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Significant Accounting Policies (Policies)
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6 Months Ended |
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Jun. 30, 2011
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| Significant Accounting Policies [Abstract] | |
| Foreign currency issues |
Venezuela
In February 2011, Herbalife Venezuela purchased U.S. dollar denominated bonds with a face
value of $20 million U.S. dollars in a bond offering from Petróleos de Venezuela, S.A., a
Venezuelan state-owned petroleum company, for 86 million Bolivars and then immediately sold the
bonds for $15 million U.S. dollars, resulting in an average effective conversion rate of 5.7
Bolivars per U.S. dollar. The 86 million Bolivars were previously remeasured at the regulated
system rate, or SITME rate, of 5.3 Bolivars per U.S. dollar and recorded as cash and cash
equivalents of $16.3 million on the Company’s consolidated balance sheet at December 31, 2010. This
Bolivar to U.S. dollar conversion resulted in the Company recording a net pre-tax loss of $1.3
million U.S. dollars during the first quarter of 2011 which is included in its condensed consolidated statement of income for the six months ended
June 30, 2011.
As of June 30, 2011, Herbalife Venezuela’s net monetary assets and liabilities denominated in
Bolivars was approximately $13.7 million, and included approximately $20.0 million in Bolivar
denominated cash and cash equivalents. The majority of these Bolivar denominated assets and
liabilities were remeasured at the SITME rate. Although Venezuela is an important market in the
Company’s South and Central America Region, Herbalife Venezuela’s net sales represented less than
2% of the Company’s consolidated net sales for both the six months ended June 30, 2011 and 2010 and
its total assets represented less than 3% of the Company’s consolidated total assets as of both
June 30, 2011 and December 31, 2010.
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| Segment Reporting |
The Company is a network marketing company that sells a wide range of weight management
products, nutritional supplements and personal care products within one industry segment as defined
under the FASB Accounting Standards Codification, or ASC Topic 280, Segment Reporting. The
Company’s products are manufactured by third party providers and by the Company in its Suzhou,
China facility and in its manufacturing facility located in Lake Forest, California, and are then
sold to independent distributors who sell Herbalife products to retail consumers or other
distributors. Revenues reflect sales of products by the Company to distributors and are categorized
based on the distributors’ geographic location.
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| Derivatives and Hedging Policies |
The Company formally assesses both at inception and at least quarterly thereafter, whether
derivatives used in hedging transactions are effective in offsetting changes in cash flows of the
hedged item. As of June 30, 2011, the hedge relationships continued to qualify as effective hedges
under FASB ASC Topic 815, Derivatives and Hedging, or ASC 815. Consequently, all changes in the
fair value of the derivatives are deferred and recorded in other comprehensive income (loss) until
the related forecasted transactions are recognized in the consolidated statements of income. The
fair value of the interest rate swap agreements are based on third-party bank quotes. At June 30,
2011 and December 31, 2010, the Company recorded the interest rate swaps as liabilities at their
fair value of $6.2 million and $6.6 million, respectively.
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| Change in Accounting Principle Policies |
Change in Accounting Principle
In
the second quarter of 2011, the Company changed its method of accounting for excess tax
benefits recognized as a result of the exercise of employee stock options, stock appreciation
rights, or SARs, and other share-based equity grants, from the tax-law-ordering method to the
with-and-without method. Under the tax law ordering method, the deduction for share-based
compensation is applied against income tax liabilities before other credits are applied, such as
foreign tax credits. The with-and-without method applies the deduction for share-based compensation
against taxable income after other credits have been applied against taxable income, to the extent
allowable and subject to applicable limitations. The with-and-without method separately determines
the impact of the tax benefit from share-based compensation after considering the tax effects
related to the Company’s on-going operations. A benefit is recorded when deductions for share-based
compensation reduce taxes payable or increase tax refund receivable. The Company believes that the
with-and-without method is a preferable method of determining the benefit applicable to share-based
compensation because it better reflects the Company’s ongoing operations. This change in accounting
method primarily impacts the allocation of income taxes and tax benefits between continuing
operations, deferred tax items, and additional paid in capital for financial reporting purposes,
but it does not have any impact on the ultimate amount of income tax reported on the Company’s
income tax returns and it does not impact the Company’s income taxes payable included within its
accompanying consolidated balance sheet. This change in accounting principle does not impact the
consolidated financial statements related to fiscal years prior to 2010.
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| Fair Value Measurement |
The Company applies the provisions of FASB ASC Topic 820, Fair Value Measurements and
Disclosures, or ASC 820, for its financial and non-financial assets and liabilities. ASC 820
defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. ASC 820
establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into
three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the asset or liability and inputs that
are derived principally from or corroborated by observable market data by correlation or other
means.
Level 3 inputs are unobservable inputs for the asset or liability.
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