Herbalife Nutrition Ltd. (NYSE: HLF) today reported financial
results for the fourth quarter and full year ended December 31,
2018:
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“In 2018, we continued to show the strength of our business
in providing premier nutrition products to distributors and
consumers around the world. We achieved double digit net
sales growth and record volume points, enhancing our value for
shareholders. In 2019, our momentum will continue as global
trends drive demand for our products and business opportunity, and
our distributors deliver value to their customers.” - Michael O.
Johnson, Chairman and CEO of Herbalife Nutrition
QUARTER AND FULL YEAR HIGHLIGHTS
- Reported net sales of $4.9 billion for
the full year 2018, increased 10% compared to full year 2017.
Fourth quarter reported net sales of $1.2 billion increased 9%
compared to the prior year period.
- Record full year 2018 volume points of
5.9 billion, increased 10% compared to 20171.
- Full year 2018 reported diluted EPS of
$1.98 and adjusted2 earnings of $2.88 per adjusted3 diluted share,
compared to $1.29 and $2.43 respectively, for the full year 2017,
which were negatively impacted by expenses of approximately $14.1
million or $0.07 per share related to the China Growth and Impact
Investment Program.
- Fourth quarter reported diluted EPS of
$0.34 and adjusted2 earnings of $0.63 per adjusted3 diluted share,
which were negatively impacted by expenses of approximately $8.2
million or $0.04 per diluted share related to the China Growth and
Impact Investment Program.
- Reiterating FY 2019 volume point
guidance range of 4.0% - 8.0% growth, as well as reported and
adjusted1 diluted EPS guidance of $2.34 - $2.74 and $2.70 – $3.10,
respectively.
- Record worldwide sales leader retention
of 67.9%.
________________________________________
1 Excluding adjustments to volume point values in 2018, the year
over year change would have been an increase of 9.0%. See Regional
Volume Point Metrics below.
2 Adjusted diluted EPS is a non-GAAP measure and, for guidance
purposes, excludes the impact of: non-cash interest expense
associated with the Company’s convertible notes and expenses
related to regulatory inquiries. Adjusted diluted EPS for reported
results purposes, excludes the impact of the foregoing as well as
expenses relating to challenges to the Company’s business model,
contingent value rights revaluation, loss on extinguishment of
convertible debt, loss on extinguishment of the Company’s 2017
senior secured credit facility, Venezuela currency devaluation.
expenses relating to FTC Consent Order implementation, China grant
income, and U.S. tax reform impact. See Schedule A –
“Reconciliation of Non-GAAP Financial Measures” for a detailed
reconciliation of adjusted net income to net income calculated in
accordance with GAAP and a reconciliation of adjusted diluted EPS
to diluted EPS calculated in accordance with GAAP and a discussion
of why we believe these non-GAAP measures are useful.
3 See Schedule A - “Reconciliation of Non-GAAP Financial
Measures” for a reconciliation of adjusted diluted share count to
reported diluted share count and a discussion of why the share
count has been adjusted for purposes of calculating adjusted
diluted EPS for the fourth quarter of 2017 and 2018, and full year
2018.
Fourth Quarter and Full Year 2018 Key Metrics4
Regional Volume Point Metrics
Volume Points Volume Points Region
Q4 '18
(mil) Yr/Yr % Chg FY '18 (mil)
Yr/Yr % Chg Asia Pacific 355.5 29.8 % 1,291.4
18.6 % North America 280.5 11.8 % 1,229.4 11.9 % EMEA 302.6
11.3 % 1,219.9 12.1 % Mexico 228.6 10.1 % 920.5 5.2 % China 155.2
3.7 % 669.2 5.7 % South & Central America 138.6 (9.4 %) 561.6
(5.4 %) Worldwide Total (a)
1,461.0
11.8 % 5,892.0 9.5
%
(a) During 2018, the Company adjusted volume point values for
certain products in Mexico, North America and South & Central
America. Excluding these adjustments, the worldwide total year over
year change in volume points would have been an increase of 11.1%
for the fourth quarter and 9.0% for the full year.
________________________________________
4 Supplemental tables that include Average Active Sales Leader
and additional business metrics can be found at
http://ir.Herbalife.com.
Regional Net Sales and Foreign Exchange (“FX”) Impact
Reported Net Sales Growth/Decline
Growth/Decline Region 4Q’18 (mil) including FX excluding FX
vs. 4Q ‘17 vs. 4Q ‘17 Asia Pacific $
280.5 22.1 % 28.4 % North America $ 214.6 11.7 % 11.7 % EMEA $
232.9 5.7 % 13.5 % Mexico $ 114.5 6.0 % 10.6 % China $ 242.1 11.1 %
16.1 % South & Central America (a) $ 102.0 (18.5 %) 2,440.6 %
Worldwide Total
$ 1,186.6 8.5 %
294.3 % South & Central America excl. Venezuela
(a) $ 101.1 (16.5 %) (5.8 %) Worldwide Total excl. Venezuela (a)
$ 1,185.7 8.9 %
14.4 % Reported Net Sales
Growth/Decline Growth/Decline Region FY’18 (mil) including FX
excluding FX vs. FY ‘17 vs. FY
‘17 Asia Pacific $ 1,053.4 15.0 % 16.7 % North America $ 948.3 12.9
% 12.8 % EMEA $ 977.0 12.5 % 12.4 % Mexico $ 467.9 5.7 % 7.8 %
China $ 1,007.6 13.7 % 11.3 % South & Central America (a) $
437.6 (7.7 %) 858.7 % Worldwide Total
$ 4,891.8
10.5 % 103.4 % South & Central
America excl. Venezuela (a) $ 423.4 (8.7 %) (1.1 %) Worldwide Total
excl. Venezuela (a)
$ 4,877.6
10.4 % 11.3 %
(a) Venezuela was impacted by significant price increases and
erosion in foreign currency exchange rates. Venezuela represents
less than 1% of the Company’s consolidated net sales. See Schedule
A – “Reconciliation of Non-GAAP Financial Measures” for a
discussion of why we believe adjusting for Venezuela is useful.
Outlook
Following is the Company’s first quarter and full year 2019
guidance based on current business trends:
Three Months Ending Twelve Months Ending
March 31, 2019 December 31, 2019
Low
High
Low
High
Volume Point Growth vs 2018 (a) 4.0 % 8.0 % 4.0 % 8.0 % Net Sales
Growth vs 2018 (b) 0.5 % 4.5 % 4.0 % 8.0 % Diluted EPS (b) (c) $
0.51 $ 0.61 $ 2.34 $ 2.74 Adjusted Diluted EPS (b) (c) (d) $ 0.60 $
0.70 $ 2.70 $ 3.10 Cap Ex ($ millions) $ 30.0 $ 40.0 $ 135.0 $
175.0 Effective Tax Rate (b) (c) 30.0 % 34.0 % 29.0 % 33.0 %
Adjusted Effective Tax Rate (b) (c) (d) 27.0 % 31.0 % 27.0 % 31.0 %
Net Sales Growth vs. 2018 (Currency Adjusted) (b) (e) 6.5 % 10.5 %
5.7 % 9.7 % Adjusted Diluted EPS (Currency Adjusted) (b) (c) (d)
(e) $ 0.68 $ 0.78 $ 2.92
$ 3.32
(a) The Company is evaluating our current approach to assigning
and maintaining volume point values for certain products or
markets. Guidance excludes any future potential impact of volume
point adjustments, which may have an impact on the use of volume
points as a proxy for sales trends in future periods.
(b) Excludes any future potential Venezuela currency
devaluations and associated pricing and inflationary
consequences.
(c) Excludes the following items that cannot be accurately
predicted: any future potential ongoing tax effects from the
exercise of equity awards that could impact the Company's tax rate
due to the stock compensation accounting standard, any future
contingent value rights revaluation, benefits from future potential
China grant income, any future potential dilution from the
Company’s convertible notes due in 2019 and 2024, as well as any
impact of the China Growth and Impact Investment Program.
(d) Adjusted diluted EPS and adjusted effective tax rate
excludes the impact of: non-cash interest expense associated with
the Company’s convertible notes and expenses related to regulatory
inquiries, as detailed in Schedule A. See Schedule A –
“Reconciliation of Non-GAAP Financial Measures” for a detailed
reconciliation of adjusted diluted EPS to diluted EPS calculated in
accordance with GAAP and a discussion of why the Company believe
these non-GAAP measures are useful.
(e) Currency adjusted net sales and adjusted diluted EPS
represent projections translated into US dollars at currency rates
equal to the average rates used to translate 2018 full year net
sales and diluted EPS and adjusted for items such as hedging
gains/losses and Venezuela to be directly comparable to 2018
values.
- With respect to guidance, the Company
cannot accurately predict the impact to its share base from any
share repurchases in 2019. Accordingly, any impact thereof is
excluded from the guidance tables above.
- Guidance is based on the average daily
exchange rates during the first three weeks of January 2019.
- Adjusted1 diluted EPS guidance for the
first quarter 2019 includes a projected currency headwind of
approximately $0.08 per diluted share versus the first quarter of
2018.
- Full year 2019 adjusted1 diluted EPS
guidance includes a projected currency headwind of approximately
$0.22 per diluted share, $0.03 favorable compared to the impact
included in the initial full year 2019 guidance provided on October
30, 2018 and reaffirmed on January 9, 2019.
Earnings Conference Call
Herbalife Nutrition senior management will host an investor
conference call to discuss its recent financial results and provide
an update on current business trends on Tuesday, February 19, 2019,
at 2:30 p.m. PT (5:30 p.m. ET).
The dial-in number for this conference call for domestic callers
is (877) 317-1296, and (262) 320-2006 for international callers
(conference ID: 1198534). Live audio of the conference call will be
simultaneously webcast in the investor relations section of the
Company's website at http://ir.Herbalife.com.
An audio replay will be available following the completion of
the conference call in MP3 format or by dialing (855) 859-2056 for
domestic callers or (404) 537-3406 for international callers
(conference ID: 1198534). The webcast of the teleconference will be
archived and available on Herbalife Nutrition's website.
About Herbalife Nutrition Ltd.
Herbalife Nutrition is a global nutrition company whose purpose
is to make the world healthier and happier. The Company has been on
a mission for nutrition - changing people's lives with great
nutrition products and programs - since 1980. Together with our
Herbalife Nutrition independent distributors, we are committed to
providing solutions to poor nutrition and obesity, an aging
population, and skyrocketing public healthcare costs, while also
providing a means for entrepreneurs of all ages to pursue a
business opportunity. Herbalife Nutrition offers high-quality,
science-backed products, most of which are produced in
Company-operated facilities, one-on-one coaching with an Herbalife
Nutrition independent distributor, and a supportive community
approach that inspires customers to embrace a healthier, more
active lifestyle.
Herbalife Nutrition’s targeted nutrition, weight-management,
energy and fitness and personal care products are available
exclusively to and through its independent distributors in more
than 90 countries.
Through its corporate social responsibility efforts, Herbalife
Nutrition supports the Herbalife Nutrition Foundation (HNF) and its
Casa Herbalife programs to help bring good nutrition to children in
need. Herbalife Nutrition is also proud to sponsor more than 190
world-class athletes, teams and events around the globe.
Herbalife Nutrition has approximately 8,900 employees worldwide,
and its shares are traded on the New York Stock Exchange (NYSE:
HLF) with net sales of approximately $4.9 billion in 2018. To learn
more, visit Herbalife.com or IAmHerbalife.com.
Herbalife Nutrition also encourages investors to visit its
investor relations website at ir.herbalife.com as financial and
other information is updated and new information is posted.
Forward-Looking Statements
This release contains “forward-looking statements” within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Although we believe that the
expectations reflected in any of our forward-looking statements are
reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our
future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and to
inherent risks and uncertainties, such as those disclosed or
incorporated by reference in our filings with the Securities and
Exchange Commission. Important factors that could cause our actual
results, performance and achievements, or industry results to
differ materially from estimates or projections contained in our
forward-looking statements include, among others, the
following:
- our relationship with, and our ability
to influence the actions of, our Members;
- improper action by our employees or
Members in violation of applicable law;
- adverse publicity associated with our
products or network marketing organization, including our ability
to comfort the marketplace and regulators regarding our compliance
with applicable laws;
- changing consumer preferences and
demands;
- the competitive nature of our
business;
- regulatory matters governing our
products, including potential governmental or regulatory actions
concerning the safety or efficacy of our products and network
marketing program, including the direct selling markets in which we
operate;
- legal challenges to our network
marketing program;
- the Consent Order entered into with the
FTC, the effects thereof and any failure to comply therewith;
- risks associated with operating
internationally and the effect of economic factors, including
foreign exchange, inflation, disruptions or conflicts with our
third-party importers, pricing and currency devaluation risks,
especially in countries such as Venezuela;
- uncertainties relating to
interpretation and enforcement of legislation in China governing
direct selling and anti-pyramiding;
- our inability to obtain or maintain the
necessary licenses for our direct selling business; in China and
elsewhere;
- adverse changes in the Chinese
economy;
- our dependence on increased penetration
of existing markets;
- any material disruption to our business
caused by natural disasters, other catastrophic events, acts of war
or terrorism, or cybersecurity incidents;
- noncompliance by us or our Members with
any privacy laws or any security breach by us or a third party
involving the misappropriation, loss or other unauthorized use or
disclosure of confidential information;
- contractual limitations on our ability
to expand our business;
- our reliance on our information
technology infrastructure and outside manufacturers;
- the sufficiency of our trademarks and
other intellectual property rights;
- product concentration;
- our reliance upon, or the loss or
departure of any member of, our senior management team which could
negatively impact our Member relations or operating results;
- U.S. and foreign laws and regulations
applicable to our operations;
- uncertainties relating to the United
Kingdom’s vote to exit from the European Union;
- restrictions imposed by covenants in
our existing indebtedness;
- risks related to the convertible
notes;
- uncertainties relating to the
application of transfer pricing, duties, value added taxes, and
other tax regulations, and changes thereto;
- changes in tax laws, treaties or
regulations, or their interpretation;
- taxation relating to our Members;
- product liability claims;
- our incorporation under the laws of the
Cayman Islands;
- whether we will purchase any of our
shares in the open markets or otherwise; and
- share price volatility related to,
among other things, speculative trading and certain traders
shorting our common shares.
We do not undertake any obligation to update or release any
revisions to any forward-looking statement or to report any events
or circumstances after the date hereof or to reflect the occurrence
of unanticipated events, except as required by law.
Results of Operations
Herbalife Nutrition Ltd. and Subsidiaries Condensed
Consolidated Statements of Income (In millions, except per share
amounts)
Three Months Ended Twelve Months Ended
12/31/2018 12/31/2017
12/31/2018 12/31/2017
(unaudited)
North America $ 214.6 $ 192.2 $ 948.3 $ 840.2 EMEA 232.9 220.3
977.0 868.7 Asia Pacific 280.5 229.7 1,053.4 915.9 Mexico 114.5
108.0 467.9 442.7 China 242.1 217.9 1,007.6 885.9 South and Central
America 102.0 125.2 437.6
474.3 Worldwide Net Sales 1,186.6 1,093.3 4,891.8
4,427.7 Cost of Sales 225.9 209.8
919.3 848.6 Gross Profit 960.7 883.5
3,972.5 3,579.1 Royalty Overrides 332.9 310.1 1,364.0 1,254.2
Selling, General and Administrative Expenses 485.5 431.6 1,955.2
1,758.6 Other Operating Income (1) (5.9 ) (7.3 )
(29.8 ) (50.8 ) Operating Income 148.2 149.1 683.1
617.1 Interest Expense, net 37.5 39.8 161.6 146.3 Other Expense
(Income), net (2) (2.7 ) (0.4 ) 57.3
(0.4 ) Income Before Income Taxes 113.4 109.7 464.2 471.2
Income Taxes (3) 64.5 173.1
167.6 257.3 Net Income (Loss) $ 48.9 $
(63.4 ) $ 296.6 $ 213.9 Weighted-Average
Shares Outstanding: Basic 137.0 145.8 140.2 158.5 Diluted 145.0
145.8 149.5 165.7 Earnings Per Share: Basic $ 0.36 $
(0.43 ) $ 2.12 $ 1.35 Diluted $ 0.34 $ (0.43 )
$ 1.98 $ 1.29
(1) Other Operating Income relates to certain China government
grant income.
(2) Other Expense (Income), net for the three months ended
December 31, 2018 relates to the gain on revaluation of the
Contingent Value Rights (CVR) issued in connection with the October
2017 modified Dutch auction tender offer. Other Expense (Income),
net for the twelve months ended December 31, 2018 relates to the
$13.1 million loss on the extinguishment of a portion of the 2.0%
convertible senior notes due 2019 repurchased in March 2018; the
$35.4 million loss on extinguishment of the Company's 2017 senior
secured credit facility and the $8.8 million loss on revaluation of
the CVR. Other Expense, net for the three months and twelve months
ended December 31, 2017 relates to the gain on revaluation of the
CVR.
(3) Includes the impact of excess tax benefit recognized under
ASU 2016-09 of $3.5 million and $4.7 million for the three months
ended December 31, 2018 and 2017, respectively; and $53.1 million
and $31.1 million for the twelve months ended December 31, 2018 and
2017, respectively.
Herbalife Nutrition Ltd. and Subsidiaries Condensed
Consolidated Balance Sheets (In millions) Dec 31,
Dec 31,
2018 2017 ASSETS
Current Assets: Cash and cash equivalents $ 1,198.9 $ 1,278.8
Receivables, net 70.5 93.3 Inventories 381.8 341.2 Prepaid expenses
and other current assets 153.8 147.0
Total Current Assets 1,805.0 1,860.3 Property, plant and
equipment, net 360.0 377.5 Marketing-related intangibles and other
intangible assets, net 310.1 310.1 Goodwill 92.9 96.9 Other assets
221.8 250.3 Total Assets $ 2,789.8
$ 2,895.1 LIABILITIES AND SHAREHOLDERS'
DEFICIT Current Liabilities: Accounts payable $ 81.1 $ 67.8 Royalty
overrides 281.4 277.7 Current portion of long-term debt 678.9 102.4
Other current liabilities 547.4 458.9
Total Current Liabilities 1,588.8 906.8 Non-current
liabilities: Long-term debt, net of current portion 1,774.9 2,165.7
Other non-current liabilities 149.5 157.3
Total Liabilities 3,513.2 3,229.8
Commitments and Contingencies Shareholders'
deficit: Common shares 0.1 0.1 Paid-in capital in excess of par
value 341.5 407.3 Accumulated other comprehensive loss (209.8 )
(165.4 ) Accumulated deficit (526.3 ) (248.1 ) Treasury stock
(328.9 ) (328.6 ) Total Shareholders' Deficit
(723.4 ) (334.7 ) Total Liabilities and
Shareholders' Deficit $ 2,789.8 $ 2,895.1
Herbalife Nutrition Ltd. and Subsidiaries Condensed
Consolidated Statements of Cash Flows (In millions)
Twelve Months Ended
12/31/2018
12/31/2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net
income $ 296.6 $ 213.9 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 100.4 99.8 Share-based compensation expenses 35.5 42.1
Non-cash interest expense 63.8 60.2 Deferred income taxes (8.1 )
97.8 Inventory write-downs 17.4 20.7 Foreign exchange transaction
loss 8.0 2.4 Loss on extinguishment of debt 48.5 - Other 7.1 1.9
Changes in operating assets and liabilities: Receivables 2.8 (22.2
) Inventories (83.3 ) 37.9 Prepaid expenses and other current
assets (5.1 ) 38.3 Accounts payable 21.7 (5.0 ) Royalty overrides
22.8 6.0 Other current liabilities 106.8 (17.1 ) Other 13.5
14.1 NET CASH PROVIDED BY OPERATING ACTIVITIES
648.4 590.8 CASH FLOWS FROM
INVESTING ACTIVITIES: Purchases of property, plant and equipment
(84.0 ) (95.5 ) Other 0.1 0.3 NET CASH
USED IN INVESTING ACTIVITIES (83.9 ) (95.2 )
CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from senior
secured credit facility, net of discount 998.1 1,274.0 Principal
payments on senior secured credit facility and other debt (1,237.4
) (494.5 ) Proceeds from convertible senior notes 550.0 -
Repurchase of convertible senior notes (582.5 ) - Proceeds from
senior notes 400.0 - Debt issuance costs (29.9 ) (22.6 ) Share
repurchases (750.3 ) (844.2 ) Proceeds from settlement of capped
call transactions 55.9 - Other 3.0 2.1
NET CASH USED IN FINANCING ACTIVITIES (593.1 ) (85.2
) EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND
RESTRICTED CASH (51.9 ) 28.2 NET CHANGE IN
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH (80.5 ) 438.6 CASH,
CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD
1,295.5 856.9 CASH, CASH EQUIVALENTS, AND
RESTRICTED CASH, END OF PERIOD $ 1,215.0 $ 1,295.5
Cash paid during the year: Interest paid $ 106.1 $
100.7 Income taxes paid $ 158.9 $ 158.8
Supplemental Information
SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited and unreviewed), (All tables provide Dollars in
millions, except per Share Data)
In addition to its reported results and guidance calculated in
accordance with GAAP, the Company has included in this release
adjusted net income and adjusted diluted EPS, performance measures
that the Securities and Exchange Commission defines as “non-GAAP
financial measures.” Management believes that such non-GAAP
financial measures, when read in conjunction with the Company’s
reported or forecasted results, in each case calculated in
accordance with GAAP, can provide useful supplemental information
for investors because they facilitate a period to period
comparative assessment of the Company’s operating performance
relative to its performance based on reported or forecasted results
under GAAP, while isolating the effects of some items that vary
from period to period without any correlation to core operating
performance and eliminate certain charges that management believes
do not reflect the Company’s operations and underlying operational
performance. The Company’s definition of adjusted net income and
adjusted diluted earnings per share may not be comparable to
similarly titled measures used by other companies because other
companies may not calculate them in the same manner as the Company
does and should not be viewed in isolation from nor as alternatives
to net income or diluted EPS calculated in accordance with
GAAP.
The impact of foreign currency fluctuations in Venezuela and the
price increases the Company implements as a result of the highly
inflationary economy in that market can each, when considered in
isolation, have a disproportionately large impact to the Company’s
consolidated results despite the offsetting nature of these drivers
and that net sales in Venezuela, which represent less than 1% of
the Company’s consolidated net sales, are not material to our
consolidated results. Therefore, in certain instances, the Company
believes it is helpful to provide additional information with
respect to these factors as reported and excluding the impact of
Venezuela to illustrate the disproportionate nature of Venezuela’s
individual pricing and foreign exchange impact to the Company’s
consolidated results. However, excluding the impact of Venezuela
from these measures is not in accordance with U.S. GAAP and should
not be considered in isolation or as an alternative to the
presentation and discussion thereof calculated in accordance with
U.S. GAAP.
The following is a reconciliation of net income, presented and
reported in accordance with U.S. generally accepted accounting
principles, to net income adjusted for certain items:
Three Months Ended Twelve Months Ended
12/31/2018 12/31/2017 12/31/2018 12/31/2017 (in millions)
Net income, as reported $ 48.9 $ (63.4 ) $ 296.6 $ 213.9 Expenses
incurred responding to attacks on the Company's business model (1)
(2) - 0.8 - 5.0 Expenses related to regulatory inquiries (1) (2)
4.3 3.7 10.4 13.7 Non-cash interest expense and amortization of
non-cash issuance costs (1) (2) (3) 12.8 12.2 53.5 47.7 China grant
income (1) (2) (5.9 ) (7.3 ) (29.8 ) (50.8 ) FTC Consent Order
implementation (1) (2) (4) - 1.0 - 17.7 Contingent Value Rights
revaluation (1) (2) (2.6 ) (0.4 ) 8.8 (0.4 ) Loss on extinguishment
of convertible debt (1) (2) (5) - - 13.1 - Loss on extinguishment
of 2017 senior secured credit facility (1) (2) - - 35.4 - Venezuela
devaluation (1) (2) - - 4.7 - Income tax adjustments for above
items (1) (2) 2.6 (1.2 ) (0.9 ) 2.6 US Tax Reform impact (6)
29.5 153.3 29.5 153.3
Net income, as adjusted (7) $ 89.6 $ 98.6 $
421.3 $ 402.6
The following table is a reconciliation of diluted shares
outstanding, as presented and reported in accordance with GAAP, to
adjusted diluted shares outstanding, adjusted to include the impact
of outstanding capped call transactions and the impact of
outstanding equity awards. The Company's outstanding capped call
transactions are anti-dilutive and not included in GAAP earnings
per share but are expected to mitigate the dilutive effect of the
Company's convertible notes due 2019, if the trading price of the
Company's stock exceeds the conversion price, up to a certain
level. Therefore, the Company has adjusted the diluted shares
outstanding to include the impact of the capped calls, based on the
average share price for the period that the capped calls are
anti-dilutive.
Outstanding equity awards were excluded from the number of
reported diluted outstanding shares for the fourth quarter of 2017
because the Company reported a net loss for the fourth quarter of
2017 and their inclusion would be anti-dilutive. However, because
the Company’s adjusted net income for the fourth quarter of 2017,
as calculated in the table above, was positive, inclusion of
outstanding equity awards would not be anti-dilutive. Therefore,
the Company has adjusted the diluted shares outstanding for the
fourth quarter of 2017 to include equity awards as set forth below
so the calculation of adjusted diluted EPS is not overstated for
the fourth quarter of 2017 and such number is comparable to
adjusted diluted EPS for the current year period.
Three Months Ended Twelve Months Ended
12/31/2018 12/31/2017 12/31/2018 12/31/2017 (in millions)
Diluted shares outstanding, as reported 145.0 145.8 149.5 165.7
Impact of capped call transactions (3.4 ) - (2.9 ) - Potential
dilutive effect of outstanding equity grants - 6.8 -
- Diluted shares outstanding, as adjusted (7) 141.6 152.6
146.5 165.7
The following is a reconciliation of diluted earnings per share,
presented and reported in accordance with U.S. generally accepted
accounting principles, to diluted earnings per share adjusted for
certain items.
Three Months Ended Twelve Months Ended
12/31/2018 12/31/2017 12/31/2018 12/31/2017 (per share)
Diluted earnings per share, as reported $ 0.34 $ (0.43 ) $ 1.98 $
1.29 Impact of adjusted shares outstanding 0.01
0.01 0.04 - Diluted
earnings per share using adjusted diluted shares outstanding $ 0.35
$ (0.42 ) $ 2.02 $ 1.29 Expenses incurred responding to
attacks on the Company's business model (1) (2) - 0.01 - 0.03
Expenses related to regulatory inquiries (1) (2) 0.03 0.02 0.07
0.08 Non-cash interest expense and amortization of non-cash
issuance costs (1) (2) (3) 0.09 0.08 0.37 0.29 China grant income
(1) (2) (0.04 ) (0.05 ) (0.20 ) (0.31 ) FTC Consent Order
implementation (1) (2) (4) - 0.01 - 0.11 Contingent Value Rights
revaluation (1) (2) (0.02 ) - 0.06 - Loss on extinguishment of
convertible debt (1) (2) (5) - - 0.09 - Loss on extinguishment of
2017 senior secured credit facility (1) (2) - - 0.24 - Venezuela
devaluation (1) (2) - - 0.03 - Income tax adjustments for above
items (1) (2) 0.02 (0.01 ) - 0.02 US Tax Reform impact (6)
0.21 1.00 0.20 0.92
Diluted earnings per share, as adjusted (7) $ 0.63 $
0.65 $ 2.88 $ 2.43
(1) Based on interim income tax reporting rules, these expenses
are not considered discrete items. As a result, the Company's full
year effective tax rate is impacted by these items. When applying
the full year effective tax rate to year-to-date income, the
Company's year-to-date tax provision recorded with respect to these
non-GAAP adjustments is different from the forecasted full-year tax
provision impact of these items. As a consequence, adjustments to
the year-to-date and quarterly tax impacts will be recorded as the
adjusted full year effective tax rate is applied to income in
subsequent periods. Additionally, adjustments to items unrelated to
these non-GAAP adjustments may have an effect on the income tax
impact of these non-GAAP adjustments in subsequent periods.
(2) Excludes tax (benefit)/expense as follows:
Three Months Ended Twelve Months Ended
12/31/2018 12/31/2017 12/31/2018 12/31/2017 (in millions)
Expenses incurred responding to attacks on the Company's business
model $ - $ (0.3 ) $ - $ (1.2 ) Expenses related to regulatory
inquiries - (1.3 ) (1.0 ) (4.7 ) Non-cash interest expense and
amortization of non-cash issuance costs (0.8 ) (1.1 ) - - China
grant income 0.9 2.0 8.6 14.6 FTC Consent Order implementation -
(0.4 ) - (6.0 ) Contingent Value Rights revaluation (0.7 ) - - -
Loss on extinguishment of convertible debt 1.2 - - - Loss on
extinguishment of 2017 senior secured credit facility 1.8 - (7.4 )
- Venezuela devaluation 0.2 -
(1.1 ) - Total income tax adjustments (7) $ 2.6
$ (1.2 ) $ (0.9 ) $ 2.6 Three Months
Ended Twelve Months Ended 12/31/2018 12/31/2017 12/31/2018
12/31/2017 (per share) Expenses incurred responding to
attacks on the Company's business model $ - $ - $ - $ (0.01 )
Expenses related to regulatory inquiries - (0.01 ) (0.01 ) (0.03 )
Non-cash interest expense and amortization of non-cash issuance
costs (0.01 ) (0.01 ) - - China grant income 0.01 0.01 0.06 0.09
FTC Consent Order Implementation - - - (0.04 ) Contingent Value
Rights revaluation - - - - Loss on extinguishment of convertible
debt 0.01 - - - Loss on extinguishment of 2017 senior secured
credit facility 0.01 - (0.05 ) - Venezuela devaluation -
- (0.01 ) - Total income
tax adjustments (7) $ 0.02 $ (0.01 ) $ - $ 0.02
(3) Relates to non-cash expense on the Company's 2.00%
convertible senior notes due 2019 and the related prepaid forward
share repurchase contracts and the 2.625% convertible senior notes
due 2024.
(4) Includes $3.0 million of product discounts related to
preferred member conversions for the twelve months ended December
31, 2017.
(5) Relates to the loss on the extinguishment of a portion of
the 2.00% convertible senior notes due 2019 repurchased in March
2018.
(6) Relates to the income tax effect of the Tax Cuts and Jobs
Act on the Company’s Consolidated Financial Statements as of
December 31, 2018 and 2017 as discussed in Note 12, Income Taxes,
to the Consolidated Financial Statements included in the annual
report on form 10-K for the year ended December 31, 2018.
(7) Amounts may not total due to rounding.
The following is a reconciliation of diluted earnings per share
guidance, presented in accordance with U.S. generally accepted
accounting principles, to adjusted diluted earnings per share
guidance for certain items.
Three Months Ending Twelve Months Ending March 31,
2019 December 31, 2019 Diluted EPS Guidance (1) $0.51
- $0.61 $2.34 - $2.74 Non-cash interest expense and amortization of
non-cash issuance costs (2) 0.07 0.28 Impact of adjusted shares
outstanding 0.02 0.06 Expenses related to regulatory inquiries (3)
0.01 0.03 Income tax adjustments for above items (0.00) (0.01)
Adjusted diluted EPS guidance (4) $0.60 - $0.70 $2.70 - $3.10
(1) Excludes the following items that cannot be accurately
predicted: any future potential ongoing tax effects from the
exercise of equity awards that could impact the Company's tax rate
due to the updated stock compensation accounting standard, any
future contingent value rights revaluation, benefits from future
potential China grant income, any future potential dilution from
the Company’s convertible notes due in 2019 and 2024, as well as
any impact of the China Growth and Impact Investment Program.
(2) Relates to non-cash expense on our convertible notes and
prepaid forward share repurchase contracts.
(3) Excludes tax impact of $1.5 million for the twelve months
ending December 31, 2019.
(4) Amounts may not total due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190219006004/en/
Media Contact:Jennifer ButlerVP, Media
Relations213.745.0420
Investor Contact:Eric MonroeDirector, Investor
Relations213.745.0449
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