UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-32381

 

HERBALIFE LTD.

(Exact name of registrant as specified in its charter)

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

P.O. Box 309GT

Grand Cayman, Cayman Islands
(Address of principal executive offices) (Zip code)

(310) 410-9600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

Number of shares of registrant’s common shares outstanding as of July 30, 2009 was 61,692,937

 

 

HERBALIFE LTD.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Unaudited Consolidated Balance Sheets			3
Unaudited Consolidated Statements of Income			4
Unaudited Consolidated Statements of Cash Flows			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33
Forward Looking Statements			34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 3. Defaults Upon Senior Securities			49
Item 4. Submission of Matters to a Vote of Security Holders			50
Item 5. Other Information			50
Item 6. Exhibits			50
Signatures and Certifications			56
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I. FINANCIAL INFORMATION

Item 1.		FINANCIAL STATEMENTS

HERBALIFE LTD.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

		June 30,				December 31,
		2009				2008
		(In thousands, except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	181,436			$	150,847
Receivables, net of allowance for doubtful accounts of $8,989 (2009) and $8,988 (2008)			78,711				70,002
Inventories, net			125,870				134,392
Prepaid expenses and other current assets			89,540				89,214
Deferred income taxes			42,003				40,313
Total current assets			517,560				484,768
Property, at cost, net of accumulated depreciation and amortization of $116,135 (2009) and $89,411 (2008)			173,365				175,492
Deferred compensation plan assets			16,006				15,754
Deferred financing costs, net of accumulated amortization of $1,530 (2009) and $1,287 (2008)			1,746				1,989
Marketing related intangibles			310,060				310,060
Goodwill			110,677				110,677
Other assets			23,170				22,578
Total assets		$	1,152,584			$	1,121,318
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	43,125			$	41,084
Royalty overrides			128,916				130,369
Accrued compensation			44,668				60,629
Accrued expenses			106,979				104,795
Current portion of long-term debt			13,387				15,117
Advance sales deposits			30,260				12,603
Income taxes payable			26,323				37,302
Total current liabilities			393,658				401,899
NON-CURRENT LIABILITIES:
Long-term debt, net of current portion			300,578				336,514
Deferred compensation			14,535				13,979
Deferred income taxes			103,549				103,675
Other non-current liabilities			24,290				23,520
Total liabilities			836,610				879,587
CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common shares, $0.002 par value, 500.0 million shares authorized, 61.7 million (2009) and 61.4 million (2008) shares issued and outstanding			122				123
Paid-in-capital in excess of par value			207,385				197,715
Accumulated other comprehensive loss			(28,418	)			(28,614	)
Retained earnings			136,885				72,507
Total shareholders’ equity			315,974				241,731
Total liabilities and shareholders’ equity		$	1,152,584			$	1,121,318

See the accompanying notes to consolidated financial statements.

HERBALIFE LTD.

CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008
		(Unaudited)
		(In thousands, except per share amounts)
Product sales		$	490,899			$	550,676			$	937,847			$	1,071,402
Handling & freight income			80,906				89,024				155,641				172,735
Net sales			571,805				639,700				1,093,488				1,244,137
Cost of sales			122,442				128,049				224,842				245,715
Gross profit			449,363				511,651				868,646				998,422
Royalty overrides			186,750				215,300				362,282				428,020
Selling, general & administrative expenses			190,794				203,113				372,252				387,513
Operating income			71,819				93,238				134,112				182,889
Interest expense, net			1,338				3,167				3,050				6,957
Income before income taxes			70,481				90,071				131,062				175,932
Income taxes			22,228				22,991				41,267				46,485
NET INCOME		$	48,253			$	67,080			$	89,795			$	129,447
Earnings per share:
Basic		$	0.78			$	1.04			$	1.46			$	2.01
Diluted		$	0.77			$	1.01			$	1.44			$	1.94
Weighted average shares outstanding:
Basic			61,642				64,282				61,583				64,301
Diluted			62,929				66,110				62,413				66,559
Dividends declared per share		$	0.20			$	0.20			$	0.40			$	0.40

See the accompanying notes to consolidated financial statements.

HERBALIFE, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months Ended
		June 30,				June 30,
		2009				2008
		(Unaudited)
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	89,795			$	129,447
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,686				22,244
Deficiency (Excess) tax benefits from share-based payment arrangements			982				(12,878	)
Share based compensation expenses			10,024				8,721
Amortization of discount and deferred financing costs			244				238
Deferred income taxes			(1,657	)			586
Unrealized foreign exchange transaction loss (gain)			2,545				(2,876	)
Other			154				737
Changes in operating assets and liabilities:
Receivables			(4,938	)			(12,719	)
Inventories			12,022				3,166
Prepaid expenses and other current assets			971				(24,109	)
Other assets			(679	)			(591	)
Accounts payable			1,202				6,280
Royalty overrides			(3,622	)			(2,821	)
Accrued expenses and accrued compensation			(19,587	)			(4,949	)
Advance sales deposits			17,164				15,702
Income taxes payable			(12,599	)			(4,314	)
Deferred compensation plan liability			557				4
NET CASH PROVIDED BY OPERATING ACTIVITIES			122,264				121,868
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property			(26,801	)			(37,590	)
Proceeds from sale of property			60				27
Deferred compensation plan assets			(252	)			263
NET CASH USED IN INVESTING ACTIVITIES			(26,993	)			(37,300	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid			(24,617	)			(25,586	)
Borrowings from long-term debt			59,000				40,000
Principal payments on long-term debt			(97,009	)			(61,603	)
Share repurchases			(972	)			(94,193	)
(Deficiency) Excess tax benefits from share-based payment arrangements			(982	)			12,878
Proceeds from exercise of stock options and sale of stock under employee stock purchase plan			791				15,609
NET CASH USED IN FINANCING ACTIVITIES			(63,789	)			(112,895	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH			(893	)			3,306
NET CHANGE IN CASH AND CASH EQUIVALENTS			30,589				(25,021	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			150,847				187,407
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	181,436			$	162,386
CASH PAID DURING THE PERIOD
Interest paid		$	6,560			$	9,535
Income taxes paid		$	54,473			$	46,501
NON CASH ACTIVITIES
Assets acquired under capital leases and other long-term debt		$	327			$	27,295

See the accompanying notes to consolidated financial statements.

HERBALIFE LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Herbalife Ltd., a Cayman Islands exempted limited liability company, or Herbalife, 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 supplement, energy, sports & fitness products and personal care products through a network of approximately 1.9 million independent distributors, except in China, where the Company currently sells its products through retail stores and an employed sales force. The Company reports revenue in six geographic regions: 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.

2. Basis of Presentation

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s, or the SEC, Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles, or GAAP, in the U.S. for complete financial statements. The Company’s unaudited consolidated financial statements as of June 30, 2009, and for the three and six months ended June 30, 2009 and 2008, include Herbalife and all of its direct and indirect subsidiaries. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s unaudited consolidated financial statements as of June 30, 2009, and for the three and six months ended June 30, 2009 and 2008. These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, or the 2008 10-K. Operating results for the three and six months ended June 30, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The Company has performed an evaluation of subsequent events through August 3, 2009, which is the date the financial statements were issued.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162, or SFAS 168. The FASB Accounting Standards Codification, or the Codification, will be the single source of authoritative nongovernmental U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC reporting companies. SFAS 168 is effective for interim and annual financial periods ending after September 15, 2009. All existing non-SEC accounting standards are superseded as described in SFAS 168. All other non-SEC accounting literature not included in the Codification is non-authoritative. The Codification is not expected to have a significant impact on the Company’s financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events, or SFAS 165. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The adoption of SFAS 165 did not have a significant impact on the Company’s financial statements.

3. Long-Term Debt

Long-term debt consists of the following:

		As of
		June 30,				December 31,
		2009				2008
		(In millions)
Borrowings under senior secured credit facility		$	298.1			$	324.5
Capital leases			6.1				6.9
Other debt			9.8				20.2
Total			314.0				351.6
Less: current portion			13.4				15.1
Long-term portion		$	300.6			$	336.5

Interest expense was $2.9 million and $4.9 million for the three months ended June 30, 2009 and 2008, respectively, and $6.2 million and $10.4 million for the six months ended June 30, 2009 and 2008, respectively.

On July 21, 2006, the Company entered into a $300.0 million senior secured credit facility, comprised of a $200.0 million term loan and a $100.0 million revolving credit facility, with a syndicate of financial institutions as lenders that replaced a $225.0 million senior secured credit facility, originally entered into on December 21, 2004. In September 2007, the Company and its lenders amended the senior secured credit facility, increasing the amount of the revolving credit facility by an aggregate principal amount of $150.0 million to $250.0 million. The term loan bears interest at LIBOR plus a margin of 1.5%, or the base rate plus a margin of 0.50%, and matures on July 21, 2013. The revolving credit facility bears interest at LIBOR plus a margin of 1.25%, or the base rate plus a margin of 0.25%, and is available until July 21, 2012. On June 30, 2009 and December 31, 2008, the weighted average interest rate for the senior secured credit facility was 1.70% and 3.04%, respectively.

The senior secured credit facility requires the Company to comply with a leverage ratio and an interest coverage ratio. In addition, the senior secured 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, merge or consolidate and enter into certain transactions with affiliates.

As of June 30, 2009, the Company is obligated to pay approximately $0.4 million of the term loan every quarter until June 30, 2013, and the remaining principal on July 21, 2013. As of June 30, 2009 and December 31, 2008, the amounts outstanding under the term loan were $146.1 million and $146.8 million, respectively.

During the first quarter of 2009, the Company borrowed an additional $19.0 million under the revolving credit facility and paid $14.7 million of the revolving credit facility. During the second quarter of 2009, the Company borrowed an additional $40.0 million under the revolving credit facility and paid $70.0 million of the revolving credit facility. As of June 30, 2009 and December 31, 2008, the amounts outstanding under the revolving credit facility were $152.0 million and $177.7 million, respectively.

Through the course of conducting regular business operations, certain vendors and government agencies may require letters of credit to be issued. As of June 30, 2009 and December 31, 2008, the Company had an aggregate of $2.8 million of issued but undrawn letters of credit.

4. Contingencies

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

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.

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

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

5. Comprehensive Income

Total comprehensive income consisted of the following:

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008
		(In millions)
Net income		$	48.3			$	67.1			$	89.8			$	129.4
Unrealized gain/(loss) on derivative instruments			(1.3	)			0.8				0.7				(0.1	)
Foreign currency translation adjustment			10.2				(0.7	)			(0.5	)			0.3
Comprehensive income		$	57.2			$	67.2			$	90.0			$	129.6

6. 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 SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company’s products are manufactured by third party providers and then sold to independent distributors who sell Herbalife products to retail consumers or other distributors.

The Company sells products in 70 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 aggregation.

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

During the first quarter of 2009, the Company changed its geographic regions as part of the Company’s restructuring program by designating Mexico as its own region and combining South America and Central America into one region. These changes in geographic regions were implemented to create growth opportunities for distributors, support faster decision making across the organization by reducing the number of layers of management, improve the sharing of ideas and tools and accelerate growth in the Company’s high potential markets. Historical information presented related to the Company’s geographic regions has been reclassified to conform with the current geographic presentation. The operating information for the Primary Reporting Segment and China, and sales by product line are as follows:

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008
		(In millions)
Net Sales:
Primary Reporting Segment
United States		$	134.2			$	127.7			$	253.2			$	241.7
Mexico			66.4				102.7				125.6				196.3
Others			330.6				370.5				647.3				742.8
Total Primary Reporting Segment			531.2				600.9				1,026.1				1,180.8
China			40.6				38.8				67.4				63.3
Total Net Sales		$	571.8			$	639.7			$	1,093.5			$	1,244.1
Operating Margin(1):
Primary Reporting Segment
United States		$	57.7			$	53.5			$	114.6			$	100.7
Mexico			25.1				43.3				51.4				82.1
Others			143.8				168.1				281.8				333.5
Total Primary Reporting Segment			226.6				264.9				447.8				516.3
China (2)			36.0				31.5				58.6				54.1
Total Operating Margin		$	262.6			$	296.4			$	506.4			$	570.4
Selling, general and administrative expenses			190.8				203.1				372.3				387.5
Interest expense, net			1.3				3.2				3.0				7.0
Income before income taxes			70.5				90.1				131.1				175.9
Income taxes			22.2				23.0				41.3				46.5
Net Income		$	48.3			$	67.1			$	89.8			$	129.4

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008
		(In millions)
Net sales by product line:
Weight Management		$	363.8			$	405.2			$	693.0			$	786.0
Targeted Nutrition			120.9				130.5				230.9				256.1
Energy, Sports and Fitness			24.0				26.5				45.6				50.5
Outer Nutrition			32.3				39.3				63.8				79.5
Literature, promotional and other(3)			30.8				38.2				60.2				72.0
Total Net Sales		$	571.8			$	639.7			$	1,093.5			$	1,244.1
Net sales by geographic region:
North America(4)		$	138.3			$	133.2			$	261.4			$	251.8
Mexico			66.4				102.7				125.6				196.3
South and Central America			85.4				98.7				160.7				204.7
EMEA(5)			126.6				159.9				249.9				317.9
Asia Pacific(6)			114.5				106.4				228.5				210.1
China			40.6				38.8				67.4				63.3
Total Net Sales		$	571.8			$	639.7			$	1,093.5			$	1,244.1

As of June 30, 2009 and December 31, 2008, total assets for the Company’s Primary Reporting Segment was $1,104.3 million and $1,074.3 million, respectively. Total assets for the China segment was $48.3 million and $47.0 million as of June 30, 2009 and December 31, 2008, respectively.

7. Stock Based Compensation

The Company has five stock-based compensation plans, which are more fully described in Note 9 to the Consolidated Financial Statements in the 2008 10-K. During the six months ended June 30, 2009, the Company granted stock awards subject to continued service, consisting of stock units and stock appreciation rights, with vesting terms fully described in the 2008 10-K. During the six months ended June 30, 2009, the Company also granted other stock units and stock appreciation rights, 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.

For the three months ended June 30, 2009 and 2008, stock-based compensation expense amounted to $5.3 million and $3.6 million, respectively. For the six months ended June 30, 2009 and 2008, stock-based compensation expense amounted to $10.2 million and $8.7 million, respectively. As of June 30, 2009, the total unrecognized compensation cost related to all non-vested stock awards was $42.8 million and the related weighted-average period over which it is expected to be recognized is approximately 2.4 years.

The following tables summarize the activity under all stock-based compensation plans for the six months ended June 30, 2009:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
Stock Options & SARS		Shares				Price				Term				Value
		(In thousands)												(In millions)
Outstanding at December 31, 2008			6,967			$	26.32			6.2 years				$	27.6
Granted			1,488				13.79
Exercised			(91	)			5.23
Forfeited			( 213	)			28.49
Outstanding at June 30, 2009			8,151			$	24.21			6.3 years				$	10.8
Exercisable at June 30, 2009			4,358			$	19.68			5.0 years				$	12.9

						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, 2008			476.3			$	43.41			$	20.7
Granted			414.6				13.78				5.7
Vested			(151.0	)			42.71				(6.4	)
Cancelled			(20.7	)			37.84				(0.8	)
Outstanding and nonvested at June 30, 2009			719.2			$	26.63			$	19.2

The weighted-average grant date fair value of stock awards granted during the three months ended June 30, 2009 and 2008 was $10.76 and $23.64, respectively. The weighted-average grant date fair value of stock awards granted during the six months ended June 30, 2009 and 2008, was $5.95 and $21.97, respectively. The total intrinsic value of stock awards exercised during the three months ended June 30, 2009 and 2008, was $0.6 million and $7.5 million, respectively, and during the six months ended June 30, 2009 and 2008, it was $1.8 million and $40.4 million, respectively.

8. Income Taxes

As of June 30, 2009, the total amount of unrecognized tax benefits, related interest and penalties was $43.0 million, $9.4 million and $3.2 million, respectively. During the six months ended June 30, 2009, the Company recorded tax and interest related to uncertain tax positions of $2.0 million and $0.9 million, respectively. The unrecognized tax benefits relate primarily to uncertainties from international transfer pricing issues and the deductibility of certain operating expenses in various jurisdictions. If the total amount of unrecognized tax benefits were recognized, $43.0 million of unrecognized tax benefits, $9.4 million of interest and $3.2 million of penalties, would impact the effective tax rate.

During the six months ended June 30, 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 is subject to a zero tax rate in China during 2008 and 2009 and a concessionary tax rate in China for the remaining years included in the holiday period.

9. Derivative Instruments and Hedging Activities

The Company adopted SFAS 161, Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133, or SFAS 161, on January 1, 2009. The adoption of SFAS 161 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 SFAS 161 on a prospective basis. Accordingly, disclosures related to interim and annual periods prior to the date of adoption have not been presented.

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. 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 June 30, 2009 the maximum length of time over which the Company is hedging these exposures is approximately three months.

Under its senior secured credit facility, the Company is 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 provides for the Company to pay interest for a three-year period at a fixed rate of 5.26% on various notional amounts while receiving interest for the same period at the LIBOR rate on the same notional principal amounts. The swap has been designated as a cash flow hedge against the variability in the LIBOR interest rate on the new term loan at LIBOR plus 1.50%, thereby fixing the Company’s effective rate on the notional amounts at 6.76%. The Company formally assesses, both at inception and at least quarterly thereafter, whether the derivatives used in hedging transactions are effective in offsetting changes in cash flows of the hedged item. As of June 30, 2009 and December 31, 2008, the hedge relationship qualified as an effective hedge under SFAS No. 133, Accounting For Derivative Instruments and Hedging Activities, or SFAS 133. Consequently, all changes in the fair value of the derivative are deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statements of income. As of June 30, 2009 and December 31, 2008, the swap notional amount was $20.0 million and $40.0 million, respectively. The fair value of the interest rate swap agreement is based on third-party bank quotes and the Company recorded the interest rate swap as a liability at fair value of $0.2 million and $1.0 million as of June 30, 2009 and December 31, 2008, respectively.

On June 26, 2009, the Company entered into an interest rate swap agreement, which is effective June 30, 2009, and will expire on September 30, 2009. The swap notional amount is $20 million, where the Company pays three month LIBOR and will receive one month LIBOR plus 0.185%. As of June 30, 2009, the fair value of the interest rate swap is zero. The Company has elected not to apply hedge accounting for this interest rate swap.

Foreign Currency Instruments

The Company also designates certain 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 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. As of June 30, 2009, all of the Company’s outstanding foreign currency forward contracts have maturity dates of less than one year, with the majority maturing within 90 days. There were no foreign currency option contracts outstanding as of June 30, 2009. See Part I, Item 3 — Quantitative and Qualitative Disclosures About Market Risk in this Quarterly Report on Form 10-Q for foreign currency instruments outstanding as of June 30, 2009.

The Company also purchases forward contracts in order to hedge forecasted inventory purchases that are designated as cash-flow hedges and are subject to foreign currency exposures. The Company applied the hedge accounting rules as required by SFAS 133 for these hedges. These contracts allow the Company to sell Euros in exchange for US dollars at specified contract rates. As of June 30, 2009, approximately $24.0 million of these contracts were outstanding and were expected to mature over the next six months. The Company’s derivative financial instruments are recorded on the consolidated balance sheet at fair value based on quoted market rates. These forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of forward contracts, excluding forward points, designated as cash-flow hedges are recorded in other comprehensive income (loss), and are recognized in cost of sales in the period which approximates the time the hedged inventory is sold. As of June 30, 2009 and December 31, 2008, the Company recorded a liability at fair value of $0.3 million and $0.1 million, respectively, relating to outstanding contracts. The Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly. During the three and six months ended June 30, 2009, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of June 30, 2009.

Gains and Losses on Derivative Instruments

The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive income (loss) during the three and six months ended June 30, 2009:

		Amount of Gain (Loss) Recognized
		in Other Comprehensive Income (Loss)
		For The Three				For The Six
		Months Ended				Months Ended
		June 30, 2009				June 30, 2009
		(In millions)
Derivatives designated as hedging instruments:
Foreign exchange contracts		$	(1.8	)		$	0.6
Interest rate contracts			—				—

The following table summarizes gains (losses) relating to derivative instruments recorded to income during the three and six months ended June 30, 2009:

Amount of Gain (Loss)

Recognized in Income

Location of Gain

For The Three Months

For The Six Months

(Loss)

Ended June 30, 2009

Ended June 30, 2009

Recognized in Income

(In millions)

Derivatives designated as hedging instruments:

Foreign exchange contracts(1)

$

0.2

$

—

Selling, general and administrative expenses

Derivatives not designated as hedging instruments:

Foreign exchange contracts

$

(9.5

)

$

(9.8

)

Selling, general and administrative expenses

The following table summarizes gains (losses) relating to derivative instruments reclassified from accumulated other comprehensive loss into income during the three and six months ended June 30, 2009:

Location of Gain (Loss)

Amount of Gain (Loss) Reclassified

Reclassified

from Accumulated Other Comprehensive

from Accumulated Other

Income (Loss) into Income

Comprehensive Income

For The Three Months

For The Six Months

(Loss) into Income

Ended June 30, 2009

Ended June 30, 2009

(Effective Portion)

(In millions)

Derivatives designated as hedging instruments:

Foreign exchange contracts

$

0.4

$

0.4

Cost of sales

Interest rate contracts

$

(0.4

)

$

(0.8

)

Interest expense, net

SFAS 133 requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. See Note 13, Fair Value Measurements, for information on derivative fair values in the Company’s consolidated balance sheet as of June 30, 2009.

10. Restructuring Reserve

The Company recorded $0.2 million and $0.8 million of professional fees, severance and related costs for the three and six months ended June 30, 2009, respectively, related to restructurings. The Company recorded $1.4 million and $1.8 million of professional fees, severance and related costs for the three and six months ended June 30, 2008, respectively, related to restructurings. All such amounts were included in selling, general and administrative expenses. The Company’s restructuring program, initiated during the fourth quarter of 2008, is expected to be completed during 2009.

The following table summarizes the components of this reserve as of June 30, 2009:

						Retention
		Severance				Benefits				Others				Total
		(In millions)
Balance as of December 31, 2008		$	3.3			$	—			$	—			$	3.3
Charges			0.6				—				0.2				0.8
Cash payments			(3.4	)			—				(0.2	)			(3.6	)
Balance as of June 30, 2009		$	0.5			$	—			$	—			$	0.5

11. Shareholders’ Equity

Dividends

On February 20, 2009, the Company’s board of directors approved a quarterly cash dividend of $0.20 per common share in an aggregate amount of $12.3 million, for the fourth quarter of 2008 that was paid to shareholders on March 17, 2009. On April 30, 2009, the Company’s board of directors approved a quarterly cash dividend of $0.20 per common share in an aggregate amount of $12.3 million, for the first quarter of 2009 that was paid to shareholders on June 5, 2009.

The aggregate amount of dividends declared and paid during the three months ended June 30, 2009 and 2008 were $12.3 million and $12.7 million, respectively. The aggregate amount of dividends declared and paid during the six months ended June 30, 2009 and 2008, were $24.6 million and $25.6 million, respectively.

Share Repurchases

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. During the three and six months ended June 30, 2009, the Company did not repurchase any of its common shares.

For certain restricted stock units granted, pursuant to the Company’s stock-based compensation plans as discussed in Note 7, the number of shares issued on the date the restricted stock units vest is net of the statutory withholding requirements that the Company pays on behalf of its employees. Although shares withheld are not issued, they are treated as common stock repurchases for accounting purposes, as they reduce the number of shares that would have been issued upon vesting.

12. 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, 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):

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2009				2008				2009				2008
Weighted average shares used in basic computations			61,642				64,282				61,583				64,301
Dilutive effect of exercise of equity grants outstanding			1,175				1,633				748				2,064
Dilutive effect of warrants			112				195				82				194
Weighted average shares used in diluted computations			62,929				66,110				62,413				66,559

Equity grants, such as stock options, stock appreciation rights, or stock units, to purchase or acquire 2.9 million and 1.4 million common shares were outstanding during the three months ended June 30, 2009 and 2008, respectively, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of a common share and therefore such equity grants would be anti-dilutive. Equity grants, such as stock options, stock appreciation rights, or stock units, to purchase or acquire 3.5 million and 1.4 million common shares were outstanding during the six months ended June 30, 2009 and 2008, respectively, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of a common share and therefore such equity grants would be anti-dilutive.

13. Fair Value Measurements

The Company currently applies the provisions of SFAS No. 157, Fair Value Measurements, or SFAS 157, for its financial and non-financial assets and liabilities. SFAS 157 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. SFAS 157 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.

The Company measures certain assets and liabilities at fair value consisting of derivative instruments. All derivative assets are recorded as prepaid expenses and other current assets, and all derivative liabilities are recorded as accrued expenses. The Company’s derivatives were in a liability position as of June 30, 2009. Derivative liabilities that have recurring measurements are shown below:

Fair Value Measurements at Reporting Date Using

										Quoted Prices
										in Active				Significant
										Markets for				Other				Significant
										Identical				Observable				Unobservable
		Balance Sheet				June 30,				Liabilities				Inputs				Inputs
Description		Location				2009				(Level 1)				(Level 2)				(Level 3)
						(In millions)
Liabilities:
Derivatives designated as cash flow hedging instruments:
Interest rate swap		Accrued expenses				$	0.2			$	—			$	0.2			$	—
Foreign currency forward contracts		Accrued expenses					0.3				—				0.3				—
Derivatives not designated as hedging instruments:
Foreign currency forward contracts		Accrued expenses					0.1				—				0.1				—
Total liabilities						$	0.6			$	—			$	0.6			$	—

14. Subsequent Event

The Company has performed an evaluation of subsequent events through August 3, 2009, which is the date the financial statements were issued.

On August 3, 2009, the Company announced that its board of directors has authorized a $0.20 per common share cash dividend for the second quarter of 2009, payable on September 10, 2009 to shareholders of record on August 28, 2009.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global network marketing company that sells weight management 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 $2.4 billion for the year ended December 31, 2008. As of June 30, 2009, we sold our products in 70 countries through a network of approximately 1.9 million independent distributors. In China, we sell our products through retail stores and an employed sales force. We believe the quality of our products and the effectiveness of our distribution network, coupled with geographic expansion, have been the primary reasons for our success throughout our 29-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 increasing prevalence of obesity 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.

While we are closely monitoring the current global economic crisis, the Company remains 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 including China, the U.S., Brazil, Mexico and Russia, globalizing successful distributor methods of operation 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 the Venezuela market and especially the limited ability to repatriate cash at the official exchange rate.

During the first quarter of 2009, we changed our geographic regions, designating Mexico as its own region and combining South America and Central America into a single region. These changes in geographic regions were implemented to create growth opportunities for distributors, support faster decision making across the organization by reducing the number of layers of management, improve the sharing of ideas and tools and accelerate growth in high potential markets. Under the new geographic regions, we report revenue from:

•

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.

Historical information presented in this Quarterly Report on Form 10-Q relating to our geographic regions has been reclassified to conform with our current geographic presentation

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 measure of product sales volume. It is a useful measure that we rely on as it excludes the impact of foreign currency fluctuations 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; 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.

		Three Months Ended June 30,												Six Months Ended June 30,
		2009				2008				% Change				2009				2008				% Change
		(Volume points in millions)
North America			200.5				205.3				(2.3	)%			387.0				383.4				0.9	%
Mexico			124.3				152.8				(18.7	)%			244.7				300.9				(18.7	)%
South & Central America			98.0				111.2				(11.9	)%			200.5				230.1				(12.9	)%
EMEA			117.3				129.0				(9.1	)%			241.4				266.1				(9.3	)%
Asia Pacific (excluding China)			125.4				110.4				13.6	%			270.4				216.7				24.8	%
China			32.8				33.4				(1.8	)%			53.6				54.1				(0.9	)%
Worldwide			698.3				742.1				(5.9	)%			1,397.6				1,451.3				(3.7	)%

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

Another key non-financial measure on which we focus is the number of distributors qualified as new sales leaders under our compensation system. Excluding China, distributors qualify for supervisor 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 is a general indicator of the level of distributor recruitment.

		Three Months Ended June 30,												Six Months Ended June 30,
		2009				2008				%Change				2009				2008				%Change
North America			10,633				13,129				(19.0	)%			18,526				22,139				(16.3	)%
Mexico			6,316				8,212				(23.1	)%			10,667				15,567				(31.5	)%
South & Central America			8,121				13,128				(38.1	)%			15,836				25,908				(38.9	)%
EMEA			6,704				8,522				(21.3	)%			11,940				15,055				(20.7	)%
Asia Pacific (excluding China)			13,183				11,367				16.0	%			23,920				20,144				18.7	%
Total New Supervisors			44,957				54,358				(17.3	)%			80,889				98,813				(18.1	)%
New China Sales Employees			6,771				7,867				(13.9	)%			11,098				12,217				(9.2	)%
Worldwide Total New Sales Leaders			51,728				62,225				(16.9	)%			91,987				111,030				(17.2	)%

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

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

Supervisor Statistics (Excluding China)		2009				2008
		(In thousands)
January 1 total supervisors			456.9				451.6
January & February new supervisors			20.6				28.6
Demoted supervisors (did not re-qualify)			(181.4	)			(167.7	)
Other supervisors (resigned, etc)			(1.4	)			(2.8	)
End of February total supervisors			294.7				309.7

The distributor statistics below further highlight the calculation for retention.

Supervisor Retention (Excluding China)		2009				2008
		(In thousands)
Supervisors needed to re-qualify			304.0				284.0
Demoted supervisors (did not re-qualify)			(181.4	)			(167.7	)
Total re-qualified			122.6				116.3
Retention rate			40.3	%			41.0	%

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

		Number of Sales Leaders								Supervisors Retention Rate
		2009				2008				2009				2008
North America			63,726				64,383				42.2	%			43.5	%
Mexico			50,099				60,685				45.2	%			44.4	%
South and Central America			67,876				67,808				32.2	%			34.7	%
EMEA			53,371				59,446				48.7	%			46.6	%
Asia Pacific (excluding China)			59,631				57,355				35.1	%			34.3	%
Total Supervisors			294,703				309,677				40.3	%			41.0	%
China Sales Employees			29,684				25,294
Worldwide Total Sales Leaders			324,387				334,971

The number of supervisors by geographic region as of the quarterly reporting dates will normally be higher than the number of supervisors by geographic region as of the re-qualification period because supervisors who do not re-qualify during the relevant twelve-month period will be dropped from the rank of supervisor the following February. Since supervisors purchase most of our products for resale to other distributors and consumers, comparisons of supervisor totals on a year-to-year basis are good 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 supervisors and by our recruitment and retention of distributors, rather than through increases in the productivity of our overall supervisor base.

We provide distributors with products, support 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 products and/or pursue the Herbalife business opportunity.

Presentation

“Retail sales” represent the gross sales amounts on our invoices to distributors before distributor allowances, as defined below, and “net sales,” which reflect distribution allowances and handling and freight income, represent what we collect and recognize as net sales in our financial statements. We discuss retail sales because of its fundamental role in our compensation systems, internal controls and operations, including its role as the basis upon which distributor discounts, royalties and bonuses are awarded. In addition, it is used as the basis for certain information included in daily and monthly reports reviewed by our management. However, such a measure is not in accordance with Generally Accepted Accounting Principles in the U.S., or GAAP. You should not consider retail sales in isolation from, nor as a substitute for, net sales and other consolidated income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. A reconciliation of net sales to retail sales is presented below under “Results of Operations.” “Product sales” represent the actual product purchase price paid to us by our distributors, after giving effect to distributor discounts referred to as “distributor allowances,” which approximate 50% of retail sales prices. Distributor allowances as a percentage of retail sales may vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances.

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

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

•

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

•

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 compensation to distributors is generally for the development, retention and improved productivity of their distributor sales organizations and is paid to several levels of distributors on each sale. Due to restrictions on direct selling in China, our full-time employed sales representatives in China are compensated with wages, bonuses and benefits instead of the distributor allowances and royalty overrides utilized in our traditional marketing program used in our other five regions. Because of local country regulatory constraints, we may be required to modify our typical distributor incentive plans as described above. Consequently, the total distributor discount percentage may vary over time. We also offer reduced distributor allowances and pay reduced royalty overrides with respect to certain products worldwide.

Our “operating margins” consist of net sales less cost of sales and royalty overrides.

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

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

Summary Financial Results

Net sales for the three and six months ended June 30, 2009 was $571.8 million and $1,093.5 million, respectively. Net sales decreased $67.9 million, or 10.6%, and $150.6 million, or 12.1%, for the three and six months ended June 30, 2009, respectively, as compared to the same periods in 2008. The decrease was primarily due to the unfavorable impact of currency fluctuations of $68.0 million and $145.2 million for the three and six months ended June 30, 2009, respectively. In local currency, net sales for the three and six months ended June 30, 2009 was relatively flat compared to the same periods in 2008. For the three months ended June 30, 2009, net sales in some of our top countries including Mexico, Japan, Venezuela, and Brazil decreased 35.3%, 36.1%, 15.6% and 5.3%, respectively, as compared to the same period in 2008, while other top countries including the U.S., South Korea, Malaysia and Taiwan increased 5.1%, 22.6%, 44.2% and 9.1%, respectively, as compared to the same period in 2008. For the six months ended June 30, 2009, net sales in Mexico, Japan, Venezuela and Brazil declined 36.0%, 31.6%, 23.2% and 6.4%, respectively, while net sales in Taiwan, the U.S., Malaysia and South Korea increased 24.9%, 4.8%, 39.9% and 14.7%, respectively. In Mexico, a decline in distributor and sales leader recruiting resulted from 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. In Venezuela, price increases to address inflation and changes in non-resident distributor compensation to address currency controls imposed by the Venezuelan government also contributed to the decline in net sales and new sales leaders for the period. The increase in net sales in other top markets was mainly due to successful conversions to daily consumption business models and branding activities.

Net income for the three and six months ended June 30, 2009 were $48.3 million, or $0.77 per diluted share, and $89.8 million, or $1.44 per diluted share, respectively. Net income decreased $18.8 million, or 28.1%, and $39.7 million or 30.6%, for the three and six months ended June 30, 2009, respectively, as compared to the same period in 2008. The decrease was primarily driven by revenue declines, higher effective tax rate reflecting changes in country mix and higher depreciation expense, partially offset by lower labor costs resulting from our restructuring initiative, lower professional fees and non-income tax expenses, and lower interest expense.

Net income for the three and six months ended June 30, 2009 included $1.1 million tax expense resulting from an international income tax audit settlement. Net income for the six months ended June 30, 2009 also included a $0.4 million unfavorable after tax impact in connection with our restructuring activities. Net income for the three and six months ended June 30, 2008 included a $0.9 million and a $1.1 million unfavorable after tax impact, respectively, related to our restructuring activities.

Results of Operations

Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods, which depend upon numerous factors, including our ability to recruit 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:

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2009				2008				2009				2008
Operations:
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales			21.4				20.0				20.6				19.7
Gross profit			78.6				80.0				79.4				80.3
Royalty overrides(1)			32.6				33.7				33.1				34.4
Selling, general and administrative expenses(1)			33.4				31.7				34.0				31.2
Operating income			12.6				14.6				12.3				14.7
Interest expense, net			0.3				0.5				0.3				0.6
Income before income taxes			12.3				14.1				12.0				14.1
Income taxes			3.9				3.6				3.8				3.7
Net income			8.4	%			10.5	%			8.2	%			10.4	%

Net Sales

The following chart reconciles retail sales to net sales:

Sales by Geographic Region

		Three Months Ended June 30,
		2009																				2008
														Handling																				Handling
		Retail				Distributor				Product				& Freight				Net				Retail				Distributor				Product				& Freight				Net				Change in
		Sales				Allowance				Sales				Income				Sales				Sales				Allowance				Sales				Income				Sales				Net Sales
		(Dollars in millions)
North America		$	220.7			$	(105.3	)		$	115.4			$	22.9			$	138.3			$	213.4			$	(101.9	)		$	111.5			$	21.7			$	133.2				3.8	%
Mexico			109.3				(53.3	)			56.0				10.4				66.4				170.7				(83.3	)			87.4				15.3				102.7				(35.3	)%
South & Central America			143.1				(69.8	)			73.3				12.1				85.4				166.4				(81.2	)			85.2				13.5				98.7				(13.5	)%
EMEA			204.2				(98.1	)			106.1				20.5				126.6				259.5				(125.2	)			134.3				25.6				159.9				(20.8	)%
Asia Pacific			186.4				(86.9	)			99.5				15.0				114.5				175.2				(81.7	)			93.5				12.9				106.4				7.6	%
China			44.6				(4.0	)			40.6				—				40.6				43.4				(4.6	)			38.8				—				38.8				4.6	%
Worldwide		$	908.3			$	(417.4	)		$	490.9			$	80.9			$	571.8			$	1,028.6			$	(477.9	)		$	550.7			$	89.0			$	639.7				(10.6	)%

		Six Months Ended June 30,
		2009																				2008
														Handling																				Handling
		Retail				Distributor				Product				& Freight				Net				Retail				Distributor				Product				& Freight				Net				Change in
		Sales				Allowance				Sales				Income				Sales				Sales				Allowance				Sales				Income				Sales				Net Sales
		(Dollars in millions)
North America		$	417.3			$	(199.0	)		$	218.3			$	43.1			$	261.4			$	402.9			$	(192.1	)		$	210.8			$	41.0			$	251.8				3.8	%
Mexico			207.1				(101.0	)			106.1				19.5				125.6				327.4				(159.8	)			167.6				28.7				196.3				(36.0	)%
South & Central America			267.4				(129.7	)			137.7				23.0				160.7				358.1				(179.9	)			178.2				26.5				204.7				(21.5	)%
EMEA			404.1				(194.9	)			209.2				40.7				249.9				516.5				(249.4	)			267.1				50.8				317.9				(21.4	)%
Asia Pacific			375.7				(176.6	)			199.1				29.4				228.5				346.9				(162.5	)			184.4				25.7				210.1				8.8	%
China			73.6				(6.2	)			67.4				—				67.4				70.6				(7.3	)			63.3				—				63.3				6.5	%
Worldwide		$	1,745.2			$	(807.4	)		$	937.8			$	155.7			$	1,093.5			$	2,022.4			$	(951.0	)		$	1,071.4			$	172.7			$	1,244.1				(12.1	)%