Our record fi nancial performance throughout 2008 evolved as the result from the accomplishments of
Team Herbalife -our incredible marketers and employees. Together, we now have had fi ve
many years of double-digit internet sales growth, a lot more than doubling the organization previously
fi ve years (from internet sales of $1.2 billion in 2003 to $2.4 billion in 2008).
Throughout 2008, we added 111 new President’s Team people, four new people to the
exclusive Chairman’s Club, our fi rst Brand Ambassador in China - the greatest level in
the China marketing plan, and that we opened up fi ve new nations. In the finish of the season, we
had 1.9 million marketers (a rise of 15 % in comparison to 2007), including
505,000 sales leaders.
We designed a substantial purchase of capital in 2008, over $100 million in technology,
facilities and new nations to supply broadened support globally to the marketers.
We located an archive eight Extravaganzas reaching a lot more than 100,000 marketers with
training and motivation. We ongoing to construct our global brand, released several new
items and ongoing the rollout in our science-based diet items worldwide.
We completed two college-based studies showing the potency of
our fl agship Formula 1 product, and contributing to the scientifi c substantiation in our items.
We're fi nancially strong and also have a superb balance sheet - an excellent attribute,
especially throughout these occasions. Since April 2007, we’ve came back almost $600 million
to traders through our share repurchase and dividend programs. In 2008, we produced
strong cash fl ow and demonstrated a 28% improvement within our year-over-year reported diluted Expanded polystyrene.
Once we tell our marketers, this is actually the proper time to participate the corporation. We’re
situated in the intersection of health insurance and wealth with this two great choices: healthy
diet as well as an chance for part-time or full-time earnings. We'll still support
our Herbalife Independent Marketers in building their companies and operating using the
greatest integrity, while benefiting from these tough economic occasions and also the global
weight problems epidemic to talk about the gift of Herbalife with individuals all over the world.
Appreciate your confi dence and support,
5.5
Increase (decrease) in valuation allowances . . . . . . . . . . . . . . . . . . . . . . 8.7 (2.9) 0.5
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 4.8 3.8
Extraterritorial income exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (6.3)
Unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 7.1 —
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 5.0 (1.6)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97.8 $111.1 $74.3
As of December 31, 2008, the total amount of the unrecognized tax benefits, including related interest and
penalties was $52.8 million. The unrecognized tax benefits primarily relate to uncertainties from international
transfer pricing issues, the deductibility of certain operating expenses in various jurisdictions, anticipated settlements
in foreign tax audits and the expiration of the statute of limitations in several jurisdictions. If the total amount
of unrecognized tax benefits was recognized, $35.3 million of unrecognized tax benefits, $8.5 million of interest
and $3.3 million of penalties would impact the effective tax rate and $5.7 million of unrecognized tax benefits
would impact goodwill.
The Company accounts for the interest and penalties generated by tax contingencies as a component of income
tax expense. During the year ended December 31, 2008, the Company recorded interest and penalties related to
uncertain tax positions of $0.5 million and $0.1 million, respectively. As of December 31, 2008, total accrued
interest and penalties were $8.5 million and $3.3 million, respectively.
The following changes occurred in the amount of unrecognized tax benefits (including related interest and
penalties) during the year ended December 31, 2008 (in millions):
Balance as of January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50.3
Additions for current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9
Additions for prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5
Reductions for prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.1)
Reductions for audit settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.8)
Reductions for the expiration of Statutes of Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.0)
Balance as of December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52.8
Unrecognized tax benefits (including related interest and penalties) increased $2.5 million during the year
including a benefit from foreign currency fluctuations of approximately $2.6 million. The $2.6 million benefit
attributable to foreign currency fluctuations was accounted for as an increase to other comprehensive income.
The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could
decrease by up to approximately $20 million within the next twelve months. Of this possible decrease, $12 million
would be due to the settlement of audits or resolution of administrative or judicial proceedings. The remaining
possible decrease of $8 million would be due to the expiration of statute of limitations in various jurisdictions.
109
HERBALIFE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2008, the Company’s tax filings are generally subject to examination in major tax
jurisdictions for years ending on or after December 31, 2004.
13. Restructuring Reserve
In July 2006, the Company initiated its realignment of its employee base as part of the first phase of its
Realignment for Growth plan. The Company recorded $1.8 million and $10.5 million of professional fees,
severance and related costs for the years ended December 31, 2007 and 2006, respectively, relating to the first phase
of its Realignment for Growth plan. All such amounts were included in selling, general and administrative expenses
and were all paid as of December 31, 2008.
During the fourth quarter of 2007, the Company initiated the second phase of its Realignment for Growth plan.
The Company recorded $1.9 million and $4.0 million of professional fees, severance and related costs for the years
ended December 31, 2008 and 2007, respectively, relating to the second phase of its Realignment for Growth plan.
All amounts were paid as of December 31, 2008.
During the fourth quarter of 2008, the Company initiated a restructuring program and incurred approximately
$4.8 million of professional fees, severance and related costs. The Company expects to complete this restructuring
program in 2009.
The following table summarizes the components of this reserve as of December 31, 2008, 2007, and 2006 (in
millions):
Severance
Retention
Benefits Others Total
Balance as of December 31, 2005. . . . . . . . . . . . . . . . . . . . $ — $ — $ — $ —
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 0.2 3.1 10.5
Cash Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.6) (2.7) (5.3)
Balance as of December 31, 2006. . . . . . . . . . . . . . . . . . . . $ 4.6 $ 0.2 0.4 5.2
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 0.3 1.3 5.8
Cash Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.9) (0.5) (1.1) (7.5)
Balance as of December 31, 2007. . . . . . . . . . . . . . . . . . . . $ 2.9 $ — $ 0.6 $ 3.5
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 — 0.5 6.7
Cash Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.8) — (1.1) (6.9)
Balance as of December 31, 2008. . . . . . . . . . . . . . . . . . . . $ 3.3 $ — $ — $ 3.3
14. Fair Value Measurements
In September 2006, the FASB issued SFAS 157, which defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles in the U.S. and expands
disclosures about fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning
after November 15, 2007. In February 2008, the FASB issued FASB Staff Position, FAS 157-1, or FSP FAS 157-1.
FSP 157-1 amends SFAS 157 to exclude SFAS 13, Accounting for Leases, and its related interpretive accounting
pronouncements that address leasing transactions. On January 1, 2008, the Company adopted the provisions of
SFAS 157 related to its financial assets and liabilities, except as it applies to those nonfinancial assets and
nonfinancial liabilities as noted in FSP FAS 157-2. The adoption did not have a material impact on the Company’s
consolidated financial statements.
110
HERBALIFE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SFAS 157, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (exit price). SFAS 157 establishes a fair
value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability and inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
Level 3 inputs are unobservable inputs for the asset or liability.
The Company measures certain assets and liabilities at fair value as discussed throughout the notes to its
consolidated financial statements. Assets or liabilities that have recurring measurements and are measured at fair
value are shown below:
Fair Value Measurements at Reporting Date Using
Description
December 31,
2008
Quoted Prices
in Active
Markets for
Identical
Assets/Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In millions)
Financial Assets:
Foreign currency forward and option
contracts . . . . . . . . . . . . . . . . . . . . . . $4.9 $— $4.9 $—
Total financial assets . . . . . . . . . . . . . . . $4.9 $— $4.9 $—
Financial Liabilities:
Foreign currency forward and option
contracts . . . . . . . . . . . . . . . . . . . . . . $1.1 $— $1.1 $—
Interest rate swap . . . . . . . . . . . . . . . . . . 1.0 — 1.0 —
Total financial liabilities . . . . . . . . . . . . . $2.1 $— $2.1 $—
In January 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, or SFAS 159, which permits entities to choose to measure many financial instruments, and
certain other items, at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 did not have an impact on the Company’s consolidated financial statements as the Company
did not elect to adopt the fair value option for any of its financial assets and liabilities.
15. Subsequent Event
On February 20, 2009, the Company’s Board of Directors approved a quarterly cash dividend of $0.20 per
common share, for the fourth quarter, to shareholders of record effective March 3, 2009, payable on March 17, 2009.
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