<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ (Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended JUNE 30, 1996
OR
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 0-15712
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HERBALIFE INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Nevada 22-2695420
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1800 Century Park East, Los Angeles, California 90067
----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(310) 410-9600
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(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
----
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 July 19, 1996: 29,662,864.
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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 Six Months Ended June 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: PAGE NO.
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11-12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13-15
Signature 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 31 June 30
1995 1996
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $69,176,000 $64,955,000
Marketable securities 35,050,000 39,623,000
Receivables 18,617,000 21,705,000
Inventories 40,904,000 41,962,000
Prepaid income taxes 1,457,000
Prepaid expenses and other current assets 5,763,000 11,769,000
Deferred income taxes 7,818,000 5,217,000
------------ ------------
Total current assets 178,785,000 185,231,000
------------ ------------
PROPERTY - at cost 39,637,000 45,832,000
Less accumulated depreciation and amortization (23,036,000) (25,624,000)
------------ ------------
16,601,000 20,208,000
------------ ------------
OTHER ASSETS 8,500,000 6,062,000
GOODWILL, net of accumulated amortization of
$1,083,000 (1995) and $1,126,000 (1996) 3,804,000 3,718,000
------------ ------------
TOTAL $207,690,000 $215,219,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $18,667,000 $16,684,000
Royalty overrides 32,366,000 34,559,000
Accrued expenses 17,275,000 28,015,000
Dividends payable 4,542,000 4,449,000
Current portion of bank loans and contracts payable 1,185,000 1,109,000
Advance sales deposits 16,572,000 6,144,000
Income taxes payable 3,052,000 2,792,000
------------ ------------
Total current liabilities 93,659,000 93,752,000
------------ ------------
BANK LOANS AND CONTRACTS PAYABLE, NET 1,779,000 1,855,000
------------ ------------
DEFERRED INCOME TAXES 2,722,000 3,076,000
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 100,000,000
shares, issued 29,887,864 (1995) and 29,652,864
(1996) shares 300,000 300,000
Paid-in-capital in excess of par value 40,417,000 37,621,000
Retained earnings includes cumulative translation
adjustment of $1,194,000 (1995) and $76,000 (1996) 70,517,000 80,007,000
Unearned compensation (1,716,000) (1,314,000)
Unrealized loss on marketable securities 12,000 (78,000)
------------ ------------
Total stockholders' equity 109,530,000 116,536,000
------------ ------------
TOTAL $207,690,000 $215,219,000
------------ ------------
------------ ------------
See the accompanying notes to consolidated financial statements
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Retail sales $235,396,000 $283,933,000 $464,562,000 $560,506,000
Less: Distributor allowances on product purchases (110,569,000) (133,678,000) (218,123,000) (264,028,000)
------------- ------------- ------------- -------------
Net sales 124,827,000 150,255,000 246,439,000 296,478,000
Cost of sales 37,522,000 41,013,000 71,982,000 81,480,000
Royalty overrides 33,806,000 43,930,000 68,510,000 87,148,000
------------- ------------- ------------- -------------
Operating margin 53,499,000 65,312,000 105,947,000 127,850,000
Marketing, distribution and administrative expenses 41,163,000 49,602,000 84,113,000 98,306,000
Interest income - net (552,000) (932,000) (1,135,000) (1,850,000)
------------- ------------- ------------- -------------
Income before income taxes 12,888,000 16,642,000 22,969,000 31,394,000
Income taxes 4,833,000 6,241,000 8,613,000 11,772,000
------------- ------------- ------------- -------------
NET INCOME $8,055,000 $10,401,000 $14,356,000 $19,622,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
EARNINGS PER SHARE $0.27 $0.33 $0.47 $0.63
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WEIGHTED AVERAGE SHARES OUTSTANDING 30,376,693 31,295,282 30,383,084 31,373,229
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
CASH DIVIDENDS PER COMMON SHARE $0.22 $0.15 $0.44 $0.30
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See the accompanying notes to consolidated financial statements
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995 June 30, 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $14,356,000 $19,622,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,895,000 4,386,000
Deferred income taxes 1,947,000 2,900,000
Amortization of unearned compensation 691,000 402,000
Foreign exchange (gain) loss (1,349,000) 180,000
Other 126,000 9,000
Changes in operating assets and liabilities:
Receivables 1,559,000 (3,807,000)
Inventories 9,662,000 (2,228,000)
Prepaid expenses and other current assets 2,281,000 (6,116,000)
Other assets (2,854,000) 406,000
Accounts payable (997,000) (1,350,000)
Royalty overrides 1,089,000 2,626,000
Accrued expenses (2,924,000) 11,784,000
Advance sales deposits 1,759,000 (10,029,000)
Income taxes payable 9,832,000 1,340,000
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 39,073,000 20,125,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (3,553,000) (5,922,000)
Proceeds from sale of property 272,000
Changes in marketable securities - net 14,905,000 (4,663,000)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES 11,624,000 (10,585,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (13,195,000) (8,953,000)
Additions to loans payable 596,000
Principal payments on loans payable (549,000) (868,000)
Exercise of stock options 73,000 293,000
Stock repurchases (3,265,000)
Other 151,000
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NET CASH USED BY FINANCING ACTIVITIES (13,075,000) (12,642,000)
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,330,000) (1,119,000)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 36,292,000 (4,221,000)
CASH AND CASH EQUIVALENTS AT JANUARY 1 34,284,000 69,176,000
------------- -------------
CASH AND CASH EQUIVALENTS AT JUNE 30 $70,576,000 $64,955,000
------------- -------------
------------- -------------
</TABLE>
See the accompanying notes to consolidated financial statements
<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 statements as of June 30, 1996 and for the three
and six-month periods ended June 30, 1995 and 1996.
2. CONTINGENCIES
In January 1995, the Company and certain of its officers and directors were
served with three complaints alleging violation of federal securities laws. In
March 1995, the Court consolidated the three complaints. In January 1996, the
court dismissed in its entirety the plaintiffs' consolidated complaint. In
February 1996, the plaintiffs filed a notice of appeal of the court's order of
dismissal. The plaintiffs voluntarily dismissed the appeal in July 1996 without
the payment of any monetary consideration to them or their counsel. This
action concluded the litigation.
The Company's French subsidiary has been subject to a tax audit by French tax
authorities, who are proposing that significant value added, withholding, and
income taxes are due. The Company and its tax advisors believe that the Company
has substantial defenses and the Company is vigorously contesting these and
other potential assessments. However, the ultimate resolution of this matter
may take several years.
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, estimating the impact of
such litigation matters, establishes reserves considered appropriate by
management. The Company's estimates of the impact of these matters may change
as the matters progress and are ultimately resolved.
<PAGE>
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 or through credit card payments
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 reported in the
Consolidated Statements of Income are net of a handling fee (6% of retail sales)
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. The retail sales price is used by the Company to calculate, among
other things, royalty overrides and "volume points" earned by distributors.
Volume points are point values assigned to each of the Company's products that
are equal in all countries, and are used as a 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 initially decreased and thereafter stabilized
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.
COMPARISON OF SECOND QUARTER AND YEAR-TO-DATE 1996 TO 1995
Retail sales for the three and six months ended June 30, 1996 increased 20.6%
and 20.7% to $283.9 million and $560.5 million, respectively, as compared to
sales of $235.4 and $464.6 for the corresponding periods of the prior year.
Retail sales of nutritional products for the three and six months ended June 30,
1996 increased from $205.0 million to $264.4 million and from $407.9 million to
$516.4 million, respectively, as compared to 1995. Retail sales of personal
care products for the three and six months ended June 30, 1996 decreased from
$30.5 million to $19.5 million and from $56.7 million to $44.2 million,
respectively, as compared to 1995. The Company believes that the decline in
personal care sales is due in part to fewer product introductions in the first
half of 1996 as compared to two major new product launches in the first half of
last year.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF SECOND QUARTER AND YEAR-TO-DATE 1996 TO 1995 (CONTINUED)
Regionally, retail sales for the three and six months ended June 30, 1996, as
compared to the same periods in 1995, increased 115.4% and 114.5%, respectively,
in Asia/Pacific Rim; 8.3% and 4.4%, respectively, in Europe; and, 1.2% and
10.0%, respectively, in The Americas. In Asia/Pacific Rim, retail sales for the
three and six months ended June 30, 1996 increased from $33.6 million and $58.6
million to $72.4 million and $125.8 million, respectively, as compared to the
corresponding periods of 1995. In Europe, retail sales for the three and six
months ended June 30, 1996 increased from $103.0 million and $208.5 million to
$111.5 million and $217.6 million, respectively, as compared to 1995. Retail
sales in The Americas for the three and six months ended June 30, 1996 increased
from $98.8 million and $197.4 million to $100.0 million and $217.1 million,
respectively, as compared to the prior year.
The growth in Asia/Pacific Rim primarily resulted from strong retail sales
growth in Japan and additional retail sales provided by Taiwan, which was opened
in July, 1995. For the three and six months ended June 30, 1996, retail sales
in Japan were $59.2 million and $101.4 million, which represents an increase of
276.7% and 313.4% from $15.7 million and $24.5 million in the prior year,
respectively. Retail sales in other Asia/Pac Rim countries for the three and
six months ended June 30, 1996 decreased from $17.9 million to $13.2 million and
from $34.1 million to $24.4 million, respectively, as compared to corresponding
periods in 1995.
In The Americas, combined retail sales for the three and six months ended June
30, 1996 increased $1.2 million, or 1.2%, and $19.7 million, or 10.0%,
respectively, as compared to the same periods in 1995. The retail sales
increases were primarily due to the opening of Brazil in October 1995 which
resulted in sales for the three and six months ended June 30, 1996 of $22.2
million and $47.6 million, respectively. As compared to the prior year, retail
sales decreased for the three and six months ended June 30, 1996 in the United
States, Argentina, and Mexico, while Canada and Venezuela decreased for the
three month period and increased on a year to date basis. U.S. retail sales
accounted for $69.5 million and $151.4 million, or 24.5% and 27.0%, of worldwide
retail sales during the three and six months ended June 30, 1996, as compared to
$88.2 million and $172.9 million, or 37.5% and 37.2%, reported for the
comparable periods in prior year. The reduction in U.S. retail sales is
attributable in part to the Company's commencement of operations in Russia in
July of 1995. The Company believes that some retail sales in the U.S. were for
products previously purchased in the U.S. but re-directed to Russia by
distributors.
In Europe, retail sales for the three and six months ended June 30, 1996
increased $8.5 million, or 8.3%, and $9.1 million, or 4.4%, respectively, to
$111.5 million and $217.6 million as compared to $103.0 million and $208.5
million for the same periods in the prior year. The increase in retail sales
resulted from new country expansion combined with higher retail sales in Poland.
The largest impact resulted from Russia which contributed retail sales of $36.7
million and $61.9 million for the three and six months ended June 30, 1996.
Retail sales in the other new European countries posted combined results of
$17.8 million and $39.0 million over the same periods of 1996. Offsetting these
increases were retail sales declines in established countries, Germany in
particular, which experienced retail sales decreases of $25.2 million and $55.3
million for the three and six months ended June 30, 1996 as compared to the
prior year. The decrease in Germany was due in part of the suspension of sales
of Thermojetics Instant Herbal Beverage in that country which began in July
1995. The Company believes that a significant factor affecting these markets
has been the opening of other new markets within the same geographic region or
with the same or similar language or cultural bases, and the inclination of some
distributors to focus their attention on business opportunities provided by new
markets which can have a negative impact on existing markets.
Operating margins of $65.3 million and $127.9 million for the three and six
months ended June 30, 1996, respectively, were $11.8 million, or 22.1%, and
$21.9 million, or 20.7%, higher than operating margins of $53.5 million and
$105.9 million in
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF SECOND QUARTER AND YEAR-TO-DATE 1996 TO 1995 (CONTINUED)
the prior year, respectively. As a percentage of retail sales, operating
margins for the three months ended June 30, 1996 as compared to the same period
in the prior year increased slightly from 22.7% to 23.0% while operating margins
for the six months were the same at 22.8%.
Marketing, distribution and administrative expenses for the three and six months
ended June 30, 1996 increased 20.5% and 16.9% to $49.6 million and $98.3 million
from $41.2 million and $84.1 million in the corresponding periods a year
earlier, respectively. Such expenses, as a percentage of retail sales, were
flat for the three month period at 17.5%, and declined to 17.5% from 18.1% for
the six months ended June 30, 1996 and 1995, respectively. For the three and six
months ended June 30, 1996 as compared to the corresponding periods in 1995;
selling expenses decreased $2.1 million and $5.8 million, respectively,
corporate expenses increased $6.2 million and $13.8 million, respectively, and
distribution center operating costs increased $4.3 million and $6.2 million,
respectively.
Selling expenses decreased as a result of a revised format in which sales events
are scheduled throughout the year rather than concentrated in a particular
period. Administrative expenses increased due to continued emphasis on
government and media relations and increased compensation and other costs
related primarily to the expansion into additional countries. In addition,
foreign exchange losses of $2.0 and $2.2 for the three and six months ended June
30, 1996 compared to a loss of $.2 million and a gain of $1.3 million for the
same periods in the prior year. The increases in distribution costs primarily
resulted from facility and staff expansions in Japan, and new country openings
in Brazil, South Africa, and Taiwan.
Income taxes of $6.2 million and $11.8 million for the three and six months
ended June 30, 1996 increased from $4.8 million and $8.6 million in the prior
year, respectively. As a percentage of pre-tax income, income taxes remained
constant at 37.5%.
Net income for the three and six months ended June 30, 1996 increased 29.1% and
36.7% to $10.4 million and $19.6 million from $8.1 million and $14.4 million
reported in the corresponding periods a year earlier.
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 six months ended June 30, 1996, net
cash provided by operating activities was $20.1 million, compared to $39.1
million for the same period in 1995. The decrease primarily resulted from (i)
non-recurring 1995 income tax refunds; (ii) comparably higher receivable
balances primarily resulting from new and existing country expansion as compared
to significantly lower receivables in the prior year, (iii) reductions in
advanced sales deposit balances primarily due to timing issues, and (iv) higher
prepaid and other current asset balances primarily resulting from deferred
compensation costs and prepared sales event costs. These reductions were
partially offset by increased net income and additional liquidity provided by
higher accrued expense balances.
Capital expenditures for the six months ended June 30, 1996 were $5.9 million
compared to $3.6 million for the corresponding prior year period. The majority
of the 1996 expenditures resulted from the expansion of office and distribution
facilities and implementation costs incurred in connection with the
implementation of management information systems. For 1996, the Company is
planning to invest up to $14 million in expansion of facilities and management
information systems including hardware and software. 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, a
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 $7 million will be required for pre-opening
expenses and capital expenditures associated with its 1996 new market expansion
activities.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF SECOND QUARTER AND YEAR-TO-DATE 1996 TO 1995 (CONTINUED)
Stockholders' equity increased $7.0 million to $116.5 million during the six
months ended June 30, 1996. In 1996, net income of $19.6 million was partially
offset by $8.9 million of dividends declared and stock repurchases of $3.3
million. The payment of dividends is determined by the Board of Directors at its
discretion and the amounts of dividends declared and paid in future quarters
will depend, among other factors, on increased levels of profitability, as well
as other planned uses of the Company's cash resources.
On January 12, 1996, the Company announced that its Board of Directors had
approved a share repurchase program pursuant to which up to $5 million could be
expended to repurchase shares of the Company's common stock. As of July 25,
1996, the Company had expended $3.3 million to make repurchases of its shares in
the public market.
In total, cash and cash equivalents totaled $65.0 million at June 30, 1996
compared to $69.2 million at December 31, 1995. At June 30, 1996, the
Company's cash, cash equivalents and marketable securities aggregate balance was
$104.6 million, which represents a $0.4 million increase from the balance as of
December 31, 1995.
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 can generate transaction losses
on intercompany transactions. The Company enters into forward exchange
contracts to manage its foreign exchange risk on intercompany transactions.
<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, 1995 and in footnote two
to the Financial Statements included in Item 1 of this document.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on May 30, 1996
in Los Angeles, California, 28,336,961 shares of the Company's common stock
were present either in person or by proxies solicited by management
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
The Stockholders voted on the following matters:
To elect seven directors to serve on the Company's Board of Directors;
NUMBER NUMBER OF
OF SHARES SHARES
FOR WITHHELD
---------- ---------
Mark Hughes 28,178,210 158,751
Christopher Pair 28,178,235 158,726
Michael Rosen 28,171,254 165,707
Paul M. Buxbaum 28,178,135 158,826
Edward J. Hall 28,178,135 158,826
Alan Liker 28,179,135 157,826
Christopher M. Miner 28,179,135 157,826
To amend and restate the Company's 1994 Performance-Based Annual Incentive
Compensation Plan (the "1994 Plan"), among other things, to permit the
making of awards under the 1994 Plan in shares of common stock of the
Company ("Common Stock").
SHARES PERCENT OF
------ SHARES VOTING
-------------
Votes For 19,790,252 91.6 %
Votes Against 1,741,251 8.1 %
Votes Abstaining 64,965 0.3 %
Broker Non-Votes 6,739,993 N/A
<PAGE>
To amend and restate the Company's 1992 Executive Incentive Compensation
Plan (the "1992 Plan"), among other things, to permit the making of awards
under the 1992 Plan in shares of Common Stock.
SHARES PERCENT OF
------ SHARES VOTING
-------------
Votes For 19,764,166 91.5 %
Votes Against 1,767,802 8.2 %
Votes Abstaining 65,000 0.3 %
Broker Non-Votes 6,739,993 N/A
To amend and restate the company's 1991 stock Option Plan (the "Option
Plan"), among other things, to remove the restriction on 10% and greater
shareholders from participating in the Option Plan and to increase the
aggregate number of shares which may be issued upon exercise of all options
granted under the Option Plan (excluding shares previously issued upon
option exercise but including shares subject to existing outstanding
options) from 3,500,000 to 5,400,000.
SHARES PERCENT OF
------ SHARES VOTING
-------------
Votes For 18,529,533 86.8 %
Votes Against 2,748,481 12.9 %
Votes Abstaining 74,519 0.3 %
Broker NonVotes 6,984,408 N/A
ITEM 5. OTHER INFORMATION
None.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
HERBALIFE INTERNATIONAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Exhibit Number Description Page No./(Footnote)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 Convertible
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 (4)
10.5 Equipment Lease Agreement between the Company and Hewlett Packard dated May 21, 1992 (5)
10.6 Final Judgment and Permanent Injunction, entered into on October, 1986
by the parties to that 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), (12)
10.13 The Company's Executive Incentive Compensation Plan, as amended (7), (12)
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)
10.17 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)
</TABLE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Exhibit Number Description Page No./(Footnote)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 (9), (12)
10.24 Form of Promissory Note for Advances under the Company's 1994 Performance
Based Annual Incentive Compensation Plan (10)
10.25 Employment Agreement between the Company and Chris Pair dated April 3, 1994 (8)
10.26 Deferred Compensation Agreement between the Company and Michael Rosen (10)
10.27 Office lease agreement between the Company and State Teacher's Retirement
System, dated July 20, 1995 (11)
10.28 Form of stock appreciation rights agreements between the Company and certain
directors of the Company (11)
10.29 The Company's Senior Executive Deferred Compensation Plan, effective January 1, 1996 (11)
10.30 The Company's Management Deferred Compensation Plan, effective January 1, 1996 (11)
10.31 Master Trust Agreement between the Company and Imperial Trust Company, Inc.,
effective January 1, 1996 (11)
10.32 The Company's 401K Plan (11)
21 List of subsidiaries of the Company (11)
27 Financial Data Schedule (via EDGAR) (13)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 Quarterly Report on Form
10-Q for the three months ended June 30, 1994.
(9) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1994 Annual Meeting of Stockholders.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
FOOTNOTES (CONTINUED)
(12) Form of the amended and restated plan, to be submitted for
shareholder approval at the 1996 Annual Meeting, incorporated by
reference to the Company's Proxy Statement relating to its 1996
Annual Meeting of Shareholders.
(13) Filed herewith.
(b) REPORTS ON FORM 8-K
None.
<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: August 9, 1996
HERBALIFE INTERNATIONAL, INC.
(Registrant)
By: /s/TIMOTHY GERRITY
------------------
Timothy Gerrity
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
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