HLF Herbalife Ltd

Herbalife Ltd. (NYSE:HLF) today reported that fourth quarter net sales increased 17 percent and local currency net sales increased 19 percent compared to the same time period in 2009. Net income for the quarter of $81.0 million, or $1.31 per diluted share compares to 2009 fourth quarter adjusted1 net income and EPS of $61.7 million and $0.98, respectively.

For the twelve months ended December 31, 2010, the company reported record net sales of $2.7 billion, an 18 percent increase on 14 percent volume growth compared to 2009. For the same period, the company’s reported adjusted1 net income of $297.0 million, or $4.77 per diluted share improved 43 percent and 45 percent respectively compared to the adjusted1 2009 results of $207.1 million or $3.28 per diluted share. On a reported basis, EPS of $4.67 increased 45 percent compared to 2009.

The full year improvements in earnings were predominantly a result of strong volume growth. For the second consecutive quarter and for the year ended December 31, 2010, as compared to full year 2009, each of the company’s six regions experienced volume growth. “The continued broad-based growth we are experiencing further confirms the strength of the business methods our Distributors are using,” said Chairman and Chief Executive Officer Michael O. Johnson. “Our nutrition products have never been more relevant, our Distributors’ engagement has never been higher and their methods are reaching more consumers every day.”

For the year ended December 31, 2010, the company generated cash flow from operations of $380.4 million, an increase of 33.4 percent compared to 2009, paid dividends of $53.7 million, invested $68.1 million in capital expenditures and repurchased $150.1 million in common shares as part of its $1 billion share repurchase authorization program. The company has reduced its net debt by $111.9 million from December 2009 levels.

1See Schedule B – “Reconciliation of Non-GAAP Financial Measures” for more detail.

Fourth Quarter and Full Year 2010 Regional Key Metrics2,3

Regional Volume Point and Average Active Sales Leader Metrics

  Volume Points (Mil)   Avg Active Sales Leaders Region   4Q'10  

Yr/Yr %Chg

  FY'10  

Yr/Yr %Chg

  4Q'10  

Yr/Yr %Chg

North America 200.2   8.0 %   888.5   13.9 % 51,174   13.0 % Asia Pacific 188.0 23.6 % 723.6 26.8 % 39,531 22.7 % EMEA 125.3 8.5 % 486.6 4.3 % 35,552 5.4 % Mexico 154.8 26.5 % 563.0 14.1 % 41,485 15.7 % South & Central America 122.9 12.5 % 427.4 3.7 % 31,348 5.8 % China   38.0   29.3 %   144.2   25.1 %     7,851   31.3 % Worldwide Total   829.2   16.1 %   3,233.3   13.9 %     202,178   14.4 %                           Volume Points (Mil) Avg Active Sales Leaders     4Q'10  

Yr/Yr %Chg

  FY'10  

Yr/Yr %Chg

  4Q'10  

Yr/Yr %Chg

Emerging Markets 457.2 19.3 % 1,677.6 12.5 % 112,715 20.4 % Established Markets   372.0   12.5 %   1,555.7   15.6 %     93,301   13.1 % Worldwide Total   829.2   16.1 %   3,233.3   13.9 %     202,178   14.4 %

2 “Emerging markets” are defined herein as those countries that the World Bank categorized as having “low” or “medium” GDP per capita, while “Established markets” are defined as those countries categorized by the World Bank as having “high” GDP per capita.

3 Supplemental tables that include additional business metrics can be found at http://www.ir.herbalife.com

2010 Annual Sales Leader Requalification

By January of each year, sales leaders are required to re-qualify. In February of each year, we remove from the rank of sales leaders those individuals who did not satisfy the sales leader qualification requirements during the preceding 12-months. For the latest 12-month re-qualification period ending January 2011, 48.9 percent of the eligible sales leaders re-qualified, reflecting an improvement from 43.0 percent in 2009.

Updated 2011 Guidance

Based on current business trends and foreign currency rates, the company’s first quarter and fiscal 2011 guidance is provided below.

First Quarter – The company’s first quarter 2011 diluted earnings per share guidance range is $1.17 to $1.21 on volume point growth of 14.0 percent to 16.0 percent and net sales growth of 18.0 percent to 20.0 percent compared to the same period in 2010, respectively, and an effective tax rate range of 28.0 percent to 29.0 percent. The company’s first quarter 2011 capital expenditures are expected to be in the range of $18.0 million to $23 million.

Fiscal 2011 – The company’s fiscal 2011 diluted earnings per share guidance range is $5.15 to $5.40 on volume point growth of 8.0 percent to 10.0 percent and net sales growth of 13.0 percent to 15.0 percent compared to the same period in 2010, respectively, and an effective tax rate range of 28.0 percent to 29.0 percent. The company’s fiscal 2011 capital expenditures are expected to be in the range of $80.0 million to $90.0 million.

Board of Directors Approved Stock Split

The Herbalife Board of Directors has approved a two-for-one split of Herbalife’s Common Shares, subject to shareholder approval. If approved by the shareholders, the stock split would be effected by the subdivision of each outstanding Common Share of a par value of $0.002 each into two Common Shares of a par value of $0.001 each and a proportional amendment of the authorized share capital. Shareholder approval of the stock split will be sought by the company during its annual general meeting of Shareholders which will be held on April 28, 2011.

“We are pleased to announce this pending two-for-one stock split,” said John DeSimone, chief financial officer at Herbalife. “This decision by the board of directors acknowledges our track record of providing our shareholders solid long-term returns and demonstrates our confidence in the company’s positive outlook for future growth. We believe that the pending stock split will improve liquidity in our stock and is representative of our ongoing commitment to shareholder value.” The Board of Directors established May 10, 2011, as the record date for the stock split. Each shareholder of record as of the close of business on the record date will receive one additional Common Share for every share held. The new shares will be distributed on or about May 17, 2011.

Announces Quarterly Dividend

The company reported today that its board of directors approved a $0.25 per share dividend to shareholders of record effective March 8, 2011 payable on March 22, 2011.

Fourth Quarter Earnings Conference Call

Herbalife’s senior management team will host an investor conference call Wednesday, February 23, 2011 at 11 a.m. EST (8 a.m. PST) to discuss its recent financial results and provide an update on current business trends.

The dial-in number for this conference call for domestic callers is 866.903.5314 and 706.634.5671 for international callers (conference ID 82536023). Live audio of the conference call will be simultaneously webcast in the investor relations section of the company's website at http://ir.herbalife.com.

An audio replay will be available following the completion of the conference call in MP3 format or by dialing 800.642.1687 for domestic callers or 706.645.9291 for international callers (conference ID 82536023). The webcast of the teleconference will be archived and available on Herbalife's website.

About Herbalife Ltd.

Herbalife Ltd. (NYSE:HLF) is a global network marketing company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle. Herbalife products are sold in 75 countries through a network of approximately 2.1 million independent distributors. The company supports the Herbalife Family Foundation and its Casa Herbalife program to help bring good nutrition to children. Herbalife's website contains a significant amount of information about Herbalife, including financial and other information for investors at http://ir.Herbalife.com. The company encourages investors to visit its website from time to time, as information is updated and new information is posted.

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” and any other similar words.

Although we believe that expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:

• any collateral impact resulting from the ongoing worldwide financial “crisis,” including the availability of liquidity to us, our customers and our suppliers or the willingness of our customers to purchase products in a recessionary economic environment;
• our relationship with, and our ability to influence the actions of, our distributors;
• improper action by our employees or distributors in violation of applicable law;
• adverse publicity associated with our products or network marketing organization;
• changing consumer preferences and demands;
• our reliance upon, or the loss or departure of any member of, our senior management team which could negatively impact our distributor relations and operating results;
• the competitive nature of our business;
• regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products and network marketing program, including the direct selling market in which we operate;
• third party legal challenges to our network marketing program;
• risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, disruptions or conflicts with our third-party importers, pricing and currency devaluation risks, especially in countries such as Venezuela;
• uncertainties relating to the application of transfer pricing, duties, value added taxes, and other tax regulations, and changes thereto;
• uncertainties relating to interpretation and enforcement of recently enacted legislation in China governing direct selling;
• our inability to obtain the necessary licenses to expand our direct selling business in China;
• adverse changes in the Chinese economy, Chinese legal system or Chinese governmental policies;
• our dependence on increased penetration of existing markets;
• contractual limitations on our ability to expand our business;
• our reliance on our information technology infrastructure and outside manufacturers;
• the sufficiency of trademarks and other intellectual property rights;
• product concentration;
• changes in tax laws, treaties or regulations, or their interpretation;
• taxation relating to our distributors;
• product liability claims; and
• whether we will purchase any of our shares in the open market or otherwise.

We do not undertake any obligation to update or release any revisions to any forward-looking statements or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

RESULTS OF OPERATIONS:

Herbalife Ltd. Consolidated Statements of Income (In thousands, except per share data) (unaudited)         Quarter Ended Year Ended   12/31/2010   12/31/2009   12/31/2010   12/31/2009   North America $ 140,898 $ 126,715 $ 614,126 $ 529,009 Mexico 97,716 69,132 333,981 263,013 South and Central America 121,277 113,223 390,433 366,925 EMEA 140,146 130,932 527,744 504,154 Asia Pacific 189,081 151,468 683,499 509,191 China   49,238   39,401   184,443   152,285 Worldwide net sales 738,356 630,871 2,734,226 2,324,577 Cost of Sales   148,513   136,515   558,811   493,134 Gross Profit 589,843 494,356 2,175,415 1,831,443 Royalty Overrides 244,088 204,580 900,248 761,501 SGA   239,512   205,691   887,655   773,911 Operating Income 106,243 84,085 387,512 296,031 Interest Expense 1,944 1,836 9,664 9,613 Interest Income   818   820   2,247   4,510 Income before income taxes 105,117 83,069 380,095 290,928 Income Taxes   24,127   27,413   89,562   87,582 Net Income   80,990   55,656   290,533   203,346   Basic Shares 59,082 60,492 59,502 61,221 Diluted Shares 62,058 63,004 62,256 63,097   Basic EPS $ 1.37 $ 0.92 $ 4.88 $ 3.32 Diluted EPS $ 1.31 $ 0.88 $ 4.67 $ 3.22   Dividends declared per share $ 0.25 $ 0.20 $ 0.90 $

0.80

  Herbalife Ltd. Consolidated Balance Sheets (In thousands) (unaudited)     Dec 31,   Dec 31,   2010     2009     ASSETS Current Assets: Cash & cash equivalents $ 190,550 $ 150,801 Receivables, net 85,612 76,958 Inventories 182,467 145,962 Prepaid expenses and other current assets 93,963 101,181 Deferred income taxes   42,994     38,600   Total Current Assets 595,586 513,502   Property, plant and equipment, net 177,427 178,009 Deferred compensation plan assets 18,536 17,410 Deferred financing cost, net 998 1,498 Other assets 25,880 21,306 Marketing related intangibles and other intangible assets, net 310,894 311,782 Goodwill   102,899     102,543   Total Assets $ 1,232,220   $ 1,146,050       LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 43,784 $ 37,330 Royalty Overrides 162,141 144,689 Accrued compensation 69,376 65,043 Accrued expenses 141,867 107,943 Current portion of long term debt 3,120 12,402 Advance sales deposits 35,145 22,261 Income taxes payable   15,383     40,298   Total Current Liabilities 470,816 429,966   Non-current liabilities Long-term debt, net of current portion 175,046 237,931 Deferred compensation 20,167 16,629 Deferred income taxes 55,572 77,613 Other non-current liabilities   23,407     24,600   Total Liabilities 745,008 786,739   Commitments and Contingencies   Shareholders' equity: Common shares 118 120 Additional paid in capital 257,375 222,882 Accumulated other comprehensive loss (27,285 ) (23,396 ) Retained earnings   257,004     159,705   Total Shareholders' Equity   487,212     359,311       Total Liabilities and Shareholders' Equity $ 1,232,220   $ 1,146,050    

Herbalife Ltd.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

    Year Ended   12/31/2010       12/31/2009       CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 290,533 $ 203,346 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 68,621 62,437 Excess tax benefits from share-based payment arrangements (16,410 ) (3,266 ) Share based compensation expenses 22,969 20,907 Amortization of discount and deferred financing costs 500 491 Deferred income taxes (24,631 ) (11,226 ) Unrealized foreign exchange transaction loss (gain) (7,142 ) 4,809 Foreign exchange loss from adoption of highly inflationary accounting in Venezuela 15,131 — Other 2,527 340 Changes in operating assets and liabilities: Receivables (7,593 ) 2,361 Inventories (31,516 ) (1,742 ) Prepaid expenses and other current assets 10,254 (7,781 ) Other assets (3,485 ) 2,109 Accounts payable 6,650 (9,500 ) Royalty overrides 15,732 9,102 Accrued expenses and accrued compensation 31,092 (3,461 ) Advance sales deposits 12,439 8,779 Income taxes payable (8,807 ) 4,700 Deferred compensation plan liability   3,538     2,651   NET CASH PROVIDED BY OPERATING ACTIVITIES   380,402     285,056     CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (68,125 ) (59,768 ) Proceeds from sale of property, plant and equipment 115 102 Deferred compensation plan assets (1,126 ) (1,656 ) Acquisition of business   -     (10,000 ) NET CASH USED IN INVESTING ACTIVITIES   (69,136 )   (71,322 )   CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (53,740 ) (48,721 ) Borrowings from long-term debt 427,000 211,974 Principal payments on long-term debt (499,451 ) (313,089 ) Share repurchases (160,008 ) (74,641 ) Excess tax benefits from share-based payment arrangements 16,410 3,266 Proceeds from exercise of stock options and sale of stock under employee stock purchase plan   15,309     7,884   NET CASH USED IN FINANCING ACTIVITIES   (254,480 )   (213,327 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH   (17,037 )   (453 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 39,749 (46 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   150,801     150,847   CASH AND CASH EQUIVALENTS, END OF YEAR $ 190,550   $ 150,801   CASH PAID DURING THE PERIOD Interest paid $ 9,295   $ 10,011   Income taxes paid $ 111,497   $ 95,139   NON CASH ACTIVITIES Assets acquired under capital leases and other long-term debt $ 576   $ 388    

Regional Volume Point and Average Active Sales Leader Metrics – 4Q’10 & FY’10

  Volume Points (Mil)   Average Active Sales Leaders Region   4Q'10  

Yr/Yr %Chg

  FY'10  

Yr/Yr %Chg

  4Q'10  

Yr/Yr %Chg

  FY'10  

Yr/Yr %Chg

North America 200.2   8.0 %   888.5   13.9 % 51,174   13.0 %   49,305   13.9 % Asia Pacific 188.0 23.6 % 723.6 26.8 % 39,531 22.7 % 35,899 25.8 % EMEA 125.3 8.5 % 486.6 4.3 % 35,552 5.4 % 33,531 2.9 % Mexico 154.8 26.5 % 563.0 14.1 % 41,485 15.7 % 38,084 10.2 % South & Central America 122.9 12.5 % 427.4 3.7 % 31,348 5.8 % 28,821 3.2 % China   38.0   29.3 %   144.2   25.1 %   7,851   31.3 %   6,848   15.7 % Worldwide Total   829.2   16.1 %   3,233.3   13.9 %   202,178   14.4 %   185,774   11.5 %                                 Volume Points (Mil) Average Active Sales Leaders     4Q'10  

Yr/Yr %Chg

  FY'10  

Yr/Yr %Chg

  4Q'10  

Yr/Yr %Chg

  FY'10  

Yr/Yr %Chg

Emerging Markets 457.2 19.3 % 1,677.6 12.5 112,715 20.4 % 102,782 22.6 % Established Markets   372.0   12.5 %   1,555.7   15.6     93,301   13.1 %   88,137   31.3 % Worldwide Total   829.2   16.1 %   3,233.3   13.9 %   202,178   14.4 %   185,774   11.5 %  

SUPPLEMENTAL INFORMATION

Schedule A: Financial Guidance

2011 Guidance

For the Three Months Ending March 31, 2011 and Twelve Months Ending December 31, 2011

       

Three Months EndingMarch 31, 2011

Twelve Months EndingDecember 31, 2011

Low High Low High Volume point growth vs 2010 14.0 % 16.0 % 8.0 % 10.0 % Net sales growth vs 2010 18.0 % 20.0 % 13.0 % 15.0 %

EPS

$ 1.17 $ 1.21 $ 5.15 $ 5.40 Cap Ex ($ millions) $ 18.0 $ 23.0 $ 80.0 $ 90.0

Effective Tax Rate

28.0 % 29.0 % 28.0 % 29.0 %  

SCHEDULE B: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(unaudited), (Dollars in Thousand, Except Per Share Data)

In addition to its reported results, the Company has included in the tables below adjusted results that the Securities and Exchange Commission defines as “non-GAAP financial measures.” Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investor in analyzing period to period comparisons of the Company’s results.

The following is a reconciliation of net income and diluted earnings per share, presented and reported in accordance with U.S. generally accepted accounting principles, to net income adjusted for certain items:

Herbalife Ltd. Supplemental Schedule Non-GAAP Financial Measures (In thousands, except per share data) (Unaudited)     Quarter Ended 12/31/2010 Reported   Adjusting     Adjusted (GAAP) Items (Non-GAAP) Net Sales $ 738,356 $ 738,356 Cost of Sales   148,513     148,513 Gross Profit 589,843 589,843 Royalty Overrides 244,088 244,088 SGA   239,512     239,512 Operating Income 106,243 106,243 Interest Expense - net   1,126     1,126 Income before income taxes 105,117 105,117 Income Taxes   24,127     24,127 Net Income $ 80,990 $ - $ 80,990     Diluted EPS $ 1.31 $ - $ 1.31   Herbalife Ltd. Supplemental Schedule Non-GAAP Financial Measures (In thousands, except per share data) (Unaudited)       Twelve Months Ended 12/31/2010 Reported Adjusting Adjusted (GAAP) Items (Non-GAAP) Net Sales $ 2,734,226 $ 2,734,226 Cost of Sales   558,811   $ (12,715 )

(1)

 

  546,096 Gross Profit 2,175,415 12,715 2,188,130 Royalty Overrides 900,248 900,248 SGA   887,655     (11,390 )

(2)

 

  876,265 Operating Income 387,512 24,105 411,617 Interest Expense - net   7,417         7,417 Income before income taxes 380,095 24,105 404,200 Income Taxes   89,562     17,680  

(3)

 

  107,242 Net Income $ 290,533   $ 6,425     $ 296,958     Diluted EPS $ 4.67   $ 0.10     $ 4.77   1 Incremental U.S. dollar costs of 2009 imports in Venezuela which were recorded at the unfavorable parallel market exchange rate and were not devalued based on 2010 exchange rates but rather recorded at their historical dollar costs as products were sold   2 Includes $15,131 foreign exchange loss related to remeasurement of Venezuela's monetary assets and liabilities resulting from adoption of highly inflationary accounting and $3,741 foreign exchange gain resulting from receipt of U.S. dollar approved by CADIVI at the official exchange rate relating to 2009 product importations which were previously registered with CADIVI   3 Includes $14,452 favorable income taxes related to Venezuela becoming highly inflationary economy and $3,228 tax benefit from an international income tax audit settlement   Herbalife Ltd. Supplemental Schedule Non-GAAP Financial Measures (In thousands, except per share data) (Unaudited)     Quarter Ended 12/31/2009 Reported   Adjusting     Adjusted (GAAP) Items   (Non-GAAP) Net Sales $ 630,871 $ 630,871 Cost of Sales   136,515     (12,544 )

(1)

 

  123,971 Gross Profit 494,356 12,544 506,900 Royalty Overrides 204,580 204,580 SGA   205,691   $ 2,368  

(2)

 

  208,059 Operating Income 84,085 10,176 94,261 Interest Expense - net   1,016           1,016 Income before income taxes 83,069 10,176 93,245 Income Taxes   27,413     4,099  

(3)

 

  31,512 Net Income $ 55,656   $ 6,077       $ 61,733     Diluted EPS $ 0.88   $ 0.10       $ 0.98   1 Related to incremental U.S. dollar costs of imports into Venezuela at the unfavorable parallel market exchange rate rather than the official currency exchange rate   2 Related to foreign exchange gain for Venezuela resulting from receipt of U.S. dollars approved by CADIVI at the official exchange rate   3 Includes $3,562 tax benefit of Venezuela items and tax benefit of $537 from an international income tax audit settlement   Herbalife Ltd. Supplemental Schedule Non-GAAP Financial Measures (In thousands, except per share data) (Unaudited)     Twelve Months Ended 12/31/2009 Reported Adjusting Adjusted (GAAP) Items (Non-GAAP) Net Sales $ 2,324,577 $ 2,324,577 Cost of Sales   493,134   (12,544 )

(1)

 

  480,590 Gross Profit 1,831,443 12,544 1,843,987 Royalty Overrides 761,501 761,501 SGA   773,911 $ 257  

(2)

 

  774,168 Operating Income 296,031 12,287 308,318 Interest Expense - net   5,103       5,103 Income before income taxes 290,928 12,287 303,215 Income Taxes   87,582   8,536  

(3)

 

  96,118 Net Income $ 203,346 $ 3,751     $ 207,097     Diluted EPS $ 3.22 $ 0.06     $ 3.28   1 Related to incremental U.S. dollar costs of imports into Venezuela at the unfavorable parallel market exchange rate rather than the official currency exchange rate   2 Includes $1,297 restructuring charges, $814 expense from an international income tax audit settlement and $2,368 foreign exchange gain for Venezuela resulting from receipt of U.S. dollars approved by CADIVI at the official exchange rate   3 Includes $4,852 tax benefit from expiration of certain statutes of limitation, tax charge of $277 from an international income tax audit settlement, $399 tax benefit of restructuring charges and $3,562 tax benefit of Venezuela items  

The following is a reconciliation of total long-term debt to net debt:

    12/31/2010       12/31/2009   Total long-term debt (current and long-term portion) $ 178,166 $ 250,333 Less: Cash and cash equivalents   190,550     150,801 Net debt $ (12,384 ) $ 99,532