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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2003

OR

Commission file number: 333-101188

WH INTERMEDIATE HOLDINGS LTD.

P.O. Box 309GT
Ungland House, South Church Street
Grand Cayman, Cayman Island
(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 [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Number of shares of registrant’s common stock outstanding as of March 31, 2003 was 1.

* C/O Principal Financial Officer of Herbalife International, Inc.

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WH INTERMEDIATE HOLDINGS Ltd.

Index to Financial Statements and Exhibits

Filed with the Quarterly Report of the Company on Form 10-Q

For the First Quarter Period ended March 31, 2003

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS

See the accompanying notes to consolidated financial statements

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WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS

(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY

See the accompanying notes to consolidated financial statements

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WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME

See the accompanying notes to consolidated financial statements

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WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

See the accompanying notes to consolidated financial statements

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WH INTERMEDIATE HOLDINGS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

ORGANIZATION

WH Intermediate Holdings Ltd., a Cayman Islands company (the “Parent”), and its direct and indirect wholly owned subsidiaries, WH Luxembourg Holdings S.à.R.L., a Luxembourg unipersonal limited liability company (“Lux Holdings”), WH Luxembourg Intermediate Holdings S.à.R.L., a Luxembourg unipersonal limited liability company (“Lux Intermediate”), Herbalife International Luxembourg S.à.R.L. (“Herbalife Lux”), formerly known as WH Luxembourg CM S.à.R.L., a Luxembourg unipersonal limited liability company, and WH Acquisition Corp., a Nevada corporation (“WH Acquisition”), were formed on behalf of Whitney & Co., LLC (“Whitney”) and Golden Gate Private Equity, Inc. (“Golden Gate”), in order to acquire Herbalife International, Inc., a Nevada corporation, and its subsidiaries (“Herbalife” or “Predecessor”). The Parent and its subsidiaries are referred to collectively herein as the Company.

2.

BASIS OF PRESENTATION

The unaudited interim financial information of the Parent and its subsidiaries (the “Successor”) and of Herbalife and its subsidiaries have been prepared in accordance with Article 10 of the Securities and Exchange Commission’s Regulation S-X. The Successor financial statements as of March 31, 2003 and for the three months ended March 31, 2003 include the Parent, and all of its direct and indirect subsidiaries, including Herbalife from the date of the merger. In the opinion of management, the accompanying interim financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial statements as of March 31, 2003 and for the three-month periods ended March 31, 2003 and 2002.

As a result of the merger and related financing transactions results prior to the merger are not comparable with those subsequent to the merger.

Reclassifications

Certain reclassifications were made to the prior year financial statements to conform to the current year presentation.

New Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds or amends, effective immediately upon adoption, several other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. In November 2002, the FASB issued FASB Interpretation No. (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.” This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements and its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. As of January 1, 2003, the adoption of these pronouncements had no material impact on the Company’s financial statements.

In January 2003, the FASB issued Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” FIN 46 requires that Variable Interest Entities be consolidated by an entity (“Company”) if the Company is subject to a majority of the risk of loss from the Variable Interest Entity’s activities or is entitled to receive a majority of the variable entity’s residual returns or both. FIN 46 requires disclosures about variable interest entities that Companies are not required to consolidate but in which a Company has a significant variable interest. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 2, 2003. The Interpretation applies to public enterprises as of the beginning of the applicable interim or annual period. The Company is currently evaluating the potential impact of the adoption of FIN 46 on its financial statements.

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3.

TRANSACTIONS WITH RELATED PARTIES

The Company has entered into agreements with Whitney and Golden Gate to pay monitoring fees for their services and other fees and expenses. Under the monitoring fee agreements, the Company is obligated to pay an annual amount of up to $5.0 million, but not less than $2.5 million for an initial period of ten years subject to the provisions in the Credit Agreement as amended. For the three months ended March 31, 2003, the Company expensed monitoring fees in the amount of $1.3 million and other expenses of $1.6 million. Also, in connection with the Senior Credit Facility discussed in Note 4, Whitney Private Debt Fund, L.P. loaned $5.0 million of the $180 million term loan to Herbalife.

Frank P. Morse and Robert A. Sandler, two former senior executives of the Company, are minority shareholders in B.L.I. Holdings, Inc., a holding Company for two of the Company’s suppliers of personal care products. Total purchases from B.L.I. Holdings, Inc. and its subsidiaries was $494,000 for the three months ended March 31, 2002.

4.     LONG-TERM DEBT

Long-term debt consisted of the following:

5.

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. However, some of these matters are material and an adverse outcome in these matters could have a material impact on the Company’s financial condition and operating results.

The Company and certain of its distributors have been named as defendants in a purported class action lawsuit filed in the U.S. District Court for the Central District of California (Jacobs v. Herbalife International, Inc., et al.). The lawsuit was filed on February 19, 2002. The complaint was dismissed with leave to amend and an amended complaint was received on January 2, 2003. The amended complaint was dismissed with leave to amend, although the RICO causes of action were dismissed with prejudice. A second amended complaint was received on May 2, 2003. The second amended complaint alleges that specified marketing plans employed by the distributor defendants are illegal, attempts to challenge the legality of Herbalife’s marketing system, and seeks to state causes of action under federal securities laws and various other laws. The Company believes that it has meritorious defenses to the allegations contained in the lawsuit. However, an adverse result in this litigation could have a material adverse effect on the Company’s financial condition and operating results.

Whitney, one of the two equity sponsors (“Equity Sponsors”), has been sued in San Francisco by Rosemont Associates and Joseph Urso for $20 million in a suit alleging breach of contract, breach of covenants of good faith and fair dealing, quantum meruit and other causes of action arising out of the sale of Herbalife to Whitney and others. In connection with the merger, WH Holdings and the Company agreed to indemnify the Equity Sponsors for losses and claims resulting from, arising out of or any way related to the Merger, including existing litigation. Whitney believes it has meritorious defenses to the suit and is vigorously contesting it. However, an adverse result in this litigation could have a material adverse effect on the Company’s financial condition and operating results.

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. Although the effects of these claims to date have not been material to the Company, it is possible that current and future product liability claims could have a material adverse impact on the Company’s financial condition and operating results given the higher level of self insurance the Company has accepted. The Company currently maintains product liability insurance with a deductible of $7.5 million.

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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 the allegations that additional taxes are owing, 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, an adverse outcome in these matters could have a material adverse impact on the Company’s financial condition and operating results.

6.

COMPREHENSIVE INCOME

Comprehensive income is summarized as follows:

The net change on derivative instruments represents the fair value changes caused by marking to market these instruments on March 31, 2003. Foreign currency translation adjustment measures the impact of converting primarily foreign currency assets and liabilities into US dollars. Gains/(losses) on marketable securities reflects the change in fair value of securities classified as available for sale.

7.

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 primarily manufactured by third party providers and then sold to independent distributors who sell Herbalife products to retail consumers or other distributors.

The Company has operations throughout the world and is organized and managed by geographic area. In the first quarter of 2003, the Company elected to aggregate its operating segments into one reporting segment, as management believes that the 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 sold to, the methods used to distribute the products, and the nature of the regulatory environment.

Additional information as to the Company’s operations in different geographic areas:

Retail Sales

Retail sales from the Company’s operations in Japan totaled $60.5 million and $65.5 million for the three-month’s ended March 31, 2003 and 2002, respectively. Retail sales from the Company’s operations in United States totaled $107.1 million and $128.6 million for the three-month’s ended March 31, 2003 and 2002, respectively.

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Long-lived Assets

Long-lived assets in Japan totaled $57.6 million and $57.9 million as of March 31, 2003 and December 31, 2002, respectively. Long-lived assets in United States totaled $ 433.6 million and $436.4 million as of March 31, 2003 and December 31, 2002, respectively.

8.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company designates certain derivatives as fair value hedges. For all qualifying and highly effective fair value hedges, the changes in the fair value of a derivative and the gain or loss on the hedged asset or liability relating to the risk being hedged are recorded currently in earnings. These amounts are recorded in marketing, distribution and administrative expenses and provide offsets to one another.

The Company designates certain derivatives as cash flow hedges. The Company engages in a foreign exchange hedging strategy for which the hedged transactions are forecasted foreign currency denominated intercompany transactions. The hedged risk is the variability of the foreign currency where the hedging strategy involves the purchase and sale of average rate options. For the outstanding cash flow hedges on foreign exchange exposures at March 31, 2003, the maximum length of time over which the Company is hedging these exposures is 6 months. The Company also engages in an interest rate hedging strategy for which the hedged transactions are forecasted interest payments on the variable rate term loan. The hedged risk is the variability of interest rate where the hedging strategy involves the purchase of interest rate caps. For all qualifying and highly effective cash flow hedges, the changes in the effective portion of the fair value of the derivative are recorded in other comprehensive income (“OCI”). At March 31, 2003, the net loss in OCI was $920,000. Substantially, all OCI amounts will be reclassified to earnings within 12 months.

9.

RESTRUCTURING RESERVE

As of the date of the merger, the Company started to implement a plan to reduce costs of the business and recorded a severance and restructuring accrual as part of the cost of the merger. The accrued severance is for identified employees including executives, corporate functions and administrative support. There may be other employees identified for involuntary termination to complete the plan and, if so, an additional amount of severance will be accrued and goodwill will increase. Actions required by the plan of termination began immediately after consummation of the transaction and the period of time to complete the plan will not extend past 12 months after the merger date.

The following table summarizes the activity in the Company’s restructuring accrual:

10.

SUPPLEMENTAL INFORMATION

The consolidated financial statement data, as of March 31, 2003 and the three months ended March 31, 2003 has been aggregated by entities that guarantee the Senior Subordinated Notes (the “Guarantors”) and entities that do not guarantee the Senior Subordinated Notes (the “Non-Guarantors”). The Guarantors include the Parent, Lux Holdings, Lux Intermediate, Herbalife Lux (collectively, the “Parent Guarantors”) and Herbalife’s operating subsidiaries in Brazil, Finland, Israel, Japan, Mexico, United Kingdom, U.S. (other than Herbalife Investment Co., LLC), Sweden, Taiwan and Thailand (collectively, the “Subsidiary Guarantors”). All other subsidiaries are Non-Guarantors.

The consolidated financial statements of the Predecessor for the three months ended March 31, 2002 include the accounts of Herbalife and its subsidiaries.

Consolidating condensed statements of income for the three months ended March 31, 2003 and March 31, 2002 are summarized as follows:

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Consolidating condensed balance sheet data as of March 31, 2003 and December 31, 2002 are summarized as follows:

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