated with changes in foreign exchange rates. Our objective is to minimize the impact to earnings and cash flow associated with foreign exchange rate fluctuations. We enter into foreign exchange derivatives in the ordinary course of business primarily to reduce exposure to currency fluctuations attributable to intercompany transactions, translation of local currency earnings, inventory purchases subject to foreign currency exposure, and to partially mitigate the impact of foreign currency rate fluctuations. Due to volatility in foreign exchange markets, our current strategy, in general, is to hedge some of the significant exposures on a short-term basis. We will continue to monitor the foreign exchange markets and evaluate our hedging strategy accordingly. With the exception of our foreign currency forward contracts relating to forecasted inventory purchases and intercompany management fees discussed below, all of our foreign exchange contracts are designated as freestanding derivatives for which hedge accounting does not apply. The changes in the fair value of the derivatives not qualifying as cash flow hedges are included in general and administrative expenses within our consolidated statements of income.
The foreign currency forward contracts and option contracts designated as freestanding derivatives are primarily used to hedge foreign currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The fair value of foreign exchange derivative contracts is based on third-party quotes. Our foreign currency derivative contracts are generally executed on a monthly basis.
We also purchase foreign currency forward contracts in order to hedge forecasted inventory transactions and intercompany management fees that are designated as cash flow hedges and are subject to foreign currency exposures. We applied the hedge accounting rules as required by ASC 815 for these hedges. These contracts allow us to buy and sell certain currencies at specified contract rates. As of December 31, 2025 and 2024, the aggregate notional amounts of these contracts outstanding were approximately $75.4 million and $69.9 million, respectively. As of December 31, 2025, 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. 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. We also hedge forecasted intercompany management fees over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in general and administrative expenses within our consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. As of December 31, 2025, we recorded assets at fair value of zero and liabilities at fair value of $4.5 million relating to all outstanding foreign currency contracts designated as cash flow hedges. As of December 31, 2024, we recorded assets at fair value of $4.1 million and liabilities at fair value of zero relating to all outstanding foreign currency contracts designated as cash flow hedges. These hedges remained effective as of December 31, 2025 and December 31, 2024.
As of both December 31, 2025 and 2024, the majority of our outstanding foreign currency forward contracts related to freestanding derivatives had maturity dates of less than twelve months with the majority of freestanding derivatives expiring within one month.
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, 2025 and 2024, which discussion is incorporated herein by reference.
The majority of our foreign subsidiaries designate their local currencies as their functional currencies. See Liquidity and Capital Resources — Cash and Cash Equivalents in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Annual Report on Form 10-K for further discussion of our foreign subsidiary cash and cash equivalents.
Interest Rate Risk
As of December 31, 2025, the aggregate annual maturities of the 2024 Credit Facility were expected to be $20.0 million for 2026, $20.0 million for 2027, $20.0 million for 2028, and $310.0 million for 2029. As of December 31, 2025, the fair value of the 2024 Term Loan B was approximately $376.5 million, and the carrying value was $346.3 million. As of December 31, 2024, the fair value of the 2024 Term Loan B was approximately $387.3 million, and the carrying value was $359.9 million. There were no outstanding borrowings on the 2024 Revolving Credit Facility as of both December 31, 2025 and December 31, 2024. The 2024 Credit Facility bears variable interest rates, and as of December 31, 2025 and December 31, 2024 the weighted-average interest rate for borrowings under the 2024 Credit Facility was 11.64% and 10.35%, respectively.
Since our 2024 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 2024 Credit Facility remained constant, our annual interest expense could increase or decrease by approximately $3.7 million, respectively.
As of December 31, 2025, the fair value of the 2029 Secured Notes was approximately $888.1 million and the carrying value was $774.1 million. As of December 31, 2024, the fair value of the 2029 Secured Notes was approximately $851.3 million and the carrying value was $768.2 million. The 2029 Secured Notes pay interest at a fixed rate of 12.250% per annum payable semiannually in arrears on April 15 and October 15 of each year, beginning on October 15, 2024. The 2029 Secured Notes mature on April 15, 2029, unless redeemed or repurchased in accordance with their terms prior to such date. The 2029 Secured 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 $2.5 million or increase by approximately $2.5 million, respectively.
As of December 31, 2025, the fair value of the 2028 Convertible Notes was approximately $301.7 million, and the carrying value was $273.4 million. As of December 31, 2024, the fair value of the 2028 Convertible Notes was approximately $215.3 million, and the carrying value was $271.9 million. The 2028 Convertible Notes pay interest at a fixed rate of 4.25% per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2023. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2028 Convertible Notes mature on June 15, 2028.
In September 2025, the 2025 Notes matured and the remaining aggregate principal amount outstanding was paid in full. As of December 31, 2024, the fair value of the 2025 Notes was approximately $263.0 million and the carrying value was $261.8 million. The 2025 Notes paid 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, 2025, the fair value of the 2029 Notes was approximately $565.6 million and the carrying value was $596.3 million. As of December 31, 2024, the fair value of the 2029 Notes was approximately $421.5 million and the carrying value was $595.4 million. The 2029 Notes pay interest at a fixed rate of 4.875% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2029 Notes mature on June 1, 2029, unless redeemed or repurchased in accordance with their terms prior to such date. The 2029 Notes are recorded at their carrying value and their fair value is used only for disclosure purposes, so an increase or decrease in interest rates would not have any impact to our consolidated financial statements; however, if interest rates were to increase or decrease by 1%, their fair value could decrease by approximately $16.7 million or increase by approximately $17.4 million, respectively.
Item 8. Financial Stateme nts and Supplementary Data
Our consolidated financial statements and notes thereto and the report of PricewaterhouseCoopers LLP, independent registered public accounting firm, are set forth in the Index to Financial Statements under Part IV, Item 15, Exhibits, Financial Statement Schedules , of this Annual Report on Form 10-K, and are incorporated herein by reference.
