Herbalife FAQ

Herbalife is a global nutrition company founded in Los Angeles in 1980. We now operate manufacturing plants and facilities in the United States for both domestic production and to export products to 90 countries worldwide. We are a publicly traded company on the New York Stock Exchange (NYSE: HLF) with approximately 7,400 employees and millions of consumers. We are a publicly traded company on the New York Stock Exchange (NYSE: HLF), with a market capitalisation of $5.8 Billion as of 31st March, 2014. Herbalife has approximately 7,400 employees and millions of consumers.

Q.

What is Multi-Level Marketing?

A.

Multi-level marketing (MLM) is a retail distribution model in which a group of registered independent members market and distribute a manufacturer’s products directly to consumers.

MLM is therefore a type of direct selling. It is distinguished from other direct selling methods by its compensation system, which awards income to members both for their “personal sales” (sales they themselves generate to end users) and the personal sales of members downline from them (that is, members who are introduced to the program and mentored by the upline member) generate to end users.

The MLM model of compensation is widespread. For example, in 2011, 15.6 million direct-selling members in the United States generated $29.87 billion in retail sales.1 Worldwide direct-selling sales were $153.727 billion in 2011, generated by more than 91.5 million direct-selling members.1 As of 2011, the United States was the largest national market for MLM sales.1 Almost all of the 241 current and pending members of the US Direct Selling Association use a multilevel form of compensation.1 Other direct selling companies who use a multi-level marketing model include Amway, Avon, Shaklee and Tupperware. Visit www.dsa.org for a full listing of all members of the US Direct Selling Association.

1 Source: Direct Selling Association

Q.

What is a pyramid scheme and how does it differ from a MLM? What makes Herbalife a legitimate MLM?

A.

Simply put, an illegal pyramid scheme awards payments to participants for the simple act of signing up other participants. A legitimate multi-level marketing company, like Herbalife, pays compensation to participants based on the sale of product to satisfy demand by end-users.

Herbalife is focused on selling its products to people who want to consume them. There is widespread consumer demand for Herbalife’s products. Independent research by Nielsen in 2013 showed that 8% of the US adult population – or 19.2 million – have purchased an Herbalife product for personal use. A separate study by Lieberman Research Worldwide in 2012 showed that 5% of US households, or 5.7 million households, had purchased an Herbalife product within the last 3 months.

Herbalife members are compensated solely based upon activity supporting their product sales (which includes retail profit from direct sales to customers) and the product sales of the members in their “downline.” Nothing is earned by Herbalife members for mere recruitment or for converting a customer to a member. This business model is referred to as multi-level marketing.

In a multi-level marketing model, members do not receive compensation solely for recruiting other members into their downlines. Instead, they become eligible for increased discounts or “commissions” only when and because the new members in their downlines purchase Herbalife products for consumption and/or for resale to consumers.

Herbalife products are sold by independent members.

Most members join simply to receive a discount on products they consume; some join to make part-time income as well, and a small percentage join in search of full-time income.

Q.

Are Herbalife’s products good? Are they healthy? Are they safe?

A.

Our products are based on proven nutrition science, a commitment to ongoing nutrition research and development, a rigorous quality assurance program and the control of product integrity from ‘seed to feed.’ Herbalife’s products are not medicines and Herbalife does not make disease diagnosis, prevention, treatment, or curative claims — but Herbalife products can be used as part of a healthy and active lifestyle.

Our flagship Formula 1 healthy meal replacement shakes are market leaders. Herbalife’s market share in the meal replacement category for 2010, 2011, 2012 and 2013 was respectively 24.2 percent, 26.6 percent, 27.6 percent and 29.6 percent1, consistently making Herbalife the Global market leader in this category.

In 2012, Herbalife spent $44 million on scientific areas of research, quality assurance, product safety and compliance. A former FDA official oversees the quality of our products. We also partner with world-class ingredient suppliers to leverage their science, research and production competency to better our own products.

1 Source: Euromonitor International Limited; all retail channels, 2014 edition; retail value sales at retail selling prices.

$44M

In 2012, Herbalife spent $44 million on scientific areas of R&D, quality assurance, product safety and compliance and hired a former FDA official to oversee the quality of our products.

Q.

How many people does Herbalife employ? What is Herbalife’s economic impact?

A.

Herbalife currently employs about 7,400 people and has hundreds of thousands of non-employee independent members.

While many companies export manufacturing jobs overseas, Herbalife purchased and is converting a 500,000-plus square-foot facility in North Carolina for both domestic product and to export products around the world. The company is investing more than $100 million in the facility, which is due to be operational by mid-2014, and will create more than 500 local jobs.

workers

Herbalife currently employs
about 7,400 people.

Q.

Do Herbalife members have to buy a lot of product or invest a lot of money to get started?

A.

No. There is no minimum purchase requirement and Herbalife explicitly discourages inventory-loading – that is, purchasing more inventory than is needed for current sale or consumption purposes. In addition, the Mini Member Starter Kit (costs $59.50 in the United States) contains Herbalife products with a greater suggested retail price than its cost, and the cost of the Member Starter Kit is fully refundable.

Q.

What is Pershing Square and who is Bill Ackman?

A.

Pershing Square is a hedge fund founded by Wall Street billionaire Bill Ackman. In December 2012, Pershing Square and Ackman took a “short” position on Herbalife’s publicly traded stock, betting $1 Billion against Herbalife. Despite Pershing Square’s bet, and Ackman’s relentless near-daily campaign to mislead the public about Herbalife in an effort to make money for himself and his investors, Herbalife continues to thrive.

Herbalife reported revenue growth of 20% in the quarter that ended on December 31, 2013, evidencing the widespread demand to consume Herbalife products and the legitimacy of the Herbalife business model. Pershing Square stands to make a lot of money if the Herbalife share price goes down. Conversely, they stand to lose hundreds of millions of dollars if Herbalife’s share price rises significantly above the price at which they placed their bet.

Q.

Does Herbalife unfairly target specific immigrant communities?

A.

Absolutely not.

Herbalife is incredibly proud of the diversity of its independent members.

Herbalife’s model rewards an entrepreneurial spirit and supports the development of successful members, something we believe draws members of all communities nationwide to our company and our products. We also make sure to provide low risk and easy entry into – or exit from – the business. And Herbalife welcomes a meaningful dialogue with any group or community that believes we can better serve its needs.

Q.

Does Herbalife disproportionately affect the Hispanic community?

A.

The Hispanic community has embraced Herbalife’s products and business opportunity for many years, and Herbalife continues to look for ways to work together with this community. Indeed, self-identified Spanish speaking members represent 45% of members in the United States during 2013 (down from approximately 60% in 2011) and one of our most important business methods of operation, the Nutrition Club, began with a single club in Mexico.

Herbalife is proud to receive high marks among our Hispanic membership. In 2013, Herbalife commissioned Lieberman Research Worldwide to conduct a survey among the U.S. Hispanic population. Overall, the Hispanic population rated Herbalife very highly, with 85 percent of customers rating Herbalife “Good,” “Very Good” or “Excellent.”

In 2012, Herbalife made payments to more than 33,000 U.S. Hispanic members totaling more than $180 million, with an average compensation of $5,255. This figure does not include any additional profit these members made by re-selling Herbalife products for more than the discounted price they paid to purchase them.

Q.

How can members earn income from the Herbalife business opportunity?

A.

People become Herbalife members for a number of reasons. The majority (73%) join us primarily to receive a discounted price on products they and their families consume and enjoy.

Some wish to earn part-time money, wanting to give direct sales a try and are encouraged by Herbalife’s low start-up costs (at their option, a mini Member Starter Kit at $59.50 or full Member Starter Kit at $92.25) and money-back guarantee. These people can begin to earn income from immediate profits on retail sales to customers. Over time, some customers may themselves become members and begin to build a sales network (their ‘downline’) beneath the existing member, which can lead to additional forms of income over time.

Others are drawn to Herbalife because they can be their own boss and can earn rewards based on their own skills and hard work. These individuals can, over time, build a significant network of members in their downline and can earn commissions and bonuses on the sales of their downline organization.

Anyone considering an active membership needs to understand the realities of direct selling. It is hard work. There is no shortcut to riches, nor is there any guarantee of success. However, for those who devote the time and energy to develop a stable base of customers, and perhaps mentor and train others to do the same, the opportunity for personal growth and an attractive part- or full-time income exists.

Further details may be found by downloading the Statement of Average Gross Compensation, found at Herbalife.com or www.myherbalife.com

Q.

Does Herbalife operate an illegal business model in China?

A.

Herbalife China’s business model is fully compliant with Chinese direct selling regulations. It is built on enabling customers to enjoy and benefit from our nutrition products each and every day. We continue to invest in this important market and collaborate with the Chinese government to ensure transparency with our business as we deliver high-quality nutrition to the Chinese consumer through lawful direct selling practices.

Herbalife (China) designed and implemented a business model unique to China that is compliant with Chinese direct-selling and anti-pyramid regulations.

Herbalife (China) is committed to the protection of the Chinese consumer and protecting the integrity of the direct-selling channel. The Herbalife Gold Standard Guarantee offers product returns and other protections for consumers and direct sellers of Herbalife product in China. To ensure Herbalife sales representatives and service providers comply with all aspects of Chinese consumer protection laws, Herbalife (China) has a robust training and field monitoring program that reinforces its rules, promotes ethical behavior, and discourages misconduct.

Since obtaining its first direct-selling license in 2007, Herbalife (China) has regularly partnered with local, regional, and national Chinese government officials in seeking out and penalizing those who violate Chinese laws and Herbalife (China)’s rules. Most recently, Herbalife (China) reaffirmed its commitment to work with the Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC) to continue to eliminate illegal direct sales activities.

To date, Herbalife (China) has obtained direct-selling licenses in 25 provinces and regional municipalities, which collectively service 97 percent of the Chinese consumer population.

Currently, Herbalife (China) has almost 150,000 Preferred Customers, who purchase our products for self-consumption, not for distribution, and there are nearly 3,000 Nutrition Clubs throughout China. These Nutrition Clubs, individually licensed by the Chinese government, provide further proof of Herbalife’s daily consumption model with a visible “brick and mortar” presence. Additionally, Herbalife (China) has made significant investments in its production capabilities in China with manufacturing plants in Suzhou and Changsha.

With a solid base of consumers, the “brick and mortar” presence of the Nutrition Clubs, and production facilities in two provinces, Herbalife (China) has established itself as a leading nutrition brand and legitimate direct-selling company in China that we believe is compliant with, and supportive of the letter and spirit of Chinese regulations in promoting social stability and sustainable economic growth.

Q.

What can Herbalife say about the FTC’s inquiry?

A.

Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations. Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years.

Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments.

Q.

What can Herbalife say about suggestions that the FBI and/or Department of Justice (DOJ) are conducting an investigation?

A.

We have no knowledge of any ongoing investigation by the DOJ or the FBI, and we have not received any formal nor informal request for information from either agency. We take our public disclosure obligations very seriously. Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments.