Herbalife International

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Type	Public
Traded as	NYSE: HLF
Industry	Nutrition & Skin Care products
Founded	Los Angeles, California (1980 (1980))
Founder(s)	Mark Hughes
Headquarters	Los Angeles, California, United States
Key people	Michael O. Johnson (CEO) Des Walsh (President) Richard P. Goudis (COO) John DeSimone (CFO)
Products	Weight management, nutritional supplements, personal care
Revenue	US$ 3.454 billion (2011)[1]
Operating income	US$ 562.270 million (2011)[1]
Net income	US$ 412.578 million (2011)[1]
Total assets	US$ 1.446 billion (2011)[1]
Total equity	US$ 560.188 million (2011)[1]
Employees	5,100 (31 Dec 2011)[1]
Website	www.herbalife.com

Coordinates: 33°51′26″N 118°17′31″W / 33.857195°N 118.291855°W / 33.857195; -118.291855

Herbalife International (NYSE: HLF) is a global nutrition, weight management and skin-care company. The company was founded in 1980 and it employs around 4,000 people worldwide. Herbalife reported net sales of USD 3.45 billion in 2011 with a retail sales turn over of 5.1 Billion USD with an increase of 1.1 billion retail sales on 2010.^[2] Though incorporated in the Cayman Islands^[1], its corporate headquarters are in Los Angeles, United States.^[3]

The company distributes its products in 79 countries through a network of approximately 2.7 million independent distributors^[1], some of whom earn profit on product sales and additional commission from a multi-level marketing (MLM) compensation structure.

History[link]

In February 1980, Mark Hughes began selling the original Herbalife weight management product from the trunk of his car. Hughes often stated that the genesis of his product and program stemmed from the weight loss concerns of his mother Joanne, whose premature death he attributed to an eating disorder and an unhealthy approach to weight loss. His goal was to change the nutritional habits of the world.

His first product was a protein shake designed to help people manage their weight. He structured his company using a direct-selling, multi-level marketing model which attracted thousands of distributors (Herbalife Independent Distributors) who sold its products door-to-door or through word-of-mouth, without relying on commercial distribution in retail stores.

The company's slogan, "Lose Weight Now, Ask Me How", became a marketing theme for distributors, featuring heavily on badges, flyers and posters. Early methods to recruit distributors included seminars, which would feature distributors giving health and weight loss testimonials on the Herbalife products and a keynote address by Hughes. By 1982 Herbalife had reached USD 2 million in sales and had expanded into Canada.

In 1985, the California Attorney General sued the company for making inflated claims about the efficacy of its products. The company settled the suit for USD 850,000 without admitting wrongdoing.^[4] In 1986 Herbalife became a publicly traded company on the NASDAQ, and in 1996 Herbalife reached USD 1 billion in annual sales.

Mark Hughes died at age 44.^[5] The Los Angeles County Coroner autopsy results ruled that the entrepreneur had died of an accidental overdose. The company continued to grow after his death and in 2002 was acquired by Whitney and Co LLC and Golden Gate Capital for USD 685 million, who took the company private again.^[6]

In April 2003, Michael O. Johnson joined Herbalife as CEO following a 17-year career with The Walt Disney Company, most recently as president of Walt Disney International.^[4] On 16 December 2004, the company had an initial public offering on the NYSE of 14,500,000 common shares at $14/share. 2004 net sales were reported as USD 1.3 billion. In April 2005, the company celebrated its 25th anniversary with a four-day event attended by 35,000 Herbalife Independent Distributors from around the world. In August 2005, Dr. Steve Henig joined the company as Chief Scientific Officer, responsible for product research and development. In 2008, President and COO Greg Probert resigned after it was reported that he had not completed the degree requirements for the MBA he claimed on his resume.^[7]

Products[link]

Herbalife's product range includes protein shakes, protein snacks, nutrition, energy and fitness supplements and personal care products.^[8] The Formula 1 protein shake, a soy-based meal-replacement shake, is the company's number one product and was one of the first products sold by the company. The range also includes products for heart health, digestive health, skin care, and the new 24 sports line released in 2011. Some products are vegetarian, kosher or halal, and Herbalife provides testimonials and advice from health professionals as part of their product marketing.

According to the 2009 Form 10-K, many of its weight management, nutritional and personal care products are manufactured by third party manufacturing companies, with the exception of products distributed in and sourced from China, where they have their own manufacturing facility and several products are manufactured in its recently acquired manufacturing facility in Lake Forest, California. Herbalife is currently making modifications to its recently acquired manufacturing facility in order to increase capability and capacity, and upon completion of these modifications, expect to increase self manufacturing.^[9]:16

In October 2010, Herbalife held a ground-breaking ceremony in Changsha, Khanh Hoa Province, Viet Nam for its extraction facility for botanical extracts, powders and pure compounds to be used in its inner and outer nutrition products. The new facility is expected to open in the second half of 2011. The new extraction facility will purchase botanicals directly from farms in Hunan province, China and other regions, perform extraction and other conversion processes and then send these processed raw materials directly to Herbalife’s manufacturing facilities in Suzhou, China and Lake Forest, Calif. or to its third party manufacturers throughout the world. The new extraction plant will produce botanical extracts including teas, guarana, chamomile, broccoli and bilberry, among others, for use in many of its products. ^[10]

Efficacy of Herbalife products for weight loss[link]

Three clinical studies have been completed of the effect of different Herbalife products on weight loss.

[edit] The study of Treyzon et al.

Treyzon et al compared a protein supplement (Performance Protein Powder, Herbalife Intl., Los Angeles) with a similar tasting carbohydrate placebo. The two treatments showed significant differences in their effects on the primary outcome of body weight. Effects on body mass index, waist circumference or fat free mass were also significantly different. Subjects on the high protein powder lost significantly more fat mass, 1.01 kg, P=0.05.^[11] As this was a secondary analysis these findings should be interpreted with caution and regarded as exploratory until confirmed in independent studies.

The Lee study[link]

Lee et al used a similar design but a differently named protein powder (ShapeWorks Formula 3, Herbalife). Lee et al. found no significant difference in the effect of this protein powder on fat mass compared with placebo. Effects on other body weight and composition outcomes also did not differ significantly between the Herbalife protein powder and placebo. In a subgroup analysis, among subjects with dietary compliance ≥ 70%, the high-protein treatment was more effective than the control treatment in reducing body fat.^[12] As this was a secondary analysis these findings should be interpreted with caution and regarded as exploratory until confirmed in independent studies.

[edit] Flechtner-Mors et al.

Flechtner-Mors et al instructed 110 obese persons to cut their calories by about 50%. ^[13] Fifty-five persons made up the high protein group and received Herbalife meal replacement shakes, Performance Protein Powder and protein bars. The other 55 made up the conventional diet group, and received diet instructions only. After 12 months, 24 subjects in the protein group had dropped out, as opposed to 12 in the conventional group. For the dropouts, weight at 3 months instead of 12 months was used for calculating the effect of treatment. Mean weight loss at 12 months was 8.96 kg in the protein (Herbalife) group and 6.41 in the conventional group, a significant difference of 3.6 kg. The authors concluded that a protein-enriched diet may have advantages for the management of the adverse effects of obesity on health.^[14] The study was criticised by Busetto et al. ^[15] because the interpretation of the results was complicated by the high dropout rate, and also by the provision of shakes and bars to the Protein (Herbalife) group only. When subjects receive special weight loss products, they may stick better to their diet, independent of what weight loss products are given.

By and large, these studies do not provide convincing evidence that Herbalife products produce more weight loss than other products or than a proper placebo.^{[citation needed]}

Adverse effects[link]

Some of the original Herbalife weight loss products contained the active ingredient Ma Huang or Sida cordifolia, two herbs containing ephedra, an appetite suppressant. Herbalife stopped using ephedrine in its products in 2002 after several U.S. states banned supplements containing botanical sources of ephedrine alkaloids.^[16]:15[17] The U.S. Food and Drug Administration banned supplements containing ephedra in 2004.^[18]

In May 2008, the Fraud Discovery Institute, which claims to be a consumer watchdog organization, reported that laboratory test results of Herbalife products showed lead levels in excess of limits established by law in California under Proposition 65.^[19][20] The Fraud Discovery Institute was founded by Barry Minkow, who served seven years in jail for stock fraud,^[21] and since disclosed that his company was profiting from the allegations by shorting Herbalife stock.^[22] Herbalife responded stating its products met federal FDA requirements^[23][24] and released independent lab tests it said proved the products did not exceed Proposition 65 limits.^[22] On May 10, 2008 a suit was filed on behalf of a woman who developed lead-related liver complaints that she claimed were a reaction to a combination of Herbalife products.^[21][25] The suit was filed by lawyer Christopher Grell, cofounder of the Dietary Supplement Safety Committee and an associate of Barry Minkow.^[21] On June 17, 2008, the suit was expanded to add distributors who had supplied the woman with the Herbalife products, with Grell launching a website to offer persons who believe they were harmed by Herbalife products the chance of redress.^[26] In August 2008, Minkow retracted all accusations against Herbalife and removed any mention of the company from his web site.^[27]

Herbalife and liver disease[link]

In 2004 Israel's Health Minister began an investigation against Herbalife's products after four persons using Herbalife's products were found to have liver problems.^[28] Herbalife's products were accused of containing toxic ingredients such as Qua-qua, Kompri, and Kraska. The products were sent to the Bio-Medical Research Design LTD (B.R.D) laboratory, to a private laboratory in the United States of America, and to Israel's Forensic research laboratory. The company issued a press release stating that the Israeli government, and scientists working with Herbalife, were unable to establish a link between the product and the eight cases of liver damage. Herbalife withdrew the product, which was only marketed in Israel.^[29] Herbalife's SEC 10-Q filings state that the Israeli Ministry of Health did not establish a causal relationship between the product and liver ailments. The Israeli Ministry of Health advises individuals with compromised liver function to avoid dietary supplements.^[30] In 2009, an Israeli woman sued Herbalife International and Herbalife Israel, claiming that her liver damage resulted from the use of Herbalife products.^[31]

Scientific studies in 2007 by doctors at the University Hospital of Bern in Switzerland and the Liver Unit of the Hadassah-Hebrew University Medical Center in Israel found an association between consumption of Herbalife products and hepatitis.^[28][32] In response, the Spanish Ministry of Health issued an alert asking for caution in consuming Herbalife products.^[33] Herbalife has stated they are cooperating fully with Spanish authorities.^[34]

By 2011, hospitals in Israel, Spain, Switzerland, Iceland, Argentina and the United States had reported liver damage in a number of patients, part of whom had used Herbalife products.^{[35][28] [36][32] [37][38][39] [40][41][improper synthesis?]} Some patients recovered after they had stopped taking the products, in others the disease continued, and two patients died. Several authors considered it plausible that Herbalife products were the cause of the observed liver disease. Herbalife employees claim there is no definitive proof that Herbalife products cause hepatoxicity or other liver problems.^[42]

Business model[link]

Herbalife is a multi-level marketing (sometimes called MLM or network marketing) company. In addition to profits from product sales, Herbalife distributors can earn additional commissions from sales by their 'downline' distributors. Supporters of MLM contend this is a fair compensation system, while critics contend that it is similar to a pyramid scheme.^[43] Critics also argue that the company does not make enough effort to curb abuses by individual distributors, though Herbalife has consistently denied such allegations.^[44] Herbalife is a member of the Direct Selling Association in most countries in which it operates.

In its filings with the United States Securities and Exchange Commission (SEC), company management note problems with inappropriate business practices in the past, their subsequent long-lasting effects and the need to avoid any repetition. Company management considers the number and retention of distributors a key parameter and tracks it closely in financial reports. By January of each year, sales leaders are required to requalify. In February of each year, they remove from the rank of sales leaders those individuals who did not satisfy the sales leader qualification requirements during the preceding 12 months. For the latest 12-month requalification period ending January 2011, approximately 48.9 percent of the eligible sales leaders requalified, reflecting an improvement from 43 percent in 2009.^[45] The company was cited as one of the most profitable companies in Los Angeles County.^[46]

A 2004 settlement resolved a class action suit on behalf of 8,700 former and current distributors that accused the company and distributors of "essentially running a pyramid scheme." A total of $6 million was to be paid out, with defendants not admitting guilt.

In a California class action suit, Minton v. Herbalife International, et al., the plaintiff is "challenging the marketing practices of certain Herbalife International independent distributors and Herbalife International under various state laws prohibiting "endless chain schemes", insufficient disclosure in assisted marketing plans, unfair and deceptive business practices, and fraud and deceit".^[47]

In a West Virginia class action suit, Mey v. Herbalife International, Inc., et al., the plaintiffs allege that some "telemarketing practices of certain Herbalife International distributors violate the Telephone Consumer Protection Act, or TCPA, and seeks to hold Herbalife International vicariously liable for the practices of these distributors. More specifically, the plaintiffs' complaint alleges that several of Herbalife International's distributors used pre-recorded telephone messages and autodialers to contact prospective customers in violation of the TCPA's prohibition of such practices". Herbalife management insisted they have meritorious defences in both cases and that in the West Virginia case, any such distributor actions also went against Herbalife's own policies. Management also contends that any adverse legal outcomes Herbalife might suffer would not significantly affect their financial condition, particularly since they have already set aside an amount that they "believe represents the likely outcome of the resolution of these disputes".^[47] The case was resolved with Herbalife and its distributors paying $7 million into a fund for class members part of the suit.^[48]:42 Herbalife International did not acknowledge wrongdoing, or admit culpability for the actions of its distributors.

As of April 2008, a series of commercials featuring a large red animated fox advertising home-based business opportunities have been running on American television. The advertisements typically feature a series of testimonials from actors playing individuals who have made sums of money between $5,000 USD and $15,000 USD per month as a result of participating in an undescribed business program. The adverts direct viewers to a website that allows them to purchase a "success kit". The kit also provides no information about how the business opportunity works.

These adverts have been found to be run by independent Herbalife distributors, as a method of recruiting new 'downline' distributors.^[49] While it is not illegal, critics of this type of advertising prefer advertisers to be up front about their company associations.

Sponsorships[link]

Sports[link]

Herbalife sponsors a number of athletes, sports teams and sporting events around the world, including:^[50]

• 2011 World Football Challenge
• Sergey Konyushok (Broke 7 Guinness Records at Strongman competitions)
• LA Triathlon^[51]
• AYSO (the American Youth Soccer Organisation)^[52]
• Los Angeles Galaxy soccer team^[53]
• IndyCar drivers Townsend Bell and E.J. Viso in the 2010 Indy 500
• Valencia CF football club^[54]
• Pumas from Mexico
• Club San Luis from Mexico
• Santos FC, Official Nutrition Advisor
• FC Barcelona, international/regional Sponsor^[55]
• FC Spartak Moscow, Official Sponsor
• CA Lanús, Official Sponsor
• Lionel Messi
• Virat Kohli
• MC Mary Kom
• Club Maccabi Haifa, Israeli Football club
• Club Aris Thessaloniki Football club
• Botafogo de Futebol e Regatas football club
• Universidad San Martín from Perú
• Velo Club LaGrange (Herbalife LaGrange Cycling Team)
• Lyngby Boldklub from Denmark
• Wisła Kraków from Poland^[56]

Media[link]

In La Fea Más Bella, a Spanish-language program, a remake of "Betty la fea", the original Ugly Betty, the lead character Lety used actual Herbalife products as she underwent an onscreen "physical transformation" in six episodes of the show.^[57]

Criticism[link]

The specialists of the German Society of Food (German Deutsche Gesellschaft für Ernährung) concluded that the use of Herbalife products do not solve the problem with weight. [37] In independent studies of the German magazine Konsument (Zeitschrift Ökotest 11/2003) states that the products of Herbalife at the time of research were among the most expensive products, "healthy eating". [38] In 2004, the United States, Herbalife company was accused of creating a financial pyramid selling. In order not to bring the matter to court, the company paid the sum of six million dollars for a waiver of proceedings, so the question was settled out of court. In the case appear the names of dealers 8700. [39]. Criticism of the company can be divided into three main categories: Criticism of network marketing as such because of its similarity to the financial pyramids. Criticism of obsessive direct sales [40], which holds the company. In addition, there is criticism of the opinion that some of Herbalife distributor using NLP techniques, similar to the method of hypnosis. A typical criticism of the cosmetic and nutritional companies, as well as companies that sell any food or consumer goods, exaggerate the dignity of their products. For example, the emphasis on their "natural" origin of the grasses and animals with exotic names, no preservatives and low in fat. Total culture and organization of some distributors Herbalife. Typical organization of sales of Herbalife is as follows: an initial increase in the discount on the company's products depends on the quantity of goods purchased during the month. Further, these discounts do not depend on the volume of procurement activity or distributor (though you can not buy anything at all) if it has not reached the level of supervisor. Procured goods are distributed for personal use and for sale. Education by the methods of sales going to the special training.

See also[link]

Companies portal

• Direct selling

References[link]

Notes

External links[link]

• Company profile by MarketWatch
• Herbalife Ltd.'s financial reports - Corporate disclosure and financial reports filed with the U.S. Securities and Exchange Commission
• Herbalife Ltd. (HLF) company's profile - Yahoo Finance
• Herbalife SEC EDGAR filings