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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended MARCH 31, 1995
OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-15712
HERBALIFE INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 22-2695420
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9800 LA CIENEGA BOULEVARD, INGLEWOOD, CALIFORNIA 90301
(Address of principal executive offices) (Zip Code)
(310) 410-9600
(Registrant's telephone number, including area code)
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(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's classes of Common
Stock, as of April 11, 1995: 29,987,954.
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<PAGE>
HERBALIFE INTERNATIONAL, INC.
Index to Financial Statements and Exhibits
Filed with the Quarterly Report of the Company on Form 10-Q
For the Three Months Ended March 31, 1995
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page No.
--------
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 2
Consolidated Income Statements.. . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows. . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 6-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 9
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 9-11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS December 31, 1994 March 31, 1995
------------------ --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,284,000 $ 52,262,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,829,000 20,475,000
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,648,000 8,494,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,096,000 52,546,000
Prepaid income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,714,000
Prepaid expense and other current assets. . . . . . . . . . . . . . . . . . . 9,221,000 6,659,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,595,000 13,352,000
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,387,000 153,788,000
------------ -----------
PROPERTY - at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,625,000 33,629,000
Less accumulated depreciation and amortization. . . . . . . . . . . . . . . . (19,287,000) (19,701,000)
----------- ------------
12,338,000 13,928,000
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OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,355,000 6,763,000
INTANGIBLE ASSETS (Net of accumulated amortization of $910,000
and $953,000 in 1994 and 1995, respectively.) . . . . . . . . . . . . . . . . 3,977,000 3,934,000
----------- ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,057,000 178,413,000
------------ ------------
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,163,000 $ 13,982,000
Royalty overrides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,351,000 25,032,000
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,748,000 8,548,000
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,593,000 6,597,000
Current portion of bank loans and contracts payable . . . . . . . . . . . . . 476,000 664,000
Advance sales deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,231,000 3,080,000
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,213,000
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Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,562,000 64,116,000
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BANK LOANS & CONTRACTS PAYABLE
Net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,014,000 1,186,000
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DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,666,000 1,664,000
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 100,000,000 shares, issued
29,967,954 and 29,987,954 shares in 1994 and 1995, respectively . . . . . 300,000 300,000
Paid-in-capital in excess of par value. . . . . . . . . . . . . . . . . . . . 41,117,000 41,189,000
Retained earnings (includes cumulative translation adjustment
of $250,000 and $1,665,000 in 1994 and 1995, respectively) . . . . . . . . 72,034,000 73,149,000
Unearned compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,364,000) (3,071,000)
Unrealized loss on marketable securities. . . . . . . . . . . . . . . . . . . (272,000) (120,000)
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Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,815,000 111,447,000
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TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 174,057,000 $ 178,413,000
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</TABLE>
See the accompanying notes to consolidated financial statements.
2
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1994 March 31, 1995
-------------- --------------
<S> <C> <C>
Retail sales . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191,721,000 $ 229,166,000
Less: Distributor allowances on product purchases. . . . . . . . (90,411,000) (107,554,000)
-------------- --------------
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,310,000 121,612,000
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . 27,853,000 34,459,000
Royalty overrides. . . . . . . . . . . . . . . . . . . . . . . . 29,085,000 34,704,000
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Operating margin . . . . . . . . . . . . . . . . . . . . . . . . 44,372,000 52,449,000
Marketing, distribution and administrative expenses. . . . . . . 25,767,000 42,951,000
Interest income - net. . . . . . . . . . . . . . . . . . . . . . 729,000 583,000
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Income before income taxes . . . . . . . . . . . . . . . . . . . 19,334,000 10,081,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 7,047,000 3,780,000
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NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,287,000 $ 6,301,000
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EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . $ 0.40 $ 0.21
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CASH DIVIDENDS PER COMMON SHARE. . . . . . . . . . . . . . . . . $ 0.18 $ 0.22
-------------- --------------
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</TABLE>
See the accompanying notes to consolidated financial statements.
3
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1994 March 31, 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,287,000 $ 6,301,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 489,000 1,913,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . (1,150,000) (664,000)
Amortization of unearned compensation . . . . . . . . . . . . . . . . 283,000 293,000
Foreign exchange gain . . . . . . . . . . . . . . . . . . . . . . . . (1,415,000) (2,357,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,649,000) 6,102,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,858,000) 872,000
Prepaid expenses and other current assets . . . . . . . . . . . . . . (3,744,000) 3,075,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (609,000) (1,513,000)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,373,000 (3,229,000)
Royalty overrides . . . . . . . . . . . . . . . . . . . . . . . . . . (4,087,000) 1,270,000
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,614,000 (2,181,000)
Advance sales deposits. . . . . . . . . . . . . . . . . . . . . . . . 2,201,000 (1,330,000)
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . 7,201,000 12,776,000
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . 109,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . 9,045,000 21,433,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property . . . . . . . . . . . . . . . . . . . . . . . . (1,600,000) (1,969,000)
Change in marketable securities . . . . . . . . . . . . . . . . . . . 2,206,000 4,506,000
Proceeds from sale of property. . . . . . . . . . . . . . . . . . . . 228,000
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NET CASH PROVIDED BY INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . 606,000 2,765,000
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CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,367,000) (6,597,000)
Additions to loans payable. . . . . . . . . . . . . . . . . . . . . . 596,000
Principal payments on loans payable . . . . . . . . . . . . . . . . . (120,000) (350,000)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . 531,000 73,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (184,000)
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NET CASH USED BY FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . (5,140,000) (6,278,000)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH. . . . . . . . . . . . . . . . . . . . . 428,000 58,000
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NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . 4,939,000 17,978,000
CASH AND CASH EQUIVALENTS AT JANUARY 1 . . . . . . . . . . . . . . . . . . . . . 55,727,000 34,284,000
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CASH AND CASH EQUIVALENTS AT MARCH 31. . . . . . . . . . . . . . . . . . . . . . $ 60,666,000 $ 52,262,000
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INTEREST PAID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,000 $ 56,000
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INCOME TAXES PAID/ (REFUNDED). . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,198,000 $ (7,773,000)
------------ ------------
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</TABLE>
See the accompanying notes to consolidated financial statements.
4
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited interim financial information of Herbalife International, Inc.
(the "Company") has been prepared in accordance with Article 10 of the
Securities and Exchange Commission's Regulation S-X. In the opinion of
management, the accompanying interim financial information contains all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the Company's financial position at March 31, 1995 and the results of
operations and cash flows for the three-month periods ended March 31, 1994 and
1995.
2. EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted average
number of common and equivalent shares outstanding. Shares used in the
computation of earnings per share are 30,899,817 and 30,381,101 for the three
months ended March 31, 1994 and 1995, respectively.
3. CONTINGENCIES
In 1995, the Company and certain of its officers and directors were served
with three complaints alleging violation of federal securities laws. The
Company has certain indemnity obligations to the named officers and directors.
The Company has directors and officers liability insurance which, subject to
certain customary exceptions and exclusions, is expected to cover a portion or
all of such obligations less the Company's self-retention amount. The lawsuits
have only recently been filed and discovery has not commenced. However, based
upon an initial review of the allegations of the complaints and preliminary
analysis by litigation counsel, the Company believes that it has substantial
and meritorious defenses to the asserted claims and is vigorously contesting
these claims.
The Company's subsidiary in France is being audited by local tax authorities,
who are alleging that additional value added, withholding, and income taxes
are due. The Company believes that it has substantial defenses and is
vigorously contesting these claims.
Furthermore, the Company is from time to time engaged in routine litigation
incident to the conduct of its business. The Company regularly reviews all
pending litigation matters in which it is involved and establishes
reserves deemed appropriate by management for such litigation matters.
5
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HERBALIFE INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Throughout this report "retail sales" are determined as the gross sales amounts
reflected on the Company's invoices to its distributors. The Company does not
receive the amount reported as "retail sales", and the Company does not monitor
the actual retail prices charged for the Company's products. "Net sales"
represent the actual purchase prices paid to the Company by its distributors,
after giving effect to distributor discounts (referred to as "distributor
allowances"), which total approximately 50% of suggested retail sales prices.
The Company receives its net sales price in cash upon receipt of orders from
distributors. The Company's "operating margin" consists of net sales less (i)
"cost of sales," consisting of the prices paid by the Company to its
manufacturers for products and costs related to product shipments, foreign
duties and tariffs and similar expenses, and (ii) "royalty overrides," currently
consisting of (a) royalties (5% to 15%) and bonuses (up to 6%) on the suggested
retail sales prices of products earned by qualifying distributors on the sales
of other distributors within their distributor organizations, and (b) the
President's Team Bonus payable to certain of the Company's most senior
distributors in the aggregate amount of up to an additional 1% of product retail
sales. Royalty overrides as shown on the financial statements and selected
financial data are net of a handling fee (6% of retail sales effective April 1,
1994, previously 5%) charged by the Company to its distributors on purchases of
products from the Company.
The Company's use of "retail sales" in reporting financial and operating data
reflects the fundamental role of "retail sales" in the Company's accounting
systems, internal controls and operations, including the basis upon which
distributor bonuses are paid. The retail sales price of the Company's products
is reflected in distributor invoices as the price charged to distributors
(together with, in most cases, a deduction for the corresponding distributor
allowance), and the retail sales price is used by the Company to calculate,
among other things, royalty overrides and "volume points" earned by distributors
and supervisor qualification criteria. In addition, management relies upon
"retail sales" data reflected in daily sales reports to monitor results of
operations in each of the Company's markets.
The significance of the Company's "net sales" is to reflect, generally, the
prices actually received by the Company after deducting the basic distributor
allowance, but before deducting royalty overrides and bonuses. The ratio of the
Company's "retail sales" to "net sales" is relatively constant because
distributor allowances historically total approximately 50% of suggested retail
sales prices. Accordingly, factors that affect "retail sales" generally have a
corresponding and proportionate effect on "net sales." To the extent the ratio
of "retail sales" to "net sales" varies from period to period, such variances
have resulted principally from sales of the Company's distributor kits and other
educational and promotional materials, for which there are no distributor
allowances. Sales of such items have decreased as a percentage of total retail
sales since 1991, but such decreases have not had a material impact on the ratio
of the Company's "retail sales" to "net sales" or on the Company's operating
margin.
The Company's results of operations for the periods described below are not
necessarily indicative of results of operations for future periods, which depend
upon numerous factors including the Company's ability in the future to enter new
markets and introduce additional and new products into its markets.
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER 1995 TO 1994
Retail sales for the three months ended March 31, 1995 increased 19.5% or $37.5
million to $229.2 million from $191.7 million compared to the corresponding
period a year earlier. Regionally, retail sales in the first quarter of 1995
compared to the first quarter of 1994 increased 109.5%, 21.6%, and 7.0% in
Asia/Pacific Rim, The Americas, and Europe, respectively. Contributing to the
growth in consolidated retail sales in the three months ended March 31, 1995
compared to the three months ended March 31, 1994 was the introduction of the
first in a new line of personal care products, the Skin Survival Kit-TM-, which
accounted for $26.9 million of retail sales in the period. In The Americas the
personal care product accounted for 80.6% or $14.1 million of the $17.5 million
retail sales increase in the 1995 period compared to 1994. In Europe, personal
care product sales were $12.3 million in the three months ended March 31, 1995,
which more than offset the reduction in non-personal care retail sales of $5.4
million in the first quarter of 1995 when compared to the first quarter of 1994.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION (CONTINUED)
COMPARISON OF FIRST QUARTER 1995 TO 1994 (CONTINUED)
The Asia/Pacific Rim regional growth of 109.5% was due largely to the opening of
the Philippines in December 1994 and increased sales in Japan. Sales in the
Philippines in the first quarter totalled $5.7 million, representing 43.5%
of the $13.1 million retail sales increase in that region in the three
months ended March 31, 1995 when compared to the corresponding period in 1994.
Within The Americas, U.S. retail sales of $84.7 million accounted for 37.0% of
worldwide retail sales during the first quarter of 1995. This represents an
increase of $12.6 million over the U.S. retail sales in the three months ended
March 31, 1994. As a percentage of total worldwide sales, the U.S. retail sales
declined to 37.0% from 37.6%. International sales increased by $24.9 million in
the three months ended March 31, 1995 compared to the corresponding period in
1994. As a percentage of total retail sales, international retail sales
increased slightly to 63.0% from 62.4% due to a slightly faster growth rate of
retail sales in overseas markets in the 1995 period.
Operating margin for the three months ended March 31, 1995 increased 18.2% to
$52.4 million from $44.4 million for the corresponding period a year earlier.
As a percentage of retail sales, operating margin for the three months ended
March 31, 1995 decreased to 22.9% from 23.1% for the corresponding period a year
earlier. The decreased operating margin is principally due to a higher cost of
sales as a percentage of retail sales. Cost of sales as a percentage of retail
sales for the three months ended March 31, 1995 increased to 15.0% from 14.5%
for the corresponding period a year earlier. This increase includes higher
freight costs resulting from (i) the decrease in U.S. retail sales as a
percentage of total retail sales, and (ii) the increase in Asia/Pacific Rim
retail sales as a percentage of total international retail sales.
Marketing, distribution and administrative expenses for the three months ended
March 31, 1995 increased 66.7% to $43.0 million from $25.8 million in the
corresponding period a year earlier. Such expenses as a percentage of retail
sales for the three months ended March 31, 1995 increased to 18.7% from 13.4%
reported in the corresponding period a year earlier. The 1995 quarter includes
increased selling expenses of $4.8 million (to recover from lower International
Business Package Sales, as well as to stimulate new distributor sponsoring
rates), additional distribution center operating costs of $5.9 million and
increased corporate expenses of $6.4 million when compared to the first quarter
of 1994. The increases are due to geographic expansion as well as additional
corporate marketing, distribution and administrative expenses reflective of
initiatives taken in new product introductions and technologies to enhance
sales, marketing activities and other business related factors.
Income taxes for the three months ended March 31, 1995 decreased to $3.8 million
from $7.0 million in the corresponding period a year earlier. As a percentage
of pre-tax income, income taxes in the three months ended March 31, 1995
increased to 37.5% from 36.5% a year earlier. This rate increase in the first
quarter of 1995 reflects the change in geographical mix of taxable income and
modified tax planning strategies by the Company.
Net income for the three months ended March 31, 1995 decreased 48.7% to $6.3
million from $12.3 million reported a year earlier as a result of the factors
described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital and capital expenditure
requirements, including funding for expansion of operations, through net cash
provided by operating activities. For the first quarter of 1995, net cash
provided by operating activities was $21.4 million compared to $9.0 million for
the corresponding period a year earlier. Although net income decreased $6.0
million in the three months ended March 31, 1995, when compared to the
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
corresponding period of 1994, this shortfall was more than offset by reductions
in receivables and prepaid expenses and other current assets in the three months
ended March 31, 1995. In 1994 these assets increased in the first quarter
reducing the net cash provided by operating activities in that quarter.
Furthermore, net cash and cash equivalents increased $12.8 million in the
quarter ended March 31, 1995 as a result of both an income tax refund in the
quarter, and the timing of 1995 tax payments which are made subsequent to the
quarter end. At March 31, 1995, the Company's cash, cash equivalent and
marketable securities aggregate balance was $72.7 million, which represents a
$13.6 million increase from the balance as of December 31, 1994.
Stockholders' equity increased $1.6 million to $111.4 million during the three
months ended March 31, 1995. The increase was primarily a result of (i) net
income of $6.3 million and (ii) an increase in the cumulative translation
adjustment of $1.4 million, offset by dividends of $6.6 million. The payment
of dividends is determined by the Board of Directors at its discretion and
maintenance of the dividend level declared in the quarter ended March 31, 1995
will depend, among other factors, on the anticipated return to historical
levels of profitability, as well as other planned uses of the Company's cash
resources.
Capital expenditures for the first three months of 1995 were $2.0 million
compared to $1.6 million for the corresponding period of a year earlier. The
majority of the 1995 expenditures were made to upgrade computer and office
equipment and to expand facilities to support management growth. In connection
with its entry into each new market, the Company funds inventory requirements
and typically establishes either a full-service distribution center, sales
office, fulfillment center or compliance office, or a combination of the
foregoing. While the capital requirements associated with entry into new
markets vary, the Company estimates that approximately $3.0 million to $6.0
million will be required for working capital and capital expenditures associated
with its remaining planned 1995 new market activities. In addition the Company
anticipates further expenditures to continue to upgrade computer and
office equipment and facilities.
The Company has not been subjected to material price increases by its suppliers
for several years. The Company believes that it has the ability to respond to a
portion or possibly all of any price increases by raising the price of its
products. Purchases by the Company from its suppliers are made in U.S. dollars,
while sales to distributors are generally made in local currencies.
Consequently, strengthening of the U.S. dollar versus a foreign currency can
have a negative impact on operating margins, and weakening of the U.S. dollar
versus a foreign currency has a positive impact on operating margins. In both
the first quarter 1995 and 1994 the dollar weakened against the major foreign
currencies, resulting in reported exchange gains net of tax of $0.03 and
$0.02, respectively.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion under "Legal Proceedings" in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT PAGE NO./
NUMBER DESCRIPTION (FOOTNOTE)
3.1 Articles of Incorporation. . . . . . . . . . . . . . . . . . (2)
3.2 Articles of Amendment to the Articles of
Incorporation dated December 10, 1986 . . . . . . . . . . (2)
3.3 Articles of Amendment to the Articles of
Incorporation dated November 22, 1989 . . . . . . . . . . (2)
3.4 Certificate of Determination relating to
the Company's Senior Convertable Preferred
Stock dated February 11, 1993 . . . . . . . . . . . . . . (7)
3.5 Certificate of Amendment to Articles of
Incorporation dated May 14, 1993. . . . . . . . . . . . . (7)
3.6 Amended and Restated Bylaws. . . . . . . . . . . . . . . . . (7)
4.1 Form of Common Stock Certificate . . . . . . . . . . . . . . (7)
10.1 Agreement between Herbalife International of
America, Inc. and D&F Industries, Inc. dated
May 12, 1993. . . . . . . . . . . . . . . . . . . . . . . (7)
10.2 Agreement between Herbalife International of
America, Inc. and Raven Industries, Inc.
dated May 12, 1993. . . . . . . . . . . . . . . . . . . . (7)
10.3 Agreement between Herbalife International of
America, Inc. and Dynamic Products, Inc. dated
May 12, 1993. . . . . . . . . . . . . . . . . . . . . . . (7)
10.4 Master Lease between the Company and Trizec
Properties, Inc. dated July 17, 1991. . . . . . . . . . . (7)
10.5 Equipment Lease Agreement between the Company
and Hewlett Packard dated May 21, 1992. . . . . . . . . . (5)
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
EXHIBIT PAGE NO./
NUMBER DESCRIPTION (FOOTNOTE)
10.6 Final Judgment and Permanent Injunction, entered
into on October, 1986 by the parties to that certain
action entitled PEOPLE OF THE STATE OF CALIFORNIA,
ET AL., V HERBALIFE INTERNATIONAL, INC. ET AL., Case
No. 92767 in the Superior Court of the State of
California for the County of Santa Cruz . . . . . . . . . (1)
10.7 Permitting Agreement between the Company and Nippon
Herbalife K.K. effective July 27, 1988. . . . . . . . . . (3)
10.8 Exclusive License Agreement between the Company and
Nippon Herbalife K.K. dated August 25, 1988 . . . . . . . (3)
10.9 First Addendum to Exclusive License Agreement
between the Company and Nippon Herbalife K.K. dated
April 10, 1991. . . . . . . . . . . . . . . . . . . . . . (7)
10.10 Second Addendum to Exclusive License Agreement dated
between the Company and Nippon Herbalife K.K. dated
May 22, 1992. . . . . . . . . . . . . . . . . . . . . . . (5)
10.11 The Company's 1988 Incentive Plan. . . . . . . . . . . . . . (1)
10.12 The Company's 1991 Stock Option Plan, as amended . . . . . . (6)
10.13 The Company's Executive Incentive Compensation Plan,
as amended. . . . . . . . . . . . . . . . . . . . . . . . (7)
10.14 Form of Individual Participation Agreement relating
to the Company's Executive Compensation Plan. . . . . . . (7)
10.15 Employment Agreement between the Company and Norman
Friedmann dated August 1, 1992. . . . . . . . . . . . . . (5)
10.16 Employment Agreement between the Company and David
Addis dated December 1, 1992. . . . . . . . . . . . . . . (5)
10.17 Amendment to Employment Agreement between the
Company and Norman Friedmann dated July 27, 1993. . . . . (7)
10.18 Amendment to Employment Agreement between the
Company and David Addis dated June 29, 1993 . . . . . . . (7)
10.19 Form of Letter Agreement between the Compensation
Committee of the Board of Directors of the Company
and Mark Hughes . . . . . . . . . . . . . . . . . . . . . (7)
10.20 Form of Indemnity Agreement between the Company and
certain officers and directors of the Company . . . . . . (7)
10.21 Trust Agreement among the Company, Citicorp Trust,
N.A. and certain officers and directors of the Company. . (7)
10.22 Form of Stock Appreciation Rights Agreement between
the Company and certain directors of the Company. . . . . (7)
10.23 1994 Performance Based Annual Incentive Compensation
Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
10.24 Form of Promissory Note for Advances under the
Company's 1994 Performance Based Annual Incentive
Compensation Plan . . . . . . . . . . . . . . . . . . . . (9)
10.25 Employment Agreement between the Company and Chris
Pair dated April 3, 1994. . . . . . . . . . . . . . . . . (10)
10.26 Deferred Compensation Agreement between the Company
and Michael Rosen . . . . . . . . . . . . . . . . . . . . (9)
11 Statement regarding the computation of Earnings Per
Share . . . . . . . . . . . . . . . . . . . . . . . . . . (9)
21 List of subsidiaries of the Company. . . . . . . . . . . . . (9)
23.1 Independent Auditors' Consent. . . . . . . . . . . . . . . . (9)
27 Financial Data Schedules (Filed herein). . . . . . . . . . .
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
FOOTNOTES
________________________________
(1) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1987.
(2) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1989.
(3) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1990.
(4) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.
(5) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
(6) Incorporated by reference to the Company's definitive Proxy
Statement relating to its annual meeting of shareholders held May
20, 1993.
(7) Incorporated by reference to the Company's Registration Statement
on Form S-1 (No. 33-66576) declared effective by the Securities
and Exchange Commission on October 8, 1993.
(8) Incorporated by reference to the Company's Definitive Proxy
Statement relating to its 1994 Annual Meeting of Stockholders.
(9) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
(10) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the three months ended June 30, 1994.
(b) REPORTS ON FORM 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May __, 1995
HERBALIFE INTERNATIONAL, INC.
(Registrant)
By: J. Mark Hattendorf
------------------------------
J. Mark Hattendorf
Senior Vice President and
Chief Financial Officer
12
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