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, by the Companies Law (2010 ~~Revision)~~Revision, as amended), or the Companies Law, 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 or board of directors 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.

Shareholders of Cayman Islands exempted companies such as Herbalife 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.

A shareholder can bring a suit personally where its individual rights have been, or are about to be, infringed. Where an action is brought to redress any loss or damage suffered by us, we would be the proper plaintiff, and a shareholder could not ordinarily maintain an action on our behalf, except where it was permitted by the courts of the Cayman Islands to proceed with a derivative action. Our Cayman Islands counsel, Maples and Calder, is not aware of any reported decisions in relation to a derivative action brought in a Cayman Islands court. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, a shareholder may be permitted to bring a claim derivatively on the Company’s behalf, where:

a company is acting or proposing to act illegally or outside the scope of its corporate authority;

the act complained of, although not acting outside the scope of its corporate authority, could be effected only if authorized by more than a simple majority vote; or


	•	~~a company is acting or proposing to act illegally or outside the scope of its corporate authority;~~

	•	~~the act complained of, although not acting outside the scope of its corporate authority, could be effected only if authorized by more than a simple majority vote; or~~

	•	~~those who control the company are perpetrating a “fraud on the minority”.~~

those who control the company are perpetrating a “fraud on the minority”.

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 reduce shareholders’ opportunity to influence management of the Company.

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.

The Cayman Islands have provisions under the Companies Law ~~(2010 Revision)~~ to facilitate mergers and consolidations between Cayman Islands companies and non-Cayman Islands companies. These provisions, contained within Part XVA of the Companies Law, ~~(2010 Revision),~~ are broadly similar to the merger provisions as provided for under Delaware Law.

There are however a number of important differences that could impede a takeover. First, the ~~thresholds~~threshold for approval of the merger plan by shareholders ~~are~~is higher. The thresholds are (a) a shareholder resolution by majority in number representing 75% in value of the shareholders voting together as one class or (b) if the shares to be issued to each shareholder in the consolidated or surviving company are to have the same rights and economic value as the

~~shares held in the constituent company,~~threshold is a special resolution of the shareholders (being 662/3% 2/3% of those present in person or by proxy and voting) ~~voting~~ together with such other authorization, if any, as ~~one class.~~

~~As it is not expected that~~may be specified in the ~~shares would have the same rights and economic value following a takeover by way~~articles of merger, it is expected that the first test is the one which would commonly apply. This threshold essentially has three requirements: “a majority in number” of the shareholders of the Company must approve the transaction, such approving majority must hold at least 75% “in value” of all the outstanding shares and the shareholders must vote together as one class.

association.

Additionally, the consent of each holder of a fixed or floating security interest (in essence a documented security interest as opposed to one arising by operation of law) is required to be obtained unless the Grand Court of the Cayman Islands waives such requirement.

The merger provisions contained within Part XVA of the Companies Law ~~(2010 Revision)~~ do contain shareholder appraisal rights similar to those provided for under Delaware law. Such rights are limited to a merger under Part XVA and do not apply to schemes of arrangement as discussed below.

The Companies Law ~~(2010 Revision)~~ also contains separate statutory provisions that provide for the merger, reconstruction and amalgamation of companies. Those 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 a majority of each class of the company’s shareholders who are present and voting (either in person or by proxy) at such meeting. The shares voted in favor of the scheme of arrangement must also represent at least 75% of the value of each relevant class of the company’s shareholders present and voting at the meeting. 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 materially adversely affect creditors’ interests. Furthermore, the 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 who voted at the meeting in question fairly represent the relevant class of shareholders to which they belong;


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

	•	~~the shareholders who voted at the meeting in question fairly represent the relevant class of shareholders to which they belong;~~

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

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

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

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

If the scheme of arrangement is approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of U.S. corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

In addition, if an offer by a third party to purchase shares in us has been approved by the holders of at least 90% of our outstanding shares (not including such a third party) pursuant to an offer within a four-month period of making such an offer, the purchaser may, during the two months following expiration of the four-month period, require the holders of the remaining shares to transfer their shares on the same terms on which the purchaser acquired the first 90% of our outstanding shares. An objection can be made to the Grand Court of the Cayman Islands, but this is unlikely to succeed unless there is evidence of fraud, bad faith, collusion or inequitable treatment of the shareholders.

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 natural justice or the public policy of the Cayman Islands. There is doubt, however, as to whether the Grand Court of the Cayman Islands will (1) 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 (2) 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 1B.	*UNRESOLVED STAFF COMMENTS*

None.


Item 2.	*PROPERTIES*

As of December 31, ~~2010,~~2011, we leased all of our physical properties. ~~During 2008, we relocated many of our~~Our corporate executive offices toare located in the LA Live complex in downtown Los Angeles, California, where we currently occupy approximately 65,000 square feet under a lease expiring in 2018. We also lease approximately 316,000 square feet of general office space in Torrance, California, with terms expiring in 2016, for our North America and South America regional headquarters, including some of our corporate support functions. Additionally, we lease warehouse facilities in Los Angeles, California and Memphis, Tennessee of approximately ~~82,000~~149,000 square feet and 130,000 square feet, respectively. The Los Angeles and Memphis lease agreements have terms through ~~June 2011~~July 2021 and December 2016, respectively. In Lake Forest, California, we also lease warehouse, manufacturing plant and office space of approximately 123,000 square feet under leases expiring in 2019 and 2020. In Venray, Netherlands, we lease our European centralized warehouse of approximately 150,000 square feet under an arrangement expiring in June 2020 for which we have a renewal option. In Guadalajara, Mexico we lease approximately ~~82,000~~123,000 square feet of ~~warehouse~~office space with the term of the lease expiring in January ~~2015.~~2018. We also lease warehouse, manufacturing plant and office space in a majority of our other geographic areas of operation. We believe that our existing facilities are adequate to meet our current requirements and that comparable space is readily available at each of these locations.


Item 3.	*LEGAL PROCEEDINGS*

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.

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 materialinformation set forth under Note 7,Contingencies, 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~~

~~to the allegations contained~~Consolidated Financial Statements, included in ~~the lawsuits. The Company currently maintains product liability insurance with an annual deductible of $10 million.~~

On April 16, 2007, Herbalife International of America, Inc. filed a Complaint in the United States District Court for the Central District of California against certain former Herbalife distributors who had left the Company to join a competitor. The Complaint alleged breach of contract, misappropriation of trade secrets, intentional interference with prospective economic advantage, intentional interference with contract, unfair competition, constructive trust and fraud and seeks monetary damages, attorney’s fees and injunctive relief (~~Herbalife International of America, Inc. v. Robert E. Ford, et al~~~~). The court entered a Preliminary Injunction against the defendants enjoining them from further useand/or~~ misappropriation of the Company’s trade secrets on December 11, 2007. Defendants appealed the court’s entry of the Preliminary Injunction to the U.S. Court of Appeals for the Ninth Circuit. That court affirmed, in relevant part, the Preliminary Injunction. On December 3, 2007, the defendants filed a counterclaim alleging that the Company had engaged in unfair and deceptive business practices, intentional and negligent interference with prospective economic advantage, false advertising and that the Company was an endless chain scheme in violation of California law and seeking restitution, contract rescission and an injunction. Both sides engaged in discovery and filed cross motions for Summary Judgment. On August 25, 2009, the court granted partial summary judgment for Herbalife on all of defendants’ claims except the claim that the Company is an endless chain scheme which under applicable law is a question of fact that can only be determined at trial. The court denied defendants’ motion for Summary Judgment on Herbalife’s claims for misappropriation of trade secrets and breach of contract. On May 5, 2010, the District Court granted summary judgment for Herbalife on defendants’ endless chain-scheme counterclaim. Herbalife voluntarily dismissed its remaining claims, and on May 14, 2010, the District Court issued a final judgment dismissing all of the parties’ claims. On June 10, 2010 the defendants appealed from that judgment and on June 21, 2010, Herbalife cross-appealed. The Company believes that there is merit to its appeal, and it will prevail upon both its appeal as well as the defendant’s appeal.

These matters may take several years to resolve. While the Company believes it has meritorious defenses, it cannot be sure of their ultimate resolution. Although the Company has reserved amounts for certain matters that the Company believes represent the most likely outcome of the resolution of these related disputes, if the CompanyReport, is ~~incorrect in the assessment, the Company may have to record additional expenses, when it becomes probable that an increased potential liability is warranted.~~

incorporated herein by reference.


Item 4.	*~~(REMOVED AND RESERVED)~~MINE SAFETY DISCLOSURE*

43Not applicable.

PART II


Item 5.	*MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*

Information with Respect to our Common Shares

On April 28, 2011, our shareholders approved a two-for-one stock split, or the stock split, of our common shares. One additional common share was distributed to our shareholders on or around May 17, 2011, for each common share held on May 10, 2011. All references within this Annual Report, including the financial statements and related notes, to number of shares and per share amounts have been retrospectively adjusted for all periods presented to reflect the stock split.

Our common shares are listed on the New York Stock Exchange, or NYSE, and trade under the symbol “HLF.” The following table sets forth the range of the high and low sales prices for our common shares in each of the ~~relevant~~ fiscal quarters presented, based upon quotations on the NYSE consolidated transaction reporting system.

Quarter Ended High Low

March 31, 2010 $ 46.70 $ 37.06
June 30, 2010 $ 53.00 $ 42.33
September 30, 2010 $ 60.65 $ 44.95
December 31, 2010 $ 71.29 $ 59.50

Quarter Ended High Low

March 31, 2009 $ 23.46 $ 12.12
June 30, 2009 $ 31.98 $ 14.71
September 30, 2009 $ 35.87 $ 28.92
December 31, 2009 $ 44.43 $ 31.47


Quarter Ended	High		Low
March 31, 2011	$	41.26	$	31.26
June 30, 2011	$	58.72	$	40.32
September 30, 2011	$	63.35	$	48.40
December 31, 2011	$	63.40	$	47.50


Quarter Ended	High		Low
March 31, 2010	$	23.35	$	18.53
June 30, 2010	$	26.50	$	21.17
September 30, 2010	$	30.33	$	22.48
December 31, 2010	$	35.65	$	29.75

The market price of our common shares is subject to fluctuations in response to variations in our quarterly operating results, general trends in the market for our products and product candidates, economic and currency exchange issues in the foreign markets in which we operate as well as other factors, many of which are not within our control. In addition, broad market fluctuations, as well as general economic, business and political conditions may adversely affect the market for our common shares, regardless of our actual or projected performance.

The closing price of our common shares on February ~~17, 2011,~~15, 2012, was ~~$68.34.~~$59.58. The approximate number of holders of record of our common shares as of February ~~17, 2011~~15, 2012 was ~~801.~~772. This number of holders of record does not represent the actual number of beneficial owners of our common shares because shares are frequently held in “street name” by securities dealers and others for the benefit of individual owners who have the right to vote their shares.

Performance Graph

Our common shares began trading on the NYSE on December 16, 2004. Set forth below is information comparing the cumulative total shareholder return and share price appreciation plus dividends on our common shares with the cumulative total return of the S&P 500 Index and a market weighted index of publicly traded peers over the five year period ended December 31, ~~2010.~~2011. The graph assumes that $100 is invested in each of our common shares, the S&P 500 Index and the index of publicly traded peers on December 31, ~~2005~~2006 and that all dividends were reinvested. The publicly traded companies in the peer group are Avon Products, Inc., Nature’s Sunshine Products, Inc., Tupperware Corporation, Nu Skin Enterprises Inc., USANA Health Sciences Inc., Weight Watchers International, Inc. and Mannatech, Inc.

Comparison of Cumulative Five Year Total Return

12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10
Herbalife Ltd. $ 100.00 $ 123.49 $ 125.66 $ 69.37 $ 134.14 $ 230.05
S&P 500 Index $ 100.00 $ 115.79 $ 122.16 $ 76.96 $ 97.33 $ 111.99
Peer Index $ 100.00 $ 114.20 $ 126.98 $ 81.69 $ 115.80 $ 119.06

      12/31/06    12/31/07    12/31/08    12/31/09    12/31/10    12/31/11
Herbalife Ltd.
   $ 100.00       $ 101.76       $ 56.18       $ 108.62       $ 186.29       $ 285.48
S&P 500 Index
   $ 100.00       $ 105.49       $ 66.46       $ 84.05       $ 96.71       $ 98.76
Peer Index
   $ 100.00       $ 111.19       $ 71.53       $ 101.40       $ 104.25       $ 95.81

Information with Respect to Dividends

During the second quarter of 2007, the Company’s board of directors adopted a regular quarterly cash dividend program. The Company’s board of directors authorized a ~~$0.20~~$0.10 per common share dividend each quarter from the adoption of the program through the second quarter of 2010. On August 2, 2010, the Company’s board of directors approved an increase in the quarterly cash dividend to ~~$0.25~~$0.13 per common share, an increase of ~~$0.05~~$0.03 per common share from prior quarters. On May 2, 2011, the Company announced that its board of directors approved an increase in the quarterly cash dividend to $0.20 per common share, an increase of $0.07 per common share from prior quarters. The aggregate amount of dividends paid and declared during fiscal year 2011, 2010, ~~2009,~~ and ~~2008~~2009 was approximately $85.5 million, $53.7 million, and $48.7 million, ~~and $50.7 million,~~ respectively.

The declaration of future dividends is subject to the discretion of the Company’s board of directors and will depend upon various factors, including the Company’s ~~net~~ earnings, financial condition, restrictions imposed by the Company’s current credit ~~agreement,~~facility entered into on March 9, 2011, or the New Credit Facility, and the terms of any other indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by ~~the~~its board of directors. ~~For example, the senior credit facility entered into on July 21, 2006, as amended,~~The New Credit Facility permits payments of dividends as long as no default or event of default exists and the ~~sum of~~consolidated leverage ratio specified in the ~~amounts paid with respect to dividends and share repurchases does~~New Credit Facility is not exceed the sum of $450.0 million plus 75% of cumulative consolidated net income from the first quarter of 2007 to the last day of the quarter most recently ended prior to the date of dividend. There is no guarantee that the board of directors will not terminate the quarterly dividend program.

exceeded.

Information with Respect to Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth as of December 31, ~~2010,~~2011, information with respect to (a) number of securities to be issued upon exercise of outstanding options, warrants and rights, (b) the weighted average exercise price of outstanding options, warrants and rights and (c) the number of securities remaining available for future issuance under equity compensation plans.

Number of Securities

Number of Securities
Remaining Available for

to be Issued
Weighted Average
Future Issuance Under

Upon Exercise of
Exercise Price of
Equity Compensation Plans

Outstanding Options,
Outstanding Options,
(Excluding Securities

Warrants and Rights Warrants and Rights in Column (a))(2)
(a) (b) (c)

Equity compensation plans approved by security holders(1) 6,970,212 $ 28.75 1,833,174
Equity compensation plans not approved by security holders — — —
Total 6,970,212 $ 28.75 1,833,174


	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities in Column (a))(2)
	(a)		(b)		(c)
Equity compensation plans approved by security holders(1)		9,109,900	$	22.54		6,943,158
Equity compensation plans not approved by security holders		—		—		—
Total		9,109,900	$	22.54		6,943,158


(1)		Consists of five plans: The WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, the WH Holdings (Cayman Islands) Ltd. Independent Directors Stock Incentive Plan, the Herbalife Ltd. 2004 Stock Incentive Plan, the Amended and Restated Herbalife Ltd. 2005 Stock Incentive Plan, and the Amended and Restated Herbalife Ltd. Independent Directors Deferred Compensation and Stock Unit Plan. In February 2008, a shareholder approved Employee Stock Purchase Plan was implemented. The terms of these plans are summarized in Note 9,Share-Based Compensation,to the ~~notes to our consolidated financial statements.~~Consolidated Financial Statements.

(2)

Includes ~~941,733~~1.9 million common shares available for future issuance under the shareholder approved Employee Stock Purchase Plan which was implemented in February 2008.

Information with Respect to Purchases of Equity Securities by the Issuer

On April 17, 2009, the Company’s share repurchase program adopted on April 18, 2007 expired pursuant to its terms. On April 30, 2009, the Company announced that its board of directors authorized a new program for the Company to repurchase up to $300 million of Herbalife common shares during the next two years, at such times and prices as determined by the Company’s management. On May 3, 2010, the Company’s board of directors approved an increase to the share repurchase authorization from $300 million to $1 billion. In addition, the Company’s board of directors approved the extension of the expiration date of the share repurchase program from April 2011 to December 2014. As of December 31, ~~2010,~~2011 the approximate dollar value of shares that could be repurchased under the Company’s share repurchase program was approximately ~~$776.7~~$477.9 million.

The following is a summary of our repurchases of common shares during the three months ended December 31, ~~2010:~~

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

October 1 — October 31 — — — $ 826,688,278
November 1 — November 30 507,742 $ 67.71 507,742 $ 792,309,246
December 1 — December 31 225,271 $ 69.34 225,271 $ 776,688,953

Total 733,013 $ 68.21 733,013 $ 776,688,953

2011:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
October 1 — October 31		—		—		—	$	527,867,644
November 1 — November 30		907,025	$	55.12		907,025	$	477,868,180
December 1 — December 31		—		—		—	$	477,868,180

Total		907,025	$	55.12		907,025	$	477,868,180


Item 6.	*SELECTED FINANCIAL DATA*

The following table sets forth certain of our historical financial data. We have derived the selected historical consolidated financial data for the years ended December 31, 2011, 2010, 2009, 2008, ~~2007~~ and ~~2006~~2007 from our audited financial statements and the related notes. Not all periods shown below are discussed in this Annual Report onForm 10-K. The selected consolidated historical financial data set forth below are not necessarily indicative of the results of future operations and should be read in conjunction with the discussion under Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the historical consolidated financial statements and accompanying notes included elsewhere in this document.

Year Ended December 31,
2010 2009 2008 2007 2006
(In thousands except per share data)

Income Statement Data:

Net sales $ 2,734,226 $ 2,324,577 $ 2,359,213 $ 2,145,839 $ 1,885,534
Cost of sales 558,811 493,134 458,396 438,382 380,338

Gross profit 2,175,415 1,831,443 1,900,817 1,707,457 1,505,196
Royalty overrides 900,248 761,501 796,718 760,110 675,245
Selling, general and administrative expenses(1) 887,655 773,911 771,847 634,190 573,005

Operating income(1) 387,512 296,031 332,252 313,157 256,946
Interest expense, net 7,417 5,103 13,222 10,573 39,541

Income before income taxes 380,095 290,928 319,030 302,584 217,405
Income taxes 89,562 87,582 97,840 111,133 74,266

Net income $ 290,533 $ 203,346 $ 221,190 $ 191,451 $ 143,139

Earnings per share
Basic $ 4.88 $ 3.32 $ 3.47 $ 2.75 $ 2.02
Diluted $ 4.67 $ 3.22 $ 3.36 $ 2.63 $ 1.92
Weighted average shares outstanding
Basic 59,502 61,221 63,785 69,497 70,814
Diluted 62,256 63,097 65,769 72,714 74,509
Other Financial Data:

Retail sales(2) $ 4,306,262 $ 3,690,061 $ 3,811,159 $ 3,511,003 $ 3,100,205
Net cash provided by (used in):
Operating activities 380,402 285,056 272,988 270,811 184,447
Investing activities (69,136 ) (71,322 ) (84,964 ) (43,390 ) (66,808 )
Financing activities (254,480 ) (213,327 ) (205,067 ) (203,511 ) (55,044 )
Depreciation and amortization 68,621 62,437 48,732 35,115 29,995
Capital expenditures(3) 68,125 60,128 106,813 49,027 66,870

Prior periods in the table below have been adjusted for the stock split and change in accounting principle as described in Note 2,Basis of Presentation, to the Consolidated Financial Statements.


	Year Ended December 31,
	2011			2010			2009			2008			2007
	(In thousands except per share data)
Income Statement Data:
Net sales	$	3,454,537		$	2,734,226		$	2,324,577		$	2,359,213		$	2,145,839
Cost of sales		680,084			558,811			493,134			458,396			438,382

Gross profit		2,774,453			2,175,415			1,831,443			1,900,817			1,707,457
Royalty overrides		1,137,560			900,248			761,501			796,718			760,110
Selling, general and administrative expenses(1)		1,074,623			887,655			773,911			771,847			634,190

Operating income(1)		562,270			387,512			296,031			332,252			313,157
Interest expense, net		2,491			7,417			5,103			13,222			10,573

Income before income taxes		559,779			380,095			290,928			319,030			302,584
Income taxes		147,201			80,880			87,582			97,840			111,133

Net income	$	412,578		$	299,215		$	203,346		$	221,190		$	191,451

Earnings per share
Basic	$	3.51		$	2.51		$	1.66		$	1.73		$	1.38
Diluted	$	3.30		$	2.37		$	1.61		$	1.68		$	1.32
Weighted average shares outstanding
Basic		117,540			119,004			122,442			127,570			138,994
Diluted		124,846			126,495			126,194			131,538			145,428
Other Financial Data:
Retail sales(2)	$	5,427,844		$	4,306,262		$	3,690,061		$	3,811,159		$	3,511,003
Net cash provided by (used in):
Operating activities		509,331			389,084			285,056			272,988			270,811
Investing activities		(92,086	)		(69,136	)		(71,322	)		(84,964	)		(43,390	)
Financing activities		(337,799	)		(263,162	)		(213,327	)		(205,067	)		(203,511	)
Depreciation and amortization		71,853			68,621			62,437			48,732			35,115
Capital expenditures(3)		90,855			68,125			60,128			106,813			49,027

As of December 31,
2010 2009 2008 2007 2006
(In thousands except per share data)

Balance Sheet Data:

Cash and cash equivalents $ 190,550 $ 150,801 $ 150,847 $ 187,407 $ 154,323
Receivables, net 85,612 76,958 70,002 58,729 51,758
Inventories 182,467 145,962 134,392 128,648 146,036
Total working capital 124,770 83,536 82,869 111,478 132,215
Total assets 1,232,220 1,146,050 1,121,318 1,067,243 1,016,933
Total debt 178,166 250,333 351,631 365,152 185,438
Shareholders’ equity(4) 487,212 359,311 241,731 182,244 353,890
Cash dividends per common share 0.90 0.80 0.80 0.60 —


	As of December 31,
	2011		2010		2009		2008		2007
	(In thousands except per share data)
Balance Sheet Data:
Cash and cash equivalents	$	258,775	$	190,550	$	150,801	$	150,847	$	187,407
Receivables, net		89,660		85,612		76,958		70,002		58,729
Inventories		247,696		182,467		145,962		134,392		128,648
Total working capital		220,130		124,770		83,536		82,869		111,478
Total assets		1,446,209		1,232,220		1,146,050		1,121,318		1,067,243
Total debt		203,621		178,166		250,333		351,631		365,152
Shareholders’ equity(4)		560,188		487,212		359,311		241,731		182,244
Cash dividends per common share		0.73		0.45		0.40		0.40		0.30


(1)		The years ended December 31, 2009, 2008, and 2007 include severance and ~~2006 include~~related expenses associated with restructuring activities of approximately $1.3 million, $6.7 million, and $5.8 million, ~~and $7.5 million of severance and related expenses, respectively, associated with restructuring.~~respectively.

(2)		Retail sales represent the gross sales amount reflected on our invoices to our distributors. We do not receive the full retail sales amount. “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 total approximately 50% of suggested 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. “Net sales” represents product sales and shipping & handling revenues.

		~~Retail sales data is discussed in greater detail in Item 7 —~~~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~. Our use of retail sales reflects the fundamental role of “retail sales” in our accounting systems, internal controls and operations, including the basis upon which the distributors are being paid. In addition, information in daily and monthly reports reviewed by our management includes retail sales data.

Retail sales data is discussed in greater detail in Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our use of retail sales reflects the fundamental role of “retail sales” in our accounting systems, internal controls and operations, including the basis upon which the distributors are being paid. In addition, information in daily and monthly reports reviewed by our management includes retail sales data.

The following represents the reconciliation of retail sales to net sales for each of the periods set forth above:

Year Ended December 31,
2010 2009 2008 2007 2006
(In thousands)

Retail sales $ 4,306,262 $ 3,690,061 $ 3,811,159 $ 3,511,003 $ 3,100,205
Distributor allowance (1,968,769 ) (1,696,444 ) (1,778,866 ) (1,658,569 ) (1,472,527 )

Product sales 2,337,493 1,993,617 2,032,293 1,852,434 1,627,678
Shipping & handling revenues 396,733 330,960 326,920 293,405 257,856

Net sales $ 2,734,226 $ 2,324,577 $ 2,359,213 $ 2,145,839 $ 1,885,534


	Year Ended December 31,
	2011			2010			2009			2008			2007
	(In thousands)
Retail sales	$	5,427,844		$	4,306,262		$	3,690,061		$	3,811,159		$	3,511,003
Distributor allowance		(2,483,122	)		(1,968,769	)		(1,696,444	)		(1,778,866	)		(1,658,569	)

Product sales		2,944,722			2,337,493			1,993,617			2,032,293			1,852,434
Shipping & handling revenues		509,815			396,733			330,960			326,920			293,405

Net sales	$	3,454,537		$	2,734,226		$	2,324,577		$	2,359,213		$	2,145,839


(3)		Includes acquisition of property, plant and equipment from capitalized leases and other long-term debt of $0.4 million, $0.4 million, $18.2 million, ~~$7.1 million,~~ and ~~$2.6~~$7.1 million, for the years ended December 31, 2011, 2009, 2008, ~~2007,~~ and ~~2006,~~2007, respectively.

(4)

During the years ended December 31, 2011, 2010, 2009, 2008 and 2007, we paid an aggregate $85.5 million, $53.7 million, $48.7 million, $50.7 million and $41.5 million in dividends, respectively, and repurchased $298.8 million, $150.1 million, $73.2 million, $137.0 million and $365.8 million of our common shares through open market purchases, respectively. ~~During the year ended December 31, 2006 we did not declare any dividends or repurchase any of our common shares.~~


Item 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

You should read the following discussion and analysis in conjunction with Item 6 — Selected Financial Data and our consolidated financial statements and related notes, each included elsewhere in this Annual Report onForm 10-K.

~~Overview~~

We are a global network marketing company that sells weight management products, nutritional supplements, energy, sports & 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 ~~$2.7~~$3.5 billion for the year ended December 31, ~~2010.~~2011. As of December 31, ~~2010,~~2011, we sold our products in 7479 countries through a network of approximately ~~2.1~~2.7 million independent distributors. In China, we sell our products through retail stores, sales representatives, sales officers and independent service providers. Due to changes in China’s labor laws, effective in the third quarter of 2011, we no longer have sales employees ~~and licensed business~~in China as they have been transitioned into independent service providers. We believe the quality of our products and the effectiveness of our distribution network, coupled with geographic expansion, ~~have~~has been the primary reasons for our success throughout our~~31-year~~ 32-year operating history.

Our products are grouped in four principal categories: weight management, targeted nutrition, energy, sports & fitness and Outer Nutrition, along with literature and promotional items. Our products are often sold in programs that are comprised of a series of related products and literature 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 global obesity epidemic and the aging of the worldwide population, which are driving demand for nutrition and wellness-related products along with the global increase in under and unemployment which can affect the recruitment and retention of distributors seeking part time or full time income opportunities.

While we ~~are closely monitoring~~continue to monitor the current global ~~economic~~financial crisis, we remain focused on the opportunities and challenges in retailing of our products, recruiting and retaining distributors, improving distributor productivity, opening new markets, further penetrating existing markets, globalizing successful ~~distributor methods~~Distributor Methods of ~~operation~~Operation, or DMO, such as Nutrition Clubs and Weight Loss Challenges, introducing new products and globalizing existing products, developing niche market segments and further investing in our infrastructure. Management ~~remains intently focused on~~also continues to monitor the Venezuela market and especially the limited ability to repatriate cash.

We report revenue from our six regions:

North America;

Mexico;


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

	•	~~Mexico;~~

	•	~~South and Central America;~~

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

	•	~~Asia Pacific (excluding China), which consists of Asia, New Zealand and Australia; and~~

	•	~~China.~~

South and Central America;

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

Asia Pacific (excluding China); and

China.

Volume Points by Geographic Region

A key non-financial measure we focus on is Volume Points on a Royalty Basis, or Volume Points, which is essentially our weighted ~~unit~~average measure of product sales volume. ~~It is~~Volume Points, which are unaffected by exchange rates or price increases, are used by management as a ~~useful measure that we rely on as it excludes the impact of foreign currency fluctuations, changes~~proxy for sales trends because in retail pricing, and ignores the differences generated by varying retail pricing across geographic markets. The Volume Point measure, in the aggregate and in each region, can be a measure of our sales volume as well as of sales volume trends. In general, an increase in Volume Points in a particular geographic region or country indicates an increase in our ~~sales volume which results in an increase in our~~

local currency net ~~sales;~~sales while a decrease in Volume Points in a particular geographic region or country indicates a decrease in our ~~sales volume, which results in decreasing~~ local currency net sales.

For the Year Ended December 31,
2010 2009 % Change 2009 2008 % Change
(Volume points in millions)

North America 888.5 779.9 13.9 % 779.9 750.4 3.9 %
Mexico 563.0 493.4 14.1 % 493.4 545.9 (9.6 )%
South & Central America 427.4 412.0 3.7 % 412.0 430.6 (4.3 )%
EMEA 486.6 466.4 4.3 % 466.4 497.1 (6.2 )%
Asia Pacific (excluding China) 723.6 570.7 26.8 % 570.7 438.7 30.1 %
China 144.2 115.3 25.1 % 115.3 115.9 (0.5 )%

Worldwide 3,233.3 2,837.7 13.9 % 2,837.7 2,778.6 2.1 %

We assign a Volume Point value to a product when it is first introduced into the market. The specific number of Volume Points assigned to a product is based on a Volume Point to U.S. dollar ratio that we use for the vast majority of new products. If a product is available in different quantities then the various sizes will have different Volume Point values. If a new product is not introduced in or otherwise expected to be sold in the U.S., we will determine the Volume Point value for that product based on a review of various factors in the regions and countries in which we will market the product, including the Volume Point to local currency ratio of existing products in the relevant countries. In general, once assigned, a Volume Point value is consistent in each region and country and does not change from year to year. The reason volume points are used in the manner described above is that we use volume points for distributor qualification and recognition purposes and therefore attempts to keep volume points for a similar or like product consistent on a global basis. However, because Volume Points are a function of value rather than product type or size, they are not a reliable measure for product mix. As an example, an increase in Volume Points in a specific country or region could mean a significant increase in sales of less expensive product or a marginal increase in sales of an expensive product.
   For the Year Ended December 31,
   2011    2010    % Change 2010    2009    % Change
   (Volume points in millions)
North America
   987.1       888.5       11.1 % 888.5       779.9       13.9 %
Mexico
   704.5       563.0       25.1 % 563.0       493.4       14.1 %
South & Central America
   569.9       427.4       33.3 % 427.4       412.0       3.7 %
EMEA
   545.0       486.6       12.0 % 486.6       466.4       4.3 %
Asia Pacific (excluding China)
   961.6       723.6       32.9 % 723.6       570.7       26.8 %
China
   153.8       144.2       6.7 % 144.2       115.3       25.1 %









Worldwide
   3,921.9       3,233.3       21.3 % 3,233.3       2,837.7       13.9 %

Average Active Sales Leaders by Geographic Region

With the continued expansion of daily consumption ~~business models~~DMOs in our different markets, we believe the ~~Average Active Sales Leader~~average active sales leader metric, which represents the monthly average number of sales leaders that place an order from us in a given quarter, is a useful metric. We rely on this metric as an indication of the engagement level of sales leaders in a given region. Changes in the ~~Average Active Sales Leader~~average active sales leader metric may be indicative of the current momentum in a region as well as the potential for higher annual retention levels and future sales growth through utilization of daily consumption ~~based Daily Methods of Operations, or~~ DMOs.

For the Year Ended December 31, For the Year Ended December 31,
2010 2009 % Change 2009 2008 % Change

North America 49,305 43,299 13.9 % 43,299 40,811 6.1 %
Mexico 38,084 34,545 10.2 % 34,545 36,969 (6.6 )%
South & Central America 28,821 27,935 3.2 % 27,935 27,163 2.8 %
EMEA 33,531 32,594 2.9 % 32,594 33,349 (2.3 )%
Asia Pacific (excluding China) 35,899 28,529 25.8 % 28,529 25,563 11.6 %
China 6,848 5,920 15.7 % 5,920 5,762 2.7 %
Worldwide(1) 185,774 166,625 11.5 % 166,625 163,326 2.0 %


	For the Year Ended December 31,							For the Year Ended December 31,
	2011		2010		% Change			2010		2009		% Change
North America		56,741		49,305		15.1	%		49,305		43,299		13.9	%
Mexico		47,697		38,084		25.2	%		38,084		34,545		10.2	%
South & Central America		34,938		28,821		21.2	%		28,821		27,935		3.2	%
EMEA		38,607		33,531		15.1	%		33,531		32,594		2.9	%
Asia Pacific (excluding China)		48,195		35,899		34.3	%		35,899		28,529		25.8	%
China		8,814		6,848		28.7	%		6,848		5,920		15.7	%
Worldwide(1)		227,308		185,774		22.4	%		185,774		166,625		11.5	%




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

~~Number of New Sales Leaders by Geographic Region during the Reporting Period~~

We also focus on the number of distributors qualified as new sales leaders under our compensation system. Excluding China, distributors qualify for sales leader status based on their Volume Points. The changes in the total number of sales leaders or changes in the productivity of sales leaders may cause Volume Points to increase or decrease. The fluctuation in the number of new sales leaders has historically been a general indicator of the level of distributor recruitment. Given our ongoing transition to daily consumption DMOs coupled with the changes in our marketing plan implemented in late 2009, we are evaluating the usefulness of this measure to our ongoing business. The additional optional qualification introduced globally from the changes in our marketing plan has contributed to the increase in the number of new sales leaders.

For the Year Ended December 31,
2010 2009 % Change 2009 2008 % Change

North America 41,171 38,248 7.6 % 38,248 43,517 (12.1 )%
Mexico 25,473 21,826 16.7 % 21,826 26,046 (16.2 )%
South & Central America 24,977 29,052 (14.0 )% 29,052 45,416 (36.0 )%
EMEA 20,979 21,722 (3.4 )% 21,722 27,132 (19.9 )%
Asia Pacific (excluding China) 61,190 51,912 17.9 % 51,912 40,905 26.9 %

Total New Sales Leaders 173,790 162,760 6.8 % 162,760 183,016 (11.1 )%
New China Sales Employees 24,875 23,003 8.1 % 23,003 26,262 (12.4 )%

Worldwide Total New Sales Leaders 198,665 185,763 6.9 % 185,763 209,278 (11.2 )%

Number of Sales Leaders and Retention Rates by Geographic Region as of Re-qualification Period

Our compensation system requires each sales leader to re-qualify for such status each year, prior to February, in order to maintain their 50% discount on ~~product~~products and be eligible to receive royalty payments. In February of each year, we demote from the rank of sales leader those distributors who did not satisfy the re-qualification requirements during the preceding twelve months. The re-qualification requirement does not apply to new sales leaders (i.e., those who became sales leaders subsequent to the January re-qualification of the prior year).

Sales Leaders Statistics (Excluding China) 2010 2009 2008
(In thousands)

January 1 total sales leaders 431.3 456.9 451.6
January & February new sales leaders 21.2 20.6 28.6
Demoted sales leaders (did not re-qualify) (165.9 ) (181.4 ) (167.7 )
Other sales leaders (resigned, etc) (1.1 ) (1.4 ) (2.8 )

End of February total sales leaders 285.5 294.7 309.7


Sales Leaders Statistics (Excluding China)	2011			2010			2009
	(In thousands)
January 1 total sales leaders		434.2			431.3			456.9
January & February new sales leaders		28.9			21.2			20.6
Demoted sales leaders (did not re-qualify)		(144.8	)		(165.9	)		(181.4	)
Other sales leaders (resigned, etc)		(0.8	)		(1.1	)		(1.4	)

End of February total sales leaders		317.5			285.5			294.7

The distributor statistics below further highlight the calculation for retention.

Sales Leaders Retention (Excluding China) 2010 2009 2008
(In thousands)

Sales leaders needed to re-qualify 290.9 304.0 284.0
Demoted sales leaders (did not re-qualify) (165.9 ) (181.4 ) (167.7 )

Total re-qualified 125.0 122.6 116.3

Retention rate 43.0 % 40.3 % 41.0 %


Sales Leaders Retention (Excluding China)	2011			2010			2009
	(In thousands)
Sales leaders needed to re-qualify		283.2			290.9			304.0
Demoted sales leaders (did not re-qualify)		(144.8	)		(165.9	)		(181.4	)

Total re-qualified		138.4			125.0			122.6

Retention rate		48.9	%		43.0	%		40.3	%

The table below reflects the number of sales leaders as of February of the year indicated (subsequent to the annual re-qualification date) and sales leader retention rate by year and by region.

Number of Sales Leaders Sales Leaders Retention Rate
2010 2009 2008 2010 2009 2008

North America 64,668 63,726 64,383 43.3 % 42.2 % 43.5 %
Mexico 47,068 50,099 60,685 50.4 % 45.2 % 44.4 %
South & Central America 51,060 67,876 67,808 34.1 % 32.2 % 34.7 %
EMEA 47,080 53,371 59,446 51.9 % 48.7 % 46.6 %
Asia Pacific (excluding China) 75,635 59,631 57,355 38.6 % 35.1 % 34.3 %

Total Sales leaders 285,511 294,703 309,677 43.0 % 40.3 % 41.0 %
China Sales Employees 27,415 29,684 25,294

Worldwide Total Sales Leaders 312,926 324,387 334,971


	Number of Sales Leaders						Sales Leaders Retention Rate
	2011		2010		2009		2011			2010			2009
North America		72,152		64,668		63,726		48.6	%		43.3	%		42.2	%
Mexico		54,526		47,068		50,099		57.9	%		50.4	%		45.2	%
South & Central America		50,288		51,060		67,876		47.3	%		34.1	%		32.2	%
EMEA		49,696		47,080		53,371		58.6	%		51.9	%		48.7	%
Asia Pacific (excluding China)		90,822		75,635		59,631		38.4	%		38.6	%		35.1	%

Total Sales leaders		317,484		285,511		294,703		48.9	%		43.0	%		40.3	%
China		30,543		27,415		29,684

Worldwide Total Sales Leaders		348,027		312,926		324,387

The number of sales leaders by geographic region as of the quarterly reporting dates will normally be higher than the number of sales leaders by geographic region as of the re-qualification period because sales leaders who do not re-qualify during the relevant twelve-month period will be ~~deleted~~removed from the rank of sales leader the following February. Since sales leaders purchase most of our products for resale to other distributors and consumers, comparisons of sales leader totals on ayear-to-year basis are indicators of our recruitment and retention efforts in different geographic regions.

The value of the average monthly purchase of Herbalife products by our sales leaders has remained relatively constant over time. Consequently, increases in our sales are driven primarily by our retention of sales leaders, our recruitment and retention of distributors and by our distributors’ increased adoption of daily consumption ~~business methods.~~

DMOs.

We provide distributors with products, support materials, 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 productsand/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 reflect distributor allowances and shipping and handling revenues, 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 U.S. generally accepted accounting principles, or U.S. GAAP. Retail sales should not be considered in isolation from, nor as a substitute for, net sales and other consolidated income or cash flow statement data prepared in accordance with U.S. 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 retail sales may vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances.

We also offer reduced distributor allowances with respect to certain products worldwide.

Our international operations have provided and will continue to provide a significant portion of our total net sales. As a result, total net sales will continue to be affected by fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, in addition to comparing the percent change in net sales from one period to another in U.S. dollars, we also compare the percent change in net sales from one period to another period using “net sales in local currency”disclosure. Net sales in local currency is not a U.S. GAAP financial measure. Net sales in local currency removes from net sales in U.S. dollars the impact of changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries, by translating the current period net sales into U.S. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period. We believe presenting net sales in local currency is useful to investors because it allows a more meaningful comparison of net sales of our foreign operations from period to period. However, net sales in local currency measures should not be considered in isolation or as an alternative to net sales in U.S. dollars measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.

Our“gross profit”consists of net sales less“cost of sales,”which represents our manufacturing costs, the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling 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, sports & 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, sports & fitness, Outer Nutrition products and promotional products; and


	•	royalty overrides and production bonuses which total approximately 15% and 7%, respectively, of the retail sales of weight management, targeted nutrition, energy, sports & 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, sports & fitness, Outer Nutrition products and promotional products; and

	•	~~other discretionary incentive cash bonuses to qualifying distributors.~~

other discretionary incentive cash bonuses to qualifying distributors.

Royalty overrides are generally earned based on retail sales and provide potential earnings to distributors of up to 23% of retail sales or approximately 33% of our net sales. Royalty overrides ~~together with distributor allowances of up to 50% represent the potential earnings to distributors of up to approximately 73% of retail sales. The~~are generally compensation to distributors ~~is generally~~ for the development, retention and improved productivity of their ~~distributor~~ sales organizations and isare paid to several levels of distributors on each sale. Due to restrictions on direct selling in China, our ~~full-time employed~~ sales ~~representatives~~employees in China, ~~are~~prior to the transition into independent service providers, were compensated with wages, bonuses and benefits and our ~~licensed business~~independent service providers in China are compensated with service fees instead of the distributor allowances and royalty overrides utilized in our traditional marketing program. Compensation to China sales employees and independent service providers are included in selling, general and administrative expenses. 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.

Consequently, the total royalty override percentage may vary over time.

Royalty overrides together with distributor allowances of up to 50% of retail sales prices represent the potential earnings to distributors of up to approximately 73% of retail sales.

Our“~~operating~~contribution 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 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~~contribution 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 and option contracts to partially mitigate our foreign currency exchange risk as discussed in further detail in Item 7A —Quantitative and Qualitative Disclosures about Market Risk.

Results of Operations

Our results of operations for the periods below are not necessarily indicative of results of operations for future periods, which depend upon numerous factors, including our ability to recruit new distributors and retain existing distributors, open new markets, further penetrate existing markets, introduce new products and programs that will help our distributors increase their retail efforts 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:

Year Ended
Year Ended
Year Ended

December 31,
December 31,
December 31,

2010 2009 2008

Operations:

Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 20.4 21.2 19.4

Gross profit 79.6 78.8 80.6
Royalty overrides(1) 32.9 32.8 33.8
Selling, general and administrative expenses(1) 32.5 33.3 32.7

Operating income 14.2 12.7 14.1
Interest expense, net 0.3 0.2 0.6

Income before income taxes 13.9 12.5 13.5
Income taxes 3.3 3.8 4.1

Net income 10.6 8.7 9.4


	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
Operations:
Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		19.7			20.4			21.2

Gross profit		80.3			79.6			78.8
Royalty overrides(1)		32.9		��	32.9			32.8
Selling, general and administrative expenses(1)		31.1			32.5			33.3

Operating income		16.3			14.2			12.7
Interest expense, net		0.1			0.3			0.2

Income before income taxes		16.2			13.9			12.5
Income taxes		4.3			3.0			3.8

Net income		11.9			10.9			8.7


(1)		Compensation to our China sales employees and ~~licensed business~~service fees to our independent service providers isin China are included in selling, general and administrative expenses while distributor compensation for all other countries is included in royalty overrides.

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 our 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 region and corporate level, is to provide distributors with a competitive and broad product line, encourage strong teamwork and distributor leadership and offer leading edge business tools and technology services 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, Leadership Development Weekends 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 increase the productivity of the sales leader 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 sales leaders 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 helps drive ~~volume point~~Volume Point growth in our business, and thus, net sales growth. The discussion below of net sales by geographic region further details some of the specific drivers of growth of our business and causes of sales ~~increases and decreases~~

fluctuations during the ~~years~~year ended December 31, 2011 as compared to the same period in 2010, ~~2009 and 2008,~~ as well as the unique growth or contraction factors specific to certain geographic regions or ~~major countries.~~significant countries within a region. 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. ~~This~~The correct business foundation includes strong country management that works closely with the distributor leadership, actively engaged and 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, Leadership Development Weekends, 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.

We anticipate that our strategy will continue to include creating and maintaining growth within existing markets while expanding into new markets. In addition, new ideas and DMOs, are being generated in many of our regional markets and are globalized where applicable, through the combined efforts of distributors, country management or regional and corporate management. ~~Examples~~While we support a number of different DMOs, one of the more popular DMOs is the daily consumption DMO. Under our traditional DMO, a distributor typically sells to its customers on a somewhat infrequent basis (e.g., monthly) which provides fewer opportunities for interaction with their customers. Under a daily consumption DMO, a distributor interacts with its customers on a more frequent basis which enables the distributor to better educate and advise customers about nutrition and the proper use of the products and helps promote daily usage as well, thereby helping the distributor grow his or her business. Specific examples of DMOs include the Club concept in Mexico, Premium Herbalife Opportunity Meetings in Korea, the Healthy Breakfast concept in Russia, and the Internet/Sampling and Weight Loss Challenge in the U.S. 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.

Summary Financial Results for the year ended December 31, 2011 compared to the year ended December 31, 2010

Net sales for the year ended December 31, 2011 increased 26.3% to $3,454.5 million as compared to $2,734.2 million in 2010. In local currency, net sales for the year ended December 31, 2011 increased 22.8% as compared to the same period in 2010. The increase in net sales was primarily due to the continued successful adoption and operation of daily consumption DMOs; increased distributor engagement as reflected by record 2011 sales leader retention and an increase in average active sales leaders; branding activities and increased distributor recruiting.

Net income for the year ended December 31, 2011 increased 37.9% to $412.6 million, or $3.30 per diluted share, compared to $299.2 million, or $2.37 per diluted share, for the same period in 2010. The increase was primarily due to higher contribution margin driven by net sales growth discussed above, partially offset by higher selling, general and administrative expenses to support the growth of our business and higher income taxes. In addition, net income for the year ended December 31, 2010 was also negatively impacted by matters related to Venezuela, as described below.

Net income for the year ended December 31, 2011 included a $0.9 million pre-tax ($0.7 million post-tax) additional interest expense from the write-off of unamortized deferred financing costs resulting from the debt refinancing arrangement in March 2011. See Note 4,Long Term Debt, to the Consolidated Financial Statements for further information on our debt refinancing.

at the official exchange rate relating to 2009 product importations which were previously registered with CADIVI; a $14.5 million one-time favorable impact to income taxes related to Venezuela becoming a highly inflationary economy; a $4.0 million pre-tax ($2.6 million post-tax) foreign exchange gain in Herbalife Venezuela as a result of remeasuring its Bolivar denominated monetary assets and liabilities as of June 30, 2010 at the SITME rate of 5.3 Bolivars per U.S. dollar as opposed to the last parallel market rate of 8.3 Bolivars per U.S. dollar. SeeLiquidity and Capital Resources — Working Capital and Operating Activities below for further discussion of currency exchange rate issues in Venezuela. Net income for the year ended December 31, 2010 also included a $3.2 million tax benefit from an international income tax audit settlement.

Year ended December 31, 2011 compared to year ended December 31, 2010

Net Sales

The following chart reconciles retail sales to net sales:

Sales by Geographic Region


	Year Ended December 31,																						Change in Net Sales
	2011											2010
	Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales		Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales
	(Dollars in millions)
North America	$	1,111.4	$	(530.5	)	$	580.9	$	117.7	$	698.6	$	977.3	$	(465.9	)	$	511.4	$	102.7	$	614.1		13.8	%
Mexico		706.0		(344.4	)		361.6		75.3		436.9		539.8		(263.4	)		276.4		57.6		334.0		30.8	%
South & Central America		904.9		(430.8	)		474.1		80.3		554.4		637.8		(303.4	)		334.4		56.0		390.4		42.0	%
EMEA		991.0		(476.4	)		514.6		100.6		615.2		854.5		(413.6	)		440.9		86.9		527.8		16.6	%
Asia Pacific		1,469.4		(666.7	)		802.7		135.9		938.6		1,088.5		(498.5	)		590.0		93.5		683.5		37.3	%
China		245.1		(34.3	)		210.8		—		210.8		208.4		(24.0	)		184.4		—		184.4		14.3	%

Worldwide	$	5,427.8	$	(2,483.1	)	$	2,944.7	$	509.8	$	3,454.5	$	4,306.3	$	(1,968.8	)	$	2,337.5	$	396.7	$	2,734.2		26.3	%

North America

The North America region reported net sales of $698.6 million for the year ended December 31, 2011. Net sales increased $84.5 million, or 13.8%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 13.6% for the year ended December 31, 2011, as compared to the same period in 2010. The overall increase in net sales in the region was a result of net sales growth in the U.S. of $81.5 million, or 13.7%, for the year ended December 31, 2011, as compared to the same period in 2010.

In the U.S. we continue to see the success of our distributors converting their business focus toward a daily consumption DMO, especially the Nutrition Club DMO, and its extension into Commercial Clubs, along with the continued development of the Weight Loss Challenge DMO. The success of these DMOs has resulted in higher levels of distributor engagement and momentum.

Average active sales leaders in the region increased 15.1% for the year ended December 31, 2011, as compared to the same period in 2010. Average active sales leaders in the U.S. increased 15.2% for the year ended December 31, 2011, as compared to the same period in 2010.

During the fourth quarter of 2011, the region hosted three regional Extravaganzas with approximately 21,600 attendees. The region also hosted a Future President Team Retreat with 370 attendees.

Mexico

The Mexico region reported net sales of $436.9 million for the year ended December 31, 2011. Net sales for the year ended December 31, 2011 increased $102.9 million, or 30.8%, as compared to the same period in 2010.

In local currency, net sales for the year ended December 31, 2011 increased 28.6% as compared to the same period in 2010. The fluctuation of foreign currency rates had a favorable impact of $7.4 million on net sales for the year ended December 31, 2011.

The growth in net sales was primarily the result of increased distributor engagement as well as the continued success of the Nutrition Club DMO. In addition, since the beginning of 2010 we have significantly expanded our distribution network and product access throughout the country.

Average active sales leaders in Mexico increased 25.2% for the year ended December 31, 2011, as compared to the same period in 2010.

In September 2011, the region hosted an Extravaganza in Mexico City with approximately 20,000 attendees.

South and Central America

The South and Central America region reported net sales of $554.4 million for the year ended December 31, 2011. Net sales increased $164.0 million, or 42.0%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 36.7% for the year ended December 31, 2011, as compared to the same period in 2010. The fluctuation of foreign currency rates had a $20.6 million favorable impact on net sales for the year ended December 31, 2011.The increase in net sales for the year ended December 31, 2011, as compared to the same period in 2010, was due to an increase in net sales in every country in the region led by Brazil and Venezuela. This growth was primarily driven by the adoption and expansion of daily consumption DMOs throughout the region.

In Brazil, the region’s largest market, net sales increased $91.3 million, or 42.5%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 35.9% for the year ended December 31, 2011, as compared to the same period in 2010. The increase in local currency net sales was primarily the result of the successful adoption of Nutrition Clubs and other daily consumption DMOs. The fluctuation of foreign currency rates had a $14.3 million favorable impact on net sales in Brazil for the year ended December 31, 2011.

Venezuela, the region’s second largest market, experienced a net sales increase of $24.0 million, or 58.3%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 48.3% for the year ended December 31, 2011, as compared to the same period in 2010. The sales growth in local currency was partially driven by price increases of 10% and 4.5% in February 2011 and August 2011, respectively. SeeLiquidity and Capital Resources — Working Capital and Operating Activitiesbelow for further discussion of currency exchange rate issues in Venezuela.

Average active sales leaders in the region increased 21.2% for the year ended December 31, 2011, as compared to the same period in 2010.

In February 2011, the region hosted two Extravaganzas in Buenos Aires, Argentina and Bogota, Colombia. Together, the events had over 15,000 attendees. In April 2011, the region hosted three Extravaganzas in Brazil with a total of almost 15,000 attendees. In June 2011, the region also hosted Leadership Development Weekends in 14 cities with a total of almost 13,000 attendees. During the fourth quarter 2011 Brazil held a World Team School with over 5,600 attendees.

EMEA

The EMEA region reported net sales of $615.2 million for the year ended December 31, 2011. Net sales increased $87.4 million, or 16.6%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 12.2% for the year ended December 31, 2011, as compared to the same period in 2010. The fluctuation of foreign currency rates had a favorable impact on net sales of $23.3 million for the year ended December 31, 2011. The increase in net sales for the year ended December 31, 2011 was driven by increases in the majority of the countries in the region led by Russia, Spain, Italy, Belgium and several of the Eastern European markets.

Net sales in Italy, our largest market in the region, increased $7.4 million, or 6.7%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 1.6% for the year ended December 31, 2011, as compared to the same period in 2010.

Net sales in Russia, our second largest market in the region, increased $29.3 million, or 66.4%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 61.3% for the year ended December 31, 2011, as compared to the same period in 2010. The increase in Russia was driven by the ongoing adoption of the Commercial Nutrition Club, additional sales centers which have increased access to our products and improving brand image including the sponsorship of FC Spartak Moscow football club.

Net sales in Spain, our third largest market in the region, increased $11.1 million, or 27.6%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales in Spain increased 21.3% for the year ended December 31, 2011, as compared to the same period in 2010. The increase in Spain was mainly due to the positive effect of increased distributor engagement and recruitment which was aided by our sponsorship of FC Barcelona.

Average active sales leaders in the region increased 15.1% for the year ended December 31, 2011, as compared to the same period in 2010.

The region hosted two Extravaganzas in September 2011 with approximately 15,500 attendees in Barcelona, Spain and 2,000 in Istanbul, Turkey.

Asia Pacific

The Asia Pacific region, which excludes China, reported net sales of $938.6 million for the year ended December 31, 2011. Net sales increased $255.1 million, or 37.3%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 32.2% for the year ended December 31, 2011, as compared to the same period in 2010. The fluctuation of foreign currency rates had a favorable impact of $34.9 million on net sales for the year ended December 31, 2011. The increase in net sales for the year ended December 31, 2011 reflected broad-based growth across the region, especially in South Korea, India, Indonesia, and Malaysia, partially offset by a decrease in Taiwan.

Net sales in South Korea, our largest market in the region, increased $134.7 million, or 64.5%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 57.3% for the year ended December 31, 2011, as compared to the same period in 2010. The increase in net sales was primarily driven by the successful adoption and operation of the Nutrition Club DMO, in the form of Commercial Clubs along with the Mega and Premium Herbalife Opportunity Meetings. The fluctuation of foreign currency rates had a favorable impact on net sales of $15.1 million for the year ended December 31, 2011, as compared to the same period in 2010.

Net sales in Taiwan, our second largest market in the region, decreased $11.4 million, or 6.8%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales decreased 13.0% for the year ended December 31, 2011, as compared to the same period in 2010. The decline in net sales was mainly due to strategic actions taken to address certain distributor business training practices around nutrition clubs, resulting in the closure of a significant number of clubs. We believe these actions create a stable platform for future growth. The fluctuation of foreign currency rates had a favorable impact on net sales of $10.3 million for the year ended December 31, 2011, as compared to the same period in 2010.

Net sales in India, our third largest market in the region, increased $62.0 million, or 112.7%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 117.5% for the year ended December 31, 2011, as compared to the same period in 2010. The increase in net sales for the year ended December 31, 2011 was primarily driven by the successful adoption of the Nutrition Club DMO. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $2.6 million for the year ended December 31, 2011, as compared to the same period in 2010.

Net sales in Malaysia, our fourth largest market in the region, increased $19.5 million, or 30.1%, for the year ended December 31, 2011, as compared to the same period in 2010, reflecting the continued success of the Road Show DMO, which has generated positive distributor momentum and increased recruiting. In local currency, net sales increased 23.9% for the year ended December 31, 2011, as compared to the same period in 2010. The fluctuation of foreign currency rates had a favorable impact on net sales of $4.0 million for the year ended December 31, 2011, as compared to the same period in 2010.

Average active sales leaders in the region increased 34.3% for the year ended December 31, 2011, as compared to the same period in 2010.

In May 2011, the region hosted an Extravaganza in Bangkok, Thailand with over 22,000 attendees. In September 2011, the region hosted an Asia Pacific University training in Seoul, South Korea with approximately 13,000 attendees.

China

Net sales in China were $210.8 million for the year ended December 31, 2011. Net sales increased $26.4 million, or 14.3%, for the year ended December 31, 2011, as compared to the same period in 2010. In local currency, net sales increased 9.1% for the year ended December 31, 2011, as compared to the same period in 2010. The fluctuation of foreign currency rates had a favorable impact of $9.6 million on net sales for the year ended December 31, 2011.

The current focus in China is to expand the Nutrition Club DMO to enhance the emphasis on daily consumption DMOs. We believe that the Nutrition Club concept is slowly starting to gain traction as evidenced by the growth in clubs over the past year. While we believe the Nutrition Club DMO has tremendous potential to expand throughout China and achieve success similar to South Korea, we also realize that this process will most likely build gradually over the next few years.

Average active sales leaders in China increased 28.7% for the year ended December 31, 2011, as compared to the same period in 2010. We believe that the increase in distributor engagement as reflected in the average active sales leader numbers is indicative of the market transitioning to daily consumption DMOs.

As of December 31, 2011, we had direct-selling licenses in 16 provinces and we were operating 67 retail stores in 29 provinces in China. The 16 provinces in which we now have direct-selling licenses represent an addressable population of approximately 844 million. We continue to seek additional provincial licenses where appropriate.

In September 2011, the region hosted their Anniversary Rally in Qingdao, Shandong with over 10,100 attendees.

Sales by Product Category


	Year Ended December 31,																						% Change in Net Sales
	2011											2010
	Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales		Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales
	(Dollars in millions)
Weight Management	$	3,479.4	$	(1,647.5	)	$	1,831.9	$	326.8	$	2,158.7	$	2,749.1	$	(1,303.4	)	$	1,445.7	$	253.2	$	1,698.9		27.1	%
Targeted Nutrition		1,272.7		(602.6	)		670.1		119.5		789.6		1,018.2		(482.8	)		535.4		93.8		629.2		25.5	%
Energy, Sports and Fitness		273.6		(129.5	)		144.1		25.7		169.8		196.3		(93.1	)		103.2		18.1		121.3		40.0	%
Outer Nutrition		238.1		(112.7	)		125.4		22.4		147.8		206.3		(97.8	)		108.5		19.0		127.5		15.9	%
Literature, Promotional and Other		164.0		9.2			173.2		15.4		188.6		136.4		8.3			144.7		12.6		157.3		19.9	%

Total	$	5,427.8	$	(2,483.1	)	$	2,944.7	$	509.8	$	3,454.5	$	4,306.3	$	(1,968.8	)	$	2,337.5	$	396.7	$	2,734.2		26.3	%

Net sales for all product categories increased for the year ended December 31, 2011 as compared to the same period in 2010. The growth factors described in the above discussions of the individual geographic regions apply generally to all product categories.

Gross Profit

Gross profit was $2,774.4 million for the year ended December 31, 2011, as compared to $2,175.4 million for the same period in 2010. As a percentage of net sales, gross profit for the year ended December 31, 2011 increased to 80.3%, as compared to 79.6% for the same period in 2010, or a favorable net increase of 70 basis points. The net 70 basis point increase for the year ended December 31, 2011, as compared to the same period in 2010, was primarily due to a favorable 51 basis point net increase related to circumstances surrounding Herbalife Venezuela and Venezuela’s highly inflationary economy. The remaining net increase of 19 basis points was primarily due to the favorable impact from net source savings, foreign exchange fluctuations partially offset by an unfavorable impact from country mix and inventory write-downs. Specifically, the 51 basis point increase resulted from the combination of (i) 47 favorable basis points from recognizing an unfavorable foreign exchange impact of $12.7 million during the first quarter 2010 relating to the incremental U.S. dollar cost of importing finished goods into Venezuela at the unfavorable parallel market rate rather than the CADIVI official rate, and (ii) 4 favorable basis points from the impact of remeasuring Herbalife Venezuela’s Bolivar net sales at the SITME rate during the year ended December 31, 2011, as opposed to being remeasured at the less favorable old parallel market rate during the first five months of fiscal year 2010 prior to the change to remeasuring at the SITME rate. SeeLiquidity and Capital Resources — Venezuelabelow for further discussion on currency exchange rate issues in Venezuela. We believe that at least in the near term we will continue to have the ability to partially mitigate certain cost pressures across our business through improved optimization of our supply chain coupled with select increases in the retail prices of our products.

Royalty Overrides

Royalty overrides were $1,137.6 million for the year ended December 31, 2011, as compared to $900.2 million for the same period in 2010. Royalty overrides as a percentage of net sales was 32.9% for both the years ended December 31, 2011 and 2010. 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 and in certain countries. Compensation to our sales employees and independent service providers in China is included in selling, general and administrative expenses as opposed to royalty overrides where it is included for all other distributors under our worldwide marketing plan. We anticipate fluctuations in royalty overrides as a percentage of net sales reflecting the growth prospect of our China business relative to that of our worldwide business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,074.6 million for the year ended December 31, 2011, as compared to $887.7 million for the same period in 2010. Selling, general and administrative expenses as a percentage of net sales were 31.1% for the year ended December 31, 2011, as compared to 32.5% for the same period in 2010.

The increase in selling, general and administrative expenses for the year ended December 31, 2011 included $54.0 million in higher salaries, bonuses and benefits, excluding China sales employees; higher variable expenses as a result of sales growth including $46.3 million in higher distributor promotion and event costs, $21.5 million in higher non-income tax expenses such as value added tax and sales tax, $8.3 million in higher credit card fees, $9.4 million in higher expenses related to China sales employees, sales officers and independent service providers and $4.1 million in higher foreign exchange loss, which included the effect of Herbalife Venezuela’s $7.4 million net foreign exchange loss recorded in the first and second quarter of 2010.

Net Interest Expense

Net interest expense is as follows:


Net Interest Expense	Year Ended December 31, 2011			Year Ended December 31, 2010
	(Dollars in millions)
Interest expense		9.9			9.7
Interest income		(7.4	)		(2.3	)

Net Interest Expense	$	2.5		$	7.4

The decrease in net interest expense for the year ended December 31, 2011, as compared to the same period in 2010, was primarily due to $2.6 million of interest received on VAT refunds during 2011 and an increase in interest income earned on our outstanding cash and cash equivalents balances which had increased during 2011.

Income Taxes

Income taxes were $147.2 million for the year ended December 31, 2011, as compared to $80.9 million for the same period in 2010. As a percentage of pre-tax income, the effective income tax rate was 26.3% for the year ended December 31, 2011, as compared to 21.3% for the same period in 2010. The increase in the effective tax rate for the year ended December 31, 2011, as compared to the same period in 2010, was primarily due to the conversion of Venezuela to a highly inflationary economy in 2010, a tax benefit from an international income tax audit settlement recognized in 2010, and the change in the operating effective rate reflecting changes in the country mix. See Note 12,Income Taxes,to the Consolidated Financial Statements for additional discussion.

During the second quarter of 2011, we had a change in 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 which impacted our income tax expenses recognized within our consolidated statement of income. This change in accounting principle was applied to all periods presented within our 2011 Annual Report for comparative purposes. This change in accounting principle does not impact the consolidated financial statements related to fiscal years prior to 2010. See Note 2,Basis of Presentation, to the Consolidated Financial Statements, for discussion of this change in the method of accounting. The impacts to our financial statements resulting from this change are also discussed in Note 2.

Summary Financial Results for the year ended December 31, 2010 compared to the year ended December 31, 2009

Net sales for the year ended December 31, 2010 increased 17.6% to $2,734.2 million as compared to $2,324.6 million in 2009. In local currency, net sales for the year ended December 31, 2010 increased 17.4% as compared to the same periods in 2009. The increase in net sales was primarily due to the continued successful adoption and operation of daily consumption business models, an increase in average active sales leaders, branding activities and increased distributor recruiting.

Net income for the year ended December 31, 2010 increased ~~42.9%~~47.1% to ~~$290.5~~$299.2 million, or ~~$4.67~~$2.37 per diluted share, compared to $203.3 million, or ~~$3.22~~$1.61 per diluted share, for the same period in 2009. The increase was primarily driven by higher ~~operating~~contribution margin and lower effective tax rate and was partially offset by higher salaries, bonuses and benefits, higher distributor promotion and event costs, higher China sales employee and ~~licensed business~~independent service provider costs, higher credit card fees, higher non-income tax expenses and higher depreciation expense.

Net income for the year ended December 31, 2010 included a $15.1 million unfavorable impact related to the remeasurement of monetary assets and liabilities resulting from Venezuela being designated as a highly inflationary economy beginning January 1, 2010; a $12.7 million unfavorable impact related to incremental U.S. dollar costs of 2009 imports into Venezuela which were recorded at the unfavorable parallel market exchange rate and were not devalued based on 2010 exchange rates but rather recorded to cost of sales at their historical dollar costs as products were sold in the first quarter of 2010; a $5.8 million favorable impact resulting from receipt of U.S. dollars approved by the Venezuelan government’s foreign exchange commission, CADIVI, at the official exchange rate relating to 2009 product importations which were previously registered with CADIVI; a $14.5 million one-time favorable impact to income taxes related to Venezuela becoming a highly inflationary economy; a $4.0 million pre-tax ($2.6 million post-tax) foreign exchange gain in Herbalife Venezuela as a result of remeasuring its Bolivar denominated monetary assets and liabilities as of June 30, 2010 at the SITME rate of 5.3 Bolivars per U.S. dollar as opposed to the last parallel market rate of 8.3 Bolivars per U.S. dollar. SeeLiquidity and Capital Resources — Working Capital and Operating Activities below for further discussion of currency exchange rate issues in Venezuela. Net income for the year ended December 31, 2010 also included a $3.2 million tax benefit from an international income tax audit settlement.

Net income for the year ended December 31, 2009 included a $12.2 million unfavorable after tax impact (net of $6.6 million tax benefit) related to incremental U.S. dollar cost of imports into Venezuela at the unfavorable parallel market exchange rate rather than the official currency exchange rate; a $0.9 million unfavorable after tax impact (net of $0.4 million tax benefit) in connection with our restructuring activities; and a $3.8 million net favorable impact to income taxes from the expiration of certain statute of limitations offset by a charge for an international income tax audit settlement.

Year ended December 31, 2010 compared to year ended December 31, 2009

Net Sales

The following chart reconciles retail sales to net sales:

Sales by Geographic Region

Year Ended December 31,
2010 2009
Shipping &
Shipping &
Change

Retail
Distributor
Product
Handling
Net
Retail
Distributor
Product
Handling
Net
in Net

Sales Allowance Sales Revenues Sales Sales Allowance Sales Revenues Sales Sales
(Dollars in millions)

North America $ 977.3 $ (465.9 ) $ 511.4 $ 102.7 $ 614.1 $ 844.8 $ (403.1 ) $ 441.7 $ 87.3 $ 529.0 16.1 %
Mexico 539.8 (263.4 ) 276.4 57.6 334.0 431.5 (210.3 ) 221.2 41.8 263.0 27.0 %
South & Central America 637.8 (303.4 ) 334.4 56.0 390.4 605.3 (291.9 ) 313.4 53.5 366.9 6.4 %
EMEA 854.5 (413.6 ) 440.9 86.9 527.8 816.0 (394.2 ) 421.8 82.4 504.2 4.7 %
Asia Pacific 1,088.5 (498.5 ) 590.0 93.5 683.5 825.3 (382.1 ) 443.2 66.0 509.2 34.2 %
China 208.4 (24.0 ) 184.4 — 184.4 167.2 (14.9 ) 152.3 — 152.3 21.1 %

Worldwide $ 4,306.3 $ (1,968.8 ) $ 2,337.5 $ 396.7 $ 2,734.2 $ 3,690.1 $ (1,696.5 ) $ 1,993.6 $ 331.0 $ 2,324.6 17.6 %


	Year Ended December 31,																						Change in Net Sales
	2010											2009
	Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales		Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales
	(Dollars in millions)
North America	$	977.3	$	(465.9	)	$	511.4	$	102.7	$	614.1	$	844.8	$	(403.1	)	$	441.7	$	87.3	$	529.0		16.1	%
Mexico		539.8		(263.4	)		276.4		57.6		334.0		431.5		(210.3	)		221.2		41.8		263.0		27.0	%
South & Central America		637.8		(303.4	)		334.4		56.0		390.4		605.3		(291.9	)		313.4		53.5		366.9		6.4	%
EMEA		854.5		(413.6	)		440.9		86.9		527.8		816.0		(394.2	)		421.8		82.4		504.2		4.7	%
Asia Pacific		1,088.5		(498.5	)		590.0		93.5		683.5		825.3		(382.1	)		443.2		66.0		509.2		34.2	%
China		208.4		(24.0	)		184.4		—		184.4		167.2		(14.9	)		152.3		—		152.3		21.1	%

Worldwide	$	4,306.3	$	(1,968.8	)	$	2,337.5	$	396.7	$	2,734.2	$	3,690.1	$	(1,696.5	)	$	1,993.6	$	331.0	$	2,324.6		17.6	%

North America

The North America region reported net sales of $614.1 million for the year ended December 31, 2010. Net sales increased $85.1 million, or 16.1%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 15.8% for the year ended December 31, 2010 as compared to the same period in 2009. The overall increase in the region was a result of net sales growth in the U.S. of $82.6 million, or 16.1%, for the year ended December 31, 2010 as compared to the same period in 2009.

In the U.S. we continue to see the success of our distributors converting their business focus toward a daily consumption business model, especially the Nutrition Club DMO, and its extension into Commercial Clubs and Central Clubs, along with the continued development of the Weight Loss Challenge DMO. In terms of volume, the mix of business in the U.S. was 63.7% in the U.S. Latin market and 36.3% in the General market for the year ended December 31, 2010. Sales growth was 8.6% in the U.S. Latin market and 25.7% in the General market for the year ended December 31, 2010. Given the ongoing transition of the overall region to a higher level of utilization of daily consumption ~~DMO’s,~~DMOs, we do not believe there iswas an ongoing benefit to evaluating the U.S. market as a bifurcated business. Therefore, we ~~will return~~returned to discussing it on a consolidated basis ~~beginning~~ in 2011.

In October 2010, the region hosted Regional Extravaganzas, one in Atlanta for the U.S. Latin Market and one in Los Angeles for both the U.S. Latin Market and the General Market, with over 20,000 combined attendees. In December, the General Market hosted a Future President Team Retreat with approximately 250 attendees. Also, during 2010, the region hosted different events including a series of Leadership Development Weekends as well as Nutrition Club and Academy tours. In total almost 50,000 distributors attended these events.

Average active sales leaders in the region increased 13.9% for the year ended December 31, 2010 as compared to the same period in 2009. Average active sales leaders in the U.S. increased 14.6% for the year ended December 31, 2010 as compared to the same period in 2009. ~~Total sales leaders in the region increased 4.7% as of December 31, 2010 compared to December 31, 2009.~~

Mexico

The Mexico region reported net sales of $334.0 million for the year ended December 31, 2010. Net sales for the year ended December 31, 2010 increased $71.0 million, or 27.0%, as compared to the same period in 2009. In local currency, net sales for the year ended December 31, 2010 increased 19.2% as compared to the same period in 2009. The fluctuation of foreign currency rates had a favorable impact of $20.5 million on net sales for the year ended December 31, 2010.

We believe that local currency sales during fiscal year 2010 benefited from our distribution agreement with a large Mexico retailer that was initiated at the beginning of the year. This agreement allows distributors to pick up their product orders at the customer service counters of 302 locations in 26 Mexican states. ~~We believe that by leveraging their distribution system, we are providing distributors with significantly better product access.~~

Average active sales leaders in Mexico increased 10.2% for the year ended December 31, 2010 as compared to the same period in 2009. ~~Total sales leaders in Mexico increased 0.7% as of December 31, 2010, compared to December 31, 2009.~~

In September 2010, Mexico hosted a regional extravaganza with total attendance of 18,200.

South and Central America

The South and Central America region reported net sales of $390.4 million for the year ended December 31, 2010. Net sales increased $23.5 million, or 6.4%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 18.5% for the year ended December 31, 2010 as compared to the same period in 2009. The fluctuation of foreign currency rates had a $44.5 million unfavorable impact on net sales for the year ended December 31, 2010. The increase in net sales for the year ended December 31, 2010 was driven by increases in net sales in the majority of the countries in the region including Brazil, Ecuador and Bolivia, partially offset by a decline in Venezuela.

In Brazil, the region’s largest market, net sales increased $44.5 million, or 26.1%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 13.5% for the year ended December 31, 2010 as compared to the same period in 2009. The increase in local currency net sales was primarily the result of the successful adoption of Nutrition Clubs and other daily consumption based DMOs. The fluctuation of foreign currency rates had a $21.5 million favorable impact on net sales in Brazil for the year ended December 31, 2010.

Venezuela, the region’s second largest market, experienced a net sales decrease of $44.1 million, or 51.7%, for the year ended December 31, 2010 as compared to the same period in 2009. The decrease in net sales reflects the impact of re-measuring Venezuela’s local sales at the parallel market exchange rate and the new regulated market rate during fiscal year 2010. During the year ended December 31, 2010 the average applicable exchange rate was 63% less favorable compared to the official exchange rate that was used to translate Venezuela’s local sales during the same period in 2009. In local currency, net sales increased 29.1% for the year ended December 31, 2010 as compared to the same period in 2009. The sales growth in local currency was partially driven by price increases of 12%, 8%, and 10% in March 2010, July 2010, and November 2010, respectively. SeeLiquidity and Capital Resources — Working Capital and Operating Activitiesin this section for further discussion on currency exchange rate issues in Venezuela.

Average active sales leaders in the region increased 3.2% for the year ended December 31, 2010 as compared to the same period in 2009. ~~Total sales leaders in the region decreased 21.7% as of December 31, 2010 compared to December 31, 2009.~~

In February 2010, the region hosted an Extravaganza in Quito, Ecuador with over 12,500 attendees.

EMEA

The EMEA region reported net sales of $527.8 million for the year ended December 31, 2010. Net sales increased $23.6 million, or 4.7%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 7.1% for the year ended December 31, 2010 as compared to the same period in 2009. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $12.1 million for the year ended December 31, 2010. The increase in net sales for the year ended December 31, 2010 was driven by increases in net sales in Russia, Norway, Commonwealth of Independent States, or CIS countries, and Spain, partially offset by decreases in France and Italy.

Net sales in Italy, our largest market in the region, decreased $6.7 million, or 5.7%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales decreased 0.9% for the year

ended December 31, 2010 as compared to the same period in 2009. The decrease in net sales was primarily driven by a shift in focus to daily consumption DMOs and away from recruiting. This decline iswas similar to what we have seen in other markets like Taiwan and Brazil as they were transitioning from a recruiting model to a daily consumption model.

Net sales in Russia, our second largest market in the region, increased $12.9 million, or 41.4%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 36.6% for the year ended December 31, 2010 as compared to the same period in 2009. The increase in Russia was driven by the ongoing adoption of the Commercial Nutrition Club.

Net sales in Spain, our third largest market in the region, increased $4.4 million, or 12.2%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales in Spain increased 18.3% for the year ended December 31, 2010 as compared to the same period in 2009. The increase in Spain was mainly due to the positive effect of increased distributor engagement and recruitment.

Net sales in France, our fourth largest market in the region, decreased $9.2 million, or 22.4%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales in France decreased 18.7% for the year ended December 31, 2010 as compared to the same period in 2009. The decrease in net sales in France was mainly due to lower recruiting.

Average active sales leaders in the region increased 2.9% for the year ended December 31, 2010 as compared to the same period in 2009. ~~Total sales leaders in the region decreased 6.7% as of December 31, 2010 compared to December 31, 2009.~~

In July 2010, the region hosted Extravaganzas in Stockholm, Sweden with 5,800 attendees, in Turin, Italy with 8,300 attendees, and in Kiev, Ukraine with 3,300 attendees. In December 2010, South Africa held an Extravaganza with approximately 1,700 attendees.

Asia Pacific

The Asia Pacific region, which excludes China, reported net sales of $683.5 million for the year ended December 31, 2010. Net sales increased $174.3 million, or 34.2%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 26.6% for the year ended December 31, 2010 as compared to the same period in 2009. The fluctuation of foreign currency rates had a favorable impact of $38.9 million on net sales for the year ended December 31 2010. The increase in net sales for the year ended December 31, 2010 was broad based with virtually every country in the region showingyear-over-year net sales growth led by Korea, India, Malaysia, Indonesia, and Vietnam.

Net sales in South Korea, our largest market in the region, increased $93.9 million, or 81.7%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 67.1% for the year ended December 31, 2010 as compared to the same period in 2009. The increase in net sales was primarily driven by the successful adoption and operation of the Nutrition Club DMO, in the form of Commercial Clubs along with the Premium Herbalife Opportunity Meeting. The fluctuation of foreign currency rates had a favorable impact on net sales of $16.8 million for the year ended December 31, 2010 as compared to the same period in 2009.

Net sales in Taiwan, our second largest market in the region, increased $2.0 million, or 1.2%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales decreased 3.3% for the year ended December 31, 2010 as compared to the same period in 2009. The fluctuation of foreign currency rates had a favorable impact on net sales of $7.4 million for the year ended December 31, 2010 as compared to the same period in 2009.

Net sales in Malaysia, our third largest market in the region in 2010, increased $13.7 million, or 26.9%, for the year ended December 31, 2010 as compared to the same period in 2009, reflecting the continued success of the Road Show DMO, which has generated positive distributor momentum and increased recruiting. In local currency, net sales increased 15.9% for the year ended December 31, 2010 as compared to the same period in 2009. The fluctuation of foreign currency rates had a favorable impact on net sales of $5.6 million for the year ended December 31, 2010 as compared to the same period in 2009.

Net sales in Japan, our fourth largest market in the region in 2010, decreased $0.7 million, or 1.3%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 3.6% for the year ended December 31, 2010 as compared to the same period in 2009. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $2.8 million for the year ended December 31, 2010 as compared to the same period in 2009. Despite the modest increase in local currency net sales in 2010, the market ~~continues~~continued to be negatively impacted by low recruiting activity.

Net sales in India, our fifth largest market in the region in 2010, increased $29.2 million, or 112.8%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 101.8% for the year ended December 31, 2010 as compared to the same period in 2009. The increase in net sales for the year ended December 31, 2010 was driven primarily by the successful adoption of the Nutrition Club DMO. The fluctuation of foreign currency rates had a favorable impact on net sales of $2.9 million for the year ended December 31, 2010 as compared to the same period in 2009.

In May 2010, the region hosted an Extravaganza in Singapore with almost 18,000 attendees. In September 2010, the region hosted a Herbalife University in Macau, China with approximately 8,000 attendees.

Average active sales leaders in the region increased 25.8% for the year ended December 31, 2010 as compared to the same period in 2009. ~~Total sales leaders in the region increased 21.6% as of December 31, 2010 compared to December 31, 2009.~~

China

Net sales in China were $184.4 million for the year ended December 31, 2010. Net sales increased $32.1 million, or 21.1%, for the year ended December 31, 2010 as compared to the same period in 2009. In local currency, net sales increased 20.0% for the year ended December 31, 2010 as compared to the same period in 2009. The fluctuation of foreign currency rates had a favorable impact of $1.8 million on net sales for the year ended December 31, 2010.

The current focus in China is to expand the Nutrition Club DMO to enhance the retail focus and thereby increase the emphasis on daily consumption methods of operation. As experienced in other markets, such as Brazil, which have gone through a similar transition, China has experienced a slow-down in sales growth as the licensed business providers begin to build their nutrition club business. We believe that the nutrition club concept is slowly starting to gain traction as evidenced by the growth in clubs over the past year. While we believe the nutrition club DMO has tremendous potential to expand throughout China and achieve success similar to Taiwan and South Korea, we also realize that the process is still in its early development stage and will most likely build gradually over the next few years.

As of December 31, 2010, we had direct-selling licenses in 16 provinces and we were operating 71 retail stores in 30 provinces in China. The 16 provinces in which we now have direct-selling licenses represent an addressable population of approximately 844 million. In October 2010, the region hosted a 5 year anniversary rally with approximately 12,000 attendees.

Average active sales leaders in China increased 15.7% for the year ended December 31, 2010 as compared to the same period in 2009. ~~Total sales leaders in China decreased 1.2% as of December 31, 2010 compared to December 31, 2009.~~

Sales by Product Category

Year Ended December 31,
2010 2009
Shipping &
Shipping &
% Change

Retail
Distributor
Product
Handling
Net
Retail
Distributor
Product
Handling
Net
in Net

Sales Allowance Sales Revenues Sales Sales Allowance Sales Revenues Sales Sales
(Dollars in millions)

Weight Management $ 2,749.1 $ (1,303.4 ) $ 1,445.7 $ 253.2 $ 1,698.9 $ 2,392.2 $ (1,142.0 ) $ 1,250.2 $ 214.6 $ 1,464.8 16.0 %
Targeted Nutrition 1,018.2 (482.8 ) 535.4 93.8 629.2 806.3 (384.9 ) 421.4 72.3 493.7 27.4 %
Energy, Sports and Fitness 196.3 (93.1 ) 103.2 18.1 121.3 161.2 (77.0 ) 84.2 14.5 98.7 22.9 %
Outer Nutrition 206.3 (97.8 ) 108.5 19.0 127.5 209.6 (100.1 ) 109.5 18.8 128.3 (0.6 )%
Literature, Promotional and Other 136.4 8.3 144.7 12.6 157.3 120.8 7.5 128.3 10.8 139.1 13.1 %

Total $ 4,306.3 $ (1,968.8 ) $ 2,337.5 $ 396.7 $ 2,734.2 $ 3,690.1 $ (1,696.5 ) $ 1,993.6 $ 331.0 $ 2,324.6 17.6 %


	Year Ended December 31,																						% Change in Net Sales
	2010											2009
	Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales		Retail Sales		Distributor Allowance			Product Sales		Shipping & Handling Revenues		Net Sales
	(Dollars in millions)
Weight Management	$	2,749.1	$	(1,303.4	)	$	1,445.7	$	253.2	$	1,698.9	$	2,392.2	$	(1,142.0	)	$	1,250.2	$	214.6	$	1,464.8		16.0	%
Targeted Nutrition		1,018.2		(482.8	)		535.4		93.8		629.2		806.3		(384.9	)		421.4		72.3		493.7		27.4	%
Energy, Sports and Fitness		196.3		(93.1	)		103.2		18.1		121.3		161.2		(77.0	)		84.2		14.5		98.7		22.9	%
Outer Nutrition		206.3		(97.8	)		108.5		19.0		127.5		209.6		(100.1	)		109.5		18.8		128.3		(0.6	)%
Literature, Promotional and Other		136.4		8.3			144.7		12.6		157.3		120.8		7.5			128.3		10.8		139.1		13.1	%

Total	$	4,306.3	$	(1,968.8	)	$	2,337.5	$	396.7	$	2,734.2	$	3,690.1	$	(1,696.5	)	$	1,993.6	$	331.0	$	2,324.6		17.6	%

Net sales for all product categories increased for the year ended December 31, 2010 as compared to the year ended December 31, 2009, except for a slight decrease in Outer Nutrition, mainly due to the factors described in the above discussions of the individual geographic regions. In addition, net sales for Outer Nutrition decreased in part due to the distributor focus on DMOs that are centered towards Weight Management products.

Gross Profit

Gross profit was $2,175.4 million for the year ended December 31, 2010, as compared to $1,831.4 million for the year ended December 31, 2009. As a percentage of net sales, gross profit for the year ended December 31, 2010 increased to 79.6%, as compared to 78.8% for the same period in 2009. The increase in the gross profit as a percentage of net sales for the year ended December 31, 2010, as compared to the same period in 2009, was primarily due to a favorable impact from currency fluctuations, cost savings throughout our supply chain, and a decreased unfavorable foreign exchange impact of $12.7 million recognized during the year ended December 31, 2010 relating to the incremental U.S. dollar cost of importing finished goods into Venezuela at the unfavorable parallel market rate rather than the official currency exchange, as compared to $18.8 million recognized during the year ended December 31, 2009. These increases to the gross profit as a percentage of net sales were partially offset by country mix and by the unfavorable impact of remeasuring Herbalife Venezuela’s Bolivar net sales at the less favorable old parallel market rate and at the less favorable SITME exchange rate during 2010, as opposed to being translated at the CADIVI official rate during 2009. SeeLiquidity and Capital Resources — Working Capital and Operating Activitiesin this section for further discussion on currency exchange rate issues in Venezuela. ~~We believe that we have the ability to partially mitigate certain cost pressures through improved optimization of our supply chain coupled with select increases in the retail prices of our products.~~

Royalty Overrides

Royalty overrides were $900.2 million for the year ended December 31, 2010, as compared to $761.5 million for the same period in 2009. Royalty overrides as a percentage of net sales was 32.9% for the year ended December 31, 2010, as compared to 32.8% for the same period in 2009. 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 and in certain countries. Compensation to our full-time sales employees and ~~licensed business~~independent service providers in China is included in selling, general and administrative expenses as opposed to royalty overrides where it is included for all other distributors under our worldwide marketing plan. ~~We anticipate fluctuations in royalty overrides as a percentage of net sales reflecting the growth prospect of our China business relative to that of our worldwide business.~~

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $887.7 million for the year ended December 31, 2010, as compared to $773.9 million for the same period in 2009. Selling, general and administrative expenses as a percentage of net sales was 32.5% for the year ended December 31, 2010, as compared to 33.3% for the same period in 2009.

The increase in selling, general and administrative expenses for the year ended December 31, 2010 included $32.7 million in higher salaries, bonuses and benefits, excluding China sales employees; $5.5 million in higher depreciation and amortization expense; and higher variable expenses including $29.2 million in higher distributor promotion and event costs, $8.3 million in higher expenses related to China sales employees and ~~licensed business~~independent service providers, $8.0 million in higher credit card fees and $7.4 million in higher non-income tax expense.

We expect 2011 selling, general and administrative expenses to increase in absolute dollars over 2010 levels reflecting higher salaries and benefits excluding China sales employees, China sales employee costs, and China licensed business provider service fees, increased depreciation, primarily related to our global Oracle implementation, and various sales growth initiatives, including distributor events and promotions.

Net Interest Expense

Net interest expense is as follows:

Year Ended
Year Ended

December 31,
December 31,

Net Interest Expense 2010 2009
(Dollars in millions)

Interest expense 9.7 9.6
Interest income (2.3 ) (4.5 )

Net Interest Expense $ 7.4 $ 5.1


Net Interest Expense	Year Ended December 31, 2010			Year Ended December 31, 2009
	(Dollars in millions)
Interest expense		9.7			9.6
Interest income		(2.3	)		(4.5	)

Net Interest Expense	$	7.4		$	5.1

The increase in net interest expense for the year ended December 31, 2010 as compared to the same period in 2009, was primarily due to the decrease in interest income generated from Herbalife Venezuela’s cash and cash equivalents and an increase in interest expense relating to our interest rate swap agreements, partially offset by lower interest expense on our senior secured credit facility due to lower average debt balance during 2010 as compared to 2009. See“Liquidity and Capital Resources”in this section for further discussion on our senior secured credit facility.

Income Taxes

Income taxes were ~~$89.6~~$80.9 million for the year ended December 31, 2010, as compared to $87.6 million for the same period in 2009. As a percentage of pre-tax income, the effective income tax rate was ~~23.6%~~21.3% for the year ended December 31, 2010, as compared to 30.1% for the year ended December 31, 2009. The decrease in the effective tax rate for the year ended December 31, 2010, as compared to the same period in 2009, was primarily due to the ~~ability to utilize $3.0 million of foreign tax credit carrybacks, the~~ conversion of Venezuela to a highly inflationary economy, ~~as discussed below and~~ a ~~favorable decision in a foreign~~tax benefit from an international income tax audit ~~which resulted in a one-time tax benefit of $3.2 million. In addition,~~settlement recognized, and the ~~decrease~~change in the operating effective rate ~~reflects favorable~~reflecting changes in the country mix and non-cash benefit of $3.1 million due to the expiration of certain statue of limitations. The 2010 effective tax rate is not indicative of the future income tax rates and includes certain nonrecurring income tax benefits as discussed within this section.

mix.

Venezuela has experienced cumulative inflation of at least 100% during the three year period ending December 31, 2009. Therefore, as of January 1, 2010 the Bolivar is hyperinflationary for U.S. federal income tax

purposes. As a result, because Herbalife Venezuela is considered a dual incorporated entity, it is now required to account for its operations using the Dollar Approximate Separate Transactions Method of accounting, ~~(DASTM).~~or DASTM. The transitional impact of DASTM resulted in a deferred income tax benefit of approximately $14.5 million recorded during the first quarter of 2010. SeeLiquidity and Capital Resources — Working Capital and Operating Activitiesin this section for further discussion on Venezuela becoming a highly inflationary economy.

~~Summary Financial Results for the year ended December 31, 2009 compared to the year ended December 31, 2008~~

Net sales for the year ended December 31, 2009 decreased 1.5% to $2,324.6 million as compared to $2,359.2 million in 2008. The decrease was primarily due to the unfavorable impact of currency fluctuations of

$155.6 million. In local currency, net sales for the year ended December 31, 2009 increased 5.1%, as compared to the same period in 2008. For the year ended December 31, 2009, net sales in U.S. dollars in our top ten countries including the U.S., Brazil, Taiwan, China, Italy, South Korea, Venezuela and Malaysia increased 7.4%, 12.2%, 28.0%, 5.0%, 5.2%, 56.9%, 6.9% and 30.8%, respectively, as compared to the same period in 2008, while Mexico and Japan, decreased 25.3% and 14.5%, respectively, as compared to the same period in 2008. The increase in net sales in most of our top markets was mainly due to the successful conversions to daily consumption business models, branding activities and increased distributor recruiting. In Mexico, the negative impact of the Value Added Tax, or VAT, that has been levied by the Mexican government on the import and resale of certain nutrition products, which we began collecting from our distributors during the third quarter of 2008 contributed to the decline in net sales and distributor and sales leader recruiting. In Japan, lower net sales were mainly due to decline in distributor recruiting.

Net income for the year ended December 31, 2009 decreased 8.1% to $203.3 million, or $3.22 per diluted share, compared to $221.2 million, or $3.36 per diluted share, for the same period in 2008. The decrease was primarily driven by currency related revenue declines, higher cost of goods sold, depreciation expense, salaries and benefits, and advertising and promotion expense, partially offset by lower professional fees, sales event costs and interest expense and lower effective tax rate.

~~Year ended December 31, 2009 compared to year ended December 31, 2008~~

~~Net Sales~~

~~The following chart reconciles retail sales to net sales:~~

~~Sales by Geographic Region~~

Year Ended December 31,
2009 2008
Shipping &
Shipping &
Change

Retail
Distributor
Product
Handling
Net
Retail
Distributor
Product
Handling
Net
in Net

Sales Allowance Sales Revenues Sales Sales Allowance Sales Revenues Sales Sales
(Dollars in millions)

North America $ 844.8 $ (403.1 ) $ 441.7 $ 87.3 $ 529.0 $ 795.3 $ (379.2 ) $ 416.1 $ 80.8 $ 496.9 6.5 %
Mexico 431.5 (210.3 ) 221.2 41.8 263.0 584.3 (284.8 ) 299.5 52.7 352.2 (25.3 )%
South & Central America 605.3 (291.9 ) 313.4 53.5 366.9 665.9 (332.9 ) 333.0 50.6 383.6 (4.4 )%
EMEA 816.0 (394.2 ) 421.8 82.4 504.2 927.7 (449.1 ) 478.6 92.1 570.7 (11.7 )%
Asia Pacific 825.3 (382.1 ) 443.2 66.0 509.2 678.1 (318.0 ) 360.1 50.7 410.8 24.0 %
China 167.2 (14.9 ) 152.3 — 152.3 159.9 (14.9 ) 145.0 — 145.0 5.0 %

Worldwide $ 3,690.1 $ (1,696.5 ) $ 1,993.6 $ 331.0 $ 2,324.6 $ 3,811.2 $ (1,778.9 ) $ 2,032.3 $ 326.9 $ 2,359.2 (1.5 )%

~~North America~~

The North America region reported net sales of $529.0 million for the year ended December 31, 2009. Net sales increased $32.1 million, or 6.5%, for the year ended December 31, 2009 as compared to the same period in 2008. In local currency, net sales increased 6.7% for the year ended December 31, 2009 as compared to the same period in 2008. The overall increase in the region was a result of net sales growth in the U.S. of $35.3 million, or 7.4%, as compared to the same period in 2008.

We continue to see the success of our distributors converting their business focus toward a daily consumption business model, especially the Nutrition Club DMO, and its extension into Commercial Clubs and Central Clubs, along with the continued development of the Weight Loss Challenge DMO. We also implemented a 5% price increase in the U.S. in February 2009. In terms of volume, the mix of business in the U.S. was 67% in the U.S. Latin market and 33% in the General market for the year ended December 31, 2009.

In October 2009, the region hosted a U.S. Latin market and General market Extravaganzas in Atlanta, GA. More than 14,000 distributors attended with 11,800 attending the U.S. Latin market event and 2,800 attending the General market event. Also, during 2009, the region hosted different events including a “Why Herbalife, Why Now?” tour, a series of Leadership Development Weekends, a Nutrition Club tour and a Recruiting tour. In total more than 30,000 distributors attended these events.

New sales leaders in the region decreased 12.1% for the year ended December 31, 2009, as compared to the same period in 2008. Total sales leaders in the region decreased 2.2% as of December 31, 2009 compared to December 31, 2008. New sales leaders in the U.S. decreased 11.7% for the year ended December 31, 2009, as compared to the same period in 2008.

~~Mexico~~

The Mexico region reported net sales of $263.0 million for the year ended December 31, 2009. Net sales for the year ended December 31, 2009, decreased $89.2 million, or 25.3%, as compared to the same period in 2008. In local currency, net sales for the year ended December 31, 2009 decreased 8.9% as compared to the same period in 2008. The fluctuation of foreign currency rates had an unfavorable impact of $57.7 million on net sales for the year ended December 31, 2009.

Net sales comparisons for 2009 versus 2008 were negatively impacted by the collection of a VAT from our distributors that has been levied by the Mexican government on the import and resale of certain nutrition products. We began charging the VAT to distributors in the third quarter of 2008. Distributors previously paid 0% VAT on purchases of most of our nutrition products. Because Nutrition Clubs are the predominant DMO in Mexico, and are retail price-sensitive, the VAT increase has caused our volumes to decline. For the year ended December 31, 2008, this VAT increase affected approximately 58% of our sales volume in the region. For the first three quarters of 2009 this VAT increase affected approximately 58% of sales volume but for the fourth quarter of 2009, this VAT increase affected only approximately 20% of our sales volume. The reduced impact in the fourth quarter was due to the introduction in October 2009 of several re-formulated nutrition products which are not subject to the VAT charge that replaced our existing products that were subject to the VAT. Through the third quarter, net sales in local currency were 12.7% lower in 2009 on a~~year-to-date~~ ~~basis as compared to 2008. In the fourth quarter, local currency net sales increased 8.2% compared to the same period in 2008 and increased 1.2% sequentially compared to the third quarter of 2009.~~

New sales leaders in Mexico decreased 16.2% for the year ended December 31, 2009, as compared to the same period in 2008. Total sales leaders in Mexico decreased 14.1% as of December 31, 2009, compared to December 31, 2008.

In September 2009, Mexico hosted an Extravaganza with over 14,600 attendees. In addition, during 2009, Mexico also hosted a motivational Global Expansion Team/Millionaire Team Retreat and Active Sales Leader schools. Total combined attendance at these two events was over 4,000 distributors.

~~South and Central America~~

The South and Central America region reported net sales of $366.9 million for the year ended December 31, 2009. Net sales decreased $16.7 million or 4.4%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales were relatively flat for the year ended December 31, 2009, as compared to the same period in 2008. The fluctuation of foreign currency rates had a $17.3 million unfavorable impact on net sales for the year ended December 31, 2009. The increase in local currency net sales in the region for the year ended December 31, 2009 was attributable to sales growth in Brazil and Venezuela as well as a full year of sales in Ecuador

~~which was opened in the fourth quarter of 2008. Offsetting these increases were sales declines in Peru, Argentina, Bolivia, Chile, and Colombia.~~

In Brazil, the region’s largest market, net sales increased $18.5 million, or 12.2%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales increased 20.4% for the year ended December 31, 2009, as compared to the same period in 2008. The increase in local currency net sales was primarily a result of distributors successfully transforming this market into a more balanced mix of recruiting, retailing and retention via the Nutrition Club and other daily consumption based DMOs. The fluctuation of foreign currency rates had a $12.5 million unfavorable impact on net sales for the year ended December 31, 2009.

Venezuela, the region’s second largest market, experienced a net sales increase of $5.5 million, or 6.9%, for the year ended December 31, 2009, as compared to the same period in 2008. The increase in sales for the year ended December 31, 2009, compared to 2008 primarily reflected lower sales in the prior year due to the cumulative effect from price increases of 20% and 25% in January and May 2008, respectively. In October 2008, we instituted changes in non-resident distributor compensation to address currency controls imposed by the Venezuelan government. Also, in June 2009 we instituted a 10% price increase along with further changes in non-resident distributor compensation to adjust for inflation and currency issues. Sales increased sequentially from the third to the fourth quarter of 2009 by 14.9%.

New sales leaders in the region decreased 36.0% for the year ended December 31, 2009, as compared to the same period in 2008. The decrease was driven by a decline in new sales leaders in several markets including Argentina which decreased 72.8% for the year ended December 31, 2009, as compared to the same period in 2008; Peru, which decreased 61.0% for the year ended December 31, 2009, as compared to the same period in 2008; and Bolivia, which decreased 66.6% for the year ended December 31, 2009, as compared to the same period in 2008. Total sales leaders in the region decreased 14.4% as of December 31, 2009 compared to December 31, 2008.

~~EMEA~~

The EMEA region reported net sales of $504.2 million for the year ended December 31, 2009. Net sales decreased $66.5 million, or 11.7%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales decreased 3.7% for the year ended December 31, 2009, as compared to the same period in 2008. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $45.5 million for the year ended December 31, 2009.

Among the largest markets in the region, Italy, France and Spain, net sales increased 5.2%, and decreased 24.3% and 29.1%, respectively, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, Italy reported a net sales increase of 11.3% while France and Spain reported net sales decreases of 19.3% and 25.0%, respectively, for the year ended December 31, 2009, as compared to the same period in 2008.

In Spain, we are beginning to see an improvement resulting from the withdrawal of the Spanish Ministry of Health alert regarding Herbalife products. This alert was withdrawn in April 2009 requiring no action by the Company. Although Spain local currency net sales were down 25.0% for the full year 2009 compared to 2008, local currency net sales in the fourth quarter of 2009 were 1.9% higher as compared to the same period in 2008. In Russia, net sales decreased by 15.2% for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, however, net sales increased by 8.2% for the year ended December 31, 2009, as compared to the same period in 2008. The increase in local currency net sales was primarily driven by the adoption of the Office Club concept where all DMOs are carried out from a combined Office and Commercial Nutrition Club location. Net sales in the Netherlands decreased 7.5% for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, however, net sales decreased only 2.0% for the year ended December 31, 2009, as compared to the prior year period reflecting a re-activated distributor base that is utilizing the Wellness Evaluation and Healthy Breakfast DMOs. Net sales in Portugal decreased 43.7% for the year ended December 31, 2009, as compared to the same period in 2008. However, in local currency, Portugal net sales declined 40.6% for the year ended December 31, 2009, as it continues to transition towards a daily consumption model. We are beginning to see some improvement in Portugal as local currency net sales for the fourth quarter of 2009 were down only 6.9% compared to the same period in 2008.

For the year ended December 31, 2009, new sales leaders for the region decreased 19.9%. For the year ended December 31, 2009, the most significant decreases occurred in Spain, Portugal, France, and the Commonwealth of Independent States of Russia, or CIS countries, of 53.0%, 65.7%, 38.7% and 33.6%, respectively. These declines were partially offset by increases in Italy, Czech Republic, and Turkey where new sales leaders increased 5.1%, 57.1%, and 12.5%, respectively. Total sales leaders in the region decreased 12.5% as of December 31, 2009 compared to December 31, 2008.

In July 2009, EMEA held three regional Extravaganzas in Russia, Italy, and the Czech Republic with approximate attendance of 2,400, 7,600, and 7,800, respectively. In October 2009, South Africa held an Extravaganza with approximately 1,200 attendees.

~~Asia Pacific~~

The Asia Pacific region, which excludes China, reported net sales of $509.2 million for the year ended December 31, 2009. Net sales increased $98.4 million, or 24.0%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales increased 32.7% for the year ended December 31, 2009, as compared to the same period in 2008. The fluctuation of foreign currency rates had an unfavorable impact of $36.0 million on net sales for the year ended December 31, 2009. The increase in net sales in Asia Pacific for the year ended December 31, 2009, was primarily attributable to net sales increases in three of our largest markets in the region, Taiwan, South Korea and Malaysia, partially offset by a decrease in Japan. The increase in net sales in India, one of our emerging markets, also contributed to the increase in net sales in the region.

Net sales in Taiwan, our largest market in the region, increased $36.1 million, or 28.0%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales increased 34.3% for the year ended December 31, 2009, as compared to the same period in 2008. Adoption of the Nutrition Club DMO, in the form of Commercial Clubs, continues to be a positive catalyst for growth in this country. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $8.1 million for the year ended December 31, 2009, as compared to the same period in 2008.

Net sales in South Korea, our second largest market in the region, increased $41.7 million, or 56.9%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales increased 77.2% for the year ended December 31, 2009, as compared to the same period in 2008. The increase in local currency net sales for the year ended December 31, 2009 was primarily driven by the adoption of the Nutrition Club DMO, in the form of Commercial Clubs along with the Premium Herbalife Opportunity Meeting. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $14.8 million for the year ended December 31, 2009, as compared to the same period in 2008.

Net sales in Japan, our third largest market in the region, decreased $9.7 million, or 14.5%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales decreased 10.6% for the year ended December 31, 2009, as compared to the same period in 2008. The decrease in local currency net sales for the year ended December 31, 2009, was driven by a continuing decline in distributor recruiting. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $2.6 million for the year ended December 31, 2009, as compared to the same period in 2008.

Net sales in Malaysia, our fourth largest market in the region, increased $12.0 million, or 30.8%, for the year ended December 31, 2009, as compared to the same period in 2008, reflecting the continued success of the Road Show DMO, which has generated positive distributor momentum and increased recruiting. In local currency, net sales increased 39.2% for the year ended December 31, 2009, as compared to the same period in 2008. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $3.3 million for the year ended December 31, 2009, as compared to the same period in 2008.

Net sales in India increased $12.8 million, or 97.7%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales increased 117.8% for the year ended December 31, 2009, as compared to the same period in 2008. The increase in local currency net sales for the year ended December 31, 2009, was driven by the adoption of the Nutrition Club DMO. The number of clubs at December 31, 2009 was 555

compared to 100 at December 31, 2008. The fluctuation of foreign currency rates had an unfavorable impact on net sales of $2.6 million for the year ended December 31, 2009, as compared to the same period in 2008.

~~In June, Korea hosted a regional Extravaganza with approximately 13,800 attendees. In September, Taiwan hosted an Asia-Pacific regional University with attendance of approximately 11,000 distributors.~~

New sales leaders in the region increased 26.9% for the year ended December 31, 2009, as compared to the same period in 2008. New sales leaders for India, Korea and Taiwan increased 112.4%, 71.8% and 19.8%, respectively, for the year ended December 31, 2009 compared to the same period in 2008. These increases were offset by declines in Japan and Philippines of 57.0% and 10.5%, respectively, for the year ended December 31, 2009 compared to the same period in 2008. Total sales leaders in the region increased 15.0% as of December 31, 2009 compared to December 31, 2008.

~~China~~

Net sales in China were $152.3 million for the year ended December 31, 2009. Net sales increased $7.3 million, or 5.0%, for the year ended December 31, 2009, as compared to the same period in 2008. In local currency, net sales increased 3.6% for the year ended December 31, 2009, as compared to the same period in 2008. The fluctuation of foreign currency rates had a favorable impact of $2.1 million on net sales for the year ended December 31, 2009.

In early July 2009, China’s Ministry of Commerce granted five additional licenses for us to conduct direct-selling business in the provinces of Fujian, Shan’Xi, Sichuan, Hubei, and Shanghai. All licenses became effective immediately, except Shanghai, which was activated in July 2010 after we opened our service outlets. Additionally, our license for Beijing, which was granted in July 2008 with the same condition as noted above for Shanghai, was activated in July 2009. We received our first direct-selling license in China in March 2007 for the cities of Suzhou and Nanjing in the Jiangsu province. An additional license was granted in July of the same year to conduct business throughout the entire Jiangsu province. In July 2008, we received five additional licenses for the provinces of Beijing, Guangdong, Shandong, Zhejiang and Guizhou. The 11 provinces in which we now have direct-selling licenses represent an addressable population of approximately 599 million. As of December 31, 2009, we were operating 75 retail stores in 30 provinces in China.

New sales employees in China decreased 12.4% for the year ended December 31, 2009, as compared to the same period in 2008. Total sales employees in China increased 2.7% as of December 31, 2009 compared to December 31, 2008.

~~Sales by Product Category~~

Year Ended December 31,
2009 2008
Shipping &
Shipping &
% Change

Retail
Distributor
Product
Handling
Net
Retail
Distributor
Product
Handling
Net
in Net

Sales Allowance Sales Revenues Sales Sales Allowance Sales Revenues Sales Sales
(Dollars in millions)

Weight Management $ 2,392.2 $ (1,142.0 ) $ 1,250.2 $ 214.6 $ 1,464.8 $ 2,469.9 $ (1,196.8 ) $ 1,273.1 $ 211.9 $ 1,485.0 (1.4 )%
Targeted Nutrition 806.3 (384.9 ) 421.4 72.3 493.7 818.0 (396.4 ) 421.6 70.2 491.8 0.4 %
Energy, Sports and Fitness 161.2 (77.0 ) 84.2 14.5 98.7 165.6 (80.2 ) 85.4 14.2 99.6 (0.9 )%
Outer Nutrition 209.6 (100.1 ) 109.5 18.8 128.3 243.8 (118.1 ) 125.7 20.9 146.6 (12.5 )%
Literature, Promotional and Other 120.8 7.5 128.3 10.8 139.1 113.9 12.6 126.5 9.7 136.2 2.1 %

Total $ 3,690.1 $ (1,696.5 ) $ 1,993.6 $ 331.0 $ 2,324.6 $ 3,811.2 $ (1,778.9 ) $ 2,032.3 $ 326.9 $ 2,359.2 (1.5 )%

Net sales for Weight Management, Energy, Sports and Fitness and Outer Nutrition products decreased for the year ended December 31, 2009, as compared to the same period in 2008, partially offset by an increase in Targeted

Nutrition and Literature, Promotional and Other product category for the year ended December 31, 2009, as compared to the same period in 2008, mainly due to the factors described in the above discussions of the individual geographic regions. In addition, net sales for Outer Nutrition decreased in part due to the distributor focus on DMOs that are centered towards Weight Management products.

~~Gross Profit~~

Gross profit was $1,831.4 million for the year ended December 31, 2009, as compared to $1,900.8 million for the same period in 2008. As a percentage of net sales, gross profit for the year ended December 31, 2009 decreased to 78.8%, as compared to 80.6% for the same period in 2008. The decrease was primarily due to the unfavorable impact from currency fluctuations, changes in country mix, and the unfavorable impact during 2009 of recognizing $18.8 million incremental U.S. dollar cost of imports into Venezuela at the unfavorable parallel market exchange rate rather than the official currency exchange rate. See~~Liquidity and Capital Resources — Working Capital and Operating Activitiesin this section for further discussion on currency exchange rate issues in Venezuela.~~

~~Royalty Overrides~~

Royalty overrides as a percentage of net sales was 32.8% for the year ended December 31, 2009, as compared to 33.8% for the same period in 2008. The decrease for the year ended December 31, 2009, was primarily due to changes in country mix and the increase in net sales in China where compensation to our full-time sales employees and licensed business providers is included in selling, general and administrative expenses as opposed to royalty overrides where it is included for all other distributors under our worldwide marketing plan. 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 and in certain countries.

~~Selling, General and Administrative Expenses~~

~~Selling, general and administrative expenses as a percentage of net sales was 33.3% for the year ended December 31, 2009, as compared to 32.7% for the same period in 2008.~~

For the year ended December 31, 2009, selling, general and administrative expenses increased $2.1 million to $773.9 million compared to the same period in 2008. The increase for the year ended December 31, 2009 included $7.6 million in higher salaries and benefits, primarily related to China sales employees and licensed business providers; and $13.8 million in higher depreciation and amortization expenses, related to the development of our technology infrastructure and the expansion and relocation of certain operations to new facilities. These increases were offset by $6.9 million in lower professional fees; $5.5 million in lower advertising, promotion costs and distributor sales events primarily reflecting currency fluctuations and location of events; $2.6 million in lower bad debt expense; $2.6 million in lower litigation costs; and $1.4 million in lower occupancy costs.

~~Net Interest Expense~~

~~Net interest expense is as follows:~~

Year Ended
Year Ended

December 31,
December 31,

Net Interest Expense 2009 2008
(Dollars in millions)

Interest expense 9.6 20.1
Interest income (4.5 ) (6.9 )

Net Interest Expense $ 5.1 $ 13.2

The decrease in interest expense for the year ended December 31, 2009 as compared to the same period in 2008 was primarily due to lower interest rates and lower average debt balance in 2009 as compared to 2008. See~~“Liquidity and Capital Resources”in this section for further discussion on our senior secured credit facility.~~

~~Income Taxes~~

Income taxes were $87.6 million for the year ended December 31, 2009, as compared to $97.8 for the same period in 2008. As a percentage of pre-tax income, the effective income tax rate was 30.1% for the year ended December 31, 2009, as compared to 30.7% for the same period in 2008. The decrease in the effective tax rate for the year ended December 31, 2009, as compared to the same period in 2008, was primarily due to a change in the operating effective rate reflecting changes in the country mix, and a non-cash benefit of $4.9 million due to the expiration of certain statute of limitations, partially offset by a charge for an international income tax audit settlement of $1.1 million.

~~Restructuring Costs~~

As part of our restructurings, we recorded $1.3 million and $6.7 million of professional fees, severance and related costs for the year ended December 31, 2009 and 2008, respectively. All such amounts were included in selling, general and administrative expenses.

Liquidity and Capital Resources for fiscal years 2011, 2010 ~~2009~~ and ~~2008~~2009

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 contractual restrictions on the ability to transfer and remit funds among our international affiliated companies. However, as discussed below there are foreign currency restrictions in Venezuela. ~~We are closely monitoring various aspects of the current worldwide financial crisis and we do not believe that there has been or will be a material impact on our liquidity from this crisis.~~ As noted above, we have historically met our funding needs utilizing cash flow from operating activities and we believe we will have sufficient resources to meet debt service obligations in a timely manner. Our existing debt has not resulted from the need to fund our normal operations, but instead has effectively resulted from our share repurchase and dividend activities over ~~the~~ recent years, which together, since the inception of these programs in 2007, amounted to approximately $920.8 million. Our use of the credit facility for these purposes and not for general working capital and capital expenditure needs has limited the impact that the current worldwide credit crisis has on us.$1.3 billion. While a significant net sales decline could potentially affect the availability of funds, many of our largest expenses are purely variable in nature, which ~~could protect~~we believe protects our funding in all but a dramatic net sales downturn. Further, as discussed in greater detail below, we maintain a revolving credit facility, executed on March 9, 2011, which had ~~$219.0~~$492.0 million of undrawn capacity as of December 31, ~~2010, and is comprised~~2011. In addition, as of ~~banks~~December 31, 2011, we also had a cash pooling arrangement with a financial institution for cash management purposes. This cash pooling arrangement allows certain of our participating foreign locations to withdraw cash from this financial institution based upon our aggregate cash deposits held by certain of our participating locations who participate in the cash pooling arrangement. This cash pooling arrangement generally allows us to withdraw amounts to the extent aggregate cash deposits held by our participating locations are ~~continuing~~available at the financial institution; we did not owe any amounts to ~~support~~this financial institution as of December 31, 2011.

For the ~~facility through~~year ended December 31, 2011, we generated $509.3 million of operating cash flow, as compared to $389.1 million for the ~~current worldwide financial crisis.~~

same period in 2010. The increase in cash generated from operations was primarily due to an increase in operating income of $174.8 million driven by a 26.3% growth in net sales for the year ended December 31, 2011 as compared to the same period in 2010. For the year ended December 31, 2010, we generated ~~$380.4~~$389.1 million of operating cash flow, as compared to $285.1 million for the same period in 2009. The increase in cash generated from operations was primarily due to an increase in operating income of $91.5 million driven by a 17.6% growth in net sales for the year ended December 31, 2010 as compared to the same period in 2009.

For the year ended December 31, 2009, we generated $285.1 million of operating cash flow, as compared to $273.0 million for the same period in 2008. The increase in cash generated from operations was primarily due to the increase in non-cash items included in net income for the year ended December 31, 2009, as compared to the same period in 2008, lower interest payments due to lower average debt balance and lower interest rates and the favorable change in operating assets for the year ended December 31, 2009, compared to the same period in 2008. This was partially offset by lower operating income, higher income tax payments, and unfavorable change in operating liabilities for the year ended December 31, 2009, as compared to the same period in 2008.

Capital expenditures, including capital leases, for the years ended December 31, 2011, 2010 and 2009 ~~and 2008~~ were $90.9 million, $68.1 million, ~~$60.1 million~~ and ~~$106.8~~$60.1 million, respectively. The majority of these expenditures represented investments in management information systems, the development of our distributor internet initiatives, and the expansion of our warehouse, sales centers and manufacturing facilities domestically and internationally. In 2008 and 2009, capital expenditures primarily related to the global roll-out of Oracle Order Management System. The decrease in 2009 from 2008 primarily reflects lower spending as the Oracle roll-out project was completed during

~~the third quarter of 2009.~~ We expect to incur total capital expenditures of approximately ~~$80~~$110 million to ~~$90~~$120 million for the full year of ~~2011.~~

2012.

We entered into a $300.0 million senior secured credit facility, or Prior 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. In September 2007, we amended our ~~senior secured credit facility,~~Prior Credit Facility, increasing the revolving credit facility by $150.0 million to $250.0 million to fund the increase in our share repurchase program discussed below. The term loan ~~matures~~was to mature on July 21, 2013 and the revolving credit facility iswas to be available until July 21, 2012. The term loan ~~bears~~bore interest at LIBOR plus a margin of 1.5%, or the base rate, which ~~represents~~represented the prime rate offered by major U.S. banks, plus a margin of 0.50%. The revolving credit facility ~~bears~~bore interest at LIBOR plus a margin of 1.25%, or the base rate, which ~~represents~~represented the prime rate offered by major U.S. banks, plus a margin of 0.25%. ~~On December 31, 2010, 2009 and 2008, the weighted average interest rate was 1.75%, 1.66% and 3.04%, respectively.~~

~~The senior secured credit facility requires~~

This Prior Credit Facility required us to comply with a leverage ratio and an interest coverage ratio. In addition, the ~~senior secured credit facility contains~~Prior Credit Facility, contained customary covenants, including covenants that ~~limit~~limited or ~~restrict~~restricted our ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. As of December 31, 2010 and 2009, we were in compliance with these covenants.

During 2010, we borrowed an aggregate amount of $427.0 million under the revolving credit facility and paid $487.0 million of the revolving credit facility. During 2009, we borrowed an aggregate amount of $212.0 million under the revolving credit facility and paid $298.7 million of the revolving credit facility.

On March 9, 2011, we entered into a $700.0 million senior secured revolving credit facility, or the New Credit Facility, with a syndicate of financial institutions as lenders and terminated our Prior Credit Facility. The New Credit Facility has a five year maturity and expires on March 9, 2016. During ~~2008,~~March 2011, U.S. dollar borrowings under the New Credit Facility incurred interest at the base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%. After March 2011, based on our consolidated leverage ratio, U.S. dollar borrowings under the New Credit Facility will bear interest at either LIBOR plus the applicable margin between 1.50% and 2.50% or the base rate plus the applicable margin between 0.50% and 1.50%. We, based on our consolidated leverage ratio, will pay a commitment fee between 0.25% and 0.50% per annum on the unused portion of the New Credit Facility. The New Credit Facility also permits us to borrow limited amounts in Mexican Peso and Euro currencies based on variable rates. The base rate under the New Credit Facility represents the highest of the Federal Funds Rate plus 0.50%, one-month LIBOR plus 1.00%, and the prime rate offered by Bank of America.

In March 2011, we used $196.0 million in U.S. dollar borrowings under the New Credit Facility to repay all amounts outstanding under the Prior Credit Facility. We incurred approximately $5.7 million of debt issuance costs in connection with the New Credit Facility. These debt issuance costs were recorded as deferred financing costs on our consolidated balance sheet and are being amortized over the term of the New Credit Facility. At December 31, 2011, the weighted average interest rate for borrowings under New Credit Facility was 1.89%. At December 31, 2010, and 2009, the weighted average interest rate for borrowings under Prior Credit Facility was 1.75%, and 1.66%, respectively.

The New Credit Facility requires us to comply with a leverage ratio and an interest coverage ratio. In addition, the New Credit Facility contains customary covenants, including covenants that limit or restrict our ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, pay dividends, repurchase our common shares, merge or consolidate and enter into certain transactions with affiliates. As of December 31, 2011, we were in compliance with these covenants.

During the year ended December 31, 2011, we borrowed ~~an aggregate amount of $118.0~~$859.7 million and $54.0 million under the New Credit Facility and the Prior Credit Facility, respectively, and paid ~~$149.0~~a total of $657.7 million and $228.9 million of the ~~revolving credit facility. During the years ended December 31, 2010, 2009,~~New Credit Facility and ~~2008, these borrowings were primarily related to our share repurchases and dividends program as discussed further below.~~

We are currently planning to refinance our senior secured credit facility, which consists of a revolving credit facility and a term loan that are expiring in July 2012 and July 2013, respectively, as discussed in greater detail above. This will allow us to better support our growth and strategic initiatives, as well as to continue to fund our dividend program, and our share repurchase program as discussed further below. The refinancing is expected to be completed during the first half of 2011.

Prior Credit Facility, respectively.

The following summarizes our contractual obligations including interest at December 31, ~~2010,~~2011, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:

Payments Due by Period
2016 &

Total 2011 2012 - 2013 2014 - 2015 Thereafter
(Dollars in millions)

Borrowings under the senior credit facility(1) $ 182.1 $ 4.6 $ 177.5 $ — $ —
Capital leases 3.1 1.6 1.5 — —
Operating leases 161.5 39.0 58.2 39.6 24.7
Other 21.5 11.5 10.0 — —

Total $ 368.2 $ 56.7 $ 247.2 $ 39.6 $ 24.7


	Payments Due by Period
	Total		2012		2013 - 2014		2015 - 2016		2017 & Thereafter
	(Dollars in millions)
Borrowings under the senior credit facility(1)	$	218.3	$	3.9	$	7.8	$	206.6	$	—
Capital leases		1.4		1.4		—		—		—
Operating leases		163.1		42.9		61.4		35.0		23.8
Other		35.1		23.2		9.7		2.2		—

Total(2)	$	417.9	$	71.4	$	78.9	$	243.8	$	23.8


(1)		The estimated interest payments on our ~~senior credit facility~~New Credit Facility are based on interest rates effective at December 31, ~~2010.~~2011.

(2)

Our consolidated balance sheet as of December 31, 2011 included $38.7 million in unrecognized tax benefits. The future payments related to these unrecognized tax benefits have not been presented in the table above due to the uncertainty of the amounts and potential timing of cash settlements with the tax authorities, and whether any settlement would occur.

At December 31, 2011 and December 31, 2010, the total amount of our foreign subsidiary cash was $246.0 million and $188.2 million, respectively, of which $9.2 million and $5.8 million, respectively, was invested in U.S. dollars. For earnings not considered to be indefinitely reinvested, deferred taxes have been accrued. For earnings considered to be indefinitely reinvested, deferred taxes have not been provided. Should we make a determination to remit the cash and cash equivalents from our foreign subsidiaries to our U.S. consolidated group for the purpose of repatriation of undistributed earnings, we would need to accrue and pay taxes. As of December 31, ~~2010 included $38.5~~2011, our U.S. consolidated group had approximately $82.2 million ~~in unrecognized~~of permanently reinvested unremitted earnings from its subsidiaries, and if these monies were ever needed to be remitted, the impact of any tax ~~benefits. The future payments related~~consequences on our overall liquidity position would not be material. As of December 31, 2011, our parent, Herbalife Ltd., had $1.8 billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. We do not have any plans to repatriate these unremitted earnings to our parent; therefore, we do not have any liquidity concerns relating to these ~~unrecognized tax benefits have not been presented in the table above due~~unremitted earnings and related cash and cash equivalents. See Note 12,Income Taxes, to the ~~uncertainty of the amounts and potential timing of cash settlements with the tax authorities, and whether any settlement would occur.~~

Consolidated Financial Statements for additional discussion.

Off-Balance Sheet Arrangements

At December 31, ~~2010~~2011 and December 31, ~~2009,~~2010, we had no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) ofRegulation S-K.

Stock Split

~~Share Repurchases~~

On April ~~18, 2007,~~28, 2011, our ~~board of directors authorized~~shareholders approved the ~~repurchase of up~~stock split. One additional common share was distributed to ~~$300 million of~~ our shareholders on or around May 17, 2011, for each common share held on May 10, 2011. All common shares ~~during~~subject to outstanding equity awards and warrants, as well as the next two years, at such times and prices as determined by our management, as market conditions warrant. On August 23, 2007, our board of directors approved an increase of $150 million, raising the total value of our common shares authorized to be repurchased to $450 million. On May 20, 2008, our board of directors approved an additional increase of $150 million to our previously authorized share repurchase program raising the total valuenumber of common shares ~~authorized~~reserved for issuance under our equity compensation plans, were adjusted proportionately. All periods disclosed and presented within this Annual Report have been adjusted to ~~be repurchased to $600 million.~~ reflect this stock split.

Share Repurchases

On April 17, 2009, our share repurchase program adopted on April 18, 2007 expired pursuant to its terms. On April 30, 2009, our board of directors authorized a new program for us to repurchase up to $300 million of our common shares during the ~~next~~following two years, at such times and prices as determined by management, as market conditions warrant. On May 3, 2010, our board of directors approved an increase to the share repurchase authorization from $300 million to $1 billion. In addition, our board of directors approved the extension of the expiration date of the share repurchase program from April 2011 to December 2014.

The New Credit Facility permits repurchases of common shares as long as no default or event of default exists and the consolidated leverage ratio specified in the New Credit Facility is not exceeded.

During the year ended December 31, 2011, we repurchased 5.5 million of our common shares through open market purchases at an aggregate cost of approximately $298.8 million, or an average cost of $54.27 per share. During the year ended December 31, 2010, we repurchased ~~approximately 2.9~~5.7 million of our common shares through open market purchases at an aggregate cost of approximately $150.1 million, or an average cost of ~~$52.25~~$26.13 per share. During the year ended December 31, 2009, we repurchased ~~approximately 2.0~~4.0 million of our common shares through open market purchases at an aggregate cost of approximately $73.2 million, or an average cost of ~~$36.60~~$18.30 per share. During the year ended December 31, 2008, we repurchased approximately 4.6 million of our common shares through open market purchases at an aggregate cost of $137.0 million, or an average cost of $29.60 per share. As of December 31, 2010, the remaining authorized capacity under the share repurchase program was $776.7 million.

The number of shares issued upon vesting or exercise for certain restricted stock units and stock appreciation rights granted, pursuant to the Company’s share-based compensation plans, is net of the minimum statutory withholding requirements that the Company pays on behalf of its employees. Although shares withheld are not issued, they are treated as common share repurchases for accounting purposes, as they reduce the number of shares that would have been issued upon vesting.

Dividends

The declaration of future dividends is subject to the discretion of our board of directors and will depend upon various factors, including our earnings, financial condition, restrictions imposed by the New Credit Facility and the terms of any other indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by our board of directors. The New Credit Facility permits payments of dividends as long as no default or event of default exists and the consolidated leverage ratio specified in the New Credit Facility is not exceeded.

During the second quarter of 2007, ~~the Company’s~~our board of directors adopted a regular quarterly cash dividend program. ~~The Company’s~~Our board of directors authorized a ~~$0.20~~$0.10 per common share cash dividend each quarter from the adoption of the program through the second quarter of 2010. On August 2, 2010, ~~the Company’s~~we announced that our board of directors approved an increase in the quarterly cash dividend to ~~$0.25~~$0.13 per common share, an increase of ~~$0.05~~$0.03 per common share from prior quarters. On May 2, 2011, we announced that our board of directors approved an increase in the quarterly cash dividend to $0.20 per common share, an increase of $0.07 per common share from prior quarters.

The aggregate amount of dividends paid and declared during fiscal year 2011, 2010, ~~2009,~~ and ~~2008~~2009 was approximately $85.5 million, $53.7 million, and $48.7 million, ~~and $50.7 million,~~ respectively.

Working Capital and Operating Activities

As of December 31, ~~2010, 2009~~2011 and ~~2008,~~December 31, 2010, we had positive working capital of $220.1 million, and $124.8 million, ~~$83.5 million, and $82.9 million, respectively. Cash~~respectively, or an increase of $95.3 million. This increase was primarily related to the increase in our cash and cash equivalents, ~~were $190.6 million at December 31, 2010,~~receivables and ~~$150.8 million at December 31, 2009~~inventories, partially offset by the increases in our current liabilities primarily related to our accounts payables, royalty overrides, and ~~2008.~~

accrued expenses. The increase in receivables primarily relates to increases in receivables from credit card companies due to the sales growth of our business. The increase in inventory primarily relates to increases in finished goods to support sales growth and strategic sourcing initiatives.

We expect that cash and funds provided from operations and available borrowings under our ~~revolving credit facility~~New 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 our term loan and~~ amounts outstanding under our ~~revolving credit facility,~~New Credit Facility, for the next twelve ~~months.~~

months and thereafter.

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 net sales and ~~operating~~contribution margins and can generate transaction losses on intercompany transactions. For discussion of our foreign exchange contracts and other hedging arrangements, see ~~Part II,~~ Item 7A —Quantitative and Qualitative Disclosures about Market Risk.

Currency Restrictions in Venezuela

intermittently delayed and the timing and ability to obtain U.S. dollars at the official exchange rates remains uncertain. In certain instances, ~~we have~~the Company has made appropriate applications through CADIVI for approval to obtain U.S. dollars so that Herbalife Venezuela can pay for imported products and an annual dividend at the official exchange rate. As an alternative exchange mechanism, ~~we have~~the Company has also participated in certain bond offerings from the Venezuelan government and from Petróleos de Venezuela, S.A. or PDVSA, a Venezuelan state-owned petroleum company, where wethe Company effectively purchased bonds with ~~our~~its Bolivars and then sold the bonds for U.S. dollars. In other instances, wethe Company has also used aalternative legal exchange mechanisms for currency exchanges, such as the legal parallel market mechanism ~~for currency exchanges until this less favorable parallel market~~which is discussed below and was discontinued in May 2010.

In June 2010, the Venezuelan government introduced additional regulations under a new regulated system, SITME, which is controlled by the Central Bank of Venezuela. SITME provides a mechanism to exchange Bolivars into U.S. dollars through the purchase and sale of U.S. dollar denominated bonds issued in Venezuela. However, SITME is only available in certain limited circumstances. Specifically, SITME can only be used for product purchases and is not available for other matters such as the payment of dividends. Also, SITME can only be used for amounts of up to $50,000 per day and $350,000 per month and is generally only available to the extent the applicant has not exchanged and received U.S. dollars via the CADIVI process within the previous 90 days.

Although Venezuela is an important market in ~~our~~the Company’s South and Central America Region, Herbalife Venezuela’s net sales represented less than 2%, 4%2% and 4% of the ~~our~~Company’s consolidated net sales for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, respectively, and its total assets represented less than 3% ~~and 6%~~ of ~~our~~the Company’s consolidated total assets as of both December 31, ~~2010~~2011 and ~~2009, respectively.~~

2010.

Pre-Highly Inflationary Economy in Venezuela and Herbalife Venezuela’s Cash and Cash Equivalents at December 31, 2009

During the fourth quarter of 2009, due to the currency restrictions in obtaining U.S. dollars at the official currency exchange rate and in order to mitigate the Company’s currency exchange risk in Venezuela, Herbalife Venezuela entered into a series of parallel market transactions and exchanged 105.0 million Bolivars for approximately $19.5 million U.S. dollars at an average rate of approximately 5.4 Bolivars per U.S. dollar. Also, during the fourth quarter of 2009, Herbalife Venezuela settled $13.6 million of its U.S. dollar denominated non-CADIVI registered intercompany shipment payables that were initially recorded and then subsequently remeasured at the parallel market exchange rate. ~~Therefore, the~~The settlement of these intercompany shipment payables did not result in any net foreign exchange gains or losses recorded in ~~our~~the accompanying consolidated statement of income for the year ended December 31, 2009. Incremental costs of $18.8 million, related to the importation of products into Venezuela at the unfavorable parallel market exchange rate, were recorded in costs of sales in ~~our~~the Company’s consolidated statement of income for the year ended December 31, 2009.

As of December 31, 2009, Herbalife Venezuela’s $5.9 million U.S. dollar cash and cash equivalents residing in its U.S. dollar bank account were remeasured to Bolivars at the parallel market exchange rate of approximately 5.9 Bolivars per U.S. dollar. These remeasured cash and cash equivalents were translated at the official rate of 2.15 Bolivars per U.S. dollar and reported as $15.8 million in the Company’s consolidated balance sheet at December 31, 2009. Based on ~~our~~the Company’s specific facts and circumstances, U.S. GAAP required usthe Company to use the dividend remittance rate (the official exchange rate) for translation purposes and the parallel market exchange rate (the applicable rate at which a particular transaction could be settled), for certain remeasurement purposes. Due to the difference between the remeasurement rate and translation rate, the cash and cash equivalents relating to Herbalife Venezuela reported on ~~our~~the Company’s consolidated balance sheet at December 31, 2009, was $9.9 million greater than the U.S. dollar amount residing in Herbalife Venezuela’s U.S. dollar bank account and therefore did not necessarily reflect the true purchasing power of the reported U.S. dollar cash and cash equivalents. At December 31, 2009, Herbalife Venezuela reported cash and cash equivalents of approximately $34.2 million, of which $15.8 million was denominated in U.S. dollars

and $18.4 million was denominated in Bolivars. The cash and cash equivalents were translated into ~~our~~the consolidated financial statements at the official exchange rate, which was the rate applicable for dividend remittance.

Highly Inflationary Economy and Accounting in Venezuela

Venezuela’s inflation rate as measured using the blended National Consumer Price Index and Consumer Price Index rate exceeded a three-year cumulative inflation rate of 100% as of December 31, 2009. Accordingly, effective January 1, 2010, Venezuela was considered a highly inflationary economy. Pursuant to the highly inflationary basis of accounting under U.S. GAAP, Herbalife Venezuela changed its functional currency from the Bolivar to the U.S. dollar. Subsequent movements in the Bolivar to U.S. dollar exchange rate will impact ~~our~~the Company’s consolidated earnings. Prior to January 1, 2010 when the Bolivar was the functional currency, movements in the Bolivar to U.S. dollar were recorded as a component of equity through other comprehensive income. Pursuant to highly inflationary accounting rules, ~~we are~~the Company no longer ~~required to translate~~translates Herbalife Venezuela’s financial statements ~~since their~~as its functional currency is ~~now~~ the U.S. dollar.

Based on relevant facts and circumstances at the applicable times, under the highly inflationary basis of accounting, wethe Company used the parallel market exchange rate for remeasurement purposes until the parallel market was discontinued in May 2010. On January 1, 2010, in connection with the determination that Venezuela was a highly inflationary economy, wethe Company remeasured Herbalife Venezuela’s opening balance sheet’s monetary assets and liabilities at the parallel market rate ~~which resulted in us recording~~and recorded a non-tax deductible foreign exchange loss of $15.1 million. This charge included the $9.9 million foreign exchange loss ~~relating~~related to Herbalife Venezuela’s U.S. dollar cash and cash equivalents that were remeasured at the parallel market rate and then translated at the official rate at December 31, 2009. Also, Herbalife Venezuela’s $34.2 million cash and cash equivalents reported in ~~our~~the Company’s consolidated balance sheet at December 31, 2009, which included U.S. dollar denominated cash, ~~was~~were reduced to approximately $12.5 million on January 1, 2010. However, nonmonetary assets, such as inventory, reported on ~~our~~the Company’s consolidated balance sheet at December 31, 2009, remained at historical cost subsequent to Venezuela becoming a highly inflationary economy. Therefore, the incremental costs related to ~~our~~the Company’s 2009 imported products recorded at the parallel market exchange rate negatively impacted ~~our~~the Company’s consolidated ~~earnings~~statement of income for the year ended December 31, 2010 by approximately $12.7 million as these products were sold during the first quarter of 2010. This amount is not tax deductible. See Note 12,Income Taxes, ~~in our notes~~ to ~~consolidated financial statements,~~the Consolidated Financial Statements for additional discussion on the income tax impact related to Venezuela becoming a highly ~~inflationary.~~

inflationary economy.

Official Exchange Rate Devaluations in Venezuela in 2011 and 2010

In early January 2010, Venezuela announced an official exchange rate devaluation of the Bolivar to an official rate of 4.3 Bolivars per U.S. dollar for non-essential items and 2.6 Bolivars per U.S. dollar for essential items. ~~Our~~The Company’s imports fall into both classifications. During 2010, because wethe Company used the parallel market exchange rate for remeasurement purposes until the parallel market was discontinued in May 2010 and then used the SITME rate thereafter, any U.S. dollars obtained from CADIVI at the official rate had a positive impact ~~on our~~to the Company’s consolidated net earnings. Specifically, wethe Company recorded $5.8 million of foreign exchange gains to selling, general and administrative expenses within ~~our accompanying~~the Company’s consolidated statement of income for the year ended December 31, 2010, as a result of receiving U.S. dollars approved by CADIVI at the official exchange rate. The majority of Herbalife Venezuela’s 2010 importations were not registered with CADIVI so the official exchange rates ~~are~~were not available to pay for these U.S. imports. As of December 31, 2010, Herbalife Venezuela also ~~has~~had an outstanding intercompany dividend payable to ~~our~~the Company of $2.5 million, which was declared in December 2008 and registered with ~~CADIVI. The request to obtain U.S. dollars at the official rate to settle the~~CADIVI and still remains outstanding ~~intercompany dividend payable is pending CADIVI’s approval.~~as of December 31, 2011. Also, at December 31, 2010, Herbalife Venezuela had outstanding intercompany shipment payable balances of $2.6 million, primarily relating to 2010, which ~~are~~were registered with CADIVI and ~~are~~were pending CADIVI’s approval.

As of December 31, 2011, $0.1 million outstanding intercompany shipment payable balances were registered with CADIVI and pending their approval.

In late December 2010, Venezuela announced ~~that~~ the CADIVI official exchange rate of 2.6 Bolivars per U.S. dollar ~~will~~would be ~~eliminated and the~~eliminated. The CADIVI official exchange of 4.3 Bolivars per U.S. dollar ~~will be~~is used for all essential items and non-essential items beginning January 2011. This devaluation did not have a material impact on ~~our~~the Company’s consolidated financial statements. At December 31, 2011 and 2010, wethe Company used the SITME rate of 5.3 Bolivars per U.S. dollar for remeasurement purposes. We expect that any U.S. dollars obtained from CADIVI at the official exchange rate of 4.3 Bolivars per U.S. dollar will have a positive impact on our consolidated net earnings, and the impact of any U.S. dollars obtained from the Venezuelan government and PDVSA bond offerings on our consolidated earnings will depend on the prevailing exchange rates during those periods.

Remeasurement of Herbalife Venezuela’s Monetary Assets and Liabilities at December 31, 2011 and 2010

During the second quarter of 2010, wethe Company recorded a $4.0 million pre-tax ($2.6 million post-tax) net foreign exchange gain to selling, general and administrative expenses, within the Company’s consolidated statement of income, as a result of remeasuring ~~Herbalife Venezuela’s~~its Bolivar denominated monetary assets and liabilities as of June 30, 2010 at the SITME rate of 5.3 Bolivars per U.S. dollar as opposed to the last parallel market rate prior to the closure of the parallel market in May 2010 of 8.3 Bolivars per U.S. dollar. Herbalife Venezuela’s cash and cash equivalents, primarily denominated in Bolivars, increased by $5.2 million as a result of using the SITME rate as opposed to the last quoted parallel market rate during the second quarter of 2010. During the third quarter of 2010 and thereafter, wethe Company continued to use the SITME rate of 5.3 Bolivars per U.S. dollar to remeasure its Bolivar denominated transactions. As of December 31, 2010, the majority of Herbalife Venezuela’s net monetary Bolivar denominated assets and liabilities approximated $19.4 million which included Bolivar denominated cash and cash equivalents approximating $24.6 million, and were all remeasured at the ~~new regulated rate under~~SITME rate.

During 2011, the Company accessed the SITME ~~except~~market in order to exchange its Bolivars to U.S. dollars. In less frequent instances, the Company has also accessed alternative legal exchange mechanisms, to exchange Bolivars for U.S. dollars, at less favorable rates than the SITME rate, which resulted in the Company recognizing $1.2 million of losses in selling, general and administration expenses included within its consolidated statement of income for the ~~$2.5~~year ended December 31, 2011. In February 2011, Herbalife Venezuela purchased U.S. dollar denominated bonds with a face value of $20 million ~~intercompany dividend which was~~U.S. dollars in a bond offering from PDVSA 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 ~~CADIVI official rate.~~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 consolidated statement of income for the year ended December 31, 2011. The Company was unsuccessful in accessing any subsequent PDVSA bond offerings and the frequency of future bond offerings is unknown. The Company continues to remeasure its Bolivars at the published SITME rate given the limited availability of alternative exchange mechanisms and the uncertainty in the effective exchange rate for alternative exchange mechanisms.

As of December 31, 2011, Herbalife Venezuela’s net monetary assets and liabilities denominated in Bolivars was approximately $26.8 million, and included approximately $34.8 million in Bolivar denominated cash and cash equivalents. The majority of these Bolivar denominated assets and liabilities were remeasured at the SITME rate as of December 31, 2011. While ~~we continue~~the Company continues to monitor the new exchange mechanism and restrictions under SITME, there is no assurance that wethe Company will be able to exchange Bolivars into U.S. dollars on a timely basis. Therefore, these remeasured amounts, including cash and cash equivalents, being reported on ~~our accompanying~~the Company’s consolidated balance sheet using the SITME rate may not accurately represent the amount of U.S. dollars wethat the Company could ultimately realize.

Consolidation of Herbalife Venezuela

~~We plan~~

The Company plans to continue ~~our~~its operation in Venezuela and to import products into Venezuela despite the foreign currency constraints that exist in the country. Herbalife Venezuela will continue to apply for legal exchange mechanisms to convert its Bolivars to U.S. dollars. Despite the currency exchange restrictions in Venezuela, ~~we continue~~the Company continues to control Herbalife Venezuela and its operations. The mere existence of the exchange restrictions discussed above does not in and of itself create a presumption that this lack of exchangeability isother-than-temporary, nor does it create a presumption that an entity should deconsolidate its Venezuelan operations. Therefore, ~~we continue~~the Company continues to consolidate Herbalife Venezuela in ~~our accompanying~~its consolidated financial statements for U.S. GAAP purposes. ~~Substantially all~~The majority of Herbalife Venezuela’s Bolivar denominated assets and liabilities are currently being remeasured at the SITME rate.

Although there are delays in the CADIVI approval process, when applicable, we plan to continue applying to CADIVI to obtain the official rate relating to the importation of the Company’s products. In addition, we

We plan to utilize the SITME market and CADIVI rate to the extent allowable under current restrictions in order to exchange Bolivars for U.S. dollars. We also plan to access government, ~~and~~ PDVSA bond offerings, and

alternative legal exchange mechanisms when they are made available. These alternative legal exchange mechanisms could cause us to recognize significant foreign exchange losses if they are less favorable than the SITME rate. Our ability to access the official exchange rate and the SITME rate could impact what exchange rates will be used for remeasurement purposes in future periods. We continue to assess and monitor the current economic and political environment in Venezuela. ~~See~~~~Subsequent Events~~~~, within this section for further discussion on Herbalife Venezuela.~~

Quarterly Results of Operations

Quarter Ended
December 31,
September 30,
June 30,
March 31,
December 31,
September 30,
June 30,
March 31,

2010 2010 2010 2010 2009 2009 2009 2009
(In thousands except per share data)

Operations:
Net sales $ 738,356 $ 688,431 $ 688,806 $ 618,633 $ 630,871 $ 600,218 $ 571,805 $ 521,683
Cost of sales 148,513 133,265 136,561 140,472 136,515 131,777 122,442 102,400

Gross profit 589,843 555,166 552,245 478,161 494,356 468,441 449,363 419,283
Royalty overrides 244,088 224,061 224,780 207,319 204,580 194,639 186,750 175,532
Selling, general and administrative expenses 239,512 230,150 211,110 206,883 205,691 195,968 190,794 181,458

Operating income 106,243 100,955 116,355 63,959 84,085 77,834 71,819 62,293
Interest expense, net 1,126 2,192 2,146 1,953 1,016 1,037 1,338 1,712

Income before income taxes 105,117 98,763 114,209 62,006 83,069 76,797 70,481 60,581
Income taxes 24,127 23,024 32,276 10,135 27,413 18,902 22,228 19,039

Net income $ 80,990 $ 75,739 $ 81,933 $ 51,871 $ 55,656 $ 57,895 $ 48,253 $ 41,542

Earnings per share
Basic $ 1.37 $ 1.28 $ 1.38 $ 0.86 $ 0.92 $ 0.95 $ 0.78 $ 0.68
Diluted $ 1.31 $ 1.22 $ 1.32 $ 0.83 $ 0.88 $ 0.91 $ 0.77 $ 0.67
Weighted average shares outstanding
Basic 59,082 59,221 59,527 60,160 60,492 61,234 61,642 61,510
Diluted 62,058 61,946 62,103 62,672 63,004 63,397 62,929 61,614

~~Contingencies~~

~~The Company is from time to time engaged~~Quarterly income taxes, net income, basic earnings per share, and diluted earnings per share presented in ~~routine litigation. The Company regularly reviews all pending litigation matters~~the table below reflect the change in ~~which it is involved and establishes reserves deemed appropriate by management for these litigation matters when a probable loss estimate can be made.~~

~~As a marketer~~accounting method discussed in Note 2,Basis 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 materialPresentation, to the ~~Company,~~Consolidated Financial Statements. Basic and diluted earnings per share, and weighted average shares outstanding, have also been adjusted to reflect the ~~reasonably possible range of exposure on currently existing claims is not material~~stock split as discussed above.


	Quarter Ended
	December 31, 2011			September 30, 2011		June 30, 2011		March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010		March 31, 2010
	(In thousands except per share data)
Operations:
Net sales	$	884,569		$	895,218	$	879,654	$	795,096	$	738,356	$	688,431	$	688,806	$	618,633
Cost of sales		170,960			175,308		171,023		162,793		148,513		133,265		136,561		140,472

Gross profit		713,609			719,910		708,631		632,303		589,843		555,166		552,245		478,161
Royalty overrides		293,109			290,842		289,232		264,377		244,088		224,061		224,780		207,319
Selling, general and administrative expenses		286,151			277,721		266,225		244,526		239,512		230,150		211,110		206,883

Operating income		134,349			151,347		153,174		123,400		106,243		100,955		116,355		63,959
Interest expense, net		(1,357	)		345		855		2,648		1,126		2,192		2,146		1,953

Income before income taxes		135,706			151,002		152,319		120,752		105,117		98,763		114,209		62,006
Income taxes		30,349			42,980		41,139		32,733		18,832		19,879		32,034		10,135

Net income	$	105,357		$	108,022	$	111,180	$	88,019	$	86,285	$	78,884	$	82,175	$	51,871

Earnings per share
Basic	$	0.91		$	0.92	$	0.93	$	0.74	$	0.73	$	0.67	$	0.69	$	0.43
Diluted	$	0.86		$	0.87	$	0.88	$	0.70	$	0.69	$	0.63	$	0.65	$	0.41
Weighted average shares outstanding
Basic		115,989			116,975		119,007		118,206		118,164		118,442		119,054		120,320
Diluted		122,640			124,275		126,617		125,625		125,958		125,613		125,685		126,246

Contingencies

See Note 7,Contingencies, to the ~~Company. The Company believes that it has meritorious defenses to the allegations contained in the lawsuits. The Company currently maintains product liability insurance with an annual deductible~~Consolidated Financial Statements for information on our contingencies as of ~~$10 million.~~

31, 2011.

scheme which under applicable law is a question of fact that can only be determined at trial. The court denied defendants’ motion for Summary Judgment on Herbalife’s claims for misappropriation of trade secrets and breach of contract. On May 5, 2010, the District Court granted summary judgment for Herbalife on defendants’ endless chain-scheme counterclaim. Herbalife voluntarily dismissed its remaining claims, and on May 14, 2010, the District Court issued a final judgment dismissing all of the parties’ claims. On June 10, 2010 the defendants appealed from that judgment and on June 21, 2010, Herbalife cross-appealed. The Company believes that there is merit to its appeal, and it will prevail upon both its appeal as well as the defendant’s appeal.

These matters may take several years to resolve. While the Company believes it has meritorious defenses, it cannot be sure of their ultimate resolution. Although the Company has reserved amounts for certain matters that the Company believes represent the most likely outcome of the resolution of these related disputes, if the Company is incorrect in the assessment, the Company may have to record additional expenses, when it becomes probable that an increased potential liability is warranted.

Subsequent Events

On February ~~18, 2011, our Board of Directors approved atwo-for-one~~ split of our common shares, subject to approval by our shareholders at our upcoming Annual General Meeting of Shareholders to be held on April 28, 2011. If approved by our shareholders, one additional common share will be distributed to our shareholders on or around May 17, 2011, for each common share held on May 10, 2011. The stock split will not be effective unless approved by our shareholders at the meeting.

~~On February 22, 2011,~~21, 2012, we announced that our ~~Board~~board of ~~Directors~~directors approved a quarterly cash dividend of ~~$0.25~~$0.30 per common share ~~for the fourth quarter of 2010,~~ to shareholders of record as of ~~the close of business on~~ March ~~8, 2011,~~7, 2012, payable on March 22, ~~2011.~~

In February 2011, Herbalife Venezuela purchased U.S. dollar denominated bonds with a face value of $20 million U.S. dollars from a PDVSA bond offering for 86 million Bolivars and then immediately sold the bonds for U.S. dollars at an expected average effective rate of 5.7 Bolivars per U.S. dollar. These 86 million Bolivars were remeasured at the SITME rate of 5.3 Bolivars per U.S. dollar and recorded as cash and cash equivalents of $16.3 million on our consolidated balance sheet at December 31, 2010. We expect to receive approximately $15 million U.S. dollars in late February or early March 2011 as a result of this conversion and final settlement. This conversion is expected to result in us recording a net pre-tax loss of approximately $1.3 million U.S. dollars in our 2011 consolidated statement of income and will be reflected in our consolidated financial statements at March 31, 2011 and for the quarter ending March 31, 2011.

762012.

Critical Accounting Policies

~~Our Consolidated Financial Statements are prepared in conformity with~~

U.S. GAAP ~~which~~ requires 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. We regularly evaluate our estimates and assumptions related to revenue recognition, allowance for product returns, inventory, ~~reserves,~~ share-based compensation expense, goodwill and purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, and other loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses. 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 operating results, financial condition and cash flows.

We are a network marketing company that sells a wide range of weight management products, nutritional supplements, energy, sports & fitness products and personal care products within one industry segment as defined under Financial Accounting Standard Board, or FASB, Accounting Standards Codification, or ASC, Topic 280,Segment Reporting. Our products are manufactured by third party providers and manufactured in our Suzhou, China facility, and in our manufacturing facility located in Lake Forest, California, and then are sold to independent distributors who sell Herbalife products to retail consumers or other distributors. As of December 31, ~~2010,~~2011, we sold products in 7479 countries throughout the world and we are organized and managed by geographic region. We have elected to aggregate our operating segments into one reporting segment, except China, 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 to whom products are sold, the methods used to distribute the products, and the nature of the regulatory environment.

Revenue is recognized when products are shipped and title and risk of loss passes to the independent distributor or importer or as products are sold in our retail stores in China. Sales are recognized on a net sales basis, which reflects product returns, net of discounts referred to as “distributor allowances”, and amounts billed for shipping and handling costs. 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 revenue is recognized.

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 0.4%, ~~0.5%~~0.4% and ~~0.8%~~0.5% of retail sales for the years ended December 31, 2011, 2010, and 2009, ~~and 2008,~~ respectively.

We ~~record reserves against~~adjust our ~~inventory~~inventories to ~~provide for estimated obsolete~~lower of cost or ~~unsalable inventory~~market based on assumptions regarding future demand for our products and market conditions. If future demand and market conditions are less favorable than management’s assumptions, additional ~~reserves~~inventory write-downs could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if previously ~~reserved for inventory is~~written down inventories are sold. We ~~reserved for~~have obsolete and slow moving ~~inventory totaling~~inventories which have been adjusted downward $17.6 million and $9.4 million ~~and $9.3 million~~to present them at their lower of cost or market in our consolidated balance sheets as of December 31, ~~2010,~~2011 and December 31, ~~2009,~~2010, respectively.

~~In accordance with the FASB ASC Topic 360,~~~~Property, Plant and Equipment~~, 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 marketing related intangible assets 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. In order to estimate the fair value of goodwill, we primarily use the discounted cash flow model, known as the

income approach. The determination of impairment is made at the reporting unit level and consists of two steps. First, we determine the fair value of a reporting unit and compare 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~~value as determined in Step 2 of the goodwill impairment test; also, if during Step 1 of a goodwill impairment test we determine we have reporting units with zero or negative carrying amounts, then we perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. During step 2 of a goodwill impairment test, the implied fair value of goodwill is determined in a similar manner as how the amount of goodwill recognized in a business combination is determined, in accordance with FASB ASC Topic 805,Business Combinations~~, or ASC 805.~~. We would assign the fair value of a reporting unit to all of the assets and liabilities of that reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. As of December 31, ~~2010~~2011, and ~~2009,~~December 31, 2010, we had goodwill of approximately ~~$102.9~~$105.5 million and ~~$102.5~~$102.9 million, respectively, and marketing related intangible assets of approximately $310.0 million for both periods. No marketing related intangibles or goodwill impairment was recorded during the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008.~~

2009. As discussed in Note 2,Basis of Presentation, to the Consolidated Financial Statements, in September 2011, the FASB issued Accounting Standards Update, or ASU, No. 2011-08,Testing Goodwill for Impairment. The adoption of this ASU will not have a material impact on our consolidated financial statements, as it is intended to simplify the assessment for goodwill impairment.

Contingencies are accounted for in accordance with the FASB ASC Topic 450,Contingencies,or ASC 450. ASC 450 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible as required by ASC 450. Accounting for contingencies such as legal and ~~income~~non-income tax matters requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Many of these legal and tax 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 and interest carryforwards of certain foreign subsidiaries and have been reduced by a valuation allowance to reflect them at amounts estimated to be ultimately realized. 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. In the ordinary course of our business, there are many transactions and calculations where the tax law and ultimate tax determination is uncertain. As part of the process of preparing our ~~Consolidated Financial Statements,~~consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate prior to the completion and filing of tax returns for such periods. This process requires estimating both our geographic mix of income and our uncertain tax positions in each jurisdiction where we operate. These estimates involve complex issues and require us to make judgments about the likely application of the tax law to our situation, as well as with respect to other matters, such as anticipating the positions that we will take on tax returns prior to our actually preparing the returns and the outcomes of disputes with tax authorities. The ultimate resolution of these issues may take extended periods of time due to examinations by tax authorities and statutes of limitations. In addition, changes in our business, including acquisitions, changes in our international corporate structure, changes in the geographic location of business functions or assets, changes in the geographic mix and amount of income, as well as changes in our agreements with tax authorities, valuation allowances, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and other matters, and variations in the estimated and actual level of annual pre-tax income can affect the overall effective income tax rate.

We account for uncertain tax positions in accordance with the FASB ASC Topic 740,Income Taxes,or ASC 740, which provides guidance on the determination of how tax benefits claimed or expected to be claimed

on a tax return should be recorded in the financial statements. Under ASC 740, we 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.

~~We account for share-based compensation in accordance with the FASB ASC Topic 718,~~~~Compensation-Stock Compensation~~, or ASC 718. 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 an 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 based upon the historical volatility of our common shares and, due to the limited period of public trading data for our common shares, 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, or the simplified method. As share-based compensation expense recognized in the Statements of Income is based on awards ultimately expected to vest, the amount of expense has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. If actual forfeitures differ from estimates, additional expense or reversal of previous expense are recorded. Forfeitures were estimated based on historical experience.

We account for foreign currency transactions in accordance with ASC Topic 830,Foreign Currency Matters. In a majority of the countries where we operate, the functional currency is the local currency. Our foreign subsidiaries’ asset and liability accounts are translated for consolidated financial reporting purposes into U.S. dollar amounts at year-end exchange rates. Revenue and expense accounts are translated at the average rates during the year. Our foreign exchange translation adjustments are included in accumulated other comprehensive loss on our accompanying consolidated balance sheets. Foreign currency transaction gains and losses and foreign currency remeasurements are generally included in selling, general and administrative expenses in the accompanying consolidated statements of income.

~~New Accounting Pronouncements~~

~~In December 2010, the FASB, issued Accounting Standards Update, or ASU,2010-28,~~Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force)~~. ASU2010-28~~ ~~provides amendments to Accounting Standards Codification, or ASC, Topic 350,~~~~Intangibles — Goodwill and Other~~~~. Pursuant to ASU2010-28,~~ if any entity during Step 1 of a goodwill impairment test determines reporting units with zero or negative carrying amounts, then they should perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples in ASC Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. As a result, goodwill impairments may be reported sooner or more often compared to current practice. ASU~~2010-28~~ ~~is effective for fiscal years and interim periods within those years, beginning after December 15, 2010, with early adoption not permitted. We do not expect that the adoption of ASU2010-28~~ ~~will have a material impact on our consolidated financial statements.~~


Item 7A.	*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 apply FASB ASC Topic 815,Derivatives and Hedging,or ASC 815, which 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 (loss) and are recognized in the consolidated statements of income when the hedged item affects earnings. ASC 815 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 transact business globally and are subject to risks associated with changes in foreign exchange rates. Our objective is to minimize the impact to earnings and cash flow associated with foreign exchange rate fluctuations. We enter into foreign exchange derivatives in the ordinary course of business primarily to reduce exposure to currency fluctuations attributable to intercompany transactions, translation of local currency revenue, inventory purchases subject to foreign currency exposure, and to partially mitigate the impact of foreign currency rate fluctuations. Due to the recent significant volatility in the foreign exchange market, our current strategy, in general, is to hedge some of the significant exposures on a short-term basis. We will continue to monitor the foreign exchange market and evaluate our hedging strategy accordingly. With the exception of our foreign exchange forward contracts relating to forecasted inventory purchases and intercompany management fees as discussed below in this section, all of our foreign exchange contracts are designated as free standing derivatives for which hedge accounting does not apply. The changes in the fair ~~market~~ value of the derivatives not qualifying as cash flow hedges are included in selling, general and administrative expenses in our consolidated statements of income.

The foreign exchange forward contracts designated as free standing derivatives are used to hedge advances between subsidiaries and to partially mitigate the impact of foreign currency fluctuations. Foreign exchange

average rate option contracts are also used to mitigate the impact of foreign currency rate fluctuations. The objective of these contracts is to neutralize the impact of foreign currency movements on the operating results of our subsidiaries. The fair value of forward and option contracts is based on third-party bank quotes.

Our foreign currency derivative contracts are generally executed on a monthly basis.

We also purchase foreign currency forward contracts in order to hedge forecasted inventory purchases and intercompany management fees that are designated as cash-flow hedges and are subject to foreign currency exposures. We applied the hedge accounting rules as required by ASC Topic 815 for these hedges. These contracts allow us to sell Euros in exchange for U.S. dollars at specified contract rates. As of December 31, ~~2010~~2011 and ~~2009,~~2010, the aggregate notional amounts of these contracts outstanding were approximately ~~$32.1~~$64.4 million and ~~$66.8~~$32.1 million, respectively. At December 31, ~~2010,~~2011, the outstanding contracts were expected to mature over the next ~~twelve~~fifteen months. Our derivative financial instruments are recorded on the consolidated balance sheet at fair value based on quoted market rates. For the forecasted inventory purchases, the forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of these forward contracts, excluding forward points, designated as cash-flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders’ equity, and are recognized in cost of sales in the consolidated statement of income during the period which approximates the time the hedged inventory is sold. We also hedge forecasted intercompany management fees over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive loss within shareholders’ equity, and are recognized in selling, general and administrative expenses in the consolidated statement of income in the period when the hedged item and underlying transaction affects earnings. As of December 31, 2011, we recorded assets at fair value of $4.4 million relating to all outstanding foreign currency contracts designated as cash-flow hedges. As of December 31, 2010, we recorded assets at fair value of $0.6 million and liabilities at fair value of $0.8 million relating to all outstanding foreign currency contracts designated as cash-flow hedges. ~~As of December 31, 2009, we recorded assets at fair value of $2.3 million relating to all outstanding foreign currency contracts designated as cash-flow hedges.~~ We assess hedge effectiveness and measure hedge ineffectiveness at least quarterly. During the years ended December 31, ~~2010~~2011 and ~~2009,~~2010, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of December 31, ~~2010~~2011 and ~~2009.~~

2010.

As of December 31, ~~2010~~2011 and ~~2009,~~2010, the majority of our outstanding foreign currency forward contracts had maturity dates of less than ~~one year~~fifteen months and twelve months, respectively, with the majority of freestanding derivatives expiring within one month and three ~~months.~~

months, respectively. There were no foreign currency option contracts outstanding as of December 31, 2011 and 2010.

The table below describes all foreign currency forward contracts that were outstanding as of December 31, ~~2010~~2011 and ~~2009:~~

Average
Original
Fair

Contract
Notional
Value

Foreign Currency Rate Amount Gain (Loss)
(In millions) (In millions)

At December 31, 2010

Buy BRL sell USD 1.68 $ 7.6 $ 0.1
Buy EUR sell ARS 5.27 1.3 —
Buy EUR sell JPY 113.89 1.2 (0.1 )
Buy EUR sell MXN 16.58 35.5 —
Buy EUR sell RUB 40.99 1.8 —
Buy EUR sell USD 1.34 101.4 0.1
Buy INR sell USD 44.81 4.5 —
Buy JPY sell EUR 111.90 1.2 —
Buy JPY sell USD 82.57 19.4 0.4
Buy KRW sell USD 1,146.51 21.0 0.4
Buy MXN sell EUR 16.45 8.0 —
Buy MXN sell USD 12.37 4.5 —
Buy MYR sell USD 3.10 12.2 0.1
Buy PEN sell USD 2.80 10.3 —
Buy PHP sell USD 43.89 0.1 —
Buy TWD sell USD 29.17 2.6 —
Buy USD sell BRL 1.72 14.9 (0.5 )
Buy USD sell COP 1,917.51 4.3 —
Buy USD sell EUR 1.32 74.3 (1.0 )
Buy USD sell GBP 1.56 4.0 —
Buy USD sell INR 45.78 8.7 (0.2 )
Buy USD sell JPY 81.59 9.8 (0.1 )
Buy USD sell KRW 1,138.90 4.9 (0.1 )
Buy USD sell MXN 12.45 4.9 —
Buy USD sell PEN 2.81 5.2 —
Buy USD sell PHP 44.11 2.8 —
Buy USD sell RUB 31.48 1.3 —

Total forward contracts $ 367.7 $ (0.9 )

2010:


Foreign Currency	Average Contract Rate		Original Notional Amount		Fair Value Gain (Loss)
			(In millions)		(In millions)
At December 31, 2011
Buy CNY sell USD		6.34	$	2.5	$	—
Buy EUR sell ARS		5.70		3.0		—
Buy EUR sell AUD		1.30		0.8		—
Buy EUR sell GBP		0.83		0.8		—
Buy EUR sell HKD		10.15		0.9		—
Buy EUR sell IDR		11,985.00		2.2		—
Buy EUR sell INR		69.21		2.3		—
Buy EUR sell MXN		18.14		14.9		—
Buy EUR sell MYR		4.17		6.0		(0.1	)
Buy EUR sell RUB		41.74		9.2		—
Buy EUR sell USD		1.30		44.8		(0.1	)
Buy EUR sell ZAR		10.89		0.6		—
Buy GBP sell EUR		0.84		0.8		—
Buy JPY sell USD		77.85		7.0		0.1
Buy KRW sell USD		1,161.81		32.2		(0.2	)
Buy MYR sell EUR		4.12		0.8		—
Buy MYR sell USD		3.18		19.0		—
Buy PEN sell USD		2.70		6.7		—
Buy SEK sell EUR		8.98		1.0		—
Buy USD sell ARS		4.37		0.8		—
Buy USD sell COP		1,943.00		5.1		—
Buy USD sell EUR		1.37		81.4		4.4
Buy USD sell GBP		1.55		24.1		—
Buy USD sell INR		53.30		1.0		—
Buy USD sell KRW		1,156.38		7.5		—
Buy USD sell MXN		13.89		37.3		0.4
Buy USD sell PHP		43.79		3.2		—
Buy USD sell RUB		31.86		1.3		—
Buy USD sell SGD		1.28		0.3		—
Buy USD sell THB		31.43		0.2		—
Buy USD sell ZAR		8.33		1.1		—

Total forward contracts			$	318.8	$	4.5


Foreign Currency	Average Contract Rate		Original Notional Amount		Fair Value Gain (Loss)
			(In millions)		(In millions)
At December 31, 2010
Buy BRL sell USD		1.68	$	7.6	$	0.1
Buy EUR sell ARS		5.27		1.3		—
Buy EUR sell JPY		113.89		1.2		(0.1	)
Buy EUR sell MXN		16.58		35.5		—
Buy EUR sell RUB		40.99		1.8		—
Buy EUR sell USD		1.34		101.4		0.1
Buy INR sell USD		44.81		4.5		—
Buy JPY sell EUR		111.90		1.2		—
Buy JPY sell USD		82.57		19.4		0.4
Buy KRW sell USD		1,146.51		21.0		0.4
Buy MXN sell EUR		16.45		8.0		—
Buy MXN sell USD		12.37		4.5		—
Buy MYR sell USD		3.10		12.2		0.1
Buy PEN sell USD		2.80		10.3		—
Buy PHP sell USD		43.89		0.1		—
Buy TWD sell USD		29.17		2.6		—
Buy USD sell BRL		1.72		14.9		(0.5	)
Buy USD sell COP		1,917.51		4.3		—
Buy USD sell EUR		1.32		74.3		(1.0	)
Buy USD sell GBP		1.56		4.0		—
Buy USD sell INR		45.78		8.7		(0.2	)
Buy USD sell JPY		81.59		9.8		(0.1	)
Buy USD sell KRW		1,138.90		4.9		(0.1	)
Buy USD sell MXN		12.45		4.9		—
Buy USD sell PEN		2.81		5.2		—
Buy USD sell PHP		44.11		2.8		—
Buy USD sell RUB		31.48		1.3		—

Total forward contracts			$	367.7	$	(0.9	)

Average
Original
Fair

Contract
Notional
Value

Foreign Currency Rate Amount Gain (Loss)
(In millions) (In millions)

At December 31, 2009

Buy EUR sell MXN 19.67 $ 32.6 $ (1.6 )
Buy JPN sell USD 90.60 16.9 (0.5 )
Buy USD sell EUR 1.48 77.2 2.6
Buy CLP sell USD 523.79 5.3 0.2
Buy USD sell CLP 509.40 2.9 —
Buy HKD sell USD 7.75 6.5 —
Buy JPY sell EUR 131.55 3.3 —
Buy EUR sell JPY 131.59 3.3 —
Buy USD sell BRL 1.78 7.3 (0.1 )
Buy USD sell ZAR 7.86 1.3 (0.1 )
Buy ZAR sell USD 7.49 1.3 —
Buy USD sell PHP 47.49 6.3 (0.1 )
Buy USD sell KRW 1,181.27 1.9 —
Buy USD sell INR 46.72 3.0 —
Buy USD sell COP 1,983.88 3.5 0.1
Buy EUR sell USD 1.43 45.2 —
Buy EUR sell HKD 11.26 2.6 —
Buy MXN sell USD 13.19 8.5 —
Buy GBP sell USD 1.63 5.7 —
Buy USD sell RUB 29.78 1.3 —
Buy COP sell USD 2,053.31 4.2 —
Buy KRW sell USD 1,167.38 1.9 —
Buy BRL sell USD 1.78 0.6 —
Buy EUR sell GBP 0.89 3.3 —
Buy MXN sell EUR 18.81 7.0 —
Buy PHP sell USD 46.47 3.2 —
Buy RUB sell USD 30.25 0.3 —
Buy USD sell MXN 13.15 1.7 —
Buy USD sell JPN 92.46 7.9 0.1

Total forward contracts $ 266.0 $ 0.6

~~As of December 31, 2010 and 2009 we did not have any outstanding foreign currency option contracts.~~

~~Most~~The majority of our foreign subsidiaries designate their local currencies as their functional currencies. At December 31, ~~2010~~2011 and December 31, ~~2009,~~2010, the total amount of our foreign subsidiary cash was ~~$188.2~~$246.0 million and ~~$149.6~~$188.2 million, respectively, of which ~~$5.8~~$9.2 million and ~~$11.9~~$5.8 million, respectively, was invested in U.S. dollars.

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 U.S. dollars in exchange for Venezuelan Bolivars, or Bolivars, at the official foreign exchange rates from the Venezuelan government and its foreign exchange commission, CADIVI. The application and approval processes have been intermittently delayed and the timing and ability to obtain U.S. dollars at the official exchange rates remains uncertain. In certain instances, we have made appropriate applications through CADIVI for approval to obtain U.S. dollars so that Herbalife Venezuela can pay for imported products and an annual dividend, at the official exchange rate. As an alternative

exchange mechanism, we have also participated in certain bond offerings from the Venezuelan government and from Petróleos de Venezuela, S.A. or PDVSA, a Venezuelan state-owned petroleum company, where we effectively purchased bonds with our Bolivars and then sold the bonds for U.S. dollars. In other instances, we used a legal but less favorable parallel market mechanism for currency exchange. In May 2010, this less favorable parallel market was discontinued.

In June 2010, the Venezuelan government introduced additional regulations under a newly regulated system, SITME, which is controlled by the Central Bank of Venezuela. SITME provides a mechanism to exchange Bolivars into U.S. dollars through the purchase and sale of U.S. dollar denominated bonds issued in Venezuela. However, SITME is only available in certain limited circumstances. Specifically, SITME can only be used for product purchases and it is not available for other matters such as the payment of dividends. Also, SITME can only be used for amounts of up to $50,000 per day and $350,000 per month and is generally only available to the extent that the applicant has not exchanged and received U.S. dollars via the CADIVI process within the previous 90 days.

Venezuela’s inflation rate as measured using the blended National Consumer Price Index and Consumer Price Index rate exceeded a three-year cumulative inflation rate of 100% as of December 31, 2009. In early January 2010, Venezuela announced an official exchange rate devaluation of the Bolivar to an official rate of 4.3 Bolivars per U.S. dollar for non-essential items and 2.6 Bolivars per U.S. dollar for essential items. Our imports fall into both classifications.

In late December 2010, Venezuela announced that the CADIVI official exchange rate of 2.6 Bolivars per U.S. dollar will be eliminated and the CADIVI official exchange of 4.3 Bolivars per U.S. dollar will be used for all essential items and non-essential items beginning January 2011. This devaluation did not have a material impact to our consolidated financial statements. At December 31, 2010, we used the SITME rate of 5.3 Bolivars per U.S. dollar for remeasurement purposes. We expect that any U.S. dollars obtained from CADIVI at the official exchange rate will have a positive impact on our consolidated net earnings, and the impact of any U.S. dollars obtained from the Venezuelan government and PDVSA bond offerings on our consolidated earnings will depend on the prevailing exchange rates during those periods. See Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations,for ~~a further~~ discussion on how the currency restrictions in Venezuela have impacted Herbalife Venezuela’s operations.

Interest Rate Risk

As of December 31, ~~2010,~~2011, $202.0 million of borrowings under the ~~aggregate annual maturities of our senior secured credit facility were~~New Credit Facility is expected to ~~be: 2011-$1.5 million; 2012-$32.5 million;~~mature and ~~2013-$140.9 million.~~expire on March 9, 2016. The fair value of our ~~senior secured credit facility~~New Credit Facility approximates its carrying value of $202.0 million as of December 31, 2011. The fair value of our Prior Credit Facility approximated its carrying value of $174.9 million as of December 31, ~~2010~~2010. The New Credit Facility bears, and ~~$236.4 million as of December 31, 2009. Our senior secured credit facility bears~~the Prior Credit Facility bore, a variable interest rate, and on December 31, ~~2010~~2011 and ~~2009,~~2010, the weighted average interest rate ~~was 1.75% and 1.66%, respectively.~~

~~Under our senior secured credit facility, we were obligated to enter into interest rate hedges for up to 25%~~ of the aggregate principal amount of the term loan for a minimum of three years. On August 23, 2006, we entered into an interest rate swap agreement. This agreement provided 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 rate on the same notional principal amount. The notional amount was scheduled to be reduced by $20.0 million in the second, third and fourth quarters of each year commencing January 1, 2007 throughout the term of the swap. The swap had been designated as a cash flow hedge against the variability in LIBOR interest rate on our term loan at LIBOR plus 1.50%, thereby fixing our effective rate on the notional amounts at 6.76%. In September 2009, the interest swap expired and was consequently settled. As of December 31, 2009, there were no amounts remaining in other comprehensive income relating to this expired interest swapNew Credit Facility and the ~~swap had no value.~~

~~On June 26, 2009, we entered into an interest rate swap agreement, with an effective date of June 30, 2009, which expired on September 30, 2009. The swap notional amount~~Prior Credit Facility was ~~$20 million, where we paid three month LIBOR~~1.89% and received one month LIBOR plus 0.185%. During September 2009, the interest rate swap agreement expired and all outstanding amounts were settled. We elected not to apply hedge accounting for this interest rate swap.

1.75%, respectively.

During August 2009, we entered into four interest rate swap agreements with an effective date of December 31, 2009. The agreements collectively provide for us to pay interest for less than a four-year period at a weighted average fixed rate of 2.78% on notional amounts aggregating to ~~$140~~$140.0 million while receiving interest for the same period at the one month LIBOR rate on the same notional amounts. These agreements will expire in July 2013. ~~The~~These swaps ~~have been~~at inception were designated as cash flow hedges against the variability in the LIBOR interest rate on our term loan under the Prior Credit Facility or against the variability in the LIBOR interest rate on the replacement debt. Our term loan under the Prior Credit Facility was terminated in March 2011 and refinanced with the New Credit Facility as discussed further in Note 4,Long-Term Debt, to the Consolidated Financial Statements. Our swaps remain effective and continue to be designated as cash flow hedges against the variability in certain LIBOR interest rate borrowings under the New Credit Facility at LIBOR plus 1.50% to 2.50%, ~~thereby~~ fixing our weighted average effective rate on the notional amounts at 4.28% to 5.28%. There was no hedge ineffectiveness recorded as result of this refinancing event.

We ~~formally~~ assess ~~both at inception~~hedge effectiveness and measure hedge ineffectiveness at least ~~quarterly thereafter, whether~~quarterly. During the ~~derivatives used in hedging transactions are~~years ended December 31, 2011 and 2010, the ineffective portion relating to these hedges was immaterial and the hedges remained effective ~~in offsetting changes in cash flows of the hedged item. As~~as of December 31, ~~2010 the hedge relationships qualified as effective hedges under the ASC 815.~~2011. 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. ~~As of December 31, 2010, and December 31, 2009, the~~The fair value of the interest rate swap agreements are based on third-party bank ~~quotes~~quotes. At December 31, 2011 and December 31, 2010, we recorded the interest rate swaps as ~~a liability~~liabilities at their fair value of $5.1 million and $6.6 million, ~~and $2.6 million,~~ respectively.

Our exposure to interest rate volatility risk relating to our ~~senior secured credit facility~~New Credit Facility is partially mitigated by our interest rate swaps. Based on the outstanding balances of our ~~senior secured credit facility~~New Credit Facility and our interest rate swaps at December 31, ~~2010,~~2011, a hypothetical 50-basis-point change, in interest rates prevailing at that date, sustained for one year, would not represent a material potential net change in fair value, earnings, or cash flows.


Item 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*

Our consolidated financial statements and notes thereto and the reports of KPMG LLP, independent registered public accounting firm, are set forth in the Index to Financial Statements under Item 15 —Exhibits and Financial Statement Schedulesof this Annual Report onForm 10-K, and is incorporated herein by reference.


Item 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

None.


Item 9A.	*CONTROLS AND PROCEDURES*

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures as defined inRule 13a-15(e) under the Exchange Act. Based on an evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this report conducted by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, ~~2010.~~

2011.

Management’s Report on Internal Control over Financial Reporting

The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules which require the Company to include in its Annual Report onForm 10-K, an assessment by management of the effectiveness of the Company’s internal control over financial reporting as defined inRule 13a-15(f) under the Exchange Act. In addition, the Company’s independent auditors must attest to and report on the effectiveness of the Company’s internal control over financial reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and ~~Board~~board of ~~Directors~~directors regarding the preparation and fair presentation of published financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this evaluation, under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, ~~2010.~~

2011.

The independent registered public accounting firm that audited the financial statements included in this Annual Report onForm 10-K has issued an attestation report on the Company’s internal control over financial reporting, which is set forth below.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined inRules 13a-15(f) ~~and15d-15(f)~~ under the Exchange Act) that occurred during the fourth quarter ended December 31, ~~2010~~2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Herbalife Ltd.:

We have audited ~~Herbalife Ltd. and subsidiaries’ (the “Company”)~~the internal control over financial reporting of Herbalife Ltd. and subsidiaries (the “Company”) as of December 31, ~~2010,~~2011, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission ~~(COSO)~~(“COSO”). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Herbalife Ltd. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2010,~~2011, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Herbalife Ltd. and subsidiaries as of December 31, ~~2010~~2011 and ~~2009,~~2010, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, ~~2010,~~2011, and our report dated February ~~22, 2011~~21, 2012, expressed an unqualified opinion on those consolidated financial statements.

/s/ S/ KPMG LLP

Los Angeles, California

February ~~22, 2011~~

8621, 2012


Item 9B.	*OTHER INFORMATION*

None.

PART III.


Item 10.	*DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE*

The information required under this Item is incorporated herein by reference to our definitive proxy statement to be filed with the SEC no later than 120 days after the close of our fiscal year ended December 31, ~~2010,~~2011, except that the information required with respect to our executive officers is set forth under Item 1 —Business, of this Annual Report onForm 10-K, and is incorporated herein by reference.


Item 11.	*EXECUTIVE COMPENSATION*

2011.


Item 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

The information required under this Item is incorporated herein by reference to our definitive proxy statement to be filed with the SEC no later than 120 days after the close of our fiscal year ended December 31, ~~2010,~~2011, except that the information required with respect to our equity compensation plans is set forth under Item 5 —Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securitiesof this Annual Report onForm 10-K, and is incorporated herein by reference.


Item 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE*

2011.


Item 14.	*PRINCIPAL ACCOUNTING FEES AND SERVICES*

872011.

PART IV


Item 15.	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES*

The following documents are filed as part of this Annual Report onForm 10-K, or incorporated herein by reference:

1. Financial Statements. The following financial statements of Herbalife Ltd. are filed as part of this Annual Report onForm 10-K on the pages indicated:


	Page No.

HERBALIFE LTD. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm		94
Consolidated Balance Sheets as of December 31, ~~2010~~2011 and ~~2009~~2010		95
Consolidated Statements of Income for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008~~2009		96
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008~~2009		97
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008~~2009		98
Notes to Consolidated Financial Statements		99

2. Financial Statement Schedules. Schedules are omitted because the required information is inapplicable, not material, or the information is presented in the consolidated financial statements or related notes.

3. Exhibits. The exhibits listed in the Exhibit Index immediately below are filed as part of this Annual Report onForm 10-K, or are incorporated by reference herein.

EXHIBIT INDEX

Exhibit

Number Description Reference

3 .1 Form of Amended and Restated Memorandum and Articles of Association of Herbalife Ltd. (d)
4 .1 Form of Share Certificate (d)
10 .1 Form of Indemnity Agreement between Herbalife International Inc. and certain officers and directors of Herbalife International Inc. (a)
10 .2# Herbalife International of America, Inc.’s Senior Executive Deferred Compensation Plan, effective January 1, 1996, as amended (a)
10 .3# Herbalife International of America, Inc.’s Management Deferred Compensation Plan, effective January 1, 1996, as amended (a)
10 .4 Master Trust Agreement between Herbalife International of America, Inc. and Imperial Trust Company, Inc., effective January 1, 1996 (a)
10 .5# Herbalife International Inc. 401K Profit Sharing Plan and Trust, as amended (a)
10 .6 Trust Agreement for Herbalife 2001 Executive Retention Plan, effective March 15, 2001 (a)
10 .7# Herbalife 2001 Executive Retention Plan, effective March 15, 2001 (a)
10 .8 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 .9 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)

Exhibit

Number Description Reference

10 .10# Independent Director’s Stock Option Plan of WH Holdings (Cayman Islands) Ltd. (a)
10 .11# WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, as restated, dated as of November 5, 2003 (a)
10 .12# Non-Statutory Stock Option Agreement, dated as of April 3, 2003 between WH Holdings (Cayman Islands) Ltd. and Michael O. Johnson (a)
10 .13# 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 .14# Form of Non-Statutory Stock Option Agreement (Non-Executive Agreement) (a)
10 .15# Form of Non-Statutory Stock Option Agreement (Executive Agreement) (a)
10 .16 Indemnity Agreement, dated as of February 9, 2004, among WH Capital Corporation and Brett R. Chapman (a)
10 .17 First Amendment to Amended and Restated WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, dated November 5, 2003 (a)
10 .18 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 .19 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 .20 Form of Indemnification Agreement between Herbalife Ltd. and the directors and certain officers of Herbalife Ltd. (c)
10 .21# Herbalife Ltd. 2004 Stock Incentive Plan, effective December 1, 2004 (c)
10 .22 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 .23# Amendment No. 1 to Herbalife Ltd. 2004 Stock Incentive Plan (e)
10 .24# Form of Stock Bonus Award Agreement (e)
10 .25# Form of 2004 Herbalife Ltd. 2004 Stock Incentive Plan Stock Option Agreement (v)
10 .26# Form of 2004 Herbalife Ltd. 2004 Stock Incentive Plan Non-Employee Director Stock Option Agreement (v)
10 .27# Independent Directors Stock Unit Award Agreement (f)
10 .28# Amended and Restated Herbalife Ltd. 2005 Stock Incentive Plan (g)
10 .29# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement (h)
10 .30# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement (h)
10 .31# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Mr. Michael O. Johnson (i)
10 .32# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Mr. Michael O. Johnson (i)
10 .33# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Messrs. Brett R. Chapman and Richard Goudis (j)
10 .34# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Messrs. Brett R. Chapman and Richard Goudis (j)

Exhibit

Number Description Reference

10 .35 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 (k)
10 .36 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 (k)
10 .37# Stock Unit Agreement by and between Herbalife Ltd. and Brett R. Chapman dated October 10, 2006 (l)
10 .38# Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Brett R. Chapman dated September 1, 2004 (l)
10 .39# Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Brett R. Chapman dated December 1, 2004 (l)
10 .40# Amendment dated October 10, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Brett R. Chapman dated April 27, 2005 (l)
10 .41# Stock Unit Agreement by and between Herbalife Ltd. and Richard P. Goudis dated October 24, 2006 (m)
10 .42# Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated June 14, 2004 (m)
10 .43# Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated September 1, 2004 (m)
10 .44# Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated December 1, 2004 (m)
10 .45# Amendment dated October 24, 2006, to Stock Option Agreement by and between Herbalife Ltd. and Richard P. Goudis dated April 27, 2005 (m)
10 .46# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Michael O Johnson (n)
10 .47# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Michael O. Johnson (n)
10 .48# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Messrs. Richard P. Goudis and Brett R. Chapman (n)
10 .49# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Messrs. Richard P. Goudis and Brett R. Chapman (n)
10 .50# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement (n)
10 .51# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement (n)
10 .52 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 (o)

Exhibit

Number Description Reference

10 .53 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 (o)
10 .54 Third Amendment dated November 30, 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 (p)
10 .55# Herbalife Ltd. Employee Stock Purchase Plan (p)
10 .56 Fourth Amendment dated February 21, 2008, 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 (p)
10 .57# Employment Agreement dated as of March 27, 2008 between Michael O. Johnson and Herbalife International of America, Inc. (q)
10 .58# Stock Unit Award Agreement by and between Herbalife Ltd. and Michael O. Johnson, dated March 27, 2008. (q)
10 .59# Stock Appreciation Right Award Agreement by and between Herbalife Ltd. and Michael O. Johnson, dated March 27, 2008. (q)
10 .60# Stock Appreciation Right Award Agreement by and between Herbalife Ltd. and Michael O. Johnson, dated March 27, 2008. (q)
10 .61 Fifth Amendment dated September 25, 2008, 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 (r)
10 .62# Amendment to Herbalife International Inc. 401K Profit Sharing Plan and Trust (s)
10 .63# Form of Independent Directors Stock Appreciation Right Award Agreement (t)
10 .64# Herbalife Ltd. Amended and Restated Independent Directors Deferred Compensation and Stock Unit Plan (t)
10 .65# Amended and Restated Employment Agreement by and between Richard P. Goudis and Herbalife International of America, Inc., dated as of January 1, 2010. (u)
10 .66# Severance Agreement by and between Desmond Walsh and Herbalife International of America, Inc., dated as of January 1, 2010. (u)
10 .67# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement (v)
10 .68# Amended and Restated Non-Management Directors Compensation Plan (v)
10 .69# Amendment to Form of Non-Employee Directors Stock Appreciation Right Award Agreement (v)
10 .70# Amended and Restated Employment Agreement by and between Brett Chapman and Herbalife International of America, Inc., dated as of June 1, 2010. (w)

Exhibit

Number Description Reference

10 .71# First Amendment to the Amended and Restated Employment Agreement by and between Richard P. Goudis and Herbalife International of America, Inc., dated as of December 28, 2010. (x)
10 .72# First Amendment to the Amended and Restated Employment Agreement by and between Brett R.Chapman and Herbalife International of America, Inc., dated as of December 26, 2010. (x)
21 .1 Subsidiaries of the Registrant *
23 .1 Consent of KPMG LLP — Independent Registered Public Accounting Firm *
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 *
32 .2 Section 1350 Certification of Chief Financial Officer *
101 .INS XBRL Instance Document **
101 .SCH XBRL Taxonomy Extension Schema Document **
101 .CAL XBRL Taxonomy Extension Calculation Linkbase Document **
101 .DEF XBRL Taxonomy Extension Definition Linkbase Document **
101 .LAB XBRL Taxonomy Extension Label Linkbase Document **
101 .PRE XBRL Taxonomy Extension Presentation Linkbase Document **


Exhibit Number	Description	Reference
3.1	Form of Amended and Restated Memorandum and Articles of Association of Herbalife Ltd.		(d	)
4.1	Form of Share Certificate		(d	)
10.1	Form of Indemnity Agreement between Herbalife International Inc. and certain officers and directors of Herbalife International, Inc.		(a	)
10.2#	Herbalife International of America, Inc.’s Senior Executive Deferred Compensation Plan, effective January 1, 1996, as amended		(a	)
10.3#	Herbalife International of America, Inc.’s Management Deferred Compensation Plan, effective January 1, 1996, as amended		(a	)
10.4#	Master Trust Agreement between Herbalife International of America, Inc. and Imperial Trust Company, Inc., effective January 1, 1996		(a	)
10.5#	Herbalife International Inc. 401K Profit Sharing Plan and Trust, as amended		(a	)
10.6	Notice to Distributors regarding Amendment to Agreements of Distributorship, dated as of July 18, 2002 between Herbalife International, Inc. and each Herbalife Distributor		(a	)
10.7	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	)

Exhibit
Number
Description
Reference
10.8# WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, as restated, dated as of November 5, 2003 (a )
10.9# Non-Statutory Stock Option Agreement, dated as of April 3, 2003 between WH Holdings (Cayman Islands) Ltd. and Michael O. Johnson (a )
10.10# 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 )
10.11# Form of Non-Statutory Stock Option Agreement (Non-Executive Agreement) (a )
10.12# Form of Non-Statutory Stock Option Agreement (Executive Agreement) (a )
10.13 Indemnity Agreement, dated as of February 9, 2004, among WH Capital Corporation and Brett R. Chapman (a )
10.14# First Amendment to Amended and Restated WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan, dated November 5, 2003 (a )
10.15 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 )
10.16 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 )
10.17 Form of Indemnification Agreement between Herbalife Ltd. and the directors and certain officers of Herbalife Ltd. (c )
10.18# Herbalife Ltd. 2004 Stock Incentive Plan, effective December 1, 2004 (c )
10.19 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 )
10.20# Amendment No. 1 to Herbalife Ltd. 2004 Stock Incentive Plan (e )
10.21# Form of 2004 Herbalife Ltd. 2004 Stock Incentive Plan Stock Option Agreement (m )
10.22# Form of 2004 Herbalife Ltd. 2004 Stock Incentive Plan Non-Employee Director Stock Option Agreement (m )
10.23# Amended and Restated Herbalife Ltd. 2005 Stock Incentive Plan (f )
10.24# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement (q )
10.25# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement (q )
10.26# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Michael O. Johnson (q )
10.27# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Michael O. Johnson (q )
10.28# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Messrs. Richard P. Goudis and Brett R. Chapman (q )
10.29# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Messrs. Richard P. Goudis and Brett R. Chapman (q )

Exhibit
Number
Description
Reference
10.30# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Mr. Michael O. Johnson (g )
10.31# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Mr. Michael O. Johnson (g )
10.32# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement applicable to Messrs. Brett R. Chapman and Richard Goudis (g )
10.33# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement applicable to Messrs. Brett R. Chapman and Richard Goudis (g )
10.34# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement (g )
10.35# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Appreciation Right Award Agreement (g )
10.36# Herbalife Ltd. Employee Stock Purchase Plan (h )
10.37# Employment Agreement dated as of March 27, 2008 between Michael O. Johnson and Herbalife International of America, Inc. (i )
10.38# Stock Unit Award Agreement by and between Herbalife Ltd. and Michael O. Johnson, dated March 27, 2008. (i )
10.39# Stock Appreciation Right Award Agreement by and between Herbalife Ltd. and Michael O. Johnson, dated March 27, 2008. (i )
10.40# Stock Appreciation Right Award Agreement by and between Herbalife Ltd. and Michael O. Johnson, dated March 27, 2008. (i )
10.41# Amendment to Herbalife International Inc. 401K Profit Sharing Plan and Trust (j )
10.42# Form of Independent Directors Stock Appreciation Right Award Agreement (k )
10.43# Herbalife Ltd. Amended and Restated Independent Directors Deferred Compensation and Stock Unit Plan (k )
10.44# Amended and Restated Employment Agreement by and between Richard P. Goudis and Herbalife International of America, Inc., dated as of January 1, 2010. (l )
10.45# Severance Agreement by and between Desmond Walsh and Herbalife International of America, Inc., dated as of January 1, 2010. (l )
10.46# Form of Herbalife Ltd. 2005 Stock Incentive Plan Stock Unit Award Agreement (m )
10.47# Amended and Restated Non-Management Directors Compensation Plan (m )
10.48# Form of Herbalife Ltd. 2005 Stock Incentive Plan Non-Employee Directors Stock Appreciation Right Award Agreement (m )
10.49# Amended and Restated Employment Agreement by and between Brett Chapman and Herbalife International of America, Inc., dated as of June 1, 2010. (n )
10.50# First Amendment to the Amended and Restated Employment Agreement by and between Richard P. Goudis and Herbalife International of America, Inc., dated as of December 28, 2010. (o )
10.51# First Amendment to the Amended and Restated Employment Agreement by and between Brett R. Chapman and Herbalife International of America, Inc., dated as of December 26, 2010. (o )
10.52# Severance Agreement by and between John DeSimone and Herbalife International of America, Inc., dated as of February 23, 2011. (p )
10.53# Amended and Restated Severance Agreement, dated as of February 23, 2011, by Desmond Walsh and Herbalife International of America, Inc. (p )

Exhibit
Number
Description
Reference
10.54 Credit Agreement, dated as of March 9, 2011, by and among Herbalife International, Inc. (“HII”), Herbalife Ltd., Herbalife International Luxembourg S.a.R.L., certain subsidiaries of HII as guarantors, the lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. (q )
10.55# Amendment to Amended and Restated Herbalife Ltd. 2005 Stock Incentive Plan (r )
10.56# Stock appreciation Right Award Agreement, dated August 4, 2011, by and between Herbalife Ltd. and Michael O. Johnson (s )
21.1 Subsidiaries of the Registrant *
23.1 Consent of KPMG LLP — Independent Registered Public Accounting Firm *
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 *
32.2 Section 1350 Certification of Chief Financial Officer *
101.INS XBRL Instance Document * *
101.SCH XBRL Taxonomy Extension Schema Document * *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document * *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document * *
101.LAB Taxonomy Extension Label Linkbase Document * *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * *

*	Filed herewith.

**	Furnished, not filed, herewith.

#		Management contract or compensatory plan or arrangement.

**		~~Furnished, not filed~~

(a)		Previously filed on October 1, 2004 as an Exhibit to the Company’s registration statement onForm ~~S-1(File~~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 onForm 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 onForm 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 onForm 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 onForm S-8 (FileNo. 333-122871) and is incorporated herein by reference.

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

~~(g)~~		Previously filed on April 30, 2010 as an Exhibit to the Company’s Current Report onForm 8-K and is incorporated herein by reference.


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

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

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

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


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

~~(m)~~		~~Previously filed on October 26, 2006 as an Exhibit to the Company’s Current Report onForm 8-K~~ ~~and is incorporated herein by reference.~~

~~(n)~~		~~Previously filed on May 29,~~June 1, 2007 as an Exhibit to the Company’s Current Report onForm 8-K and is incorporated herein by reference.


~~(o)~~		~~Previously filed on November 6, 2007 as an Exhibit to the Company’s Quarterly Report onForm 10-Q~~ ~~for the quarter ended September 30, 2007 and is incorporated by reference.~~

~~(p)~~	(h)	Previously filed on February 26, 2008 as an Exhibit to the Company’s Annual Report onForm 10-K for the year ended December 31, 2007 and is incorporated herein by reference.


~~(q)~~	(i)	Previously filed on April 7, 2008 as an Exhibit to the Company’s Current Report onForm 8-K and is incorporated herein by reference.


~~(r)~~		~~Previously filed on November 3, 2008 as an Exhibit to the Company’s Quarterly Report onForm 10-Q~~ ~~for the quarter ended September 30, 2008 and is incorporated by reference.~~

~~(s)~~	(j)	Previously filed on May 4, 2009 as an Exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2009 and is incorporated by reference.


~~(t)~~	(k)	Previously filed on May 3, 2010 as an Exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2010 and is incorporated by reference.

~~(u)~~ (l) Previously filed on June 17, 2010 as an Exhibit to the Company’s Current Report onForm 8-K and is incorporated herein by reference.


~~(v)~~	(m)	Previously filed on August 2, 2010 as an Exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2010 and is incorporated by reference.


~~(w)~~	(n)	Previously filed on August 3, 2010 as an Exhibit to the Company’s Current Report onForm 8-K and is incorporated herein by reference.


~~(x)~~	(o)	Previously filed on December 29, 2010 as an Exhibit to the Company’s Current Report onForm 8-K and is incorporated herein by reference.

(p)	Previously filed on March 1, 2011 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(q)	Previously filed on May 2, 2011 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and is incorporated by reference.

(r)	Previously filed on April 29, 2011 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.

(s)	Previously filed on August 10, 2011 as an Exhibit to the Company’s Amendment No. 1 to Current Report on Form 8-K/A and is incorporated herein by reference.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Herbalife Ltd.:

We have audited the accompanying consolidated balance sheets of Herbalife Ltd. and subsidiaries (the “Company”) as of December 31, ~~2010~~2011 and ~~2009,~~2010, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, ~~2010.~~2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Herbalife Ltd. and subsidiaries as of December 31, ~~2010~~2011 and ~~2009,~~2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2010,~~2011, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, during 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, and other share-based equity grants, from the tax-law ordering method to the with-and-without method.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ~~Herbalife Ltd. and subsidiaries’~~the internal control over financial reporting of Herbalife Ltd. and subsidiaries as of December 31, ~~2010,~~2011, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February ~~22, 2011,~~21, 2012, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Los Angeles, California

February ~~22, 2011~~

9421, 2012

HERBALIFE LTD.

CONSOLIDATED BALANCE SHEETS

December 31,
2010 2009
(In thousands, except share amounts)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 190,550 $ 150,801
Receivables, net of allowance for doubtful accounts of $3,202 (2010) and $3,982 (2009) 85,612 76,958
Inventories 182,467 145,962
Prepaid expenses and other current assets 93,963 101,181
Deferred income taxes 42,994 38,600

Total current assets 595,586 513,502

Property, plant and equipment — at cost:
Furniture and fixtures 5,409 5,254
Equipment 272,881 266,555
Leasehold improvements 66,049 53,592

344,339 325,401
Less: accumulated depreciation and amortization (166,912 ) (147,392 )

Net property, plant and equipment 177,427 178,009

Deferred compensation plan assets 18,536 17,410
Other assets 25,880 21,306
Deferred financing costs, net of accumulated amortization of $2,279 (2010) and $1,778 (2009) 998 1,498
Marketing related intangibles and other intangible assets, net 310,894 311,782
Goodwill 102,899 102,543

Total assets $ 1,232,220 $ 1,146,050

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 43,784 $ 37,330
Royalty overrides 162,141 144,689
Accrued compensation 69,376 65,043
Accrued expenses 141,867 107,943
Current portion of long-term debt 3,120 12,402
Advance sales deposits 35,145 22,261
Income taxes payable 15,383 40,298

Total current liabilities 470,816 429,966
NON-CURRENT LIABILITIES:
Long-term debt, net of current portion 175,046 237,931
Deferred compensation plan liability 20,167 16,629
Deferred income taxes 55,572 77,613
Other non-current liabilities 23,407 24,600

Total liabilities 745,008 786,739

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common shares, $0.002 par value, 500.0 million shares authorized, 58.9 million (2010) and 60.2 million (2009) shares outstanding 118 120
Paid-in capital in excess of par value 257,375 222,882
Accumulated other comprehensive loss (27,285 ) (23,396 )
Retained earnings 257,004 159,705

Total shareholders’ equity 487,212 359,311

Total liabilities and shareholders’ equity $ 1,232,220 $ 1,146,050


	December 31,
	2011			2010
	(In thousands, except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	258,775		$	190,550
Receivables, net of allowance for doubtful accounts of $2,250 (2011) and $3,202 (2010)		89,660			85,612
Inventories		247,696			182,467
Prepaid expenses and other current assets		117,073			93,963
Deferred income taxes		55,615			42,994

Total current assets		768,819			595,586

Property, plant and equipment — at cost:
Furniture and fixtures		6,020			5,409
Equipment		301,689			272,881
Leasehold improvements		79,729			66,049

		387,438			344,339
Less: accumulated depreciation and amortization		(193,735	)		(166,912	)

Net property, plant and equipment		193,703			177,427

Deferred compensation plan assets		20,511			18,536
Other assets		41,125			25,880
Deferred financing costs, net		4,797			998
Marketing related intangibles and other intangible assets, net		311,764			310,894
Goodwill		105,490			102,899

Total assets	$	1,446,209		$	1,232,220

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	57,095		$	43,784
Royalty overrides		197,756			162,141
Accrued compensation		76,435			69,376
Accrued expenses		152,744			141,867
Current portion of long-term debt		1,542			3,120
Advance sales deposits		31,702			35,145
Income taxes payable		31,415			15,383

Total current liabilities		548,689			470,816
NON-CURRENT LIABILITIES:
Long-term debt, net of current portion		202,079			175,046
Deferred compensation plan liability		23,702			20,167
Deferred income taxes		72,348			55,572
Other non-current liabilities		39,203			23,407

Total liabilities		886,021			745,008

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common shares, $0.001 par value, 1.0 billion shares authorized, 115.8 million (2011) and 117.8 million (2010) shares outstanding		116			118
Paid-in capital in excess of par value		291,950			248,693
Accumulated other comprehensive loss		(37,809	)		(27,285	)
Retained earnings		305,931			265,686

Total shareholders’ equity		560,188			487,212

Total liabilities and shareholders’ equity	$	1,446,209		$	1,232,220

See the accompanying notes to consolidated financial statements.

HERBALIFE LTD.

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,
2010 2009 2008
(In thousands, except per share amounts)

Product sales $ 2,337,493 $ 1,993,617 $ 2,032,293
Shipping & handling revenues 396,733 330,960 326,920

Net sales 2,734,226 2,324,577 2,359,213
Cost of sales 558,811 493,134 458,396

Gross profit 2,175,415 1,831,443 1,900,817
Royalty overrides 900,248 761,501 796,718
Selling, general and administrative expenses 887,655 773,911 771,847

Operating income 387,512 296,031 332,252
Interest expense 9,664 9,613 20,115
Interest income 2,247 4,510 6,893

Income before income taxes 380,095 290,928 319,030
Income taxes 89,562 87,582 97,840

NET INCOME $ 290,533 $ 203,346 $ 221,190

Earnings per share
Basic $ 4.88 $ 3.32 $ 3.47
Diluted $ 4.67 $ 3.22 $ 3.36
Weighted average shares outstanding
Basic 59,502 61,221 63,785
Diluted 62,256 63,097 65,769


	Year Ended December 31,
	2011		2010		2009
	(In thousands, except per share amounts)
Product sales	$	2,944,722	$	2,337,493	$	1,993,617
Shipping & handling revenues		509,815		396,733		330,960

Net sales		3,454,537		2,734,226		2,324,577
Cost of sales		680,084		558,811		493,134

Gross profit		2,774,453		2,175,415		1,831,443
Royalty overrides		1,137,560		900,248		761,501
Selling, general and administrative expenses		1,074,623		887,655		773,911

Operating income		562,270		387,512		296,031
Interest expense		9,864		9,664		9,613
Interest income		7,373		2,247		4,510

Income before income taxes		559,779		380,095		290,928
Income taxes		147,201		80,880		87,582

NET INCOME	$	412,578	$	299,215	$	203,346

Earnings per share
Basic	$	3.51	$	2.51	$	1.66
Diluted	$	3.30	$	2.37	$	1.61
Weighted average shares outstanding
Basic		117,540		119,004		122,442
Diluted		124,846		126,495		126,194

See the accompanying notes to consolidated financial statements.

HERBALIFE LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

Paid-in
Accumulated

Capital in
Other
Total

Common
Excess of
Comprehensive
Retained
Shareholders’
Comprehensive

Shares par Value Loss Earnings Equity Income
(In thousands, except per share amounts)

Balance at December 31, 2007 $ 129 $ 160,872 $ (3,947 ) $ 25,190 $ 182,244
Issuance of 1.7 million common shares from exercise of stock options, SARs, warrants, employee stock purchase plan, and restricted stock grants 3 19,505 19,508
Excess tax benefit from exercise of stock options, SARs and restricted stock grants 15,289 15,289
Additional capital from share based compensation 17,788 17,788
Repurchases of common shares (9 ) (15,739 ) (123,173 ) (138,921 )
Dividends ($0.80 per share) (50,700 ) (50,700 )
Net income 221,190 221,190 $ 221,190
Foreign currency translation adjustment (24,770 ) (24,770 ) (24,770 )
Unrealized gain on derivatives, net of income taxes of $205 103 103 103

Total comprehensive income $ 196,523

Balance at December 31, 2008 $ 123 $ 197,715 $ (28,614 ) $ 72,507 $ 241,731

Issuance of 0.9 million common shares from exercise of stock options, SARs, restricted stock grants, and employee stock purchase plan 2 7,882 7,884
Excess tax benefit from exercise of stock options, SARs and restricted stock grants 3,587 3,587
Additional capital from share based compensation 20,907 20,907
Repurchases of common shares (5 ) (8,269 ) (66,367 ) (74,641 )
Dividends and dividend equivalents ($0.80 per share) 1,060 (49,781 ) (48,721 )
Net income 203,346 203,346 $ 203,346
Foreign currency translation adjustment 5,248 5,248 5,248
Unrealized loss on derivatives, net of income taxes of ($40) (30 ) (30 ) (30 )

Total comprehensive income $ 208,564

Balance at December 31, 2009 $ 120 $ 222,882 $ (23,396 ) $ 159,705 $ 359,311

Issuance of 1.7 million common shares from exercise of stock options, SARs and restricted stock grants 4 15,305 15,309
Excess tax benefit from exercise of stock options, SARs and restricted stock grants 16,727 16,727
Additional capital from share based compensation 22,969 22,969
Repurchases of common shares (6 ) (21,088 ) (138,914 ) (160,008 )
Dividends and dividend equivalents ($0.90 per share) 580 �� (54,320 ) (53,740 )
Net income 290,533 290,533 $ 290,533
Foreign currency translation adjustment 583 583 583
Unrealized loss on derivatives, net of income taxes of ($1,222) (4,472 ) (4,472 ) (4,472 )

Total comprehensive income $ 286,644

Balance at December 31, 2010 $ 118 $ 257,375 $ (27,285 ) $ 257,004 $ 487,212


	Common Shares			Paid-in Capital in Excess of par Value			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders’ Equity			Comprehensive Income
	(In thousands, except per share amounts)
Balance at December 31, 2008	$	123		$	197,715		$	(28,614	)	$	72,507		$	241,731
Issuance of 1.8 million common shares from exercise of stock options, SARs, restricted stock grants, and employee stock purchase plan		2			7,882									7,884
Excess tax benefit from exercise of stock options, SARs and restricted stock grants					3,587									3,587
Additional capital from share based compensation					20,907									20,907
Repurchases of common shares		(5	)		(8,269	)					(66,367	)		(74,641	)
Dividends and dividend equivalents ($0.40 per share)					1,060						(49,781	)		(48,721	)
Net income											203,346			203,346		$	203,346
Foreign currency translation adjustment								5,248						5,248			5,248
Unrealized loss on derivatives, net of income taxes of ($40)								(30	)					(30	)		(30	)

Total comprehensive income																$	208,564

Balance at December 31, 2009	$	120		$	222,882		$	(23,396	)	$	159,705		$	359,311

Issuance of 3.3 million common shares from exercise of stock options, SARs, restricted stock grants, and employee stock purchase plan		4			15,305									15,309
Excess tax benefit from exercise of stock options, SARs and restricted stock grants					8,045									8,045
Additional capital from share based compensation					22,969									22,969
Repurchases of common shares		(6	)		(21,088	)					(138,914	)		(160,008	)
Dividends and dividend equivalents ($0.45 per share)					580						(54,320	)		(53,740	)
Net income											299,215			299,215		$	299,215
Foreign currency translation adjustment								583						583			583
Unrealized loss on derivatives, net of income taxes of ($1,222)								(4,472	)					(4,472	)		(4,472	)

Total comprehensive income																$	295,326

Balance at December 31, 2010	$	118		$	248,693		$	(27,285	)	$	265,686		$	487,212

Issuance of 3.7 million common shares from exercise of stock options, SARs, restricted stock grants, and employee stock purchase plan		4			26,463									26,467
Excess tax benefit from exercise of stock options, SARs and restricted stock grants					27,450									27,450
Additional capital from share based compensation					24,133									24,133
Repurchases of common shares		(6	)		(35,427	)					(286,206	)		(321,639	)
Dividends and dividend equivalents ($0.73 per share)					638						(86,127	)		(85,489	)
Net income											412,578			412,578		$	412,578
Foreign currency translation adjustment, net of income taxes of ($3,090)								(16,757	)					(16,757	)		(16,757	)
Unrealized gain on derivatives, net of income taxes of $1,455								6,233						6,233			6,233

Total comprehensive income																$	402,054

Balance at December 31, 2011	$	116		$	291,950		$	(37,809	)	$	305,931		$	560,188

See the accompanying notes to consolidated financial statements.

HERBALIFE LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
2010 2009 2008
(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 290,533 $ 203,346 $ 221,190
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 68,621 62,437 48,732
Excess tax benefits from share-based payment arrangements (16,410 ) (3,266 ) (14,602 )
Share based compensation expenses 22,969 20,907 17,788
Amortization of discount and deferred financing costs 500 491 481
Deferred income taxes (24,631 ) (11,226 ) (4,103 )
Unrealized foreign exchange transaction loss (gain) (7,142 ) 4,809 15,243
Foreign exchange loss from adoption of highly inflationary accounting in Venezuela 15,131 — —
Other 2,527 340 1,963
Changes in operating assets and liabilities:
Receivables (7,593 ) 2,361 (18,529 )
Inventories (31,516 ) (1,742 ) (27,572 )
Prepaid expenses and other current assets 10,254 (7,781 ) (23,966 )
Other assets (3,485 ) 2,109 1,800
Accounts payable 6,650 (9,500 ) 8,922
Royalty overrides 15,732 9,102 13,375
Accrued expenses and accrued compensation 31,092 (3,461 ) 12,412
Advance sales deposits 12,439 8,779 1,917
Income taxes payable (8,807 ) 4,700 24,191
Deferred compensation plan liability 3,538 2,651 (6,254 )

NET CASH PROVIDED BY OPERATING ACTIVITIES 380,402 285,056 272,988

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (68,125 ) (59,768 ) (88,601 )
Proceeds from sale of property, plant and equipment 115 102 76
Deferred compensation plan assets (1,126 ) (1,656 ) 3,561
Acquisition of business — (10,000 ) —

NET CASH USED IN INVESTING ACTIVITIES (69,136 ) (71,322 ) (84,964 )

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (53,740 ) (48,721 ) (50,700 )
Borrowings from long-term debt 427,000 211,974 118,000
Principal payments on long-term debt (499,451 ) (313,089 ) (167,481 )
Increase in deferred financing costs — — (75 )
Share repurchases (160,008 ) (74,641 ) (138,921 )
Excess tax benefits from share-based payment arrangements 16,410 3,266 14,602
Proceeds from exercise of stock options and sale of stock under employee stock purchase plan 15,309 7,884 19,508

NET CASH USED IN FINANCING ACTIVITIES (254,480 ) (213,327 ) (205,067 )

EFFECT OF EXCHANGE RATE CHANGES ON CASH (17,037 ) (453 ) (19,517 )

NET CHANGE IN CASH AND CASH EQUIVALENTS 39,749 (46 ) (36,560 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 150,801 150,847 187,407

CASH AND CASH EQUIVALENTS, END OF YEAR $ 190,550 $ 150,801 $ 150,847

CASH PAID DURING THE YEAR
Interest paid $ 9,295 $ 10,011 $ 17,735

Income taxes paid $ 111,497 $ 95,139 $ 73,939

NON CASH ACTIVITIES
Assets acquired under capital leases and other long-term debt $ 576 $ 388 $ 36,048


	Year Ended December 31,
	2011			2010			2009
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	412,578		$	299,215		$	203,346
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		71,853			68,621			62,437
Excess tax benefits from share-based payment arrangements		(27,450	)		(7,728	)		(3,266	)
Share based compensation expenses		24,133			22,969			20,907
Amortization of discount and deferred financing costs		1,007			500			491
Deferred income taxes		(12,984	)		(33,313	)		(11,226	)
Unrealized foreign exchange transaction loss (gain)		9,403			(7,142	)		4,809
Write-off of deferred financing costs		914			—			—
Foreign exchange loss from adoption of highly inflationary accounting in Venezuela		—			15,131			—
Other		2,206			2,527			340
Changes in operating assets and liabilities:
Receivables		(9,687	)		(7,593	)		2,361
Inventories		(84,880	)		(31,516	)		(1,742	)
Prepaid expenses and other current assets		3,229			10,254			(7,781	)
Other assets		(13,864	)		(3,485	)		2,109
Accounts payable		15,427			6,650			(9,500	)
Royalty overrides		44,041			15,732			9,102
Accrued expenses and accrued compensation		28,749			31,092			(3,461	)
Advance sales deposits		(1,538	)		12,439			8,779
Income taxes		42,659			(8,807	)		4,700
Deferred compensation plan liability		3,535			3,538			2,651

NET CASH PROVIDED BY OPERATING ACTIVITIES		509,331			389,084			285,056

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(90,408	)		(68,125	)		(59,768	)
Proceeds from sale of property, plant and equipment		297			115			102
Deferred compensation plan assets		(1,975	)		(1,126	)		(1,656	)
Acquisition of business		—			—			(10,000	)

NET CASH USED IN INVESTING ACTIVITIES		(92,086	)		(69,136	)		(71,322	)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(85,489	)		(53,740	)		(48,721	)
Borrowings from long-term debt		914,200			427,000			211,974
Principal payments on long-term debt		(888,865	)		(499,451	)		(313,089	)
Deferred financing costs		(5,718	)		—			—
Share repurchases		(321,639	)		(160,008	)		(74,641	)
Excess tax benefits from share-based payment arrangements		27,450			7,728			3,266
Proceeds from exercise of stock options and sale of stock under employee stock purchase plan		22,262			15,309			7,884

NET CASH USED IN FINANCING ACTIVITIES		(337,799	)		(263,162	)		(213,327	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(11,221	)		(17,037	)		(453	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		68,225			39,749			(46	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		190,550			150,801			150,847

CASH AND CASH EQUIVALENTS, END OF YEAR	$	258,775		$	190,550		$	150,801

CASH PAID DURING THE YEAR
Interest paid	$	8,800		$	9,295		$	10,011

Income taxes paid	$	118,906		$	111,497		$	95,139

See the accompanying notes to consolidated financial statements.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	~~Organization~~

1. Organization

Herbalife Ltd., a Cayman Islands exempt limited liability company, or Herbalife, was incorporated on April 4, 2002. Herbalife Ltd. (and together with its subsidiaries, the “Company”) is a leading global network marketing company that sells weight management, nutritional supplements, energy, sports & fitness products and personal care products through a network of approximately ~~2.1~~2.7 million independent distributors, except in China, where the Company currently sells its products through retail stores, sales representatives, sales ~~employees~~officers and ~~licensed business~~independent service providers. The Company reports revenue in six geographic regions: North ~~America, which consists of the U.S., Canada and Jamaica;~~America; Mexico; South and Central America; EMEA, which consists of Europe, the Middle East and Africa; Asia Pacific (excluding China) ~~which consists~~; and China.

2. Basis of ~~Asia, New Zealand and Australia; and China.~~


2.	~~Basis of Presentation~~

Presentation

The Company’s consolidated financial statements refer to Herbalife and its subsidiaries.

On April 28, 2011, the Company’s shareholders approved a two-for-one stock split, or the stock split, of the Company’s common shares. One additional common share was distributed to the Company’s shareholders on or around May 17, 2011, for each common share held on May 10, 2011. All references in the financial statements and notes to number of shares and per share amounts have been retrospectively adjusted for all periods presented to reflect the stock split.

New Accounting Pronouncements

In ~~December 2010,~~September 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,~~2010-28,~~ No. 2011-08,~~Intangibles-Goodwill and Other (Topic 350): When~~Testing Goodwill for Impairment. This ASU permits an entity to ~~Perform Step 2~~make a qualitative assessment of ~~the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force)or ASU2010-28.~~ ~~ASU2010-28~~ ~~provides amendments to Accounting Standards Codification, or ASC, Topic 350,~~~~Intangibles — Goodwill and Other~~~~. Pursuant to ASU2010-28,~~ if any entity during Step 1 of a goodwill impairment test determines reporting units with zero or negative carrying amounts exist, then they should perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment ~~exists,~~test. If an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples in ASC Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that wouldconcludes it is not more likely than not ~~reduce~~that the fair value of a reporting unit ~~below~~is less than its carrying ~~amount. As~~amount, then there is no need to perform the two-step impairment test. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of this ASU will not have a ~~result,~~material impact on the Company’s consolidated financial statements, as it is intended to simplify the assessment for goodwill ~~impairments may be reported sooner~~impairment.

In June 2011, the FASB issued ASU No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU will require companies to present the components of net and comprehensive income in either one or ~~more often compared~~two consecutive financial statements and eliminates the option to ~~current practice.~~present other comprehensive income in the statement of changes in shareholders’ equity. In December 2011, the FASB issued amendments to defer certain presentation requirements of this ASU; the amendments defer the requirement where companies would have been required to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. This ASU~~2010-28~~ is effective for fiscal years and interim periods within those years, beginning after December 15, ~~2010, with early~~2011. The adoption of this ASU only impacts the presentation of the Company’s consolidated financial statements and does not ~~permitted.~~materially impact its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU expands existing disclosure requirements for fair value measurements and provides additional information on how to measure fair value. The Company ~~does not expect that the~~is required to apply this ASU prospectively for interim and annual periods beginning after December 15, 2011. The adoption of ~~ASU2010-28~~this guidance will not have a material impact on the Company’s consolidated financial statements.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Significant Accounting Policies

~~In June 2009, the FASB issued the~~

~~FASB Accounting Standards Codification~~, or the Codification, which is the single source of authoritative nongovernmental U.S. generally accepted accounting principles, or GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC reporting companies. The Codification, which changes the referencing of financial standards, became effective for interim and annual periods ending on or after September 15, 2009. All existing non-SEC accounting standards are superseded as described in the Codification. All other non-SEC accounting literature not included in the Codification is non-authoritative. The adoption of the Codification did not have a significant impact on the Company’s consolidated financial statements and references to standards issued prior to the Codification have been replaced with a description of the applicable FASB authoritative guidance or with the updated accounting standard codification number.

Consolidation Policy

The consolidated financial statements include the accounts of Herbalife Ltd. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated.

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Business Combinations

In December 2007, the FASB issued authoritative guidance relating to Business Combinations that established principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The guidance also modifies the recognition for preacquisition contingencies, such as environmental or legal issues, restructuring plans and acquired research and development value in purchase accounting. The guidance requires the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. The guidance also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. The Company adopted the guidance on January 1, 2009, which did not have a material impact on its consolidated financial statements.

During August 2009, the Company purchased certain assets of Micelle Laboratories, Inc., a Lake Forest, California contract manufacturer of food and nutritional supplements. The Company purchased the assets in order to strengthen its global manufacturing capabilities. The purchase price is not material to the Company’s consolidated financial statements and for accounting purposes the acquisition, or the Micelle Acquisition, was recorded as a business combination pursuant to FASB accounting standards codification, or ASC, 805,Business Combinations.

Foreign Currency Translation and Transactions

In the majority of the countries that the Company operates, the functional currency is the local currency. The Company’s foreign subsidiaries’ asset and liability accounts are translated for consolidated financial reporting purposes into U.S. dollar amounts at year-end exchange rates. Revenue and expense accounts are translated at the average rates during the year. Foreign exchange translation adjustments are included in accumulated other comprehensive loss on the accompanying consolidated balance sheets. Foreign currency transaction gains and losses, which include the cost of foreign currency derivative contracts and the related settlement gains and losses but excluding certain foreign currency derivatives designated as cash flow hedges as discussed in Note 11,Derivative Instruments and Hedging Activities, are included in selling, general and administrative expenses in the accompanying consolidated statements of income. The Company recorded net foreign currency transaction losses of $11.4 million, $7.3 million, ~~$7.7 million,~~ and ~~$5.7~~$7.7 million, for the years ended December 31, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, respectively, which includes the foreign exchange impact relating to the Company’s Venezuelan subsidiary, Herbalife Venezuela. Herbalife Venezuela’s foreign currency financial statement impact is discussed further below within this Note.

Forward Exchange Contracts, Option Contracts and Interest Rate Swaps

The Company enters into foreign currency derivative instruments such as forward exchange contracts and option contracts in managing its foreign exchange risk on sales to distributors, purchase commitments denominated in foreign currencies, intercompany transactions and bank loans. The Company also enters into interest rate swaps in managing its interest rate risk on its variable rate ~~term loan.~~credit facility. The Company does not use the contracts for trading purposes.

In accordance with FASB ASC Topic 815,Derivatives and Hedging, or ASC 815, the Company designates certain of its derivative instruments as cash flow hedges and formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction, at the time the derivative contract is executed. The Company assesses the effectiveness of the hedge both at inception and on an ongoing basis and determines whether the hedge is highly or perfectly effective in offsetting changes in cash flows of the hedged item. The Company records the effective portion of changes in the estimated fair value in accumulated other comprehensive income (loss) and subsequently reclassifies the related amount of accumulated other comprehensive income (loss) to earnings when the hedged item and underlying transaction impacts earnings. If it is determined that a derivative

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

has ceased to be a highly effective hedge, the Company will discontinue hedge accounting for such transaction. For derivatives that are not designated as hedges, all changes in estimated fair value are recognized in the consolidated statements of income.

~~100~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

On January 1, 2009, the Company adopted FASB authoritative guidance that requires additional financial statement disclosures on derivative instruments as required by ASC 815. This adoption did not have any financial impact on the Company’s consolidated financial statements and only required additional financial statement disclosures on derivative instruments. The Company has applied the requirements of this standard on a prospective basis as disclosed in Note 11,~~Derivative Instruments and Hedging Activities~~~~. Accordingly, disclosures related to annual periods prior to the date of adoption have not been presented.~~

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of ~~money market accounts and~~ foreign and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.

~~In May 2010,~~

During 2011, the ~~FASB issued ASU2010-19~~~~, Foreign Currency Issues: Multiple Foreign Currency Exchange Rates~~~~, or ASU2010-19,~~ ~~which codifies~~Company entered into a cash pooling arrangement with a financial institution for cash management purposes. This cash pooling arrangement allows certain of the ~~SEC staff announcement made~~Company’s participating foreign locations to withdraw cash from this financial institution to the extent aggregate cash deposits held by its participating locations are available at the ~~March 18, 2010, Emerging Issues Task Force meeting. ASU2010-19~~ ~~provides~~financial institution. To the ~~SEC staff’s view~~extent any participating location on ~~certain foreign currency issues relating to investments~~an individual basis is in ~~Venezuela. ASU2010-19~~ ~~became effective on March 18, 2010. The Company has adopted this guidance. During fiscal year 2009, due to the difference between the foreign currency remeasurement rate~~an overdraft position, these overdrafts will be recorded as liabilities and ~~translation rate relating to Herbalife Venezuela, the cash and cash equivalents reported on~~reflected as financing activities in the Company’s consolidated balance sheet atand consolidated statement of cash flows, respectively. As of December 31, ~~2009, was $9.9 million greater than~~2011, the ~~U.S. dollar amount residing in Herbalife Venezuela’s U.S. dollar bank account and therefore~~Company did not ~~necessarily reflect the true purchasing power of the U.S. dollar cash and cash equivalents. Herbalife Venezuela’s~~owe any amounts to this financial ~~statement impact relating to the Company’s reported consolidated cash and cash equivalents and its foreign exchange transactions is discussed further below within this Note.~~

institution.

Accounts Receivable

Accounts receivable consist principally of receivables from credit card companies, arising from the sale of products to the Company’s distributors, and receivables from importers, who are utilized in a limited number of countries to sell products to distributors. Due to the geographic dispersion of its credit card receivables, the collection risk is not considered to be significant. The receivables from credit card companies were ~~$51.4~~$65.1 million and ~~$43.4~~$51.4 million as of December 31, ~~2010~~2011 and ~~2009,~~2010, respectively. Substantially all of the receivables from credit card companies were current as of December 31, ~~2010~~2011 and ~~2009.~~2010. Although receivables from importers can be significant, the Company performs ongoing credit evaluations of its importers and maintains an allowance for potential credit losses. The Company considers customer credit-worthiness, past and current transaction history with the customer, contractual terms, current economic industry trends, and changes in customer payment terms when determining whether collectibility is reasonably assured and whether to record allowances for its receivables. If the financial condition of the Company’s customers deteriorates and adversely affects their ability to make payments, additional allowances will be recorded. The Company believes that it provides adequate allowances for receivables from its distributors and importers which are not material to its consolidated financial statements. As of December 31, ~~2010,~~2011, the majority of the Company’s total outstanding accounts receivable were current.

Fair Value of Financial Instruments

~~Effective January 1, 2008,~~

The Company applies the ~~Company adopted~~provisions of FASB authoritative guidance as it applies to the nonfinancial assets and nonfinancial liabilities. The FASB authoritative guidance clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. As disclosed in Note ~~14,~~13,Fair Value Measurements,the Company has properly measured and disclosed its financial instruments.

~~101~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The Company has estimated the fair value of its financial instruments using the following methods and assumptions:

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturities of these instruments;

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of option and forward contracts are based on dealer quotes; and


	•	~~The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturities of these instruments;~~

	•	~~The fair value of option and forward contracts are based on dealer quotes; and~~

	•	The carrying values of the Company’s variable rate debt instruments are considered to approximate their fair values because interest rates of those instruments approximate current rates offered to the Company.

The carrying values of the Company’s variable rate debt instruments are considered to approximate their fair values because interest rates of those instruments approximate current rates offered to the Company.

Inventories

Inventories are stated at lower of cost ~~(on~~(primarily on thefirst-in, first-out basis) or market. ~~The Company had reserves for obsolete and slow moving inventory totaling $9.4 million and $9.3 million as of December 31, 2010 and 2009, respectively.~~

Deferred Financing Costs

Deferred financing costs represent fees and expenses related to the borrowing of the Company’s long-term debt and are amortized ~~under the effective interest method~~ over the term of the related debt.

Long-Lived Assets

Depreciation of furniture, fixtures, and equipment (includes computer hardware and software) is computed on a straight-line basis over the estimated useful lives of the related assets, which range from three to ten years. Leasehold improvements are amortized on a straight-line basis over the life of the related asset or the term of the lease, whichever is shorter. Depreciation of furniture, fixtures, equipment, and amortization of leasehold improvements recorded to selling, general and administrative expenses totaled $68.9 million, $67.7 million, ~~$62.2 million,~~ and ~~$48.7~~$62.2 million, for the years ended December 31, 2011, 2010 and 2009, ~~and 2008,~~ respectively.

Long-lived assets are reviewed for impairment, based on undiscounted cash flows, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss is based on the estimated fair value of the asset.

Goodwill and marketing related intangible assets with indefinite lives are evaluated on an annual basis for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired. During the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, there were no goodwill or marketing related intangible asset impairments. At December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, the marketing related intangible asset balance was $310.0 million. As of December 31, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, the goodwill balance was $105.5 million, $102.9 million, and $102.5 million, ~~and $110.7~~respectively. The $2.6 million ~~respectively.~~increase in goodwill in 2011 from 2010 was primarily due to the acquisition of iChange Network, Inc., a privately held software company, where the purchase price was not material to the Company’s consolidated financial statements. The $0.4 million increase in goodwill in 2010 from 2009 was primarily due to the effect of an adjustment to the fair value of inventory acquired in the Micelle Acquisition. The $8.2 million net decrease in goodwill in 2009 from 2008 was primarily due to a $12.1 million decrease related to a change in deferred tax liability, partially offset by a $3.9 million increase related to the Micelle Acquisition.

Intangible assets with finite lives are amortized over their expected lives, ~~which~~and are ~~two years for product certifications, three years for~~expected to be fully amortized over the ~~distributor network and non-compete agreements,~~next five ~~years for product formulas and seven years for customer relationships. At~~years. As of December 31, ~~2008,~~2011, the Company’s intangible assets with finite lives ~~had been fully amortized. During fiscal year~~increased to $1.7 million, net of $0.6 million amortization, due to the iChange Network acquisition. As of December 31, 2010, the Company’s intangible assets with finite lives decreased to $0.8 million. As of December 31, 2009, the Company’s intangible assets with finite lives increased to $1.7 million, net of $0.2 million amortization, due to the Micelle Acquisition. ~~As of December 31, 2010, the Company’s intangible assets with finite lives decreased to $0.8 million.~~ The annual amortization expense for finite life intangibles was $0.6 million, $0.9 million, and $0.2 million ~~and zero~~ for the years ended December 31, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, respectively. At December 31, ~~2010,~~2011, the annual expected amortization expense is as follows: ~~2011~~2012 — $0.6 million; 2013 — $0.4 million; ~~2012~~2014 — ~~$0.2~~$0.3 million; ~~2013~~2015 — $0.3 million; and 2016 — $0.1 ~~million; and 2014 — $0.1~~ million.

~~102~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income Taxes

Income tax expense includes income taxes payable for the current year and the change in deferred income tax assets and liabilities for the future tax consequences of events that have been recognized in the Company’s financial statements or income tax returns. A valuation allowance is recognized to reduce the carrying value of deferred income tax assets if it is believed to be more likely than not that a component of the deferred income tax assets will not be realized.

The Company accounts for uncertainty in income taxes in accordance with FASB authoritative guidance which clarifies the accounting and reporting for uncertainties in income taxes recognized in an enterprise’s financial statements. This guidance prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. See Note 12,Income Taxes,for further discussion on income taxes.

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 reduces income taxes payable or increases income taxes 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.

This change in accounting principle is applied to all periods presented and the following tables summarize the impact of this change on the Company’s consolidated financial statements:

Consolidated Balance Sheet


	December 31, 2010
	As Previously Reported		As Adjusted
	(In thousands)
Paid-in capital in excess of par value	$	257,375	$	248,693
Retained earnings	$	257,004	$	265,686

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidated Statements of Income


	Year Ended December 31, 2010
	As Previously Reported		As Adjusted
	(In thousands, except per share amount)
Income taxes	$	89,562	$	80,880
Net income	$	290,533	$	299,215
Basic earnings per share(1)	$	2.44	$	2.51
Diluted earnings per share(1)	$	2.33	$	2.37

(1)	Basic and diluted earnings per share, as previously reported, for the year ended December 31, 2010, have also been adjusted to reflect the stock split.

Common Share Amounts Used to Compute Basic and Diluted Earnings Per Share


	Year Ended December 31, 2010
	As Previously Reported (1)		As Adjusted
	(In thousands)
Weighted average shares used in basic computations		119,004		119,004
Dilutive effect of exercise of equity grants outstanding		5,076		7,059
Dilutive effect of warrants		432		432

Weighted average shares used in diluted computations		124,512		126,495

(1)	Basic and diluted weighted shares outstanding, as previously reported, for the year ended December 31, 2010, have been adjusted to reflect the stock split.

Consolidated Statement of Changes in Shareholders’ Equity and Comprehensive Income


	Year Ended December 31, 2010
	As Previously Reported		As Adjusted
	(In thousands)
Paid-in Capital in Excess of Par Value
Excess tax benefit from exercise of stock options, SARs and restricted stock grants	$	16,727	$	8,045
Balance at December 31, 2010	$	257,375	$	248,693
Retained Earnings
Net income	$	290,533	$	299,215
Balance at December 31, 2010	$	257,004	$	265,686
Comprehensive Income
Net income	$	290,533	$	299,215
Total comprehensive income	$	286,644	$	295,326

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidated Statement of Cash Flows


	Year Ended December 31, 2010
	As Previously Reported			As Adjusted
	(In thousands)
Net income	$	290,533		$	299,215
Excess tax benefits from share-based payment arrangements	$	(16,410	)	$	(7,728	)
Deferred income taxes	$	(24,631	)	$	(33,313	)
Net cash provided by operating activities	$	380,402		$	389,084
Excess tax benefits from share-based payment arrangements	$	16,410		$	7,728
Net cash used in financing activities	$	(254,480	)	$	(263,162	)

If the Company had not changed from the prior tax law ordering method of accounting for excess tax benefits in the second quarter of fiscal year 2011, income taxes, net income and earnings per share would have been reflected as noted below:

Consolidated Statements of Income


	Year Ended December 31, 2011
	As Computed Under Prior Method
	(In thousands, except per share amount)
Income taxes	$	159,083
Net income	$	400,696
Basic earnings per share	$	3.41
Diluted earnings per share	$	3.25

Royalty Overrides

An independent distributor may earn commissions, called royalty overrides or production bonuses, based on retail volume. Such commissions are based on the retail sales volume of certain other members of the independent sales force who are sponsored by the distributor. In addition, such commissions are recorded when the products are shipped and revenue is recognized.Non-U.S. royalty checks that have aged, for a variety of reasons, beyond a certainty of being paid, are taken back into income. Management has estimated this period of certainty to be three years worldwide.

Comprehensive Income

Comprehensive income consists of net earnings, foreign currency translation adjustments and the effective portion of the unrealized gains or losses on derivatives. Comprehensive income is presented in the consolidated statements of shareholders’ equity and comprehensive income.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Components of accumulated other comprehensive income (loss) consisted of the following (in thousands):

December 31,
2010 2009 2008

Foreign currency translation adjustment $ (21,852 ) $ (22,435 ) $ (27,683 )
Unrealized loss on derivatives, net of tax (5,433 ) (961 ) (931 )

Total accumulated other comprehensive income (loss) $ (27,285 ) $ (23,396 ) $ (28,614 )


	December 31,
	2011			2010			2009
Foreign currency translation adjustment, net of tax	$	(38,609	)	$	(21,852	)	$	(22,435	)
Unrealized loss on derivatives, net of tax		800			(5,433	)		(961	)

Total accumulated other comprehensive income (loss)	$	(37,809	)	$	(27,285	)	$	(23,396	)

Operating Leases

The Company leases all of its physical properties under operating leases. Certain lease agreements generally include rent holidays and tenant improvement allowances. The Company recognizes rent holiday periods on a straight-line basis over the lease term beginning when the Company has the right to the leased space. The Company also records tenant improvement allowances and rent holidays as deferred rent liabilities and amortizes the deferred rent over the terms of the lease to rent.

Research and Development

The Company’s research and development is performed by in-house staff and outside consultants. For all periods presented, research and development costs were expensed as incurred and were not material.

~~103~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Earnings Per Share

Basic earnings per share represents net income for the period common shares were outstanding, divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share represents net income divided by the weighted average number of common shares outstanding, inclusive of the effect of dilutive securities such as outstanding stock options, ~~stock appreciation rights,~~SARs, stock units and warrants.

The following are the common share amounts used to compute the basic and diluted earnings per share for each period (in thousands):

Year Ended December 31,
2010 2009 2008

Weighted average shares used in basic computations 59,502 61,221 63,785
Dilutive effect of exercise of equity grants outstanding 2,538 1,734 1,803
Dilutive effect of warrants(1) 216 142 181

Weighted average shares used in diluted computations 62,256 63,097 65,769


	Year Ended December 31,
	2011		2010		2009
Weighted average shares used in basic computations		117,540		119,004		122,442
Dilutive effect of exercise of equity grants outstanding		7,046		7,059		3,468
Dilutive effect of warrants(1)		260		432		284

Weighted average shares used in diluted computations		124,846		126,495		126,194


(1)		At December 31, ~~2010,~~2011, the Company had 0.5 million warrants outstanding, with an exercise price of ~~$15.50,~~$7.75, which will expire on December 1, 2014.

There were an aggregate of ~~0.8~~2.1 million, ~~2.8~~1.5 million and ~~2.3~~5.6 million of equity grants, consisting of stock options, ~~stock appreciation rights,~~SARs, and stock units that were outstanding during the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, respectively, but were not included in the computation of diluted earnings per share because their effect would be anti-dilutive.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

Revenue is recognized when products are shipped and title and risk of loss passes to the independent distributor or importer. Sales are recognized on a net sales basis, which reflects product returns, net of discounts referred to as “distributor allowances,” and amounts billed for shipping and handling costs. Shipping and handling costs paid by the Company are included in cost of sales. The Company generally receives the net sales price in cash or through credit card payments at the point of sale. The Company currently presents sales taxes collected from customers on a net basis. Related royalty overrides are recorded when revenue is recognized.

Allowances for product returns, primarily in connection with the Company’s buyback program, are provided at the time the sale is recorded. 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.

Share-Based Payments

The Company accounts for share-based compensation in accordance with FASB authoritative guidance which requires the measurement of share-based compensation expense for all share-based payment awards made to employees for service. The Company measures share-based compensation cost at the grant date, based on the fair value of the award, and recognizes the expense on a straight-line basis over the employee’s requisite service period.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company

~~104~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which the Company believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, and foreign currency have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Currency Restrictions in Venezuela

Currency restrictions enacted by the Venezuelan government in 2003 have become more restrictive and have impacted the ability of the Company’s subsidiary in Venezuela, Herbalife Venezuela, to obtain U.S. dollars in exchange for Venezuelan Bolivars, or Bolivars, at the official foreign exchange rates from the Venezuelan government and its foreign exchange commission, CADIVI. The application and approval processes have been intermittently delayed and the timing and ability to obtain U.S. dollars at the official exchange rates remains uncertain. In certain instances, the Company has made appropriate applications through CADIVI for approval to obtain U.S. dollars so that Herbalife Venezuela can pay for imported products and an annual dividend at the official exchange rate. As an alternative exchange mechanism, the Company has also participated in certain bond offerings from the Venezuelan government and from Petróleos de Venezuela, S.A. or PDVSA, a Venezuelan state-owned petroleum company, where the Company effectively purchased bonds with its Bolivars and then sold

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the bonds for U.S. dollars. In other instances, the Company has also used aalternative legal exchange mechanisms for currency exchanges, such as the legal parallel market mechanism ~~for currency exchanges until this less favorable parallel market~~which is discussed below and was discontinued in May 2010.

Although Venezuela is an important market in the Company’s South and Central America Region, Herbalife Venezuela’s net sales represented less than 2%, 4%2% and 4% of the Company’s consolidated net sales for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, respectively, and its total assets represented less than 3% ~~and 6%~~ of the Company’s consolidated total assets as of both December 31, ~~2010~~2011 and ~~2009, respectively.~~

2010.

Pre-Highly Inflationary Economy in Venezuela and Herbalife Venezuela’s Cash and Cash Equivalents at December 31, 2009

During the fourth quarter of 2009, due to the currency restrictions in obtaining U.S. dollars at the official currency exchange rate and in order to mitigate the Company’s currency exchange risk in Venezuela, Herbalife Venezuela entered into a series of parallel market transactions and exchanged 105.0 million Bolivars for approximately $19.5 million U.S. dollars at an average rate of approximately 5.4 Bolivars per U.S. dollar. Also, during the fourth quarter of 2009, Herbalife Venezuela settled $13.6 million of its U.S. dollar denominated non-CADIVI registered intercompany shipment payables that were initially recorded and then subsequently remeasured at the parallel market exchange rate. ~~Therefore, the~~The settlement of these intercompany shipment payables did not result in any net foreign exchange gains or losses recorded in the accompanying consolidated statement of income for the year ended December 31, 2009. Incremental costs of $18.8 million, related to the importation of products into Venezuela at the unfavorable parallel market exchange rate, were recorded in costs of sales in the Company’s consolidated statement of income for the year ended December 31, 2009.

~~105~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

As of December 31, 2009, Herbalife Venezuela’s $5.9 million U.S. dollar cash and cash equivalents residing in its U.S. dollar bank account were remeasured to Bolivars at the parallel market exchange rate of approximately 5.9 Bolivars per U.S. dollar. These remeasured cash and cash equivalents were translated at the official rate of 2.15 Bolivars per U.S. dollar and reported as $15.8 million in the Company’s consolidated balance sheet at December 31, 2009. Based on the Company’s specific facts and circumstances, U.S. GAAP required the Company to use the dividend remittance rate (the official exchange rate) for translation purposes and the parallel market exchange rate (the applicable rate at which a particular transaction could be settled), for certain remeasurement purposes. Due to the difference between the remeasurement rate and translation rate, the cash and cash equivalents relating to Herbalife Venezuela reported on the Company’s consolidated balance sheet at December 31, 2009, was $9.9 million greater than the U.S. dollar amount residing in Herbalife Venezuela’s U.S. dollar bank account and therefore did not necessarily reflect the true purchasing power of the reported U.S. dollar cash and cash equivalents. At December 31, 2009, Herbalife Venezuela reported cash and cash equivalents of approximately $34.2 million, of which $15.8 million was denominated in U.S. dollars and $18.4 million was denominated in Bolivars. The cash and cash equivalents were translated into the consolidated financial statements at the official exchange rate, which was the rate applicable for dividend remittance.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Highly Inflationary Economy and Accounting in Venezuela

Venezuela’s inflation rate as measured using the blended National Consumer Price Index and Consumer Price Index rate exceeded a three-year cumulative inflation rate of 100% as of December 31, 2009. Accordingly, effective January 1, 2010, Venezuela was considered a highly inflationary economy. Pursuant to the highly inflationary basis of accounting under U.S. GAAP, Herbalife Venezuela changed its functional currency from the Bolivar to the U.S. dollar. Subsequent movements in the Bolivar to U.S. dollar exchange rate will impact the Company’s consolidated earnings. Prior to January 1, 2010 when the Bolivar was the functional currency, movements in the Bolivar to U.S. dollar were recorded as a component of equity through other comprehensive income. Pursuant to highly inflationary accounting rules, the Company is no longer ~~required to translate~~translates Herbalife Venezuela’s financial statements ~~since their~~as its functional currency is ~~now~~ the U.S. dollar.

Based on relevant facts and circumstances at the applicable times, under the highly inflationary basis of accounting, the Company used the parallel market exchange rate for remeasurement purposes until the parallel market was discontinued in May 2010. On January 1, 2010, in connection with the determination that Venezuela was a highly inflationary economy, the Company remeasured Herbalife Venezuela’s opening balance sheet’s monetary assets and liabilities at the parallel market rate ~~which resulted in the Company recording~~and recorded a non-tax deductible foreign exchange loss of $15.1 million. This charge included the $9.9 million foreign exchange loss ~~relating~~related to Herbalife Venezuela’s U.S. dollar cash and cash equivalents that were remeasured at the parallel market rate and then translated at the official rate at December 31, 2009. Also, Herbalife Venezuela’s $34.2 million cash and cash equivalents reported in the Company’s consolidated balance sheet at December 31, 2009, which included U.S. dollar denominated cash, ~~was~~were reduced to approximately $12.5 million on January 1, 2010. However, nonmonetary assets, such as inventory, reported on the Company’s consolidated balance sheet at December 31, 2009, remained at historical cost subsequent to Venezuela becoming a highly inflationary economy. Therefore, the incremental costs related to the Company’s 2009 imported products recorded at the parallel market exchange rate negatively impacted the Company’s consolidated statement of income for the year ended December 31, 2010 by approximately $12.7 million as these products were sold during the first quarter of 2010. This amount is not tax deductible. See Note 12,Income Taxes,for additional discussion on the income tax impact related to Venezuela becoming a highly inflationary economy.

Official Exchange Rate Devaluations in Venezuela in 2011 and 2010

~~106~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

exchange rate for remeasurement purposes until the parallel market was discontinued in May 2010 and then used the SITME rate thereafter, any U.S. dollars obtained from CADIVI at the official rate had a positive impact to the Company’s consolidated net earnings. Specifically, the Company recorded $5.8 million of foreign exchange gains to selling, general and administrative expenses within the Company’s consolidated statement of income for the year ended December 31, 2010, as a result of receiving U.S. dollars approved by CADIVI at the official exchange rate. The majority of Herbalife Venezuela’s 2010 importations were not registered with CADIVI so the official exchange rates ~~are~~were not available to pay for these U.S. imports. As of December 31, 2010, Herbalife Venezuela also ~~has~~had an outstanding intercompany dividend payable to the Company of $2.5 million, which was declared in December 2008 and registered with ~~CADIVI. The request to obtain U.S. dollars at the official rate to settle the~~CADIVI and still remains outstanding ~~intercompany dividend payable is pending CADIVI’s approval.~~as of December 31, 2011. Also, at December 31, 2010, Herbalife Venezuela had outstanding intercompany shipment payable balances of $2.6 million, primarily relating to 2010, which ~~are~~were registered with CADIVI and ~~are~~were pending CADIVI’s approval.

As of December 31, 2011, $0.1 million outstanding intercompany shipment payable balances were registered with CADIVI and pending their approval.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Remeasurement of Herbalife Venezuela’s Monetary Assets and Liabilities at December 31, 2011 and 2010

During the second quarter of 2010, the Company recorded a $4.0 million pre-tax ($2.6 million post-tax) net foreign exchange gain to selling, general and administrative expenses, within the Company’s consolidated statement of income, as a result of remeasuring its Bolivar denominated monetary assets and liabilities as of June 30, 2010 at the SITME rate of 5.3 Bolivars per U.S. dollar as opposed to the last parallel market rate prior to the closure of the parallel market in May 2010 of 8.3 Bolivars per U.S. dollar. Herbalife Venezuela’s cash and cash equivalents, primarily denominated in Bolivars, increased by $5.2 million as a result of using the SITME rate as opposed to the last quoted parallel market rate during the second quarter of 2010. During the third quarter of 2010 and thereafter, the Company continued to use the SITME rate of 5.3 Bolivars per U.S. dollar to remeasure its Bolivar denominated transactions. As of December 31, 2010, the majority of Herbalife Venezuela’s net monetary Bolivar denominated assets and liabilities approximated $19.4 million which included Bolivar denominated cash and cash equivalents approximating $24.6 million, and were all remeasured at the ~~new regulated rate under~~SITME rate.

As of December 31, 2011, Herbalife Venezuela’s net monetary assets and liabilities denominated in Bolivars was approximately $26.8 million, and included approximately $34.8 million in Bolivar denominated cash and cash equivalents. The majority of these Bolivar denominated assets and liabilities were remeasured at the SITME rate as of December 31, 2011. While the Company continues to monitor the new exchange mechanism and restrictions under SITME, there is no assurance that the Company will be able to exchange Bolivars into U.S. dollars on a timely basis. Therefore, these remeasured amounts, including cash and cash equivalents, being reported on the Company’s consolidated balance sheet using the SITME rate may not accurately represent the amount of U.S. dollars that the Company could ultimately realize.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidation of Herbalife Venezuela

The Company plans to continue its operation in Venezuela and to import products into Venezuela despite the foreign currency constraints that exist in the country. Herbalife Venezuela will continue to apply for legal exchange mechanisms to convert its Bolivars to U.S. dollars. Despite the currency exchange restrictions in Venezuela, the Company continues to control Herbalife Venezuela and its operations. The mere existence of the exchange restrictions discussed above does not in and of itself create a presumption that this lack of exchangeability isother-than-temporary, nor does it create a presumption that an entity should deconsolidate its Venezuelan operations. Therefore, the Company continues to consolidate Herbalife Venezuela in its consolidated financial

~~107~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

statements for U.S. GAAP purposes. ~~Substantially all~~The majority of Herbalife Venezuela’s Bolivar denominated assets and liabilities are currently being remeasured at the SITME rate. ~~See Note 15,~~~~Subsequent Events~~~~, for further information on Herbalife Venezuela.~~


3.	~~Inventories~~

3. Inventories

Inventories consist primarily of finished goods available for resale and can be categorized as follows (in millions):

December 31,
2010 2009

Weight Management, Targeted Nutrition and Energy, Sports and Fitness $ 159.4 $ 123.6
Outer Nutrition 9.7 11.4
Literature, Promotional and Others 13.4 11.0

Total $ 182.5 $ 146.0


	December 31,
	2011		2010
Weight Management, Targeted Nutrition and Energy, Sports and Fitness	$	223.5	$	159.4
Outer Nutrition		11.1		9.7
Literature, Promotional and Others		13.1		13.4

Total	$	247.7	$	182.5

The following are the major classes of inventory (in millions):

December 31,
2010 2009

Raw materials $ 13.7 $ 5.5
Work in process 0.6 0.1
Finished goods 168.2 140.4

Total $ 182.5 $ 146.0

~~Total inventories are presented net of the reserves for obsolete and slow moving inventory of $9.4 million and $9.3 million at December 31, 2010 and 2009, respectively.~~


4.	~~Long-Term Debt~~


	December 31,
	2011		2010
Raw materials	$	21.7	$	13.7
Work in process		2.5		0.6
Finished goods		223.5		168.2

Total	$	247.7	$	182.5

4. Long-Term Debt

Long-term debt consists of the following (in millions):

December 31,
2010 2009

Borrowings under senior credit facility $ 174.9 $ 236.4
Capital leases 2.9 4.8
Other debt 0.3 9.1

178.1 250.3
Less: current portion 3.1 12.4

Long-term portion $ 175.0 $ 237.9

~~Interest expense was $9.7 million, $9.6 million, and $20.1 million, for the years ended December 31, 2010, 2009 and 2008, respectively.~~


	December 31,
	2011		2010
Borrowings under prior senior secured credit facility	$	—	$	174.9
Borrowings under the new senior secured revolving credit facility		202.0		—
Capital leases		1.4		2.9
Other debt		0.2		0.3

		203.6		178.1
Less: current portion		1.5		3.1

Long-term portion	$	202.1	$	175.0

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On July 21, 2006, the Company entered into a $300.0 million senior secured credit facility, or the Prior 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. In September 2007, the Company and its lenders amended the credit agreement, increasing the amount of the revolving credit facility by an aggregate principal amount of $150.0 million to $250.0 million primarily to finance the increase in ~~its~~the Company’s share repurchase program. See Note 8,Shareholders’ Equity, for further discussion of the share repurchase program and the share repurchase amounts during the years ended December 31, 2011, 2010 ~~2009~~ and

~~108~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~2008.~~ 2009. The term loan ~~bears~~bore 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~~bore interest at LIBOR plus a margin of 1.25%, or the base rate plus a margin of 0.25%.

On March 9, 2011, the Company entered into a $700.0 million senior secured revolving credit facility, or the New Credit Facility, with a syndicate of financial institutions as lenders and terminated its Prior Credit Facility. The New Credit Facility has a five year maturity and expires on March 9, 2016. During March 2011, U.S. dollar borrowings under the New Credit Facility incurred interest at the base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%. After March 2011, based on the Company’s consolidated leverage ratio, U.S. dollar borrowings under the New Credit Facility bear interest at either LIBOR plus the applicable margin between 1.50% and 2.50% or the base rate plus the applicable margin between 0.50% and 1.50%. The Company, based on its consolidated leverage ratio, pays a commitment fee between 0.25% and 0.50% per annum on the unused portion of the New Credit Facility. The New Credit Facility also permits the Company to borrow limited amounts in Mexican Peso and Euro currencies based on variable rates. The base rate under the New Credit Facility represents the highest of the Federal Funds Rate plus 0.50%, one-month LIBOR plus 1.00%, and ~~is available until July 21, 2012. On December 31, 2010, and December 31, 2009,~~ the ~~weighted average interest~~prime rate ~~for~~offered by Bank of America.

In March 2011, the ~~senior secured credit facility was 1.75% and 1.66%, respectively.~~Company used $196.0 million in U.S. dollar borrowings under the New Credit Facility to repay all amounts outstanding under the Prior Credit Facility. The Company incurred approximately ~~$2.3~~$5.7 million of debt issuance costs in connection with ~~entering into~~ the ~~senior secured credit facility in July 2006, which~~New Credit Facility. These debt issuance costs were recorded as deferred financing costs on the Company’s consolidated balance sheet and are being amortized over the term of the ~~senior secured credit facility.~~ New Credit Facility. On December 31, 2011 and 2010, the weighted average interest rate for borrowings under the New Credit Facility and the Prior Credit Facility was 1.89% and 1.75%, respectively.

The ~~fair value of the Company’s senior secured credit facility approximates its carrying value.~~

~~The senior secured credit facility~~New Credit Facility requires the Company to comply with a leverage ratio and an interest coverage ratio. In addition, the ~~senior secured credit facility~~New Credit Facility contains customary covenants, including covenants that limit or restrict the Company’s ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, pay dividends, repurchase its common shares, merge or consolidate and enter into certain transactions with affiliates. The Prior Credit Facility also required the Company to comply with a leverage ratio and an interest coverage ratio. The Prior Credit Facility also contained customary covenants, including covenants that limited or restricted the Company’s ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. As of December 31, ~~2010~~2011 and ~~2009,~~2010, the Company was compliant with its debt ~~covenants.~~

~~As of December 31, 2010,~~covenants under the New Credit Facility and Prior Credit Facility, respectively.

During 2011, the Company ~~was obligated to pay approximately $0.4~~borrowed $859.7 million and $54.0 million under the New Credit Facility and Prior Credit Facility, respectively, and paid a total of $657.7 million and $228.9 million of the ~~term loan every quarter until June 30, 2013,~~New Credit Facility and ~~the remaining principal on July 21, 2013. As of December 31, 2010 and 2009, the amounts outstanding under the term loan were $143.9 million and $145.4 million,~~Prior Credit Facility, respectively.

During 2010, the Company borrowed an aggregate amount of $427.0 million and paid a total amount of $487.0 million of the ~~revolving credit facility.~~Prior Credit Facility. During 2009, the Company borrowed an aggregate amount of $212.0 million and paid a total amount of $298.7 million of the ~~revolving credit facility. During 2008,~~Prior Credit Facility. As of December 31, 2011, the ~~Company borrowed an aggregate~~U.S. dollar amount outstanding under the New Credit Facility was $202.0 million. There were no outstanding foreign currency borrowings as of ~~$118.0 million and paid a total amount of $149.0 million of~~December 31, 2011 under the ~~revolving credit facility.~~New Credit Facility. As of December 31, 2010, ~~and 2009,~~ the amounts outstanding under the Prior Credit Facility, consisting of a term loan and revolving credit facility, were $143.9 million and $31.0 million, ~~and $91.0 million,~~ respectively.

~~Annual~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

There are no annual scheduled principal payments under the Company’s ~~senior credit facility are: $1.5~~New Credit Facility. All borrowings against the New Credit Facility must be repaid prior to its termination in March 2016.

Interest expense was $9.9 million, ~~$32.5~~$9.7 million, and ~~$140.9~~$9.6 million, for the years ended December 31, 2011, ~~2012~~2010 and ~~2013,~~2009, respectively. ~~See Note 5,~~Interest expense for the year ended December 31, 2011 included a $0.9 million write-off of unamortized deferred financing costs resulting from the extinguishment of the Prior Credit Facility, as discussed above.

5. Lease obligations~~, for payments due under capital leases and operating leases.~~


5.	~~Lease obligations~~

The Company has warehouse, office, furniture, fixtures and equipment leases, which expire at various dates through ~~2020.~~2021. Under the lease agreements, the Company is also obligated to pay property taxes, insurance and maintenance costs.

Certain leases contain renewal options. Future minimum rental commitments for non-cancelable operating leases and capital leases at December 31, ~~2010,~~2011, were as follows (in millions):

Operating Capital

2011 $ 39.0 $ 1.6
2012 32.2 1.5
2013 26.0 —
2014 21.4 —
2015 18.2 —
Thereafter 24.7 —

Total $ 161.5 3.1

Less: amounts included above representing interest (0.2 )

Present value of net minimum lease payments $ 2.9


	Operating		Capital
2012	$	42.9	$	1.4
2013		34.5		—
2014		26.9		—
2015		22.3		—
2016		12.7		—
Thereafter		23.8		—

Total	$	163.1	$	1.4

Less: amounts included above representing interest				—

Present value of net minimum lease payments			$	1.4

Rental expense for the years ended December 31, 2011, 2010 and 2009, ~~and 2008,~~ was $49.2 million, $43.5 million, and $39.7 million, ~~and $40.8 million,~~ respectively.

~~109~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Property, plant and equipment under capital leases is included in property, plant and equipment on the accompanying consolidated balance sheets as follows (in millions):

December 31,
2010 2009

Equipment $ 10.7 $ 15.8
Less: accumulated depreciation (8.8 ) (12.2 )

Total $ 1.9 $ 3.6


6.	~~Employee compensation plans~~


	December 31,
	2011			2010
Equipment	$	10.6		$	10.7
Less: accumulated depreciation		(9.7	)		(8.8	)

Total	$	0.9		$	1.9

6. Employee compensation plans

The Company maintains a profit sharing plan pursuant to Sections 401(a) and (k) of the Internal Revenue Code of 1986, as amended, or the Code. The plan is available to substantially all employees who meet the length of service requirements. Prior to January 1, 2009, employees could elect to contribute between 2% to 17% of their compensation, and the Company would make matching contributions in an amount equal to one dollar for

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

each dollar of deferred earnings not to exceed 3% of the participants’ earnings. Participants partially vested in the Company contributions after one year and fully vested after five years. Effective January 1, 2009, the Company amended its profit sharing plan. Starting January 1, 2009, employees may elect to contribute up to 75% of their compensation; however, contributions are limited to a maximum annual amount as set periodically by the Code. The Company will make matching contributions in an amount equal to one dollar for each dollar of deferred earnings up to the first 1%, and then make matching contributions in an amount equal to 50% of one dollar for each dollar on the subsequent 5% of deferred earnings. The contributions become fully vested after two years. The Company contributed $2.5 million, $2.3 million, ~~$2.2 million,~~ and ~~$2.0~~$2.2 million, to its profit sharing plan during the years ended December 31, 2011, 2010, and 2009, ~~and 2008,~~ respectively.

The Company has non-qualified deferred compensation plans for select groups of management: the Herbalife Management Deferred Compensation Plan and the Herbalife Senior Executive Deferred Compensation Plan. The deferred compensation plans allow eligible employees to elect annually to defer up to 75% of their base annual salary and up to 100% of their annual bonus for each calendar year, or the Annual Deferral Amount. The Company makes matching contributions on behalf of each participant in the Senior Executive Deferred Compensation Plan. The Senior Executive Deferred Compensation Plan provides that the amount of the matching contributions is to be determined by the Company at its discretion. For 2009, ~~and 2008,~~ the matching contribution was 3% of a participant’s base salary. In 2010 and 2011, the Company’s matching contribution was ~~increased to~~ 3.5% ~~to align~~which aligns with the 401(k) retirement plan match.

Each participant in either of the non-qualified deferred compensation plans discussed above has, at all times, a fully vested and non-forfeitable interest in each year’s contribution, including interest credited thereto, and in any Company matching contributions, if applicable. In connection with a participant’s election to defer an Annual Deferral Amount, the participant may also elect to receive a short-term payout, equal to the Annual Deferral Amount plus interest. Such amount is payable in two or more years from the first day of the year in which the Annual Deferral Amount is actually deferred.

The total ~~deferred compensation of~~expense for the two non-qualified deferred compensation plans, net of participant contributions, was ~~an expense of~~$0.2 million, $2.1 million, and $2.6 million for the years ended December 31, 2011, 2010, and 2009, ~~respectively, and a benefit of $4.5 million for the year ended December 31, 2008.~~respectively. The total long-term deferred compensation liability under the two deferred compensation plans was ~~$20.2~~$23.7 million and ~~$16.6~~$20.2 million at December 31, 2011 and 2010, ~~and 2009,~~ respectively.

The deferred compensation plans are unfunded and their benefits are paid from the general assets of the Company, except that the Company has contributed to a “rabbi trust” whose assets will be used to pay the benefits if the Company remains solvent, but can be reached by the Company’s creditors if the Company becomes insolvent. The value of the assets in the “rabbi trust” was ~~$18.5~~$20.5 million and ~~$17.4~~$18.5 million as of December 31, 2011 and 2010, ~~and 2009,~~ respectively.

~~110~~

7. Contingencies

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


7.	~~Contingencies~~

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

~~and/or~~HERBALIFE LTD. misappropriation of the Company’s trade secrets on December 11, 2007. Defendants appealed the court’s entry of the Preliminary Injunction to the U.S. Court of Appeals for the Ninth Circuit. That court affirmed, in relevant part, the Preliminary Injunction. On December 3, 2007, the defendants filed a counterclaim alleging that the Company had engaged in unfair and deceptive business practices, intentional and negligent interference with prospective economic advantage, false advertising and that the Company was an endless chain scheme in violation of California law and seeking restitution, contract rescission and an injunction. Both sides engaged in discovery and filed cross motions for Summary Judgment. On August 25, 2009, the court granted partial summary judgment for Herbalife on all of defendants’ claims except the claim that the Company is an endless chain scheme which under applicable law is a question of fact that can only be determined at trial. The court denied defendants’ motion for Summary Judgment on Herbalife’s claims for misappropriation of trade secrets and breach of contract. On May 5, 2010, the District Court granted summary judgment for Herbalife on defendants’ endless chain-scheme counterclaim. Herbalife voluntarily dismissed its remaining claims, and on May 14, 2010, the District Court issued a final judgment dismissing all of the parties’ claims. On June 10, 2010 the defendants appealed from that judgment and on June 21, 2010, Herbalife cross-appealed. The Company believes that there is merit to its appeal, and it will prevail upon both its appeal as well as the defendant’s appeal.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. On May 7, 2010, the Company received an ~~administrative~~ assessment from the Mexican Tax Administration Service in an amount equivalent to approximately ~~$93~~$82 million, translated at the period ended spot rate, for various items, the majority of which was Value Added Tax, or VAT, allegedly owed on certain of the Company’s products imported into Mexico during the years 2005 and 2006. This assessment is subject to interest and inflationary adjustments. On July 8, 2010, the Company initiated a formal administrative appeal process. ~~In connection with~~On May 13, 2011, the ~~appeal of~~Mexican Tax Administration Service issued a resolution on the ~~assessment,~~Company’s administrative appeal. The resolution nullified the ~~Company may be required to post bonds for~~assessment. Since the Mexican Tax Administration Service can further review the tax audit findings and re-issue some or all of the ~~assessed amount. Therefore,~~original assessment, the Company commenced litigation in ~~July 2010,~~the Tax Court of Mexico in August 2011 to dispute the assertions made by the Mexican Tax Administration Service in the case. The Company expects to receive a response to this litigation from the Mexican Tax Administration. In December 2011, the Mexican Tax Administration commenced a tax audit of one of the Company’s Mexican subsidiaries for the period from January to September 2007. This tax audit is in the initial stages. Prior to the nullification of the assessment relating to the 2005 and 2006 years the Company entered into agreements with certain insurance companies to allow for the potential issuance of surety bonds in support of its appeal of the assessment. Such surety bonds, if issued, would not affect the availability of the Company’s ~~existing credit facility.~~New Credit Facility. These arrangements with the insurance companies remain in place in the event that the assessment is re-issued. The Company ~~did~~has not ~~record~~recognized a ~~provision~~loss as the Company, based on its analysis and guidance from its advisors, does not believe a loss would be probable if the assessment is ~~probable.~~re-issued or if any additional assessment is issued. Further, the Company is currently unable to reasonably estimate a possible loss or range of loss that could result from an unfavorable outcome ~~in respect to this~~if the assessment was re-issued or any additional assessments

~~111~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~that may~~ were to be issued for these or other periods. The Company believes that it has meritorious defenses if the assessment is re-issued or would have meritorious defenses if any additional assessment is issued.

The Company received an assessment from the Spanish Tax Authority in an amount equivalent to approximately $4.2 million translated at the period ended spot rate, for withholding taxes, interest and penalties related to payments to Spanish distributors for the 2003-2004 period. The Company appealed the assessment to the National Appellate Court (Audiencia Nacional). The Company believes that it has meritorious defenses. The Company has not recognized a loss as the Company does not believe a loss is ~~vigorously pursuing~~probable. The Company is currently unable to reasonably estimate a possible loss or range of loss that could result from an unfavorable outcome if additional assessments for other periods were to be issued. A decision in the ~~appeal, but final resolution~~case is anticipated in the first half of fiscal year 2012.

The Company received a tax assessment in September 2009, from the Federal Revenue Office of Brazil in an amount equivalent to approximately $4.6 million U.S. dollars translated at the period ended spot rate, related to withholding/contributions based on payments to the Company’s distributors during 2004. The Company has appealed this ~~matter could take several years.~~

tax assessment to the Administrative Council of Tax Appeals (2nd level administrative appeal) as it believes it has meritorious defenses and it has not recognized a loss as the Company does not believe a loss is probable. The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome if additional assessments for other periods were to be issued.

These matters may take several years to resolve. While the Company believes it has meritorious defenses, it cannot be sure of their ultimate resolution. Although the Company has reserved amounts for certain matters that the Company believes represent the most likely outcome of the resolution of these related disputes, if the Company is incorrect in the assessment, the Company may have to record additional expenses, when it becomes probable that an increased potential liability is warranted.


8.	~~Shareholders’ equity~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Shareholders’ equity

The Company had ~~58.9~~115.8 million, ~~60.2~~117.8 million, and ~~61.4~~120.5 million common shares outstanding at December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, respectively. In December 2004, the Company authorized 7.5 million preference shares at $0.002 par value. The 7.5 million authorized preference shares remained unissued as of December 31, ~~2010.~~2011 and were not adjusted as a result of the stock split as the preference shares were to remain unaffected by the stock split as discussed further below. Preference shares may be issued from time to time in one or more series, each of such series to have such voting powers (full or limited or without voting powers), designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as determined by the Company’s board of directors.

~~Dividends~~Stock Split

On April 28, 2011, the Company’s shareholders approved a 2-for-1 split of the Company’s common shares. One additional common share was distributed to the Company’s shareholders on or around May 17, 2011, for each common share held on May 10, 2011. All common shares subject to outstanding equity awards and warrants, as well as the number of common shares reserved for issuance under the Company’s share-based compensation plans, were adjusted proportionately.

Dividends

The declaration of future dividends is subject to the discretion of the Company’s board of directors and will depend upon various factors, including its earnings, financial condition, restrictions imposed by ~~its credit agreement,~~the New Credit Facility and the terms of any other indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by its board of directors. The ~~senior credit facility,~~New Credit Facility entered into on ~~July 21, 2006, as amended,~~March 9, 2011, permits payments of dividends as long as no default or event of default exists and the ~~sum of~~consolidated leverage ratio specified in the ~~amounts paid with respect to dividends and share repurchases does~~New Credit Facility is not ~~exceed the sum of $450.0 million plus 75% of cumulative consolidated net income from the first quarter of 2007 to the last day of the quarter most recently ended prior to the date of the dividend.~~

exceeded.

During the second quarter of 2007, the Company’s board of directors adopted a regular quarterly cash dividend program. The Company’s board of directors authorized a ~~$0.20~~$0.10 per common share cash dividend each quarter from the adoption of the program through the second quarter of 2010. On August 2, 2010, the ~~Company’s~~Company announced that its board of directors approved an increase in the quarterly cash dividend to ~~$0.25~~$0.13 per common share, an increase of ~~$0.05~~$0.03 per common share from prior quarters. On May 2, 2011, the Company announced that its board of directors approved an increase in the quarterly cash dividend to $0.20 per common share, an increase of $0.07 per common share from prior quarters. The aggregate amount of dividends paid and declared during the fiscal years ended December 31, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, was approximately $85.5 million, $53.7 million, and $48.7 million, ~~and $50.7 million,~~ respectively.

Share 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. 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. On May 20, 2008, the Company’s board of directors approved an additional increase of $150 million to the share repurchase program raising the total value of Company common shares authorized to be repurchased to $600 million.

On April 17, 2009, the Company’s share repurchase program adopted on April 18, 2007 expired pursuant to its terms.

On April 30, 2009, the Company announced that its board of directors authorized a new program for the Company to repurchase up to $300 million of Herbalife common shares during the ~~next~~following two years, at such times and prices as determined by the Company’s management as market conditions warrant. On May 3, 2010, the Company’s board of directors approved an increase to the share repurchase authorization from $300 million to $1 billion. In addition, the Company’s board of directors approved the extension of the expiration date of the share repurchase

~~112~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

program from April 2011 to December 2014. The New Credit Facility permits the Company to repurchase its common shares as long as no default or event of default exists and the consolidated leverage ratio specified in the New Credit Facility is not exceeded. As of December 31, ~~2010,~~2011, the remaining authorized capacity under the Company’s share repurchase program was approximately ~~$776.7~~$477.9 million.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the year ended December 31, 2011, the Company repurchased 5.5 million of its common shares through open market purchases at an aggregate cost of approximately $298.8 million, or an average cost of $54.27 per share. During the year ended December 31, 2010, the Company repurchased ~~2.9~~5.7 million of its common shares through open market purchases at an aggregate cost of approximately $150.1 million, or an average cost of ~~$52.25~~$26.13 per share. During the year ended December 31, 2009, the Company repurchased ~~2.0~~4.0 million of its common shares through open market purchases at an aggregate cost of approximately $73.2 million, or an average cost of ~~$36.60~~$18.30 per share. During the year ended December 31, 2008, the Company repurchased approximately 4.6 million of common shares through open market purchases at an aggregate cost of $137.0 million, or an average cost of $29.60 per share.

The aggregate purchase price of the common shares repurchased was reflected as a reduction to shareholders’ equity. The Company allocated the purchase price of the repurchased shares as a reduction to retained earnings, common shares and additionalpaid-in-capital.

The number of shares issued upon vesting or exercise for certain restricted stock units and ~~stock appreciation rights~~SARs granted, pursuant to the Company’s share-based compensation plans, is net of the minimum statutory withholding requirements that the Company pays on behalf of its employees. Although shares withheld are not issued, they are treated as common share repurchases ~~for accounting purposes,~~in the Company’s consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting.


9.	~~Share-Based Compensation~~

These shares do not count against the authorized capacity under the Company’s share repurchase program described above.

9. Share-Based Compensation

The Company has five share-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 Amended and Restated Herbalife Ltd. 2005 Stock Incentive Plan, or the 2005 Stock Incentive Plan, and the Amended and Restated Herbalife Ltd. Independent Directors Deferred Compensation and Stock Unit Plan, or the Independent Director Stock Unit Plan. The Management Plan ~~provides~~provided for the grant of options to purchase common shares of Herbalife to members of the Company’s management. The Independent Directors Plan ~~provides~~provided for the grant of options to purchase common shares of Herbalife to the Company’s independent directors. The 2004 Stock Incentive Plan replaced the 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 2005 Stock Incentive Plan replaced the 2004 Stock Incentive Plan and after the adoption thereof, no additional awards were made 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~~14,400,000 common shares pursuant to awards granted under the plan, 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. At December 31, ~~2010~~2011 an aggregate of approximately ~~0.9~~5.1 million common shares remain available for future issuance under the ~~share-based compensation plans.~~

2005 Stock Incentive Plan and the Independent Directors Stock Unit Plan.

The Company’s share-based compensation plans provide for grants of stock options, ~~stock appreciation rights, or SARS,~~SARs, and stock units, which are collectively referred to herein as awards. Stock options typically vest quarterly over a five-year period or less, beginning on the grant ~~date, and certain stock option grants vest over a period of less than five years.~~date. Certain ~~SARS~~SARs vest quarterly over a five-year period beginning on the grant date. Other ~~SARS~~SARs vest annually over a three-year period. The contractual term of service condition stock options and ~~SARS~~SARs is generally 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

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. In January 2009, the Company ~~amended the Independent Directors Plan~~moved to ~~comply with newly issued Code Section 457A to eliminate the deferral election and to move to SARS from~~granting SARs instead of stock ~~units.~~units for its independent directors. In March 2008, the Company granted stock unit awards to its Chairman and Chief Executive Officer, which vest over a four-year period at a rate of 30% during each of the first three years and 10%

~~113~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

during the fourth year. In February 2009, the Company granted stock units and ~~SARS~~SARs to certain employees subject to continued service, one-third of which vest on the third anniversary of the date of grant, one-third of which vest on the fourth anniversary of the date of grant, and the remaining one-third of which vest on the fifth anniversary of the date of grant. In 2010, the Company granted other stock units to certain key employees subject to continued service, one half of which vest on the first anniversary of the date of the grant, and the remaining half of which vest on the second anniversary of the date of the grant.

Awards can be subject to the following: market and service conditions, or market condition ~~awards,~~awards; market, service and performance conditions, or market and performance condition awards; or be subject only to ~~only~~ continued service with the Company, or service condition awards. All awards granted by the Company are ~~either~~ market condition awards, market and performance condition awards, or service condition awards. Unless otherwise determined at the time of grant, the value of each stock unit shall be equal to one common share of Herbalife. The Company’s stock compensation awards outstanding as of December 31, ~~2010~~2011 include stock options, ~~SARS,~~SARs, and stock units.

In March 2008, the Company granted ~~SARS with~~ market ~~conditions~~condition SARs to its Chairman and Chief Executive Officer, which will fully vest at the end of four years subject to his continued employment through that date and the achievement of certain conditions related to the market value of the Company’s common shares. The market conditions include targets for stock price appreciation of both a 10% and a 15% compound annual growth rate.

The fair value of these SARs was determined on the date of the grant using the Monte Carlo lattice model.

In August 2011, the Company granted market and performance condition SARs to its Chairman and Chief Executive Officer. These awards will vest on December 31, 2014, subject to his continued employment through that date, the Company’s stock price appreciating and exceeding a targeted price, and the Company’s achievement of certain volume point performance targets. The fair value of these SARs was determined on the date of the grant using the Monte Carlo lattice model.

The Company records compensation expense over the requisite service period which is equal to the vesting period. For awards granted on or after January 1, 2006, the 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 years ended December 31, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, share-based compensation expense, relating to service condition awards, amounted to $19.2 million, $20.0 million, ~~$18.4 million,~~ and ~~$15.9~~$18.4 million, respectively. For the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, share-based compensation expense, relating to market condition awards, amounted to $2.9 million, $3.0 million, and $2.7 million, respectively. For the year ended December 31, 2011, share-based compensation expense, relating to market and ~~$1.9 million, respectively.~~performance condition awards, amounted to $1.4 million. For the years ended December 31, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, the related income tax benefits recognized in earnings for all awards amounted to $7.5 million, $7.4 million, and $7.9 million, ~~and $6.7 million,~~ respectively.

As of December 31, ~~2010,~~2011, the total unrecognized compensation cost related to non-vested service condition stock awards was ~~$25.9~~$34.1 million and the related weighted-average period over which it is expected to be recognized is approximately 1.5 years. As of December 31, ~~2010,~~2011, the total unrecognized compensation cost related to non-vested market condition ~~stock~~ awards was ~~$3.5~~$0.7 million and the related weighted-average period over which it is expected to be recognized is approximately ~~1.2~~0.2 years.

As of December 31, 2011, the total unrecognized compensation cost related to non-vested market and performance condition awards was $11.7 million and the related weighted-average period over which it is expected to be recognized is approximately 3.0 years.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the years ended December 31, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, excess tax benefits of ~~$16.7 million, $3.6~~$27.5 million, and ~~$15.3~~$8.0 million, and $3.6 million, respectively, were generated and recognized from exercises of awards.

Stock units are valued at the market value on the date of grant. The fair value of ~~all SARS and stock options~~service condition SARs are estimated on the date of grant using the Black-Scholes-Merton option-pricing ~~model and~~model. The fair value of market condition SARs are estimated on the date of grant using the Monte Carlo lattice ~~model, respectively. The~~model. Historically, the expected term of the ~~SARS~~SARs and stock options ~~are~~was based on the simple average of the average vesting period and the life of the award, or the simplified ~~method, because~~method. During the fourth quarter of 2011, the ~~limited~~Company began calculating the expected term of its SARs based on historical ~~data.~~data as more historical information was available. All groups of employees have been determined to have similar historical exercise patterns for valuation purposes. The expected volatility of the ~~SARS~~SARs and stock options are based upon the historical volatility of the Company’s common shares and 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 ~~SARS~~SARs and stock options. The expected dividend yield assumption is based on the Company’s historical and expected amount of dividend payouts.

~~114~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

There were no stock options granted during the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008.~~2009. The following table summarizes the weighted average assumptions used in the calculation of the fair value for service condition awards for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008:~~

SARS Independent Director’s SARS
Year Ended December 31, Year Ended December 31,
2010 2009 2008 2010 2009 2008

Expected volatility 48.3 % 48.5 % 39.5 % 48.2 % 48.6 % —
Dividends yield 1.8 % 5.7 % 2.0 % 1.7 % 5.8 % —
Expected term 6.4 years 6.5 years 6.2 years 3.8 years 3.8 years —
Risk-free interest rate 2.4 % 2.3 % 2.6 % 1.3 % 1.4 % —

2009:


	SARs									Independent Director’s SARs
	Year Ended December 31,									Year Ended December 31,
	2011			2010			2009			2011			2010			2009
Expected volatility		46.6	%		48.3	%		48.5	%		49.4	%		48.2	%		48.6	%
Dividends yield		1.5	%		1.8	%		5.7	%		1.5	%		1.7	%		5.8	%
Expected term		6.2 years			6.4 years			6.5 years			3.8 years			3.8 years			3.8 years
Risk-free interest rate		1.9	%		2.4	%		2.3	%		1.0	%		1.3	%		1.4	%

There were no market condition awards or market and performance condition awards granted during the years ended December 31, 2010 and 2009. For market and performance condition awards granted during the year ended December 31, ~~2008,~~2011, the following table summarizes the weighted average assumptions used in the calculation of the fair value:


			SARs
	~~SARS~~Year Ended December 31, 2011
	~~Year Ended~~
	~~December 31,~~
	~~2008~~

Expected volatility		~~38.5~~44.0	%
Dividends yield		~~1.6~~1.4	%
Expected term		~~5.5~~5.2 years
Risk-free interest rate		~~2.6~~1.2	%

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables summarize the activity under all share-based compensation plans, which includes all stock awards, for the year ended December 31, ~~2010:~~

Weighted

Weighted
Average
Aggregate

Average
Remaining
Intrinsic

Stock Options & SARS Awards Exercise Price Contractual Term Value(1)
(In thousands) (In millions)

Outstanding at December 31, 2009 7,372 $ 24.84 5.9 years $ 123.6
Granted 890 $ 45.17
Exercised (1,813 ) $ 20.77
Forfeited (59 ) $ 32.26

Outstanding at December 31, 2010(2) 6,390 $ 28.75 5.7 years $ 253.1

Exercisable at December 31, 2010 3,302 $ 23.20 4.1 years $ 149.2

2011:


Stock Options & SARs	Awards			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value(1)
	(In thousands)							(In millions)
Outstanding at December 31, 2010(2)		12,780		$	14.38		5.7 years	$	253.1
Granted(3)		2,100		$	54.83
Exercised		(3,575	)	$	12.39
Forfeited		(136	)	$	18.90

Outstanding at December 31, 2011(4)		11,169		$	22.54		5.5 years	$	332.8

Exercisable at December 31, 2011		4,369		$	13.30		4.2 years	$	167.7


(1)		The intrinsic value is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock award.

(2)

Includes ~~0.8~~1.5 million market condition ~~awards~~SARs that were outstanding as of December 31, 2010.

~~115~~

(3)	Includes 0.9 million market and performance condition SARs granted to the Company’s Chairman and Chief Executive Officer.

(4)	Includes 1.5 million market condition SARs and 0.9 million market and performance condition SARs that were outstanding as of December 31, 2011.

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Weighted

Average

Grant Date
Aggregate

Incentive Plan and Independent Directors Stock Units Shares Fair Value Fair Value
(In thousands) (In millions)

Outstanding and nonvested at December 31, 2009 689.5 $ 26.35 $ 18.2
Granted 121.1 $ 45.71 5.5
Vested (221.3 ) $ 34.04 (7.5 )
Forfeited (9.1 ) $ 23.13 (0.2 )

Outstanding and nonvested at December 31, 2010 580.2 $ 27.51 $ 16.0

The weighted-average grant date fair value of service condition ~~awards~~SARs granted during the years ended December 31, 2011, 2010, and 2009 was $21.23, $9.32, and ~~2008 was $21.88, $6.42, and $23.58,~~$2.04, respectively. The weighted-average grant date fair value of market and performance condition ~~awards~~SARs granted during the year ended December 31, ~~2008~~2011 was ~~$14.59.~~$17.37. The total intrinsic value of service condition ~~awards~~stock options and SARs exercised during the years ended December 31, 2011, 2010 and 2009 ~~and 2008~~ was $133.8 million, $63.8 million, ~~$16.4 million,~~ and ~~$45.8~~$16.4 million, respectively. There were no market condition, ~~awards~~or market condition and performance condition SARs exercised during the years ended December 31, 2011, 2010 and 2009.


Incentive Plan and Independent Directors Stock Units	Shares			Weighted Average Grant Date Fair Value
	(In thousands)
Outstanding and nonvested at December 31, 2010		1,160.5		$	13.76
Granted		25.0		$	42.82
Vested		(456.5	)	$	17.76
Forfeited		(11.4	)	$	11.93

Outstanding and nonvested at December 31, 2011		717.6		$	12.25

The total vesting date fair value of stock units which vested during the years ended December 31, 2011, 2010 and 2009 was $19.8 million, $10.3 million, and ~~2008.~~

$4.3 million, respectively.

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, SARs, and other share-based equity grants, from the tax-law-ordering method to the with-and-without method. This change in accounting principle is applied to all applicable periods presented. See Note 2,Basis of Presentation, for further information on this change in accounting principle.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employee Stock Purchase Plan

During 2007, the Company adopted a qualified employee stock purchase plan, or ESPP, which was implemented during the first quarter of 2008. In connection with the adoption of the ESPP, the Company has reserved for issuance a total of 12 million common shares. At December 31, ~~2010,~~2011, approximately ~~0.9~~1.9 million common shares remain available for future issuance. Under the terms of the ESPP, rights to purchase common shares may be granted to eligible qualified employees subject to certain restrictions. The ESPP enables the Company’s eligible employees, through payroll withholdings, to purchase a limited number of common shares at 85% of the fair market value of a common share at the purchase date. Purchases are made on a quarterly basis.


10. Segment Information ~~10.~~	~~Segment Information~~

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 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 facility, and then are 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.

~~The~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2011, the Company sells products in 7479 countries throughout the world and is organized and managed by geographic regions. The Company aggregates its operating segments, excluding China, into one reporting segment, or the Primary 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 to whom products are sold, the methods used to distribute the products, and the nature of the regulatory environment. China has been identified as a separate reporting segment as it does not meet the criteria for

~~116~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

aggregation. The operating information for the Primary Reporting Segment and China, and sales by product line are as follows:

Year Ended December 31,
2010 2009 2008
(In millions)

Net Sales:

Primary Reporting Segment:
United States $ 595.4 $ 512.9 $ 477.6
Mexico 334.0 263.0 352.2
Others 1,620.4 1,396.4 1,384.4

Total Primary Reporting Segment 2,549.8 2,172.3 2,214.2
China 184.4 152.3 145.0

Total Net Sales $ 2,734.2 $ 2,324.6 $ 2,359.2

Operating Margin(1)(2):

Primary Reporting Segment:
United States $ 257.0 $ 220.0 $ 200.5
Mexico 131.7 104.0 155.4
Others 721.5 613.3 623.0

Total Primary Reporting Segment 1,110.2 937.3 978.9
China(3) 165.0 132.6 125.1

Total Operating Margin $ 1,275.2 $ 1,069.9 $ 1,104.0
Selling, general and administrative expense 887.7 773.9 771.8
Interest expense 9.7 9.6 20.1
Interest income 2.3 4.5 6.9

Income before income taxes 380.1 290.9 319.0
Income taxes 89.6 87.6 97.8

Net Income $ 290.5 $ 203.3 $ 221.2

Capital Expenditures:

United States $ 51.0 $ 45.4 $ 91.7
Mexico 2.5 1.4 1.4
China 3.1 3.7 3.7
Others 11.5 9.6 10.0

Total Capital Expenditures $ 68.1 $ 60.1 $ 106.8

~~117~~

The following table table broken into two for XBRL tagging.


	Year Ended December 31,
	2011		2010		2009
	(In millions)
Net Sales:
Primary Reporting Segment:
United States	$	676.9	$	595.4	$	512.9
Mexico		436.9		334.0		263.0
South Korea		343.5		208.9		115.0
Others		1,786.4		1,411.5		1,281.4

Total Primary Reporting Segment		3,243.7		2,549.8		2,172.3
China		210.8		184.4		152.3

Total Net Sales	$	3,454.5	$	2,734.2	$	2,324.6

Contribution Margin(1):

Primary Reporting Segment:

United States
   $ 286.3       $ 257.0       $ 220.0
Mexico
   191.1       131.7       104.0
South Korea
   163.1       103.0       54.4
Others
   810.0       618.5       558.9






Total Primary Reporting Segment
   1,450.5       1,110.2       937.3
China(2)
   186.4       165.0       132.6






Total Contribution Margin
   $ 1,636.9       $ 1,275.2       $ 1,069.9
Selling, general and administrative expense
   1,074.6       887.7       773.9
Interest expense
   9.9       9.7       9.6
Interest income
   7.4       2.3       4.5






Income before income taxes
   559.8       380.1       290.9
Income taxes
   147.2       80.9       87.6






Net Income
   $ 412.6       $ 299.2       $ 203.3

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31,
2010 2009 2008
(In millions)

Net sales by product line:

Weight Management $ 1,698.9 $ 1,464.8 $ 1,485.0
Targeted Nutrition 629.2 493.7 491.8
Energy, Sports & Fitness 121.3 98.7 99.6
Outer Nutrition 127.5 128.3 146.6
Literature, Promotional and Other(4) 157.3 139.1 136.2

Total Net Sales $ 2,734.2 $ 2,324.6 $ 2,359.2

Net sales by geographic region:

North America(5) $ 614.1 $ 529.0 $ 496.9
Mexico 334.0 263.0 352.2
South & Central America 390.4 366.9 383.6
EMEA(6) 527.8 504.2 570.7
Asia Pacific(7) 683.5 509.2 410.8
China 184.4 152.3 145.0

Total Net Sales $ 2,734.2 $ 2,324.6 $ 2,359.2


	Year Ended December 31,
	2011		2010		2009
	(In millions)
Capital Expenditures:
United States	$	60.4	$	51.0	$	45.4
Mexico		3.5		2.5		1.4
South Korea		2.1		0.4		1.6
China		6.6		3.1		3.7
Others		18.3		11.1		8.0

Total Capital Expenditures	$	90.9	$	68.1	$	60.1


	Year Ended December 31,
	2011		2010		2009
	(In millions)
Net sales by product line:
Weight Management	$	2,158.7	$	1,698.9	$	1,464.8
Targeted Nutrition		789.6		629.2		493.7
Energy, Sports & Fitness		169.8		121.3		98.7
Outer Nutrition		147.8		127.5		128.3
Literature, Promotional and Other(3)		188.6		157.3		139.1

Total Net Sales	$	3,454.5	$	2,734.2	$	2,324.6


Net sales by geographic region:
North America	$	698.6	$	614.1	$	529.0
Mexico		436.9		334.0		263.0
South & Central America		554.4		390.4		366.9
EMEA		615.2		527.8		504.2
Asia Pacific		938.6		683.5		509.2
China		210.8		184.4		152.3

Total Net Sales	$	3,454.5	$	2,734.2	$	2,324.6


(1)		~~Operating~~Contribution margin consists of net sales less cost of sales and royalty overrides. See Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operationsin this Annual Report on Form 10-K for a description of net sales, cost of sales and royalty overrides.

(2)		In the third quarter of 2010, the Company changed its method of allocation for certain costs to its business segments. Historical information presented has been reclassified to conform to the current presentation. This change had no effect on the Company’s consolidated statements of income.

~~(3)~~		Compensation to China sales employees and service fees to China ~~licensed business~~independent service providers totaling $96.8 million, $87.3 million ~~$79.1 million~~ and ~~$70.3~~$79.1 million for the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, respectively, are included in selling, general and administrative expenses while distributor compensation for all other countries is included in ~~royalty overrides.~~contribution margin.


~~(4)~~	(3)	Product buybacks and returns in all product categories are included in the literature, promotional and other category.

~~(5)~~		~~Consists of the U.S., Canada and Jamaica.~~

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

~~(7)~~		~~Consists of Asia (excluding China), New Zealand and Australia.~~

As of December 31, ~~2010~~2011 and ~~2009,~~2010, total assets for the Company’s Primary Reporting Segment were ~~$1,162.1~~$1,357.4 million and ~~$1,097.1~~$1,162.1 million, respectively. Total assets for the China segment were ~~$70.1~~$88.8 million and ~~$49.0~~$70.1 million as of December 31, 2011 and 2010, ~~and 2009,~~ respectively.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, ~~2010~~2011 and ~~2009,~~2010, goodwill allocated to the Company’s reporting units included in the Company’s Primary Reporting Segment was ~~$99.8~~$102.4 million and ~~$99.4~~$99.8 million, respectively. Goodwill allocated to the China segment was $3.1 million as of December 31, ~~2010~~2011 and ~~2009.~~

2010.

As of December 31, 2011, the net property, plant and equipment located in the U.S. and in all foreign countries was $144.2 million and $49.5 million, respectively. As of December 31, 2010, the net property, plant and equipment located in the U.S. and in all foreign countries was $141.1 million and $36.3 million, respectively.

As of December 31, ~~2009,~~2011, the ~~net property, plant and equipment located in~~deferred tax assets related to the U.S. and in all foreign countries was ~~$145.3~~$65.4 million and ~~$32.7~~$46.8 million, respectively.

~~118~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

As of December 31, 2010, the deferred tax assets related to the U.S. and all foreign countries was ~~$65.8~~$72.9 million and $34.8 million, respectively. ~~As of December 31, 2009, the deferred tax assets related to the U.S. and all the foreign countries was $43.5 million and $33.8 million, respectively.~~

~~Most~~

The majority of the Company’s foreign subsidiaries designate their local currencies as their functional currency. As of December 31, ~~2010~~2011 and ~~2009,~~2010, the total amount of cash held by foreign subsidiaries reported in the Company’s consolidated balance sheet was ~~$188.2~~$246.0 million and ~~$149.6~~$188.2 million, respectively, of which ~~$5.8~~$9.2 million and ~~$11.9~~$5.8 million, respectively, was maintained or invested in U.S. dollars. ~~See Note 2,~~~~Basis of Presentation,~~~~for further discussion on Herbalife Venezuela’s cash~~

11. Derivative Instruments and ~~cash equivalents.~~


Hedging Activities ~~11.~~	~~Derivative Instruments and Hedging Activities~~

Interest Rate Risk Management

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.~~New Credit Facility. 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, ~~2010,~~2011, the maximum length of time over which the Company is hedging certain of these exposures is ~~less than three years.~~

Under its senior secured credit facility, the Company was obligated to enter into interest rate hedges 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 an interest rate swap agreement. The agreement provided for the Company 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 rate on the same notional principal amount. The notional amount was scheduled to be reduced by $20.0 million in the second, thirdapproximately one year and fourth quarters of each year commencing January 1, 2007 throughout the term of the swap. The swap had been designated as a cash flow hedge against the variability in the LIBOR interest rate on the Company’s term loan at LIBOR plus 1.50%, thereby fixing the Company’s effective rate on the notional amounts at 6.76%. In September 2009, the interest swap expired and was consequently settled. As of December 31, 2009, there were no amounts remaining in other comprehensive income relating to this expired interest swap and the swap had no value.

On June 26, 2009, the Company entered into an interest rate swap agreement, with an effective date of June 30, 2009, which expired on September 30, 2009. The swap notional amount was $20 million, where the Company paid three month LIBOR and received one month LIBOR plus 0.185%. As of December 31, 2009, the interest rate swap agreement expired and all outstanding amounts were settled. The Company elected not to apply hedge accounting for this interest rate swap.

seven months.

During August 2009, the Company entered into four interest rate swap agreements with an effective date of December 31, 2009. The agreements collectively provide for the Company to pay interest for less than a four-year period at a weighted average fixed rate of 2.78% on notional amounts aggregating to $140.0 million while receiving interest for the same period at the one month LIBOR rate on the same notional amounts. These agreements will expire in July 2013. These swaps ~~have been~~at inception were designated as cash flow hedges against the variability in the LIBOR interest rate on the Company’s term loan under the Prior Credit Facility or against the variability in the LIBOR interest rate on the replacement debt. The Company’s term loan under the Prior Credit Facility was terminated in March 2011 and refinanced with the New Credit Facility as discussed further in Note 4,Long-Term Debt. The Company’s swaps remain effective and continue to be designated as cash flow hedges against the variability in certain LIBOR interest rate borrowings under the New Credit Facility at LIBOR plus 1.50% to 2.50%, ~~thereby~~ fixing the Company’s weighted average effective rate on the notional amounts at 4.28% to 5.28%. There was no hedge ineffectiveness recorded as result of this refinancing event.

The Company ~~formally~~ assesses ~~both at inception~~hedge effectiveness and measures hedge ineffectiveness at least ~~quarterly thereafter, whether~~quarterly. During the ~~derivatives used in hedging transactions are~~years ended December 31, 2011 and 2010, the ineffective portion relating to these hedges was immaterial and the hedges remained effective ~~in offsetting changes in cash flows of the hedged item. As~~as of December 31, ~~2010, the hedge relationships qualified as effective hedges under FASB ASC Topic 815,~~~~Derivatives and Hedging~~~~, or ASC 815.~~2011. 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 December 31, ~~2010~~2011 and December 31, ~~2009,~~2010, the Company recorded the interest rate swaps as liabilities at their fair value of $5.1 million and $6.6 million, ~~and $2.6 million,~~ respectively.

~~119~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The table below describes the interest rate swaps in aggregate, and the fair value of the liabilities that were outstanding as of December 31, ~~2010~~2011 and ~~2009:~~

Aggregate
Average
Aggregate

Notional
Swap
Fair
Maturity

Interest Rate Amounts Rate Value Dates
(In millions) (In millions)

At December 31, 2010

Interest Rate Swaps $ 140.0 2.78 % $ (6.6 ) July 2013
At December 31, 2009

Interest Rate Swaps $ 140.0 2.78 % $ (2.6 ) July 2013

2010:


Interest Rate	Aggregate Notional Amounts		Average Swap Rate			Aggregate Fair Value			Maturity Dates
	(In millions)					(In millions)
At December 31, 2011
Interest Rate Swaps	$	140.0		2.78	%	$	(5.1	)		July 2013
At December 31, 2010
Interest Rate Swaps	$	140.0		2.78	%	$	(6.6	)		July 2013

Foreign Currency Instruments

The Company also designates certain foreign currency derivatives, such as certain foreign currency forward and option contracts, as freestanding derivatives for which hedge accounting does not apply. The changes in the fair market value of ~~the~~these freestanding derivatives are included in selling, general and administrative expenses in the Company’s consolidated statements of income. The Company uses foreign currency forward contracts to hedge foreign-currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The Company also uses foreign currency option contracts to partially mitigate the impact of foreign currency fluctuations. The fair value of the forward and option contracts are based on third-party bank quotes.

The Company’s foreign currency derivative contracts are generally executed on a monthly basis.

The Company ~~also purchases~~designates as cash-flow hedges those foreign currency forward contracts ~~in order~~it entered into to hedge forecasted inventory purchases and intercompany management fees that are ~~designated as cash-flow hedges and are~~ subject to foreign currency exposures. The Company applied the hedge accounting rules as required by ASC 815 for these hedges. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. As of December 31, 2010 and 2009, the aggregate notional amounts of these contracts outstanding were approximately $32.1 million and $66.8 million, respectively. At December 31, 2010, the outstanding contracts were expected to mature over the next twelve months. The Company’s derivative financial instruments are recorded on the consolidated balance sheet at fair value based on third-party bank quotes. Forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of these forward contracts, excluding forward points, designated as cash-flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders’ equity, and are recognized in cost of sales in the consolidated statement of income during the period which approximates the time the hedged inventory is sold. The Company also hedges forecasted intercompany management fees over specific months. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. Changes in the fair value of these forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders’ equity, and are recognized in selling, general and administrative expenses in the consolidated statement of income during the period when the hedged item and underlying transaction affect earnings.

As of December 31, 2011 and 2010, the aggregate notional amounts of all foreign currency contracts outstanding designated as cash flow hedges were approximately $64.4 million and $32.1 million, respectively. At December 31, 2011, these outstanding contracts were expected to mature over the next fifteen months. The Company’s derivative financial instruments are recorded on the consolidated balance sheet at fair value based on third-party bank quotes. As of December 31, 2011, the Company recorded assets at fair value of $4.4 million relating to all outstanding foreign currency contracts designated as cash-flow hedges. As of December 31, 2010, the Company recorded assets at fair value of $0.6 million and liabilities at fair value of $0.8 million relating to all outstanding foreign currency contracts designated as cash-flow hedges. ~~As of December 31, 2009, the Company recorded assets at fair value of $2.3 million relating to all outstanding foreign currency contracts designated as cash-flow hedges.~~ The Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly. During the years ended December 31, ~~2010~~2011 and ~~2009,~~2010, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of December 31, ~~2010 and 2009.~~

2011.

As of December 31, ~~2010~~2011 and ~~2009,~~2010, the majority of the Company’s outstanding foreign currency forward contracts had maturity dates of less than ~~one year~~fifteen months and twelve months, respectively, with the majority of freestanding derivatives expiring within one month and three ~~months.~~months, respectively. There were no foreign currency option contracts outstanding as of December 31, ~~2010~~2011 and ~~2009.~~

~~120~~

2010.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The table below describes all foreign currency forward contracts that were outstanding as of December 31, ~~2010~~2011 and ~~2009:~~

Average
Original
Fair Value

Foreign Currency Contract Rate Notional Amount Gain (Loss)
(In millions) (In millions)

At December 31, 2010

Buy BRL sell USD 1.68 $ 7.6 $ 0.1
Buy EUR sell ARS 5.27 1.3 —
Buy EUR sell JPY 113.89 1.2 (0.1 )
Buy EUR sell MXN 16.58 35.5 —
Buy EUR sell RUB 40.99 1.8 —
Buy EUR sell USD 1.34 101.4 0.1
Buy INR sell USD 44.81 4.5 —
Buy JPY sell EUR 111.90 1.2 —
Buy JPY sell USD 82.57 19.4 0.4
Buy KRW sell USD 1,146.51 21.0 0.4
Buy MXN sell EUR 16.45 8.0 —
Buy MXN sell USD 12.37 4.5 —
Buy MYR sell USD 3.10 12.2 0.1
Buy PEN sell USD 2.80 10.3 —
Buy PHP sell USD 43.89 0.1 —
Buy TWD sell USD 29.17 2.6 —
Buy USD sell BRL 1.72 14.9 (0.5 )
Buy USD sell COP 1,917.51 4.3 —
Buy USD sell EUR 1.32 74.3 (1.0 )
Buy USD sell GBP 1.56 4.0 —
Buy USD sell INR 45.78 8.7 (0.2 )
Buy USD sell JPY 81.59 9.8 (0.1 )
Buy USD sell KRW 1,138.90 4.9 (0.1 )
Buy USD sell MXN 12.45 4.9 —
Buy USD sell PEN 2.81 5.2 —
Buy USD sell PHP 44.11 2.8 —
Buy USD sell RUB 31.48 1.3 —

Total forward contracts $ 367.7 $ (0.9 )

~~121~~

2010:


Foreign Currency	Average Contract Rate		Original Notional Amount		Fair Value Gain (Loss)
			(In millions)		(In millions)
At December 31, 2011
Buy CNY sell USD		6.34	$	2.5	$	—
Buy EUR sell ARS		5.70		3.0		—
Buy EUR sell AUD		1.30		0.8		—
Buy EUR sell GBP		0.83		0.8		—
Buy EUR sell HKD		10.15		0.9		—
Buy EUR sell IDR		11,985.00		2.2		—
Buy EUR sell INR		69.21		2.3		—
Buy EUR sell MXN		18.14		14.9		—
Buy EUR sell MYR		4.17		6.0		(0.1	)
Buy EUR sell RUB		41.74		9.2		—
Buy EUR sell USD		1.30		44.8		(0.1	)
Buy EUR sell ZAR		10.89		0.6		—
Buy GBP sell EUR		0.84		0.8		—
Buy JPY sell USD		77.85		7.0		0.1
Buy KRW sell USD		1,161.81		32.2		(0.2	)
Buy MYR sell EUR		4.12		0.8		—
Buy MYR sell USD		3.18		19.0		—
Buy PEN sell USD		2.70		6.7		—
Buy SEK sell EUR		8.98		1.0		—
Buy USD sell ARS		4.37		0.8		—
Buy USD sell COP		1,943.00		5.1		—
Buy USD sell EUR		1.37		81.4		4.4
Buy USD sell GBP		1.55		24.1		—
Buy USD sell INR		53.30		1.0		—
Buy USD sell KRW		1,156.38		7.5		—
Buy USD sell MXN		13.89		37.3		0.4
Buy USD sell PHP		43.79		3.2		—
Buy USD sell RUB		31.86		1.3		—
Buy USD sell SGD		1.28		0.3		—
Buy USD sell THB		31.43		0.2		—
Buy USD sell ZAR		8.33		1.1		—

Total forward contracts			$	318.8	$	4.5

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Average
Original
Fair Value

Foreign Currency Contract Rate Notional Amount Gain (Loss)
(In millions) (In millions)

At December 31, 2009

Buy EUR sell MXN 19.67 $ 32.6 $ (1.6 )
Buy JPN sell USD 90.60 16.9 (0.5 )
Buy USD sell EUR 1.48 77.2 2.6
Buy CLP sell USD 523.79 5.3 0.2
Buy USD sell CLP 509.40 2.9 —
Buy HKD sell USD 7.75 6.5 —
Buy JPY sell EUR 131.55 3.3 —
Buy EUR sell JPY 131.59 3.3 —
Buy USD sell BRL 1.78 7.3 (0.1 )
Buy USD sell ZAR 7.86 1.3 (0.1 )
Buy ZAR sell USD 7.49 1.3 —
Buy USD sell PHP 47.49 6.3 (0.1 )
Buy USD sell KRW 1,181.27 1.9 —
Buy USD sell INR 46.72 3.0 —
Buy USD sell COP 1,983.88 3.5 0.1
Buy EUR sell USD 1.43 45.2 —
Buy EUR sell HKD 11.26 2.6 —
Buy MXN sell USD 13.19 8.5 —
Buy GBP sell USD 1.63 5.7 —
Buy USD sell RUB 29.78 1.3 —
Buy COP sell USD 2,053.31 4.2 —
Buy KRW sell USD 1,167.38 1.9 —
Buy BRL sell USD 1.78 0.6 —
Buy EUR sell GBP 0.89 3.3 —
Buy MXN sell EUR 18.81 7.0 —
Buy PHP sell USD 46.47 3.2 —
Buy RUB sell USD 30.25 0.3 —
Buy USD sell MXN 13.15 1.7 —
Buy USD sell JPN 92.46 7.9 0.1

Total forward contracts $ 266.0 $ 0.6

~~122~~


Foreign Currency	Average Contract Rate		Original Notional Amount		Fair Value Gain (Loss)
			(In millions)		(In millions)
At December 31, 2010
Buy BRL sell USD		1.68	$	7.6	$	0.1
Buy EUR sell ARS		5.27		1.3		—
Buy EUR sell JPY		113.89		1.2		(0.1	)
Buy EUR sell MXN		16.58		35.5		—
Buy EUR sell RUB		40.99		1.8		—
Buy EUR sell USD		1.34		101.4		0.1
Buy INR sell USD		44.81		4.5		—
Buy JPY sell EUR		111.90		1.2		—
Buy JPY sell USD		82.57		19.4		0.4
Buy KRW sell USD		1,146.51		21.0		0.4
Buy MXN sell EUR		16.45		8.0		—
Buy MXN sell USD		12.37		4.5		—
Buy MYR sell USD		3.10		12.2		0.1
Buy PEN sell USD		2.80		10.3		—
Buy PHP sell USD		43.89		0.1		—
Buy TWD sell USD		29.17		2.6		—
Buy USD sell BRL		1.72		14.9		(0.5	)
Buy USD sell COP		1,917.51		4.3		—
Buy USD sell EUR		1.32		74.3		(1.0	)
Buy USD sell GBP		1.56		4.0		—
Buy USD sell INR		45.78		8.7		(0.2	)
Buy USD sell JPY		81.59		9.8		(0.1	)
Buy USD sell KRW		1,138.90		4.9		(0.1	)
Buy USD sell MXN		12.45		4.9		—
Buy USD sell PEN		2.81		5.2		—
Buy USD sell PHP		44.11		2.8		—
Buy USD sell RUB		31.48		1.3		—

Total forward contracts			$	367.7	$	(0.9	)

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following tables summarize the derivative activity during the year ended December 31, ~~2010~~2011 and ~~2009,~~2010, relating to all the Company’s derivatives.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Gains and Losses on Derivative Instruments

The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive income (loss) during the ~~year~~years ended December 31, 2011, 2010 and 2009:

Amount of Gain (Loss) Recognized

in Other Comprehensive Income (Loss)

For the Year Ended
December 31, 2010 December 31, 2009
(In millions)

Derivatives designated as cash flow hedging instruments:

Foreign exchange currency contracts relating to inventory and intercompany management fee hedges $ 5.6 $ 2.4
Interest rate swaps $ (7.5 ) $ (2.6 )


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) For the Year Ended
	December 31, 2011			December 31, 2010			December 31, 2009
	(In millions)
Derivatives designated as cash flow hedging instruments:
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges	$	4.1		$	5.6		$	2.4
Interest rate swaps	$	(2.1	)	$	(7.5	)	$	(2.6	)

As of December 31, ~~2010,~~2011, the estimated amount of existing net ~~losses~~gains related to cash flow hedges recorded in accumulated other comprehensive income (loss) that are expected to be reclassified into earnings over the next twelve months was ~~$4.6~~$1.3 million.

The following table summarizes gains (losses) relating to derivative instruments recorded to income during the ~~year~~years ended December 31, 2011, 2010 and 2009:

Amount of Gain (Loss)

Recognized in Income
For the Year Ended Location of Gain (Loss)
December 31, 2010 December 31, 2009 Recognized in Income
(In millions)

Derivatives designated as cash flow hedging instruments:

Foreign exchange currency contracts relating to inventory hedges and intercompany management fee hedges(1) $ — $ (0.3 ) Selling, general
and administrative
expenses
Derivatives not designated as hedging instruments:

Foreign exchange currency contracts $ (9.4 ) $ (15.8 ) Selling, general
and administrative
expenses


	Amount of Gain (Loss) Recognized in Income For the Year Ended								Location of Gain (Loss) Recognized in Income

	December 31, 2011		December 31, 2010			December 31, 2009
	(In millions)
Derivatives designated as cash flow hedging instruments:
Foreign exchange currency contracts relating to inventory hedges and intercompany management fee hedges(1)	$	—	$	—		$	(0.3	)	Selling, general and administrative expenses

Derivatives not designated as hedging instruments:
Foreign exchange currency contracts	$	2.7	$	(9.4	)	$	(15.8	)	Selling, general and administrative expenses


(1)		For foreign exchange contracts designated as hedging instruments, the amounts recognized in income (loss) represent the amounts excluded from the assessment of hedge effectiveness. There were no ineffective amounts reported for derivatives designated as hedging instruments.

~~123~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes gains (losses) relating to derivative instruments reclassified from accumulated other comprehensive loss into income during the ~~year~~years ended December 31, 2011, 2010 and 2009:

Amount of Gain (Loss) Reclassified
Location of Gain
from Accumulated Other
(Loss) Reclassified
Comprehensive Loss into Income from Accumulated Other
For the Year Ended Comprehensive Loss into
December 31, 2010 December 31, 2009 Income (effective portion)
(In millions)

Derivatives designated as cash flow hedging instruments:

Foreign exchange currency contracts relating to inventory hedges $ 1.8 $ 0.8 Cost of sales
Foreign exchange currency contracts relating to intercompany management fee hedges $ 6.6 $ — Selling, general and
administrative expenses

Interest rate contracts $ (3.6 ) $ (1.0 ) Interest expense, net


	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income									Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)


	For the Year Ended
	December 31, 2011			December 31, 2010			December 31, 2009
	(In millions)
Derivatives designated as cash flow hedging instruments:
Foreign exchange currency contracts relating to inventory hedges	$	(0.3	)	$	1.8		$	0.8		Cost of sales
Foreign exchange currency contracts relating to intercompany management fee hedges	$	(1.8	)	$	6.6		$	—		Selling, general and administrative expenses
Interest rate contracts	$	(3.6	)	$	(3.6	)	$	(1.0	)	Interest expense, net

The Company reports its derivatives at fair value as either assets or liabilities within its consolidated balance sheet. See Note ~~14,~~13,Fair Value Measurements, for information on derivative fair values and their consolidated balance sheet location as of December 31, ~~2010,~~2011, and December 31, ~~2009.~~


~~12.~~	~~Income Taxes~~

2010.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. Income Taxes

The components of income before income taxes are as follows (in millions):

Year Ended December 31,
2010 2009 2008

Domestic $ 69.5 $ 94.9 $ 101.7
Foreign 310.6 196.0 217.3

Total $ 380.1 $ 290.9 $ 319.0


	Year Ended December 31,
	2011		2010		2009
Domestic	$	143.9	$	69.5	$	94.9
Foreign		415.9		310.6		196.0

Total	$	559.8	$	380.1	$	290.9

Income taxes are as follows (in ~~millions~~millions):


	Year Ended December 31,
	2011			2010			2009
Current:
Foreign	$	94.7		$	75.6		$	61.9
Federal		57.8			30.3			30.9
State		7.6			8.3			6.0

		160.1			114.2			98.8

Deferred:
Foreign		(12.4	)		(3.2	)		2.5
Federal		(0.1	)		(30.7	)		(13.1	)
State		(0.4	)		0.6			(0.6	)

		(12.9	)		(33.3	)		(11.2	)

	$	147.2		$	80.9		$	87.6

The Company recognizes excess tax benefits associated with share-based compensation to shareholders’ equity only when realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company follows the with-and-without approach which was adopted in the second quarter of ~~U.S. dollars):~~

Year Ended December 31,
2010 2009 2008

Current:

Foreign $ 75.6 $ 61.9 $ 48.4
Federal 30.3 30.9 45.0
State 8.3 6.0 8.5

114.2 98.8 101.9

Deferred:

Foreign (3.2 ) 2.5 9.4
Federal (22.0 ) (13.1 ) (12.6 )
State 0.6 (0.6 ) (0.9 )

(24.6 ) (11.2 ) (4.1 )

$ 89.6 $ 87.6 $ 97.8

~~124~~

2011. Under this approach, excess tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to the Company, which are also subject to applicable limitations. As of December 31, 2011 and 2010, the Company had $20.6 million and $8.7 million, respectively, of unrealized excess tax benefits. Of the $20.6 million of excess tax benefits at December 31, 2011, $11.6 million relate to foreign tax credits generated and carried forward on US federal income tax returns. If unused, tax credit carryforwards of $5.6 million will expire in 2020 and $6.0 million will expire in 2021. See Note 2,Basis of Presentation,for further discussion of the Company’s change in method of accounting from the tax-law-ordering method to the with-and-without approach.

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Venezuela has experienced cumulative inflation of at least 100% during the three year period ended December 31, 2009. Therefore, as of January 1, 2010 the Bolivar is hyperinflationary for U.S. federal income tax purposes. As a result, because Herbalife Venezuela is considered a dual incorporated entity, it is now required to account for its operations using the Dollar Approximate Separate Transactions Method of accounting, ~~(DASTM).~~or DASTM. The transitional impact of DASTM resulted in a deferred income tax benefit of approximately $14.5 million recorded during the first quarter of 2010 which is included within the Company’s consolidated statement of income for the year ended December 31, 2010. See Note 2,Basis of Presentation, for a further discussion on Herbalife Venezuela and Venezuela’s highly inflationary economy.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The significant categories of temporary differences that gave rise to deferred tax assets and liabilities are as follows (tax effected in millions):

Year Ended

December 31,
2010 2009

Deferred income tax assets:

Accruals not currently deductible $ 47.5 $ 36.4
Foreign tax credits and tax loss carryforwards of certain foreign subsidiaries 4.2 6.1
Depreciation/amortization 17.1 3.0
Deferred compensation plan 25.1 23.5
Deferred interest expense 118.4 56.8
Accrued state income taxes 1.3 0.5
Accrued vacation 3.4 3.5
Other 12.3 7.1

Gross deferred income tax assets 229.3 136.9
Less: valuation allowance (128.7 ) (59.6 )

Net deferred income tax assets $ 100.6 $ 77.3

Deferred income tax liabilities:

Intangible assets $ 109.5 $ 110.7
Inventory deductibles (1.1 ) 0.3
Unrealized foreign exchange 1.2 1.8
Other 3.6 3.5

Net deferred income tax liabilities $ 113.2 $ 116.3

Net deferred tax accounts $ (12.6 ) $ (39.0 )


	Year Ended December 31,
	2011			2010
Deferred income tax assets:
Accruals not currently deductible	$	47.1		$	47.5
Tax loss carry forwards of certain foreign subsidiaries		2.8			5.7
Depreciation/amortization		11.9			17.1
Deferred compensation plan		26.2			25.1
Deferred interest expense		205.6			118.4
Accrued vacation		4.0			3.5
Inventory reserve		4.2			1.1
Hyperinflationary adjustment		7.4			10.8
Other		11.3			2.7

Gross deferred income tax assets		320.5			231.9
Less: valuation allowance		(208.3	)		(124.2	)

Total deferred income tax assets	$	112.2		$	107.7

Deferred income tax liabilities:
Intangible assets	$	113.1		$	109.5
Unremitted foreign earnings		8.7			6.0
Other		4.7			4.8

Total deferred income tax liabilities	$	126.5		$	120.3

Total net deferred tax liabilities	$	(14.3	)	$	(12.6	)

Net operating loss carryforwards of subsidiaries for 2011 and 2010 were $2.8 million and $5.7 million, respectively. If unused, net operating losses of $0.9 million will expire between 2012 and 2020 and $1.9 million can be carried forward indefinitely. Deferred interest carryforwards of subsidiaries for 2011 and 2010 were $205.6 million and $118.4 million, respectively, and can be carried forward indefinitely.

The Company recognizes valuation allowances on deferred tax assets reported if, based on the weight of the evidence it is more likely than not that some or all of the deferred tax assets will not be realized. ~~The Company believes that the majority~~As of ~~its deferred tax assets will be realized because of the reversal of certain significant taxable temporary differences~~December 31, 2011 and ~~anticipated future taxable income from operations.~~

At December 31, 2010 the ~~Company’s~~Company held valuation allowances against net deferred tax assets ~~consisted~~of certain subsidiaries, primarily related to deferred interest expense carryforwards, in the amount of ~~foreign~~$208.3 million and $124.2 million, respectively. The change in the Company’s valuation allowance during 2011 of $84.1 million was related to $88.1 million of additions charged to income tax ~~loss carryforwards and deferred expenses and were~~expense, reduced by $2.1 million of reductions recognized as income tax benefits and $1.9 million of currency translation adjustments recognized within other comprehensive income. The change in the Company’s valuation ~~allowances~~allowance during 2010 and 2009 of ~~$128.7 million.~~ $64.6 million and $47.4 million, respectively, was primarily related to additions charged to income tax expense.

At December 31, 2009, the Company’s deferred tax assets consisted primarily of foreign tax loss carryforwards and deferred expenses and were reduced by valuation allowances of $59.6 million. The foreign tax loss carryforwards of $4.2 million expire in varying amounts between 2011, ~~and indefinitely.~~

~~At December 31, 2010,~~ the Company’s U.S. consolidated group had approximately ~~$73.5~~$82.2 million of unremitted earnings that were permanently reinvested from substantially all of its foreign subsidiaries. In addition, at December 31, ~~2010,~~2011, Herbalife Ltd. had approximately ~~$1.4~~$1.8 billion of permanently reinvested unremitted

~~125~~

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

earnings relating to its operating subsidiaries. Since these unremitted earnings have been permanently reinvested,

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

deferred taxes were not provided on these unremitted earnings. Further, it is not practicable to determine the amount of unrecognized deferred taxes with respect to these unremitted earnings.

Deferred taxes have been accrued for earnings that are not considered indefinitely reinvested. The deferred tax liability on the unremitted foreign earnings as of December 31, 2011 and 2010, was $8.7 million and $6.0 million, respectively.

The applicable statutory income tax rate in the Cayman Islands was zero for Herbalife Ltd. for the years being reported. For purposes of the reconciliation between the provision for income taxes at the statutory rate and the provision for income taxes at the effective tax rate, a notional 35% tax rate is applied as follows (in ~~millions of dollars)~~millions):

Year Ended December 31,
2010 2009 2008
(In millions)

Tax expense at United States statutory rate $ 133.0 $ 101.8 $ 111.7
Increase (decrease) in tax resulting from:
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes (77.8 ) (31.1 ) (9.7 )
U.S. tax (benefit) on foreign income net of foreign tax credits (19.3 ) (24.6 ) (26.3 )
Increase (decrease) in valuation allowances 69.1 47.4 8.7
State taxes, net of federal benefit 5.9 4.7 5.4
Unrecognized tax benefits (10.9 ) (5.1 ) 5.7
Venezuela DASTM hyperinflationary impact (14.5 ) — —
Other 4.1 (5.5 ) 2.3

Total $ 89.6 $ 87.6 $ 97.8


	Year Ended December 31,
	2011			2010			2009
	(In millions)
Tax expense at United States statutory rate	$	195.9		$	133.0		$	101.8
Increase (decrease) in tax resulting from:
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes		(134.1	)		(77.8	)		(31.1	)
U.S. tax (benefit) on foreign income net of foreign tax credits		(8.8	)		(19.3	)		(24.6	)
Increase (decrease) in valuation allowances		86.0			64.6			47.4
State taxes, net of federal benefit		5.5			5.9			4.7
Unrecognized tax benefits		1.1			(10.9	)		(5.1	)
Venezuela DASTM hyperinflationary impact		—			(14.5	)		—
Other		1.6			(0.1	)		(5.5	)

Total	$	147.2		$	80.9		$	87.6

During the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008,~~2009, the Company benefited from the terms of a tax holiday in the People’s Republic of China. The tax holiday commenced on January 1, 2008 and will conclude on December 31, 2012. Under the terms of the holiday, the Company was subject to a zero tax rate in China during 2008 and 2009, an 11% tax rate in 2010, a 12% tax rate in 2011, and ~~was~~will be subject to a ~~graduated~~12.5% tax rate in 2012.

As of ~~11% in 2010. The~~December 31, 2011, the total amount of unrecognized tax ~~rate will gradually increase, during~~benefits, including related interest and penalties was $39.0 million. If the ~~years2011-2012~~ ~~to a maximum~~total amount of ~~25%.~~

unrecognized tax benefits was recognized, $32.1 million of unrecognized tax benefits, $5.5 million of interest and $1.1 million of penalties would impact the effective tax rate. As of December 31, 2010, the total amount of ~~the~~ unrecognized tax benefits, including related interest and penalties was $38.5 million. The unrecognized tax benefits primarily relate to uncertainties from international transfer pricing issues, the deductibility of certain operating expenses in various jurisdictions, anticipated settlements in foreign tax audits and the expiration of the statute of limitations in several jurisdictions. If the total amount of unrecognized tax benefits was recognized, $31.6 million of unrecognized tax benefits, $5.6 million of interest and $1.3 million of penalties would impact the effective tax rate.

The Company accounts for the interest and penalties generated by tax contingencies as a component of income tax expense. During the year ended December 31, 2011, the Company recorded an increase in interest expense and a reversal of penalties expense related to uncertain tax positions of $0.1 million and $0.1 million, respectively. During the years ended December 31, 2010 and December 31, 2009, the Company recorded a reversal of interest and penalties expense related to uncertain tax positions of $2.9 million and $1.9 million, respectively. As of December 31, 2011, total accrued interest and ~~$1.0~~penalties were $5.5 million and $1.1 million respectively. As of December 31, 2010, total accrued interest and penalties were $5.6 million and $1.3 million respectively.

~~126~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following changes occurred in the amount of unrecognized tax benefits ~~(including related interest and penalties)~~ during the years ended December 31, 2011, 2010 ~~2009~~ and ~~2008~~2009 (in millions):

Year Ended
Year Ended
Year Ended

December 31,
December 31,
December 31,

2010 2009 2008

Beginning balance of unrecognized tax benefits $ 49.1 $ 52.8 $ 50.3
Additions for current year tax positions 4.3 4.6 5.9
Additions for prior year tax positions 3.0 2.1 3.5
Reductions for prior year tax positions (2.4 ) (1.3 ) (3.1 )
Reductions for audit settlements (12.6 ) (2.8 ) (0.8 )
Reductions for the expiration of statutes of limitation (3.1 ) (7.7 ) (3.0 )
Changes due to foreign currency translation adjustments 0.2 1.4 —

Ending balance of unrecognized tax benefits $ 38.5 $ 49.1 $ 52.8

~~Unrecognized~~


	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
Beginning balance of unrecognized tax benefits	$	31.6		$	39.3		$	41.0
Additions for current year tax positions		5.5			4.3			4.6
Additions for prior year tax positions		2.0			1.1			0.6
Reductions for prior year tax positions		(0.9	)		(2.3	)		(1.2	)
Reductions for audit settlements		(0.7	)		(8.6	)		(0.9	)
Reductions for the expiration of statutes of limitation		(4.5	)		(2.4	)		(5.6	)
Changes due to foreign currency translation adjustments		(0.6	)		0.2			0.8

Ending balance of unrecognized tax benefits (excluding interest and penalties)	$	32.4		$	31.6		$	39.3
Interest and penalties associated with unrecognized tax benefits		6.6			6.9			9.8

Ending balance of unrecognized tax benefits (including interest and penalties)	$	39.0		$	38.5		$	49.1

The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax ~~benefits (including related interest~~position is subject to management’s assessment of relevant risks, facts, and ~~penalties) decreased $10.8 million during~~circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the ~~year ended~~Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are resolved, which may impact the Company’s effective tax rate. As of December 31, ~~2010, which was partially offset by an increase of $0.2 million due~~2011, the Company’s tax filings are generally subject to ~~foreign currency fluctuations. The $0.2 million benefit attributable to foreign currency fluctuations was accounted~~examination in major tax jurisdictions for ~~as a decrease to other comprehensive income.~~

years ending on or after December 31, 2007.

The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately ~~$8.1~~$26.1 million within the next twelve months. Of this possible decrease, ~~$2.0~~$22.6 million would be due to the settlement of audits or resolution of administrative or judicial proceedings. The remaining possible decrease of ~~$6.1~~$3.5 million would be due to the expiration of statute of limitations in various jurisdictions.

As of December 31, 2010, the Company’s tax filings are subject to examination in the U.S. federal jurisdiction and various state jurisdictions for the years ending on or after December 31, 2006. The Company’s tax filings are also subject to examination in significant foreign jurisdictions for the years ending on or after December 31, 2006.


~~13.~~	~~Restructuring Reserve~~

During the fourth quarter of 2007, the Company initiated the second phase of its Realignment for Growth plan. The Company recorded $1.9 million and $4.0 million of professional fees, severance and related costs for the years ended December 31, 2008 and 2007, respectively, relating to the second phase of its Realignment for Growth plan. As of December 31, 2010, there were no amounts outstanding related to these charges.

During the fourth quarter of 2008, the Company initiated a Restructuring Program and incurred approximately $4.8 million of professional fees, severance and related costs during the year ended December 31, 2008. For the year ended December 31, 2009, the Company recorded an additional $1.3 million of professional fees, severance and related costs relating to this restructuring program. As of December 31, 2010, there no amounts outstanding related to these charges.

All amounts related to the Realignment for Growth plan and the Restructuring Program are included in selling, general and administrative expenses and there were no balances outstanding as of December 31, 2010 relating to these programs. The following table summarizes the components of the Company’s restructuring reserve as of

~~127~~

13. Fair Value Measurements

~~HERBALIFE LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~December 31, 2010, 2009, and 2008 and expenses incurred during the years ended December 31, 2010, 2009 and 2008 (in millions):~~

Retention

Severance Benefits Others Total

Balance as of December 31, 2007 $ 2.9 $ — $ 0.6 $ 3.5
Charges 6.2 — 0.5 6.7
Cash payments (5.8 ) — (1.1 ) (6.9 )

Balance as of December 31, 2008 $ 3.3 $ — $ — $ 3.3

Charges 0.6 — 0.7 1.3
Cash payments (3.8 ) — (0.7 ) (4.5 )

Balance as of December 31, 2009 $ 0.1 $ — $ — $ 0.1

Charges — — — —
Cash payments (0.1 ) — — (0.1 )

Balance as of December 31, 2010 $ — $ — $ — $ —


~~14.~~	~~Fair Value Measurements~~

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.

~~128~~

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company measures certain assets and liabilities at fair value as discussed throughout the notes to its consolidated financial statements. Foreign exchange currency contracts and interest rate swaps are valued using standard calculations and models. Foreign exchange currency contracts are valued primarily based on inputs such as observable forward rates, spot rates and foreign currency exchange rates at the reporting period ended date. Interest rate swaps are valued primarily based on inputs such as LIBOR and swap yield curves at the reporting period ended date. Assets or liabilities that have recurring measurements and are measured at fair value consisted of Level 2 derivatives and are shown below at their gross values at December 31, ~~2010,~~2011, and December 31, ~~2009:~~

2010:

Fair Value Measurements at Reporting Date Using

Significant
Significant

Other
Other

Observable
Observable

Inputs
Inputs

(Level 2)
(Level 2)

Fair Value at
Fair Value at

December 31,
December 31,

Derivative Balance Sheet Location 2010 2009
(In millions)

ASSETS:

Derivatives designated as cash flow hedging instruments:

Foreign exchange currency contracts relating to inventory and intercompany management fee hedges Prepaid expenses and other current assets $ 0.6 $ 2.3
Derivatives not designated as cash flow hedging instruments:

Foreign exchange currency contracts Prepaid expenses and other current assets $ 2.3 $ 0.9

$ 2.9 $ 3.2

LIABILITIES:
Derivatives designated as cash flow hedging instruments:

Foreign exchange currency contracts relating to inventory and intercompany management fee hedges Accrued expenses $ 0.8 $ —
Interest rate swaps Accrued expenses $ 6.6 $ 2.6
Derivatives not designated as hedging instruments:

Foreign exchange currency contracts Accrued expenses $ 3.0 $ 2.6

$ 10.4 $ 5.2


~~15.~~	~~Subsequent Events~~


	Derivative Balance Sheet Location	Significant Other Observable Inputs (Level 2) Fair Value at December 31, 2011		Significant Other Observable Inputs (Level 2) Fair Value at December 31, 2010
		(In millions)
ASSETS:
Derivatives designated as cash flow hedging instruments:
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges	Prepaid expenses and other current assets	$	4.4	$	0.6
Derivatives not designated as cash flow hedging instruments:
Foreign exchange currency contracts	Prepaid expenses and other current assets	$	0.8	$	2.3

		$	5.2	$	2.9

LIABILITIES:
Derivatives designated as cash flow hedging instruments:
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges	Accrued expenses	$	—	$	0.8
Interest rate swaps	Accrued expenses	$	5.1	$	6.6
Derivatives not designated as hedging instruments:
Foreign exchange currency contracts	Accrued expenses	$	0.7	$	3.0

		$	5.8	$	10.4

14. Subsequent Events

On February ~~18, 2011,~~21, 2012, the ~~Company’s Board~~Company announced that its board of ~~Directors~~directors approved a~~two-for-one~~ ~~split~~ quarterly cash dividend of ~~the Company’s~~$0.30 per common ~~shares, subject~~share to ~~approval by the Company’s~~ shareholders ~~at the Company’s upcoming Annual General Meeting~~ of ~~Shareholders to be held~~record as of March 7, 2012, payable on ~~April 28, 2011. If approved by the Company’s shareholders one additional common share~~

~~129~~

March 22, 2012.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~will be distributed to~~

15. Quarterly Information (Unaudited)

Quarterly net income, basic earnings per share, and diluted earnings per share presented in the ~~Company’s shareholders on or around May 17, 2011, for each common share held on May 10, 2011. The~~table below reflect the change in accounting principle and stock split ~~will not be effective unless approved by the Company’s shareholders at the meeting.~~

~~On February 22, 2011, the Company announced that its Board~~discussed in Note 2,Basis of Directors approved a quarterly cash dividend of $0.25 per common share, for the fourth quarter of 2010, to shareholders of record as of the close of business on March 8, 2011, payable on March 22, 2011.

In February 2011, Herbalife Venezuela purchased U.S. dollar denominated bonds with a face value of $20 million U.S. dollars from a PDVSA bond offering for 86 million Bolivars and then immediately sold the bonds for U.S. dollars at an expected average effective rate of 5.7 Bolivars per U.S. dollar. These 86 million Bolivars were remeasured at the 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. The Company expects to receive approximately $15 million U.S. dollars in late February or early March 2011 as a result of this conversion and final settlement. This conversion is expected to result in the Company recording a net pre-tax loss of approximately $1.3 million U.S. dollars in its 2011 consolidated statement of income and will be reflected in the Company’s consolidated financial statements at March 31, 2011 and for the quarter ending March 31, 2011.

Presentation.


	2011		2010
	(In millions, except per share data)
First Quarter Ended March 31
Net sales	$	795.1	$	618.6
Gross profit		632.3		478.2
Net income(1)(2)		88.0		51.8
Earnings per share
Basic(1)(2)	$	0.74	$	0.43
Diluted(1)(2)	$	0.70	$	0.41
Second Quarter Ended June 30
Net sales	$	879.7	$	688.8
Gross profit		708.6		552.2
Net income		111.2		82.2
Earnings per share
Basic	$	0.93	$	0.69
Diluted	$	0.88	$	0.65
Third Quarter Ended September 30
Net sales	$	895.2	$	688.4
Gross profit		719.9		555.2
Net income		108.0		78.9
Earnings per share
Basic	$	0.92	$	0.67
Diluted	$	0.87	$	0.63
Fourth Quarter Ended December 31
Net sales	$	884.5	$	738.4
Gross profit		713.7		589.8
Net income(3)		105.4		86.3
Earnings per share
Basic(3)	$	0.91	$	0.73
Diluted(3)	$	0.86	$	0.69

(1)
~~16.~~	~~Quarterly Information (Unaudited)~~Net income, basic earnings per share and diluted earnings per share for the three months ended March 31, 2011, were previously reported as $87.6 million, $0.74 per share, and $0.71 per share, respectively, as adjusted for the stock split.

2010 2009
(In millions, except per share data)

First Quarter Ended March 31

Net sales $ 618.6 $ 521.7
Gross profit 478.2 419.3
Net income 51.9 41.5
Earnings per share
Basic $ 0.86 $ 0.68
Diluted $ 0.83 $ 0.67
Second Quarter Ended June 30

Net sales $ 688.8 $ 571.8
Gross profit 552.2 449.4
Net income 81.9 48.3
Earnings per share
Basic $ 1.38 $ 0.78
Diluted $ 1.32 $ 0.77
Third Quarter Ended September 30

Net sales $ 688.4 $ 600.2
Gross profit 555.2 468.4
Net income 75.7 57.9
Earnings per share
Basic $ 1.28 $ 0.95
Diluted $ 1.22 $ 0.91
Fourth Quarter Ended December 31

Net sales $ 738.4 $ 630.9
Gross profit 589.8 494.4
Net income 81.0 55.7
Earnings per share
Basic $ 1.37 $ 0.92
Diluted $ 1.31 $ 0.88

~~130~~

(2)	Net income, basic earnings per share and diluted earnings per share for the three months ended March 31, 2010, were not affected by the change in accounting principle noted above.

(3)	Net income, basic earnings per share and diluted earnings per share for the three months ended December 31, 2010, were previously reported as $81.0 million, $0.69 per share, and $0.65 per share, respectively, as adjusted for the stock split.

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

HERBALIFE LTD.

By:

~~By:~~

/s/ JOHN DESIMONE

John DeSimone

Chief Financial Officer

~~John DeSimone~~

~~Chief Financial Officer~~

Dated: February ~~22, 2011~~

21, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.


Signature	Title			Date
~~Signature~~		~~Title~~		~~Date~~


/s/ MICHAEL O. JOHNSON Michael O. Johnson			Chief Executive Officer, Director, Chairman of the Board (Principal Executive Officer)	February ~~22, 2011~~21, 2012

/s/ JOHN DESIMONE John DeSimone	Chief Financial Officer (Principal Financial Officer)		February ~~22, 2011~~21, 2012

/s/ BOSCO CHIU Bosco Chiu	Senior Vice President and Principal Accounting Officer ~~(Principal~~ (Principal Accounting Officer)		February ~~22, 2011~~21, 2012

/s/ LEROY T. BARNES, JR. Leroy T. Barnes, Jr.	Director		February ~~22, 2011~~21, 2012

/s/ RICHARD P. BERMINGHAM Richard P. Bermingham	Director		February ~~22, 2011~~21, 2012

/s/ ~~PEDRO CARDOSO~~ ~~Pedro Cardoso~~CAROLE BLACK Carole Black	Director		February ~~22, 2011~~21, 2012

/s/ ~~MURRAY H. DASHE~~ ~~Murray H. Dashe~~PEDRO CARDOSO Pedro Cardoso	Director		February ~~22, 2011~~21, 2012

/s/ ~~JEFFREY T. DUNN~~ ~~Jeffrey T. Dunn~~MURRAY H. DASHE Murray H. Dashe	Director		February ~~22, 2011~~21, 2012

/s/ ~~LAWRENCE M. HIGBY~~ ~~Lawrence M. Higby~~JEFFREY T. DUNN Jeffrey T. Dunn	Director		February ~~22, 2011~~21, 2012

/s/ ~~COLOMBE M. NICHOLAS~~ ~~Colombe M. Nicholas~~MICHAEL J. LEVITT Michael J. Levitt	Director		February ~~22, 2011~~21, 2012

/s/ ~~JOHN TARTOL~~ ~~John Tartol~~COLOMBE M. NICHOLAS Colombe M. Nicholas	Director		February ~~22, 2011~~21, 2012

/s/ JOHN TARTOL John Tartol	Director		February 21, 2012

~~131~~

136


Cayman Islands		98-0377871
~~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		(Zip Code)
(Address of Principal Executive Offices)


Title of Each Class		Name of Each Exchange on Which Registered

Common Shares, par value ~~$0.002~~$0.001 per share		New York Stock Exchange


Large accelerated filer þ		Accelerated filer o¨		Non-accelerated filer o¨		Smaller reporting company o¨


				Page

PART I
	~~Item 1.~~

Item 1.		Business			4
	Item 1a.		Risk Factors			~~Risk Factors~~27
Item 1b.		Unresolved Staff Comments			2545
Item 2.	~~Item 1b.~~	Properties			~~Unresolved Staff Comments~~45
Item 3.		Legal Proceedings			4245
Item 4.	~~Item 2.~~	Mine Safety Disclosure			~~Properties~~			4245
			~~Item 3.~~
PART II					~~Legal Proceedings~~

Item 5.			42
	~~Item 4.~~			~~(Removed and Reserved)~~			43

~~PART II~~
	~~Item 5.~~			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities			4446
	Item 6.		Selected Financial Data			~~Selected Financial Data~~			4850
	Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			5052
	Item 7a.			Quantitative and Qualitative Disclosures About Market Risk			7981
	Item 8.			Financial Statements and Supplementary Data			8485
	Item 9.			Changes In and Disagreements With Accountants On Accounting and Financial Disclosure			8485
	Item 9a.		Controls and Procedures			~~Controls and Procedures~~85
Item 9b.		Other Information			8488
			~~Item 9b.~~
PART III					~~Other Information~~

Item 10.			87

~~PART III~~
	~~Item 10.~~			Directors, Executive Officers and Corporate Governance			8788
	Item 11.		Executive Compensation			~~Executive Compensation~~			8788
	Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			87
	~~Item 13.~~			~~Certain Relationships and Related Transactions, and Director Independence~~			87
	~~Item 14.~~			~~Principal Accountant Fees and Services~~			87

~~PART IV~~
	~~Item 15.~~			~~Exhibits and Financial Statement Schedules~~			88
~~Signatures~~ Item 13.		Certain Relationships and Related Transactions, and Director Independence			~~131~~88
Item 14.		Principal Accountant Fees and Services			88

PART IV

Item 15.		Exhibits and Financial Statement Schedules			89
Signatures					136


Product Category	Description	Representative Products
~~Product Category~~Weight Management	~~Description~~	~~Representative Products~~

~~Weight Management~~
(~~62.1%~~62.5%, ~~63.0%,~~62.1% and ~~62.9%~~63.0% of net sales for 2011, 2010 and 2009 ~~and 2008,~~ respectively)	Meal replacement, protein shakes, ~~and supplementation, weight-loss~~drink mixes, weight loss enhancers and ~~a variety of~~ healthy snacks	Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder,Total Control^®,Prolessa™Duo and Protein Bars ~~and Snacks~~

Targeted Nutrition
(~~23.0%~~22.8%, ~~21.2%~~23.0%, and ~~20.9%~~21.2% of net sales for 2011, 2010 and 2009, ~~and 2008,~~ respectively)	Dietary and nutritional supplements containing quality herbs, vitamins, minerals and other natural ingredients	Aloe Concentrate, Niteworks^®,Garden 7^® phytonutrient supplement,Best Defense^® for improved immune system, ~~Kids Line,~~COQ10 Plus

Energy, Sports & Fitness
(~~4.4%~~4.9%, ~~4.3%~~4.4%, and ~~4.2%~~4.3% of net sales for 2011, 2010 and 2009, ~~and 2008,~~ respectively)	Products that support a healthy active lifestyle	Herbalife24 product line,Liftoff^® energy drink, ~~H(3)~~H³O^tm™ hydration drink~~Bulk & Muscle~~

Outer Nutrition
(~~4.7%~~4.3%, ~~5.5%~~4.7%, and ~~6.2%~~5.5%, of net sales for 2011, 2010 and 2009, ~~and 2008,~~ respectively)	~~Skin cleansers, moisturizers, lotions, shampoos~~Facial skin care, body care, and ~~conditioners~~hair care	Skin Activator^® ~~Anti-Aging~~ anti-aging line,Herbal Aloe Bath and Body Care~~every day~~ line,NouriFusion^® multivitamin skin care line, Radiant C antioxidant skin care line

Literature, Promotional and Other Products
(~~5.8%~~5.5%, ~~6.0%~~5.8%, and ~~5.8%~~6.0% of net sales for 2011, 2010 and 2009, ~~and 2008,~~ respectively)	Sales aids, informational audiotapes, CDs, DVDs and start-up kits	International Business Packs, BizWorks


~~(Mark One)~~
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

	¨	~~For the fiscal year ended December 31, 2010~~
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

	OF	THE SECURITIES EXCHANGE ACT OF 1934
		~~For the transition period from to~~


	•	any collateral impact resulting from the ongoing worldwide financial “crisis,” including the availability of liquidity to us, our customers and our suppliers or the willingness of our customers to purchase products in a recessionary economic environment;

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

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

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

	•	~~changing consumer preferences and demands;~~

	•	~~our reliance upon, or the loss or departure of any member of, our senior management team which could negatively impact our distributor relations and operating results;~~

	•	~~the competitive nature of our business;~~

	•	regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products and network marketing program, including the direct selling market in which we operate;

	•	~~third party legal challenges to our network marketing program;~~

	•	risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, disruptions or conflicts with our third party importers, pricing and currency devaluation risks, especially in countries such as Venezuela;

	•	~~uncertainties relating to the application of transfer pricing, duties, value added taxes, and other tax regulations, and changes thereto;~~

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

	•	~~our inability to obtain the necessary licenses to expand our direct selling business in China;~~

	•	~~adverse changes in the Chinese economy, Chinese legal system or Chinese governmental policies;~~

	•	~~our dependence on increased penetration of existing markets;~~

	•	~~contractual limitations on our ability to expand our business;~~

	•	improper action by our employees or distributors in violation of applicable law; adverse publicity associated with our products or network marketing organization; changing consumer preferences and demands; our reliance upon, or the loss or departure of any member of, our senior management team which could negatively impact our distributor relations and operating results; the competitive nature of our business; regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products and network marketing program, including the direct selling market in which we operate; legal challenges to our network marketing program; risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, disruptions or conflicts with our third party importers, pricing and currency devaluation risks, especially in countries such as Venezuela; uncertainties relating to the application of transfer pricing, duties, value added taxes, and other tax regulations, and changes thereto; uncertainties relating to interpretation and enforcement of legislation in China governing direct selling; our inability to obtain the necessary licenses to expand our direct selling business in China; adverse changes in the Chinese economy, Chinese legal system or Chinese governmental policies; our dependence on increased penetration of existing markets; contractual limitations on our ability to expand our business; our reliance on our information technology infrastructure and outside manufacturers;


	•	~~the sufficiency of trademarks and other intellectual property rights;~~

	•	~~product concentration;~~

	•	~~changes in tax laws, treaties or regulations, or their interpretation;~~

	•	~~taxation relating to our distributors;~~

	•	~~product liability claims; and~~

	•	~~whether we will purchase any of our shares in the open markets or otherwise.~~


	At the End of February
	Number of Sales Leaders						Sales Leader Retention Rate
	2010		2009		2008		2010			2009			2008

North America		64,668		63,726		64,383		43.3	%		42.2	%		43.5	%
Mexico		47,068		50,099		60,685		50.4	%		45.2	%		44.4	%
South & Central America		51,060		67,876		67,808		34.1	%		32.2	%		34.7	%
EMEA		47,080		53,371		59,446		51.9	%		48.7	%		46.6	%
Asia Pacific (excluding China)		75,635		59,631		57,355		38.6	%		35.1	%		34.3	%

Total Sales Leaders		285,511		294,703		309,677		43.0	%		40.3	%		41.0	%
China Sales Employees		27,415		29,684		25,294

Worldwide Total Sales Leaders		312,926		324,387		334,971


	At the End of February
	Number of Sales Leaders						Sales Leader Retention Rate
	2011		2010		2009		2011			2010			2009
North America		72,152		64,668		63,726		48.6	%		43.3	%		42.2	%
Mexico		54,526		47,068		50,099		57.9	%		50.4	%		45.2	%
South & Central America		50,288		51,060		67,876		47.3	%		34.1	%		32.2	%
EMEA		49,696		47,080		53,371		58.6	%		51.9	%		48.7	%
Asia Pacific (excluding China)		90,822		75,635		59,631		38.4	%		38.6	%		35.1	%

Total Sales Leaders		317,484		285,511		294,703		48.9	%		43.0	%		40.3	%
China		30,543		27,415		29,684

Worldwide Total Sales Leaders		348,027		312,926		324,387


Country			Year Entered
North America	~~Year~~
~~Country~~	~~Entered~~

~~North America~~
USA		1980
Canada		1982
Jamaica		1999
Aruba		2010
Mexico		1989
South and Central America
Dominican Republic		1994
Venezuela		1994
Argentina		1994
Brazil		1995
Chile		1997
Panama		2000
Colombia		2001
Bolivia		2004
Costa Rica		2006
Peru		2006
El Salvador		2007
Ecuador		2008
Honduras		2008
Nicaragua		2008
Guatemala		2008
Paraguay		2009
Asia Pacific
Australia		1983
New Zealand		1988
Japan		1989


Country	Year Entered
Hong Kong		1992
Philippines		1994
Taiwan		1995
South Korea		1996
Thailand		1997
Indonesia		1998
India		1999
Macau		2002
Singapore		2003
Malaysia		2006
Vietnam		2009
China		2001
EMEA
United Kingdom		1984
Spain		1989
~~Hong Kong~~ Israel		1989
France		1990
Germany		1990
Portugal		1992
~~Philippines~~ Czech Republic		1992
Italy		1992
Netherlands		1993
Belgium		1994
~~Taiwan~~ Poland		1994
Denmark		1994
Sweden		1994
Russia		1995


Country	Year Entered
Austria		1995
Switzerland		1995
South ~~Korea~~Africa		1995
Norway		1995
Finland		1995
Greece		1996
~~Thailand~~		~~1997~~
~~Indonesia~~ Turkey		1998
~~India~~ Botswana		1998
Lesotho		1998
Namibia		1998
Swaziland		1998
Iceland		1999
~~Macau~~ Slovak Republic		1999
Cyprus		2000
Ireland		2000


Item 1.	*BUSINESS*


Country	Year Entered
Croatia		2001
Latvia		2002
~~Singapore~~ Ukraine		2002
Estonia		2003
~~Malaysia~~		~~2006~~
~~Vietnam~~		~~2009~~
~~China~~		~~2001~~


	~~Year~~
~~Country~~	~~Entered~~

~~EMEA~~
~~United Kingdom~~		~~1984~~
~~Spain~~		~~1989~~
~~Israel~~		~~1989~~
~~France~~		~~1990~~
~~Germany~~		~~1990~~
~~Portugal~~		~~1992~~
~~Czech Republic~~		~~1992~~
~~Italy~~		~~1992~~
~~Netherlands~~		~~1993~~
~~Belgium~~		~~1994~~
~~Poland~~		~~1994~~
~~Denmark~~		~~1994~~
~~Sweden~~		~~1994~~
~~Russia~~		~~1995~~
~~Austria~~		~~1995~~
~~Switzerland~~		~~1995~~
~~South Africa~~		~~1995~~
~~Norway~~		~~1995~~
~~Finland~~		~~1995~~
~~Greece~~		~~1996~~
~~Turkey~~		~~1998~~
~~Botswana~~		~~1998~~
~~Lesotho~~		~~1998~~
~~Namibia~~		~~1998~~
~~Swaziland~~		~~1998~~
~~Iceland~~		~~1999~~
~~Slovak Republic~~		~~1999~~
~~Cyprus~~		~~2000~~
~~Ireland~~		~~2000~~
~~Croatia~~		~~2001~~
~~Latvia~~		~~2002~~
~~Ukraine~~		~~2002~~
~~Estonia~~		2003
~~Lithuania~~		~~2003~~
Hungary		2005


										Number of
	Net Sales						Percent of			Countries
	Year Ended December 31,						Total Net Sales			December 31,
Geographic Region	2010		2009		2008		2010			2010
	(In millions)

North America	$	614.1	$	529.0	$	496.9		22.5	%		4
Mexico		334.0		263.0		352.2		12.2	%		1
South & Central America		390.4		366.9		383.6		14.3	%		16
EMEA		527.8		504.2		570.7		19.3	%		38
Asia Pacific		683.5		509.2		410.8		25.0	%		14
China		184.4		152.3		145.0		6.7	%		1

Worldwide	$	2,734.2	$	2,324.6	$	2,359.2		100.0	%		74


Geographic Region	Net Sales						Percent of Total Net Sales 2011			Number of Countries December 31, 2011
	Year Ended December 31,
	2011		2010		2009
	(In millions)
North America	$	698.6	$	614.1	$	529.0		20.2	%		4
Mexico		436.9		334.0		263.0		12.7	%		1
South & Central America		554.4		390.4		366.9		16.0	%		16
EMEA		615.2		527.8		504.2		17.8	%		43
Asia Pacific		938.6		683.5		509.2		27.2	%		14
China		210.8		184.4		152.3		6.1	%		1

Worldwide	$	3,454.5	$	2,734.2	$	2,324.6		100.0	%		79


Name	Age		Position with the Company
Michael O. Johnson
~~Name~~	~~Age~~		~~Position with the Company~~

~~Michael O. Johnson~~57		56 Chief Executive Officer, Director, Chairman of the Board
Desmond Walsh		~~Chief Executive Officer, Director,~~
			~~Chairman of the Board~~
~~Desmond Walsh~~		5354	President
Richard Goudis		4950	Chief Operating Officer
Brett R. Chapman		5556	General Counsel and Corporate Secretary
John DeSimone		4445	Chief Financial Officer


	•	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.~~


	•	~~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.~~


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

	•	~~incur additional debt or issue preferred shares;~~

	•	~~impose 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.~~


Quarter Ended	High		Low

March 31, 2009	$	23.46	$	12.12
June 30, 2009	$	31.98	$	14.71
September 30, 2009	$	35.87	$	28.92
December 31, 2009	$	44.43	$	31.47


	12/31/05		12/31/06		12/31/07		12/31/08		12/31/09		12/31/10
Herbalife Ltd.	$	100.00	$	123.49	$	125.66	$	69.37	$	134.14	$	230.05
S&P 500 Index	$	100.00	$	115.79	$	122.16	$	76.96	$	97.33	$	111.99
Peer Index	$	100.00	$	114.20	$	126.98	$	81.69	$	115.80	$	119.06


					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

October 1 — October 31		—		—		—	$	826,688,278
November 1 — November 30		507,742	$	67.71		507,742	$	792,309,246
December 1 — December 31		225,271	$	69.34		225,271	$	776,688,953

Total		733,013	$	68.21		733,013	$	776,688,953


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2010			2009			2008

Operations:
Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		20.4			21.2			19.4

Gross profit		79.6			78.8			80.6
Royalty overrides(1)		32.9			32.8			33.8
Selling, general and administrative expenses(1)		32.5			33.3			32.7

Operating income		14.2			12.7			14.1
Interest expense, net		0.3			0.2			0.6

Income before income taxes		13.9			12.5			13.5
Income taxes		3.3			3.8			4.1

Net income		10.6			8.7			9.4


	Payments Due by Period
									2016 &
	Total		2011		2012 - 2013		2014 - 2015		Thereafter
					(Dollars in millions)

Borrowings under the senior credit facility(1)	$	182.1	$	4.6	$	177.5	$	—	$	—
Capital leases		3.1		1.6		1.5		—		—
Operating leases		161.5		39.0		58.2		39.6		24.7
Other		21.5		11.5		10.0		—		—

Total	$	368.2	$	56.7	$	247.2	$	39.6	$	24.7


	Quarter Ended
	December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2010		2010		2010		2010		2009		2009		2009		2009
	(In thousands except per share data)

Operations:
Net sales	$	738,356	$	688,431	$	688,806	$	618,633	$	630,871	$	600,218	$	571,805	$	521,683
Cost of sales		148,513		133,265		136,561		140,472		136,515		131,777		122,442		102,400

Gross profit		589,843		555,166		552,245		478,161		494,356		468,441		449,363		419,283
Royalty overrides		244,088		224,061		224,780		207,319		204,580		194,639		186,750		175,532
Selling, general and administrative expenses		239,512		230,150		211,110		206,883		205,691		195,968		190,794		181,458

Operating income		106,243		100,955		116,355		63,959		84,085		77,834		71,819		62,293
Interest expense, net		1,126		2,192		2,146		1,953		1,016		1,037		1,338		1,712

Income before income taxes		105,117		98,763		114,209		62,006		83,069		76,797		70,481		60,581
Income taxes		24,127		23,024		32,276		10,135		27,413		18,902		22,228		19,039

Net income	$	80,990	$	75,739	$	81,933	$	51,871	$	55,656	$	57,895	$	48,253	$	41,542

Earnings per share
Basic	$	1.37	$	1.28	$	1.38	$	0.86	$	0.92	$	0.95	$	0.78	$	0.68
Diluted	$	1.31	$	1.22	$	1.32	$	0.83	$	0.88	$	0.91	$	0.77	$	0.67
Weighted average shares outstanding
Basic		59,082		59,221		59,527		60,160		60,492		61,234		61,642		61,510
Diluted		62,058		61,946		62,103		62,672		63,004		63,397		62,929		61,614


	Average		Original		Fair
	Contract		Notional		Value
Foreign Currency	Rate		Amount		Gain (Loss)
			(In millions)		(In millions)

At December 31, 2010
Buy BRL sell USD		1.68	$	7.6	$	0.1
Buy EUR sell ARS		5.27		1.3		—
Buy EUR sell JPY		113.89		1.2		(0.1	)
Buy EUR sell MXN		16.58		35.5		—
Buy EUR sell RUB		40.99		1.8		—
Buy EUR sell USD		1.34		101.4		0.1
Buy INR sell USD		44.81		4.5		—
Buy JPY sell EUR		111.90		1.2		—
Buy JPY sell USD		82.57		19.4		0.4
Buy KRW sell USD		1,146.51		21.0		0.4
Buy MXN sell EUR		16.45		8.0		—
Buy MXN sell USD		12.37		4.5		—
Buy MYR sell USD		3.10		12.2		0.1
Buy PEN sell USD		2.80		10.3		—
Buy PHP sell USD		43.89		0.1		—
Buy TWD sell USD		29.17		2.6		—
Buy USD sell BRL		1.72		14.9		(0.5	)
Buy USD sell COP		1,917.51		4.3		—
Buy USD sell EUR		1.32		74.3		(1.0	)
Buy USD sell GBP		1.56		4.0		—
Buy USD sell INR		45.78		8.7		(0.2	)
Buy USD sell JPY		81.59		9.8		(0.1	)
Buy USD sell KRW		1,138.90		4.9		(0.1	)
Buy USD sell MXN		12.45		4.9		—
Buy USD sell PEN		2.81		5.2		—
Buy USD sell PHP		44.11		2.8		—
Buy USD sell RUB		31.48		1.3		—

Total forward contracts			$	367.7	$	(0.9	)


Exhibit
Number			Description	Reference

	3	.1	Form of Amended and Restated Memorandum and Articles of Association of Herbalife Ltd.	(d)
	4	.1	Form of Share Certificate	(d)
	10	.1	Form of Indemnity Agreement between Herbalife International Inc. and certain officers and directors of Herbalife International Inc.	(a)
	10	.2#	Herbalife International of America, Inc.’s Senior Executive Deferred Compensation Plan, effective January 1, 1996, as amended	(a)
	10	.3#	Herbalife International of America, Inc.’s Management Deferred Compensation Plan, effective January 1, 1996, as amended	(a)
	10	.4	Master Trust Agreement between Herbalife International of America, Inc. and Imperial Trust Company, Inc., effective January 1, 1996	(a)
	10	.5#	Herbalife International Inc. 401K Profit Sharing Plan and Trust, as amended	(a)
	10	.6	Trust Agreement for Herbalife 2001 Executive Retention Plan, effective March 15, 2001	(a)
	10	.7#	Herbalife 2001 Executive Retention Plan, effective March 15, 2001	(a)
	10	.8	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	.9	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)


~~(u)~~	(l)	Previously filed on June 17, 2010 as an Exhibit to the Company’s Current Report onForm 8-K and is incorporated herein by reference.


				Paid-in			Accumulated
				Capital in			Other						Total
	Common			Excess of			Comprehensive			Retained			Shareholders’			Comprehensive
	Shares			par Value			Loss			Earnings			Equity			Income
	(In thousands, except per share amounts)

Balance at December 31, 2007	$	129		$	160,872		$	(3,947	)	$	25,190		$	182,244
Issuance of 1.7 million common shares from exercise of stock options, SARs, warrants, employee stock purchase plan, and restricted stock grants		3			19,505									19,508
Excess tax benefit from exercise of stock options, SARs and restricted stock grants					15,289									15,289
Additional capital from share based compensation					17,788									17,788
Repurchases of common shares		(9	)		(15,739	)					(123,173	)		(138,921	)
Dividends ($0.80 per share)											(50,700	)		(50,700	)
Net income											221,190			221,190		$	221,190
Foreign currency translation adjustment								(24,770	)					(24,770	)		(24,770	)
Unrealized gain on derivatives, net of income taxes of $205								103						103			103

Total comprehensive income																$	196,523

Balance at December 31, 2008	$	123		$	197,715		$	(28,614	)	$	72,507		$	241,731

Issuance of 0.9 million common shares from exercise of stock options, SARs, restricted stock grants, and employee stock purchase plan		2			7,882									7,884
Excess tax benefit from exercise of stock options, SARs and restricted stock grants					3,587									3,587
Additional capital from share based compensation					20,907									20,907
Repurchases of common shares		(5	)		(8,269	)					(66,367	)		(74,641	)
Dividends and dividend equivalents ($0.80 per share)					1,060						(49,781	)		(48,721	)
Net income											203,346			203,346		$	203,346
Foreign currency translation adjustment								5,248						5,248			5,248
Unrealized loss on derivatives, net of income taxes of ($40)								(30	)					(30	)		(30	)

Total comprehensive income																$	208,564

Balance at December 31, 2009	$	120		$	222,882		$	(23,396	)	$	159,705		$	359,311

Issuance of 1.7 million common shares from exercise of stock options, SARs and restricted stock grants		4			15,305									15,309
Excess tax benefit from exercise of stock options, SARs and restricted stock grants					16,727									16,727
Additional capital from share based compensation					22,969									22,969
Repurchases of common shares		(6	)		(21,088	)					(138,914	)		(160,008	)
Dividends and dividend equivalents ($0.90 per share)					580		��				(54,320	)		(53,740	)
Net income											290,533			290,533		$	290,533
Foreign currency translation adjustment								583						583			583
Unrealized loss on derivatives, net of income taxes of ($1,222)								(4,472	)					(4,472	)		(4,472	)

Total comprehensive income																$	286,644

Balance at December 31, 2010	$	118		$	257,375		$	(27,285	)	$	257,004		$	487,212


						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
Stock Options & SARS	Awards			Exercise Price		Contractual Term		Value(1)
	(In thousands)							(In millions)

Outstanding at December 31, 2009		7,372		$	24.84		5.9 years	$	123.6
Granted		890		$	45.17
Exercised		(1,813	)	$	20.77
Forfeited		(59	)	$	32.26

Outstanding at December 31, 2010(2)		6,390		$	28.75		5.7 years	$	253.1

Exercisable at December 31, 2010		3,302		$	23.20		4.1 years	$	149.2


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

Outstanding and nonvested at December 31, 2009		689.5		$	26.35	$	18.2
Granted		121.1		$	45.71		5.5
Vested		(221.3	)	$	34.04		(7.5	)
Forfeited		(9.1	)	$	23.13		(0.2	)

Outstanding and nonvested at December 31, 2010		580.2		$	27.51	$	16.0


Contribution Margin(1):
Primary Reporting Segment:
United States	$	286.3	$	257.0	$	220.0
Mexico		191.1		131.7		104.0
South Korea		163.1		103.0		54.4
Others		810.0		618.5		558.9

Total Primary Reporting Segment		1,450.5		1,110.2		937.3
China(2)		186.4		165.0		132.6

Total Contribution Margin	$	1,636.9	$	1,275.2	$	1,069.9
Selling, general and administrative expense		1,074.6		887.7		773.9
Interest expense		9.9		9.7		9.6
Interest income		7.4		2.3		4.5

Income before income taxes		559.8		380.1		290.9
Income taxes		147.2		80.9		87.6

Net Income	$	412.6	$	299.2	$	203.3


	Average		Original		Fair Value
Foreign Currency	Contract Rate		Notional Amount		Gain (Loss)
			(In millions)		(In millions)

At December 31, 2010
Buy BRL sell USD		1.68	$	7.6	$	0.1
Buy EUR sell ARS		5.27		1.3		—
Buy EUR sell JPY		113.89		1.2		(0.1	)
Buy EUR sell MXN		16.58		35.5		—
Buy EUR sell RUB		40.99		1.8		—
Buy EUR sell USD		1.34		101.4		0.1
Buy INR sell USD		44.81		4.5		—
Buy JPY sell EUR		111.90		1.2		—
Buy JPY sell USD		82.57		19.4		0.4
Buy KRW sell USD		1,146.51		21.0		0.4
Buy MXN sell EUR		16.45		8.0		—
Buy MXN sell USD		12.37		4.5		—
Buy MYR sell USD		3.10		12.2		0.1
Buy PEN sell USD		2.80		10.3		—
Buy PHP sell USD		43.89		0.1		—
Buy TWD sell USD		29.17		2.6		—
Buy USD sell BRL		1.72		14.9		(0.5	)
Buy USD sell COP		1,917.51		4.3		—
Buy USD sell EUR		1.32		74.3		(1.0	)
Buy USD sell GBP		1.56		4.0		—
Buy USD sell INR		45.78		8.7		(0.2	)
Buy USD sell JPY		81.59		9.8		(0.1	)
Buy USD sell KRW		1,138.90		4.9		(0.1	)
Buy USD sell MXN		12.45		4.9		—
Buy USD sell PEN		2.81		5.2		—
Buy USD sell PHP		44.11		2.8		—
Buy USD sell RUB		31.48		1.3		—

Total forward contracts			$	367.7	$	(0.9	)