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Press release from Business Wire

Herbalife Ltd. Announces Record First Quarter 2013 and Raises 2013 Earnings Guidance

<ul> <li class='bwlistitemmargb'> <b>First quarter worldwide volume growth of 13 percent compared to the prior year period.</b> </li> <li class='bwlistitemmargb'> <b>First quarter adjusted</b><sup><b>1</b></sup><b> EPS of $1.27 increased 44 percent compared to the prior year.</b> </li> <li class='bwlistitemmargb'> <b>Raising FY'13 adjusted EPS guidance to a range of $4.60 to $4.80.</b> </li> <li class='bwlistitemmargb'> <b>Board of directors approved a $0.30 per share quarterly dividend.</b> </li> </ul>

Monday, April 29, 2013

Herbalife Ltd. Announces Record First Quarter 2013 and Raises 2013 Earnings Guidance

16:15 EDT Monday, April 29, 2013

LOS ANGELES (Business Wire) -- Herbalife Ltd. (NYSE: HLF) today reported first quarter net sales of $1.1 billion, reflecting an increase of 17 percent compared to the same time period in 2012 on volume point growth of 13 percent. Adjusted1 net income for the quarter of $137.4 million, or $1.27 per diluted share, compares to 2012 first quarter net income of $108.2 million and EPS of $0.88, respectively. On a reported basis, first quarter 2013 EPS of $1.10 increased 25 percent compared to the $0.88 reported in the comparable quarter last year.

“We continue to deliver record results in sales and profitability as our independent distributors successfully execute numerous growth strategies that enable deeper market penetration, developing customers using our weight management and targeted nutrition products every day,” said Michael O. Johnson, Herbalife's chairman and CEO. “Obesity and poor nutrition are global public health problems. Our distributors are proud to be part of the solution.”

For the quarter ended March 31, 2013 the company generated cash flow from operations of $137.6 million, an increase of 14 percent compared to 2012; paid dividends of $30.9 million; invested $24.9 million in capital expenditures; and repurchased $162.4 million in common shares outstanding under our share repurchase program.

   

1

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

First Quarter 2013 Key Metrics 2,3

Regional Volume Point and Average Active Sales Leader Metrics

    Volume Points (Mil)     Average Active Sales Leaders
Region     1Q'13     Yr/Yr % Chg     1Q'13     Yr/Yr % Chg
North America 309.0     4 % 68,352     9 %
Asia Pacific 320.0 17 % 68,690 23 %
EMEA 161.3 11 % 46,094 12 %
Mexico 206.3 8 % 60,216 14 %
South & Central America 219.8 33 % 52,049 28 %
China     47.6     16 %     11,864     24 %
Worldwide Total     1,264.0     13 %     296,916     18 %
 

Updated 2013 Guidance

Guidance for fully diluted 2013 EPS is based on the average daily exchange rates of the first two weeks of April 2013. Our 2013 guidance continues to assume a Venezuelan exchange rate of 10 to 1 and excludes any potential impact from a future devaluation of the bolivar or the repatriation of existing cash balances in Venezuela. Guidance for the year also excludes $9.5 million of expenses recognized in the first quarter, mostly legal and advisory services, relating to the Company's response to information put into the marketplace by a short seller which information the Company believes to be inaccurate and misleading.

Based on current business trends the company's second quarter fiscal 2013 and full year fiscal 2013 guidance is provided below.

    Three Months Ending     Twelve Months Ending
June 30, 2013

December 31, 2013

Low     High Low     High
Volume Point Growth vs 2012 7.0 % 9.0 % 9.0 % 11.0 %
Net Sales Growth vs 2012 11.0 % 13.0 % 13.0 % 15.0 %
Diluted EPS as adjusted $ 1.14 $ 1.18 $ 4.60 $ 4.80
Cap Ex ($ millions) $ 20.0 $ 30.0 $ 165.0 $ 185.0
Effective Tax Rate 26.0 % 28.0 % 25.5 % 27.5 %

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

3 Worldwide Average Active Sales Leaders may not equal the sum of the Average Active Sales Leaders in each region due to the calculation being an average of Sales Leaders active in a period, not a summation, and the fact that some sales leaders are active in more than one region but are counted only once in the worldwide amount.

Announces Quarterly Dividend

The company reported today that its board of directors has approved a dividend of $0.30 per share to shareholders of record May 14, 2013, payable on May 28, 2013.

Share Repurchase Program Update

During the first quarter, the company repurchased 4.0 million shares at an average cost of $40.61. There is currently $787.6 million remaining on the existing $1 billion share repurchase authorization.

First Quarter 2013 Earnings Conference Call

Herbalife senior management will host an investor conference call to discuss its recent financial results and provide an update on current business trends on Tuesday, April 30, 2013 at 8 a.m. PST (11 a.m. EST).

The dial-in number for this conference call for domestic callers is (877) 317-1296 and (706) 634-5671 for international callers (conference ID 27830198). 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(855) 859-2056 for domestic callers or (404) 537-3406 for international callers (conference ID 27830198). The webcast of the teleconference will be archived and available on Herbalife's website.

About Herbalife Ltd.

Herbalife Ltd. (NYSE:HLF) is a global nutrition company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle. Herbalife products are sold in over 80 countries through and to a network of 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

Although we believe that the 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:

  • the resignation of our former independent registered public accounting firm, its withdrawal of its audit reports with respect to certain of our historical financial statements, and any difficulties we encounter engaging a successor accounting firm;
  • any collateral impact resulting from the ongoing worldwide financial environment including the availability of liquidity to us, our customers and our suppliers or the willingness of our customers to purchase products in a difficult 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, including our ability to comfort the marketplace and regulators regarding our compliance with applicable laws;
  • 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;
  • 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 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;
  • whether we will purchase any of our shares in the open markets or otherwise; and
  • share price volatility related to, among other things, speculative trading and certain traders shorting our common shares.

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

RESULTS OF OPERATIONS:

Herbalife Ltd. and Subsidiaries
Condensed Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited and Unreviewed) (1)
           
Three Months Ended
3/31/2013     3/31/2012
 
North America $ 221,473 $ 210,710
Mexico 132,889 117,109
South and Central America 219,515 165,470
EMEA 169,585 153,993
Asia Pacific 311,747 259,948
China   68,438   56,945
Worldwide net sales 1,123,647 964,175
Cost of Sales   225,977   196,144
Gross Profit 897,670 768,031
Royalty Overrides 364,029 317,533
SGA   364,720   296,393
Operating Income 168,921 154,105
Interest Expense - net   5,373   1,373
Income before income taxes 163,548 152,732
Income Taxes   44,692   44,570
Net Income   118,856   108,162
 
Basic Shares 104,121 116,191
Diluted Shares 108,068 122,373
 
Basic EPS $ 1.14 $ 0.93
Diluted EPS $ 1.10 $ 0.88
 
Dividends declared per share $ 0.30 $ 0.30
 

(1) As a result of the resignation of KPMG, the unaudited interim financial information presented has not been reviewed by an outside independent accounting firm. See Note 2 of the quarterly report on Form 10-Q for the quarter ended March 31, 2013.

Herbalife Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited and Unreviewed) (1)
 
    Mar 31,     Dec 31,
2013 2012
 
ASSETS
Current Assets:
Cash & cash equivalents $ 722,474 $ 333,534
Receivables, net 112,041 116,139
Inventories 334,412 339,411
Prepaid expenses and other current assets 126,465 125,425
Deferred income taxes   50,622     49,339  
Total Current Assets 1,346,014 963,848
 
Property, plant and equipment, net 246,682 242,886
Deferred compensation plan assets 25,074 24,267
Other assets 48,141 48,805
Deferred financing cost, net 6,809 7,462
Marketing related intangibles and other intangible assets, net 311,090 311,186
Goodwill   105,490     105,490  
Total Assets $ 2,089,300   $ 1,703,944  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 79,109 $ 75,209
Royalty overrides 221,814 243,351
Accrued compensation 66,719 95,220
Accrued expenses 195,466 181,523
Current portion of long term debt 62,807 56,302
Advance sales deposits 44,684 49,432
Income taxes payable   26,272     15,854  
Total Current Liabilities 696,871 716,891
 
Non-current liabilities
Long-term debt, net of current portion 912,517 431,305
Deferred compensation plan liability 32,529 29,454
Deferred income taxes 59,888 62,982
Other non-current liabilities   44,550     42,557  
Total Liabilities 1,746,355 1,283,189
 
Contingencies
 
Shareholders' equity:
Common shares 103 107
Paid-in capital in excess of par value 299,391 303,975
Accumulated other comprehensive loss (41,711 ) (31,695 )
Retained earnings   85,162     148,368  
Total Shareholders' Equity   342,945     420,755  
   
Total Liabilities and Shareholders' Equity $ 2,089,300   $ 1,703,944  

 

(1) As a result of the resignation of KPMG, the unaudited interim financial information presented has not been reviewed by an outside independent accounting firm. See Note 2 of the quarterly report on Form 10-Q for the quarter ended March 31, 2013.

 
Herbalife Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited and Unreviewed)(1)
 
 
   

Three Months Ended

3/31/2013     3/31/2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 118,856 $ 108,162
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,964 18,590
Excess tax benefits from share-based payment arrangements (447 ) (20,675 )
Share based compensation expenses 7,866 7,227
Amortization of deferred financing costs 650 286
Deferred income taxes (3,773 ) (597 )
Unrealized foreign exchange transaction (gain) loss (10,971 ) (3,868 )
Foreign exchange loss from Venezuela currency devaluation 15,116 -
Other (890 ) 391
Changes in operating assets and liabilities:
Receivables 3,216 (14,759 )
Inventories 5,012 9,742
Prepaid expenses and other current assets (8,200 ) (4,029 )
Other assets (15 ) (905 )
Accounts payable 4,900 11,496
Royalty overrides (21,472 ) (2,302 )
Accrued expenses and accrued compensation (15,517 ) (17,373 )
Advance sales deposits (3,857 ) 9,062
Income taxes 23,114 16,489
Deferred compensation plan liability   3,075     3,431  
NET CASH PROVIDED BY OPERATING ACTIVITIES   137,627     120,368  
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (24,856 ) (24,691 )
Proceeds from sale of property, plant and equipment 24 15
Deferred compensation plan assets   -     (2,552 )
NET CASH USED IN INVESTING ACTIVITIES   (24,832 )   (27,228 )
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (30,904 ) (35,172 )
Borrowings from long-term debt 513,223 114,560
Principal payments on long-term debt (25,509 ) (86,402 )
Share repurchases (164,485 ) (72,942 )
Excess tax benefits from share-based payment arrangements 447 20,675
Proceeds from exercise of stock options and sale of stock under
employee stock purchase plan   425     7,128  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   293,197     (52,153 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (17,052 )   6,099  
NET CHANGE IN CASH AND CASH EQUIVALENTS 388,940 47,086
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   333,534     258,775  
CASH AND CASH EQUIVALENTS, END OF PERIOD   722,474     305,861  
CASH PAID DURING THE YEAR
Interest paid $ 5,486   $ 2,477  
Income taxes paid $ 31,853   $ 29,958  
 

(1) As a result of the resignation of KPMG, the unaudited interim financial information presented has not been reviewed by an outside independent accounting firm. See Note 2 of the quarterly report on Form 10-Q for the quarter ended March 31, 2013.

SUPPLEMENTAL INFORMATION

SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(unaudited and unreviewed), (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 investors in analyzing period to period comparisons of the Company's results.

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

       
Three Months Ended
3/31/2013 3/31/2012
(in thousands)
 
Net income, as reported $ 118,856 $ 108,162
Venezuela devaluation impact (net of $4,591 tax benefit)(1) 10,524 -
Expenses incurred responding to attacks on the Company's business
model (net of $1,515 tax benefit)(1)   7,979   -
Net income, as adjusted $ 137,359 $ 108,162
 

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

    Three Months Ended
3/31/2013     3/31/2012
 
Diluted earnings per share, as reported $ 1.10 $ 0.88
Venezuela devaluation impact (1) 0.10 -
Expenses incurred responding to attacks on the Company's business model (1)   0.07   -
Diluted earnings per share, as adjusted $ 1.27 $ 0.88
 

(1) The income tax impact of the non-GAAP adjustments is based on forecasted items affecting the Company's 2013 full year GAAP effective tax rate. Adjustments to forecasted items unrelated to these non-GAAP adjustments may have an effect on the income tax impact of the non-GAAP adjustments in subsequent periods.

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

    3/31/2013     12/31/2012
 
Total long-term debt (current and long-term portion) $ 975,324 $ 487,607
Less: Cash and cash equivalents   722,474   333,534
Net debt $ 252,850 $ 154,073

Herbalife Ltd.
Media Contact:
Barbara Henderson
SVP, Worldwide Corp. Comm.
213.745.0517
or
Investor Contact:
Amy Greene
VP, Investor Relations
213.745.0474

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