e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2007
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-32381

HERBALIFE LTD.

(Exact name of registrant as specified in its charter)


Cayman Islands		98-0377871
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

P.O. Box 309GT

Ugland House, South Church Street

Grand Cayman, Cayman Islands

(Address of principal executive offices) (Zip code)

(310) 410-9600

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of registrant’s common shares outstanding as of October 31, 2007 was 67,978,174.

PART I. FINANCIAL INFORMATION


Item 1.	*FINANCIAL STATEMENTS*

HERBALIFE LTD.

CONSOLIDATED BALANCE SHEETS


	December 31,			September 30,
	2006			2007
				(Unaudited)
	(In thousands, except share amounts)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	154,323		$	160,845
Receivables, net of allowance for doubtful accounts of $6,917 (2006) and $7,326 (2007)		51,758			56,978
Inventories, net		146,036			126,547
Prepaid expenses and other current assets		41,320			66,515
Deferred income taxes		60,190			64,373
Prepaid income taxes		2,080			—

Total current assets		455,707			475,258

Property, at cost, net of accumulated depreciation and amortization of $32,671 (2006) and $56,578 (2007)		105,266			114,078
Deferred compensation plan assets		17,607			19,251
Deferred financing costs, net of accumulated amortization of $268 (2006) and $693 (2007)		2,063			2,268
Marketing related intangibles		310,000			310,060
Product certification, product formulas and other intangible assets, net of accumulated amortization of $20,892 (2006) and $22,700 (2007)		1,808			—
Goodwill		113,221			111,392
Other assets		11,261			12,480

Total assets	$	1,016,933		$	1,044,787


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	39,990		$	32,267
Royalty overrides		116,896			122,882
Accrued compensation		45,808			46,158
Accrued expenses		103,767			119,608
Current portion of long term debt		5,599			3,831
Advance sales deposits		11,432			9,086
Income taxes payable		—			21,809

Total current liabilities		323,492			355,641

NON-CURRENT LIABILITIES:
Long-term debt, net of current portion		179,839			229,543
Deferred compensation		18,166			20,416
Deferred income taxes		126,152			126,068
Other non-current liabilities		15,394			17,918

Total liabilities		663,043			749,586

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:
Common shares, $0.002 par value, 175.0 million shares authorized, 71.6 million (2006) and 67.9 million (2007) shares issued and outstanding		143			136
Paid-in-capital in excess of par value		132,755			157,725
Accumulated other comprehensive loss		(782	)		(367	)
Retained earnings		221,774			137,707

Total shareholders’ equity		353,890			295,201

Total liabilities and shareholders’ equity	$	1,016,933		$	1,044,787

See the accompanying notes to consolidated financial statements

HERBALIFE LTD.

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2006		2007		2006		2007
	(Unaudited)
	(In thousands, except per share amounts)

Product sales	$	412,788	$	457,604	$	1,209,233	$	1,352,504
Handling & freight income		63,586		71,939		188,916		215,238

Net sales		476,374		529,543		1,398,149		1,567,742
Cost of sales		97,159		105,886		281,165		324,531

Gross profit		379,215		423,657		1,116,984		1,243,211
Royalty overrides		168,658		186,497		501,307		555,266
Selling, general & administrative expenses		146,070		158,864		421,995		460,449

Operating income		64,487		78,296		193,682		227,496
Interest expense, net		25,869		2,740		36,839		7,218

Income before income taxes		38,618		75,556		156,843		220,278
Income taxes		12,151		27,226		55,354		82,660

Net income	$	26,467	$	48,330	$	101,489	$	137,618

Earnings per share:
Basic	$	0.37	$	0.71	$	1.44	$	1.96
Diluted	$	0.36	$	0.67	$	1.37	$	1.87
Weighted average shares outstanding:
Basic		71,179		68,513		70,593		70,282
Diluted		74,257		71,657		74,173		73,543

See the accompanying notes to consolidated financial statements

HERBALIFE LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended
	September 30,			September 30,
	2006			2007
	(Unaudited)
	(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	101,489		$	137,618
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,857			25,854
Stock-based compensation expense		8,340			10,220
Excess tax benefits from share-based payment arrangements		(15,558	)		(14,499	)
Amortization of discount and deferred financing costs		755			221
Deferred income taxes		(21,399	)		(2,661	)
Unrealized foreign exchange gain		(952	)		(2,571	)
Write-off of deferred financing costs and unamortized discounts		6,621			204
Other		284			76
Changes in operating assets and liabilities:
Receivables		(9,223	)		(2,040	)
Inventories		(13,045	)		25,879
Prepaid expenses and other current assets		(4,255	)		(23,535	)
Other assets		(2,836	)		(774	)
Accounts payable		821			(9,582	)
Royalty overrides		20,085			2,929
Accrued expenses and accrued compensation		20,056			9,059
Advance sales deposits		(3,708	)		(2,720	)
Income taxes payable		34,262			39,026
Deferred compensation liability		1,415			2,250

NET CASH PROVIDED BY OPERATING ACTIVITIES	$	145,009		$	194,954

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property		(45,526	)		(30,635	)
Proceeds from sale of property		63			71
Net changes in market securities		(38	)		—
Deferred compensation plan assets		(3,609	)		(1,644	)

NET CASH USED IN INVESTING ACTIVITIES	$	(49,110	)	$	(32,208	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from long-term debt		215,000			150,221
Principal payments on long-term debt		(132,020	)		(103,391	)
Repurchases of 91/2% Notes and 113/4% Notes		(165,137	)		—
Dividends paid		—			(27,906	)
Increase in deferred financing costs		(2,277	)		(749	)
Share repurchases		—			(204,030	)
Proceeds from stock options exercised		7,178			10,107
Excess tax benefits from share-based payment arrangements		15,558			14,499

NET CASH USED IN FINANCING ACTIVITIES	$	(61,698	)	$	(161,249	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		824			5,025

NET CHANGE IN CASH AND CASH EQUIVALENTS		35,025			6,522
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD		88,248			154,323

CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	123,273		$	160,845

CASH PAID FOR:
Interest	$	36,469		$	10,548

Income taxes	$	42,481		$	52,067

NON-CASH ACTIVITIES:
Acquisitions of property through capital leases	$	3,569		$	1,208

See the accompanying notes to consolidated financial statements

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Organization

Herbalife Ltd. (and together with its subsidiaries, the “Company”) is a leading global network marketing company that sells weight management, nutritional supplement, energy & fitness products and personal care products through a network of over 1.6 million independent distributors, except in China, where the Company currently sells the products through retail stores and an employed sales force. The Company reports revenue in seven geographic units: North America, which consists of the U.S., Canada, Jamaica and the Dominican Republic; Mexico and Central America, which consists of Mexico, Costa Rica, El Salvador and Panama; Brazil; South America and Southeast Asia, which includes New Zealand and Australia; EMEA, which consists of Europe, the Middle East and Africa; Greater China, which consists of China, Taiwan and Hong Kong; and North Asia, which consists of Japan and South Korea.


2.	Basis of Presentation

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles, or GAAP, in the U.S. for complete financial statements. The Company’s unaudited consolidated financial statements as of September 30, 2007 and for the three and nine months ended September 30, 2006 and September 30, 2007 include Herbalife and all of its direct and indirect subsidiaries. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s unaudited consolidated financial statements as of September 30, 2007 and for the three and nine months ended September 30, 2006 and September 30, 2007. These unaudited consolidated financial statements should be read in conjunction with Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

New Accounting Pronouncements

On May 2, 2007, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48, or FSP FIN 48-1, which amends FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes to provide guidance about how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under the FSP FIN 48-1, a tax position is considered to be effectively settled if the taxing authority completed its examination, the enterprise does not plan to appeal, and it is remote that the taxing authority would reexamine the tax position in the future. FSP FIN 48-1 is effective retroactively to January 1, 2007. The adoption of FSP FIN 48-1 did not have a material impact on the Company’s consolidated financial position or results of operations.

In April 2007, the FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39, or FSP FIN 39-1. FSP FIN 39-1 modifies FIN No. 39, Offsetting of Amounts Related to Certain Contracts and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. The Company believes that the adoption of FSP FIN 39-1 will not have material effect on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159, which permits entities to choose to measure many financial instruments, and certain other items, at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

attributes for similar types of assets and liabilities. SFAS No. 159 applies to reporting periods beginning after November 15, 2007. The Company is currently evaluating the impact, if any, of adopting SFAS No. 159.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurement, or SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, of adopting SFAS No. 157.

Reclassifications

Certain reclassifications were made to the prior period financial statements to conform to current period presentation.


3.	Long-Term Debt

Long-term debt consists of the following:


	As of
	December 31,		September 30,
	2006		2007
	(In millions)

Borrowings under senior credit facility	$	179.5	$	227.4
Capital leases		5.2		5.5
Other debt		0.7		0.4

		185.4		233.3
Less: current portion		5.6		3.8

	$	179.8	$	229.5

On July 21, 2006, the Company entered into a $300.0 million senior secured credit facility, comprised of a $200.0 million term loan and a $100.0 million revolving credit facility, with a syndicate of financial institutions as lenders and replaced the $225.0 million senior secured credit facility, originally entered into on December 21, 2004. The term loan bears interest at LIBOR plus a margin of 1.5%, or the base rate plus a margin of 0.50%, and matures on July 21, 2013. The revolving credit facility bears interest at LIBOR plus a margin of 1.25%, or the base rate plus a margin of 0.25%, and is available until July 21, 2012. The Company incurred approximately $2.3 million of debt issuance costs in connection with entering into the new credit facility in July 2006, which are being amortized over the term of the new credit facility. The Company repaid all amounts outstanding under the prior senior secured credit facility. Consequently, the Company expensed $1.7 million of unamortized deferred financing costs related to that credit facility. Also in July 2006, the Company redeemed the outstanding $0.1 million aggregate principal amount of its 113/4% Notes due 2010.

On August 23, 2006, the Company borrowed $200.0 million pursuant to the term loan under the new credit facility to fund the redemption of its 91/2% Notes due 2011, or the 91/2% Notes. The total redemption price of the 91/2% Notes was $187.8 million and consisted of $165.0 million aggregate principal amount, $16.6 million purchase premium and $6.2 million accrued interest. The redemption premium of $16.6 million and the write-off of unamortized deferred financing costs and discounts of $4.6 million associated with the 91/2% Notes were included in interest expense in the third quarter of 2006.

In September 2006, the Company prepaid $20.0 million of its new term loan borrowings resulting in $0.1 million additional interest expense from the write-off of unamortized deferred financing costs. In March 2007, the Company made another prepayment of $29.5 million and expensed approximately $0.2 million of related

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

unamortized deferred financing costs. As of September 30, 2007, the amount outstanding under the term loan was $148.7 million.

During the second quarter of 2007, the Company borrowed an aggregate amount of $100.0 million under the revolving credit facility to fund its stock repurchase program. In June 2007, the Company repaid $40.0 million of the facility. In September 2007, the Company and its lenders amended the credit agreement, increasing the amount of its current revolving credit facility by an aggregate principal amount of $150.0 million to finance the increase in the stock repurchase program (see Note 11). During the third quarter of 2007, the Company borrowed an additional amount of $48.7 million and repaid $30.0 million of the facility. As of September 30, 2007, the amount outstanding under the revolving credit facility was $78.7 million.

Through the course of conducting regular operations certain vendors may require letters of credit to be issued in order to secure insurance policies or goods that are purchased. As of September 30, 2007, the Company had $1.3 million of issued but undrawn letters of credit.


4.	Contingencies

The Company is from time to time engaged in routine litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters when a probable loss estimate can be made.

Herbalife International and certain of its independent distributors have been named as defendants in a purported class action lawsuit filed February 17, 2005, in the Superior Court of California, County of San Francisco, and served on Herbalife International on March 14, 2005 (Minton v. Herbalife International, et al). The case has been transferred to the Los Angeles County Superior Court. The plaintiff is challenging the marketing practices of certain Herbalife International independent distributors and Herbalife International under various state laws prohibiting “endless chain schemes,” insufficient disclosure in assisted marketing plans, unfair and deceptive business practices, and fraud and deceit. The plaintiff alleges that the Freedom Group system operated by certain independent distributors of Herbalife International products places too much emphasis on recruiting and encourages excessively large purchases of product and promotional materials by distributors. The plaintiff also alleges that Freedom Group pressured distributors to disseminate misleading promotional materials. The plaintiff seeks to hold Herbalife International vicariously liable for the actions of its independent distributors and is seeking damages and injunctive relief. The Company believes that it has meritorious defenses to the suit.

Herbalife International and certain of its distributors are defendants in a class action lawsuit filed July 16, 2003, in the Circuit Court of Ohio County in the State of West Virginia (Mey v. Herbalife International, Inc., et al). The complaint alleges that certain telemarketing practices of certain Herbalife International distributors violate the Telephone Consumer Protection Act, or TCPA, and seeks to hold Herbalife International vicariously liable for the practices of its independent distributors. More specifically, the plaintiffs’ complaint alleges that several of Herbalife International’s distributors used pre-recorded telephone messages to contact prospective customers in violation of the TCPA’s prohibition of such practices. Without in any way acknowledging liability or wrongdoing by the Company or its independent distributors, the Company and the other defendants have reached a binding settlement with the plaintiffs. Under the terms of the settlement the defendants collectively have paid $7 million into a fund to be distributed to qualifying class members. The relevant amount paid by the Company was previously fully reserved in the Company’s financial statements. The settlement has received the preliminary approval of the Court and final approval is expected to be received in January 2008.

As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, the Company has been and is currently subjected to various product liability claims. The effects of these claims to date have not been material to the Company, and the reasonably possible range of exposure on currently existing claims is not material to the Company. The Company believes that it has meritorious defenses

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

to the allegations contained in the lawsuits. The Company currently maintains product liability insurance with an annual deductible of $10 million.

Certain of the Company’s subsidiaries have been subject to tax audits by governmental authorities in their respective countries. In certain of these tax audits, governmental authorities are proposing that significant amounts of additional taxes and related interest and penalties are due. The Company and its tax advisors believe that there are substantial defenses to their allegations that additional taxes are owed, and the Company is vigorously contesting the additional proposed taxes and related charges.

These matters may take several years to resolve, and the Company cannot be sure of their ultimate resolution. However, it is the opinion of management that adverse outcomes, if any, will not likely result in a material adverse effect on our financial condition and operating results. This opinion is based on the belief that any losses suffered in excess of amounts reserved would not be material, and that the Company has meritorious defenses. Although the Company has reserved an amount that the Company believes represents the most likely outcome of the resolution of these disputes, if the Company is incorrect in the assessment the Company may have to record additional expenses.


5.	Comprehensive Income

Total comprehensive income consisted of the following:


	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2006			2007			2006			2007
	(In millions)

Net income	$	26.5		$	48.3		$	101.5		$	137.6
Unrealized loss on derivative instruments		(0.6	)		(0.6	)		(0.6	)		(0.3	)
Foreign currency translation adjustment		(0.1	)		0.3			(1.6	)		0.7

Comprehensive income	$	25.8		$	48.0		$	99.3		$	138.0


6.	Segment Information

The Company is a network marketing company that sells a wide range of weight management products, nutritional supplements energy & fitness products and personal care products within one industry segment as defined under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company’s products are primarily manufactured by third party providers and then sold to independent distributors who sell Herbalife products to retail consumers or other distributors.

The Company sells products in 65 countries throughout the world as of September 30, 2007, and is organized and managed by geographic units. The Company aggregates its operating segments into one reporting segment, as management believes that the Company’s operating segments have similar operating characteristics and similar long term operating performance. In making this determination, management believes that the operating segments are similar in the nature of the products sold, the product acquisition process, the types of customers products are sold to, the methods used to distribute the products, and the nature of the regulatory environment.

Revenues reflect sales of products to distributors based on the distributors’ geographic location.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

In July 2006, the Company changed its geographic units from four to seven as part of the Company’s on-going Realignment for Growth plan. These changes were intended to create growth opportunities for distributors, support faster decision making across the organization by reducing the number of layers of management, improve the sharing of ideas and tools and accelerate growth in its high potential markets. Historical information presented related to the Company’s geographic units has been reclassified to conform to the current geographic presentation. The Company’s reporting segment’s operating information and sales by product line are as follows:


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2006		2007		2006		2007
	(In millions)

Net sales:
United States	$	88.1	$	106.1	$	252.3	$	313.9
Mexico		102.1		89.1		278.8		277.8
Others		286.2		334.3		867.1		976.0

Total net sales	$	476.4	$	529.5	$	1,398.2	$	1,567.7

Operating margin(1):
United States	$	39.9	$	47.9	$	105.4	$	122.1
Mexico		43.3		35.8		122.3		112.3
Others		127.4		153.4		388.0		453.5

Total operating margin		210.6		237.1		615.7		687.9
Selling, general and administrative expenses		146.1		158.9		422.0		460.4
Interest expense, net		25.8		2.7		36.9		7.2

Income before income taxes		38.7		75.5		156.8		220.3
Income taxes		12.2		27.2		55.3		82.7

Net income	$	26.5	$	48.3	$	101.5	$	137.6


	As of
	December 31,		September 30,
	2006		2007
	(In millions)

Total Assets:
United States	$	698.0	$	685.7
Mexico		63.7		53.5
Others		255.2		305.6

Total assets	$	1,016.9	$	1,044.8

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

During the quarter ended June 30, 2007, the Company reorganized its product categories to add one more product line in order to better reflect its current product offerings. Historical information presented related to the Company product lines has been reclassified to conform to the current product line presentation.


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2006		2007		2006		2007
	(In millions)

Net sales by product line:
Weight management	$	299.6	$	334.0	$	883.6	$	993.6
Targeted nutrition		90.8		105.3		267.1		313.4
Energy and Fitness		21.6		24.1		57.8		66.9
Outer Nutrition^®		33.7		34.0		112.9		104.5
Literature, promotional and other(2)		30.7		32.1		76.8		89.3

Total net sales	$	476.4	$	529.5	$	1,398.2	$	1,567.7

Net sales by geographic unit:
North America(3)	$	92.1	$	110.8	$	266.8	$	329.3
Mexico and Central America(4)		103.0		92.9		281.1		286.7
Brazil		32.8		29.6		99.4		95.2
South America and Southeast Asia(5)		51.6		76.2		142.3		191.0
EMEA(6)		127.4		133.8		414.1		423.0
Greater China(7)		36.2		51.7		92.5		139.4
North Asia(8)		33.3		34.5		102.0		103.1

Total net sales	$	476.4	$	529.5	$	1,398.2	$	1,567.7


(1)		Operating margin consists of net sales less cost of sales and Royalty Overrides.

(2)		Product buybacks and returns in all product categories are included in the literature, promotional and other category.

(3)		Consists of the U.S., Canada, Jamaica and Dominican Republic.

(4)		Consists of Mexico, Costa Rica, El Salvador and Panama.

(5)		Includes New Zealand and Australia and excludes Brazil.

(6)		Consists of Europe, Middle East and Africa.

(7)		Consists of China, Hong Kong and Taiwan.

(8)		Consists of Japan and Korea.


7.	Stock Based Compensation

The Company has five stock-based compensation plans, the WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, or the Management Plan, the WH Holdings (Cayman Islands) Ltd. Independent Directors Stock Incentive Plan, or the Independent Directors Plan, the Herbalife Ltd. 2004 Stock Incentive Plan, or the 2004 Stock Incentive Plan, the Herbalife Ltd. 2005 Stock Incentive Plan, or the 2005 Stock Incentive Plan, and the Herbalife Ltd. Independent Directors Deferred Compensation and Stock Unit Plan, or the Independent Director Stock Unit Plan. The Management Plan provides for the grant of options to purchase common shares of Herbalife to members of the Company’s management. The Independent Directors Plan provides for the grant of options to purchase common shares of Herbalife to the Company’s independent directors. The 2004 Stock Incentive Plan replaced the

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Management Plan and the Independent Directors Plan and after the adoption thereof, no additional awards were made under either the Management Plan or the Independent Directors Plan. However, the shares remaining available for issuance under these plans were absorbed by and became available for issuance under the 2004 Stock Incentive Plan. The terms of the 2005 Stock Incentive Plan are substantially similar to the terms of the 2004 Stock Incentive Plan. The 2005 Stock Incentive Plan authorizes the issuance of 4,000,000 common shares pursuant to awards, plus any shares that remained available for issuance under the 2004 Stock Incentive Plan at the time of the adoption of the 2005 Stock Incentive Plan. The purpose of the Independent Directors Stock Unit Plan is to facilitate equity ownership in the Company by its independent directors through the award of stock units and to allow for deferral by the independent directors of compensation realized in connection with such stock units. The Company’s stock compensation awards outstanding as of September 30, 2007 include stock options, stock appreciation rights, or SARS, and restricted stock units.

Prior to January 1, 2006, the Company applied the intrinsic value method as outlined in Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25, and related interpretations, in accounting for share-based awards made under the Company’s stock-based compensation plans. Under the intrinsic value method, compensation expense is recorded on the date of grant to the extent that the current market price of the underlying stock exceeds the exercise price. On January 1, 2006, the Company adopted SFAS No. 123R, Share-based payment, or SFAS No. 123R. This statement replaces SFAS No. 123, Accounting for Stock Based Compensation, or SFAS No. 123, and supersedes APB 25. SFAS No. 123R requires that all share-based compensation be recognized as an expense in the financial statements and that such cost be measured based on the fair value of the awards granted. The Company adopted SFAS No. 123R using the modified prospective transition method which requires the recognition of compensation expense on a prospective basis only. Under this transition method, stock-based compensation cost for the year 2006 included (a) compensation cost for all share-based awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123; and (b) compensation cost for all share-based awards granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.

SFAS No. 123R also requires the Company to estimate forfeitures in calculating the expense relating to share-based compensation as opposed to recognizing forfeitures as an expense reduction as they occur. The adjustment to apply estimated forfeitures to previously recognized share-based compensation was considered immaterial and as such was not classified as a cumulative effect of a change in accounting principle.

The Company records compensation expense over the requisite service period which is equal to the vesting period. For awards granted prior to January 1, 2006, compensation expense is recognized on a graded-vesting basis over the vesting term. For awards granted on or after January 1, 2006, compensation expense is recognized on a straight-line basis over the vesting term. Stock-based compensation expense is included in selling, general and administrative expenses in the Consolidated Statements of Income. For the three months ended September 30, 2006 and 2007, stock-based compensation expenses amounted to $2.8 million and $3.6 million, respectively, and the related income tax benefits recognized in earnings amounted to $1.1 million and $1.4 million, respectively. For the nine months ended September 30, 2006 and 2007, stock-based compensation expense amounted to $8.3 million and $10.2 million, respectively, and the related income tax benefits recognized in earnings amounted to $3.3 million and $3.9 million, respectively.

As of September 30, 2007, the total unrecognized compensation cost related to non-vested stock awards was $39.8 million and the related weighted-average period over which it is expected to be recognized is approximately 1.9 years.

For the three months ended September 30, 2006 and 2007, excess tax benefits of $1.4 million and $9.5 million, respectively, were generated from option exercises. For the nine months ended September 30, 2006 and 2007, excess tax benefits amounted to $15.6 million and $14.9 million, respectively.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The Company’s stock-based compensation plans provide for grants of stock options, SARS, and stock units, which we collectively referred to herein as awards. Stock options typically vest quarterly over a five-year period beginning on the grant date, and certain stock option grants vest over a period of less than five years. Certain SARS vest quarterly over a five-year period beginning on the grant date. Other SARS vest annually over a three-year period. The contractual term of stock options and SARS is ten years. Stock unit awards under the 2005 Incentive Plan, or incentive Plan Stock Units, vest annually over a three year period which is equal to the contractual term. Stock units awarded under the Independent Directors Stock Unit Plan, or Independent Director Stock Units, vest at a rate of 25% on each January 15, April 15, July 15 and October 15. Unless otherwise determined at the time of grant, the value of each stock unit shall be equal to one common share of Herbalife.

The fair value of each award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model based on the assumptions in the following tables. The expected term of the award is based on the simple average of the average vesting period and the life of the award because of the limited historical data. All groups of employees have been determined to have similar historical exercise patterns for valuation purposes. The expected volatility of stock awards is primarily based upon the historical volatility of the Company’s common shares and, due to the limited period of public trading data for its common shares, it is also validated against the volatility rates of a peer group of companies. The risk free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the award. The dividend yield reflects that the Company has not historically paid regular cash dividends from inception to the first quarter of 2007. Dividends paid by the predecessor company in 2002 and prior and special dividends paid in 2004 in connection with the initial public offering of the Company’s common shares have been excluded from the calculation. Commencing in the second quarter of 2007, the Board of Directors approved a regular quarterly dividend program. During the second and third quarter of 2007, the Company announced and paid a $0.20 per share cash dividend. However, there is no guarantee that the Board of Directors will not terminate the quarterly dividend program. The following table summarizes the weighted average assumptions used in the calculation of fair market value for the three and nine months ended September 30, 2006 and 2007.


											Incentive Plan						Independent Directors
	Stock Options				SARS						Stock Units						Stock Units
	Three Months				Three Months						Three Months						Three Months
	Ended				Ended						Ended						Ended
	September 30,				September 30,						September 30,						September 30,
	2006		2007		2006			2007			2006			2007			2006		2007

Expected volatility		—		—		38.08	%		40.02	%		37.75	%		39.96	%		—		—
Dividends yield		—		—		zero			2.00	%		zero			zero			—		—
Expected term		—		—		6.3 years			6.2 years			2.5 years			2.5 years			—		—
Risk-free interest rate		—		—		4.70	%		4.45	%		4.71	%		4.23	%		—		—


												Incentive Plan						Independent Directors
	Stock Options					SARS						Stock Units						Stock Units
	Nine Months					Nine Months						Nine Months						Nine Months
	Ended					Ended						Ended						Ended
	September 30,					September 30,						September 30,						September 30,
	2006			2007		2006			2007			2006			2007			2006			2007

Expected volatility		37.03	%		—		38.43	%		41.16	%		38.40	%		41.16	%		37.29	%		41.82	%
Dividends yield		zero			—		zero			2.00	%		zero			zero			zero			zero
Expected term		6.3 years			—		6.3 years			6.2 years			2.5 years			2.5 years			3.0 years			3.0 years
Risk-free interest rate		3.94	%		—		4.59	%		4.80	%		4.10	%		4.81	%		3.56	%		5.00	%

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following tables summarize the activity under the stock-based compensation plans for the nine months ended September 30, 2007:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Stock Options & SARS	Shares			Price		Term		Value
	(In thousands)							(In millions)

Outstanding at December 31, 2006		9,452		$	16.45
Granted		880			40.34
Exercised		(1,447	)		7.82
Forfeited		(402	)		24.07

Outstanding at September 30, 2007		8,483		$	20.13		7.1 years	$	214.9

Exercisable at September 30, 2007		3,917		$	15.77		6.3 years	$	116.3


				Weighted Average		Aggregate
Incentive Plan and Independent Directors Restricted Stock Units	Shares			Grant Date Fair Value		Fair Value
	(In thousands)					(In millions)

Outstanding and nonvested at December 31, 2006		186.1		$	35.28	$	6.1
Granted		154.2			39.29		6.1
Vested		(60.8	)		34.12		(1.6	)
Cancelled		(19.1	)		36.06		(0.7	)

Outstanding and nonvested at September 30, 2007		260.4		$	37.87	$	9.9

The weighted-average grant date per share fair value of stock awards granted during the three and nine months ended September 30, 2007 was $18.27 and $19.32, respectively. The total intrinsic value of stock awards exercised during the three and nine months ended September 30, 2007 was $33.0 million and $47.6 million, respectively.


8.	Income Taxes

On January 1, 2007 the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, an interpretation of FAS 109, Accounting for Income Taxes. At the date of adoption, the total amount of unrecognized tax benefits, including related interest and penalties, was $42.1 million. If the total amount of unrecognized tax benefits was recognized, $26.0 million of unrecognized tax benefits, $6.9 million of interest and $2.7 million of penalties, would impact the effective tax rate and $6.5 million would result in an increase to goodwill. The Company accounts for interest and penalties generated by tax contingencies as a component of income tax expense. The adoption of FIN 48 did not have a material impact to retained earnings.

The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease within the next twelve months and that change could be significant because of uncertainties from international transfer pricing issues, the deductibility of certain operating expenses in various foreign jurisdictions, settlements in foreign tax audits and the expiration of the statute of limitation in several foreign jurisdictions. Because of the nature of these uncertainties, the Company is not able to estimate the range of reasonably possible changes to the amount of unrecognized tax benefits within the next twelve months.

At the adoption date, the Company’s tax filings are generally subject to examination in major tax jurisdictions for years ending on or after December 31, 2002.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


9.	Derivative Instruments and Hedging Activities

The Company engages in an interest rate hedging strategy for which the hedged transactions are forecasted interest payments on the Company’s variable rate term loan. The hedged risk is the variability of forecasted interest rate cash flows, where the hedging strategy involves the purchase of interest rate swaps. For the outstanding cash flow hedges on interest rate exposures at December 31, 2006 and September 30, 2007, the maximum length of time over which the Company is hedging these exposures is approximately three years.

On July 21, 2006, the interest rate swap agreement, originally entered into on February 21, 2005, was terminated due to the Company’s debt refinancing and interest income of approximately $0.8 million was recorded in the Company’s consolidated statements of income during the quarter ended September 30, 2006. Under the current credit facility, the Company is obligated to enter into an interest rate hedge for up to 25% of the aggregate principal amount of the term loan for a minimum of three years. On August 23, 2006, the Company entered into a new interest rate swap agreement. The agreement provides for the Company to pay interest for a three-year period at a fixed rate of 6.76% on various notional amounts while receiving interest for the same period at the LIBOR rate on the same notional principal amounts. The swap was designated as a cash flow hedge against LIBOR interest rate movements on the term loan. The Company formally assesses, both at inception and at least quarterly thereafter, whether the derivatives used in hedging transactions are effective in offsetting changes in cash flows of the hedged item. As of December 31, 2006 and September 30, 2007, the hedge relationship qualified as an effective hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Consequently, all changes in the fair value of the derivatives are deferred and recorded in other comprehensive income until the related forecasted transaction is recognized in the consolidated statements of income. The fair value of the interest rate swap agreement is based on third-party bank quotes.

The Company also designates certain derivatives as free standing derivatives for which hedge accounting does not apply. The changes in the fair market value of these derivatives are included in selling, general and administrative expenses in the Company’s consolidated statements of income. The Company purchases average rate put options, as well as forward extra contracts (a combination of a foreign forward exchange contract and an option), to partially mitigate the impact if the foreign currency weakens beyond the strike rate. The Company also uses foreign currency forward and ratio forward contracts to hedge foreign-currency-denominated intercompany transactions. The fair values of the option and forward contracts are based on third-party bank quotes.


10.	Restructuring Reserve

In July 2006, the Company initiated a realignment of its employee base as part of its Realignment for Growth plan. The Company recorded $3.0 million and $7.5 million of professional fees, severance and related costs related to the Realignment for Growth plan in the third and fourth quarters of 2006, respectively. All such amounts were included in selling, general and administrative expenses.

For the three and nine months ended September 30, 2007, the Company recorded severance and related costs of $0.1 million and $1.8 million, respectively, which was included in selling, general and administrative expenses, related to the Realignment for Growth plan.

The following table summarizes the components of this reserve during fiscal 2007:


				Retention
	Severance			Benefits			Others			Total
	(In millions)

Balance as of December 31, 2006	$	4.6		$	0.2		$	0.4		$	5.2
Charges		1.0			0.3			0.5		$	1.8
Cash payments		(5.2	)		(0.5	)		(0.8	)		(6.5	)

Balance as of September 30, 2007	$	0.4		$	—		$	0.1		$	0.5

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


11.	Shareholders’ Equity

Changes in shareholders’ equity for the nine months ended September 30, 2007 were as follows (in thousands):


Total shareholders’ equity as of December 31, 2006	$	353,890
Net income		137,618
Unrealized loss on derivatives		(299	)
Repurchases of common stock		(204,030	)
Foreign currency translation adjustment		713
Additional capital from stock options		10,220
Excess tax benefits from exercise of stock options		14,898
Issuance of common shares from the exercise of stock options, SARS, and restricted stock grants		10,107
Dividends declared		(27,906	)
Other		(10	)

Total shareholders’ equity as of September 30, 2007	$	295,201

Stock Repurchases

On April 18, 2007, the Company’s Board of Directors authorized the repurchase of up to $300 million of the Company’s common shares during the next two years, at such times and prices as determined by Company management, as market conditions warrant. During the quarter ended June 30, 2007, the Company repurchased approximately 3.5 million of its common shares through open market purchases at an aggregate cost of $138.8 million, or an average cost of $39.65 per share.

On August 23, 2007, the Company’s Board of Directors approved an increase of $150 million to its previously authorized share repurchase program raising the total value of Company common shares authorized to be repurchased to $450 million.

During the quarter ended September 30, 2007, the Company repurchased approximately 1.7 million of its common shares through open market purchases at an aggregate cost of $65.1 million or an average cost of $39.23 per share.

Dividends

During the second quarter of 2007, the Company’s Board of Directors adopted a regular quarterly cash dividend program. As part of this program, the Company paid its regular quarterly cash dividend of $0.20 per common share, or $14.4 million in the aggregate, in May 2007 to shareholders of record as of April 30, 2007. On August 6, 2007, the Company’s Board of Directors authorized a $0.20 per common share cash dividend, or $13.5 million in the aggregate, for the second quarter of 2007 that was paid on September 14, 2007 to shareholders of record on August 31, 2007.


12.	Subsequent Event

In October 2007, the Company initiated the second phase of its Realignment for Growth plan. Under the second phase of the plan, the Company expects to incur severance and other employee related costs of approximately $8 million to $10 million. Such costs are expected to be recognized over the next nine months.

On October 30, 2007, the Company announced that its Board of Directors has authorized a $0.20 per common share cash dividend for the third quarter of 2007, payable on December 14, 2007 to shareholders of record on November 30, 2007.


Item 2.	*Management’s Discussion And Analysis Of Financial Condition And Results Of Operations*

Overview

We are a global network marketing company that sells weight management, nutritional supplement, energy & fitness products and personal care products. We pursue our mission of “changing people’s lives” by providing a financially rewarding business opportunity to distributors and quality products to distributors and their customers who seek a healthy lifestyle. We are one of the largest network marketing companies in the world with net sales of approximately $1.9 billion for the year ended December 31, 2006. We sell our products in 65 countries as of September 30, 2007, through a network of over 1.6 million independent distributors except in China, where we sell our products through retail stores and an employed sales force. We believe the quality of our products and the effectiveness of our distribution network, coupled with geographic expansion, have been the primary reasons for our success throughout our 27-year operating history.

During the quarter ended June 30, 2007, we reorganized our product categories to better reflect how our distributors sell products and programs. Our products are grouped in four principal categories: weight management, targeted nutrition, energy & fitness products and Outer Nutrition^®. Our products are also often sold in programs that are comprised of a series of related products designed to simplify weight management and nutrition for consumers and maximize our distributors’ cross-selling opportunities.

Industry-wide factors that affect us and our competitors include the increasing prevalence of obesity and the aging of the worldwide population, which are driving demand for nutrition and wellness-related products, and the recruitment and retention of distributors.

The opportunities and challenges upon which we are most focused are: retailing of our products, recruitment and retention of distributors and improving distributor productivity, opening new markets, further penetrating existing markets including China, globalizing successful distributor methods of operation such as Nutrition Clubs, introducing new products, developing niche market segments and further investing in our infrastructure.

In July 2006, we changed our geographic units from four to seven units as part of our ongoing Realignment for Growth plan. These changes were intended to create growth opportunities for our distributors, support faster decision making across the organization by reducing layers of management, improve the sharing of ideas and tools and accelerate growth in our high potential markets. Under the new geographic units we report revenue from:


	•	North America, which consists of the U.S., Canada, Jamaica and the Dominican Republic;

	•	Mexico and Central America, which consists of Mexico, Costa Rica, El Salvador and Panama;

	•	Brazil;

	•	South America and Southeast Asia, which includes New Zealand and Australia and excludes Brazil;

	•	EMEA, which consists of Europe, the Middle East and Africa;

	•	Greater China, which consists of China, Taiwan and Hong Kong; and

	•	North Asia, which consists of Japan and Korea.

Historical information presented related to our geographic units has been reclassified to conform to our current geographic presentation.

Volume Points by Geographic Unit

A key non-financial measure we focus on is Volume Points on a Royalty Basis, or Volume Points, which is essentially our weighted unit measure of product sales volume. It is a useful measure for us, as it excludes the impact of foreign currency fluctuations and ignores the differences generated by varying retail pricing across geographic markets. In general, an increase in Volume Points in a particular group or country indicates an increase in local currency net sales.


	Three Months Ended September 30,							Nine Months Ended September 30,
	2006		2007		% Change			2006		2007		% Change
	(Volume points in millions)

North America		145.8		173.2		18.8	%		409.7		510.7		24.7	%
Mexico & Central America		170.2		149.0		(12.5	)%		467.5		458.9		(1.8	)%
Brazil		41.0		33.5		(18.3	)%		126.3		111.0		(12.1	)%
South America & Southeast Asia		73.9		99.1		34.1	%		191.5		257.7		34.6	%
EMEA		129.7		125.2		(3.5	)%		426.7		402.1		(5.8	)%
Greater China		40.3		56.3		39.7	%		105.9		154.9		46.3	%
North Asia		29.6		30.7		3.7	%		89.5		93.3		4.2	%

Worldwide		630.5		667.0		5.8	%		1,817.1		1,988.6		9.4	%

Number of New Supervisors by Geographic Unit as of Reporting Period

Another key non-financial measure on which we focus is the number of distributors qualified as new supervisors under our compensation system. Distributors qualify for supervisor status based on their Volume Points. The growth in the number of new supervisors is a general indicator of the level of distributor recruitment, which generally drives net sales in a particular country or group.


	Three Months Ended September 30,							Nine Months Ended September 30,
	2006		2007		% Change			2006		2007		% Change
	(Whole numbers)

North America		9,499		10,732		13.0	%		26,401		31,715		20.1	%
Mexico & Central America		12,909		8,508		(34.1	)%		32,602		25,417		(22.0	)%
Brazil		4,720		3,139		(33.5	)%		15,212		11,512		(24.3	)%
South America & Southeast Asia		8,580		12,352		44.0	%		24,074		32,259		34.0	%
EMEA		8,381		7,391		(11.8	)%		28,763		24,112		(16.2	)%
Greater China		4,162		8,263		98.5	%		11,524		20,995		82.2	%
North Asia		2,339		2,597		11.0	%		7,128		7,310		2.6	%

Worldwide		50,590		52,982		4.7	%		145,704		153,320		5.2	%

Number of Supervisors and Retention Rates by Geographic Unit as of
Re-qualification Period

Our compensation system requires each supervisor to re-qualify for such status each year, prior to February. In February of each year, we delete from the rank of supervisor those distributors who did not satisfy the supervisor qualification requirements during the preceding twelve months. Distributors who meet the supervisor requirements at any time during the year are promoted to supervisor status at that time, including any supervisors who were deleted, but who subsequently re-qualified. The table below reflects the number of supervisors and supervisors retention rate subsequent to the annual re-qualification.


	Number of Supervisors				Supervisors Retention Rate
	2006		2007		2006			2007

North America		45,778		54,375		41.2	%		43.1	%
Mexico & Central America		38,344		62,622		57.4	%		55.2	%
Brazil		27,318		28,974		29.0	%		28.8	%
South America & Southeast Asia		30,846		46,393		31.6	%		33.9	%
EMEA		66,103		64,862		45.0	%		46.2	%
Greater China		19,447		25,868		34.7	%		34.7	%
North Asia		15,736		15,697		48.6	%		43.0	%

Worldwide		243,572		298,791		41.5	%		42.5	%

Supervisors must re-qualify annually. The re-qualification period covers the twelve months starting in February and ending the following January. The number of supervisors by geographic unit as of the reporting dates will normally be higher than the number of supervisors by geographic unit as of the re-qualification period because supervisors who do not re-qualify during the relevant twelve-month period will be dropped from the rank of supervisor the following February. Since supervisors purchase most of our products for resale to other distributors and consumers, comparisons of supervisor totals on a year-to-year, same period basis are good indicators of our recruitment and retention efforts in different geographic units.

The value of the average monthly purchase of Herbalife products by our supervisors has remained relatively constant over time. Consequently, increases in our sales are driven primarily by our retention of supervisors and by our recruitment and retention of distributors, rather than through increases in the productivity of our overall supervisor base.

We provide distributors with products, support material, training, special events and a competitive compensation program. If a distributor wants to pursue the Herbalife business opportunity, the distributor is responsible for growing his or her business and personally pays for the sales activities related to attracting new customers and recruiting distributors by hosting events such as Herbalife Opportunity Meetings or Success Training Seminars; by advertising Herbalife’s products; by purchasing and using promotional materials such as t-shirts, buttons and caps; by utilizing and paying for direct mail and print material such as brochures, flyers, catalogs, business cards, posters and banners and telephone book listings; by purchasing inventory for sale or use as samples; and by training, mentoring and following up (in person or via the phone or internet) with customers and recruits on how to use Herbalife products and/or pursue the Herbalife business opportunity.

Presentation

“Retail Sales” represent the gross sales amounts on our invoices to distributors before distributor allowances (as defined below), and “net sales”, which reflects distribution allowances and handling and freight income, represent what we collect and recognize as net sales in our financial statements. We discuss Retail Sales because of its fundamental role in our compensation systems, internal controls and operations, including its role as the basis upon which distributor discounts, royalties and bonuses are awarded. In addition, it is used as the basis for certain information included in daily and monthly reports reviewed by our management. However, such a measure is not in accordance with Generally Accepted Accounting Principles in the U.S, or GAAP. You should not consider Retail

Sales in isolation from, nor as a substitute for, net sales and other consolidated income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. A reconciliation of net sales to Retail Sales is presented below under “Results of Operations.” “Product Sales” represent the actual product purchase price paid to us by our distributors, after giving effect to distributor discounts referred to as “Distributor Allowances,” which approximate 50% of Retail Sales prices. Distributor allowances as a percentage of sales may vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances.

Our “gross profit” consists of net sales less “cost of sales,” which represents the prices we pay to our raw material suppliers and manufacturers of our products as well as costs related to product shipments, duties and tariffs, freight expenses relating to shipment of products to distributors and importers and similar expenses.

“Royalty Overrides” are our most significant expense and consist of:


	•	royalty overrides, and production bonuses which total approximately 15% and 7%, respectively, of the Retail Sales of Weight Management, Targeted Nutrition, Energy & Fitness, Outer Nutrition^® and promotional products;

	•	the Mark Hughes Bonus payable to some of our most senior distributors in the aggregate amount of up to 1% of retail sales of Weight Management, Targeted Nutrition, Energy & Fitness, Outer Nutrition^® and promotional products; and

	•	other discretionary incentive cash bonuses to qualifying distributors.

Royalty Overrides are generally earned based on retail sales, and approximate in the aggregate about 22% of Retail Sales or approximately 36% of our net sales. Royalty Overrides together with distributor allowances represent the potential earnings to distributors of up to approximately 73% of Retail Sales. The compensation to distributors is generally for the development, retention and improved productivity of their distributor sales organizations and is paid to several levels of distributors on each sale. Due to restrictions on direct selling in China, our full-time employed sales representatives in China are compensated with wages, bonuses and benefits instead of the distributors earnings, distributor allowances and Royalty Overrides. Because of local country regulatory constraints, we may be required to modify our typical distributor incentive plans as described above. Consequently, the total distributor discount percentage may vary over time. We also offer reduced distributor allowances and pay reduced Royalty Overrides with respect to certain products worldwide.

Our “operating margins” consist of net sales less cost of sales and Royalty Overrides.

“Selling, general and administrative expenses” represent our operating expenses, components of which include labor and benefits, sales events, professional fees, travel and entertainment, distributor marketing, occupancy costs, communication costs, bank fees, depreciation and amortization, foreign exchange gains and losses and other miscellaneous operating expenses.

Most of our sales to distributors outside the United States are made in the respective local currencies. In preparing our consolidated financial statements, we translate revenues into U.S. dollars using average exchange rates. Additionally, the majority of our purchases from our suppliers generally are made in U.S. dollars. Consequently, a strengthening of the U.S. dollar versus a foreign currency can have a negative impact on our reported sales and operating margins and can generate transaction losses on intercompany transactions. Throughout the last five years, foreign currency exchange rates have fluctuated significantly. From time to time, we enter into foreign exchange forward contracts and option contracts to mitigate our foreign currency exchange risk as discussed in further detail in Item 3, Quantitative and Qualitative Disclosures about Market Risk.

Summary Financial Results

For the three and nine months ended September 30, 2007, net sales increased 11.1% and 12.1% to $529.5 million and $1,567.7 million, respectively, compared to the same periods in 2006. The increase was primarily due to continued growth in several of the company’s top countries including the U.S, Taiwan, Italy, Spain and China with increases of 20.4%, 23.6%, 15.8%, 35.4% and 89.3%, respectively, for the three months ended September 30, 2007 and 24.5%, 31.3%, 12.5%, 25.9% and 132.7%, respectively, for the nine months ended

September 30, 2007, as compared to the same period in 2006. The increase in these markets reflects supervisor growth in 2007, the continued success of our distributors, and an increase in the number of stores in China.

Net income increased for the three months ended September 30, 2007 to $48.3 million, or $0.67 per diluted share, from $26.5 million, or $0.36 per diluted share for the same period in 2006. Net income increased for the nine months ended September 30, 2007 to $137.6 million, or $1.87 per diluted share, from $101.5 million, or $1.37 per diluted share for the same period in 2006.

The increase in net income for the three and nine months ended September 30, 2007 was primarily due to strong net sales growth, expansion in operating profit margins and reduction in interest expense resulting from our debt refinancing in July 2006, partially offset by higher labor costs, depreciation expense and foreign exchange losses. Net income for the nine months ended September 30, 2007 included an unfavorable after tax impact of $1.0 million in connection with our Realignment for Growth plan, an increase in tax reserve of $3.6 million and the impact of a $0.6 million tax benefit resulting from an international income tax settlement. Net income for the three months ended September 30, 2006 included the impact of $14.3 million recapitalization expenses in connection with the repayment of the $225.0 million senior secured credit facility, originally entered into on December 21, 2004, the Prior Credit Facility, and our 91/2% Notes due 2011, the 91/2% Notes, and a $2.7 million additional tax benefit from refinancing transactions. Net income for the nine months ended September 30, 2006 included the impact of a $3.7 million tax benefit resulting from an international income tax settlement, $14.3 million recapitalization expenses incurred in connection with the repayment of our Prior Credit Facility and our 91/2% Notes and a $2.7 million additional tax benefit from refinancing transactions.

Results of Operations

Our 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 our ability to recruit and retain new distributors, open new markets and further penetrate existing markets and introduce new products and develop niche market segments.

The following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated.


	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2006			2007			2006			2007

Operations:
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		20.4			20.0			20.1			20.7

Gross profit		79.6			80.0			79.9			79.3
Royalty overrides		35.4			35.2			35.9			35.4
Selling, general and administrative expenses		30.7			30.0			30.2			29.4

Operating income		13.5			14.8			13.8			14.5
Interest expense, net		5.4			0.5			2.6			0.5

Income before income taxes and minority interest		8.1			14.3			11.2			14.0
Income taxes		2.6			5.2			4.0			5.3

Net income		5.5	%		9.1	%		7.2	%		8.7	%

Net Sales

The following chart reconciles Retail Sales to net sales:

Sales by Geographic Region


	Three Months Ended September 30,
	2006											2007
								Handling											Handling				Change
	Retail		Distributor			Product		& Freight		Net		Retail		Distributor			Product		& Freight		Net		in Net
	Sales		Allowance			Sales		Income		Sales		Sales		Allowance			Sales		Income		Sales		Sales
										(In millions)

North America	$	148.0	$	(70.5	)	$	77.5	$	14.6	$	92.1	$	179.3	$	(85.6	)	$	93.7	$	17.1	$	110.8		20.3	%
Mexico & Central America		173.5		(84.4	)		89.1		13.9		103.0		156.3		(76.2	)		80.1		12.8		92.9		(9.8	)%
Brazil		53.8		(25.7	)		28.1		4.7		32.8		48.0		(22.7	)		25.3		4.3		29.6		(9.8	)%
SAMSEA		88.3		(42.1	)		46.2		5.4		51.6		134.7		(67.4	)		67.3		8.9		76.2		47.7	%
EMEA		209.0		(99.9	)		109.1		18.3		127.4		217.1		(104.7	)		112.4		21.4		133.8		5.0	%
Greater China		54.8		(21.5	)		33.3		2.9		36.2		75.2		(27.0	)		48.2		3.5		51.7		42.8	%
North Asia		53.5		(24.0	)		29.5		3.8		33.3		55.5		(24.9	)		30.6		3.9		34.5		3.6	%

Worldwide	$	780.9	$	(368.1	)	$	412.8	$	63.6	$	476.4	$	866.1	$	(408.5	)	$	457.6	$	71.9	$	529.5		11.1	%


	Nine Months Ended September 30,
	2006											2007
								Handling											Handling				Change
	Retail		Distributor			Product		& Freight		Net		Retail		Distributor			Product		& Freight		Net		in Net
	Sales		Allowance			Sales		Income		Sales		Sales		Allowance			Sales		Income		Sales		Sales
	(In millions)

North America	$	429.1	$	(204.7	)	$	224.4	$	42.4	$	266.8	$	532.0	$	(253.8	)	$	278.2	$	51.1	$	329.3		23.4	%
Mexico & Central America		473.1		(229.8	)		243.3		37.8		281.1		482.2		(234.7	)		247.5		39.2		286.7		2.0	%
Brazil		164.1		(78.5	)		85.6		13.8		99.4		154.4		(72.9	)		81.5		13.7		95.2		(4.2	)%
SAMSEA		245.2		(118.1	)		127.1		15.2		142.3		332.1		(164.1	)		168.0		23.0		191.0		34.2	%
EMEA		681.1		(326.9	)		354.2		59.9		414.1		689.1		(332.2	)		356.9		66.1		423.0		2.1	%
Greater China		145.2		(61.0	)		84.2		8.3		92.5		207.9		(78.9	)		129.0		10.4		139.4		50.7	%
North Asia		165.3		(74.9	)		90.4		11.6		102.0		165.8		(74.4	)		91.4		11.7		103.1		1.1	%

Worldwide	$	2,303.1	$	(1,093.9	)	$	1,209.2	$	189.0	$	1,398.2	$	2,563.5	$	(1,211.0	)	$	1,352.5	$	215.2	$	1,567.7		12.1	%

Changes in net sales are directly associated with the recruiting and retention of our distributor force, retailing of our products, the quality and completeness of the product offerings that the distributor force has to sell and the number of countries in which we operate. Management’s role, both in-country and at the corporate level is to provide distributors with a competitive and broad product line, encourage strong teamwork and leadership among the Chairman’s Club and President’s Team distributors and offer leading edge business tools to make doing business with Herbalife simple. Management uses the distributor marketing program coupled with educational and motivational tools and promotions to incentivize distributors to increase recruiting, retention and retailing, which in turn affect net sales. Such tools include Company sponsored sales events such as Extravaganzas and World Team Schools where large groups of distributors gather, thus allowing them to network with other distributors, learn recruiting, retention and retailing techniques from our leading distributors and become more familiar with how to market and sell our products and business opportunities. Accordingly, management believes that these development and motivation programs can increase the productivity of the supervisor network. The expenses for such programs are included in selling, general and administrative expenses. Sales are driven by several factors, including the number and productivity of distributors and supervisors who continually build, educate and motivate their respective distribution and sales organizations. We also use event and non-event product promotions to motivate distributors to increase recruiting, retention and retailing activities. These promotions have prizes ranging from

qualifying for events to product prizes and vacations. The costs of these promotions are included in selling, general and administrative expenses.

The factors described above have helped distributors increase their business, which in turn has driven growth in our business. The net sales by geographic unit discussion set forth below further details some of the above factors and describes unique growth factors specific to certain major countries. We believe that the correct business foundation, coupled with ongoing training and promotional initiatives, is required to increase recruiting and retention of distributors and retailing of our products. The correct business foundation includes strong country management that works closely with the distributor leadership, unified distributor leadership, a broad product line that appeals to local consumer needs, a favorable regulatory environment, a scalable and stable technology platform and an attractive distributor marketing plan. Initiatives such as Success Training Seminars, World Team Schools, Promotional Events and regional Extravaganzas are integral components of developing a highly motivated and educated distributor sales organization that will work toward increasing the recruitment and retention of distributors.

Our strategy will continue to include creating and maintaining growth within existing markets while expanding into new markets. We expect to increase our spending in selling, general and administrative expenses to maintain or stimulate sales growth, while making strategic investments in new initiatives and in new markets. In addition, new ideas and distributor business methods, or DMOs, are being generated in our regional markets and globalized where applicable, either by distributors, country management or corporate management. Examples are the Nutrition Clubs in Mexico, the Total Plan in Brazil, the Wellness Coach in France, and the Internet/Sampling Program in the U.S., as described under “Net Sales” below. Management’s strategy is to review the applicability of expanding successful country initiatives throughout a region and where appropriate, financially support the globalization of these initiatives.

North America

The North America region reported net sales of $110.8 million and $329.3 million, for the three and nine months ended September 30, 2007, respectively. Net sales in North America increased $18.7 million or 20.3% for the three months ended September 30, 2007 and $62.5 million or 23.4%, for the nine months ended September 30, 2007, as compared to the same periods in 2006. In local currency, net sales increased 19.9% and 23.4% for the three and nine months ended September 30, 2007, respectively, as compared to the same periods in 2006. The fluctuation of foreign currency rates had a favorable impact of $0.2 million and $0.3 million on net sales for the three and nine months ended September 30, 2007, respectively.

The increase in net sales in North America was due to several factors including new supervisor growth, up 13.0% and 20.1% for the three and nine months ended September 30, 2007, as compared to the same period in 2006, the growth of the Nutrition Club DMO among our Latino distributors, and the sponsorship of the Los Angeles Galaxy team which includes Herbalife branded team jerseys. In July 2007, the region hosted over 10,000 distributors in Dallas, Texas for their annual Extravaganza event and launched two new lines of products — H3O and the new children’s line. H3O is the next-generation of hydration with electrolytes for rapid hydration. The new children’s line in the U.S. includes three flavors of shakes as well as multivitamins.

We believe that the fiscal year 2007 net sales in North America should continue to show positive year over year growth primarily as a result of the expected continuation of strong momentum in the US, continued success and expansion of the Nutrition Club concept and increased focus on the Lead Generation/Sampling DMO.

Mexico and Central America

The Mexico and Central America region reported net sales of $92.9 million and $286.7 million for the three and nine months ended September 30, 2007, respectively. Net sales in Mexico and Central America decreased $10.1 million or 9.8% for the three months ended September 30, 2007 and increased $5.6 million or 2.0%, for the nine months ended September 30, 2007, as compared to the same periods in 2006. In local currency, net sales decreased 9.8% for the three months ended September 30, 2007 and increased 2.4% for the nine months ended September 30, 2007, as compared to the same periods in 2006. The fluctuation of foreign currency rates had a

favorable impact of $0.1 million on net sales for the three months ended September 30, 2007 and an unfavorable impact of $1.2 million for the nine months ended September 30, 2007.

Net sales in Mexico decreased 12.8% for the three months ended September 30, 2007, and was flat for the nine months ended September 30, 2007, compared to the same period in 2006, due to difficult comparisons posed by a market that experienced rapid growth in 2006. New supervisor growth in the region decreased 34.1% and 22.0% for the three and nine months ended September 30, 2007, respectively, as compared to the same period in 2006 as our distributor leadership focused on distributor training and compliance throughout the year. In September 2007, the region hosted 17,000 distributors in Mexico City for their annual Extravaganza event, which was a new record attendance for the region.

We believe that fiscal year 2007 net sales in Mexico and Central America will be essentially flat as compared to 2006. We believe we have made significant progress in addressing the root causes for the slow down in Mexico by making changes in the infrastructure, providing training, and solving distributor business practice issues. We have completed the Nutrition Club training and compliance audits as well as added resources to support the local distributor services team. We believe these actions have addressed and resolved the major issues and will provide a much more stable environment for the Nutrition Club DMO.

Brazil

The Brazil region reported net sales of $29.6 million and $95.2 million for the three and nine months ended September 30, 2007, respectively. Net sales in Brazil decreased $3.2 million or 9.8% for the three months ended September 30, 2007 and $4.2 million or 4.2% for the nine months ended September 30, 2007, as compared to the same periods in 2006. In local currency, net sales for the three and nine months ended September 30, 2007, decreased 20.3% and 11.9%, respectively, as compared to the same periods in 2006. The fluctuation of foreign currency rates had a favorable impact of $3.5 million and $7.6 million on net sales for the three and nine months ended September 30, 2007, respectively.

The net sales decline was primarily due to distributors transitioning to a more balanced mix of recruiting, retailing, and retention via the Nutrition Club DMO. This transition also contributed to a decline in sales within the Outer Care portion of the product portfolio. New supervisors declined 33.5% and 24.3% for the three and nine months ended September 30, 2007, respectively, as compared to the same period in 2006. Also contributing to the sales decline was the fact that our senior distributor leadership in Brazil focused on building new business in Peru, which opened in December of 2006 and had net sales of $8.2 million for the three months ended September 30, 2007.

The region hosted a World Team School in July with 3,500 distributors in attendance and launched a new, unique green tea based outer care product called Soft Green. The launch included two products, Soft Green hand cream and Soft Green liquid soap. These are strategically positioned for Brazil to fuel growth in the large personal care segment and are strategically priced to compete with other multi-level marketing companies. In August 2007, Brazil hosted it’s first Nutrition Club national training in Sao Paulo, a distributor organized event with an estimated attendance of 3,000. New training materials were also launched including rules and sales aids.

Given the ongoing issues identified above, we believe that our fiscal year 2007 net sales in Brazil will be less than the same period in 2006. A favorable exchange rate against the US dollar may help mitigate some or all of the volume shortfall. We continue to proactively address the issues that are contributing to the sales decline.

South America and Southeast Asia (SAM/SEA)

The South America and Southeast Asia (SAM/SEA) region reported net sales of $76.2 million and $191.0 million for the three and nine months ended September 30, 2007, respectively. Net sales in SAM/SEA increased $24.6 million or 47.7% for the three months ended September 30, 2007 and $48.7 million or 34.2% for the nine months ended September 30, 2007, as compared to the same periods in 2006. In local currency, net sales increased 41.6% and 28.4% for the three and nine months ended September 30, 2007, respectively, as compared to the same periods in 2006. The fluctuation of foreign currency rates had a favorable impact of $3.2 million and $8.0 million on net sales for the three and nine months ended September 30, 2007, respectively.

The overall increase in net sales for the three and nine months ended September 30, 2007, was attributed primarily to strong sales growth in Venezuela, the region’s largest country and the opening of Peru in December 2006 as a new market. Net sales in Venezuela increased 379.4% and 297.4% for the three and nine months ended September 30, 2007, respectively, as compared to the same period in 2006. Venezuela’s net sales were $14.6 million for the three months ended September 30, 2007, representing less than 3% of the company’s total net sales. In addition, for the three months ended September 30, 2007, Singapore increased 45.7%, Bolivia increased 44.1% and Colombia increased 42.7% compared to the same period in 2006. For the nine months ended September 30, 2007, Singapore increased 9.8%, Bolivia increased 32.8% and Colombia increased 14.2% compared to the same period in 2006. New Supervisor growth in the region experienced an increase of 44.0% and 34.0% for the three and nine months ended September 30, 2007, respectively, as compared to the same period in 2006. In July, the Southeast Asia and North Asia regions hosted more than 15,000 distributors at a combined Asia Pacific Extravaganza.

We believe the fiscal year 2007 net sales in South America and Southeast Asia should continue to show year over year positive growth primarily as a result of continued momentum in Venezuela and other countries in the region, the opening of Peru, and the ability to respond more quickly to distributor needs as a result of the Realignment for Growth plan.

EMEA

The EMEA region reported net sales of $133.8 million and $423.0 million for the three and nine months ended September 30, 2007, respectively. The net sales increased $6.4 million or 5.0% for the three months ended September 30, 2007, and $8.9 million or 2.1% for the nine months ended September 30, 2007, as compared to the same periods in 2006. In local currency, the net sales decreased 2.4% and 4.6% for the three and nine months ended September 30, 2007, respectively, as compared to the same periods in 2006. The fluctuation of foreign currency rates had a favorable impact on net sales of $9.4 million and $27.8 million for the three and nine months ended September 30, 2007, respectively.

Performance remains strong and net sales increased for the three months ended September 30, 2007 compared to the same period in 2006 for key countries including Spain, France and Italy which increased 35.4%, 27.2% and 15.8%, respectively. In addition, certain eastern European countries have shown signs of potential long-term growth. For the nine months ended September 30, 2007, Spain increased 25.9%, Portugal increased 14.7%, France increased 13.1% and Italy increased 12.5%, as compared to the same period in 2006.

Partially offsetting these sales increases were Netherlands, Germany and Portugal which showed decline in revenues of 18.9%, 13.3% and 4.9%, respectively, for the three months ended September 30, 2007 compared to the same period in 2006. For the nine months ended September 30, 2007, Netherlands declined 19.3% and Germany declined 21.6%, as compared to the same period in 2006.

New supervisor growth for the region had decreased 11.8% and 16.2% for the three and nine months ended September 30, 2007, respectively, compared to the same period in 2006.

The region hosted more than 17,000 distributors at the Extravaganza in July 2007, where 8,000 distributors attended the special Nutrition Club training at the event. The region launched Formula 1 sachets and the Skin Activator line.

We expect 2007 net sales in local currency to decrease in single digit percentage when compared to 2006; however, we expect net sales in the region to be flat when compared to 2006 due to favorable foreign currency translation. We have identified several high-potential markets in eastern Europe for which we are developing initiatives along with our distributors to grow sales, develop the Nutrition Club DMO, and increasing local branding activities.

Greater China

The Greater China region reported net sales of $51.7 million and $139.4 million for the three and nine months ended September 30, 2007, respectively. Greater China net sales increased $15.5 million or 42.8% for the three months ended September 30, 2007 and $46.9 million or 50.7% for the nine months ended September 30, 2007, as compared to the same periods in 2006. In local currency, net sales increased 40.3% and 50.0% for the three and nine

months ended September 30, 2007, respectively, as compared to the same periods in 2006. The fluctuation of foreign currency rates had a favorable impact of $1.0 million and $0.8 million on net sales for the three and nine months ended September 30, 2007, respectively.

Net sales in China increased $10.4 million or 89.3% for the three months ended September 30, 2007 and $29.0 million or 132.7% for the nine months ended September 30, 2007, compared to the same periods in 2006. On March 23, 2007, we received the Direct Sellers license for the cities of Suzhou and Nanjing in the Jiangsu province. On July 9, 2007, we received our expanded Direct Sellers license for the entire Jiangsu province. As of September 30, 2007, we are operating 90 stores in China.

Net sales in Taiwan increased $5.2 million or 23.6% for the three months ended September 30, 2007 and $19.2 million or 31.3% for the nine months ended September 30, 2007, as compared to the same periods in 2006.

Net sales in Hong Kong were flat for the three months ended September 30, 2007 and decreased $1.2 million or 13.3% for the nine months ended September 30, 2007, as compared to the same period in 2006.

New supervisor growth in the region increased 98.5% and 82.2% for the three and nine months ended September 30, 2007, as compared to the same period in 2006. Distributors from the Greater China region are among the more than 15,000 distributors who attended the Asia Pacific Extravaganza in July 2007.

We believe the fiscal year 2007 net sales in Greater China should continue to show positive year over year growth, primarily as a result of the expansion of our direct selling business in China along with the continued growth in Taiwan.

North Asia

The North Asia region reported net sales of $34.5 million and $103.1 million for the three and nine months ended September 30, 2007, respectively. North Asia net sales increased $1.2 million or 3.6% for the three months ended September 30, 2007 and $1.1 million or 1.1% for the nine months ended September 30, 2007, as compared to the same periods in 2006. In local currency, net sales for the three and nine months ended September 30, 2007, increased 3.2% and 1.4%, respectively, as compared to the same periods in 2006. The fluctuation of foreign currency rates had a favorable impact of $0.2 million on net sales for the three months ended September 30, 2007 and an unfavorable impact of $0.2 million for the nine months ended September 30, 2007.

Net sales in Japan increased $0.3 million or 1.6% for the three months ended September 30, 2007 and decreased $4.5 million or 7.5% for the nine months ended September 30, 2007, as compared to the same periods in 2006.

Net sales in South Korea increased $1.0 million or 6.6% for the three months ended September 30, 2007 and $5.6 million or 13.2% for the nine months ended September 30, 2007, as compared to the same periods in 2006.

For the region, new supervisors increased 11.0% and 2.6% for the three and nine months ended September 30, 2007 as compared to the same period in 2006.

We believe the fiscal year 2007 net sales in North Asia should continue to show positive year over year growth primarily as a result of the continued growth in South Korea and the improving business trends in Japan.

Sales by Product Category

The following historical information related to sales organized by product categories has been reclassified to conform to our current product line presentation.


	Three Months Ended September 30,
	2006											2007
								Handling											Handling
	Retail		Distributor			Product		& Freight		Net		Retail		Distributor			Product		& Freight		Net		% Change in
	Sales		Allowance			Sales		Income		Sales		Sales		Allowance			Sales		Income		Sales		Net Sales
	(In millions)

Weight Management	$	511.0	$	(253.0	)	$	258.0	$	41.6	$	299.6	$	564.3	$	(277.1	)	$	287.2	$	46.8	$	334.0		11.5	%
Targeted Nutrition		154.9		(76.7	)		78.2		12.6		90.8		177.8		(87.3	)		90.5		14.8		105.3		16.0	%
Energy and Fitness		36.7		(18.1	)		18.6		3.0		21.6		40.7		(20.0	)		20.7		3.4		24.1		11.6	%
Outer Nutrition^®		57.5		(28.5	)		29.0		4.7		33.7		57.3		(28.1	)		29.2		4.8		34.0		0.9	%
Literature, Promotional and Other		20.8		8.2			29.0		1.7		30.7		26.0		4.0			30.0		2.1		32.1		4.6	%

Total	$	780.9	$	(368.1	)	$	412.8	$	63.6	$	476.4	$	866.1	$	(408.5	)	$	457.6	$	71.9	$	529.5		11.1	%


	Nine Months Ended September 30,
	2006											2007
								Handling											Handling
	Retail		Distributor			Product		& Freight		Net		Retail		Distributor			Product		& Freight		Net		% Change in
	Sales		Allowance			Sales		Income		Sales		Sales		Allowance			Sales		Income		Sales		Net Sales
	(In millions)

Weight Management	$	1,499.7	$	(739.2	)	$	760.5	$	123.1	$	883.6	$	1,675.6	$	(822.7	)	$	852.9	$	140.7	$	993.6		12.4	%
Targeted Nutrition		453.4		(223.5	)		229.9		37.2		267.1		528.4		(259.4	)		269.0		44.4		313.4		17.3	%
Energy and Fitness		98.1		(48.3	)		49.8		8.0		57.8		112.8		(55.4	)		57.4		9.5		66.9		15.7	%
Outer Nutrition^®		191.7		(94.5	)		97.2		15.7		112.9		176.2		(86.5	)		89.7		14.8		104.5		(7.4	)%
Literature, Promotional and Other		60.2		11.6			71.8		5.0		76.8		70.5		13.0			83.5		5.8		89.3		16.3	%

Total	$	2,303.1	$	(1,093.9	)	$	1,209.2	$	189.0	$	1,398.2	$	2,563.5	$	(1,211.0	)	$	1,352.5	$	215.2	$	1,567.7		12.1	%

Our emphasis on the science of weight management, energy and nutrition has resulted in product introductions such as Niteworks^tm and Garden 7 ^tm, Best Defense^tm, Liftoff, H3O and a new children’s line. Due to the launch of these new products together with the continued positive sales momentum discussed above, net sales of weight management products, targeted nutrition products and energy & fitness products increased compared to the same period in 2006. The change of product mix due to various DMOs, as well as the change in country mix, resulted in a decrease in the sales of Outer Nutrition (R) products for the nine months ended September 30, 2007. We expect growth rates within these categories will vary from time to time as we launch new products.

Gross Profit

Gross profit was $423.7 million and $1,243.2 million for the three and nine months ended September 30, 2007, respectively, as compared to $379.2 million and $1,117.0 million in the same period of 2006. As a percentage of net sales, gross profit for the three months ended September 30, 2007, increased slightly from 79.6% to 80.0%, as compared to the same period in 2006 primarily due to lower freight cost and excise taxes in certain countries. The gross profit percentage for the nine months ended September 30, 2007 decreased from 79.9% to 79.3% compared to the same period in 2006 primarily due to foreign exchange fluctuations and higher freight in certain countries. Generally, gross profit percentages do not vary significantly as a percentage of sales other than due to product or country mix, ongoing cost reduction initiatives and provisions for slow moving and obsolete inventory. Additionally, we believe that we have the ability to mitigate ingredient and manufacturing cost increases from our suppliers by raising the prices of our products or shifting product sourcing to alternative manufacturers.

Royalty Overrides

Royalty Overrides as a percentage of net sales were 35.2% and 35.4% for the three and nine months ended September 30, 2007, respectively, as compared to 35.4% and 35.9% for the same periods in 2006. The decreases for the three and nine months ended September 30, 2007, were primarily due to changes in the mix of products and countries, and the increase in sales in China where compensation to our full-time employee sales representatives was included in selling, general & administrative expenses instead of Royalty Overrides. Generally, this ratio varies slightly from period to period due to changes in the mix of products and countries because full Royalty Overrides are not paid on certain products or in certain countries. Due to the structure of our global compensation plan, we expect to see slight fluctuations in Royalty Overrides as a percent of net sales.

Selling, General and Administrative Expenses

Selling, general, & administrative expenses as a percentage of net sales were 30.0% and 29.4% for the three and nine months ended September 30, 2007 as compared to 30.7% and 30.2% for the three and nine months ended September 30, 2006, respectively. For the three and nine months ended September 30, 2007, selling, general & administrative expenses increased $12.8 million and $38.5 million to $158.9 million and $460.4 million, respectively, as compared to the same periods in 2006.

The increases in selling, general & administrative expenses for the three and nine months ended September 30, 2007 included $9.7 million and $27.1 million, respectively, in higher salaries and benefits due primarily to normal merit increases, severance related to the Realignment for Growth plan (discussed in Note 10 in the Notes to our Unaudited Consolidated Financial Statements) and higher compensation costs associated with full-time employee sales representatives in China, $1.3 million and $4.0 million, respectively, in higher depreciation and amortization related mostly to the development of the Customer Initiative e-tailing and distributor support websites launched in April 2007 and the expansion and relocation to new facilities, and an unfavorable impact of foreign currency fluctuations of $3.6 million and $6.2 million, respectively. The increases for the three and nine months ended September 30, 2007 were partially offset by $1.6 million and $4.9 million, respectively, in lower legal and litigations expenses and lower professional fees related to IT infrastructure development.

Selling, general & administrative expenses as a percentage of net sales decreased for the three and nine months ended September 30, 2007, respectively, compared to the same period in 2006. We expect 2007 selling, general & administrative expenses to increase in absolute dollars over the 2006 level reflecting general salary merit increases, continued investments in China, and various sales growth initiatives including sales events and promotions, while improving as a percentage of net sales.

Net Interest Expense

Net interest expense was $2.7 million and $7.2 million for the three and nine months ended September 30, 2007, respectively, as compared to $25.9 million and $36.8 million for the same periods in 2006. Interest expense for 2006 was higher primarily due to the $22.9 million incurred from the redemption of the $165.0 million aggregate principal amount of our 91/2% Notes in August 2006 and the repayment of our prior credit facility in July 2006. See Note 3 in the Notes to the Unaudited Consolidated Financial Statements for further discussion.

Income Taxes

Income taxes were $27.2 million and $82.7 million for the three and nine months ended September 30, 2007, respectively, as compared to $12.2 million and $55.4 million in the same period of 2006. As a percentage of pre-tax income, the effective income tax rate was 36.0% and 37.5% for the three and nine months ended September 30, 2007, respectively, as compared to 31.5% and 35.3% in the same period of 2006. The increase in the effective tax rate for the nine months ended September 30, 2007, as compared to the same period of 2006, was primarily due to an increase in unrecognized tax benefits, i.e. income tax reserves, that are not related to the adoption of FIN 48 and the favorable settlement of the international tax audits in the first quarter of 2006, and was partially offset by a decrease in the operating effective tax rate in the first, second and third quarter of 2007, as compared to the same periods in 2006. Excluding the effect of the increase in prior year unrecognized tax benefits, the effective tax rate would have been approximately 36.0% and 36.2% for the three and nine months ended September 30, 2007, respectively.

On October 1, 2007, tax legislation was enacted in Mexico that includes modifying the regular income tax system, introducing an alternative flat tax, and repealing the previous asset tax. The new legislation, which generally is effective January 1, 2008, requires payment of the higher of the regular tax or the flat tax each year. The Company is still determining the impact of the new legislation on our tax liabilities in Mexico and the Company does not believe this will have a material impact to its financial statements.

Restructuring Reserve

In July 2006, we initiated a realignment of our employee base as part of our Realignment for Growth plan. We recorded $3.0 million and $7.5 million of professional fees, severance and related costs in the third quarter and fourth quarter of 2006, respectively. During fiscal year 2007 the restructuring costs decreased, as expected, to $1.8 million for the nine months ended September 30, 2007, as most of the costs were incurred in fiscal year 2006. For the three months ended September 30, 2007, the restructuring costs were $0.1 million.

Subsequent Event

Liquidity and Capital Resources

We have historically met our working capital and capital expenditure requirements, including funding for expansion of operations, through net cash flows provided by operating activities. Our principal source of liquidity is our operating cash flows. Variations in sales of our products would directly affect the availability of funds. There are no material restrictions on the ability to transfer and remit funds among our international affiliated companies.

For the nine months ended September 30, 2007, we generated $195.0 million from operating cash flows, as compared to $145.0 million for the same period of 2006. The increase in cash generated from operations reflected an increase in net income which was primarily driven by 12.1% growth in net sales and lower inventories.

Capital expenditures, including capital leases, for the three and nine months ended September 30, 2007, were $9.2 million and $31.8 million, respectively, as compared to $23.5 million and $49.1 million for the same periods in 2006. The majority of these expenditures represented investments in management information systems, the development of our distributor internet initiatives, and the expansion of our facilities domestically and internationally. We expect to incur capital expenditures of approximately $50.0 million in 2007.

We entered into a new $300.0 million senior secured credit facility, comprised of a $200.0 million term loan and a revolving credit facility of $100.0 million, with a syndicate of financial institutions as lenders in July 2006. The term loan matures on July 21, 2013 and the revolving credit facility is available until July 21, 2012. The term loan bears interest at LIBOR plus a margin of 1.5% and the revolver bears interest at LIBOR plus a margin of 1.25%. In March 2007, we made a prepayment of $29.5 million of our term loan borrowings. In the second quarter of 2007, we borrowed an aggregate amount of $100.0 million under the revolving credit facility to fund our stock repurchase program. In June 2007, we repaid $40.0 million of our revolving credit facility. In September 2007, the credit agreement was amended increasing the revolving credit facility by $150.0 million to fund the increase in the share repurchase program. In the third quarter of 2007, we borrowed an additional $48.7 million, and repaid $30.0 million of

our revolving credit facility. The following summarizes our contractual obligations including interest at September 30, 2007, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:


	Payments Due by Period
	Total		2007		2008		2009		2010		2011		2012+
	(In millions)

Borrowings under Senior Credit Facility	$	308.4	$	4.2	$	16.6	$	16.4	$	16.3	$	16.2	$	238.7
Capital Leases		5.9		1.7		2.4		1.0		0.3		0.3		0.2
Operating Leases		130.5		11.5		27.2		21.0		14.6		11.7		44.5
Other		22.4		4.8		4.4		4.4		4.4		4.4		—

Total	$	467.2	$	22.2	$	50.6	$	42.8	$	35.6	$	32.6	$	283.4

Stock Repurchases

On April 18, 2007, our Board of Directors authorized the repurchase of up to $300 million of our common shares during the next two years, at such times and prices as determined by our management, as market conditions warrant. During the quarter ended June 30, 2007, we repurchased approximately 3.5 million of common shares through open market purchases at an aggregate cost of $138.8 million, or an average cost of $39.65 per share.

On August 23, 2007, our Board of Directors approved an increase of $150 million to the previously authorized share repurchase program raising the total value of our common shares authorized to be repurchased to $450 million.

During the quarter ended September 30, 2007, we repurchased approximately 1.7 million of our common shares through open market purchases at an aggregate cost of $65.1 million or an average cost of $39.23 per share.

Dividends

During the second quarter of 2007, our Board of Directors adopted a regular quarterly cash dividend program. As part of this program, we paid its regular quarterly cash dividend of $0.20 per common share, or $14.4 million in the aggregate in May 2007 to shareholders of record as of April 30, 2007. On August 6, 2007, the Company’s Board of Directors authorized a $0.20 per common share cash dividend, or $13.5 million in the aggregate, for the second quarter of 2007 that was paid on September 14, 2007 to shareholders of record on August 31, 2007.

Working Capital and Operating Activities

As of September 30, 2007, we had positive working capital of $119.6 million. Cash and cash equivalents were $160.8 million at September 30, 2007, compared to $154.3 million at December 31, 2006.

We expect that cash and funds provided from operations and available borrowings under our revolving credit facility will provide sufficient working capital to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements, including debt service on the new term loan. There can be no assurance, however, that our business will service our debt or fund our other liquidity needs.

The majority of our purchases from suppliers are generally made in U.S. dollars, while sales to our distributors generally are 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. For discussion of our foreign exchange contracts and other hedging arrangements, see Item 3, Quantitative and Qualitative Disclosures about Market Risk below.

Currency restrictions enacted by the Venezuelan government in 2003 have become more restrictive and have impacted the ability of our subsidiary in Venezuela, or Herbalife Venezuela, to obtain US dollars at the official foreign exchange rate to pay for imported products. Unless official foreign exchange is made more readily available, the results of Herbalife Venezuela’s operations could be negatively impacted as it may need to obtain more US dollars from non-government sources where the exchange rate is weaker than the official rate.

At September 30, 2007, Herbalife Venezuela had cash balances of approximately $11.7 million, primarily denominated in bolivars. During 2006, Herbalife Venezuela paid for certain products by converting its bolivars to US dollars at the official exchange rate. During the rest of 2007, Herbalife Venezuela expects to convert its bolivars

to US dollars using the official foreign exchange rate for some of its imports and other remittances. As a result, we continue to use the official foreign exchange rate to translate the financial statements of Herbalife Venezuela into U.S. dollars. Herbalife Venezuela’s net sales represented less than 2% of consolidated worldwide net sales for the nine months ended September 30, 2007.

Contingencies

Critical Accounting Policies

Our Consolidated Financial Statements are prepared in conformity with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. We consider the following policies to be most critical in understanding the judgments that are involved in preparing the financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.

We are a network marketing company that sells a wide range of weight management products, nutritional supplements, energy & fitness products and personal care products within one industry segment as defined under Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, or SFAS No. 131. Our products are manufactured by third party providers and then sold to independent distributors who sell Herbalife products to retail consumers or other distributors. We sell products in 65 countries throughout the world as of September 30, 2007 and we are organized and managed by geographic region. In the first quarter of 2003, we elected to aggregate our operating segments into one reporting segment, as management believes that our operating segments have similar operating characteristics and similar long term operating performance. In making this determination, management believes that the operating segments are similar in the nature of the products sold, the product acquisition process, the types of customers products are sold to, the methods used to distribute the products, and the nature of the regulatory environment.

Revenue is recognized when products are shipped and title passes to the independent distributor or importer. Amounts billed for freight and handling costs are included in net sales. We generally receive the net sales price in cash or through credit card payments at the point of sale. Related Royalty Overrides and allowances for product returns are recorded when the merchandise is shipped.

Allowances for product returns primarily in connection with our buyback program are provided at the time the product is shipped. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Historically, product returns and buybacks have not been significant. Product returns and buybacks were approximately 1.0% of retail sales for the three and nine months ended September 30, 2006 and 2007, respectively. No material changes in estimates have been recognized for the three months and nine months ended September 30, 2006 and 2007.

We record reserves against our inventory to provide for estimated obsolete or unsalable inventory based on assumptions about future demand for our products and market conditions. If future demand and market conditions are less favorable than management’s assumptions, additional reserves could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if previously reserved for inventory is sold. As of December 31, 2006 and September 30, 2007, the reserve balance for obsolete and slow moving inventory totaled $11.4 million and $12.2 million, respectively.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Goodwill and other intangibles not subject to amortization are tested annually for impairment and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and

compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill and other intangibles over the implied fair value. The implied fair value is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill and other intangibles. As of September 30, 2007, we had goodwill of approximately $111.4 million, and marketing franchise of $310.0 million. No impairment was needed for the three and nine months ended September 30, 2006 and 2007. Goodwill was reduced in 2006 by approximately $21.0 million due primarily to the effect of the settlement of an international tax audit related to the pre-acquisition period and the realization of pre-acquisition net operating losses. There was an approximate $1.8 million net reduction in goodwill as of September 30, 2007 compared to December 31, 2006. For the nine months ended September 30, 2007, the $1.8 million net reduction in goodwill was primarily due to the change in the pre-acquisition income tax reserve and the settlement of an international tax audit related to the pre-acquisition period.

Contingencies are accounted for in accordance with SFAS No. 5, Accounting for Contingencies, or SFAS No. 5. SFAS No. 5 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our consolidated financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies requires us to use judgment. Many of these contingencies can take years to be resolved. Generally, as the time period increases over which the uncertainties are resolved, the likelihood of changes to the estimate of the ultimate outcome increases.

Deferred income tax assets have been established for net operating loss carryforwards of certain foreign subsidiaries and have been reduced by a valuation allowance to reflect them at amounts estimated to be ultimately recognized. The net operating loss carryforwards expire in varying amounts over a future period of time. Realization of the income tax carryforwards is dependent on generating sufficient taxable income prior to expiration of the carryforwards. Although realization is not assured, we believe it is more likely than not that the net carrying value of the income tax carryforwards will be realized. The amount of the income tax carryforwards that is considered realizable, however, could change if estimates of future taxable income during the carryforward period are adjusted.

We account for stock-based compensation in accordance with SFAS No. 123R, Share-Based Payment, or SFAS No. 123R. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating our stock price volatility and employee stock award exercise behaviors. Our expected volatility is primarily based upon the historical volatility of Herbalife’s common stock and, due to the limited period of public trading data for its common stock, it is also validated against the volatility of a company peer group. The expected life of awards is based on the simple average of the average vesting period and the life of the award. As stock-based compensation expense recognized in the Statement of Income is based on awards ultimately expected to vest, the amount of expense has been reduced for estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

We account for uncertain tax positions in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, an interpretation of SFAS No. 109. FIN 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The impact of the adoption of FIN 48 did not have a material impact on the results of operations, financial condition or liquidity.

New Accounting Pronouncements

On May 2, 2007, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48, or FSP FIN 48-1, which amends FIN 48, to provide guidance about how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under the FSP FIN 48-1, a tax position is considered to be effectively settled if the taxing authority completed its examination, the enterprise does not plan to appeal, and it is remote that the taxing authority would reexamine the tax position in the future. FSP FIN 48-1 is effective retroactively to January 1, 2007. The implementation of this standard did not have a material impact on our consolidated financial position or results of operations.

In April 2007, the FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39, or FSP FIN 39-1. FSP FIN 39-1 modifies FIN No. 39, Offsetting of Amounts Related to Certain Contracts and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. We believe that the adoption of FSP FIN 39-1 will not have material effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159, which permits entities to choose to measure many financial instruments, and certain other items, at fair value. SFAS No. 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 No. 159 applies to reporting periods beginning after November 15, 2007. We are currently evaluating the impact, if any, of adopting SFAS No. 159.

In September 2006, the FASB issued No. 157, Fair Value Measurement, or SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact, if any, of adopting SFAS No. 157.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates. On a selected basis, we use derivative financial instruments to manage or hedge these risks. All hedging transactions are authorized and executed pursuant to written guidelines and procedures.

We have adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS No. 133. SFAS 133, as amended and interpreted, established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the underlying hedged item are recognized concurrently in earnings. If the derivative is designated as a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income, or OCI, and are recognized in the statement of operations when the hedged item affects earnings. SFAS No. 133 defines the requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized concurrently in earnings.

A discussion of our primary market risk exposures and derivatives is presented below.

Foreign Exchange Risk

We enter into foreign exchange derivatives in the ordinary course of business primarily to reduce exposure to currency fluctuations attributable to foreign denominated inter-company transactions and foreign denominated revenue. All of these foreign exchange contracts are designated as free standing derivatives for which hedge accounting does not apply.

We purchase average rate put options, which give us the right, but not the obligation, to sell foreign currency at a specified exchange rate, or strike rate. These contracts provide protection in the event that the foreign currency weakens beyond the option strike rate. We also enter into various forward extra contracts (a combination of a foreign forward exchange contract and an option), which provide protection against adverse market movement at a strike rate slightly worse than the forward and participate in favorable currency move up to a predetermined trigger level. We are only obliged to sell foreign currency at the strike rate when the spot exchange rate is traded at or above the trigger rate. The following table provides information about the details of our option contracts:


			Average				Fair
Foreign Currency	Coverage		Strike Price		Barrier		Value
	(In millions)						(In millions)

Purchase Puts (Company may sell EURO/buy USD) Euro	$	21.0		1.30 - 1.33		1.39 - 1.40	$	(1.9	)
Purchase Puts (Company may sell BRL/buy USD) Brazilian real	$	3.0		2.24 - 2.24		1.99	$	(0.6	)
Purchase Puts (Company may sell KRW/buy USD) Korean won	$	6.0		935.00 - 942.00		910.75 -923.00	$	(0.1	)

Foreign exchange forward contracts are used to hedge advances between subsidiaries. The objective of these contracts is to neutralize the impact of foreign currency movements on the subsidiary’s operating results. We also purchased ratio forward contracts which protect against adverse market movement at a rate better than the current forward. The fair value of forward contracts is based on third-party bank quotes.

The following table provides information about the details of our forward contracts:


	Contract		Original Notional		Fair Value
Foreign Currency	Rate		Amount		September 30, 2007
			(In millions)		(In millions)

At September 30, 2007
Buy USD sell YEN		112.25	$	0.9	$	—
Buy USD sell YEN		113.45		1.5		—
Buy USD sell TWD		32.61		1.5		—
Sell EURO buy USD		1.32		23.8		(1.8	)
Buy BRL sell USD		1.85		5.3		—
Buy DKK sell EURO		7.45		1.5		—
Buy EURO sell GBP		0.70		1.0		—
Sell MXN buy EURO		15.46		25.0		0.3
Sell MXN buy EURO		15.51		7.6		0.1
Sell MXN buy EURO		15.48		27.8		0.2
Sell AUD buy USD		0.81		0.3		—
Buy EURO sell SEK		9.23		0.8		—
Buy EURO sell USD		1.41		15.7		0.1
Buy GBP sell EURO		0.70		3.6		—
Buy INR sell USD		39.40		6.5		(0.1	)
Buy KRW sell USD		919.30		4.3		—
Buy MYR sell EURO		4.83		0.7		—
Buy NOK sell EURO		7.78		2.2		—
Buy NZD sell EURO		1.90		0.7		—
Buy PLN sell EURO		3.78		1.5		—
Buy SEK sell EURO		9.23		2.8		—
Buy TWD sell EURO		45.00		5.0		(0.1	)
Sell EURO buy USD		1.41		53.4		(0.5	)
Buy USD sell TRY		1.23		1.2		—
Buy YEN sell EURO		162.60		20.9		(0.1	)
Buy YEN sell USD		115.25		9.3		0.1

Total forward contracts			$	224.8	$	(1.8	)

All our foreign subsidiaries, excluding those operating in hyper-inflationary environments, designate their local currencies as their functional currency. At September 30, 2007, the total amount of our foreign subsidiary cash was $136.6 million, of which $8.9 million was invested in U.S. dollars.

Interest Rate Risk

As of September 30, 2007, the aggregate annual maturities of our term loan obtained in July 2006, as well as our revolving credit facility, were: 2007-$0.4 million; 2008-$1.5 million; 2009-$1.5 million; 2010-$1.5 million; 2011-$1.5 million; and $221.0 million thereafter. The fair value of this loan approximates its carrying value of $227.4 million as of September 30, 2007. The term loan bears a variable interest rate. On September 30, 2007, the average interest rate was 6.54%.

On July 21, 2006, the interest rate swap agreement associated with the $225.0 million credit facility, originally entered into on February 21, 2005, was terminated due to our debt refinancing and interest income of $0.8 million was recorded in our consolidated statements of income for the quarter ended September 30, 2006. Under the new credit facility (see Note 3 to the Notes to Unaudited Consolidated Financial Statements), we are obligated to enter

into an interest rate hedge for up to 25% of the aggregate principal amount of new term loan for a minimum of three years. On August 23, 2006, we entered into a new interest rate swap agreement. This agreement provides for us to pay interest for a three-year period at a fixed rate of 5.26% on the initial notional principal amount of $180.0 million while receiving interest for the same period at the LIBOR on the same notional principal amount. The swap has been designated as a cash flow hedge against the variability in LIBOR on the new term loan at LIBOR plus 1.50%, thereby fixing our effective rate on the notional principal amounts at 6.76%. At June 30, 2007, the notional principal amount was reduced to $140.0 million. As of September 30, 2007, the fair value of the interest rate swap of $0.9 million was recorded as a liability and the offset was recorded to other comprehensive income.


Item 4.	*Controls And Procedures*

Evaluation of Disclosure Controls and Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2007.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-(f) under the Exchange Act) that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORWARD LOOKING STATEMENTS

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

Although we believe that 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:


	•	our relationship with, and our ability to influence the actions of, our distributors;

	•	adverse publicity associated with our products or network marketing organization;

	•	uncertainties relating to interpretation and enforcement of recently enacted legislation in China governing direct selling;

	•	risk of 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;

	•	risk of improper action by our employees or international distributors in violation of applicable law;

	•	changing consumer preferences and demands;


	•	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;

	•	risks associated with operating internationally, including foreign exchange risks;

	•	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;

	•	our reliance on our management team;

	•	uncertainties relating to the application of transfer pricing, duties and similar tax regulations;

	•	taxation relating to our distributors;

	•	product liability claims; and

	•	there can be no assurance that we will purchase any of our shares in the open markets or otherwise.

Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in this Quarterly Report on Form 10-Q, including under the heading “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Financial Statements and the related notes.

Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward looking statements in documents attached are incorporated by reference speak only as of the date of those documents. 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.

PART II. OTHER INFORMATION


Item 1.	*LEGAL PROCEEDINGS*

See discussion under Note 4 to the Notes to the Consolidated Financial Statements included in Item 1 of Part I of this quarterly report on Form 10Q.

On September 20, 2007, the Company was orally advised by the Los Angeles Regional Office of the SEC that the SEC had issued a formal order of investigation into the timing of trading in Herbalife securities by a former mid-level employee. The Company does not believe these trades involve the Company itself. In addition, on November 1, 2007, the Company received a voluntary request for the production of documents from the staff of the Los Angeles Regional Office of the SEC regarding the extent of personal use of Herbalife products by the Company’s distributors and the Company’s related policies and procedures. The SEC has advised the Company that its inquiry should not be construed as an adverse reflection on any person, the Company or its common shares, or as an indication from the SEC or its staff that any violation of law has occurred. The Company is cooperating fully with the staff of the SEC in these matters.


Item 1.a	*RISK FACTORS*

Our failure to establish and maintain distributor relationships for any reason could negatively impact sales of our products and harm our financial condition and operating results.

We distribute our products exclusively through over 1.6 million independent distributors, and we depend upon them directly for substantially all of our sales. To increase our revenue, we must increase the number of, or the productivity of, our distributors. Accordingly, our success depends in significant part upon our ability to recruit, retain and motivate a large base of distributors. There is a high rate of turnover among our distributors, a characteristic of the network marketing business. The loss of a significant number of distributors for any reason could negatively impact sales of our products and could impair our ability to attract new distributors. In our efforts to attract and retain distributors, we compete with other network marketing organizations, including those in the weight management product, dietary and nutritional supplement and personal care and cosmetic product industries. Our operating results could be harmed if our existing and new business opportunities and products do not generate sufficient interest to retain existing distributors and attract new distributors.

In light of the high year-over-year rate of turnover in our distributor base, we have our supervisors re-qualify annually in order to help us maintain a more accurate count of their numbers. For the latest twelve month re-qualification period ending January 2007, 42.5% of our supervisors re-qualified. Distributors who purchase our product for personal consumption or for short-term income goals may stay with us for several months to one year. Supervisors who have committed time and effort to build a sales organization will generally stay for longer periods. Distributors have highly variable levels of training, skills and capabilities. The turnover rate of our distributors, and our operating results, can be adversely impacted if we, and our senior distributor leadership, do not provide the necessary mentoring, training and business support tools for new distributors to become successful sales people in a short period of time.

We estimate that, of our over 1.6 million independent distributors, we had approximately 298,000 supervisors after re-qualification in February 2007. These supervisors, together with their downline sales organizations, account for substantially all of our revenues. Our distributors, including our supervisors, may voluntarily terminate their distributor agreements with us at any time. The loss of a group of leading supervisors, together with their downline sales organizations, or the loss of a significant number of distributors for any reason, could negatively impact sales of our products, impair our ability to attract new distributors and harm our financial condition and operating results.

Since we cannot exert the same level of influence or control over our independent distributors as we could were they our own employees, our distributors could fail to comply with our distributor policies and procedures, which could result in claims against us that could harm our financial condition and operating results.

Our distributors are independent contractors and, accordingly, we are not in a position to directly provide the same direction, motivation and oversight as we would if distributors were our own employees. As a result, there can be no assurance that our distributors will participate in our marketing strategies or plans, accept our introduction of new products, or comply with our distributor policies and procedures.

Extensive federal, state and local laws regulate our business, our products and our network marketing program. Because we have expanded into foreign countries, our policies and procedures for our independent distributors differ due to the different legal requirements of each country in which we do business. While we have implemented distributor policies and procedures designed to govern distributor conduct and to protect the goodwill associated with Herbalife trademarks and tradenames, it can be difficult to enforce these policies and procedures because of the large number of distributors and their independent status. Violations by our independent distributors of applicable law or of our policies and procedures in dealing with customers could reflect negatively on our products and operations and harm our business reputation. In addition, it is possible that a court could hold us civilly or criminally accountable based on vicarious liability because of the actions of our independent distributors. If any of these events occur, the value of an investment in our common shares could be impaired.

Adverse publicity associated with our products, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results.

The size of our distribution force and the results of our operations may be significantly affected by the public’s perception of our Company and similar companies. This perception is dependent upon opinions concerning:


	•	the safety and quality of our products and ingredients;

	•	the safety and quality of similar products and ingredients distributed by other companies;

	•	our distributors;

	•	our network marketing program; and

	•	the direct selling business generally.

Adverse publicity concerning any actual or purported failure of our Company or our independent distributors to comply with applicable laws and regulations regarding product claims and advertising, good manufacturing practices, the regulation of our network marketing program, the licensing of our products for sale in our target markets or other aspects of our business, whether or not resulting in enforcement actions or the imposition of penalties, could have an adverse effect on the goodwill of our Company and could negatively affect our ability to attract, motivate and retain distributors, which would negatively impact our ability to generate revenue. We cannot ensure that all distributors will comply with applicable legal requirements relating to the advertising, labeling, licensing or distribution of our products.

In addition, our distributors’ and consumers’ perception of the safety and quality of our products and ingredients as well as similar products and ingredients distributed by other companies can be significantly influenced by national media attention, publicized scientific research or findings, widespread product liability claims and other publicity concerning our products or ingredients or similar products and ingredients distributed by other companies. Adverse publicity, whether or not accurate or resulting from consumers’ use or misuse of our products, that associates consumption of our products or ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar products or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could negatively impact our reputation or the market demand for our products.

Adverse publicity relating to us, our products or our operations, including our network marketing program or the attractiveness or viability of the financial opportunities provided thereby, has had, and could again have, a negative effect on our ability to attract, motivate and retain distributors. In the mid-1980’s, our products and marketing program became the subject of regulatory scrutiny in the United States, resulting in large part from claims and representations made about our products by our independent distributors, including impermissible therapeutic claims. The resulting adverse publicity caused a rapid, substantial loss of distributors in the United States and a corresponding reduction in sales beginning in 1985. We expect that negative publicity will, from time to time, continue to negatively impact our business in particular markets.

Our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm our distributor and customer relationships and product sales and harm our financial condition and operating results.

Our business is subject to changing consumer trends and preferences, especially with respect to weight management products. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. Furthermore, the nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions and enhancements. Our failure to accurately predict these trends could negatively impact consumer opinion of our products, which in turn could harm our customer and distributor relationships and cause the loss of sales. The success of our new product offerings and enhancements depends upon a number of factors, including our ability to:


	•	accurately anticipate customer needs;

	•	innovate and develop new products or product enhancements that meet these needs;


	•	successfully commercialize new products or product enhancements in a timely manner;

	•	price our products competitively;

	•	manufacture and deliver our products in sufficient volumes and in a timely manner; and

	•	differentiate our product offerings from those of our competitors.

If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could be rendered obsolete, which could negatively impact our revenues, financial condition and operating results.

Due to the high level of competition in our industry, we might fail to retain our customers and distributors, which would harm our financial condition and operating results.

The business of marketing weight management and nutrition products is highly competitive and sensitive to the introduction of new products or weight management plans, including various prescription drugs, which may rapidly capture a significant share of the market. These market segments include numerous manufacturers, distributors, marketers, retailers and physicians that actively compete for the business of consumers both in the United States and abroad. In addition, we anticipate that we will be subject to increasing competition in the future from sellers that utilize electronic commerce. Some of these competitors have longer operating histories, significantly greater financial, technical, product development, marketing and sales resources, greater name recognition, larger established customer bases and better-developed distribution channels than we do. Our present or future competitors may be able to develop products that are comparable or superior to those we offer, adapt more quickly than we do to new technologies, evolving industry trends and standards or customer requirements, or devote greater resources to the development, promotion and sale of their products than we do. For example, if our competitors develop other diet or weight loss treatments that prove to be more effective than our products, demand for our products could be reduced. Accordingly, we may not be able to compete effectively in our markets and competition may intensify.

We are also subject to significant competition for the recruitment of distributors from other network marketing organizations, including those that market weight management products, dietary and nutritional supplements and personal care products as well as other types of products. We compete for global customers and distributors with regard to weight management, nutritional supplement and personal care products. Our competitors include both direct selling companies such as NuSkin Enterprises, Nature’s Sunshine, Alticor/Amway, Melaleuca, Avon Products, Oriflame and Mary Kay, as well as retail establishments such as Weight Watchers, Jenny Craig, General Nutrition Centers, Wal-Mart and retail pharmacies. In addition, because the industry in which we operate is not particularly capital intensive or otherwise subject to high barriers to entry, it is relatively easy for new competitors to emerge who will compete with us for our distributors and customers. In addition, the fact that our distributors may easily enter and exit our network marketing program contributes to the level of competition that we face. For example, a distributor can enter or exit our network marketing system with relative ease at any time without facing a significant investment or loss of capital because (1) we have a low upfront financial cost to become a Herbalife distributor, (2) we do not require any specific amount of time to work as a distributor, (3) we do not insist on any special training to be a distributor and (4) we do not prohibit a new distributor from working with another company. Our ability to remain competitive therefore depends, in significant part, on our success in recruiting and retaining distributors through an attractive compensation plan, the maintenance of an attractive product portfolio and other incentives. We cannot ensure that our programs for recruitment and retention of distributors will be successful, and if they are not, our financial condition and operating results would be harmed.

We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints both domestically and abroad, and our failure or our distributors’ failure to comply with these restraints could lead to the imposition of significant penalties or claims, which could harm our financial condition and operating results.

In both domestic and foreign markets, the formulation, manufacturing, packaging, labeling, distribution, importation, exportation, licensing, sale and storage of our products are affected by extensive laws, governmental

regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions. There can be no assurance that we or our distributors are in compliance with all of these regulations. Our failure or our distributors’ failure to comply with these regulations or new regulations could lead to the imposition of significant penalties or claims and could negatively impact our business. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in significant loss of sales revenues.

On April 12, 2006 the Federal Trade Commission, or the FTC, issued a notice of proposed rulemaking which, if implemented, will regulate all sellers of “business opportunities” in the United States. The proposed rule would, among other things, require all sellers of business opportunities, which would likely include the Company, to (i) implement a seven day waiting period before entering into an agreement with a prospective business opportunity purchaser, and (ii) provide all prospective business opportunity purchasers with substantial information in writing at the beginning of the waiting period regarding the business opportunity, including information relating to: representations made as to the earnings experience of other business opportunity purchasers, the names and telephone numbers of recent purchasers in their geographic area, cancellation or refund policies and requests within the prior two years, certain legal actions against the company, its affiliated companies and company officers, directors, sales managers and certain others. The Company, other direct selling companies, the Direct Selling Association, or the DSA, and other interested parties have filed over 17,000 comments with the FTC that are publicly available regarding the proposed rule through the FTC’s website at http://www.ftc.gov/os/comments/businessopprule/index.htm. The Company, the DSA, other direct selling companies, and other interested parties also filed “rebuttal” comments with the FTC in September, 2006. Based on information currently available, we anticipate that the final rule may require several years to become final and effective, and may differ substantially from the rule as originally proposed. Nevertheless the proposed rule, if implemented in its original form, would negatively impact our U.S. business.

Governmental regulations in countries where we plan to commence or expand operations may prevent or delay entry into those markets. In addition, our ability to sustain satisfactory levels of sales in our markets is dependent in significant part on our ability to introduce additional products into such markets. However, governmental regulations in our markets, both domestic and international, can delay or prevent the introduction, or require the reformulation or withdrawal, of certain of our products. For example, during the third quarter of 1995, we received inquiries from certain governmental agencies within Germany and Portugal regarding our product, Thermojetics^® Instant Herbal Beverage, relating to the caffeine content of the product and the status of the product as an “instant tea,” which was disfavored by regulators, versus a “beverage.” Although we initially suspended the product sale in Germany and Portugal at the request of the regulators, we successfully reintroduced it once regulatory issues were satisfactorily resolved. Any such regulatory action, whether or not it results in a final determination adverse to us, could create negative publicity, with detrimental effects on the motivation and recruitment of distributors and, consequently, on sales.

On June 25, 2007, the U.S. Food and Drug Administration, or the FDA, published its final rule for dietary supplement Good Manufacturing Practices, or cGMPs, affecting the manufacture, packing, and holding of dietary supplements. The final rule requires identity testing on all incoming dietary ingredients, but permits the use of certificates of analysis or other documentation to verify the reliability of the ingredient suppliers. On the same date the FDA also published an interim final rule that outlined a petition process for manufacturers to request an exemption to the cGMP requirement for 100 percent identity testing of specific dietary ingredients used in the processing of dietary supplements. Under the interim final rule the manufacturer may be exempted from the dietary ingredient testing requirement if it can provide sufficient documentation that the reduced frequency of testing requested would still ensure the identity of the dietary ingredient. FDA is soliciting comment from the public on the interim final rule. The final rule includes a phased in effective date based on the size of the manufacturer. The final rule and the interim final rule are effective August 24, 2007. To limit any disruption for dietary supplements produced by small businesses the final rule has a three year phase in for small businesses. Companies with more than 500 employees, such as Herbalife, have until June 25, 2008 to comply while companies with fewer than 500 employees have until June 2009 to comply and companies with fewer than 20 employees have until June 2010

to comply with these regulations. These rules apply only to manufacturers and holders of finished products and not to ingredient suppliers unless the ingredient supplier is manufacturing a final dietary supplement. The final rule differs from the FDA’s 2003 proposed rule as it does not contain language regarding the regulatory status of excipients and other ingredients that are not “dietary ingredients.” Instead, the final rule relies on a requirement to comply with all other relevant regulations. Further, the final rule does not call for any specific finished product testing program nor does it require 100% testing of all finished products. Instead the final rule calls for a “scientifically valid system” for ensuring that finished products meet all specifications. Although we, in consultation with experts in the field, are currently evaluating the likely impact of the final rule and the interim rule on our business and the contract manufacturers we utilize to manufacture our products, it is likely that the final cGMP rules will result in additional costs and possibly the need to seek alternate suppliers.

Our network marketing program could be found to be not in compliance with current or newly adopted laws or regulations in one or more markets, which could prevent us from conducting our business in these markets and harm our financial condition and operating results.

Our network marketing program is subject to a number of federal and state regulations administered by the Federal Trade Commission and various state agencies in the United States as well as regulations on direct selling in foreign markets administered by foreign agencies. We are subject to the risk that, in one or more markets, our network marketing program could be found not to be in compliance with applicable law or regulations. Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria. The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based, and thus, even in jurisdictions where we believe that our network marketing program is in full compliance with applicable laws or regulations governing network marketing systems, we are subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. The failure of our network marketing program to comply with current or newly adopted regulations could negatively impact our business in a particular market or in general.

We are also subject to the risk of private party challenges to the legality of our network marketing program. The multi-level marketing programs of other companies have been successfully challenged in the past, and in a current lawsuit, allegations have been made challenging the legality of our network marketing program in Belgium. Test Ankoop-Test Achat, a Belgian consumer protection organization, sued Herbalife International Belgium, S.V., or HIB, on August 26, 2004, alleging that HIB violated Article 84 of the Belgian Fair Trade Practices Act by engaging in pyramid selling, i.e., establishing a network of professional or non-professional sales people who hope to make a profit more through the expansion of that network than through the sale of products to end-consumers. The plaintiff is seeking a payment of €25,000 (equal to approximately $35,500 as of September 30, 2007) per purported violation as well as costs of the trial. For the year ended December 31, 2006, our net sales in Belgium were approximately $14.4 million. Currently, the lawsuit is in the pleading stage. The plaintiffs filed their initial brief on September 27, 2005. We filed a reply brief on May 9, 2006. There is no date yet for the oral hearings. An adverse judicial determination with respect to our network marketing program, or in proceedings not involving us directly but which challenge the legality of multi-level marketing systems, in Belgium or in any other market in which we operate, could negatively impact our business.

The Company learned on November 5, 2007 that Barry Minkow of the Fraud Discovery Institute had published a letter, dated October 29, 2007, to certain officials of the government of the People’s Republic of China. The letter includes numerous allegations of allegedly wrongful conduct by Herbalife and its employees in China and elsewhere.

Mr. Minkow’s letter attacks, among other things, the Company’s business practices in China as illegal under Chinese law. Contrary to the allegations in the letter, the Company has acted in a responsible manner with regard to its business plans in China including retaining knowledgeable Chinese counsel to assist it in complying with Chinese law. In connection with the Company’s application for its direct selling license in China, the Company’s plan and methods for business in China were reviewed by members of the state and provincial governments of China

and an initial license was granted in March 2007 and a subsequent expansion of that license was granted in July 2007. In addition, the Company has designed and implemented systems and financial and operational controls intended to ensure compliance with applicable law. The Company believes it is in compliance with applicable law.

A substantial portion of our business is conducted in foreign markets, exposing us to the risks of trade or foreign exchange restrictions, increased tariffs, foreign currency fluctuations and similar risks associated with foreign operations.

Approximately 82% of our net sales for the year ended December 31, 2006, were generated outside the United States, exposing our business to risks associated with foreign operations. For example, a foreign government may impose trade or foreign exchange restrictions or increased tariffs, which could negatively impact our operations. We are also exposed to risks associated with foreign currency fluctuations. For instance, purchases from suppliers are generally made in U.S. dollars while sales to distributors are generally made in local currencies. Accordingly, strengthening of the U.S. dollar versus a foreign currency could have a negative impact on us. Although we engage in transactions to protect against risks associated with foreign currency fluctuations, we cannot be certain any hedging activity will effectively reduce our exchange rate exposure. Our operations in some markets also may be adversely affected by political, economic and social instability in foreign countries. As we continue to focus on expanding our existing international operations, these and other risks associated with international operations may increase, which could harm our financial condition and operating results.

Our expansion in China is subject to general, as well as industry-specific, economic, political and legal developments and risks in China and requires that we utilize a different business model from which we use elsewhere in the world.

Our expansion of operations into China is subject to risks and uncertainties related to general economic, political and legal developments in China, among other things. The Chinese government exercises significant control over the Chinese economy, including but not limited to controlling capital investments, allocating resources, setting monetary policy, controlling foreign exchange and monitoring foreign exchange rates, implementing and overseeing tax regulations, providing preferential treatment to certain industry segments or companies and issuing necessary licenses to conduct business. Accordingly, any adverse change in the Chinese economy, the Chinese legal system or Chinese governmental, economic or other policies could have a material adverse effect on our business in China and our prospects generally.

In August 2005, China published regulations governing direct selling (effective December 1, 2005) and prohibiting pyramid promotional schemes (effective November 1, 2005), and a number of administrative methods and proclamations were issued in September 2005 and in September 2006. These regulations require us to use a business model different from that which we offer in other markets. To allow us to operate under these regulations, we have created and introduced a model specifically for China. In China, we have Company-operated retail stores that sell through employed sales management personnel to customers and preferred customers. We provide training and certification procedures for sales personnel in China. We also have non-employee sales representatives who sell through our retail stores. Our sales representatives are also permitted by the terms of our direct selling license to sell away from fixed retail locations in the Jiangsu province. These features are not common to the business model we employ elsewhere in the world, and based on the direct selling licenses we have received and the terms of those which we hope to receive in the future to conduct a direct selling enterprise in China, our business model in China will continue in some part to incorporate such features. The direct selling regulations require us to apply for various approvals to conduct a direct selling enterprise in China. The process for obtaining the necessary licenses to conduct a direct selling business is protracted and cumbersome and involves multiple layers of Chinese governmental authorities and numerous governmental employees at each layer. While direct selling licenses are centrally issued, such licenses are generally valid only in the jurisdictions within which related approvals have been obtained. Such approvals are generally awarded on local and provincial bases, and the approval process requires involvement with multiple ministries at each level. Our participation and conduct during the approval process is guided not only by distinct Chinese practices and customs, but is also subject to applicable laws of China and the other jurisdictions in which we operate our business, including the U.S., and our internal code of ethics. There is always a risk that in attempting to comply with local customs and practices in China during the application process or otherwise, we will

fail to comply with requirements applicable to us in China itself or in other jurisdictions, and any such failure to comply with applicable requirements could prevent us from obtaining the direct selling licenses or related local or provincial approvals. Furthermore, we rely on certain key personnel in China to assist us during the approval process, and the loss of any such key personnel could delay or hinder our ability to obtain licenses or related approvals. For all of the above reasons, there can be no assurance that we will obtain additional direct-selling licenses, or obtain related approvals to expand into any or all of the localities or provinces in China that are important to our business. Our inability to obtain, retain, or renew any or all of the licenses or related approvals that are required for us to operate in China would negatively impact our business.

Additionally, although certain regulations have been published with respect to obtaining such approvals, operating under such approvals and otherwise conducting business in China, others are pending, and there is uncertainty regarding the interpretation and enforcement of Chinese regulations. The regulatory environment in China is evolving, and officials in the Chinese government exercise broad discretion in deciding how to interpret and apply regulations. We cannot be certain that our business model will continue to be deemed by national or local Chinese regulatory authorities to be compliant with any such regulations. In the past, the Chinese government has rigorously monitored the direct selling market in China, and has taken serious action against companies that the government believed were engaging in activities they regarded to be in violation of applicable law, including shutting down their businesses and imposing substantial fines. As a result, there can be no guarantee that the Chinese government’s current or future interpretation and application of the existing and new regulations will not negatively impact our business in China, result in regulatory investigations or lead to fines or penalties.

Chinese regulations prevent persons who are not Chinese nationals from engaging in direct selling in China. We cannot guarantee that any of our distributors living outside of China or any of our independent sales representatives or employed sales management personnel in China have not engaged or will not engage in activities that violate our policies in this market, or that violate Chinese law or other applicable law, and therefore result in regulatory action and adverse publicity.

As we expand operations in China, we anticipate that certain distributors will switch their focus from their home markets to that of China. As a result, we may see reduced distributor focus in Hong Kong, Taiwan and possibly other of our markets as Chinese nationals that are distributors shift their attention to China, and a resultant reduction in distributor growth, leadership and revenue in these other countries.

Recently, China enacted a labor contract law which will take effect on January 1, 2008. The Company is reviewing the new law to determine what changes, if any, will be required in its employment contracts and contractual relations with its employees, which include certain of its salespersons. There is no guarantee that the new law will not adversely impact the Company, force the Company to change its treatment of its distributor employees, or cause the Company to change its operating plan for China.

If our operations in China are successful, we may experience rapid growth in China, and there can be no assurances that we will be able to successfully manage rapid expansion of manufacturing operations and a rapidly growing and dynamic sales force. There also can be no assurances that we will not experience difficulties in dealing with or taking employment related actions (such as hiring, terminations and salary administration, including social benefit payments) with respect to our employed sales representatives, particularly given the highly regulated nature of the employment relationship in China. If we are unable to effectively manage such growth and expansion of our retail stores, manufacturing operations or our employees, our government relations may be compromised and our operations in China may be harmed.

Our China business model, particularly with regard to sales management responsibilities and remuneration, differs from our traditional business model. There is a risk that such changes and transitions may not be understood by our distributors or employees, may be viewed negatively by our distributors or employees, or may not be correctly utilized by our distributors or employees. If that is the case, our business could be negatively impacted.

If we fail to further penetrate existing markets or successfully expand our business into new markets, then the growth in sales of our products, along with our operating results, could be negatively impacted.

The success of our business is to a large extent contingent on our ability to continue to grow by entering new markets and further penetrating existing markets. Our ability to further penetrate existing markets in which we compete or to successfully expand our business into additional countries in Eastern Europe, Southeast Asia, South America or elsewhere, to the extent we believe that we have identified attractive geographic expansion opportunities in the future, is subject to numerous factors, many of which are out of our control.

In addition, government regulations in both our domestic and international markets can delay or prevent the introduction, or require the reformulation or withdrawal, of some of our products, which could negatively impact our business, financial condition and results of operations. Also, our ability to increase market penetration in certain countries may be limited by the finite number of persons in a given country inclined to pursue a direct selling business opportunity. Moreover, our growth will depend upon improved training and other activities that enhance distributor retention in our markets. While we have recently experienced significant growth in certain of our markets, we cannot assure you that such growth levels will continue in the immediate or long term future. Furthermore, our efforts to support growth in such international markets could be hampered to the extent that our infrastructure in such markets is deficient when compared to our more developed markets, such as the U.S. Therefore, we cannot assure you that our general efforts to increase our market penetration and distributor retention in existing markets will be successful. Thus, if we are unable to continue to expand into new markets or further penetrate existing markets, our operating results would suffer and the market value of our common shares could decline.

Our contractual obligation to sell our products only through our Herbalife distributor network and to refrain from changing certain aspects of our marketing plan may limit our growth.

In connection with the going private transaction of our predecessor company, we entered into an agreement with our distributors that provided assurances that the change in ownership of our Company would not negatively affect certain aspects of their business. Through this agreement, we have committed to our distributors that we will not sell Herbalife products through any distribution channel other than our network of independent Herbalife distributors. Thus, we are contractually prohibited from expanding our business by selling Herbalife products through other distribution channels that may be available to our competitors, such as over the internet, through wholesale sales, by establishing retail stores or through mail order systems. Since this is an ongoing or open-ended commitment, there can be no assurance that we will be able to take advantage of innovative new distribution channels that are developed in the future.

In addition, our agreement with our distributors provides that we will not change certain aspects of our marketing plan without the consent of a specified percentage of our distributors. For example, our agreement with our distributors provides that we may increase, but not decrease, the discount percentages available to our distributors for the purchase of products or the applicable royalty override percentages, including roll-ups, and production and other bonus percentages available to our distributors at various qualification levels within our distributor hierarchy. We may not modify the eligibility or qualification criteria for these discounts, royalty overrides and production and other bonuses unless we do so in a manner to make eligibility and/or qualification easier than under the applicable criteria in effect as of the date of the agreement. Our agreement with our distributors further provides that we may not vary the criteria for qualification for each distributor tier within our distributor hierarchy, unless we do so in such a way so as to make qualification easier.

Although we reserved the right to make these changes to our marketing plan without the consent of our distributors in the event that changes are required by applicable law or are necessary in our reasonable business judgment to account for specific local market or currency conditions to achieve a reasonable profit on operations, there can be no assurance that our agreement with our distributors will not restrict our ability to adapt our marketing plan to the evolving requirements of the markets in which we operate. As a result, our growth, and the potential of growth in the value of your investment in our common shares, may be limited.

We depend on the integrity and reliability of our information technology infrastructure, and any related inadequacies may result in substantial interruptions to our business.

Our ability to timely provide products to our distributors and their customers, and services to our distributors, depends on the integrity of our information technology system, which we are in the process of upgrading, including the reliability of software and services supplied by our vendors. We are implementing an Oracle enterprise-wide technology solution, a scalable and stable open architecture platform, to enhance our and our distributors’ efficiency and productivity. In addition, we are upgrading our internet-based marketing and distributor services platform, MyHerbalife.com.

The most important aspect of our information technology infrastructure is the system through which we record and track distributor sales, volume points, royalty overrides, bonuses and other incentives. We have encountered, and may encounter in the future, errors in our software or our enterprise network, or inadequacies in the software and services supplied by our vendors, although to date none of these errors or inadequacies has had a meaningful negative impact on our business. Any such errors or inadequacies that we may encounter in the future may result in substantial interruptions to our services and may damage our relationships with, or cause us to lose, our distributors if the errors or inadequacies impair our ability to track sales and pay Royalty Overrides, bonuses and other incentives, which would harm our financial condition and operating results. Such errors may be expensive or difficult to correct in a timely manner, and we may have little or no control over whether any inadequacies in software or services supplied to us by third parties are corrected, if at all.

Since we rely on independent third parties for the manufacture and supply of our products, if these third parties fail to reliably supply products to us at required levels of quality, then our financial condition and operating results would be harmed.

All of our products are manufactured by outside companies, except for a small amount of products manufactured in our own manufacturing facility in China. We cannot assure you that our outside manufacturers will continue to reliably supply products to us at the levels of quality, or the quantities, we require, especially under the FDA’s recently adopted cGMP regulations.

Our supply contracts generally have a two-year term. Except for force majeure events, such as natural disasters and other acts of God, and non-performance by Herbalife, our manufacturers generally cannot unilaterally terminate these contracts. These contracts can generally be extended by us at the end of the relevant time period and we have exercised this right in the past. Globally we have over 40 suppliers of our products. For our major products, we have both primary and secondary suppliers. Our major suppliers include Nature’s Bounty for protein powders, Fine Foods (Italy) for protein powders and nutritional supplements, PharmaChem Labs for teas and Niteworks^tm and JB Labs for fiber. In the event any of our third-party manufacturers were to become unable or unwilling to continue to provide us with products in required volumes and at suitable quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources. There is no assurance that we would be able to obtain alternative manufacturing sources on a timely basis. An extended interruption in the supply of products would result in the loss of sales. In addition, any actual or perceived degradation of product quality as a result of reliance on third party manufacturers may have an adverse effect on sales or result in increased product returns and buybacks.

If we fail to protect our trademarks and tradenames, then our ability to compete could be negatively affected, which would harm our financial condition and operating results.

The market for our products depends to a significant extent upon the goodwill associated with our trademark and tradenames. We own, or have licenses to use, the material trademark and trade name rights used in connection with the packaging, marketing and distribution of our products in the markets where those products are sold. Therefore, trademark and trade name protection is important to our business. Although most of our trademarks are registered in the United States and in certain foreign countries in which we operate, we may not be successful in asserting trademark or trade name protection. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The loss or infringement of our

trademarks or tradenames could impair the goodwill associated with our brands and harm our reputation, which would harm our financial condition and operating results.

Unlike in most of the other markets in which we operate, limited protection of intellectual property is available under Chinese law. Accordingly, we face an increased risk in China that unauthorized parties may attempt to copy or otherwise obtain or use our trademarks, copyrights, product formulations or other intellectual property. Further, since Chinese commercial law is relatively undeveloped, we may have limited legal recourse in the event we encounter significant difficulties with intellectual property theft or infringement. As a result, we cannot assure you that we will be able to adequately protect our product formulations or other intellectual property.

If our distributors fail to comply with labeling laws, then our financial condition and operating results would be harmed.

Although the physical labeling of our products is not within the control of our independent distributors, our distributors must nevertheless advertise our products in compliance with the extensive regulations that exist in certain jurisdictions, such as the United States, which considers product advertising to be labeling for regulatory purposes.

Our products are sold principally as foods, dietary supplements and cosmetics and are subject to rigorous FDA and related legal regimens limiting the types of therapeutic claims that can be made for our products. The treatment or cure of disease, for example, is not a permitted claim for these products. While we train and attempt to monitor our distributors’ marketing materials, we cannot ensure that all such materials comply with bans on therapeutic claims. If our distributors fail to comply with these restrictions, then we and our distributors could be subjected to claims, financial penalties, mandatory product recalls or relabeling requirements, which could harm our financial condition and operating results. Although we expect that our responsibility for the actions of our independent distributors in such an instance would be dependent on a determination that we either controlled or condoned a noncompliant advertising practice, there can be no assurance that we could not be held vicariously responsible for the actions of our independent distributors.

If our intellectual property is not adequate to provide us with a competitive advantage or to prevent competitors from replicating our products, or if we infringe the intellectual property rights of others, then our financial condition and operating results would be harmed.

Our future success and ability to compete depend upon our ability to timely produce innovative products and product enhancements that motivate our distributors and customers, which we attempt to protect under a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions. However, our products are generally not patented domestically or abroad, and the legal protections afforded by our common law and contractual proprietary rights in our products provide only limited protection and may be time-consuming and expensive to enforce and/or maintain. Further, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our proprietary rights or from independently developing non-infringing products that are competitive with, equivalent to and/or superior to our products.

Monitoring infringement and/or misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect any infringement or misappropriation of our proprietary rights. Even if we do detect infringement or misappropriation of our proprietary rights, litigation to enforce these rights could cause us to divert financial and other resources away from our business operations. Further, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States.

Additionally, third parties may claim that products we have independently developed infringe upon their intellectual property rights. For example, in a recently settled lawsuit Unither Pharma, Inc. and others had alleged that sales by Herbalife International of (1) its Niteworks^tm and Prelox Blue products and (2) its former products Woman’s Advantage with DHEA and Optimum Performance infringed on patents that are licensed to or owned by those parties. Although we do not believe that we are infringing on any third party intellectual property rights, there can be no assurance that one or more of our products will not be found to infringe upon other third party intellectual property rights in the future.

Since one of our products constitutes a significant portion of our retail sales, significant decreases in consumer demand for this product or our failure to produce a suitable replacement should we cease offering it would harm our financial condition and operating results.

Our Formula 1 meal replacement product constitutes a significant portion of our sales, accounting for approximately 22.0%, 27.0% and 28.4% of retail sales for the fiscal years ended December 31, 2004, 2005 and 2006, respectively. If consumer demand for this product decreases significantly or we cease offering this product without a suitable replacement, then our financial condition and operating results would be harmed.

If we lose the services of members of our senior management team, then our financial condition and operating results would be harmed.

We depend on the continued services of our Chairman and Chief Executive Officer, Michael O. Johnson, and our current senior management team and the relationships that they have developed with our senior distributor leadership, especially in light of the high level of turnover in our former senior management team, and the resulting need to reestablish good working relationships with our senior distributor leadership after the death of our founder in May 2000. Although we have entered into employment agreements with many members of our senior management team, and do not believe that any of them are planning to leave or retire in the near term, we cannot assure you that our senior managers will remain with us. The loss or departure of any member of our senior management team could negatively impact our distributor relations and operating results. If any of these executives do not remain with us, our business could suffer. The loss of key personnel, including our regional managers in Mexico and Central America, Greater China, Brazil, North America, South America and Southeast Asia, EMEA, and North Asia, could negatively impact our ability to implement our business strategy, and our continued success will also be dependent on our ability to retain existing, and attract additional, qualified personnel to meet our needs. We currently do not maintain “key person” life insurance with respect to our senior management team.

The covenants in our existing indebtedness limit our discretion with respect to certain business matters, which could limit our ability to pursue certain strategic objectives and in turn harm our financial condition and operating results.

Our credit facility contains numerous financial and operating covenants that restrict our and our subsidiaries’ ability to, among other things:


	•	pay dividends, redeem share capital or capital stock and make other restricted payments and investments;

	•	incur additional debt or issue preferred shares;

	•	allow the imposition of dividend or other distribution restrictions on our subsidiaries;

	•	create liens on our and our subsidiaries’ assets;

	•	engage in transactions with affiliates;

	•	guarantee other indebtedness; and

	•	merge, consolidate or sell all or substantially all of our assets and the assets of our subsidiaries.

In addition, our credit facility requires us to meet certain financial ratios and financial conditions. Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Failure to comply with these covenants could result in a default causing all amounts to become due and payable under our credit facility, which is secured by substantially all of our assets, which the lenders thereunder could proceed to foreclose against.

If we do not comply with transfer pricing, customs duties, and similar regulations, then we may be subjected to additional taxes, duties, interest, and penalties in material amounts, which could harm our financial condition and operating results.

As a multinational corporation, in many countries including the United States we are subject to transfer pricing and other tax regulations designed to ensure that our intercompany transactions are consummated at prices that have

not been manipulated to produce a desired tax result, that appropriate levels of income are reported as earned by our United States or local entities, and that we are taxed appropriately on such transactions. In addition, our operations are subject to regulations designed to ensure that appropriate levels of customs duties are assessed on the importation of our products. We are currently subject to pending or proposed audits that are at various levels of review, assessment or appeal in a number of jurisdictions involving transfer pricing issues, income taxes, customs duties, value added taxes, withholding taxes, sales and use and other taxes and related interest and penalties in material amounts. In one such case we are currently appealing a tax assessment in Spain. The Company believes that it has meritorious defenses. Further, in some circumstances, additional taxes, interest and penalties have been assessed and we will be required to pay the assessments or post surety, in order to challenge the assessments. We have reserved in the consolidated financial statements an amount that we believe represents the most likely outcome of the resolution of these disputes, but if we are incorrect in our assessment we may have to pay the full amount asserted. Ultimate resolution of these matters may take several years, and the outcome is uncertain. If the United States Internal Revenue Service or the taxing authorities of any other jurisdiction were to successfully challenge our transfer pricing practices or our positions regarding the payment of income taxes, customs duties, value added taxes, withholding taxes, sales and use, and other taxes, we could become subject to higher taxes and our earnings would be adversely affected.

We may be held responsible for certain taxes or assessments relating to the activities of our distributors, which could harm our financial condition and operating results.

Our distributors are subject to taxation, and in some instances, legislation or governmental agencies impose an obligation on us to collect taxes, such as value added taxes, and to maintain appropriate records. In addition, we are subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to our distributors. In the event that local laws and regulations or the interpretation of local laws and regulations change to require us to treat our independent distributors as employees, or that our distributors are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors under existing laws and interpretations, we may be held responsible for social security and related taxes those jurisdictions, plus any related assessments and penalties, which could harm our financial condition and operating results.

We may incur material product liability claims, which could increase our costs and harm our financial condition and operating results.

Our products consist of herbs, vitamins and minerals and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could contain contaminated substances, and some of our products contain innovative ingredients that do not have long histories of human consumption. We generally do not conduct or sponsor clinical studies for our products and previously unknown adverse reactions resulting from human consumption of these ingredients could occur. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, we have been, and may again be, subjected to various product liability claims, including that the products contain contaminants, the products include inadequate instructions as to their uses, or the products include inadequate warnings concerning side effects and interactions with other substances. It is possible that widespread product liability claims could increase our costs, and adversely affect our revenues and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, thereby requiring us to pay substantial monetary damages and adversely affecting our business. Finally, given the higher level of self-insured retentions that we have accepted under our current product liability insurance policies, which are as high as approximately $10 million, in certain cases we may be subject to the full amount of liability associated with any injuries, which could be substantial.

Several years ago, a number of states restricted the sale of dietary supplements containing botanical sources of ephedrine alkaloids and on February 6, 2004 the FDA banned the use of such ephedrine alkaloids. Until late 2002 we had sold Thermojetics^® original green herbal tablets, Thermojetics^® green herbal tablets and Thermojetics^®

gold herbal tablets, all of which contained ephedrine alkaloids. Accordingly, we run the risk of product liability claims related to the ingestion of ephedrine alkaloids contained in those products. Currently, we have been named as a defendant in product liability lawsuits seeking to link the ingestion of certain of the aforementioned products to subsequent alleged medical problems suffered by plaintiffs. Although we believe that we have meritorious defenses to the allegations contained in these lawsuits, and are vigorously defending these claims, there can be no assurance that we will prevail in our defense of any or all of these matters.

We are subject to, among other things, requirements regarding the effectiveness of internal control over financial reporting. In connection with these requirements, we conduct regular audits of our business and operations. Our failure to identify or correct deficiencies and areas of weakness in the course of these audits could adversely affect our financial condition and results of operations.

We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations adopted by the Securities and Exchange Commission, the Public Company Accounting Oversight Board and the New York Stock Exchange. In particular, we are required to include management and auditor reports on the effectiveness of internal controls over financial reporting as part of our annual reports on Form 10-K, pursuant to Section 404 of the Sarbanes-Oxley Act. We expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to correct any noted weaknesses in internal controls over financial reporting could result in the disclosure of material weaknesses which could have a material adverse effect upon the market value of our stock.

On a regular and on-going basis, we conduct audits through our internal audit department of various aspects of our business and operations. These internal audits are conducted to insure compliance with our policies and to strengthen our operations and related internal controls. The Audit Committee of our Board of Directors regularly reviews the results of these internal audits and, when appropriate, suggests remedial measures and actions to correct noted deficiencies or strengthen areas of weakness. There can be no assurance that these internal audits will uncover all material deficiencies or areas of weakness in our operations or internal controls. If left undetected and uncorrected, such deficiencies and weaknesses could have a material adverse effect on our financial condition and results of operations.

From time to time, the results of these internal audits may necessitate that we conduct further investigations into aspects of our business or operations. At the time of the filing of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, one such investigation was pending. This investigation concerned certain activities related to one of our foreign subsidiaries and related matters, and involved possible violations of applicable law. The then pending review of this investigation necessitated our filing of a request for extension on Form 12b-25 with the SEC. This investigation was completed in the fourth quarter of 2006, and the Audit Committee of our Board of Directors has adopted, and we have implemented, a remediation plan in response to the related findings. We believe the results of this investigation will not have a material adverse effect on our financial condition or results of operations. In addition, our business practices and operations may periodically be investigated by one or more of the many governmental authorities with jurisdiction over our worldwide operations. In the event that these investigations produce unfavorable results, we may be subjected to fines, penalties or loss of licenses or permits needed to operate in certain jurisdictions, any one of which could have a material adverse effect on our financial condition or results of operations.

Holders of our common shares may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, and by the Companies Law (2004 Revision) and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States. Therefore, shareholders may have more difficulty in protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less developed nature of Cayman Islands law in this area.

Unlike many jurisdictions in the United States, Cayman Islands law does not specifically provide for shareholder appraisal rights on a merger or consolidation of a company. This may make it more difficult for shareholders to assess the value of any consideration they may receive in a merger or consolidation or to require that the offer give shareholders additional consideration if they believe the consideration offered is insufficient.

Shareholders of Cayman Islands exempted companies such as ourselves have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of our shareholders. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

Subject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors. Maples and Calder, our Cayman Islands counsel, has informed us that they are not aware of any reported class action or derivative action having been brought in a Cayman Islands court.

Provisions of our articles of association and Cayman Islands corporate law may impede a takeover or make it more difficult for shareholders to change the direction or management of the Company, which could adversely affect the value of our common shares and provide shareholders with less input into the management of the Company than they might otherwise have.

Our articles of association permit our board of directors to issue preference shares from time to time, with such rights and preferences as they consider appropriate. Our board of directors could authorize the issuance of preference shares with terms and conditions and under circumstances that could have an effect of discouraging a takeover or other transaction.

In addition, our articles of association contain certain other provisions which could have an effect of discouraging a takeover or other transaction or preventing or making it more difficult for shareholders to change the direction or management of our Company, including a classified board, the inability of shareholders to act by written consent, a limitation on the ability of shareholders to call special meetings of shareholders and advance notice provisions. As a result, our shareholders may have less input into the management of our Company than they might otherwise have if these provisions were not included in our articles of association.

Unlike many jurisdictions in the United States, Cayman Islands law does not provide for mergers as that expression is understood under corporate law in the United States. However, Cayman Islands law does have statutory provisions that provide for the reconstruction and amalgamation of companies, which are commonly referred to in the Cayman Islands as “schemes of arrangement.” The procedural and legal requirements necessary to consummate these transactions are more rigorous and take longer to complete than the procedures typically required to consummate a merger in the United States. Under Cayman Islands law and practice, a scheme of arrangement in relation to a solvent Cayman Islands company must be approved at a shareholders’ meeting by each class of shareholders, in each case, by a majority of the number of holders of each class of a company’s shares that are present and voting (either in person or by proxy) at such a meeting, which holders must also represent 75% in value of such class issued that are present and voting (either in person or by proxy) at such meeting (excluding the shares owned by the parties to the scheme of arrangement).

The convening of these meetings and the terms of the amalgamation must also be sanctioned by the Grand Court of the Cayman Islands. Although there is no requirement to seek the consent of the creditors of the parties involved in the scheme of arrangement, the Grand Court typically seeks to ensure that the creditors have consented to the transfer of their liabilities to the surviving entity or that the scheme of arrangement does not otherwise have a material adverse effect on the creditors’ interests. Furthermore, the Grand Court will only approve a scheme of arrangement if it is satisfied that:


	•	the statutory provisions as to majority vote have been complied with;

	•	the shareholders have been fairly represented at the meeting in question;

	•	the scheme of arrangement is such as a businessman would reasonably approve; and


	•	the scheme or arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

There is uncertainty as to shareholders’ ability to enforce certain foreign civil liabilities in the Cayman Islands.

We are incorporated as an exempted company with limited liability under the laws of the Cayman Islands. A material portion of our assets are located outside of the United States. As a result, it may be difficult for our shareholders to enforce judgments against us or judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States or any state of the United States.

We have been advised by our Cayman Islands counsel, Maples and Calder, that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will — based on the principle that a judgment by a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given — recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands judgment in respect of the same matters, and was not obtained in a manner, and is not of a kind, the enforcement of which is contrary to the public policy of the Cayman Islands. There is doubt, however, as to whether the Grand Court of the Cayman Islands will (a) recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States or any state of the United States, or (b) in original actions brought in the Cayman Islands, impose liabilities predicated upon the civil liability provisions of the federal securities laws of the United States or any state of the United States, on the grounds that such provisions are penal in nature.

The Grand Court of the Cayman Islands may stay proceedings if concurrent proceedings are being brought elsewhere.


Item 2.	*UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS*

(a) None.

(b) None.

(c) On April 18, 2007, we announced that our Board of Directors authorized the repurchase of up to $300 million of our common shares during the next two years, at such times and prices as determined by management, as market conditions warrant. On August 23, 2007, our Board of Directors approved an increase of $150 million to this share repurchase program raising the total value of common shares authorized to be repurchased to $450 million.

The following is a summary of our repurchases of common shares during the three months ended September 30, 2007:


					Total Number
					of Shares		Approximate Dollar
					Purchased as		Value of Shares
	Total Number		Average Price		Part of Publicly		that May Yet Be
	of Shares		Paid per		Announced		Purchased Under the
Period	Purchased		Share		Plans or Programs		Plans or Programs

July 1 — July 31		—		—		—	$	161,231,614
August 1 — August 31		1,660,000	$	39.23		1,660,000	$	246,114,301
September 1 — September 30		—		—		—	$	246,114,301

Total		1,660,000	$	39.23		1,660,000


Item 3.	*DEFAULTS UPON SENIOR SECURITIES*

None.

EXHIBIT INDEX


Exhibit
Number			Description	Reference

	2	.1	Agreement and Plan of Merger, dated April 10, 2002, by and among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd. and WH Acquisition Corp.	(a)
	3	.1	Form of Amended and Restated Memorandum and Articles of Association of Herbalife Ltd.	(d)
	4	.1	Form of Share Certificate	(d)
	9	.1	Shareholders’ Agreement dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney V, L.P., Whitney Strategic Partners V, L.P., WH Investments Ltd., CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG Investment Fund-AI, L.P., CCG AV, LLC-Series C, CCG AV, LLC-Series E, and certain other persons	(a)
	10	.1	Form of Indemnity Agreement between Herbalife International Inc. and certain officers and directors of Herbalife International Inc.	(a)
	10	.2	Office lease agreement between Herbalife International of America Inc. and State Teacher’s Retirement System, dated July 11, 1995	(a)
	10	.3#	Herbalife International of America, Inc.’s Senior Executive Deferred Compensation Plan, effective January 1, 1996, as amended	(a)
	10	.4#	Herbalife International of America, Inc.’s Management Deferred Compensation Plan, effective January 1, 1996, as amended	(a)
	10	.5	Master Trust Agreement between Herbalife International of America, Inc. and Imperial Trust Company, Inc., effective January 1, 1996	(a)
	10	.6#	Herbalife International Inc. 401K Profit Sharing Plan and Trust, as amended	(a)
	10	.7	Trust Agreement for Herbalife 2001 Executive Retention Plan, effective March 15, 2001	(a)
	10	.8#	Herbalife 2001 Executive Retention Plan, effective March 15, 2001	(a)
	10	.9	Purchase Agreement, dated as of June 21, 2002, by and among WH Acquisition Corp., Herbalife International, Inc., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and UBS Warburg LLC	(a)
	10	.10	Registration Rights Agreement, dated as of June 27, 2002, by and among WH Acquisition Corp., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and UBS Warburg LLC	(a)
	10	.11	Notice to Distributors regarding Amendment to Agreements of Distributorship, dated as of July 18, 2002 between Herbalife International, Inc. and each Herbalife Distributor	(a)
	10	.12	Indemnity Agreement dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., WH Acquisition Corp., Whitney & Co., LLC, Whitney V, L.P., Whitney Strategic Partners V, L.P., GGC Administration, L.L.C., Golden Gate Private Equity, Inc., CCG Investments (BVI), L.P., CCG Associates-AI, LLC, CCG Investment Fund-AI, LP, CCG AV, LLC-Series C, CCG AV, LLC-Series C, CCG AV, LLC-Series E, CCG Associates-QP, LLC and WH Investments Ltd.	(a)
	10	.13#	Independent Director’s Stock Option Plan of WH Holdings (Cayman Islands) Ltd.	(a)
	10	.14#	Employment Agreement dated as of March 10, 2003 between Carol Hannah and Herbalife International, Inc. and Herbalife International of America, Inc.	(a)
	10	.15#	Non-Statutory Stock Option Agreement, dated as of March 10, 2003 between WH Holdings (Cayman Islands) Ltd. and Brian Kane	(a)
	10	.16#	Non-Statutory Stock Option Agreement, dated as of March 10, 2003 between WH Holdings (Cayman Islands) Ltd. and Carol Hannah	(a)
	10	.17#	WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, as restated, dated as of November 5, 2003	(a)
	10	.18#	Side Letter Agreement dated as of March 10, 2003 by and among WH Holdings (Cayman Islands) Ltd., Brian Kane and Carol Hannah and the Shareholders listed therein	(a)
	10	.19#	Employment Agreement dated as of April 3, 2003 between Michael O. Johnson and Herbalife International, Inc. and Herbalife International of America, Inc.	(a)


Exhibit
Number			Description	Reference

	10	.20#	Non-Statutory Stock Option Agreement, dated as of April 3, 2003 between WH Holdings (Cayman Islands) Ltd. and Michael O. Johnson	(a)
	10	.21#	Side Letter Agreement dated as of April 3, 2003 by and among WH Holdings (Cayman Islands) Ltd., Michael O. Johnson and the Shareholders listed therein	(a)
	10	.22#	Form of Non-Statutory Stock Option Agreement (Non-Executive Agreement)	(a)
	10	.23#	Form of Non-Statutory Stock Option Agreement (Executive Agreement)	(a)
	10	.24	Indemnity Agreement, dated as of February 9, 2004, among WH Capital Corporation and Gregory Probert	(a)
	10	.25	Indemnity Agreement, dated as of February 9, 2004, among WH Capital Corporation and Brett R. Chapman	(a)
	10	.26	Stock Subscription Agreement of WH Capital Corporation, dated as of February 9, 2004, between WH Capital Corporation and WH Holdings (Cayman Islands) Ltd.	(a)
	10	.27	First Amendment to Amended and Restated WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, dated November 5, 2003	(a)
	10	.28#	Separation Agreement and General Release dated May 1, 2004, among Herbalife International, Inc., Herbalife International of America, Inc. and Carol Hannah	(a)
	10	.29#	Consulting Agreement dated May 1, 2004 among Herbalife International of America, Inc. and Carol Hannah	(a)
	10	.30	Purchase Agreement, dated March 3, 2004, by and among WH Holdings (Cayman Islands) Ltd., WH Capital Corporation and UBS Securities LLC	(a)
	10	.31	Registration Rights Agreement, dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney V, L.P., Whitney Strategic Partners V, L.P., WH Investments Ltd., CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG Investment Fund-AI, L.P., CCG AV, LLC-Series C and CCG AV, LLC-Series E.	(b)
	10	.32	Share Purchase Agreement, dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney Strategic Partners V, L.P., WH Investments Ltd., Whitney V, L.P., CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG Investment Fund-AI, LP, CCG AV, LLC-Series C and CCG AV, LLC-Series E.	(b)
	10	.33	Form of Indemnification Agreement between Herbalife Ltd. and the directors and certain officers of Herbalife Ltd.	(c)
	10	.34#	Herbalife Ltd. 2004 Stock Incentive Plan, effective December 1, 2004	(c)
	10	.35	Termination Agreement, dated as of December 1, 2004, between Herbalife Ltd., Herbalife International, Inc. and Whitney & Co., LLC.	(d)
	10	.36	Termination Agreement, dated as of December 1, 2004, between Herbalife Ltd., Herbalife International Inc. and GGC Administration, L.L.C.	(d)
	10	.37	Termination Agreement, dated as of December 13, 2004, by and among Herbalife Ltd., Whitney V, L.P., Whitney Strategic Partners V, L.P., CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG Investment Fund-AI, LP, CCG AV, LLC-Series C, CCG AV, LLC-Series E and CCG CI, LLC.	(d)
	10	.38	Indemnification Agreement, dated as of December 13, 2004, by and among Herbalife Ltd., Herbalife International, Inc., Whitney V, L.P., Whitney Strategic Partners V, L.P., CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG Investment Fund-AI, LP, CCG AV, LLC-Series C, CCG AV, LLC-Series E, CCG CI, LLC and GGC Administration, LLC.	(d)
	10	.39#	Amendment No. 1 to Herbalife Ltd. 2004 Stock Incentive Plan	(e)
	10	.40#	Form of Stock Bonus Award Agreement	(e)
	10	.41#	Contract for Services of a Consultant between Herbalife International Luxembourg S.á.R.L. and Brian Kane dated as of October 18, 2004	(f)


Exhibit
Number			Description	Reference

	10	.42#	Compromise Agreement between Herbalife International Luxembourg S.á.R.L. and Brian Kane dated as of October 18, 2004	(f)
	10	.43#	Employment Agreement Effective as of January 1, 2005 between Herbalife Ltd. and Henry Burdick	(g)
	10	.44#	Form of 2004 Herbalife Ltd. 2004 Stock Incentive Plan Stock Option Agreement	(h)
	10	.45#	Form of 2004 Herbalife Ltd. 2004 Stock Incentive Plan Non-Employee Director Stock Option Agreement	(h)
	10	.46	Service Agreement by and between Herbalife Europe Limited and Wynne Roberts ESQ, dated as of September 6, 2005.	(i)
	10	.47#	Amendment to employment agreement between Michael O. Johnson and Herbalife International, Inc. and Herbalife International of America, Inc., dated May 15, 2005.	(j)
	10	.48#	Independent Directors Deferred Compensation and Stock Unit Plan	(k)
	10	.49#	Independent Directors Stock Unit Award Agreement	(k)
	10	.50#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement	(l)
	10	.51#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement	(l)
	10	.52#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Mr. Michael O. Johnson	(m)
	10	.53#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Mr. Michael O. Johnson	(m)
	10	.54#	Amendment to Herbalife Ltd. Independent Directors Deferred Compensation and Stock Unit Plan	(n)
	10	.55#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Messrs. Gregory Probert, Brett R. Chapman and Richard Goudis	(o)
	10	.56#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Messrs. Gregory Probert, Brett R. Chapman and Richard Goudis	(o)
	10	.57#	Amended and restated employment agreement effective April 17, 2006 between Herbalife International of America, Inc. and Paul Noack	(p)
	10	.58#	Summary of Board Committee Compensation	(q)
	10	.59	Form of Credit Agreement, dated as of July 21, 2006, by and among Herbalife International Inc., Herbalife Ltd., WH Intermediate Holdings Ltd., HBL Ltd., WH Luxembourg Holdings S.á.R.L., Herbalife International Luxembourg S.á.R.L., HLF Luxembourg Holdings, S.á.R.L., WH Capital Corporation, WH Luxembourg Intermediate Holdings S.á.R.L., HV Holdings Ltd., Herbalife Distribution Ltd., Herbalife Luxembourg Distribution S.á.R.L., and the Subsidiary Guarantors party thereto in favor of Merrill Lynch Capital Corporation, as Collateral Agent.	(r)
	10	.60	Form of Security Agreement, dated as of July 21, 2006, by and among Herbalife International, Inc., Herbalife Ltd., WH Intermediate Holdings Ltd., HBL Ltd., WH Luxembourg Holdings S.á.R.L., Herbalife International Luxembourg S.á.R.L., HLF Luxembourg Holdings, S.á.R.L., WH Capital Corporation, WH Luxembourg Intermediate Holdings S.á.R.L., HV Holdings Ltd., Herbalife Distribution Ltd., Herbalife Luxembourg Distribution S.á.R.L., and the Subsidiary Guarantors party thereto in favor of Merrill Lynch Capital Corporation, as Collateral Agent.	(r)
	10	.61#	Amended and Restated Independent Directors Deferred Compensation and Stock Unit Plan	(r)
	10	.62#	Employment Agreement by and between Herbalife Ltd. and Gregory L. Probert dated October 10, 2006	(s)
	10	.63#	Employment Agreement by and between Herbalife Ltd. and Brett R. Chapman dated October 10, 2006	(s)
	10	.64#	Stock Unit Agreement by and between Herbalife Ltd. and Gregory L. Probert dated October 10, 2006	(s)
	10	.65#	Stock Unit Agreement by and between Herbalife Ltd. and Brett R. Chapman dated October 10, 2006	(s)


Exhibit
Number			Description	Reference

	10	.66#	Second Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Gregory L. Probert dated July 31, 2003	(s)
	10	.67#	Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Gregory L. Probert dated September 1, 2004	(s)
	10	.68#	Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Gregory L. Probert dated December 1, 2004	(s)
	10	.69#	Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Gregory L. Probert dated April 27, 2005	(s)
	10	.70#	Second Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Gregory L. Probert dated October 6, 2003	(s)
	10	.71#	Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Brett R. Chapman dated September 1, 2004	(s)
	10	.72#	Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Brett R. Chapman dated December 1, 2004	(s)
	10	.73#	Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Brett R. Chapman dated April 27, 2005	(s)
	10	.74#	Employment Agreement by and between Herbalife Ltd. and Richard P. Goudis dated October 24, 2006	(t)
	10	.75#	Stock Unit Agreement by and between Herbalife Ltd. and Richard P. Goudis dated October 24, 2006	(t)
	10	.76#	Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated June 14, 2004	(t)
	10	.77#	Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated September 1, 2004	(t)
	10	.78#	Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated December 1, 2004	(t)
	10	.79#	Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated April 27, 2005	(t)
	10	.80#	Amendment dated March 26, 2007, to Employment Agreement by and between Herbalife Ltd. and Michael O. Johnson dated April 3, 2003	(u)
	10	.81#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Michael O. Johnson.	(v)
	10	.82#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Michael O. Johnson.	(v)
	10	.83#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Messrs. Gregory L. Probert, Richard P. Goudis and Brett R. Chapman.	(v)
	10	.84#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Messrs. Gregory L. Probert, Richard P. Goudis and Brett R. Chapman.	(v)
	10	.85#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement.	(v)
	10	.86#	Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement.	(v)
	10	.87	First Amendment dated June 21, 2007, to Form of Credit Agreement, dated as of July 21, 2006, by and among Herbalife International Inc., Herbalife Ltd., WH Intermediate Holdings Ltd., HBL Ltd., WH Luxembourg Holdings S.á.R.L., Herbalife International Luxembourg S.á.R.L., HLF Luxembourg Holdings, S.á.R.L., WH Capital Corporation, WH Luxembourg Intermediate Holdings S.á.R.L., HV Holdings Ltd., Herbalife Distribution Ltd., Herbalife Luxembourg Distribution S.á.R.L., and the Subsidiary Guarantors party thereto in favor of Merrill Lynch Capital Corporation, as Collateral Agent.	*


Exhibit
Number			Description	Reference

	10	.88	Second Amendment dated September 17, 2007, to Form of Credit Agreement, dated as of July 21, 2006, by and among Herbalife International Inc., Herbalife Ltd., WH Intermediate Holdings Ltd., HBL Ltd., WH Luxembourg Holdings S.á.R.L., Herbalife International Luxembourg S.á.R.L., HLF Luxembourg Holdings, S.á.R.L., WH Capital Corporation, WH Luxembourg Intermediate Holdings S.á.R.L., HV Holdings Ltd., Herbalife Distribution Ltd., Herbalife Luxembourg Distribution S.á.R.L., and the Subsidiary Guarantors party thereto in favor of Merrill Lynch Capital Corporation, as Collateral Agent.	*
	31	.1	Rule 13a-14(a) Certification of Chief Executive Officer	*
	31	.2	Rule 13a-14(a) Certification of Chief Financial Officer	*
	32	.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer	*


*		Filed herewith.

#		Management contract or compensatory plan or arrangement.

(a)		Previously filed on October 1, 2004 as an Exhibit to the Company’s registration statement on Form S-1 (File No. 333-119485) and is incorporated herein by reference.

(b)		Previously filed on November 9, 2004 as an Exhibit to Amendment No. 2 to the Company’s registration statement on Form S-1 (File No. 333-119485) and is incorporated herein by reference.

(c)		Previously filed on December 2, 2004 as an Exhibit to Amendment No. 4 to the Company’s registration statement on Form S-1 (File No. 333-119485) and is incorporated herein by reference.

(d)		Previously filed on December 14, 2004 as an Exhibit to Amendment No. 5 to the Company’s registration statement on Form S-1 (File No. 333-119485) and is incorporated herein by reference.

(e)		Previously filed on February 17, 2005 as an Exhibit to the Company’s registration statement on Form S-8 (File No. 333-122871) and is incorporated herein by reference.

(f)		Previously filed on March 14, 2005 as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and is incorporated herein by reference.

(g)		Previously filed on May 13, 2005 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(h)		Previously filed on June 14, 2005 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(i)		Previously filed on September 23, 2005 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(j)		Previously filed on August 3, 2005 as an Exhibit to the Company’s current Report on Form 10Q for the quarter ended June 30, 2005 and is incorporated herein by reference.

(k)		Previously filed on February 28, 2006 as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and is incorporated herein by reference.

(l)		Previously filed on March 29, 2006 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(m)		Previously filed on March 29, 2006 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(n)		Previously filed on March 30, 2006 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(o)		Previously filed on March 31, 2006 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(p)		Previously filed on May 3, 2006 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 and is incorporated herein by reference.


PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
		Unaudited Consolidated Balance Sheets	3
		Unaudited Consolidated Statements of Income	4
		Unaudited Consolidated Statements of Cash Flows	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
	Item 4.	Controls and Procedures	37
		Forward Looking Statements	37

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	38
	Item 1.a.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
	Item 3.	Defaults Upon Senior Securities	53
	Item 4.	Submission of Matters to a Vote of Security Holders	54
	Item 5.	Other Information	54
	Item 6.	Exhibits	54
Signatures and Certifications			61
EXHIBIT 10.87
EXHIBIT 10.88
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1


Item 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*


(q)		Previously filed on May 5, 2006 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(r)		Previously filed on November 13, 2006 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 and is incorporated by reference.

(s)		Previously filed on October 12, 2006 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(t)		Previously filed on October 26, 2006 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(u)		Previously filed on May 1, 2007 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 and is incorporated herein by reference.

(v)		Previously filed on May 29, 2007 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.